Risk Management Manual of Examination Policies - FDIC

Description of the Transaction
INVESTIGATION REPORT CONCLUSIONS AND RECOMMENDATIONS
Applicant is a Federally chartered National Association in organization and as such, has no financial history. Proponent originally
applied to the Office of the Comptroller of the Currency (OCC), its primary regulator, for permission to organize as a National
Association on August 23, 2000.
However, due to the volume of substantive deficiencies in the Application, the OCC and Federal Deposit Insurance Corporation,
requested additional supporting information during the Fall of 2000. In summation, these deficiencies emanated from the lack of
supporting documentation regarding critical business model assumptions including but not limited to, customer acquisition rates as
well as, deposit/loan growth composition and volumes. Other material weaknesses included the absence of profitability within the
formative stages and independent market research supporting the feasibility of the nontraditional delivery channels proposed {nonbranch
kiosk}. Weaknesses emanating from the original proposal were never satisfactorily resolved and the Applicant withdrew the
proposal on April 16, 2001.
Applicant, after substantive modifications to the business model and management team, resubmitted the proposal on October 9, 2001.
The proposal calls for the Applicant to be part of a two-tier holding company structure. The United States (US) based holding
company and initial-tier will be Holding Company-2, Incorporated, Anytown, Anystate. It will be a wholly owned subsidiary of
Holding Company-1 plc, London, England, the top-tier holding company. Both holding companies are active and fully operational as
of the date of application. The Applicant intends to file an application with the Federal Reserve Bank for the formation of a bank
holding company.
The Applicant’s business model espouses the use of multiple delivery channels (integrated model) to service its customer base
including: a traditional retail bank site and supermarket branch network, as well as, a fully transactional web site and customer call
center.
Financial History and Condition
The Applicant has provided reasonable support for asset and liability projections. Moreover, the proposed investment in fixed assets
is within regulatory guidelines. Organizational expenses, while seemingly excessive, are fully covered by the initial level of capital.
While the finding on this statutory factor is favorable, one open supervisory item remains. This pertains to the submission of
acceptable agreements covering the two proposed related party transactions. Said related party transactions should ensure that the
resulting expenses to the insured institution are on terms prevailing in the market for similar services performed and/or due not result
in any economic disadvantage or consequence. Related party transactions are summarized on page 8 of this Report.
Adequacy of the Capital Structure
The Applicant has provided for a strong initial capitalization base. Such capital is commensurate with the inherent risks of the
business plan and sufficient for the projected growth of the institution. Year three proforma leverage ratio amounts to 8.82%. While
the finding on this factor is favorable, it is contingent on the execution of the licensing (lease) agreements for the in store branches
with Albertsons, Inc.
Future Earnings Prospects
The Applicant’s business model suggests that it can attain adequate profitability. This profitability is based viable assumptions, which
are comparable to various banking peer groups. The finding on this factor is favorable.
FDIC 6510/10 (02-2002) 1