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ORDERS ISSUED UNDER BANK HOLDING COMPANY ACT.

Orders Issued Under Section 3 of the Bank Holding Company Act

CAB Holding, LLC Wilmington Delaware

Order Approving Formation of a Bank Holding Company

CAB Holding, LLC ("CAB") has requested the Board's approval under section 3(a)(1) of the Bank Holding Company Act ("BHC Act") (12 U.S.C. [sections] 1842(a)(1)) to become a bank holding company by acquiring all the voting shares of The Chinese American Bank, New York, New York ("Bank").

Notice of the application, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 12,813 (1998)). 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.

CAB is a newly formed nonoperating corporation that would become a bank holding company by the acquisition of Bank. Bank is the 122d largest commercial banking organization in New York, with deposits of $188 million, representing less than 1 percent of total deposits in commercial banking organizations in the state.(1) 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.

Based on all the facts of record, including confidential supervisory information and other information concerning Bank and the sole shareholder of CAB, the Board concludes that considerations relating to the financial and managerial resources and future prospects of CAB and Bank, the convenience and needs of the communities to be served, and other supervisory factors that the Board is required to consider under section 3 of the BHC Act are consistent with approval of the proposal. In addition, the Board has received commitments that ensure the Board's access to information on the operations and activities of CAB and its affiliates, in order to permit the Board to determine and enforce compliance with the BHC Act and other federal banking laws.

Based on the foregoing and all the facts of record, the Board has determined that the application should be, and hereby is, approved. The Board's approval is expressly conditioned on compliance with all the commitments made by CAB, Bank, and CAB's sole shareholder in connection with the application. For purposes of this action, the commitments and conditions relied on by the Board in reaching this decision are deemed to be conditions imposed in writing by the Board in connection with its findings and 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 New York, acting pursuant to delegated authority.

By order of the Board of Governors, effective November 30, 1998.

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

ROBERT DEV. FRIERSON

Associate Secretary of the Board

(1.) Deposit and market data are as of June 30, 1997. CFBanc Holdings, Inc.

CFBanc Holdings, Inc. Washington, D.C.

CFBanc Corporation Washington D.C.

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

CFBanc Holdings, Inc. ("Holdings") and CFBanc Corporation ("Corporation") have requested the Board's approval under section 3(a)(1) of the Bank Holding Company Act ("BHC Act") (12 U.S.C. [sections] 1842(a)(1)) to become bank holding companies by acquiring control of more than 25 percent of the voting shares of City First Bank of D.C., Washington, D.C. ("Bank"), a de novo national bank that will operate with a community development focus.(1) Corporation would acquire all of the voting shares of Bank, and Holdings, a nonstock, nonprofit corporation organized under the laws of the District of Columbia, would acquire approximately 48 percent of the voting shares of Corporation.(2)

Notice of the applications, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 29,996 (1998)). 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.

Holdings and Corporation are nonoperating corporations formed for the purpose of acquiring control of Bank, a de novo institution.(3) The Board previously has noted that the establishment of a de novo bank enhances competition in the relevant banking market and is a positive consideration in an application under section 3 of the BHC Act.(4) Accordingly, the Board concludes that consummation of the proposal would not have a significantly adverse effect on competition or on the concentration of banking resources in any relevant banking market and that competitive considerations are consistent with approval. In light of all the facts of record, the Board also concludes that the financial and managerial resources and future prospects of Holdings, Corporation, and Bank, and the other supervisory factors that the Board is required to consider under section 3 of the BHC Act are consistent with approval of the proposal.

Bank intends to operate with a community development focus and to seek to increase the availability of credit, capital, and financial services in low- and moderate-income neighborhoods and to low- and moderate-income individuals in the District of Columbia. Bank intends to serve the identified credit and banking needs of low-and moderate-income areas in the District of Columbia by offering a range of commercial, real estate, and consumer loans, as well as checking, savings, and other traditional deposit products. In light of Bank's objectives and all other facts of record, the Board concludes that convenience and needs are consistent with approval of the proposal.

Based on the foregoing and all the facts of record, the Board has determined that the applications should be, and hereby are, approved. The Board's approval is expressly conditioned on compliance by all relevant parties with the commitments made in connection with the applications. For purposes of this action, the commitments and conditions relied on by the Board in reaching this decision are deemed to be conditions imposed in writing by the Board in connection with its findings and decision, and as such, may be enforced in proceedings under applicable law.

The transaction shall not be consummated before the fifteenth calendar day following the effective date of this order, or later than three months following the effective date of this order, unless such periods are extended for good cause by the Board or by the Federal Reserve Bank of Richmond, acting pursuant to delegated authority.

By order of the Board of Governors, effective November 9, 1998.

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

ROBERT DEV. FRIERSON

Associate Secretary of the Board

(1.) Bank would engage primarily in lending and other activities designed to promote the welfare of low- and moderate-income neighborhoods and individuals in the District of Columbia.

(2.) Georgetown University and the National Community Investment Fund ("NCIF"), a community development fund sponsored by Shore-bank Corporation, Chicago, Illinois ("Shorebank"), propose to make investments in Corporation. Georgetown University, NCIF, and Shore-bank have made a number of commitments, including commitments that the Board has relied on in previous cases, to limit the ability of these companies to exercise a controlling influence over Corporation or Bank. Based on these commitments, the fact that Holdings (which is a company independent of the other investors in Corporation) will control nearly 50 percent of the voting shares of Corporation, the purpose and nature of the activities of Bank, and all the other facts of record, the Board concludes that the facts do not warrant a conclusion at this time that Georgetown, NCIF, or Shorebank would control Corporation or Bank for purposes of the BHC Act. The Board expressly retains its authority to initiate a control proceeding if the facts presented at a later date indicate that any such entity in fact controls Corporation or Bank for purposes of the BHC Act.

(3.) The Federal National Mortgage Association ("Fannie Mae") proposes to acquire up to 4.9 percent of the voting shares and up to 9.9 percent of the total equity of Corporation. Section 18(s) of the Federal Deposit Insurance Act ("FDI Act") prohibits depository institutions from being an affiliate of, sponsored by, or accepting financial support directly or indirectly from Fannie Mae or any other Government-sponsored enterprise. 12 U.S.C. [sections] 1828(s)(1). Section 18(s)(3), however, permits a Government-sponsored enterprise to provide financial assistance to a depository institution as permitted by the statutes governing the enterprise. See id. at [sections] 1828(s)(3). In this case, Fannie Mae has not sponsored and would not be an affiliate of Bank. Fannie Mae also asserts that its purchase of Corporation stock is permissible under section 18(s)(3) of the FDI Act because the proposed investment is authorized under, and consistent with, the purposes of the Fannie Mae Charter Act. See 12 U.S.C. [subsections] 1716, 1723a(a); 62 Federal Register 68,060 (1997). Fannie Mae's purchase of a noncontrolling interest in Corporation would increase the resources of Bank available for residential mortgage financing and, thus, appears consistent with the purposes of the Charter Act. See id. at [sections] 1716, The Board notes, moreover, that Bank intends to focus its lending efforts on low- and moderate-income areas, and that Federal law encourages Fannie Mae to assist primary lenders to make housing credit available in areas with concentrations of low-income and minority families. See id. at [sections] 4565(a). In light of all the facts of record, and after consulting with the Federal Deposit Insurance Corporation, the Board concludes that Fannie Mae's proposed investment in Corporation is permitted under section 18(s)(3) of the FDI Act.

(4.) See Wilson Bank Holding Company, 82 Federal Reserve Bulletin 568 (1996).

City Holding Company Charleston, West Virginia

Order Approving the Acquisition of a Bank Holding Company

City Holding Company ("Applicant"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 3 of the BHC Act (12 U.S.C. [sections] 1842) to acquire Horizon Bancorp, Inc., Beckley, West Virginia ("Horizon Bancorp"), and its wholly owned subsidiary banks, Bank of Raleigh, Beckley; First National Bank in Marlinton, Marlinton; Greenbrier Valley National Bank, Lewisburg; National Bank of Summers, Hinton; and The Twentieth Street Bank, Huntington, all in West Virginia.

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 54,712 (1998)). 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.

Applicant is the sixth largest depository institution in West Virginia, controlling approximately $916.9 million in deposits, representing approximately 4.8 percent of total deposits in depository institutions in the state ("state deposits").(1) Horizon Bancorp is the seventh largest depository institution in West Virginia, controlling approximately $831.8 million in deposits, representing 4.4 percent of state deposits. On consummation of the proposal, and accounting for the proposed divestitures, Applicant would be the fourth largest depository institution in West Virginia, controlling approximately $1.65 billion in deposits in the state, representing approximately 8.7 percent of state deposits.

Competitive Considerations

The BHC Act prohibits the Board from approving an application under section 3 of the BHC Act if the proposal would result in a monopoly or would be in furtherance of any attempt to monopolize the business of banking. The BHC Act also prohibits the Board from approving a proposed combination that would substantially lessen competition or tend to create a monopoly in any relevant banking market, unless the Board finds that the anticompetitive effects of the proposal are clearly outweighed in the public interest by the probable effect of the proposal in meeting the convenience and needs of the community to be served.(2)

Applicant and Horizon Bancorp compete directly in four banking markets in West Virginia: Beckley, Charleston, Greenbrier and Huntington.(3) 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 characteristics of the markets, and the projected increase in the concentration of total deposits in depository institutions in the markets ("market deposits")(4) as measured by the Herfindahl-Hirshman Index ("HHI") under the Department of Justice Merger Guidelines ("DOJ Guidelines").(5) Consummation of the proposal without divestitures would be consistent with the DOJ Guidelines and prior Board decisions in the Huntington and Charleston, banking markets.(6)

To mitigate the potential anticompetitive effects of the proposal in the Greenbrier banking market, Applicant has committed to divest one branch that controls approximately $37.8 million in deposits in the market.(7) With the proposed divestitures, the concentration levels in the Greenbrier banking market as measured by the HHI would be consistent with the DOJ Guidelines after consummation of the proposal. The HHI would increase by approximately 88 points to not more than 2529, and five competitors would remain in the Greenbrier banking market.

