Orders issued under Bank Merger Act.

Gateway Bank & Trust Co. Elizabeth City, North Carolina

Order Approving the Acquisition and Establishment of Branches

Gateway Bank & Trust Co. ("Gateway"), a state member bank, has requested the Board's approval under section 18(c) of the Federal Deposit Insurance Act ("Bank Merger Act") to assume certain liabilities and acquire certain assets of three branches of Provident Bank of Maryland, Baltimore, Maryland ("Provident"). (1) These branches are in Elizabeth City, North Carolina ("Elizabeth City Branch"), and Emporia and Suffolk, both in Virginia (collectively, "Virginia Branches"). (2)

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published in accordance with the Bank Merger Act and the Board's Rules of Procedure (12 CFR 262.3(b)). As required by the Bank Merger Act, reports on the competitive effects of the merger were requested from the United States Attorney General and the other federal banking agencies. 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 Bank Merger Act.

Gateway, with total consolidated assets of $353 million, is the 43rd largest insured depository institution in North Carolina, controlling deposits of $184.2 million. The Elizabeth City Branch controls deposits of $52 million. On consummation of the proposal, Gateway would remain the 43rd largest insured depository institution in North Carolina, controlling deposits of $236.2 million, which represent less than 1 percent of total deposits of insured depository institutions in the state. (3)

Gateway is the 119th largest insured depository institution in Virginia, controlling state deposits of approximately $48 million. The Virginia Branches control deposits of $90.8 million. On consummation of the proposal, Gateway would become the 81st largest insured depository institution in Virginia, controlling deposits of $139.6 million, which represent less than 1 percent of total deposits of insured depository institutions in the state.

Interstate Analysis

Gateway is in North Carolina and proposes to acquire two branches in Virginia, as well as a branch in North Carolina. Section 102 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Riegle-Neal Act") authorizes a bank to merge with another bank under certain conditions unless, before June 1, 1997, the home state of one of the banks involved in the transaction adopted a law expressly prohibiting merger transactions involving out-of-state banks. (4) Virginia and North Carolina have enacted legislation allowing interstate mergers between banks in their states and out-of-state banks pursuant to the provisions of the Riegle-Neal Act. (5) Gateway has complied with state law requirements, and the proposal meets all other requirements of the Riegle-Neal Act. (6) Accordingly, the Riegle-Neal Act authorizes the proposed interstate branch acquisitions.

Competitive Considerations

The Bank Merger Act prohibits the Board from approving an application if the proposal would result in a monopoly or would be in furtherance of an attempt to monopolize the business of banking. (7) The Bank Merger Act also prohibits the Board from approving a proposal that would substantially lessen competition or tend to create a monopoly in any relevant market, unless the Board finds that the anticompetitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served. (8)

Gateway proposes to acquire a Provident branch in each of the following markets where Gateway and Provident compete directly: the Norfolk-Portsmouth, Virginia-North Carolina, banking market ("Norfolk-Portsmouth Market") and the Elizabeth City, North Carolina, (9) banking market ("Elizabeth City Market"). 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 and the relative shares of total deposits in depository institutions in each market ("market deposits") they would control, (10) the concentration level of market deposits and the increase in this level as measured by the Herfindahl-Hirschman Index ("HHI") and the Department of Justice Merger Guidelines ("DOJ Guidelines"), (11) and other characteristics of the markets.

After consummation of the proposal, the Norfolk-Portsmouth Market would remain moderately concentrated, and the post-merger HHI would be consistent with the DOJ Guidelines and Board precedent. Numerous competitors would remain in the banking market. (12)

In the Elizabeth City Market, however, the HHI would exceed DOJ Guidelines on consummation. Gateway is the second largest insured depository institution in the market, controlling deposits of $143.3 million, which represent 21.9 percent of market deposits. Provident is the sixth largest depository institution with deposits of $52 million, which represent approximately 8 percent of market deposits. On consummation of the merger, Gateway would become the largest depository institution in the market, controlling deposits of $195.3 million, which represent approximately 29.9 percent of market deposits. The HHI would increase by 349 points to 2014.

