Federal Reserve Bulletin, 2018-01

February 2018 Vol. 104, No. 1 Legal Developments: Fourth Quarter, 2017 Orders Issued Under Bank Holding Company Act Orders Issued Under Section 3 of the Bank Holding Company Act Columbia Banking System, Inc. Tacoma, Washington OrderApprovingtheMergerof BankHoldingCompanies FRBOrderNo.2017–26(October6,2017) ColumbiaBankingSystem,Inc.(“Columbia”),Tacoma,Washington,abankholding companywithinthemeaningof theBankHoldingCompanyActof 1956(“BHCAct”),1 hasrequestedtheBoard’sapprovalundersection3of theBHCAct2tomergewithPacific ContinentalCorporation(“Pacific”),andtherebyindirectlyacquirePacificContinental Bank(“PacificBank”),bothof Eugene,Oregon.Followingtheproposedmerger,Pacific BankwouldbemergedintoColumbia’ssubsidiarybank,ColumbiaStateBank (“ColumbiaBank”),Tacoma,Washington.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublishedinaccordancewiththeBoard’srules(82FederalRegister14728 (March22,2017)).4Thetimeforsubmittingcommentshasexpired,andtheBoardhas consideredtheproposalandallcommentsreceivedinlightof thefactorssetforthin section3of theBHCAct. Columbia,withconsolidatedassetsof approximately$9.5billion,isthe132ndlargest insureddepositoryorganizationintheUnitedStates.Columbiacontrolsapproximately $8.1billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.5Columbia controlsColumbiaBank,whichoperatesinIdaho,Oregon,andWashington.Columbiais the7thlargestinsureddepositoryorganizationinOregon,controllingdepositsof approximately$2.7billioninOregon,whichrepresentapproximately4percentof thetotaldeposits of insureddepositoryinstitutionsinthatstate.6Columbiaisthe8thlargestinsureddepositoryorganizationinWashington,controllingdepositsof approximately$4.4billionin 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 ThemergerofPacificBankintoColumbiaBankissubjecttoapprovalbytheFederalDepositInsuranceCorporation (“FDIC”),pursuanttosection18(c)oftheFederalDepositInsuranceAct.12U.S.C.§1828(c).TheFDICapproved thebankmergeronAugust23,2017. 4 12CFR262.3(b). 5 NationalassetanddepositdataareasofMarch31,2017,unlessotherwisenoted. 6 StatedepositdataareasofJune30,2016.Inthiscontext,insureddepositoryinstitutionsincludecommercialbanks, creditunions,savingsassociations,andsavingsbanks.

2 FederalReserveBulletin|February2018 Washington,whichrepresentapproximately3percentof thetotaldepositsof insured depositoryinstitutionsinthatstate. Pacific,withconsolidatedassetsof approximately$2.6billion,isthe332ndlargestinsured depositoryorganizationintheUnitedStates.Pacificcontrolsapproximately$2.1billion inconsolidateddeposits,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.PacificcontrolsPacific Bank,whichoperatesinOregonandWashington.Pacificisthe12thlargestinsureddepositoryorganizationinOregon,controllingdepositsof approximately$1.3billioninOregon, whichrepresentapproximately2percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.Pacificisthe28thlargestinsureddepositoryorganizationinWashington,controllingdepositsof approximately$686.1millioninWashington,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. Onconsummationof theproposal,Columbiawouldbecomethe111thlargestdepository organizationintheUnitedStates,withconsolidatedassetsof approximately$12.1billion, whichrepresentlessthan1percentof thetotalassetsof insureddepositoryorganizationsintheUnitedStates.Columbiawouldcontrolconsolidateddepositsof approximately $10.2billion,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryorganizationsintheUnitedStates.InOregon,Columbiawouldremain the7thlargestdepositoryorganization,controllingdepositsof approximately$4.1billion, whichrepresentapproximately6percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.InWashington,Columbiawouldbecomethe7thlargestdepository organization,controllingdepositsof approximately$5.1billion,whichrepresentapproximately4percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. InterstateandDepositCapAnalysis Section3(d)of theBHCActgenerallyprovidesthat,if certainconditionsaremet,the Boardmayapproveanapplicationbyabankholdingcompanytoacquirecontrolof a banklocatedinastateotherthanthehomestateof thebankholdingcompanywithout regardtowhetherthetransactionisprohibitedunderstatelaw.7Underthissection,the Boardmaynotapproveanapplicationthatwouldpermitanout-of-statebankholding companytoacquireabankinahoststateif thebankhasnotbeeninexistenceforthe lesserof thestatestatutoryminimumperiodof timeorfiveyears.8Inaddition,theBoard maynotapproveaninterstateapplicationif thebankholdingcompanycontrolsor,upon consummationof theproposedtransaction,wouldcontrolmorethan10percentof the totaldepositsof insureddepositoryinstitutionsintheUnitedStatesor,incertaincircumstances,if thebankholdingcompany,uponconsummation,wouldcontrol30percentor moreof thetotaldepositsof insureddepositoryinstitutionsinanystateinwhichthe acquirerandtargethaveoverlappingbankingoperations.9 Forpurposesof theBHCAct,thehomestateof ColumbiaisWashington,andPacific BankislocatedinOregonandWashington.10Columbiaiswellcapitalizedandwell 7 12U.S.C.§1842(d)(1)(A). 8 12U.S.C.§1842(d)(1)(B). 9 12U.S.C.§1842(d)(2)(A)and(B).Theacquiringandtargetinstitutionshaveoverlappingbankingoperationsin anystateinwhichanybanktobeacquiredislocatedandtheacquiringbankholdingcompanycontrolsany insureddepositoryinstitutionorabranch.Forpurposesofsection3(d)oftheBHCAct,theBoardconsidersa banktobelocatedinthestatesinwhichthebankischarteredorheadquarteredoroperatesabranch.See 12U.S.C.§1841(o)(4)–(7). 10 See12U.S.C.§1841(o)(4).Abankholdingcompany’shomestateisthestateinwhichthetotaldepositsofall bankingsubsidiariesofsuchcompanywerethelargestonJuly1,1966,orthedateonwhichthecompany becameabankholdingcompany,whicheverislater.

LegalDevelopments:FourthQuarter,2017 3 managedunderapplicablelaw,andColumbiaBankhasa“Satisfactory”ratingunderthe CommunityReinvestmentActof 1977(“CRA”).11Oregonhasnostatutoryminimumage requirement,12andPacificBankhasbeeninexistenceformorethanfiveyears. Onconsummationof theproposedtransaction,Columbiawouldcontrollessthan 1percentof thetotalamountof consolidateddepositsininsureddepositoryinstitutionsin theUnitedStates.Washingtonimposesa30percentlimitonthetotalamountof in-state depositsthatasinglebankingorganizationmaycontrol.13Thecombinedorganization wouldcontrolapproximately3.6percentof thetotalamountof depositsof insureddepositoryinstitutionsinWashingtonandapproximately5.7percentof thetotalamountof depositsof insureddepositoryinstitutionsinOregon,theonlystatesinwhichColumbia andPacifichaveoverlappingbankingoperations.TheBoardhasconsideredallother requirementsundersection3(d)of theBHCAct,includingColumbiaBank’srecordof meetingtheconvenienceandneedsof thecommunitiesitserves.Accordingly,inlightof all thefactsof record,theBoardmayapprovetheproposalundersection3(d)of the BHCAct. CompetitiveConsiderations Section3of theBHCActprohibitstheBoardfromapprovingaproposalthatwouldresult inamonopolyorwouldbeinfurtheranceof anattempttomonopolizethebusinessof bankinginanyrelevantmarket.14TheBHCActalsoprohibitstheBoardfromapprovinga proposalthatwouldsubstantiallylessencompetitionortendtocreateamonopolyinany bankingmarket,unlesstheanticompetitiveeffectsof theproposalareclearlyoutweighedin thepublicinterestbytheprobableeffectof theproposalinmeetingtheconvenienceand needsof thecommunitytobeserved.15 ColumbiaandPacifichavesubsidiarydepositoryinstitutionsthatcompetedirectlyinthe Eugene,Oregon,bankingmarket(“Eugenemarket”);thePortland,Oregon-Washington, bankingmarket(“Portlandmarket”);andtheSeattle,Washington,bankingmarket (“Seattlemarket”).16TheBoardhasconsideredthecompetitiveeffectsof theproposalin thesebankingmarkets.Inparticular,theBoardhasconsideredthenumberof competitors thatwouldremaininthebankingmarket;therelativeshareof totaldepositsininsured depositoryinstitutionsinthemarket(“marketdeposits”)thatColumbiawouldcontrol;17 theconcentrationlevelsof marketdepositsandtheincreaseintheselevels,asmeasuredby theHerfindahl-HirschmanIndex(“HHI”)undertheDepartmentof JusticeBankMerger 11 12U.S.C.§2901etseq. 12 Or.Rev.Stat.§713.270. 13 Wash.Rev.Code§30A.49.125(6).Oregondoesnotimposealimitonthetotalamountofin-statedepositsthat asinglebankingorganizationmaycontrol. 14 12U.S.C.§1842(c)(1). 15 12U.S.C.§1842(c)(1)(B). 16 TheEugenemarketisdefinedastheEugenemetropolitanareainLaneandLinncounties,bothofOregon. ThePortlandmarketisdefinedasthePortlandmetropolitanareainClackamas,Columbia,Marion, Multnomah,Washington,andYamhillcounties,allofOregon;andClarkCounty,Washington.TheSeattle marketisdefinedastheSeattlemetropolitanareainKing,Pierce,andSnohomishcounties;thesoutheastern portionofIslandCounty;andBainbridgeIslandinKitsapCounty,allofWashington. 17 LocaldepositandmarketsharedataareasofJune30,2016,andarebasedoncalculationsinwhichthe depositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhasindicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorstocommercialbanks.See,e.g., MidwestFinancialGroup,75FederalReserveBulletin386(1989);NationalCityCorporation,70FederalReserve Bulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsinthemarketsharecalculationona 50percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserveBulletin52(1991).

4 FederalReserveBulletin|February2018 CompetitiveReviewguidelines(“DOJBankMergerGuidelines”);18andothercharacteristicsof themarket. Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesintheEugene,Portland,andSeattle markets.Onconsummationof theproposal,theEugene,Portland,andSeattlemarkets wouldeachremainmoderatelyconcentratedasmeasuredbytheHHI,accordingtothe DOJBankMergerGuidelines.ThechangeintheHHIinthesemarketswouldbesmall, andnumerouscompetitorswouldremainineachbankingmarket.19 TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket.Inaddition,the appropriatebankingagencieshavebeenaffordedanopportunitytocommentandhavenot objectedtotheproposal. Basedonallof thefactsof record,theBoardconcludesthatconsummationof the proposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheEugene,Portland,orSeattlemarkets,orinanyotherrelevant bankingmarket.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsare consistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCAct,theBoardconsidersthefinancial andmanagerialresourcesandthefutureprospectsof theinstitutionsinvolved.20Inits evaluationof financialfactors,theBoardreviewsinformationregardingthefinancial conditionof theorganizationsinvolvedonbothparent-onlyandconsolidatedbases,as 18 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableatwww.justice.gov/opa/pr/ 2010/August/10-at-938.html. 19 Columbiaoperatesthe13thlargestdepositoryinstitutionintheEugenemarket,controllingapproximately $30.4millionindeposits,whichrepresent0.7percentofmarketdeposits.Pacificoperatesthelargestdepository institutioninthesamemarket,controllingdepositsofapproximately$855.2million,whichrepresentapproximately18.2percentofmarketdeposits.Onconsummationoftheproposedtransaction,Columbiawould becomethelargestdepositoryorganizationinthemarket,controllingdepositsofapproximately$885.6million, whichrepresentapproximately18.9percentofmarketdeposits.TheHHIfortheEugenemarketwouldincrease by24pointsto1277,and13competitorswouldremaininthemarket. Columbiaoperatesthe8thlargestdepositoryinstitutioninthePortlandmarket,controllingapproximately $1.2billionindeposits,whichrepresent2.8percentofmarketdeposits.Pacificoperatesthe9thlargestdepositoryinstitutioninthesamemarket,controllingdepositsofapproximately$575.0million,whichrepresent approximately1.3percentofmarketdeposits.Onconsummationoftheproposedtransaction,Columbiawould becomethe7thlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately $1.8billion,whichrepresentapproximately4percentofmarketdeposits.TheHHIforthePortlandmarket wouldincreaseby7pointsto1491,and35competitorswouldremaininthemarket. Columbiaoperatesthe7thlargestdepositoryinstitutionintheSeattlemarket,controllingapproximately $3.0billionindeposits,whichrepresent3percentofmarketdeposits.Pacificoperatesthe19thlargestdepositoryinstitutioninthesamemarket,controllingdepositsofapproximately$596.3million,whichrepresent approximately0.6percentofmarketdeposits.Onconsummationoftheproposedtransaction,Columbiawould becomethe6thlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately $3.6billion,whichrepresentapproximately3.6percentofmarketdeposits.TheHHIfortheSeattlemarket wouldincreaseby3pointsto1272,and53competitorswouldremaininthemarket. 20 12U.S.C.§1842(c)(2),(5),and(6).

LegalDevelopments:FourthQuarter,2017 5 wellasinformationregardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.Inthisevaluation,the Boardconsidersavarietyof informationregardingcapitaladequacy,assetquality, liquidity,andearningsperformance,aswellaspubliccommentsontheproposal.The Boardevaluatesthefinancialconditionof thecombinedorganization,includingitscapital position,assetquality,liquidity,earningsprospects,andtheimpactof theproposed fundingof thetransaction.TheBoardalsoconsiderstheabilityof theorganizationto absorbthecostsof theproposalandtocompleteeffectivelytheproposedintegrationof the operationsof theinstitutions.Inassessingfinancialfactors,theBoardconsiderscapital adequacytobeespeciallyimportant.TheBoardconsidersthefutureprospectsof theorganizationsinvolvedintheproposalinlightof theirfinancialandmanagerialresourcesand theproposedbusinessplan. ColumbiaandPacificarebothwellcapitalized,andthecombinedentitywouldremainso onconsummationof theproposedtransaction.Theproposedtransactionisabank holdingcompanymergerthatisstructuredprimarilyasanexchangeof shares.21Theasset quality,earnings,andliquidityof ColumbiaBankandPacificBankareconsistentwith approval,andColumbiaappearstohaveadequateresourcestoabsorbtherelatedcostsof theproposalandtocompleteintegrationof theinstitutions’operations.Inaddition,future prospectsof theinstitutionsundertheproposalareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of Columbia,Pacific,andtheirsubsidiarydepositoryinstitutions,includingassessmentsof theirmanagement,riskmanagementsystems,andoperations.Inaddition,theBoardhas consideredinformationprovidedbyColumbia;theBoard’ssupervisoryexperiencesand thoseof otherrelevantbanksupervisoryagencieswiththeorganizations;theorganizations’recordsof compliancewithapplicablebanking,consumerprotection,andantimoney-launderinglaws;andinformationprovidedbythecommenter. Columbia,Pacific,andtheirsubsidiarydepositoryinstitutionsareeachconsideredtobe wellmanaged.Columbiahasarecordof successfullyintegratingorganizationsintoits operationsandrisk-managementsystemsafteracquisitions.Columbia’sdirectorsand seniorexecutiveofficershavesubstantialknowledgeof andexperienceinthebankingand financialservicessectors,andColumbia’srisk-managementprogramappearsconsistent withapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredColumbia’splansforimplementingtheproposal.Columbia hasconductedcomprehensiveduediligenceandisdevotingsignificantfinancialandother resourcestoaddressallaspectsof thepost-integrationprocessforthisproposal. Columbiawouldimplementitsrisk-managementpolicies,procedures,andcontrolsatthe combinedorganization,andtheseareconsideredacceptablefromasupervisoryperspective.Inaddition,Columbia’smanagementhastheexperienceandresourcestoensurethat thecombinedorganizationoperatesinasafeandsoundmanner,andColumbiaplansto integratePacific’sexistingmanagementandpersonnelinamannerthataugmentsColumbia’smanagement.22 21 Toeffectthetransaction,eachshareofPacificcommonstockwouldbeconvertedintoarighttoreceive Columbiacommonstock,basedonanexchangeratio. 22 Followingconsummationoftheproposedtransaction,aPacificdirectorwilljointheboardsofdirectorsof ColumbiaandColumbiaBank.Further,ColumbiarepresentsthatadditionalkeyleadersfromPacificare expectedtojoinColumbia.

6 FederalReserveBulletin|February2018 Basedonallthefactsof record,includingColumbia’ssupervisoryrecord,managerialand operationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandfutureprospectsof theorganizationsinvolvedintheproposal,aswellasthe recordsof effectivenessof ColumbiaandPacificincombatingmoney-launderingactivities, areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCAct,theBoardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.23Initsevaluationof theeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thecommunitiestheyserve,aswellasotherpotentialeffectsof theproposalon theconvenienceandneedsof thecommunitiestobeserved.Inthisevaluation,theBoard placesparticularemphasisontherecordsof therelevantdepositoryinstitutionsunderthe CRA.TheCRArequiresthefederalfinancialsupervisoryagenciestoencourageinsured depositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesinwhichthey operate,consistentwiththeirsafeandsoundoperation,24andrequirestheappropriate federalfinancialsupervisoryagencytoassessadepositoryinstitution’srecordof helpingto meetthecreditneedsof itsentirecommunity,includinglow-andmoderate-income (“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.25 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,thesupervisoryviewsof examiners,othersupervisoryinformation,informationprovidedbytheapplicant,andcommentsreceivedontheproposal.TheBoardalsomayconsidertheinstitution’sbusinessmodel,itsmarketingandoutreachplans,theorganization’splansafter consummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof Columbia BankandPacificBank;thefairlendingandcompliancerecordsof bothbanks;thesupervisoryviewsof theFDIC;confidentialsupervisoryinformation;informationprovidedby Columbia;andthepubliccommentreceivedontheproposal. PublicCommentontheProposal Inthiscase,acommenterobjectedtotheproposalonthebasisof ColumbiaBank’sCRA performance.Thecommenter’sconcernsfocusonallegedsmallbusinesslendingweaknessesinseveralcountiesinOregonandWashington.Specifically,thecommenterargued thatthebankmadeadisproportionalitysmallnumberof CRA-reportablesmallbusiness loansfrom2013to2015,ascomparedtootherlenders,infourcountiesinOregonand Washington.ThecommenteralsocommendedPacificBank’spracticeof serving non-profitorganizations,butquestionedwhetherColumbiawouldcontinuethispractice 23 12U.S.C.§1842(c)(2). 24 12U.S.C.§2901(b). 25 12U.S.C.§2903.

