" • " • "I. 

John P. Soukenik, Esq. 

BOARD OF" GOVERNORS 

OF" THE 

FECERAL RESERVE SYSTEM 

WASHINGTON, D. c. 20S51 

Elias, Matz, Tieman & Herrick L.L.P 

11th Floor 

734 15th Street, N.W. 

Washington, D.C. 20005 

Dear Mr. Soukenik: 

ADDRESS OFFICIAL CORRESPONDENCE 

TO THE BOARD 

March 14, 2011 

This is in response to the request by First Command Bank 

("First Command") for an exemption from section 23A of the Federal Reserve Act 

and the Board's Regulation W to permit First Command to purchase real property 

from its parent holding company, First Command Financial Services, Inc. 

("FCFS"), both of Fort Worth, Texas. 1 

First Command, a federal savings bank, proposes to purchase from 

FCFS First Command Plaza III ("Command III"), an office building in which First 

Command currently leases space, for a cash payment of$14.8 million.2 First 

1 12 U.S.C. § 371c; 12 CFR part 223. 

2 Command III is part of a complex owned by FCFS that includes another office 

building, a five-story parking structure, and 7.3 acres of vacant land. On 

consummation, FCFS would lease office space from First Command at the 

prevailing market rate and subject to a formal lease agreement ("Lease 

Agreement"). First Command and FCFS have entered into a Reciprocal Access 

Easement Agreement that provides each party reciprocal access to common areas 

and grants First Command a perpetual easement for the right to use 50 percent of 

the parking spaces currently available in the parking structure. FCFS also has 

agreed to enter into a real estate services agreement ("Services Agreement") with 

First Command under which FCFS would compensate First Command in full for 

the loss of rental revenues if monthly rentals payable fall below 90 percent of the 

aggregate monthly rentals in effect on the date of execution of the Services 
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Command has provided an independent appraisal of the building, which states that 

the fair market value of the building is approximately $14.8 million. The building 

currently is subject to a mortgage of approximately $15 million. FCFS has 

committed to the Board that it will repay the outstanding mortgage in full with the 

proceeds of the sale. 

Section 23A and Regulation W limit the amount of "covered 

transactions" between a bank and any single affiliate to 10 percent of the bank's 

capital stock and surplus and limit the amount of covered transactions between a 

bank and all its affiliates to 20 percent of the bank's capital stock and surplus. 

"Covered transactions" include an extension of credit by a bank to an affiliate and 

"a purchase of assets ... from [an] affiliate, except such purchase of real and 

personal property as may be specifically exempted by the Board by order or 

regulation.,,3 In addition, section 23A and Regulation W prohibit a bank from 

purchasing low-quality assets from an affiliate and require that all covered 

transactions between a bank and an affiliate be on terms that are consistent with 

safe and sound banking practices. 

Because First Command is a subsidiary ofFCFS, FCFS is an affiliate 

of First Command for purposes of section 23A and Regulation W. As a result, the 

proposed purchase of Command III by First Command from FCFS would be a 

covered transaction under section 23A and Regulation W. The aggregate amount 

of the covered transaction would be approximately $14.8 million. This amount 

would exceed the thrift's quantitative limit on covered transactions with a single 

affiliate, which is approximately $6.3 million.4 Accordingly, First Command seeks 

an exemption from section 23A and Regulation W to enable First Command to 

purchase Command III from FCFS. 

Section 23A specifically authorizes the Board by order or regulation 

to exempt from the definition of "purchase of assets" a bank's purchase of real or 

personal property from its affiliates. 5 The legislative history of this section 

Agreemen~ The Services Agreement would remain in effect for a period of 

10 years aIljer the consummation of the proposed transaction. 

3 12 U.S.C. § 371c(b)(7)(c). 

4 As of December 31, 2010, First Command's capital stock and surplus was 

approximately $54.7 million. 

5 12 U.S.C. § 371c(b)(7)(c). 
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indicates that Congress has given the Board the authority to permit a bank to 

purchase from an affiliate certain expensive properties, such as a computer or 

building, because "such transactions are not the type of transactions that section 

23A is designed to cover.,,6 

First Command's proposal to purchase the office building appears to 

be the type of transaction that Congress anticipated that the Board would exempt 

from the limits of the statute. First Command has represented that the proposed 

purchase would provide it an annual cost savings of $724,000 when compared to 

the current cost of being a lessee. The purchase of First Command's premises 

would reduce its operating expenses and provide First Command income from 

leasing the space that it would not occupy in the short term. 

Section 23B of the Federal Reserve Act requires that any covered 

transaction with an affiliate be on terms and under circumstances, including credit 

standards, that are substantially the same, or at least as favorable to such bank or its 

subsidiary, as those prevailing at the time for comparable transactions with or 

involving nonaffiliated companies. Based on the appraisal provided by First 

Command, it appears that the transaction is consistent with the requirements of 

section 23B. 

The terms of the Lease Agreement (prevailing market rate), 

Reciprocal Access Easement Agreement (equal access to common areas and use of 

half the parking spaces), and Services Agreement (compensation by FCFS if 

monthly rentals decrease by a certain percentage) also appear to be consistent with 

section 23B. In addition, First Command's primary regulator, the Office of Thrift 

Supervision, as well as the Federal Deposit Insurance Corporation ("FDIC"), have 

not objected to the proposed purchase.7 

In light of these considerations and all the facts presented, the 

proposed transaction appears to be consistent with safe and sound banking 

practices and on terms that would ensure the quality of the assets transferred. 

6 S. Rep. No. 536, 97th Cong., 2d Sess. 32 (1982). 

7 See attached letter from the FDIC. The FDIC's non-objection to the proposed 

transaction is subject to a condition that, at the time the transaction is 

consummated, First Command and FCFS will execute the Services Agreement and 

the Lease Agreement, each in the form provided to the Board and the FDIC in 

connection with First Command's exemption request. 
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Accordingly, the transaction appears to be consistent with the purposes of 

section 23A. The Director of the Division of Banking Supervision and Regulation, 

acting pursuant to authority delegated by the Board, and with the concurrence of 

the General Counsel, hereby grants the requested exemption. 

This determination is specifically conditioned on compliance by FCFS 

and First Command with all the commitments and representations they made to the 

Board in connection with this exemption request. These commitments and 

representations are deemed to be conditions imposed in writing in connection with 

granting the request and, as such, may be enforced in proceedings under applicable 

law. 

This determination is based on the specific facts and circumstances 

described in your correspondence and this letter. Any material change in those 

facts or circumstances or any failure by FCFS or First Command to observe any of 

their commitments or representations may result in a different conclusion or 

revocation of the exemption. 

Attachment 

Very truly yours, 

Robert de V. Frierson 

Deputy Secretary of the Board 

cc: Vincent Pacheco, Director of Applications 

Federal Reserve Bank of Dallas 

Federal Deposit Insurance Corporation 

Office of Thrift Supervision