Orders issued under Bank Holding Company Act.

Orders Issued Under Section 3 of the Bank Holding Company Act

Capital City Bank Group, Inc.

Tallahassee, Florida

Capital City Bank

Tallahassee, Florida

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

Capital City Bank Group, Inc. ("Capital City"), 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 merge with First Alachua Banking Corporation ("First Alachua"), with Capital City as the surviving entity, and thereby indirectly acquire First Alachua's wholly owned subsidiary, First National Bank of Alachua ("First National Bank"), both of Alachua, Florida. In addition, Capital City's subsidiary bank, Capital City Bank, a state member bank, has requested the Board's approval under section 18(c) of the Federal Deposit Insurance Act (2) ("Bank Merger Act") to merge with First National Bank, with Capital City Bank as the surviving entity. Capital City Bank has also applied under section 9 of the Federal Reserve Act ("FRA") to retain and operate branches at the locations of First National Bank's main office and branches. (3)

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published in the Federal Register (69 Federal Register 71,056 (2004)) and locally in accordance with the relevant statutes and the Board's Rules of Procedure. (4) As required by the BHC Act and the Bank Merger Act, reports on the competitive effects of the mergers were requested from the United States Attorney General and the appropriate banking agencies. The time for filing comments has expired, and the Board has considered the applications and all comments received in light of the factors set forth in section 3 of the

BHC Act, the Bank Merger Act, and the FRA. Capital City, with total consolidated assets of approximately $2.4 billion, is the 28th largest insured depository organization in Florida, controlling deposits of approximately $1.4 billion. (5) First Alachua, with total consolidated assets of approximately $231.8 million, is the 111th largest insured depository organization in Florida, controlling deposits of approximately $207 million. On consummation of the proposal, Capital City would become the 26th largest insured depository organization in Florida, controlling deposits of approximately $1.6 billion, which would represent less than 1 percent of total deposits of insured depository institutions in the state. (6)

Competitive Considerations

Section 3 of the BHC Act and the Bank Merger Act prohibit the Board from approving a proposal that would result in a monopoly or would be in furtherance of an attempt to monopolize the business of banking in any relevant banking market. The BHC Act and the Bank Merger Act also prohibit 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. (7)

Capital City Bank and First National Bank compete directly in the Gainesville and Palatka banking markets in Florida. (8) The Board has carefully reviewed the competitive effects of the proposal in these banking markets in light of all the facts of record, including the number of competitors that would remain in the markets, the relative shares of total deposits in depository institutions in each market ("market deposits") controlled by Capital City Bank and First National 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 markets.

Consummation of the proposal would be consistent with Board precedent and within the thresholds in the DOJ Guidelines in the Gainesville banking market. This banking market would remain moderately concentrated, and the post-merger HHI would increase 67 points, to 1,293. Fourteen competitors would remain in the banking market. (11)

In the Palatka banking market, the HHI would slightly exceed DOJ Guidelines on consummation. Capital City Bank is the fifth largest depository institution in the market, controlling approximately $63.8 million in deposits, which represent approximately 13.5 percent of market deposits. First National Bank is the sixth largest depository institution with deposits of approximately $42.7 million, which represent approximately 9 percent of market deposits. On consummation of the merger, Capital City Bank would become the largest depository institution in the market, controlling deposits of approximately $106.5 million, which represent approximately 22.5 percent of market deposits. The HHI would increase 242 points, to 1,808.

In reviewing the competitive effects of this proposal, the Board has considered that several factors appear to mitigate the likely effect of the proposal on competition in the Palatka banking market. The Palatka banking market has five commercial banking organizations and one thrift organization that would remain in the market after consummation. Two commercial bank competitors each would control approximately 20 percent of market deposits and local branch networks as large as Capital City's.

The Board also has considered that this banking market has two active community credit unions in Palatka that offer a wide range of consumer banking products. The First Coast Community Credit Union controls $45.9 million in deposits in the Palatka banking market, and the Putnam County Federal Credit Union controls $22.5 million in deposits in the market. Almost all residents in the Palatka banking market are eligible for membership in each credit union, and both credit unions operate street-level branches with drive-up service lanes. The Board concludes that these credit unions exert a competitive influence that mitigates, in part, the potential anticompetitive effects of the proposal. (12)

The Board concludes that the foregoing considerations, including the presence of two accessible credit unions, the number and size of competitors that would remain in the Palatka banking market after consummation, and other factors, mitigate the transaction's potential anticompetitive effects. The DOJ has advised the Board that consummation of the proposal is not likely to have a significantly adverse competitive effect in the Palatka banking market. The Board also has received no objections to the proposal from the other federal banking agencies.

Based on all the facts of record, the Board concludes that consummation of the proposed transaction would not likely result in a 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 and Managerial Resources and Supervisory Considerations

In reviewing the proposal under section 3 of the BHC Act, the Bank Merger Act, and the FRA, the Board has carefully considered 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 considered these factors in light of all the facts of record including, among other things, 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 information provided by the applicants.

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 financial condition of the combined organization, 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 finds that Capital City has sufficient financial resources to effect the proposal. The transaction would be effected through a combination of cash and an exchange of shares. Capital City would fund the cash consideration by issuing trust preferred securities. Capital City and Capital City Bank are well capitalized and would remain so on consummation of the proposal.

The Board also has evaluated the managerial resources of the organizations involved and of the proposed combined organization. The Board has reviewed the examination records of Capital City, First Alachua, and their subsidiary depository institutions, 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. The Board also has considered Capital City's plans to integrate First Alachua and First National 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 and Other Considerations

In acting on the proposal, the Board also must consider its effects 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"). (13) Capital City Bank received an overall rating of "satisfactory" at its most recent CRA performance evaluation by the Federal Reserve Bank of Atlanta, as of November 17, 2003. First National Bank also received a "satisfactory" rating at its most recent CRA performance evaluation by the Office of the Comptroller of the Currency, as of October 7, 2002. 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 all the facts of record, the Board concludes that the considerations relating to the convenience and needs of the communities to be served and the CRA performance records of the institutions involved are consistent with approval of this proposal.

As previously noted, Capital City also has applied under section 9 of the FRA to establish branches at the locations listed in the appendix. The Board has assessed the factors it is required to consider when reviewing an application under section 9 of the FRA, including section 208.6 of the Board's Regulation H, which implements section 9(4) of the FRA, and finds those factors to be consistent with approval. (14)

Conclusion

Based on the foregoing and all facts of record, the Board has determined that the applications should be, and hereby are, approved. In reaching its conclusion, the Board has considered all the facts of record in light of the factors that it is required to consider under the BHC Act, the Bank Merger Act, and the FRA. The Board's approval is specifically conditioned on compliance by Capital City with the conditions imposed in this order, the commitments made to the Board in connection with the applications, and receipt of all other regulatory approvals. For purposes of this action, 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 proposed transactions may not be consummated before the fifteenth calendar day after the effective date of this order, or later than three months after the effective date of this order, unless such period is extended for good cause by the Board or the Federal Reserve Bank of Atlanta, acting pursuant to delegated authority.

By order of the Board of Governors, effective April 28, 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 U.S.C. [section] 1828(c).

(3.) 12 U.S.C. [section] 321. These branches are listed in the appendix.

(4.) 12 CFR 262.3(b).

(5.) Asset data are as of December 31, 2004, and deposit data and statewide ranking data are as of June 30, 2004. Ranking data are adjusted to reflect merger and acquisition activity through March 4, 2005.

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

(7.) See 12 U.S.C. [section] 1842(c)(1); 12 U.S.C. [section] 1828(c)(5).

(8.) The Gainesville banking market is defined as Alachua, Gilchrist, and Levy Counties. The Palatka banking market is defined as Putnam County and the town of Hastings in St. Johns County.

(9.) Deposit and market share data are as of June 30, 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 moderately concentrated if the post-merger HHI is between 1000 and 1800, and a market is considered highly concentrated if the post-merger HHI is more than 1800. The Department of Justice ("DOJ") has informed the Board that a bank merger or acquisition generally will not be challenged (in the absence of other factors indicating anticompetitive effects) unless the post-merger HHI is at least 1800 and the merger increases the HHI by more than 200 points. The DOJ has stated that the higher-than-normal HHI thresholds for screening bank mergers and acquisitions for anticompetitive effects implicitly recognize the competitive effects of limited-purpose and other nondepository financial entities.

(11.) Capital City Bank operates the seventh largest depository institution in the market, controlling deposits of approximately $148.1 million, which represent approximately 5.5 percent of market deposits. First National Bank operates the fifth largest depository institution in the market, controlling deposits of approximately $164.3 million, which represents approximately 6.1 percent of market deposits. On consummation of the proposal, Capital City Bank would become the third largest depository institution in the market, controlling deposits of approximately $312.4 million, which represents approximately 11.6 percent of market deposits.