LegalDevelopments:FourthQuarter,2017 7 followingconsummationof theproposedtransaction.26Thecommenterrequestedthatthe applicationincludeaforward-lookingcommunitybenefitsplandetailinghowColumbia BankwouldaddresstheCRA-relatedconcernsidentifiedbythecommenter.27 Businessesof theInvolvedInstitutionsandResponsetothePublicComment ColumbiaoperatesprimarilythroughColumbiaBankandprovidesabroadrangeof financialproductsandservicestoconsumersandbusinesses.Throughitsnetworkof branchesacrossIdaho,Oregon,andWashington,thebankoffersavarietyof productsand services,includingchecking,savings,andcertificateof depositaccounts;commercial,residential,agricultural,andconsumerloans;businesscheckingandsavingsaccounts;credit cardandmerchantcardservices;wealthmanagementservices;andinternationalbanking. PacificoperatesprimarilythroughPacificBankandoffersarangeof retailandcommercial bankingproductsandservicesthroughbranchesinOregonandWashington.Itsproducts andservicesincludechecking,savings,andcertificateof depositaccounts;merchantcard services;wealthmanagement;andmobilebanking.PacificBankfocusesoncommercial lendingtocommunity-basedbusinesses,healthcareprofessionals,andnon-profit organizations. Columbiadisputesthecommenter’sallegationsregardingitssmallbusinesslendingrecord andassertsthatColumbiaBankisfullycommittedtomeetingitsresponsibilitiesunderthe CRA.Columbiachallengesthemethodologyusedbythecommenterinreachingitsconclusionsaboutthebank’slendingrecordandassertsthatusingadifferentmethodologywould resultinamoremeaningfulmeasureof thecommunityimpactof thebank’slendinginthe communitiesitserves.Columbiarepresentsthatitoffersawiderangeof smallbusiness products,engagesinoutreachtosmallbusinesses,includingthroughpartnershipswith communityorganizations,andisconsistentlyseekingwaystoimproveitsperformance. Columbianotesthatitoffersalargesuiteof securedandunsecuredsmallbusinessloan products,inamountsstartingaslowas$500andgoingupto$1,000,000,andhasacentralizedsmallbusinesslendingteam.Thebankfurthernotesthatitengagesintargeted marketingtosmallbusinessesthroughtelevision,online,andbranchlocationpromotions andadvertisements,aswellasthroughnumerousestablishedcommunitypartnerships. Columbiarepresentsthatthebankhasmigratedthemajorityof itssmallbusinesslending toacentralizedunderwritingenvironmenttoensureanobjective,systematic,andconsistentprocessacrossitsfootprint.AccordingtoColumbia,lendingdecisionsareguidedby ColumbiaBank’screditpolicieswithanoverarchinggoalof increasingthebank’scapacity tooriginatehighervolumesof loanstobusinessesinitscommunitiesinafairandconsistentway.If aloandoesnotmeetapprovalguidelinesforColumbiaBank’sstandardloan 26 WhilerecognizingthatColumbiaBankisprimarilyacommerciallender,thecommenteralsoencouragedthe banktoconsiderinitiativesandpartnershipswithcommunitygroupsthatwouldenableittoplayamoreactive roleinprovidingaccesstohomeownershiptoLMIandminorityindividuals. 27 ThecommenternotedColumbiaBank’s“LowSatisfactory”ratingsontheLendingandServiceTestsforthe stateofOregonandthePortland-Vancouver-HillsboroMetropolitanStatisticalArea(“MSA”),andonthe ServiceTestforthestateofWashington,inthebank’s2014CRAexamination,andassertedthatthebank’s communitybenefitsplanshouldindicatehowthebankwouldimproveitsperformanceintheseareas.The BoardhasconsistentlyfoundthatneithertheCRAnorthefederalbankingagencies’CRAregulationsrequire depositoryinstitutionstomakepledgesorenterintocommitmentsoragreementswithanyorganizations.See, e.g.,UnitedBancshares,Inc.,FRBOrderNo.2017-10at12n.28(April6,2017);HuntingtonBancsharesInc., FRBOrderNo.2016-13at32n.50(July29,2016);CITGroup,Inc.,FRBOrderNo.2015-20at24n.54 (July19,2015);CitigroupInc.,88FederalReserveBulletin485(2002);FifthThirdBancorp,80FederalReserve Bulletin838,841(1994).Initsevaluation,theBoardreviewstheexistingCRAperformancerecordofanapplicantandtheprogramsthattheapplicanthasinplacetoservethecreditneedsofitsCRAAssessmentAreas (“AAs”).

8 FederalReserveBulletin|February2018 products,Columbiarepresentsthattheapplicationisreviewedforeligibilityforarangeof SmallBusinessAdministrationprograms.28 Inresponsetothecommenter’sconcernsaboutColumbia’scommitmenttocontinuing PacificBank’seffortsinservingnon-profitorganizations,Columbiaassertsthatitplansto retain,andpotentiallyexpandacrossitsfootprint,thesuccessfulaspectsof PacificBank’s workwiththenon-profitcommunity. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardconsiders substantialinformationinadditiontoinformationprovidedbypubliccommentersandthe responsetocommentsbytheapplicant.Inparticular,theBoardevaluatesaninstitution’s performancerecordinlightof examinationsbytheappropriatefederalsupervisorsof the CRAperformancerecordsof therelevantinstitutions,aswellasinformationandviews providedbytheappropriatefederalsupervisors.29Inthiscase,theBoardconsideredthe supervisoryviewsof theFDIC. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.30Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplylending,investment,andserviceteststo evaluatetheperformanceof alargeinsureddepositoryinstitutioninhelpingtomeetthe creditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’shomemortgage,smallbusiness,smallfarm,andcommunitydevelopmentlendingto determinewhethertheinstitutionishelpingtomeetthecreditneedsof individualsand geographiesof allincomelevels.Aspartof thelendingtest,examinersreviewandanalyze aninstitution’sdatareportedundertheHomeMortgageDisclosureAct(“HMDA”),31in additiontosmallbusiness,smallfarm,andcommunitydevelopmentloandatacollected andreportedundertheCRAregulations,toassessaninstitution’slendingactivitieswith respecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slending performanceisbasedonavarietyof factors,including(1)thenumberandamountsof homemortgage,smallbusiness,smallfarm,andconsumerloans(asapplicable)intheinstitution’sAAs;(2)thegeographicdistributionof theinstitution’slending,includingthe proportionanddispersionof theinstitution’slendinginitsAAsandthenumberand amountsof loansinlow-,moderate-,middle-,andupper-incomegeographies;(3)the distributionof loansbasedonborrowercharacteristics,including,forhomemortgage loans,thenumberandamountsof loanstolow-,moderate-,middle-,andupper-income 28 Inresponsetothecommenter’sencouragementtoColumbiaBanktoconsiderinitiativesandpartnershipsthat wouldallowittoplayamoreactiveroleinprovidinghomeownershipaccesstoLMIandminorityindividuals, Columbiaassertsthateventhoughthebankprimarilyfocusesoncommercialbanking,itoffersresidentialloan productsandafullrangeofsecondarymarket-qualifyingmortgageloanproductsinitsAAs.Columbiarepresentsthatitwillconsiderengaginginnewinitiativesandpartnershipsaimedatthesegoals. 29 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48506, 48548(July25,2016). 30 12U.S.C.§2906. 31 12U.S.C.§2801etseq.

LegalDevelopments:FourthQuarter,2017 9 individuals;32(4)theinstitution’scommunitydevelopmentlending,includingthenumber andamountsof communitydevelopmentloansandtheircomplexityandinnovativeness; and(5)theinstitution’suseof innovativeorflexiblelendingpracticestoaddressthecredit needsof LMIindividualsandgeographies. CRAPerformanceof ColumbiaBank ColumbiaBankwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheFDIC,asof March30,2017(“ColumbiaBankEvaluation”).33Thebankreceiveda“LowSatisfactory”ratingfortheLendingTest,an “Outstanding”ratingfortheInvestmentTest,anda“HighSatisfactory”ratingforthe ServiceTest.34AlthoughColumbiaBank’soverallratingtookintoconsiderationitsperformanceineachof itsstateandmultistatemetropolitanAAs,examinersgavethegreatest weighttoColumbiaBank’sperformanceinthestatesof WashingtonandOregon,andthe Portland-VancouverCSA,giventhatColumbiaBank’sloanproductionandbranch infrastructureareconcentratedinthoseareas.35Examinersnotedthatthescopeof the CRAevaluationwasinfluencedbyaCRA-relatedcommentthatwasreceivedfroma communitygroupduringtheonsiteexamination.36 FortheLendingTest,examinersfoundthatColumbiaBank’soveralllendingactivity reflectedgoodresponsivenesstothecreditneedsof itscombinedAA.Examinersfound thatthebankoriginatedasubstantialmajorityof smallbusiness,smallfarm,andhome mortgageloanswithinitsAAsandthatthegeographicdistributionof loansreflectedgood penetrationthroughoutitsAAs.37ExaminersalsofoundthatColumbiaBankutilizedinnovativeand/orflexiblelendingpracticestoservecommunitycreditneeds,includingthoseof smallbusinesses.38ExaminersfoundthatColumbiaBank’soveralldistributionof borrowersreflectedpoorpenetrationamongbusinessesof differentsizesandretail customersof differentincomelevels;however,thebankexhibitedanadequaterecordof servingthecreditneedsof themosteconomicallydisadvantagedareasof itsAAs,including low-incomeindividualsand/orverysmallbusinesses,consistentwithsafeandsound bankingpractices.Further,examinersfoundthatthebankoriginatedarelativelyhighlevel of communitydevelopmentloans,themajorityof whichweredirectedtowardaffordable housing,whichexaminerscitedasacreditneedidentifiedbycommunitycontactswithin thebank’sAAs. 32 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3). 33 TheColumbiaBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Theexaminersreviewedresidentialmortgage,smallbusiness,andfarmloansfromJanuary1,2014,through December31,2016.Theevaluationperiodforcommunitydevelopmentlending,investments,andserviceswas March31,2014,throughMarch30,2017. 34 TheColumbiaBankEvaluationincludedfull-scopeevaluationsoftheSeattle-Tacoma,Washington,Combined StatisticalArea(“CSA”);thePortland-Vancouver-Salem,Multi-StateCSA(“Portland-VancouverCSA”); Non-Metropolitan,OregonNon-MetropolitanStatisticalArea(“Non-MSA”),andNon-Metropolitan,Idaho Non-MSA.Limited-scopeevaluationswereperformedintheKennewick-Richland,WashingtonMSA; Spokane-SpokaneValley,WashingtonMSA;Bellingham,WashingtonMSA;Yakima,WashingtonMSA; Longview,WashingtonMSA;Lewiston,Idaho-WashingtonMSA;Walla-Walla,WashingtonMSA; Non-Metropolitan,WashingtonNon-MSA;Bend-Redmond,Oregon,MSA;Salem,OregonMSA;Eugene- Springfield,OregonMSA;BoiseCity,IdahoMSA;andCoeurD’Alene,IdahoMSA. 35 ColumbiaBankreceiveda“Satisfactory”overallratingineachofitsstateandmultistatemetropolitanAAs. 36 Thatcommentisidenticaltothecommentthatwassubmittedonthisproposal. 37 Examinersnotedthatthegeographicdistributionofloanswasassessedbycomparingtheinstitution’slending performanceinLMIgeographiestoaggregatedatafortheinstitutionortheperformanceofotherlenders, whileconsideringrelevantdemographicinformation. 38 ExaminersnotedthattheseprogramsincludedSmallBusinessAdministrationloans,WashingtonState’s LinkedDepositProgram,andBusinessOregon’sCapitalAccessProgram.

10 FederalReserveBulletin|February2018 Forthestatesof OregonandWashingtonandthePortland-VancouverCSA,39allareasof concerntothecommenter,examinersfoundthatColumbiaBank’slendinglevelsreflected goodresponsivenesstoAAcreditneedsoverall.ColumbiaBank’ssmallbusinessmarket shareexceededitsdepositshareinOregon,Washington,andthePortland-VancouverCSA. Examinersfoundthatthegeographicdistributionof smallbusinessloansreflectedexcellentdispersioninWashingtonandthePortland-VancouverCSA,andadequatedispersion inOregon.Further,examinersdeterminedthatthebankmadearelativelyhighlevelof communitydevelopmentloansinitsOregonAAs,andanadequatelevelinitsWashington AAsandthePortland-VancouverCSA. ExaminersfoundthatColumbiaBankusedinnovativeand/orflexiblelendingpracticesin Oregon,Washington,andthePortland-VancouverCSA.Thedistributionof loans reflectedadequatepenetrationamongbusinessesof differentsizesandamongcustomersof differentincomelevelsinOregon,butpoorpenetrationamongbusinessesof differentsizes andamongcustomersof differentincomelevelsinWashingtonandthePortland- VancouverCSA.Ineachof thesegeographicareas,examinersfoundthatthedistribution of smallfarmborrowersreflectedexcellentpenetrationamongfarmcustomersof different sizes.Examinersidentifiedpossiblecontributingfactorsforpoorlendingpenetration amongbusinessesof differentsizesincertainAAs,includingColumbiaBank’srecent formationof aSmallBusinessLendingCenter,whichledtomoreconsistentunderwriting forsmallbusinessloansandincreasedconsiderationof affiliateincomeincreditdecisions.ExaminersalsonotedthatColumbiaBankcontinuedtointeractwithcommunity groupsinhopesof addressing,throughacooperativeworkingrelationship,anysmallbusinesslendingconcernsraisedbytheCRA-relatedcomment. Examinersfoundthat,overall,thebankhadanexcellentlevelof qualifiedcommunity developmentinvestmentsandgrants,particularlythosethatwerenotroutinelyprovidedby privateinvestors.Examinersnotedthatthebank’sinvestmentssupportedeconomicdevelopmentandtheprovisionof affordablehousing.Examinersfurtherobservedthatthe bank’squalifiedinvestmentsandgrantsduringtheevaluationperiodrepresentedasignificantincreasefromthepriorevaluationperiod.Inthestatesof WashingtonandOregon andthePortland-VancouverCSA,examinersfoundthatthebankhadexcellentlevelsof communitydevelopmentinvestmentsandgrantsandthatthebankexhibitedgoodresponsivenesstocreditandcommunitydevelopmentneeds. ExaminersfoundthatColumbiaBank’sdeliverysystemswereaccessibletoallportionsof itsAAs.Totheextentchangeshadbeenmade,examinersnotedthatthebank’sopening andclosingof branchesgenerallyhadnotadverselyaffectedtheaccessibilityof itsdelivery systems,particularlyinLMIgeographiesand/ortoLMIindividuals.Examinersfound thatservicesdidnotvaryinawaythatinconveniencedportionsof theAAs,particularly LMIgeographiesand/orLMIindividuals.ExaminersnotedthatColumbiaBankprovided arelativelyhighlevelof communitydevelopmentservicesgivenitssizeandresources. Inthestatesof WashingtonandOregon,examinersratedColumbiaBank“HighSatisfactory”fortheServiceTest,whileinthePortland-VancouverCSA,examinersrated ColumbiaBank“LowSatisfactory.”InbothstatesandthePortland-VancouverCSA, examinersfoundthattheopeningandclosingof branchesgenerallyhadnotadversely affectedtheaccessibilityof deliverysystemsinthebank’sAAs,particularlyinLMIgeographiesand/ortoLMIindividuals.Examinersalsofoundthatinthestatesof Oregonand Washington,ColumbiaBank’sbusinesshoursdidnotvaryinawaythatinconvenienced 39 ForpurposesoftheColumbiaBankEvaluation,thePortland-VancouverCSAwasnotincludedineitherthe StateofOregonortheStateofWashingtonratings.

LegalDevelopments:FourthQuarter,2017 11 portionsof theAAs,particularlyLMIgeographiesand/orLMIindividuals.Forthe Portland-VancouverCSA,examinersnotedthatColumbiaBank’sbusinesshoursand servicesweretailoredtotheconvenienceandneedsof theAAs,particularlyLMIgeographiesand/orLMIindividuals.ExaminersfoundthatColumbiaBankprovidedarelatively highlevelof communitydevelopmentservicesinthestatesof OregonandWashington,but alimitedlevelof communitydevelopmentservicesinthePortland-VancouverCSA. CRAPerformanceof PacificBank PacificBankreceivedanoverallratingof “Satisfactory”atitsmostrecentCRAperformanceevaluationbytheFDIC,asof February24,2014(“PacificBankEvaluation”).40 Thebankreceiveda“HighSatisfactory”ratingfortheLendingTestanda“LowSatisfactory”ratingfortheInvestmentTestandtheServiceTest.41Examinersnotedthatthe bank’sperformanceintheEugeneAAwasweightedthemostheavilyintheoverallrating. ExaminersconcludedthatPacificBank’slendingactivityreflectedexcellentresponsiveness tothecreditneedsof itscombinedAAsandthatthebankexhibitedagoodrecordof servingthecreditneedsof themosteconomicallydisadvantagedindividualsandverysmall businesses.Examinersalsofoundthatthebankoriginatedamajorityof loansinside itsAAs. Examinersfoundthatthegeographicdistributionof thebank’sloansreflectedexcellent penetrationthroughoutthecombinedAAs,particularlyinLMIgeographies.Thedistributionof thebank’sborrowersreflectedgoodpenetrationamongbusinessesof different sizes.Further,examinersfoundthatthebankmadeanadequatelevelof communitydevelopmentloans. Examinersdeterminedthatthebankmadeanadequatelevelof qualifiedcommunitydevelopmentinvestmentsandgrants,althoughrarelyinaleadershipposition.Further,examinersconcludedthatPacificBank’sbranchlocations,bankinghours,andalternative deliverysystemswerereadilyaccessibletoallportionsof itsAAs,includingLMIgeographiesandindividuals,andthatservicesdidnotvaryinawaythatinconveniencedportions of itsAAs.Moreover,examinersconcludedthatthebankprovidedanadequatelevelof qualifiedcommunitydevelopmentservicesduringthereviewperiod. Viewsof theFDIC Initsreviewof theproposal,theBoardconsultedwiththeFDICregardingColumbia Bank’sCRA,consumercompliance,andfairlendingrecords.TheBoardhasconsidered theresultsof arecentconsumercomplianceexaminationof ColumbiaBankconductedby FDICexaminers,whichincludedareviewof ColumbiaBank’spoliciesandproceduresfor complyingwithfairlendingandotherconsumercompliancelaws.TheBoardalsoconsideredandconsultedwiththeFDICregardingtherecentlyconductedCRAevaluationof ColumbiaBank,thescopeof whichwasimpactedbythecommentonthisproposal.The FDICconsideredthesamecommentthatwassubmittedtotheBoardinconnectionwith 40 ThePacificBankEvaluationwasconductedusingtheLargeBankExaminationProcedures.Examiners reviewedsmallbusinessloansfrom2011through2013.Examinersdidnotreviewhomemortgageloans reportedpursuanttoHMDAdata-collectionrequirementsorsmallfarmloans.Theevaluationperiodfor communitydevelopmentloans,investments,andserviceswasfromJanuary25,2011,throughFebruary23, 2014. 41 ThePacificBankEvaluationincludedfull-scopeevaluationsofthreeAAs:theEugeneAA(composedofLane CountyinOregon);thePortland-Vancouver-BeavertonAA(composedofMultnomah,Clackamas,and WashingtoncountiesinOregon,andClarkCountyinWashington);andtheSeattleAA(composedofKing County,Washington).