Applicant is the fifth largest commercial banking organization in the Beckley banking market, controlling deposits of $109.8 million, representing 8.8 percent of market deposits. Horizon Bancorp is the largest in the market, controlling $361.1 million of deposits, representing 29 percent of total market deposits.

Applicant has committed to divest one branch that controls approximately $57 million in deposits and that represents approximately 4.6 percent of the market deposits. On consummation of the proposal and divestiture, Applicant would be the largest depository institution in the market, controlling $413.9 million in deposits, representing approximately 33.3 percent of market deposits. The post-merger HHI would increase by not more than 208 points to not more than 2132.

Consummation of the transaction with the proposed divestiture would exceed the DOJ Guidelines, in the Beckley banking market. As the Board has indicated in previous cases, in a market in which the competitive effects of a proposal exceed the DOJ Guidelines, the Board will consider whether other factors tend to mitigate the competitive effects of the proposal. The number and strength of factors necessary to mitigate competitive effects depend on the level of market concentration and size of the increase in market concentration.(8)

The Beckley banking market has characteristics that make it attractive for entry when compared to similar counties in West Virginia.(9) For example, from 1994 to 1997, the increase in population in the Beckley banking market was three times larger than the increase in population in comparable counties. In addition, the average number of residents per branch and amount of deposits per branch in the banking market exceeded those statistics for comparable counties in West Virginia. The entry of a commercial bank de novo in 1995 also appears to confirm the attractiveness of the Beckley banking market.

The proposed divestiture of approximately 4.6 percent of market deposits to an out-of-market commercial banking organization would create another market entrant, and the number of depository institutions competing in the market would remain unchanged at nine competitors. These competitors include three large national and regional banking organizations that each have significant market shares.

The Department of Justice has conducted a detailed review of the proposal and has advised the Board that, in light of the proposed divestitures, consummation of the proposal would not likely have a significantly adverse effect on competition in any relevant banking market. The Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the West Virginia Commissioner of Banking also have been afforded an opportunity to comment and have not objected to consummation of the proposal.

After carefully reviewing all the facts of record and for the reasons discussed in this order and appendices, the Board concludes that consummation of the proposal would not likely result in any significantly adverse effects on competition or on the concentration of banking markets in the Beckley, Charleston, Greenbrier and Huntington banking markets where Applicant and Horizon Bancorp compete or in any other relevant banking market. Accordingly, based on all of the facts of record and subject to completion of the proposed divestitures, the Board has determined that the competitive factor is consistent with approval of the proposal.

Other Factors Under the BHC Act

The BHC Act also requires the Board, in acting on an application, to consider the financial and managerial resources and future prospects of the companies and banks involved in a proposal, the convenience and needs of the community to be served, and certain other supervisory factors.(10)

The Board has carefully considered the financial and managerial resources and future prospects of Applicant and Horizon Bancorp, and their respective subsidiary banks, and other supervisory factors in light of all the facts of record. As part of this consideration, the Board has reviewed relevant reports of examination and other supervisory information prepared by the Reserve Banks and other federal agencies. The Board notes that the bank holding companies and their subsidiary banks currently are well capitalized and are expected to remain so after consummation of the proposal.

The Board also has considered other aspects of the financial condition and resources of the two organizations, the structure of the proposed transaction, and the managerial resources of each of the entities and the combined organization. Based on these and other facts of record, the Board concludes that considerations relating to the financial and managerial resources and future prospects of Applicant, Horizon Bancorp, and their respective subsidiaries are consistent with approval of the proposal, as are the other supervisory factors that the Board must consider under section 3 of the BHC Act.

The Board has carefully considered the effect of the proposed acquisition on the convenience and needs of the community to be served in light of all the facts of record. All of Applicant's and Horizon's subsidiary banks have received "outstanding" or "satisfactory" ratings from their appropriate federal supervisors at the most recent examinations of their performance under the Community Reinvestment Act ("CRA") (12 U.S.C. [sections] 2901 et seq.). Based on all the facts of record, including the CRA performance records of the subsidiary banks of Applicant and Horizon Bancorp, the Board concludes that convenience and needs considerations are consistent with approval of the proposal.

Conclusion

Based on the foregoing, and in light of all the facts of record, the Board has determined that the application should be, and hereby is, approved. Approval of the application is specifically conditioned on compliance by Applicant with all the commitments made in connection with the proposal and with the conditions stated or referred to in this order, including Applicant's divestiture commitments. For purposes of this transaction, the commitments and conditions referred to in this order shall be deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law.

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

By order of the Board of Governors, effective November 30, 1998.

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

ROBERT DEV. FRIERSON

Associate Secretary of the Board

(1.) State and market data are as of June 30, 1997, and are updated for merger activity as of October 23, 1998.

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

(3.) The banking markets are described in Appendix A.

(4.) Market share data are based on calculations that include the deposits of thrift institutions at 50 percent. The Board previously has indicated that thrift institutions have become, or have the potential to become, significant competitors of commercial banks. See, e.g., Midwest Financial Group, 75 Federal Reserve Bulletin 386 (1989); National City Corporation, 70 Federal Reserve Bulletin 743 (1984). Thus, the Board has regularly included thrift deposits in the calculation of market share on a 50-percent weighted basis. See, e.g., First Hawaiian Inc., 77 Federal Reserve Bulletin 52 (1991).

(5.) Under DOJ Guidelines, 49 Federal Register 26,823 (1984), a market in which the post-merger HHI is more than 1800 is considered highly concentrated. The Department of Justice has informed the Board that a bank merger or acquisition generally will not be challenged (in the absence of other factors indicating anticompetitive effects) unless the post-merger HHI is at least 1800 and the merger increases the HHI by more than 200 points. The Justice Department has stated that the higher than normal HHI thresholds for screening bank mergers for anticompetitive effects implicitly recognize the competitive effects of limited-purpose lenders and other nondepository financial institutions.

(6.) Market data for these banking markets after consummation of the proposal are described in Appendix B.

(7.) With respect to each divestiture, Applicant has committed to execute a sales agreement for the proposed divestiture with a new market entrant prior to consummation of the proposal, and to complete the divestiture within 180 days of consummation. Applicant also has committed that, in the event it is unsuccessful in completing the divestiture within 180 days of consummation, it will transfer the unsold branch to an independent trustee that is acceptable to the Board and will instruct the trustee to sell the branch promptly to one or more alternative purchasers acceptable to the Board. See BankAmerica Corporation, 78 Federal Reserve Bulletin 338 (1992); United New Mexico Financial Corporation, 77 Federal Reserve Bulletin 484 (1991). In the Beckley banking market, Applicant has committed that the purchaser of the divested branch of a one-branch bank would be given the option of retaining the name of that bank.

(8.) See, e.g., First Union Corporation, 84 Federal Reserve Bulletin 489 (1998); NationsBank Corporation, 84 Federal Reserve Bulletin 129 (1998).

(9.) Beckley is not a Metropolitan Statistical Area ("MSA"). Accordingly, the market characteristics of the Beckley banking market were compared with other non-MSA counties in West Virginia.

(10.) A commenter has asserted that First National Bank in Marlinton ("Bank") is the subject of several lawsuits as a result of its business relationships with local public agencies. There have been no adjudications of wrongdoing by Bank in these proceedings, and each matter is before a forum that can provide adequate remedies if the allegations of wrongdoing can be sustained. Commenter also alleges, without providing any supporting information, that Bank is under investigation for the misuse of federal and state grants. In reviewing this case, the Board has contacted and considered the views of federal banking agencies and the Department of Justice.

Appendix A

The Beckley, West Virginia, banking market is defined as the Beckley Ranally Metro Area ("RMA") and includes the town of Whitesville in Boone County, the remainder of Raleigh County, Summers County, and the portion of Fayette County that excludes the towns of Montgomery and Smithers.

The Charleston, West Virginia, banking market is defined as the Charleston, West Virginia, RMA and includes the remainders of Kanawha and Putman Counties, and the towns of Montgomery and Smithers in Fayette County.

The Greenbrier, West Virginia, banking market is defined as Greenbrier County, West Virginia.

The Huntington banking market is defined as Huntington, West Virginia-Kentucky-Ohio RMA and the remainder of Boyd County, Kentucky; Lawrence County, Ohio; and Cabell and Wayne Counties, West Virginia.

Appendix B

In the Charleston, West Virginia, banking market applicant would control 13.8 percent of market deposits and would remain the second largest depository institution in the market after consummation of the proposal. The HHI would increase by 34 points to 1841.

In the Huntington, West Virginia, banking market applicant would control 9.3 percent of the market deposits and would become the second largest depository institution in the market after consummation of the proposal. The HHI would increase by 25 points to 636.

Peoples Heritage Financial Group, Inc. Portland, Maine

Order Approving Acquisition of a Bank Holding Company

Peoples Heritage Financial Group, Inc., Portland, Maine ("Peoples"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), and its wholly owned subsidiary, Peoples Heritage Merger Corp., Portland, Maine ("Peoples Merger"), have requested the Board's approval under section 3 of the BHC Act (12U. S.C. [sections] 1842) to merge with SIS Bancorp, Inc., Springfield, Massachusetts ("SIS"), and to acquire the subsidiary banks of SIS, Springfield Institution for Savings, Springfield, Massachusetts ("SIS Bank"), and Glastonbury Bank & Trust Company, Glastonbury, Connecticut ("Glastonbury Bank").(1)

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 54,140 (1998)). 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.