(12.) The Board previously has considered the competitiveness of certain active credit unions as a mitigating factor. See F.N.B. Corporation, 90 Federal Reserve Bulletin 481 (2004); Gateway Bank & Trust Co., 90 Federal Reserve Bulletin 547 (2004). With deposits of these credit unions included at 50 percent, Capital City Bank would be the fifth largest of nine depository institutions in the market, with approximately 12.6 percent of market deposits, and First National Bank would be the sixth largest depository institution in the market, controlling approximately 8.4 percent of market deposits. On consummation of the proposal, Capital City Bank would be the largest depository institution in the market with deposits of approximately $106.5 million or approximately 21 percent of market deposits. The HHI would increase 211 points, to 1,598.

(13.) 12 U.S.C. [section] 2901 et seq. 14. 12 U.S.C. [section] 322; 12 CFR 208.6(b).

Appendix

Addresses of Main Office and Branches in Florida to be Acquired by Capital City

Alachua

15000 N.W. 140th Street

Gainesville

4000 N. Main Street

6360 N.W. 13th Street

4040 N.W. 16th Boulevard

4041 N.W. 37th Place, Suite A

Hastings

207 N. Main Street

High Springs

660 N.E. Santa Fe Boulevard

Jonesville

14009 W. Newberry Road

Newberry

24202 W. Newberry Road, Suite F

C-B-G, Inc.

West Liberty, Iowa

Order Approving the Acquisition of Shares of a Bank Holding Company

C-B-G, Inc. ("C-B-G"), 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 up to 24.35 percent of the voting shares of Washington Bancorp ("Washington") and thereby indirectly acquire an interest in Washington's subsidiary bank, Federation Bank, both of Washington, Iowa.

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (69 Federal Register 78,028 (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.

C-B-G, with consolidated assets of approximately $189 million, is the 63rd largest depository organization in Iowa, controlling deposits of $160 million, which represent less than 1 percent of total deposits of insured depository institutions in Iowa ("state deposits"). (2) Washington, with total consolidated assets of $106 million, is the 154th largest depository organization in Iowa, controlling $75 million in deposits. If C-B-G were deemed to control Washington on consummation of the proposal, C-B-G would become the 43rd largest depository organization in Iowa, controlling approximately $235 million in deposits, which represents 1 percent of state deposits.

The Board received comments from Washington and a local resident objecting to the proposal and expressing concern that the proposal would result in C-B-G controlling and potentially harming Washington. (3) The Board has considered carefully these comments in light of the factors that the Board must consider under section 3 of the BHC Act.

The Board previously has stated that the acquisition of less than a controlling interest in a bank or bank holding company is not a normal acquisition for a bank holding company. (4) However, the requirement in section 3(a)(3) of the BHC Act that the Board's approval be obtained before a bank holding company acquires more than 5 percent of the voting shares of a bank suggests that the Congress contemplated the acquisition by bank holding companies of between 5 percent and 25 percent of the voting shares of banks. (5) On this basis, the Board previously has approved the acquisition by a bank holding company of less than a controlling interest in a bank or bank holding company. (6)

C-B-G has indicated that it does not propose to control or exercise a controlling influence over Washington or Federation Bank. C-B-G has agreed to abide by certain commitments previously relied on by the Board in determining that an investing bank holding company would not be able to exercise a controlling influence over another bank holding company for purposes of the BHC Act. (7) For example, C-B-G has committed not to exercise or attempt to exercise a controlling influence over the management or policies of Washington or any of its subsidiaries; not to seek or accept representation on the board of directors of Washington or any of its subsidiaries; and not to have any director, officer, employee, or agent interlocks with Washington or any of its subsidiaries. C-B-G also has committed not to attempt to influence the dividend policies, loan decisions, or operations of Washington or any of its subsidiaries. The Board notes that the BHC Act prohibits C-B-G from acquiring additional shares of Washington or attempting to exercise a controlling influence over Washington without the Board's prior approval.

The Board has adequate supervisory authority to monitor compliance by C-B-G with its commitments and can take enforcement action against C-B-G if it violates any of the commitments. (8) The Board also has authority to initiate a control proceeding against C-B-G if facts presented later indicate that C-B-G or any of its subsidiaries or affiliates in fact controls Washington for purposes of the BHC Act. (9) Based on these considerations and all other facts of record, the Board has concluded that C-B-G would not acquire control of, or have the ability to exercise a controlling influence over, Washington through the proposed acquisition of voting shares. (10)

Competitive and Convenience and Needs Considerations

Section 3 of the BHC Act prohibits the Board from approving a proposal that would result in a monopoly or would be in furtherance of any attempt to monopolize the business of banking in any relevant banking market. Section 3 also prohibits the Board from approving a proposal that would substantially lessen competition in any relevant banking market, unless the Board finds that the anticompetitive effects of the proposal clearly are outweighed in the public interest by the probable effect of the proposal in meeting the convenience and needs of the community to be served. (11)

The Board previously has stated that one company need not acquire control of another company to lessen competition between them substantially. (12) C-B-G and Washington, however, do not compete directly in any relevant banking market. Based on all the facts of record, the Board has concluded that consummation of the proposal would have no significant adverse effect on competition or on the concentration of banking resources in any relevant banking market and that competitive factors are consistent with approval of the proposal.

In addition, considerations relating to the convenience and needs of the communities to be served, including the records of performance of the institutions involved under the Community Reinvestment Act ("CRA"), (13) are consistent with approval. C-B-G's subsidiary banks each received "satisfactory" ratings, and Federation Bank received an "outstanding" rating, at their most recent evaluations for CRA performance by the FDIC. (14)

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 depository institutions 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 federal and state banking supervisors of the organizations involved, publicly reported and other financial information, information provided by C-B-G, and comments received. (15)

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 depository institutions 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, and earnings prospects and the impact of the proposed funding of the transaction. (16)

Based on its review of these factors, the Board finds that C-B-G has sufficient financial resources to effect the proposal. C-B-G and its subsidiary banks currently are well capitalized and would remain so on consummation of this proposal. The proposed transaction is structured as a cash transaction, and the consideration to be received by the Washington shareholders who are selling their shares to C-B-G would be funded from issuance of trust preferred securities.

The Board also has considered the managerial resources of the organizations involved. The Board has reviewed the examination records of C-B-G, Washington, and their subsidiary depository institutions, including assessments of their management, risk-management systems, and operations. In addition, the Board has considered its supervisory experiences and those of the other relevant banking agencies with the organizations and their records of compliance with applicable banking laws. C-B-G, Washington, and their subsidiary depository institutions are considered well managed.

Based on all the facts of record, the Board concludes that considerations relating to the financial and managerial resources and future prospects of the organizations involved in the proposal are consistent with approval, as are the other supervisory factors the Board must consider under the BHC Act.

Other Considerations

Washington has asserted that the proposal would violate an Iowa statute that requires a bank holding company making an offer to purchase, directly or indirectly, shares of an Iowa-chartered bank to extend the same offer to all shareholders of the bank. (17) If a bank is wholly owned by a bank holding company, as in this case, Washington argues that the same offer must be made to all the shareholders of the parent holding company. C-B-G, which made an offer only to some shareholders of Washington, has responded that the Iowa statute does not apply to the proposal because it is acquiring shares of a bank holding company, and not a bank, and that no additional shares of Federation Bank exist to purchase.

The Board may not approve a proposal that is prohibited by a valid state law. (18) The Board is not, however, the arbiter of disputes regarding the applicability or meaning of state corporate law.

The Board has reviewed the state law in this case and the submissions from C-B-G and Washington regarding the interpretation of the Iowa statute. In addition, the Board has consulted with the Iowa Superintendent of Banking and the Iowa Attorney General's Office.

Based on this review, it appears that the proposed acquisition of Washington shares is not prohibited under state law and can be consummated without violating state law. Under C-B-G's interpretation, the transaction would be permitted as structured. Even under Washington's interpretation, C-B-G would be permitted to acquire the shares at issue if it made a similar offer to all Washington shareholders. Accordingly, state law does not prohibit C-B-G from acquiring shares of Washington under either interpretation.

The Board conditions its action in this case on C-B-G's compliance with applicable state law. (19) If C-B-G must offer to purchase and then acquire additional shares of Washington, further review and approval by the Federal Reserve may be required under the BHC Act at that time.

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 C-B-G with the conditions imposed in this order and all the commitments made to the Board in connection with the application. For purposes of this transaction, those 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 Washington'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 Chicago, acting pursuant to delegated authority.

By order of the Board of Governors, effective April 26, 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.) Asset data are as of December 31, 2004. Statewide deposit and ranking data are as of June 30, 2004. Deposit data reflect the total of the deposits reported by each organization's insured depository institutions in their Consolidated Reports of Condition and Income or Thrift Financial Reports. In this context, insured depository institutions include commercial banks, savings banks, and savings associations.

(3.) Washington requested a private meeting with C-B-G about the proposal. Under the Board's Rules of Procedures, the Reserve Bank may arrange a private meeting between a protestant and the applicant for the purposes of clarifying and narrowing issues and resolving differences when both parties agree to such a meeting. 12 CFR 262.25(c). The parties ultimately declined the invitation of the Federal Reserve Bank of Chicago to participate in a private meeting.

