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Regency Bank

November 29, 1996

Board of Directors
Regency Bank
760 North Fresno Street
Fresno, California 93720

Members of the Board:

We have reviewed your request to indirectly continue activities through the bank's wholly-owned subsidiary, Regency Service Corporation (RSC), that are not permissible for a subsidiary of a national bank. The application, dated December 27, 1995, was filed pursuant to Section 362.4(d)(4)(iii) of the regulations of the Federal Deposit Insurance Corporation (FDIC) in 12 C.F.R. and was received in the FDIC San Francisco Regional Office January 2, 1996.

For the reasons set forth in the attached Statement, your application was approved today, subject to the following conditions:

(1) That Regency and RSC shall take the necessary steps to operate RSC in a manner so as to ensure a separate corporate existence as a majority-owned subsidiary that:

(a) is adequately capitalized,

(b) is separate and distinct in its operations from Regency's operations;

(c) maintains separate accounting and other corporate records;

(d) observes separate formalities such as holding separate board of directors' meetings;

(e) maintains a board of directors with management expertise capable of conducting activities in a safe and sound manner;

(f) contracts with Regency for any service be on terms and conditions comparable to those available to or from independent entities; and,

(g) conducts business pursuant to separate policies and procedures designed to inform customers and prospective customers of RSC that it is a separate organization from Regency, including the placement of specific language on any debt instrument or contract with a third party disclosing that Regency itself is not responsible for payment or performance.

(2) That Regency's indirect real estate investment activities, including equity interests, debt obligations of RSC held by Regency, bank guarantees of debt obligations issued by RSC, extensions of credit or commitments of credit to any third party for the purpose of making a direct investment in RSC or making an investment in any investment in which RSC has an interest (defined collectively as "Real Estate Investments") shall be limited to that which is currently held. Further, that Regency shall seek the prior written approval of the appropriate Regional Director before increasing the aggregate book value of any of RSC's ten real estate projects by more than $250,000 at any one time.

(3) That RSC shall divest of all property currently held by December 31, 1998.

(4) That Regency and RSC shall not engage in any transactions with insiders of the bank or their related interests which relate to RSC's real estate investment activities without the prior written consent of the appropriate DOS Regional Director.

(5) That Regency shall not condition any loan on the purchase of real estate from RSC and that Regency shall not extend credit to any borrower to acquire real estate from RSC unless it is consistent with safe and sound banking practice and does not involve more than a normal degree of risk of repayment, and the credit is extended on terms and under circumstances, including credit standards, that are substantially the same, or at least as favorable to the bank, as those prevailing at the time for comparable transactions.

(6) That future transactions between Regency and RSC shall be made in accordance with the restrictions of Section 23A and 23B of the Federal Reserve Act, 12 U.S.C. Sections 371c and 371c-l, to the same extent as though RSC was a bank affiliate, except that the amount and collateral limitations of Section 23A shall not apply to loans made by Regency to facilitate the sale of the real estate investments held by RSC; provided that the loans are consistent with safe and sound banking practices, do not present more than the normal degree of risk of repayment, and the credit is extended on terms and under circumstances, including credit standards, that are substantially the same, or at least as favorable to the bank, as those prevailing at the time for comparable transactions.

(7) That Regency shall submit quarterly Progress Reports to the appropriate DOS Regional Director. The report shall contain the current status of efforts to sell RSC's real estate projects, including details of any offers, the book value of each project, and a copy of the quarterly balance sheet and income statement. The reports shall be submitted no later than 30 days following each calendar quarter.

(8) That consent is granted based on the facts and circumstances presented or otherwise known to the FDIC in connection with this request. Regency shall notify the FDIC of any significant change in facts or circumstance, and the FDIC shall have the right to alter, suspend, or withdraw its approval.

Questions relating to this matter may be referred to Assistant Regional Director Donald L. Pfeiffer or Review Examiner Timothy D. Lacke in the San Francisco Regional Office at (415) 546-1810.

Sincerely,

Lawrence E. Morgan
Acting Associate Director


FEDERAL DEPOSIT INSURANCE CORPORATION

RE: Regency Bank Fresno, California

Application Pursuant to Section 24 of the Federal Deposit Insurance Act to Indirectly Continue Activity That May Not Be Permissible for a National Bank

STATEMENT

Pursuant to the provisions of Section 24 of the Federal Deposit Insurance Act, an application has been filed with the Federal Deposit Insurance Corporation by Regency Bank, Fresno, California (Regency). Regency requests FDIC consent to allow its wholly-owned subsidiary, Regency Service Corporation (RSC), to retain its ten real estate properties located in Fresno, California and Clovis, California, until it is able to divest of said properties, but in no event later than December 31, 1998.

The ten real estate properties consist of residential building lots. Equity interests in limited partnerships include Heritage Highlands and Heritage Glen Castle. The properties 100 percent owned by RSC include Monte Vista Phase 1, Monte Vista Phase 2, Blackhorse I, Blackhorse II, Blackhorse III, Woodward Classics II, Seville Estates II, and Saint Andrews.

