Orders issued under Bank Holding Company Act. (Legal Developments).

Orders Issued Under Section 3 of the Bank

Holding Company Act

Allied Irish Banks, p.l.c.

Dublin, Ireland 

Order Approving Acquisition of Shares of a Bank Holding Company

Allied Irish Banks, p.l.c. ("Allied Irish"), 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. [section] 1842) to acquire up to 25 percent of the voting shares of M&T Bank Corporation ("M&T") (1) and thereby indirectly acquire shares of M&T's subsidiary banks, including its lead subsidiary bank, Manufacturers and Traders Trust Company, both in Buffalo, New York ("Trust Company"). (2) In addition, Allied Irish has requested the Board's approval under section 4(c)(8) and (j) of the BHC Act (12 U.S.C. [section] 1843(c)(8) and (j)) and section 225.24 of the Board's Regulation Y (12 C.F.R. 225.24) to acquire shares of nonbanking subsidiaries of M&T. (3) Allied Irish also has applied under section 211.22(b)(2) of Regulation K (12 C.F.R. 211.22(b)(2)) to change its home state for purposes of the International Banking Act (12 U.S.C. [section] 3101 et seq. "IBA") from Maryland to New York.

Notice of the proposal, affording interested persons an opportunity to comment, has been published (67 Federal Register 69,223 (2002)). 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.

Allied Irish, with total assets of $87.3 billion, is the largest banking organization in Ireland. (4) Through Allfirst, it operates banks in Delaware, the District of Columbia, Maryland, Pennsylvania, and Virginia. Allied Irish also operates a branch in New York, New York, and representative offices in Atlanta, Georgia, Chicago, Illinois; Los Angeles, California; Philadelphia, Pennsylvania; San Francisco, California; and White Plains, New York.

M&T, with total consolidated assets of $34.1 billion, is the 33rd largest commercial banking organization in the United States. (5) M&T operates banks in Maryland, New York, Pennsylvania, and West Virginia.

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 Allied Irish is Maryland, and Allied Irish proposes to acquire banks in Maryland, New York, Pennsylvania, and West Virginia. (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, after consummation, 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 this proposal and the related acquisition of Allfirst by M&T, Allied Irish would control less than 1 percent of the total deposits of insured depository institutions in the United States. Allied Irish would control less than 30 percent of total deposits held by insured depository institutions in Maryland, New York, or Pennsylvania. (9)

All other requirements of section 3(d) of the BHC Act are met. Allied Irish is adequately capitalized and adequately managed, as defined by applicable law. In addition, M&T's subsidiary banks have been in existence for the minimum time required by applicable state law. (10) In view of all the facts of record, the Board is permitted to approve the proposal under section 3(d) of the BHC Act.

Financial, Managerial, and Supervisory Considerations

The BHC Act requires the Board to consider the financial and managerial resources and future prospects of the companies and banks involved in a proposal and certain other supervisory factors. (11) In assessing the financial and managerial strength of Allied Irish and its subsidiaries, the Board has reviewed information provided by Allied Irish, confidential supervisory and examination information, and publicly reported and other financial information.

Since May 2002, Allied Irish has been subject to a written agreement with the Federal Reserve Bank of Richmond, the Maryland Commissioner of Financial Regulation, and the Central Bank of Ireland (the "Written Agreement") that addresses matters related to foreign exchange trading losses resulting from the illicit activities of a trader employed by Allfirst Bank. Among other things, the Written Agreement required Allied Irish to conduct a comprehensive and timely review of its U.S. operations, including risk management and internal controls, and required Allied Irish to submit a plan to the three regulatory agencies for improving the oversight of its U.S. operations. The Board has carefully considered Allied Irish's record of compliance with the requirements of the Written Agreement and concludes that its record is consistent with approval of this proposal. (12) The Written Agreement was lifted as of February 14, 2003, contingent on consummation of M&T's acquisition of Allfirst.

Allied Irish's capital levels exceed the minimum levels that would be required under the Basel Capital Accord, and its capital levels are considered equivalent to the capital levels that would be required of a U.S. banking organization. Based on all the facts of record, the Board concludes that the financial and managerial resources and future prospects of the organizations involved in the proposal are consistent with approval.

Section 3 of the BHC Act also provides that the Board may not approve an application involving a foreign bank unless it is "subject to comprehensive supervision or regulation on a consolidated basis by the appropriate authorities in the bank's home country." (13) The home country supervisor of Allied Irish is the Central Bank of Ireland ("CBI"), which is responsible for the supervision and regulation of Irish financial institutions.

In approving applications under the BHC Act, the Board previously has determined that Irish banks, including Allied Irish, are subject to comprehensive consolidated supervision by the CBI. (14) In this case, the Board finds that the CBI continues to supervise Allied Irish in substantially the same manner as it supervised Irish banks at the time of those previous determinations. Based on this finding and all the facts of record, the Board concludes that Allied Irish continues to be subject to comprehensive supervision on a consolidated basis by its home country supervisor.

In addition, section 3 of the BHC Act requires the Board to determine that a foreign bank has provided adequate assurances that it will make available to the Board such information on its operations and activities and those of its affiliates that the Board deems appropriate to determine and enforce compliance with the BHC Act. (15) The Board has reviewed the restrictions on disclosure in relevant jurisdictions in which Allied Irish operates and has communicated with relevant government authorities concerning access to information. In addition, Allied Irish previously has committed to make available to the Board such information on the operations of Allied Irish and its affiliates that the Board deems necessary to determine and enforce compliance with the BHC Act and other applicable federal law. Allied Irish also previously has committed to cooperate with the Board to obtain any waivers or exemptions that may be necessary to enable Allied Irish and its affiliates to make such information available to the Board. In light of these commitments, the Board concludes that Allied Irish has provided adequate assurances of access to any appropriate information that the Board may request. Based on these and all the facts of record, the Board concludes that the supervisory factors it is required to consider are consistent with approval.

Competitive Considerations

As part of the Board's review under section 3 of the BHC Act, the Board has considered carefully the competitive effects of the proposal in light of all the facts of record. As discussed in detail in the M&T Order, the Board concluded that the combination of M&T and Allfirst would not likely result in any significantly adverse effects on competition or on the concentration of banking resources in any of the banking markets in which M&T or Allfirst operate banks. Based on all the facts of record, the Board concludes that competitive considerations related to the M&T and Allfirst aspects of this proposal are consistent with approval for the reasons discussed in the M&T Order and incorporated herein.

Allied Irish operates a branch and M&T operates a bank in the Metropolitan NY-NJ-PA-CT banking market ("New York market"). (16) The Board has reviewed the competitive effects of the proposal in this banking market in light of all the facts of record, including the number of competitors that would remain in the market, the relative share of total deposits in depository institutions in the market ("market deposits") (17) controlled by Allied Irish and M&T, 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 Merger Guidelines ("DOJ Merger Guidelines"), and other characteristics of the market. (18)

Allied Irish's New York branch controls deposits of $1.5 billion, representing less than 1 percent of market deposits. M&T operates the 20th largest depository institution in the market, controlling deposits of approximately $4.1 billion, representing less than 1 percent of market deposits. On consummation of the proposal, Allied Irish would control deposits of $5.6 billion. The market would remain unconcentrated under the DOJ Merger Guidelines and the HHI (907 points) would remain unchanged. 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 the New York market or in any other relevant banking market.

Convenience and Needs Considerations

In acting on proposals 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. (19) The Board has carefully reviewed the effect of the proposal on convenience and needs considerations in light of all the facts of record, including comments received on the proposal and the records of performance of the relevant depository institutions under the Community Reinvestment Act ("CRA"). (20) In the M&T Order, the Board reviewed the records of CRA performance of the relevant insured depository institutions and considered other information relating to the convenience and needs factor. Based on all the facts of record, the Board concludes that convenience and needs considerations are consistent with approval for the reasons discussed in the M&T Order and incorporated herein.

Nonbanking Activities

Allied Irish also has filed notice under section 4(c)(8) and (j) of the BHC Act to acquire nonbanking subsidiaries of M&T. The Board has determined by regulation that the types of activities for which notice has been provided are closely related to banking for purposes of section 4(c)(8) of the BHC Act and, therefore, permissible for bank holding companies. (21)

To approve this notice, the Board must determine that the proposed activities "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." (22)

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

The Board also has considered the competitive effects of the proposed transaction under section 4 of the BHC Act. Allied Irish and M&T compete in providing credit-related insurance and financial and investment advisory services. The markets for these nonbanking activities are regional, national, or international in scope and are unconcentrated. The record in this case also indicates that there are numerous providers of these services. Based on all the facts of record, the Board concludes that consummation of the proposal would have a de minimus effect on competition for the relevant nonbanking activities.

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

Conclusion

Based on the foregoing, and in light of all facts of record, the Board has determined that the applications and notice should be, and hereby are, approved. In reaching its conclusion, the Board has considered all the facts of record in light of the factors it is required to consider under the BHC Act and the IBA. The Board's approval is specifically conditioned on compliance by Allied Irish with all the commitments and representations made or relied on in connection with the application and notice and with the conditions stated or referred to in this order. The Board's determination also is conditioned specifically on the Board's receiving access to information on the operations or activities of Allied Irish and any of its affiliates that the Board determines to be appropriate to assess and enforce compliance by Allied Irish and its affiliates with applicable federal statutes. The Board's determination on the nonbanking activities also is subject to all the terms and conditions set forth in Regulation Y, including those in sections 225.7 and 225.25(c) (12 C.F.R. 225.7 and 225.25(c)), and 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 thereunder. 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 in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law.

The acquisition of up to 25 percent of M&T may not be consummated before the fifteenth calendar day after the effective date of this order, or later than three months after the effective date of this order, unless such period is extended for good cause by the Board or the Federal Reserve Bank of Richmond, acting pursuant to delegated authority.

By order of the Board of Governors, effective March 11, 2003.

(1.) Under the terms of the proposal, Allied Irish would sell its wholly owned subsidiary bank holding company, Allfirst Financial Inc., Baltimore, Maryland ("Allfirst"), to M&T in exchange for the shares of M&T and other consideration. M&T and Trust Company have filed related applications with the Board to acquire Allfirst and Allfirst's nonbanking subsidiaries; to merge Allfirst's lead subsidiary bank, Allfirst Bank, also in Baltimore, into Trust Company; and for Trust Company to retain and operate branches at the locations of Allfirst Bank's offices. By order dated today, the Board has approved the M&T proposal. M&T Bank Corporation (Order dated March 11, 2003) ("M&T Order").

(2.) M&T's other subsidiary bank is M&T Bank, N.A., Oakfield, New York.

(3.) Allied Irish proposes to acquire shares in: (1) Martindale Andres & Company, LLC, West Conshohocken, Pennsylvania, and thereby engage in financial and investment advisory activities pursuant to section 225.28(b)(6) of Regulation Y (12 C.F.R. 225.28(b)(6)); and (2) Keystone Financial Life Insurance Corporation, Phoenix, Arizona, and thereby engage in providing credit insurance as principal, agent, or broker pursuant to section 225.28(b)(11) of Regulation Y (12 C.F.R. 225.28(b)(11)).

(4.) Asset data and ranking are as of September 30, 2002, and are based on the exchange rate then available.

(5.) Asset data and ranking are as of September 30, 2002. All other banking data are as of June 30, 2002, unless otherwise noted.

(6.) A bank holding company's home state is the 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. [section] 1841(o)(4)(C). For purposes of section 3(d) of the BHC Act, the Board considers a bank to be located in the states in which the bank is chartered, headquartered, or operates a branch.

Pursuant to the IBA and section 211.22(b)(2) of Regulation K (12 C.F.R. 211.22(b)(2)), Allied Irish has applied to change its home state from Maryland to New York on consummation of the proposed transaction. The Board has determined that Allied Irish satisfies the criteria for changing its home state and that allowing the proposed change would be consistent with competitive equity between foreign and domestic banks.