(4.) See, e.g., Brookline Bancorp, MHC, 86 Federal Reserve Bulletin 52 (2000) ("Brookline"); North Fork Bancorporation, Inc., 81 Federal Reserve Bulletin 734, 735 (1995) ("North Fork"); First Piedmont Corp., 59 Federal Reserve Bulletin 456, 457 (1973).

(5.) 12 U.S.C. [section] 1842(a)(3).

(6.) S&T Bancorp, Inc., 91 Federal Reserve Bulletin 74 (2005) (acquisition of up to 24.9 percent of the voting shares of a bank holding company); Brookline (acquisition of up to 9.9 percent of the voting shares of a bank holding company); GB Bancorporation, 83 Federal Reserve Bulletin 115 (1997) (acquisition of up to 24.9 percent of the voting shares of a bank).

(7.) See, e.g., S&T Bancorp; Brookline; FleetBoston Financial Corp., 86 Federal Reserve Bulletin 751, 766 (2000). The commitments are set forth in the appendix. Washington also has expressed concern that C-B-G might in the future seek relief from some of these commitments. Any such request would be evaluated by the Board in light of all facts and circumstances at that time.

(8.) See 12 U.S.C. [section] 1818(b)(1).

(9.) See 12 U.S.C. [section] 1841(a)(2)(C).

(10.) Washington asserted that the proposal is inconsistent with the Board's source of strength doctrine. As explained above, the Board previously has permitted a bank holding company that meets the requirements of section 3 of the BHC Act to acquire shares of a bank or bank holding company in a transaction that does not trigger the Board's source of strength regulation.

Washington also expressed concern that the proposal could subject Federation Bank to liability under the cross-guarantee provision of the Federal Deposit Insurance Act, 12 U.S.C. [section] 1815(e) ("FDI Act"), if a subsidiary bank of C-B-G were to fail or require assistance from the Federal Deposit Insurance Corporation ("FDIC"). The Board notes that the application of this provision of the FDI Act is a matter for the FDIC to decide.

(11.) 12 U.S.C. [section] 1842(c)(1).

(12.) The Board has found that noncontrolling interests in directly competing depository institutions may raise serious questions under the BHC Act and has concluded that the specific facts of each case will determine whether the minority investment in a company would be anticompetitive. See, e.g., BOK Financial Corp., 81 Federal Reserve Bulletin 1052, 1053-54 (1995); Mansura Bancshares, Inc., 79 Federal Reserve Bulletin 37, 38 (1993).

(13.) 12 U.S.C. [section] 2901 et seq.

(14.) The most recent CRA performance evaluations of Community Bank, Muscatine, Iowa, the larger of C-B-G's subsidiary banks, and Wilton Savings Bank, Wilton, Iowa, C-B-G's other subsidiary bank, were as of February 2004 and July 2003 respectively. Federation Bank's most recent CRA performance evaluation was as of August 2004.

(15.) Washington also expressed concern that C-B-G could seek access to Washington's confidential records. The Board notes that Iowa law delineates the rights of shareholders to access an Iowa corporation's records. See Iowa Code [section] 490.1602.

(16.) As previously noted, the current proposal provides that C-B-G would acquire only up to 24.35 percent of Washington. Under these circumstances, the financial statements of C-B-G and Washington would not be consolidated for purposes of Federal Reserve reporting requirements.

(17.) Iowa Code [section] 524.1803.

(18.) Whitney National Bank in Jefferson Parish v. Bank of New Orleans and Trust Co., 379 U.S. 411 (1965).

(19.) See also Central Pacific Financial Corp., 90 Federal Reserve Bulletin 93 (2004); Brookline Bancorp, MHC, 86 Federal Reserve Bulletin 52 (2000); Security Pecos Bancshares, Inc., 85 Federal Reserve Bulletin 640 (1999).

Appendix

In connection with its application to acquire up to 24.35 percent of Washington, C-B-G commits that it will not, directly or indirectly:

(1) take any action that would cause Washington1 to become a subsidiary of C-B-G;

(2) acquire or retain shares that would cause the combined interests of C-B-G and its officers, directors, and affiliates to equal or exceed 25 percent of the outstanding voting shares of Washington;

(3) exercise or attempt to exercise a controlling influence over the management or policies of Washington;

(4) seek or accept representation on the board of directors of Washington;

(5) have or seek to have any representative serve as an officer, agent, or employee of Washington;

(6) propose a director or slate of directors in opposition to a nominee or slate of nominees proposed by the management or board of directors of Washington;

(7) solicit or participate in soliciting proxies with respect to any matter presented to the shareholders of Washington;

(8) attempt to influence the dividend policies or practices; the loan, credit, or investment decisions or policies; the pricing of services; any personnel decisions; any operations activities, including the location of any offices or branches or their hours of operation; or any similar activities or decisions of Washington;

(9) dispose or threaten to dispose of shares of Washington in any manner as a condition of specific action or nonaction by Washington; or

(10) enter into any other banking or nonbanking transactions with Washington, except that C-B-G may establish and maintain deposit accounts with bank subsidiaries of Washington, provided that the aggregate balances of all such accounts do not exceed $500,000 and that the accounts are maintained on substantially the same terms as those prevailing for comparable accounts of persons unaffiliated with Washington.

(1.) All references to Washington in these commitments include any subsidiary of Washington.

The PNC Financial Services Group, Inc. Pittsburgh, Pennsylvania

Order Approving the Merger of Bank Holding Companies

The PNC Financial Services Group, Inc. ("PNC"), 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 Act1 to acquire Riggs National Corporation ("Riggs"), Washington, D.C., and its subsidiary bank, Riggs Bank National Association ("Riggs Bank"), McLean, Virginia. (2)

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (69 Federal Register 50,382 (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.

PNC, with total consolidated assets of approximately $80 billion, is the 20th largest depository organization in the United States, controlling deposits of approximately $52.2 billion, which represent less than 1 percent of the total deposits of insured depository institutions in the United States. (3) PNC operates subsidiary insured depository institutions in Delaware, Florida, Indiana, Kentucky, New Jersey, Ohio, and Pennsylvania.

Riggs, with total consolidated assets of approximately $6 billion, controls deposits of $3.8 billion through Riggs Bank, its only subsidiary depository institution. On consummation of this proposal, PNC would become the 19th largest depository organization in the United States, with total consolidated assets of approximately $85.5 billion and total deposits of $56 billion, which represent less than 1 percent of the total amount of deposits of insured depository institutions in the United States.

Interstate Analysis

Section 3(d) of the BHC Act allows the Board to approve an application by a bank holding company to acquire control of a bank located in a state other than the home state of such bank holding company if certain conditions are met. (4) For purposes of the BHC Act, the home state of PNC is Pennsylvania, and Riggs's subsidiary bank is located in Washington, D.C., Maryland, and Virginia. (5)

Based on a review of all the facts of record, including a review of 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. (6) Accordingly, based on 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 in any relevant banking market. The BHC Act also prohibits the Board from approving a proposed bank acquisition that would substantially lessen competition in any relevant banking market, unless the Board finds that the anticompetitive effects of the proposal clearly are outweighed in the public interest by the probable effect of the proposal in meeting the convenience and needs of the community to be served. (7)

PNC and Riggs do not compete directly in any relevant banking market. Accordingly, the Board concludes, based on all the facts of record, that consummation of the proposal would not have an adverse effect on competition or on the concentration of banking resources in any relevant banking market and that competitive factors are consistent with approval of the proposal.

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. 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 in the proposal. In addition, the Board has consulted with the relevant supervisory agencies, including the OCC and the Federal Deposit Insurance Corporation ("FDIC"). 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 PNC, and public comment received by the Board about the financial and managerial resources of PNC and Riggs.

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 that financial factors are consistent with approval of this application. The Board notes that PNC and its subsidiary depository institutions are well capitalized and would remain so on consummation of the proposal. (8) The Board also finds that PNC has sufficient financial resources to effect the proposal. (9) The proposed transaction is structured as a partial share exchange/partial cash purchase of shares, and PNC will use existing cash resources to fund the cash purchase of shares.

The Board also has considered the managerial resources of PNC, Riggs, and the banking institutions and nonbanking subsidiaries to be acquired, and the effect of the proposal on these resources. (10) In reviewing this proposal, the Board has assembled and considered a broad and detailed record, including substantial confidential and public information about PNC and Riggs. The Board has carefully reviewed the examination records of PNC, Riggs, and their subsidiaries, including assessments of their risk-management systems by relevant supervisors. The Board also reviewed confidential supervisory information on the policies, procedures, and practices of PNC and Riggs for complying with the Bank Secrecy Act ("BSA"), and other anti-money-laundering laws, and has consulted with the appropriate federal financial supervisory agencies of PNC's subsidiary banks and Riggs Bank about their records of compliance with anti-money-laundering laws.

