ORDERS ISSUED UNDER BANK HOLDING COMPANY ACT.

Orders Issued Under Section 3 of the Bank Holding Company Act

Caisse Nationale de Credit Agricole Paris, France

Order Approving the Formation of a Bank Holding Company

Caisse Nationale de Credit Agricole ("CNCA"), a foreign banking organization subject to the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 3 of the BHC Act (12 U.S.C. [sections] 1842) to own indirectly all of the voting shares of Espirito Santo Bank, Miami, Florida.(1)

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (64 Federal Register 53,680 (1999)). The time for filing comments has expired, and the Board has considered the proposal in light of the factors set forth in section 3 of the BHC Act.

CNCA, with total consolidated assets of approximately $402 billion, is the largest banking organization in France.(2) In the United States, CNCA operates branches in New York, New York, and Chicago, Illinois; and representative offices in Houston, Texas, and San Francisco, California. CNCA also engages through subsidiaries in the United States in a broad range of permissible nonbanking activities, including securities and futures trading, leasing, financing, brokerage, and financial consulting activities.

Espirito Santo Bank is the 53rd largest banking organization in Florida, controlling deposits of $315 million, representing less than 1 percent of all deposits in commercial banking organizations in the state.(3)

Certain Supervisory Considerations

Under section 3 of the BHC Act, the Board may not approve an application involving a foreign bank unless the bank is "subject to comprehensive supervision or regulation on a consolidated basis by the appropriate authorities in the bank's home country."(4) The Board previously has determined, in applications under the International Banking Act (12 U.S.C. [sections] 3101 et seq.) ("IBA"), that CNCA is subject to comprehensive consolidated supervision by its home country supervisor.(5) No material changes have occurred in the manner of CNCA's supervision that would alter the Board's previous determination. Based on all the facts of record, the Board has concluded that CNCA is subject to comprehensive supervision and regulation on a consolidated basis by its home country supervisor.

The BHC Act also requires the Board to determine that the foreign bank has provided adequate assurances that it will make available to the Board such information on its operations and activities and those of its affiliates that the Board deems appropriate to determine and enforce compliance with the BHC Act.(6) The Board has reviewed the restrictions on disclosure in jurisdictions where CNCA has material operations and has communicated with relevant government authorities concerning access to information. CNCA has committed that it will make available to the Board such information on its operations and any of its affiliates that the Board deems necessary to determine and enforce compliance with the BHC Act, the IBA, and other applicable federal law. CNCA also has committed to cooperate with the Board to obtain any waivers or exemptions that may be necessary in order to enable CNCA to make any such information available to the Board. In light of these commitments and other facts of record, the Board has concluded that CNCA has provided adequate assurances of access to any appropriate information the Board may request. For these reasons, and based on all the facts of record, the Board has concluded that the supervisory factors it is required to consider under section 3(c)(3) of the BHC Act are consistent with approval.

Other Factors Under the BHC Act

The Board also has carefully considered the financial and managerial resources and future prospects of the banks and companies involved in this proposal, the convenience and needs of the communities to be served, and certain supervisory factors. CNCA's capital levels exceed the levels required under French capital guidelines. The capital levels of CNCA also exceed the capital levels under the Basle Capital Accord, and are considered equivalent to the capital levels that would be required of a U.S. banking organization under similar circumstances.

The Board has reviewed supervisory information from the home country authorities responsible for supervising CNCA concerning the proposal and the condition of the parties, confidential financial information from CNCA, and reports of examination from the appropriate federal and state supervisors of the affected organizations assessing the financial and managerial resources of the organizations. Based on all the facts of record, the Board has concluded that the financial and managerial resources and future prospects of the organizations involved in the proposal are consistent with approval, as are other supervisory factors that the Board must consider under section 3 of the BHC Act.

In addition, based on all the facts of record, including the fact that CNCA does not have banking operations in the banking market in which Espirito Santo Bank operates, the Board has concluded that consummation of the proposal would not have a significantly adverse effect on competition or on the concentration of banking resources in any relevant banking market, and that competitive considerations are consistent with approval. Considerations related to the convenience and needs of the communities to be served, including the performance record of Espirito Santo Bank under the Community Reinvestment Act (12 U.S.C. [sections] 2901 et seq.) ("CRA"), also are consistent with approval of the proposal.(7)

Conclusion

Based on the foregoing and all the facts of record, the Board has determined that the application should be, and hereby is, approved. The Board's approval is specifically conditioned on CNCA's compliance with all the commitments made in connection with this application, and on the receipt by CNCA and Espirito Santo Bank of all necessary approvals from state and federal regulators. The approval is also specifically conditioned on the Board's receiving access to information on the operations or activities of CNCA and any of its affiliates that the Board determines to be appropriate to determine and enforce compliance by CNCA and its affiliates with applicable federal statutes. The commitments and conditions relied on by the Board in reaching its decision are deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law.

The acquisition of Espirito Santo Bank shall not be consummated before the fifteenth calendar day following the effective date of this order, and the proposal shall not be consummated later than three months after the effective date of this order, unless such period is extended for good cause by the Board or the Federal Reserve Bank of New York, acting pursuant to delegated authority.

By order of the Board of Governors, effective April 5, 2000.

(1.) CNCA controls more than 25 percent of the voting shares of Banco Espirito Santo, S.A., Lisbon, Portugal ("Banco Espirito Santo"), which also has applied to acquire all of the voting shares of Espirito Santo Bank. Because of its ownership of Banco Espirito Santo, CNCA is also required to seek Board approval under the BHC Act to own indirectly the shares of Espirito Santo Bank. The Board has approved applications filed by Banco Espirito Santo and its related holding companies in a separate order. E.S. Control Holding S.A., et al., 86 Federal Reserve Bulletin 418 (2000).

(2.) Data are as of December 31, 1998, and are based on exchange rates on that date.

(3.) Data are as of June 30, 1999.

(4.) 12U. S.C. [sections] 1842(c)(3)(B). As provided in Regulation Y, the Board determines whether a foreign bank is subject to consolidated home country supervision under the standards set forth in Regulation K. See 12 C.F.R. 225.13(a)(4). Regulation K provides that a foreign bank may be considered subject to consolidated supervision if the Board determines that the bank is supervised or regulated in such a manner that its home country supervisor receives sufficient information on the worldwide operations of the foreign bank, including the relationships of the bank to its affiliates, to assess the foreign bank's overall financial condition and compliance with law and regulation. See 12 C.F.R. 211.24(c)(1)(ii).

(5.) Caisse National de Credit Agricole, 81 Federal Reserve Bulletin 1055 (1995) See also, Credit Agricole Indosuez, 83 Federal Reserve Bulletin 1025 (1996);.

(6.) See 12 U.S.C. [sections] 1842(c)(3)(A).

(7.) Espirito Santo Bank was rated "satisfactory" in its most recent CRA performance evaluation conducted by the Federal Deposit Insurance Corporation, as of July 21, 1997.

Voting for this action: Chairman Greenspan, Vice Chairman Ferguson, and Governors Kelley, and Gramlich. Absent and not voting: Governor Meyer.

ROBERT DEV. FRIERSON
Associate Secretary of the Board

Dime Bancorp, Inc.
New York, New York

Order Approving Formation of a Bank Holding Company

Dime Bancorp, Inc. ("Dime"), a savings and loan holding company within the meaning of the Home Owners' Loan Act (12 U.S.C. [sections] 1461 et seq.),(1) has requested the Board's approval under section 3(a)(1) of the Bank Holding Company Act ("BHC Act") (12 U.S.C. [sections] 1842(a)(1)) to become a bank holding company by acquiring all the voting shares of Hudson United Bancorp, Mahwah, New Jersey ("Hudson"), and thereby acquire its subsidiary, Hudson United Bank, Mahwah, New Jersey ("Hudson Bank").(2)

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (64 Federal Register 70,258 (1999)). The time for filing comments has expired, and the Board has considered the proposal and all comments received in light of the factors set forth in section 3 of the BHC Act.

Dime Savings is the 10th largest depository institution in New York, controlling total deposits of $10.4 billion, representing approximately 2.5 percent of total deposits in insured depository institutions in the state ("state deposits").(3) In New Jersey, Dime Savings is the 14th largest depository institution, controlling deposits of $2.3 billion, representing approximately 1.6 percent of state deposits. Hudson operates in New Jersey, New York, Connecticut, and Pennsylvania. Hudson Bank is the 12th largest depository institution in New Jersey, controlling total deposits of $2.4 billion, representing approximately 1.7 percent of state deposits. Hudson Bank also is the 46th largest depository institution in New York, controlling deposits of $968 million, representing less than 1 percent of state deposits. After consummation of the proposal, DimeBank would be the tenth largest depository institution in New York, controlling deposits of approximately $11.4 billion, representing approximately 2.7 percent of state deposits. DimeBank also would be the eighth largest institution in New Jersey, controlling deposits of $4.7 billion, representing approximately 3.3 percent of state deposits.

Competitive Considerations

The BHC Act prohibits the Board from approving an application under section 3 of the BHC Act if the proposal would result in a monopoly or would be in furtherance of any attempt to monopolize the business of banking. The BHC Act also prohibits the Board from approving a proposed combination that would substantially lessen competition or tend to create a monopoly in any relevant banking market, unless the Board finds that the anticompetitive effects of the proposal are clearly outweighed in the public interest by the probable effects of the proposal in meeting the convenience and needs of the community to be served.(4)

Dime and Hudson compete directly in the New York/ New Jersey Metropolitan banking market ("New York banking market")(5) and in the Philadelphia banking market. On consummation of the proposal, Dime would become the seventh largest depository institution in the New York banking market, controlling deposits of $17.1 billion, representing approximately 4 percent of total deposits in depository institutions in the New York banking market ("market deposits").(6) Because Dime controls a savings association that would become a bank on consummation of this transaction, the Herfindahl-Hirschman Index ("HHI") would decrease by 12 points to 774. Numerous competitors would remain in the market.(7) In the Philadelphia banking market Dime would become the sixth largest depository institution in the market, controlling deposits of $2.1 billion, representing approximately 3.2 percent of market deposits. The HHI in the Philadelphia banking market would decrease by one point to 1542, and numerous competitors would remain in the market.

Based on these and all other facts of record, the Board concludes that consummation of the proposal would not result in any significantly adverse effects on competition or on the concentration of banking resources in the New York or Philadelphia banking markets or any other relevant banking market.

Convenience and Needs Considerations

In acting on a proposal under section 3 of the BHC Act, the Board is required to consider the effect of the proposal on the convenience and needs of the community to be served and take into account the records of the relevant depository institutions under the Community Reinvestment Act ("CRA").(8) The Board has carefully considered the effect of the proposal on the convenience and needs of the communities to be served in light of all the facts of record, including comments submitted by two community groups in New York and New Jersey, and one comment from two elected Freeholders of Hudson County, New Jersey ("Protestants"). Protestants expressed concern, based primarily on their analyses of data filed under the Home Mortgage Disclosure Act ("HMDA"),(9) that Hudson Bank's record of home mortgage and home improvement lending indicates disparities in Hudson Bank's treatment of minorities. One Protestant also argued that the HMDA data for Dime Savings and its subsidiary mortgage company, North American Mortgage Company ("NAM"), indicate disparate treatment in NAM's lending to minorities.

A. CRA Performance Examinations

As provided in the CRA, the Board has evaluated the convenience and needs factor in light of examinations of the CRA performance records of the relevant institutions conducted by the appropriate federal supervisory agency.(10) Dime Savings received an overall rating of "outstanding" from its primary federal supervisor, the Office of Thrift Supervision ("OTS"), at its most recent evaluation for CRA performance, as of November 1999. Hudson Bank received an overall rating of "satisfactory" from its primary federal supervisor, the FDIC, at its most recent evaluation for CRA performance, as of February 1999.

B. Dime Savings' CRA Performance Record

In the most recent CRA performance examination (the "1999 examination") of Dime Savings, examiners found that Dime Savings performed at a high level in meeting the credit needs of its assessment area, including substantial growth in lending in low- and -moderate income ("LMI") areas and to LMI individuals. In particular, Dime Savings had increased the number and volume of its consumer loans in LMI areas since its previous performance examination, to a total of 10,209 loans in the amount of $142.9 million in LMI areas in its assessment area. Although small business lending did not comprise a large portion of Dime Savings' portfolio, more than 80 percent of the loans were in amounts of less than $100,000, which the examiners concluded had a positive impact on serving the credit needs of the community. Overall, the geographic distribution of Dime Savings' lending, including housing, consumer, and small business loans, was found to reflect a good penetration throughout the assessment area, including LMI areas. Dime Savings also offered a number of affordable loan programs for LMI borrowers, that feature lower interest rates, reduced closing costs, and more lenient debt-to-income ratios.

Dime Savings also is active in community development lending. Between the 1999 examination and the prior CRA performance examination, Dime Savings made almost $500 million in community development loans that were secured by more than 11,000 housing units that were affordable to LMI residents of the assessment area. Examiners in particular noted Dime Savings' use of multifamily housing lending, totaling $513.7 million in 1998, to meet the credit needs of LMI areas. Forty-four percent of the properties for which Dime Savings made multifamily loans in 1998 were in LMI areas.

