Orders issued under Bank Holding Company Act.

Orders Issued Under Section 3 of the Bank Holding Company Act

Banco Bilbao Vizcaya Argentaria, S.A.

Bilbao, Spain

Order Approving the Acquisition of a Bank Holding Company

Banco Bilbao Vizcaya Argentaria, S.A. ("BBVA"), 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 (1) to acquire Laredo National Bancshares, Inc. ("Laredo"), Laredo, Texas; Laredo National Bancshares of Delaware, Inc., Wilmington, Delaware; and The Laredo National Bank ("LNB") and South Texas National Bank of Laredo ("STNB"), both of Laredo.

Notice of the proposal, affording interested persons an opportunity to comment, has been published (69 Federal Register 65,196 (2004)). The time for filing comments has expired, and the Board has considered the application and all comments received in light of the factors set forth in section 3 of the BHC Act.

BBVA, with total consolidated assets of approximately $363 billion, is the 34th largest banking organization in the world. BBVA is the 110th largest depository organization in the United States, with total assets in the United States of $5.5 billion. (2) It controls approximately $2.7 billion in deposits, which represents less than 1 percent of the total amount of deposits of insured depository institutions in the United States. BBVA's U.S. subsidiary banks include Banco Bilbao Vizcaya Argentaria Puerto Rico ("BBVA Puerto Rico"), San Juan, Puerto Rico, a bank chartered in Puerto Rico; and Valley Bank, Moreno Valley, California, a state-chartered bank. BBVA also operates a branch in New York, New York, and an agency in Miami, Florida. BBVA's subsidiary bank in Mexico, BBVA Bancomer, S.A., operates a state-licensed agency in Houston, Texas. BBVA has no retail depository institution offices in Texas.

Laredo, with total consolidated assets of approximately $3.4 billion, is the 17th largest depository organization in Texas. It controls deposits of approximately $2.8 billion, which represent less than 1 percent of the total amount of deposits of insured depository institutions in the state. (3) Laredo's subsidiary banks have branches only in Texas.

On consummation of this proposal, BBVA would become the 82nd largest depository organization in the United States, with total consolidated U.S. assets of $8.9 billion. BBVA would control deposits of $5.4 billion, representing less than 1 percent of the total amount of deposits of insured depository institutions in the United States. (4)

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 BBVA is Puerto Rico and Laredo is located in Texas. Based on a review of all the facts of record, including a review of the relevant state statutes, the Board finds that all the conditions for an interstate acquisition enumerated in section 3(d) of the BHC Act are met in this case. (5) The Board is therefore permitted to approve the proposal under section 3(d) of the BHC Act.

Competitive Considerations

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

Applicant does not currently compete with Laredo in any relevant banking market. Accordingly, the Board concludes, based on all the facts of record, that consummation of the proposal would not have a significant adverse effect on competition or on the concentration of banking resources in any relevant banking market and that competitive considerations are consistent with approval.

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 depository institutions involved in the proposal and certain other supervisory factors. The Board has carefully considered these factors in light of all the facts of record, including information provided by BBVA, confidential reports of examination and other supervisory information received from the federal and state banking supervisors of the organizations involved, publicly reported and other financial information, and public comments received on the proposal. (7) The Board also has consulted with the Bank of Spain, which is responsible for the supervision and regulation of Spanish financial institutions.

In evaluating financial factors in expansion proposals by banking organizations, the Board reviews the financial condition of the organizations involved on both a parent-only and consolidated basis, as well as the financial condition of the subsidiary banks and significant nonbanking operations. In this evaluation, the Board considers a variety of areas, including capital adequacy, asset quality, and earnings performance. In assessing financial factors, the Board consistently has considered capital adequacy to be especially important. The Board also evaluates the effect of the transaction on the financial condition of the combined organization on consummation, including its capital position, asset quality, and earnings prospects and the impact of the proposed funding of the transaction.

Based on its review of these factors, the Board believes financial factors are consistent with approval of this proposal. Laredo currently is well capitalized, and the capital levels of BBVA would continue to exceed the minimum levels that would be required under the Basel Capital Accord. Furthermore, BBVA's capital levels are considered equivalent to the capital levels that would be required of a U.S. banking organization and would remain so after consummation of this proposal. In addition, BBVA has sufficient financial resources to effect the proposal. The proposed transaction is structured as a share purchase, and the consideration to be received by Laredo's shareholders would be provided from BBVA's available funds.

The Board also has considered the managerial resources of BBVA, Laredo, and their subsidiary banks, particularly the supervisory experience of the other relevant banking supervisory agencies with the organizations and their records of compliance with applicable banking laws. The Board has reviewed the assessments of the organizations' management and risk management systems by the relevant federal and state banking supervisory agencies. In addition, the Board has considered the anti-money laundering programs at BBVA and the assessment of these programs by the relevant federal supervisory agencies, state banking agencies, and the Bank of Spain. (8) The Board also has considered BBVA's plans to implement the proposal, including its proposed management after consummation and the proposed integration of Laredo and its subsidiaries into BBVA. (9) Based on these and all other facts of record, the Board concludes that the 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 the bank is subject to comprehensive supervision or regulation on a consolidated basis by the appropriate authorities in the bank's home country. (10) As previously noted, the home country supervisor of BBVA is the Bank of Spain.

In approving an application under the International Banking Act ("IBA"), (11) the Board previously determined that BBVA was subject to home country supervision on a consolidated basis by the Bank of Spain. (12) Based on all the facts of record, the Board has concluded that BBVA 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 an applicant 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. (13) The Board has reviewed the restrictions on disclosure in the relevant jurisdictions in which BBVA operates and has communicated with relevant government authorities concerning access to information. In addition, BBVA has previously committed to make available to the Board such information on the operations of BBVA and its affiliates that the Board deems necessary to determine and enforce compliance with the BHC Act, the IBA, and other applicable federal law. BBVA has also committed to cooperate with the Board to obtain any waivers or exemptions that may be necessary to enable BBVA and its affiliates to make such information available to the Board. In light of the Board's review of the restrictions on disclosure and these commitments, the Board concludes that BBVA has provided adequate assurances of access to any appropriate information the Board may request. Based on these and all other facts of record, the Board has concluded that the supervisory factors it is required to consider are consistent with approval.

Convenience and Needs Considerations

In acting on this proposal, the Board is required to consider the effects of the transaction on the convenience and needs of the communities to be served and to take into account the records of the relevant insured depository institutions under the Community Reinvestment Act ("CRA"). (14) 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 their safe and sound operation, and requires the appropriate federal financial supervisory agency to take into account an institution's record of meeting the credit needs of its entire community, including low- and moderate-income ("LMI") neighborhoods, in evaluating bank expansionary proposals.

The Board has considered carefully the convenience and needs factor and the CRA performance records of the subsidiary banks of BBVA and Laredo in light of all the facts of record, including public comment on the proposal. (15) As provided in the CRA, the Board has evaluated the convenience and needs factor in light of the evaluations by the appropriate federal supervisors of the CRA performance records of the relevant insured depository institutions. An institution's most recent CRA performance evaluation is a particularly important consideration in the application process because it represents a detailed, on-site evaluation of the institution's overall record of performance under the CRA by its appropriate federal supervisor. (16)

All the subsidiary insured depository institutions of BBVA and Laredo received "satisfactory" ratings at the most recent evaluations of their CRA performance. BBVA Puerto Rico received a "satisfactory" CRA performance rating by the Federal Deposit Insurance Corporation ("FDIC"), as of October 29, 2002, and Valley Bank received a "satisfactory" CRA performance rating by the FDIC, as of August 26, 2002.17 The OCC gave a "satisfactory" rating to LNB, as of February 5, 2001, and to STNB, as of September 3, 2003.

BBVA represented that it is committed to maintaining the existing CRA programs at LNB and STNB and enhancing their CRA performance. In addition, BBVA represented that consummation of this proposal would further its goal of becoming a leading financial services provider to the Hispanic community in the United States.

In BBVA Puerto Rico's most recent CRA performance evaluation, examiners reported that the bank's lending levels reflected a "good responsiveness" to the credit needs of its assessment areas during the evaluation period. (18) Examiners noted that BBVA Puerto Rico maintained a "reasonable standard of lending" in its assessment areas by aggressively offering a variety of loan products at competitive rates. They commended BBVA Puerto Rico's distribution of small business loans and its efforts to meet the needs of businesses within its assessment areas. (19) In addition, examiners commended BBVA Puerto Rico for having a high level of community development lending directed towards areas where traditional bank products did not meet the needs of LMI families. They also noted that BBVA Puerto Rico had developed the "Global Commercial Package," a special product designed to satisfy the needs of small business owners in Puerto Rico by offering commercial accounts, credit facilities, and merchant services.

In LNB's most recent evaluation, the bank received "high satisfactory" ratings under both the lending and investment tests and an "outstanding" rating under the service test. (20) In particular, examiners described LNB's home mortgage lending, small loans to businesses, branch distribution, and community development services as "excellent."

Examiners commended LNB's record of making home purchase loans to borrowers of different income levels, including LMI individuals. They reported that the bank's market share of home purchase loans to LMI borrowers was almost twice its overall market share in the Laredo MSA. (21) In addition, examiners commended Laredo for its distribution of home purchase loans to LMI borrowers in the Houston MSA. Examiners noted that LNB offered a special affordable housing product with flexible underwriting criteria for LMI borrowers. LNB offered this product directly to customers and indirectly through special programs of Neighborhood Housing Services, Inc., an organization that provides home-buyer education classes and offers grants for down payments and closing-cost assistance.

Examiners also commended LNB's participation in the Bank Enterprise Award program of the U.S. Department of the Treasury for loans in low-income, high-unemployment neighborhoods designated as "Distressed Communities." They noted that LNB had 13 full-service branches in Distressed Communities, representing 62 percent of its total branches. In addition, examiners commended LNB for providing affordable checking account products to LMI customers and offering check-cashing services to non-customers with a fee structure that was more affordable than most check-cashing operations offered in the bank's assessment areas.