In assessing these matters, the Board notes that PNC is considered well managed overall. The Board has taken account of the experience and capability of PNC's senior management; the enterprise-wide risk-management programs used to identify, measure, and control corporate and business line risks; and the adequacy of the organization's internal controls and audit procedures as well as other management programs and matters. The Board also has considered PNC's plans for integrating Riggs into the PNC organization, including the experience of the management team PNC has named to run the banking operations to be acquired from Riggs. (11)

The Board has taken into account that Riggs Bank pleaded guilty to a criminal violation of the BSA and paid a $16 million fine, (12) and that Riggs and Riggs Bank were subject to enforcement actions by the Board and the OCC, respectively, that included payment by Riggs Bank of a $25 million civil money penalty for BSA violations. (13) The Board continues to monitor investigations of Riggs and Riggs Bank by various U.S. governmental authorities and is consulting with the DOJ and the OCC about the ongoing investigations of former and current management officials of Riggs and its subsidiaries. (14)

The Board notes that most of Riggs's supervisory issues arose from its international banking and foreign embassy banking business. In 2004, Riggs announced its intention to exit those lines of business, and Riggs Bank has substantially completed the sale or termination of those activities. 15 The Board has reviewed the progress of Riggs, and has consulted with the OCC about the progress of Riggs Bank, in complying with the Consent Orders. In addition, the Board has consulted with the OCC about enhancements Riggs Bank has made to its programs for complying with the requirements of the BSA.

The Board has also reviewed and taken account of proposals by PNC as the acquiring institutions to implement enhanced risk-management and BSA-compliance programs at Riggs after consummation of this proposal. The Board has considered PNC's record of enhancing its own risk-management and BSA-compliance programs and its plans for implementing those programs at Riggs. These considerations included PNC's proposed management personnel and implementation of corporate-wide risk-management systems for compliance, including BSA-compliance programs, for the expanded PNC operations after consummation and PNC's record of successfully integrating acquired institutions into its existing operations. As previously noted, the banking operations of Riggs Bank will be merged into PNC Bank after consummation of the proposal.

Based on all the facts of record, the Board concludes that considerations relating to the financial and managerial resources and future prospects of PNC and the depository institutions involved in the proposal are consistent with approval, as are the other supervisory factors under the BHC Act. (16)

Convenience and Needs Considerations

In acting on this proposal, the Board 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"). (17) 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 PNC's subsidiary banks and Riggs Bank in light of all the facts of record, including public comment received on the proposal. One commenter opposed the proposal and alleged, based on data reported under the Home Mortgage Disclosure Act ("HMDA"), (18) that PNC Bank and Riggs Bank engaged in disparate treatment of minority individuals in home mortgage lending in the banks' assessment areas. The commenter also expressed concern about possible branch closures.

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. (19)

PNC Bank. PNC Bank, PNC's largest subsidiary bank as measured by total deposits, received an "outstanding" rating at its most recent CRA performance evaluation by the OCC, as of April 15, 2002 ("2002 Evaluation"). (20) Riggs Bank received an "outstanding" rating at its most recent CRA performance evaluation by the OCC, as of April 7, 2003 ("2003 Evaluation"). The Board consulted with the OCC about the CRA performance of PNC Bank and Riggs Bank since their most recent CRA evaluations. PNC has indicated that after the merger of PNC Bank and Riggs Bank, PNC Bank's CRA program will be implemented at the resulting bank.

The 2002 Evaluation was discussed in the United National Order. (21) In that evaluation, PNC Bank received a "high satisfactory" rating under the lending test and "outstanding" ratings under the investment and service tests. (22) Examiners reported that the bank had excellent lending activity in its major markets and good distribution of loans by geography and borrower income. They noted that the bank had developed a bank-wide lending program to assist LMI borrowers through expanded credit criteria, reduced minimum loan amounts, and closing cost assistance. Examiners further stated that the bank's record of community development lending for affordable housing, community services, and economic revitalization was strong. Examiners also reported that PNC Bank made more than $169 million of qualifying community development investments during the evaluation period, a level examiners characterized as excellent. In addition, they reported that the bank's services were readily accessible to LMI individuals and geographies and that the bank was a leader in providing community development services in its assessment areas. Riggs Bank. In the 2003 Evaluation, Riggs Bank received "outstanding" ratings under the lending, investment, and service tests. (23) Examiners reported that the percentage of home purchase loans by Riggs Bank to LMI borrowers exceeded the percentage of LMI families in the bank's assessment area and that the bank's market share of home purchase loans to LMI borrowers exceeded its overall market share of home purchase loans in that area. Examiners stated that the bank made use of innovative and flexible loan products, which provide relaxed underwriting standards for LMI borrowers. Examiners also indicated that the bank had a high level of community development lending.

Examiners characterized Riggs Bank's level of qualified investments as excellent and stated that the bank played a vital role in increasing the level of funds available for affordable mortgages in the bank's assessment area. In addition, examiners reported that the bank provided a relatively high level of community development services, which included participation in or sponsorship of seminars that provided training and assistance on home buying, consumer loans, debt and credit management, and building financial knowledge and relationships with financial institutions.

B. HMDA Data and Fair Lending Record

The Board has carefully considered the lending record of PNC in light of public comment received on the proposal. The commenter alleged, based on a review of 2003 HMDA data, that PNC Bank and Riggs Bank disproportionately excluded or denied African-American or Hispanic applicants for home mortgage loans in various Metropolitan Statistical Areas ("MSAs"). (24) The Board reviewed the HMDA data for 2002 and 2003 reported by PNC Bank and PNC Bank, Delaware (collectively "PNC Banks"), and by Riggs Bank for the states or MSAs where the banks' primary assessment areas were located. (25)

The HMDA data indicate that the PNC Banks' denial disparity ratios (26) for African-American and Hispanic applicants for the banks' total HMDA-reportable loans in Delaware, New Jersey, and Pennsylvania, which together accounted for more than 77 percent of the banks' combined HMDA-reportable loans in 2003, were generally comparable with the ratios for the aggregate of lenders ("aggregate lenders") in those areas. (27) In addition, the percentages of the PNC Banks' total HMDA-reportable loans to African Americans and Hispanics in these states in 2003 were generally comparable with the percentages for the aggregate lenders. The data also indicate that the PNC Banks increased the percentages of their total HMDA-reportable loans originated to African Americans and Hispanics in each of these states from 2002 to 2003. (28)

The HMDA data indicate that Riggs Bank's denial disparity ratios for African-American applicants in its assessment area were higher than those ratios for the aggregate lenders in both years. The data indicate, however, that Riggs Bank significantly reduced its denial disparity ratios for African-American applicants and increased the number and percentage of its total HMDA-reportable loans to African Americans in 2003.

Although the HMDA data might reflect certain disparities in the rates of loan applications, originations, and denials among members of different racial groups in certain local areas, these data generally do not demonstrate that either PNC Bank or Riggs 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 or income level. 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 covered loans. (29) 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 examination reports that provide an on-site evaluation of compliance by PNC and its subsidiary banks and Riggs Bank with fair lending laws. The Board also consulted with the OCC, which has responsibility for enforcing compliance with fair lending laws by PNC Bank and Riggs Bank, about this proposal and the compliance record of these banks. (30)

The record indicates that PNC has taken steps to ensure compliance with fair lending laws. PNC's fair lending policy includes a commitment to provide full and equal access to credit while maintaining safe and sound credit standards. To implement this commitment, PNC's fair lending compliance program includes employee training and review by senior management of credit decisions, pricing, marketing, and fair lending-related polices and procedures.

The Board has also considered the HMDA data and the overall performance records of the subsidiary banks of PNC and Riggs under the CRA. Their established efforts demonstrate that the banks are actively helping to meet the credit needs of their entire communities.

C. Branch Closings

PNC has indicated that it has no plans to close any branches of PNC Bank or Riggs Bank as a result of the proposed transaction. (31) The Board has considered PNC Bank's branch banking policy and its record of opening and closing branches. In the 2002 Evaluation, examiners concluded that PNC Bank's record of opening and closing branches had not adversely affected the bank's delivery of services in LMI areas or to LMI individuals.

The Board also has considered the fact that federal banking law provides a specific mechanism for addressing branch closings. (32) Federal law requires an insured depository institution to provide notice to the public and to the appropriate federal supervisory agency before closing a branch. In addition, the Board notes that the OCC, as the appropriate federal supervisor of PNC Bank, will continue to review the bank's branch closing record in the course of conducting CRA performance evaluations.

D. Conclusion on 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 PNC, public comments on the proposal, and confidential supervisory information. PNC has stated that the proposal would provide PNC and Riggs customers with expanded products and services, including access to expanded branch and ATM 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, 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. (33) 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. (34) The Board's approval is specifically conditioned on compliance by PNC with the conditions imposed in this order and the commitments made to the Board in connection with the application. (35) 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 merger with Riggs and the acquisition of Riggs Bank 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 Cleveland, acting pursuant to delegated authority.

By order of the Board of Governors, effective April 26, 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.) Immediately after the merger of Riggs into PNC, PNC would contribute all the shares of Riggs Bank to PNC Bancorp, Inc., Wilmington, Delaware, a subsidiary bank holding company of PNC. PNC's lead subsidiary bank, PNC Bank, National Association ("PNC Bank"), Pittsburgh, Pennsylvania, then would acquire substantially all the assets and assume substantially all the liabilities of Riggs Bank. This proposed transaction by PNC Bank is subject to approval by the Office of the Comptroller of the Currency ("OCC") under section 18(c) of the Federal Deposit Insurance Act. 12 U.S.C. [section] 1828(c).