Dime Savings was rated "outstanding" for its community development investment and grant activity, based on the complexity of its qualified community development investments, and excellent levels of activity and responsiveness. In the period between the 1999 examination and its prior CRA performance examination, Dime Savings had a total of $41.2 million of qualified investments, including $14.7 million in low-income housing tax credits and $21.4 million invested with the Community Preservation Corporation, which finances the upgrading and construction of LMI housing in the New York City area. Dime also made $1.6 million in grants and donations during this period to organizations supporting community development projects and programs, including affordable housing development and rehabilitation, homeownership services, economic development, youth centers, and homeless services.

Examiners found Dime Savings' community development services to include Community Partnership Accounts ("CPAs"), in which deposits by corporations earned below-market interest rates. The difference between the market rate and the interest paid creates funds that are used by Dime Savings to provide closing cost assistance to LMI borrowers and other community development projects. At the time of the examination, there were more than 30,000 CPAs, with outstanding balances totaling $23.4 million. Examiners also commended Dime Savings' efforts to ascertain the credit needs of its community through its outreach efforts.

Examiners noted with approval Dime Savings' use of a wide range of delivery systems for its products and services, its accessibility to all segments of the community, and its leadership in providing community development services. Examiners found that the bank's services were available in all portions of its assessment area and noted that 16 percent of Dime Savings' 127 branches were in LMI areas, as were 16 percent of its automatic teller machines ("ATMs"). Examiners found that Dime Savings had begun to use automatic loan machines ("ALMs"), installing them in 17 of its branches.(11) Dime Savings has also opened several 24-hour automated banking centers, which use ATMs and telephone connections to Dime Savings' call center to provide customers with 24-hour services, including account opening and loan applications. Dime Savings provided bilingual and multilingual publications and forms, and had bilingual and multilingual customer service staff in almost all its branches and in its telephone banking call center.

Finally, examiners identified no substantive violations of antidiscrimination laws and regulations and found that Dime Savings had implemented extensive fair lending policies, procedures, training programs, and internal assessment efforts.

C. Hudson Bank's CRA Performance Record

In the most recent CRA performance examination of Hudson Bank, examiners found that the bank's lending performance represented good responsiveness to the credit needs of individuals and businesses in its assessment area.(12) Because 76 percent of the loans made by Hudson Bank during the period covered by the examination were consumer loans, examiners concluded that the best way to evaluate the bank's compliance with the CRA was through an analysis of its consumer lending. Using that data, as well as HMDA and other loan data, examiners found that Hudson Bank made a high percentage of its loans in its assessment area, and that its loan distribution by borrower income was excellent. Hudson Bank's distribution of consumer loans in its assessment area exceeded the distribution of LMI households in the area; for example, in 1998 Hudson Bank made 41 percent of its consumer loans to low-income households, while only 25 percent of area households were low-income. Examiners found that Hudson Bank's distribution of small business loans reflected a willingness to make small commercial loans and to address the credit needs of small businesses, and that the bank had an adequate level of community development loans.

The CRA performance exam found Hudson Bank to have an excellent level of qualified investments and excellent responsiveness to credit and community development needs. Examiners particularly noted that Hudson Bank had increased its qualified investments from $200,000 at the time of the prior CRA examination to over $7 million. Hudson Bank purchased four mortgage-backed securities that are backed by mortgages to LMI individuals in the bank's assessment area.

Examiners found that Hudson Bank provided delivery services that were accessible to geographies and individuals of different income levels, and that it had a relatively high level of community development services. The distribution of Hudson Bank branches by census tract income level was found to be very reasonable, and examiners noted that Hudson Bank also operated a 24-hour telephone banking system. Hudson Bank's community development services included providing technical services to educational organizations, affordable housing groups, and a local credit union. Hudson Bank also assisted affordable housing organizations in procuring project loans from the Federal Home Loan Bank and at the time of the examination was setting up a consumer credit counseling service in Newark, New Jersey.

Examiners identified no violations by Hudson Bank of the substantive provisions of the antidiscrimination laws or regulations and found that its record of complying with those laws was satisfactory.(13)

D. Lending Records

The Board has also carefully considered the lending records of Dime Savings(14) and Hudson Bank in light of comments on the 1998 HMDA data of the organizations' subsidiaries.(15) The 1998 data indicate that Dime Savings' denial disparity ratio(16) for African-Americans decreased since its last examination, and that the denial disparity ratio was more favorable than the ratio reported by lenders in the aggregate ("the aggregate") in all of Dime Savings' assessment areas.(17) Dime Savings' denial disparity ratio for Hispanics was more favorable by half than the aggregate in its New Jersey assessment area, and was similar to the rate for the aggregate in its New York City and New York State assessment areas. Dime Savings' substantial multifamily lending is also reflected in the 1998 data, which show that Dime Savings made 217 multifamily loans, 94 of which (43 percent) were for properties in LMI areas that were all in its New York City assessment area.

The Board has examined the preliminary 1999 HMDA data for Hudson,(18) which show that in its New Jersey assessment areas, the number and percentage of Hudson's loan originations to African-Americans, Hispanics, and LMI individuals, and in predominately minority and LMI areas, all increased significantly from 1997 to 1999. Hudson's denial disparity ratio for African-Americans and Hispanics in New Jersey and New York also decreased during that time. In addition, Hudson's percentage of originations in LMI areas in New Jersey, and to LMI individuals in New Jersey, also increased in 1999. For example, in 1999, 23.6 percent of Hudson's loans in the Newark MSA were in LMI areas, and 38.4 percent of Hudson's loans in New Jersey were to LMI individuals.

In other respects, however, the HMDA data reflect disparities in the rates of loan applications, originations, and denials by racial group and income level.(19) The Board is concerned when an institution's record indicates any such disparities in lending and believes that all banks are obligated to ensure that their lending practices are based on criteria that assure not only safe and sound banking, but also equal access to credit by creditworthy applicants regardless of their race or income level. The Board recognizes, however, that HMDA data alone provide an incomplete measure of an institution's lending in its community and have limitations that make the data an inadequate basis, absent other information, for concluding that an institution has not adequately assisted in meeting its community's credit needs or has engaged in illegal lending discrimination.(20)

Because of the limitations of HMDA data, the Board has considered these data carefully in light of other information, including periodic and examination reports that provide an on-site evaluation of the compliance by the subsidiary banks of Dime and Hudson with fair lending laws and the overall lending and community development activities of the banks. In particular, the Board notes that examiners found no evidence of prohibited discriminatory practices or of substantive violations of the fair lending laws at the most recent examinations of the subsidiary depository institutions of Dime and Hudson.(21) The Board also has taken into account factors such as Hudson's focus on consumer lending, which is not reported under HMDA, in considering whether Dime and Hudson are meeting the credit needs of their communities.

E. Branch Closings

One Protestant expressed concern that consummation of the proposal would result in branch closings. Dime has indicated that it is considering the potential consolidation of several pairs of Dime Savings and Hudson Bank branches after consummation of the proposed transaction. Dime has preliminarily identified seven pairs of Dime Savings and Hudson Bank branches in which the banks in each pair are within approximately one-half mile of each other for possible consolidation, although Dime has not made any final consolidation determinations.

The Board has carefully considered all the facts of record concerning branch closings, including the preliminary branch consolidation information submitted by Dime and Dime's record in opening and closing branches. The Board also has reviewed the branch closing policies of Dime Savings and Hudson Bank. The policies are consistent with federal law, which requires an insured depository institution to provide notice to the public and to the appropriate federal supervisory agency before closing a branch.(22) Any branch closings resulting from the proposal would be considered by the appropriate federal supervisor at the next CRA examination of the relevant subsidiary depository institution.

F. Conclusion on Convenience and Needs

The Board has carefully considered all facts of record, including the public comments received, responses to the comments, and reports of examinations of the CRA performance of the institutions involved, in reviewing the proposal's effect on the convenience and needs of the communities to be served by the combined organization. Based on a review of the entire record, and for the reasons discussed above, the Board concludes that convenience and needs considerations, including the CRA performance records of the subsidiary depository institutions of Dime and Hudson, are consistent with approval.

Financial, Managerial, and Other Supervisory Factors

The BHC Act also requires the Board, in acting on an application, to consider the financial and managerial resources and future prospects of the companies and banks involved in a proposal, and certain other supervisory factors. The Board has carefully considered the financial and managerial resources and future prospects of Dime and Hudson and their respective subsidiary depository institutions, and other supervisory factors in light of all the facts of record, including confidential reports of examination and other supervisory information received from the primary federal supervisors of the organizations. In evaluating the financial factors in expansion proposals by bank holding companies, the Board consistently has considered capital adequacy to be an especially important factor.(23) In this case, Dime will be adequately capitalized at consummation of this proposal and has committed to the Board that it will meet the well-capitalized standards of the Board's Capital Adequacy Guidelines no later than June 30, 2000.

Based on these and other facts of record, including Dime's commitment to increase its capital, the Board concludes that considerations relating to the financial and managerial resources and future prospects of Dime, Hudson, and their respective subsidiaries are consistent with approval of the proposal, as are the other supervisory factors the Board must consider under section 3 of the BHC Act.

Conclusion

Based on the foregoing, the Board has determined that the application should be, and hereby is, approved.(24) The Board's approval of the proposal is specifically conditioned on compliance by Dime with all the commitments made in connection with the proposal. These commitments and conditions are deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law.

The acquisition may not be consummated before the fifteenth calendar day after the effective date of this order, or later than three months after the effective date of this order, unless such period is extended for good cause by the Board or by the Federal Reserve Bank of New York, acting pursuant to delegated authority.

By order of the Board of Governors, effective April 12, 2000.

(1.) Dime controls The Dime Savings Bank of New York, FSB, New York, New York ("Dime Savings").

(2.) Dime proposes to merge Dime Savings with and into Hudson Bank simultaneously with Dime's merger with Hudson, which would be renamed "DimeBank." Dime received approval for the proposed merger from the Federal Deposit Insurance Corporation ("FDIC") under section 18(c) of the Federal Deposit Insurance Act (12 U.S.C. [sections] 1828(c)) ("Bank Merger Act") on April 5, 2000.

(3.) Deposit and ranking data are as of June 30, 1999. In this context, depository institutions include commercial banks, savings banks, and savings associations.

(4.) 12 U.S.C. [sections] 1842(c).

(5.) The New York banking market includes Bronx, Dutchess, Kings, Nassau, New York, Orange, Putnam, Queens, Richmond, Rockland, Suffolk, Sullivan, Ulster, and Westchester Counties in New York; Bergen, Essex, Hudson, Hunterdon, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset, Sussex, Union, Warren, and a portion of Mercer Counties in New Jersey; Pike County in Pennsylvania; and portions of Fairfield and Litchfield Counties in Connecticut.

(6.) Market share data are as of March 31, 2000 and are based on calculations in which the deposits of thrift institutions, other than Dime Savings, are included at 50 percent. The Board previously has indicated that thrift institutions have become, or have the potential to become, significant competitors of commercial banks. See WM Bancorp, 76 Federal Reserve Bulletin 788 (1990); National City Corporation, 70 Federal Reserve Bulletin 743 (1984). Because the Board has analyzed the competitive factors in this case as if Dime Savings and Hudson Bank were a combined entity, the deposits of Dime Savings are included at 100 percent in the calculation of pro forma market share. Norwest Corporation, 78 Federal Reserve Bulletin 452 (1992); First Banks, Inc., 76 Federal Reserve Bulletin 669 (1990).

(7.) Under the revised Department of Justice Merger Guidelines, 49 Federal Register 26,823 (June 29, 1984), a market in which the postmerger HHI is less than 1000 points is considered to be unconcentrated. The Department of Justice has informed the Board that a bank merger or acquisition generally will not be challenged (in the absence of other factors indicating anticompetitive effects) unless the post-merger HHI is at least 1800 and the merger increases the HHI by more than 200 points. The Department of Justice has stated that the higher than normal HHI thresholds for screening bank mergers for anticompetitive effects implicitly recognize the competitive effects of limited-purpose lenders and other nondepository financial entities.

(8.) 12 U.S.C. [sections] 2901 et seq.

(9.) 12 U.S.C. [sections] 2801 et seq.

(10.) The Interagency Questions and Answers Regarding Community Reinvestment provide that an institution's most recent CRA performance evaluation is a particularly important consideration in the application process, because it represents a detailed on-site evaluation of the institution's overall record of performance under the CRA by its appropriate federal supervisor. 64 Federal Register 23,618 and 23,641 (1999) ("Interagency Questions and Answers").

(11.) ALMs allow a customer to apply for a credit line or personal loan of up to $7500 in minutes.

(12.) The examination, dated February 17, 1999, did not include a review of the CRA performance of Hudson's other subsidiary banks, Bank of the Hudson, Poughkeepsie, New York, and Lafayette American Bank, Bridgeport, Connecticut, which have since been merged into Hudson Bank. Bank of the Hudson received a rating of "outstanding" from the OTS at its last CRA performance examination, dated February 17, 1998. The examiners noted Bank of the Hudson's special programs for LMI borrowers and the introductory loans for the purchase of mobile homes. Lafayette American Bank received a rating of "satisfactory" from the FDIC at its last CRA performance examination, dated March 23, 1998. Examiners considered the distribution of loans to borrowers at various income levels to be reasonable and noted a positive trend in the percentage of HMDA-reportable loans in LMI areas and to LMI borrowers.