The Board has carefully considered all the facts of record, including reports of examination of the CRA performance records of the institutions involved, information provided by BBVA, comments on the proposal, confidential supervisory information, and BBVA's plans to enhance the CRA performance of STNB and LNB. The Board notes that the proposal would provide Laredo's customers with expanded banking opportunities and resources, including access to BBVA's expertise in and knowledge of Latin American banking markets. Based on a 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 records of the relevant depository institutions, are consistent with approval.

Conclusion

Based on the foregoing and all 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, including commitments and conditions imposed in this order, in light of the factors that it is required to consider under the BHC Act and other applicable statutes. (22)

The Board's approval is specifically conditioned on BBVA's compliance with the conditions imposed in this order, including receipt by BBVA of all appropriate regulatory approvals, and with the commitments made to the Board in connection with the application. For purposes of this transaction, these conditions and commitments are deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law.

The proposed transaction 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 New York, acting pursuant to delegated authority.

By order of the Board of Governors, effective March 30, 2005.

Voting for this action: Chairman Greenspan and Governors Gramlich, Bies, Olson, Bernanke, and Kohn. Absent and not voting: Vice Chairman Ferguson.

Robert de V. Frierson

Deputy Secretary of the Board

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

(2.) Worldwide asset data are as of December 31, 2003, and worldwide ranking is as of November 12, 2004. United States asset and deposit data are as of September 30, 2004, and national ranking is as of June 30, 2004. The data and rankings are adjusted to reflect mergers and acquisitions completed as of June 30, 2004.

(3.) Asset data for Laredo are as of September 30, 2004. Deposit and ranking data are as of June 30, 2004, and are adjusted to reflect mergers and acquisitions completed as of that date.

(4.) In this context, the term "insured depository institutions" includes insured commercial banks, savings banks, and savings associations.

(5.) 12 U.S.C. [subsection] 1842(d)(1)(A) & (B), 1842(d)(2)(A) & (B). BBVA is currently adequately capitalized and adequately managed, as defined by applicable law, and would remain so on consummation of this proposal. BBVA and its affiliates would control less than 10 percent of the total amount of deposits of insured depository institutions in the United States. All other requirements of section 3(d) would also be met on consummation of the proposal.

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

(7.) A commenter quoted a Spanish newspaper article that suggested that a construction group in Spain intended to acquire less than 5 percent of the voting stock of BBVA. The commenter provided no information, and no other information is in the record, that indicates that this potential future acquisition is in any way related to the proposal currently under review.

(8.) The commenter made general allegations about BBVA's ability to comply with U.S. anti-money laundering laws. In addition, the commenter expressed concern, citing media reports in 2002, that BBVA might be under investigation in Mexico, Columbia, and Peru in connection with its acquisitions of financial institutions in those countries. BBVA has provided information to the Board, the Bank of Spain, and other appropriate governmental authorities relating to these allegations and has publicly disclosed information on these matters in filings with the U.S. Securities and Exchange Commission. As part of its review of banking organizations, the Board seeks information on enforcement actions by government authorities in other countries. The Board notes that no enforcement action has been initiated against BBVA by government authorities in the countries mentioned in the media reports.

(9.) The commenter criticized LNB's and STNB's lending relationships with unaffiliated pawn shops and Valley Bank's lending to a rent-to-own business, stating that BBVA was enabling high-cost, nontraditional providers of financial services. These businesses are licensed by the states where they operate and are subject to applicable state law. BBVA stated that neither Laredo nor any of its affiliates engages in the activities conducted by payday lenders, check cashers, or rent-to-own businesses. The only dealings that Laredo or any of its affiliates have with such businesses are in the ordinary course of extending credit and cashing checks for existing customers, to the extent consistent with regulations of the Office of the Comptroller of the Currency ("OCC"). BBVA further stated that neither Laredo nor any of its affiliates plays any role, formal or otherwise, in the lending practices or credit review processes of any unaffiliated subprime lender or provider of nontraditional financing products.

(10.) 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 is subject to consolidated home country supervision. See 12 CFR 225.13(a)(4). Regulation K provides that a foreign bank will be considered 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 with any affiliates, to assess the bank's overall financial condition and its compliance with laws and regulations. See 12 CFR 211.24(c)(1).

(11.) 12 U.S.C. [section] 3101 et seq.

(12.) See BBVA Bancomer, S.A., 89 Federal Reserve Bulletin 146 (2003).

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

(14.) 12 U.S.C. [section] 2901 et seq.

(15.) The commenter asserted, based on data reported under the Home Mortgage Disclosure Act ("HMDA") (12 U.S.C. [section] 2801 et seq.), that Homeowners Loan Corporation ("HLC"), a subprime lending subsidiary of LNB, originated a disproportionately large percentage of subprime loans to African Americans in possible violation of fair lending laws. Using 2003 HMDA data reported by HLC in several MSAs, the commenter compared the number of HLC's loan originations to white applicants with the number of its loan originations to African-American applicants. Based on these comparisons, the commenter asserted that HLC's ratio of originations to African- American applicants compared to white applicants significantly exceeded the ratio of aggregate lenders in those markets. The commenter alleged that HLC's disproportionately high ratio of originations to African-American applicants compared to white applicants was a possible indication of fair lending law violations. The Board has considered the limited HMDA data presented by the commenter; confidential supervisory information received from the OCC, the primary federal supervisor of HLC; and information provided by the applicant. BBVA has stated that HLC selects prospects for direct marketing using objective criteria, specifically, home ownership, home equity, and credit score, and uses no racial demographic or geographic criteria in any modeling for marketing purposes. The Board also has consulted with the OCC about HLC's subprime lending operations and its programs for compliance with fair lending laws and other consumer protection laws.

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

(17.) The FDIC evaluated the CRA performance of Valley Bank before BBVA acquired it in early 2004.

(18.) The evaluation period was from January 2000 through September 2002.

(19.) For purposes of this order, a "small business loan" or a "small loan to business" is a loan in an original amount of $1 million or less that either is secured by nonfarm, nonresidential properties or is classified as a commercial and industrial loan.

(20.) The evaluation period was January 1998 through February 2001. Full-scope reviews were performed on the following LNB assessment areas: the Laredo Metropolitan Statistical Area ("MSA"), the Harris County portion of the Houston MSA, and the Bexar County portion of the San Antonio MSA. More than 90 percent of LNB's small business, home purchase, home improvement, and refinance loans were originated or purchased within these assessment areas. LNB assessment areas receiving limited-scope reviews included the Brownsville, McAllen, and Corpus Christi MSAs and Willacy County.

(21.) Examiners noted that the Laredo MSA was one of the least affordable areas in the country for home ownership because home prices were relatively high while a large percentage of the population lived below the poverty level.

(22.) The commenter requested that the Board hold a public hearing or meeting 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. Under its regulations, 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 CFR 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 commenter had ample opportunity to submit comments on the proposal, and, in fact, the commenter has submitted written comments that the Board has considered carefully in acting on the proposal. The commenter's request fails to demonstrate why its written comments do not adequately present its evidence and 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. 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 public meeting or hearing on the proposal is denied.

Citigroup Inc. New York, New York

Order Approving the Acquisition of a Bank

Citigroup Inc. ("Citigroup"), a financial 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 (1) to acquire First American Bank, SSB ("FAB"), Bryan, Texas. Citigroup would acquire FAB immediately after its conversion to a national bank. (2)

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published in the Federal Register (69 Federal Register 58,173 (2004)). 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.

Citigroup, with total consolidated assets of approximately $1.48 trillion, is the largest depository organization in the United States. (3) Citigroup's subsidiary depository institutions control deposits of approximately $192.5 billion, which represent approximately 3 percent of the total deposits of insured depository institutions in the United States. (4) Citigroup operates insured depository institutions in fourteen states, the District of Columbia, Puerto Rico, and two U.S. territories. (5) Citigroup currently operates one retail depository institution branch in Texas, primarily for employees at a sales and service center in San Antonio, and several nonbanking companies in Texas. Citigroup has no other retail depository institution offices in the state.

FAB, with total consolidated assets of approximately $3.5 billion, is the 18th largest insured depository institution in Texas, controlling deposits of approximately $2.7 billion. Currently, FAB is an indirect subsidiary of The Adam Corporation/Group ("TACG"), a Texas corporation that is subject to the supervision and regulation of the Office of Thrift Supervision ("OTS"). (6)

On consummation of the proposal, Citigroup would become the 18th largest depository organization in Texas, controlling deposits of approximately $2.7 billion, which represent less than 1 percent of the total amount of insured deposits in the state.

Interstate Analysis

Section 3(d) of the BHC Act allows the Board to approve an application by a bank holding company to acquire control of a bank located in a state other than the home state of such bank holding company if certain conditions are met. (7) For purposes of the BHC Act, the home state of Citigroup is New York. Depository institutions controlled by Citigroup operate in California, Connecticut, Delaware, Florida, Georgia, Illinois, Maryland, Nevada, New Jersey, New York, South Dakota, Texas, Utah, Virginia, the District of Columbia, Puerto Rico, Guam, and the U.S. Virgin Islands. Citigroup proposes to acquire a bank located in Texas. (8)

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) of the BHC Act are met in this case. (9) In light of all the facts of record, the Board is permitted to approve the proposal under section 3(d) of the BHC Act.

Competitive Considerations

Section 3 of the BHC Act prohibits the Board from approving a proposal that would result in a monopoly or that would be in furtherance of an attempt to monopolize the business of banking. The BHC Act also prohibits the Board from approving a 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. (10)

Citigroup and FAB do not compete directly in any relevant banking market. Based on all the facts of record, the Board has concluded that consummation of the proposed transaction would have no significantly adverse effect on competition or on the concentration of banking resources in any relevant banking market and that competitive factors are consistent with approval.

Financial, Managerial, and Other Supervisory Considerations

Section 3 of the BHC Act requires the Board to consider the financial and managerial resources and future prospects of the companies and depository institutions involved in the proposal and certain other supervisory factors. In reviewing these factors, the Board has considered, among other things, confidential reports of examination and other supervisory information received from the primary federal supervisors of the organizations involved, including the Federal Reserve System's confidential supervisory information. In addition, the Board has consulted with the relevant supervisory agencies, including the OCC, OTS, FDIC, Securities and Exchange Commission ("SEC"), and Texas Savings and Loan Department. The Board also has considered publicly available financial and other information on the organizations and their subsidiaries, all the information submitted on the financial and managerial aspects of the proposal by Citigroup, and public comments received by the Board about the financial and managerial resources of Citigroup.

