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Banking Interpretations

March 4, 2002

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Dear [        ]:

Your letter dated January 24, 2002 to Deputy Superintendent of Banks Kursky has been referred to me for reply.  In your letter you describe the proposed stock benefit plan ("2002 Stock Benefit Plan"), to be submitted to stockholders at the annual meeting of [                  ]("FNFGI"), which is to be held in May 2002.  Pursuant to the terms of the 2002 Stock Benefit Plan, incentive stock options, non-incentive stock options, and restricted stock awards will be made to certain employees, officers and directors of FNFGI's subsidiary banks and financial services subsidiaries.  At the time of [               ]’s ("FNB") mutual holding company reorganization in April 1998, FNFGI issued 13,906,000 shares of common stock to the public and 15,849,649 shares of common stock to [         ]("FNFGMHC").

The shares reserved for issuance under the 2002 Stock Benefit Plan are 5 percent to 6 percent of the treasury shares that have been repurchased by FNFGI in the open market subsequent to their original issuance.  Under the terms of the 2002 Stock Benefit plan depositors have been given a priority right to purchase these shares and will remain for issuance on a priority basis to the depositors.

You are of the opinion that the adoption and implementation of the 2002 Stock Benefit Plan by FNFGI (i): will be in compliance with Sections 111.2(a) and 111.3(a) of the General Regulations of the Banking Board ("General Regulations"); and (ii) that the stockholder voting requirement proposed by FNFGI will satisfy the requirement of Section 111.3(b) of the General Regulations.

Section 111.2(a) of Part 111 of the General Regulations provides:

"Except for shares issued to a mutual holding company, and except for shares issued to the employee stock benefit plans of the stock savings bank or reserved to satisfy the stock option plans of the stock savings bank, whether adopted in connection with the reorganization, a subsequent offering or the conversion, all shares of stock issued in connection with a reorganization shall be subject to subscription rights granted to eligible account holders.  As used in this Part, 'shares of stock issued in connection with the reorganization of a mutual savings bank' includes shares issued upon the reorganization, shares sold by a mutual holding company or a savings bank subsidiary in any subsequent offering (whether shares held by the mutual holding company or shares newly issued by the stock savings bank), shares reserved to satisfy any stock option plan, and shares sold in connection with the conversion." 

Under the terms of the 2002 Stock Benefit plan, depositors have been given a priority right to purchase the shares to be distributed pursuant to the 2002 Stock Benefit Plan.  Furthermore, all shares issued originally to FNFMHC and held for the benefit of depositors will remain for issuance on a priority basis to the depositors.  Accordingly, the 2002 Stock Benefit Plan meets the criteria set forth in Section 111.2(a) of Part 111 of the General Regulations

Section 111.3(a) of Part 111 of the General Regulations provides:

"Shares of stock issued in connection with the reorganization of a mutual savings bank may be reserved, in an amount not to exceed 10 percent of the number of shares held by persons other than the mutual holding company, to satisfy stock option plans approved by the savings bank's stockholders and issued, in an amount not to exceed three percent of the number of shares held by persons other than the mutual holding company, pursuant to restricted stock plans approved by the savings bank's stockholders."

The number of shares to be distributed pursuant to the 2002 Stock Benefit Plan is between 5 percent and 6 percent of the shares that were issued at the time of the reorganization, to individuals other than FNFMHC.  This percentage of shares falls below the 10 percent threshold contained in Section 111.3(a) and thus is permissible under Section 111.3(a).

Section 111.3(b) of the General Regulations provides:

"Members of the board of trustees of the mutual holding company, whether at the time of the reorganization or thereafter, shall be ineligible to participate in any stock option plan or restricted stock plan unless such plan has been approved by the holders of a majority of the shares held by the savings bank's disinterested stockholders.  For the purposes of this section, 'shares held by the savings bank's disinterested stockholders' shall mean the issued and outstanding shares of stock of the savings bank other than shares held by the mutual holding company…"

As noted above, the 2002 Stock Benefit Plan will be voted upon by stockholders at the May 2002 meeting, and not by FNFMHC. Accordingly, the 2002 Stock Benefit Plan meets the requirements of Section 111.3(b) of Part 111 of the General Regulations.

I trust the foregoing is responsive to your inquiry.  Reference should be made to Part 26 of the General Regulations with regard to the issuance of stock options under the 2002 Stock Benefit Plan. Should you have any additional questions, please feel free to call me directly at [              ].

Sincerely yours,

Jay Kane
Assistant Counsel

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