Several factors indicate that the proposal is not likely to have a significant adverse effect on competition in the market. Nine commercial banking organizations would remain in the market after consummation. Four of Gateway's largest commercial bank competitors each would control more than 9 percent of market deposits and the two largest competitors would control more than 22 percent and 16 percent of market deposits, respectively. Although there has been no de novo entry in recent years, the Elizabeth City Market has economic characteristics that suggest it is modestly attractive for new entry. The market has experienced above-average population growth relative to the average of nonmetropolitan areas in North Carolina, and per capita income and deposits per banking office exceed the average for nonmetropolitan counties in the state. In addition, recent rates of increase in population and bank deposits in the market are higher compared with national rates.

The Board also has considered that the market has a large and active credit union that offers a full range of retail banking products. North Carolina's State Employees' Credit Union ("SECU") is the second largest credit union in the United States, with more than $10 billion in total deposits. Approximately 75 percent of the residents in the market are eligible to become members of SECU. In addition, SECU operates street-level branches and multiple automated teller machines that are easily accessible to residents in the market. SECU controls approximately $68 million in deposits in the Elizabeth City Market. The Board concludes that this credit union exerts a competitive influence that mitigates, in part, the potential anticompetitive effects of the proposal. (13)

The Board concludes that the foregoing considerations, including the number and size of competitors that would remain in the Elizabeth City Market after consummation, the presence of a large, accessible credit union, the structure and attractiveness for entry of the market, and other factors, mitigate the transaction's potential anticompetitive effects. The Department of Justice has advised the Board that consummation of the proposal is not likely to have a significantly adverse competitive effect in the Elizabeth City 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 Future Prospects

In reviewing the proposal under the Bank Merger Act, the Board has also carefully considered the financial and managerial resources and the future prospects of Gateway and the Provident branches to be acquired. The Board has reviewed these factors in light of all the facts of record, including confidential reports of examination assessing the financial and managerial resources of Gateway and information provided by Gateway. The Board notes that Gateway currently is well capitalized and is expected to remain so after consummation of the proposal. In addition, the Board has considered Gateway's plans to implement the proposal, including its available managerial resources. Gateway has sufficient financial and managerial resources to consummate the proposal. Based on all the facts of record, the Board concludes that the financial and managerial resources and future prospects of the institutions involved are consistent with approval of the proposal.

Convenience and Needs 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 CRA. 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. (14)

The Board has carefully considered the effects of the proposal on the convenience and needs of the communities to be served in light of all the facts of record, including Gateway's CRA performance record and other information from the bank. Gateway received an overall rating of "satisfactory" at its most recent CRA performance evaluation by the Federal Deposit Insurance Corporation ("FDIC"), as of April 1, 2001. (15) Provident also received a satisfactory overall rating at its most recent CRA performance evaluation by the FDIC, as of October 1, 2001. In addition, the Board notes that the three branches to be acquired are somewhat remote from Provident's main operations in Maryland and Northern Virginia. With their proximity to Gateway's branches, the bank plans for these branches to play a central role in expanding its community banking services in northeastern North Carolina and the Tidewater region of Virginia.

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

Conclusion

Based on the foregoing and all the facts of record, the Board has determined that the application should be, and hereby is, approved. In reaching its conclusion, the Board has considered all the facts of record in light of the factors that it is required to consider under the Bank Merger Act and other applicable statutes. The Board's approval is specifically conditioned on the commitments that Gateway made to the Board in connection with the application, including a commitment to comply with state law. These commitments are deemed to be conditions imposed in writing by the Board in connection with its findings and decisions and, as such, may be enforced in proceedings under applicable law.

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

By order of the Board of Governors, effective August 3, 2004.

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

ROBERT DeV. FRIERSON

Deputy Secretary of the Board

(1.) 12 U.S.C [sections] 1828(c)).

(2.) See 12 U.S.C. [sections] 1831u. The branches are at 400 West Ehringhaus Street in Elizabeth City, 520 S. Main Street in Emporia, and 2825 Godwin Boulevard in Suffolk. Provident will continue to operate branches in Maryland, Virginia, Pennsylvania, and the District of Columbia.