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

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

(9.) Maryland's deposit cap is the same as that set forth in section 3(d)(2)(B) of the BHC Act. See Md. Code Ann., Fin. Inst. [section] 5-906(b) (Michie 2001) (30 percent). New York and Pennsylvania do not have deposit caps applicable to the proposal.

(10.) N.Y. Banking Law [section] 142-a(1) (5 years). Maryland, Pennsylvania and West Virginia do not have minimum age requirements applicable to the proposal. The Board also has taken into account the record of compliance of the subsidiary depository institutions of Allied Irish and M&T with applicable state community reinvestment laws.

(11.) One commenter expressed concern about the future prospects of the organizations under the proposal. Allied Irish has acknowledged it would be deemed to control M&T for purposes of the BHC Act and would be required to serve as a source of strength for M&T after consummation. See 12 C.F.R. 225.4(a)(1).

(12.) The Board also has carefully considered a comment requesting closer scrutiny of the application and notice in light of the foreign exchange trading losses. The commenter asserted that the questions associated with the management of Allied Irish were of greater concern because Allied Irish would be able to place four directors on the board of directors of M&T, thereby giving it more influence over M&T than it could exercise by virtue of its shareholdings alone. As noted above, the Board has carefully considered the record of Allied Irish's management in complying with the terms of the Written Agreement.

(13.) 12 U.S.C. [section] 1842(c)(3)(B). Under Regulation Y, the Board uses the standards enumerated in Regulation K to determine whether a foreign bank that has submitted an application under section 3 of the BHC Act is subject to consolidated home country supervision. See 12 C.F.R. 225.13(a)(4). Regulation K provides that a foreign bank will be considered to be subject to comprehensive supervision or regulation on a consolidated basis if the Board determines that the bank is supervised and regulated in such a manner that its home country supervisor receives sufficient information on the worldwide operations of the bank, including its relationship to affiliates, to assess the bank's overall financial condition and its compliance with law and regulations. See 12 C.F.R. 211.24(c)(1)(ii).

(14.) See Anglo Irish Bank Corporation, plc, 85 Federal Reserve Bulletin 587 (1999); Allied Irish Banks, plc, 83 Federal Reserve Bulletin 607 (1997).

(15.) See, e.g., 12 U.S.C. [section] 1842(c)(3)(A).

(16.) The New York 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.

(17.) Market share data are as of June 30, 2002, and are based on calculations in which the deposits of thrift institutions are included at 50 percent. See First Hawaiian, Inc., 77 Federal Reserve Bulletin 52 (1991).

(18.) Under the DOJ Merger Guidelines, 49 Federal Register 26,823 (1984), a market is considered unconcentrated if the post merger HHI is under 1000. 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.

(19.) 12 U.S.C. [section] 1842(c)(2).

(20.) 12 U.S.C. [section] 2901 et seq.

(21.) See 12 C.F.R. 225.28(b)(6) and (11).

(22.) 12 U.S.C. [section] 1843(j)(2)(A).

Voting for this action: Chairman Greenspan, Vice Chairman Ferguson, and Governors Gramlich, Bies, Olson, Bernanke, and Kohn.

ROBERT DE V. FRIERSON

Deputy Secretary of the Board

South Trust Corporation

SouthTrust of Alabama, Inc.

South Trust Bank

All in Birmingham, Alabama 

Order Approving the Acquisition of Bank Holding Companies, Merger of Banks, and Establishment of Branches

SouthTrust Corporation ("SouthTrust") and its wholly owned subsidiary, SouthTrust of Alabama, Inc. ("SouthTrust Alabama"), both bank holding companies subject to the provisions 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. [section] 1842) to acquire Founders Bancshares ("Founders") and its wholly owned subsidiaries, Skillman Bancshares ("Skillman") and Founders National Bank ("Founders Bank"), all in Dallas, Texas. SouthTrust's subsidiary bank, SouthTrust Bank ("SouthTrust Bank"), a state member bank in Birmingham, has requested the Board's approval under section 18(c) of the Federal Deposit Insurance Act (12 U.S.C. [section] 1828(c)) ("Bank Merger Act") to merge with Founders Bank, with SouthTrust Bank as the surviving entity. (1) In addition, SouthTrust Bank proposes to retain and operate branches at the main and branch offices of Founders Bank. (2)

Notice of the proposal, affording interested persons an opportunity to comment, has been published in accordance with the relevant statutes and the Board's Rules of Procedure (12 C.F.R. 262.3(b)) in the Federal Register (68 Federal Register 3,029 (2003)) and locally. As required by the BHC Act and the Bank Merger Act, reports on the competitive effects of the merger were requested from the U.S. Attorney General and the relevant banking agencies. The time for filing comments has expired, and the Board has considered the applications and all comments received in light of the factors set forth in section 3 of the BHC Act, the Bank Merger Act, and the statutory provisions that govern the retention and operation of interstate branches.

SouthTrust, with total assets of $50.8 billion, is the largest banking organization in Alabama. SouthTrust operates depository institutions in Alabama, Florida, Georgia, Mississippi, North Carolina, South Carolina, Tennessee, and Texas. SouthTrust Bank is the 19th largest depository institution in Texas, controlling deposits of approximately $1.8 billion, representing less than 1 percent of total deposits of insured depository institutions in the state ("state deposits"). (3) Founders Bank is the 230th largest depository institution in Texas, controlling deposits of $102.5 million, representing less than 1 percent of state deposits. On consummation of the proposal, SouthTrust Bank would become the 18th largest depository institution in Texas, controlling deposits of approximately $1.9 billion, representing less than 1 percent of state deposits.

Interstate Analysis

Section 3(d) of the BHC Act allows the Board to approve an application by a bank holding company to acquire control of a bank located in a state other than the home state of the bank holding company if certain conditions are met. For purposes of the BHC Act, the home state of SouthTrust is Alabama, and SouthTrust proposes to acquire a bank in Texas. (4) Based on a review of all the facts of record, including a review of relevant state statutes, the Board finds that all 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.

Financial and Managerial Considerations

The BHC Act and the Bank Merger Act require the Board to consider the financial and managerial resources and future prospects of the companies and banks involved in a proposal and certain other supervisory factors under the BHC Act. In assessing the financial and managerial strength of SouthTrust and its subsidiaries, the Board has reviewed information provided by SouthTrust, confidential supervisory and examination information, and publicly reported and other financial information. Based on all the facts of record, the Board concludes that the financial and managerial resources and future prospects of the organizations involved in the proposal are consistent with approval, as are other supervisory factors under the BHC Act.

Competitive Considerations

Section 3 of the BHC Act and the Bank Merger Act prohibit 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. The BHC Act and the Bank Merger Act also prohibit 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)

SouthTrust Bank and Founders Bank compete directly in the Dallas, Texas, banking market ("Dallas banking market"). (7) SouthTrust Bank is the 21st largest depository institution in the market, controlling less than 1 percent of total deposits in depository institutions in the market ("market deposits"). (8) Founders Bank is the 41st largest depository institution in the market, also controlling less than 1 percent of market deposits. On consummation of the proposal, SouthTrust Bank would become the 16th largest depository institution in the market, controlling less than 1 percent of market deposits.

The Board has reviewed the competitive effects of the proposal in the Dallas banking market in light of all the facts of record, including the number of competitors that would remain in the market, the relative share of market deposits controlled by SouthTrust Bank and Founders Bank, 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 Merger Guidelines ("DOJ Guidelines"), and other characteristics of the market. (9)

The Department of Justice has reviewed the proposal and advised the Board that consummation would not likely have a significantly adverse effect on competition in any relevant market. In addition, no federal banking agency has indicated that the proposal raises competitive issues.

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 the Dallas banking market or in any other relevant banking market.

Convenience and Needs Considerations

In acting on this proposal, the Board also must consider the convenience and needs of the communities to be served and take into account the records of performance of the relevant insured depository institutions under the Community Reinvestment Act (12 U.S.C. [section] 2901 et seq.) ("CRA"). The CRA requires the federal supervisory agencies to encourage insured depository institutions to help meet the credit needs of local communities in which they operate, consistent with safe and sound operation. The CRA requires the appropriate federal financial supervisory agency to take into account an insured depository 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 considered carefully the effects of the proposal on the convenience and needs of the communities to be served in light of all the facts of record, including confidential supervisory information, comments received on the proposal, information on the performance under the CRA of the relevant insured depository institutions, publicly available data, and information submitted by SouthTrust.

The Board received comments from five community organizations opposing the proposal and expressing concerns about the record of SouthTrust Bank in meeting the convenience and needs of the communities it serves. Four of the commenters criticized SouthTrust Bank's record of lending to LMI and minority borrowers and borrowers in LMI census tracts in several of the bank's assessment areas in Alabama, Georgia, Mississippi, North Carolina, and South Carolina. (10) These commenters also criticized SouthTrust Bank's high denial rates of mortgage applications by African Americans in North Carolina, Alabama, Mississippi, and Georgia and stated that the denial rates suggested that SouthTrust Bank did not offer, or use effectively, flexible mortgage lending products. In addition, all five commenters criticized SouthTrust Bank's record of providing community development investments and services in one or more of the bank's assessment areas. (11)

A. CRA Performance Evaluations 

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 the appropriate federal supervisors. 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. (12)

SouthTrust Bank received a "satisfactory" CRA rating at its most recent CRA performance evaluation, as of April 2, 2001, from the Federal Reserve Bank of Atlanta. Founders Bank also received a "satisfactory" CRA rating at its most recent CRA performance evaluation, as of December 12, 1997, from the Office of the Comptroller of the Currency. SouthTrust has indicated that it intends to implement the CRA-related programs and activities and to offer the CRA-related products of SouthTrust Bank at the offices of Founders Bank on consummation of the proposal.

B. SouthTrust Bank's CRA Performance Record

1. Lending Test. Examiners rated SouthTrust Bank overall "high satisfactory" under the lending test at its most recent CRA performance examination for the review period January 1, 1999, through December 31, 2000. (13) Examiners concluded that the bank's lending reflected a good responsiveness to the credit needs of its assessment areas. They indicated that during the review period, SouthTrust Bank bought or originated 58,175 HMDA loans, totaling $6.1 billion, in its assessment areas. Moreover, examiners commended SouthTrust Bank for originating more than 90 percent of its small business, HMDA, and small farm loans in its assessment areas. Examiners also noted that SouthTrust Bank's lending data reflected a good distribution of lending in geographies of different income levels and a good distribution of lending to borrowers of different income levels and businesses of different sizes.

As noted above, several commenters asserted that SouthTrust Bank's rate of denial for African-American applicants in some areas suggested that the bank did not offer, or use effectively, flexible lending products. Examiners reported that SouthTrust Bank used flexible lending practices in serving the credit needs of its assessment areas, which included a variety of affordable housing programs. In addition, since the examination, SouthTrust represented that SouthTrust Bank and SouthTrust Mortgage have made 2,821 loans totaling more than $258 million through affordable loan programs. SouthTrust also represented that it continues to offer a variety of affordable housing programs, including a no-down-payment program that offers a fixed rate mortgage with no down payment and no closing costs. Moreover, SouthTrust offers a first-time homebuyer program designed for LMI borrowers to obtain financing for a home in circumstances where a traditional loan program would not be available to them because of loan-to-value or down-payment requirements.

Examiners found that SouthTrust Bank made a relatively high amount of community development loans, totaling $174.2 million. These loans funded the construction, renovation, and purchase of affordable single and multifamily housing and industrial development in such areas as Birmingham ($1.9 million), Tampa, Florida ($15.7 million), Atlanta, Georgia ($3.8 million), Biloxi, Mississippi ($404,000), Raleigh, North Carolina ($7.7 million), Charleston, South Carolina ($200,000), Memphis, Tennessee ($2.8 million), and Beaumont, Texas ($1.3 million). SouthTrust reported that during 2001 and 2002, the bank made more than 600 community development loans that totaled more than $250 million throughout its assessment areas. These loans exceeded the amounts indicated in the following states: Alabama ($38 million), Georgia ($22 million), Mississippi ($36 million), North Carolina ($14 million), and South Carolina ($8 million).

