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February 18, 2005

Robert L. Tortoriello, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, N.Y. 10006-1470

Dear Mr. Tortoriello:

This responds to your October 6, 2004, letter and subsequent correspondence with the Board ("Letters") requesting a determination that (i) First National Bank of Marin, Las Vegas, Nevada ("Marin Bank"), would qualify for the "credit card bank exemption" from the definition of bank in section 2(c)(2)(F) of the Bank Holding Company Act of 1956 ("BHC Act")1 and (ii) no application to the Board will be required under the BHC Act either for the proposed acquisition of control of Marin Bank (the "Acquisition") by Sherman Financial Group LLC, New York, New York ("Sherman Financial"), or for the proposed redemption of shares of common stock of Marin Bank's parent, Marin National Bancorp, Las Vegas, Nevada ("Marin Bancorp"), in connection with the Acquisition.

Marin Bank is currently a bank, and Marin Bancorp is currently a bank holding company, for purposes of the BHC Act. Sherman Financial, a joint venture controlled by Mortgage Guaranty Insurance Corp. and Radian Group Inc., has proposed to acquire substantially all the outstanding common stock of Marin Bancorp and, indirectly, Marin Bank. Prior to the Acquisition, as described in more detail below, Marin Bank proposes to convert itself to a depository institution that qualifies for the credit card bank exemption in the BHC Act. Prior to the Acquisition but after the conversion of Marin Bank to a credit card bank, Marin Bancorp intends to redeem approximately 50 percent of its common stock (the "Redemption").

The credit card bank exemption from the definition of bank in the BHC Act applies to any "institution, including an institution that accepts collateral for extensions of credit by holding deposits under $100,000, and by other means which - (i) engages only in credit card operations; (ii) does not accept demand deposits or deposits that the depositor may withdraw by check or similar means for payment to third parties or others; (iii) does not accept any savings or time deposit of less than $100,000; (iv) maintains only one office that accepts deposits; and (v) does not engage in the business of making commercial loans."2

You have represented that Marin Bank will engage only in credit card operations as of and after the Redemption and Acquisition, including selling advertising space in monthly statements mailed to account holders ("statement stuffers").3 In addition, you have represented that Marin Bank will provide, as agent, debt protection services to its credit card customers (services in which, for a fee, customers receive debt relief from Marin Bank during certain unexpected hardships). Marin Bank will limit the debt protection coverage to payment of the outstanding balance due on the credit it extends through a credit card in the event of the borrower's death, disability, or involuntary unemployment.

Moreover, you have represented that Marin Bank will not engage in the business of making commercial loans as of and after the Redemption and Acquisition. You also have committed that Marin Bank will cease providing certain ancillary services within three months of the Acquisition, namely: (1) selling a credit report monitoring service offered by an unaffiliated third party; and (2) selling a membership-based roadside assistance product offered by an unaffiliated third party.

In addition, you have committed to restrict the scope of Marin Bank's deposit operations as of and after the Redemption and Acquisition. Marin Bank will not accept demand deposits or deposits that the depositor may withdraw by check or similar means for payment to third parties or others. Moreover, except for deposits that serve as collateral for Marin Bank's credit card loans ("Collateral Deposits"), Marin Bank will not accept savings or time deposits of less than $100,000. You also have represented that each Collateral Deposit held by Marin Bank will be no greater than the amount of the relevant customer's line of credit with the bank. Any deposit not conforming to these restrictions and not transferred to an unaffiliated third party prior to the Redemption and Acquisition will be liquidated by Marin Bank prior to the Redemption and Acquisition through a wire transfer to the relevant depositor.4 Moreover, Marin Bank will not maintain more than one office that accepts deposits.

Marin Bank currently issues debit cards and holds related deposits that are not permissible for a depository institution that qualifies for the credit card bank exemption in the BHC Act. You have stated that, in order to qualify for the credit card bank exemption, Marin Bank will transfer, before the Redemption and Acquisition, its current debit card accounts and related deposits to another bank (the "Issuing Bank"), which will issue new debit cards under the Issuing Bank's name to the current holders of Marin Bank's debit card accounts. Further, you have committed that Marin Bank will cease all debit card related activity, including origination, servicing, and marketing services provided to the Issuing Bank, within three months of the Acquisition. In addition, you have represented that Marin Bank will cease engaging in any account servicing activities for debit card or credit card accounts of affiliated or unaffiliated banks within three months of the Acquisition (except on a temporary basis in connection with acquisitions of credit card accounts by Marin Bank from other credit card lenders).

You also have made various representations and commitments regarding Marin Bank's investment activity. As of October 6, 2004, Marin Bank's only assets other than credit card receivables consisted of cash; federal funds sold; furniture, fixtures, and equipment; and investment securities. The investment securities that Marin Bank held as of November 4, 2004, consisted of Federal Reserve Bank stock, U.S. Treasury securities, a certificate of deposit with a third-party bank securing Marin Bank's lease payment obligations on its premises, as well as participations in a pool of lifetime reverse mortgage loans that were originated by an unaffiliated third party. You have represented that Marin Bank's mortgage loan participations (which represent less than 5 percent of Marin Bank's assets) are highly illiquid debt instruments and that immediate divestiture of the participations would cause the bank considerable financial harm. Accordingly, you have committed that Marin Bank will divest these reverse mortgage loan participations within two years of the Acquisition.

Based on all the facts of record and subject to the commitments and representations discussed above or otherwise set forth in the Letters, the Legal Division would not recommend that the Board find Marin Bank to be a bank for purposes of the BHC Act as of and after the Redemption and Acquisition, that the Board require Marin Bancorp to provide notice to the Board pursuant to 12 C.F.R. 225.4(b) regarding the Redemption, or that the Board require Sherman Financial or its parent companies to file an application with the Board under section 3 of the BHC Act for the Acquisition.

These opinions are limited to the transactions and the specific activities and investments described above and are based on the facts, representations, and commitments included in the Letters. Any material change in the facts presented may result in different conclusions and should be reported promptly to Board staff. If you have any questions about this letter, please contact Mark E. Van Der Weide of my staff at (202) 452-2263.

Sincerely,

(signed) Scott G. Alvarez


cc:  Federal Reserve Bank of San Francisco
      Office of the Comptroller of the Currency


Footnotes

1. 12 U.S.C. 1841(c)(2)(F). Return to text

2. Id. Return to text

3. The Senate Report accompanying S. 790 states that the "engage only in credit card operations" language was intended to allow a qualifying institution to engage "only in the business of issuing and processing credit cards for individuals and in transactions that are a necessary incident to that business." Senate Comm. Rep. No. 100-19, 100th Cong., 1st Sess., pp. 29-30 (1987). H.R. 27, which was enacted as the Competitive Equality in Banking Act ("CEBA"), incorporated the language for the credit card bank exception in S. 790 with two minor and unrelated amendments. Return to text

4. Ineffective wire transfers, if any, will be remedied through Marin Bank's issuance of cashier's checks prior to the Redemption and Acquisition. Return to text

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