(3.) Asset, deposit, and nationwide ranking data are as of December 31, 2004. Deposit data reflect the unadjusted total of the deposits reported by each organization's insured depository institutions in their Consolidated Reports of Condition and Income or Thrift Financial Reports. In this context, insured depository institutions include commercial banks, savings banks, and savings associations.

(4.) 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).

(5.) 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) and 1842(d)(1)(A) and (d)(2)(B).

(6.) 12 U.S.C. [subsection] 1842(d)(1)(A) & (B), and (d)(2)(A) & (B). PNC is adequately capitalized and adequately managed, as defined by applicable law. Riggs Bank has been in existence and operated for the minimum period of time required by applicable law. On consummation of the proposal, PNC 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 be met in this case.

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

(8.) One commenter questioned the basis for the selection by Riggs's board of directors of PNC's bid from among the competing offers and expressed concern that certain senior management officials of Riggs Bank may receive excessive severance payments. The Board notes that the transaction may be consummated only if approved by the Riggs shareholders, that information concerning the selection of PNC's bid and the management officials' severance payments has been disclosed to shareholders, and that PNC would remain well capitalized on consummation. The Board also notes that the price or consideration received by shareholders is not, by itself, within the limited statutory factors the Board may consider when reviewing an application under the BHC Act. See Western Bancshares, Inc. v. Board of Governors, 480 F.2d 749 (10th Cir. 1973).

(9.) The commenter expressed concern about PNC's disclosure in a recent filing with the Securities and Exchange Commission that it may have to adjust its tax treatment for certain leveraged leases, based on an Internal Revenue Service ("IRS") audit of PNC's tax returns for the years 1998 to 2000. PNC has stated in its filing that it believes that its tax treatment of these leases was appropriate under federal tax law and that it plans to file an appeal with the IRS. The Board notes that the IRS and the federal courts, and not the Board, have jurisdiction to adjudicate compliance with federal tax laws. The Board has taken account of this matter, including the effect of both the current treatment and potential adjustment on the financial resources of PNC.

(10.) The commenter expressed concern about lending by PNC to unaffiliated payday lenders. PNC stated that neither it nor any of its subsidiaries currently have any banking or similar financial relationships with any payday lenders.

(11.) The commenter expressed concerns about PNC's managerial record in light of past enforcement actions against the organization, including enforcement actions by the Department of Justice ("DOJ"), the Federal Reserve Bank of Cleveland ("Reserve Bank"), and the OCC. The Board previously considered these enforcement actions in its order approving PNC's application to acquire United National Bancorp, Bridgewater, New Jersey (order dated November 19, 2003) (the "United National Order"). As noted in the United National Order, PNC has developed a new ethics policy and training program, an enterprise-wide risk-management program, and enhanced credit administration procedures, internal controls, and corporate governance procedures. The Board notes that the Federal Reserve and the OCC terminated their respective enforcement actions with PNC in September 2003. In addition, the DOJ's complaint against PNC was dismissed in June 2004, with the DOJ's concurrence, after PNC's compliance with the deferred prosecution agreement that PNC and the DOJ entered into in June 2003. U.S. v. PNC ICLC Corp., CRIM. No. 03-M-187 (W.D. Pa. June 2, 2003). Based on its review of the record in this case, the Board hereby reaffirms and adopts the facts and findings detailed in the United National Order with respect to these enforcement matters. See 90 Federal Reserve Bulletin 72, 74 n.9 (2004).

(12.) See United States of America v. Riggs Bank N.A., Cr. 05-35 (RMU). The commenter objected to the size of the fine and to other terms of the plea agreement. The Board notes that the United States District Court for the District of Columbia, and not the Board, has jurisdiction to adjudicate the criminal complaint against Riggs Bank and that the court has approved the fine amount and the other terms of Riggs Bank's plea agreement.

(13.) The Consent Orders entered into in May 2004 required Riggs and Riggs Bank to improve management and internal controls, in addition to enhancing compliance with BSA and other anti-money-laundering requirements and requiring Riggs Bank to pay the $25 million civil money penalty. The Board and the OCC modified their consent orders with Riggs and Riggs Bank in January 2005 to reflect the progress made in fulfilling the requirements of the May 2004 Consent Orders and to add provisions reflecting the most recent examinations of the institutions. The Board notes that the reviews required by the May 2004 Consent Orders of certain Riggs accounts to ensure that suspicious activity reports were properly filed have been completed.

(14.) As a matter of practice and policy, the Board has generally not tied consideration of an application or notice to the scheduling or completion of an investigation if the applicant has an overall satisfactory record of performance and the issues being reviewed can be resolved in the examination and supervisory process. See 62 Federal Register 9,290 (1997) (Preamble to the Board's Regulation Y). In this case, as explained above, the Board has also considered the progress and cooperation shown by Riggs as well as the plans and ability of the acquiring institution to address these matters. 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. See Citigroup Inc., 91 Federal Reserve Bulletin 262 (2005). Moreover, many issues are more appropriately and adequately addressed in the supervisory process, where particular matters and violations of law can be identified and addressed specifically, rather than in the application process, which requires a weighing of the overall record of the companies involved. The Board further notes that consummation of the proposed transaction would not impede the ability of the Congress, the DOJ, or the appropriate federal banking agencies to gain access to the records of Riggs or otherwise to complete investigations of these matters.

(15.) Specifically, Riggs has represented that it has terminated all banking relationships with foreign embassies and is in the process of closing or selling its operations outside the United States. Riggs terminated the operations of Riggs International Banking Corporation ("RIBC"), Miami, Florida, the Edge Act subsidiary of Riggs Bank, during the third quarter of 2004, and RIBC surrendered its permit in December 2004.

(16.) The commenter also noted press reports about litigation against Riggs, including suits claiming Riggs was negligent in failing to alert authorities to suspicious financial transactions allegedly related to the September 11, 2001, terrorist attacks and criminal and civil claims in a Spanish court asserting Riggs's concealment of assets and money laundering in connection with Riggs accounts held for the benefit of former Chilean President Augusto Pinochet. The Board notes that the Spanish civil and criminal claims were dismissed after Riggs reached a settlement with the plaintiffs in the civil suit in Spain. As previously noted, the courts, and not the Board, have jurisdiction to adjudicate legal claims against Riggs. In considering the financial and managerial factors in this case, the Board has considered how these litigation matters might affect the future prospects of the combined organization.

(17.) 12 U.S.C. [section] 1842(c)(2); 12 U.S.C. [section] 2901 et seq.

(18.) 12 U.S.C. [section] 2801 et seq.

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

(20.) PNC Bank, Delaware, PNC's other subsidiary bank, also received an "outstanding" rating at its most recent CRA performance evaluation by the FDIC, as of January 21, 2003.

(21.) 90 Federal Reserve Bulletin at 74-77.

(22.) The evaluation period for the lending test was January 1, 1998, through December 31, 2001, except for community development loans, which were evaluated from July 6, 1998, through December 31, 2001. The evaluation period for the investment and service tests was July 6, 1998, through March 31, 2002.

(23.) The evaluation period for the lending test was from September 1, 1999, through December 31, 2002, except for community development lending, which was evaluated from September 1, 1999, through April 7, 2003. For the investment test and the service test, the evaluation period was from September 1, 1999, through April 7, 2003.

(24.) Specifically, the commenter cited HMDA data on lending by PNC's subsidiary banks to African Americans or Hispanics in the Wilmington MSA in Delaware, Newark and Jersey City MSAs in New Jersey, Harrisburg and Pittsburgh MSAs in Pennsylvania, Philadelphia MSA in Pennsylvania and New Jersey, and Newburgh MSA in New York. The commenter cited HMDA data on Riggs Bank's lending to African Americans in the Washington MSA in Washington, D.C., Maryland, and Virginia.

(25.) The Board reviewed HMDA data for the PNC Banks in Delaware, New Jersey, and Pennsylvania, and in the Newark, Philadelphia, and Pittsburgh MSAs.

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

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

(28.) The commenter also commented on HMDA data it derived from 2004 loan application registers of PNC Bank and Riggs Bank. The Board notes that such data are preliminary and that 2004 data for lenders in the aggregate are not yet available.

(29.) 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.

(30.) In addition, the Board consulted with the FDIC, the primary supervisor of PNC Bank, Delaware, about the bank's record of compliance with fair lending laws.

(31.) The commenter also expressed concern about possible job losses resulting from this proposal. The effect of a proposed acquisition on employment in a community is not among the limited factors the Board is authorized to consider under the BHC Act, and the convenience and needs factor has been interpreted consistently by the federal banking agencies, the courts, and the Congress to relate to the effect of a proposal on the availability and quality of banking services in the community. See, e.g., Wells Fargo & Company, 82 Federal Reserve Bulletin 445, 457 (1996).