Commenters cited criticisms of SouthTrust Bank's lending performance and ratings assigned to the bank in several assessments areas in the bank's overall assessment area. (14) Commenters noted that the bank received "low satisfactory" ratings under the lending test for Mississippi and North Carolina. In addition, commenters noted that examiners characterized SouthTrust Bank's geographic distribution of mortgage loans and small business loans in North Carolina as poor. One commenter also noted that the bank's lending to borrowers of different income levels in Mississippi was considered by examiners to be poor. Several commenters pointed out examiner criticisms of SouthTrust Bank's community development lending in certain geographic areas in Alabama, North Carolina, South Carolina, and Tennessee.

Although examiners criticized the bank's lending and assigned ratings of "low satisfactory" in some assessment areas, examiners also commended the bank's lending performance in other areas and assigned the bank "high satisfactory" ratings under the lending test in those areas. For example, the bank received "high satisfactory" ratings under the lending test statewide in Alabama, Florida, and Texas. After considering SouthTrust Bank's entire record in all the assessment areas reviewed, examiners assigned a "high satisfactory" rating under the lending test for the bank as a whole.

Similarly, in considering the convenience and needs factor under the BHC Act and the Bank Merger Act, the Board has considered the overall record of lending of SouthTrust Bank in all the markets in which it participates. The Board has reviewed carefully the examiners' evaluation of the bank's lending performance in the assessment areas reviewed and the conclusions on the bank's overall record of lending in the performance evaluation. In addition, the Board has considered supervisory information, information provided by SouthTrust, and publicly available information on the bank's record of lending since the examination in certain assessment areas, including those areas highlighted by the commenters.

2. Investment Test. Examiners rated SouthTrust Bank "high satisfactory" for its record of responding to the community development needs of its overall assessment area through investments and stated that the bank made significant use of community development investments to support community development initiatives. Examiners indicated that the bank made a significant level of qualified community development investments and grants, which totaled more than $146 million during the assessment period. (15) Examiners also noted that SouthTrust Bank's investment portfolio totaled approximately $9.9 billion as of December 31, 2000. Overall, examiners found that SouthTrust Bank showed good responsiveness to credit and community development needs.

Examiners indicated that SouthTrust Bank exhibited an excellent responsiveness to credit and community development needs in Alabama through its investment activities and reported that the bank invested approximately $31 million in community development financial institution investments ("CDFI investments"), low-income housing tax credits, and municipal bonds. (16) In Georgia, SouthTrust Bank invested approximately $14 million in municipal bonds and Federal National Mortgage Association wraps ("FNMA wraps"). (17) Examiners also commended the bank for making an in-kind donation of a vacant branch in Georgia to a local business that conducts job training, credit counseling, and home ownership seminars to LMI individuals. Examiners reported that during the review period, SouthTrust Bank made qualifying investments of $14.4 million in North Carolina, more than $3.5 million in Mississippi, and $1.7 million in Tennessee. (18)

SouthTrust represented that since the most recent examination, SouthTrust Bank has undertaken other measures to provide economic and community support to projects and programs that assist LMI and minority populations. SouthTrust stated that the bank provided a branch location for a community development credit union and conducted three faith-based empowerment conferences in Alabama. In addition, SouthTrust Bank hired a technical assistance manager to provide investment and technical assistance to community development credit unions, community development corporations, and nonprofit organizations in Alabama and North Carolina. SouthTrust also stated that SouthTrust Bank received approval from the Federal Home Loan Bank of Atlanta for funding from the Economic Development and Growth Enhancement Program to support an organization in Augusta, Georgia, that will construct an office building in a low-income census tract. In addition, SouthTrust represented that the bank obtained funding from the same Federal Home Loan Bank to support initiatives of six local housing organizations that serve LMI persons and their communities, including organizations in North Carolina.

3. Service Test. Examiners rated SouthTrust Bank an overall "low satisfactory" in its most recent performance evaluation for its provision of community development and retail banking services. (19) Examiners found SouthTrust Bank's delivery systems and branch locations reasonably accessible, and that its hours of operation were convenient to most portions of its overall assessment area. Examiners noted that 18 percent of the bank's total branches were in LMI areas, which was highly representative of the number of families and businesses in LMI census tracts in SouthTrust Bank's assessment areas. In addition, examiners found that SouthTrust Bank provided an adequate level of community development services and stated that personnel used their financial expertise to provide financial services to benefit residents in the bank's assessment areas. Examiners also noted that the services provided were highly responsive to affordable housing needs in SouthTrust Bank's assessment areas.

C. HMDA

The Board also has carefully considered SouthTrust's lending record in light of public comments received by the Board on HMDA data reported by SouthTrust. (20) In considering this proposal, the Board has reviewed publicly available HMDA data for 2000 and 2001 from SouthTrust Bank, SouthTrust Mortgage, and lenders that operate in SouthTrust Bank's assessment areas, and preliminary HMDA data from 2002 from SouthTrust Bank and SouthTrust Mortgage. (21) Moreover, the Board has reviewed information about the loan underwriting processes of SouthTrust Bank and SouthTrust Mortgage, including management and audit functions governing loan underwriting, the credit review processes, and fair lending training provided to personnel.

The HMDA data generally indicate disparities in the rate SouthTrust denies applications by African Americans compared with those by nonminority applicants in many of the markets reviewed. In addition, the data generally indicate that the number and dollar volume of HMDA-reportable loan originations by SouthTrust to African-American and LMI borrowers and borrowers in LMI census tracts, as a percentage of its total HMDA-reportable lending in 2000 and 2001, were below the percentage of the HMDA-reporting lenders in the aggregate in many of the areas reviewed.

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, gender, or national origin. 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. (22) 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, including confidential supervisory information, examination reports that provide on-site evaluation of the compliance with fair lending laws by SouthTrust Bank and SouthTrust Mortgage, and the overall lending and community development activities of SouthTrust. At the last examination, examiners found no violations of the substantive provisions of fair lending and consumer protection laws at SouthTrust Bank or SouthTrust Mortgage and no evidence of prohibited discrimination or other illegal credit practices.

In addition, the SouthTrust HMDA data generally indicate that the volume of home mortgage originations increased significantly from 2000 to 2001, and the percentage increases in originations in the markets reviewed were comparable with those of the aggregate of lenders. The volume of HMDA loans to African Americans, LMI borrowers, and borrowers in LMI census tracts also increased between 2000 and 2001 in a number of the markets reviewed. Moreover, the 2001 HMDA data indicate that the ratio of denial rates of applications from African Americans compared with denial rates for nonminorities was comparable with this ratio for the aggregate of lenders in many of the markets reviewed.

As noted above, SouthTrust has in place a number of programs designed to help meet the credit needs of its communities, and examiners found that SouthTrust Bank has engaged in substantial lending throughout its assessment areas. In addition, SouthTrust has represented that it has undertaken several initiatives since its most recent performance evaluation and implemented additional programs in an effort to improve its lending to minority and LMI individuals and in LMI areas.

D. Conclusion on Convenience and Needs Considerations

In reviewing the effect of the proposal on the convenience and needs of the communities to be served, the Board has considered carefully all the facts of record, including the comments received and the responses to the comments, evaluations of the performance of SouthTrust Bank and Founders Bank under the CRA, the relevant HMDA data for SouthTrust Bank and SouthTrust Mortgage, other information provided by SouthTrust, and confidential supervisory information. The Board also has reviewed information submitted by SouthTrust on its CRA performance and activities to help ensure compliance with fair lending laws since the last performance evaluation.

The record indicates that SouthTrust has sound CRA performance overall in a number of areas. The record also indicates that there are opportunities for improvement in SouthTrust Bank's overall satisfactory CRA record, and in particular, its HMDA lending record, and the Board encourages SouthTrust to pursue those opportunities. Based on all the facts of record, and for the reasons discussed above, the Board concludes that considerations relating to the convenience and needs of the communities to be served, including the CRA performance records of the institutions involved in the proposal, are consistent with approval of the proposal. (23)

Conclusion

Based on the foregoing and all facts of record, the Board has determined that the applications should be, and hereby are, approved. 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, the Bank Merger Act, and the statutory provisions that govern the retention and operation of interstate branches.

The Board's approval is specifically conditioned on compliance by SouthTrust and SouthTrust Bank with all the commitments and representations made in connection with the applications. These commitments, representations, and conditions 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.

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

(1.) Under the proposal, SouthTrust Alabama would acquire all the issued and outstanding stock of Founders. Simultaneously with the acquisition of Founder's stock, Founders and Skillman would merge with and into SouthTrust Alabama and Founders Bank would merge with and into SouthTrust Bank.

(2.) See 12 U.S.C. [subsection] 321 & 1831u. The Founders Bank offices to be acquired by SouthTrust Bank are at 9696 Skillman Street and 10600 Forest Lane, both in Dallas.

(3.) Asset data are as of December 31, 2002. Deposit and state ranking data are as of June 30, 2002, and are adjusted to reflect mergers and acquisitions completed through December 6, 2002. In this context, depository institutions include commercial banks, savings banks, and savings associations.

(4.) See 12 U.S.C. [section] 1841(o)(4)(C).

(5.) 12 U.S.C. [section] 1842(d)(1)(A) & (B), 1842(d)(2)(A) & (B). SouthTrust is well capitalized and well managed, as defined by applicable law. Founders Bank has been in existence and operated for the minimum period of time required by Texas law. On consummation of the proposal, SouthTrust would control less than 10 percent of the total amount of deposits of insured depository institutions in the United States. SouthTrust also would control less than 20 percent of the total deposits of insured depository institutions in Texas, the maximum percentage of total deposits in the state that is permitted under state law to be controlled by a bank holding company after an interstate acquisition. See Tx. Fin. Code Ann. [section] 202.002. All other requirements under section 3(d) of the BHC Act also would be met on consummation of the proposal.

(6.) 12 U.S.C. [section] 1842(c)(1)(A) & (B); 12 U.S.C. [section] 1828(c)(5)(A) & (B).

(7.) The Dallas banking market is defined as Dallas and Rockwall Counties, Denton and Lewisville in Denton County, McKinney and Plano in Collin County, Forney and Terrell in Kaufman County, Midlothian, Waxahachie and Ferris in Ellis County, and Grapevine and Arlington in Tarrant County, all in Texas.

(8.) Market share data are as of June 30, 2002, and are based on calculations in which the deposits of thrift institutions are included at 50 percent. See First Hawaiian, Inc., 77 Federal Reserve Bulletin 52 (1991).

(9.) Under the DOJ Guidelines, 49 Federal Register 26,823 (1984), the HHI for the Dallas banking market would not increase and would remain moderately concentrated at 1,262 points. 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.

(10.) The commenters alleged, among other things, that SouthTrust Bank and its wholly owned subsidiary, SouthTrust Mortgage Corporation ("SouthTrust Mortgage"), engaged in disparate treatment of minority and nonminority individuals in mortgage lending by citing data submitted under the Home Mortgage Disclosure Act, 12 U.S.C. [section] 2801 et seq. ("HMDA").

(11.) Commenters requested that SouthTrust Bank develop relationships with community development credit unions and other community organizations and enter into commitments with specific community organizations. Neither the CRA nor the federal banking agencies' CRA regulations require depository institutions to make pledges or enter into agreements with any organization. Instead, the Board focuses on the existing record of an applicant and the programs that the applicant has in place to meet the credit needs of the communities it serves. See Fifth Third Bancorp, 80 Federal Reserve Bulletin 838 (1994).

(12.) See Interagency Questions and Answers Regarding Community Reinvestment, 66 Federal Register 36,620 and 36,639 (2001).