(3.) Asset data are as of March 31, 2004. Deposit data and ranking data are as of June 30, 2003, and reflect merger and acquisition activity through April 20, 2004.

(4.) Pub. L. No 103-328, 108 Stat. 2338 (1994); see 12 U.S.C. [sections] 1831u.

(5.) See Va. Code Ann. 6.1-44.1 et seq. (effective March 16, 1995); 1999 N.C. Sess. Laws 53-224(11) (effective May 21, 1999).

(6.) Gateway is adequately capitalized and the resulting bank would continue to be adequately capitalized and adequately managed on consummation of this proposal. Gateway and its affiliates would control less than 10 percent of the total amount of deposits of insured depository institutions in the United States and less than 30 percent of the total amount of deposits of insured depository institutions in Virginia. See 12 U.S.C. [sections] 1831u.

(7.) 12 U.S.C. [sections] 1828(c)(5)(A).

(8.) 12 U.S.C. [sections]1828(c)(5)(A) and (B).

(9.) The Norfolk-Portsmouth Market is defined as the independent cities of Chesapeake, Norfolk, Portsmouth, Suffolk, and Virginia Beach in Virginia; and Currituck County, North Carolina. The Elizabeth City Market is defined as the counties of Camden, Pasquotank, and Perquimans in North Carolina.

(10.) Market share data are based on calculations in which the deposits of thrift institutions are included at 50 percent before consummation. The Board has previously indicated that thrift institutions have become, or have the potential to become, significant competitors of commercial banks. See, e.g., Midwest Financial Group, 75 Federal Reserve Bulletin 386 (1989); National City Corporation, 70 Federal Reserve Bulletin 743 (1984). Thus, the Board regularly has included thrift deposits in the calculation of market share on a 50 percent weighted basis.

(11.) 49 Federal Register 26,823 (1984). Under these guidelines, a market is considered 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 thresholds for an increase in the HHI when screening bank mergers and acquisitions for anticompetitive effects implicitly recognize the competitive effects of limited-purpose and other nondepository financial entities.

(12.) Gateway operates the 14th largest depository institution in the market, controlling deposits of approximately $48 million or less than 1 percent of market deposits. Provident operates the 22nd largest depository institution in the market, controlling deposits of $42 million. On consummation of the proposal, Gateway would remain the 14th largest depository institution in the market, controlling deposits of $90 million or less than 1 percent of market deposits. The HHI would increase by 1 point to 1,325 and 21 institutions would remain in the market.

(13.) With deposits of SECU included at 50 percent, Gateway would be the largest of eleven depository institutions in the market, with 20.8 percent of market deposits, and Provident would be the sixth largest depository institution in the market, controlling 7.6 percent of market deposits. On consummation of the proposal, Gateway would remain the largest depository institution in the market with deposits of $211.3 million or 28.4 percent of market deposits. The HHI would increase by 315 points to 1844.

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

(15.) Gateway became a state member bank on October 1, 2001.

Banco de Chile Santiago, Chile

Order Approving Establishment of a Branch

Banco de Chile ("Bank"), Santiago, Chile, a foreign bank within the meaning of the International Banking Act ("IBA"), has applied under section 7(d) of the IBA (12 U.S.C. [sections] 3105(d)) to establish a branch in Miami, Florida. The Foreign Bank Supervision Enhancement Act of 1991, which amended the IBA, provides that a foreign bank must obtain the approval of the Board to establish a branch in the United States.

Notice of the application, affording interested persons an opportunity to comment, has been published in a newspaper of general circulation in Miami, Florida (The Miami Herald, October 2, 2003). The time for filing comments has expired, and all comments have been considered. Bank, with total assets of $15.3 billion, is one of the largest banks in Chile. (1) Three Chilean entities, LQ Inversiones Financieras S.A., Sociedad Matriz del Banco de Chile S.A., and Sociedad Administradora de la Obligacion Sabordinada, directly own 20.2 percent, 18.5 percent, and 42 percent, respectively, of the Bank's shares. (2) These three entities are directly or indirectly controlled by Quinenco S.A., Santiago, Chile, which, in turn, is indirectly controlled by the Luksburg Foundation ("Luksburg"), Vaduz, Liechtenstein, Bank's ultimate parent. (3) Bank provides a wide variety of financial services, including retail and corporate banking, insurance and brokerage services, fund management, financial advisory services, securitization, and trade-related financing. Bank operates approximately 240 branches in Chile, as well as representative offices in Argentina, Brazil, and Mexico. Luksburg and Bank are qualifying foreign banking organizations pursuant to Regulation K.