Peoples, with total consolidated assets of approximately $9.8 billion, operates depository institutions in Maine, New Hampshire, and Massachusetts.(2) Peoples is the tenth largest depository institution in Massachusetts, controlling deposits of approximately $1 billion in the state, representing less than 1 percent of total deposits in insured depository institutions in the state ("state deposits"). SIS, with total consolidated assets of approximately $1.8 billion, operates depository institutions in Massachusetts and Connecticut. SIS is the ninth largest depository institution in Massachusetts, controlling deposits of approximately $1.1 billion in that state, representing less than 1 percent of state deposits. On consummation of the proposal, Peoples would be the eighth largest depository organization in Massachusetts, controlling deposits of $2.1 billion, representing 1.8 percent of state deposits.

Interstate Analysis

Section 3(d) of the BHC Act allows the Board to approve an application by a bank holding company to acquire control of a bank located in a state other than the home state of the bank holding company if certain conditions are met.(3) For purposes of the BHC Act, the home state of Peoples is Maine, and SIS controls banks in Massachusetts and Connecticut.(4) All the conditions for an interstate acquisition enumerated in section 3(d) are met in this case.(5) In view of all the facts of record, the Board is permitted to approve the proposal under section 3(d) of the BHC Act.

Competitive, Financial and Managerial Considerations

Peoples and SIS do not compete in any banking market. Based on all the facts of record, the Board concludes that consummation of the proposal would not result in a monopoly or have a significantly adverse effect on competition in any relevant banking market.

The BHC Act also requires the Board, in acting on an application, to consider the financial and managerial resources and future prospects of the companies and banks involved, and other supervisory factors. The Board has reviewed these factors in light of the record, including supervisory reports of examination assessing the financial and managerial resources of the organizations and financial information provided by Peoples. Based on all the facts of record, the Board concludes that the financial and managerial resources and future prospects of Peoples, SIS, and their respective subsidiary banks are consistent with approval, as are other supervisory factors the Board must consider under section 3 of the BHC Act.

Convenience and Needs Considerations

In acting on a proposal under section 3 of the BHC Act, the Board is required to consider the effect of the proposal on the convenience and needs of the community to be served. The Board has carefully reviewed the effect of the proposal on the convenience and needs of the communities to be served in light of all the facts of record, including comments submitted on the proposal.(6)

The Board has long held that consideration of the convenience and needs factor includes a review of the records of the relevant depository institutions under the Community Reinvestment Act (12 U.S.C. [sections] 2901 et seq.) ("CRA"). As provided in the CRA, the Board has evaluated this factor in light of examinations by the primary federal supervisors of the CRA performance records of the relevant institutions. An institution's most recent CRA performance evaluation is a particularly important consideration in the applications process because it represents a detailed on-site evaluation of the institution's overall record of performance under the CRA by its primary federal supervisor.(7) All the insured depository institutions controlled by Peoples received "outstanding" or "satisfactory" CRA performance ratings in their most recent CRA examination by their primary federal supervisor: Family Bank, FSB, Haverhill, Massachusetts ("Family FSB"), received an "outstanding" rating from the Office of Thrift Supervision ("OTS"), as of July 28, 1997; Peoples Heritage Savings Bank, Portland, Maine, received an "outstanding" rating from the Federal Deposit Insurance Corporation ("FDIC"), as of April 8, 1996; and Bank of New Hampshire received a "satisfactory" rating from the FDIC, as of January 17, 1995.

In reviewing this case, the Board has paid particular attention to the record of performance of Family FSB in helping to meet the convenience and needs of the community because Peoples proposes to merge SIS Bank into Family FSB.(8) In its most recent CRA examination of Family FSB, examiners noted that Family FSB offered a full range of residential, commercial, and consumer loans. Examiners commented favorably on the institution's no-fee checking accounts, telephone banking services, and an electronic banking card program for social security and public assistance income distribution. Examiners also noted that Family FSB's services were readily accessible and tailored to the convenience of all segments of its assessment area. Examiners stated that all of the institution's branches offered automated teller machines ("ATMs") and 16 of the institution's 21 full-service retail offices offered extended hours at drive-through facilities. Peoples also indicates that it maintains full-service branches operated by students at local high schools to provide business training opportunities for the students.

Examiners stated that, according to data reported for 1995 pursuant to the Home Mortgage Disclosure Act (12 U.S.C. [sections] 2801 et seq.) ("HMDA"), Family FSB originated a substantially higher percentage of residential loans to low- and moderate-income ("LMI") borrowers than the aggregate average percentage for all HMDA lenders in the area. Based on 1995 HMDA data, Family FSB made more than 400 residential loans, totaling more than $25 million, to LMI borrowers. Examiners particularly noted that the institution met many low-income lending needs through special credit programs with flexible debt-to-income ratios, down payment assistance, government guarantees, and mortgage insurance. Examiners stated that Family FSB significantly enhanced efforts to promote home ownership for low-income borrowers through the institution's Community Outreach Program and its participation in first-time home buyer and down payment assistance programs offered by community groups, government agencies, and secondary market sources.(9) Examiners also stated that Family FSB's residential loan originations were substantially concentrated in its assessment area from January 1, 1995, to July 31, 1997. Examiners noted that Family FSB participated in affordable housing programs sponsored by government agencies such as the Massachusetts Housing Finance Authority ("MHFA"), the Federal Housing Administration ("FHA"), and the Department of Veterans Affairs ("VA"). Peoples states that the majority of the mortgage loans originated in 1997 by Family FSB were to borrowers earning less than the median income of the assessment area and 36 percent of mortgage loans were to borrowers earning less than 80 percent of the median income.

Examiners noted that Family FSB made almost 500 loans, totaling more than $84 million, to small businesses in its assessment area from January 1, 1996, to July 31, 1997. Examiners noted that these loans represented more than 60 percent of Family FSB's commercial loans and more than 90 percent of the institution's small business loans. Moreover, examiners stated that Family FSB made 80 small business loans, totaling more than $12 million, in LMI census tracts. Peoples states that, in cooperation with the North Quabbin Community Advisory Board, Family FSB made loans totaling more than $250,000 pursuant to a $1 million commitment to a small business loan pool since the pool was established in June 1998. Peoples also states that Family FSB has been designated a "Preferred Lender" by the Small Business Administration.

Examiners stated that, from January 1, 1996, to July 31, 1997, Family FSB made 28 loans, totaling more than $5 million, to organizations in its assessment area that supported affordable housing, economic and community development, and neighborhood stabilization. Examiners also noted that, of these loans, almost 40 percent by number and more than 30 percent by dollar amount were made in LMI census tracts. Examiners favorably commented on the more than $2 million in investments in community development organizations made by Family FSB during the examination period, including investments in low-income housing limited partnerships, small business loan funds, and programs for housing rehabilitation. Peoples states that, in 1996 and 1997, Family FSB made grants and donations of more than $200,000 to organizations such as The United Way, Merrimack Valley Housing Partnership, Worcester County Food Bank, Worcester East Side CDC, and the North County Land Trust. Examiners also noted that the institution's management and officers contributed financial expertise to a significant number of community organizations and programs, including affordable housing development and rehabilitation corporations, credit and home ownership counseling agencies, job training and placement services for low-income individuals, and financial intermediaries that lend to small businesses in LMI areas.

SIS Bank received an "outstanding" rating from the FDIC at its most recent CRA examination, as of September 22, 1997.(10) Glastonbury Bank received a "satisfactory" rating from the FDIC at its most recent CRA examination, as of August 26, 1996. Examiners noted that, based on 1995 HMDA data, SIS Bank was the market leader in its assessment area with 8.7 percent by number and 11 percent by dollar amount of the HMDA loans reported in the assessment area. Examiners also noted that, based on 1996 HDMA data, SIS Bank made almost 50 HMDA loans, totaling more than $2.7 million, in LMI census tracts and 250 HMDA loans, totaling more than $14 million, to LMI borrowers. Examiners stated that, during 1996, SIS Bank made more than 80 home equity loans, totaling more than $2 million, in LMI census tracts and more than 470 home equity loans, totaling more than $12 million, to LMI borrowers. Examiners commented favorably on the innovative and flexible lending programs offered by SIS Bank, many of which were focused on first-time home buyers in LMI areas. Examiners noted that, in 1996, SIS Bank made approximately $1.5 million in mortgage loans under its Soft Seconds Program which provides LMI borrowers with two mortgages; the second mortgage is subsidized with public funds and provides for significantly reduced payments during the first nine years of the loan.

Examiners also stated that, during 1996, SIS Bank made 38 mortgage loans, totaling more than $2.7 million, under a program sponsored by the MHFA to assist first-time home buyers that includes a 30-year fixed rate mortgage at below market interest rates with low down payment requirements and flexible underwriting guidelines. Examiners also noted that, in 1996, SIS Bank made 21 mortgage loans, totaling more than $2 million, in a VA mortgage program that provides 100 percent financing to eligible veterans.

Examiners stated that, in 1996, SIS Bank made more than 260 commercial loans, totaling more than $10 million, in amounts equal to or less than $100,000, representing more than 60 percent by number of the commercial loans made by SIS Bank during the period. Examiners also noted that 65 percent of commercial loans made by SIS Bank with original balances of $1 million or less during the period were originated to businesses with gross annual revenues of $1 million or less.

Examiners stated that the number and distribution of SIS Bank's branches provided reasonable access to the bank's services by everyone living in the bank's assessment area. Examiners noted that most of the bank's branches offered extended operating hours. Examiners stated that SIS Bank employed numerous bilingual individuals who could provide translation services. Examiners also noted that SIS Bank offered several free deposit products, such as basic checking, statement savings, and unlimited usage of proprietary and nonproprietary ATMs.

Peoples states that, after consummation of the proposed merger, the combined organization would continue to offer many of the consumer products and services offered by SIS, including a checking account with no minimum balance, no monthly service charges, and no transaction limits; home equity loan and credit lines; relationship checking packages, which provide enhanced deposit rates and reduced fee structures; certificates of deposit with flexible interest rate terms; and telephone banking services. Peoples also states that no branch closings or consolidations are anticipated in connection with the proposed merger.

