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First Republic Bank

FEDERAL DEPOSIT INSURANCE CORPORATION

IN RE: First Republic Bank Las Vegas, Nevada

Application Pursuant to Section 24 of the Federal Deposit Insurance Act for Consent to
Indirectly Engage as Principal Through a Wholly-Owned Subsidiary in Investment
Activities That May Not Be Permissible for a Subsidiary of a National Bank

ORDER

The Federal Deposit Insurance Corporation (FDIC) has fully considered all available facts and information relevant to the application by First Republic Bank (Bank), pursuant to Section 24 of the Federal Deposit Insurance Act, 12 U.S.C. 1831a, and Part 362 of the FDIC's Rules and Regulations, for consent to indirectly acquire and retain through a wholly-owned subsidiary non-controlling amounts of the equity securities of venture capital investment funds and other public or private investment companies that in turn may invest in debt or equity securities, real estate, or other assets. These are activities that may not be permissible for a subsidiary of a national bank.

Accordingly, it is hereby ORDERED, for the reasons set forth in the attached Statement, that the application submitted by the Bank for consent to indirectly acquire and retain through a wholly-owned subsidiary, F.R. Holdings, Inc. (Subsidiary), non-controlling amounts of the equity securities of venture capital investment funds and other public or private investment companies that in turn may invest in debt or equity securities, real estate, or other assets, be and hereby is approved, subject to the following conditions:

(1) Than the investments in equity securities be held indirectly through a single, wholly-owned subsidiary organized for the purpose of holding such investments;

(2) That the Bank shall conduct the activity in a wholly-owned subsidiary that:

i. Meets applicable statutory or regulatory capital requirements and has sufficient operating capital in light of the normal obligations that are reasonably foreseeable for a business of its size and character within the industry;

ii. Maintains separate accounting and other business records;

iii. Observes separate business entity formalities such as separate board of directors' meetings;

iv. Conducts business pursuant to independent policies and procedures designed
to inform customers and prospective customers of the Subsidiary that the Subsidiary is a separate organization from the Bank, and that the Bank is not responsible for and does not guarantee the obligations of the Subsidiary;

v. Has a current written business plan that is appropriate to the type and scope of business conducted by the Subsidiary; and

vi. Has qualified management and employees for the type of activity contemplated;

(3) That transactions between the Bank, the Bank's executive officers, directors, principal shareholders, or related interests of such persons, and the Subsidiary, and as between the Subsidiary and any and all other subsidiaries of the Bank, will be conducted in accordance with Section 362.4(d)(3) of the FDIC's Rules and Regulations;

(4) That the Bank maintain a "well-capitalized" status pursuant to Part 325 of the FDIC's Rules and Regulations after deducting from its Tier 1 capital the investment in the Subsidiary as well as the Bank's pro rata share of any retained earnings of the Subsidiary, and that this deduction be reflected on the appropriate schedule of the Bank's consolidated report of condition and income, and that such deduction shall not be used for the purposes of determining whether the Bank is "critically undercapitalized";

(5) That the Bank's aggregate investment in the Sgbsidiary shall be limited to 10 percent of Tier 1 capital;

(6) That, without prior written approval of the FDIC's Regional Director of the San Francisco Regional Office, neither the Bank nor any of its subsidiaries may extend credit to the Subsidiary, purchase any debt instruments issued by the Subsidiary, or originate any other transaction that is used to benefit the Subsidiary; and

(7) That in the event the facts and circumstances presented or otherwise known to the FDIC in connection with this request change significantly, the FDIC retains the ability to alter, suspend, or withdraw its approval.

Dated at Washington, D.C., this 17th day of October, 2000.

FEDERAL DEPOSIT INSURANCE CORPORATION

John M. Lane
Associate Director
Division of Supervision


FEDERAL DEPOSIT INSURANCE CORPORATION

IN RE: First Republic Bank Las Vegas, Nevada

Application Pursuant to Section 24 of the Federal Deposit Insurance Act for Consent to
Indirectly Engage as Principal Through a Wholly-Owned Subsidiary in Investment
Activities That May Not Be Permissible for a Subsidiary of a National Bank

STATEMENT

The Federal Deposit Insurance Corporation (FDIC) has fully considered all available facts and information relevant to the application by First Republic Bank (Bank), pursuant to Section 24 of the Federal Deposit Insurance Act, 12 U.S.C. 1831a, and Part 362 of the FDIC's Rules and Regulations, for consent to indirectly acquire and retain through a wholly-owned subsidiary non-controlling amounts of the equity securities of venture capital investment funds and other public or private investment companies that in turn may invest in debt or equity securities, real estate, or other assets. These are activities that may not be permissible for a subsidiary of a national bank.

