ORDERS ISSUED UNDER BANK HOLDING COMPANY ACT.

Orders Issued Under Section 3 of the Bank Holding Company Act

The Charles Schwab Corporation San Francisco, California

U.S. Trust Corporation New York, New York

Order Approving Acquisition and Merger of Bank Holding Companies

The Charles Schwab Corporation ("Schwab") and its wholly owned subsidiary, U.S. Trust Corporation ("U.S. Trust"), each a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act") (together "Applicants"), have requested the Board's approval under section 3 of the BHC Act (12 U.S.C. 1842) to acquire Resource Companies, Inc. ("Resource"), and thereby acquire Resource's subsidiary bank, Resource Trust Company, both in Minneapolis, Minnesota.(1)

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (66 Federal Register 798 (2001)). 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.

Schwab, with total consolidated assets of $35.5 billion, is the 43rd largest commercial banking organization in the United States, controlling less than 1 percent of the total assets of insured commercial banks in the United States.(2) Schwab, through U.S. Trust, operates depository institutions in California, Connecticut, the District of Columbia, Florida, New Jersey, New York, Oregon, Pennsylvania, and Texas.

Resource operates only in Minnesota. It controls the 82nd largest depository institution in the state, with $100.3 million in deposits, representing less than 1 percent of total deposits in depository institutions in Minnesota.(3) After consummation of the proposal, Schwab would remain the 43rd largest commercial banking organization in the United States, with total consolidated assets of $35.6 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 such bank holding company if certain conditions are met.(4) For purposes of the BHC Act, the home state of Applicants is New York, and Schwab proposes to acquire Resource Trust Company, which is located in Minnesota. All the conditions for an interstate acquisition enumerated in section 3(d) are met in this case.(5) In light of all the facts of record, the Board is permitted to approve the proposal under section 3(d) of the BHC Act.

Competitive Considerations

Section 3 of the BHC Act prohibits the Board from approving a proposal that would result in a monopoly or be in furtherance of a monopoly. The BHC Act also prohibits the Board from approving a proposal that would substantially lessen competition in any relevant banking market unless the anticompetitive effects of the proposal in that banking market are clearly outweighed in the public interest by the probable effect of the proposal in meeting the convenience and needs of the community to be served.(6)

The proposal involves the acquisition of a bank in Minnesota, a state in which Applicants do not have banking operations. Based on this and all the 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 any relevant banking market.

Financial and Managerial Considerations

The BHC Act requires the Board to consider the financial and managerial resources and future prospects of the companies and banks involved in the proposal and certain other supervisory factors. The Board has reviewed these factors in light of all the facts of record, including supervisory reports of examination, other confidential supervisory information assessing the financial and managerial resources of the organizations, and financial information provided by Applicants. The Board notes that Applicants and Resource and their subsidiary banks currently are well capitalized and are expected to remain so on consummation of the proposal. Based on all the facts of record, the Board concludes that the financial and managerial resources and the future prospects of Applicants, Resource, and their respective subsidiary banks, are consistent with approval, as are the 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 communities to be served. 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"). Accordingly, the Board has carefully considered the effect of the proposed merger on the convenience and needs of the communities to be served and the CRA records of performance of the institutions involved in light of all the facts of record.

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 depository institutions by their appropriate Federal banking agencies.(7) United States Trust Company of New York, New York, New York ("UST-New York"), the lead depository institution of Applicants, received an "outstanding" rating at its most recent CRA performance examination by the Federal Reserve Bank of New York, as of April 3, 2000. UST-Connecticut received a "satisfactory" rating from the FDIC, as of February 23, 1998.(8) Resource Trust Company received an "outstanding" rating at its most recent CRA performance examination by the FDIC, as of July 15, 1998.

The Board received comments from a single commenter ("Protestant") objecting to the proposal. Protestant asserted that neither Applicants' subsidiary depository institutions nor Resource Trust Company are serving the credit needs of their communities, especially low- and moderate-income ("LMI") communities. Protestant also claimed that the CRA performance examinations of Applicants' subsidiary depository institutions, particularly UST-Connecticut, and Resource Trust Company are out-of-date and should not be relied on to assess the CRA performance of the depository institutions. In addition, Protestant asserted that the CRA performance examination of UST-Connecticut is inadequate because it does not assess the activities conducted by UST-Connecticut at offices opened since its last examination, particularly the bank's Pennsylvania and District of Columbia offices.

In assessing the convenience and needs factor in this case, the Board has carefully considered all the facts of record. As noted above, this includes review of the CRA performance examinations of the depository institutions involved in the proposal. In addition, the Board has considered confidential supervisory information provided by the appropriate Federal banking agencies for the institutions involved, and information provided by the Applicants on the record of their depository institutions in meeting the convenience and needs of their communities since their last CRA performance examinations.

The subsidiary depository institutions of Applicants and Resource Trust Company are wholesale banking institutions that provide investment management, corporate trust, financial and estate planning, fiduciary, and private banking services for institutions and high net worth individuals. Each of the depository institutions involved in the proposal has been designated a "wholesale bank" and has been evaluated as such under the CRA regulations of the federal banking agencies.(9)

Protestant questioned the appropriateness of the wholesale bank designations of the subsidiary depository institutions of Applicants and Resource Trust Company. Protestant asserted that UST-New York, UST-Connecticut, and the other subsidiary depository institutions of Applicants make a substantial volume of mortgage loans and hold themselves out to the public as mortgage lenders and, therefore, should not be accorded wholesale bank status under the CRA.

The Board recently considered the wholesale bank designations of the subsidiary depository institutions of U,S. Trust in response to comments submitted by Protestant in connection with Schwab's application under the BHC Act to acquire U.S. Trust.(10) The initial determination of the wholesale bank status of a depository institution is made by the institution's appropriate Federal banking agency and is reviewed by the agency during each CRA performance examination of the institution. The Board gives great weight to the determination made by examiners because that review is made on-site and encompasses an evaluation of all the activities of the institution by the agency charged by the CRA with responsibility for assessing the CRA performance of the institution. As noted above, examiners reaffirmed the wholesale bank status of each depository institution involved in the proposal at its most recent CRA performance examination. The Board has also consulted with the appropriate Federal banking agencies for depository institutions involved in the proposal concerning their current status as wholesale banks. Based on this information, the Board has considered the CRA record of each depository institution involved in the proposal pursuant to the community development test appropriate for wholesale banks. The Board has forwarded the comments of Protestant to the appropriate Federal banking agencies for the depository institutions so that they can be considered in the next examinations of the institutions.(11)

In its review of the convenience and needs factor under the BHC Act, the Board has carefully considered the entire record in this case. 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 records of the relevant insured depository institutions, are consistent with approval of the proposal.

Conclusion

Based on the foregoing, and in light of all the facts of record, the Board has determined that the application should be, and hereby is, approved.(12) The Board's approval is specifically conditioned on compliance by Applicants with all the commitments and representations made in connection with this 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 acquisition of Resource 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 period is extended for good cause by the Board or by the Federal Reserve Bank of San Francisco, acting pursuant to delegated authority.

By order of the Board of Governors, effective February 26, 2001.

(1.) Applicants propose to merge Resource into U.S. Trust, with U.S. Trust as the surviving corporation. In addition, Applicants propose to merge Resource Trust Company into U.S. Trust Company, Greenwich, Connecticut ("UST-Connecticut"), with UST-Connecticut as the surviving corporation. The merger of Resource Trust Company and UST-Connecticut is subject to review by the Federal Deposit Insurance Corporation ("FDIC") under the Bank Merger Act (12 U.S.C. [sections] 1828(c)).

(2.) All data used for purposes of calculating nationwide rankings are as of September 30, 2000. All other banking data are as of June 30, 2000.

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

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

(5.) 12 U.S.C. [subsections] 1842(d)(1)(A) and (B) and 1842(d)(2)(A) and (B). Applicants meet the capital and managerial requirements established under applicable law. Resource Trust Company has been in existence and operated for the minimum period of time required by applicable state law. On consummation, Schwab would control less than 10 percent of the total amount of deposits of insured depository institutions in the United States. All other requirements under section 3(d) of the BHC Act would be met on consummation of the proposal.

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

(7.) The Interagency Questions and Answers Regarding Community Reinvestment provides that an institution's most recent CRA performance evaluation is an important and often controlling factor in the consideration of an institution's CRA record because it represents a detailed evaluation of the institution's overall record of performance under the CRA by its appropriate Federal banking agency. 65 Federal Register 25,088 and 25, 107 (2000).

(8.) The other subsidiary depository institutions of Applicants also received "satisfactory" ratings at their most recent CRA performance examinations. U.S. Trust Company of California, N.A., Los Angeles, California, received a "satisfactory" rating from the Office of the Comptroller of the Currency ("OCC"), as of July 19, 1999; U.S. Trust Company of Florida Savings Bank, Palm Beach, Florida, received a "satisfactory" rating from the Office of Thrift Supervision, as of November 12, 1997; U.S. Trust Company of New Jersey, Princeton, New Jersey, received a "satisfactory" rating from the FDIC, as of April 27, 1999; and U.S. Trust Company of Texas, N.A., Dallas, Texas, received a "satisfactory" rating from the OCC, as of June 25, 1997.

(9.) Designation as a wholesale bank requires the appropriate Federal banking agency to evaluate a bank's record of CRA performance under a separate "community development test." See, e.g., 12 C.F.R. 228.25(a). This test evaluates a wholesale bank on its record of community development services, community development investments, and community development lending. See, e.g., 12 C.F.R. 228.25(c). The primary purpose of any service, investment, or loan considered under the test must be "community development," which is defined in terms of specific categories of activities that benefit LMI individuals, LMI areas, or small businesses or farms. See, e.g., 12 C.F.R. 228.12(h).

(10.) See The Charles Schwab Corporation, 86 Federal Reserve Bulletin 494 (2000).

(11.) Protestant also maintained that Home Mortgage Disclosure Act (12 U.S.C. [sections] 2801 et seq.) ("HMDA") data for 1999 demonstrate racial disparities in the loans made by Applicants and Resource. The Board has recognized that HMDA data alone provide an incomplete measure of an institution's lending in its community, and that these data have limitations that make them an inadequate basis, absent other information, for concluding that an institution has engaged in illegal lending discrimination. The limitations of HMDA data are even greater when, as in this case, the relevant institutions are not engaged in the business of mortgage lending. For example, Resource Trust Company originated only ten loans totaling $2.1 million from 1997 through 1999 that were reported under HMDA. In light of the limitations of HMDA data, particularly as applied to wholesale banks, the Board has carefully reviewed other information, particularly examination reports that provide an on-site evaluation of compliance with the fair lending laws by Applicants' subsidiary depository institutions and Resource Trust Company. Examiners found no substantive violations of antidiscrimination laws or other illegal credit practices at any of the depository institutions involved in this proposal, and the Board incorporates those findings in this order. Protestant also requested that the Board consider the HMDA data of the Applicants and Resource for 2000. However, these data are not required to be submitted until March 1, 2001.

(12.) Protestant also requested that the Board hold a public meeting or hearing on the proposal. Section 3 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. 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 carefully considered the request for a public meeting or hearing in light of all the facts of record. In the Board's view, the public has had ample opportunity to submit comments on the proposal and, in fact, Protestant has submitted written comments that have been carefully considered by the Board in acting on the proposal. The Protestant's request fails to identify disputed issues of fact that are material to the Board's decision and that may be clarified by a public meeting or hearing. The Protestant's request also fails to show why a public meeting or hearing is necessary for the proper presentation or consideration of the Protestant's views. 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 request is hereby denied.

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

ROBERT DEV. FRIERSON Associate Secretary of the Board

Firstar Corporation Milwaukee, Wisconsin

U.S. Bancorp Minneapolis, Minnesota

Order Approving Merger of Bank Holding Companies

Firstar Corporation ("Firstar"), 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 merge with U.S. Bancorp and thereby acquire control of U.S. Bancorp's subsidiary banks, including its lead subsidiary bank, U.S. Bank National Association, Minneapolis, Minnesota ("U.S. Bank").(1) The resulting bank holding company would be named U.S. Bancorp ("New U.S. Bancorp") and have its headquarters also in Minneapolis.(2)

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (65 Federal Register 68,134 (2000)). The time for filing comments has expired, and the Board has considered the proposal and all comments received during the comment period in light of the factors set forth in section 3 of the BHC Act.

Firstar, with total consolidated assets of $74 billion, is the 17th largest commercial banking organization in the United States, controlling approximately 1.4 percent of total banking assets of insured commercial banks in the United States ("total U.S. banking assets").(3) Firstar operates subsidiary banks in Arizona, Arkansas, Florida, Illinois, Indiana, Iowa, Kansas, Kentucky, Minnesota, Missouri, Ohio, Tennessee, and Wisconsin.

U.S. Bancorp, with total consolidated assets of $86 billion, is the 11th largest commercial banking organization in the United States, controlling approximately 1.7 percent of total U.S. banking assets. U.S. Bancorp operates subsidiary banks in 16 western and midwestern states.

On consummation of the proposal and after accounting for the proposed divestitures discussed in this order, New U.S. Bancorp would become the ninth largest commercial banking organization in the United States, with total consolidated assets of $160 billion, representing approximately 3.1 percent of total U.S. banking assets.(4) The combined organization would have a significant presence in the Midwest and Northwest.

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. For purposes of the BHC Act, the home state of Firstar is Wisconsin,(5) and the subsidiary banks of U.S. Bancorp are located in California, Colorado, Illinois, Idaho, Iowa, Minnesota, Montana, Nebraska, Nevada, North Dakota, Oregon, South Dakota, Utah, Washington, Wisconsin, and Wyoming.(6) The Board has reviewed the interstate banking laws of each state in which Firstar would acquire banking operations and consulted with the appropriate banking regulator in each of those states regarding the permissibility of the proposed transaction under applicable state law.

All the conditions for an interstate acquisition enumerated in section 3(d) are met in this case. Firstar is adequately capitalized and adequately managed, as defined by applicable law.(7) In addition, the subsidiary banks of U.S. Bancorp that Firstar would acquire in an interstate transaction have been in existence for the minimum period of time required by applicable law.(8) On consummation of the proposal and after accounting for the proposed divestitures, New U.S. Bancorp 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 30 percent, or the applicable percentage established by state law, of total deposits in each state in which the insured depository institutions of both Firstar and U.S. Bancorp are located.(9) All other requirements of section 3(d) would be met on consummation of the proposal. Accordingly, based on all the facts of record, the Board is permitted to approve the proposed transaction under section 3(d) of the BHC Act.

Competitive Considerations

Section 3 of the BHC Act prohibits the Board from approving a proposal that would result in a monopoly or would be in furtherance of any attempt to monopolize the business of banking in any relevant banking market. The BHC Act also prohibits the Board from approving a proposed bank acquisition that substantially would lessen competition in any relevant banking market, unless the Board finds that the anticompetitive effects of the proposal clearly are outweighed in the public interest by the probable effect of the proposal in meeting the convenience and needs of the community to be served.(10)

Firstar and U.S. Bancorp compete directly in nine local banking markets in four states.(11) The Board has reviewed carefully the competitive effects of the proposal in each of these banking markets in light of all the facts of record, including the number of competitors that would remain in the markets, the relative share of total deposits in depository institutions controlled by Firstar and U.S. Bancorp in the markets ("market deposits"),(12) the concentration level of market deposits and the increase in this level as measured by the Herfindahl-Hirschman Index ("HHI") under the Department of Justice Guidelines ("DOJ Guidelines"),(13) and other characteristics of the markets.

A. Certain Banking Markets without Divestitures

Consummation of the proposal without divestitures would be consistent with Board precedent and the DOJ Guidelines in eight banking markets.(14) After consummation of the proposal, two of these banking markets would remain unconcentrated and two other banking markets would remain moderately concentrated as measured by the HHI.(15) The remaining four markets without divestitures would be highly concentrated as measured by the HHI, but the increase in the HHI would be within the threshold levels established by the DOJ Guidelines and Board precedent.(16)

B. The Minneapolis-St. Paul, Minnesota Banking Market

Consummation of the proposal without divestitures would exceed the thresholds in the DOJ Guidelines in the Minneapolis-St. Paul banking market. Firstar is the fourth largest competitor in the Minneapolis-St. Paul banking market, controlling deposits of $1.9 billion, representing 4.7 percent of market deposits.(17) U.S. Bancorp is the largest competitor in the Minneapolis-St. Paul banking market, controlling deposits of $13.4 billion, representing 32.4 percent of market deposits. To reduce the potential for adverse competitive effects in this banking market, Firstar has committed to divest 11 branches (the "divestiture branches") that account for approximately $718 million in deposits.(18) Firstar has entered into a sale agreement with an existing competitor in the Minneapolis-St Paul banking market regarding the divestiture branches.(19) On consummation of the proposal, and after accounting for the divestiture to the proposed purchaser, the combined organization would become the largest competitor in the Minneapolis-St. Paul banking market. New U.S. Bancorp would control deposits of $14.6 billion, representing approximately 35.4 percent of market deposits,(20) and the HHI would increase by 187 points to 2308.

Although 114 depository institutions compete in the Minneapolis-St. Paul banking market, U.S. Bancorp and Wells Fargo & Company, San Francisco, California ("Wells Fargo"), through their respective predecessor organizations, consistently have led the banking market since at least 1960.(21) The Board previously has recognized the unique structure of the Minneapolis-St. Paul banking market and has indicated that mergers involving one of the two largest depository institutions in the market warrant close review because of the size of these institutions relative to other market competitors. The Board, therefore, has considered whether other factors mitigate the competitive effects of the proposal or indicate that the proposal would have a significantly adverse effect on competition in the market.(22)

In this case, the Board believes that a number of factors indicate that consummation of the proposed merger is not likely to have a significantly adverse effect on competition in the Minneapolis-St. Paul banking market. With the proposed divestiture of at least $700 million in deposits, the combined relative strength of the two largest competitors in the Minneapolis banking market would not increase significantly.(23) The sizable divestiture proposal also would significantly strengthen the competitive position of the proposed in-market competitor that has agreed to purchase the divestiture branches.(24)

In addition, the record of de novo entry into the Minneapolis-St. Paul banking market in the last five years has been unprecedented when compared with other banking markets nationwide and confirms the attractiveness of the Minneapolis-St. Paul banking market to new entry. Since 1995, 35 depository institutions have entered the market de novo by either chartering a new bank or establishing a new branch in the market. Of these de novo entrants, 11 have entered the market since June 1999. In addition, 11 depository institutions have expanded their existing branch networks in the market.

Other factors indicate that the Minneapolis-St. Paul banking market remains attractive for entry. From 1990 to 2000, the average increase in population for the Minneapolis-St. Paul Metropolitan Statistical Area ("MSA") exceeded that of both the State of Minnesota and the entire United States.(25) In addition, for each year during that same period, the unemployment rate in the Minneapolis-St. Paul MSA was lower than that of Minnesota and the entire United States. Moreover, for the year that ended on June 30, 1999, the percentage increase in deposits in the Minneapolis-St. Paul MSA was more than three times that of other MSAs in Minnesota and more than four times that of the entire United States.(26)

Based on all the facts of record and for the reasons discussed above, the Board believes that competitive considerations in the Minneapolis-St. Paul banking market are consistent with approval in this case. However, the Board continues to have concerns about the structure of the Minneapolis-St. Paul banking market and believes that future mergers involving either of the two largest competitors in that banking market would warrant special consideration. The Board intends to scrutinize carefully any future acquisition proposal that would increase the market share of one of the two largest competitors in the Minneapolis-St. Paul banking market.

C. Views of Other Agencies and Conclusion

The Department of Justice also has conducted a detailed review of the anticipated competitive effects of the proposal. The Department has advised the Board that, in light of the proposed divestitures, the Department believes that consummation of the proposal likely would not have a significantly adverse effect on competition in any relevant banking market.(27) The Office of the Comptroller of the Currency ("OCC") and the Federal Deposit Insurance Corporation ("FDIC") have been afforded an opportunity to comment and have not objected to consummation of the proposal.

After carefully reviewing all the facts of record, including public comments on the competitive factors, and for the reasons discussed in this order, the Board has concluded that consummation of the proposal likely would not result in a significantly adverse effect on competition or on the concentration of banking resources in any of the nine banking markets in which Firstar and U.S. Bancorp compete directly or in any other relevant banking market. Accordingly, based on all the facts of record and subject to completion of the proposed divestitures, the Board has determined that competitive factors are consistent with approval of the proposal.

Financial, Managerial, and Other Supervisory Factors

Section 3 of the BHC Act requires the Board to consider the financial and managerial resources and future prospects of the companies and banks involved in the proposal and certain other supervisory factors. The Board has carefully considered these factors in light of all the facts of record, including public comments, reports of examination and other confidential supervisory information assessing the financial and managerial resources of the organizations, and other information provided by Firstar and U.S. Bancorp.(28)

In evaluating financial factors in expansion proposals by banking organizations, the Board consistently has considered capital adequacy to be especially important. The Board notes that Firstar, U.S. Bancorp, and each of their subsidiary banks are and on consummation of the proposal would continue to be well capitalized, as defined in the relevant regulations of federal banking agencies. The proposed acquisition is structured as an exchange of shares of Firstar and U.S. Bancorp for shares of New U.S. Bancorp, and neither Firstar nor New U.S. Bancorp would incur any debt as a result of the transaction.(29)

The Board also has considered the managerial resources of Firstar and U.S. Bancorp and the examination reports of the federal financial supervisory agencies that supervise these organizations, including their subsidiary banks.(30) Firstar, U.S. Bancorp, and their subsidiary banks are well managed, with appropriate risk management systems in place.(31) New U.S. Bancorp would select its senior management from the senior executives of Firstar and U.S. Bancorp, which would provide the combined organization with officers that are experienced and knowledgeable in the operations and markets of both companies.(32) In addition, the Board has considered Firstar's recent record of successfully integrating acquired organizations and remaining well managed. Moreover, Firstar and U.S. Bancorp have indicated that they are devoting significant resources to address all aspects of the merger process.

Based on all the facts of record, including confidential reports of examination and other supervisory information, the Board has concluded that considerations relating to the financial and managerial resources of Firstar, U.S. Bancorp, and their respective banking subsidiaries are consistent with approval, as are the other supervisory factors that the Board must consider under section 3 of the BHC Act.(33)

Convenience and Needs Considerations

In acting on a proposal under section 3 of the BHC Act, the Board is required to consider the effects of the proposal on the convenience and needs of the communities to be served and take into account the records of the relevant depository institutions under the Community Reinvestment Act ("CRA").(34) The CRA requires the federal financial supervisory agencies to encourage financial institutions to help meet the credit needs of local communities in which they operate, consistent with safe and sound operation, and requires the appropriate federal supervisory agency to take into account an institution's record of meeting the credit needs of its entire community, including low- and moderate-income ("LMI") neighborhoods, in evaluating bank expansion proposals. The Board has carefully considered the convenience and needs factor and the CRA performance records of the subsidiary depository institutions of Firstar and U.S. Bancorp in light of all the facts of record, including public comments received on the effect the proposal would have on the communities to be served by the combined organization.

A. Summary of Public Comments

The Board received approximately 209 comments on the proposal. Approximately 193 commenters supported the proposal or commented favorably on Firstar's or U.S. Bancorp's CRA-related activities. Many of these commenters commended Firstar for providing credit or other services to small businesses, sponsoring community development activities, participating in programs that provide affordable housing and mortgage financing for LMI individuals, and providing support to nonprofit organizations. Other commenters related their favorable experiences with specific programs or services offered by Firstar or U.S. Bancorp.