12 FederalReserveBulletin|February2018 itsreviewof themergerof ColumbiaBankandPacificBank,and,afteracompletereview of therecord,theFDICdeterminedthattheproposalmetthestandardsof theBank MergerActandapprovedthebankmergerwithoutconditions. TheBoardhastakentheresultsof theFDIC’sexaminationsanditsconsultationswiththe FDICintoaccountinevaluatingthisproposal,includinginconsideringwhether ColumbiaBankhastheexperienceandresourcestoensurethatpoliciesandprogramsare implementedinamannerthatwouldallowthecombinedorganizationtoeffectivelyserve thecreditneedsof allthecommunitieswithinthefirm’sAAs. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.Columbiarepresentsthat,followingconsummation of theproposedtransaction,thecombinedorganizationwouldhaveanenhancedabilityto meettheconvenienceandneedsof thecommunity,whichwouldbenefitcustomersof ColumbiaBankandlegacycustomersof PacificBank.Columbiarepresentsthatthe currentsuiteof productsandservicesofferedbyeachbankwouldcontinuetobeavailable, andPacificBank’scustomerswouldbenefitfromanexpandedsuiteof businessand consumerproductsandservices,includingimportandexportlettersof creditanddocumentarycollections,same-dayACHorigination,mobilewalletdebitcardfunctions, consumercreditcards,foundationaccounts,andhomeequitylinesof creditthatincludea fixed-rateconversionoption.Further,Columbiarepresentsthatexistingandfuture customersof bothbankswouldbenefitfromalargerbranchnetwork. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtheCRArecordsof therelevant depositoryinstitutionsinvolved,theinstitutions’recordsof compliancewithfairlending andotherconsumerprotectionlaws,consultationswiththeFDIC,confidentialsupervisory information,informationprovidedbyColumbia,thepubliccommentontheproposal,and otherpotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiesto beserved.Basedonthatreview,theBoardconcludesthattheconvenienceandneeds factorisconsistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedsection3of theBHCActtorequiretheBoardtoconsider“theextenttowhicha proposedacquisition,merger,orconsolidationwouldresultingreaterormoreconcentratedriskstothestabilityof theUnitedStatesbankingorfinancialsystem.”42 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the 42 Dodd-FrankAct§604(d),Pub.L.No.111-203,124Stat.1376,1601(2010),codifiedat12U.S.C.§1842(c)(7).

LegalDevelopments:FourthQuarter,2017 13 resultingfirm.43Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.44 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.45 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthatislessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.Both theacquirerandthetargetarepredominantlyengagedinavarietyof consumerand commercialbankingactivities.46Theproformaorganizationwouldhaveminimalcrossborderactivitiesandwouldnotexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.Inaddition,theorganizationwouldnotbeacriticalservicesprovideror sointerconnectedwithotherfirmsorthemarketsthatitwouldposeasignificantriskto thefinancialsystemintheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationshouldbe,andherebyis,approved.Inreachingitsconclusion,theBoardhasconsideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunderthe BHCActandotherapplicablestatutes.TheBoard’sapprovalisspecificallyconditionedon compliancebyColumbiawithalltheconditionsimposedinthisorder,includingreceiptof allrequiredregulatoryapprovals,andonthecommitmentsmadetotheBoardinconnectionwiththeproposal.Forpurposesof thisaction,theconditionsandcommitmentsare deemedtobeconditionsimposedinwritingbytheBoardinconnectionwithitsfindings anddecisionhereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. 43 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 44 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder 2012-2(February14,2012). 45 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 46 Columbiaprimarilyofferscommercialandconsumerbankingservices,mortgagebankingservices,commercial realestatelending,wealthmanagement,privatebanking,investmentadvisoryandmanagementservices,trust servicesandoperations,andtreasurymanagement.Pacificofferscommercialandconsumerbankingservices, commercialrealestatelending,andtreasurymanagement.Ineachoftheactivitiesinwhichitengages, Columbiahas,andasaresultoftheproposalwouldcontinuetohave,asmallmarketshareonanationwide basis,andnumerouscompetitorswouldremainfortheseservices.

14 FederalReserveBulletin|February2018 Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardortheFederalReserveBankof SanFrancisco,actingunder delegatedauthority. Byorderof theBoardof Governors,effectiveOctober6,2017. Votingforthisaction:ChairYellen,ViceChairmanFischer,andGovernorsPowelland Brainard. AnnE.Misback Secretaryof theBoard

LegalDevelopments:FourthQuarter,2017 15 Reliable Community Bancshares, Inc . Perryville, Missouri MAB Acquisition Corp. Perryville, Missouri OrderApprovingtheAcquisitionof aBankHoldingCompany FRBOrderNo.2017–28(October26,2017) ReliableCommunityBancshares,Inc.(“Reliable”),afinancialholdingcompanywithinthe meaningof theBankHoldingCompanyActof 1956(“BHCAct”),1anditssubsidiary, MABAcquisitionCorp.(“MAB,”andtogetherwithReliable,“Applicants”),bothof Perryville,Missouri,haverequestedtheBoard’sapprovalundersection3of theBHCAct2 toacquireMidAmericaBankingCorporation(“MidAmerica”),Rolla,andtherebyindirectlyacquireMidAmericaBank&TrustCompany(“MidAmericaBank”),Dixon,both of Missouri.Aspartof theproposal,MABwouldbecomeabankholdingcompany. Followingtheproposedacquisition,MidAmericaBankwouldbemergedintoReliable’s subsidiarybank,TheBankof Missouri(“Bankof Missouri”),Perryville,Missouri.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(81FederalRegister95613(December28,2016)).4Thetimeforsubmittingcommentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct. Reliable,withconsolidatedassetsof approximately$1.4billion,isthe541stlargestinsured depositoryorganizationintheUnitedStates.5Reliablecontrolsapproximately$1.0billion inconsolidateddeposits,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.6ReliablecontrolsBankof Missouri,whichoperatesonlyinMissouri.Reliableisthe22ndlargestinsureddepository organizationinMissouri,controllingdepositsof approximately$1.0billion,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthat state.7 MidAmerica,withconsolidatedassetsof approximately$159.0million,isthe3407th largestinsureddepositoryorganizationintheUnitedStates.MidAmericacontrols approximately$122.6millioninconsolidateddeposits,whichrepresentlessthan1percent of thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.Mid AmericacontrolsMidAmericaBank,whichoperatesonlyinMissouri.8MidAmericais the153rdlargestinsureddepositoryorganizationinMissouri,controllingdepositsof 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 ThemergerofMidAmericaBankintoBankofMissouri,whichisnotexpectedtooccurforsometime followingApplicants’acquisitionofMidAmerica,issubjecttotheapprovaloftheFederalDepositInsurance Corporation(“FDIC”)pursuanttosection18(c)oftheFederalDepositInsuranceCorporationAct. 12U.S.C.§1828(c). 4 12CFR262.3(b). 5 Nationalassetanddepositdata,marketshare,andrankingareasofJune30,2017,unlessotherwisenoted. 6 Inthiscontext,insureddepositoryinstitutionsincludecommercialbanks,creditunions,savingsandloanassociations,andsavingsbanks. 7 Stateassetdata,marketshare,andrankingdataareasofJune30,2016,unlessotherwisenoted. 8 Theproposaldoesnotraiseinterstateissuesundersection3(d)oftheBHCActbecauseMissouriisthehome stateofbothReliableandMidAmericaBank,andMidAmericaBankoperatesonlyinMissouri.See 12U.S.C.§1842(d).

16 FederalReserveBulletin|February2018 approximately$123.5million,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. Onconsummationof theproposal,Reliablewouldbecomethe495thlargestinsured depositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $1.5billion,whichrepresentlessthan1percentof thetotalassetsof insureddepository organizationsintheUnitedStates.Reliablewouldcontrolconsolidateddepositsof approximately$1.2billion,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.InMissouri,Reliable wouldremainthe22ndlargestdepositoryorganization,controllingdepositsof approximately$1.1billion,whichrepresentlessthan1percentof thetotaldepositsof insured depositoryinstitutionsinthatstate. CompetitiveConsiderations Section3of theBHCActprohibitstheBoardfromapprovingaproposalthatwouldresult inamonopolyorwouldbeinfurtheranceof anattempttomonopolizethebusinessof bankinginanyrelevantmarket.9TheBHCActalsoprohibitstheBoardfromapprovinga proposalthatwouldsubstantiallylessencompetitionortendtocreateamonopolyinany bankingmarket,unlesstheBoardfindsthattheanticompetitiveeffectsof theproposalare clearlyoutweighedinthepublicinterestbytheprobableeffectof theproposalinmeeting theconvenienceandneedsof thecommunitytobeserved.10 Bankof MissouriandMidAmericaBankdonotcompetedirectlyinanybankingmarket. TheDepartmentof JusticehasadvisedtheBoardthatconsummationof theproposal wouldnotlikelyhaveasignificantlyadverseeffectoncompetitioninanyrelevantbanking market.Inaddition,theappropriatebankingagencieshavebeenaffordedanopportunity tocommentandhavenotobjectedtotheproposal. Basedonallof thefactsof record,theBoardconcludesthatconsummationof the proposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesinanyrelevantbankingmarket.Accordingly,theBoarddeterminesthat competitiveconsiderationsareconsistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCAct,theBoardconsidersthefinancial andmanagerialresourcesandthefutureprospectsof theinstitutionsinvolved.11Inits evaluationof financialfactors,theBoardreviewsinformationregardingthefinancial conditionof theorganizationsinvolvedonbothparent-onlyandconsolidatedbases,as wellasinformationregardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.Inthisevaluation,the Boardconsidersavarietyof informationregardingcapitaladequacy,assetquality, liquidity,andearningsperformance.TheBoardevaluatesthefinancialconditionof the combinedorganization,includingitscapitalposition,assetquality,liquidity,earningsprospects,andtheimpactof theproposedfundingof thetransaction.TheBoardalso considerstheabilityof theorganizationtoabsorbthecostsof theproposalandto completeeffectivelytheproposedintegrationof theoperationsof theinstitutions.In assessingfinancialfactors,theBoardconsiderscapitaladequacytobeespeciallyimportant. 9 12U.S.C.§1842(c)(1)(A). 10 12U.S.C.§1842(c)(1)(B). 11 12U.S.C.§1842(c)(2),(5),and(6).

LegalDevelopments:FourthQuarter,2017 17 TheBoardconsidersthefutureprospectsof theorganizationsinvolvedintheproposalin lightof theirfinancialandmanagerialresourcesandtheproposedbusinessplan. ReliableandBankof Missouriarebothwellcapitalizedandwouldremainsoonconsummationof theproposal.Theproposedtransactionisamergerthatisstructuredasashare exchange,withasubsequentmergerof thesubsidiarydepositoryinstitutions.12Theasset quality,earnings,andliquidityof bothBankof MissouriandMidAmericaBankare consistentwithapproval,andReliableappearstohaveadequateresourcestoabsorbthe costsof theproposalandtocompletetheintegrationof theinstitutions’operations.In addition,futureprospectsundertheproposalareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of Reliable,MidAmerica,andtheirsubsidiarydepositoryinstitutions,includingassessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition,the BoardhasconsideredinformationprovidedbyReliable,theBoard’ssupervisoryexperiencesandthoseof otherrelevantbanksupervisoryagencieswiththeorganizations,andthe organizations’recordsof compliancewithapplicablebanking,consumerprotection,and anti-money-launderinglaws. Reliableanditssubsidiarydepositoryinstitutionareconsideredtobewellmanaged.Reliable’sdirectorsandseniorexecutiveofficershavesubstantialknowledgeof andexperience inthebankingandfinancialsectors,andReliable’srisk-managementprogramappears consistentwithapprovalof thisexpansionaryproposal.TheBoardalsohasconsideredReliable’splansforimplementingtheproposal.Reliablehasconductedcomprehensiveduediligenceandisdevotingsignificantfinancialandotherresourcestoaddressallaspectsof the post-integrationprocessforthisproposal.Reliablewouldimplementacombinationof its ownandMidAmerica’srisk-managementpolicies,procedures,andcontrolsatthe combinedorganization,andthiscombinationisconsideredacceptablefromasupervisory perspective.Inaddition,Reliable’smanagementhastheexperienceandresourcesto operatethecombinedorganizationinasafeandsoundmanner. Basedonallthefactsof record,includingReliable’ssupervisoryrecord,managerialand operationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandfutureprospectsof theorganizationsinvolvedintheproposal,aswellasthe recordsof effectivenessof ReliableandMidAmericaincombattingmoney-laundering activities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCAct,theBoardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.13Initsevaluationof theeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thecommunitiestheyserve,aswellasotherpotentialeffectsof theproposalon theconvenienceandneedsof thecommunitiestobeserved.Inthisevaluation,theBoard 12 ApplicantswouldeffecttheacquisitionbymergingMidAmericawithandintoMAB,withMABasthe survivor.Atthetimeofthemerger,eachshareofMidAmericacommonstockwouldbeconvertedintoaright toreceiveReliablecommonstockand/orcash,basedonanexchangeratio.Reliablewouldfundthecash portionoftheexchangeprimarilythroughathird-partyloan.Anyadditionalcashneededinconnectionwith theacquisitionwouldbefundedbyadividendfromBankofMissouritoReliable. 13 12U.S.C.§1842(c)(2).

18 FederalReserveBulletin|February2018 placesparticularemphasisontherecordsof therelevantdepositoryinstitutionsunderthe CommunityReinvestmentActof 1977(“CRA”).14TheCRArequiresthefederalfinancialsupervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeetthe creditneedsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeinstitutions’safeandsoundoperation,15andrequirestheappropriatefederalfinancialsupervisoryagencytoassessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof itsentirecommunity,includinglow-andmoderate-income(“LMI”)neighborhoods,in evaluatingbankexpansionaryproposals.16 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandtheirrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,thesupervisoryviewsof examiners,othersupervisoryinformation,andinformationprovidedbythe applicant.TheBoardalsomayconsidertheinstitution’sbusinessmodel,itsmarketingand outreachplans,theorganization’splansafterconsummation,andanyotherinformation theBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof Bankof MissouriandMidAmericaBank,thefairlendingandcompliancerecordsof bothbanks, thesupervisoryviewsof theFDIC,confidentialsupervisoryinformation,andinformation providedbyReliable. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardevaluates aninstitution’sperformancerecordinlightof examinationsbytheappropriatefederal supervisorsof theCRAperformancerecordsof therelevantinstitutions,aswellasinformationandviewsprovidedbytheappropriatefederalsupervisors.17Inthiscase,theBoard consideredtheviewsof theFederalReserveBankof St.Louis(“ReserveBank”)andthe FDIC. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.18Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplyalendingtesttoevaluatetheperformance of asmallinsureddepositoryinstitutioninhelpingtomeetthecreditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’slending-related activitiestodeterminewhethertheinstitutionishelpingtomeetthecreditneedsof individualsandgeographiesof allincomelevels.Aspartof thelendingtest,examinersreview andanalyzeaninstitution’sdatareportedundertheHomeMortgageDisclosureActof 14 12U.S.C.§2901etseq. 15 12U.S.C.§2901(b). 16 12U.S.C.§2903. 17 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81Fed.Reg.48506,48548 (July25,2016). 18 12U.S.C.§2906.