(13.) Two of the Protestants also alleged that Hudson Bank has failed to fulfil lending and other commitments it made in an agreement with one of the Protestants and have criticized a publicly announced plan by Dime to address CRA-related issues after the merger. The Board notes that the CRA requires that, in considering an acquisition proposal, the Board carefully review the actual record of performance of the relevant depository institutions in helping to meet the credit needs of their communities. Neither the CRA nor the CRA regulations of the federal supervisory agencies, however, require depository institutions to enter into agreements with any organization. The Board, therefore, has viewed such agreements and their enforceability as private contractual matters between the parties and has focused on the existing record of performance by the applicant and the programs that the applicant has in place to serve the credit needs of its communities. Any future activities of DimeBank would be reviewed by the appropriate federal supervisors in future performance examinations.

(14.) The data include data for Dime Savings' subsidiaries, Dime Mortgage Inc. and North American Mortgage Company.

(15.) All three Protestants were critical of the lending record of Hudson's subsidiary banks (now merged into Hudson Bank) as reflected in their 1998 HMDA data. Protestants in particular criticized Hudson's banks for making too few HMDA-related loans to minority applicants, and for a large disparity between the denial rates for white and minority loan applicants. One Protestant also criticized Lafayette American Bank for having attracted too few minority loan applicants, and criticized Dime Savings and NAM for making too few HMDA-related loans to minority applicants.

(16.) The denial disparity ratio compares the denial rate for minority loan applicants with that for white applicants.

(17.) The aggregate represents the cumulative lending for all institutions that have reported HMDA data in a given market. Dime Savings' assessment areas are New York State, New Jersey, New York City MSA, and Nassau-Suffolk (NY) MSA.

(18.) The 1999 HMDA data discussed here for Hudson are preliminary, and may differ from the final data, which are typically available in June of each year.

(19.) For instance, Dime Savings' percentage of loan originations in predominately minority and LMI tracts lagged the aggregate in all its assessment areas by almost 50 percent, and Hudson's percentage of loan originations to African-Americans lagged the aggregate in all but one of its assessment areas in New Jersey and New York State. In Connecticut, Hudson received too few applications in 1998 from African-Americans, Hispanics, and applicants in predominately minority tracts to be statistically relevant.

(20.) The data, for example, do not provide a basis for an independent assessment of whether an applicant who was denied credit was, in fact, creditworthy. Information about credit history problems and excessive debt levels relative to income (reasons most frequently cited for a credit denial) are not available from HMDA data.

(21.) One Protestant questioned Hudson's practice of referring certain loan applicants to third-party lenders and suggested, without providing evidence, that minority applicants may be referred disproportionately to such lenders. Hudson has indicated that its practice is to advise loan applicants who do not qualify for its residential mortgage products of the availability of programs at other lenders. If the applicant consents, his or her application is then referred to one of two third-party lenders for their consideration. Such referral programs are permissible if all relevant fair lending laws are adhered to and, as noted, the most recent examinations found no evidence of illegal discrimination or credit practices at Hudson's subsidiary depository institutions.

(22.) Section 42 of the Federal Deposit Insurance Act (12 U.S.C. [sections] 183 1r-1), as implemented by the Joint Policy Statement Regarding Branch Closings (64 Federal Register 34,844 (1999)), requires that a bank provide the public with at least 30 days notice and the appropriate federal supervisory agency with at least 90 days notice before the date of the proposed branch closing. The bank also is required to provide reasons and other supporting data for the closure, consistent with the institution's written policy for branch closings. The law does not authorize federal regulators to prevent the closing of any branch.

(23.) See, e.g., Banc One Corporation, 84 Federal Reserve Bulletin 961 (1998); see also, Norwest Corporation, 84 Federal Reserve Bulletin 1088 (1998).

(24.) The Protestants requested that the Board hold a public meeting or hearing on the proposal. Section 3(b) of the BHC Act does not require the Board to hold a public hearing on an application unless the appropriate supervisory authority for the bank to be acquired makes a timely written recommendation of denial of the application. The Board has not received such a recommendation from the appropriate supervisory authorities.

Under its rules, the Board also may, in its discretion, hold a public meeting or hearing on an application to acquire a bank if a meeting or hearing is necessary or appropriate to clarify factual issues related to the application and to provide an opportunity for testimony. 12 C.F.R. 225.16(e). The Board has considered carefully the Protestants' requests in light of all the facts of record. In the Board's view, Protestants have had ample opportunity to submit their views, and did submit written comments that have been considered carefully by the Board in acting on the proposal. The Protestants' requests fail to demonstrate why their written comments do not present their views adequately and fail to identify disputed issues of fact that are material to the Board's decision that would be clarified by a public meeting or hearing. For these reasons, and based on all the facts of record, the Board has determined that a public meeting or hearing is not required or warranted in this case. Accordingly, the requests for a public meeting or hearing on the proposal are denied.

Voting for this action: Chairman Greenspan, Vice Chairman Ferguson, and Governors Kelley, and Gramlich. Absent and not voting: Governor Meyer.

ROBERT DEV. FRIERSON
Associate Secretary of the Board

E.S. Control Holding S.A.
E.S. International Holding S.A.
Espirito Santo Financial Group S.A.
All of Luxembourg

Espirito Santo Financial (Portugal) Sociedade
Gestora de Participacoes Sociais, S.A.
Bespar-Sociedade Gestora de Participacoes
Sociais, S.A.
Banco Espirito Santo, S.A.
All of Lisbon, Portugal

Order Approving the Formation of Bank Holding Companies

E.S. Control Holding S.A. ("E.S. Control Holding"), E.S. International Holding S.A. ("E.S. International"), Espirito Santo Financial Group S.A. ("E.S. Financial"), Espirito Santo Financial (Portugal) Sociedade Gestora de Participacoes Sociais, S.A. ("E.S. Portugal"), Bespar-Sociedade Gestora de Participacoes Sociais, S.A. ("Bespar"), and Banco Espirito Santo, S.A. ("Banco Espirito Santo") (collectively, "Applicants"), all foreign banking organizations subject to the Bank Holding Company Act ("BHC Act"), have requested the Board's approval under section 3 of the BHC Act (12 U.S.C. [sections] 1842) to obtain all of the voting shares of Espirito Santo Bank, Miami, Florida.(1)

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (64 Federal Register 20,308 (1999)). The time for filing comments has expired, and the Board has considered the proposal in light of the factors set forth in section 3 of the BHC Act.

Banco Espirito Santo has total consolidated assets of approximately $30 billion and is the third largest banking organization in Portugal.(2) Banco Espirito Santo operates a branch in New York, New York, and engages in limited onbanking activities in the United States.

Espirito Santo Bank is the 53rd largest banking organization in Florida, controlling deposits of $315 million, representing less than 1 percent of all deposits in commercial banking organizations in the state.(3)

Certain Supervisory Considerations

Under section 3 of the BHC Act, the Board may not approve an application involving a foreign bank unless the bank is "subject to comprehensive supervision or regulation on a consolidated basis by the appropriate authorities in the bank's home country."(4) The Board has made the following findings with regard to the supervision of Banco Espirito Santo.

The home country supervisor of Banco Espirito Santo is the Bank of Portugal. The Board previously has determined in an application under the International Banking Act (12 U.S.C. [sections] 3101 et seq.) ("IBA") that another Portuguese bank was subject to comprehensive consolidated supervision by the Bank of Portugal.(5) The Board finds that Banco Espirito Santo is supervised in substantially the same manner as the other Portuguese bank. Based on this finding and all the facts of record, the Board concludes that Banco Espirito Santo is subject to comprehensive supervision on a consolidated basis by its home country supervisor.(6)

The BHC Act also requires the Board to determine that the Applicants have provided adequate assurances that they will make available to the Board such information on their operations and activities and those of their affiliates that the Board deems appropriate to determine and enforce compliance with the BHC Act.(7) The Board has reviewed the restrictions on disclosure in jurisdictions where the Applicants have material operations and has communicated with relevant government authorities concerning access to information. The Applicants have committed that they will make available to the Board such information on their operations and the operations of any of their affiliates that the Board deems necessary to determine and enforce compliance with the BHC Act, the IBA, and other applicable federal law. The Applicants also have committed to cooperate with the Board to obtain any waivers or exemptions that may be necessary in order to enable them to make such information available to the Board. In light of these commitments and other facts of record, the Board has concluded that the Applicants have provided adequate assurances of access to any appropriate information the Board may request. For these reasons, and based on all the facts of record, the Board has concluded that the supervisory factors it is required to consider under section 3(c)(3) of the BHC Act are consistent with approval.

Other Factors Under the BHC Act

The Board also has carefully considered the financial and managerial resources and future prospects of the banks and companies involved in this proposal, the convenience and needs of the communities to be served, and other supervisory factors applicable under the BHC Act. Banco Espirito Santo's capital levels exceed the levels required under Portuguese capital guidelines. The capital levels of Banco Espirito Santo also exceed the capital levels under the Basle Capital Accord, and are considered equivalent to the capital levels that would be required of a U.S. banking organization under similar circumstances.

The Board has reviewed supervisory information from the home country authorities responsible for supervising Applicants concerning the proposal and the condition of the parties, confidential financial information from the Applicants, and reports of examination from the appropriate federal and state supervisors of the affected organizations assessing the financial and managerial resources of the organizations. Based on all the facts of record, the Board has concluded that the financial and managerial resources and future prospects of the organizations involved in the proposal are consistent with approval, as are other supervisory factors that the Board must consider under section 3 of the BHC Act.

In addition, based on all the facts of record, including the fact that Applicants do not have banking operations in the banking market in which Espirito Santo Bank operates, the Board has concluded that consummation of the proposal would not have a significantly adverse effect on competition or on the concentration of banking resources in any relevant banking market, and that competitive considerations are consistent with approval. Considerations related to the convenience and needs of the communities to be served, including the performance record of Espirito Santo Bank under the Community Reinvestment Act (12 U.S.C. [sections] 2901 et seq.) ("CRA"), also are consistent with approval of the proposal.(8)

Conclusion

Based on the foregoing and all the facts of record, the Board has determined that the applications should be, and hereby are, approved. The Board's approvals are specifically conditioned on Applicants' compliance with all the commitments made in connection with these applications, and on the receipt by Applicants and Espirito Santo Bank of all necessary approvals from state and federal regulators. The approvals are also specifically conditioned on the Board's receiving access to information on the operations or activities of Applicants and any of their affiliates that the Board determines to be appropriate to determine and enforce compliance by Applicants and their affiliates with applicable federal statutes. The commitments and conditions relied on by the Board in reaching its decision are deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law.

The acquisition of Espirito Santo Bank shall not be consummated before the fifteenth calendar day following the effective date of this order, and the proposal shall not be consummated later than three months after the effective date of this order, unless such period is extended for good cause by the Board or the Federal Reserve Bank of Atlanta, acting pursuant to delegated authority.

By order of the Board of Governors, effective April 5, 2000.

(1.) Under the proposal, Banco Espirito Santo would acquire up to 100 percent of the voting shares of Espirito Santo Bank. E.S. Control Holding is the top tier foreign banking organization that controls Banco Espirito Santo for purposes of the BHC Act through its indirect control of more than 25 percent of the voting shares of Banco Espirito Santo. E.S. Control Holding controls Banco Espirito Santo through its ownership of E.S. International, E.S. Financial, E.S. Portugal, and Bespar. Caisse Nationale de Credit Agricole, Paris, France ("CNCA"), also controls more than 25 percent of the voting shares of Banco Espirito Santo. The Board has separately approved CNCA's application to become a bank holding company with respect to Espirito Santo Bank. Caisse Nationale de Credit Agricole, 86 Federal Reserve Bulletin 412 (2000).

(2.) Data are as of December 31, 1998, and are based on exchange rates on that date.

(3.) Data are as of June 30, 1999.

(4.) 12 U.S.C. [sections] 1842(c)(3)(B). As provided in Regulation Y, the Board determines whether a foreign bank is subject to consolidated home country supervision under the standards set forth in Regulation K. See 12 C.F.R. 225.13(a)(4). Regulation K provides that a foreign bank may be considered subject to consolidated supervision if the Board determines that the bank is supervised or regulated in such a manner that its home country supervisor receives sufficient information on the worldwide operations of the foreign bank, including the relationships of the bank to its affiliates, to assess the foreign bank's overall financial condition and compliance with law and regulation. See 12 C.F.R. 211.24(c)(1)(ii).

(5.) See Caixa Geral de Depositos S.A., 85 Federal Reserve Bulletin 774 (1999).

(6.) With regard to the supervision of the parent companies of Banco Espirito Santo, the Board has considered that Bespar and E.S. Portugal are subject to the supervision of the Bank of Portugal. E.S. Financial, although domiciled in Luxembourg, is also subject to the supervision of the Bank of Portugal as a matter of Portuguese law.

E.S. Control Holding and E.S. International are deemed "mixed activity holding companies" by the Bank of Portugal. Portuguese law provides that mixed activity holding companies and their subsidiaries must supply the Bank of Portugal with all the information that may be relevant for supervision. In addition, the Bank of Portugal may examine or commission the examination of mixed activity holding companies and their subsidiaries whenever it deems necessary for the consolidated supervision of a credit institution such as Banco Espirito Santo.