In evaluating financial factors in expansion proposals by banking organizations, the Board reviews the financial condition of the organizations involved on both a parent-only and consolidated basis, as well as the financial condition of the subsidiary banks and significant nonbanking operations. In this evaluation, the Board considers a variety of areas, including capital adequacy, asset quality, and earnings performance. In assessing financial factors, the Board consistently has considered capital adequacy to be especially important. The Board also evaluates the effect of the transaction on the financial condition of the applicant and the target, including their capital positions, asset quality, and earnings prospects and the impact of the proposed funding of the transaction.

The Board has reviewed these factors carefully in this case and believes financial factors are consistent with approval of this application. The Board notes that Citigroup and its subsidiary depository institutions are well capitalized and would remain so on consummation of the proposal. The Board also finds that Citigroup has sufficient financial resources to effect the proposal. The proposed transaction is structured as a cash purchase of the outstanding shares of FAB, and Citigroup would not directly incur any debt to finance the proposed transaction.

In addition, the Board has considered the managerial resources of Citigroup and FAB, particularly the supervisory experience and assessments of management by the various bank supervisory agencies and the organizations' records of compliance with applicable banking laws. (11) In reviewing this proposal, the Board has assembled and considered a broad and detailed record, including substantial confidential and public information about Citigroup. The Board has carefully reviewed the examination records of Citigroup, FAB, and their subsidiaries, including assessments of their risk-management systems. The Board also considered information from ongoing examinations, the publicly disclosed investigations that are underway, and consultations with other federal and state banking authorities, foreign financial supervisory authorities, the SEC, and other relevant regulators. The Board also reviewed confidential supervisory information on the policies, procedures, and practices of Citigroup to comply with the Bank Secrecy Act and other anti-money-laundering laws and consulted with the OCC, the appropriate federal financial supervisory agency of Citibank, concerning its record of compliance with anti-money-laundering laws. (12)

In evaluating the managerial resources of a banking organization in an expansion proposal, the Board considers assessments of an organization's risk management--the ability of the organization's board of directors and senior management to identify, measure, monitor, and control risk--to be especially important. (13) In evaluating Citigroup's and other banking organizations' risk management, the Board considers a variety of areas, including the following matters: (1) board and senior management oversight of the organization's inherent risks, as well as the general capabilities of management; (2) the adequacy of the organization's policies, procedures, and limits, including the organization's accounting and risk-disclosure policies and procedures; (3) the risk-monitoring and management-information systems used by an organization to measure risk, and the consistency of these tools with the level of complexity of the organization's activities; and (4) the adequacy of the organization's internal controls and audit procedures, including the accuracy of financial reporting and disclosure, the independence of control areas from management, and the consistency of the scope of coverage of the internal audit team with the complexity of the organization. (14) The Board has also taken into account that an organization as large and varied as Citigroup has a particular need to adopt risk-management practices that can appropriately address the scope, complexity, and geographic diversity of its operations.

In assessing these matters, the Board has also taken into account recent publicly disclosed deficiencies and investigations involving Citigroup's activities in Japan, in Europe, and in its mutual fund relationships in the United States. The Board continues to monitor the investigations of Citigroup's securities-related activities that are being conducted by its functional regulators, including the SEC, and is consulting with these authorities. In addition, the Board continues to monitor the investigations regarding Citigroup's bond trades in Europe and its private banking and other activities in Japan. The Board is consulting with the relevant foreign authorities on these matters. The Federal Reserve Bank of New York and the OCC also have conducted targeted examinations of Citigroup's Japanese operations. (15)

Citigroup has acknowledged that it has some deficiencies in its compliance and internal controls in these areas and has developed plans that it has already begun to implement to address the weaknesses. The Board has given careful attention to the measures that Citigroup and its subsidiaries have taken to address these matters and the steps it is continuing to take to resolve these matters and strengthen the company's compliance risk-management structure and practices. (16) Importantly, Citigroup has demonstrated a willingness and ability to take actions to address concerns raised in these investigations and in the examination process. The Board notes that Citigroup recently has significantly increased its funding of compliance risk-management programs and technology, and is in the process of implementing various initiatives designed to strengthen compliance risk management, increase ethics awareness and encourage compliance, and enhance the oversight of its international operations.

As part of Citigroup's plan to enhance its existing compliance risk management and to address compliance issues, Citigroup has strengthened the independence of its compliance structure. The reporting relationship between compliance personnel and business-line management has been changed so that all compliance personnel now have a direct reporting line to the independent compliance function. In addition, Citigroup is in the process of implementing enhanced compliance policies and procedures; management information and reporting systems; monitoring and surveillance programs; and firm-wide and business-specific compliance training for its employees and compliance personnel. Finally, Citigroup is in the process of expanding its audit coverage of the compliance function.

Citigroup has also reviewed and standardized its performance appraisal process to incorporate increased incentives for compliance. It has introduced an enhanced corporate-wide ethics awareness program with an expanded orientation program and annual training sessions. Top corporate officials are taking an active role in this ethics program by spearheading regional meetings, conference calls, and site visits.

To ensure that the shortcomings associated with its oversight and the management structure of its Japanese operations are not prevalent in its international operations, Citigroup conducted reviews of its franchise in key global markets and met with regulators to identify any concerns that may exist with regard to corporate governance and compliance. As a result of this review, Citigroup has taken steps designed to clarify accountability and responsibility and to enhance oversight of its international operations.

In addition, the Board has considered the nature of the proposal in this case. This transaction is small relative to Citigroup's U.S. retail banking operations. The Board has also considered the strength and success of Citigroup's managerial resources in operating its retail banking business in the U.S.

Based on these and all the facts of record, including a careful review of public comments, Citigroup's management record, its risk-management programs, the actions taken by Citigroup to address compliance concerns, and the nature of the transaction at hand, the Board concludes that considerations relating to the managerial resources of Citigroup, FAB, and their subsidiaries are consistent with approval of the proposal, as are the other supervisory factors that the Board must consider under section 3 of the BHC Act. (17) The Board expects Citigroup management to continue its efforts to implement fully the improvements it has developed to enhance all aspects of its oversight of the organization's operations. The Board will continue to monitor closely Citigroup's implementation of its plan for enhancing its compliance programs and its progress in meeting the schedule it has set out for implementing that plan.

Given the size, scope, and complexity of Citigroup's global operations, successfully addressing the deficiencies in compliance risk management that have given rise to a series of adverse compliance events in recent years will require significant attention over a period of time by Citigroup's senior management and board of directors. The Board expects that management at all levels will devote the necessary attention to implementing its plan fully and effectively and will not undertake significant expansion during the implementation period. The Board believes it important that management's attention not be diverted from these efforts by the demands that mergers and acquisitions place on management resources. In this application, the Board has determined that demands on managerial resources from this proposal would not be so significant as to divert management from implementing its improvement programs.

Based on all the facts of record, the Board has concluded that the financial and managerial resources and future prospects of the organizations and the other supervisory factors involved are consistent with approval of the proposal.

Convenience and Needs Considerations

In acting on a proposal under section 3 of the BHC Act, the Board is required to consider the effects of the proposal on the convenience and needs of the communities to be served and to take into account the records of the relevant insured depository institution under the Community Reinvestment Act ("CRA"). (18) 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 their safe and sound operation, and requires the appropriate federal financial supervisory agency to take into account an institution's record of meeting the credit needs of its entire community, including low- and moderate-income ("LMI") neighborhoods, in evaluating bank expansionary proposals.

A. CRA Performance Evaluations

As provided in the CRA, the Board has evaluated the convenience and needs factor in light of the evaluations by the appropriate federal supervisors of the CRA performance records of the relevant insured depository institutions. An institution's most recent CRA performance evaluation is a particularly important consideration in the application process because it represents a detailed, on-site evaluation of the institution's overall record of performance under the CRA by its appropriate federal supervisor. (19)

Citigroup's subsidiary depository institutions received either "outstanding" or "satisfactory" ratings at their most recent CRA performance evaluations. (20) Citibank, the lead subsidiary depository institution of Citigroup, received an "outstanding" rating from the OCC, as of June 9, 2003 ("2003 Evaluation"). FAB received a "satisfactory" rating at its most recent CRA performance evaluation by the FDIC, as of June 3, 2002. Citigroup has indicated that it would continue its CRA-related loan, investment, grant, and service programs and fair lending policies at the combined entity after consummation.

B. CRA Performance of Citibank

Citibank received an "outstanding" rating under the lending, investment, and service tests in the 2003 Evaluation. (21) The examination stated that Citibank had good lending activity in its primary assessment areas, good geographic distribution of loans, and excellent distribution of loans by borrower income. Examiners commended Citibank's use of innovative and flexible mortgage loan products. Citibank, in connection with Fannie Mae, state banking agencies, and nonprofit organizations, such as ACORN, developed several programs for first-time homebuyers and LMI borrowers. Many of these programs, including CRA Portfolio Sub-Allocation and the Enhanced Fannie Neighbors with Community Homebuyers Program, allow for more flexible underwriting standards and reduced down payments. The examiners commended Citibank's small business lending and noted that Citibank was the leading small business lender in the New York City assessment area, with 23 percent of the market share of small business loans. (22)

In addition, the examiners reported that Citibank's community development lending in the New York City assessment area was excellent. They found that Citibank originated a high number and dollar amount of community development loans and that these loans exhibited complexity and innovativeness. Examiners noted that Citibank offered a wide range of financing alternatives to nonprofit and for-profit entities that supported community development initiatives, including the acquisition and rehabilitation of affordable housing units.

Additionally, examiners found that Citibank had an excellent level of community development investments during the evaluation period. For example, in the New York City assessment area, Citibank made or purchased approximately $165 million in qualified investments during the evaluation period. These investments supported affordable housing initiatives for LMI individuals and families, projects that benefited specific LMI populations, and projects that improved deteriorating or mismanaged occupied buildings. Further, the examiners stated that Citibank was a leader in providing community development services that were responsive to the needs of the bank's assessment areas.