(13.) Examiners took into account the home mortgage originations and purchases of SouthTrust Bank and SouthTrust Mortgage in evaluating the performance of SouthTrust Bank.

(14.) In addition to the bankwide ratings, examiners also assigned overall ratings and separate ratings under the lending, investment and service tests for SouthTrust Bank's performance in six states, five multistate Metropolitan Statistical Areas ("MSAs"), and six other MSAs that are part of the bank' s assessment areas.

(15.) SouthTrust represented that since its most recent performance evaluation, it has increased the amount of its qualified investments for community development purposes by an additional $90 million.

(16.) CDFI investments are investments by depository institutions in private-sector financial intermediaries, including credit unions, that have community development as their primary purpose. One commenter criticized the bank's commitment to community development in Alabama outside the Birmingham MSA. The Board notes that SouthTrust Bank received an "outstanding" rating under the investment test in Alabama, which included a review of the bank's assessment areas outside Birmingham.

(17.) FNMA wraps are investments in pools of mortgages backed by investment-grade bond issuances used to aid in CRA initiatives, such as affordable housing projects.

(18.) Commenters underscored that examiners gave SouthTrust Bank "low satisfactory" ratings under the investment test for Mississippi and the Charlotte MSA, and "needs to improve" ratings in the Augusta, Georgia, and Chattanooga, Tennessee, MSAs. However, examiners gave the bank "high satisfactory" ratings under the investment test in Georgia, North Carolina, and Tennessee. In addition, SouthTrust represented that since the last performance evaluation, it made three investments in the Augusta MSA, totaling $2.4 million, and one in the Chattanooga MSA, totaling more than $911,000. SouthTrust also represented that since the performance evaluation, SouthTrust Bank has made community development investments of $44 million in Georgia, $9.7 million in Tennessee, $12 million in Mississippi, and $18 million in North Carolina.

(19.) Commenters noted that SouthTrust Bank was rated "low satisfactory" on the service test in North Carolina and the Chattanooga MSA.

(20.) Based on 2001 HMDA data, commenters criticized SouthTrust's record of home mortgage lending to African Americans, LMI borrowers, of borrowers in LMI census tracts in certain of the bank's assessment areas in Alabama, North Carolina, and South Carolina. Commenters also expressed concern about the bank's high rate of denials for African-American applicants in certain assessment areas in Alabama, Georgia, Mississippi, North Carolina, and South Carolina.

(21.) As a part of its review, the Board has evaluated the HMDA data for SouthTrust Bank and SouthTrust Mortgage, separately and combined, in certain markets.

(22.) The data do not, for example, 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 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.

(23.) Several commenters suggested that SouthTrust provided the Board with insufficient information when describing how it meets the convenience and needs of the communities it serves, and requested that SouthTrust provide the Board with specific information about its lending operations, level and types of community development loans and investments, and policies, practices, and initiatives for affordable loan products. The Board has accumulated a significant record in this case, including examination reports on the CRA and compliance records of SouthTrust, comments received from the public, information from SouthTrust in the application and in responses to requests for additional information from the Board, and responses by SouthTrust to the commenters. The Board has carefully evaluated the effect of the proposal on the convenience and needs of the communities to be served in light of all the information in the record and concludes that the record in this case is sufficient to warrant consideration of and action on the proposal at this time.

By order of the Board of Governors, effective March 19, 2003.

Voting for this action: Chairman Greenspan, Vice Chairman Ferguson, and Governors Gramlich, Bies, Olson, Bernanke, and Kohn.

ROBERT DE V. FRIERSON

Deputy Secretary of the Board

The Wakashio Bank, Limited

Tokyo, Japan

Order Approving the Formation of a Bank Holding Company

The Wakashio Bank, Limited, Tokyo, Japan ("Wakashio"), has requested the Board's approval under section 3 of the Bank Holding Company Act ("BHC Act") (12 U.S.C. [section] 1842) to become a bank holding company by merging with its affiliate, Sumitomo Mitsui Banking Corporation, also in Tokyo ("SMBC"), and by acquiring Manufacturers Bank, Los Angeles, California ("Bank"). (1) Wakashio does not propose to expand the banking or nonbanking operations of SMBC in the United States or to acquire or control any additional U.S. banks. (2)

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (68 Federal Register 5640 (2003)). 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.

SMBC, with total consolidated assets equivalent to $857.1 billion, ranks fourth among the world's commercial banks by assets. (3) Bank, SMBC's subsidiary depository institution, has total consolidated assets of $1.1 billion and controls deposits of $825.8 million, representing less than 1 percent of total deposits of insured depository institutions in California. (4) Wakashio has total assets of $4 billion and controls no U.S. depository institutions. (5)

Factors Reviewed by the Board

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. (6) 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; the convenience and needs of the community to be served, including the records of performance of the relevant insured depository institutions under the Community Reinvestment Act ("CRA"); (7) the availability of information needed to determine and enforce compliance with the BHC Act and other applicable federal banking laws; and, in the case of applications involving a foreign bank, whether the bank is subject to comprehensive supervision and regulation on a consolidated basis by its home country supervisor. (8)

The Board has considered these factors in light of a record that includes information provided by Wakashio, SMFG, and SMBC; confidential supervisory and examination information from various federal agencies; and publicly reported financial and other information. The Board also has considered information from the Financial Services Agency of Japan ("FSA"), the primary home country supervisor of SMBC. The Board notes that the FSA has issued a preliminary approval of the proposed restructuring. In addition, the Board has considered all comments received on the proposal.

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. (9) This proposal represents an internal reorganization of existing operations and would not result in either an expansion of operations or an acquisition of an additional bank in the United States. Based on all the facts of record, the Board concludes that consummation of the proposal would not have a significantly adverse effect on competition or on the concentration of banking resources in any relevant banking market.

Financial and Managerial Considerations

The Board has carefully considered the financial and managerial resources and future prospects of Wakashio, SMBC, and Bank and the effect the proposed transaction would have on such resources in light of all the facts of record, which include the examination records of Bank. The Board has also consulted with the FSA. The transaction confers some accounting and regulatory benefits in Japan under standards applied by the FSA.

No expansion or restructuring of existing U.S. operations would result from the proposed reorganization. In addition, the proposal would not materially affect the management of SMBC's operations, including its subsidiary insured depository institution, in the United States. The corporate reorganization would be effected through the exchange of shares. No debt would be issued by Wakashio, SMBC, or any of its subsidiaries as part of the transactions that would effect the reorganization. This transaction results in no substantive change in the capital of SMBC.

In this light, and based on all the facts of record, the Board concludes that the financial and managerial resources and future prospects of Wakashio, SMBC, and Bank are consistent with approval.

Convenience and Needs Factor

The Board has carefully considered the effects of the proposal on the convenience and needs of the communities to be served in light of all the facts of record, including a comment received on the proposal, information on the performance under the CRA of the relevant subsidiary insured depository institution received from the Federal Deposit Insurance Corporation ("FDIC"), publicly available data, and information submitted by Wakashio. As noted above, the U.S. operations of SMBC and Bank would remain unaffected by the proposed reorganization.

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 an institution's record of performance in light of examinations by the appropriate federal supervisor. 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. (10)

Bank received a "satisfactory" rating at its most recent CRA performance evaluation by its primary federal supervisor, the FDIC, as of October 22, 2001. (11)

In reviewing the effect of the proposal on the convenience and needs of the communities to be served, the Board has carefully considered all the facts of record, including the views of the commenter, (12) Wakashio's response, and reports of examinations of Bank's CRA performance. Based on the review of the entire record and for the reasons discussed above, the Board concludes that considerations relating to the convenience and needs factor, including the CRA performance record of the relevant depository institution, is consistent with approval.

Other Supervisory Considerations

Section 3 of the BHC Act also provides that 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. (13) The Board previously determined, in applications under the International Banking Act and the BHC Act, that certain Japanese commercial banks were subject to comprehensive consolidated supervision by their home country supervisor. (14) In this case, the Board has determined that on consummation of the transaction, New SMBC would be supervised on substantially the same terms and conditions as these banks.

In addition, section 3 of the BHC Act requires the Board to determine that a foreign bank has provided adequate assurances that it will make available to the Board such information on its operations and activities and those of its affiliates that the Board deems appropriate to determine and enforce compliance with the BHC Act. (15) The Board has reviewed the restrictions on disclosure in jurisdictions where Wakashio would have material operations and has communicated with relevant government authorities concerning access to information. Wakashio has committed that, to the extent not prohibited by applicable law, it will make available to the Board such information on the operations of New SMBC and its affiliates that the Board deems necessary to determine and enforce compliance with the BHC Act and other applicable federal law. Wakashio also has committed to cooperate with the Board to obtain any waivers or exemptions that may be necessary to enable its affiliates to make any such information available to the Board. In light of these commitments, the Board has concluded that Wakashio has provided adequate assurances of access to any appropriate information the Board may request. For these reasons, and based on all the facts of record, the Board has concluded that the supervisory factors it is required to consider under section 3(c)(3) of the BHC Act are consistent with approval.

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. 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. The Board's approval is specifically conditioned on compliance by Wakashio, SMBC, SMFG, and New SMBC with all the representations and commitments made in connection with the application, with the conditions stated or referred to in this order, and on the receipt by Wakashio of all necessary regulatory approvals. These representations, 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 banking transaction shall not be consummated before the fifteenth calendar day after the effective date of this order, and the transaction may not be consummated later than three months after the effective date of this order, unless such period is extended for good cause by the Board or by the Federal Reserve Bank of San Francisco, acting pursuant to delegated authority.

By order of the Board of Governors, effective March 14, 2003.

(1.) The merger of Wakashio and SMBC is scheduled to take place on March 17, 2003. Wakashio would be the surviving entity and would be renamed Sumitomo Mitsui Banking Corporation ("New SMBC"). Before the merger, Sumitomo Mitsui Financial Group, Inc., also in Tokyo ("SMFG") and the parent holding company of Wakashio and SMBC, plans to transfer ownership of Bank from SMBC to SMFG. SMFG has committed to promptly transfer Bank to New SMBC in accordance with required approvals and applicable waiting periods.

(2.) The Board has separately approved Wakashio's application to acquire the U.S. branches of SMBC. See The Wakashio Bank, Limited (Order dated March 14, 2003).

(3.) Asset and ranking data are as of September 30, 2002.

(4.) Asset, deposit, and state ranking data areas of June 30, 2002. In this context, depository institutions include commercial banks, savings associations, and savings banks.

(5.) Asset data are as of September 30, 2002.

(6.) A commenter has questioned the permissibility of a recently announced investment by The Goldman Sachs Group, Inc., New York, New York, in SMFG. The Board has previously reviewed this transaction and has not found that the proposal would cause Goldman to control SMFG for purposes of the BHC Act.

(7.) 12 U.S.C. [section] 2901 et seq.

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

(9.) 12 U.S.C. [section] 1842(c)(1).

(10.) See Interagency Questions and Answers Regarding Community Reinvestment, 66 Federal Register 36,620 and 36,639 (2001).

(11.) The commenter noted that Bank received a "low satisfactory" rating in its performance evaluation under the investment test. Although examiners determined that Bank had not acted in a leadership role relative to community development investments, they considered its investments to be responsive to the needs identified in Bank's assessment areas, including those neighborhoods designated as low- and moderate-income. Wakashio states that Bank has substantially improved its community development investments since the date of the last evaluation, noting that Bank currently has approximately $8.3 million in community development investments. These investments include $5 million in a CRA-qualified fund investment that closed in December 2002.

(12.) The commenter also noted that the section of the examination addressing the lending test stated that the distribution of small business loans reflected poor dispersion among businesses with gross annual revenue of $1 million or less. Bank has defined its business strategy as serving manufacturers, distributors, wholesalers, importers, and commercial real estate developers that have revenues of more than $5 million and require loans of more than $1 million. The examiners noted that Bank's business lending was well distributed in its assessment area and that almost half of the loans originated in its Los Angeles and Orange County assessment areas were made to businesses in low- and moderate-income census tracts. The examiners also stated that Bank's low loan penetration among small businesses was given less weight in the bank's overall rating because of its primary target market and business strategy.