A number of local government agencies involved in community development also commented favorably on their experiences with Firstar and U.S. Bancorp. In addition, a number of private organizations commended Firstar and U.S. Bancorp for supporting the development of affordable housing for low-income individuals and individuals with disabilities through loans, grants, and technical assistance. Other private organizations supported the proposal based on Firstar's and U.S. Bancorp's records of financing community development projects in neighborhoods with predominantly LMI and minority residents, and their records of financing businesses owned by women and minorities ("women-owned businesses" and "minority-owned businesses") directly and through financial intermediaries. Some community-based organizations observed that innovative products and services for LMI communities were developed through partnerships with Firstar and U.S. Bancorp.

Approximately 16 commenters either opposed the proposal, requested that the Board approve the merger subject to conditions suggested by the commenter, or expressed concerns about the records of Firstar, U.S. Bancorp, or both in meeting the convenience and needs of the communities they serve. Some commenters generally asserted that Firstar and U.S. Bancorp had low and declining levels of home mortgage, small business, and small farm lending, particularly to LMI or minority individuals or in predominantly minority communities. Based on data submitted under the Home Mortgage Disclosure Act ("HMDA"), several commenters alleged that Firstar and U.S. Bancorp engaged in disparate treatment of LMI and minority individuals in home mortgage lending.(35) A commenter also criticized the level of participation by Firstar and U.S. Bancorp in government credit enhancement and guaranteed loan programs, particularly in Wisconsin. In addition, commenters expressed concerns that the proposal would result in branch closings, less lending and local decision-making in rural communities, or the termination or reduction of the affordable housing and community development products and programs of Firstar and U.S. Bancorp.

Several commenters expressed concern about Firstar's record of home mortgage lending to LMI or minority individuals and in LMI or predominantly minority communities, particularly in Chicago, Illinois; Cleveland, Ohio; St. Louis, Missouri; and Milwaukee, Wisconsin. Some commenters criticized Firstar's level of small business lending in LMI and predominantly minority communities in Chicago. In addition, a commenter alleged that Firstar provides a low level of banking services and reinvestment in LMI communities in Cleveland.(36) Another commenter asserted that Firstar has reduced its banking services and lending to rural LMI individuals and communities, particularly in Wisconsin. A commenter also expressed concerns regarding Firstar's record of closing branches in LMI and predominantly minority communities.(37)

In addition, a commenter criticized U.S. Bancorp's record of home mortgage and small business lending in LMI and predominantly minority communities in Minneapolis. The commenter further expressed concern that U.S. Bancorp's level of community development and affordable housing investments was declining.(38)

B. CRA Performance Examinations

As provided in the CRA, the Board has evaluated the convenience and needs factor in light of examinations by the appropriate federal supervisors of the CRA performance records of the relevant institutions. An institution's most recent CRA performance evaluation is a particularly 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 its appropriate federal supervisor.(39)

All Firstar's subsidiary banks received either "outstanding" or "satisfactory" ratings at the most recent examinations of their CRA performance. In particular, Firstar's lead bank, Firstar Bank, National Association, Cincinnati, Ohio ("Firstar Bank"), which now accounts for approximately 93 percent of the total consolidated assets of Firstar, received a "satisfactory" rating at its most recent CRA performance evaluation by the OCC, as of July 1998 ("1998 Firstar Bank Evaluation").(40) All U.S. Bancorp's subsidiary banks also received either "outstanding" or "satisfactory" ratings at the most recent examinations of their CRA performance. In particular, U.S. Bank, which is U.S. Bancorp's lead bank and now represents approximately 94 percent of the total consolidated assets controlled by U.S. Bancorp, received a "satisfactory" rating at its most recent CRA performance evaluation by the OCC, as of April 1998.(41)

Examiners found no evidence of prohibited discrimination or other illegal credit practices at any of the insured depository institutions involved in this proposal and found no violations of substantive provisions of the fair lending laws.(42) Examiners also reviewed the assessment areas delineated by the subsidiary banks of Firstar and U.S. Bancorp and did not report that these assessment areas were unreasonable or arbitrarily excluded LMI areas.

In recent years, Firstar and U.S. Bancorp have acquired other banking organizations and consolidated their subsidiary banks. The most recent CRA performance evaluations of their respective subsidiary banks predate the current structure of the organizations. Therefore, the Board also has evaluated extensive information submitted by Firstar and U.S. Bancorp about their CRA performance since the dates of their most recent CRA performance evaluations.

C. Firstar's CRA Performance Record

Overview. Examiners commended Firstar Bank for its responsiveness to the credit needs in its assessment areas, particularly the needs of LMI communities and borrowers. Examiners reported that Firstar Bank offered a variety of products and programs to assist in meeting the housing-related credit needs of LMI individuals and communities.

Firstar has implemented its American Dream Home Loan program, which offers portfolio mortgage loan products designed for LMI borrowers that feature more flexible credit requirements, low down payments, and reduced interest rates and fees. Firstar represented that, in 1998 and 1999, it originated $68 million in loans under this program.

Firstar also has participated in a number of government-sponsored home mortgage loan programs. Firstar stated that, in 1999, it originated loans totaling approximately $548.6 million under government mortgage programs, such as those sponsored by the Federal Housing Authority ("FHA") and the Veterans Administration ("VA"). From January through September 2000, Firstar reportedly made loans totaling more than $372 million under these programs. Firstar stated that it also provided $83 million in loans under programs sponsored by the Federal National Mortgage Association ("FNMA"), the Federal Home Mortgage Corporation ("FHMC"), and HUD, between January 1998 and September 2000.

Examiners generally commended the distribution of Firstar Bank's small businesses lending.(43) Firstar reported that, from January 1998 through 2000, it made small business loans nationwide totaling more than $5.4 billion, including more than $110 million in loans sponsored by the Small Business Administration ("SBA") and more than $46.6 million in loans sponsored by the Farm Service Agency ("FSA").(44)

In addition, Firstar noted that, in 1998, it introduced a five-year lending initiative (the "Star Bank Initiative"), through which it intends to provide $5.5 billion for mortgage loans to LMI individuals and for small business and small farm loans in LMI areas of Ohio and Kentucky. Firstar represented that, since introducing the initiative, it has lent $3.6 billion, including approximately $161 million in small business loans to businesses in LMI census tracts.

Examiners commended Firstar Bank for the amount of community development loans that the bank and its affiliates had originated. Examiners also determined that Firstar Bank's qualified community development investments generally showed good responsiveness to the community development needs of its assessment areas.(45)

Firstar represented that, since its latest CRA evaluations, it has maintained a high level of community development activity in the communities it serves, participated in a number of loan pools and equity funds to finance affordable housing and small business development, and provided financial support to organizations that engage in such activities. For example, Firstar stated that, in 1999, it originated more than $300 million in community development loans throughout its assessment areas. Firstar also represented that, during the first six months of 2000, it made qualified community development investments totaling more than $165 million, including more than $120 million that were eligible for low-income housing tax credits.

Examiners found that Firstar Bank provided a good level of banking services in its assessment areas and that the bank's delivery systems were accessible to all portions of its assessment areas, including LMI areas. In addition, the Department of the Treasury advised Firstar that, as of October 2000, Firstar Bank was the largest institution in the United States to implement successfully the Electronic Transfer Account for recipients of federal government payments at all its branch locations.

Chicago, Illinois. Firstar Bank Illinois, Chicago, Illinois ("Firstar IL"), which was merged into Firstar Bank in May 1999, received a "satisfactory" rating in its last CRA performance evaluation by the FRB Chicago, as of June 1998.(46) Examiners reported that Firstar IL demonstrated a strong overall level of lending to LMI individuals and in LMI areas.(47) Although noting that the bank's level of HMDA-reportable lending in LMI census tracts in 1997 was lower than that of lenders in the aggregate, examiners found that 20 percent of Firstar IL's HMDA-reportable loans in LMI census tracts were in low-income census tracts, compared with 10 percent of the HMDA-reportable loans by lenders in the aggregate.

In 1999, Firstar Bank and Firstar USA originated HMDA-reportable loans totaling more than $73 million to LMI borrowers in the Chicago MSA, including more than $13 million in loans to low- income borrowers. Firstar stated that its home mortgage lending to LMI individuals in the Chicago MSA, from January 1998 through 2000, included approximately $2.5 million under its American Dream Home Loan program and approximately $7.3 million through FNMA and FHMC loan programs.

Examiners determined that Firstar Bank was responsive to the borrowing needs of small businesses in its Chicago assessment areas. In addition, examiners found that Firstar IL' s level of small business lending in LMI census tracts in its assessment areas had improved during the evaluation period and generally was comparable with aggregate lending levels in 1997. Firstar stated that it originated more than 4,600 small business loans, totaling $513 million, in the Chicago MSA during 1998 through 2000. This included more than $48 million in small business loans in LMI census tracts in the Chicago MSA.

Examiners noted that, during the evaluation period of the 1998 performance examination, Firstar IL actively sought opportunities throughout the Chicago MSA to lend in support of community development. From January 1996 through June 1998, Firstar IL originated 21 community development loans totaling approximately $15 million. Of this amount, approximately $8 million supported the development of affordable housing for LMI individuals and approximately $6 million supported economic development activities to help revitalize or stabilize LMI census tracts. Examiners also commended the community development investments of Firstar IL in Chicago, noting that Firstar IL made community development investments totaling approximately $1.4 million from January 1996 through June 1998.

Firstar has continued its active involvement in community development in the Chicago area. For example, Firstar stated that since 1997 it has provided more than $3.7 million in loans to organizations that provide multifamily affordable rental units and has invested more than $500,000 in a Chicago neighborhood housing organization that provides affordable housing opportunities to LMI families. In addition, Firstar has made a $1 million equity investment in a minority-owned community bank and has made significant deposits in a credit union that serves a low-income neighborhood.

Cleveland, Ohio. Examiners evaluated Firstar Bank's CRA performance record in the Cleveland-Lorain-Elyria MSA ("Cleveland MSA"), as part of the 1998 Firstar Bank Evaluation. Examiners found that Firstar Bank's lending performance was excellent in the Cleveland MSA, the bank's largest market in Ohio. In particular, examiners commended Firstar Bank for its home-purchase and small business lending performance in the Cleveland MSA, especially for its distribution of home loans in LMI census tracts and high level of lending to LMI individuals.

From January 1996 through December 1997, Firstar Bank originated 37 percent of its home-purchase loans in the Cleveland MSA in LMI census tracts, which was significantly higher than the percentage of owner-occupied housing units in LMI census tracts. Similarly, examiners noted that Firstar Bank's origination of 40 percent of its home-purchase loans in the Cleveland MSA to LMI borrowers compared favorably with the percentage of LMI families in the general population of the Cleveland MSA.

Since the 1998 performance evaluation, Firstar has used its various lending programs to increase its level of lending to LMI borrowers and in LMI communities. In 1999, Firstar Bank originated HMDA-reportable loans totaling more than $39 million to LMI borrowers in the Cleveland MSA, including more than $13 million in loans to low-income borrowers. Firstar reported that, in 1999 and 2000, the dollar amount of home mortgage loans it originated under its American Dream Home Loan program in the Cleveland MSA included $3.3 million to borrowers in LMI census tracts and $6.9 million to LMI borrowers. In addition, Firstar represented that, from January 1998 through 2000, it provided a total of more than $70 million HMDA-reportable loans to LMI individuals in the Cleveland MSA through its Star Bank Initiative.

In the 1998 Firstar Bank Evaluation, examiners also commended Firstar Bank for its distribution of small businesses loans in LMI census tracts in the Cleveland MSA. In 1997, Firstar Bank originated 18 percent of its small business loans in the Cleveland MSA to businesses in LMI census tracts.

Since the 1998 Firstar Bank evaluation, Firstar has continued its efforts in making small business loans to businesses in LMI census tracts in the Cleveland MSA. Firstar stated that, from January 1998 through 2000, it provided more than $266 million in small business loans in the Cleveland MSA. Approximately 20 percent of this amount, measured by number and dollar amount, was made to businesses in LMI census tracts. Firstar also reported that it provided small business loans totaling $1.3 million under SBA-sponsored loan programs in the Cleveland area in 1999, and that this amount increased to $27 million in 2000.

Examiners noted that Firstar Bank provided adequate levels of community development lending in the Cleveland MSA and commended the bank for its responsiveness to community development needs through its investment activity, which totaled approximately $2.4 million in 1997. Since the 1998 Firstar Bank Evaluation, Firstar has expanded its community development programs. Firstar stated that, as part of the Star Bank Initiative, it provided more than $27 million in community development loans and more than $874,000 in grants to organizations involved in community development activities in the Cleveland MSA during 1998, 1999, and 2000.

In the 1998 First Bank Evaluation, examiners also determined that Firstar Bank provided a good level of services in the Cleveland MSA, including in LMI communities, and that the bank's delivery systems were conveniently located and accessible to all portions of the bank's assessment area. Examiners also commended the bank's variety of services, including its branch and full-service ATM network and its 24-hour telephone banking, bank-by-mail, and Internet banking services. In particular, examiners noted that 16 percent of the bank's branches were in LMI areas and that the bank augmented the availability of branches through the accessibility of its ATMs in LMI areas. Examiners also found that, during the evaluation period, Firstar Bank's record of opening and closing branches in the Cleveland MSA resulted in increased services in LMI areas and to LMI individuals.

St. Louis, Missouri. The predecessor of Firstar Bank in the St. Louis, Missouri-Illinois MSA ("St. Louis MSA") was Mercantile Bank National Association, St. Louis, Missouri ("Mercantile Bank"), which Firstar acquired in 1999.(48) As previously noted, Mercantile Bank received a "satisfactory" rating in its most recent CRA performance evaluation by the OCC, as of June 1997. In particular, examiners commended Mercantile Bank for its very good distribution of HMDA-reportable loans and small business loans among borrowers of different income levels.

Examiners determined that Mercantile Bank's volume of HMDA-reportable loans reflected a good responsiveness to area credit needs. In 1995 and 1996, Mercantile Bank originated or purchased more than $943 million in HMDA-reportable loans, of which 26 percent were made to LMI borrowers. Examiners noted that Mercantile Bank's distribution of government-sponsored home-purchase loans to LMI borrowers represented 43 percent of all such loans it made in 1996 and exceeded the percentage of LMI families in the general population of the St. Louis MSA.

Since its acquisition of Mercantile Bank, Firstar has continued a high level of home mortgage lending to LMI borrowers in the St. Louis MSA. Firstar stated that, in 1999, it originated or purchased more than 2,500 HMDA-reportable loans to LMI borrowers, totaling approximately $91.8 million. During the first 10 months of 2000, Firstar reported that it originated or purchased HMDA-reportable loans to LMI borrowers in the St. Louis MSA, totaling $89.8 million. Firstar also reported that, since Firstar's acquisition of Mercantile, it has lent $2.7 million to borrowers in LMI census tracts and $2.4 million to minority borrowers in the St. Louis MSA through its American Dream Home Loan program. Under its Open Doors program, a home mortgage program designed for LMI borrowers that Mercantile Bank introduced in the St. Louis area, Firstar Bank reported that it has lent $5.9 million to borrowers in LMI census tracts, $2.2 million to borrowers in predominantly minority census tracts, and $13 million to minority borrowers.

In 1999, Firstar announced the St. Louis Loan Initiative, a five-year $7.6 billion lending program in the St. Louis MSA to provide home mortgage loans to LMI individuals and in LMI communities and small business loans to businesses in LMI areas.(49) Firstar represented that, through November 2000, it has lent more than $1.7 billion in connection with its St. Louis Loan Initiative, including $91 million in HMDA-reportable loans to LMI individuals, $23 million in HMDA-reportable loans to borrowers in LMI census tracts, and $129 million in small business loans.(50)

Examiners commended Mercantile Bank for its level of community development lending, which totaled $7.9 million from May 1995 through June 1997. These loans financed the construction and rehabilitation of affordable housing for LMI families, promoted economic development through financing a construction loan for a business that primarily serves LMI individuals, and helped fund nonprofit organizations that provide community services for LMI families.

Firstar has continued to provide a significant level of community development lending. For example, in 1999 and 2000, Firstar Bank provided approximately $4.5 million in loans to a developer to construct low-income housing in St. Louis, and a loan of more than $5.4 million to a not-for-profit organization to develop affordable, low-income rental housing in St. Louis. In addition, Firstar reported that it has made low-income housing tax credit investments exceeding $27 million in the St. Louis MSA since January 1998.

Milwaukee, Wisconsin. Before its merger into Firstar Bank in October 1999, Firstar Bank Milwaukee, National Association, Milwaukee, Wisconsin ("Firstar Milwaukee"), was Firstar's largest subsidiary bank in Wisconsin. Firstar Milwaukee received a "satisfactory" rating in its last CRA performance evaluation by the OCC, as of November 1997. Examiners found that Firstar Milwaukee was responsive to the credit needs of all segments of its service community. In particular, examiners commended the bank for the level of its home mortgage and home improvement lending in LMI census tracts. Examiners also commended Firstar Milwaukee for making 38 percent of its consumer loans to LMI borrowers in 1996, a level that exceeded the percentage of LMI borrowers in the general population of the bank's assessment area.

Since that performance evaluation, Firstar has continued to strengthen its record of providing credit to LMI borrowers and in LMI communities. In 1999, Firstar originated HMDA-reportable loans totaling approximately $52 million to LMI borrowers in the Milwaukee MSA, including more than $12 million in loans to low-income borrowers. Firstar reported that it also increased its level of home-purchase lending in LMI census tracts by approximately 40 percent during the last three years. Many of these home-purchase loans were made through Firstar's American Dream Home Loan program. In 1999, Firstar reportedly made housing-related loans through this program in the Milwaukee, Wisconsin MSA ("Milwaukee MSA"), totaling $3.5 million to borrowers in LMI census tracts, $5.8 million to LMI individuals, and $4.4 million to minority borrowers.(51) Firstar stated that, in 2000, its housing-related lending under this program included $6.3 million in loans to borrowers in LMI census tracts, $9.1 million in loans to LMI individuals, and $9.5 million in loans to minority borrowers.(52)

Examiners commended Firstar Milwaukee for its lending to small businesses, including those in LMI census tracts. Examiners noted that Firstar Milwaukee had introduced a small business line- of-credit program designed for emerging small businesses trying to build a credit history, and had originated small business credit lines totaling more than $3.5 million under this program.

Firstar stated that its small business lending activity in the Milwaukee MSA has remained strong since the evaluation. For example, Firstar reported that, in 1998, Firstar Milwaukee originated small business loans totaling $81.2 million. Firstar also stated that 17.5 percent of these small business loans were made to businesses in LMI census tracts compared with 12.5 percent of the small business loans made by lenders in the aggregate. In 1999, Firstar made small business loans totaling approximately $38 million to businesses in LMI census tracts, including more than $16 million in small business loans to businesses in low-income census tracts.

State of Wisconsin. Firstar Bank Wisconsin, Madison, Wisconsin ("Firstar WI"), which was merged into Firstar Bank in September 1999, received an "outstanding" rating in its last CRA performance evaluation by the FRB Chicago, as of April 1997. The examiners commended Firstar WI's responsiveness to the credit needs of LMI individuals and communities and favorably characterized the distribution of the bank's housing-related loans to LMI borrowers and in LMI census tracts. For example, examiners found that the bank and its affiliates made approximately 21 percent of their housing-related loans to LMI borrowers and more than 10 percent of their housing-related loans to borrowers in LMI census tracts.(53)

Firstar represented that it has maintained a strong record of lending to LMI borrowers and in LMI communities. In particular, Firstar stated that it has continued to provide a high level of home-purchase financing and other HMDA-reportable lending in its rural assessment areas in Wisconsin and that the dollar amount of home-purchase loans to LMI individuals and in LMI communities in its rural assessment areas has increased each year since 1998.(54)

The CRA performance evaluation of Firstar WI found that the bank had a strong record of small business and small farm lending in Wisconsin. Examiners noted that, in 1996, Firstar WI made more than 3,600 small business loans and originated more than 230 small farm loans. Examiners stated that approximately 500 of these small business and farm loans, totaling approximately $42 million, were made in LMI areas. Firstar reported that, in 1998, Firstar WI originated small business loans in amounts of $100,000 or less, totaling $83.5 million, in Wisconsin.

In addition, the CRA performance evaluation concluded that Firstar WI offered a variety of governmentally insured, guaranteed, and subsidized loans to small businesses, small farms, and LMI borrowers. For example, examiners noted that, in 1996, Firstar WI originated SBA loans totaling $35.4 million and FSA loans totaling $11.7 million. Examiners also commended the bank for participating in a HUD lending program that offered nontraditional mortgage loans on real property located on the Lac Courte Oreille Reservation where conventional mortgage lending was difficult because of certain issues related to perfecting liens on real property.

Firstar stated that, since the CRA performance evaluation, Firstar Bank has continued to participate actively in various government-sponsored loan programs. For example, Firstar reported that it made SBA loans totaling $21.7 million in Wisconsin (excluding the Milwaukee MSA) in 1998 and 1999. Firstar also represented that Firstar Bank has continued to participate in various lending programs operated by the Wisconsin Housing and Economic Development Authority ("WHEDA"). Firstar reported that it originated housing-related and farm loans under WHEDA programs that totaled $7.6 million in 1998, $5.2 million in 1999, and $7.8 million in 2000.(55)

D. U.S. Bancorp's CRA Performance Record

Overview. As noted previously, U.S. Bancorp's lead bank subsidiary, U.S. Bank (formerly First Bank, National Association) received a "satisfactory" rating in its most recent CRA performance evaluation by the OCC, as of April 1998. In addition, the lead subsidiary bank of U.S. Bancorp before the merger with First Bank System, United States National Bank of Oregon, Portland, Oregon ("U.S. National Bank"), received an "outstanding" rating in its most recent CRA performance evaluation by the OCC, as of April 1997. The combined organization adopted First Bank System's affordable housing loan program and U.S. Bancorp's small business lending program. As noted above, the Board also has carefully reviewed data on the lending activities of U.S. Bancorp's subsidiary banks after the examination.

Examiners commented favorably on U.S. Bank's responsiveness to community lending needs and its distribution of loans, particularly in LMI communities and to LMI individuals.(56) Examiners noted that U.S. Bank demonstrated excellent distribution of HMDA-reportable loans in LMI geographies. For example, in six of U.S. Bank's nine markets, U.S. Bank's percentage of loans made to borrowers in LMI census tracts exceeded 80 percent of the percentage of owner-occupied units in those census tracts. In 1996, U.S. Bank made almost 16,000 HMDA-reportable loans nationwide, of which 15 percent were made to LMI borrowers and 23 percent were made to borrowers in LMI communities.

Examiners found that U.S. Bank originated or participated in a number of flexible lending programs. For example, the bank's Home Advantage Mortgage program provides a mortgage loan to LMI borrowers with a reduced interest rate and includes funds for down payment assistance and financing for any property rehabilitation that may be needed. In 1995 and 1996, U.S. Bank and its affiliates made Home Advantage Mortgage loans totaling more than $41 million. Examiners also noted that U.S. Bank participated in a number of home lending programs sponsored by state housing and finance agencies, such as the Colorado Housing and Finance Authority ("CHFA") and the Nebraska Investment Finance Authority ("NIFA").(57)

Since the CRA performance evaluations of U.S. Bank and U.S. National Bank, U.S. Bank has continued to offer the Home Advantage loans and has adopted U.S. National Bank's flexible home lending program, Home Partners. This program for LMI borrowers incorporates flexible underwriting guidelines and down payments as low as 1 percent, without requiring private mortgage insurance. U.S. Bank's level of lending under these programs has increased in each of the last three years. U.S. Bancorp stated that, in 1999, it originated loans under these programs totaling $81.9 million and that, in 2000, it increased the total amount lent to more than $87 million.