LegalDevelopments:FourthQuarter,2017 19 1975(“HMDA”),19automatedloanreports,andotherreportsgeneratedbytheinstitution toassessaninstitution’slendingactivitieswithrespecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slendingperformanceisbasedontheinstitution’s loan-to-depositratio,loanoriginationsforsaletothesecondarymarket,lending-related activitiesinitsassessmentareas(“AAs”),recordof engaginginlending-relatedactivities forborrowersof differentincomelevelsandbusinessesandfarmsof differentsizes, geographicdistributionof loans,andrecordof takingactioninresponsetowritten complaintsaboutitsperformance.20Intermediatesmallbanksaresubjecttothelending test,aswellasacommunitydevelopmenttestthatevaluatesthenumberandamountof theircommunitydevelopmentloansandqualifiedinvestments,theextenttowhichthey providecommunitydevelopmentservices,andtheirresponsivenesstocommunitydevelopmentlending,investment,andserviceneeds.21 CRAPerformanceof Bankof Missouri Bankof Missouriwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheFDIC,asof January26,2015(“Bankof MissouriEvaluation”).22Thebankreceived“Satisfactory”ratingsforeachof theLendingTestandthe CommunityDevelopmentTest. ExaminersfoundthatBankof Missouri’saveragenetloan-todepositratio,whichisa measureof theoveralllevelof lending,wasreasonablegiventheassetsizeandfinancial conditionof thebank.Examinersalsofoundthatasubstantialmajorityof thebank’s HMDAandsmallbusinessloanswasoriginatedwithinthebank’sAAs,illustratinga commitmenttomeetingthecreditneedsof theseareas,andthatthegeographicdistributionof loansreflectedareasonabledispersionwithinthebank’sAAs.Examinersnoted thatthebank’sloandistributionbyborrowerincomecharacteristicsreflectedareasonable penetrationamongbusinessesof differentrevenuesizesandamongindividualsof different incomelevels.Further,examinersnotedthatBankof MissourihadnotreceivedanyCRA complaintssincethebank’spreviousCRAevaluation. ExaminersalsodeterminedthatBankof Missouridemonstratedanadequateresponsivenesstothecommunitydevelopmentneedsof itsAAsthroughqualifiedcommunitydevelopmentlending,investment,andserviceactivity,consideringthecapacityof thebank andtheneedforandavailabilityof suchopportunities. CRAPerformanceof MidAmericaBank MidAmericaBankwasassignedanoverallratingof “NeedstoImprove”atitsmostrecent CRAperformanceevaluationbytheReserveBank,asof April22,2013(“MidAmerica 19 12U.S.C.§2801etseq. 20 See12CFR228.26(b). 21 See12CFR228.26(c). 22 TheBankofMissouriEvaluationwasconductedusingtheIntermediateSmallBankCRAExaminationProcedures.FortheLendingTest,examinersreviewedHMDAloansreportedbyBankofMissouriin2012,2013, andthefirstthreequartersof2014,andsmallbusinessloansoriginatedbythebankbetweenJanuary1,2014, andDecember18,2014.FortheCommunityDevelopmentTest,examinersreviewedcommunitydevelopment lending,investments,andservicesbasedondatafromJuly23,2012,throughJanuary26,2015.TheBankof MissouriEvaluationcoveredthebank’ssevenAAs,includingfull-scopereviewsoftheCapeGirardeau, Missouri;Columbia,Missouri;Perryville,Missouri;andSpringfield,Missouri,AAsandlimited-scopereviews ofthebank’sBranson,Missouri;ScottCity,Missouri;andPoplarBluff,Missouri,AAs.

20 FederalReserveBulletin|February2018 BankEvaluation”).23Examinersnotedthatthisratingwasprimarilybasedonthebank’s substantiveviolationsof section5of theFederalTradeCommissionAct(“FTCAct”), whichprohibitsunfairordeceptiveactsorpractices,andthebank’slackof adequate controlsinplacetopreventsuchpractices.24TheBoardhasenteredintoaConsentOrder withMidAmericaBankfortheseviolationsof section5of theFTCAct,whichoccurred asaresultof practicesrelatedtoMidAmerica’sbalancetransfercreditcardportfolios offeredtoconsumersthroughthirdparties.PursuanttotheConsentOrder,MidAmerica Bankhasagreedtopayrestitutionof approximately$5milliontoaffectedcardholdersand tosubmittotheReserveBankawrittenplantostrengthentheoversightbyMidAmerica Bank’sboardof directorsof thebank’scomplianceriskmanagementprogram.Thisorder isconditionedonReliable’scompliancewithacommitmenttocauseBankof Missouri,as successortoMidAmericaBank,tocomplywiththeobligationsof theConsentOrder. ExaminersfoundthatMidAmericaBank’sloandistributionamongborrowersof different incomelevels,includingLMIborrowers,andamongbusinessesof differentrevenuesizes, wasreasonable.However,examinersnotedthatthebank’sgeographicdistributionof loans reflectedpoordispersionthroughoutthebank’sAA.Examinersnotedthatthebank’s CRAperformancewouldhavebeenconsideredsatisfactorybutforthebank’sviolationsof theFTCAct. AdditionalSupervisoryViews Initsreviewof theproposal,theBoardconsultedwiththeFDICregardingBankof Missouri’sCRA,consumercompliance,andfairlendingrecords.TheBoardhasconsideredtheresultsof themostrecentconsumercomplianceexaminationof Bankof Missouri conductedbytheFDIC,whichincludedareviewof thebank’scomplianceriskmanagementprogramandthebank’scompliancewithconsumerprotectionlawsandregulations.TheBoardalsohasconsideredtheresultsof themostrecentconsumercomplianceexaminationof MidAmericaBankconductedbytheReserveBank,actionsMid AmericaBankhascommittedtotaketoaddressitspastviolationsof section5of theFTC Act,andactionsMidAmericaBankhasalreadytakentostrengthenitscurrentandfuture compliancewithsection5of theFTCAct. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.ReliablerepresentsthatithasnoplanstodiscontinueanysignificantproductorservicecurrentlyofferedbyBankof MissouriorMid AmericaBank.Reliablealsorepresentsthat,followingtheproposedtransaction,customers of MidAmericaBankwouldhaveaccesstoabroaderrangeof productsandservicesthan thosecurrentlyavailabletoMidAmericaBankcustomers.Additionally,Reliablerepresents thatcustomersof MidAmericaBankwouldbenefitfromamoreexpansivebranch network.Reliableassertsthat,followingtheproposedtransaction,Bankof Missouriwould continuetoprovidealevelof serviceconsistentwithorexceedingBankof Missouri’s currentCRAperformance.ReliablerepresentsthatBankof Missouriwouldbeableto integrateMidAmericaBank’sbusinessintoitsoperationsinamannerthatwouldprevent furtherviolationsof lawsuchasthosenotedintheMidAmericaBankEvaluation. 23 TheMidAmericaBankEvaluationwasconductedusingSmallBankCRAExaminationProcedures.ExaminersreviewedloansoriginatedbythebankfromJanuary1,2012,throughDecember31,2012.TheMid AmericaBankEvaluationincludedareviewofthebank’sAA,whichincludesallofPhelpsandPulaskicounties,Missouri,andthesouthernportionofMariesCounty,Missouri. 24 5U.S.C.§45.

LegalDevelopments:FourthQuarter,2017 21 ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtheCRArecordsof therelevant depositoryinstitutionsinvolved,theinstitutions’recordsof compliancewithfairlending andotherconsumerprotectionlaws,consultationwiththeFDIC,confidentialsupervisory information,informationprovidedbyReliable,andotherpotentialeffectsof theproposal ontheconvenienceandneedsof thecommunitiestobeserved.Basedonthatreview,the Boardconcludesthattheconvenienceandneedsfactorisconsistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedsection3of theBHCActtorequiretheBoardtoconsider“theextenttowhicha proposedacquisition,merger,orconsolidationwouldresultingreaterormoreconcentratedriskstothestabilityof theUnitedStatesbankingorfinancialsystem.”25 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the resultingfirm.26Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.27 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoproposesystemicrisks.Accordingly,theBoardpresumesthata proposaldoesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbelow eitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificantincreaseininterconnectedness,complexity,cross-borderactivities,orotherrisk factors.28 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.Both theacquirerandthetargetarepredominatelyengagedinavarietyof consumerand 25 Dodd-FrankAct§604(d),Pub.L.No.111-203,124Stat.1376,1601(2010),codifiedat12U.S.C.§1842(c)(7). 26 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 27 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder 2012-2(February14,2012). 28 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition.

22 FederalReserveBulletin|February2018 commercialbankingactivities.29Theproformaorganizationwouldhaveminimalcrossborderactivitiesandwouldnotexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.Inaddition,theorganizationwouldnotbeacriticalservicesprovideror sointerconnectedwithotherfirmsorthemarketsthatitwouldposeasignificantriskto thefinancialsystemintheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationshouldbe,andherebyis,approved.Inreachingitsconclusion,theBoardhasconsideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunderthe BHCActandotherapplicablestatutes.TheBoard’sapprovalisspecificallyconditionedon compliancebyApplicantswithalltheconditionsimposedinthisorder,includingreceipt of allrequiredregulatoryapprovals,andonthecommitmentsmadetotheBoardin connectionwiththeapplication.Forpurposesof thisaction,theconditionsandcommitmentsaredeemedtobeconditionsimposedinwritingbytheBoardinconnectionwithits findingsanddecisionhereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardortheReserveBank,actingunderdelegatedauthority. Byorderof theBoardof Governors,effectiveOctober26,2017. Votingforthisaction:ChairYellen,ViceChairmanforSupervisionQuarles,andGovernorsPowellandBrainard. AnnE.Misback Secretaryof theBoard 29 Reliableprimarilyoffersconsumerandbusinessloananddepositproducts,withafocusoncommercialand homemortgagelending.MidAmericaprimarilyofferscommercial,residential,andconsumerloananddeposit products.Ineachoftheactivitiesinwhichitengages,Reliablehas,andasaresultoftheproposalwould continuetohave,asmallmarketshareonanationwidebasis,andnumerouscompetitorswouldremainfor theseservices.

LegalDevelopments:FourthQuarter,2017 23 First Horizon National Corporation Memphis, Tennessee OrderApprovingtheMergerof BankHoldingCompanies FRBOrderNo.2017-29(October30,2017) FirstHorizonNationalCorporation(“FirstHorizon”),Memphis,Tennessee,afinancial holdingcompanywithinthemeaningof theBankHoldingCompanyActof 1956(“BHC Act”),1hasrequestedtheBoard’sapprovalundersection3of theBHCAct2tomergewith CapitalBankFinancialCorp.(“CBFC”),Charlotte,NorthCarolina,andtherebyindirectly acquireCBFC’ssubsidiarybank,CapitalBankCorp.(“CapitalBank”),Raleigh,North Carolina.Followingtheproposedmerger,CapitalBankwouldbemergedintoFirstHorizon’ssubsidiarybank,FirstTennesseeBank,NationalAssociation(“FirstTennessee Bank”),alsoof Memphis,Tennessee.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(82FederalRegister28659(June23,2017)).4Thetimeforsubmitting commentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct. FirstHorizon,withconsolidatedassetsof approximately$29.4billion,isthe64thlargest insureddepositoryorganizationintheUnitedStates.FirstHorizoncontrolsapproximately $22.3billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.5FirstHorizon controlsFirstTennesseeBank,whichoperatesinFlorida,Georgia,Mississippi,North Carolina,SouthCarolina,Tennessee,Texas,andVirginia.FirstHorizonisthelargest insureddepositoryorganizationinTennessee,controllingdepositsof approximately $19.8billion,whichrepresent14.3percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.FirstHorizonisthe31stlargestinsureddepositoryorganizationin NorthCarolina,controllingdepositsof approximately$542.5million,whichrepresentless than1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.First Horizonisthe117thlargestinsureddepositoryorganizationinVirginia,controlling depositsof approximately$14.5million,whichrepresentlessthan1percentof thetotal depositsof insureddepositoryinstitutionsinthatstate.FirstHorizonisthe82ndlargest insureddepositoryorganizationinSouthCarolina,controllingdepositsof approximately $11.1million,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.FirstHorizonisthe220thlargestinsureddepositoryorganizationinFlorida,controllingdepositsof approximately$1.0million,whichrepresentless than1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.6 CBFC,withconsolidatedassetsof approximately$10.1billion,isthe127thlargestinsured depositoryorganizationintheUnitedStates.CBFCcontrolsapproximately$8.1billionin deposits,whichrepresentlessthan1percentof thetotalamountof depositsof insured depositoryinstitutionsintheUnitedStates.CBFCcontrolsCapitalBank,whichoperates 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 ThemergerofCapitalBankintoFirstTennesseeBank,whichisexpectedtooccurimmediatelyafterFirst Horizon’smergerwithCBFC,issubjecttotheapprovaloftheOfficeoftheComptrolleroftheCurrency (“OCC”),pursuanttosection18(c)oftheFederalDepositInsuranceAct.12U.S.C.§1828(c).TheOCC approvedthebankmergeronOctober16,2017. 4 12CFR262.3(b). 5 NationwideassetanddepositdataareasofJune30,2017,unlessotherwisenoted. 6 StatedepositdataareasofJune30,2016,unlessotherwisenoted.

24 FederalReserveBulletin|February2018 inFlorida,NorthCarolina,SouthCarolina,Tennessee,andVirginia.CBFCisthe15th largestinsureddepositoryorganizationinTennessee,controllingdepositsof approximately $1.5billion,whichrepresent1.1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.CBFCisthe9thlargestinsureddepositoryorganizationinNorth Carolina,controllingdepositsof approximately$4.4billion,whichrepresent1.3percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.CBFCisthe29thlargest insureddepositoryorganizationinSouthCarolina,controllingdepositsof approximately $370.7million,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.CBFCisthe39thlargestinsureddepositoryorganizationin Florida,controllingdepositsof approximately$1.6billion,whichrepresentlessthan 1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.CBFCisthe 111thlargestinsureddepositoryorganizationinVirginia,controllingdepositsof approximately$26.1million,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. Onconsummationof theproposal,FirstHorizonwouldbecomethe54thlargestinsured depositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $40billion,whichrepresentlessthan1percentof thetotalassetsof insureddepository organizationsintheUnitedStates.FirstHorizonwouldcontroltotaldepositsof approximately$30.4billion,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.InTennessee,FirstHorizonwould remainthelargestinsureddepositoryorganization,controllingdepositsof approximately $21.3billion,whichrepresentapproximately15.4percentof thetotaldepositsof insured depositoryinstitutionsinthatstate.InNorthCarolina,FirstHorizonwouldbecomethe 8thlargestinsureddepositoryorganization,controllingdepositsof approximately $4.9billion,whichrepresent1.4percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.InSouthCarolina,FirstHorizonwouldbecomethe28thlargest insureddepositoryorganization,controllingdepositsof approximately$381.8million, whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutions inthatstate.InFlorida,FirstHorizonwouldbecomethe39thlargestinsureddepository organization,controllingdepositsof approximately$1.6billion,whichrepresentlessthan 1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.InVirginia, FirstHorizonwouldbecomethe104thlargestinsureddepositoryorganization,controlling depositsof approximately$40.6million,whichrepresentlessthan1percentof thetotal depositsof insureddepositoryinstitutionsinthatstate. InterstateandDepositCapAnalysis Section3(d)of theBHCActgenerallyprovidesthat,if certainconditionsaremet,the Boardmayapproveanapplicationbyabankholdingcompanytoacquirecontrolof a banklocatedinastateotherthanthehomestateof thebankholdingcompany,without regardtowhetherthetransactionisprohibitedunderstatelaw.7Underthissection,the Boardmaynotapproveanapplicationthatwouldpermitanout-of-statebankholding companytoacquireabankinahoststateif thebankhasnotbeeninexistenceforthe lesserof thestatestatutoryminimumperiodof timeorfiveyears.8Inaddition,theBoard maynotapproveaninterstateapplicationif thebankholdingcompanycontrolsor,upon consummationof theproposedtransaction,wouldcontrolmorethan10percentof the totaldepositsof insureddepositoryinstitutionsintheUnitedStatesor,incertaincircumstances,thebankholdingcompany,uponconsummation,wouldcontrol30percentor 7 12U.S.C.§1842(d)(1)(A). 8 12U.S.C.§1842(d)(1)(B).

LegalDevelopments:FourthQuarter,2017 25 moreof thetotaldepositsof insureddepositoryinstitutionsinanystateinwhichthe acquirerandtargethaveoverlappingbankingoperations.9 Forpurposesof theBHCAct,thehomestateof FirstHorizonisTennessee,andCapital BankislocatedinNorthCarolina,SouthCarolina,Tennessee,Virginia,andFlorida.10 FirstHorizoniswellcapitalizedandwellmanagedunderapplicablelaw,andFirst TennesseeBankhasa“Satisfactory”ratingundertheCommunityReinvestmentActof 1977(“CRA”).11Therearenominimumagerequirementsunderthelawsof NorthCarolina,SouthCarolina,Virginia,orFloridathatwouldapplytoFirstHorizon’sacquisition of CBFC,andCapitalBankhasbeeninexistenceformorethanfiveyears.12 Onconsummationof theproposedtransaction,FirstHorizonwouldcontrollessthan 1percentof thetotalamountof consolidateddepositsininsureddepositoryinstitutionsin theUnitedStates.Inaddition,FirstHorizonwouldnotcontrol30percentormoreof the totaldepositsof insureddepositoryinstitutionsinanystateinwhichFirstHorizonand CBFChaveoverlappingbankingoperations.13TheBoardhasconsideredallotherrequirementsundersection3(d)of theBHCAct,includingFirstTennesseeBank’srecordof meetingtheconvenienceandneedsof thecommunitiesitserves.Accordingly,inlightof all thefactsof record,theBoardmayapprovetheproposalundersection3(d)of the BHCAct. CompetitiveConsiderations Section3of theBHCActprohibitstheBoardfromapprovingaproposalthatwouldresult inamonopolyorwouldbeinfurtheranceof anattempttomonopolizethebusinessof bankinginanyrelevantmarket.14TheBHCActalsoprohibitstheBoardfromapprovinga proposalthatwouldsubstantiallylessencompetitionortendtocreateamonopolyinany bankingmarket,unlesstheanticompetitiveeffectsof theproposalareclearlyoutweighedin thepublicinterestbytheprobableeffectof theproposalinmeetingtheconvenienceand needsof thecommunitiestobeserved.15 FirstHorizonandCBFChavesubsidiarydepositoryinstitutionsthatcompetedirectlyin 11bankingmarketsinNorthCarolina,SouthCarolina,andTennessee.16TheBoardhas consideredthecompetitiveeffectsof theproposalinthesebankingmarkets.Inparticular, theBoardhasconsideredthenumberof competitorsthatwouldremainineachmarket; therelativeshareof totaldepositsininsureddepositoryinstitutionsineachmarket 9 12U.S.C.§1842(d)(2)(A)and(B).Theacquiringandtargetinstitutionshaveoverlappingbankingoperationsin anystateinwhichanybanktobeacquiredislocatedandtheacquiringbankholdingcompanycontrolsany insureddepositoryinstitutionorabranch.Forpurposesofsection3(d)oftheBHCAct,theBoardconsidersa banktobelocatedinthestatesinwhichthebankischarteredorheadquarteredoroperatesabranch.See 12U.S.C.§1841(o)(4)–(7). 10 See12U.S.C.§1841(o)(4).Abankholdingcompany’shomestateisthestateinwhichthetotaldepositsofall bankingsubsidiariesofsuchcompanywerethelargestonJuly1,1966,orthedateonwhichthecompany becameabankholdingcompany,whicheverislater. 11 12U.S.C.§2901etseq. 12 SeeN.C.Gen.Stat.ch.53C;S.C.CodeAnn.§§34-25-50and34-25;Va.CodeAnn.§6.2-849–859;Fla.Stat. §658.2953. 13 Tennessee,SouthCarolina,andFloridaimposea30percentlimitondepositconcentrationwithintheirstates. SeeTenn.CodeAnn§45-2-1404;S.C.CodeAnn.§34-25-240;Fla.Stat.§658.2953(5)(b).NorthCarolinaand Virginiadonothaveanysuchrestrictions. 14 12U.S.C.§1842(c)(1). 15 12U.S.C.§1842(c)(1)(B). 16 AllofthesebankingmarketsaredefinedintheAppendix,exceptfortheGreeneCountybankingmarket (“GreeneCountymarket”);theLawrenceCountybankingmarket(“LawrenceCountymarket”);andthe Morristownareabankingmarket(“Morristownareamarket”),allinTennessee,whicharedefinedinthe discussionbelow.