(7.) See 12 U.S.C. [sections] 1842(c)(3)(A).

(8.) Espirito Santo Bank was rated "satisfactory" in its most recent CRA performance evaluation conducted by the Federal Deposit Insurance Corporation, as of July 21, 1997.

Voting for this action: Chairman Greenspan, Vice Chairman Ferguson, and Governors Kelley, and Gramlich. Absent and not voting: Governor Meyer.

ROBERT DEV. FRIERSON Associate Secretary of the Board

Valley View Bancshares, Inc. Overland Park, Kansas

Order Approving Acquisition of a Bank

Valley View Bancshares, Inc. ("Valley View"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 3 of the BHC Act (12 U.S.C. [sections] 1842) to acquire Bank of Lee's Summit, Lee's Summit, Missouri ("Bank of Lee's Summit").

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (64 Federal Register 71,457 (1999)). The time for filing comments has expired, and the Board has considered the proposal and all comments received in light of the factors set forth in section 3 of the BHC Act.

Valley View operates five subsidiary banks in Kansas and one bank in Missouri. Valley View is the seventh largest commercial banking organization in Kansas, controlling approximately $1.3 billion in deposits, representing 3.5 percent of total deposits in commercial banking organizations in the state ("state deposits").(1) Valley View is the 31st largest commercial banking organization in Missouri, controlling approximately $255.4 million in deposits, representing less than 1 percent of state deposits. Bank of Lee's Summit is the 87th largest commercial banking organization in Missouri, controlling approximately $113.9 million in deposits, representing less than 1 percent of state deposits. On consummation of the proposal, Valley View would become the 25th largest commercial banking organization in Missouri, controlling deposits of approximately $369.4 million, representing less than 1 percent of state deposits.

Interstate Analysis

Section 3(d) of the BHC Act, allows the Board to approve an application by a bank holding company to acquire control of a bank located in a state other than the home state of such bank holding company, if certain conditions are met.(2) For purposes of the BHC Act, the home state of Valley View is Kansas, and Valley View would acquire a bank in Missouri. The conditions for an interstate acquisition under section 3(d) are met in this case.(3) In view of all the facts of record, the Board is permitted to approve the proposal under section 3(d) of the BHC Act.

Competitive Considerations

The BHC Act prohibits the Board from approving an application under section 3 of the BHC Act if the proposal would result in a monopoly or would be in furtherance of any attempt to monopolize the business of banking. The BHC Act also prohibits the Board from approving a proposed combination that would substantially lessen competition or tend to create a monopoly in any relevant banking market, unless the Board finds that the anticompetitive effects of the proposal are clearly outweighed in the public interest by the probable effects of the proposal in meeting the convenience and needs of the community to be served.(4)

Valley View and Bank of Lee's Summit compete directly in the Kansas City, Missouri, banking market ("Kansas City banking market").(5) Valley View is the fifth largest commercial banking organization in the market, controlling deposits of $1.3 billion, representing 6.4 percent of total deposits in depository institutions in the market ("market deposits").(6) Bank of Lee's Summit is the 26th largest commercial banking organization in the market, controlling deposits of $103.8 million in deposits, representing less than 1 percent of market deposits. Consummation of the proposal would be consistent with the Department of Justice Merger Guidelines ("DOJ Guidelines").(7) On consummation of the proposal, Valley View would remain the fifth largest commercial banking organization in the Kansas City banking market, controlling $1.4 billion in deposits, representing approximately 7 percent of market deposits. The HHI would increase 7 points to 871.(8)

Based on all the facts of record, the Board concludes that consummation of the proposal is not likely to result in any significantly adverse effects on competition or on the concentration of banking resources in the Kansas City banking market or any other relevant market.

Financial, Managerial, and Other Supervisory Factors

The BHC Act also requires that the Board, in acting on an application, consider the financial and managerial resources and future prospects of the companies and banks involved in a proposal and certain supervisory factors. The Board has carefully reviewed the financial and managerial resources and future prospects of Valley View and Bank of Lee's Summit in light of all the facts of record, including relevant supervisory reports of examination and other confidential supervisory information assessing the financial and managerial resources of the organization. The Board notes that Valley View is well capitalized and would remain so after consummation of the proposal. Based on these and all other facts of record, the Board concludes that the financial and managerial resources and future prospects of Valley View, its subsidiary banks, and Bank of Lee's Summit are consistent with approval, as are other supervisory factors the Board must consider under section 3 of the BHC Act.

Convenience and Needs Factor

In acting on a proposal under section 3 of the BHC Act, the Board is required to consider the effect of the proposal on the convenience and needs of the community to be served and take into account the records of the relevant depository institutions under the Community Reinvestment Act ("CRA").(9) The Board has carefully considered the convenience and needs factor and the CRA performance records of Bank of Lee's Summit and Valley View's subsidiary banks in light of all the facts of record, including comments from The Concerned Clergy Coalition, Kansas City, Missouri ("Protestant").(10) Protestant alleges that Valley View's subsidiary banks have arbitrarily excluded lowand moderate-income ("LMI") census tracts from their assessment areas and have failed to adequately assist in meeting the credit needs of these areas. Protestant contends that Valley View's subsidiary banks are not adequately meeting the housing lending needs in LMI census tracts of the Kansas City banking market. Protestant also asserts that Security Bank of Kansas City, Kansas City, Missouri ("Security Bank"), has failed to comply with past CRArelated representations' regarding participation in government-sponsored lending programs.

As provided in the CRA, the Board has evaluated the convenience and needs factor in light of examinations of the CRA performance records of the relevant institutions by the appropriate federal financial supervisory agency.(11) All the subsidiary banks of Valley View, and Bank of Lee's Summit have received "satisfactory" ratings from the Federal Deposit Insurance Corporation ("FDIC") in their most recent evaluations for CRA performance.(12) Protestant contends that Valley View Bank, Mission Bank, and First Bank, which serve suburban and other outlying areas of the Kansas City banking market, should extend their delineated communities under the CRA to include LMI census tracts in Kansas City. Although a bank's assessment area delineation is not a separate criterion for CRA performance, examiners review whether an institution's assessment area meets the requirements of the regulation, including whether it arbitrarily excludes LMI areas. In the most recent CRA performance evaluations of Valley View's banks, the FDIC reviewed their assessment areas delineation and concluded that the assessment area for each bank met the requirements of the regulation.(13) In addition, two of Valley View's subsidiary banks recently expanded their assessment areas to include a greater number of LMI areas.(14)

In the most recent CRA performance examination of Valley View's subsidiary banks, examiners found that the geographic distribution of loans by the banks reflected a pattern of lending throughout their respective assessment areas and to individuals of all income levels. Examiners noted no substantive violations of any antidiscrimination laws or regulations on any of the examinations.

Examiners noted that five of Valley View's six subsidiary banks focused primarily on commercial lending.(15) Consistent with that business strategy, commercial loans, which include construction and development, commercial real estate, and multifamily housing, represented a majority of the dollar amount of the banks' total outstanding loans.(16) Examinations of these banks noted the banks' commitments to small business lending. For example, examiners commended Valley View Bank for its excellent record of lending to businesses with gross annual revenues of $1 million or less. Valley View Bank made 479 small business loans from January 1997 through September 1999 in its assessment area. Approximately 76 percent by number, and 63 percent of the total dollar amount of small business loans made, were to businesses with gross annual revenues of $1 million or less. Examiners noted that this performance significantly exceeded the performance by area lenders in the aggregate, which averaged 42 percent of small business loans by number and 55 percent of the total dollar amount of small business loans made, to businesses with gross annual revenues of less than $1 million.

Examiners of Security Bank noted that its primary customer base consisted of small- and medium-size businesses, and its principal loan product was small business loans. Examiners also noted that Security Bank's lending reflected a good responsiveness to community credit needs. Examiners noted that 50 percent of the small business loans by number originated by Security Bank in its assessment area were made in LMI census tracts, compared with 10 percent by all reporting small business lenders in Wyandotte and Johnson Counties.(17) Examiners of First Bank noted that 29.3 percent of total dollar amount of the bank's small business loans were in LMI tracts.

Examiners noted that Valley View's subsidiary banks have had reasonable records of mortgage and consumer lending to LMI borrowers in light of the banks' focus on commercial lending and the demographic characteristics of the banks' delineated assessment areas,(18) For example, examiners determined that Valley View Bank made 35 percent of its consumer loans in its assessment area to LMI borrowers, which exceeded the percentage of LMI households in the bank's delineated area. In addition, of the 249 residential real estate loans Valley View Bank originated in its assessment area during the evaluation period, 16 percent were to LMI borrowers.(19) Examiners noted that although this percentage of residential real estate loans to LMI residents was less than the aggregate percentage of Home Mortgage Disclosure Act ("HMDA")(20) reporters in Johnson County, the bank's lending record was reasonable when the demographic factors of Valley View Bank's assessment area were taken into consideration.(21)

Examiners noted that First Bank had demonstrated an excellent responsiveness to the community's home mortgage needs by originating 36 percent of its 99 HMDA reportable loans in 1997 and 1998 to LMI borrowers in its assessment area, compared with 24.7 percent for all reporting HMDA lenders in the bank's assessment area.

Examiners also commended Security Bank for its excellent response to home mortgage needs in its community. In addition, 71 percent of the consumer loans Security bank originated in its assessment area were to LMI borrowers. Examiners noted that this compared favorably with the percentage of LMI borrowers in the assessment area (32.7 percent).

Protestant has criticized Industrial Bank's level of housing-related lending compared with smaller banks and the decline in its loan-to-deposit ratio. As noted, Industrial Bank's business strategy is focused on commercial lending, which represented 85 percent of the dollar amount of all outstanding loans. Residential real estate loans represented 5 percent of the dollar amount of the bank's total outstanding loans. As discussed above, the CRA does not require participation in any particular activity. Although Industrial Bank's home mortgage lending is limited, examiners found that Industrial Bank's overall lending levels reflected a good responsiveness to community credit needs. Of Industrial Bank's 95 small business loans originated from 1998 through November 1999 in its assessment area, 89 percent were to businesses that had annual revenues of less than $1 million. Examiners commended Industrial Bank for its responsiveness to the community's consumer loan needs by originating 70 percent of its 417 consumer loans to LMI borrowers, compared with the percentage of LMI borrowers in the assessment area (32.7 percent).

Citizens is the only Valley View subsidiary that primarily focuses on residential real estate lending. Examiners noted that Citizens' loan-to-deposit ratio of 75 percent reflected a strong responsiveness to community credit needs. Examiners also noted that in the 12 months preceding Citizens' evaluation, Citizens made 110 HMDA reportable loans, of which 86 percent by number and 88 percent of the total dollar amount of these loans made, were originated in the assessment area. Of the residential real estate loans Citizens originated in its assessment area, 56 percent were made to LMI borrowers. Examiners noted that this lending record compared very favorably with the percentage of LMI borrowers in the assessment area (31 percent), and commended Citizens for achieving an excellent penetration among borrowers of different income levels.

Bank of Lee's Summit's primary business focus was residential real estate lending, which constituted 40 percent of the institution's loan portfolio. Examiners noted an excellent penetration of lending among borrowers of various income levels. For example, examiners found that 44 percent of loans by number originated by Bank of Lee's Summit were to LMI borrowers. This compared favorably with the percentage of LMI families living in the bank's assessment area (23 percent). Examiners also noted that a majority of the bank's loan originations were in the bank's assessment area, and that the average loan-to-deposit ratio reflected a reasonable responsiveness to the credit needs of its community. Examiners noted no substantive or technical violations of any antidiscrimination laws or regulations.

Conclusion on the Convenience and Needs Factor

The Board has carefully considered the entire record in its review of the convenience and needs factor under the BHC Act. Based on all the facts of record, including information provided by Protestant, Valley View, and CRA performance examinations, and for the reasons discussed above, the Board concludes that considerations relating to convenience and needs, including the CRA performance records of the banks involved in the proposal, are consistent with approval.

Conclusion

Based on all the facts of record, the Board has determined that this application should be, and hereby is, approved.(22) The Board's approval is specifically conditioned on compliance by Valley View with all the commitments made in connection with the application. For purposes of this action, the commitments and conditions relied on by the Board in reaching its decision are deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law.

The proposed acquisition of the Bank of Lee's Summit shall not be consummated before the fifteenth calendar day following the effective date of this order, and not later than three months after the effective date of this order, unless such period is extended for good cause by the Board or by the Federal Reserve Bank of Kansas City, acting pursuant to delegated authority.

By order of the Board of Governors, effective April 3, 2000.

(1.) State deposit data are as of June 30, 1999.

(2.) See 12 U.S.C. [sections] bank holding company's home state is that state in which the total deposits of all banking subsidiaries of the company were the largest on July 1, 1966, or on the date on which the company became a bank holding company, whichever is later. 12 U.S.C. [sections] 1841(o)(4)(C).

(3.) See 12 U.S.C. [sections] 1842(d)(1)(A) and (B) and 1842(d)(2)(A) and (B). Bank of Lee's Summit has been in existence and continuously operated for the minimum period of time required under Missouri law. In addition, on consummation of the proposal, Valley View and its affiliates would control less than 10 percent of the total amount of deposits of insured depository institutions in the United States and less than 13 percent of the total amount of deposits of insured depository institutions in Missouri, as required by state law. Mo. Ann. Stat. [sections] 362.915 (West 1997). Valley View also meets the capital, managerial, and other requirements established under applicable law.