Examiners of U.S. National Bank commended the bank for responding aggressively to the needs of small businesses and participating in innovative small business loan programs. U.S. National Bank developed the Commercial Opportunity Loan Program to provide financing to women-owned and minority-owned businesses and to businesses in economically distressed areas. The program provides flexible underwriting and collateral requirements. Examiners noted that, from 1994 through 1996, U.S. National Bank originated loans totaling $24 million under this program and originated SBA loans totaling $31 million. Examiners further commended U.S. National Bank for its excellent distribution of small business loans in LMI areas. In 1996, U.S. National Bank extended 22.4 percent of the total number and 25.8 percent of the total dollar amount of its small business loans to businesses in LMI census tracts. Examiners also reported that U.S. Bancorp's distribution of small business and small farm loans based on annual revenues was good.

Since the CRA performance evaluations, U.S. Bancorp has continued to provide a large number of small business loans to businesses in LMI areas.(58) U.S. Bancorp stated that, from January 1998 through October 2000, it provided more than 31,000 small business loans, totaling more than $2 billion, to businesses in LMI areas nationwide.(59)

Examiners commended U.S. National Bank for its commitment to community development activities and determined that U.S. Bank had an adequate level of community development loans and investments. Examiners noted that, from 1994 through 1996, U.S. National Bank made community development loans and investments totaling more than $143 million. During the same time period, examiners reported that U.S. Bank made approximately $92.6 million in community development loans.

U.S. Bancorp has increased its community development lending and investment activity since the CRA performance evaluations. U.S. Bancorp stated that, from January 1998 through October 2000, U.S. Bank and U.S. Bank MT made more than $526 million in CRA community development loans that facilitated the development of new affordable housing units. During this same period, U.S. Bancorp and its subsidiaries reportedly made qualified community development investments totaling more than $305 million, including more than $217 million in low-income housing tax credits.(60)

Minneapolis, Minnesota. Examiners commended U.S. Bank's lending performance in the Minneapolis MSA, noting that the geographic distribution of its HMDA-reportable loans was excellent. Since its CRA performance evaluation, U.S. Bank has continued to provide significant levels of home mortgage lending in LMI communities in the Minneapolis MSA. U.S. Bancorp reported that, from January 1999 through October 2000, U.S. Bank originated approximately $64 million in HMDA-reportable loans to borrowers in LMI communities in the Minneapolis MSA, including $9.8 million in loans under its Home Advantage and Home Partnership programs and approximately $10.5 million in loans sponsored by the FHA and the VA.

Examiners noted that U.S. Bank's distribution of its small business and small farm loans to borrowers of different revenue levels was good, and that its level of small business and small farm lending in LMI census tracts was adequate. In 1996, U.S. Bank provided 14 percent of its small business loans in the Minneapolis MSA to business in LMI census tracts. U.S. Bancorp reported that, from January 1998 through October 2000, U.S. Bank provided more than $149 million in small business loans to businesses in LMI census tracts in the Minneapolis MSA, representing 15.8 percent of its total small business lending in the Minneapolis MSA.

Examiners noted that, in the Minneapolis MSA during 1995 and 1996, U.S. Bank made $32 million in community development loans and $11.3 million in qualified community development investments. These community development activities included a revolving $4 million loan to a community development corporation that constructs and rehabilitates owner-occupied, single-family residences for LMI families, and investments of more than $7 million in programs designed to provide affordable housing for LMI individuals and communities.

U.S. Bancorp represented that, from January 1998 through October 2000, U.S. Bank made approximately $50.1 million in community development loans in the Minneapolis MSA, which facilitated the development of more than 1,700 new affordable housing units. During this time period, U.S. Bank also reportedly made $40 million in qualified community development investments, including investments in a project designed to provide living-wage jobs to residents of a North Minneapolis LMI neighborhood and in an organization that provides venture capital to minority-owned businesses in Minnesota.

State of Wisconsin. Examiners noted that U.S. Bank's geographic distribution of HMDA-reportable loans and small business and small farm loans in Wisconsin was excellent. In 1996, 22 percent of U.S. Bank's HMDA-reportable loans in Wisconsin were made in LMI census tracts. This compared favorably to the 15 percent of owner-occupied units in Wisconsin that were located in LMI census tracts. In 1996, U.S. Bank made 25 percent of its HMDA-reportable loans in Wisconsin to LMI individuals.(61)

U.S. Bancorp represented that, from January 1998 through October 2000, U.S. Bank lent approximately $6.2 million through its Home Advantage and Home Partnership loan programs. During this time period, U.S. Bank also made other HMDA-reportable loans totaling approximately $10.2 million to borrowers in LMI census tracts in Wisconsin.

Examiners noted that U.S. Bank adequately responded to community needs in Wisconsin through its community development loans and its significant level of qualified community development investments. In 1995 and 1996, U.S. Bank made ten community development loans in Wisconsin totaling approximately $4.5 million, including approximately $1.5 million in loans to a Milwaukee-based organization that focuses on providing social and human services to LMI women. In 1995 and 1996, U.S. Bank made approximately $1.9 million in qualified community development investments in Wisconsin.

U.S. Bancorp stated that, from January 1998 through October 2000, U.S. Bank made community development loans totaling $2.9 million that financed the development of almost 500 affordable housing units in LMI communities in Wisconsin. During the same time period, U.S. Bank reportedly made $3.9 million in qualified community development investments in Wisconsin.

E. HMDA Data

The Board also has considered the records of Firstar and U.S. Bancorp in light of comments on HMDA data reported by their subsidiaries.(62) Data for 1998 and 1999 indicate that Firstar's HMDA lending volume decreased in 1999. However, this same pattern was evident for lenders in the aggregate, reflecting the decline in home mortgage loan demand during a period of rising interest rates. The data show that some categories of Firstar's housing-related lending to LMI and minority borrowers and in LMI and predominantly minority communities were below the lending levels of HMDA-reporting lenders in the aggregate in some of Firstar's CRA assessment areas, while in others it exceeded the lending levels of those lenders. For instance, during 1999 Firstar originated a lower percentage of HMDA-reportable loans in LMI census tracts and to LMI individuals in its Chicago assessment areas, while in its Cleveland assessment area Firstar's percentage of HMDA-reportable loans exceeded that of lenders in the aggregate in these respects. Firstar's percentage of HMDA-reportable loans to African-American applicants and to borrowers in predominantly minority census tracts in its Nashville assessment area lagged the percentage for lenders in the aggregate in 1999, while Firstar's percentage of home mortgage originations to African Americans and to borrowers in predominantly minority census tracts in Cleveland exceeded the percentage for those lenders. Firstar's denial disparity ratios for African-American and Hispanic individuals generally were somewhat higher than the denial disparity ratios for that of lenders in the aggregate in its assessment areas.(63)

The 1999 HMDA data for U.S. Bancorp in the MSAs reviewed indicate that U.S. Bancorp's percentage of housing-related loans to minority individuals generally approximated or exceeded the percentage achieved by lenders in the aggregate. Moreover, U.S. Bancorp's denial disparity ratios for African-American and Hispanic individuals generally were somewhat lower than the denial disparity ratios for lenders in the aggregate in the areas reviewed. In addition, the data indicate that the percentage of U.S. Bancorp's housing-related loans to LMI individuals and in LMI communities generally was comparable with or exceeded that of lenders in the aggregate.

The Board is concerned when the record of an institution indicates disparities in lending and believes that all banks are obligated to ensure that their lending practices are based on criteria that ensure not only safe and sound lending, but also equal access to credit by creditworthy applicants regardless of their race or income level.(64) The Board recognizes, however, that HMDA data alone provide an incomplete measure of an institution's lending in its community because these data cover only a few categories of housing-related lending. HMDA data, moreover, provide only limited information about the covered loans.(65) HMDA data, therefore, have limitations that make them an inadequate basis, absent other information, for concluding that an institution has not assisted adequately in meeting its community's credit needs or has engaged in illegal lending discrimination.

Because of the limitations of HMDA data, the Board has considered these data carefully in light of other information. As noted above, examiners found no evidence of prohibited discrimination or other illegal credit practices at any of the subsidiary banks of Firstar and U.S. Bancorp. The record also indicates that Firstar and U.S. Bancorp have taken a number of affirmative steps to ensure compliance with fair lending laws. Firstar has instituted a corporate fair lending review program, and independent tests are periodically performed to verify that its subsidiary banks are in compliance with the program.(66) U.S. Bancorp has established policies and procedures to ensure compliance with all fair lending laws and regulations by conducting underwriting reviews of all retail loan applications, performing periodic comparative file analyses, and presenting a comprehensive fair lending training program. The Board also has considered the HMDA data in light of Firstar's and U.S. Bancorp's overall lending records, which show that their subsidiary banks significantly assist in helping to meet the credit needs of the communities served, including LMI areas.

F. Branch Closings

Two commenters expressed concern about the effect of possible branch closings that might result from this proposal. Firstar and U.S. Bancorp have provided the Board with their branch closing policies, and the Board has considered the public comments about potential branch closings in light of all the facts of record, including information provided by Firstar and U.S. Bancorp.

Firstar has indicated that it has no specific plans for any branch closings or consolidations in connection with this proposal. Firstar also indicated that it has not completed the analysis necessary to determine which, if any, branch closings or consolidations would be needed, and that it has not made any final decisions about branch closings or consolidations. Firstar has stated that any decisions to close or consolidate branches would be made in accordance with the interagency policy statement on branch closings and would be attentive to the need for financial services in LMI communities to be served by the combined organization.(67) The Board has carefully considered the branch closing policies of Firstar and U.S. Bancorp and their records of opening and closing branches. The Board notes that the branch closing policies of the subsidiary banks of Firstar and U.S. Bancorp provide that the banks must review the impact that each proposed branch closing would have on the community and develop a plan to minimize any adverse impact.

Examiners have reviewed the performance of Firstar's subsidiary banks under the branch closing policy on several occasions. Examiners noted that changes in Firstar Bank's branch locations did not adversely affect the availability of services in its assessment areas and that the bank had opened branches in LMI communities in some assessment areas. In addition, the most recent CRA performance evaluations of Firstar Bank's predecessors noted generally that the bank's branch closings did not affect LMI communities in a materially adverse manner and concluded that the banks' delivery systems were reasonably accessible to LMI individuals and areas.(68) Examiners also found that U.S. Bank's delivery systems were reasonably accessible to all portions of its assessment areas and that branch closures had not negatively affected customers residing in LMI communities.

The Board expects that the subsidiary banks of New U.S. Bancorp would continue to use a satisfactory branch closing policy for any branch closings that might result from the proposed transaction. The Board also has considered that federal banking law provides a specific mechanism for addressing branch closings. Federal law requires an insured depository institution to provide notice to the public and to the appropriate federal supervisory agency before closing a branch.(69) The Board also notes that the appropriate federal supervisor for each of Firstar' s subsidiary banks will, in the course of conducting CRA performance examinations, continue to review the branch closing record of these banks.

G. Conclusion on Convenience and Needs

In reviewing the effects of the proposal on the convenience and needs of the communities to be served, the Board has carefully considered the entire record, including all the information provided by commenters, Firstar, and U.S. Bancorp, evaluations of the CRA performance of each of Firstar's and U.S. Bancorp's insured depository institution subsidiaries, and confidential supervisory information.

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 records of the relevant depository institutions, are consistent with approval of the proposal.(70)

Conclusion

Based on the foregoing and in light of all the facts of record, the Board has determined that the application should be, and hereby is, approved.(71) In reaching its conclusion, the Board has considered all the facts of record in light of the factors that it is required to consider under the BHC Act and other applicable statutes.(72) The Board's approval is specifically conditioned on compliance by Firstar with all the commitments made in connection with the application, including the branch divestiture commitments discussed in this order. These commitments 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 the subsidiary banks of U.S. Bancorp may not be consummated before the fifteenth calendar day after the effective date of this order, and the proposal 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 by the Federal Reserve Bank of Minneapolis, acting pursuant to delegated authority.

By order of the Board of Governors, effective February 12, 2001.

(1.) U.S. Bancorp's other subsidiary banks are U.S. Bank National Association ND, Fargo, North Dakota ("U.S. Bank ND"); U.S. Bank National Association MT, Billings, Montana ("U.S. Bank MT"); and U.S. Bank National Association OR, Canby, Oregon ("U.S. Bank OR").

(2.) Firstar and U.S. Bancorp also have requested the Board's approval to exercise options to purchase up to 19.9 percent of each other's common stock if certain events occur. These options would expire on consummation of the proposed merger.

(3.) Asset and ranking data are as of June 30, 2000.

(4.) Firstar and U.S. Bancorp are financial holding companies that are engaged in various nonbanking activities in the United States and abroad. Firstar intends to acquire the domestic nonbanking operations of U.S. Bancorp in accordance with section 4(k)(4) of the BHC Act and the post-transaction notice procedures of section 225.87 of Regulation Y. Firstar also has informed the Board that it intends to acquire U.S. Bancorp's foreign nonbanking operations in accordance with section 4(c)(13) of the BHC Act and the general consent provisions of section 211.5 of the Board's Regulation K.

(5.) 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 the later of July 1, 1966, or the date on which the company became a bank holding company. 12 U.S.C. [sections] 1841(o)(4)(C).

(6.) For purposes of section 3(d), the Board considers a bank to be located in the states in which the bank is chartered, headquartered, or operates a branch.

(7.) See 12 U.S.C. [sections] 1842(d)(1)(A).

(8.) See 12 U.S.C. [sections] 1842(d)(1)(B). With the exception of U.S. Bank ND, which was chartered in 1997 and primarily engages in credit card operations, each subsidiary bank of U.S. Bancorp has been in existence for at least five years and, therefore, may be acquired without regard to any state age requirement. North Dakota law provides that an out-of-state bank holding company may acquire a North Dakota bank if a North Dakota holding company would be permitted to acquire a bank in the acquiring bank holding company's home state under the same circumstances. N.D. Cent. Code [sections] 6-08.3.3-13. Thus, the age requirement provisions of the interstate banking statute of the acquirer's home state, in this case Wisconsin, effectively govern an interstate acquisition of a North Dakota bank. Wisconsin's interstate banking statute allows an out-of-state bank holding company to acquire a bank that has been in existence for fewer than five years, but it requires the acquirer to divest any such bank within two years of the acquisition. Wis. Stat. Ann. [sections] 221.0901. The Commissioner of Banking and Financial Institutions for the State of North Dakota has confirmed that Firstar's proposed acquisition of U.S. Bank ND is consistent with North Dakota' s interstate banking provisions if Firstar divests the bank within two years of acquiring U.S. Bancorp. Firstar has committed to divest the bank within that period.

(9.) See 12 U.S.C. [sections] 1842(d)(2).

(10.) 12 U.S.C. [sections] 1842(c)(1).

(11.) These banking markets are described in Appendix A.

(12.) Market share data are as of June 30, 1999, and are based on calculations in which the deposits of thrift institutions, which include savings banks and savings associations, are weighted 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 regularly has included thrift deposits in the market share calculation on a 50-percent weighted basis. See, e.g., First Hawaiian, Inc., 77 Federal Reserve Bulletin 52 (1991).

(13.) Under the DOJ Guidelines, 49 Federal Register 26,823 (1984), a market is considered unconcentrated if the post-merger HHI is under 1000, moderately concentrated if the post-merger HHI is between 1000 and 1800, and highly concentrated if the post-merger HHI is more than 1800. 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.

(14.) These markets are Chicago and Rock Island-Davenport, Illinois; Ames, Des Moines, Johnson, and Marengo, Iowa; Omaha-Council Bluffs, Nebraska; and Milwaukee, Wisconsin. The effects of the proposal on the concentration of banking resources in these markets are described in Appendix B.

(15.) The unconcentrated markets are Chicago and Marengo, and the moderately concentrated markets are Milwaukee and Rock Island-Davenport.

(16.) These markets are Ames, Des Moines, Johnson, and Omaha-Council Bluffs.

(17.) Deposit data are as of June 30, 1999, and have been adjusted to reflect subsequent mergers and acquisitions.

(18.) Firstar has committed to execute, before consummation of the proposal, a sales agreement for the proposed divestiture with a purchaser determined by the Board to be competitively suitable and to complete the divestiture within 180 days after consummation of the proposal. Firstar further has committed that the divestiture will include at least $700 million in deposits in the Minneapolis-St. Paul banking market as of the divestiture date. In addition, Firstar has committed that, if it is unsuccessful in completing any divestiture within 180 days of consummation, Firstar will transfer the unsold branch(es) to an independent trustee that is acceptable to the Board and will instruct the trustee to sell the branch(es) 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).

(19.) Because of the structure of the Minneapolis-St. Paul banking market, described herein, Firstar has committed that it will not sell any branches to the second largest competitor in the market.

(20.) A commenter expressed concern that the Minneapolis-St. Paul banking market already was highly concentrated and asserted that Firstar's proposed divestitures in that market were inadequate to address competitive concerns. The commenter contended that the merger as structured violated antitrust laws. This commenter also criticized Firstar for omitting the identity of the specific branches to be divested from the public portion of its application, and asserted that this omission impeded his ability to comment on the proposal's competitive effects. The Board has concluded, however, that the public information on the proposed divestitures that Firstar provided, including the structural effects in the Minneapolis-St. Paul banking market, was sufficient for interested persons to evaluate and comment on the competitive effects of the proposal.

(21.) See, e.g., Norwest Corporation, 82 Federal Reserve Bulletin 580 (1996); First Bank System, Inc., 79 Federal Reserve Bulletin 50 (1993). Wells Fargo is the second largest competitor in the market, controlling deposits of approximately $13 billion, representing 31.6 percent of market deposits. The third largest competitor controls 6 percent of market deposits, the fifth largest competitor controls 2.2 percent of market deposits, and the remaining competitors each control less than 2 percent of market deposits.

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

(23.) The combined market share percentage of the two largest competitors would increase from 64 percent to 67 percent.

(24.) The acquirer of the divestiture branches would almost triple its market share and would become the fourth largest competitor in the Minneapolis-St. Paul banking market.

(25.) The population of the Minneapolis-St. Paul MSA increased by 13.4 percent, compared with an increase of 9.7 percent for the State of Minnesota and 10.9 percent for the entire United States.

(26.) Deposits in the Minneapolis-St. Paul MSA increased by 16.9 percent, compared with an increase of 2 percent in the Duluth-Superior MSA, 3.3 percent in the St. Cloud MSA, and 5 percent in the Rochester MSA. Deposits in the entire United States increased by 3.4 percent.

(27.) To address concerns expressed by the Department of Justice, Firstar also will divest branches in the Omaha-Council Bluffs banking market. These branches are subject to the divestiture commitments Firstar has made to the Board.

(28.) A commenter asserted that U.S. Bancorp had a poor record of employment and third-party vendor development in the African-American community. The commenter also expressed concern that Firstar lent money to a company that allegedly has a history of employment discrimination on the basis of race. The Board previously has noted that neither the racial composition of management nor the effect of a proposed transaction on employment in a community is among the factors included in the BHC Act. See, e.g., Deutsche Bank AG, 85 Federal Reserve Bulletin 509 (1999) ("Deutsche Bank Order"); Norwest Corporation, 84 Federal Reserve Bulletin 1088 (1998). Although the Board fully supports programs designed to create and stimulate employment opportunities for all members of society, the Board also considers the third-party contracting of U.S. Bancorp to be beyond the scope of the BHC Act, the Community Reinvestment Act, and other relevant banking statutes. See Deutsche Bank Order.

(29.) A commenter indicated that the proposed merger was motivated by the personal interests of the senior management officials at Firstar and U.S. Bancorp, rather than by the interests of the shareholders of those companies. The Board notes that the shareholders of Firstar and U.S. Bancorp have the opportunity to vote on the proposed transaction at the special meetings scheduled for shareholders.

(30.) Several commenters criticized Firstar's management for lobbying the Wisconsin legislature to amend the state's bankruptcy laws to give bank liens for secured loans a preference in corporate bankruptcy proceedings over wage claim liens filed by workers. The Board notes that these commenters' contentions do not allege any illegal activity or other action that would affect the safety and soundness of the institutions. This matter also is outside the limited statutory factors that the Board is authorized to consider when reviewing an application under the BHC Act.

(31.) One commenter alleged that inadequate management at U.S. Bancorp was evidenced by the enforcement action of the Securities and Exchange Commission ("SEC") and lawsuits by investors against Piper Capital Management, Inc. ("PCM"), a nonbanking subsidiary of U.S. Bancorp. The violations alleged by the SEC related to PCM's investment advisory activities in connection with a registered investment company and occurred in 1994, before U.S. Bancorp's acquisition of PCM in 1998. U.S. Bancorp has provided detailed information about the steps both PCM and U.S. Bancorp have taken since 1994 to resolve the issues raised by the SEC and investor litigation.

(32.) One commenter cited press reports about the loss of personnel at one of Firstar's nonbanking subsidiaries. According to these and other press reports, Firstar has filed lawsuits against certain employees who left this subsidiary, alleging breach of a noncompete clause. In evaluating the managerial factor, the Board has reviewed the current managerial resources and future prospects of Firstar's entire organization, including the nonbank subsidiary cited by the commenter.

(33.) A commenter cited press reports that U.S. Bancorp had settled claims alleging violations of consumer protection laws related to its arrangement with telemarketing organizations for marketing nonfinancial products to consumers, including a claim brought by the Minnesota Attorney General. Based on these press reports, the commenter asserted that U.S. Bancorp had violated such laws. U.S. Bancorp discontinued the marketing arrangements and customer information sharing practices at issue soon after commencement of the Attorney General's action, settled the various claims, and was not convicted of any offense in connection with the consumer protection law claims. In addition, U.S. Bancorp has implemented various changes to its consumer banking policies and procedures to address heightened concerns over consumer privacy issues.

(34.) 12 U.S.C. [sections] 2901 et seq.

(35.) 12 U.S.C. [sections] 2801 et seq.

(36.) This commenter also asserted that Firstar management has failed to ascertain the financial resources needed in LMI and predominantly minority communities in Cleveland.

(37.) Several commenters opposed the proposal based on unfavorable experiences with Firstar in particular loan transactions or business dealings with the organization. The Board has reviewed these comments in light of the facts of record, including information provided by Firstar. The Board has provided copies of these comments to the appropriate federal supervisor of the subsidiary involved for its consideration.

(38.) One commenter alleged generally that U.S. Bancorp had a poor record of philanthropy and marketing banking services in the African-American community.

(39.) See Interagency Questions and Answers Regarding Community Reinvestment, 65 Federal Register 25,088 and 25,107 (2000).

(40.) Firstar Bank formerly was named Star Bank, N.A. ("Star Bank"), and was acquired by Firstar in 1998 through a merger with Star Banc Corporation, Cincinnati, Ohio ("SBC"). See Firstar Corporation, 84 Federal Reserve Bulletin 1083 (1998) ("Firstar/SBC Order"). The most recent CRA performance evaluation for Firstar Bank was the evaluation of Star Bank conducted by the OCC before the merger. Firstar adopted SBC's CRA program. See Firstar/SBC Order at 1084. Firstar has engaged in a number of other acquisitions, such as the acquisition of Mercantile Bancorporation, St. Louis, Missouri ("Mercantile"), and recently has merged and renamed various banks under the combined organization. See Firstar Corporation, 85 Federal Reserve Bulletin 738 (1999) ("Firstar/Mercantile Order"). Each of the banks that has been merged into Firstar Bank received at least a "satisfactory" rating at the most recent CRA performance evaluation by its appropriate federal financial supervisory agency. Among these predecessor banks are Firstar Bank Illinois, Chicago, Illinois, which received a "satisfactory" rating from the Federal Reserve Bank of Chicago ("FRB Chicago"), as of June 1998; Mercantile Bank, N.A., St. Louis, Missouri, which received a "satisfactory" rating from the OCC, as of June 1997; Firstar Bank Minnesota, N.A., St. Paul, Minnesota, which received a "satisfactory" rating from the OCC, as of December 1997; Firstar Bank Wisconsin, Madison, Wisconsin, which received an "outstanding" rating from the FRB Chicago, as of April 1997; and Firstar Bank Milwaukee, N.A., Milwaukee, Wisconsin, which received a "satisfactory" rating from the OCC, as of November 1997. The other two current subsidiary banks of Firstar include Firstar Bank Midwest, N.A. (formerly Mercantile Bank, Overland Park, Kansas), which received an "outstanding" rating in its most recent CRA performance evaluation by the OCC, as of September 1998, and Firstar Bank U.S.A., N.A., Waukegan, Illinois ("Firstar USA"), which received a "satisfactory" rating in its most recent CRA performance evaluation by the OCC, as of November 1997.

