Decisions on Bank Applications

First Savings Bank of Perkasie

FEDERAL DEPOSIT INSURANCE CORPORATION

IN RE: First Savings Bank of Perkasie Perkasie, 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. § 1831a, and Part 362 of the FDIC's Rules and Regulations, relating to the application by First Savings Bank of Perkasie, Perkasie, Pennsylvania ("First Savings" or "the Bank"), for consent to indirectly acquire and retain through a wholly-owned subsidiary the stock of bank holding companies, corporations listed on a national securities exchange, and registered investment companies ("registered shares" or "mutual funds"). These are activities that may not be permissible for a subsidiary of a national bank. First Savings also intends to make bank stock investments as permitted by section 362.4(b)(4)(ii) of the FDIC's Rules and Regulations. Under First Savings' proposal, the aggregate cost of its investment in the stock of banks and bank holding companies will not exceed 5 percent of Tier 1 capital, and its investment in the stock of listed corporate entities and registered shares will not exceed 5 percent of Tier 1 capital. The proposal also restricts the investments in any one company to 4.9 percent of that company's shares. Management is aware that all investments 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 First Savings for consent to acquire and retain the stock of banks, bank holding companies, corporations listed on a national securities exchange, and registered investment companies, through a wholly-owned subsidiary, be and hereby is approved, subject to the following conditions:

(1) That the investment in the stock be held indirectly through a single, majority-owned
subsidiary organized for the purpose of holding such investments;

(2) That the Bank obtain approval from the Pennsylvania Secretary of Banking to establish and operate a subsidiary;

(3) That First Savings 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 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," and that this deduction be reflected on the appropriate schedule of the Bank's consolidated report of condition and income;

(4) That without prior written approval of the Regional Director, neither the Bank nor any of its subsidiaries may 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;

(5) That neither First Savings 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; and

(6) 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 8th day of November, 1999.

BY ORDER OF THE BOARD OF DIRECTORS

Robert E. Feldman
Executive Secretary

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FEDERAL DEPOSIT INSURANCE CORPORATION

IN RE: First Savings Bank of Perkasie Perkasie, 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, First Savings Bank of Perkasie, Perkasie, Pennsylvania ("First Savings" or "the Bank"), has filed an application with the Federal Deposit Insurance Corporation ("FDIC"). First Savings requests the FDIC's consent to indirectly acquire and retain through a wholly-owned subsidiary the stock of bank holding companies, corporations listed on a national securities exchange, and registered investment companies ("registered shares" or "mutual funds"). These are activities that may not be permissible for a subsidiary of a national bank. First Savings also intends to make bank stock investments as permitted by section 362.4(b)(4)(ii) of the FDIC's Rules and Regulations. Under First Savings' proposal, the aggregate cost of its investment in the stock of banks and bank holding companies will not exceed 5 percent of Tier 1 capital, and its investment in the stock of listed corporate entities and registered shares will not exceed 5 percent of Tier 1 capital. The proposal also restricts the investments in any one company to 4.9 percent of that company's shares. Management is aware that all investments must be specifically authorized as permissible for a savings bank by the Pennsylvania Banking Code of 1965. Management has stated that the investments will be purchased as long-term investments and does not intend to pursue short-term trading activities.

The activity of making investments in the stock of banks, bank holding companies, corporations listed on a national securities exchange, and registered shares 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.

Section 504 of the Pennsylvania Banking Code of 1965 ("Banking Code") provides for the investment in shares of preferred, guaranteed, or common stock of corporations 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, First Savings' proposal to acquire stock is permissible under section 504 of the Banking Code, assuming the issuer of the stock meets the qualifying conditions.

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

As of June 30, 1999, First Savings had total assets of $579 million. Its financial condition, future earnings prospects, and management are regarded as strong. First Savings has proposed a set of investment guidelines to prudently manage the investment through First Savings' wholly-owned subsidiary. First Savings meets the definition of "well-capitalized" within the meaning of Part 325 of the FDIC's Rules and Regulations. First Savings would continue to be "well-capitalized" after deducting the maximum proposed investment in equity securities of 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 limit, the conservative nature of the investment parameters that will be followed, and the restrictions under state law reduce the risk associated with the investment activity in this instance. Other than with respect to the stock of banks and their holding companies, First Savings has applied to invest only in shares listed on a national securities exchange.or registered shares. Listed securities and registered shares are more liquid than nonlisted securities or unregistered shares, and these entities must meet capital and other requirements of their respective exchanges. These requirements provide some assurances as to the marketability of the investment. Insured depository institutions and their 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 and registered shares other than banks may be of greater risk than other, more traditional bank activities, the FDIC is imposing a condition requiring First Savings 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 equity securities of 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, First Savings 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.

Management has stated that the subsidiary will not invest in companies that have any affiliation with the Bank's executive officers, directors, 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 First Savings 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 FDIC. 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 First Savings' proposal, the Board has concluded that the proposed investments through a wholly-owned subsidiary in common stock of banks, bank holding companies, common stock of corporations listed on a national securities exchange, and registered shares do not pose a significant risk to the Savings Association 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