C. HMDA and Fair Lending Record

The Board has carefully considered the lending record of Citigroup in light of public comment received on the proposal. A commenter alleged that Citigroup engages in discriminatory lending by directing minority customers to CitiFinancial or other Citigroup subsidiaries that originate subprime loans, rather than to Citigroup's subsidiary banks and other prime lending channels. (23) The commenter also alleged, based on a review of 2003 HMDA data, that the denial disparity ratios of some of the Citigroup Prime Lenders in certain markets indicated that these lenders disproportionately denied African-American or Hispanic applicants for home mortgage loans. (24) Citigroup stated that it does not direct customers to any specific subsidiary based on race or ethnicity criteria and that it provides subprime loans through certain subsidiaries as part of a group of products designed to meet a broad range of credit needs.

The Board reviewed HMDA data reported by the Citigroup Prime Lenders and the Citigroup Subprime Lenders in the primary assessment areas of the Citigroup Prime Lenders and in the other MSAs identified by the commenter. (25) An analysis of 2003 HMDA data does not support the contention that the Citigroup Prime Lenders have disproportionately denied applications of minority or LMI customers, or directed minority or LMI borrowers to its subprime lenders. The HMDA data for the Citigroup Prime Lenders indicate that their denial disparity ratios for African-American and Hispanic applicants were generally higher than the ratios for the aggregate of all lenders ("aggregate lenders") in the MSAs reviewed. (26) However, the origination rates for total HMDA-reportable loans to African-American and Hispanic borrowers by the Citigroup Prime Lenders in all but one of the MSAs reviewed were comparable to or higher than the rates for the aggregate lenders. (27) The 2003 HMDA data also show that the Citigroup Prime Lenders extended more total HMDA-reportable loans to African-American and Hispanic borrowers than the Citigroup Subprime Lenders in most of the MSAs reviewed.

Although the HMDA data may reflect certain disparities in the rates of loan applications, originations, and denials among members of different racial groups in certain local areas, the HMDA data do not demonstrate that the Citigroup Prime Lenders are excluding any racial group on a prohibited basis. The Board is concerned when HMDA data for an institution indicate 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. 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. (28) 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. Moreover, HMDA data indicating that one affiliate is lending to minorities more than another affiliate do not, without more information, indicate that either affiliate has engaged in illegal discriminatory lending activities.

Because of the limitations of HMDA data, the Board has considered these data carefully and taken into account other information, including examination reports that provide an on-site evaluation of compliance by Citigroup and its subsidiaries with fair lending laws. Importantly, examiners noted no fair lending issues or concerns in the performance evaluations of Citigroup's subsidiary depository institutions or FAB.

The record also indicates that Citigroup has taken steps to help ensure compliance with fair lending laws and other consumer protection laws. Citigroup has implemented corporate-wide fair lending policies, procedures, and training programs, and it regularly conducts internal reviews for compliance with policies and procedures, including reviews of individual loans and reviews of its subsidiary lenders' overall lending data. Citigroup's subsidiary depository institutions have established detailed fair lending procedures in addition to Citigroup's corporate policies and procedures, including extensive fair lending training programs for employees and fair lending self-assessments using matched-pair testing and statistical analyses. In addition, all declined applications are independently reviewed by two underwriters, the second of whom must be a senior underwriter or risk-management expert. Declined applications go through a third level of review if the applicant is a LMI borrower, is applying for a community lending product, or lives in an LMI or minority census tract.

In addition, Citigroup has taken actions to address deficiencies in CitiFinancial's management of its compliance with consumer protection laws and currently is making progress in complying with the Consent Order. (29) Citigroup is in the process of implementing the restitution plan and changes to its compliance risk-management systems, including audit and training functions, in accordance with the Consent Order's terms. The Board is continuing to monitor Citigroup's compliance with the Consent Order and enhancements to its various real estate lending initiatives to help ensure compliance with consumer protection laws and prevent abusive lending practices by CitiFinancial ("Initiatives"). Citigroup has enhanced these Initiatives by, among other things, implementing new insurance sales practices and introducing mortgage loan products at CitiFinancial that provide qualifying applicants with access to lower-cost mortgage loans. These new loan products offer interest rates that are close to the rates on the conventional mortgage loan products offered by the Citigroup Prime Lenders.

The Board also has considered the HMDA data in light of other information, including the programs described above and the overall performance records of Citigroup's subsidiary depository institutions under the CRA. These established efforts demonstrate that the institutions are active in helping to meet the credit needs of their entire communities.

Conclusion on Convenience and Needs and CRA Performance

The Board has carefully considered all the facts of record, including reports of examination of the CRA performance records of the institutions involved, information provided by Citigroup, comments on the proposal, and confidential supervisory information. The Board notes that the proposal would provide the combined entity's customers with access to a broader array of products and services in an expanded service area, including access to an expanded branch and ATM network. Based on a review of the entire record, and for the reasons discussed above, the Board concludes that considerations relating to the convenience and needs factor and the CRA performance records of the relevant depository institutions are consistent with approval.

Conclusion

Based on the foregoing and all the facts of record, the Board has determined that the application should be, and hereby is, approved. (30) 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. (31) The Board's approval is specifically conditioned on compliance by Citigroup with the conditions imposed in this order and the commitments made to the Board in connection with the application. For purposes of this action, these commitments and conditions are deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law.

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

By order of the Board of Governors, effective March 16, 2005.

Voting for this action: Chairman Greenspan, Vice Chairman Ferguson, and Governors Bies, Olson, Bernanke, and Kohn. Absent and not voting: Governor Gramlich.

Robert de V. Frierson

Deputy Secretary of the Board

Appendix

CRA Performance Evaluations of Citigroup

Subsidiary
Depository
Institution                  CRA Rating     Date of Evaluation   Agency

Citibank, N.A.,              Outstanding    June 9, 2003         OCC
New York, New York

Citibank (West), FSB,        Outstanding    July 30, 2001        OTS
San Francisco,
California (1)

Citibank, Federal Savings    Outstanding    September 8, 2003    OTS
Bank, Reston, Virginia

Citibank (South Dakota),     Outstanding    May 5, 2003          OCC
National Association,
Sioux Falls, South Dakota

California Commerce Bank,    Outstanding    October 1, 2002      FDIC
Century City, California

Citicorp Trust Bank, FSB,    Outstanding    February 5, 2001     OTS
Newark, Delaware

Citibank (Nevada),           Outstanding    March 31, 2003       OCC
National Association,
Las Vegas, Nevada

Citibank USA, National       Satisfactory   May 5, 2003          OCC
Association, Sioux
Falls, South Dakota

Citibank (Delaware),         Outstanding    December 1, 2003     FDIC
New Castle, Delaware

Associates Capital Bank,     Outstanding    March 1, 2000        FDIC
Inc., Salt Lake City, Utah

Universal Financial Corp.,   Outstanding    November 1, 2002     FDIC
Salt Lake City, Utah

(1.) As noted above, Citibank (West), FSB is the successor to
California Federal Bank. The rating shown was received by California
Federal Bank.

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

(2.) FAB would relocate the bank's main office to Dallas and change its name to Citibank Texas, National Association ("Citibank Texas") before the proposed acquisition by Citigroup. FAB's application to convert to a national charter was approved by the Office of the Comptroller of the Currency ("OCC") on February 15, 2005. The Board consulted with the OCC and the Federal Deposit Insurance Corporation ("FDIC"), the primary supervisor of FAB, regarding their reviews of the proposal.

(3.) Asset data and nationwide ranking data for Citigroup are as of December 31, 2004.

(4.) Deposit data are as of June 30, 2004, and reflect the unadjusted total of deposits reported by each organization's insured depository institutions in the Summary of Deposits. In this context, insured depository institutions include commercial banks, savings banks, and savings associations.

(5.) Citigroup's subsidiary insured depository institutions include Citibank, N.A., New York, New York ("Citibank"); Citibank (West), FSB, San Francisco, California; Citibank, Federal Savings Bank, Reston, Virginia; Citibank (South Dakota), National Association, Sioux Falls, South Dakota; California Commerce Bank, Century City, California; Citicorp Trust Bank, FSB, Newark, Delaware; Citibank (Nevada), National Association, Las Vegas, Nevada; Citibank USA, National Association, Sioux Falls, South Dakota; Citibank (Delaware), New Castle, Delaware; Associates Capital Bank, Inc., Salt Lake City, Utah; and Universal Financial Corp., Salt Lake City, Utah.

(6.) Citigroup proposes to acquire five of FAB's twelve subsidiaries, including FAB Holdings GP, LLC; FAB Holdings LP, LLC; FAB Financial, LP; SALSCO Inc.; and SB Plano Corporation. Each is currently a subsidiary of FAB and will become a subsidiary of Citibank Texas. All activities conducted by these subsidiaries are permissible for subsidiaries of a national bank. All other FAB subsidiaries will be transferred to TACG before the acquisition.

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

(8.) For purposes of section 3(d), the Board considers a bank to be located in the states in which the bank is chartered or headquartered or operates a branch. See 12 U.S.C. [subsection]1841(o)(4)-(7), 1842(d)(1)(A) & (B).

(9.) 12 U.S.C. [subsection] 1842(d)(1)(A) & (B), 1842(d)(2)(A) & (B). Citigroup is adequately capitalized and adequately managed, as defined by applicable law. FAB has been in existence and operated for the minimum period of time required by applicable law. On consummation of the proposal, Citigroup would control less than 10 percent of the total amount of deposits of insured depository institutions in the United States and less than 30 percent of the total amount of deposits of insured depository institutions in Texas. All other requirements under section 3(d) of the BHC Act also would be met on consummation of the proposal.