(41.) In 1997, U.S. Bancorp was acquired by First Bank System, Inc., which retained the U.S. Bancorp name, and U.S. Bank was formerly named First Bank National Association. U.S. Bancorp has acquired a number of banks in recent years and has merged and renamed the banks controlled by the combined organization. See First Bank System, Inc., 83 Federal Reserve Bulletin 689 (1997). All the banks that have been merged into U.S. Bank have received at least a "satisfactory" rating at the most recent examinations of their CRA performance by the appropriate federal financial supervisory agency. In addition, U.S. Bank MT (formerly named First Bank Montana, N.A., Billings, Montana), received a "satisfactory" rating from the OCC, as of July 1995. U.S. Bank ND (formerly named First Bank National Association, ND, Fargo, North Dakota), a limited-purpose credit card bank, was chartered on July 31, 1997, and changed its name in March 1998. The OCC has not rated its record of CRA performance to date. U.S. Bancorp's other subsidiary bank, U.S. Bank OR, is a limited-purpose cash management bank that is not subject to the CRA.

(42.) One commenter contended that New Century Financial Corporation, Irvine, California ("New Century"), a nondepository mortgage company, is a subsidiary of U.S. Bancorp and that it engages in predatory lending by making subprime loans and imposing prepayment penalties more frequently than its competitors. The commenter also alleged that New Century engages in a higher level of subprime lending to African Americans in certain metropolitan areas than its competitors. U.S. Bancorp has indicated that it currently does not own or control, in the aggregate, 25 percent or more of the shares of New Century, or otherwise control New Century. Consequently, New Century is not a subsidiary of U.S. Bancorp for purposes of the BHC Act. The Board, however, has carefully considered these comments in light of the relationships between New Century and U.S. Bancorp.

The Board has forwarded copies of the comments regarding New Century to the Department of Housing and Urban Development ("HUD"), the Department of Justice, and the Federal Trade Commission, which have responsibility for fair lending law compliance by nondepository companies like New Century. The Board also has consulted with these agencies. In addition, the Board has considered information submitted by U.S. Bancorp on New Century's consumer lending practices, including the processes by which New Century makes credit available to consumers, the compliance procedures established by New Century, the methodology employed by New Century in setting risk-based interest rates, and the relationship of New Century with loan brokers and correspondents.

(43.) For example, examiners reported that the bank's geographic distribution of small loans to businesses in the low-income communities in its Cincinnati assessment areas was excellent.

(44.) In this context, "small business loans" means loans with an original principal amount of less than $1 million to businesses.

(45.) For example, during 1996 and 1997, Firstar Bank originated 16 community development loans, totaling $17.9 million in the Cincinnati MSA, most of which were dedicated to housing for LMI individuals and families. During this time period, Firstar also made qualified community development investments totaling $8.3 million in this area.

(46.) Before that merger, Firstar IL served the Chicago MSA. Firstar USA, a limited-purpose bank primarily engaged in retail consumer lending, also is in the Chicago MSA. As noted, Firstar USA received a "satisfactory" rating in its most recent CRA performance evaluation by the OCC, as of November 1997. Examiners noted that Firstar USA adequately provided qualified community development investments, services, and loans in its assessment area, which included 14 LMI census tracts out of a total of 32 census tracts.

(47.) A commenter alleged that Firstar has arbitrarily defined its CRA assessment area in Chicago to exclude LMI communities. Although a bank's assessment area delineation is not a separate criterion for CRA performance, examiners review whether an institution's assessment area meets regulatory requirements, including whether it arbitrarily excludes LMI areas. In the 1998 CRA performance evaluation of Firstar IL, examiners reviewed the bank's assessment area delineation and concluded that the assessment area for Firstar IL complied with applicable regulatory requirements. Firstar Bank recently expanded its assessment area in Chicago to include six counties in their entirety in the Chicago MSA.

(48.) Firstar acquired Mercantile Bank in 1999 through a merger with Mercantile Bancorporation and renamed the bank Firstar Missouri, N.A. In 2000, Firstar merged the bank into Firstar Bank. See Firstar? Mercantile Order.

(49.) In 2000, Firstar also announced that this initiative would include at least $10 million in mortgage loans and $10 million in small business loans each year for five years in the LMI neighborhoods of North St. Louis.

(50.) Firstar stated that approximately $7.5 million of the small business loans were made to businesses in LMI census tracts in North St. Louis.

(51.) Firstar stated that, in 1999, its housing-related lending in Wisconsin (including the Milwaukee MSA) under the American Dream Home Loan program included $3.5 million in loans to borrowers in LMI census tracts, $6.5 million in loans to LMI individuals, and $4.6 million in loans to minority borrowers.

(52.) Firstar reported that its housing-related lending throughout Wisconsin during 2000 included $7.8 million in loans to borrowers in LMI census tracts, $13.5 million in loans to LMI borrowers, and $11.8 million in loans to minority borrowers.

(53.) Firstar stated that 10 percent of its home mortgage loans in 1997, and 9 percent of its home mortgage loans in 1998, were made to borrowers in LMI census tracts, which generally was consistent with the percentage of home mortgage loans made by lenders in the aggregate to borrowers in LMI census tracts.

(54.) Firstar reported that it provided $6.5 million in home-purchase lending to borrowers in LMI census tracts and $13.3 million to LMI individuals in 1998. By 2000, Firstar's lending level had increased to $8.8 million in loans to borrowers in LMI census tracts and $15.4 million in loans to LMI individuals in its rural assessment areas in Wisconsin.

(55.) One commenter disagreed with the examiners' conclusions that Firstar WI had a strong record of small farm lending, and expressed concern about Firstar's commitment to small farm lending in Wisconsin, particularly to LMI borrowers or to small farms in LMI communities. The commenter also expressed concern about Firstar's participation in government-sponsored programs like the WHEDA or the FSA programs. The number of small farm loans originated by Firstar and its subsidiaries in Wisconsin decreased by 43 percent from 1997 to 1998 and decreased by approximately 8 percent from 1998 to 1999. Although Firstar's level of small farm lending has declined somewhat in Wisconsin, Firstar has continued its high level of distribution of small farm loans in LMI areas. Firstar reported that, in 1998, it originated small farm loans in Wisconsin, totaling approximately $11.4 million. In 1998, 64 percent of Firstar's small farm loans in Wisconsin were made to borrowers in LMI census tracts. Similarly, 62.7 percent of Firstar's small farm loans in Wisconsin in 1999 were made to borrowers in LMI census tracts. In 2000, Firstar made small farm loans totaling at least $5.9 million in LMI census tracts in Wisconsin.

Firstar represented that it continues to be committed to agricultural lending in Wisconsin and to programs sponsored by WHEDA and the FSA. For example, Firstar stated that it increased its level of originations under the WHEDA farm program by approximately 450 percent from 1999 to 2000. It also participated in a number of FSA programs in 2000. According to Firstar, it was the fourth largest agricultural lender in the United States in 1999, with total agricultural loan originations of more than $1 billion. Firstar stated that it continues to employ local relationship managers with expertise in agricultural lending who are available to process the most difficult agricultural credits. Firstar added that it has implemented a simplified small loan agricultural policy, featuring a streamlined application process for loans under $100,000.

(56.) Examiners especially commended U.S. Bank for its CRA lending performance in Chicago, Illinois, and Denver, Colorado.

(57.) The CHFA and NIFA programs offer mortgage loans with below-market interest rates to LMI first-time homebuyers. Under these programs, U.S. Bank provided loans totaling almost $3.5 million in 1996. Examiners also noted the participation of U.S. National Bank in the Oregon State Bond Mortgage Loan Program and found that, from 1994 through 1996, U.S. National Bank originated loans totaling $19 million under this program.

(58.) A commenter criticized U.S. Bancorp's volume of farm lending. U.S. Bancorp stated that it engaged in minimal farm lending, particularly outside certain northwestern states. Although the Board has recognized that banks help to serve the banking needs of communities by making a variety of products and services available, the CRA does not require an institution to provide any specific types of products and services, such as farm loans, in its assessment area.

(59.) This represents 22.6 percent of the total number and 28.2 percent of the total dollar amount of U.S. Bancorp's small business loans.

(60.) U.S. Bancorp reported that its subsidiary, U.S. Affordable Housing Community Development Corporation ("U.S. Affordable Housing CDC"), has facilitated the development of more than 5,000 affordable housing units and currently has low-income tax-credit equity investment commitments of more than $370 million. Another subsidiary, U.S. Bancorp Community Development Corporation, has invested more than $21 million in various small business and economic development efforts since 1985. U.S. Bancorp also reported that, during 1999 and 2000, it made investments of more than $13.3 million in mortgage-backed securities that support affordable housing for LMI individuals and communities.

(61.) In particular, examiners noted that, in 1996, U.S. Bank made 10 percent of its HMDA-reportable loans in Wisconsin to low-income individuals, compared with 6 percent by lenders in the aggregate.

(62.) Commenters criticized Firstar's record of home mortgage lending to LMI and minority individuals or in LMI and predominantly minority communities in the Chicago, Cleveland, Milwaukee, and St. Louis MSAs. Commenters also criticized Firstar's record of home mortgage lending to minority individuals in the Minneapolis and Nashville MSAs. In addition, commenters criticized U.S. Bancorp's record of home mortgage lending to minority applicants in the Denver and Minneapolis MSAs, and to LMI and minority individuals and in LMI and predominantly minority communities in the Milwaukee MSA.

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

(64.) One commenter alleged that U.S. Bancorp has indirectly supported predatory lending through the business relationships of U.S. Bank with a number of subprime lenders that the commenter characterized as predatory lenders. According to the applicant, U.S. Bancorp's and Firstar's lending and trust affiliates have corporate loans to non-affiliated subprime lenders and act as trustee, registrar, and/or paying agent for securitization transactions. Some trust clients have securitizations that may have subprime assets as collateral. Firstar and U.S. Bancorp have represented that neither has a role, formal or otherwise, in the lending practices and review processes of their loan and trust customers nor has any knowledge of the lending practices followed by the party originating the loans.

(65.) For example, the data do not account for the possibility that an institution's outreach efforts may attract a larger proportion of marginally qualified applicants than other institutions attract and do not provide a basis for an independent assessment of whether an applicant who was denied credit was, in fact, creditworthy. Credit history problems and excessive debt levels relative to income (reasons most frequently cited for a credit denial) are not available from HMDA data. HMDA data also may be incomplete and may not identify all applicants with regard to income level, ethnicity, or other demographic factors.

(66.) Firstar's fair lending review program describes the underwriting standards, training programs, and review procedures that are designed to ensure compliance with all fair lending laws and regulations.

(67.) Joint Policy Statement Regarding Branch Closings (64 Federal Register 34,844 (1999).

(68.) Two commenters alleged that Firstar had a poor record of closing branches in LMI and predominantly minority communities in Illinois and Kentucky. In recent years Firstar has participated in a number of bank mergers and acquisitions and is still in the process of integrating the institutions involved in these transactions and reconfiguring its branch system. From 1999 to 2000, this process resulted in a net loss (the number of opened branches minus the number of closed branches) of 12 branches nationwide, but no reduction in the number of branches in LMI census tracts. In Illinois and Kentucky, there has been a net loss of one branch in a moderate-income neighborhood in each state.

(69.) Section 42 of the Federal Deposit Insurance Act (12 U.S.C. [sections] 1831r-1), as implemented by the Joint Policy Statement Regarding Branch Closings, 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 closing, consistent with the institution's written policy for branch closings.

(70.) Firstar has represented that it would honor the existing CRA commitments made by Firstar and U.S. Bancorp. Several commenters requested that Firstar and U.S. Bancorp provide certain commitments and answer certain questions, or that the Board impose specific conditions. The Board notes that the CRA requires that, in considering an acquisition proposal, the Board carefully review the actual performance records of the relevant depository institutions in helping to meet the credit needs of their communities. Neither the CRA nor the federal banking agencies' CRA regulations require depository institutions to make pledges concerning future performance under the CRA. The Board also notes that future activities of New U.S. Bancorp's subsidiary banks will be reviewed by the appropriate federal supervisors in future performance examinations, and their CRA performance records will be considered by the Board in any subsequent applications by New U.S. Bancorp to acquire a depository institution.

(71.) Several commenters requested that the Board hold a public meeting or heating 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 in its discretion also may 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 commenters' requests in light of all the facts of record. In the Board's view, commenters have had ample opportunity to submit their views, and numerous commenters have submitted written comments that have been considered carefully by the Board in acting on the proposal. The commenters' requests fail to demonstrate why their written comments do not present their views adequately. 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 on the proposal are denied.

(72.) Several commenters requested that the Board delay action or extend the comment period on the proposal. The Board has accumulated a significant record in this case, including reports of examination, supervisory information, public reports and information, and considerable public comment. In the Board's view, for the reasons discussed previously, commenters have had ample opportunity to submit their views and, in fact, have provided substantial written submissions that have been considered carefully by the Board in acting on the proposal. Moreover, the BHC Act and Regulation Y require the Board to act on proposals submitted under those provisions within certain time periods. Based on a review of all the facts of record, the Board has concluded that the record in this case is sufficient to warrant Board action at this time and that a further delay in considering the proposal, an extension of the comment period, or a denial of the proposal on the grounds discussed above or for informational insufficiency is not warranted.

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

ROBERT DEV. FRIERSON Associate Secretary of the Board

FleetBoston Financial Corporation Boston, Massachusetts

Appendix A

Banking Markets in which Firstar and US. Bancorp Compete Directly

Illinois

Chicago         Cook, DuPage, and Lake Counties.
  Davenport-    Rock Island County, excluding the
  Rock          towns of Drury and Buffalo Prairie, in
  Island        Illinois; the towns of Colona, Edford,
                Geneseo, Hanna, and Western in Henry
                County, all in Illinois; and Scott County
                and the town of Farmington in Cedar
                County, all in Iowa.

Iowa

Ames            Boone and Story Counties and the towns
                of Marion, Clear Lake, Ellworth, Scott,
                Lyon, and Lincoln in Hamilton County.

Des Moines      Polk County and the town of Linn in
                Warren County.

Johnson         Johnson County, excluding the town of
                Jefferson; the northern portion of Washington
                County; and the town of Springdale
                in Cedar County.

Marengo         Iowa County and the southern portion of
                Benton County.

Nebraska

Omaha-Council   Omaha-Council Bluffs Ranally Metro
  Bluffs        Area ("RMA"); portions of Douglas
                County, east of the Elkhorn River that
                are contiguous to the RMA, in Nebraska;
                and Pottawattamie County, excluding
                the eastern portion of the
                county, in Iowa.

Minnesota

Minneapolis-    Anoka, Hennepin, Ramsey, Washington,
  St. Paul      Carver, Scott, and Dakota Counties;
                Lent, Chisago Lake, Shafer, Wyoming,
                and Franconia Townships in Chisago
                County, all in Minnesota; Blue Hill,
                Baldwin, Orrock, Livonia, and Big Lake
                Townships and the City of Elk River in
                Sherburne County; Monticello, Otsego,
                Buffalo, Frankfort, Rockford, and Franklin
                Townships in Wright County, all in
                Minnesota; and Lanesburgh Township
                in Le Sueur County, all in Minnesota;
                and the Town of Hudson in St. Croix
                County, Wisconsin.

Wisconsin

Milwaukee       Milwaukee RMA.

Appendix B

Banking Markets Consistent with DOJ Guidelines without Divestitures

Illinois

Chicago         Firstar operates the 12th largest depository
                institution in the market, controlling deposits
                of $2 billion, representing approximately 1.5 percent
                of market deposits. U.S. Bancorp operates the 36th
                largest depository institution in the market,
                controlling deposits of $531.8 million, representing
                less than 1 percent of market deposits. On
                consummation of the proposal, Firstar would operate
                the ninth largest depository institution in the
                market, controlling deposits of $2.6 billion,
                representing approximately 1.8 percent of market
                deposits. The HHI would increase by 1 point to 838.

Rock Island-    Firstar operates the second largest depository
  Davenport     institution in the market, controlling deposits
                of $974.4 million, representing approximately 21.1
                percent of market deposits. U.S. Bancorp operates the
                32nd largest depository institution in the market,
                controlling deposits of $700,000, representing less
                than 1 percent of market deposits. On consummation
                of the proposal, Firstar would operate the second
                largest depository institution in the market,
                controlling deposits of $975.1 million, representing
                less approximately 21.1 percent of market deposits.
                The HHI would increase by 1 point to 1112.

Iowa

Ames            Firstar operates the second largest depository
                institution in the market, controlling
                deposits of $186.9 million, representing
                approximately 14.5 percent of market deposits.
                U.S. Bancorp operates the 10th largest
                depository institution in the market, controlling
                deposits of $25.3 million, representing
                approximately 2 percent of market deposits.
                On consummation of the proposal, Firstar
                would operate the second largest depository
                institution in the market, controlling deposits
                of $212.2 million, representing approximately
                16.5 percent of market deposits. The
                HHI would increase by 57 points to 1896.

Des Moines      Firstar operates the fourth largest depository
                institution in the market, controlling
                deposits of $475.5 million, representing
                approximately 8.8 percent of market deposits.
                U.S. Bancorp operates the ninth largest depository
                institution in the market, controlling
                deposits of $137.4 million, representing
                approximately 2.5 percent of market
                deposits. On consummation of the proposal,
                Firstar would operate the second largest depository
                institution in the market, controlling
                deposits of $612.9 million, representing
                approximately 11.3 percent of market
                deposits. The HHI would increase by 45
                points to 1949.

Johnson         Firstar operates the second largest depository
                institution in the market, controlling
                deposits of $330.4 million, representing
                approximately 22.8 percent of market deposits.
                U.S. Bancorp operates the 12th largest
                depository institution in the market, controlling
                deposits of $10.5 million, representing
                less than 1 percent of market deposits. On
                consummation of the proposal, Firstar
                would operate the second largest depository
                institution in the market, controlling deposits
                of $340.9 million, representing approximately
                23.6 percent of market deposits. The
                HHI would increase by 33 points to 2309.

Marengo         Firstar operates the seventh largest depository
                institution in the market, controlling
                deposits of $21.6 million, representing
                approximately 6.5 percent of market deposits.
                U.S. Bancorp operates the 11th largest depository
                institution in the market, controlling
                deposits of $15.6 million, representing
                approximately 4.7 percent of market deposits.
                On consummation of the proposal,
                Firstar would operate the third largest depository
                institution in the market, controlling
                deposits of $37.2 million, representing
                approximately 11.2 percent of market deposits.
                The HHI would increase by 61
                points to 976.

Nebraska

Omaha-Council   Firstar operates the seventh largest depository
  Bluffs        institution in the market, controlling
                deposits of $229.7 million, representing
                approximately 2.7 percent of market deposits.
                U.S. Bancorp operates the third largest depository
                institution in the market, controlling
                deposits of $1.2 billion, representing
                approximately 14 percent of market deposits.
                On consummation of the proposal,
                Firstar would operate the second largest
                depository institution in the market, controlling
                deposits of $1.4 billion, representing
                approximately 16.7 percent of market deposits.
                The HHI would increase by 75
                points to 1901.(1)

Wisconsin

Milwaukee       Firstar operates the second largest depository
                institution in the market, controlling deposits
                of $4.8 billion, representing approximately
                19.9 percent of market deposits. U.S. Bancorp
                operates the 17th largest depository institution
                in the market, controlling deposits of
                $288.1 million, representing approximately
                1.2 percent of market deposits. On consummation
                of the proposal, Firstar would operate
                the second largest depository institution in
                the market, controlling deposits of $5 billion,
                representing approximately 21.1 percent of
                market deposits. The HHI would increase by
                48 points to 1348.

Order Approving the Merger of Bank Holding Companies

Fleet Boston Financial Corporation Boston, Massachusetts

FleetBoston Financial Corporation ("FleetBoston"), a financial holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under the BHC Act (12 U.S.C. [sections] 1841 et seq.) to merge with Summit Bancorp., Princeton ("Summit"), and thereby acquire Summit's subsidiary banks, including its lead subsidiary bank, Summit Bank, Hackensack, both in New Jersey ("Summit-NJ").(1) FleetBoston also provided notice under section 25 of the Federal Reserve Act (12 U.S.C. [sections] 601 et seq.) and the Board's Regulation K (12 C.F.R. 211) of its intention to acquire Summit International Trade Finance Corp., also in Princeton ("Summit International"), an agreement corporation subsidiary of Summit-NJ.(2)

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (65 Federal Register 69,109 (2000)). The time for filing comments has expired, and the Board has considered the proposal and all comments received during the comment period in light of the factors set forth in the BHC Act and the Federal Reserve Act.

FleetBoston, with total consolidated assets of approximately $179 billion, is the eighth largest commercial banking organization in the United States.(3) FleetBoston operates subsidiary banks in Connecticut, Florida, Maine, Massachusetts, New Hampshire, New Jersey, New York, and Rhode Island. FleetBoston operates the fourth largest depository institution in New Jersey, controlling deposits of $8.8 billion, representing approximately 6.3 percent of total deposits in insured depository institutions in the state ("state deposits").(4) In Connecticut, FleetBoston operates the largest depository institution, controlling deposits of $15 billion, representing approximately 25.5 percent of state deposits.

Summit, with total consolidated assets of approximately $39.5 billion, is the 27th largest commercial banking organization in the United States. Summit operates subsidiary banks in Connecticut, New Jersey, and Pennsylvania. Summit operates the largest depository institution in New Jersey, controlling deposits of $20.8 billion, representing approximately 14.8 percent of state deposits. In Connecticut, Summit operates the 12th largest depository institution, controlling deposits of $909 million, representing approximately 1.6 percent of state deposits. In Pennsylvania, Summit operates the 10th largest depository institution, controlling deposits of $2.8 billion, representing approximately 1.5 percent of state deposits.

On consummation of the proposal and after accounting for the proposed divestiture discussed in this order, Fleet would become the seventh largest commercial banking organization in the United States, with total consolidated assets of approximately $218.6 billion. On consummation, FleetBoston would become the largest banking organization in New Jersey, controlling deposits of $29.6 billion, representing approximately 20.9 percent of state deposits. In Connecticut, FleetBoston would control deposits of $15.9 billion, representing approximately 27.1 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 the bank holding company if certain conditions are met. For purposes of the BHC Act, the home state of FleetBoston is Rhode Island,(5) and Summit's subsidiary banks are located in Connecticut, New Jersey, and Pennsylvania.(6)

The Board may not approve a proposal subject to section 3(d) if, after consummation, the applicant would control more than 10 percent of the total deposits of insured depository institutions in the United States.(7) In addition, the Board may not approve a proposal if, on consummation of the proposal, the applicant would control 30 percent or more of the total deposits of insured depository institutions in any state in which both the applicant and the organization to be acquired operate an insured depository institution, or such higher or lower percentage as established by state law.(8)

On consummation of the proposal, FleetBoston would control 2.8 percent of the total deposits of insured depository institutions in the United States.(9) FleetBoston would control less than 30 percent of total deposits held by insured depository institutions in Connecticut and New Jersey,(10) and would not exceed the state deposit caps of Connecticut or New Jersey.(11)

All other requirements of section 3(d) of the BHC Act also are met. FleetBoston is adequately capitalized and adequately managed, as defined by applicable law. In addition, Summit's subsidiary banks have been in existence for the minimum age requirements established by applicable state law.(12) 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

Section 3 of the BHC Act prohibits the Board from approving a proposal that would result in a monopoly or would be in furtherance of an attempt to monopolize the business of banking in any part of the United States. Section 3 also prohibits the Board from approving a proposal that would substantially lessen competition in any relevant banking market unless the anticompetitive effects of the proposal in that banking market are clearly outweighed in the public interest by the probable effect of the proposal in meeting the convenience and needs of the community to be served.(13)

The Board has reviewed carefully the competitive effects of the proposal in the relevant banking markets in light of comments received(14) and all the facts of record. In particular, the Board has considered 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,(15) 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.(16)

FleetBoston and Summit compete directly in five banking markets. Consummation of the proposal without divestitures would be consistent with Board precedent and the DOJ Guidelines in four of these markets.(17) On consummation, three of these markets would remain moderately concentrated and one market would be unconcentrated as measured by the DOJ Guidelines. Numerous banking competitors would remain in each of these markets.