The Board has carefully considered the lending records of Family FSB and SIS Bank in light of comments on the 1996 and 1997 data reported by the institutions pursuant to the HMDA. The data for 1996 and 1997 generally show that Family FSB and SIS Bank have assisted in meeting the credit needs of the communities they served with respect to HMDA-related loans, including the credit needs of minority and LMI borrowers and borrowers in LMI census tracts.

The Board has carefully considered the data in light of other information, including examination reports that provide an on-site evaluation of the compliance by Family FSB and SIS Bank with the fair lending laws and the overall lending and community development activities of the banks. The examinations revealed no evidence of prohibited or illegal credit practices at Family FSB and SIS Bank, and the institutions were in compliance with the substantive provisions of antidiscrimination laws and regulations, including the Equal Credit Opportunity Act, the Fair Housing Act, and the HMDA. Peoples states that Family FSB conducts annual CRA and fair lending training for all employees.

The Board has carefully considered all the facts of record, including the comments received, responses to those comments, and the CRA performance record of Family FSB and SIS Bank, including relevant reports of examination and other supervisory information. Based on a review of the entire record and for the reasons discussed above, the Board concludes that convenience and needs considerations, including the CRA records of performance of the institutions involved, are consistent with approval of the proposal.

Conclusion

Based on all the facts of record, and for the reasons discussed above, the Board has determined that the application should be, and hereby is, approved. The Board's decision is specifically conditioned on compliance with all the commitments made in the application. The commitments relied on in reaching this decision shall be deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law.

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

By order of the Board of Governors, effective November 4, 1998.

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

ROBERT DEV. FRIERSON

Associate Secretary of the Board

(1.) Peoples also has requested Board approval to hold and exercise options to acquire up to 19.9 percent of the voting shares of SIS, if certain events occur. The options would not be exercised if the merger is consummated.

(2.) Asset and deposit data are as of June 30, 1998, unless otherwise noted.

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

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

(5.) See 12 U.S.C. [subsections] 1842(d)(1)(A) and (B) and 1842(d)(2)(A) and (B). Peoples is adequately capitalized and adequately managed, as defined in the BHC Act, and the subsidiary banks of SIS have been in existence and operated for the minimum periods of time necessary to satisfy age requirements established by applicable state law. See Mass. Gen. Laws Ann. ch. 167A, [sections] 2 (West 1998) (three years); Conn. Gen. Stat. Ann. [sections] 36a-412 (West 1998) (five years). Peoples also would not exceed applicable state law deposit limitations as calculated under state law. On consummation of the proposal, Peoples would control less than 10 percent of the total amount of deposits in insured depository institutions in the United States. All other requirements of section 3(d) of the BHC Act also would be met on consummation of the proposal.

(6.) The Board received a comment letter signed by several community groups ("commenters") which expressed concern that the acquisition of SIS by Peoples would adversely affect the positive impact SIS has had on the Springfield, Massachusetts, community. Commenters favorably noted some current programs of Peoples, but expressed concern about the record of Peoples in meeting the residential lending needs of low- and moderate-income and minority borrowers.

(7.) The Statement of the Federal Financial Supervisory Agencies Regarding the Community Reinvestment Act provides that a CRA examination is an important and often controlling factor in the consideration of an institution's CRA record and that reports of these examinations will be given great weight in the applications process. 54 Federal Register 13,742 and 13,745 (1989).

(8.) Immediately after consummation of the merger of SIS into Peoples Merger, Peoples anticipates that SIS Bank would merge with and into Family FSB. The merger of SIS Bank into Family FSB is subject to the prior approval of the OTS under the Bank Merger Act.

(9.) Peoples states that, as part of its Community Outreach Program, Family FSB offers mortgages with special terms for LMI borrowers, including an adjustable rate mortgage with discounted pricing based on the borrower's income level compared with the median income of the area, with the most favorable pricing reserved for borrowers earning less than 50 percent of the area's median income level; permitting up to 2 percent of the required 5 percent down payment to come from a gift, grant, or Family FSB unsecured loan with no interest for applicants earning less than 60 percent of the area's median income; and flexible requirements for debt-to-income ratios. Peoples also states that more than $6 million in mortgage loans have been made through its Community Outreach Program since the program began in late 1994.

(10.) For purposes of CRA, the assessment area of SIS Bank consists of the Springfield, Massachusetts, Metropolitan Statistical Area ("MSA") and some contiguous towns in the same census tracts as towns located in the Springfield MSA.

Popular, Inc. Hato Rey, Puerto Rico

Banco Popular de Puerto Rico Hato Rey, Puerto Rico

Popular Transition Bank Hato Rey, Puerto Rico

Banco Popular, New York Hato Rey, Puerto Rico

Order Approving the Acquisition of Banks, Merger of Banks, Establishment of Branches and an Agency, and Membership in the Federal Reserve System

Popular, Inc., Hato Rey, Puerto Rico ("Popular"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), and its subsidiaries propose to reorganize their holdings in a manner that requires the Board's approval under section 3 of the BHC Act (12 U.S.C. [sections] 1842) and section 18(c) of the Federal Deposit Insurance Act (12 U.S.C. [sections] 1828(c)) ("Bank Merger Act"). As part of this proposal, Popular would reorganize its banking operations under two de novo banks, one organized under the laws of Puerto Rico and the other organized under the laws of New York, that propose to become members of the Federal Reserve System pursuant to sections 9 and 19(h) of the Federal Reserve Act ("FRA") (12 U.S.C. [subsections] 321 and 466). The Puerto Rican de novo bank, Popular Transition Bank, Hato Rey, Puerto Rico ("New Banco Popular"), also proposes to operate a branch and agency in the United States pursuant to section 7(d) of the International Banking Act ("IBA") (12U. S.C. [sections] 3105(d)),(1) and to establish three agreement corporations pursuant to section 25 of the FRA.(2)

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 52,273 (1998)).(3) As required by the Bank Merger Act, reports on the competitive effects of the merger were requested from the U.S. Attorney General, the Office of the Comptroller of the Currency ("OCC"), and the Federal Deposit Insurance Corporation. The time for filing comments has expired, and the Board has considered the applications and notices and all comments received in light of the factors set forth in the Bank Merger Act, the BHC Act, the FRA, and the IBA.

Popular, the top-tier parent holding company of Banco Popular de Puerto Rico, Hato Rey, Puerto Rico ("Banco Popular"), has total consolidated assets of approximately $20 billion and total consolidated deposits of approximately $12 billion.(4) Banco Popular, with total consolidated assets of approximately $16 billion, is the largest commercial banking organization in Puerto Rico, controlling total consolidated deposits of approximately $8 billion, representing approximately 35 percent of total deposits in Puerto Rico.(5) Banco Popular has approximately 200 branches in Puerto Rico, as well as branches in the U.S. Virgin Islands and the British Virgin Islands. Banco Popular's U.S. banking operations include branches in New York State and an agency in Chicago, Illinois (the "Chicago Agency"). In addition to Banco Popular, Popular controls nine insured depository institutions in California, Florida, Illinois, New Jersey, and Texas.

As part of the reorganization, Popular proposes to merge certain of its current U.S. banking operations into a single state-chartered bank, Banco Popular, New York ("Banco Popular-New York"). Popular also proposes to transfer Banco Popular's current operations in Puerto Rico, the U.S. Virgin Islands and the British Virgin Islands, and a proposed state-licensed branch in New York, New York (the "New NY Branch"), and the Chicago Agency (collectively, the "Purchased Operations"), to New Banco Popular. Both Banco Popular-New York and New Banco Popular have requested approval to become members of the Federal Reserve System.(6)

Interstate Analysis

Under the proposal, Banco Popular-New York would operate branches in its home state of New York and in California, Florida, Illinois, and New Jersey at locations where the bank's predecessors currently operate branches.(7) Under section 9 of the FRA and section 44 of the Federal Deposit Insurance Act ("FDI Act"), a state member bank may acquire and operate branches outside the bank's home state provided certain conditions are met.(8) None of the home states of the depository institutions involved in the proposed depository institution mergers have enacted laws that prohibit the proposed mergers.(9) In addition, the Board has determined that each bank involved in the proposal would be adequately capitalized and adequately managed on consummation of the transaction, and that all other applicable conditions of section 9 of the FRA and section 44 of the FDI Act are met by this proposal.(10) Popular has notified the relevant state authorities in New York, California, Florida, Illinois, and New Jersey of its proposal to consolidate banking operations and provided a copy of its Bank Merger Act application to all the relevant state agencies. Representatives from all the states involved in the proposal have indicated that this transaction would comply with their state laws on interstate bank mergers. In light of the foregoing, it appears that the proposal complies with the interstate banking requirements of section 9 of the FRA and section 44 of the FDI Act.(11)

Under section 5(a)(7) of the IBA, a foreign bank, with the approval of the Board, may establish an agency outside its home state, provided the establishment and operation of the agency is expressly permitted by the state in which the agency is to be established.(12) For purposes of the IBA, New Banco Popular's home state would be New York, and New Banco Popular proposes to operate the Chicago Agency as an agency of the bank. After a review of section 5 of the IBA and the relevant state law of Illinois, the Board has determined that New Banco Popular may operate the Chicago Agency at this location, subject to the condition that New Banco Popular also receive the approval of the OCC.