26 FederalReserveBulletin|February2018 (“marketdeposits”)thatFirstHorizonwouldcontrol;17theconcentrationlevelsof market depositsandtheincreaseintheselevels,asmeasuredbytheHerfindahl-HirschmanIndex (“HHI”)undertheDepartmentof JusticeBankMergerCompetitiveReviewguidelines (“DOJBankMergerGuidelines”);18othercharacteristicsof themarkets;and,asdiscussed below,commitmentsmadebyFirstHorizontodivesttwoCapitalBankbranchesinthe GreeneCountymarket. BankingMarketswithinEstablishedGuidelines Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesintheJohnsonCity-Bristol,Knoxville, Nashville,Sevierville,Raleigh,Winston-Salem,Charlotte,andCharlestonmarkets.19On consummationof theproposal,thechangeintheHHIintheNashvillemarketwouldbe small,andthemarketwouldremainunconcentrated.ThechangeintheHHIinthe JohnsonCity-Bristol,Knoxville,Sevierville,Raleigh,andCharlestonmarketswouldbe small,andthemarketswouldremainmoderatelyconcentrated.TheWinston-Salemand Charlottemarketswouldremainhighlyconcentrated,butthechangesintheHHIinthese marketswouldbesmall.Ineachof thesebankingmarkets,numerouscompetitorswould remain. BankingMarketsWarrantingSpecialScrutiny Thestructuraleffectsthatconsummationof theproposalwouldhaveintheGreene County,LawrenceCounty,andMorristownareamarketswarrantadetailedreview becausetheconcentrationlevelsonconsummationwouldexceedthethresholdsintheDOJ BankMergerGuidelineswhenusinginitialcompetitivescreeningdata. GreeneCounty,Tennessee,BankingMarket.Usinginitialscreeningdata,FirstHorizonis thethirdlargestdepositoryorganizationintheGreeneCountymarket,controlling approximately$181.7millionindeposits,whichrepresentapproximately22.5percentof marketdeposits.20CBFCisthelargestdepositoryorganizationintheGreeneCounty market,controllingapproximately$211.6millionindeposits,whichrepresentapproximately26.2percentof marketdeposits.Onconsummation,FirstHorizonwouldbecome thelargestdepositoryorganizationintheGreeneCountymarket,controllingapproximately$359.6millioninmarketdeposits,whichwouldrepresentapproximately 48.6percentof marketdeposits.TheHHIinthismarketwouldincreaseby1175points, from1981to3156. 17 LocaldepositandmarketsharedataareasofJune30,2016,and,unlessotherwiseindicated,arebasedon calculationsinwhichthedepositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhas indicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorsto commercialbanks.See,e.g.,MidwestFinancialGroup,75FederalReserveBulletin386(1989);NationalCity Corporation,70FederalReserveBulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsin themarketsharecalculationona50percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserve Bulletin52(1991). 18 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableatwww.justice.gov/opa/pr/ 2010/August/10-at-938.html. 19 ThecompetitiveeffectsoftheproposalinthesemarketsaredescribedintheAppendix. 20 TheGreeneCountymarketisdefinedasGreeneCounty,Tennessee.

LegalDevelopments:FourthQuarter,2017 27 Tomitigatethepotentiallyadversecompetitiveeffectsof theproposalintheGreene Countymarket,FirstHorizonhascommittedtodivesttwoof CapitalBank’ssixbranches intheGreeneCountymarkettoacompetitivelysuitablepurchaser.21Inadditiontothe divestiture,theBoardhasconsideredwhetherotherfactorseithermitigatethecompetitive effectsof theproposalorindicatethattheproposalwouldnothaveasignificantlyadverse effectoncompetitionintheGreeneCountymarket.22Thecompetitiveeffectsaremitigated byseveralfactorsthatindicatethattheincreaseinconcentrationintheGreeneCounty market,asmeasuredbytheaboveHHI,overstatesthepotentialcompetitiveeffectsof the proposalinthemarket.Onethriftinstitutioninthemarkethasacommercialandindustrial loanportfoliosimilartothoseof commercialbanksintheGreeneCountymarket,23as measuredintermsof theratiosof thosetypesof loanstototalloansandassets.24The Boardhasconcludedthatdepositscontrolledbythisinstitutionshouldbeweightedat 100percentinthemarket-sharecalculations. Inaddition,twocreditunionsexertacompetitiveinfluenceintheGreeneCountymarket. Bothinstitutionsofferawiderangeof consumerbankingproducts,operatestreet-level branches,andhavebroadmembershipcriteriathatincludealmostallof theresidentsinthe market.25TheBoardfindsthatthesecircumstanceswarrantincludingthedepositsof these creditunionsata50-percentweightinestimatingmarketinfluence.Thisweightingtakes intoaccountthelimitedlendingdonebythesecreditunionstosmallbusinessesrelativeto commercialbanks’lendinglevels. Afteraccountingforthebranchdivestituresandweightingthedepositsof thethriftat 100percentandthecreditunionsat50percent,FirstHorizonwouldcontrolapproximately 21 Asaconditionofconsummatingtheproposal,FirstHorizonhascommittedthatitwillexecute,before consummationoftheproposal,asalesagreementwithacompetitivelysuitableinstitutionforthesaleofthe twobranches.FirstHorizonalsohascommittedtocompletethedivestiturewithin180daysafterconsummationoftheproposedmerger.Inaddition,FirstHorizonhascommittedthat,iftheproposeddivestitureisnot completedwithinthe180-dayperiod,FirstHorizonwouldtransfertheunsoldbranchestoanindependent trustee,whowouldbeinstructedtosellthemtoanalternatepurchaserorpurchasersinaccordancewiththe termsofthisorderandwithoutregardtoprice.Boththetrusteeandanyalternatepurchasersmustbedeemed acceptabletotheBoard.See,e.g.,BankAmericaCorporation,78FederalReserveBulletin338(1992);United NewMexicoFinancialCorporation,77FederalReserveBulletin484(1991). 22 Thenumberandstrengthoffactorsnecessarytomitigatethecompetitiveeffectsofaproposaldependonthe sizeoftheincreasein,andresultinglevelof,concentrationinabankingmarket.SeeNationsBankCorporation, 84FederalReserveBulletin129(1998). 23 Thestandardtreatmentofthriftsinthecompetitiveanalysisistogivetheirdeposits50-percentweightingto reflecttheirlimitedlendingtosmallbusinessesrelativetobanks’lendinglevels.However,theBoardpreviously hasindicatedthatitmayconsiderthecompetitivenessofathriftinstitutionatalevelgreaterthan50percentof itsdepositswhenappropriateifcompetitionfromtheinstitutioncloselyapproximatescompetitionfroma commercialbank.See,e.g.,BanknorthGroup,Inc.,75FederalReserveBulletin703(1989).Where,ashere,the factsandcircumstancesofabankingmarketindicatethataparticularthriftservesasasignificantsourceof commercialloansandprovidesabroadrangeofconsumer,mortgage,andotherbankingproducts,theBoard hasconcludedthatcompetitionfromsuchathriftcloselyapproximatescompetitionfromacommercialbank andthatdepositscontrolledbytheinstitutionshouldbeweightedat100percentinmarket-sharecalculations. See,e.g.,KeyCorp,FRBOrderNo.2016-12(July12,2016);RiverValleyBancorp,FRBOrderNo.2012-10 (October17,2012);RegionsFinancialCorporation,93FederalReserveBulletinC16(2007);andBanknorth Group,Inc.,supra. 24 Thisthriftinstitutionhasaratioofcommercialandindustrialloanstoassetsof9.6percent.Thisiscomparable totheratioofsomethriftinstitutionsthattheBoardhaspreviouslyfoundtobefullcompetitorsofcommercialbanks.Id. 25 TheBoardpreviouslyhasconsideredcompetitionfromcertainactivecreditunionswiththesefeaturesasa mitigatingfactor.See,e.g.,KeyCorp,FRBOrderNo.2016-12(July12,2016);OhioValleyBancCorp.,FRB OrderNo.2016-10(June28,2016);MitsubishiUFJFinancialGroup,Inc.,FRBOrderNo.2012-12 (November14,2012);OldNationalBancorp,FRBOrderNo.2012-9(August30,2012);UnitedBankshares,Inc. (orderdatedJune20,2011),97FederalReserveBulletin19(2ndQuar.2011);ThePNCFinancialServices Group,Inc.,94FederalReserveBulletinC38(2008);ThePNCFinancialServicesGroup,Inc.,93FederalReserve BulletinC65(2007);RegionsFinancialCorporation,93FederalReserveBulletinC16(2007);Passumpsic Bancorp,92FederalReserveBulletinC175(2006);andWachoviaCorporation,92FederalReserveBulletinC183 (2006).

28 FederalReserveBulletin|February2018 34.5percentof marketdeposits,andtheHHIwouldincreaseby486pointstoalevelof 1934.26AlthoughtheadjustedlevelsstillexceedtheDOJBankMergerGuidelines,certain factorsindicatethatthecompetitiveeffectsof theproposalwouldnotlikelybesignificantly adverse.Afterconsummationof theproposal,aminimumof sevendepositoryinstitutions wouldremainintheGreeneCountymarket.Further,FirstHorizonandCBFCengagein lowlevelsof smallbusinesslendingintheGreeneCountymarket,andanalysisof available datasuggeststhetransactionisunlikelytohaveanadversecompetitiveimpactonsmall businesslendinginthemarket.27Inaddition,recententryandexpansionaryactivity suggeststhatthemarketisattractivetopotentialcompetitors.In2016,onebankentered themarketthroughanacquisitionandacreditunionenteredthemarketdenovothrough theestablishmentof abranch.Further,athriftestablishedanadditionalbranchinthe marketinApril2017. LawrenceCounty,Tennessee,BankingMarket.Usinginitialscreeningdata,FirstHorizon isthefourthlargestdepositoryorganizationintheLawrenceCountymarket,controlling approximately$67.2millionindeposits,whichrepresentapproximately11.3percentof marketdeposits.28CBFCisthesecondlargestdepositoryorganizationintheLawrence Countymarket,controllingapproximately$87.8millionindeposits,whichrepresent approximately14.8percentof marketdeposits.Onconsummation,FirstHorizonwould becomethesecondlargestdepositoryorganizationintheLawrenceCountymarket, controllingapproximately$154.9millioninmarketdeposits,whichwouldrepresent approximately26.1percentof marketdeposits.TheHHIinthismarketwouldincreaseby 334points,from1750to2084. Thecompetitiveeffectsof theproposalinthismarketaremitigatedbyseveralfactorsthat indicatethattheincreaseinconcentrationintheLawrenceCountymarket,asmeasuredby theaboveHHI,overstatesthepotentialcompetitiveeffectsof theproposalinthemarket.A creditunionexertsacompetitiveinfluenceintheLawrenceCountymarket.Thisinstitutionoffersawiderangeof consumerbankingproducts,operatesstreet-levelbranches,and hasbroadmembershipcriteriathatincludealmostallof theresidentsinthemarket.Taking intoaccountthelimitedlendingdonebythiscredituniontosmallbusinessesrelativeto commercialbanks’lendinglevels,theBoardfindsthatthesecircumstanceswarrant includingthedepositsof thiscreditunionata50percentweightinestimatingmarket influence.Takingintoaccountthisadjustment,FirstHorizonwouldcontrolapproximately 25.4percentof marketdepositsuponconsummationof thetransaction,andtheHHI effectsof thetransactionwouldexceedtheDOJGuidelinesbyalesssignificantamount, withanincreaseof 317pointstoalevelof 1988.Sevenotherinsureddepositoryinstitutionswouldremaininthemarket,includingfourwithover10percentmarketshare,oneof whichwouldhave30.5percentmarketshare.Inaddition,recententryandexpansionary activitysuggeststhatthemarketisattractivetopotentialcompetitors.Onebankentered themarketdenovothisyearwiththeestablishmentof aloanproductionoffice. MorristownArea,Tennessee,BankingMarket.Basedoninitialscreeningdata,First HorizonisthelargestdepositoryorganizationintheMorristownareamarket,controlling approximately$228.8millionindeposits,whichrepresentapproximately23.7percentof marketdeposits.29CBFCisthesixthlargestdepositoryorganizationintheMorristown 26 Thisanalysisassumesthatbothbranchesaredivestedtoanout-of-marketfirm.Anypotentialpurchasermust bedeemedcompetitivelysuitablebytheBoard. 27 AnalysisoftheGreeneCountymarketusingavailabledataonsmallbusinesslendingresultsinanHHIreflectiveofahighlyconcentratedmarket,buttheincreaseintheHHIfollowingthemergerwouldbeminimal. 28 TheLawrenceCountymarketisdefinedasLawrenceCounty,Tennessee. 29 TheMorristownmarketisdefinedasHamblenCounty,easternGraingerCounty,andnorthernJefferson County,allinTennessee.

LegalDevelopments:FourthQuarter,2017 29 areamarket,controllingapproximately$61.9millionindeposits,whichrepresentapproximately6.4percentof marketdeposits.Onconsummation,FirstHorizonwouldremainthe largestdepositoryorganizationintheMorristownareamarket,controllingapproximately $290.8millioninmarketdeposits,whichwouldrepresentapproximately30.1percentof marketdeposits.TheHHIinthismarketwouldincreaseby303points,from1540to1843. FactorsindicatethattheincreaseinconcentrationintheMorristownareamarket,asmeasuredbytheaboveHHIandmarketshare,overstatesthepotentialcompetitiveeffectsof the proposalinthemarket.Inparticular,fourcreditunionsexertacompetitiveinfluenceinthe Morristownareamarket.Theseinstitutionsofferawiderangeof consumerbanking products,operatestreet-levelbranches,andhavebroadmembershipcriteriathatinclude almostallof theresidentsinthemarket.TheBoardfindsthatthesecircumstanceswarrant includingthedepositsof thesecreditunionsata50-percentweightinestimatingmarket influence.Thisweightingtakesintoaccountthelimitedlendingdonebythesecreditunions tosmallbusinessesrelativetocommercialbanks’lendinglevels.Adjustingtoreflect competitionbythesecreditunions,themarketconcentrationlevelintheMorristownarea marketasmeasuredbytheHHIwouldincreaseby214points,fromalevelof 1183to1397, themarketshareof FirstHorizonresultingfromthetransactionwouldbe25.3percent, andnumerouscompetitorswouldremain. ConclusionRegardingCompetitiveEffects TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposal,withtheproposeddivestitureof branchesintheGreeneCountymarket,wouldnotlikelyhaveasignificantlyadverse effectoncompetitioninanyrelevantbankingmarket,includingtheaforementioned markets.Inaddition,theappropriatebankingagencieshavebeenaffordedanopportunity tocommentandhavenotobjectedtotheproposal. Basedonthefactsof record,includingtheproposeddivestiturecommitments,theBoard concludesthatconsummationof theproposalwouldnothaveasignificantlyadverseeffect oncompetitionorontheconcentrationof resourcesinanyof the11bankingmarketsin whichFirstHorizonandCBFCcompetedirectlyorinanyotherrelevantbankingmarket. Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistentwith approval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCAct,theBoardconsidersthefinancial andmanagerialresourcesandthefutureprospectsof theinstitutionsinvolved.30Inits evaluationof financialfactors,theBoardreviewsinformationregardingthefinancial conditionof theorganizationsinvolvedonbothparent-onlyandconsolidatedbases,as wellasinformationregardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.Inthisevaluation,the Boardconsidersavarietyof informationregardingcapitaladequacy,assetquality, liquidity,andearningsperformance,aswellaspubliccommentsontheproposal.The Boardevaluatesthefinancialconditionof thecombinedorganization,includingitscapital position,assetquality,liquidity,earningsprospects,andtheimpactof theproposed fundingof thetransaction.TheBoardalsoconsiderstheabilityof theorganizationto absorbthecostsof theproposalandtocompleteeffectivelytheproposedintegrationof the operationsof theinstitutions.Inassessingfinancialfactors,theBoardconsiderscapital 30 12U.S.C.§1842(c)(2),(5),and(6).