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

(11.) A commenter asserted that management of Citigroup is inadequate because it indirectly supports allegedly abusive lending practices through warehouse lending and securitization activities of its subsidiary, Citigroup Global Markets, Inc. ("CGMI"), that support unaffiliated third parties engaged in subprime lending, check cashing, auto-title lending, and operating pawnshops. The commenter also contended that FAB has relationships with these nontraditional providers of financial services that allegedly harm consumers. Citigroup indicated that CGMI engages in underwriting securities backed by subprime mortgage loans and provides warehouse loans to some mortgage banking customers for which it underwrites securities. Citigroup stated that CGMI does not control the origination of subprime loans made by unaffiliated mortgage banking customers or participate in the credit decisions of these customers. Citigroup also stated that CGMI reviews each lender's policies and procedures and sets eligibility criteria for the loans it will finance through its warehouse lending and securitization arrangements. CGMI, or an outside firm hired and supervised by CGMI, reviews a sample of any loan pool to be securitized for compliance with consumer protection laws and its loan eligibility criteria before making any warehouse loan advance. With regard to its business relationships with unaffiliated subprime lenders and nontraditional providers of financial services, Citigroup plays no role in the credit review or other lending or service practices of these entities. The nontraditional providers of financial services are licensed by the states where they operate and are subject to applicable state law.

(12.) A commenter criticized the managerial resources of Citigroup and its subsidiaries based on press reports alleging that Citibank and other subsidiaries of Citigroup held accounts for certain international leaders the commenter believed were associated with terrorism. The commenter asserted, based only on information in press reports, that Citigroup lacks sufficient policies and procedures and other resources to prevent money laundering.

(13.) See Revisions to Bank Holding Company Rating System, 69 Federal Register 70,444 (2004).

(14.) Id. at 70,447.

(15.) As a matter of practice and policy, the Board generally has not tied consideration of an application or notice to the scheduling or completion of an examination or investigation if the applicant has an overall satisfactory record of performance and the issues being reviewed may be resolved in the examination and supervisory process. See 62 Federal Register 9290 (1997) (Preamble to the Board's Regulation Y). As the Board has indicated previously, it has broad supervisory authority under the banking laws to address matters that are found in the examination and supervisory process. Moreover, many issues are more appropriately and adequately addressed in the supervisory process, where particular matters and violations of law may be identified and addressed specifically, rather than in the application process, which requires a weighing of the overall record of the companies involved.

(16.) The commenter also asserted that Citigroup's management had not implemented effective policies and programs to address alleged abusive sales and lending practices of Citigroup's subsidiaries, including those engaged in subprime lending and related insurance activities, and that the Board's enforcement action against Citigroup and its subsidiary subprime lender, CitiFinancial Credit Company ("CitiFinancial"), Baltimore, Maryland, indicated that Citigroup's managerial resources are inadequate. See Enforcement Actions, 90 Federal Reserve Bulletin 348-349 (2004) ("Consent Order"). The Board has taken into account the Consent Order and the progress that Citigroup and CitiFinancial currently are making to comply with the Consent Order.

(17.) The commenter expressed concern that Citigroup has helped to finance various activities and projects worldwide that might damage the environment or cause other social harm. These contentions contain no allegations of illegality or action that would affect the safety and soundness of the institutions involved in the proposal and are outside the limited statutory factors that the Board is authorized to consider when reviewing an application under the BHC Act. See Western Bancshares, Inc. v. Board of Governors, 480 F.2d 749 (10th Cir. 1973).

(18.) 12 U.S.C. [section] 2901 et seq.

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

(20.) The CRA ratings of all Citigroup's subsidiary depository institutions are provided in the Appendix.

(21.) The evaluation period was from October 18, 2000, to June 9, 2003.

(22.) The small business lending performance reviewed by examiners included data from the following affiliates of Citibank: Citibank, Federal Savings Bank; Citibank (South Dakota), National Association; Associates Capital Bank, Inc.; Citibank (Nevada), National Association.; Citibank USA, National Association; and Universal Financial Corp. For purposes of this analysis, small business loans included business loans with an original amount of $1 million or less.

(23.) Specifically, the commenter's allegations were based on 2003 data reported pursuant to the Home Mortgage Disclosure Act, 12 U.S.C. [section] 2801 et seq. ("HMDA"), by certain Citigroup subsidiaries engaged in conventional mortgage lending in the New York, New York; Nassau/Suffolk, New York; Chicago, Illinois; Los Angeles, California; Washington, D.C., and Newark, New Jersey Metropolitan Statistical Areas ("MSAs"). In addition, the commenter criticized Citigroup's lending record in the Houston and Dallas MSAs, where Citigroup's subsidiary depository institutions have no branches. The commenter also asserted, without analysis, that CitiFinancial originated a higher volume and larger percentage of its HMDA-reportable loans to African-American or Hispanic borrowers than Citigroup's conventional mortgage lending subsidiaries originated in the MSAs noted by the commenter. For purposes of this application, the Board analyzed 2002 and 2003 HMDA data in Citigroup's CRA assessment areas in these MSAs, the San Francisco-San Mateo-Redwood City, California MSA, and the State of New York that was reported by Citibank; CitiMortgage, Inc., St. Louis, Missouri; Citibank, Federal Savings Bank; and Citibank (West), FSB (collectively, "Citigroup Prime Lenders"). Citibank (West), FSB is the successor to California Federal Bank, San Francisco, California. For purposes of this review, information relating to Citibank (West), FSB included California Federal Bank's data. The Board also reviewed 2003 HMDA data reported by CitiFinancial; Citicorp Trust Bank, FSB; and CitiFinancial Mortgage Company, Inc., Irving, Texas (collectively, "Citigroup Subprime Lenders").

(24.) The denial disparity ratio equals the denial rate for a particular racial category (e.g., African-American) divided by the denial rate for whites.

(25.) In the MSAs reviewed, the Board compared the 2003 HMDA data reported by the Citigroup Prime Lenders with the HMDA data reported by the Citigroup Subprime Lenders.

(26.) The lending data of the aggregate lenders represent the cumulative lending for all financial institutions that have reported HMDA data in a particular area.

(27.) The origination rate equals the total number of loans originated to applicants of a particular racial category divided by the total number of applications received from members of that racial category.

(28.) 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.

(29.) As the Board previously has noted, subprime lending is a permissible activity that provides needed credit to consumers who have difficulty meeting conventional underwriting criteria. The Board continues to expect all bank holding companies and their affiliates to conduct their subprime lending operations without any abusive lending practices. See, e.g., Royal Bank of Canada, 88 Federal Reserve Bulletin 385, 388 n.18 (2002). The commenter reiterated concerns raised in previous Citigroup applications and asserted that CitiFinancial engaged in various lending practices that the commenter argued were abusive, unfair, or deceptive. The commenter also contended that the Board should deny this application or impose conditions requested by the commenter in light of the Consent Order entered into by Citigroup in May 2004.

(30.) The commenter requested that the Board hold a public meeting or hearing on the proposal. Section 3(b) of the BHC Act does not require the Board to hold a public hearing on an application unless the appropriate supervisory authority for the bank to be acquired makes a timely written recommendation of denial of the application. The Board has not received such a recommendation from the appropriate supervisory authorities. Under its regulations, 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 CFR 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 commenter has had ample opportunity to submit its views and has submitted written comments that have been considered carefully by the Board in acting on the proposal. The commenter's requests fail to demonstrate why written comments do not present its evidence adequately and fail to identify disputed issues of fact that are material to the Board's decision that would be clarified by a public meeting or hearing. For these reasons, and based on all the facts of record, the Board has determined that a public meeting or hearing is not required or warranted in this case. Accordingly, the request for a public meeting or hearing on the proposal is denied.

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

The Colonial BancGroup, Inc.

Montgomery, Alabama

Order Approving the Acquisition of a Bank The Colonial BancGroup, Inc. ("BancGroup"), a financial 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 (1) to acquire Union Bank of Florida, Lauderhill, Florida ("Union Bank").

Notice of the proposal, affording interested persons an opportunity to comment, has been published in the Federal Register (69 Federal Register 69,369 (2004)). (2) The time for filing comments has expired, and the Board has considered the application and all comments received in light of the factors set forth in section 3 of the BHC Act.

BancGroup, with total consolidated assets of approximately $18.2 billion, is the 56th largest depository organization in the United States. BancGroup operates one subsidiary insured depository institution, Colonial Bank, National Association, also in Montgomery ("Colonial Bank"), with branches in Alabama, Florida, Georgia, Nevada, Tennessee, and Texas. BancGroup is the eighth largest depository organization in Florida, controlling deposits of approximately $5.6 billion, which represent approximately 1.9 percent of the total amount of deposits of insured depository institutions in the state ("state deposits").

Union Bank, with total consolidated assets of approximately $1.0 billion, is the 43rd largest insured depository institution in Florida, controlling deposits of approximately $686.7 million. On consummation of the proposal, Banc- Group would remain the eighth largest depository organization in Florida, controlling deposits of approximately $6.3 billion, which represent approximately 2.1 percent of state deposits. (3)

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 BancGroup is Alabama. (4) BancGroup proposes to acquire a bank located in Florida. (5)

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) of the BHC Act are met in this case. (6) In light of all the facts of record, the Board is permitted to approve the proposal under section 3(d) of the BHC Act.

Competitive Considerations

Section 3 of the BHC Act prohibits the Board from approving a proposal that would result in a monopoly or would be in furtherance of an attempt to monopolize the business of banking. The BHC Act also prohibits the Board from approving a 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 its probable effect in meeting the convenience and needs of the community to be served. (7)

BancGroup and Union Bank compete directly in the Miami-Fort Lauderdale and West Palm Beach Area banking markets in Florida. (8) 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. In particular, the Board has considered the number of competitors that would remain in the markets, the relative shares of total deposits of depository institutions in the markets ("market deposits") controlled by BancGroup and Union Bank, (9) 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"), (10) and other characteristics of the market.

Consummation of the proposal would be consistent with Board precedent and the DOJ Guidelines in both of these banking markets. After consummation, the Miami-Fort Lauderdale and West Palm Beach Area banking markets would remain moderately concentrated as measured by the HHI. In both markets, the increases in concentration would be small and numerous competitors would remain. (11)

The Department of Justice also has reviewed the anticipated competitive effects of the proposal and advised the Board that consummation of the proposal would not likely have a significant adverse effect on competition in any relevant banking market. In addition, the appropriate banking agencies were afforded an opportunity to comment and have not objected to the proposal.

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 resources in either of the two banking markets in which BancGroup and Union Bank directly compete or in any other relevant banking market. Accordingly, based on all the facts of record, the Board has determined that competitive considerations are consistent with approval.

