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