Examiners rated Bank "high satisfactory" under the lending test, in part because they concluded that it had an outstanding record of originating and maintaining community development loans, and they described the bank as a leader in community development lending.

(13.) 12 U.S.C. [section] 1842(c)(3)(B). Under Regulation Y, the Board uses the standards enumerated in Regulation K to determine whether a foreign bank that has applied under section 3 of the BHC Act is subject to consolidated home country supervision. See 12 C.F.R. 225.13(a)(4). Regulation K provides that a foreign bank will be considered to be subject to comprehensive supervision or regulation on a consolidated basis 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 bank, including its relationship to any affiliates, to assess the bank's overall financial condition and its compliance with law and regulation. See 12 C.F.R. 211.24(c)(1).

(14.) See The Sumitomo Bank, Limited, 82 Federal Reserve Bulletin 369 (1996); Mizuho Holdings, Inc., 86 Federal Reserve Bulletin 776 (2000); UJF Holdings, Inc., 87 Federal Reserve Bulletin 270 (2001); and Mitsubishi Tokyo Financial Group, Inc., 87 Federal Reserve Bulletin 349 (2001).

(15.) See 12 U.S.C. [section] 1842(c)(3)(A).

Voting for this action: Chairman Greenspan, Vice Chairman Ferguson, and Governors Gramlich, Bies, Olson, Bernanke, and Kohn.

ROBERT DE V. FRIERSON

Deputy Secretary of the Board

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

Forest Merger Corporation

Arlington, Virginia

FBR TRS Holdings, Inc.

Arlington, Virginia

Order Approving Formation of Bank Holding Companies and Determination on Financial Holding Company Elections

Friedman, Billings, Ramsey Group, Inc., Arlington, Virginia ("FBRG"), a financial holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has submitted applications and notices on behalf of Forest Merger Corporation ("Forest") and Forest's wholly owned subsidiary, FBR TRS Holdings, Inc. ("Holdings"), under sections 3 and 4 of the BHC Act in connection with a reorganization of FBRG and its subsidiaries. Forest and Holdings (jointly, "Applicants"), which are currently owned and controlled by FBRG, have requested the Board's approval under section 3 of the BHC Act (12 U.S.C. [section] 1842) to become bank holding companies and to acquire control of FBRG, FBR Asset Investment Corporation, Arlington ("Asset"), FBR Bancorp, Inc., Arlington ("Bancorp"), a financial holding company, and FBR National Bank & Trust, Bethesda, Maryland ("Bank"). (1) On consummation of the proposal, FBRG and Asset would be merged with and into Forest, with Forest as the surviving corporation, and Forest would be renamed Friedman, Billings, Ramsey Group, Inc. ("New FBR").

As part of this proposal, Applicants have also filed elections to become financial holding companies pursuant to section 4(k) and (l) of the BHC Act (12 U.S.C. [section] 1843(k) & (l)) and section 225.82 of the Board's Regulation Y (12 C.F.R. 225.82).

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (68 Federal Register 1,851; 3,531; and 3,885 (2003)). 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.

FBRG, with total consolidated assets of $496 million, is a bank holding company that qualifies as a financial holding company and is engaged primarily in securities underwriting and dealing, securities brokerage, investment advisory, and merchant banking activities. (2) In the United States, FBRG conducts its securities and advisory activities through several subsidiaries subject to regulation by the Securities and Exchange Commission ("SEC"), including Friedman, Billings, Ramsey & Co., Inc., Arlington, a broker-dealer registered with the SEC under section 15 of the Securities Exchange Act of 1934 (15 U.S.C. [section] 780). Bank is the only bank controlled by FBRG and, with assets of $90.2 million, it is the 107th largest depository institution in Maryland. Bank controls deposits of approximately $33.4 million in the state, representing less than 1 percent of deposits in depository institutions in Maryland. (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. [section] 2901 et seq.) ("CRA") of the insured depository institutions involved in the transaction, and other supervisory factors.

The Board has considered these factors in light of a record that includes information provided by FBRG, confidential supervisory and examination information from various federal agencies, and publicly reported financial and other information. In addition, the Board has considered a public comment received on the proposal.

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 market. 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. (4) This proposal represents an internal reorganization of the existing operations of FBRG and would not result in either an expansion of operations or the acquisition of an additional bank. There is also no evidence in this case that the transaction would lessen competition or create a monopoly in any relevant market. Based on all the facts of record, the Board has determined that competitive factors are consistent with approval of the proposal.

Financial, Managerial, and Other Supervisory Considerations

The BHC Act requires the Board to consider the financial and managerial resources and future prospects of the companies and banks involved in a proposal and certain other supervisory factors. In evaluating the financial and managerial factors, the Board has reviewed confidential examination and other supervisory information evaluating the financial and managerial strength of Applicants; FBRG and its affiliates, including its regulated subsidiaries; and Bank.

After consummation of the proposal, New FBR would elect to be treated as a real estate investment trust ("REIT") under the Internal Revenue Code ("IR Code"). (5) New FBR and its subsidiaries and affiliates would continue to engage only in activities that are permissible for a financial holding company under section 4(k) of the BHC Act.

Certain requirements applicable to New FBR under the IR Code might limit its ability to serve as a source of financial strength to Bank, because the requirements may limit the amount of capital available to a bank subsidiary of a bank holding company that is organized as a REIT. (6) Applicants note, however, that New FBR may downstream capital to Holdings and retain income earned at the Holdings level to support the operations of Bank. (7)

Applicants have also stated that, for a variety of business reasons unrelated to the BHC Act requirements, Applicants intend to discontinue being financial holding companies and to limit the activities of Bank to those of a limited-purpose trust company. In particular, Applicants have committed that, within six months of consummation of the proposed reorganization, Bank will limit its operations so that it no longer meets the definition of a bank under section 2(c)(1) of the BHC Act. New FBR would then cease to be a bank holding company.

Bank is currently well capitalized under relevant federal guidelines, and all the subsidiaries of FBRG that are subject to regulatory capital requirements exceed the required minimum capital levels. The Board notes that after accounting for certain requirements under the IR Code, New FBR would have, pro forma, more than adequate capital to support the ongoing operations of Bank for six months.

The Board has carefully considered the financial and managerial resources of Applicants and Bank in light of all the facts of record, including commitments made by Applicants, and has concluded that considerations relating to the financial and managerial resources and future prospects of the organizations involved are consistent with approval, as are other supervisory factors.

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 CRA. (8) 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 the credit needs of its entire community, include low- and moderate-income neighborhoods, in evaluating bank holding company formation proposals. The Board has, therefore, 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 a comment received on the proposal, and the records of the relevant depository institutions under the CRA. (9)

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. In this case, the Board notes that the proposal would effect a corporate reorganization and would not result in an expansion of operations or the acquisition of an additional bank. In addition, FBRG holds a small number of shares as a passive minority investor in several depository institutions over which it exercises no control.

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 that institution. 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. (10)

The Board has reviewed in detail Bank's record of performance under the CRA, as well as information presented by Applicants related to the convenience and needs factor. Before its acquisition by FBRG, Bank, then doing business as Rushmore Trust and Savings, FSB ("Rushmore"), received an overall rating of "satisfactory" from its primary federal supervisor, the Office of Thrift Supervision ("OTS"), at its most recent evaluation for CRA performance, as of June 1999. (11)

Each of the institutions in which Applicants would have an investment of less than 10 percent also received a "satisfactory" or better rating from its federal supervisory agency in its most recent examination for CRA performance. (12) Moreover, examiners found no evidence of prohibited discrimination, other illegal credit practices, or violations of the fair lending laws at any of the depository institutions involved in the proposal.

Based on all the facts of record, the Board has concluded that considerations related to the convenience and needs of the communities to be served, including the CRA performance records of the institutions involved, are consistent with approval.

Nonbanking Activities

In connection with the reorganization, Applicants have also filed notices under section 4(c)(8) and (j) of the BHC Act to retain interests of greater than 5 percent of the voting shares of three savings and loan associations held by FBRG and thereby engage in operating savings and loan associations. (13) To approve the notices, the Board must determine that the proposed acquisitions may 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. (14)

FBRG has indicated that it expects the proposal would improve the financial position and future business prospects of the organization. The proposal also represents a reorganization of FBRG, and would not entail the acquisition of any new banking interests or commencement of any new nonbanking activities. Therefore, the Board has concluded that the conduct of the proposed nonbanking activities within the framework established in this order, prior orders, and Regulation Y is unlikely to result in any of the adverse effects noted above that would not be outweighed by the public benefits of the proposal, such as gains in efficiency.

Accordingly, based on all the facts of record, the Board has determined that the balance of public interest factors that it must consider under the standard of section 4(j) of the BHC Act is favorable and consistent with approval.

Conclusion Regarding Bank Holding Company Formation

Based on the foregoing, the Board has determined that the applications and notices should be, and hereby are, approved. (15) 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.

The Board's approval is specifically conditioned on compliance by Applicants with all the commitments made in connection with the applications and notices. 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 banking acquisitions 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 periods are extended for good cause by the Board or the Federal Reserve Bank of Richmond, acting pursuant to delegated authority.

Financial Holding Company Elections

Applicants have also filed with the Board elections to become financial holding companies pursuant to section 4(k) and (l) of the BHC Act and section 225.82 of Regulation Y. Applicants have certified that Bank is well capitalized and well managed and have provided all the information required under Regulation Y.

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 these elections to become financial holding companies will become effective on consummation of the proposal, if on that date Bank remains well capitalized and well managed and has at least a satisfactory CRA rating.

By order of the Board of Governors, effective March 14, 2003.

(1.) In connection with the reorganization, Applicants have also requested the Board's approval under section 3 to acquire interests in the following banks: 5.2 percent of the voting shares of ITLA Capital Corporation, a bank holding company that controls Imperial Capital Bank, both in La Jolla, California; voting authority over 5.58 percent of the voting shares of Pacific Crest Capital, Inc., a bank holding company that controls Pacific Crest Bank, both in Agoura Hills, California; voting authority over 5.77 percent of the voting shares of Hingham Institution for Savings, Hingham, Massachusetts; voting authority over 9.7 percent of the voting shares of Bancorp Rhode Island, Inc., Providence, a bank holding company that controls Bank Rhode Island, East Providence, both in Rhode Island; voting authority over 5.1 percent of the voting shares of The Banc Corporation, Birmingham, a bank holding company that controls The Bank, Warrior, both in Alabama; and voting authority over approximately 5.1 percent of the voting shares of Pacific Union Bank, Los Angeles, California.

Applicants have also requested the Board's permission under section 4 to acquire interests in the following savings associations: voting authority over 5.74 percent of the voting shares of First Bell Bancorp, Inc., Pittsburgh, parent company of Bell Federal Savings and Loan Association, Bellevue, both in Pennsylvania; voting authority over 5.67 percent of the voting shares of Quaker City Bancorp, Inc., parent company of Quaker City Bank, both in Whittier, California; and voting authority over 6.1 percent of the voting shares of Hawthorne Financial Corporation, parent company of Hawthorne Savings, F.S.B., both in El Segundo, California.

(2.) Asset data for FBRG are as of September 30, 2002.

(3.) Asset data for Bank are as of December 31, 2002. Deposit and ranking data are as of June 30, 2002.

(4.) 12 U.S.C. [section] 1842(c)(1).

(5.) See 12 U.S.C. [subsection] 856--860.

(6.) Under the IR Code, the amount of non-REIT assets that a REIT may hold in a taxable REIT subsidiary, which is subject to taxation at ordinary corporate rates, is limited to 20 percent of the REIT's total assets. See 12 U.S.C. [section] 856(c). A REIT is also required to distribute 90 percent of its net income to its shareholders each year. See 12 U.S.C. [section] 857(a). Holdings, which would be the parent of Bancorp and Bank, would be organized as a taxable REIT subsidiary.