(4.) 12 U.S.C. [sections] 1842(c).

(5.) The Kansas City banking market is defined as the Kansas City Rand McNally Marketing Area in addition to the town of Trimble in Clinton County, Missouri.

(6.) In this context, depository institutions include commercial banks, savings banks, and savings associations.

(7.) Under the revised DOJ Guidelines, 49 Federal Register 26,823 (June 29, 1984), a market in which the post-merger Herfindahl-Hirschman Index ("HHI") is below 1000 is considered unconcentrated. The Department of Justice has informed the Board that a bank merger or acquisition generally will not be challenged in the absence of other factors indicating anticompetitive effects unless the postmerger HHI is at least 1800 and the merger increases the HHI by more than 200 points. The Department of Justice has stated that the higher than normal HHI thresholds for screening bank mergers for anticompetitive effects implicitly recognize the competitive effect of limited-purpose lenders and other nondepository financial entities.

(8.) Market share data are as of June 30, 1998. These data are based on calculations in which the deposits of thrift institutions are included at 50 percent. The Board previously has indicated that thrift institutions have become, or have the potential to become, significant competitors of commercial banks. See Midwest Financial Group, 75 Federal Reserve Bulletin 386 (1989); National City Corporation, 70 Federal Reserve Bulletin 743 (1984). Thus the Board has regularly included thrift deposits in the calculation of market share on a 50-percent weighted basis. See, e.g., First Hawaiian, Inc., 77 Federal Reserve Bulletin 52 (1991).

(9.) 12 U.S.C. [sections] 2901 et seq.

(10.) Protestant requests that the Board's action on the proposal impose a condition on Valley View to implement specific steps and programs that Protestant contends would improve the CRA performance of all the subsidiary banks involved in the proposal.

(11.) The interagency Questions and Answers Regarding Community Reinvestment provide that an institution's most recent CRA performance evaluation is an important consideration in the applications process because it represents a detailed on-site evaluation of the institution's overall record of performance under the CRA by the appropriate federal financial supervisor. 64 Federal Register 23,618 and 23,641 (1999).

(12.) Valley View's subsidiary banks received "satisfactory" ratings as follows, all in 1999: Citizens State Bank, Paola, Kansas ("Citizens"), as of June 29; First Bank, as of August 2; Industrial Bank, as of November 2; The Mission Bank, Mission, Kansas ("Mission Bank"), as of December 9; Security Bank, as of April 1; Valley View State Bank, Overland Park, Kansas ("Valley View Bank"), as of September 7. Bank of Lee's Summit received a "satisfactory" rating, as of November 2, 1998.

(13.) Protestant has criticized the FDIC's performance evaluations of Valley View's banks, including its review of their assessment areas. As noted above, the CRA peflbrmance evaluation is an important factor in the consideration of an institution's CRA record, and is given great weight because it represents an on-site evaluation of the CRA performance record of the bank and includes a review of local community banking needs. Protestant has not presented any data or evidence that were not available at the time of the performance evaluations.

(14.) Since the most recent CRA performance evaluations, Valley View Bank added 21 census tracts in Jackson County, Missouri, which includes Kansas City, to its assessment area. Five of these tracts are classified as LMI census tracts. Mission Bank added 14 census tracts in Wyandotte County, Kansas, to its assessment area. Ten of these tracts are LMI census tracts.

(15.) Citizens focused primarily on residential real estate lending, which represented 49 percent of its total loans. Examiners concluded that Citizens achieved an excellent penetration among borrowers of different income levels. They noted that 56 percent of the total number of real estate loans were made to LMI borrowers, which exceeded the percentage of families in the assessment area that resided in LMI tracts (31 percent).

(16.) Commercial loans represented 79 percent of the dollar amount of the outstanding loans for Valley View's lead bank, Valley View Bank. This statistic was 69 percent for Security Bank, 96 percent for The Mission Bank, 85 percent for Industrial Bank, and 81 percent for First Bank. Citizen's Bank, however, had only 28 percent of the total dollar amount of its outstanding loans in commercial loans.

(17.) Protestant asserts that Security Bank has failed to comply with CRA-related commitments made to the Board in 1996, involving Federal Housing Administration ("FHA") and Small Business Administration ("SBA") lending. Although Valley View had stated in 1996 that part of Security Bank's business plan was to become a more active SBA and FHA lender, this statement was neither a commitment nor a condition of approval of Valley View's application. See Valley View Bancshares, Inc., 82 Federal Reserve Bulletin 1036, 1038 (1996). Moreover, the record indicates that Security Bank has made a good faith effort to employ individuals with experience in government-sponsored lending programs. Protestant highlights the fact that Security Bank has not made any SBA loans during its last assessment period. The Board notes that the CRA provides banks with substantial leeway in developing specific CRA-related policies and programs and does not require participation in any particular type of activity or program. Accordingly, in reviewing the proposal, the Board has focused on the programs and policies that Security Bank has in place to assist in serving the credit needs of the entire community. See Fifth Third Bancorp, 80 Federal Reserve Bulletin 838 (1994).

(18.) For example, Industrial Bank, Mission Bank, and Security Bank all include Wyandotte County in their assessment areas. Several of the LMI census tracts in Wyandotte County are industrial or commercial in nature, have a low percentage of owner-occupied housing, or are in a flood plain.

(19.) The evaluation period covered 1997 through June 1999. These statistics only include loans that included the borrower's gross income.

(20.) 12 U.S.C. [sections] 2801 et seq.

(21.) Valley View Bank's assessment area at the time of the evaluation was Johnson County, Kansas, which had no LMI census tracts.

(22.) Protestant has requested that the Board hold a public hearing or meeting to receive testimony on the proposal. Section 3 of the BHC Act does not require the Board to hold a public hearing or meeting on an application unless the appropriate supervisory authority for the bank to be acquired makes a timely written recommendation of denial of the application. In this case, the Board has received no such request. Under its rules, the Board may, in its discretion, hold a public hearing or meeting on an application to clarify factual issues related to the application and to provide an opportunity for testimony, if appropriate. 12 C.F.R. 262.3(e) and 262.25(d). The Board has carefully considered Protestant's request in light of all the facts of record. In the Board's view, Protestant has had ample opportunity to submit its views, and has in fact submitted substantial written materials that have been considered by the Board in acting on the application. Protestant fails to demonstrate why its substantial written submissions do not adequately present its allegations or why a public hearing or meeting is otherwise warranted in this case. For these reasons, and based on all the facts of record, the Board has determined that a public hearing or meeting is not necessary to clarify the factual record in the application, and is not warranted in this case. Accordingly, Protestant's request for a public hearing or meeting is denied.

Voting for this action: Chairman Greenspan, Vice Chairman Ferguson, and Governors Kelley, Meyer, and Gramlich.

ROBERT DEV. FRIERSON
Associate Secretary of the Board

Orders Issued Under Section 4 of the Bank Holding Company Act

Canadian Imperial Bank of Commerce Toronto, Canada

The CIBC World Markets Corporation Toronto, Canada

CIBC World Markets Inc. Toronto, Canada

CIBC Delaware Holdings Inc. New York, New York

Order Approving the Acquisition of a Savings Association

Canadian Imperial Bank of Commerce ("CIBC"), The CIBC World Markets Corporation ("World Markets Corp."), CIBC World Markets Inc. ("World Markets Inc."), and CIBC Delaware Holdings Inc. ("Holdings") (collectively, "Notificants"), all bank holding companies within the meaning of the Bank Holding Company Act ("BHC Act"), have requested the Board's approval under section 4(c)(8) of the BHC Act (12 U.S.C. [sections] 1843(c)(8)) and section 225.24 of the Board's Regulation Y to acquire all the common stock of St. Anthony Bancorp, Inc. ("St. Anthony"), and St. Anthony's wholly owned subsidiary, St. Anthony Bank, A Federal Savings Bank ("Thrift"), both of Cicero, Illinois.

Notice of the proposals, affording interested persons an opportunity to comment, has been published (65 Federal Register 4975 (2000)). The time for filing comments has expired, and the Board has considered the notices and all comments received in light of the factors set forth in section 4 of the BHC Act.

CIBC, with consolidated assets of $185 billion, is the largest banking organization headquartered in Canada. CIBC owns a subsidiary depository institution in Florida, which controls deposits of less than $1 million,(1) and CIBC also operates a state- licensed branch in Chicago, Illinois; agencies in New York, New York; Atlanta, Georgia; and Los Angeles and Menlo Park, California; and a representative office in Houston, Texas. CIBC engages in a broad range of permissible nonbanking activities in the United States through subsidiaries, including a subsidiary engaged in underwriting and dealing in, to a limited extent, debt and equity securities.

St. Anthony, with total consolidated assets of $28.3 million, is the 591st largest depository organization in Illinois, controlling less than 1 percent of total deposits of insured depository institutions in the state ("state deposits").(2)

The Board previously has determined by regulation that the operation of a savings association by a bank holding company is closely related to banking for purposes of section 4(c)(8) of the BHC Act.(3) The Board requires that savings associations acquired by bank holding companies conform their direct and indirect activities to those permissible for bank holding companies under section 4 of the BHC Act. St. Anthony does not currently engage in any activities impermissible for bank holding companies.

Competitive Considerations

In order to approve the proposal, the Board is also required by section 4(j)(2)(A) of the BHC Act to determine that the acquisition of St. Anthony by CIBC "can reasonably be expected to produce benefits to the public ... that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices."(4) As part of its review of these factors, the Board has considered carefully the competitive effects of .the proposal in light of all the facts of record.(5) CIBC and St. Anthony do not compete directly in any relevant banking market. Based on all the facts of record, the Board concludes that consummation of the proposal would not result in a monopoly or in any significantly adverse effects on competition or on the concentration of banking resources in any relevant banking market.

Convenience and Needs Considerations

In acting on notices to acquire a savings association, the Board reviews the records of performance of the relevant depository institutions under the Community Reinvestment Act (12 U.S.C. [sections] 2901 et seq.) ("CRA").(6) The only insured depository institution controlled by CIBC is CIBC National Bank, Maitland, Florida ("CIBC NB"). CIBC NB commenced operations in October 1999, and has not yet received a CRA performance rating from its primary federal supervisor, the Office of the Comptroller of the Currency. The Board has, however, reviewed the record of performance under the CRA of Canadian Imperial Bank of Commerce (New York) ("CIBC(NY)"), a New York state bank subsidiary of CIBC that was operated by CIBC from 1951 until it was voluntarily dissolved in 1996. The performance of CIBC(NY) under the CRA was last reviewed by the Federal Deposit Insurance Corporation on March 14, 1994, and rated "outstanding."(7) Thrift received a "satisfactory" rating in its most recent CRA evaluation by the Office of Thrift Supervision, dated August 18, 1998.

Based on all the facts of record, including CIBC's past record of performance under the CRA, the Board concludes that convenience and needs considerations are consistent with approval of the proposal.

Financial, Managerial, and Supervisory Considerations

In connection with its review of the public interest factors under section 4 of the BHC Act, and in light of all the facts of record, the Board also has carefully reviewed the financial and managerial resources of CIBC and St. Anthony and their respective subsidiaries and the effect the transaction would have on such resources.(8) The Board has reviewed, among other things, confidential reports of examination and other supervisory information received from the primary federal supervisors of the organizations. Based on all the facts of record, including commitments made by CIBC, the Board concludes that the financial and managerial resources of the organizations involved in the proposal are consistent with approval.

The record indicates that consummation of the proposal would result in benefits to consumers and businesses. The proposal would enable CIBC to provide Thrift's customers with access to a broad array of products and services throughout an expanded service area. Additionally, there are public benefits to be derived from permitting capital markets to operate so that bank holding companies may make potentially profitable investments in nonbanking companies and from permitting banking organizations to allocate their resources in the manner they believe is most efficient when, as in this case, those investments are consistent with the relevant considerations under the BHC Act. Based on all the facts of record, the Board has determined that consummation of this proposal can reasonably be expected to produce public benefits that would outweigh any likely adverse effects under the proper incident to banking standard of section 4(j)(2) of the BHC Act.

Conclusion

Based on the foregoing and all the facts of record, the Board has determined that the notice should be, and hereby is, approved. The Board's approval of the proposal is specifically conditioned on compliance by Notificants with the commitments made in connection with this notice, and on the Board's receiving access to information on the activities or operations of CIBC and any of its affiliates that the Board determines to be appropriate to determine and enforce compliance by CIBC and its affiliates with applicable federal statutes. The Board's approval is also subject to all the conditions set forth in this order and in Regulation Y, including those in sections 225.7 and 225.25(c) (12 C.F.R. 225.7 and 225.25(c)), and to the Board's authority to require such modification or termination of the activities of a bank holding company or any of its subsidiaries as the Board finds necessary to ensure compliance with, or to prevent evasion of, the provisions and purposes of the BHC Act and the Board's regulations and orders issued thereunder. These commitments and conditions relied on by the Board in reaching this decision shall be deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law.

This transaction may not be consummated later than three months after the effective date of this order, unless such period is extended for good cause by the Board or the Federal Reserve Bank of New York, acting pursuant to delegated authority.