Other Factors

In reviewing this proposal under the FRA, the Bank Merger Act and section 3 of the BHC Act, the Board has considered the financial and managerial resources and future prospects of the companies and banks involved, the convenience and needs of the communities to be served, and certain supervisory factors. The Board has reviewed these factors in light of the facts of record, including supervisory reports of examination assessing the financial and managerial resources of the organizations and financial information provided by Popular. The Board notes that the resulting institutions would be well-capitalized on consummation of the proposal. Based on all the facts of record, the Board concludes that the financial and managerial resources and future prospects of the holding companies and their subsidiaries are consistent with approval, as are the other supervisory factors the Board must consider under the FRA, the Bank Merger Act and section 3 of the BHC Act.

In considering the convenience and needs factor, the Board reviewed the records of the relevant depository institutions under the Community Reinvestment Act ("CRA").(13) As provided in the CRA, the Board has evaluated this factor in light of examinations by the primary federal supervisors of the relevant institutions. All the insured depository institutions controlled by Popular received "outstanding" or "satisfactory" CRA performance ratings in their most recent CRA examinations by their primary federal supervisors. Based on a review of the entire record, the Board concludes that convenience and needs considerations, including the CRA performance records of the institutions involved, are consistent with approval of the proposal.

The Board also considered the competitive effects of the proposal as required by the Bank Merger Act and section 3 of the BHC Act. Based on all the facts of record, including the fact that this transaction is a corporate reorganization, the Board concludes that consummation of the proposal would not have a significantly adverse effect on competition or on the concentration of banking resources in any relevant banking market. Accordingly, the Board concludes that competitive considerations are consistent with approval.

In addition, the Board has considered the factors it is required to evaluate under the IBA for New Banco Popular to operate the Chicago Agency and the New NY Branch. New Banco Popular would engage directly in the business of banking outside the United States through its banking operations in Puerto Rico and elsewhere. Popular has provided the Board with the information necessary to assess the application through submissions that address the relevant issues. In addition, New Banco Popular would be subject to comprehensive consolidated supervision by the appropriate federal and Puerto Rican bank supervisory agencies. The Board also has determined that the other standards required by the IBA are met in this case and that all factors under section 25 of the FRA are consistent with approval.

Conclusion

Based on the foregoing, including the commitments made to the Board by Popular and its subsidiaries in connection with these applications and notices, and in light of all the facts of record, the Board has determined that these applications and notices should be, and hereby are, approved. The Board's approval is specifically conditioned on compliance by the applicants with all commitments made in connection with these applications and notices and the conditions discussed in this order.

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

By order of the Board of Governors, effective November 16, 1998.

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

ROBERT DEV. FRIERSON

Associate Secretary of the Board

(1.) For purposes of the application under the IBA, New Banco Popular is considered a "foreign bank" as defined in section 1(b)(7) of the IBA. See 12 U.S.C. [sections] 3101(7).

(2.) The applications filed with the Board in connection with the proposed reorganization are listed in the Appendix.

(3.) Notices of the various applications submitted in connection with the proposal were also published in newspapers of general circulation in the relevant communities.

(4.) Asset and deposit data are as of June 30, 1998, unless otherwise noted. In September 1998, Popular received approval under the BHC Act to acquire First State Bank of Southern California, Sante Fe Springs, California, and Bronson-Gore Bancorp, and thereby acquire its subsidiary banks, Bronson-Gore Bank, Prospect Heights, Illinois; Irving Bank, Chicago, Illinois; and Water Tower Bank, Chicago, Illinois. Popular consummated these acquisitions on October 31, 1998.

(5.) Banco Popular deposit data and ranking are as of June 30, 1997.

(6.) New Banco Popular proposes to continue to operate branches in Puerto Rico at locations where Banco Popular currently operates branches.

(7.) The following insured depository institutions would be merged into Banco Popular-New York: Banco Popular, N.A. (California), City of Commerce, California; First State Bank of Southern California, Santa Fe Springs, California; Banco Popular, N.A. (Florida), Sanford, Florida; Banco Popular, Illinois, Irving Bank, and Water Tower Bank, all of Chicago, Illinois; and Bronson-Gore Bank, Prospect Heights, Illinois. In addition, Popular proposes to merge Banco Popular, F.S.B., Newark, New Jersey ("BP-FSB"), into Banco Popular-New York through a series of steps that require approval under section 5(d)(3) of the FDI Act (12 U.S.C. [sections] 1815(d)(3)). All the factors under section 5(d)(3) of the FDI Act are met in this proposal.

(8.) See 12 U.S.C. [subsections] 321 and 1831u. Section 9 of the FRA governs the locations where a bank that is or becomes a state member bank may establish and operate branches. That section incorporates the restrictions contained in section 44 of the FDI Act. Section 44 also governs branches that may be acquired by any state member bank in an interstate merger transaction.

(9.) See Cal. Fin. Code [sections] 3824 (West 1998); Fla. Stat. Ann. [sections] 658.2953 (West 1998); 205 Ill. Comp. Stat. Ann. 5/21.1 (West 1998); and N.J. Stat. Ann. [sections] 17:9A-133.1 (West 1998).

(10.) See 12 U.S.C. [sections] 1831u(b).

(11.) All the conditions for an interstate acquisition enumerated in section 3(d) of the BHC Act also would be met in this case.

(12.) See 12 U.S.C. [sections] 3103(a)(7).

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

Appendix

Applications and Notices Submitted to the Board in connection with the Reorganization of Popular, Inc.

(1) Membership of New Banco Popular in the Federal Reserve System under section 19(h) of the Federal Reserve Act (12 U.S.C. [sections] 466).

(2) Membership of Banco Popular-New York in the Federal Reserve System under section 9 of the Federal Reserve Act (12 U.S.C. [sections] 321).

(3) Acquisition by Popular and its intermediate holding companies of control of Banco Popular-New York under section 3(a)(3) of the Bank Holding Company Act (12 U.S.C. [sections] 1842(a)(3)).

(4) Acquisition by Popular and its intermediate holding companies of control of New Banco Popular under section 3(a)(3) of the Bank Holding Company Act (12 U.S.C. [sections] 1842(a)(3)).

(5) Retention of ownership by Popular and its intermediate holding companies, under section 3(a)(3) of the Bank Holding Company Act, of Banco Popular, F.S.B., after its conversion from a federal savings association to a national banking association (12 U.S.C. [sections] 1842(a)(3)).

(6) Acquisition by Banco Popular North America, Inc. of control of Banco Popular, N.A. (Texas) under section 3(a)(3) of the Bank Holding Company Act (12 U.S.C. [sections] 1842(a)(3)).

(7) Acquisition by New Banco Popular of the Purchased Operations from Banco Popular under the Bank Merger Act (12 U.S.C. [sections] 1828(c)).

(8) Merger of Banco Popular (with only New York operations) with and into Banco Popular-New York under the Bank Merger Act (12 U.S.C. [sections] 1828(c)).

(9) Merger of Banco Popular, F.S.B. (after its conversion to a national banking association) with and into Banco Popular-New York under the Bank Merger Act (12 U.S.C. [sections] 1828(c)).

(10) Merger of Banco Popular, Illinois, with and into Banco Popular-New York under the Bank Merger Act (12 U.S.C. [sections] 1828(c)).

(11) Merger of Banco Popular, N.A. (California) with and into Banco Popular-New York under the Bank Merger Act (12 U.S.C. [sections] 18280)).

(12) Merger of Banco Popular, N.A. (Florida) with and into Banco Popular-New York under the Bank Merger Act (12 U.S.C. [sections] 1828(c)).

(13) Merger of First State Bank of Southern California with and into Banco Popular-New York under the Bank Merger Act (12 U.S.C. [sections] 1828(c)).

(14) Merger of Bronson-Gore Bank with and into Banco Popular-New York under the Bank Merger Act (12 U.S.C. [sections] 1828(c)).

(15) Merger of Irving Bank with and into Banco Popular-New York under the Bank Merger Act (12 U.S.C. [sections] 1828(c)).

(16) Establishment of branches at the locations of the predecessor institutions of New Banco Popular and Banco Popular-New York under section 9 of the Federal Reserve Act (12 U.S.C. [sections] 321).

(17) Merger of Water Tower Bank with and into Banco Popular-New York under the Bank Merger Act (12 U.S.C. [sections] 1828(c)).

(18) Establishment by New Banco Popular of an agency in Chicago, Illinois, under section 7(d) of the International Banking Act (12 U.S.C. [sections] 3105(d)).

(19) Establishment by New Banco Popular of a branch in New York, New York, under section 7(d) of the International Banking Act (12 U.S.C. [sections] 3105(d)).

(20) Redemption of capital stock and reduction of capital of Banco Popular under sections 9(6) and 9(11) of the Federal Reserve Act (12 U.S.C. [subsections] 324 and 329), resulting from a distribution to Popular consisting of all the outstanding shares of common stock of New Banco Popular.

(21) Reduction of capital of Banco Popular-New York, under sections 9(6) and 9(11) of the Federal Reserve Act (12 U.S.C. [subsections] 324 and 329), resulting from a dividend to Popular North America, Inc., consisting of all the outstanding shares of common stock of Equity One, Inc.

(22) Acquisition by New Banco Popular of all the outstanding shares of Popular Leasing & Rental, Inc., Popular Mortgage, Inc., and Popular Finance, Inc. as agreement corporations under section 211.4(f) of Regulation K (12 C.F.R. 211.4(f)).

(23) Establishment by Banco Popular-New York of an international banking facility under 12 C.F.R. 204.8(a)(1).

(24) Establishment by New Banco Popular of its first two branches in foreign countries, under section 25 of the Federal Reserve Act (12 U.S.C. [sections] 601) and section 211.3(a)(1) of Regulation K (12 C.F.R. 211.3(a)(1)).

Susquehanna Bancshares, Inc. Lititz, Pennsylvania

Order Approving Acquisition of a Bank Holding Company

Susquehanna Bancshares, Inc. ("Susquehanna"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act") (12 U.S.C. [sections] 1842(a)(3)), has requested the Board's approval under section 3 of the BHC Act to acquire Cardinal Bancorp, Inc. ("Cardinal"), and thereby acquire Cardinal's subsidiary bank, First American National Bank of Pennsylvania ("FA Bank"), both of Everett, Pennsylvania.