Financial and Managerial Resources and Future Prospects

The Board is also required under section 3(c) of the BHC Act to consider the financial and managerial resources and future prospects of the companies and banks involved in the proposal and to consider certain other supervisory factors. The Board has carefully considered these factors in light of all the facts of record including, among other things, information provided by BancGroup, confidential reports of examination and other supervisory information received from the federal and state banking supervisors of the organizations involved, publicly reported and other financial information, and public comments received on the proposal.

In evaluating financial factors in expansion proposals by banking organizations, the Board reviews the financial condition of the organizations involved on both a parent-only and consolidated basis, as well as the financial condition of the subsidiary banks and significant nonbanking operations. In this evaluation, the Board considers a variety of areas, including capital adequacy, asset quality, and earnings performance. In assessing financial factors, the Board consistently has considered capital adequacy to be especially important. The Board also evaluates the effect of the transaction on the financial condition of the applicant and the target, including their capital positions, asset quality, and earnings prospects and the impact of the proposed funding of the transaction.

Based on its review of these factors, the Board finds that BancGroup has sufficient financial resources to effect the proposal. BancGroup and its subsidiary bank are well capitalized and would remain so on consummation of this proposal. BancGroup will acquire all the shares of Union Bank from UB Financial Corporation, Sunrise, Florida, the parent company of Union Bank. The transaction will be funded through a combination of BancGroup common stock and cash raised by BancGroup through a stock issuance.

The Board also has evaluated the managerial resources of the organizations involved, including the proposed combined organization. The Board has reviewed the examination records of BancGroup, Colonial Bank, and Union Bank, including assessments of their management, risk management systems, and operations. In addition, the Board has considered its supervisory experience and that of the other relevant banking supervisory agencies with the organizations and their records of compliance with applicable banking law. BancGroup, Colonial Bank, and Union Bank are considered well managed. The Board also has considered BancGroup's plans to integrate Union Bank and the proposed management, including the risk management systems, of the resulting organization.

Based on all the facts of record, the Board has concluded that the financial and managerial resources and future prospects of the organizations and the other supervisory factors involved are consistent with approval of the proposal.

Convenience and Needs Considerations

In acting on this proposal, the Board is required to consider the effects of the proposal on the convenience and needs of the communities to be served and to take into account the records of the relevant insured depository institutions under the Community Reinvestment Act ("CRA"). (12) 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 their safe and sound operation, and requires the appropriate federal financial supervisory agency to take into account an institution's record of meeting the credit needs of its entire community, including low- and moderate-income ("LMI") neighborhoods, in evaluating bank expansionary proposals. The Board has considered carefully the convenience and needs factor and the CRA performance records of Colonial Bank and Union Bank in light of all the facts of record.

A. CRA Performance Evaluations

As provided in the CRA, the Board has evaluated the convenience and needs factor in light of the evaluations by the appropriate federal supervisors of the CRA performance records of the relevant insured depository institutions. An institution's most recent CRA performance evaluation is a particularly important consideration in the applications process because it represents a detailed, on-site evaluation of the institution's overall record of performance under the CRA by its appropriate federal supervisor. (13)

BancGroup's subsidiary depository institution, Colonial Bank, received a "satisfactory" rating at its most recent CRA performance evaluation, as of February 25, 2002, by the Federal Reserve Bank of Atlanta. (14) Union Bank received a "satisfactory" rating at its most recent CRA performance evaluation by the Federal Deposit Insurance Corporation, as of December 2, 2002.

BancGroup has indicated that it would continue Colonial Bank's CRA-related loan, investment, grant, and service programs and fair lending policies at the combined entity after consummation.

B. CRA Performance of Colonial Bank and Union Bank

Colonial Bank. Colonial Bank received an overall rating of "high satisfactory" under the lending test at its most recent CRA performance evaluation. Examiners reported that the bank's lending levels reflected good responsiveness to its assessment areas' credit needs, including a good level of loans reportable under the Home Mortgage Disclosure Act ("HMDA") (15) and loans to businesses with gross annual revenues of $1 million or less. They commended Colonial Bank's level of HMDA-reportable and small business lending in LMI census tracts and the bank's use of innovative and flexible loan programs in serving its assessment areas' credit needs, including several affordable housing loan programs. The evaluation also found that Colonial Bank made a relatively high level of community development loans, totaling $38.2 million, in its assessment areas during the evaluation period. (16) Colonial Bank represented that since the examination, it has originated approximately $263 million in qualified community development loans in its assessment areas.

Colonial Bank also received overall ratings of "high satisfactory" under the investment and service tests. Examiners reported that the bank made a significant level of qualified community development investments and grants, and found that Colonial Bank's systems for delivering retail banking services were accessible essentially to all segments of the bank's assessment areas. Examiners also found that the bank provided a relatively high level of community development services throughout its assessment areas and specifically noted that these services were highly responsive to affordable housing needs.

Union Bank. As previously noted, Union Bank received a "satisfactory" rating at its most recent CRA performance evaluation. Examiners found that Union Bank's overall lending activity demonstrated an adequate responsiveness to the credit needs of its assessment areas, and that the geographic distribution of the bank's loans and its community development lending activity were also adequate. (17) They reported that the bank's level of qualified community development investments within its assessment areas was very good. Examiners also favorably noted that Union Bank's retail banking delivery systems were reasonably accessible to essentially all portions of its assessment areas.

C. HMDA and Fair Lending Record

The Board's review of the record in this case included a review of HMDA data reported by Colonial Bank. Although the HMDA data may reflect certain disparities in the rates of loan applications, originations, and denials among members of different racial groups in certain local areas, the HMDA data generally do not indicate that Colonial Bank is excluding any racial group or geographic area on a prohibited basis. (18)

Because of the limitations of HMDA data, the Board has considered these data carefully in light of other information, including examination reports that provide an on-site evaluation of compliance by Colonial Bank with fair lending laws and the CRA performance records of Colonial Bank and Union Bank that are detailed above. Importantly, examiners noted no fair lending issues or concerns in the performance evaluations of Colonial Bank or Union Bank. These established efforts demonstrate that, on balance, the records of performance of Colonial Bank and Union Bank in meeting the convenience and needs of their communities are consistent with approval of this proposal. The record in this case also reflects an opportunity for Colonial Bank to improve its mortgage lending to African-American borrowers in its communities. Colonial Bank has recognized the need to improve its lending in this regard and is in the process of establishing objectives and strategies for improved performance, particularly for lending to minorities and in predominantly minority census tracts. The Board expects that Colonial Bank will continue to take steps to improve its mortgage lending performance to African-American borrowers.

D. Conclusion on Convenience and Needs and CRA Performance

The Board has carefully considered all the facts of record, including reports of examination of the CRA performance records of the institutions involved, information provided by BancGroup, and confidential supervisory information. The Board notes that the proposal would provide the combined entity's customers with access to a broader array of products and services in expanded service areas, including access to expanded branch and automated teller machine networks. Based on a review of the entire record, and for the reasons discussed above, the Board concludes that considerations relating to the convenience and needs factor and the CRA performance records of the relevant depository institutions are consistent with approval.

Conclusion

Based on the foregoing and all 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. The Board's approval is specifically conditioned on compliance by BancGroup with the condition imposed in this order and the commitments made to the Board in connection with the application. For purposes of this transaction, the condition and these commitments are deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law.

The proposed transaction 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.

By order of the Board of Governors, effective January 25, 2005.

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

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

(2.) 12 CFR 262.3(b).

(3.) Asset data are as of September 30, 2004, and national rankings are as of June 30, 2004. Deposit data and state rankings are as of June 30, 2004, and are adjusted to reflect mergers and acquisitions completed through December 1, 2004.

(4.) 12 U.S.C. [section] 1842(d). Under section 3(d) of the BHC Act, a bank holding company's home state is the state in which the total deposits of all banking subsidiaries of such company were the largest on July 1, 1966, or the date on which the company became a bank holding company, whichever is later. 12 U.S.C. [section] 1841(o)(4)(C).

(5.) For purposes of section 3(d), the Board considers a bank to be located in states in which the bank is chartered or headquartered or operates a branch. See 12 U.S.C. [subsection] 1841(o)(4)-(7) and 1842(d)(1)(A) & (d)(2)(B).

(6.) 12 U.S.C. [section] 1842(d)(1)(A) & (B), 1842(d)(2)(A) & (B). Banc- Group is well capitalized and well managed, as defined by applicable law. Union Bank has been in existence and operated for the minimum period of time required by Florida law. On consummation of the proposal, BancGroup would control less than 10 percent of the total amount of deposits of insured depository institutions in the United States and less than 30 percent of the total amount deposits of insured depository institutions in Florida. See Fla. Stat. Ch. 658.295(8)(b) (2004). All other requirements under section 3(d) of the BHC Act would be met on consummation of the proposal.

(7.) 12 U.S.C. [section] 1842(c)(1).

(8.) The Miami-Fort Lauderdale market is defined as Broward and Dade Counties. The West Palm Beach Area market is defined as Palm Beach County east of the town of Loxahatchee and the towns of Indiantown and Hobe Sound in Martin County.

(9.) Deposit and market share data are as of June 30, 2004, adjusted to reflect subsequent mergers and acquisitions through December 1, 2004, and are based on calculations in which the deposits of thrift institutions are included at 50 percent. The Board previously has indicated that thrift institutions have become, or have the potential to become, significant competitors of commercial banks. See, e.g., Midwest Financial Group, 75 Federal Reserve Bulletin 386 (1989); National City Corporation, 70 Federal Reserve Bulletin 743 (1984). Thus, the Board regularly has included thrift deposits in the market share calculation on a 50 percent weighted basis. See, e.g., First Hawaiian, Inc., 77 Federal Reserve Bulletin 52 (1991).

(10.) Under the DOJ Guidelines, a market is considered unconcentrated if the post-merger HHI is less than 1000 and moderately concentrated if the post-merger HHI is between 1000 and 1800. The Department of Justice has informed the Board that a bank merger or acquisition generally will not be challenged (in the absence of other factors indicating anticompetitive effects) unless the post-merger HHI is at least 1800 and the merger increases the HHI by more than 200 points. The Department of Justice has stated that the higher than normal HHI thresholds for screening bank mergers for anticompetitive effects implicitly recognize the competitive effects of limited-purpose lenders and other nondepository financial institutions.