(32.) Section 42 of the Federal Deposit Insurance Act (12 U.S.C. [section] 1831r-1), as implemented by the Joint Policy Statement Regarding Branch Closings (64 Federal Register 34,844 (1999)), requires that a bank provide the public with at least thirty days' notice and the appropriate federal supervisory agency and customers of the branch with at least ninety days' notice before the date of the proposed branch closing. The bank also is required to provide reasons and other supporting data for the closure, consistent with the institution's written policy for branch closings.

(33.) 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 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 has had ample opportunity to submit its views, and in fact, commenter has submitted written comments that the Board has considered carefully in acting on the proposal. The commenter's request fails to demonstrate why written comments do not present its views adequately. The request also 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.

(34.) The commenter also requested that the Board extend the comment period and delay action 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 public comment. In the Board's view, the commenter has had ample opportunity to submit its views and, in fact, has provided multiple 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 neither an extension of the comment period nor further delay in considering the proposal is warranted.

(35.) The commenter asked that the Board's Chairman recuse himself from consideration of the application. The Board and the Chairman have carefully considered this request and concluded that recusal is not required by any law or warranted. The commenter also expressed concern about compliance by staff with the Board's ex parte communications policies in this case. The Board has carefully considered this concern and concludes that Federal Reserve System staff did not engage in any inappropriate communications.

Republic Bancorp, Inc. Munden, Kansas

Order Approving the Formation of a Bank Holding Company

Republic Bancorp, Inc. ("Republic") has requested the Board's approval under section 3 of the Bank Holding Company Act ("BHC Act") (1) to become a bank holding company and acquire 99.7 percent of the voting shares of National Family Bank ("NFB"), Munden, Kansas. (2)

Notice of the proposal, affording interested persons an opportunity to comment, has been published (70 Federal Register 10,402 (2005)). 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.

Republic is a newly organized corporation formed for the purpose of acquiring control of NFB. NFB, with total assets of approximately $15.5 million, is the 287th largest insured depository institution in Kansas, controlling deposits of approximately $14.8 million, which represent less than 1 percent of the total amount of deposits of insured depository institutions in the state. (3)

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. (4)

This proposal represents Republic's initial entry into retail banking in Kansas. Based on all the facts of record, the Board has concluded that consummation of the proposal would not have a significantly adverse effect on competition or on the concentration of banking resources in any relevant banking market and that competitive considerations are consistent with approval.

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 depository institutions involved in the proposal and certain other supervisory factors. The Board has considered these factors in light of all the facts of record, including information provided by Republic, confidential reports of examination, and other confidential supervisory information from the Office of the Comptroller of the Currency ("OCC"), the primary federal supervisor of NFB.

In evaluating financial factors in proposals involving newly formed small bank holding companies, the Board reviews the financial condition of both the applicant and the target depository institution. The Board also evaluates the financial condition of the pro forma organization, 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 finds that Republic has sufficient financial resources to effect the proposal. NFB is well capitalized and would remain so on consummation of this proposal. Republic proposes to fund this transaction through a combination of debt and equity. The Board has recognized that the transfer of ownership of small banks often requires the use of acquisition debt. (5) It appears that Republic would have sufficient financial flexibility to service this debt without unduly straining the resources of Republic or NFB.

The Board also has considered the managerial resources of the applicant, including the proposed management of the organization. The Board has reviewed the examination record of NFB, including assessments of its current management, risk-management systems, and operations. In addition, the Board has considered its supervisory experiences and those of the other relevant banking agencies with NFB and the management officials and principal shareholders of Republic. The Board also has considered Republic's plans to implement the proposal, including its proposed expansion of NFB's products and services and the changes in management at NFB after the acquisition.

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

Convenience and Needs Considerations

In acting on proposals under section 3 of the BHC Act, the Board is also 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"). (6) 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 an institution's record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, in evaluating proposals under section 3 of the BHC Act.

The Board has considered carefully the convenience and needs factor and the CRA performance record of NFB in light of all the facts of record, including public comment received regarding the proposal and the bank's CRA record. The Board received one comment from an individual suggesting that NFB was not serving the needs of its community, particularly its agricultural lending needs, and that Republic also might not serve the community's needs. (7)

NFB received an "outstanding" rating at its most recent CRA performance evaluation by the OCC, as of November 25, 2002 ("2002 Examination"). Examiners reported that the bank's record of lending to borrowers of different income levels and farms of different revenue amounts was excellent. They also noted that the bank's average loan-to-deposit ratio of 70 percent was comparable to the ratio for its peer group. Since the examination, however, NFB's lending volume and average loan-to-deposit ratio has significantly declined.

Several factors have affected NFB's overall lending activity in its assessment area, which is Republic County, Kansas, a nonmetropolitan area in north central Kansas. This area has experienced a population decline of 9 percent since 2000. Of the six depository institutions in the assessment area, NFB is the smallest bank in terms of deposits, and its deposits decreased from 2003 to 2004. Moreover, the main business in Republic County is agriculture, and drought conditions have had a negative impact on lending during the past two years. These factors have affected NFB's ability to make loans to its community and resulted in a marked decrease in lending since the 2002 Examination.

Republic's proposed business plan includes several improvements to services and products that should strengthen the bank's overall condition and its ability to serve the community's lending and other banking needs. The Board has consulted with the OCC about Republic's proposed business plan for NFB. The business plan includes a strategy for growth through enhanced product offerings and by hiring employees and management officials with agricultural lending experience and a familiarity with the community and its banking needs. Republic also proposes to update the bank's processing systems and introduce internet banking, ATMs, and debit and credit cards, as well as other banking products in the future. In addition, the proposed principals of Republic and its management are residents who are familiar with the community and its needs and who have banking experience. (8)

The Board has considered carefully all the facts of record, including reports of examination of the CRA performance records of the institutions involved, the business plan and other information provided by Republic, public information about the economic conditions of NFB's community, and confidential supervisory information. 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 institution 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 Republic 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 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 Kansas City, acting pursuant to delegated authority.

By order of the Board of Governors, effective April 26, 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.) Admiral Family Banks, Inc., Alsip, Illinois, currently owns 99.7 percent of the voting shares of NFB, and Republic has applied to acquire all these shares.

(3.) Asset data are as of December 31, 2004. Deposit data and state rankings are as of June 30, 2004. In this context, insured depository institutions include commercial banks, savings banks, and savings associations.

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

(5.) Small Bank Holding Company Policy Statement, 12 CFR Part 225, Appendix G.

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

(7.) The commenter also questioned the identity of the proposed purchasers. Republic has disclosed its ownership structure, as required by the BHC Act, and has stated that the commenter has met with some of Republic's principal shareholders.

(8.) The proposed president and vice president of NFB recently served as management officials at a bank that received an "outstanding" CRA rating at its last examination.

Wells Fargo & Company San Francisco, California

Order Approving the Acquisition of a Bank Holding Company

Wells Fargo & Company ("Wells Fargo"), 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 to acquire First Community Capital Corporation ("FCCC"), Houston, and its subsidiary banks, First Community Bank, National Association, Houston, and First Community Bank San Antonio, National Association, San Antonio, all in Texas. (1)

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (69 Federal Register 60,877 (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 the BHC Act.

Wells Fargo, with total consolidated assets of approximately $434.6 billion, is the fifth largest depository organization in the United States, (2) controlling deposits of approximately $267.8 billion, which represents approximately 4.7 percent of the total amount of deposits of insured depository institutions in the United States. (3) Wells Fargo is the third largest depository institution in Texas, controlling $22.7 billion in deposits, which represents approximately 7.3 percent of the total amount of deposits of insured depository institutions in the state ("state deposits"). Wells Fargo operates subsidiary depository institutions in 23 states, including Texas, and engages in numerous nonbanking activities that are permissible under the BHC Act.

FCCC, with total consolidated assets of approximately $604.6 million, is the 76th largest depository organization in Texas, controlling deposits of $446 million. FCCC operates subsidiary insured depository institutions only in Texas. On consummation of the proposal, Wells Fargo would remain the third largest depository organization in Texas, controlling deposits of approximately $23.2 billion, which represents 7.5 percent of state deposits.

Interstate Analysis

Section 3(d) of the BHC Act allows the Board to approve an application by a bank holding company to acquire control of a bank located in a state other than the home state of such bank holding company if certain conditions are met. (4) For purposes of the BHC Act, the home state of Wells Fargo is Minnesota, and FCCC's subsidiary banks are located in Texas. (5)

Based on a review of all the facts of record, including a review of 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. (6) Accordingly, in light of 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 proposed bank acquisition that would result in a monopoly or would be in furtherance of any attempt to monopolize the business of banking in any relevant banking market. In addition, section 3 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 its probable effect in meeting the convenience and needs of the community to be served. (7)

Wells Fargo competes directly with FCCC's subsidiary banks in the Brazoria, Grimes County, Houston, and San Antonio banking markets in Texas. (8) The Board has reviewed 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 banking markets, the relative shares of total deposits in depository institutions in the markets ("market deposits") controlled by Wells Fargo and FCCC, (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 markets.