By order of the Board of Governors, effective April 12, 2000.

(1.) Asset data for CIBC are as of April 30, 1999, and use exchange rates then in effect, ranking data are as of October 31, 1998, and deposit data are as of December 31, 1999.

(2.) Asset data for St. Anthony are as of September 30, 1999, and ranking data are as of June 30, 1999.

(3.) 12 C.F.R. 225.28(b)(4).

(4.) 12 U.S.C. [sections] 1843(j)(2)(A).

(5.) See First Hawaiian, Inc., 79 Federal Reserve Bulletin 966 (1993).

(6.) See, e.g., Banc One Corporation, 83 Federal Reserve Bulletin 602 (1997).

(7.) Between the dissolution of CIBC(NY) and the establishment of CIBC NB, none of the operations of CIBC or its subsidiaries have been subject to the CRA, though CIBC also operated Canadian Imperial Bank of Commerce California, a California state bank, from 1929 until it was voluntarily dissolved in 1991.

(8.) See 12 C.F.R. 225.26.

Voting for this action: Chairman Greenspan, Vice Chairman Ferguson, and Governors Kelley, and Gramlich. Absent and not voting: Governor Meyer.

ROBERT DEV. FRIERSON
Associate Secretary of the Board

Orders Issued Under Sections 3 and 4 of the Bank Holding Company Act

Peoples Heritage Financial Group, Inc. Portland, Maine

Order Approving the Acquisition of a Bank Holding Company

Peoples Heritage Financial Group, Inc. ("Peoples Heritage"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 3 of the BHC Act (12 U.S.C. [sections] 1842) to acquire Banknorth Group, Inc., Burlington, Vermont ("Banknorth"), and its wholly owned subsidiary banks.(1) Peoples Heritage also has requested the Board's approval under sections 4(c)(8) and 4(j) of the BHC Act (12 U.S.C. [subsections] 1843(c)(8) and 1843(j)) and section 225.24 of the Board's Regulation Y (12 C.F.R. 225.24) to acquire The Stratevest Group, N.A., Barre, Vermont ("Stratevest"), and thereby engage in trust company activities under section 225.28(b)(5) of the Board's Regulation Y (12 C.F.R. 225.28(b)(5)).(2)

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (64 Federal Register 62,204 (1999)). The time for filing comments has expired, and the Board has considered the proposal and all comments received in light of the factors set forth in sections 3 and 4 of the BHC Act.

Peoples Heritage, with total consolidated assets of $13.9 billion is the 48th largest commercial banking organization in the United States, controlling less than 1 percent of total assets of insured commercial banks in the United States.(3) Peoples Heritage operates depository institutions in Connecticut, Maine, Massachusetts, and New Hampshire. Peoples Heritage is headquartered in Maine, where it is the largest commercial banking organization, controlling deposits of $2.9 billion in the state, representing approximately 21.5 percent of total deposits in insured depository institutions in the state ("state deposits").(4) Banknorth, with total consolidated assets of $4.6 billion, operates depository institutions in Vermont, Massachusetts, New Hampshire, and New York. Banknorth is the second largest depository institution in Vermont, controlling deposits of $1.5 billion, representing approximately 20.6 percent of state deposits. On consummation of the proposal, and after accounting for the proposed divestiture discussed in this order, Peoples Heritage would have total consolidated assets of approximately $18.5 billion and control deposits of $11.9 billion.

Interstate Analysis

Section 3(d) of the BHC Act allows the Board to approve an application by a bank holding company to acquire control of a bank located in a state other than the home state of the bank holding company if certain conditions are met.(5) For purposes of the BHC Act, the home state of Peoples Heritage is Maine, and Banknorth's subsidiary banks are located in Vermont, Massachusetts, New Hampshire, and New York.(6) Thus, for purposes of section 3(d), this transaction involves the acquisition by a Maine bank holding company of banks in Massachusetts, New Hampshire, New York, and Vermont.

All the conditions for an interstate acquisition enumerated in section 3(d) of the BHC Act are met in this case.(7) In view of all the facts of record, the Board is permitted to approve the proposal under section 3(d) of the BHC Act.

Competitive Considerations

The BHC Act prohibits the Board from approving an application under section 3 of the BHC Act if the proposal would result in a monopoly or would be in furtherance of any attempt to monopolize the business of banking. The BHC Act also prohibits the Board from approving a proposed combination that would substantially lessen competition or tend to create a monopoly in any relevant banking market, unless the Board finds that the anticompetitive effects of the proposal are clearly outweighed in the public interest by the probable effects of the proposal in meeting the convenience and needs of the community to be served.(8)

Peoples Heritage and Banknorth compete directly in seven banking markets: three in New Hampshire, three in Massachusetts, and one in Vermont.(9) The Board has carefully reviewed the competitive effects of the proposal in these banking markets in light of all the facts of record, including the number of competitors that would remain in the markets, the relative shares of total deposits in depository institutions in the markets ("market deposits") controlled by the companies involved in this transaction,(10) the concentration levels of market deposits and the increase in these levels as measured by the Herfindahl-Hirschman Index ("HHI") under the Department of Justice Merger Guidelines ("DOJ Guidelines"), and other characteristics of the markets.(11)

A. Banking Market that Complies with the DOJ Guidelines without Divestitures

Consummation of the proposal without divestitures would be consistent with Board precedent and the DOJ Guidelines in five banking markets: Boston, Springfield, and Worcester, all in Massachusetts; Laconia, New Hampshire; and Brattleboro, Vermont.(12) After consummation of the proposal, numerous competitors would remain in each banking market and the markets would remain moderately concentrated as measured by the HHI.

B. Banking Market that Complies with the DOJ Guidelines with Proposed Divestiture

To mitigate the potential anticompetitive effects of the proposal in the Wolfeboro, New Hampshire, banking market, Peoples Heritage has committed to divest one branch that controls $28.1 million in deposits. The branch to be divested includes all deposits in the market controlled by Peoples Heritage before consummation of the proposal.(13) After accounting for the proposed divestiture, consummation of the proposal in this market would not cause any increase in market concentration as measured by the HHI and would be consistent with Board precedent and the DOJ Guidelines.(14)

C. Portsmouth-Dover-Rochester Banking Market

Peoples Heritage does not propose any divestiture in the Portsmouth-Dover-Rochester, New Hampshire, banking market, and consummation of the proposal in this market would result in an increase in market concentration that exceeds the thresholds in the DOJ Guidelines. The Board has considered whether other factors either mitigate the competitive effects of the proposal in the market or indicate that the proposal would have a significantly adverse effect on competition in the market.(15)

Peoples Heritage is the largest depository institution in the market, controlling deposits of $811.3 million, representing approximately 29.7 percent of market deposits. Banknorth is the seventh largest depository institution in the market, controlling deposits of $105.4 million, representing approximately 3.8 percent of market deposits. On consummation of the proposed merger, Peoples Heritage would remain the largest depository institution in the market, controlling deposits of $916.7 million, representing approximately 33.5 percent of market deposits. The HHI would increase 229 points to 1967.

In reviewing the competitive effects of this proposal, the Board has considered that several factors appear to mitigate the likely effect of the proposal on competition in the Portsmouth-Dover-Rochester banking market. In particular, the Board has considered the number and size of competing institutions in the banking market. Fifteen depository institutions in addition to Peoples Heritage would remain in the market after the proposed acquisition. Two of these depository institutions would each control more than 12 percent of market deposits.

The market also appears to be attractive for entry by out-of-market competitors. Since 1990, the population in the market has increased at a rate faster than the rate of increase in population in New Hampshire or Maine, the two states in which the market is located. In 1998, the average household income in two of the counties that comprise a significant portion of the market exceeded the average household income in their respective states. In addition, there has been one de novo entry into the market in the past three years.

The Board believes that the number of competitors, the structure of the market, and the attractiveness of the Portsmouth-Dover-Rochester banking market mitigate potential anticompetitive effects of the transaction in this case.

The Department of Justice has conducted a detailed review of the proposal and advised the Board that, conditioned on completion of the proposed divestiture, consummation of the proposal would not likely have a significantly adverse effect on competition in any, relevant banking market. The Office of the Comptroller of the Currency ("OCC") and the Federal Deposit Insurance Corporation ("FDIC") also have been afforded an opportunity to comment and have not objected to consummation of the proposal.

After carefully reviewing all the facts of record, and for the reasons discussed in the order and appendices, the Board concludes that consummation of the proposal would not likely result in a significantly adverse effect on competition or on the concentration of banking resources in any of the seven banking markets in which Peoples Heritage and Banknorth directly compete or in any other relevant banking market. Accordingly, based on all the facts of record, and subject to completion of the proposed divestiture and compliance with the related commitments, the Board has determined that competitive factors are consistent with approval of the proposal.

Convenience and Needs Considerations

In acting on a proposal under section 3 of the BHC Act, the Board is required to consider the effect of the proposal on the convenience and needs of the community to be served. The Board has carefully considered the effect of the proposal on the convenience and needs of the communities to be served in light of all the facts of record, including comments submitted by a community development organization in Vermont ("Commenter"). Commenter expressed support for the efforts of Banknorth's subsidiary banks to help address the need for affordable housing, farm, and small business lending and for community reinvestment in Vermont, and expressed concern that the proposal may result in reduced support for these areas or reduced access to banking services.

The Board has long held that consideration of the convenience and needs factor includes a review of the records of the relevant depository institutions under the Community Reinvestment Act (12 U.S.C. [sections] 2901 et seq.) ("CRA"). As provided in the CRA, the Board has evaluated this factor in light of examinations by the appropriate federal banking supervisors of the CRA performance records of the relevant institutions.(16) Peoples Heritage's lead subsidiary bank, Peoples Heritage Savings Bank, Portland, Maine ("Peoples Heritage Bank"), received an "outstanding" rating from its primary federal supervisor, the FDIC, at its most recent CRA examination, as of September 1998 ("Peoples Examination").(17) Peoples Heritage's other subsidiary banks have received "outstanding" or "satisfactory" CRA performance ratings in their most recent CRA examination by their primary federal supervisors.(18) Banknorth's lead subsidiary bank, Howard Bank, N.A., Burlington, Vermont, was rated "outstanding" for CRA performance by the OCC, as of December 1, 1997, and Banknorth's other subsidiary banks that have been examined have received "outstanding" or "satisfactory" CRA performance ratings in their most recent CRA examination by their primary federal supervisors.(19)

In the Peoples Examination, examiners found that lending by Peoples Heritage Bank was geographically distributed throughout its assessment area and that credit was extended to borrowers at all income levels. Examiners noted no substantive or technical violations at the bank of any antidiscrimination laws or regulations.

In 1997, Peoples Heritage Bank was the largest home mortgage lender in Maine, with almost 17 percent of all mortgage loans reported under the Home Mortgage Disclosure Act (12 U.S.C. [sections] 2801 et seq.) that were originated in its assessment area.(20) The bank made 13,959 mortgage loans totaling $1.9 billion.

Examiners reported that Peoples Heritage Bank provided a broad range of loan products, including government-sponsored affordable mortgage loan programs. The bank has been the largest lender under programs offered by the Maine State Housing Authority (MSHA).(21) In 1997 and the first six months of 1998, the bank originated 219 MSHA loans totaling $14.7 million.(22) Peoples Heritage Bank also has developed its own affordable mortgage loan programs in response to the needs of the community it serves. For example, the bank entered into an agreement with the Penquis Community Action Program to provide qualified low-income borrowers in the Bangor, Maine, area with home purchase mortgage loans featuring 100 percent financing and a sliding scale of fixed interest rates no higher than 7 percent, with lower rates for borrowers with lower incomes. Examiners also commended Peoples Heritage Bank for its strong level of small business and small farm lending. During 1997, it extended 1,843 CRA-reported small business loans totaling $156.3 million. Of these loans, 93.3 percent by number, and 93.5 percent of the total dollar amount, were made in Peoples Heritage Bank's assessment area.(23)

In addition, examiners found that Peoples Heritage Bank participated in community development lending in a manner consistent with the needs of its assessment area. The bank originated 19 qualified community development loans in its assessment area during the period covered in the Peoples Examination, totaling $11.5 million. The bank also made 50 qualified community development investments, totaling $11.4 million, during this period.

Peoples Heritage Bank was considered by examiners to be competitive in the banking hours it offered, the accessibility of its branches and alternative retail delivery systems, and the features of its low-cost checking accounts. The branch closing policy was reviewed by examiners and considered satisfactory.(24) Peoples Heritage Bank has indicated that the Vermont banks would remain independent franchises for the foreseeable future and that it does not anticipate significant branch closings in the state.

The Board has carefully considered all the facts of record, including the comments received, responses to these comments, and the CRA performance records of Peoples Heritage Bank, Howard Bank, and the other subsidiary banks of Peoples Heritage and Banknorth, including relevant reports of examination and other supervisory information. Based on a review of the entire record and for the reasons discussed above, the Board concludes that convenience and needs considerations, including the CRA records of performance of the institutions involved, are consistent with approval of the proposal.

Financial Managerial and Other Supervisory Factors

The BHC Act also requires the Board, in acting on an application, to consider the financial and managerial resources and future prospects of the companies and banks involved in a proposal, and certain other supervisory factors.