In the Atlantic City, New Jersey, banking market, a subsidiary bank of Summit is the largest insured depository institution in the market, controlling deposits of $1 billion, representing 27.8 percent of the deposits of insured depository institutions in the market ("market deposits").(18) A subsidiary bank of FleetBoston is the fourth largest insured depository institution in the market, controlling deposits of $370 million, representing 10 percent of market deposits. Without any divestiture, the proposal would cause the HHI in the market to increase by 557 points to 1,917.

In order to mitigate the potential anticompetitive effects of the proposal in the Atlantic City market, FleetBoston has committed to divest five branches in the market, with at least $100 million in deposits, and the customer relationships associated with these branches.(19) On consummation and taking into account the effect of the proposed divestiture, the HHI for the market would increase by 161 points to 1,517, and 16 competitors would remain in the market. Consummation of the proposal would be consistent with Board precedent and the DOJ Guidelines.

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 be likely to have a significantly adverse effect on competition in the Atlantic City or any other relevant banking market. The Office of the Comptroller of the Currency ("OCC") and the Federal Deposit Insurance Corporation 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 this order, 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 banking markets in which FleetBoston and Summit directly compete or in any other relevant banking market. Accordingly, based on all the facts of record, and subject to completion of the proposed divestitures and compliance with the related commitments, the Board has determined that competitive factors are consistent with approval of the proposal.

Managerial and Financial Considerations and Future Prospects

Section 3(c) of the BHC Act requires the Board to consider the financial and managerial resources and future prospects of the companies and depository institutions involved in a proposal and certain other supervisory factors. The Board has carefully considered the financial and managerial resources and future prospects of FleetBoston, Summit, and their respective subsidiary depository institutions, and other supervisory factors in light of all the facts of record. As part of that consideration, the Board has reviewed confidential reports of examination and other supervisory information received from the primary federal supervisors of the organizations.

In evaluating financial factors in expansion proposals by banking organizations, the Board consistently has considered capital adequacy to be especially important. FleetBoston, Summit Bancorp, and all of their subsidiary banks are and on consummation of the proposal would remain well capitalized, as defined in the relevant regulations of federal banking agencies. The proposed acquisition is structured as an exchange of shares, and FleetBoston would incur no debt as a result of the transaction.

The Board also has considered the managerial resources of FleetBoston and Summit and the federal financial supervisory agencies' examination records in supervising these organizations, including their subsidiary banks. FleetBoston, Summit, and their subsidiary banks are well managed, with appropriate risk management systems in place. The Board also has considered the plans made by FleetBoston to complete the proposed merger, including the managerial resources available to FleetBoston and the experience gained by FleetBoston in completing past mergers.(20)

Based on this review and all of the facts of record, the Board concludes that considerations relating to the financial and managerial resources and future prospects of FleetBoston, Summit, 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.

Convenience and Needs Considerations

Section 3 of the BHC Act requires the Board, in every case involving the acquisition of a bank by a bank holding company, to consider the effects of the proposal on the convenience and needs of the communities to be served. The Board has long held that this analysis includes a review of performance under the Community Reinvestment Act (12 U.S.C. [sections] 2901 et seq.) ("CRA"). The CRA requires the federal financial supervisory agencies to encourage financial institutions to help meet the credit needs of the local communities in which they operate. To accomplish this end, the CRA requires the appropriate supervisory authority for an insured depository institution to "assess the institution's record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operations of such institution,"(21) and requires that this record be taken into account in the Board's evaluation of bank holding company applications involving the institution.(22)

A. Summary of Public Comments

The Board has reviewed the record of performance of the subsidiary banks of FleetBoston and Summit in light of all the facts of record, including timely comments received. Based in part on their analyses of data filed under the Home Mortgage Disclosure Act (12 U.S.C. [sections] 2801 et seq.) ("HMDA"), several commenters criticize the records of FleetBoston and Summit of serving minorities and low-and moderate-income ("LMI") communities and LMI individuals.(23) In addition, commenters contend that the proposal would result in FleetBoston increasing fees for products used by LMI individuals, and reducing basic banking services provided to LMI individuals.(24) Commenters also express concerns about possible branch closures and contend that FleetBoston should be required to negotiate community reinvestment agreements pertaining to certain geographic areas in the assessment areas of the combined organization.

B. 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 by the appropriate federal supervisors. 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.(25)

FleetBoston was formed by the 1999 merger of BankBoston Corporation ("BankBoston") with and into Fleet Financial Group, Inc. ("Fleet"), both in Boston, Massachusetts. Before their merger to form Fleet National Bank, Boston, Massachusetts ("New Fleet Bank"), all Fleet's subsidiary insured depository institutions received ratings of "satisfactory" at their most recent examinations of CRA performance(26) and all BankBoston's subsidiary insured depository institutions received ratings of "satisfactory" or better as of their most recent examinations of CRA performance.(27) FleetBoston's other subsidiary insured depository institution, Fleet Bank (Rhode Island), N.A., Providence, Rhode Island, which engages primarily in credit card operations, received a "satisfactory" CRA performance rating from the OCC at its most recent examination, as of March 2000.

Summit's lead subsidiary bank, Summit-NJ, which represents approximately 85 percent of the banking assets controlled by Summit, received an "outstanding" CRA performance rating from the Federal Reserve Bank of New York at its most recent examination, as of October 1999 ("1999 Summit-NJ Examination"). Summit's other subsidiary banks also received "outstanding" ratings at their most recent examinations for CRA performance.(28)

C. FleetBoston's CRA Performance Record

In the past two years, the Board has reviewed the CRA performance record of Fleet and FleetBoston in connection with two large acquisition proposals.(29) In both cases, the Board received extensive public comment and the Board carefully reviewed the records of the subsidiary banks involved in light of the public comments, the applicant's response to those comments, and supervisory reports. For reasons set forth in detail in those orders, the Board concluded that the CRA performance records of Fleet and FleetBoston, respectively, were consistent with approval of the two proposals under the BHC Act. Many of the comments received in this case raise the same contentions and arguments raised by commenters in previous cases. Consequently, the Board adopts and incorporates in this case the relevant findings made in the two previous orders.

Fleet-RI. At the time of its February 1998 CRA performance examination, Fleet-RI operated in Massachusetts, Connecticut, portions of upstate New York, and Rhode Island.(30) During 1996 and 1997, the bank made 53,305 HMDA-reported loans, totaling $4.4 billion, and 27,827 loans to small businesses in amounts less than $1 million ("small business loans"), totaling $4.2 billion, in its assessment area.

Examiners considered Fleet-RI's lending performance to be particularly strong in home purchase lending. In every state, and in most MSAs in its assessment area, the percentage of the bank's loans made in LMI census tracts was higher than the percentage of owner-occupied housing in these census tracts and higher than the percentage of such loans made by lenders in the aggregate. At the time of the CRA examination, the bank used several programs to provide affordable home mortgage loans. For example, Fleet-RI offered its proprietary affordable housing program, which featured reduced down payment requirements, flexible underwriting standards, and no mortgage insurance requirement for borrowers unable to meet traditional secondary market credit standards. In addition, Fleet-RI was engaged in local partnership programs offered in cooperation with organizations, such as the Association of Community Organization for Reform Now, Neighborhood Assistance Corporation of America, and Hartford Areas Rally Together, that offered flexible underwriting standards and extensive financial and homebuyer counseling. Fleet-RI also offered several government-sponsored programs, such as Federal Housing Administration and Veterans Administration loan programs and the state-sponsored Jumpstart program in Massachusetts, New York, and Rhode Island,(31) and participated in the Fannie Mae Community Home Buyers program, that featured reduced down payment requirements, flexible underwriting standards, and flexible financing of closing costs. Examiners noted favorably that the geographic distribution of Fleet-RI's consumer loans generally was consistent with population distribution.

For small business lending, examiners reported that Fleet-RI was particularly active in Massachusetts and Connecticut, where the percentage of the bank's small business loans in LMI census tracts was generally 3 to 4 percentage points higher than the comparable percentage for lenders in the aggregate. Examiners found that in New York, the distribution of Fleet-RI's small business loans generally corresponded to the distribution of businesses throughout the assessment areas, and that there was good distribution of small business loans to very small businesses in LMI census tracts.(32) Through the Fleet INCITY Business and Entrepreneurial Services Group, Fleet-RI offered small business loans featuring reduced documentation, flexible underwriting, and no minimum loan amount in LMI areas. Fleet CDC also supported small businesses through low-interest loans, longer-term loans, and equity investments in financial intermediaries and nonprofit organizations that focused their efforts on small businesses in LMI areas. Fleet-RI was an active lender through Small Business Administration ("SBA") programs. Overall, Fleet was the largest SBA lender in New England in 1997 and the second largest in 1998. In the first six months of 1999, Fleet made more small business loans under a new SBA express approval program than in all of 1998.

Examiners also judged Fleet-RI's performance in making community development investments to be particularly strong. In 1996 and 1997, the bank made $253 million of qualified investments and grants and committed to make an additional $269 million. In 1997, Fleet-RI entered into an agreement with Neighborhood Housing Services of America ("NHSA") to purchase up to $10 million in affordable first and second mortgages and home improvement loans originated and underwritten by NHSA's local affiliates in the bank's assessment area. Fleet-RI also committed to make grants of $1.4 million of working capital over three years to NHSA's affiliated Neighbor Works Organizations to support neighborhood revitalization and affordable housing development.

According to examiners, Fleet-RI's branch network, ATMs, and its alternative delivery systems provided consistent service and reached consumers in all geographic areas, and its products and services were designed to serve all consumers, including LMI individuals. Approximately 600 companies participated in the bank's WorkPlace Banking program, which provided basic banking services at reduced cost to approximately 53,000 households. The program was provided through branches, ATMs, and telephone banking systems, thereby enhancing access to services for certain predominantly minority communities. The bank also offered seminars for first-time LMI homebuyers and small business owners.(33)

D. Summit's CRA Performance Record

Summit-NJ. The 1999 Summit-NJ Examination concluded that the overall lending activity of Summit-NJ reflected excellent responsiveness to the credit needs of its northern New Jersey assessment area and adequate responsiveness to the credit needs of its southern New Jersey assessment area. Summit-NJ originated 93 percent of its loans in its assessment areas, and examiners found this lending to be well distributed throughout those areas, in light of the number of residents in these areas and the number of the bank's branches. In northern New Jersey, where 80 percent of its branches are located, Summit-NJ was a leader in total lending activity, loan volume in LMI census tracts, number of loans per dollar of assets, and loans made in LMI census tracts per dollar of assets. In southern New Jersey, Summit-NJ's performance in these categories was found to be adequate, generally in line with or slightly below that of similarly situated financial institutions.

Summit-NJ's loan distribution was found to reflect good penetration in its assessment areas, and examiners particularly commended the geographic distribution of the bank's lending in the LMI census tracts in these areas.(34) Examiners found Summit-NJ's multifamily lending to be responsive to the housing needs in its assessment areas and to be evenly distributed in light of the population patterns in those areas. The bank originated 86 multifamily loans during the examination period,(35) 23 of which were made in LMI census tracts. Those 23 loans represented 1,207 housing units, including 802 units that qualified as affordable housing. Examiners also found that the overall distribution of Summit-NJ's loans among individuals of different income levels and businesses with different revenues was good throughout its assessment areas.

Examiners concluded that Summit-NJ had an excellent level of community development lending. Summit-NJ's community development lending commitments totaled $197.4 million, which represented an increase of 139 percent over the amount during the previous examination period, and included $88.2 million in support of affordable housing initiatives that constructed or rehabilitated 1,479 affordable housing units in the bank's assessment areas. Summit-NJ also lent $85.7 million for community service initiatives, $11.3 million in support of economic development, and $12.2 million for revitalization and stabilization activities.

Examiners found Summit-NJ to have an excellent level of qualified community development investments and to exhibit an excellent level of responsiveness to credit and community development needs. Summit-NJ had a total of $65.9 million of qualified investments, including $65.1 million invested in community development organizations, and $859,000 in charitable grants and contributions to such organizations. This represented an increase of 217 percent over Summit-NJ's qualified investments during the previous examination period. The qualified investments made by Summit-NJ were noted for showing excellent responsiveness to affordable housing development, which was a persistent community development need in its assessment area. Examiners also found that Summit-NJ made excellent use of complex investments, such as low-income housing tax credits, in supporting community development initiatives.

Summit-NJ was considered by examiners to be a leader in providing community development services in its assessment areas. These services included sponsoring educational seminars for first- time homebuyers and small businesses, permitting Summit-NJ employees to serve as directors or officers of community development organizations, and participating in the Affordable Housing Program ("AHP") of the Federal Home Loan Bank ("FHLB") of New York. The AHP finances homeownership for households with incomes that are 80 percent or less of the area median income, and finances rental housing in which 20 percent of the units will be occupied by tenants who earn 50 percent or less of the area median. At the time of the examination, Summit-NJ was overseeing 28 affordable housing projects it had sponsored through the AHP.

Examiners concluded that Summit-NJ used delivery systems for its products and services that were reasonably accessible to essentially all portions of its assessment area. Of the 372 branches that Summit-NJ maintained at the close of the examination period, 53 (14 percent) were in LMI census tracts. Summit-NJ had 55 branches in supermarkets and all these branches offered third-party check cashing and were open seven days a week. Ninety percent of all the bank' s branches had extended hours once a week. Examiners noted that Summit-NJ offered a variety of alternative delivery systems, including ATMs, and banking by telephone and home computer. Eight percent of Summit-NJ's 388 ATMs (primarily those in supermarkets) offered a check cashing feature, and 16 percent of the bank's ATMs offered Spanish language transactions. Examiners also found that Summit-NJ's record of opening and closing branches had not adversely affected the accessibility of its delivery systems, including those in LMI areas or to LMI individuals. Examiners also did not identify any credit practices of Summit-NJ that violated the substantive provisions of any antidiscrimination laws or regulations.

Summit-PA. The 2000 Summit-PA Examination found that the bank had an excellent level of overall lending, and that a substantial majority of its home mortgage, small business, and unsecured consumer loans were made in its assessment areas. In addition, the geographic distribution of Summit-PA's lending, including home purchase, small business, and consumer lending, was found to demonstrate good penetration throughout its assessment areas, including LMI geographies. Examiners also found that the distribution of Summit-PA's lending among borrowers of different income levels was excellent, and, in particular, noted that the bank was effective in reaching LMI borrowers in its Philadelphia and Allentown-Bethlehem-Easton assessment areas.(36) Summit-PA's small business lending in all its assessment areas was considered to be consistent with the bank's asset size, lending capacity, and business objectives.

Examiners considered Summit-PA's level of community development lending to be outstanding and the bank to be a leader in making community development loans and an active participant in economic development initiatives. Summit-PA's loans to community development organizations and initiatives totaled $51 million, and a substantial number of those loans were made in the bank's Philadelphia and Allentown-Bethlehem-Easton assessment areas.

Summit-PA also made extensive use of innovative and flexible lending practices to meet the credit needs of its community, including home purchase, home improvement, and business loan products designed to meet the credit needs of LMI borrowers and small businesses. Summit-PA participated in the FHLB of Pittsburgh's AHP by sponsoring eight affordable housing projects and overseeing the distribution of $1.7 million in grant funds during the examination period.(37) In addition, examiners concluded that Summit-PA had a good record of serving the credit needs of significantly disadvantaged areas and borrowers in its assessment areas, while also encouraging the bank to continue to explore alternative ways to respond to these credit needs, particularly in its Philadelphia assessment area.

Examiners found that Summit-PA had an excellent level of qualified community development investments and provided some investments that were not routinely offered by other financial institutions. Summit-PA also made extensive use of innovative and complex investments, such as low-income housing tax credit projects, to support community development initiatives. The bank demonstrated an excellent responsiveness to community credit and development needs, principally by investing in organizations that promote affordable housing and economic development.

Examiners found that Summit-PA was a leader in providing community development services in its assessment areas, primarily by offering affordable housing programs, technical assistance by bank employees to community development organizations, educational seminars for first-time homebuyers, and deposit accounts designed for LMI individuals. The examination also concluded that Summit-PA used its branch network, ATMs, and Internet and telephone banking systems to deliver services to its customers. Examiners found that Summit-PA's branch system was accessible to essentially all portions of the bank's assessment areas, and noted that 17 percent of the bank's 109 branches were in LMI geographies. Summit-PA had 126 ATMs at the time of the examination, and examiners noted that several of the bank's ATMs offered Spanish and/or Russian language transactions, particularly ATMs in Philadelphia. Summit-PA's record of opening and closing branches was not found to have affected the accessibility of the bank's delivery systems. Since its previous CRA examination, Summit-PA had opened 42 additional branches (23 of which were related to its September 1999 merger with Prime Bank, Philadelphia, Pennsylvania), and closed two branches. Neither of the closed branches was in an LMI area.

Examiners found no credit practices of Summit-PA that violated the substantive provisions of any antidiscrimination laws or regulations.

E. FleetBoston CRA Pledge

Two commenters request that the Board delay action on this application until FleetBoston enters into a CRA agreement pertaining to portions of Pennsylvania. New Fleet Bank has entered into a community development agreement with two organizations in New Jersey.

The CRA requires the Board, in considering a bank holding company's application to acquire another bank holding company, to review carefully the actual record of past performance of the insured depository institutions controlled by each bank holding company in helping to meet the credit needs of their communities. Consistent with this requirement, the Board previously has held that, for approval of a proposal to acquire an insured depository institution, an applicant must demonstrate a satisfactory record of performance under the CRA without reliance on plans or commitments for future action.(38)

The Board previously has noted that, although communications by depository institutions with community groups provide a valuable method of assessing and determining how an institution may best address the credit needs of the community, neither the CRA nor the CRA regulations of the federal financial supervisory agencies require depository institutions to enter into agreements with any organization.(39) The Board notes that the future activities of FleetBoston, including any lending and community development activities in which the subsidiary banks of the combined FleetBoston-Summit organization engage pursuant to CRA pledges and agreements, will be reviewed by the appropriate federal supervisors of those institutions in future CRA performance examinations. Those CRA performance records will be considered by the Board in any future applications by FleetBoston to acquire a depository institution.(40)

F. FleetBoston's HMDA Data

The Board has carefully considered the lending records of FleetBoston and Summit in light of comments about HMDA data reported by the organizations' subsidiaries.(41) The Board has reviewed HMDA data from 1997 through 1999 for FleetBoston in five states and eight MSAs and for Summit in three states and two MSAs.

The HMDA data indicate that FleetBoston's originations to African American applicants as a percentage of its total originations (the "origination rate") was below the percentage for lenders in the aggregate (the "aggregate") in some areas, and was above it in others. The HMDA data for these years also indicate that FleetBoston's origination rates for Hispanics were below the origination rates for the aggregate in most states and MSAs examined, except for the MSAs of Bridgeport, Connecticut MSA and Trenton, New Jersey MSA. In addition, the HMDA data indicate that FleetBoston's denial disparity ratios with respect to minority applicants were generally equivalent to or better than the aggregate's denial disparity ratios.(42) The HMDA data also indicate that Summit's origination rates to LMI areas generally lagged the aggregate's origination rate of HMDA-reportable loans to LMI areas. In the Scranton/ Wilkes-Barre/Hazelton MSA, Summit's origination rate to LMI individuals was below the aggregate's origination rate to LMI individuals for each year from 1997 through 1999. In the Allentown-Bethlehem-Easton MSA in 1999, Summit's orgination rates to African Americans and to Hispanics were below the aggregate's origination rates.

The Board is concerned when an institution's record indicates such disparities in lending and believes that all banks are obligated to ensure that their lending practices are based on criteria that ensure 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 because the data cover only a few categories of housing-related lending.(43) HMDA data, moreover, provide only limited information about the covered loans. HMDA data, therefore, have limitations that make the data an inadequate basis, absent other information, for concluding that an institution has not adequately assisted in meeting its communities' credit needs or has engaged in illegal discrimination in making lending decisions.

Because of the limitations of HMDA data, the Board has carefully considered the data in light of other information, including examination reports that provide an on-site evaluation of compliance by the subsidiary banks of FleetBoston and Summit with fair lending laws and the overall lending and community development activities of the banks, as well as fair lending examinations of Fleet Mortgage, which is a subsidiary of New Fleet Bank. Examiners found no evidence of prohibited discrimination or illegal credit practices at the subsidiary banks of FleetBoston or Summit. Fleet Mortgage's fair lending policies, procedures, training programs, and internal monitoring programs were considered to be satisfactory.

The Board also considered the HMDA data in light of the overall lending record of FleetBoston, including the lending and other programs outlined above. As the discussion illustrates, FleetBoston and Summit have implemented a variety of programs that help to meet the credit needs of the community in the home mortgage lending area as well as other areas of credit need, including, in particular, small business loans and consumer credit.

G. Branch Closings

The Board has received comments that express concern about branch closings that might result from consummation of the proposal, and about the criteria that the merged organization might use to determine which branches to close or consolidate. FleetBoston has estimated that 85 branches of the subsidiary banks of the merged organization might be closed as a result of the proposal. FleetBoston has indicated that this estimate is the result of a preliminary analysis of the two organizations' branch structures that identified 97 cities or communities in which FleetBoston and Summit banks both have branches.(44)

The Board has carefully considered all the facts of record concerning branch closings, including the branch closing policy of New Fleet Bank and Fleet's record of opening and closing branches. The Board notes that New Fleet Bank's 1branch closing policy provides that the impact of any branch closing on the local community should be considered as part of the branch closing process. This includes an assessment of how local banking needs might be addressed by other New Fleet Bank branches, a review of comments from community leaders regarding the impact of any proposed closure, and consideration of steps by the bank to minimize any adverse impact. The policy is 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.(45) In addition, the most recent CRA examination of BankBoston, N.A. noted that branch closings generally had not adversely affected the accessibility of the bank's products and services, particularly in LMI census tracts or to LMI individuals. Examiners made similar findings with respect to Summit Bank-NJ and Summit Bank-PA. The Board expects that the subsidiary banks of the combined organization would continue to use a satisfactory branch closing policy for any branch closings that might result from the proposed transaction.(46)

H. Conclusion on Convenience and Needs

For the reasons discussed above, the record demonstrates that FleetBoston and Summit have established records of performance in helping to meet the convenience and needs of the communities they serve. On balance, and based on a review of the entire record, the Board concludes that convenience and needs considerations, including the records of CRA performance by both organizations' subsidiary depository institutions, are consistent with approval of the proposal.

Conclusion

As required by section 25 of the Federal Reserve Act and section 211.4(f) of the Board's Regulation K (12 C.F.R. 211.4(f)), FleetBoston also provided notice of its intention to acquire Summit International, which is organized under section 25A of the Federal Reserve Act. The Board concludes that all the factors it is required to consider under the Federal Reserve Act and Regulation K are consistent with approval of the notice.