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 38,335 (1998)). 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.

Susquehanna operates subsidiary banks in Pennsylvania, Maryland, and New Jersey. Susquehanna is the tenth largest depository institution in Pennsylvania, controlling approximately $1.5 billion in deposits, representing approximately 1.1 percent of total deposits in depository institutions in the state ("state deposits").(1) Cardinal is the 112th largest depository institution in Pennsylvania, controlling approximately $111.9 million in deposits, representing less than 1 percent of state deposits. On consummation of the proposal, Susquehanna would become the ninth largest depository institution in the state, controlling deposits of $1.6 billion, representing approximately 1.2 percent of state deposits.

Competitive, Financial and Managerial Considerations

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

The Board also has considered the financial and managerial resources and future prospects of Susquehanna, Cardinal, and their respective subsidiaries in light of all the facts of record, including supervisory reports of examination assessing the financial and managerial resources of the organizations and financial information provided by Susquehanna. The Board notes that Susquehanna and its subsidiaries are well capitalized and are expected to remain so after consummation of the proposal. The Board also has considered other aspects of the financial condition and resources of the two organizations and the structure of the proposed transaction. Based on all the facts of record, the Board concludes that considerations related to the financial and managerial resources and the future prospects of Susquehanna, Cardinal, and their respective subsidiary banks, are consistent with approval, as are the other supervisory factors the Board is required to consider under section 3 of the BHC Act.

Convenience and Needs Considerations

The Board also has carefully considered the effect of the proposal on the convenience and needs of the communities to be served in light of all the facts of record. As part of that review, the Board has considered a comment from a community group, New Jersey Citizen Action ("NJCA"), concerning the performance of Susquehanna's subsidiary, Equity National Bank, Atco, New Jersey ("Equity Bank"), under the Community Reinvestment Act ("CRA").(2) NJCA alleges that Susquehanna has not demonstrated its commitment to the credit needs of southern New Jersey and has failed to develop products to meet the community credit needs.(3) NJCA further alleges that, based on data filed under the Home Mortgage Disclosure Act ("HMDA"),(4) Equity Bank has an inadequate record of lending to low-and moderate-income ("LMI") census tracts and to African Americans.

The Board has long held that consideration of the convenience and needs factor includes a review of the records of the relevant depository institutions under the CRA. As provided in the CRA, the Board has evaluated the convenience and needs factor in light of examinations of the CRA performance records of the relevant institutions by their primary federal supervisors. An institution's most recent CRA performance evaluation is a particularly important consideration in the application process, because it represents a detailed, on-site evaluation of the institution's overall record of performance under the CRA by its primary federal supervisor.

Susquehanna's largest insured depository institution subsidiary, which accounts for approximately 26.8 percent of the company's consolidated assets, received an "outstanding" rating from its primary federal supervisor, the Office of Thrift Supervision, at its most recent examination for performance under CRA, as of July 20, 1998. Equity Bank, which was acquired by Susquehanna on February 28, 1997, and represents approximately 6 percent of the total assets of Susquehanna, received a "satisfactory" rating at its most recent evaluation for CRA performance in 1996. Two of Susquehanna's other banks received "outstanding" ratings from their primary federal supervisor at their most recent evaluations for CRA performance, and all of Susquehanna's other subsidiary banks received "satisfactory" ratings at their most recent evaluations for CRA performance. FA Bank, which is the bank Susquehanna proposes to acquire, received a "satisfactory" rating from the Office of the Comptroller of the Currency at its last performance examination.

The records of examination of the subsidiary banks of Susquehanna and Cardinal indicate that the examiners found no evidence of prohibited discrimination or other illegal credit practices and found no violations of fair lending laws in any of Susquehanna's subsidiary banks. Susquehanna's lead commercial subsidiary bank, Farmers First Bank, Lititz, Pennsylvania ("FFB"), has increased its residential mortgage loans to LMI borrowers in recent years. Many of these loans were originated in conjunction with the Lancaster Housing Opportunity Program, which offers a home buyer program with flexible underwriting standards. FFB also offers Veterans Administration and Federal Housing Administration loans. In addition, FFB has originated more indirect automobile loans to LMI borrowers than to any other income group. FFB also participates in the Habitat for Humanity program and other housing projects through the Housing Development Corporation in Lancaster County.

Susquehanna's other subsidiary banks have implemented several programs to address the credit needs of LMI communities, such as a Community Homebuyers Program, which provides reduced fee loans to borrowers. Some of the banks also have a special small loan program and lines of credit for home renters. The banks also are participating lenders in affordable housing programs throughout Pennsylvania.

The Board previously reviewed the outreach programs of Susquehanna's subsidiary banks in connection with its acquisition of Equity Bank and found that Susquehanna had policies and programs in place to ascertain the credit needs of its community.(5) The Board's 1997 Order noted that Susquehanna proposed to implement a three-year lending program at Equity Bank to expand the type of loans available in its community.

Equity Bank is primarily a small business lender,(6) and the three-year CRA plan was designed to increase Equity Bank's affordable home mortgage lending, home improvement lending, community development lending, and to increase its small business lending to its community. Since its acquisition by Susquehanna, Equity Bank has increased lending in all these categories, resulting in increases in the percentage of Equity Bank's loan originations to LMI areas and individuals, and an overall increase in the percentage of lending within Equity Bank's assessment area. In 1997 and 1998, Equity Bank extended more than $687,000 in loans to first-time LMI home purchases and $263,000 in home improvement loans to qualified LMI borrowers. The bank also has commitments for $550,000 in revolving credit for the construction of affordable housing and for $178,000 for a commercial mortgage for a family services agency. Overall, data provided by Equity Bank shows that Equity Bank's lending to LMI census tracts improved from 1996 to 1997, and continued to increase in 1998. Data on small business loans indicate that the percentage of Equity Bank's loans made in LMI census tracts increased from 1996 to 1997, and increased again through August 1998. Equity Bank also recently established an advisory board to help identify the credit needs of the community.

The Board has considered carefully the entire record in its review of the convenience and needs factor under the BHC Act. Based on all the facts of record, including NJCA's submission, Susquehanna's response, and the relevant reports of examination, the Board concludes that considerations relating to convenience and needs, including the CRA performance records of the relevant institutions, are consistent with approval. The Board expects that Susquehanna will continue to implement its three-year plan at Equity Bank and to take the steps necessary to incorporate programs at Equity Bank that will help meet the credit needs of its community. The Board's action in this case is conditioned on the full implementation of these programs by Susquehanna and Equity Bank. In addition, to permit the Board to assess the effectiveness of Equity Bank's efforts, the Board's action on this proposal is conditioned on the requirement that Susquehanna report to the Federal Reserve System, on a semi-annual basis during the two-year period after consummation, its progress toward improving Equity Bank's lending in LMI areas and to LMI individuals.

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.(7) The Board's approval is specifically conditioned on compliance by Susquehanna with the conditions described in this order and with all the commitments made in connection with the application. For the purpose of this action, the commitments and conditions relied on by the Board in reaching its decision are deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law.

The acquisition of Cardinal 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 the Federal Reserve Bank of Philadelphia, acting pursuant to delegated authority.

By order of the Board of Governors, effective November 23, 1998.

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

ROBERT DEV. FRIERSON

Associate Secretary of the Board

(1.) All banking data are as of June 30, 1998.

(2.) 12 U.S.C. [sections] 2901 et seq.

(3.) NJCA also argues that Susquehanna has failed to meet with community groups to discuss the needs of the communities that Equity Bank serves. The Board previously has noted that, although communication by depository institutions with community groups provides a valuable method of assessing and determining how best to meet the credit needs of a community, neither the CRA nor the CRA regulations of the federal supervisory agencies require depository institutions to enter into agreements with any organization. See Fifth Third Bancorp, 80 Federal Reserve Bulletin 838 (1994).

(4.) 12 U.S.C. [sections] 2801 et seq.

(5.) See Susquehanna Bancshares, Inc., 83 Federal Reserve Bulletin 317 (1997) ("1997 Order").

(6.) According to Equity Bank's last examination, as of December 31, 1995, approximately 42 percent of the bank's loan portfolio consisted of small business loans in amounts of less than $1 million. Small business loans constituted 45.7 percent of the dollar volume of Equity Bank's loans through August 31, 1998.

(7.) NJCA also 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. The Board has not received such a recommendation from the appropriate supervisory authorities.

Under its rules, the Board also may, in its discretion, hold a public meeting or hearing on an application to acquire a bank if a meeting or hearing is necessary or appropriate to clarify factual issues related to the application and to provide an opportunity for testimony, if appropriate. 12C.F.R. 225.16(e). The Board has carefully considered NJCA's request in light of all the facts of record. In the Board's view, NJCA has had ample opportunity to submit its views, and did submitted written comments that have been carefully considered by the Board in acting on the proposal. NJCA's request fails to demonstrate why its written comments do not adequately present its evidence and fails to identify disputed issues of fact that are material to the Board's decision that would be clarified by a public meeting or hearing. For these reasons, and based on all the facts of record, the Board has determined that a public meeting or hearing is not required or warranted in this case. Accordingly, the request is denied.

Valley View Bancshares, Inc. Overland Park, Kansas

Order Approving Application to Acquire a Bank Holding Company

Valley View Bancshares, Inc. ("Valley View"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 3 of the BHC Act (12 U.S.C. [sections] 1842) to acquire Paola-Citizens Bancshares, Inc. ("Paola"), and thereby acquire control of its subsidiary bank, Citizens State Bank ("Citizens Bank"), both of Paola, Kansas.

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 53,672 (1998)). 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.