30 FederalReserveBulletin|February2018 adequacytobeespeciallyimportant.TheBoardconsidersthefutureprospectsof theorganizationsinvolvedintheproposalinlightof theirfinancialandmanagerialresourcesand theproposedbusinessplan. FirstHorizonandCBFCarebothwellcapitalized,andthecombinedorganizationwould remainsoonconsummationof theproposal.Theproposedtransactionisabankholding companymergerthatisstructuredasacashandshareexchange,withasubsequentmerger of thesubsidiarydepositoryinstitutions.31Theassetquality,earnings,andliquidityof bothFirstTennesseeBankandCapitalBankareconsistentwithapproval,andFirst Horizonappearstohaveadequateresourcestoabsorbtherelatedcostsof theproposaland tocompletetheintegrationof theinstitutions’operations.Inaddition,thefutureprospectsof theinstitutionsundertheproposalareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of FirstHorizon,CBFC,andtheirsubsidiarydepositoryinstitutions,includingassessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition,the BoardhasconsideredinformationprovidedbyFirstHorizon;theBoard’ssupervisory experiencesandthoseof otherrelevantbanksupervisoryagencieswiththeorganizations; theorganizations’recordsof compliancewithapplicablebanking,consumerprotection, andanti-money-launderinglaws;andinformationprovidedbythecommenters. FirstHorizon,CBFC,andtheirsubsidiarydepositoryinstitutionsareeachconsideredto bewellmanaged.FirstHorizonhasarecordof successfullyintegratingorganizationsinto itsoperationsandrisk-managementsystemsafteracquisitions.Thedirectorsandsenior executiveofficersof FirstHorizonhavesubstantialknowledgeof andexperienceinthe bankingandfinancialservicessectors,andFirstHorizon’srisk-managementprogram appearsconsistentwithapprovalof thisexpansionaryproposal.32 TheBoardalsohasconsideredFirstHorizon’splansforimplementingtheproposal.First Horizonhasconductedcomprehensiveduediligenceandisdevotingsignificantfinancial andotherresourcestoaddressallaspectsof thepost-acquisitionintegrationprocessfor thisproposal.FirstHorizonwouldimplementitsrisk-managementpolicies,procedures, andcontrolsatthecombinedorganization,andtheseareconsideredacceptablefroma supervisoryperspective.Inaddition,FirstHorizon’smanagementhastheexperienceand resourcestoensurethatthecombinedorganizationoperatesinasafeandsoundmanner, andFirstHorizonplanstointegrateCBFC’sexistingmanagementandpersonnelina mannerthataugmentsFirstHorizon’smanagement.33 31 Aspartoftheproposedtransaction,eachshareofCBFCcommonstockwouldbeconvertedintoarightto receivecashorFirstHorizoncommonstock,oracombinationofthetwo,basedonafixedexchangeratio. FirstHorizonhasthefinancialresourcestofundthetransaction. 32 OnFebruary8,2017,theOCCenteredintoaconsentorderwithFirstTennesseeBankregardingunfairbilling practicesthattheOCCidentifiedrelatedtoanidentitytheftprotectionproductthatthebankofferedthrougha third-partyproviderfrom2000–2006.SeeFirstTennesseeBank,N.A.,OCCConsentOrderforaCivilMoney Penalty,No.2017-018and2017-015(February8,2017).TheBoardhasconsultedwiththeOCCregardingthis matter.TheOCCindicatedinFirstTennesseeBank’smostrecentCRAperformanceevaluationthatto remediate,thebankstrengtheneditsrisk-managementpoliciesandpractices,discontinuedtheproductaltogether,includingforexistingcustomers,anddevelopedaplantoreimbursefeespaidbyallcustomers.Further, theOCCreviewedinformationpertainingtothismatterandothermattersnotedinthebank’sCRAperformanceevaluationinconnectionwithitsreviewofFirstTennesseeBank’sapplicationtomergewithCapital Bank,anddidnotidentifyanyconcernsregardingsuchmattersthatwouldimpacttheproposedtransaction. LetterfromStephenA.Lybarger,DeputyComptrollerforDistrictLicensing,OCC,toJasonCabral,Esq., Sullivan&Cromwell(October16,2017)(“OCCLetterdatedOctober16,2017”). 33 Followingconsummationoftheproposedtransaction,twoCBFCdirectorswilljointheboardsofdirectorsof FirstHorizonandFirstTennesseeBank.

LegalDevelopments:FourthQuarter,2017 31 Basedonallof thefactsof record,includingFirstHorizon’ssupervisoryrecord,managerialandoperationalresources,andplansforoperatingthecombinedinstitutionafter consummation,theBoardconcludesthatconsiderationsrelatingtothefinancialand managerialresourcesandthefutureprospectsof theorganizationsinvolvedinthe proposal,aswellastherecordsof effectivenessof FirstHorizonandCBFCincombatting money-launderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCAct,theBoardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.34Initsevaluationof theeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thecommunitiestheyserve,aswellasotherpotentialeffectsof theproposalon theconvenienceandneedsof thecommunitiestobeserved.Inthisevaluation,theBoard placesparticularemphasisontherecordsof therelevantdepositoryinstitutionsunderthe CRA.TheCRArequiresthefederalfinancialsupervisoryagenciestoencourageinsured depositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesinwhichthey operate,consistentwiththeirsafeandsoundoperation,35andrequirestheappropriate federalfinancialsupervisoryagencytoassessadepositoryinstitution’srecordof helpingto meetthecreditneedsof itsentirecommunity,includinglow-andmoderate-income (“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.36 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideloan applicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainother characteristics.TheBoardalsoconsiderstheassessmentsof otherrelevantsupervisors,the supervisoryviewsof examiners,othersupervisoryinformation,informationprovidedby theapplicant,andcommentsreceivedontheproposal.TheBoardalsomayconsiderthe institution’sbusinessmodel,itsmarketingandoutreachplans,theorganization’splans followingconsummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallof thefactsof record,includingreportsof examinationof theCRAperformanceof First TennesseeBankandCapitalBank;thefairlendingandcompliancerecordsof bothbanks; thesupervisoryviewsof theOCC,theFederalDepositInsuranceCorporation(“FDIC”), andtheConsumerFinancialProtectionBureau(“CFPB”);confidentialsupervisory information;informationprovidedbyFirstHorizon;andthepubliccommentsreceivedon theproposal. PublicCommentsontheProposal TheBoardreceivedcommentsfromover20commenterssupportingtheproposal.The commentersarecharitableandcommunityorganizations,aswellasbusinesses,that describedbenefitsthatFirstHorizonhasprovidedtothecommunitiesthattheyserve. ThesecommentersdescribedvariousprojectsandpartnershipsbetweenFirstHorizonand communitygroupsthathavebenefitedthecommunity,includinginitiativesfocusedon enhancingeconomicmobility,financialservices,andhomeownershipforLMIindividuals. CommentersalsohighlightedFirstHorizon’ssupportfororganizationsthatprovidefinan- 34 12U.S.C.§1842(c)(2). 35 12U.S.C.§2901(b). 36 12U.S.C.§2903.

32 FederalReserveBulletin|February2018 cialeducationservicestoindividualsandcapitalaccesstounderservedbusinesses,aswellas anorganizationthatprovidesvarioussupportservicesfortheAfricanAmericancommunityintheWinston-Salem,NorthCarolina,area. OnecommenterobjectedtotheproposalbasedonallegedweaknessesintheCRAandfair lendingrecordsof FirstTennesseeBankandCapitalBank.Thecommenterallegedthat, basedondatareportedundertheHomeMortgageDisclosureActof 1975(“HMDA”)37 andFirstTennesseeBank’smostrecentCRAperformanceevaluation,FirstTennessee Bankhasdisplayedapoorrecordof lendingtoLMIindividualsandcommunities,particularlyinNorthCarolina.Thecommenteralsoallegedthat,throughoutitsfootprint,First TennesseeBankhadlowlevelsof lendingtoAfricanAmericanandHispanicborrowersin 2016andthatitsloanapplicationdenialrateswerehigherforsuchapplicantsthanfor whiteapplicants.38ThecommenteralsoallegedthatFirstTennesseeBankhasfailedto meetcommitmentsitmadeinitscurrentmulti-yearCRAplan,includinggoalsrelatedto lendingandmarketingtoLMIborrowersandinLMIgeographies,lendingtosmallbusinesses,communitydevelopmentactivities,andproductsandservicestailoredtoLMI borrowersandinLMIgeographies.39Thecommenterarguedthattheapplicationshould notbeapprovedabsentFirstHorizon’sdevelopmentof newplansandcommitmentsto addressallegedweaknessesinitsfairlendingandCRAprogramsandproductandservice offerings.40ThecommentercriticizedFirstTennesseeBankforitslevelof qualified communitydevelopmentinvestmentsinNorthCarolinaandarguedthatFirstTennessee Bank’scurrentinvestmentsarenotinnovative. ThecommenteralsoallegedthatCapitalBankhasaninconsistentrecordof lendingto LMIborrowersandinLMIareasandthatCapitalBankhasapoorrecordof lendingto 37 12U.S.C.§2801etseq. 38 ThecommenternotedthatinJanuary2016,FirstTennesseeBankenteredintoasettlementagreementwitha communityorganizationthathadsubmittedafairhousingcomplainttotheU.S.DepartmentofHousingand UrbanDevelopment(“HUD”)regardingallegationsthatthebankhadlowlevelsoflendingtoandhighlevels ofdenialsofAfricanAmericanandHispanicborrowersincertaingeographicareas.FirstHorizonrepresents thatthecomplainantsubmittedsubstantiallysimilarallegationstotheFederalReserveandOCCinconnection withFirstHorizon’sapplicationstoacquireTrustAtlanticFinancialCorporation(“TrustAtlantic”)andFirst TennesseeBank’sapplicationtomergewithTrustAtlanticBank,andthatFirstTennesseeBankvoluntarily settledthematter,whiledenyinganyviolationoflaw,toavoidalengthyandduplicativeinvestigationbyHUD. TheBoardapprovedtheTrustAtlanticacquisitiononSeptember17,2015,andtheOCCapprovedtherelated BankMergerActapplicationonSeptember16,2015.SeeFirstHorizonNationalCorporation,FRBOrder No.201524(September17,2015);FirstTennesseeBank,NationalAssociation,OCCCRADecisionNo.169 (September16,2015).InFirstTennessee’sCRAperformanceevaluationdatedFebruary23,2014,theOCC consideredthissettlementandevidenceofotherrelevantviolationsoflaw,andtheCRAratingwasnot loweredasaresultoftheevidenceofdiscriminatoryorotherillegalcreditpractices.TheOCCalsoreviewed informationpertainingtothismatterandothermattersnotedinthebank’sCRAperformanceevaluationin connectionwithitsreviewofFirstTennesseeBank’sapplicationtomergewithCapitalBank,anddidnotidentifyanyconcernsregardingsuchmattersthatwouldimpacttheproposedtransaction.SeeOCCLetterdated October16,2017. 39 ThecommenteralsomadesuggestionsregardingspecificproductsandservicesthatFirstTennesseeBank shouldofferandrecommendedotherchangestoFirstTennesseeBank’scurrentproductandserviceofferings. AlthoughtheBoardhasrecognizedthatbankscanhelptoservethebankingneedsofcommunitiesby makingcertainproductsorservicesavailableoncertaintermsoratcertainrates,theCRAneitherrequiresan institutiontoprovideanyspecifictypesofproductsorservicesnorprescribesthecostschargedforthem.See, e.g.,PacWestBancorp,102FederalReserveBulletin82,88n.24(2015). 40 TheBoardhasconsistentlyfoundthatneithertheCRAnorthefederalbankingagencies’CRAregulations requiredepositoryinstitutionstomakepledgesorenterintocommitmentsoragreementswithanyorganization.See,e.g.,UnitedBancshares,Inc.,FRBOrderNo.2017-10at12n.28(April6,2017);Huntington BancsharesInc.,FRBOrderNo.2016-13at32n.50(July29,2016);CITGroup,Inc.,FRBOrderNo.2015-20 at24n.54(July19,2015);CitigroupInc.,88FederalReserveBulletin485(2002);FifthThirdBancorp,80Federal ReserveBulletin838,841(1994).Initsevaluation,theBoardreviewstheexistingCRAperformancerecordof anapplicantandtheprogramsthattheapplicanthasinplacetoservethecreditneedsofitsCRAassessment areas(“AAs”).

LegalDevelopments:FourthQuarter,2017 33 AfricanAmericanandHispanicborrowers.41Thecommenterwasparticularlycriticalof CapitalBank’slendingperformanceinNorthCarolina.Thecommenterfurtheralleged thatCapitalBank’scurrentcommunitydevelopmentinvestmentsarenotinnovativeor creative. Businessesof theInvolvedInstitutionsandResponsetotheAdverseComment FirstHorizonprovidesadiversifiedrangeof financialservices,primarilythroughitsprincipalsubsidiary,FirstTennesseeBank,whichoperatesthroughabranchnetworkin Florida,Georgia,Mississippi,NorthCarolina,SouthCarolina,Tennessee,Texas,and Virginia.ServicesprovidedbyFirstHorizonincludegeneralbankingservicesfor consumers,businesses,financialinstitutions,andgovernments;fixedincomesalesand trading;underwritingof bank-eligiblesecurities;loansales;investmentandfinancialadvisoryservices;creditcardproducts;equipmentfinanceservices;andretailinsurancesales. CBFCistheholdingcompanyof CapitalBank,whichisafull-servicebankofferinga rangeof consumerandcommercialproductsandservices.CapitalBankoffersavarietyof commercialloanproducts;residentialmortgageloans;investment,trust,andcashmanagementproductsandservicestosmallandmedium-sizebusinessesandindividuals;anda rangeof depositproducts.Itofferssuchproductsandservicesthroughbranchesin Florida,NorthCarolina,SouthCarolina,Tennessee,andVirginia. Inresponsetothecommenter’sallegations,FirstHorizonassertsthatFirstTennessee Bank’sCRAperformanceanditsrecordandeffortssinceitslastCRAevaluationmerit approvalof theapplication.FirstHorizonrepresentsthatFirstTennesseeBankhasbeen andremainshighlycommittedtomeetingtheneedsof allcustomers,includingLMIand minorityindividuals.Inthisregard,FirstHorizonnotesthatFirstTennesseeBankoffersa varietyof loananddepositproductsandotherservicesdesignedtomeettheneedsof its community,anditsproductsandservicesareequallyavailableacrossitsfootprint.First HorizonassertsthatFirstTennesseeBankhaslaunchedcertainproductsthataretargeted towardLMIandminorityindividuals,includinganaffordablelendingproductthat expandseligibilityforfinancinghomesinlow-incomecommunities.FirstHorizonasserts thatFirstTennesseeBankhashiredfivefull-timecommunitydevelopmentmanagersinits majormarkets,whoaretaskedwithbuildingrelationshipsandestablishingpartnerships withnon-profits,affordablehousingproviders,andcommunitydevelopmentorganizations. AccordingtoFirstHorizon,thecommunitydevelopmentmanagerswillalsoworkwith communitygroupstopromotenewcreditproductopportunitiesforLMIandminority borrowers. FirstHorizonfurtherrepresentsthatFirstTennesseeBank’scommitmenttothecommunitiesitserveshasbeenenhancedinrecentyearswiththedevelopmentof acomprehensive multi-yearCRAplan.FirstHorizonnotesthatthisplanwasrequiredbyandpresentedto theOCC,andthattheOCChadnoobjectiontoimplementationof theplanaswritten.42 FirstHorizonrepresentsthatthisplanreflectsmeasurableCRAlending,investment,and 41 ThecommenterfocusedonCapitalBank’slendingperformancetoLMIindividualsandareasintheRaleigh andAsheville,NorthCarolina,marketsandthebank’slendingperformancetoAfricanAmericanand HispanicborrowersinNorthCarolinaandFlorida,basedonHMDAdatareportedfor2016. 42 InconnectionwithitsapprovalofFirstTennesseeBank’sapplicationtomergewithTrustAtlanticBankin 2015,theOCCrequiredFirstTennesseeBanktodevelopaCRAPlantoaddresscertainCRAperformance weaknessesthattheOCCidentifiedatthetime.SeeLetterfromStephenA.Lybarger,DeputyComptrollerfor DistrictLicensing,OCC,toJackiePrester,Baker,Donelson,Bearman,Caldwell&Berkowitz,PC (September16,2015);FirstHorizonNationalCorporation,FRBOrderNo.2015-24,23-24(September27, 2015).Asdiscussedinmoredetailbelow,theBoardhasconsultedwiththeOCCregardingitsviewsofFirst TennesseeBank’sCRAperformancesinceitslastCRAevaluation.

34 FederalReserveBulletin|February2018 servicecommitmentsforFirstTennesseeBankacrossitsCRAAAs.FirstHorizondenies thecommenter’sallegationthatFirstTennesseeBankisnotinapositiontomeetitsgoals underthisCRAplanandassertsthatFirstTennesseeBankhasalreadymetorexceededthe majorityof itscommitmentsunderitsCRAplanandthatitsremainingcommitmentsare ontrackforcompletionbytheendof 2017. Inresponsetothecommenter’sconcernsregardingCapitalBank’sCRAandfairlending record,FirstHorizonnotesthatCapitalBankreceivedanoverallCRAratingof “Satisfactory”initsmostrecentCRAevaluationandthatCapitalBank’sratingontheLendingTest was“HighSatisfactory.”FirstHorizonrepresentsthatCapitalBankestablishesCRA lending,investment,andservicesbenchmarks,aswellasminoritylendingbenchmarks,and thatCapitalBankactivelymonitorsitsprogressinattainingthesebenchmarksandreports thesefindingstoseniormanagementanditsboardof directorsonaregularbasis.First HorizonrepresentsthatCapitalBanklaunchedamultifacetedoutreacheffortthisyearin ordertoattractminorityapplicants.Thiseffortincludedtargetedproductmailingsto prospectiveapplicantsandongoingcontactwithapplicablebusinessesandnonprofitorganizations.Further,FirstHorizonassertsthatCapitalBankhasmadeeffortstorecruitand retainadiverseteamof mortgageloanoriginatorswithanestablishedrecordof servingthe creditneedsof LMIandminorityindividualsthroughoutthebank’sfootprint. FirstHorizondeniesthecommenter’sallegationsthatCapitalBankhasfairlendingshortcomings.FirstHorizonrepresentsthatCapitalBankperformsfairlendingriskassessments annuallyandthatCapitalBank’sresidentialmortgagelendingactivityisthoroughly analyzedandreviewedusingstatisticalandregressionanalysis,supplementedbyadditional dataqualityreviews.FirstHorizonacknowledgesthataviolationof RegulationB43was identifiedbytheFDICinCapitalBank’s2016CRAevaluation.However,FirstHorizon notesthatexaminersstatedthattheviolationwaslimitedtoasingleloanproductthathas sincebeendiscontinuedandthatCapitalBankimmediatelyimplementedchangesto policies,procedures,trainingprograms,internalassessments,andotherpracticestoprevent futurediscriminatoryorotherillegalcreditpractices. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardconsiders substantialinformationinadditiontoinformationprovidedbypubliccommentersandthe responsetocommentsbytheapplicant.Inparticular,theBoardevaluatesaninstitution’s performancerecordinlightof examinationsbytheappropriatefederalsupervisorsof the CRAperformancerecordsof therelevantinstitutions,aswellasinformationandviews providedbytheappropriatefederalsupervisors.44Inthiscase,theBoardconsideredthe supervisoryviewsof theOCC,FDIC,andCFPB. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.45Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. 43 12CFR1002. 44 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81Fed.Reg.48506,48548 (July25,2016). 45 12U.S.C.§2906.