Based on the foregoing and all the facts of record, the Board has determined that the application and notice should be, and hereby are, approved.(47) The Board's approval is specifically conditioned on compliance by Fleet-Boston with all the commitments made in connection with the proposal and with the conditions stated or referred to in this order, including FleetBoston's divestiture commitments. 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 acquisition 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 February 12, 2001.

(1.) The proposal would be consistent with the DOJ Guidelines and Board precedent without divestitures. However, as noted previously, Firstar has agreed to divest branches in the Omaha- Council Bluffs banking market to address concerns expressed by the Department of Justice. After accounting for the proposed divestitures, Firstar would operate the second largest depository institution in the market, controlling deposits of $1.4 billion, representing approximately 16.3 percent of market deposits. The HHI would increase by 60 points to 1886.

(1.) FleetBoston also would acquire Summit's other subsidiary banks: Summit Bank, Norwalk, Connecticut ("Summit-CT"); and Summit Bank, Bethlehem, Pennsylvania ("Summit-PA").

(2.) In addition, FleetBoston has requested the Board's approval to exercise an option to acquire up to 19.9 percent of Summit's voting shares. The option would expire on consummation of the proposal.

(3.) Asset data are as of September 30, 2000. National ranking data are as of September 30, 2000, adjusted for transactions consummated since that date.

(4.) State deposit and ranking data are as of June 30, 1999, and reflect acquisitions as of October 2, 2000, for Connecticut, as of September 27, 2000, for New Jersey, and as of February 5, 2001, for Pennsylvania. In this context, depository institutions include commercial banks, savings banks, and savings associations.

(5.) 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 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), the Board considers a bank to be located in the states in which the bank is chartered, headquartered, or operates a branch.

(7.) 12 U.S.C. [sections] 1842(d)(2)(A). For this purpose, insured depository institutions include all insured banks, savings banks, and savings associations.

(8.) 12 U.S.C. [sections] 1842(d)(2)(B)-(D).

(9.) Data as of June 30, 2000.

(10.) On consummation, FleetBoston would control 27.1 percent of insured depository institution deposits in Connecticut and 20.9 percent of insured depository institution deposits in New Jersey. FleetBoston currently does not control an insured depository institution in Pennsylvania.

(11.) See Conn. Gen. Stat. Ann. [sections] 36a-411 (West 2000) (30 percent); N.J. Stat. Ann. [sections] 17:9A-413 (West 2000) (30 percent). Pennsylvania does not have a deposit cap that is applicable to the proposal.

(12.) 12 U.S.C. [sections] 1842(d)(2)(A). See Conn. Gen. Stat. Ann. [sections] 36a-411 (West 2000) (5 year minimum age requirement). Neither New Jersey nor Pennsylvania has an age requirement that is applicable to the proposal. The Board also has taken into account FleetBoston's record of compliance with applicable state community reinvestment laws.

(13.) 12 U.S.C. [sections] 1842(c)(1).

(14.) Two commenters expressed concern that the proposal would have anticompetitive effects in certain banking markets.

(15.) Market share data are as of June 30, 1999, 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).

(16.) Under the DOJ Guidelines, 49 Federal Register 26,823 (1984), a market is considered unconcentrated if the post-merger HHI is below 1000, moderately concentrated if the post-merger HHI is between 1000 and 1800, and highly concentrated if the post-merger HHI is above 1800. 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.

(17.) These markets are the Fairfield Area, Connecticut; Waterbury, Connecticut; Metropolitan New York-New Jersey; and Philadelphia, Pennsylvania-New Jersey banking markets. Definitions of these banking markets and the effects of the proposal on the concentration of banking resources in these markets, are described in the Appendix. One commenter expressed concern about the elimination of competition in Burlington, Camden, Gloucester, and Mercer Counties in New Jersey. Burlington, Camden, and Gloucester counties are part of the Philadelphia banking market. First Union Corp., 84 Federal Reserve Bulletin 489 (1998). Mercer County is divided between the Philadelphia and the Metropolitan New York-New Jersey banking markets. Id. and FleetBoston Financial Corp., 86 Federal Reserve Bulletin 751 (2000). As discussed in the Appendix, these markets would remain unconcentrated or moderately concentrated after consummation, and there are numerous competitors in these markets.

(18.) The Atlantic City banking market is defined as Atlantic and Cape May Counties, both in New Jersey. The Board received one comment challenging the market definition of the Atlantic City banking market, but that comment did not provide any evidence to support an alternative market definition. The Board has considered the comment, and has reviewed commuting data, commercial, and employment data and other information in defining the Atlantic City banking market. Atlantic and Cape May Counties are linked by a major highway that is the area's major north-south commuting thoroughfare. Atlantic City is the regional commercial and employment center for the area, and a substantial percentage of the Cape May County workforce commutes to Atlantic County. After a review of these data and other facts of record, the Board concludes that the Atlantic City banking market should be defined as Atlantic and Cape May Counties, New Jersey.

(19.) FleetBoston has committed to divest the greater of (1) $100 million or (2) the amount of deposits in the branches as of the date the branches are divested. FleetBoston has committed to execute sales agreements for the proposed divestitures with a purchaser determined by the Board to be competitively suitable, prior to consummation of the proposal, and has committed to complete these divestitures within 180 days of consummation of the proposal. FleetBoston also has committed that, if it is unsuccessful in completing any divestiture within 180 days of consummation, it will transfer the unsold offices to an independent trustee that is acceptable to the Board and will instruct the trustee to sell the offices 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).

(20.) The Board has received a comment from the Massachusetts Commissioner of Banks stating that the office received a number of complaints from customers during bank mergers and branch divestitures related to the 1999 merger of Fleet Financial Group, Inc. and BankBoston Corp. to form FleetBoston. The comment suggested that these complaints might indicate problems with FleetBoston's ability to expand its operations without adversely affecting its existing customers. In response to this comment, the Board has obtained information from FleetBoston and the OCC, the federal banking agency responsible for FleetBoston's subsidiary banks. FleetBoston believes that most of the complaints concern branches that it was required to divest in connection with its acquisition of BankBoston Corporation. FleetBoston has informed the Board of the steps it has taken to resolve the most common disputes that have arisen after its recent acquisitions and has an established process to respond to customers' complaints, including those forwarded by the OCC to FleetBoston. FleetBoston states that its employees have received special training in preparation for integrating Summit into its operations, and that it is retaining Summit's most popular checking account product to minimize problems for these customers.

(21.) 12 U.S.C. [sections] 2903(1).

(22.) 12 U.S.C. [subsections] 2903(2), 2902(3)(F).

(23.) One commenter contends that FleetBoston has failed to adequately serve the needs of LMI individuals and communities under the CRA because FleetBoston's subsidiary banks have discontinued the deposit accounts of check cashing businesses. FleetBoston states that in May 1999, it decided to discontinue customer relationships with money transmitters, check cashers, and similar entities because of concerns over costs required for FleetBoston to monitor such customers to ensure compliance with laws against money laundering and similar illicit activity. The CRA does not require financial institutions to provide any particular type of product or service to its customers. As discussed, examiners found that FleetBoston's subsidiary banks have served the LMI areas of their communities. FleetBoston also has taken steps to help provide checking accounts for underserved individuals.

(24.) One commenter has suggested that FleetBoston might be engaged in subprime lending that has an adverse effect on minority borrowers. FleetBoston has stated that it currently conducts no lending activities that are subject to the Home Ownership and Equity Protection Act (HOEPA), and that controls are in place to ensure that no HOEPA-covered transactions are initiated.

(25.) The Interagency Questions and Answers Regarding Community Reinvestment provide that a CRA examination is an important and often controlling factor in the consideration of an institution's CRA record. See 65 Federal Register 25,088 and 25,107 (2000).

(26.) Fleet's former lead subsidiary bank, Fleet National Bank, Providence, Rhode Island ("Fleet-RI"), and Fleet Bank, N.A., Jersey City, New Jersey ("Fleet-NJ"), were examined by the OCC for CRA performance, as of February 1998. Fleet Bank of New Hampshire, Manchester, New Hampshire ("Fleet-NH"), and Fleet Bank of Maine, Portland, Maine, were examined by the Federal Reserve Bank of Boston for CRA performance, as of April 1998. Fleet Bank, F.S.B., Boca Raton, Florida, was examined by the Office of Thrift Supervision for CRA performance, as of April 1998.

(27.) BankBoston's lead subsidiary bank, BankBoston, N.A., Boston, Massachusetts, received an "outstanding" CRA performance rating from the OCC at its examination, as of March 1999. Bank of Boston-Florida, N.A., Boca Raton, Florida, received a "satisfactory" CRA performance rating from the OCC at its examination, as of December 1996.

(28.) Summit-PA received an "outstanding" CRA performance rating from the Federal Reserve Bank of Philadelphia at its examination, as of March 2000 ("2000 Summit-PA Examination"). Summit-CT received an "outstanding" CRA performance rating from the Federal Deposit Insurance Corporation ("FDIC") at its examination, as of August 1999.

(29.) See Fleet Financial Group, Inc., 85 Federal Reserve Bulletin 747 (1999) ("Fleet-BankBoston Order"); FleetBoston Financial Corp., 86 Federal Reserve Bulletin 751 (2000) ("North Fork Order"). In addition, the Board held a public meeting in connection with the Fleet-BankBoston application.

(30.) At the time of its most recent CRA performance examination, Fleet-RI owned several subsidiaries, including Fleet Mortgage Group, Inc., Columbia, South Carolina ("Fleet Mortgage"), and Fleet Community Development Corporation, Providence, Rhode Island ("Fleet CDC"), which engaged in community development lending and investments. Home mortgage loans by Fleet Mortgage and loans and investments by Fleet CDC and Fleet-RI's affiliated banks that were made in Fleet-RI's assessment area were considered by the OCC in its examination of the bank's CRA performance.

(31.) Under the Jumpstart program, Fleet-RI made 2,173 loans in 1998, totaling $254.1 million; 1,950 loans in 1997, totaling $202.7 million; and 3,338 loans in 1996, totaling $325.9 million.

(32.) One commenter criticized FleetBoston's HMDA and small business lending in the Rochester MSA. FleetBoston acknowledges that its share of HMDA-reportable loans in the MSA has declined, but asserts that the decrease was due to the large increase in the number of HMDA lenders in the MSA from 1995 to 1999. Although FleetBoston's HMDA lending to minority and LMI borrowers declined in the Rochester MSA from 1995 to 1998, in 1999 the number of its loans originated to African-American and Hispanic applicants increased. The number and dollar volume of FleetBoston's small business loans declined from 1997 through 1999 in the Rochester MSA. The number and dollar amount of FleetBoston's small business loans in LMI census tracts as percentages of FleetBoston's total small business lending in 1999 in the Rochester MSA exceeded the percentages for lenders in the aggregate.

(33.) Two commenters express concern that FleetBoston would increase fees for banking products and services or eliminate or alter banking products and services after consummation of the proposal. FleetBoston offers a full range of affordable banking products and services. Although the Board has recognized that banks help serve the banking needs of communities by making basic services available at nominal or no charge, the CRA does not require an institution to provide any specific types of products or services or limit the fees it charges for them.

(34.) One commenter asserts that Summit-NJ has failed to originate a sufficient number of mortgages in Asbury Park, New Jersey, for the period 1998-99. The commenter also contends that Summit-NJ has not followed through on assurances, allegedly given by officers of the bank to the commenter in a meeting in late 1999, that the bank would increase its lending in Asbury Park. In reviewing the lending of Summit-NJ in the Monmouth-Ocean, New Jersey Metropolitan Statistical Area ("MSA"), which includes Asbury Park, examiners concluded that the geographic distribution of the bank's lending in this MSA was good, including the penetration of its home purchase lending in LMI areas of the MSA.

(35.) The examination generally covered the period from October 1, 1997, to June 30, 1999.

(36.) One commenter criticizes Summit-PA for making too few home purchase loans to LMI individuals in the Scranton/Wilkes-Barre/ Hazelton MSA, a portion of which is included in the bank's assessment area. Another commenter, based on the bank's 1998 CRA examination, argues that the Scranton/Wilkes-Barre/Hazelton MSA has not received an equitable share of Summit-PA's loans or investments, particularly in LMI areas. During the examination period, Summit-PA made 566 HMDA-reportable loans in this MSA, including 148 (26 percent) to LMI borrowers, and 52 (9 percent) in LMI census tracts. The examiners did not consider the number of loans to be inappropriate because only 8 percent of the owner-occupied housing in the MSA was in LMI census tracts. By contrast, 20 percent of Summit-PA's small business loans in this MSA were made in LMI census tracts. The percentage of Summit-PA's loans to businesses with less than $1 million in revenues ("loans to small businesses") and loans of less than $1 million to businesses ("small business loans") in the MSA that were made in LMI areas exceeded the percentages for lenders in the aggregate for every year from 1997 through 1999.

(37.) One commenter recommends withholding approval of the proposal until FleetBoston decides that the merged New Fleet Bank/ Summit-PA would maintain Summit-PA's membership in the FHLB of Pittsburgh, or otherwise compensates the entities that the commenter believes would be harmed if New Fleet Bank is not a member. New Fleet Bank, however, would be ineligible to be a member of the FHLB of Pittsburgh because the bank would be based in Massachusetts. New Fleet Bank is a member of the FHLB of Boston and has proposed to petition the FLHB of Boston to amend its policies to accept applications for affordable housing programs from members for projects outside that FHLB's district boundaries.

(38.) See Totalbank Corp. of Florida, 81 Federal Reserve Bulletin 876 (1995); First Interstate Bank Systems of Montana, Inc., 77 Federal Reserve Bulletin 1007 (1991).

(39.) See Fifth Third Bancorp., 80 Federal Reserve Bulletin 838 (1994).

(40.) One commenter contends that FleetBoston is not making adequate progress in fulfilling a pledge made in connection with a previous acquisition. This pledge was not a commitment made to the Board and, therefore, is not enforceable by the Board.

(41.) Commenters criticize FleetBoston's record of home mortgage lending to minority individuals in 15 MSAs. Commenters also criticize FleetBoston's lending to LMI and minority individuals or in communities in the Rochester, New York MSA. In addition, Commenters criticize Summit's record of home mortgage lending to LMI individuals in the Scranton/Wilkes-Barre/Hazelton MSA, and Summit's record of home mortgage lending to minority individuals in the Allentown-Bethlehem-Easton MSA.

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

(43.) The data, for example, do not account for the possibility that an institution's outreach efforts may attract a larger proportion of marginally qualified applicants than other institutions attract and do not provide a basis for an independent assessment of whether an applicant who was denied credit was, in fact, creditworthy. Credit history problems and excessive debt levels relative to income (reasons most frequently cited for a credit denial) are not available from HMDA data.

(44.) As part of its community development agreement with New Jersey Citizen Action and the Housing and Community Development Network of New Jersey, New Fleet Bank has agreed not to close any branches in LMI census tracts in 13 cities in New Jersey for four years. In several other cities, New Fleet Bank has agreed not to close any branch if the next closest branch is more than one-half mile away. FleetBoston also has indicated that it does not currently plan to close any branches in Pennsylvania as a result of the proposal.

(45.) Section 42 of the Federal Deposit Insurance Act (12 U.S.C. [sections] 1831r-1), as implemented by the Joint Policy Statement Regarding Branch Closings (64 Federal Register 34,844 (1999)) ("Joint Policy Statement"), 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.

(46.) One commenter criticizes Summit-PA for closing a branch in Allentown, Pennsylvania, in 1997. The closure of this branch was reviewed as part of the Federal Reserve Bank of Philadelphia's April 1998 CRA examination of Summit-PA. At that time, two other branches remained open in Allentown, and examiners found that the closure of that Allentown branch had not adversely affected the accessibility of loan products and banking services to residents of LMI areas or LMI individuals. The branch was closed in accordance with Summit-PA's branch closing policy, which conformed to provisions of the Joint Policy Statement in effect at that time.

(47.) The Board received two requests to 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 a bank to be acquired makes a timely written recommendation of denial of the application. The Board has not received such a recommendation from any of 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 hearing requests in light of all the facts of record. In the Board's view, commenters have had ample opportunity to submit their views, and, in fact, have submitted written comments that have been considered carefully by the Board in acting on the proposal. The 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 and 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, Meyer, and Gramlich.

ROBERT DEV. FRIERSON Associate Secretary of the Board

Appendix

Banking Markets Without Divestitures

Fairfield Area banking market. The Fairfield Area market is defined as the Connecticut portion of the Metropolitan New York Ranally Metro Area ("RMA"), plus the towns of Kent, Roxbury, Warren, and Washington in Litchfield County in Connecticut. FleetBoston operates the largest depository institution in the market, controlling deposits of approximately $3.4 billion, representing 24 percent of market deposits. Summit operates the fifth largest depository institution in the market, controlling deposits of approximately $898 million, representing 6.4 percent of market deposits. On consummation of the proposal, FleetBoston would control deposits of approximately $4.3 billion, representing 30.4 percent of market deposits. The HHI would increase by 308 points to 1,560 and 37 competitors would remain in the market.

Waterbury banking market. The Waterbury market is defined as the Waterbury RMA. FleetBoston operates the fourth largest depository institution in the market, controlling deposits of approximately $230 million, representing 10.1 percent of market deposits. Summit operates the 13th largest depository institution in the market, controlling deposits of approximately $10 million, representing less than 1 percent of market deposits. On consummation, FleetBoston would operate the fourth largest depository institution in the market, controlling deposits of approximately $240 million, representing 10.5 percent of market deposits. The HHI would increase 9 points to 1,659 and 15 competitors would remain in the market.

Metropolitan New York-New Jersey banking market. The Metropolitan New York-New Jersey market is defined as New York City; Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk, Sullivan, Ulster, and Westchester Counties in New York; Bergen, Essex, Hudson, Hunterdon, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset, Sussex, Union, Warren, and portions of Mercer Counties in New Jersey; Pike County in Pennsylvania; and Fairfield and portions of Litchfield and New Haven Counties in Connecticut. FleetBoston operates the sixth largest depository institution in the market, controlling deposits of approximately $23 billion, representing 5.3 percent of market deposits. Summit operates the seventh largest depository institution in the market, controlling deposits of approximately $18.2 billion, representing 4.2 percent of market deposits. On consummation, FleetBoston would operate the third largest depository institution in the market, controlling deposits of approximately $41.2 billion, representing 9.6 percent of market deposits. The HHI would increase 45 points to 931 and 296 competitors would remain in the market.

Philadelphia banking market. The Philadelphia banking market is defined as Bucks, Chester, Delaware, Montgomery, and Philadelphia Counties in Pennsylvania; and Burlington, Camden, Gloucester, Salem Counties, and a portion of Mercer County in New Jersey. FleetBoston operates the 23rd largest depository institution in the market, controlling deposits of approximately $293 million, representing less than 1 percent of market deposits. Summit operates the fourth largest depository institution in the market, controlling deposits of approximately $3.5 billion, representing 5.2 percent of market deposits. On consummation of the proposal, FleetBoston would operate the fourth largest depository institution in the market, controlling deposits of approximately $3.8 billion, representing 5.7 percent of market deposits. The HHI would increase by 4 points to 1,540 and 115 competitors would remain in the market.

Lea M. McMullan Trust Shelbyville, Kentucky

Citizens Union Bancorp of Shelbyville, Inc. Shelbyville, Kentucky

Order Approving Acquisition of a Bank

Lea M. McMullan Trust ("McMullan Trust") and its subsidiary, Citizens Union Bancorp of Shelbyville, Inc. (collectively, "CUB"), bank holding companies within the meaning of 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(a)(3)) to acquire all the outstanding voting shares of Dupont State Bank, Dupont, Indiana ("Dupont").(1)

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (65 Federal Register 80,864 (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 section 3 of the BHC Act.

CUB operates two subsidiary banks in Kentucky. CUB is the 33rd largest commercial banking organization in Kentucky, controlling approximately $210.9 million in deposits, representing less than 1 percent of total deposits in commercial banking organizations in the state ("state deposits"). Dupont is the 126th largest commercial banking organization in Indiana, controlling approximately $16.9 million in deposits, representing less than 1 percent of state deposits.(2)

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.(3) For purposes of the BHC Act, the home state of CUB is Kentucky, and CUB would acquire a bank in Indiana. All the conditions for an interstate acquisition enumerated in section 3(d) are met in this case.4 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, Financial, and Managerial Considerations

CUB and Dupont do not compete directly in any banking market. Based on all the facts of record, the Board concludes that consummation of the proposal would not have a significant adverse effect on competition or on the concentration of banking resources in any relevant banking market.

The Board also has considered the financial and managerial resources and future prospects of CUB and its subsidiaries in light of all the facts of record, including a comment letter, reports of examination and other supervisory information assessing the financial and managerial resources of the organizations, and information provided by CUB.(5) The Board notes that CUB and its subsidiaries 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 CUB, its subsidiary banks, and Dupont, and the structure of the proposed transaction. In addition, the Board has reviewed the current managerial resources and future prospects of CUB's entire organization, including confidential supervisory examination information. Based on these and all the facts of record, including confidential reports of examination, the Board has concluded that the financial and managerial resources and the future prospects of CUB, its subsidiary banks, and Dupont are consistent with approval, as are the other supervisory factors the Board must consider under section 3 of the BHC Act.

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 to take into account the records of the relevant depository institutions under the Community Reinvestment Act ("CRA").(6) The Board has carefully considered the convenience and needs factor and the CRA performance records of CUB's subsidiary banks and Dupont in light of all the facts of record, including allegations that CUB has failed to meet the need for credit and banking services in Shelby County, Kentucky. Shelby County is in the assessment area of CUB's largest subsidiary bank, Citizens Union Bank of Shelbyville, Shelbyville, Kentucky ("Citizens"). Currently, Citizens' main office and four of its five branches operate in Shelby County.

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 their appropriate federal supervisor.(7) Citizens received an "outstanding" rating from its primary federal supervisor, the Federal Deposit Insurance Corporation ("FDIC"), at its most recent evaluation for CRA performance, as of March 29, 1999 ("1999 Citizens Evaluation"). First Farmers Bank and Trust Company, Owenton, Kentucky ("First Farmers"), CUB's other subsidiary bank, and Dupont received "satisfactory" ratings from the FDIC at their most recent evaluation for CRA performance.(8) The reports of examination of CUB's subsidiary banks and Dupont indicate that the examiners found no evidence of substantive violations of the antidiscrimination laws.

In the 1999 Citizens Evaluation, examiners noted that Citizens offered a full line of deposit and loan products, including special loan products designed for first-time homebuyers, small business owners, and small farmers through various government-sponsored loan programs. These included products through programs offered by the Small Business Administration, the Farm Service Agency, the Federal Housing Administration, and the Kentucky Housing Corporation. Examiners also found that a majority of Citizens' home mortgage and business loans were in the bank's assessment area. In addition, examiners reported that Citizens had a reasonable distribution of home mortgage loans to individuals of varying income levels and an excellent record of consumer lending to low- and moderate-income ("LMI") borrowers.

Examiners also commended Citizens for its community development lending activities and determined that the level of community development investments held by Citizens to address affordable housing and other credit needs was outstanding. For example, examiners noted that Citizens served as the lead bank in a loan participation to provide $500,000 in financing to purchase and redevelop neglected houses in the downtown area of Shelbyville. Examiners also reported that the bank financed a project to help fund a hospital that cares for LMI families in Shelby County. In addition, examiners noted that Citizens had invested in nine low-income real estate tax credits for the renovation or construction of LMI housing in Shelby and Jefferson Counties, Kentucky.

In the 1999 Citizens Evaluation, examiners also noted that the bank's delivery of services reflected an excellent responsiveness to the needs of the community and that its delivery systems were reasonably accessible to most areas of the bank's assessment area.(9) In addition, examiners commended Citizens' employees for their involvement in numerous organizations in the bank's assessment area to help attract new businesses, promote the expansion of existing businesses, provide housing for LMI residents, or provide educational or other services to LMI individuals or families.