Consummation of the proposal would be consistent with Board precedent and the DOJ Guidelines in each of these banking markets. (11) After consummation of the proposal, the Brazoria and San Antonio banking markets would remain moderately concentrated, and the Grimes and Houston banking markets would remain highly concentrated, as measured by the HHI. (12) In each of the four banking markets, the increase in market concentration would be small, and numerous competitors would remain.

The Department of Justice also has conducted a detailed review of the anticipated competitive effects of the proposal and has advised the Board that consummation of the proposal would not likely have a significantly adverse effect on competition in any relevant banking market. In addition, the appropriate banking agencies have been 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 any of the four banking markets where Wells Fargo and FCCC compete directly 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, 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 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 from the primary federal and state supervisors of the organizations involved in the proposal. The Board also has considered publicly reported and other financial information, comments received on the proposal, and information provided by Wells Fargo. (13) In addition, the Board has consulted with the Office of the Comptroller of the Currency ("OCC"), the primary supervisor of Wells Fargo's lead bank, Wells Fargo Bank, N.A. ("WF Bank"), Sioux Falls, South Dakota ("WF Bank"), and FCCC's subsidiary banks.

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 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 a pro forma basis, including its capital position, asset quality, and earnings prospects, and the impact of the proposed funding of the transaction.

Based on its review of the financial factors in this case, the Board finds that Wells Fargo has sufficient financial resources to effect the proposal. Wells Fargo, FCCC, and their subsidiary depository institutions currently are well capitalized and the resulting organization and its subsidiary banks would remain so on consummation of the proposal. The proposed transaction is structured primarily as a share exchange.

The Board also has considered the managerial resources of Wells Fargo, FCCC, and the banking subsidiaries to be acquired and the effect of the proposal on these resources. In reviewing this proposal, the Board has assembled and considered a broad and detailed record, including substantial confidential and public information about Wells Fargo, FCCC, and their subsidiaries. The Board has carefully reviewed assessments and examinations of the organizations' management, risk-management systems, and compliance records by, and consulted with, relevant federal and state supervisors. (14) In addition, the Board has considered Wells Fargo's plans for implementing the proposal, including its proposed management after consummation, and the company's record of successfully integrating acquired institutions into its existing operations.

In evaluating the managerial resources of a banking organization in an expansion proposal, the Board considers assessments of an organization's risk management--that is, the ability of the organization's board of directors and senior management to identify, measure, monitor, and control risk across all business and corporate lines in the organization--to be especially important. (15) As part of an appropriate risk-management system, the Board expects each banking organization, including Wells Fargo, to implement and operate effective, enterprise-wide compliance risk assessment and management programs and internal audit programs to identify, manage, address, and monitor the risks of the organization's activities. As part of compliance risk management, banking organizations operating in the United States are required to implement and operate effective anti-money-laundering programs.

In this case, the Board has considered the existing compliance risk-management systems and internal audit programs at Wells Fargo and the assessment of these systems and programs by the relevant federal and state supervisory agencies. The Board has also considered additional information provided by Wells Fargo on enhancements it has made and is currently making to its systems and programs as part of the ongoing review, development, implementation, and maintenance of effective enterprise-wide risk-management systems.

Based on all the facts of record, including a review of the comments received, the Board concludes that considerations relating to the financial and managerial resources and future prospects of Wells Fargo, FCCC, and their respective subsidiaries are consistent with approval, as are the other supervisory factors under the BHC Act. (16)

Convenience and Needs Considerations

Section 3 of the BHC Act requires the Board to consider the effects of a 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"). (17) 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 an institution's record of meeting the credit needs of its entire community, including low- and moderate-income ("LMI") neighborhoods, in evaluating depository institutions' expansionary proposals. (18)

The Board has considered carefully the convenience and needs factor and the CRA performance records of the subsidiary depository institutions of Wells Fargo and FCCC in light of all the facts of record, including public comments received on the proposal. A commenter opposing the proposal asserted, based on data reported under the Home Mortgage Disclosure Act ("HMDA"), (19) that Wells Fargo engages in discriminatory treatment of African-American and Hispanic individuals in its home mortgage operations. (20)

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 insured depository institutions of both organizations. 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. (21)

Wells Fargo Bank, N.A. ("WF Bank CA"), San Francisco, California, received an "outstanding" rating at its performance evaluation from the OCC, as of October 1, 2001. (22) In addition, Wells Fargo's subsidiary depository institutions that were evaluated under the CRA received either "outstanding" or "satisfactory" ratings at their most recent CRA performance evaluations. (23) FCCC's lead bank, First Community Bank, N.A., received a "satisfactory" rating at its most recent CRA performance evaluation by the OCC, as of June 18, 2004. (24) Wells Fargo has represented that it will implement its program for managing community reinvestment activities at FCCC's subsidiary depository institutions on consummation of the proposal.

B. CRA Performance of Wells Fargo

As noted above, WF Bank CA received an overall "outstanding" rating for CRA performance in the OCC's most recent CRA performance evaluation. (25) WF Bank CA received an "outstanding" rating under each of the lending, investment, and service tests.

Examiners commended the excellent lending performance of WF Bank CA overall and reported that the bank had good distribution of home mortgage loans to borrowers of different income levels. They noted that WF Bank CA had excellent geographic distribution of small loans to small businesses. (26)

Examiners reported that WF Bank CA demonstrated a significant responsiveness overall to the needs of its assessment areas through community development lending. They found that WF Bank CA helped address a significant need for affordable housing in California through its community development lending. WF Bank CA's community development loans for affordable housing in its assessment areas subject to a full-scope review totaled $312 million during the evaluation period.

Examiners commended WF Bank CA for its excellent level of qualified investments and noted that the investments were highly responsive to the needs of the bank's assessment areas. They reported that WF Bank CA's investment and grant activities helped address essential identified needs in the full-scope assessment areas subject to review, particularly with respect to financing of affordable housing. Community development investments in those assessment areas totaled $162.4 million during the evaluation period.

Examiners reported that WF Bank CA's banking services were readily accessible to essentially all portions of the bank's assessment areas. They noted that WF Bank CA's alternative delivery systems included ATMs, banking by phone or mail, and Internet banking. Examiners also reported that Wells Fargo provided numerous community development services such as financial educational community seminars.

C. HMDA Data and Fair Lending Record

The Board has carefully considered the lending record of Wells Fargo in light of public comments received on the proposal. A commenter alleged, based on a review of 2003 data reported pursuant to the Home Mortgage Disclosure Act, 12 U.S.C. 2891 et seq. ("HMDA"), that Wells Fargo engages in discriminatory lending by directing African-American and Hispanic applicants in certain markets to Wells Fargo Financial, Inc. ("WF Financial"), Des Moines, Iowa, a subsidiary of Wells Fargo that is engaged primarily in subprime lending, rather than to Wells Fargo's subsidiary banks and other prime lending channels. The commenter further alleged, based on a review of 2003 HMDA data, that there are systemic disparities in Wells Fargo's lending because it disproportionately excludes or denies applications for HMDA-reportable loans by African-American and Hispanic applicants. (27)

The Board reviewed HMDA data reported by the lending subsidiaries of Wells Fargo in 2002 and 2003 in certain areas. (28) An analysis of the HMDA data does not support the contention that Wells Fargo disproportionately directs African-American and Hispanic borrowers to WF Financial or that WF Prime Lenders have disproportionately denied applications of African-American or Hispanic individuals. (29) The 2003 HMDA data show that the WF Prime Lenders extended more HMDA-reportable loans to African-American and Hispanic borrowers than WF Financial in most of the MSAs reviewed. Moreover, the data show that the percentages of the WF Prime Lenders' total home mortgage applications that were received from African-American and Hispanic applicants at the WF Prime Lenders exceeded the percentages received at WF Financial in all of the markets reviewed.

In addition, the origination rates 30 for the WF Prime Lenders' total HMDA-reportable loans to African-American and Hispanic borrowers was comparable to or exceeded the rates for the aggregate of lenders ("aggregate lenders") in most of the markets reviewed. (31) The HMDA data indicate that the percentages of the WF Prime Lenders' total HMDA-reportable loans to African Americans and Hispanics increased or remained constant from 2002 to 2003 in most of the markets reviewed. The percentages of the WF Prime Lenders' total HMDA-reportable loan originations in minority census tracts also increased during this time period in all the markets reviewed.