LegalDevelopments:FourthQuarter,2017 35 Ingeneral,federalfinancialsupervisorsapplylending,investment,andserviceteststo evaluatetheperformanceof alargeinsureddepositoryinstitutioninhelpingtomeetthe creditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’shomemortgage,smallbusiness,smallfarm,andcommunitydevelopmentlendingto determinewhethertheinstitutionishelpingtomeetthecreditneedsof individualsand geographiesof allincomelevels.Aspartof thelendingtest,examinersreviewandanalyze aninstitution’sHMDAdata,inadditiontosmallbusiness,smallfarm,andcommunity developmentloandatacollectedandreportedundertheCRAregulations,toassessan institution’slendingactivitieswithrespecttoborrowersandgeographiesof different incomelevels.Theinstitution’slendingperformanceisbasedonavarietyof factors, including(1)thenumberandamountsof homemortgage,smallbusiness,smallfarm,and consumerloans(asapplicable)intheinstitution’sAAs;(2)thegeographicdistributionof theinstitution’slending,includingtheproportionanddispersionof theinstitution’s lendinginitsAAsandthenumberandamountsof loansinlow-,moderate-,middle-,and upper-incomegeographies;(3)thedistributionof loansbasedonborrowercharacteristics,including,forhomemortgageloans,thenumberandamountsof loanstolow-, moderate-,middle-,andupper-incomeindividuals;46(4)theinstitution’scommunitydevelopmentlending,includingthenumberandamountsof communitydevelopmentloans andtheircomplexityandinnovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpracticestoaddressthecreditneedsof LMIindividualsandgeographies. TheBoardisconcernedwhenHMDAdatareflectdisparitiesintheratesof loanapplications,originations,anddenialsamongmembersof differentracialorethnicgroupsinlocal areas.Thesetypesof disparitiesmayindicateweaknessesintheadequacyof policiesand programsataninstitutionformeetingitsobligationstoextendcreditfairly.However,other informationcriticaltoaninstitution’screditdecisionsisnotavailablefromHMDAdata.47 Consequently,HMDAdatadisparitiesmustbeevaluatedinthecontextof otherinformationregardingthelendingrecordof aninstitution. CRAPerformanceof FirstTennesseeBank FirstTennesseeBankwasassignedanoverall“Satisfactory”ratingbytheOCCatitsmost recentCRAperformanceevaluation,asof April7,2014(“FirstTennesseeBankEvaluation”).48FirstTennesseeBankreceived“HighSatisfactory”ratingsfortheLendingTest, theInvestmentTest,andtheServiceTest.Forthestateof NorthCarolina,anareaof particularconcerntothecommenter,FirstTennesseeBankhadaCRAratingof “Satisfactory.” ExaminersfoundthatFirstTennesseeBankoriginatedasignificantmajorityof itsloans insideitsAAsandthatthebank’slendingactivitywasadequate.Examinersfoundthat 46 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3). 47 Otherinformationrelevanttocreditdecisionscouldincludecredithistory,debt-to-incomeratio,andloan-tovalueratio.Accordingly,whenconductingfairlendingexaminations,examinersanalyzesuchadditionalinformationbeforereachingadeterminationregardinganinstitution’scompliancewithfairlendinglaws. 48 TheFirstTennesseeBankEvaluationwasconductedusingLargeInstitutionCRAExaminationProcedures. ExaminersreviewedHDMAandsmallbusinessloansoriginatedfromJanuary1,2010,throughDecember31, 2013.Theevaluationperiodforcommunitydevelopmentloans,investments,andserviceswasfromJanuary11, 2010,throughApril7,2014.Asoftheevaluationdate,thebank’sAAsincludedpartsofGeorgia,Mississippi, NorthCarolina,andTennessee.Examinersconductedfull-scopereviewsinatleastoneAAineachstate wherethebankhadafinancialcenter.Examinersalsoconductedfull-scopereviewsintwoMultistateMetropolitanStatisticalAreas(“MMSAs”)wherethebankoperatedbranchesinatleasttwostateswithinthe MMSA:theMemphis,Tennessee-Mississippi-Arkansas,MMSAandtheChattanooga,Tennessee-Georgia, MMSA.

36 FederalReserveBulletin|February2018 FirstTennesseeBank’sgeographicdistributionof loanswasadequate,notingthatitsexcellentgeographicdistributionof smallloanstobusinesseswasoffsetbypoorgeographic distributionof homemortgageloans.Overall,examinersfoundthatthedistributionof loansbyincomelevelof theborrowerwaspoor,asthebank’sdistributionof homemortgageloansbyincomelevelof theborrowerwasfoundtobeadequate,butdistributionof loanstobusinesseswithdifferentrevenuesizeswasfoundtobeverypoor.Examiners explainedthatthebank’scommunitydevelopmentlendinghadasignificantlypositive impactontheLendingTestinallratingareasandthebank’scommunitydevelopment loanssupportedaffordablehousinginitiatives,activitiesthatpromotedeconomicdevelopmentwithinthebank’sAAs,activitiesthatrevitalizedorstabilizedLMIcensustracts, andoperationalactivitiesof organizationsthatprovideservicestoLMIindividualsand families.ExaminersfoundthatFirstTennesseeBank’slevelof communitydevelopment lendingelevateditsotherwiseadequatelendingperformancetogood. InNorthCarolina,examinersnotedthatFirstTennesseeBank’shomemortgageandsmall businesslendingactivitywasadequateandthatitscommunitydevelopmentloanperformanceandcommunitydevelopmentlendinglevelsweregood.Thebank’soverall geographicdistributionandborrowerincomedistributionwerefoundtobeverypoor.49 Examinersnoted,however,thatthebankhadaverylimitedpresenceinNorthCarolina, withonlytwofull-servicebranches,oneof whichwaslimitedtowealthmanagementand commercialbanking.Examinersalsoexplainedthatthebankingindustryinthestatewas verycompetitiveandnotedthattherewasalowlevelof owner-occupiedunitsandahigh levelof rentalunitsintheWinston-SalemMSAAA,theAAgiventhemostweightinthe evaluationof FirstTennesseeBank’sperformanceinNorthCarolina. ExaminersfoundthatFirstTennesseeBankhadagoodlevelof qualifiedcommunitydevelopmentinvestmentsthatwerehighlyresponsivetoidentifiedcommunitydevelopment needs.ExaminersnotedthatthecommunityneedssupportedbyFirstTennesseeBank’s investmentsincludedaffordablehousing,economicdevelopment,andservicestargeting LMIindividuals.InNorthCarolina,FirstTennesseeBankwasrated“HighSatisfactory” fortheInvestmentTest,andexaminersfoundthatFirstTennesseeBankhadagoodlevelof communitydevelopmentinvestmentsthatreflectedahighlevelof responsivenesstoidentifiedcommunitydevelopmentneeds.Examinersnotedthatthebank’sinvestmentshelped variousnonprofitorganizationsinNorthCarolinafundtheircommunitydevelopment programsandcontinuetoprovideservicestargetedtoLMIindividualsandfamilies. ExaminersfoundthatFirstTennesseeBank’sbrancheswereaccessibletogeographiesand individualsof differentincomelevelsandthatFirstTennesseeBankprovidedanexcellent levelof communitydevelopmentservicesthatwerehighlyresponsivetoidentifiedcommunitydevelopmentneedsinthebank’sAAs.Communitydevelopmentservicesnotedby examinersinvariousAAsincludedservicestoorganizationswithafocusonservingLMI individuals,promotingeconomicdevelopment,andrevitalizingandstabilizingAAs.In NorthCarolina,examinersfoundthatFirstTennesseeBank’soveralllevelof community developmentserviceperformancewasexcellent,butthatFirstTennesseeBankhada branchdistributionthatwasaccessibletolimitedportionsof itsAA. Examinersnotedthattheyconsideredevidenceof discriminatoryorotherillegalcredit practicesinratingFirstTennesseeBank’sCRAperformanceandthatthebank’sCRA performanceratingwasnotloweredasaresultof theirfindings.Inmakingthisdetermination,examinersconsideredthenature,extent,andstrengthof theevidenceof theprac- 49 ExaminersnotedthattheyanalyzedFirstTennesseeBank’shomemortgageandsmallbusinesslendingactivity toidentifyanygapsingeographicdistributionofloansanddidnotidentifyanyunexplainedconspicuousgaps.

LegalDevelopments:FourthQuarter,2017 37 tices;theextenttowhichtheinstitutionhadpoliciesandproceduresinplacetopreventthe practices;theextenttowhichtheinstitutionhadtakenorhadcommittedtotakecorrectiveaction,includingvoluntarycorrectiveactionresultingfromself-assessment;andother relevantinformation.50 FirstTennesseeBank’sActivitiessincetheFirstTennesseeBankEvaluation FirstHorizonassertsthat,sincetheFirstTennesseeBankEvaluation,FirstTennessee Bankhasbeenveryactivewithlending,investment,andserviceactivitiesthatpromote communitydevelopmentandthegoalsandobjectivesof theCRA.FirstHorizonrepresentsthatFirstTennesseeBankhasbeenworkingtoincreaseitshomemortgagelendingto LMItractsandindividuals,aswellassmallbusinessesinLMItracts.Thebank’sefforts includethedevelopmentof anaffordablemortgageproductdesignedtoservetheneedsof LMIhomebuyers;utilizationof theLenderLivemortgageplatform,whichallowsaccessto FannieMaeandFreddieMacaffordablemortgageoptions;andcontinuingsupportto organizationsthatarefundingsmallbusinesses. Inaddition,FirstHorizonrepresentsthatFirstTennesseeBankhasmadevariouscommunitydevelopmentloansthatareresponsivetocommunitydevelopmentandcreditneeds. AccordingtoFirstHorizon,suchloanshavesupportedaffordablehousingforLMIindividuals;communityservicestargetedtoLMIindividuals;economicdevelopmentthrough thefinancingof smallbusinessesthatresultedinpermanentjobcreationand/orretention; revitalizationof LMIcensustractsorotherqualifiedgeographies;andneighborhoodstabilizationprojectstostimulategrowth,stability,andinvestmentindistressedareas.Further, FirstHorizonrepresentsthatFirstTennesseeBankhascontinuedtosupportitscommunitiesthroughahighlyactivevolunteerprogramandhasmadeanumberof qualifiedgrants targetedtocommunityneeds,includingthroughacommunitydevelopmentfundthatit establishedtosupportagenciesservingLMIcommunitiesandindividuals.FirstHorizon alsorepresentsthatFirstTennesseeBankhasestablishedapartnershipwithanational nonprofitorganization,themissionof whichistostrengthentheeconomybyempowering individualsearninglessthan$50,000ayear.FirstHorizonrepresentsthat,throughthis partnership,FirstTennesseeBankhasassistedthousandsof individualswithfinancial educationandcounseling,includingthroughtheplacementof certifiedfinancialcounselorsinthebank’sbranchestoprovidecreditcounseling,budgeting,andotherfinancial empowermenttrainingtoindividuals. CRAPerformanceof CapitalBank CapitalBankwasassignedanoverallCRAratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheFDIC,asof February22,2016(“CapitalBankEvaluation”).51Thebankreceived“HighSatisfactory”ratingsfortheLendingTestandthe InvestmentTestanda“LowSatisfactory”ratingfortheServiceTest. ExaminersfoundthatCapitalBank’slendinglevelsreflectedadequateresponsivenessto creditneedswithinitsAAsandthatahighpercentageof itsloansweremadewithinits 50 Asdiscussedabove,inmakingthisdetermination,OCCexaminersconsideredthefactsunderlyingthe 2016settlementagreementbetweenFirstTennesseeBankandacomplainanttoHUDthatwasofconcernto theadversecommenter. 51 TheCapitalBankEvaluationwasconductedusingLargeInstitutionCRAExaminationProcedures.Examiners reviewedloansreportedpursuanttoHMDAandtheCRAfromJanuary1,2011,throughOctober31,2015. TheevaluationperiodforcommunitydevelopmentinvestmentsandserviceswasfromJuly16,2010,through February22,2016.TheCapitalBankEvaluationincludedareviewoflendinginallofthebank’sAAs.Special weightwasgiventoAAsinwhichthebankconductedthemostlendinganddepositactivities,whichwere locatedprimarilyinNorthCarolinaandFlorida.

38 FederalReserveBulletin|February2018 AAs.Examinersfurtherfoundthatthegeographicdistributionof CapitalBank’sloans reflectedgoodpenetrationthroughoutitsAAs.ExaminersnotedthatCapitalBank’sdistributionof borrowersreflectedadequatepenetrationamongretailcustomersof different incomelevelsandbusinessesof differentsizes.Examinersfoundthattheinstitutionexhibitedanadequaterecordof servingthecreditneedsof themosteconomicallydisadvantaged areasof itsAAs,low-incomeindividuals,andverysmallbusinesses,consistentwithsafe andsoundbankingpractices.ExaminersstatedthatCapitalBankusedflexiblelending practicesinordertoservethecreditneedsof itsAAsandthatthebankmadearelatively highlevelof communitydevelopmentloans. InNorthCarolina,examinersfoundthatCapitalBank’slendinglevelsreflectedgood responsivenesstothecreditneedsof thebank’sAAs.Examinersnotedthatthegeographic distributionof CapitalBank’slendingreflectedgoodpenetration,andtheborrower distributionreflectedadequatepenetration,throughoutitsNorthCarolinaAAs.Forthe RaleighMetropolitanStatisticalAreaAA,52examinersnotedthatthebank’slevelof lendingreflectedadequateresponsivenesstotheAA’screditneeds,andthegeographic distributionof itslendingreflectedadequatepenetration,butthattheborrowerdistributionreflectedpoorpenetration.Examinersnotedthatthebankusedflexiblelendingpracticesandmadearelativelyhighlevelof communitydevelopmentloansinthisAA.For theAshevilleMetropolitanStatisticalAreaAA,53examinersfoundthatCapitalBank’s levelof lendingreflectedadequateresponsivenesstothecreditneedsof theAA.Examiners foundthatthebank’sgeographicdistributionof lendingintheAAreflectedgood penetration,butthattheborrowerdistributionreflectedpoorpenetration.Examiners notedthatthebankusedflexiblelendingpracticesandmadearelativelyhighlevelof communitydevelopmentloansintheAA. ExaminersfoundthatCapitalBankmadeasignificantlevelof qualifiedcommunitydevelopmentinvestmentsandgrants,occasionallyinaleadershipposition,particularlythose thatwerenotroutinelyprovidedbyprivateinvestors.Examinersfurthernotedthatthe bankexhibitedgoodresponsivenesstocreditandcommunityeconomicdevelopment needs,butthattheinstitutionrarelyusedinnovativeorcomplexinvestmentstosupport communitydevelopmentinitiatives. Examinersfoundthatthebank’sdeliverysystemswerereasonablyaccessibletoessentially allportionsof thebank’sAAs.Examinersalsofoundthat,totheextentchangeshad beenmade,theinstitution’srecordof openingandclosingbranchesgenerallyhadnot adverselyaffectedtheaccessibilityof itsdeliverysystems,particularlyinLMIgeographies ortoLMIindividuals,andthatservicesandbusinesshoursdidnotvaryinawaythat inconveniencedcertainportionsof theAAs,particularlyLMIgeographiesandindividuals. Examinersfurthernotedthatthebankprovidedanadequatelevelof communitydevelopmentserviceswithinitsAAs. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.FirstHorizonrepresentsthatthecombinedorganization,withitsgreatersize,capabilities,andbreadthof products,wouldbeabletooffera numberof servicesthatarenotcurrentlyavailabletocustomersof FirstTennesseeBank andCapitalBankasseparateentities.Inaddition,FirstHorizonassertsthatcurrent CapitalBankcustomerswouldgainaccesstoabroadersuiteof productsandservices, 52 TheRaleighMetropolitanStatisticalAreaAAconsistsofJohnstonandWakecountiesinNorthCarolina. 53 TheAshevilleMetropolitanStatisticalAreaAAconsistsofBuncombeandMadisoncountiesinNorth Carolina.

LegalDevelopments:FourthQuarter,2017 39 includinga“lifeline”checkingaccountforconsumerswhootherwisewouldnotbeableto qualifyforacheckingaccount,prepaidcards,financialplanningandinvestment managementservices,wealthadvisoryservices,afull-servicetrustdepartment,andmore dynamicdigitalandmobilebankingproducts.Moreover,FirstHorizonrepresentsthat customersof bothbankswouldbenefitfromanexpandedbranchandATMnetwork.First Horizonalsorepresentsthat,followingconsummationof theproposedtransaction,First TennesseeBankwouldincreaseitssupportforLMIindividualsandgeographiesacross CapitalBank’sfootprintbyincreasingitscontributionstoFirstTennesseeBank’scommunitydevelopmentfund.FirstHorizonalsowouldexpanditspartnershipwithanational nonprofitorganizationthatprovidesfinancialcounselinginFirstTennesseeBank branches. AdditionalSupervisoryViews Initsreviewof theproposal,theBoardconsultedwiththeOCCregardingFirstTennessee Bank’sCRA,consumercompliance,andfairlendingrecords.TheOCCreviewedthe bankmergerunderlyingthisproposal,includingthecommentsreceivedbytheBoard.The Boardhasalsoconsideredtheresultsof themostrecentconsumercomplianceexamination of FirstTennesseeBankconductedbyOCCexaminers. TheBoardalsoconsultedwiththeFDIC,theprimarysupervisorof CapitalBank, regardingCapitalBank’sCRA,consumercompliance,andfairlendingrecords.TheBoard consideredtheresultsof arecentconsumercomplianceexaminationof CapitalBank conductedbytheFDIC,whichincludedareviewof thebank’scompliancemanagement system,particularlywithrespecttoareasexhibitingthepotentialriskforconsumerharm. Examinersalsoconductedtransactiontestingandconductedafairlendingreview. TheBoardalsoconsultedwiththeCFPBregardingFirstTennesseeBank’sconsumer compliancerecord. TheBoardhastakentheconsultationswiththeOCC,FDIC,andCFPB,andtheinformationdiscussedabove,intoaccountinevaluatingtheproposedtransaction,includingin consideringwhetherFirstHorizonhastheexperienceandresourcestoensurethatthe organizationeffectivelyimplementspoliciesandprogramsthatwouldallowthecombined organizationtoserveeffectivelythecreditneedsof allthecommunitieswithinthe firm’sAAs. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws,supervisoryviewsof theOCC,FDICand CFPB,confidentialsupervisoryinformation,informationprovidedbyFirstHorizon,the publiccommentsontheproposal,andotherpotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.Basedonthatreview,theBoard concludesthattheconvenienceandneedsfactorisconsistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedsection3of theBHCActtorequiretheBoardtoconsider“theextenttowhicha

40 FederalReserveBulletin|February2018 proposedacquisition,merger,orconsolidationwouldresultingreaterrisktothestability of theUnitedStatesbankingorfinancialsystem.”54 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the resultingfirm.55Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.56 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.57 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthatisgreater than$10billioninassetsbutaproformaorganizationof lessthan$100billioninassets. Boththeacquirerandthetargetarepredominatelyengagedinretailandcommercial bankingactivities.58Theproformaorganizationwouldhaveminimalcross-borderactivitiesandwouldnotexhibitanorganizationalstructure,complexinterrelationships,or uniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financial distress.Inaddition,theorganizationwouldnotbeacriticalservicesproviderorsointerconnectedwithotherfirmsorthemarketsthatitwouldposesignificantrisktothefinancialsystemintheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. 54 Dodd-FrankAct§604(d),Pub.L.No.111-203,124Stat.1376,1601(2010),codifiedat12U.S.C.§1842(c)(7). 55 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 56 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 57 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 58 Asdiscussedsupra,inthetextonpages19-20,FirstHorizonandCBFCofferabroadrangeofretail,andFirst Horizonoffersabroadrangeofcommercial,bankingproductsandservices.FirstHorizonhas,andasaresult oftheproposedtransactionwouldcontinuetohave,asmallmarketshareintheseproductsandservicesona nationwidebasis.