(7.) Applicants note that income earned by a taxable REIT subsidiary is not subject to the mandatory distribution requirement until paid as a dividend to the REIT Moreover, funds invested by a REIT in its taxable REIT subsidiary are not subject to the mandatory distribution requirement.

(8.) See 12 U.S.C. [section] 2903(a)(2).

(9.) The commenter expressed concern about several institutions in which Applicants would hold less than a 10 percent voting interest by asserting that Home Mortgage Disclosure Act (12 U.S.C. [section] 2801 et seq.) ("HMDA") data reported by Hingham Institution for Savings ("Hingham") and Bell Federal Savings and Loan Association ("Bell") revealed a pattern of excluding African-American and Hispanic communities and individuals in the Boston, Massachusetts, and Pittsburgh, Pennsylvania, Metropolitan Statistical Areas ("MSA"). The commenter also made a similar allegation based on a review of the HMDA data of Pacific Crest Mortgage Company for loans made in the Riverside County, California, MSA. Pacific Crest Mortgage is not affiliated with any company involved in this proposal.

The commenter also objected to one institution's participation in a loan program based on anticipated tax refunds. The Board notes that neither FBRG nor its subsidiaries or affiliates makes this type of loan.

(10.) 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 66 Federal Register 36,620 and 36,639 (2001).

(11.) Rushmore converted to a national bank immediately prior to its acquisition by FBRG in 2001.

(12.) These institutions received the following ratings from the federal supervisors as of the dates indicated: (1) Hingham, "satisfactory," Federal Deposit Insurance Corporation ("FDIC"), January 2001; (2) Bell, "satisfactory," OTS, June 2001; (3) Imperial Capital Bank, "satisfactory," FDIC, March 2001; (4) Pacific Crest Bank, "satisfactory," FDIC, September 2002; (5) Quaker City Bank, "outstanding," OTS, June 2001; (6) Hawthorne Savings Bank, F.S.B., "outstanding," OTS, July 2002; (7) Bank Rhode Island, "satisfactory," FDIC, July 2002; (8) The Bank, "satisfactory," Federal Reserve Bank of Atlanta, September 2001; and (9) Pacific Union Bank, "outstanding," FDIC, April 2001.

(13.) The Board has previously determined that operating a savings association is closely related to banking for purposes of section 4(c)(8) of the BHC Act. See 12 C.F.R. 225.28(b)(4)(ii).

(14.) See 12 U.S.C. [section] 1843(j)(2)(A).

(15.) The commenter requested that the Board hold a 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 of the application. The Board has not received such a recommendation from the appropriate supervisory authority. The Board's regulations provide for a hearing under section 4 of the BHC Act if there are disputed issues of material fact that cannot be resolved in some other manner. 12 C.F.R. 225.25(a)(2). Under its roles, 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 commenter's request 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, the commenter has submitted a written comment that the Board has considered carefully in acting on the proposal. The request fails to identify disputed issues of fact that are material to the Board's decision that would be clarified by a public meeting or hearing. Moreover, the commenter's request fails to demonstrate why its written comments do not present its views adequately or why a meeting or hearing would otherwise be necessary or appropriate. 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 for a hearing on the proposal is denied.

Voting for this action: Chairman Greenspan, Vice Chairman Ferguson, and Governors Gramlich, Bies, Olson, Bernanke, and Kohn.

ROBERT DE V. FRIERSON

Deputy Secretary of the Board

M&T Bank Corporation

Buffalo, New York

Order Approving the Acquisition of a Bank Holding Company, Merger of Banks, and Establishment of Branches

M&T Bank Corporation ("M&T"), 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. [section] 1842) to merge with Allfirst Financial Inc. ("Allfirst") and thereby acquire Allfirst's subsidiary banks, including its lead subsidiary bank, Allfirst Bank, both in Baltimore, Maryland. (1) In addition, M&T has requested the Board's approval under section 4(c)(8) and (j) of the BHC Act (12 U.S.C. [section] 1843(c)(8) and (j)) and section 225.24 of the Board's Regulation Y (12 C.F.R. 225.24) to acquire the nonbanking subsidiaries of Allfirst. (2) M&T also has filed notice under section 4(c)(13) of the BHC Act (12 U.S.C. [section] 1843(c)(13)) and subpart A of the Board's Regulation K (12 C.F.R. 211, subpart A) to acquire certain foreign investments controlled by Allfirst.

M&T's lead bank, Manufacturers and Traders Trust Company, also in Buffalo ("Trust Company"), a state member bank, has applied under section 18(c) of the Federal Deposit Insurance Act (12 U.S.C. [section] 1828(c)) (the "Bank Merger Act") to merge with Allfirst Bank, with Trust Company as the surviving institution. In addition, Trust Company proposes to retain and operate branches at the locations of the main office and branches of Allfirst Bank, (3) including Allfirst Bank's foreign branch in George Town, Cayman Islands.

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published in accordance with the BHC Act, the Bank Merger Act, and the Board's Rules of Procedure (12 C.F.R. 262.3(b)) in the Federal Register (67 Federal Register 69,223 (2002)) and locally. As required by the Bank Merger Act, reports on the competitive effects of the merger were requested from the United States Attorney General, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency. 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, the Bank Merger Act, and the statutory provisions that govern the retention and operation of interstate branches.

M&T, with total consolidated assets of $34.1 billion, is the 33rd 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 ("total banking assets"). (4) M&T operates banks in Maryland, New York, Pennsylvania, and West Virginia. M&T is the sixth largest banking organization in New York, controlling deposits of $15.7 billion, representing approximately 3 percent of total deposits in depository institutions in the state ("state deposits"). (5) M&T is the sixth largest banking organization in Pennsylvania, controlling deposits of $4.5 billion, representing approximately 2.4 percent of state deposits, and the seventeenth largest banking organization in Maryland, controlling deposits of $470 million, representing less than 1 percent of state deposits.

Allfirst, with total consolidated assets of $18.3 billion, is the 46th largest commercial banking organization in the United States, controlling less than 1 percent of total banking assets. The banks owned by Allfirst operate in Delaware, the District of Columbia, Maryland, Pennsylvania, and Virginia. Allfirst is the second largest banking organization in Maryland, controlling deposits of $7.5 billion, representing approximately 10.6 percent of state deposits, and the eighth largest banking organization in Pennsylvania, controlling deposits of $3.6 billion, representing approximately 1.9 percent of state deposits.

After consummation of the proposal, M&T would become the 22nd largest commercial banking organization in the United States, with total consolidated assets of $52.4 billion, representing less than 1 percent of total banking assets. M&T would remain the sixth largest banking organization in Pennsylvania, controlling deposits of $8.1 billion, representing approximately 4.3 percent of state deposits, and the second largest banking organization in Maryland, controlling deposits of approximately $8 billion, representing approximately 11.3 percent of state deposits. (6)

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. 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, after 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)

For purposes of the BHC Act, the home state of M&T is New York, the home state of Allfirst is Maryland, and Allfirst's subsidiary banks are located in Delaware, the District of Columbia, Maryland, Pennsylvania, and Virginia. (9) On consummation of the proposal, M&T would control less than 1 percent of the total deposits of insured depository institutions in the United States. (10) M&T would control less than 30 percent of total deposits held by insured depository institutions in Maryland or Pennsylvania, the only states in which both M&T and Allfirst operate banks. (11)

All other requirements of section 3(d) of the BHC Act are met. M&T is adequately capitalized and adequately managed, as defined by applicable law. In addition, Allfirst's subsidiary banks have been in existence for the minimum age requirements established by applicable state law. (12) Based on a review of all the facts of record, including a review of relevant state statutes, the Board finds that all conditions for an interstate acquisition enumerated in section 3(d) are met in this case. 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 Factors

The Bank Merger Act and section 3 of the BHC Act prohibit the Board from approving a proposal that would result in a monopoly or be in furtherance of a monopoly. (13) The acts also prohibit 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. (14)

M&T and Allfirst compete directly in seven banking markets. (15) 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 M&T and Allfirst in the markets ("market deposits"), (16) 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 Merger Guidelines ("DOJ Guidelines"), (17) and other characteristics of the markets.

Consummation of the proposal would be consistent with Board precedent and the DOJ Guidelines in all relevant banking markets. After consummation of the proposal, one market would remain unconcentrated and six markets would remain moderately concentrated as measured by the HHI. The Department of Justice has reviewed the proposal and advised the Board that its consummation would not likely have a significantly adverse effect on competition in any relevant banking market. In addition, no banking agency has indicated that the proposal raises competitive issues. Based on these and all the facts of record, the Board concludes that consummation of the proposal is not likely to result in any significantly adverse effects on competition or on the concentration of banking resources in the banking markets noted above or in any other relevant banking market.

Financial, Managerial, and Other Supervisory Factors

The Bank Merger Act and section 3 of the BHC Act also require that the Board consider the financial and managerial resources and future prospects of the organizations involved in a proposal as well as certain other supervisory factors under the BHC Act. (18) The Board has considered carefully the financial and managerial resources and future prospects of M&T, Allfirst, and their respective subsidiary banks and other supervisory factors in light of all the facts of record, including comments received on the proposal, reports of examination and other confidential supervisory information assessing the financial and managerial resources of the organizations, and information provided by M&T and Allfirst. 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, as are the other supervisory factors that the Board must consider under section 3 of the BHC Act.

Convenience and Needs Factor

In acting on proposals under the Bank Merger Act and 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. (19) The Community Reinvestment Act (12 U.S.C. [section] 2901 et seq.) ("CRA") requires that each insured depository institution be assessed on its record of meeting the credit needs of its entire community, including low- and moderate-income ("LMI") neighborhoods, consistent with safe and sound operation of the institution. The CRA requires the Board, in evaluating proposals under the Bank Merger Act and section 3 of the BHC Act, to take into account the CRA performance records of the insured depository institutions involved. (20) The Board has carefully considered the convenience and needs factor and the CRA performance records of each subsidiary bank of M&T and Allfirst in light of all the facts of record, including public comments on the proposal.

A. Summary of Public Comments

Two commenters submitted letters about the proposal. One commenter contended, based on data submitted under the Home Mortgage Disclosure Act (12 U.S.C. [section] 2801 et seq.) ("HMDA"), that M&T engaged in disparate treatment of minority individuals in home mortgage lending, and that M&T denied loan applications from minorities more frequently than it denied applications from nonminorities. The other commenter asserted that M&T's branch distribution in the New York Consolidated Metropolitan Statistical Area ("CMSA") was inadequate, and that although 30 percent of the tracts in the assessment area were LMI tracts, only 14 percent of M&T's branches were in LMI tracts. That commenter also expressed concern about M&T's commitment to retaining branches in New York City's LMI neighborhoods.

B. CRA Performance Examinations

An institution's most recent CRA performance evaluation is a particularly important consideration in the applications process because it represents a detailed evaluation of the institution's overall record of performance under the CRA by its appropriate federal supervisor. (21) Both of M&T's subsidiary banks received ratings of "satisfactory" or better in the most recent examinations of their CRA performance. Trust Company, which accounts for approximately 98 percent of the total consolidated assets of M&T, received an "outstanding" rating from the Federal Reserve Bank of New York, as of June 2002 ("2002 Evaluation"). Trust Company also received an "outstanding" rating from the New York State Banking Department, as of April 2000. M&T Bank, National Association, Oakfield, New York, received a "satisfactory" rating from the Office of the Comptroller of the Currency, as of January 2000.

Allfirst Bank received a "satisfactory" rating from the Federal Reserve Bank of Richmond, as of January 2001 ("2001 Evaluation"). (22) M&T has stated that it intends to retain Allfirst Bank's CRA program and structure after consummation of the proposal to assist M&T in ascertaining the needs of the communities served by Allfirst.