The Board has considered carefully the entire record in its review of the convenience and needs factor under the BHC Act. Based on all the facts of record, including the relevant CRA performance evaluations, the comment received, and information provided by CUB, 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. The Board's approval is specifically conditioned on the compliance by CUB with all the commitments made in connection with the application. For purposes 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 acquisition of Dupont shall not be consummated before the fifteenth calendar day after 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 the Federal Reserve Bank of St. Louis, acting pursuant to delegated authority.

By order of the Board of Governors, effective February 12, 2001.

(1.) McMullan Trust is a registered bank holding company that owns 35.6 percent of the voting stock of Citizens Union Bancorp.

(2.) State deposit and ranking data are as of June 30, 1999.

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

(4.) See 12 U.S.C. [subsections] 1842(d)(1)(A) and (B), 1842(d)(2)(A) and (B). CUB is adequately capitalized and adequately managed, as defined by applicable law. In addition, on consummation of the proposal, CUB would control less than 10 percent of the total amount of deposits of insured depository institutions in the United States. The state law requirements also are satisfied in this case. See Ind. Code Ann. [sections] 28-2-16-17(f) and Ky. Rev. Stat. Ann. [subsections] 287.900(2) and (3). All other requirements under section 3(d) of the BHC Act are met in this case.

(5.) As part of its review, the Board carefully considered a comment about the management of CUB and one of its subsidiary banks from a former management official of CUB, who is a minority shareholder. The commenter also alleged without supporting facts that CUB had violated shareholders' rights. State law and federal securities law generally govern the rights of shareholders in a bank holding company. The Board and the courts have generally found that matters concerning the rights of shareholders are not among the factors that the Board is entitled to consider under the BHC Act. See, e.g., First National Bank Group, Inc., 84 Federal Reserve Bulletin 959 (1998) (citing Western Bancshares, Inc. v. Board of Governors, 480 F.2d 749 (10th Cir. 1973)).

(6.) 12 U.S.C. [sections] 2901 et seq.

(7.) The Interagency Questions and Answers Regarding Community Reinvestment provides that an institution's most recent CRA performance evaluation is an 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. 65 Federal Register 25,088 and 25,107 (2000).

(8.) First Farmers received a "satisfactory" rating, as of September 10, 1998, and Dupont received a "satisfactory" rating, as of January 6, 1997.

(9.) Examiners noted that, at the time of the most recent CRA evaluation, Citizens maintained a strong presence in Shelby County, controlling 40 percent of the deposits in the county, which was the largest share of any single financial institution. As noted, Citizens currently has its main office and four out of five branch offices in Shelby County.

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

ROBERT DEV. FRIERSON Associate Secretary of the Board

Prosperity Bancshares, Inc. Houston, Texas

Order Approving the Acquisition of a Bank Holding Company

Prosperity Bancshares, Inc. ("Prosperity"), 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 merge with Commercial Bancshares, Inc., Houston, Texas ("Commercial"), and thereby acquire Heritage Bancshares, Inc., Wilmington, Delaware ("Heritage Holdco"), a bank holding company that is a wholly owned subsidiary of Commercial, and its subsidiary bank, Heritage Bank, Wharton, Texas.(1)

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (65 Federal Register 70,911 (2000)). 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.

Prosperity operates the 35th largest depository institution in Texas, controlling $519 million in deposits, which represent less than 1 percent of total deposits in depository institutions in the state.(2) Commercial operates the 54th largest depository institution in Texas, controlling $356 million in deposits. On consummation of this proposal, Prosperity would control the 23rd largest depository institution in Texas, with deposits of $875 million, representing less than 1 percent of the total deposits in depository institutions in the state.

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 effect of the proposal in meeting the convenience and needs of the community to be served.(3)

Prosperity and Commercial compete directly in two banking markets in Texas, the Houston banking market and the Wharton County banking market.(4) The Board has carefully reviewed the competitive effects of the proposal in each of these banking markets in light of all the facts of record, including, among other market characteristics, the share of total deposits in depository institutions ("market deposits") controlled by each competitor in the markets.(5) the concentration level of market deposits, and the increase in this level as measured by the Herfindahl-Hirschman Index ("HHI").(6)

Houston Banking Market

Consummation of the proposal in the Houston banking market would be consistent with the DOJ Guidelines and Board precedent.(7) Prosperity operates the 51st largest depository institution in the market, controlling less than 1 percent of market deposits. Commercial operates the 26th largest depository institution in the market, controlling less than 1 percent of market deposits. On consummation of the proposal, Prosperity would operate the 20th largest depository institution in the market, controlling deposits of $330 million, representing less than 1 percent of market deposits. The HHI for the market would increase 1 point to 869. The market would remain unconcentrated after consummation of the proposal, and numerous competitors would remain in the market.

Wharton County Banking Market

In the Wharton County banking market, consummation of the proposal would increase the level of market concentration, as measured by the HHI, to levels that, according to the DOJ Guidelines and Board precedent, exceed the threshold for in-depth review of the transaction. Prosperity operates the largest of the ten depository institutions in the market, and controls deposits of 139.3 million, representing 25.3 percent of market deposits. Commercial operates the third largest depository institution in the market, and controls deposits of $69.4 million, representing 12.6 percent of market deposits. On consummation of the proposal, Prosperity would operate the largest depository institution in the market with deposits of $208.7 million, representing 37.9 percent of market deposits. The HHI for the market would increase 639 points to 2,078.

The Board believes that a number of circumstances mitigate the potential anticompetitive effects of the transaction.(8) In considering the competitive effects of this proposal in the Wharton County banking market, the Board has evaluated the presence of two savings associations operating in the market and has concluded that deposits controlled by the institutions should be weighted at 100 percent in market share calculations.(9) Each of these savings associations engages actively in commercial lending activities and offers a wide variety of business loan products and other banking services. Accounting for the revised weighting of these deposits, Prosperity would control 32.8 percent of market deposits, and the HHI would increase 480 points to 1900 on consummation of the proposal.

The Board has also taken account of other market characteristics. For example, after consummation of the proposal, nine competitors would remain in the market. Two competitors, in addition to Prosperity, would each control more than 10 percent of market deposits and four others would control between 5 and 10 percent of market deposits. In addition, the proximity of the Wharton County banking market to the Houston banking market and other factors make the Wharton County banking market an attractive market for entry. The percentage increases in per capita income and market deposits are more than the average percentage increases in these categories for all non-MSA counties in Texas. The attractiveness of entry into the Wharton County banking market is also demonstrated by the de novo entry into the market of a depository institution in May 2000. In addition, the market gained an additional bank competitor in April 1999 when an out-of-market bank acquired a savings association operating in the market.

The Department of Justice has reviewed the proposal and advised the Board that consummation of the proposal would not likely have any significantly adverse competitive effects in the Wharton County banking market or any other relevant banking market. The FDIC has also not objected to the proposal.

After carefully reviewing all the facts of record, and for the reasons discussed in the order, 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 banking markets in which Prosperity and Commercial directly compete or in any other relevant banking market. Accordingly, based on all the facts of record, the Board has determined that the competitive factors are consistent with approval of the proposal.

Other Considerations

The BHC Act 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 the proposal, the convenience and needs of the communities to be served, and certain supervisory factors. The Board has reviewed these factors in light of the record, including supervisory reports of examination assessing the financial and managerial resources of the organizations and financial information provided by Prosperity. Based on all the facts of record, the Board concludes that the financial and managerial resources and the future prospects of Prosperity, Commercial, and their respective depository institutions, are consistent with approval, as are the other supervisory factors that the Board must consider under section 3 of the BHC Act. In addition, considerations relating to the convenience and needs of the communities to be served, including the records of performance of the institutions involved under the Community Reinvestment Act (12 U.S.C. [sections] 2901 et seq.), are consistent with approval of the application.(10)

Conclusion

Based on the foregoing, and in light of 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 compliance by Prosperity with all the commitments and representations made in connection with this 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 acquisition of Commercial shall not be consummated before the fifteenth calendar day following 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 Dallas, acting pursuant to delegated authority.

By order of the Board of Governors, effective February 5, 2001.

(1.) Under the proposal, Commercial would be merged into Prosperity, which would be the surviving corporation. Immediately following that merger, Prosperity's wholly owned subsidiary, Prosperity Holdings, Inc., Wilmington, Delaware ("Prosperity Holdco"), which is also a bank holding company, would be merged into Heritage Holdco. Heritage Holdco would be the surviving corporation of this second transaction. In addition, Heritage Bank, currently a state nonmember bank subsidiary of Heritage Holdco, would be merged into First Prosperity Bank, which is a subsidiary of Prosperity Holdco and which would be the surviving corporation of this transaction. The merger of Heritage Bank and First Prosperity Bank is subject to review by the Federal Deposit Insurance Corporation ("FDIC") under the Bank Merger Act (12 U.S.C. [sections] 1828(c)).

(2.) All data are as of June 30, 2000. In this context, depository institutions include commercial banks, savings banks, and savings associations.

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

(4.) The Houston banking market is defined as the Houston Ranally Metropolitan Area. The Wharton County banking market is defined as Wharton County, Texas.

(5.) Market share data are based on calculations that take into account the deposits of thrift institutions, which include savings banks and savings associations, weighted 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 regularly has included thrift deposits in the calculation of market share at a weighting of 50 percent. See, e.g., First Hawaiian, Inc., 77 Federal Reserve Bulletin 52 (1991).

(6.) Under the Department of Justice Merger Guidelines ("DOJ Guidelines"), 49 Federal Register 26,823 (June 29, 1984), a market in which the post-merger HHI is more than 1800 is considered to be 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.

(7.) Under the DOJ Guidelines, a market in which the post-merger HHI is less than 1000 points is considered to be unconcentrated.

(8.) As the Board has indicated in previous cases, in a market in which the competitive effects of a proposal exceed the DOJ Guidelines, the Board will consider whether other factors tend to mitigate the proposal's competitive effects. The number and strength of factors necessary to mitigate the competitive effects of a proposal depend on the level of market concentration and the size of the increase in market concentration after consummation of the proposal. See NationsBank Corporation, 84 Federal Reserve Bulletin 129 (1998).

(9.) The Board previously has indicated that, when analyzing the competitive effects of a proposal, it may consider the competitiveness of savings associations based on a deposit weighting greater than 50 percent if appropriate. See, e.g., Banknorth Group, Inc., 75 Federal Reserve Bulletin 703 (1989). Of the two savings associations in the Wharton County banking market, one maintains 7.7 percent and the other maintains 4.6 percent of the loan assets in commercial loans. This level of commercial lending at these institutions compares favorably with the national average of 3.8 percent of the loan assets in thrift portfolios that are commercial loan holdings. See First Union Corporation, 84 Federal Reserve Bulletin 489 (1998).

(10.) First Prosperity Bank received a "satisfactory" rating from the FDIC, as of March 1, 2000, and Heritage Bank received a "satisfactory" rating from the FDIC, as of July 1, 2000.

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

ROBERT DEV. FRIERSON Associate Secretary of the Board

Concurring Statement of Governor Meyer

I believe the proposed acquisition presents a close case because it allows a very large change in the HHI of the Wharton County banking market that will take the market into the highly concentrated range based on the DOJ Guidelines. I believe we should pay attention to the relations hip between the change in the HHI and the postmerger level of the HHI. For example, only modest mitigating factors would suffice when a modest change in the HHI takes the post-merger level of the HHI into the highly concentrated range. On the other hand, when a larger change in the HHI brings about this result, I would expect correspondingly more compelling mitigating factors. The relationship between the change in the HHI and the postmerger level in this case is uncomfortably high and the relative strength of the mitigating factors make this an extremely close case.

Orders Issued Under Section 4 of the Bank Holding Company Act

Great Southern Bancorp, Inc. Springfield, Missouri

Order Approving the Acquisition of Shares of a Thrift Holding Company

Great Southern Bancorp, Inc. ("Great Southern"), a financial holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under sections 4(c)(8) and 4(j) of the BHC Act (12 U.S.C. [sections] 1843(c)(8) and 18430)) and section 225.24 of the Board's Regulation Y (12 C.F.R. 225.24) to own up to 20 percent of the voting shares of Guaranty Federal Bancshares, Inc., Springfield, Missouri ("Guaranty"). Guaranty controls Guaranty Federal Savings Bank, a federal savings bank. Great Southern expects that the percentage of its ownership interest in Guaranty will increase largely as the result of the repurchase by Guaranty of shares owned by other shareholders.

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (65 Federal Register 71,322 (2000)), and the time for filing comments has expired. The Board has considered the notice and all comments received in light of the factors set forth in section 4(j)(2) of the BHC Act.

Great Southern, with total consolidated assets of $1.1 billion, operates the 12th largest depository institution in Missouri, controlling deposits of approximately $436.3 million, representing less than 1 percent of total deposits in depository institutions in the state.(1) Guaranty controls the 67th largest depository institution in Missouri, which has deposits of $70.4 million.

The Board previously has determined by regulation that the ownership 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.(2)

Guaranty has objected to the increase in percentage ownership interest by Great Southern. Guaranty has adopted anti-takeover provisions designed to discourage a takeover attempt not approved by Guaranty's board of directors.(3)

Great Southern seeks the Board's approval to allow the percentage of outstanding shares of Guaranty owned by Great Southern to increase primarily as the result of stock repurchases by Guaranty. Great Southern has indicated that it does not intend to exercise control over Guaranty for purposes of the BHC Act, and, in this connection, has agreed to abide by certain commitments that the Board has relied on in other cases to determine that an investing bank holding company would not be able to exercise a controlling influence over a depository institution for purposes of the BHC Act.(4)

Based on these commitments and all other facts of record, it is the Board's judgment that Great Southern would not acquire control of Guaranty for purposes of the BHC Act through consummation of this proposal.

The Board is required by section 4(j)(2)(A) of the BHC Act to determine that the proposal "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."(5)

Competitive Considerations

As part of its consideration of the public interest factors under section 4 of the BHC Act, the Board has considered carefully the competitive effects of the proposal in light of all the facts of record.(6) Great Southern and Guaranty compete directly in the Springfield, Missouri, banking market ("Springfield banking market").(7) If this proposal were considered an acquisition of control of Guaranty by Great Southern, Great Southern would control the second largest depository institution in the Springfield banking market, representing approximately 14.4 percent of total deposits in depository institutions in the market ("market deposits").(8) The Herfindahl-Hirschman Index ("HHI") would increase by 57 points to 952, and the market would remain unconcentrated.(9) 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 Springfield banking market or any other relevant banking market.

Financial, Managerial, and Supervisory Considerations

The Board also has carefully reviewed the financial and managerial resources of Great Southern and Guaranty and their respective subsidiaries and the effect the transaction would have on such resources in light of all the facts of record.

The Board has reviewed, among other things, confidential reports of examination and other supervisory information received from the primary federal supervisors of the organizations. The Board has also considered the limited relationship Great Southern proposes to have with Guaranty and the matters raised by Guaranty to the extent they bear on the managerial resources of Great Southern. In reviewing managerial resources, the Board consulted with the OTS, which is the appropriate federal banking agency for Guaranty. The OTS has indicated no objection to Board approval of this notice. Based on all the facts of record, the Board concludes that the financial and managerial resources of the organizations involved in the proposal are consistent with approval.

This proposal is designed to ensure that Great Southern's interest in Guaranty remains in compliance with the BHC Act after Guaranty repurchases its shares, and consummation of the proposal would have minimal adverse effects on concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices. Based on the foregoing and all the facts of record, including consultations with OTS staff, and commitments made by Great Southern that prevent it from exercising control over Guaranty, the Board has determined that consummation of the proposal can reasonably be expected to produce benefits to the public that outweigh any potential adverse effects of the proposal under the standard of section 40)(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 Great Southern with the commitments made in connection with this notice. The Board's determination also is subject to the Board's authority to require such modification or termination of the activities of a 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. The commitments relied on by the Board in reaching this decision are deemed to be conditions imposed in writing by the Board in connection with its findings and decisions and, as such, may be enforced in proceedings under applicable law.

This transaction 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 St. Louis, acting pursuant to delegated authority.

By order of the Board of Governors, effective February 26, 2001.

(1.) Asset and state deposit data are as of June 30, 1999. In this context, depository institutions include commercial banks, savings banks, and savings associations.

(2.) 12 C.F.R. 225.28(b)(4).

(3.) Guaranty states that the current ownership interest by Great Southern violates Guaranty's articles of incorporation, which Guaranty asserts would prohibit any person from acquiring more than 10 percent of Guaranty's shares, before December 2002. Guaranty's articles of incorporation recognize shareholdings in excess of 10 percent under certain circumstances, and impose restrictions on the voting rights of shareholders with more than a 10-percent ownership interest. The courts have indicated that the Board must analyze all the proposals under the BHC Act in light of the factors enumerated in the BHC Act and may consider matters related to shareholders' rights only to the extent those matters relate to the factors enumerated in the BHC Act. See Western Bancshares, Inc. v. Board of Governors, 480 F.2d 749 (10th Cir. 1973). The questions whether the ownership of more than 10 percent of the shares of Guaranty may be prohibited by its articles of incorporation or whether the ownership of shares is permissible and voting rights associated with those shares are restricted are questions of state corporate law, as is the question whether Great Southern can be placed in violation of the articles of incorporation by stock redemptions made by Guaranty. The Board has analyzed this proposal under the factors that the Board is required to consider under the BHC Act.

(4.) For example, Great Southern has committed not to exercise or attempt to exercise a controlling influence over the management or policies of Guaranty or any of its subsidiaries, and not to have any employees or representatives of Great Southern serve as an officer, employee, or agent of Guaranty. Great Southern also has committed not to attempt to influence the dividend policies, loan decisions, or operations of Guaranty or any of its subsidiaries. These commitments were made in connection with the Federal Reserve System's approval of Great Southern's request in April 1999 to acquire up to 15 percent of the voting shares of Guaranty and are incorporated by reference.

(5.) 12 U.S.C. 1843(j)(2)(A).

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

(7.) The Springfield banking market consists of Christian, Green, and Webster Counties, all in Missouri.

(8.) Market share data are as of June 30, 1999, and are based on calculations in which the deposits of thrift institutions are included at 50 percent before consummation. 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 Great Southern and Guaranty were a combined entity, the deposits of Guaranty are included at 100 percent in the calculation of Great Southern's post-consummation share of market deposits. See Norwest Corporation, 78 Federal Reserve Bulletin 452 (1992); First Banks, Inc., 76 Federal Reserve Bulletin 669 (1990).

(9.) Under the revised Department of Justice Merger Guidelines, 49 Federal Register 26,823 (June 29, 1984), a market in which the post-merger 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 DOJ 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.

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

ROBERT DEV. FRIERSON Associate Secretary of the Board

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

MetLife, Inc. New York, New York

Order Approving Formation of a Bank Holding Company and Determination on a Financial Holding Company Election MetLife, Inc. ("MetLife") has requested the Board's approval under section 3 of the Bank Holding Company Act ("BHC Act") (12 U.S.C. [sections] 1842) to become a bank holding company by acquiring all the shares of Grand Bank, National Association, Kingston, New Jersey ("Bank").(1) As part of its proposal to become a bank holding company, MetLife has also filed with the Board an election to become a financial holding company pursuant to section 4(k) and (1) of the BHC Act (12 U.S.C. [sections] 1843(k) & (1)) and section 225.82 of the Board's Regulation Y (12 C.F.R. 225.82).

Notice of the proposal under section 3 of the BHC Act, affording interested persons an opportunity to submit comments, has been published (65 Federal Register 60,671 (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 section 3 of the BHC Act.

MetLife, with total consolidated assets of $258 billion, is an insurance and financial services firm engaged principally in the business of underwriting life and property and casualty insurance.(2) MetLife also engages in a variety of other financial activities in the United States and internationally, including investment advisory and securities brokerage activities, and offers annuity, mutual fund, pension, retirement, and other investment products and related services.

Bank, with total consolidated assets of $83.8 million, is the 126th largest depository institution in New Jersey, controlling deposits of approximately $51.9 million in the state, representing less than 1 percent of the state's deposits.(3)

Factors Governing Board Review of Transaction

The BHC Act sets forth the factors that the Board must consider when reviewing the formation of a bank holding company or the acquisition of a bank. These factors are the competitive effects of the proposal in the relevant geographic markets; the financial and managerial resources and future prospects of the companies and banks involved in the proposal; the convenience and needs of the communities to be served, including the records of performance under the Community Reinvestment Act (12 U.S.C. [sections] 2901 et seq.) ("CRA") of the insured depository institutions involved in the transaction; and the availability of information needed to determine and enforce compliance with the BHC Act and other applicable federal banking laws.(4)

Competitive Considerations

Section 3 of the BHC Act prohibits the Board from approving a proposal that would result in a monopoly. The BHC Act also prohibits the Board from approving a proposed bank acquisition that would substantially lessen competition in any relevant banking market unless the anticompetitive effects of the proposal are clearly outweighed in the public interest by the probable effect of the proposal in meeting the convenience and needs of the community to be served.(5)

The proposal involves the acquisition of a bank by MetLife, which owns a limited-purpose trust company and a variety of nonbanking companies but does not own a commercial bank or savings association.(6) Based on all the 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 any relevant market. Accordingly, the Board has determined that the competitive factors under section 3 of the BHC Act are consistent with approval of the proposal.

Financial and Managerial Considerations

The Board has carefully considered the financial and managerial resources and future prospects of the companies and bank involved in the proposal, the effect the proposed transaction would have on such resources, and other supervisory factors in light of all the facts of record. In evaluating the financial and managerial factors, the Board has reviewed confidential examination and other supervisory information evaluating the financial and managerial strength of MetLife and its affiliates, including its regulated subsidiaries, and of Bank.

The Board consistently has considered capital adequacy to be an especially important aspect of the analysis of financial factors.(7) Bank and all the subsidiaries of MetLife that are subject to regulatory capital requirements currently exceed those relevant minimum regulatory capital requirements. In addition, Bank is currently well capitalized under relevant federal guidelines. Other financial factors also are consistent with approval.

The Board has carefully considered the managerial resources of MetLife and Bank in light of all the facts of record, including confidential examination and other supervisory information, information submitted by state insurance regulators and enforcement authorities in response to requests by the Board, and information provided by MetLife regarding its existing and proposed risk management policies and procedures.(8) Based on all the facts of record, the Board concludes that considerations relating to the financial and managerial resources and future prospects of the organizations involved are consistent with approval.

The Board notes further that a substantial proportion of MetLife's activities are conducted in subsidiaries that are subject to functional regulation by state insurance commissions or by the Securities and Exchange Commission ("SEC"). The Board will, consistent with the provisions of section 5 of the BHC Act as amended by the Gramm-Leach-Bliley Act, rely heavily on the appropriate state insurance regulators and the SEC for examination and other supervisory information in fulfilling the Board's responsibilities as holding company supervisor.

Convenience and Needs Considerations

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, including comments received on the effect the proposal would have on the communities to be served.

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 CRA. As provided in the CRA, the Board evaluates the record of performance of an institution in light of examinations by the appropriate federal supervisors of the CRA performance records of the relevant institutions. An institution's most recent CRA performance evaluation is a particularly 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 its appropriate federal supervisor.(9)

MetLife currently does not control an institution subject to evaluation under the CRA. The Board has reviewed in detail, however, the record of performance of Bank under the CRA as well as information presented by MetLife related to the convenience and needs factor.(10) Bank received an overall rating of "satisfactory" from its primary federal supervisor, the Office the Comptroller of the Currency ("OCC"), at its most recent evaluation for CRA performance, as of February 2000. OCC examiners reviewed Bank under the CRA small bank performance test,(11) and MetLife has requested that the OCC continue to evaluate Bank under that test after consummation of the proposal.(12) Based on all the facts of record, the Board concludes that considerations related to the convenience and needs of the communities to be served are consistent with approval.(13)

Conclusion Regarding Bank Acquisition

Based on the foregoing, and in light of all the facts of record, the Board has determined that the application should be, and hereby is, approved.(14) In reaching its conclusion, the Board has considered all the facts of record in light of the factors the Board is required to consider under the BHC Act and other applicable statutes. The Board's approval is specifically conditioned on compliance by MetLife with all the commitments made in connection with the application. 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 New York, acting pursuant to delegated authority.