Moreover, a review of the 2003 HMDA data indicates that the WF Prime Lenders' denial disparity ratios for African-American and Hispanic applicants for the banks' total HMDA-reportable loans in the markets reviewed were generally comparable with the ratios for the aggregate lenders in those areas. (32) In addition, WF Prime Lenders' denial disparity ratios for African-American and Hispanic applicants decreased from 2002 to 2003 in most of the markets 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 WF Prime Lenders are excluding any racial group on a prohibited basis. The Board, nevertheless, is concerned when the record of an institution indicates disparities in lending and believes that all banks are obligated to ensure that their lending practices are based on criteria that ensure not only safe and sound lending, but also equal access to credit by creditworthy applicants regardless of race or income level. The Board recognizes, however, that HMDA data alone, even with the recent addition of pricing information, 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 covered loans. (33) 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 credit needs or has engaged in illegal lending discrimination. Moreover, HMDA data indicating that one affiliate is lending to minorities or LMI individuals 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 in light of other information, including examination reports that provide on-site evaluations of compliance with fair lending laws by the subsidiary depository and lending institutions of Wells Fargo and FCCC. Examiners noted no substantive violations of applicable fair lending laws in the examinations of the depository institutions controlled by Wells Fargo or FCCC. Moreover, the Board has consulted with the OCC about the consumer compliance records of the WF Prime Lenders and with relevant state supervisors about the consumer compliance records of WFFI.

The record also indicates that Wells Fargo has taken various measures to help ensure compliance with fair lending laws and other consumer protection laws at all its lending subsidiaries, including WF Financial. (34) Wells Fargo represented that it has implemented corporate-wide policies and procedures to help ensure compliance with all fair lending and other consumer protection laws and regulations. These policies and procedures apply to all of Wells Fargo's prime and subprime lending subsidiaries. Wells Fargo's corporate Fair Lending Policy requires each business unit to adopt and implement fair lending policies and procedures, including control standards related to marketing, pricing, and referrals. Wells Fargo's Compliance Risk Management Group guides, maintains, and monitors compliance of business units with fair lending and consumer protection laws. Wells Fargo's Law Department provides oversight and guidance on the fair lending policies and on the business unit compliance programs. Furthermore, Wells Fargo's Corporate Fair Lending Steering Committee, which includes senior management representatives from its bank and nonbank subsidiaries, meets regularly to identify and provide guidance on fair lending practices throughout the company.

Wells Fargo represented that each of its lending operations has developed, implemented, and maintained compliance programs for fair lending and other consumer protection laws. These fair lending compliance programs include components such as pricing limits, programs for second review of initially declined applications, analysis of decision and pricing data, and comparative file analysis. All lending operations are required to include compliance training in employee training programs. Wells Fargo's internal audit unit conducts audits for compliance with fair lending and consumer law that involve an independent evaluation of results through data analysis or comparative file review.

The Board also has considered the HMDA data in light of other information, including the CRA performance records of the subsidiary depository institutions of Wells Fargo and FCCC. These records demonstrate that Wells Fargo and FCCC are active in helping to meet the credit needs of their entire communities.

Conclusion on Convenience and Needs Considerations

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 Wells Fargo and FCCC, comments on the proposal, (35) confidential supervisory information, and Well Fargo's plans to implement its CRA-related policies, procedures, and programs at FCCC's subsidiary banks. The Board notes that the proposal would expand the availability and array of banking products and services to the customers of Wells Fargo and FCCC, including access to expanded branch and ATM networks and internet banking services. 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 in light of all the facts of record, the Board has determined that the application should be, and hereby is, approved. In reaching this conclusion, the Board has considered all the facts of record in light of the factors it is required to consider under the BHC Act and other applicable statutes. (36) The Board's approval is specifically conditioned on compliance by Wells Fargo with the conditions in this order and all the commitments made to the Board in connection with this proposal. For purposes of this action, the 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 proposal shall not be consummated before the fifteenth calendar day after the effective date of this order, or later than three months after the effective date of this order, unless such period is extended for good cause by the Board or by the Federal Reserve Bank of San Francisco, acting pursuant to delegated authority.

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

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

Jennifer J. Johnson

Secretary of the Board

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

(2.) Asset data are as of March 31, 2005, and national ranking data are as of December 31, 2004, and reflect consolidations through that date.

(3.) Deposit data reflect the total of the deposits reported by each organization's insured depository institutions in their Consolidated Reports of Condition and Income or Thrift Financial Reports for June 30, 2004. In this context, insured depository institutions include commercial banks, savings banks, and savings associations.

(4.) 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 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 the 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 (d)(2)(A) & (B). Wells Fargo is adequately capitalized and adequately managed, as defined by applicable law. FCCC's subsidiary depository institutions have been in existence and operated for the minimum period of time required by applicable law. On consummation of the proposal, Wells Fargo 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 pursuant to 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.) These banking markets are described in Appendix A.

(9.) Deposit and market share data are as of June 30, 2004, adjusted to reflect mergers and acquisitions through May 20, 2005, and 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, 49 Federal Register 26,823 (1984), a market is considered unconcentrated if the post-merger HHI is less than 1000, moderately concentrated if the post-merger HHI is between 1000 and 1800, and highly concentrated if the post-merger HHI is more than 1800. The Department of Justice has informed the Board that a bank merger or acquisition generally will not be challenged (in the absence of other factors indicating anticompetitive effects) unless the post-merger HHI is at least 1800 and the merger increases the HHI by more than 200 points. The Department of Justice has stated that the higher than normal HHI thresholds for screening bank mergers for anticompetitive effects implicitly recognize the competitive effects of limited-purpose lenders and other nondepository financial institutions.

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

(12.) Analysis of the Houston banking market is based on the Summary of Deposits for June 30, 2004, without the adjustments reflected in the Board's analysis of the Houston Market in J.P. Morgan Chase, 90 Federal Reserve Bulletin 352, 354 (2004). If such adjustments were made to the deposit data for the Houston banking market, the market would be moderately concentrated on consummation of the proposal.

(13.) A commenter criticized Wells Fargo's relationships with unaffiliated payday and car title lenders and other nontraditional providers of financial services. Wells Fargo represented that it has acted as a lender or provider of credit facilities and in other ordinary business relationships to unaffiliated consumer finance businesses, which may include payday and title lenders. Wells Fargo stated that it does not participate in the credit review process of such lenders and customarily requires the entities to represent, warrant, and covenant to Wells Fargo in credit agreements that such entities have and will comply with all applicable laws in the conduct of their business.

(14.) This included consultations with relevant state agencies with oversight authority for Wells Fargo's nonbank consumer finance subsidiaries and the appropriate functional regulators of Wells Fargo's securities-related activities.

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

(16.) A commenter expressed concern about Wells Fargo's and WF Bank's information security systems and cited a press report describing three instances of theft of computers containing information relating to customers of Wells Fargo's subsidiaries. Wells Fargo represented that it is not aware of actual identity theft or fraudulent activity as a result of these incidents and that it provided potentially affected customers with notice of the thefts and credit bureau monitoring and identity theft insurance services. In reviewing Wells Fargo's application, the Board has considered the enhancements Wells Fargo is making to its information security systems and has consulted with the OCC, the primary federal supervisor of WF Bank.

(17.) 12 U.S.C. [section] 2901 et seq.

(18.) 12 U.S.C. [section] 2903.

(19.) 12 U.S.C. [section] 2801 et seq.

(20.) A commenter included in its comment three individual customer complaints concerning mortgage loans from WF Bank and Wells Fargo Home Mortgage, Des Moines, Iowa ("WF Mortgage"), a former subsidiary of WF Bank that became a division of the bank in May 2004. The complaints provided by the commenter have been forwarded to the OCC, the primary federal supervisor of WF Bank.

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

(22.) In 2001, WF Bank CA was the largest subsidiary depository institution of Wells Fargo in terms of deposits and assets. In the performance evaluation, examiners weighted WF Bank CA's performance in California more heavily than its performance in other areas in its overall rating because more than 98 percent of its deposits and more than 87 percent of its loans were in California during the evaluation period. On February 20, 2004, Wells Fargo consolidated 18 of its subsidiary depository institutions, including WF Bank CA, with and into WF Bank. Wells Fargo currently operates ten subsidiary depository institutions, including WF Bank.

(23.) Appendix C lists the most recent CRA ratings of Wells Fargo's subsidiary depository institutions that are subject to the CRA.

(24.) In 2004, FCCC transferred the San Antonio operations of First Community Bank, N.A., to the newly chartered First Community Bank San Antonio, N.A., which has not yet been examined under the CRA by the OCC.

(25.) The evaluation period was April 1, 1998, through September 20, 2001. At the time of the 2001 Evaluation, WF Bank SF had sixty assessment areas in nine states (Arizona, California, Colorado, Idaho, Minnesota, Nevada, Oregon, Utah, and Washington), including sixteen that received full-scope reviews.

(26.) Small businesses are businesses with gross annual revenues of $1 million or less. Small loans to businesses include loans with original amounts of $1 million or less that are either secured by nonfarm, nonresidential properties or classified as commercial and industrial loans.

(27.) Specifically, the commenter's allegations are based on 2003 HMDA data by WF Bank CA and WF Financial. The commenter cited Well Fargo's HMDA data for lending to African Americans and Hispanics in the Los Angeles and San Francisco Metropolitan Statistical Areas ("MSAs"), in California, and the Austin, Dallas, El Paso, San Antonio, and Houston MSAs, in Texas.

(28.) The Board reviewed 2002 and 2003 HMDA data reported by all of Wells Fargo's lending subsidiaries, including WF Financial, in California and Texas and in the MSAs that comprise