Valley View, with total consolidated assets of approximately $1.7 billion, operates four subsidiary banks in Kansas and one subsidiary bank in Missouri.(1) Valley View is the sixth largest commercial banking organization in Kansas, controlling approximately $1.4 billion in deposits, representing approximately 3.5 percent of total deposits in commercial banking organizations in the state ("state deposits"). Paola is the 167th largest commercial banking organization in Kansas, controlling approximately $37 million in deposits, representing less than 1 percent of state deposits. On consummation of the proposal, Valley View would remain the sixth largest commercial banking organization in Kansas, controlling deposits of approximately $1.4 billion, representing approximately 3.6 percent of state deposits.

In reviewing the proposal under the BHC Act, the Board has considered the financial and managerial resources and future prospects of the companies and banks involved, the convenience and needs of the communities to be served, and certain supervisory factors. The Board has reviewed these factors in light of the facts of record, including supervisory reports of examination assessing the financial and managerial resources of the organizations, discussions with other federal financial supervisory agencies, and confidential information provided by Valley View. The Board notes that Valley View management has adequate procedures in place to address the limited risks associated with the current activities of the holding company and its subsidiary banks. The Board further notes that the proposal represents a relatively small acquisition by Valley View, that Valley View would not incur or assume any debt in connection with the proposal, and that Valley View would remain well capitalized on consummation of the proposal. Based on the specific facts of record in this case, the Board concludes that the financial and managerial resources of Valley View, Paola, and their respective subsidiary banks and other supervisory factors are consistent with approval of the proposal.

In considering the convenience and needs factor, the Board has reviewed the records of the relevant depository institutions under the Community Reinvestment Act ("CRA").(2) As provided in the CRA, the Board has evaluated this factor in light of examinations of the CRA performance records of the relevant institutions by the Federal Deposit Insurance Corporation ("FDIC"), the institutions' appropriate federal banking supervisor. All the insured depository institutions controlled by Valley View received "satisfactory" CRA performance ratings at their most recent CRA examinations by the FDIC. Citizens Bank received an "outstanding" CRA performance rating at its most recent CRA examination by the FDIC. Based on all the facts of record, the Board concludes that convenience and needs considerations, including the CRA performance records of the relevant institutions, are consistent with approval of the proposal.

As required under the BHC Act, the Board also has considered the competitive effects of the proposal. Valley View and Paola do not compete with each other in any relevant banking market. Based on all the facts of record, the Board concludes that the proposal would not have a significantly adverse effect on competition or on the concentration of banking resources in any relevant banking market. Accordingly, the Board concludes that competitive considerations are consistent with approval.

Conclusion

Based on all the facts of record, the Board has determined that this application should be, and hereby is, approved.(3) The Board's approval is specifically conditioned on compliance by Valley View with all the commitments made in connection with this proposal. The commitments and conditions relied on by the Board in reaching its decision are deemed to be conditions imposed in writing by the Board in connection with its findings and decisions and, as such, may be enforced in proceedings under applicable law.

The proposed acquisition 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 by the Board or by the Federal Reserve Bank of Kansas City, acting pursuant to delegated authority.

By order of the Board of Governors, effective November 30, 1998.

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

ROBERT DEV. FRIERSON

Associate Secretary of the Board

(1.) State asset and deposit data are as of June 30, 1998.

(2.) 12 U.S.C. [sections] 2901 et seq.

(3.) A former shareholder of Paola has requested that the Board, as part of its review of the proposal, monitor a private undertaking by Paola's management to compensate former shareholders from the proceeds of the proposal. The limited jurisdiction of the Board to review applications under the specific statutory factors in the BHC Act does not authorize the Board to consider matters relating to general corporate governance, such as shareholder relations and the adequacy of shareholder compensation. See Western Bancshares, Inc. v. Board of Governors, 480 F.2d 749 (10th Cir. 1973).

Bank One Corporation

Chicago, Illinois

Orders Issued Under Section 4 of the Bank Holding Company Act

Order Approving Investment in a Company that Performs Trust Company Activities

Bank One Corporation ("Bank One"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 4(c)(8) of the BHC Act (12 U.S.C. [sections] 1843(c)(8)) and section 225.24 of the Board's Regulation Y (12 C.F.R. 225.24) to acquire 50 percent of the voting interests in EquiServe Limited Partnership ("EquiServe"), a Delaware limited partnership,(1) and thereby perform functions or activities that may be performed by a trust company.(2)

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 23,044 (1998)). 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 4 of the BHC Act.

Bank One, with total consolidated assets of approximately $231.7 billion, is the fifth largest commercial banking organization in the United States. Bank One controls subsidiary banks that operate in 14 states, and engages in a broad range of nonbanking activities. After consummation of this proposal, EquiServe would offer shareholder services nationwide. These shareholder services would include maintenance of records of shareholders in publicly traded companies and related services, such as acting as dividend disbursement and reinvestment agent, registrar, transfer agent, redemption agent, rights agent, exchange agent, tender agent, and reorganization agent; proxy mailing and tabulation; and annual and interim report distribution.

The Board previously has determined by regulation that the performance of functions or activities, such as shareholder servicing, that may be performed by a trust company is closely related to banking and permissible for bank holding companies under section 4(c)(8) of the BHC Act.(3) Bank One has committed to conduct these activities subject to the limitations set forth in Regulation Y. In order to approve the proposal, the Board also must find that the performance of the proposed activities by Bank One "can reasonably be expected to produce benefits to the public ... that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices."(4)

As a part of its evaluation of these factors, the Board considers the financial condition and managerial resources of the notificant and its subsidiaries and the effect the transaction would have on such resources.(5) On the basis of all the facts of record, including relevant reports of examination and consultation with other relevant federal and state supervisory agencies, the Board has concluded that financial and managerial considerations are consistent with approval of the notice.

The Board also has carefully considered the competitive effects of the proposed joint venture. Both FCTC and Boston EquiServe currently engage in the activities to be conducted by the joint venture, EquiServe. On consummation of this proposal, EquiServe would become the largest shareholder servicing operation in the United States, serving approximately 1400 companies.

The Board notes that the market for shareholder services is a national market, which is currently moderately concentrated.(6) FCTC is the second largest shareholder servicing operation in the United States, managing approximately 12.1 million shareholder accounts, representing approximately 17.2 percent of total accounts in the United States. Boston EquiServe is the third largest shareholder servicing operation in the United States, managing approximately 11.5 million shareholder accounts, representing approximately 16.3 percent of total accounts in the United States. On consummation of this proposal, EquiServe would become the largest shareholder servicing operation in the United States, managing approximately 23.6 million accounts, representing approximately 33.5 percent of total accounts in the United States.

The structure of the market for shareholder services mitigates the adverse effects of this proposal. Many companies choose to be self-providers of shareholder services.(7) Thus, the market indexes tend to overstate the relative market share controlled by specialized providers, such as Boston EquiServe and FCTC. Moreover, the decision by several large companies that currently are self-providers to outsource the function could significantly change the market share of a successful bidder for that business.(8) In addition, there are numerous potential entrants into this market. Currently, more than 200 firms specialize in providing shareholder services to groups of affiliated investment companies. Although only a few firms provide shareholder services to industrial or financial companies and to investment company groups, many of the activities and organizational features of the types of firms that provide shareholder services to investment company groups are similar to those activities of firms providing these services to industrial or financial companies. The investment company shareholder servicers appear to be fully capable of entering the commercial services industry with little difficulty. Many investment company shareholder servicers possess the technology, workforce, and experience that would enable them to manage the volume of transactions currently processed by commercial providers. Based on these and other facts of record, the Board concludes that consummation of the proposed transaction would not have a significantly adverse effect on competition in any relevant market.

The Board concludes that the proposed transaction would increase the ability of EquiServe to serve the needs of its customers and would allow the joint venture to provide existing and new customers with a broader range of products and services at lower costs. The Board also expects that combining the expertise and technology of FCTC and Boston EquiServe would enable EquiServe to become a more effective competitor in the market.

Based on the foregoing and all the other facts of record, including the commitments and representations made by Bank One, the Board has determined that the performance of the proposed activity by the joint venture can reasonably be expected to produce benefits to the public that would outweigh any possible adverse effects under the proper incident to banking standard of section 4(c)(8) of the BHC Act.

On the basis of all the facts of record, the Board has determined that the notice should be, and hereby is, approved. This determination is subject to all the conditions set forth in the Board's Regulation Y, including those in sections 225.7 and 225.25(c) (12 C.F.R. 225.7 and 225.25(c)) and to the Board's authority to require modification or termination of the activities of a bank holding company or any of its subsidiaries as the Board finds necessary to assure compliance with, or to prevent evasion of, the provisions and purposes of the BHC Act and the Board's regulations and orders issued thereunder. The Board's approval of the proposal is specifically conditioned on compliance with all the commitments made in connection with this notice. The commitments, representations and conditions relied on in reaching this decision shall be 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.

This transaction shall not be consummated later than three months after the effective date of this order unless such period is extended for good cause by the Board or by the Federal Reserve Bank of Chicago, acting pursuant to delegated authority.

By order of the Board of Governors, effective November 16, 1998.

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

ROBERT DEV. FRIERSON

Associate Secretary of the Board

(1.) Bank One would acquire an interest in EquiServe in exchange for contributing to the joint venture substantially all the assets of the shareholder services business conducted by its wholly owned subsidiary, First Chicago Trust Company of New York ("FCTC").

(2.) The remaining voting interests in EquiServe are held by Boston EquiServe Limited Partnership, Canton, Massachusetts ("Boston EquiServe"), a joint venture between BankBoston, N.A. and Boston Financial Data Services, Inc. ("BFDS"). BFDS is owned by State Street Corporation and DST Systems, Inc. ("DST").

(3.) See 12 C.F.R. 225.28(b)(5).

(4.) See 12 U.S.C. [sections] 1843(c)(8).

(5.) See 12 C.F.R. 225.26.