In general, real estate investment may not be a permissible activity for a national bank or a subsidiary of a national bank. Subsidiaries of state chartered, FDIC-insured banks may not engage as principal in an activity prohibited to subsidiaries of nationally chartered banks unless they obtain consent 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 fund. California banking statutes permit the holding of subject real estate investments.

RSC does not engage in real estate activities beyond the currently held properties, and bank management has indicated that Regency has no intention of engaging in real estate activities once RSC is liquidated. Regency and RSC have made reasonable efforts to sell the above described properties; however, the current real estate market is such that near-term divestiture would likely result in losses.

Regency meets the definition of "well capitalized" within the meaning of the FDIC's regulations in 12 C.F.R. Part 325.103. Regency's consolidated investment in the subsidiary represents 121% of Regency's Tier 1 capital as of June 30, 1996. In connection with this application, the FDIC has taken into consideration the favorable financial and managerial resources and future earnings prospects of Regency.

Due to these risks, real estate investment activities appear suitable to a financial institution only on a very limited scale and under restrictive conditions designed to control the various risks posed to the financial institution and the deposit insurance fund.

As prudential limitations and restrictions addressing the risks posed by real estate investment activities will be imposed, RSC's real estate investment activities will not constitute a significant risk to the Bank Insurance Fund.

Based upon careful evaluation of all available facts and information, the Acting Associate Director, acting under delegated authority, has concluded that approval of the application is appropriate subject to the restrictions discussed below. The following conditions are imposed for prudential reasons due to the volatility and other risks which are inherent in the subject real estate activity as well as to mitigate any potential insider conflicts of interests or risks associated with transactions between Regency and RSC:

That Regency and RSC shall take the necessary steps to operate RSC in a manner so as to ensure a separate corporate existence as a majority-owned subsidiary that:

(a) is adequately capitalized;

(b) is separate and distinct in its operations from Regency's operations;

(c) maintains separate accounting and other corporate records;

(d) observes separate formalities such as holding separate board of directors' meetings;

(e) maintains a board of directors with management expertise capable of conducting activities in a safe and sound manner;

(f) contracts with Regency for any service be on terms and conditions comparable to those available to or from independent entities; and,

(g) conducts business pursuant to separate policies and procedures designed to inform customers and prospective customers of RSC that it is a separate organization from Regency, including the placement of specific language on any debt instrument or contract with a third party disclosing that Regency itself is not responsible for payment or performance.

That Regency's indirect real estate investment activities, including equity interests, debt obligations of RSC held by Regency, bank guarantees of debt obligations issued by RSC, extensions of credit or commitments of credit to any third party for the purpose of making a direct investment in RSC or making an investment in any investment in which RSC has an interest (defined collectively as "Real Estate Investments") shall be limited to that which is currently held. Further, that Regency shall seek the prior written approval of the Regional Director before increasing the aggregate book value of RSC's ten real estate projects by more than $250,000 at any one time.

That RSC shall divest of all property currently held by December 31, 1998.

That Regency and RSC shall not engage in any transactions with insiders of the bank or their related interests which relate to RSC's real estate investment activities without the prior written consent of the appropriate DOS Regional Director.

That Regency shall not condition any loan on the purchase of real estate from RSC engaging in real estate investment activities and that Regency shall not extend credit to any borrower to acquire real estate from RSC unless it is consistent with safe and sound banking practice and does not involve more than a normal degree of risk of repayment, and the credit is extended on terms and under circumstances, including credit standards, that are substantially the same, or at least as favorable to the bank, as those prevailing at the time for comparable transactions.

That future transactions between Regency and RSC shall be made in accordance with the restrictions of Section 23A and 23B of the Federal Reserve Act, 12 U.S.C. 371c and 37lc-l, to the same extent as though RSC was a bank affiliate, except that the amount and collateral limitations of Section 23A shall not apply to loans made by Regency to facilitate the sale of the real estate investments held by RSC, provided the loans are consistent with safe and sound banking practices, do not present more than the normal degree of risk of repayment, and the credit is extended on terms and under circumstances, including credit standards, that are substantially the same, or at least as favorable to the bank, as those prevailing at the time for comparable transactions.

That Regency shall submit quarterly Progress Reports to the appropriate DOS Regional Director. The report shall contain the current status of efforts to sell RSC's real estate projects, including details of any offers, the book value of each project, and a copy of the quarterly balance sheet and income statement. The reports shall be submitted no later than 30 days following each calendar quarter.

That consent is granted based on the facts and circumstances presented or otherwise known to the FDIC in connection with this request. Regency shall notify the FDIC of any significant change in facts or circumstance, and the FDIC shall have the right to alter, suspend, or withdraw its approval.

Finally, FDIC notes that the foregoing approval is unique to this application, that it was significantly influenced by RSC's acquisition of the subject real estate interest prior to the effective date of Section 24, and that its view of de novo acquisition of such interest might well be different.

ACTING ASSOCIATE DIRECTOR
DIVISION OF SUPERVISION



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