C. CRA Performance of Trust Company

Overview: In the 2002 Evaluation, (23) Trust Company received "outstanding" ratings under the lending, investment, and service performance tests. (24) Examiners characterized the level of Trust Company's responsiveness to retail credit needs in its assessment areas as excellent. Trust Company and its affiliates originated and purchased more than $4.3 billion of HMDA-reportable loans during the review period. Examiners concluded that Trust Company's lending was good in terms of overall geographic distribution and distribution to borrowers of different income levels.

Examiners stated that Trust Company offered a number of innovative and flexible lending products to increase lending in LMI geographies and to LMI borrowers, including Federal Housing Administration ("FHA") mortgages, which were offered throughout Trust Company's assessment areas. During the review period, Trust Company made 674 mortgage loans totaling $40 million through a program that featured below-market interest rates, reduced down-payment requirements, and other favorable terms.

Trust Company made more than 19,800 small business loans during the review period, totaling more than $2.5 billion. (25) Examiners noted that Trust Company had a good distribution of loans to businesses of different sizes throughout its assessment areas.

Examiners characterized Trust Company's community development lending performance as excellent. During the evaluation period, Trust Company extended qualified community development loan commitments totaling $294 million and issued $35 million in letters of credit for affordable housing and other community development purposes. Examiners concluded that Trust Company's $92 million in loan commitments to LMI healthcare facility projects for the elderly indicated a high level of responsiveness to community credit needs in light of the large elderly population in many of Trust Company's assessment areas.

Examiners stated that Trust Company's community development investments exhibited excellent responsiveness to the most urgent credit and community development needs in its assessment areas. Trust Company's qualified investments totaled $56 million, including investments of $40 million during the evaluation period. Examiners reported that $7 million in investments were for revitalizing inner cities, which examiners described as a critical need in Trust Company's assessment areas in upstate New York. Examiners also noted grants totaling $1.1 million to a school in an LMI area, which examiners considered to be a nonroutine investment.

Examiners concluded that Trust Company's branches were readily accessible to all portions of its assessment areas. (26) Examiners stated that Trust Company also enhanced distribution of banking services through ATMs, on-line banking, telephone banking, and other alternative delivery systems. They further noted that Trust Company offered Lifeline Checking Accounts, an electronic benefits transfer program, low-fee checking accounts for nonprofit organizations, and other products designed to directly or indirectly assist LMI individuals.

Examiners described Trust Company as a leader in providing community development services. During the review period, Trust Company employees participated in more than 400 workshops, seminars, and conferences throughout its assessment areas and provided technical assistance to more than 100 organizations that addressed the needs of LMI individuals and communities. Trust Company also participated in the Federal Home Loan Bank Affordable Housing Program by sponsoring 24 grant applications to construct and rehabilitate housing for LMI individuals.

New York. In the 2002 Evaluation, Trust Company received an "outstanding" rating under the lending test in its New York assessment areas. (27) During the review period, Trust Company originated or purchased HMDA-reportable loans in New York totaling more than $3.36 billion. Examiners reported that in 2000, Trust Company's 3 percent market share of deposits in its assessment areas compared favorably with its 3 percent market share of all HMDA-reportable loans originated or purchased in New York State.

Examiners concluded that the distribution of Trust Company's HMDA-reportable loans among borrowers of different income levels was good, as was the geographic distribution of its lending. Examiners stated that Trust Company's distribution of HMDA-reportable loans to low-income borrowers was adequate and consistent with available lending opportunities, which had been limited by economic conditions and by disparities between housing prices and income levels. (28) Examiners characterized Trust Company's distribution of HMDA-reportable loans to moderate-income borrowers as good. To assist LMI borrowers in New York, Trust Company offered loans through the Federal National Mortgage Association (Fannie Mae) "Get Started" program, as well as FHA mortgages and flexible mortgages through the State of New York Mortgage Association.

During the review period, Trust Company originated and purchased nearly 16,000 small business or small farm loans in New York, totaling almost $2 billion. Examiners stated that Trust Company's distribution of loans among businesses of different sizes was good.

Examiners described Trust Company's community development lending performance as excellent. (29) Trust Company's loan commitments in New York during the review period totaled $246 million, and Trust Company also provided $30 million in letters of credit. Examiners reported that Trust Company's community development lending for affordable housing, an identified credit need in Trust Company's assessment areas, totaled $136 million.

In the 2002 Evaluation, Trust Company received an "outstanding" rating under the investment test in its New York assessment areas. Examiners stated that Trust Company's level of qualified community development investments, which totaled $44 million, exhibited excellent responsiveness to credit and community development needs in New York. More than $20 million of the investments were invested on a statewide basis, including $10 million in collateral trust notes to develop affordable housing, $5 million in mortgage-backed securities to fund loans to LMI borrowers, and $4 million to community development organizations. Examiners reported that Trust Company also invested $2 million in projects qualifying for low-income housing tax credits and contributed $4 million to support charitable community development projects and programs.

Trust Company received an "outstanding" rating under the service test in the New York assessment areas. Examiners stated that Trust Company's branches were readily accessible to all geographies and to individuals of different income levels and that variations in products and services did not inconvenience LMI individuals or customers in LMI geographies. Examiners also reported that Trust Company organized or participated in many workshops on affordable housing and financial literacy. In addition, Trust Company employees served on the boards and committees of organizations that addressed the needs of LMI individuals and communities. Pennsylvania. Examiners noted that during the review period, Trust Company significantly expanded its presence in Pennsylvania as a result of Trust Company's merger in October 2000 with Keystone Financial Bank, National Association, Harrisburg, Pennsylvania. (30) Accordingly, Trust Company was engaged in integrating and developing products, systems, and staff during the review period.

The 2002 Evaluation rated Trust Company's performance under the lending test as "high satisfactory" in its Pennsylvania assessment areas. During the review period, Trust Company originated or purchased HMDA-reportable loans in Pennsylvania totaling more than $757 million. Examiners concluded that the geographic distribution of Trust Company's HMDA-reportable loans was good, as was distribution among borrowers of different income levels. Examiners characterized Trust Company's distribution of HMDA-reportable loans to moderate-income borrowers as good and its distribution to low-income borrowers as adequate. During the review period, Trust Company made 286 home purchase loans in Pennsylvania through its Opportunity Loan program, which focuses on LMI borrowers and features reduced down-payment requirements, prepurchase counseling, and options for financing closing costs.

During the review period, Trust Company originated and purchased more than 2,100 small business loans in Pennsylvania, totaling more than $247 million. Examiners reported that Trust Company's distribution of loans among businesses of different sizes was good.

Examiners described Trust Company's community development lending performance as good. Trust Company's loan commitments totaled $43 million, and Trust Company also provided $5 million in letters of credit to support economic development. Examiners noted that Trust Company's lending commitments for affordable housing totaled $16 million and that its commitments for economic development totaled $26 million.

In the 2002 Evaluation, Trust Company received an "outstanding" rating under the investment test in its Pennsylvania assessment areas. Examiners stated that Trust Company's level of qualified community development investments, which totaled $11.4 million, demonstrated strong responsiveness to credit and community development needs. Examiners favorably cited Trust Company's $2.3 million investment in a small business investment company that financed small- and medium-sized manufacturing, distribution, and service companies in eastern Pennsylvania. Examiners also noted that Trust Company's investments in agencies engaged in community revitalization totaled $1.5 million and that its grants to community development organizations totaled more than $1 million.

Trust Company received an "outstanding" rating under the service test in the Pennylvania assessment areas. Examiners stated that Trust Company's branches were readily accessible to all geographies and to individuals of different income levels and that variations in products and services did not inconvenience LMI individuals or customers in LMI geographies. Examiners also reported that Trust Company organized or participated in many workshops on affordable housing and financial literacy. In addition, Trust Company employees served on the boards and committees of organizations that addressed the needs of LMI individuals and communities.

D. CRA Performance of Allfirst Bank

In the 2001 Evaluation, Allfirst Bank received "high satisfactory" ratings under the lending, investment, and service performance tests. (31) Allfirst Bank originated and purchased HMDA-reportable loans totaling more than $750 million in its assessment areas during the review period. Examiners concluded that the overall distribution of loans to borrowers of different income levels was good, and loan penetration for LMI geographies ranged from good to excellent in Allfirst Bank's assessment areas.

Examiners noted that Allfirst Bank assisted LMI borrowers in obtaining affordable housing by offering FHA and Department of Veterans Affairs ("VA") loans and other mortgage loans through state and local affordable housing programs. In 2000, Allfirst Bank originated 459 mortgage loans through these programs, totaling $93.4 million.

Allfirst Bank made more than 6,100 small business loans in its assessment areas during the review period, totaling more than $695 million. Examiners stated that the bank's record of lending to businesses of different sizes ranged from adequate to good, while its small business loan penetration for LMI geographies ranged from good to excellent. Examiners noted that Allfirst Bank originated 108 Small Business Administration loans, totaling $21 million during 2000. Examiners reported that Allfirst Bank made a relatively high level of community development loans during the review period, totaling almost $101 million.

Allfirst Bank's qualified community development investments during the review period consisted primarily of investments in projects qualifying for low-income housing tax credits. Examiners noted that the bank had created the Allfirst Affordable Housing Fund, which promoted affordable housing by facilitating investment in projects qualifying for low-income housing tax credits and by providing bridge financing to developers. During the review period, Allfirst Bank also made community development grants and contributions totaling $3.3 million.

Examiners considered Allfirst Bank's branch and ATM locations to be readily accessible to all portions of the bank's assessment areas. Examiners also noted that Allfirst Bank provided affordable homebuying workshops and seminars and counseling to small business owners.

E. HMDA Data

The Board also has considered M&T's lending record in light of comments on the 2001 HMDA data reported by M&T's subsidiaries. The Board notes that 2001 HMDA data indicate that M&T's denial disparity ratio for Hispanic applicants was higher than the denial disparity ratio for the aggregate lenders in five of the six MSAs reviewed. (32) In addition, M&T's denial disparity ratio for African Americans was higher than the denial disparity ratios for aggregate lenders in the two MSAs in which, of the six MSAs reviewed, M&T made most of its mortgage loans. The data reviewed also indicate that the percentages of M&T's total HMDA-reportable loans to African-American and Hispanic individuals in 2001 were below the percentages for the aggregate lenders in three MSAs and above the percentages for the aggregate lenders in three MSAs. (33) Finally, the percentage of M&T's total HMDA-reportable loans to LMI individuals in 2001 exceeded the percentage for the aggregate lenders in five of the six MSAs reviewed.

The Board is concerned when an institution's record 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 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. HMDA data, moreover, provide only limited information about the covered loans. (34) 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 community's credit needs or has engaged in illegal lending discrimination.

Because of the limitations of HMDA data, the Board has carefully considered the data and comments in light of other information. Examiners conducting a fair lending review of Trust Company in connection with the 2002 Evaluation reviewed loan applications from the Buffalo MSA and found that credit criteria were consistently applied to all applicants regardless of race. Examiners discovered no evidence of prohibited discrimination or other illegal credit practices. The Board has also considered the HMDA data in light of the overall lending records of M&T and Allfirst. Those records, which include the programs discussed above, show that the organizations' subsidiary banks make credit available to all applicant groups and significantly help to meet the credit needs of their communities, including LMI areas.

F. Conclusion on the Convenience and Needs Factor

In reviewing the proposal's effect on the convenience and needs of the communities to be served by the combined organization, the Board has carefully considered the entire record, including the public comments received and reports of examinations of the CRA performance of the institutions involved. 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.

Nonbanking Activities

M&T also has filed notice under section 4(c)(8) and (j) of the BHC Act to acquire nonbanking subsidiaries of Allfirst. The Board has determined by regulation that the types of activities for which notice has been provided are closely related to banking for purposes of section 4(c)(8) of the BHC Act and, therefore, permissible for bank holding companies. (35) M&T has committed to conduct the nonbanking activities in accordance with the Board's regulations and orders governing these activities for bank holding companies.