(6.) Approximately 115 firms in the United States provide shareholder services commercially to companies issuing equity. These commercial shareholder services providers compete throughout the United States, and the Board previously has determined that the geographic market for this industry is national in scope. See Chemical Banking Corporation, 82 Federal Reserve Bulletin 239, 270 (1996).

(7.) The Board's analysis omits self-providers from the competitive analysis.

(8.) As of December 31, 1997, an estimated 425 firms were providing their own shareholder servicing. These firms included some of the largest companies in the United States. The ability and willingness of many firms to provide their own shareholder servicing has contributed to strong price competition in the industry.

PNC Bank Corp.

Pittsburgh, Pennsylvania

Order Approving Notice to Engage in Underwriting and Dealing in All Types of Debt and Equity Securities on a Limited Basis

PNC Bank Corp. ("PNC"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 4(c)(8) of the BHC Act (12 U.S.C. [sections] 1843(c)(8)) and section 225.24 of the Board's Regulation Y (12 C.F.R. 225.24) to expand the activities of its section 20 subsidiary, PNC Capital Markets, Inc., Pittsburgh, Pennsylvania ("Company"), to include underwriting and dealing in, to a limited extent, all types of debt and equity securities except ownership interests in open-end investment companies. PNC seeks approval for Company to conduct the proposed underwriting and dealing activities worldwide.

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 50,914 (1998)). The time for filing comments has expired, and the Board has considered the notice and all comments received in light of the factors set forth in section 4(c)(8) of the BHC Act.

PNC, with total consolidated assets of approximately $75.9 billion, is the 14th largest banking organization in the United States.(1) PNC's subsidiary depository institutions operate in nine states, and PNC engages through other subsidiaries in a broad range of permissible nonbanking activities. Company currently engages in limited underwriting and dealing in certain types of bank-ineligible securities(2) as permitted under section 20 of the Glass-Steagall Act (12 U.S.C. [sections] 377).(3) Company is, and will continue to be, registered as a broker-dealer with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934 (15 U.S.C. [sections] 78a et seq.) and is a member of the National Association of Securities Dealers, Inc. ("NASD"). Company, therefore, is subject to the record-keeping and reporting obligations, fiduciary standards, and other requirements of the Securities Exchange Act of 1934, the SEC, and the NASD.

Underwriting and Dealing in Bank-Ineligible Securities

The Board has determined that, subject to the framework of prudential limitations established in previous decisions to address the potential for conflicts of interests, unsound banking practices, or other adverse effects, underwriting and dealing in bank-ineligible securities is so closely related to banking as to be a proper incident thereto within the meaning of section 4(c)(8) of the BHC Act.(4) The Board also has determined that underwriting and dealing in bank-ineligible securities is consistent with section 20 of the Glass-Steagall Act (12 U.S.C. [sections] 377), provided that the company engaged in the activity derives no more than 25 percent of its gross revenues from underwriting and dealing in bank-ineligible securities.(5)

PNC has committed that Company will conduct its underwriting and dealing activities using the methods and procedures and subject to the prudential limitations established by the Board in the Section 20 Orders. PNC also has committed that Company will conduct its bank-ineligible securities underwriting and dealing activities subject to the Board's revenue restriction. As a condition of this order, PNC is required to conduct its bank-ineligible securities activities subject to the revenue restriction and Operating Standards established for section 20 subsidiaries.(6)

Other Considerations

In order to approve this notice, the Board also must determine that performance of the proposed activities is a proper incident to banking, that is, the proposed activities "can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices."(7) The Board expects that consummation of the proposal would provide added convenience to PNC's customers, lead to improved methods of meeting customers' financing needs, increase the level of competition among existing providers of these services, and improve the operating efficiency of Company.

As part of its review of the statutory factors, the Board considers the financial and managerial resources of the notificant and its subsidiaries and the effect the transaction would have on such resources.(8) In considering the financial resources of the notificant, the Board has reviewed the capitalization of PNC and Company in accordance with the standards set forth in the Section 20 Orders and finds the capitalization of each to be consistent with approval. This determination is based on all the facts of record, including PNC's projections of the volume of Company's underwriting and dealing activities in bank-ineligible securities.

The Board also has reviewed the managerial resources of each of the entities involved in this proposal in light of examination reports and other supervisory information. PNC requested that the Board perform a debt-only infrastructure review of Company and stated that it later would request that the Board perform an equity infrastructure review of Company. In connection with the proposal, the Federal Reserve Bank of Cleveland ("Reserve Bank") has reviewed the policies and procedures of Company for underwriting and dealing in all types of debt securities, including Company's operational and managerial infrastructure, computer, audit, and accounting systems and internal risk management procedures and controls. The Board has determined on the basis of the infrastructure review that Company has established policies and procedures to ensure compliance with this order and the Section 20 Orders for underwriting and dealing in debt securities. As discussed below, a satisfactory infrastructure review of Company related to underwriting and dealing in all types of equity securities must be completed before Company may engage in these activities. On the basis of the Reserve Bank's review of Company's debt underwriting and dealing policies and procedures and all other facts of record, including the commitments provided in this case and the proposed managerial and risk management systems of Company, and subject to the completion of a satisfactory infrastructure review of Company related to underwriting and dealing in all types of equity securities, the Board has concluded that financial and managerial considerations are consistent with approval of the notice.

Based on all the facts of record, the Board has determined that performance of the proposed activities by PNC, under the framework established in this and prior decisions, can reasonably be expected to produce public benefits that outweigh any adverse effects of the proposal. Accordingly, the Board has determined that the performance of the proposed activities by PNC is a proper incident to banking for purposes of section 4(c)(8) of the BHC Act.

Conclusion

On the basis of all the facts of record, the Board has determined that the notice should be, and hereby is, approved, subject to all the terms and conditions described in this order. The Board's approval of the proposal extends only to activities conducted within the limitations of this order, including the Board's reservation of authority to establish additional limitations to ensure that Company's activities are consistent with safety and soundness, avoidance of conflicts of interests, and other relevant considerations under the BHC Act. Underwriting and dealing in any manner other than as approved in this order is not within the scope of the Board's approval and is not authorized for Company.

Company may commence underwriting and dealing in all types of debt securities immediately. The Board's approval of the proposed underwriting and dealing in all types of equity securities, however, is conditioned on a future determination by the Board that Company has established policies and procedures for equity underwriting and dealing to ensure compliance with the requirements of this order, the Section 20 Orders, and the Modification Orders, including Company's operational and managerial infrastructure, computer, audit, and accounting systems and internal risk management procedures and controls. After notification by the Board that this condition has been satisfied, Company may commence the proposed equity underwriting and dealing activities, subject to the other conditions of this order, the Section 20 Orders, and the Modification Orders.

The Board's determination also is subject to all the terms and conditions set forth in Regulation Y, including those in sections 225.7 and 225.25(c) (12C.F.R. 225.7 and 225.25(c)), and to the Board's authority to require modification or termination of the activities of a bank holding company or any of its subsidiaries as the Board finds necessary to ensure compliance with, or to prevent evasion of, the provisions and purposes of the BHC Act and the Board's regulations and orders issued thereunder. The Board's decision is specifically conditioned on compliance with all the commitments made in connection with this notice, including the commitments discussed in this order and the conditions set forth in this order and the Board regulations and orders noted above. 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.

This proposal shall not be consummated later than three months after the effective date of this order, unless such period is extended for good cause by the Board or the Reserve Bank, acting pursuant to delegated authority.

By order of the Board of Governors, effective November 16, 1998.

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

ROBERT DEV. FRIERSON

Associate Secretary of the Board

(1.) Asset and ranking data are as of June 30, 1998.

(2.) As used in this order, "bank-ineligible securities" refers to all types of debt and equity securities that a bank may not underwrite or deal in directly under section 16 of the Glass-Steagall Act (12 U.S.C. [sections] 24(7)).

(3.) Company has authority to underwrite and deal in, to a limited extent, certain municipal revenue bonds, 1-4 family mortgage-related securities, commercial paper, and consumer-receivable-related securities. See PNC Financial Corp., 73 Federal Reserve Bulletin 742 (1987), and PNC Financial Corp., 75 Federal Reserve Bulletin 396 (1989). Company also is authorized to engage in a variety of other nonbanking activities.

(4.) See J.P. Morgan & Co. Inc., et al., 75 Federal Reserve Bulletin 192 (1989), aff'd sub nom. Securities Industry Ass'n v. Board of Governors of the Federal Reserve System, 900 F.2d 360 (D.C. Cir. 1990); Citicorp, 73 Federal Reserve Bulletin 473 (1987), aff'd sub nom. Securities Industry Ass'n v. Board of Governors of the Federal Reserve System, 839 F.2d 47 (2d Cir.), cert. denied, 486 U.S. 1059 (1988), as modified by Review of Restrictions on Director, Officer and Employee Interlocks, Cross-Marketing Activities, and the Purchase and Sale of Financial Assets Between a Section 20 Subsidiary and an Affiliated Bank or Thrift, 61 Federal Register 57,679 (1996); Amendments to Restrictions in the Board's Section 20 Orders, 62 Federal Register 45,295 (1997); and Clarification to the Board's Section 20 Orders, 63 Federal Register 14,803 (1998) (collectively, "Section 20 Orders").

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

(6.) 12 C.F.R. 225.200. Company may provide services that are necessary incidents to the proposed underwriting and dealing activities. Unless Company receives specific approval under section 4(c)(8) of the BHC Act to conduct the activities independently, any revenues from the incidental activities must be treated as ineligible revenues subject to the Board's revenue limitation.

(7.) 12 U.S.C. [sections] 1843(c)(8).

(8.) See 12 C.F.R. 225.26.
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Author:FRIERSON, ROBERT DEV.
Publication:Federal Reserve Bulletin
Date:Jan 1, 1999
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