Financial Holding Company Declaration

MetLife also has filed with the Board an election to become a financial holding company pursuant to section 4(k) and (1) of the BHC Act and section 225.82 of Regulation Y. MetLife has certified that Bank and MTC are well capitalized and well managed, and has provided all the information required under Regulation Y.(15)

The Board has reviewed the examination ratings received by Bank under the CRA and other relevant examinations and information. Based on all the facts of record, the Board has determined that this election to become a financial holding company will become effective on consummation of the acquisition of Bank by MetLife, as long as Bank and MTC continue to be well capitalized, well managed, and Bank has at least a satisfactory CRA rating on that date.

By order of the Board of Governors, effective February 12, 2001.

(1.) MetLife's principal subsidiary, Metropolitan Life Insurance Company, New York, New York ("Metropolitan Life"), converted from mutual to stock organization in April 2000 (the "Demutualization"). As part of the Demutualization, MetLife established a policyholder trust (the "Trust") to permit the administration of stockholder accounts created through the conversion of Metropolitan Life to stock form.

Based on the special circumstances regarding the formation, duration, voting rights and transferability of shares held by the Trust, the Board has determined that the Trust, which currently holds the majority of the shares of MetLife, is not a "company" for purposes of the BHC Act at the present time. The Board may revisit this determination if the facts at a later date indicate that the terms or operation of the Trust have changed to cause the Trust to become in form more like a company, or become a vehicle for exercising control over MetLife or for conducting other activities.

(2.) Asset data for MetLife are as of September 30, 2000.

(3.) Asset data for Bank are as of September 30, 2000, and deposit and ranking data are as of June 30, 2000.

(4.) In cases involving interstate bank acquisitions by bank holding companies, the Board also must consider the concentration of deposits nationwide and within relevant individual states, as well as compliance with the other provisions of section 3(d) of the BHC Act.

(5.) 12 U.S.C. [sections] 1842(c)(1).

(6.) MetLife owns MetLife Trust Company, N.A., Bedminster, New Jersey ("MTC"), a limited-purpose trust company that is not a bank for purposes of the BHC Act. See 12 U.S.C. [sections] 1841(c).

(7.) See Chemical Banking Corporation, 82 Federal Reserve Bulletin 230 (1996).

(8.) Two commenters urged the Board to consider recent settlements that Metropolitan Life entered in connection with a class-action suit and several administrative actions that state insurance regulators initiated following charges that Metropolitan Life agents employed deceptive practices in selling whole life insurance policies. These commenters, and another commenter, also noted a recent joint administrative sanction from Florida and Georgia insurance regulators directed against 29 insurance companies, including Metropolitan Life, concerning alleged racial discrimination in pricing small-value life insurance policies that were sold in the 1950s and 1960s. The Board has considered these matters in light of all the facts of record, including in particular the comments of state insurance regulators and information that MetLife provided about its compliance operations, such as enhancements that MetLife has made to its compliance program in response to the problems identified in these investigations and lawsuits.

(9.) The Interagency Questions and Answers Regarding Community Reinvestment ("CRA Q&A") provide that a CRA examination is an important and often controlling factor in the consideration of an institution's CRA record. See 65 Federal Register 25,088 and 25,107 (2000).

(10.) One commenter asked the Board to consider, as part of its review of the convenience and needs factor, the actions of a MetLife subsidiary in raising rents in an apartment complex in Waltham, Massachusetts. Such actions by MetLife are, however, outside the scope of the convenience and needs factor, which has been interpreted consistently by the federal banking agencies, the courts, and Congress to relate to the effect of a proposal on the availability and quality of banking services in the community. See Wells Fargo & Company, 82 Federal Reserve Bulletin 445, 457 (1996).

(11.) See 12 C.F.R. 25.26(a).

(12.) MetLife initially proposed that Bank be designated as a wholesale bank for CRA purposes.

One commenter requested that the Board identify a larger CRA assessment area for Bank to use after consummation of the proposal than the one currently used. The appropriateness of Bank's designated assessment area is, however, determined by the OCC as Bank's primary federal supervisor.

(13.) One commenter requested that the Board require MetLife to devote at least 2 percent of its assets to lending and investments in low-income communities nationwide as a condition of approval of the proposal. Although Bank's lending and investment in low-income communities has been and will continue to be reviewed by the OCC in assessing Bank's performance under the CRA, neither the CRA nor the applicable regulations of the federal supervisory authorities require a bank or its affiliates to meet specific lending or investment targets based on the size of the institution.

(14.) Two commenters 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 heating 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 authority.

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 commenters' request in light of all the facts of record. In the Board's view, commenters have had ample opportunity to submit their views, and they did submit written comments that have been considered carefully by the Board in acting on the proposal. The commenters' 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 heating. 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.

(15.) Although MTC is not a bank for purposes of the BHC Act, it is a depository institution as defined in the Federal Deposit Insurance Act and, therefore, MetLife must certify that MTC is well capitalized and well managed as part of MetLife's election to become a financial holding company. See 12 U.S.C. [sections] 1813(c)(1), 1843(1)(1). As noted above, MTC is not subject to CRA.

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

ROBERT DEV. FRIERSON Associate Secretary of the Board

UFJ Holdings, Inc. (In Formation) Osaka, Japan

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

UFJ Holdings, Inc. (in formation) ("UFJ"), has requested the Board's approval under section 3 of the Bank Holding Company Act (12 U.S.C. [sections] 1842) ("BHC Act") to become a bank holding company by indirectly acquiring the U.S. subsidiary banks of The Sanwa Bank, Limited, Osaka, Japan ("Sanwa"), and The Tokai Bank, Limited, Nagoya, Japan ("Tokai").(1) UFJ also has requested the Board's approval under sections 4(c)(8) and 4(j) of the BHC Act (12 U.S.C. [sections] 1843(c)(8) and 40)) and section 225.24 of the Board's Regulation Y (12 C.F.R. 225.24) to acquire the U.S. nonbanking subsidiaries of Sanwa and The Toyo Trust and Banking Company, Limited, Tokyo, Japan ("Toyo"), and thereby engage in certain permissible nonbanking activities.(2)

Notice of the proposal] affording interested persons an opportunity to submit comments, has been published (65 Federal Register 64,445 (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.

UFJ is a corporation that would be formed under the laws of Japan to acquire Sanwa, Tokai, and Toyo.(3) On consummation of the proposal, UFJ would become the second largest banking organization in Japan, with total consolidated assets of $783 billion.(4)

Sanwa, with total consolidated assets of $429 billion, is the fifth largest bank in Japan. In the United States, Sanwa owns Sanwa Bank and operates branches in Los Angeles and San Francisco, California; Chicago, Illinois; and New York, New York; and representative offices in Houston, Texas, and New York, New York.

Tokai, with total consolidated assets of $278 billion, is the eighth largest bank in Japan. In the United States, Tokai owns Tokai Bank and operates branches in Chicago, Illinois, and New York, New York; an agency in Los Angeles, California; and representative offices in Florence, Kentucky, and New York, New York.

Toyo, with total consolidated assets of $76 billion, is the 17th largest bank in Japan. In the United States, Toyo operates a representative office in New York, New York.

In addition, Sanwa, Tokai, and Toyo engage in a broad range of permissible nonbanking activities in the United States through subsidiaries.

Factors Governing Board Review of the Proposal

The BHC Act sets forth the factors that the Board must consider when reviewing the formation of a bank holding company or the acquisition of banks. These factors are the competitive effects of the proposal in the relevant geographic markets; the financial and managerial resources and future prospects of the companies and banks involved in the proposal; the convenience and needs of the community to be served, including the records of performance under the Community Reinvestment Act (12 U.S.C. [sections] 2901 et seq.) ("CRA") of the insured depository institutions involved in the transaction; the availability of information needed to determine and enforce compliance with the BHC Act and other applicable federal banking law; and, in the case of applications involving foreign banks, whether the foreign banks involved are subject to comprehensive supervision and regulation on a consolidated basis by their home country supervisor.(5)

The Board has considered these factors in light of a record that includes information provided by UFJ, Sanwa, Tokai, and Toyo; confidential supervisory and examination information; and publicly reported financial and other information. The Board also has considered information collected from the primary home country supervisor of Sanwa, Tokai, and Toyo, and from various federal and state agencies, including the California Department of Banking and other relevant agencies.

Competitive Considerations

Section 3 of the BHC Act prohibits the Board from approving a proposal that would result in a monopoly. The BHC Act also prohibits the Board from approving a proposed bank acquisition that would substantially lessen competition in any relevant banking market unless the anticompetitive effects of the proposal are clearly outweighed in the public interest by the probable effect of the proposal in meeting the convenience and needs of the community to be served.(6)

Sanwa and Tokai control banking operations that compete directly in the Los Angeles, Sacramento, San Diego, and San Francisco-Oakland-San Jose banking markets, all in California.(7) In each of these markets, the Herfindahl-Hirschman Index ("HHI") would increase by 5 points or less,(8) UFJ would control less than 5 percent of total deposits in insured depository institutions in the market ("market deposits"), and the banking market would remain unconcentrated or moderately concentrated with numerous competitors remaining in the market.(9) Based on these and all the 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 these or any other relevant banking markets.

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."(10) The Board has determined previously, in applications under the BHC Act, that certain Japanese commercial banks, including Sanwa, were subject to comprehensive consolidated supervision by their home country supervisor.(11) In this case, the Board has determined that Tokai and Toyo are supervised on substantially the same terms and conditions as other Japanese banks reviewed by the Board. In addition, Japan's Financial Services Agency ("FSA") has supervisory authority with respect to UFJ and its nonbanking subsidiaries. The FSA may conduct inspections of UFJ and its subsidiaries and require UFJ to submit reports about its operations on a consolidated basis. The FSA also may review transactions between UFJ and its subsidiaries and has authority to require UFJ to take measures necessary to ensure the safety and soundness of the UFJ organization. Based on all the facts of record, the Board has concluded that Sanwa, Tokai, and Toyo are subject to comprehensive supervision and regulation on a consolidated basis by their home country supervisor.

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. The Board has reviewed the restrictions on disclosures in jurisdictions where Sanwa, Tokai, and Toyo have and UFJ would have material operations and has communicated with relevant government authorities concerning access to information. UFJ has committed that, to the extent not prohibited by applicable law, it will make available to the Board such information on the operations of UFJ and any of its affiliates that the Board deems necessary to determine and enforce compliance with the BHC Act and other applicable federal law. UFJ also has committed to cooperate with the Board to obtain any waivers or exemptions that may be necessary in order to enable UFJ to make any such information available to the Board. In light of these commitments and other facts of record, the Board has concluded that UFJ 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 of the BHC Act are consistent with approval.

Financial, Managerial, and Convenience and Needs Considerations

The Board also has considered carefully the financial and managerial resources and future prospects of UFJ and the banks involved in the proposal, the effect the proposed transaction would have on such resources, and other supervisory factors in light of all the facts of record. The Board has consulted with and considered the views regarding this transaction of the home country supervisor for the banking organizations involved. The Board notes that the proposal is intended to enhance the overall financial strength and future prospects of the combined organization. The transaction would occur through an exchange of shares, and Sanwa, Tokai, and Toyo would issue no debt as part of the transaction. UFJ's stated pro forma capital levels would exceed the minimum levels that would be required under the Basle Capital Accord, and its capital levels are considered equivalent to the capital levels that would be required of a U.S. banking organization under similar circumstances.

In addition, the Board has reviewed supervisory information from the home country authorities responsible for supervising Sanwa, Tokai, and Toyo concerning the proposal and the condition of the parties; confidential financial information from Sanwa, Tokai, and Toyo; 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.

Sanwa Bank received an "outstanding" CRA performance rating from the Federal Deposit Insurance Corporation ("FDIC") at its most recent examination, as of August 1998. Tokai Bank also received an "outstanding" CRA performance rating from the FDIC at its most recent examination, as of June 2000. Toyo has no operation in the United States that is subject to examination under the CRA.(12) In light of all the facts of record, the Board has concluded that considerations relating to the convenience and needs of the communities to be served, including the records of performance of the relevant depository institutions under the CRA, are consistent with approval.

Nonbanking Activities

UFJ also has filed notices under section 4(c)(8) and 4(j) of the BHC Act to acquire the U.S. nonbanking subsidiaries of Sanwa and Toyo and to engage in the United States in various permissible nonbanking activities. Sanwa engages in bank-ineligible securities activities in the United States through its section 20 subsidiary, Sanwa Universal Securities Co, L.L.C., New York, New York ("Sanwa Universal"). Sanwa Universal is and would continue to be registered as a broker-dealer with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934 ("1934 Act").(13) Accordingly, Sanwa Universal is and would continue to be subject to the recordkeeping and reporting obligations, fiduciary standards, and other requirements of the SEC and the 1934 Act.

Underwriting and Dealing in Bank-Ineligible Securities

The Board determined by order before November 12, 1999, that, subject to the prudential framework of limitations established in previous decisions to address the potential for conflicts of interests, unsound banking practices, or other adverse effects, underwriting and dealing in bankineligible securities are so closely related to banking as to be a proper incident thereto within the meaning of section 4(c)(8) of the BHC Act.(14) The Board has permitted such securities activities on the condition that the company engaged in the activities derives no more than 25 percent of its gross revenues from underwriting and dealing in bank- ineligible securities over a two-year period.(15) UFJ has committed that it will conduct its bank-ineligible securities underwriting and dealing activities subject to the 25-percent revenue limitation and the limitations previously established by the Board. As a condition of this order, UFJ and Sanwa Universal are required to conduct their bank-ineligible securities activities subject to the Operating Standards established for section 20 subsidiaries ("Operating Standards").(16)

Other Activities Approved by Regulation or Order

The Board determined by regulation before November 12, 1999, that extending credit and engaging in activities related to extending credit; leasing activities; trust company functions; providing financial and investment advisory services; providing securities brokerage, riskless principal, private placement, futures commission merchant, and other agency transactional services; and engaging in investment transactions as a principal are closely related to banking for purposes of section 4(c)(8) of the BHC Act.(17) UFJ has committed that it will conduct these activities in accordance with the Board's regulations and prior Board decisions relating to the activities.

In order to approve the notice, the Board also must determine that the acquisition of the U.S. nonbanking subsidiaries of Sanwa, Tokai, and Toyo and the performance of the proposed activities by UFJ 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.(18)

UFJ has indicated that the proposal would improve the financial position and future business prospects of the current banking and nonbanking subsidiaries of Sanwa, Tokai, and Toyo. In addition, the proposal would make available a broader range of services to customers of Sanwa, Tokai, and Toyo.

The Board has carefully considered the competitive effects of the proposed transaction under section 4 of the BHC Act.(19) To the extent that Sanwa, Tokai, and Toyo offer different types of nonbanking products, the proposal would result in no loss of competition. Certain nonbanking subsidiaries of Sanwa, Tokai, and Toyo compete, however, in the market for providing trust company functions. The market for this nonbanking activity is regional or national. The record in this case also indicates that there are numerous providers of trust services and that the market for trust services is unconcentrated. For these reasons, and based on all the facts of record, the Board concludes that consummation of the proposal would have a de minimis effect on competition.

The Board also believes that the conduct of the proposed nonbanking activities within the framework established in this order, prior orders, and 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 not be outweighed by 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 the standard of section 4(j) of the BHC Act is favorable and consistent with approval of the proposal.

Conclusion

Based on the foregoing, the Board has determined that the transaction should be, and hereby is, approved, subject to all the terms and conditions in this order and the Section 20 Orders, as modified by the Modification Orders. The Board's approval of the proposal extends only to activities conducted within the limitations of those orders and this order, including the Board's reservation of authority to establish additional limitations to ensure that the activities of UFJ are consistent with safety and soundness, avoidance of conflicts of interests, and other relevant considerations under the BHC Act. Underwriting and dealing in any manner other than as approved in this order and the Section 20 Orders (as modified by the Modification Orders) is not within the scope of the Board's approval and is not authorized for UFJ or Sanwa Universal.

In reaching its conclusion, the Board has considered all the facts of record in light of the factors that the Board is required to consider under the BHC Act and other applicable federal statutes. The Board's approval is specifically conditioned on compliance by UFJ with all the commitments made in connection with this application and notice, including the commitments discussed in this order, and the conditions set forth in the order and the above- noted Board regulations and orders, and on the Board's receiving access to information on the operations or activities of UFJ and any of its affiliates that the Board determines to be appropriate to determine and enforce compliance by UFJ and its affiliates with applicable federal statutes. The Board's approval of the nonbanking aspects of the proposal also is subject to all the conditions set forth in Regulation Y, including those in sections 225.7 and 225.25(c) of Regulation Y (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, and to prevent evasion of, the provisions of the BHC Act and the Board's regulations and orders issued thereunder. 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 of the subsidiary banks of Sanwa and Tokai may not be consummated before the fifteenth calendar day after the effective date of this order, and the proposal 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 by the Federal Reserve Bank of San Francisco, acting pursuant to delegated authority.

By order of the Board of Governors, effective February 5, 2001.

(1.) The U.S. subsidiary banks are Sanwa Bank California, San Francisco, California ("Sanwa Bank"), and Tokai Bank of California, Los Angeles, California ("Tokai Bank").

(2.) The nonbanking activities of Sanwa and Toyo for which UFJ has sought Board approval under sections 4(c)(8) and 4(j) of the BHC Act are listed in the Appendix.

(3.) The transaction would be effected through the exchange of shares. UFJ's corporate existence would begin on its commercial registration after consummation of the exchange of shares. See Japanese Commercial Code, art. 370.

(4.) All asset and ranking data are as of March 31, 2000, and are based on exchange rates then applicable.

(5.) In cases, unlike this proposal, involving interstate bank acquisitions, the Board also must consider the concentration of deposits in the United States and relevant individual states, and compliance with other provisions of section 3(d) of the BHC Act.

(6.) 12 U.S.C. [sections] 1842(c)(1).

(7.) The Los Angeles banking market includes the Los Angeles Ranally Metropolitan Area ("RMA") and the towns of Rancho Santa Margarita and Rosamond. The Sacramento banking market includes the Sacramento RMA and the town of Cool. The San Diego banking market includes the San Diego RMA and the town of Pine Valley. The San Francisco-Oakland-San Jose banking market includes the San Francisco-Oakland-San Jose RMA and the towns of Hollister, Pescadero, Point Reyes Station, and San Juan Bautista.

(8.) Under the Revised Department of Justice Merger Guidelines, 49 Federal Register 26,823 (June 29, 1984), a market is considered unconcentrated if the post-merger HHI is less than 1000 and moderately concentrated if the post-merger HHI is between 1000 and 1800. 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.

(9.) Market share data are as of June 30, 1999. In the Los Angeles banking market, the HHI would increase by 5 points to 979 and UFJ would control 3.6 percent of market deposits. In the Sacramento banking market, the HHI would increase by 1 point to 1197 and UFJ would control 1.7 percent of market deposits. In the San Diego banking market, the HHI would remain unchanged at 1207 and UFJ would control less than 1 percent of market deposits. In the San Francisco-Oakland-San Jose banking market, the HHI would remain unchanged at 1495 and UFJ would control 1.3 percent of market deposits.

(10.) 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. 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. 12 C.F.R. 211.24(c)(1)(ii).

(11.) See Mizuho Holdings, Inc., 86 Federal Reserve Bulletin 776 (2000); The Sanwa Bank, Limited, 86 Federal Reserve Bulletin 54 (2000); The Fuji Bank, Limited, 85 Federal Reserve Bulletin 338 (1999).

(12.) Until recently, Toyo Trust Company of New York, New York, New York ("Toyo Trust"), which performs trust company functions, was an insured depository institution. Toyo Trust received an "outstanding" CRA performance rating from the FDIC at its last examination, as of September 1998.

(13.) 15 U.S.C. [sections] 78a et seq.

(14.) See Canadian Imperial Bank of Commerce, et al., 76 Federal Reserve Bulletin 158 (1990); J.P. Morgan & Co., Incorporated, et al., 75 Federal Reserve Bulletin 192 (1989), aff'd sub nom. Securities Industry Ass'n v. Board of Governors of the Federal Reserve System, 900 F.2d 360 (D.C. Cir. 1990); Citicorp, et al., 73 Federal Reserve Bulletin 473 (1987), aff'd sub nom. Securities Industry Ass'n v. Board of Governors of the Federal Reserve System, 839 F.2d 47 (2d Cir. 1988), cert. denied, 486 U.S. 1059 (1988) (collectively, "Section 20 Orders").

(15.) See Section 20 Orders. Compliance with the revenue limitation shall be calculated in accordance with the method stated in the Section 20 Orders, as modified by the Order Approving Modifications to the Section 20 Orders, 75 Federal Reserve Bulletin 751 (1989), and 10 Percent Revenue Limit on Bank-Ineligible Activities of Subsidiaries of Bank Holding Companies Engaged in Underwriting and Dealing in Securities, 61 Federal Register 48,953 (1996); and Revenue Limit on Bank-Ineligible Activities of Subsidiaries of Bank Holding Companies Engaged in Underwriting and Dealing in Securities, 61 Federal Register 68,750 (1996) (collectively, "Modification Orders").

(16.) 12 C.F.R. 225.200. Sanwa Universal may provide services that are necessary incidents to the proposed underwriting and dealing activities. Unless Sanwa Universal receives specific approval under section 4(c)(8) of the BHC Act to conduct the incidental activities independently, any revenues from such activities must be treated as ineligible revenues subject to the Board's revenue limitation.

(17.) See 12 C.F.R. 225.28(b)(1), (2), (3), (5), (6), (7), and (8).

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

(19.) The Board approved previously the acquisition by Sanwa of up to 32 percent of the voting shares of Toyo. See The Sanwa Bank, Limited, 86 Federal Reserve Bulletin 54 (2000).

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

ROBERT DEV. FRIERSON Associate Secretary of the Board

Appendix

Nonbanking Activities of Sanwa, Tokai, and Toyo in which UFJ Proposes to Engage

(1) Extending credit and servicing loans, in accordance with section 225.28(b)(1) of the Board's Regulation Y (12 C.F.R. 225.28(b)(1));

(2) Activities related to extending credit, in accordance with section 225.28(b)(2) of the Board's Regulation Y (12 C.F.R. 225.28(b)(2));

(3) Providing leasing services, in accordance with section 225.28(b)(3) of the Board's Regulation Y (12 C.F.R. 225.28(b)(3));

(4) Performing trust company functions, in accordance with section 225.28(b)(5) of the Board's Regulation Y (12 C.F.R. 225.28(b)(5));

(5) Providing financial and investment advisory services, in accordance with section 225.28(b)(6) of the Board's Regulation Y (12 C.F.R. 225.28(b)(6));

(6) Providing securities brokerage, riskless principal, private placement, futures commission merchant, and other agency transactional services, in accordance with section 225.28(b)(7)(i)- (v) of Regulation Y (12 C.F.R. 225.28(b)(7)(i)-(v));

(7) Engaging in investment transactions as principal, in accordance with section 225.28(b)(8) of Regulation Y (12 C.F.R. 225.28(b)(8)); and

(8) Engaging in underwriting and dealing to a limited extent in municipal revenue bonds, 1-4 family mortgage-related securities, commercial paper, and consumer receivable-related securities, as approved by the Board in The Sanwa Bank, Limited, 76 Federal Reserve Bulletin 568 (1990).