To approve this notice, the Board must determine that the proposed activities "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." (36)

As part of its evaluation of the public interest factors, the Board considered the financial condition and managerial resources of M&T and its subsidiaries, including the companies to be acquired, and the effect of the proposed transaction on those resources. For the reasons noted above, and based on all the facts of record, the Board has concluded that financial and managerial considerations are consistent with approval of the proposal.

The Board also has considered the competitive effects of the proposed transaction under section 4 of the BHC Act. To the extent that M&T and Allfirst offer different types of nonbanking products or services, the proposal would not result in a significant loss of competition. M&T and Allfirst compete directly in the following activities: originating and servicing capital equipment leases, providing credit-related insurance, providing commercial real estate lending services, and providing financial and investment advisory services. The markets for these nonbanking activities are regional, national, or international in scope and are unconcentrated. The record in this case also indicates that there are numerous providers of these services. Based on all the facts of record, the Board concludes that consummation of the proposal would have a de minimis effect on competition for the relevant nonbanking activities.

M&T has indicated that consummation of the proposal would provide customers of the two organizations with access to services across a broader geographic area. M&T also has asserted that customers of both organizations would gain access to a broader variety of nonbanking products, including investment products and insurance products.

The Board concludes that the conduct of the proposed nonbanking activities within the framework of Regulation Y and Board precedent is not likely to result in adverse effects, such as undue concentration of resources, conflicts of interests, or unsound banking practices, that would outweigh the public benefits of the proposal discussed above. 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 in section 4(j) of the BHC Act is consistent with approval of M&T's notice.

Trust Company also intends to operate Allfirst's existing limited-purpose foreign branch in George Town, Cayman Islands, under section 25 of the Federal Reserve Act and the general consent provisions of section 211.3(b) of Regulation K (12 C.F.R. 211.3(b)). Trust Company has made certain commitments in connection with this acquisition. In addition, M&T has provided notice under section 4(c)(13) of the BHC Act (12 U.S.C. [section] 1843(c)(13)) and section 211.9 of the Board's Regulation K (12 C.F.R. 211.9)) of its intention to acquire certain foreign investments controlled by Allfirst. (37) The Board has concluded that all the factors it is required to consider under the Federal Reserve Act, the BHC Act, and the Board's Regulation K in connection with this notice are consistent with approval.

Conclusion

Based on the foregoing, and in light of all the facts of record, the Board has determined that the applications and notices should be, and hereby are, approved. (38) In reaching its conclusion, the Board has considered all the facts of record in light of the factors it is required to consider under the BHC Act, the Bank Merger Act, the Federal Reserve Act, and the statutory factors it is required to consider when reviewing an application for retaining and operating branches. (39) The Board's approval is specifically conditioned on compliance by M&T with all the commitments made in connection with these applications and notices and with the conditions stated of referenced in this order. The Board's determination on the nonbanking activities also is subject to all the terms and conditions set forth in Regulation Y, including those in sections 225.7 and 225.25(c) (12 C.F.R. 225.7 and 225.25(c)), and 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 thereunder. 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 banking acquisitions 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 New York, acting pursuant to delegated authority.

By order of the Board of Governors, effective March 11, 2003.

(1.) Allfirst's other subsidiary bank is Allfirst Financial Center, N.A., Millsboro, Delaware ("Allfirst Delaware"). M&T would acquire Allfirst from Allied Irish Banks, p.l.c., Dublin, Ireland ("Allied Irish"), in exchange for shares of M&T and other consideration. Allied Irish has filed a related application to acquire the shares of M&T By order dated today, the Board has approved the Allied Irish proposal. Allied Irish Banks, p.l.c. (Order dated March 11, 2003).

(2.) The nonbanking subsidiaries are listed in Appendix A.

(3.) See 12 U.S.C [subsection] 321, 601, and 1831u. The branches are listed in Appendix B.

(4.) Asset data are as of September 30, 2002.

(5.) Unless otherwise noted, depository institutions include commercial banks, savings banks, and savings associations. Deposit data are as of June 30, 2002.

(6.) M&T does not currently control deposits in Delaware, the District of Columbia, or Virginia, so the percentage of deposits in those states would not increase on consummation of this proposal.

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

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

(9.) A bank holding company's home state is the 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. [section] 1841(o)(4)(C). For purposes of section 3(d) of the BHC Act, the Board considers a bank to be located in the states in which the bank is chartered, headquartered, or operates a branch.

(10.) Data are as of June 30, 2002.

(11.) Maryland's deposit cap is the same as that set forth in section 3(d)(2)(B) of the BHC Act. See Md. Code Ann., Fin. Inst. [section] 5-906(b) (Michie 2001) (30 percent). Pennsylvania does not have a deposit cap applicable to the proposal.

(12.) Pursuant to 12 U.S.C. [section] 1842(d)(1)(B)(ii), the applicable age requirement for the District of Columbia is five years. See D.C. Code Ann. [section] 26-706.01(a). Delaware, Maryland, Pennsylvania, and Virginia do not have minimum age requirements applicable to the proposal. The Board also has taken into account M&T's record of compliance with applicable state community reinvestment laws.

(13.) 12 U.S.C. [subsection] 1828(c)(5)(A) and 1842(c)(1)(A).

(14.) See 12 U.S.C. [subsection] 1828(c)(5)(B) and 1842(c)(1)(B).

(15.) The markets are described in Appendix C. The proposal's effects on the concentration of banking resources in them are discussed in Appendix D.

(16.) Deposit and market share data are based on annual branch reports filed as of June 30, 2002, and on calculations in which the deposits of thrift institutions are included at 50 percent. The Board has previously 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 on a 50 percent weighted basis. See, e.g., First Hawaiian, Inc., 77 Federal Reserve Bulletin 52 (1991).

(17.) Under the DOJ Guidelines, 49 Federal Register 26,823 (1984), a market is considered unconcentrated if the post merger HHI is under 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 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.

(18.) 12 U.S.C. [subsection] 1828(c)(5) and 1842(c).

(19.) 12 U.S.C. [subsection] 1828(c)(5) and 1842(c)(2).

(20.) 12 U.S.C. [subsection] 2903(a)(2) and 2902(4).

(21.) See Interagency Questions and Answers Regarding Community Reinvestment, 66 Federal Register 36,620 and 36,639 (2001).

(22.) Allfirst Delaware does not grant credit to the public in the ordinary course of business, and it is treated as a special purpose bank that is not subject to evaluation under the CRA. See 12 C.F.R. 25.11 (b)(3).

(23.) The 2002 Evaluation covered a review period of January 1, 2000, through December 31, 2001.

(24.) Trust Company elected to have the Federal Reserve Bank of New York ("FRBNY") consider the lending activity in its assessment areas by certain Trust Company subsidiaries and affiliates, including M&T Mortgage Corporation and M&T Real Estate, Inc., both in Buffalo, New York, and subsidiaries of Trust Company, and M&T Bank, National Association, a direct subsidiary of M&T.

(25.) For purposes of this analysis, small business loans are business loans with an original amount of $1 million or less.

(26.) One commenter referred to portions of the previous CRA evaluation of Trust Company, as of June 2000 ("2000 Evaluation"), which assessed Trust Company's branch distribution as weak in service to LMI census tracts in the New York-Northern New Jersey-Long Island-Connecticut Consolidated Metropolitan Statistical Area ("New York CMSA"). The 2002 Evaluation rated Trust Company as "outstanding" for its performance under the service test in the New York CMSA. The 2002 Evaluation noted that an increased percentage of Trust Company's branches in the New York CMSA were in LMI census tracts compared with 2000, and that a number of branches were contiguous to LMI census tracts in the New York CMSA. Examiners also reported in the 2002 Evaluation that Trust Company's alternative delivery systems enhanced its distribution of banking services in the New York CMSA.

(27.) Trust Company's New York assessment areas in the 2002 Evaluation consisted of a portion of the New York CMSA; the Buffalo-Niagara Falls, Rochester, Albany-Schenectady-Troy, Utica-Rome, Binghamton, and Jamestown Metropolitan Statistical Areas ("MSAs"); portions of the Syracuse and Elmira MSAs; Seneca, Tompkins, Wyoming, Cattaraugus, Sullivan, and Ulster Counties; and portions of Courtland, Steuben, and Allegany Counties.

(28.) One commenter, citing the 2000 Evaluation, asserted that Trust Company's lending to low-income borrowers in the New York CSMA was weak. The 2002 Evaluation noted that Trust Company's performance exceeded the performance of lenders in the aggregate ("aggregate lenders") in the New York CMSA and that the high cost of real estate and the relatively low incomes in the New York CSMA limited home ownership opportunities for low-income families.

(29.) One commenter urged that Trust Company increase its community development lending to nonprofit organizations and its staffing levels for community development programs in New York City. 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 provide commitments for future performance or staffing levels. Trust Company's CRA-related activities will be reviewed by the FRBNY in future performance evaluations, and its CRA performance record will be considered in any subsequent applications by Trust Company to acquire a depository institution.

(30.) Before the review period, Trust Company's Pennsylvania branches operated in the Scranton-Wilkes-Barre-Hazleton MSA. After the merger with Keystone Financial Bank, National Association, Trust Company's Pennsylvania assessment areas for the review period consisted of the Pennsylvania portions of the Philadelphia-Wilmington-Atlantic City, PA-NJ-DE-MD CMSA; the Harrisburg-Lebanon-Carlisle, Scranton-Wilkes-Barre-Hazleton, Altoona, State College, Reading, York, Allentown-Bethlehem-Easton, and Williamsport MSAs, in Pennsylvania; a portion of the Lancaster MSA, in Pennsylvania; and Adams, Bedford, Bradford, Clearfield, Clinton, Franklin, Huntingdon, Monroe, Montour, Northumberland, Schuylkill, Snyder, Sullivan, Tioga, and Union Counties.

(31.) The 2001 Evaluation covered a review period of January 1, 1999, through December 31, 2000.

(32.) The denial disparity ratio compares the denial rate for minority loan applicants with that for nonminority applicants. The Board reviewed the 2000 and 2001 HMDA data for Trust Company and its affiliates in the following MSAs: Buffalo, New York City, and Nassau-Suffolk, New York; Philadelphia and Harrisburg, Pennsylvania; and Baltimore, Maryland. The Board's review included the HMDA data for M&T Mortgage Corporation and M&T Real Estate, Inc.

(33.) The data indicate that the percentages of Trust Company's total HMDA-reportable loans to minorities were not markedly below the percentages for the aggregate lenders in the three MSAs in which Trust Company lagged those lenders.

(34.) 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.

(35.) See 12 C.F.R. 225.28(b)(1), (3), (6), (11), and (14).

(36.) 12 U.S.C. [section] 1843(j)(2)(A).

(37.) These investments are in Compania La Proa, Ltd., George Town, Cayman Islands, and Bemberg Industrial, S.A., Buenos Aires, Argentina.

(38.) One commenter suggested, particularly in light of the 2000 Evaluation, that the Board condition its approval of the proposal on a requirement that M&T commit to keep the branches Trust Company operates in LMI neighborhoods in the New York City area open for ten years and open tire new branches there within the next two years. As previously noted, the 2002 Evaluation rated Trust Company "outstanding" both in the delivery of retail and community development services in all assessment areas and for its performance on the service test in the New York CMSA. See also discussion in footnote 29.

(39.) One commenter requested that the Board 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, commenters have had ample opportunity to submit their views and, in fact, they 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. 12 U.S.C. [subsection] 1842(b) and 1843(j)(1); 12 C.F.R. 225.15(d) and 225.24(d). 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 an extension of the comment period is not warranted.

Voting for this action: Chairman Greenspan, Vice Chairman Ferguson, and Governors Gramlich, Bies, Olson, Bernanke, and Kohn.

ROBERT DEV. FRIERSON

Deputy Secretary of the Board