-4-

as SLHCs. This action is taken in reliance on all the facts of record, including all the
representations and commitments made to the Board in connection with the application. Those
representations and commitments constitute conditions imposed in writing in connection with the
approval of the Principal Companies’ application to deregister as SLHCs and, as such, may be
enforced in proceedings under applicable law. Any change in the representations or
commitments may result in a different conclusion and should be reported to Board staff
promptly.

Sincerely yours,

eT dleU. Farrer

Robert deV. Frierson
Secretary of the Board

cc: Catharine Lemieux, Executive Vice President
Federal Reserve Bank of Chicago
Office of the Comptroller of the Currency


Boarp OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, DC 20551

December 31, 2013

Pratin Vallabhaneni, Esq.
Debevoise & Plimpton LLP
555 13th Street N.W.
Washington, D.C. 20004

Dear Mr. Vallabhaneni:

This is in response to the application by Principal Financial Group, Inc.; Principal
Financial Services, Inc.; Principal Life Insurance Company; and Principal Holding Company
(together, the “Principal Companies”), all of Des Moines, Iowa, to deregister as savings and loan
holding companies (“SLHCs”) pursuant to section 604(i) of the Dodd-Frank Act,

12 U.S.C. § 1467a(a)(1)(D)(ii)(ID, and the Board’s Regulation LL, 12 CFR 238.4(d). The
Principal Companies seek to deregister because their subsidiary federal savings association,
Principal Bank (“Bank”), Des Moines, functions solely in a trust or fiduciary capacity pursuant
to section 2(c)(2)(D) of the Bank Holding Company Act, 12 U.S.C. § 1841(c)(2)(D)

(“section 2(c)(2)(D)”).

Background

Section 604(i) of the Dodd-Frank Act amended the Home Owners’ Loan Act (“HOLA”)
to exclude from the definition of an SLHC a company with a subsidiary savings association that
functions solely in a trust or fiduciary capacity as described in section 2(c)(2)(D). Under
section 2(c)(2)(D), the term “bank” does not include an institution that “functions solely ina trust
or fiduciary capacity” if it meets the following criteria:

i. all or substantially all of the deposits of such institution are in trust funds
and are received in a bona fide fiduciary capacity;

ii. no deposits of such institution which are insured by the Federal Deposit
Insurance Corporation [(“FDIC”)] are offered or marketed by or through
an affiliate of such institution;

iii. such institution does not accept demand deposits or deposits that the
depositor may withdraw by check or similar means for payment to third
parties or others or make commercial loans; and


iv. such institution does not —

I. obtain payment or payment related services from any
Federal Reserve [B]Jank, including any service referred to
in section 11A of the Federal Reserve Act; or

Il. exercise discount or borrowing privileges pursuant to
section 19(b)(7) of the Federal Reserve Act.’

To transform itself into an institution that functions solely in a trust or fiduciary capacity,
Bank ceased offering noncustodial deposit accounts and either terminated those accounts or
transferred those deposits to an unaffiliated third-party institution. In addition, Bank ceased
originating commercial loans and divested its entire loan portfolio to third-party institutions.
Bank has limited its activities to those described in 12 CFR part 150, Subpart E, of the
regulations of the Office of the Comptroller of the Currency (“OCC”)?

The Section 2(c)(2)(D) Factors

As part of its approval of Bank’s conversion to an institution that functions solely in a
trust or fiduciary capacity, the OCC, Bank’s chartering authority and primary supervisor, limited
the institution’s activities to those described in 12 CFR part 150, Subpart E.” Bank’s activities
are substantially similar to the activities of the subsidiary savings associations of previous
deregistration applicants and have previously been recognized by the Board as trust or fiduciary
activities.’ The Board has consulted with the OCC and reviewed available information and has
confirmed that Bank operates only in a trust or fiduciary capacity.