(11.) The effects of the proposal on the concentration of banking resources in these banking markets are described in the Appendix.

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

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

(14.) At that time, Colonial Bank was a state-chartered member bank of the Federal Reserve System. Colonial Bank converted to a national bank charter in 2003.

(15.) 12 U.S.C. [section] 2801 et seq.

(16.) The evaluation period was from January 1, 2000, to December 31, 2001.

(17.) The evaluation period was from January 1, 2001, to October 31, 2002.

(18.) 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 and provide only limited information about the covered loans. 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.

Appendix

Banking Market Data

Miami-Fort Lauderdale, Florida

BancGroup is the 11th largest depository institution in the Miami-Fort Lauderdale market, controlling $1.5 billion in deposits, which represents approximately 1.8 percent of market deposits. Union Bank is the 21st largest depository institution in the market, controlling $627.1 million in deposits, which represents less than 1 percent of market deposits. On consummation of the proposal, BancGroup would be the ninth largest depository institution in the Miami-Fort Lauderdale market, controlling approximately $2.1 billion in deposits, which would represent approximately 2.5 percent of market deposits. The HHI for the Miami-Fort Lauderdale market would increase 2 points to 1029, and 99 other bank and thrift competitors would remain in the market.

West Palm Beach Area, Florida

BancGroup is the 11th largest depository institution in the West Palm Beach Area market, controlling $452.0 million in deposits, which represents approximately 1.8 percent of market deposits. Union Bank is the 36th largest depository institution in the market, controlling $59.6 million in deposits, which represents less than 1 percent of market deposits. On consummation of the proposal, BancGroup would be the ninth largest depository institution in the West Palm Beach Area market, controlling approximately $511.6 million in deposits, which would represent approximately 2.1 percent of market deposits. The HHI for the West Palm Beach Area market would increase 1 point to 1422, and 59 other bank and thrift competitors would remain in the market.

Synovus Financial Corp.

Columbus, Georgia

Order Approving the Acquisition of a Bank

Synovus Financial Corp. ("Synovus"), 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 (1) to acquire all the voting shares of Cohutta Banking Company of Tennessee, Chattanooga, Tennessee ("CBCT"), a de novo state chartered bank. (2) After consummation of the proposal, Synovus will operate CBCT as a separate subsidiary bank.

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (69 Federal Register 59,229 (2004)). 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.

Synovus, with total consolidated assets of $23.6 billion, is the 47th largest depository organization in the United States, controlling $17.5 billion of deposits, which represents less than 1 percent of the total deposits in insured depository institutions in the United States. (3) In Tennessee, Synovus is the 16th largest depository organization, and its subsidiary depository institutions have approximately $1.1 billion in combined assets and $720.3 million in combined deposits. Synovus operates 40 subsidiary insured depository institutions in Alabama, Florida, Georgia, South Carolina, and Tennessee, as well as a nondepository trust company in Georgia.

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 bank holding company's home state if certain conditions are met. For purposes of the BHC Act, the home state of Synovus is Georgia, (4) and CBCT is located in Tennessee. (5)

Based on a review of all the facts of record, including relevant state statutes, the Board finds that all conditions for an interstate acquisition enumerated in section 3(d) are met in this case. (6) In light of all the facts of record, the Board is permitted to approve the proposal under section 3(d) of the BHC Act.

Competitive Considerations

Section 3 of the BHC Act prohibits the Board from approving a proposal that would result in a monopoly or would be in furtherance of any attempt to monopolize the business of banking. The BHC Act also prohibits the Board from approving a bank acquisition that would substantially lessen competition in any relevant banking market, unless the Board finds that the anticompetitive effects 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. (7)

The proposal involves the formation and acquisition of a de novo bank in the Chattanooga Area banking market, (8) which would expand Synovus's operations in the market (9) and increase its ability to offer products and services to customers in that market. The Board previously has noted that the establishment of a de novo bank enhances competition in the relevant banking market and is a positive consideration in an application under section 3 of the BHC Act. (10) There is no evidence that the proposal would create or further a monopoly or lessen competition in any relevant market. Accordingly, the Board concludes, based on all the facts of record, that consummation of the proposal would not result in any significantly adverse effects on competition or on the concentration of banking resources in any relevant banking market and that competitive considerations are consistent with approval.

Financial, Managerial, and Supervisory Considerations

Section 3 of the BHC Act requires the Board to consider the financial and managerial resources and future prospects of the companies and banks involved in the proposal and certain other supervisory factors. The Board has considered carefully these factors in light of all the facts of record, including confidential reports of examination, other confidential supervisory information from the primary federal supervisors of the organizations involved in the proposal and certain other agencies, publicly reported information and other financial information, information provided by Synovus, and public comment on the proposal. (11)

In evaluating the financial factors in expansion proposals by banking organizations, the Board reviews the financial condition of the organizations involved on both a parent-only and consolidated basis and the financial condition of the subsidiary banks and significant nonbanking operations. In this evaluation, the Board considers a variety of areas, including capital adequacy, asset quality, and earnings performance. In assessing financial factors, the Board consistently has considered capital adequacy to be especially important. The Board also evaluates the financial condition of the combined organization on consummation, including its capital position, asset quality, earnings prospects, and the impact of the proposed funding of the transaction.

Based on its review of these factors, the Board finds that Synovus has sufficient financial resources to effect the proposal. Synovus will use existing cash resources to purchase CBCT's shares and capitalize the bank. Synovus is well capitalized and will remain so on consummation of the proposal, and CBCT will be well capitalized.

The Board has considered the managerial resources of Synovus in light of its supervisory experiences and those of the other relevant federal and state banking supervisors with the organization and its subsidiary banks and their records of compliance with applicable banking laws. The Board has reviewed the examination records of the Synovus organization, including assessments of its management, risk management systems, and operations. Synovus and its subsidiary depository institutions are considered well managed. The Board also has reviewed the proposed management, risk management systems, and operations of CBCT and consulted with the FDIC and TDFI.

Based on all the facts of record, the Board has concluded that considerations relating to the financial and managerial resources and future prospects of Synovus and CBCT are consistent with approval, as are the other supervisory factors under section 3 of the BHC Act.

Convenience and Needs Considerations

In acting on this proposal, the Board also must 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 insured depository institutions under the Community Reinvestment Act ("CRA"). (12) The CRA requires the federal financial supervisory agencies to encourage financial institutions to help meet the credit needs of the local communities in which they operate, consistent with their safe and sound operation, and requires the appropriate federal financial supervisory agency to take into account a depository institution's record of meeting the credit needs of its entire community, including low- and moderate-income ("LMI") neighborhoods, in evaluating bank expansionary proposals.

The Board has carefully considered the convenience and needs factor and the CRA performance records of Synovus's subsidiary banks in light of all the facts of record, including public comment on the proposal. A commenter opposing the proposal alleged, based on data reported under the Home Mortgage Disclosure Act ("HMDA"), (13) that Synovus Mortgage Corp., Birmingham, Alabama ("SMC"), Synovus's indirect subsidiary mortgage lending company, (14) engaged in disparate treatment of African Americans in home mortgage lending in certain markets. (15)

As previously noted, CBCT is in formation and has not begun operations. CBCT was required to submit a comprehensive CRA plan to the FDIC in connection with its charter application, and the FDIC considered the CRA plan in granting preliminary approval of the bank's state charter. CBCT's plan indicates that the bank intends to lend to small- and medium-sized businesses, including those in LMI census tracts; engage in mortgage and other consumer lending activities; and provide a variety of banking, trust, brokerage, and insurance services. Synovus represented that CBCT will implement Synovus's centralized CRA policies and procedures to help ensure that the existing and anticipated credit needs of CBCT's community are met. The FDIC will evaluate the implementation of CBCT's CRA plan in future CRA performance evaluations of the bank.

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 Synovus's subsidiary insured depository institutions by the appropriate federal supervisors. (16) Each of Synovus's subsidiary depository institutions received "outstanding" or "satisfactory" ratings at their most recent performance examinations. CB&T, Synovus's lead bank, received an overall "satisfactory" rating at its most recent CRA performance evaluation by the FDIC, as of January 14, 2002.

CB&T received a "high satisfactory" rating under the lending, investment, and service tests. (17) Examiners noted that although CB&T considered itself to be primarily a commercial lender, it offered a full range of products and services to individuals in its assessment areas. They found that CB&T's lending activity demonstrated a good responsiveness to community credit needs. Examiners noted that the bank offered innovative and flexible lending programs, including various products designed to meet the needs of small businesses owned by minorities or women; different loan products sponsored by the Small Business Administration; and alternative home mortgage loan products through its affiliate, SMC, for borrowers who did not qualify for its conventional mortgage loans.

Examiners reported that CB&T was the leading lender in 2000, by number and dollar volume of small business loans and small farm loans in the bank's assessment area. (18) CB&T originated small business loans totaling approximately $153 million and small farm loans totaling approximately $6.9 million in its assessment area. Examiners noted the bank's geographic distribution of all its loans reflected adequate penetration and that its distribution of loans based on borrower income was good. More than 80 percent of its small business loan originations by number and dollar volume were to businesses with gross annual revenues of $1 million or less, and more than 96 percent of its small farm loan originations were to farms with gross annual revenues of $1 million or less. In addition, the bank originated more than 19 percent of its home mortgage loans to LMI borrowers.

Examiners noted that CB&T's level of community development lending was adequate and reflected the bank's limited opportunities to participate in community development projects in its assessment area. During the evaluation period, CB&T extended community development loans totaling more than $14 million.

Examiners reported that the bank's level of qualified investments and grants was good, despite the limited investment opportunities in its assessment area. CB&T made 45 community development investments and grants totaling more than $2.25 million during the evaluation period.

In addition, examiners found that CB&T provided a relatively high level and variety of financial and retail services to meet the needs of its assessment area. CB&T's community development activities included a school savings program for children from LMI families, financial training and special financing packages for businesses owned by women or minorities, and assistance in establishing a credit union focused on serving LMI communities.