The Board has carefully considered the financial and managerial resources and future prospects of Peoples Heritage and Banknorth and their respective subsidiary banks, and other supervisory factors in light of all the facts of record. As part of this consideration, the Board has reviewed relevant reports of examination and other supervisory information prepared by the Federal Reserve Bank of Boston and other federal banking supervisory agencies, including reports concerning the parties' risk management systems and steps taken recently by Peoples Heritage to enhance these systems. The Board notes that the bank holding companies and their subsidiary banks are well capitalized and are expected to remain so after consummation of the proposal.

The Board also has considered other aspects of the financial condition and resources of Peoples Heritage and Banknorth and the combined organization and other aspects of their managerial resources. Based on all the facts of record, the Board concludes that considerations relating to the financial and managerial resources and future prospects of Peoples Heritage, Banknorth, and their respective subsidiaries are consistent with approval of the proposal, as are the other supervisory factors that the Board must consider under section 3 of the BHC Act.

Nonbanking Activities

Peoples Heritage has filed notice under sections 4(c)(8) and 4(j) of the BHC Act to acquire Banknorth's wholly owned nonbanking subsidiary, Stratevest, and thereby engage in trust company activities. The Board has determined by regulation that trust company activities are closely related to banking for purposes of the BHC Act.(25) Peoples has committed to conduct this nonbanking activity in accordance with the limitations set forth in Regulation Y and the Board's orders and interpretations governing trust company activities.

In order to approve this notice, the Board is required by section 4(j)(2)(A) of the BHC Act to determine that the acquisition of Stratevest by Peoples Heritage "can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices."(26)

As part of its evaluation of these factors, the Board considers the financial and managerial resources of Peoples Heritage and its subsidiaries, including the companies to be acquired, and the effect of the proposed transaction on those resources. For the reasons noted above, and based on all the facts of record, the Board has concluded that financial and managerial considerations are consistent with approval of the notice.

The Board also has considered the competitive effects of the proposed acquisition by Peoples of Stratevest. The market for trust company services in which Peoples Heritage and Stratevest compete is national or regional in scope and is unconcentrated. Consummation of this proposal would have a de minimis effect on the market, and numerous competitors would remain in the market. Based on all the facts of record, the Board concludes that it is unlikely that significantly adverse competitive effects would result from the nonbanking acquisition proposed in this transaction.

The Board also expects that the proposed transaction would give Peoples Heritage an increased ability to serve the needs of its customers. In addition, there are public benefits to be derived from permitting capital markets to operate so that bank holding companies can make potentially profitable investments in nonbanking companies and from permitting banking organizations to allocate their resources in the manner they consider to be most efficient when such investments are consistent, as in this case, with the relevant considerations under the BHC Act.

The Board also concludes that the conduct of the proposed nonbanking activity within the framework of Regulation Y and Board precedent is not likely to result in adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices, that would outweigh the public benefits of the proposal, such as increased customer convenience and gains in efficiency. Accordingly, based on all the facts of record, the Board has determined that the balance of public interest factors that the Board must consider under section 4(j)(2)(A) of the BHC Act is favorable and consistent with approval of this proposal.

Conclusion

Based on the foregoing, and in light of all the facts of record, the Board has determined that the applications and notice should be, and hereby are, approved. Approval of the applications and notice is specifically conditioned on compliance by Peoples Heritage with all the commitments made in connection with the proposal and with the conditions stated or referred to in this order, including Peoples Heritage's divestiture commitment. The Board's determination on the nonbanking activities also is subject to all the terms and conditions set forth in Regulation Y, including those in sections 225.7 and 225.25(c) (12 C.F.R. 225.7 and 225.25(c)), and the Board's authority to require such modification or termination of the activities of a bank holding company or any of its subsidiaries as the Board finds necessary to ensure compliance with, and to prevent evasion of, the provisions of the BHC Act and the Board's regulations and orders thereunder. For purposes of this transaction, the commitments and conditions referred to in this order shall be deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law.

The acquisition of the subsidiary banks of Banknorth shall not be consummated before the fifteenth calendar day after the effective date of this order, and the proposal shall not be consummated later than three months after the effective date of this order, unless such period is extended for good cause by the Board or by the Federal Reserve Bank of Boston, acting pursuant to delegated authority.

By order of the Board of Governors, effective April 24, 2000.

(1.) The subsidiary banks of Banknorth are listed in Appendix A.

(2.) Peoples Heritage and Banknorth also have requested the Board's approval to hold and exercise an option for Peoples Heritage to acquire up to 19.9 percent of the voting shares of Banknorth and for Banknorth to acquire up to 19.9 percent of Peoples Heritage's voting shares. These options would expire on consummation of the proposal.

(3.) Asset data are as of June 30, 1999, and ranking data are as of December 31, 1999.

(4.) Deposit data are as of June 30, 1999. In this context, depository institutions include commercial banks, savings banks, and savings associations.

(5.) See 12 U.S.C. [sections] 1842(d). A bank holding company's home state is that state in which the total deposits of all banking subsidiaries of the company were the largest on July 1, 1966, or on the date on which the company became a bank holding company, whichever is later. 12 U.S.C. [sections] 1841(o)(4)(C).

(6.) For purposes of section 3(d) of the BHC Act, the Board considers a bank to be located in the states in which the bank is chartered or headquartered or operates a branch. NationsBank Corporation, 84 Federal Reserve Bulletin 858 (1998).

(7.) See 12 U.S.C. [subsections] 1842(d)(1)(A) and (B) and 1842(d)(2)(A). Peoples Heritage is adequately capitalized and adequately managed, as defined in the BHC Act, and the subsidiary banks of Banknorth have been in existence and operated for the minimum periods of time necessary to satisfy age requirements established by applicable state law. See Mass. Gen. Laws Ann. Ch. 167A, [sections] 2 (West 1998) (three years); N.H. Rev. Stat. Ann. [sections] 384:58 (1999) (five years). Peoples Heritage also would not exceed applicable deposit limitations as calculated under state law. See 12 U.S.C. [sections] 1842 (d)(2)(B); Mass. Gen. Laws Ann. Ch. 167A, [sections] 2 (West 1998); N.H. Rev. Stat. Ann. [sections] 384-B:3 (1999); Vt. Stat. Ann. tit. 8, [sections] 1015 (1999). On consummation of the proposal, Peoples Heritage would control less than 10 percent of the total amount of deposits in insured depository institutions in the United States. All other requirements of section 3(d) of the BHC Act also would be met on consummation of the proposal.

(8.) 12 U.S.C. [sections] 1842(c).

(9.) The banking markets are described in Appendix B. ,

(10.) Market share data are as of June 30, 1998, and are based on calculations that include the deposits of thrift institutions at 50 percent. The Board previously has indicated that thrift institutions have become, or have the potential to become, significant competitors of commercial banks. See, e.g., Midwest Financial Group, 75 Federal Reserve Bulletin 386 (1989); National City Corporation, 70 Federal Reserve Bulletin 743 (1984). Thus, the Board has regularly included thrift deposits in the calculation of market share on a 50-percent weighted basis. See, e.g., First Hawaiian, Inc., 77 Federal Reserve Bulletin 52 (1991).

(11.) Under the DOJ Guidelines, 49 Federal Register 26,823 (1984), a market in which the post-merger HHI is more than 1800 is considered highly concentrated. The Department of Justice has informed the Board that a bank merger or acquisition generally will not be challenged (in the absence of other factors indicating anticompetitive effects) unless the post-merger HHI is at least 1800 and the merger increases the HHI by more than 200 points. The Department of Justice has stated that the higher than normal HHI thresholds for screening bank mergers for anticompetitive effects implicitly recognize the competitive effects of limited-purpose lenders and other nondepository financial institutions.

(12.) The effects of the proposal on the concentration of banking resources in these markets are set forth in Appendix C.

(13.) Peoples Heritage has committed that, if it is unsuccessful in completing the proposed divestiture with a purchaser determined by the Board to be competitively suitable within 180 days after consummation of the acquisition of Banknorth, it will transfer the unsold branch to an independent trustee that is acceptable to the Board and will instruct the trustee to sell the branch promptly to one or more alternative purchasers acceptable to the Board. See BankAmerica Corporation, 78 Federal Reserve Bulletin 338 (1992); United New Mexico Financial Corporation, 77 Federal Reserve Bulletin 484 (1991).

(14.) The effect of the proposal on the concentration of banking resources in the Wolfeboro banking market is set forth in Appendix D.

(15.) The number and strength of factors necessary to mitigate the competitive effects of a proposal depend on the level of concentration and size of the increase in market concentration. See NationsBank Corporation, 84 Federal Reserve Bulletin 129 (1998).

(16.) The Interagency Questions and Answers Regarding Community Reinvestment provide that an institution's most recent CRA performance evaluation is an important consideration in the applications process because it represents a detailed on-site evaluation of the institution's overall record of performance under the CRA by the appropriate federal banking supervisor. 64 Federal Register 23,618 and 23,641 (1999).

(17.) The bank has retained an "outstanding" CRA performance rating since 1978 when federal supervisors began examining insured depository institutions for CRA performance.

(18.) Springfield Institution for Savings, Springfield, Massachusetts ("SIS"), received an "outstanding" rating from the FDIC, as of September 1997; Family Bank, FSB, Haverhill, Massachusetts ("Family Bank"), received an "outstanding" rating from the Office of Thrift Supervision ("OTS"), as of July 1997; Atlantic Bank of Portland, Portland, Maine, received a "satisfactory" rating from the OCC, as of June 1996; Glastonbury Bank and Trust Company, Glastonbury, Connecticut, received a "satisfactory" rating from the FDIC, as of August 1996; and Bank of New Hampshire, Manchester, New Hampshire, received a "satisfactory" rating from the FDIC, as of September 1998. SIS was merged into Family Bank in 1999, but Family Bank has not been examined for CRA performance since the merger.

(19.) Franklin-Lamoille Bank, Saint Albans, Vermont, received an "outstanding" rating from the FDIC, as of March 1999; Evergreen Bank, N.A., Glens Falls, New York, received a "satisfactory" rating from the OCC, as of November 1997; Farmington National Bank, Farmington, New Hampshire, received a "satisfactory" rating from the OCC, as of December 1997; First Vermont Bank and Trust Company, Brattleboro, Vermont, received a "satisfactory" rating from the FDIC, as of December 1997; and Granite Savings Bank and Trust Company, Barre, Vermont, received a "satisfactory" rating from the FDIC, as of August 1998. First Massachusetts Bank, N.A., Worcester, Massachusetts, has not been examined for CRA performance by the OCC.

(20.) The assessment area for Peoples Heritage Bank approximated the State of Maine. The bank controlled 21.5 percent of state deposits.

(21.) Peoples Heritage Bank has been named MSHA Lender of the Year for the past three years.

(22.) Commenter questioned whether Peoples Heritage would expand its support for affordable housing loans and multifamily housing projects to compensate fully for the loss of support for these projects by Banknorth. Commenter expressed particular concern that Peoples Heritage might not maintain Banknorth's level of support of programs sponsored by the Vermont Housing Finance Authority ("VHFA"), which combines state subsidies, low-cost bank funding, and the assistance of nonprofit associations to provide affordable mortgages to low-income homebuyers. Peoples Heritage has indicated that it would continue to focus on being a leader in residential mortgage lending in its market areas.

(23.) More than 82 percent of the bank's small business loans were made to borrowers with gross annual revenues of $1 million or less. In addition, more than 80 percent of Peoples Heritage Bank's small business loans and all its small farm loans were originated in amounts under $100,000.

(24.) Commenter questioned whether job losses and community disruptions might result from possible consolidations after consummation of the proposal. The effect of a proposal on employment in a community is not among the factors included in the BHC Act, and the federal banking agencies, courts, and Congress consistently have interpreted the convenience and needs factor to relate to the effect of a proposal on the availability and quality of banking services in the community. See, e.g., Wells Fargo & Company, 82 Federal Reserve Bulletin 445, 457 (1996). Peoples Heritage also has described certain steps it would take to minimize these effects, including job search assistance and training opportunities for dismissed employees.

(25.) See 12 C.F.R. 225.28(b)(5).

(26.) 12 U.S.C. [sections] 1843(j)(2)(A).

Voting for this action: Chairman Greenspan, Vice Chairman Ferguson, and Governors Kelley, Meyer, and Gramlich.

ROBERT DEV. FRIERSON
Associate Secretary of the Board
Appendix A

Subsidiary Banks of Banknorth

Massachusetts
First Massachusetts Bank, N.A., Worcester

New Hampshire
Farmington National Bank, Farmington

New York
Evergreen Bank, N.A., Glen Falls

Vermont
First Vermont Bank and Trust Company, Brattleboro
Franklin-Lamoille Bank, St. Albans
Granite Savings Bank and Trust Company, Barre
Howard Bank, N.A., Burlington

Appendix B

Banking Markets in which Peoples Heritage and Banknorth Compete Directly

Massachusetts

Boston: Boston Rand McNally Marketing Area ("RMA") and the town of Lyndeboro in New Hampshire. Springfield: Springfield RMA and the towns of Otis in Berkshire County; Deerfield, Leverett, Shutesbury, and Whately in Franklin County; Blandford, Chester, Granville, and Tolland in Hampden County; Chesterfield, Cummington, Goshen, Pelham, Plainfield, Westhampton, and Worthington in Hampshire County; and Hardwick and Warren in Worcester County.