The Bank will establish a new, wholly-owned subsidiary, F.R. Holdings, Inc. (Subsidiary), to conduct the activity. The Bank has agreed to establish procedures to preserve the separate corporate identity and limited liability of the Bank for the Subsidiary. In addition, the Bank will institute procedures for identifying and managing financial and operational risks within the Bank and the Subsidiary that protect the Bank against such risks.

The Subsidiary will be organized as a corporation under Nevada law. Under the Bank's proposal, the aggregate investment in the Subsidiary will not exceed 10 percent of the Bank's Tier 1 capital. The equity securities to be purchased by the Subsidiary will be securities for which an investor has limited liability, such as common stock, limited liability company interests, limited partnership interests, or interests in a business trust. The Subsidiary will not acquire more than 5 percent of the securities of an investment fund in which the Subsidiary invests, and will not control the issuer of the securities.

The Nevada Financial Institutions Division does not require specific approval for the proposed transaction, and the Nevada Banking Commissioner does not object to the investments. The management of the Bank is aware that all investments must be investments specifically authorized as permissible for a commercial bank by the Nevada Revised Statutes.

The investments may not be a permissible activity for a national bank or a subsidiary of a national bank. Neither insured state banks nor their subsidiaries may engage as principal in an activity prohibited for national banks unless consent has been obtained from the FDIC. Consent may not be granted unless the bank is in compliance with applicable capital standards and the FDIC determines that the activity poses no significant risk to the deposit insurance funds.

The making of an equity investment entails risks related to the loss of investment and price volatility. However, certain factors may lessen these risks.

As of June 30, 2000, the Bank had total assets of $3.9 billion. Its financial condition, future earnings prospects, and management are regarded as satisfactory. The Bank has proposed a set of investment guidelines to prudently manage the investments of the Subsidiary. The Bank meets the definition of "well-capitalized" within the meaning of Part 325 of the FDIC's Rules and Regulations, and would continue to be "wellcapitalized" after deducting the maximum proposed investment in the Subsidiary from its Tier 1 capital.

Equity investing may be somewhat riskier than lending, but it requires the application of financial analysis, economic assessment, and business judgment similar to that required for lending. Subject to prudent supervision and judgment, investing in equity securities may not be unduly risky. The maximum investment and the conservative nature of the investment parameters that will be followed reduce the risk associated with the investment activity in this instance. In addition, the Bank has the benefit of advice and consultation from wholly-owned subsidiary, Trainer Wortham & Company, an established securities investment advisor with over 80 years of experience in selecting investments for clients and over $3.5 billion in assets under management.

Nevertheless, because the proposed investments may be of greater risk than other, more traditional bank activities, the FDIC is imposing a condition requiring the Bank to maintain a "well-capitalized" status pursuant to Section 325.103 of the FDIC Rules and Regulations after deducting from its Tier 1 capital the investment in the Subsidiary as well as the Bank's pro-rata share of any retained earnings of the Subsidiary, provided that the capital deduction shall not be used for purposes of determining whether the Bank is "critically undercapitalized." As such, the Bank must have a Tier 1 leverage capital ratio of not less than 5.0 percent, a Tier 1 risk-based capital ratio of not less than 6.0 percent, and a total risk-based capital ratio of not less than 10.0 percent after the required deduction. Also required is that such deduction be reflected on the appropriate schedule of the Bank's consolidated report of condition and income.

The Subsidiary should be operated in a manner to ensure corporate separation between it and the Bank. This is to provide reasonable assurance that the assets of the Bank will not be subject to liability from a party seeking to hold the Bank responsible for the actions of the Subsidiary. Accordingly, the FDIC finds it appropriate to impose separateness conditions.

The FDIC is also imposing a condition requiring that transactions between the Bank, the Bank's executive officers, directors, principal shareholders, or related interests of such persons, and the Subsidiary, and as between the Subsidiary and any and all other subsidiaries of the Bank, will be conducted in accordance with Section 362.4(d)(3) of the FDIC's Rules and Regulations.

The FDIC is further imposing a condition that the Bank or any of its subsidiaries may not extend credit to the Subsidiary, purchase any debt instruments issued by the Subsidiary, or originate any other transaction that is used to benefit the Subsidiary without prior written approval of the Regional Director of the San Francisco Regional Office at the FDIC.

Based on a careful review of all available facts and information, including the investment limits within the Bank's proposal, the FDIC has concluded that the proposed investments do not pose a significant risk to the Bank Insurance Fund and therefore, approval of the application subject to the conditions in the Order is warranted.

ASSOCIATE DIRECTOR
DIVISION OF SUPERVISION
FEDERAL DEPOSIT INSURANCE CORPORATION



Last Updated 03/24/2011 Legal@fdic.gov