In the United States, Bank operates a branch office in New York, New York, and an agency in Miami, Florida. New York is Bank's home state. Bank proposes to establish a branch outside of its home state by upgrading its Miami agency into a branch pursuant to section 5(a)(7)(B) of the IBA (12 U.S.C. [sections] 3103(a)(7)(B)). The proposed branch would continue the business of Bank's Miami agency, but would also enable Bank to accept at its Miami office wholesale and other limited deposits from U.S. residents.

In order to approve an application by a foreign bank to establish a branch in the United States, the IBA and Regulation K require the Board to determine that the foreign bank applicant engages directly in the business of banking outside of the United States and has furnished to the Board the information it needs to assess the application adequately. The Board also shall take into account whether the foreign bank and any foreign bank parent is subject to comprehensive supervision or regulation on a consolidated basis by its home country supervisor (12 U.S.C. [sections] 3105(d)(2); 12 CFR 211.24). (4) The Board may also take into account additional standards as set forth in the IBA and Regulation K (12 U.S.C. [sections]3105(d)(3)-(4); 12 CFR 211.24(c)(2)-(3)).

As noted above, Bank engages directly in the business of banking outside the United States. Bank also has provided the Board with information necessary to assess the application through submissions that address the relevant issues.

With respect to supervision by home country authorities, the Board previously has determined that Bank is subject to comprehensive supervision and regulation on a consolidated basis by its home country supervisor, the Superintendencia de Bancos e Instituciones Financieras ("SBIF"). (5) Bank continues to be supervised by the SBIF on substantially the same terms and conditions. Based on all the facts of record, it has been determined that Bank continues to be subject to comprehensive supervision and regulation on a consolidated basis by its home country supervisor. (6)

The additional standards set forth in section 7 of the IBA and Regulation K (see 12 U.S.C. [sections]3105(d)(3)-(4); 12 CFR 211.24(c)(2)-(3)) have also been taken into account. SBIF has no objection to the establishment of the proposed branch.

Chile's risk-based capital standards are consistent with those established by the Basle Capital Accord ("Accord"). Bank's capital is in excess of the minimum levels that would be required by the Accord and is considered equivalent to capital that would be required of a U.S. banking organization. Managerial and other financial resources of Bank also are considered consistent with approval, and Bank appears to have the experience and capacity to support the proposed branch. Bank has established controls and procedures for the proposed branch to ensure compliance with U.S. law and for its operations in general.

Chile is a member of GAFISUD (Financial Action Task Force for South America), which is an observer organization to the Financial Action Task Force. Chile has enacted laws and adopted regulations to deter money laundering. Money laundering is a criminal offense in Chile, and financial institutions are required to establish internal policies, procedures, and systems for the detection and prevention of money laundering throughout their worldwide operations. Bank has policies and procedures to comply with these laws and regulations. Bank's compliance with applicable laws and regulations is monitored by its auditors and SBIF.

With respect to access to information about Bank's operations, the restrictions on disclosure in relevant jurisdictions in which Bank operates have been reviewed and relevant government authorities have been communicated with regarding access to information. Bank and its ultimate parent, Luksburg, have committed to make available to the Board such information on the operations of Bank and any of its affiliates that the Board deems necessary to determine and enforce compliance with the IBA, the Bank Holding Company Act, and other applicable federal law. To the extent that the provision of such information to the Board may be prohibited by law or otherwise, Bank and its ultimate parent have committed to cooperate with the Board to obtain any necessary consents or waivers that might be required from third parties for disclosure of such information. In addition, subject to certain conditions, SBIF may share information on Bank's operations with other supervisors, including the Board. In light of these commitments and other facts of record, and subject to the condition described below, it has been determined that Bank has provided adequate assurances of access to any necessary information that the Board may request.