Worcester: Worcester RMA and the towns of Brimfield and Wales in Hampton County and Hubbardston in Worcester County.

New Hampshire

Laconia: Belknap County, excluding the town of Barnstead, and the towns of Northfield in Merrimack County and Moultonboro and Sandwich in Carroll County.

Portsmouth-Dover-Rochester: Portsmouth-Dover-Rochester RMA and the towns of Brookfield, Middleton, New Durham, Northwood, Nottingham, Strafford, and Wakefield in New Hampshire; and Kennebunk, Lebanon, North Berwick, and Wells in Maine.

Wolfeboro: The towns of Effinghham, Ossipee, Tuftonboro, and Wolfeboro in Carroll County.

Vermont

Brattleboro: The towns of Brattleboro, Brookline, Dummerston, Guilford, Halifax, Marlboro, Newfane, Putney, Townsend, and Vernon in Windham County; and the town of Hinsdale in New Hampshire.

Appendix C

Banking Markets that Comply with the DOJ Guidelines without Divestitures(1)

Massachusetts

Boston: Peoples Heritage is the sixth largest depository institution in the market, controlling deposits of $1.5 billion, representing approximately 1.9 percent of market deposits. Banknorth is the 90th largest depository institution in the market, controlling deposits of $65.1 million, representing less than 1 percent of market deposits. On consummation of the proposal, Peoples Heritage would remain the sixth largest of 180 depository institutions in the market, controlling deposits of $1.6 billion, representing approximately 2 percent of market deposits. The HHI would remain unchanged at 1899.

Springfield: Peoples Heritage is the second largest depository institution in the market, controlling deposits of $1.1 billion, representing approximately 19.8 percent of market deposits. Banknorth is the 16th largest depository institution in the market, controlling deposits of $61.9 million, representing approximately 1.1 percent of market deposits. On consummation of the proposal, Peoples Heritage would remain the second largest of 22 depository institutions in the market, controlling deposits of $1.2 billion, representing approximately 20.9 percent of market deposits. The HHI would increase 43 points to 1656.

Worcester: Peoples Heritage is the eighth largest depository institution in the market, controlling deposits of $93.5 million, representing approximately 2.2 percent of market deposits. Banknorth is the third largest depository institution in the market, controlling deposits of $388.6 million, representing approximately 9 percent of market deposits. On consummation of the proposal, Peoples Heritage would become the third largest of 25 depository institutions in the market, controlling deposits of $482.1 million, representing approximately 11.2 percent of market deposits. The HHI would increase 28 points to 1819.

New Hampshire

Laconia: Peoples Heritage is the seventh largest depository institution in the market, controlling deposits of $40.3 million, representing approximately 7.8 percent of market deposits. Banknorth is the sixth largest depository institution in the market, controlling deposits of $45.8 million, representing approximately 8.9 percent of market deposits. On consummation of the proposal, Peoples Heritage would become the fourth largest of nine depository institutions in the market, controlling deposits of $86.1 million, representing approximately 16.7 percent of market deposits. The HHI would increase 138 points to 1826.

Vermont

Brattleboro: Peoples Heritage is the eighth largest depository institution in the market, controlling deposits of $4.8 million, representing approximately 1.1 percent of market deposits. Banknorth is the second largest depository institution in the market, controlling deposits of $145.2 million, representing approximately 32.2 percent of market deposits. On consummation of the proposal, Peoples Heritage would become the second largest of eight depository institutions in the market, controlling deposits of approximately $150 million, representing approximately 33.2 percent of market deposits. The HHI would increase 69 points to 3318.

(1.) Market deposit data are adjusted to account for bank acquisitions approved after June 30, 1998.

Appendix D

Banking Market with Proposed Divestiture

New Hampshire

Wolfeboro: Peoples Heritage is the fourth largest depository institution in the market, controlling deposits of $28.1 million, representing approximately 10.2 percent of market deposits. Banknorth is the third largest depository institution in the market, controlling deposits of $56.9 million, representing approximately 20.6 percent of market deposits. Peoples Heritage proposes to divest one branch with deposits of approximately $28.1 million to an out-of-market competitor. After the proposed merger and divestiture, Peoples Heritage would become the third largest of five depository institution in the market, controlling deposits of $56.9 million, representing approximately 20.6 percent of market deposits. The HHI would remain unchanged at 2753.

SierraCities.com, Inc. Houston, Texas

FSF of Delaware, Inc. Wilmington, Delaware

Order Approving Formation of Bank Holding Companies and Acquisition of a Bank

SierraCities.com, Inc. ("SierraCities"), and its wholly owned subsidiary, FSF of Delaware, Inc. (collectively, "Applicants"), have requested the Board's approval under section 3(a)(1) of the Bank Holding Company Act ("BHC Act") (12 U.S.C. [sections] 1842(a)(1)) to become bank holding companies by acquiring all the voting shares of Greenbelt Bancshares, Inc. ("Greenbelt"), thereby acquiring Security National Bank of Quanah ("Bank"), both in Quanah, Texas.(1) Applicants also have requested the Board's approval under section 4(c)(8) of the BHC Act (12 U.S.C. [sections] 1843(c)(8)) to retain certain nonbanking businesses and thereby engage in the following nonbanking activities:

(1) Making, acquiring, brokering, or servicing loans, pursuant to section 225.28(b)(1) of Regulation Y (12 C.F.R. 225.28(b)(1)); and

(2) Leasing personal or real property or acting as agent, broker, or adviser in leasing such property, pursuant to section 225.28(b)(3) of Regulation Y (12C.F.R. 225.28(b)(3)).

SierraCities also has filed an application pursuant to section 4(c)(13) of the BHC Act (12 U.S.C. [sections] 1843(c)(13)) and the Board's Regulation K (12 C.F.R. 211) to retain certain foreign investments.(2)

Notice of the proposal, affording interested persons an opportunity to comment, has been published (64 Federal Register 66,189 (1999); 65 Federal Register 13,766 (2000)). The time for filing comments has expired, and the Board has considered the proposal and all comments received in light of the factors set forth in sections 3 and 4 of the BHC Act.

SierraCities is an operating company that provides leases and loans to small businesses. Bank is the 808th largest depository institution in Texas, controlling $11 million in deposits, representing less than 1 percent of total deposits in commercial banking organizations in the state.(3) The proposal involves the acquisition of a bank by SierraCities, which currently does not own a commercial bank. Based on all the facts of record, the Board concludes that the proposal would not have any significantly adverse effects on competition or on the concentration of banking resources in any relevant banking market.

The BHC Act also requires the Board to consider the financial and managerial resources and future prospects of the companies and banks involved in the proposal and certain supervisory factors. SierraCities has indicated that Bank would adopt SierraCities's business strategy of using the Internet to reach and serve commercial customers throughout the United States.(4) In addition, SierraCities proposes changes in the data processing systems of Bank to improve its ability to provide services to current customers in and around the Quanah, Texas, area and to Internet customers. The Board has reviewed SierraCities's operating plan for Bank and has taken into account SierraCities's record of offering lease financing and other products and services via the Internet and related technologies. In addition, the Board has reviewed confidential supervisory and examination information, and publicly reported financial and other information, and has consulted with the Office of the Comptroller of the Currency ("OCC"), which is the primary federal supervisor of Bank. After considering all the facts of record, the Board concludes that the financial and managerial resources and future prospects of Applicants and Bank are consistent with approval, as are the other supervisory factors the Board must consider under section 3 of the BHC Act.

The Board also has carefully considered the effect of the proposal on the convenience and needs of the communities to be served in light of all the facts of record. Bank received an overall rating of "satisfactory" from the OCC at Bank's most recent evaluation for performance under the Community Reinvestment Act (12 U.S.C. [sections] 2901 et seq.) ("CRA"), as of April 1997. SierraCities has indicated that, after consummation of the proposal, Bank intends to file a strategic plan to help meet the credit needs of its communities because Bank's primary focus would become the distribution of products and services to small businesses via the Internet.(5) Based on all the facts of record and for the reasons discussed above, the Board concludes that considerations relating to the convenience and needs factor including the CRA performance record of the institution involved, are consistent with approval of the proposal.

Applicants also have filed a notice under section 4 of the BHC Act to retain SierraCities's nonbanking subsidiaries and thereby engage in extending credit and servicing loans and leasing personal or real property. The Board has determined by regulation that these activities are closely related to banking for purposes of the BHC Act.(6) SierraCities has committed to conduct these nonbanking activities in accordance with the limitations set forth in Regulation Y and all relevant Board orders and interpretations.

In connection with its review of the public interest factors under section 4 of the BHC Act, and in light of all the facts of record, the Board also has carefully reviewed the financial and managerial resources of SierraCities and Bank and the effect the transaction would have on such resources.(7) The Board has reviewed, among other things, confidential reports of examination and other supervisory information received from the primary federal supervisor of Bank, and information provided by Applicants. Based on all the facts of record, including commitments made bySierraCities, the Board concludes that the financial and managerial resources of the organizations involved in the proposal are consistent with approval.

The record indicates that consummation of the proposal would result in benefits to consumers and businesses. SierraCities has indicated that, after consummation of the proposal, it may provide more products and services than it offers currently. In addition, as the Board has previously noted, there are public benefits to be derived from permitting capital markets to operate so that bank holding companies can make potentially profitable investments in nonbanking companies and from permitting banking organizations to allocate their resources in the manner they consider to be most efficient when such investments and actions are consistent, as in this case, with the relevant considerations under the BHC Act.(8) Based on all the facts of record, the Board has determined that consummation of this proposal can reasonably be expected to produce public benefits that would outweigh any likely adverse effects under the proper incident to banking standard of section 4(j)(2) of the BHC Act.(9)

The Board also concludes that the conduct of the proposed nonbanking activities within the framework established under Regulation Y is not likely to result in adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices, that would outweigh the public benefits of the proposal, such as increased customer convenience and gains in efficiency. Accordingly, based on all the facts of record, the Board has determined that the balance of public benefits that the Board must consider under the proper incident to banking standard of section 4 of the BHC Act is favorable and consistent with approval of the notice.

SierraCities also has requested approval under section 4(c)(13) of the BHC Act and section 211.5(c) of the Board's Regulation K (12 C.F.R. 211.5(c)) to retain its UK Subsidiaries. The Board concludes that all the factors required to be considered under the BHC Act and Regulation K are consistent with approval of the proposal.

Based on the foregoing, and in light of all the facts of record, the Board has determined that the applications and notice should be, and hereby are, approved. The Board's approval is specifically conditioned on compliance by Applicants with all the commitments made in connection with the applications and notice. The Board's approval is also subject to all the conditions set forth in this order and in Regulation Y, including those in sections 225.7 and 225.25(c) (12 C.F.R. 225.7 and 225.25(c)). For the purpose of this action, the commitments relied on by the Board in reaching its decision are deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law.

The transaction shall not be consummated before the fifteenth calendar day after the effective date of this order, or later than three months after the effective date of this order, unless such periods are extended for good cause by the Board or the Federal Reserve Bank of Dallas, acting pursuant to delegated authority.

By order of the Board of Governors, effective April 12, 2000.

(1.) On consummation of this proposal, the name of Bank would be changed to SierraCities Bank, N.A. SierraCities proposes to acquire Bank by merging Greenbelt with and into a wholly owned subsidiary of FSF of Delaware, Inc.

(2.) SierraCities owns the following companies, all in the United Kingdom: First Sierra Financial (UK), Limited; Suffolk Street Group, plc; Equitable Asset Finance Limited; Academy Asset Finance Limited; Booker Montague Leasing LTD; and Titan Finance Limited (collectively, "UK Subsidiaries"). The UK Subsidiaries engage in leasing activities that SierraCities proposes to retain under section 211.5(d)(3) of Regulation K.

(3.) Deposit data are as of June 30, 1999.

(4.) SierraCities engages in the business of providing leases and loans to small businesses. In its initial application to become a bank holding company, SierraCities proposed to contribute to Bank substantially all the assets and liabilities of SierraCities and its nonbank subsidiaries. SierraCities subsequently revised its application and now proposes to contribute capital to Bank only in the form of cash. The Board notes that SierraCities must comply with all applicable requirements of sections 23A and/or 23B of the Federal Reserve Act, 12 U.S.C. [subsections] 371c, 371c-1, with respect any transaction between Bank and any of its affiliates.

(5.) Bank's CRA performance record of meeting the credit needs of its assessment area may be assessed under an approved strategic plan. See 12 C.F.R. 25.27.

(6.) See 12 C.F.R. 225.28(b)(1) and (3).

(7.) See 12 C.F.R. 225.26.

(8.) See, e.g., Banc One Corporation, 84 Federal Reserve Bulletin 553 (1998); First Union Corporation, 84 Federal Reserve Bulletin 489 (1998).

(9.) Regulation Y provides that a bank holding company must seek the Board's approval prior to altering in any material respect a nonbanking activity previously approved by the Board. See 12 C.F.R. 225.25(c)(3).

Voting for this action: Chairman Greenspan, Vice Chairman Ferguson, Governors Kelley, and Gramlich. Absent and not voting: Governor Meyer.

ROBERT DEV. FRIERSON
Associate Secretary of the Board