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