Section 2(c)(2)(D) requires that “all or substantially all of the deposits of such institution
are in trust funds and received in a bona fide fiduciary capacity.” The Board considers the “all or
substantially all” requirement of section 2(c)(2)(D) to be met where 99 percent of all deposits are
maintained in a trust or fiduciary capacity,” not taking into account the $500,000 in nontrust
deposits the savings association must hold in order to receive federal deposit insurance.’ Bank

' 12 U.S.C. § 1841(c)(2)(D).
? Bank’s sole fiduciary activity is to serve as a custodian for individual retirement accounts.

3 Pursuant to 12 CFR 150.580(b), Bank is permitted to serve as a custodian of individual
retirement accounts within the meaning of section 408(a) of the Internal Revenue Code.

* State Street Boston Corporation, 81 Federal Reserve Bulletin 297 (1995); JP Morgan & Co.,
Inc., 73 Federal Reserve Bulletin 810, 812, and fn. 5 (1987).

5 See Board letter to Mr. Raymond J. Manista dated September 26, 2012. See also letter dated
February 28, 1997, from Oliver I. Ireland, Associate General Counsel, to S. Alan Rosen, Esq.;
and letter dated May 15, 1996, from Oliver I. Ireland, Associate General Counsel, to L. Richard
Fischer.

© 12 CFR 303.14(a). To be chartered as a federal savings association under section 5 of HOLA,
the Office of Thrift Supervision required that the savings association be FDIC insured. 12 CFR


2S

meets this requirement. It conducts its business exclusively through fiduciary accounts
maintained at Bank and a correspondent account at an unaffiliated third-party institution.

Bank does not make commercial loans. Bank plans to hold and continue to invest in first
mortgages, which are purchased from and serviced by third parties. These loans are being held
to satisfy the qualified thrift lender (“QTL”) test.” Bank will not originate any first mortgages.
Bank has represented that it will conduct due diligence to ensure that any loans purchased are not
used as rental property and will require lenders from which it purchases loans to represent and
warrant that the properties securing the loans are owner occupied and not used as rental property.
In addition, Bank will periodically review its loan portfolio and will divest of any loans not
secured by properties that are solely occupied by the borrower.

Bank will also continue to hold existing home equity lines of credit (“(HELOCs”) to
satisfy the QTL test. Bank’s policy is to decline to make or purchase any HELOC whose
application indicates that the proceeds will be used for business purposes. Bank has represented
that it will make every commercially reasonable attempt to determine if borrowers are using or
have used loan proceeds for business purposes and will divest of any such HELOCs.

The Board has confirmed, based on a review of supervisory information, consultations
with the OCC, and information provided by the Principal Companies, that no products or
services offered by Bank are marketed by the Principal Companies. Bank does not offer its
customers demand deposit accounts or accounts whose funds may be withdrawn by check or
similar means for payment to third parties. Bank also does not obtain payment or related
services from a Federal Reserve Bank or exercise discount or borrowing privileges with any
Federal Reserve Bank. Bank obtains, and will continue to obtain, these services and privileges
from third-party institutions. Finally, the Principal Companies and Bank have committed to
abide by each of the section 2(c)(2)(D) requirements on an ongoing basis.

Conclusion

Based on the foregoing and all the facts of record, including the most recent call report
and report of examination of Bank and consultation with the OCC, the General Counsel and the
Director of the Division of Banking Supervision and Regulation, acting pursuant to authority
delegated by the Board, have approved the application by the Principal Companies to deregister

552.2-1(b)(3)(i). The OCC has retained the deposit insurance Tequirement., 12 CFR
152.1(b)(3)(i).

7 See 12 U.S.C. § 1467(m).

® Bank will also hold and continue to invest in mortgage-backed securities (“MBSs”) and
collateralized mortgage obligations (“CMOs”) to satisfy the QTL test. Bank invests in both
residential and commercial MBSs and CMOs, which it acquires from unaffiliated securities
dealers. Because these investments are in a securitized form and because Bank is holding the
securities rather than the underlying loans, these investments are not prohibited by the
section 2(c)(2)(D) ban on commercial loans.