In order to approve a proposal to establish a branch in a state outside a foreign bank's home state by upgrading an agency pursuant to section 5(a)(7)(B) of the IBA (12 U.S.C. [sections] 3103(a)(7)(B)), the Board is required to determine that

(i) the establishment of such branch is permitted by the state where the branch is to be established; and

(ii) the agency to be upgraded was in operation in that state on the day before September 29, 1994, or has been in operation in that state for a period of time that meets the state's minimum age requirement permitted under 12 U.S.C. [sections] 1831u(a)(5).

These requirements have been met in this case.

On the basis of all the facts of record, and subject to the commitments made by Bank and its ultimate parent, as well as the terms and conditions set forth in this order, Bank's application to establish a branch is hereby approved. (7) Should any restrictions on access to information on the operations or activities of Bank and its affiliates subsequently interfere with the Board's ability to obtain information to determine and enforce compliance by Bank or its affiliates with applicable federal statutes, the Board may require termination of any of Bank's direct or indirect activities in the United States. Approval of this application also is specifically conditioned on compliance by Bank and its ultimate parent with the commitments made to the Board in connection with this application and with the conditions in this order. (8) These commitments and conditions are deemed to be conditions imposed in writing by the Board in connection with this decision and, as such, may be enforced in proceedings under applicable law against Bank and its affiliates.

By order, approved pursuant to authority delegated by the Board, effective July 27, 2004.

ROBERT DeV. FRIERSON

Deputy Secretary of the Board

(1.) Asset data are as of December 31, 2003.

(2.) No other shareholder owns directly more than 10 percent of Bank's shares.

(3.) Mr. Andronico Luksic Abaroa indirectly controls 56 percent of the shares of Quinenco through Luksburg. Two other members of the Luksic family each indirectly control approximately 13.2 percent of Quinenco's shares. The remainder of Quinenco's shares are publicly traded on the New York and Chilean Stock Exchanges and no other shareholder owns more than 5 percent of those shares.

(4.) In assessing this standard, the Board considers, among other factors, the extent to which the home country supervisors:

(i) ensure that the bank has adequate procedures for monitoring and controlling its activities worldwide;

(ii) obtain information on the condition of the bank and its subsidiaries and offices through regular examination reports, audit reports, or otherwise;

(iii) obtain information on the dealings with and relationship between the bank and its affiliates, both foreign and domestic;

(iv) receive from the bank financial reports that are consolidated on a worldwide basis or comparable information that permits analysis of the bank's financial condition on a worldwide consolidated basis;

(v) evaluate prudential standards, such as capital adequacy and risk asset exposure, on a worldwide basis.

These are indicia of comprehensive, consolidated supervision. No single factor is essential, and other elements may inform the Board's determination.

(5.) See Banco de Chile, 80 Federal Reserve Bulletin 179 (1994); See also, Banco de Credito e Inversiones S.A., 85 Federal Reserve Bulletin 446 (1999).

(6.) In reaching this view, the oversight of Bank's parent companies has been considered. Under the Chilean General Banking Law, Bank's two immediate parent holding companies, Sociedad Matriz del Banco de Chile S.A. and Sociedad Administradora de la Obligacion Sabordinada, are subject to supervision by the SBIF. In addition, under the Chilean General Banking Law, the SBIF has authority to request that Bank provide information to the SBIF concerning any of its parent holding companies. The Chilean General Banking Law and the Chilean Corporations Law also contain restrictions on transactions with affiliates.

(7.) Approved by the Director of the Division of Banking Supervision and Regulation, with the concurrence of the General Counsel, pursuant to authority delegated by the Board.

(8.) The Board's authority to approve the establishment of the proposed branch parallels the continuing authority of the State of Florida to license offices of a foreign bank. The Board's approval of this application does not supplant the authority of the State of Florida to license the proposed office of Bank in accordance with any terms or conditions that it may impose.