B. HMDA and Fair Lending Records

The Board also has carefully considered the lending record of SMC in light of the comments received on the HMDA data. Based on 2003 HMDA data, the commenter alleged that SMC disproportionately denied African-American applicants for home mortgage purchase or refinance loans in three MSAs in Alabama and Georgia. (19)

In most of the markets reviewed, SMC's denial disparity ratios (20) with respect to African-American applicants for all HMDA-reportable loans on a combined basis were either below or slightly above the denial disparity ratios for the aggregate of all lenders in the market ("aggregate lenders"). (21) SMC's denial rate (22) for African-American applicants was lower than the denial rate for the aggregate lenders in the markets reviewed.

Although the HMDA data may reflect certain disparities in the rates of applications, originations, or denials among members of different racial groups in certain local areas, the HMDA data generally do not demonstrate that SMC excluded any racial group on a prohibited basis. The Board nevertheless is concerned when HMDA data for an institution indicate 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. 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. (23) 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 information on Synovus's programs for compliance with fair lending and other consumer protection laws. The Board also consulted with the FDIC, the primary regulator of First Commercial Bank, SMC, and CB&T, and considered examination reports on the compliance with fair lending laws of these and other subsidiary depository and lending institutions of Synovus. Examiners noted no evidence of discriminatory lending practices on a prohibited basis in the CRA performance evaluations of Synovus's subsidiary depository institutions.

The record also indicates that Synovus has taken steps to ensure compliance with fair lending laws. Synovus has a Corporate Compliance Department ("CCD"), managed and staffed by individuals with extensive compliance experience, which develops and maintains comprehensive compliance programs for all laws and regulations applicable to Synovus's consumer lending activities. The CCD consults with internal and external counsel to ensure the adequacy of these programs and requires Synovus lending personnel to receive annual fair-lending training.

In addition, Synovus stated that the CCD reviews the consumer lending programs of each subsidiary by examining lending overrides on a monthly basis and conducting full-file compliance reviews on an annual basis. The CCD also monitors the subsidiaries' compliance with the HMDA and the CRA on a quarterly basis. Compliance officers at each Synovus subsidiary forward complaints as appropriate to the CCD for review and action. Synovus represented that it will implement similar compliance programs at CBCT.

Synovus's CCD performs oversight of SMC's lending activities in a manner similar to its oversight of other Synovus subsidiary institutions. Internal reviews by both SMC's Quality Control Group and Synovus's CCD are conducted at various stages of the mortgage process, including the underwriting, prefunding, and postfunding periods. Independent third-party review of SMC's lending is conducted on a monthly basis, and Synovus conducts an internal audit of SMC annually.

The Board also has considered the HMDA data in light of the CRA performance records of Synovus's subsidiary depository institutions. These records demonstrate that Synovus is active in helping to meet the credit needs of its entire community.

C. Conclusion on the Convenience and Needs Factor

The Board has carefully considered all the facts of record, including reports of examination of the CRA records of the institutions involved, information provided by Synovus, public comment on the proposal, and supervisory and other confidential information. The Board notes that the proposal would expand the availability of financial products and services to customers by increasing the geographic scope of Synovus's banking operations. Based on a review of the entire record, and for reasons discussed above, the Board concludes that considerations related to the convenience and needs factor, including the CRA performance records of the relevant depository institutions, are consistent with approval.

Conclusion

Based on the foregoing and 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 Synovus with the conditions imposed in this order, the commitments made to the Board in connection with the application, and receipt of all other regulatory approvals. The conditions and commitments are deemed to be conditions imposed in writing by the Board in connection with its findings and decision herein and, as such, may be enforced in proceedings under applicable law.

The acquisition of CBCT's voting shares 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.

By order of the Board of Governors, effective February 23, 2005.

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

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

(2.) Under Tennessee branching law, one of Synovus's Tennessee-chartered subsidiary banks established a phantom branch in Chattanooga, and the organizers and proposed management of CBCT filed an application to charter the branch as a de novo institution (CBCT). The Tennessee Department of Financial Institutions ("TDFI") approved CBCT's charter on October 20, 2004, and the Federal Deposit Insurance Corporation ("FDIC") granted CBCT deposit insurance on October 22. Synovus also has filed applications to acquire CBCT that must be approved by the FDIC, TDFI, and the Georgia Department of Banking and Finance.

(3.) Asset, deposit, nationwide, and statewide ranking data are as of June 30, 2004. In this context, depository institutions include commercial banks, savings banks, and savings associations.

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

(5.) For purposes of section 3(d), the Board considers a bank to be located in states in which the bank is chartered or headquartered or operates a branch. See 12 U.S.C. [subsection] 1841(o)(4)-(7) and 1842(d)(1)(A) and (d)(2)(B).

(6.) See 12 U.S.C. [subsection] 1842(d)(1)(A)-(B) and 1842(d)(2)(A)-(B). Synovus is adequately capitalized and adequately managed, as defined by applicable law. Although Tennessee law generally prohibits the acquisition of a bank that has been in operation less than five years, the state's provisions on branch banking provide an exception to this prohibition for transactions structured like Synovus's proposal. See TENN. CODE ANN. [subsection] 45-2-1403 and 45-2-614(c) (2000). On consummation of the proposal, Synovus and its affiliates would control less than 10 percent of the total amount of deposits in insured depository institutions in the United States and less than 30 percent of the total amount of deposits of insured depository institutions in Tennessee. See TENN. CODE ANN. [section] 45-2-1404. All other requirements under section 3(d) of the BHC Act also would be met on consummation of the proposal.

(7.) 12 U.S.C. [section] 1842(c)(1).

(8.) The Chattanooga Area banking market is defined as Hamilton and Marion Counties, excluding the portion of the town of Monteagle that is outside Marion County, all in Tennessee; and Catoosa, Dade, and Walker Counties in Georgia.

(9.) Synovus, through The Cohutta Banking Company, Chatsworth, Georgia, has two branches in the Chattanooga Area banking market with $60.4 million in total deposits. Synovus ranks 17th in the market with less than 1 percent of the total deposits in depository institutions in the market.

(10.) See Canadian Imperial Bank of Commerce, 85 Federal Reserve Bulletin 733 (1999); Wilson Bank Holding Company, 82 Federal Reserve Bulletin 568 (1996).

(11.) A commenter expressed concern over press reports about an investigation of Synovus's credit-card processing company subsidiary and one of its clients for possible violations of federal law in connection with mailings on behalf of that client. The investigation concerns compliance with U.S. Postal Service ("USPS") regulations that authorize discounted postal rates subject to certain mailing list requirements. This matter is not within the Board's jurisdiction to adjudicate. The Board has consulted with the USPS and the Department of Justice about the matter.

(12.) 12 U.S.C. [section] 2901 et seq.; 12 U.S.C. [section] 1842(c)(2).

(13.) 12 U.S.C. [section] 2801 et seq.

(14.) SMC is a subsidiary of First Commercial Bank, also in Birmingham and an indirect subsidiary bank of Synovus.

(15.) The commenter also asserted that Synovus's lead subsidiary bank, Columbus Bank and Trust ("CB&T"), Columbus, controls the operations of CompuCredit Corporation ("CompuCredit"), Atlanta, both in Georgia, a third-party organization that engages in subprime credit-card and payday lending. CB&T and CompuCredit offer a co-branded credit card program ("credit card affinity program") under a contractual arrangement. Under the contract, CB&T reviews, modifies, and approves the credit terms and underwriting criteria proposed by CompuCredit for the credit card program and issues the credit cards, and CompuCredit buys the credit card receivables and provides certain marketing and other services for the issued cards. Synovus represented that CB&T reviews the terms and underwriting criteria proposed by CompuCredit to ensure that all aspects of the credit card affinity program comply with applicable consumer protection laws and regulations. Synovus also stated that a Senior Regulatory Risk Analyst manages all aspects of the CB&T/CompuCredit relationship, which includes reviewing policies and procedures with internal and external counsel, reviewing customer complaints, and initiating audits. The Board consulted with the FDIC and reviewed supervisory and other confidential information about this credit card affinity program. Synovus is not involved in any other business conducted by Compu- Credit and does not own or control CompuCredit within the meaning of the BHC Act.

(16.) The Interagency Questions and Answers Regarding Community Reinvestment provides that an institution's most recent CRA performance evaluation is an important and often controlling factor in the consideration of an institution's CRA record because it represents a detailed, on-site evaluation of the institution's overall record of performance under the CRA by its appropriate federal supervisory agency. 66 Federal Register 36,620 and 36,639 (2001).

(17.) The evaluation period of the examination was January 1, 2001, through January 14, 2002, and included a review of HMDA-reportable mortgage loans by SMC in the bank's assessment area from January 1, 2000, through September 30, 2001. CB&T's assessment area is the Columbus, Georgia Metropolitan Statistical Area ("Columbus MSA").

(18.) In this context, small business loans are loans with original amounts of $1 million or less that are either secured by nonfarm nonresidential properties or are classified as commercial and industrial loans. Small farm loans are loans with original amounts of $500,000 or less that are either secured by farmland, including farm residential improvements, or are classified as loans to finance agricultural production and other loans to farmers.

(19.) The Board analyzed the 2003 HMDA data for SMC in the Columbus MSA and the Birmingham and Montgomery, Alabama MSAs, which the commenter identified, and in the Atlanta, Georgia; Huntsville, Alabama; and Pensacola, Florida MSAs, where SMC also conducts much of its lending. SMC serves as the primary mortgage lender for most of Synovus's subsidiary banks. Synovus stated that if an applicant seeks a conventional home purchase or refinance loan, the application, with the applicant's consent, is referred to SMC for processing. The Board also reviewed confidential supervisory information, information provided by Synovus, and consulted with the FDIC on SMC's HMDA-reportable lending.

(20.) The denial disparity ratio equals the denial rate for a particular racial category (e.g., African-American) divided by the denial rate for whites.

(21.) The lending data of the aggregate lenders represent the cumulative lending for all financial institutions that have reported HMDA data in a particular area.

(22.) The denial rate represents the percentage of a lender's HMDA loan applications that were denied.

(23.) 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.

The Toronto-Dominion Bank

Toronto, Canada

Order Approving the Acquisition of a Bank Holding Company

The Toronto-Dominion Bank ("TD"), a financial 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 (1) to acquire 51 percent of the voting shares of Banknorth Group, Inc. ("Banknort