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Firstrust Savings Bank

FEDERAL DEPOSIT INSURANCE CORPORATION

IN RE: Firstrust Savings Bank Flourtown, Pennsylvania

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

ORDER

The Board of Directors ("Board") of the Federal Deposit Insurance Corporation ("FDIC") has fully considered all available facts and information relevant to section 24 of the Federal Deposit Insurance Act, 12 U.S.C. Sect. 1831a, and Part 362 of the FDIC's Rules and Regulations, relating to the application by Firstrust Savings Bank, Flourtown, Pennsylvania ("Firstrust"), for consent to indirectly acquire and retain through a wholly-owned subsidiary the stock of savings associations, savings and loan holding companies, bank holding companies, and corporations listed on a national securities exchange, and investments in limited partnerships whose principal activity is investing in equities of financial-related corporations. These are activities that may not be permissible for a subsidiary of a national bank. Firstrust also intends to make bank stock investments as permitted by section 362.4(c)(3)(iv)(B) of the FDIC's Rules and Regulations. Under Firstrust's proposal, its total investment in all these securities would never exceed 25 percent of its Tier 1 capital, and the investment would be purchased for the long term. Management of Firstrust has indicated that it has no intention of pursuing short-term trading activities and that it is aware that all investments, including the investments of any limited partnership in which the subsidiary becomes a partner, must be investments specifically authorized as permissible for a savings bank by the Pennsylvania Banking Code of 1965. The Board has concluded that the application should be approved, subject to certain conditions.

Accordingly, it is hereby ORDERED, for the reasons set forth in the attached Statement, that the application submitted by Firstrust for consent to retain and acquire stock of savings associations, savings and loan holding companies, bank holding companies, and corporations listed on a national securities exchange, and investments in limited partnerships whose principal activity is investing in equities of financial-related companies through a wholly-owned subsidiary, be and hereby is approved, subject to the following conditions:

(1) That the investment in the stock and limited partnership interests be held indirectly through a single, majority-owned subsidiary;

(2) That Firstrust 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 equity securities of the subsidiary as well as any 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 income and condition;

(3) That Firstrust or any of its subsidiaries may not extend credit to the majority-owned subsidiary, purchase any debt instruments issued by the majority-owned subsidiary, or originate any other transaction that is used to benefit the majority-owned subsidiary without the prior consent of the FDIC;

(4) That neither Firstrust nor the majority-owned subsidiary may enter into any transaction with the bank's executive officers, directors, principal shareholders, or related interests of such persons which relate to the majority-owned subsidiary's activities unless the transactions are on terms and conditions that are substantially the same as those prevailing at the time for comparable transactions with persons not affiliated with the bank;

(5) That any required application to the Pennsylvania Department of Banking regarding the proposed investment activities shall be approved prior to initiation of such activity; and

(6) That the FDIC shall retain the ability to alter, suspend, or withdraw its approval in the event the facts and circumstances presented in the application change significantly.

Dated at Washington, D. C., this 25th day of November, 1997.

BY ORDER OF THE BOARD OF DIRECTORS

James D. LaPierre
Deputy Executive Secretary


FEDERAL DEPOSIT INSURANCE CORPORATION

IN RE: Firstrust Savings Bank Flourtown, Pennsylvania

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

STATEMENT

Pursuant to the provisions of section 24 of the Federal Deposit Insurance Act, Firstrust Savings Bank, Flourtown, Pennsylvania ("Firstrust"), has filed an application with the Federal Deposit Insurance Corporation ("FDIC"). Firstrust requests the FDIC's consent to acquire and retain indirectly through a wholly-owned subsidiary, First Harbor, Inc. ("Subsidiary"), the stock of savings associations, savings and loan holding companies, and bank holding companies; the stock of corporations listed on a national securities exchange; and investments in limited partnerships whose principal activity is investing in equities of financial-related corporations, such as banks, thrifts, bank holding companies, savings and loan holding companies, insurance companies, finance companies, mortgage banks, and credit card companies. Firstrust has requested approval of a proposal under which its aggregate investment in the stock of such entities and investments in limited partnerships (as well as investments in bank stock pursuant to section 362.4(c)(3)(iv)(B) of the FDIC's Rules and Regulations) will be limited to 25 percent of Firstrust's Tier 1 capital. The proposal does not involve options, futures, short sales, equity securities of foreign companies, derivative products, or margin trading. Management has stated that the investments will be purchased as long-term investments, and does not intend to pursue short-term trading activities. Management is aware that all proposed investments, including the investments of any limited partnership in which the Subsidiary becomes a partner, must be investments specifically authorized as permissible for a savings bank by the Pennsylvania Banking Code of 1965.

The activity of making investments in the stock of a savings association, saving and loan holding company, and bank holding company; in the stock of a corporation listed on a national securities exchange, and in limited partnerships whose principal activity is investing in financial- related corporations may not be a permissible activity for a national bank or a subsidiary of a national bank. Insured state banks may not engage as principal in an activity prohibited to nationally-chartered 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.

Section 504 of the Pennsylvania Banking Code of 1965 ("Banking Code") provides for the investment in shares of preferred, guaranteed, or common stock of a corporation existing under the laws of the United States, any state, or the District of Columbia, subject to the prudent man rule, an aggregate limit being the lesser of 7.5 percent of the total assets of the savings bank or 75 percent of its equity capital, and an individual limit of shares of one issuer being 0.2 percent of the total assets of the savings bank. Section 504 of the Banking Code also limits the number of shares of one issuer to 5 percent of the total number of issued and outstanding shares of such issuer. Accordingly, Firstrust's proposal to acquire stock is permissible under section 504 of the Banking Code, assuming the issuer of the stock meets the qualifying conditions.

Firstrust's proposed investment in limited partnerships whose principal activity is investing in equities of financial-related corporations is not prohibited in the Banking Code. All investments of any partnership in which an interest is acquired, however, must be permitted by the Banking Code as acceptable investments for a savings bank to directly acquire. A condition is being imposed by the FDIC that any application required by the Pennsylvania Department of Banking regarding the proposed investment activity be approved prior to the initiation of such activity.

The purchase of any equity stock entails risks related to the loss of investment, price volatility, and market liquidity. However, certain factors lessen these risks.

As of September 30, 1997, Firstrust had total assets of $1.48 billion. Its financial condition, future earnings prospects, and management are regarded as strong. Firstrust has proposed a set of investment policies in order to prudently manage the investments through Firstrust's wholly-owned subsidiary. Firstrust meets the definition of "well-capitalized" within the meaning of Part 325 of the FDIC's Rules and Regulations. Firstrust would continue to be "well- capitalized" after deducting the maximum proposed investment in equity securities of the Subsidiary from its Tier 1 capital.

Stock investment, while it may be somewhat riskier than lending, involves an application of financial analysis, economic assessment, and business judgment similar to lending expertise. The activity, subject to prudent supervision and judgment, may not prove to be unduly risky. The maximum investment, the conservative nature of the investment policy, and the restrictions under state law reduce the risk associated with the investment activity in this instance. Firstrust has applied to invest only in shares listed on a national securities exchange, other than the stock of insured depository institutions, bank holding companies, and savings and loan holding companies, and interests in partnerships whose principal activity is investment in financial-related corporations. Listed securities are more liquid than nonlisted securities and companies whose stock is listed must meet capital and other requirements of the exchange. These requirements provide some assurances as to the quality of the investment. Insured depository institutions, bank holding companies, and savings and loan holding companies are part of a highly regulated industry which also provides some investment quality assurance for unlisted shares of these financial- related corporations.

Nevertheless, because investment in the stock of corporations other than banks may be of greater risk than other, more traditional bank activities, the FDIC is imposing a condition requiring Firstrust to maintain a "well-capitalized" status pursuant to section 325.103 of the FDIC's Rules and Regulations after deducting from its Tier 1 capital the investment in equity securities of the subsidiary as well as the bank's pro rata share of any retained earnings of the subsidiary. As such, Firstrust must, after the required deduction, 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. Also required is that such deduction be reflected on the appropriate schedule of the bank's consolidated report of income and condition.

Management has stated that none of the investments planned for the Subsidiary have any affiliation with any of the bank's executive officers, directors, principal shareholders, or related interests of such persons. However, the FDIC is imposing a condition requiring that for any transactions of the bank and the Subsidiary entered into with the bank's executive officers, directors, principal shareholders, or related interests of such persons which relate to the Subsidiary, the terms and conditions of such transactions must be substantially the same as those prevailing at the time for comparable transactions with persons not affiliated with the bank.

The FDIC is also imposing a condition that Firstrust or any of its subsidiaries may not, without application, 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. No such transactions are currently contemplated, and approval by the FDIC through the application process is required prior to any such transaction.

Based on a careful review of all available facts and information, including the investment limits under Firstrust's proposal, the Board has concluded that the proposed investments through a wholly-owned subsidiary in common stock of savings associations, savings and loan holding companies, and bank holding companies; common stock of corporations listed on a national securities exchange; and interests in limited partnerships whose principal objective is to invest in the common stock of banks, bank holding companies, and related financial institutions, does 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.

THE BOARD OF DIRECTORS
FEDERAL DEPOSIT INSURANCE CORPORATION



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