LegalDevelopments:FourthQuarter,2017 41 Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationshouldbe,andherebyis,approved.Inreachingitsconclusion,theBoardhasconsideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunderthe BHCActandotherapplicablestatutes.TheBoard’sapprovalisspecificallyconditionedon compliancebyFirstHorizonwithalltheconditionsimposedinthisorder,includingreceipt of allrequiredregulatoryapprovals,andonthecommitmentsmadetotheBoardin connectionwiththeapplication.Forpurposesof thisaction,theconditionsandcommitmentsaredeemedtobeconditionsimposedinwritingbytheBoardinconnectionwithits findingsanddecisionhereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardortheFederalReserveBankof St.Louis,actingunderdelegated authority. Byorderof theBoardof Governors,effectiveOctober30,2017. Votingforthisaction:ChairYellen,ViceChairmanforSupervisionQuarles,andGovernorsPowellandBrainard. AnnE.Misback Secretaryof theBoard

42 FederalReserveBulletin|February2018 Appendix FirstHorizon/CBFCBankingMarkets ConsistentwithBoardPrecedentandDOJBankMergerGuidelines Remaining Amountof MarketDeposit Bank Rank ResultingHHI ChangeinHHI Numberof Deposits Shares(%) Competitors JohnsonCity-Bristol,Tennessee-Virginia(“JohnsonCity-Bristol”)–includesCarter,Hawkins,Sullivan,Unicoi,andWashingtoncountiesin Tennessee;andtheindependentcityofBristol,ScottCounty,andtheTylerandWilsonCountysubdivisionsinWashingtonCounty,allinVirginia. FirstHorizonPre-Consummation 1 $1.11B 18.67 CBFC 10 $224.0M 3.77 FirstHorizonPost-Consummation 1 $1.33B 22.44 1028 141 30 Knoxville,Tennessee(“Knoxville”)–includesAnderson,Blount,Knox,Loudon,Morgan,Roane,andUnioncounties;GraingerCountyexcluding District5ineasternGraingerCounty;JeffersonCountyexcludingDistricts3,8,and9innorthernandeasternJeffersonCounty;andDistricts6 and9inwesternSevierCounty. FirstHorizonPre-Consummation 2 $2.72B 17.51 CBFC 16 $182.6M 1.18 FirstHorizonPost-Consummation 2 $2.90B 18.69 1073 41 43 Nashville,Tennessee(“Nashville”)–includesCheatham,Davidson,Dickson,Robertson,Rutherford,Sumner,Williamson,andWilsoncounties. FirstHorizonPre-Consummation 5 $3.27B 6.67 CBFC 14 $547.2M 1.12 FirstHorizonPost-Consummation 5 $3.82B 7.79 943 15 63 Raleigh,NorthCarolina(“Raleigh”)–includesFranklin,Granville,Johnston,Wake,andHarnettcountiesexcludingtheAndersonCreek Barbeque,Johnsonville,andStewartsCreektownshipsinHarnettCounty. FirstHorizonPre-Consummation 14 $399.3M 1.38 CBFC 8 $1.10B 3.82 FirstHorizonPost-Consummation 7 $1.50B 5.2 1281 11 32 Sevierville,Tennessee(“Sevierville”)–includesCockeCounty,District8ineasternJeffersonCounty,andSevierCountyexcludingDistricts6 and9inwesternSevierCounty. FirstHorizonPre-Consummation 8 $108.9M 4.49 CBFC 12 $28.0M 1.16 FirstHorizonPost-Consummation 6 $136.9M 5.65 1440 10 11 Winston-Salem,NorthCarolina(“Winston-Salem”)–includesDavie,Forsyth,Stokes,andYadkincounties. FirstHorizonPre-Consummation 12 $102.2M 0.3 CBFC 6 $419.8M 1.23 FirstHorizonPost-Consummation 6 $521.9M 1.52 6772 1 17 Charlotte,NorthCarolina-SouthCarolina(“Charlotte”)–includesAnson,Cabarrus,Gaston,Lincoln,Mecklenburg,andUnioncountiesinNorth Carolina;thecityofMooresvilleandthetownshipsofDavidsonandCoddleCreekinIredellCounty,NorthCarolina;thetownshipsofAtwelland ChinaGroveinRowanCounty,NorthCarolina;theKing’sMountaintownshipinClevelandCounty,NorthCarolina;andLancasterandYorkCounties inSouthCarolina. FirstHorizonPre-Consummation 41 <$0.1M 0 CBFC 12 $561.8M 0.28 FirstHorizonPost-Consummation 12 $561.8M 0.28 5894 0 41 Charleston,SouthCarolina(“Charleston”)–includesBerkeley,Charleston,andDorchestercounties,plusthesoutheasternportionofColleton County,locatedeastoftheSouthEdistoRiveronEdistoIsland. FirstHorizonPre-Consummation 28 $11.1M 0.09 CBFC 21 $40.8M 0.33 FirstHorizonPost-Consummation 21 $51.9M 0.42 1222 0 32 DataandrankingsareasofJune30,2016.Allrankings,marketdepositshares,andHHIsarebasedonthriftdepositsweightedat50percent. Theremainingnumberofcompetitorsnotedforeachmarketincludesthrifts,whereapplicable.

LegalDevelopments:FourthQuarter,2017 43 Southside Bancshares, Inc. Tyler, Texas OrderApprovingtheMergerof BankHoldingCompanies FRBOrderNo.2017-30(October30,2017) SouthsideBancshares,Inc.(“Southside”),Tyler,Texas,afinancialholdingcompanywithin themeaningof theBankHoldingCompanyActof 1956(“BHCAct”),1hasrequestedthe Board’sapprovalundersection3of theBHCAct2tomergewithDibollStateBancshares, Inc.(“Diboll”),andtherebyindirectlyacquireFirstBank&TrustEastTexas(“First Bank”),bothof Diboll,Texas.Followingtheproposedacquisition,FirstBankwouldbe mergedintoSouthside’ssubsidiarybank,SouthsideBank,Tyler,Texas.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(82FederalRegister33496(July20,2017)).4Thetimeforsubmitting commentshasexpired. Southside,withconsolidatedassetsof approximately$5.6billion,isthe192ndlargest insureddepositoryorganizationintheUnitedStates.5Southsidecontrolsapproximately $3.6billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.6Southside controlsSouthsideBank,whichoperatesonlyinTexas.Southsideisthe21stlargestinsured depositoryorganizationinTexas,controllingdepositsof approximately$3.6billion,which representlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthat state.7 Diboll,withassetsof approximately$993.8million,isthe729thlargestinsureddepository organizationintheUnitedStates,controllingapproximately$888millioninconsolidated deposits,whichrepresentlessthan1percentof thetotalamountof depositsof insured depositoryinstitutionsintheUnitedStates.DibollcontrolsFirstBank,whichoperates onlyinTexas.Dibollisthe76thlargestinsureddepositoryorganizationinTexas,controllingdepositsof approximately$867.3million,whichrepresentlessthan1percentof the totaldepositsof insureddepositoryinstitutionsinthatstate. Onconsummationof thisproposal,Southsidewouldbecomethe175thlargestinsured depositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $6.6billion,whichrepresentlessthan1percentof thetotalassetsof insureddepository institutionsintheUnitedStates.Southsidewouldcontrolconsolidateddepositsof approximately$4.5billion,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryorganizationsintheUnitedStates.Southsidewouldbecome the20thlargestinsureddepositoryorganizationinTexas,controllingdepositsof $4.5billion,whichrepresentlessthan1percentof thetotaldepositsof insureddepository institutionsinthatstate. 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 ThemergerofFirstBankintoSouthsideBankissubjecttoapprovaloftheFederalDepositInsuranceCorporation(“FDIC”),pursuanttosection18(c)oftheFederalDepositInsuranceAct.12U.S.C.§1828(c).The FDICapprovedthebankmergeronAugust25,2017. 4 12CFR262.3(b). 5 Nationalassetdata,marketshare,andrankingdataareasofJune30,2017,unlessotherwisenoted. 6 Inthiscontext,insureddepositoryinstitutionsincludecommercialbanks,creditunions,savingsandloanassociations,andsavingsbanks. 7 Stateassetdata,marketshare,andrankingdataareasofJune30,2016,unlessotherwisenoted.

44 FederalReserveBulletin|February2018 CompetitiveConsiderations Section3of theBHCActprohibitstheBoardfromapprovingaproposalthatwouldresult inamonopolyorwouldbeinfurtheranceof anattempttomonopolizethebusinessof bankinginanyrelevantmarket.8TheBHCActalsoprohibitstheBoardfromapprovinga proposalthatwouldsubstantiallylessencompetitionortendtocreateamonopolyinany bankingmarket,unlesstheanticompetitiveeffectsof theproposalareclearlyoutweighedin thepublicinterestbytheprobableeffectof theproposalinmeetingtheconvenienceand needsof thecommunitiestobeserved.9 SouthsideandDibollhavesubsidiarydepositoryinstitutionsthatcompetedirectlyinthe Tyler,Texas,bankingmarket(“Tylermarket”);10thePalestine,Texas,bankingmarket (“PalestineMarket”);11andtheLongview,Texas,bankingmarket(“LongviewMarket”).12 TheBoardhasconsideredthecompetitiveeffectsof theproposalinthesebankingmarkets. Inparticular,theBoardhasconsideredthenumberof competitorsthatwouldremainin themarkets;therelativeshareof totaldepositsininsureddepositoryinstitutionsinthe markets(“marketdeposits”)thatSouthsidewouldcontrol;13theconcentrationlevelsof marketdepositsandtheincreaseintheselevels,asmeasuredbytheHerfindahl-Hirschman Index(“HHI”)undertheDepartmentof JusticeBankMergerCompetitiveReviewguidelines(“DOJBankMergerGuidelines”);14andothercharacteristicsof themarket. BankingMarketsWithinEstablishedGuidelines.Consummationof theproposalwouldbe consistentwithBoardprecedentandwithinthethresholdsintheDOJBankMerger GuidelinesinthePalestineandLongviewbankingmarkets.15Onconsummationof the proposal,theLongviewmarketwouldremainunconcentrated,andthePalestinemarket wouldremainmoderatelyconcentrated.Ineachof thesebankingmarkets,numerous competitorswouldremain. BankingMarketWarrantingSpecialScrutiny.Thecompetitiveeffectsof theproposalin theTylermarketwarrantsadetailedreviewbecausetheproposalwouldresultinthe 8 12U.S.C.§1842(c)(1)(A). 9 12U.S.C.§1842(c)(1)(B). 10 TheTylermarketincludesSmithCounty;thesouthernportionofWoodCounty,includingthecitiesofAlba, Mineola,andHawkins;theeasternportionofVanZandtCounty,includingthecitiesofVanandBenWheeler; theeasternportionofHendersonCounty,includingthecitiesofBrownsboroandLarue;andthenorthwest portionofCherokeeCounty,includingthecityofMountSelman,allinTexas. 11 ThePalestinemarketincludesAndersonCounty,includingthecitiesofElkhart,Frankston,andPalestine,all inTexas. 12 TheLongviewmarketincludesGregg,Harrison,Marion,andUpshurcountiesandthenortherntwothirdsof RuskCounty,includingthecitiesofHendersonandNewLondon,allinTexas. 13 LocaldepositandmarketsharedataareasofJune30,2016,andarebasedoncalculationsinwhichthe depositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhasindicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorstocommercialbanks.See,e.g., MidwestFinancialGroup,75FederalReserveBulletin386(1989)andNationalCityCorporation,70Federal ReserveBulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsinthemarketsharecalculationona50percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserveBulletin52(1991). 14 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableatwww.justice.gov/opa/pr/ 2010/August/10-at-938.html. 15 Thesetwobankingmarketsandthecompetitiveeffectsoftheproposalinthesemarketsaredescribedin AppendixA.

LegalDevelopments:FourthQuarter,2017 45 marketdepositshareof Southsideexceeding35percentwhenusinginitialcompetitive screeningdata.SouthsideisthelargestdepositoryorganizationintheTylermarket, controllingdepositsof approximately$2.36billion,whichrepresentapproximately 35.98percentof marketdeposits.Dibollisthe22ndlargestdepositoryorganizationinthe market,controllingdepositsof approximately$24.5million,whichrepresentapproximately 0.37percentof marketdeposits.Onconsummationof theproposal,thecombinedentity wouldbethelargestdepositoryorganizationintheTylermarket,controllingdepositsof approximately$2.38billion,whichwouldrepresentapproximately36.35percentof market deposits.TheHHIinthemarketwouldincreaseby27points,from1,602to1,629. TheBoardhasconsideredwhetherotherfactorseithermitigatethecompetitiveeffectsof theproposalorindicatethattheproposalwouldnothaveasignificantlyadverseeffecton competitionintheTylermarket.16Factorsindicatethattheincreaseinconcentrationinthe Tylermarket,asmeasuredbymarketshare,overstatesthepotentialcompetitiveeffectsof theproposalinthemarket. TheBoardhasconsideredthecompetitiveinfluenceof sixcommunitycreditunionsinthe Tylermarket.Theinstitutionsofferawiderangeof consumerbankingproducts,operate streetlevelbranches,andhavebroadmembershipcriteriathatincludesalmostallof the residentsintherelevantbankingmarket.17TheBoardfindsthatthesecircumstances warrantincludingthedepositsof thesecreditunionsata50percentweightinestimating marketinfluence.Thisweightingtakesintoaccountthelimitedcommercialandindustrial lendingdonebythesecreditunionsrelativetocommercialbanks’lendinglevels. Inthiscase,adjustmentstoreflectcompetitionfromcreditunionsreducethemeasured concentrationlevelintheTylermarket.Specifically,afterconsummation,themarketshare of SouthsideintheTylermarketresultingfromthetransactionwoulddecreasefrom 36.35,theunadjustedpercentage,to35.23percent,theadjustedamount.TheHHIwould increaseby25from1,507to1,532. TheBoardhasalsoexaminedotheraspectsof thestructureof theTylermarketthatmitigatethecompetitiveeffectsof theproposalorindicatethattheproposalwouldnothavea significantlyadverseeffectoncompetitionintheTylermarket.Afterconsummationof the proposal,Southsidewouldfacecompetitionfrom28otherdepositoryinstitutionsinthe market,oneof whichwouldcontrolmorethan10percentof marketdepositsandtwoof whichwouldeachcontrolmorethan5percentof marketdeposits.Thepresenceof these viablecompetitorssuggeststhatSouthsidewouldhavelimitedabilitytounilaterallyoffer lessattractivetermstoconsumersandthatthesecompetitorsareabletoexertcompetitive pressureonSouthsideintheTylermarket.Thisconclusionissupportedinthiscasebyan analysisof privatepricingdata,whichindicatesthatSouthside’sfeesandinterestratesfor depositproductsintheTylermarketareclosetothemedianpricesof otherbanksinthe marketanddonotdeviatesubstantiallyfromSouthside’spricesinmarketswhere Southsideisnotthedominantfirm.Moreover,althoughSouthsidewouldcontinuetohold 16 Thenumberandstrengthoffactorsnecessarytomitigatethecompetitiveeffectsofaproposaldependonthe sizeoftheincreasein,andresultinglevelof,concentrationinabankingmarket.SeeNationsbankCorp., 84FederalReserveBulletin129(1998). 17 TheBoardpreviouslyhasconsideredcompetitionfromcertainactivecreditunionswiththesefeaturesasa mitigatingfactor.See,e.g.,ChemicalFinancialCorporation,FRBOrderNo.2015-13(April20,2015); MitsubishiUFJFinancialGroup,Inc.,FRBOrderNo.2012-12(November14,2012);OldNationalBancorp, FRBOrderNo.2012-9(August30,2012);UnitedBankshares,Inc.(orderdatedJune20,2011),97Federal ReserveBulletin19(2ndQuar.2011);ThePNCFinancialServicesGroup,Inc.,94FederalReserveBulletinC38 (2008);ThePNCFinancialServicesGroup,Inc.,93FederalReserveBulletinC65(2007);PassumpsicBancorp, 92FederalReserveBulletinC175(2006);andWachoviaCorporation,92FederalReserveBulletinC183(2006).

46 FederalReserveBulletin|February2018 adominatemarketshareposition,thechangeinmarketsharewouldbedeminimisandthe marketwouldremainmoderatelyconcentrated. ConclusionRegardingCompetitiveEffects TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket,includingthe Longview,Palestine,andTylermarkets.Inaddition,theappropriatebankingagencieshave beenaffordedanopportunitytocommentandhavenotobjectedtotheproposal. Basedonallof thefactsof record,particularlythestructureof therelevantmarketsand thenumberof remainingcompetitors,aswellastheotherfactorsdiscussedabove,the Boardconcludesthatconsummationof theproposalwouldnothaveasignificantlyadverse effectoncompetitionorontheconcentrationof resourcesintheLongview,Palestine,or Tylermarkets,orinanyotherrelevantbankingmarket.Accordingly,theBoarddetermines thatcompetitiveconsiderationsareconsistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCAct,theBoardconsidersthefinancial andmanagerialresourcesandthefutureprospectsof theinstitutionsinvolved.18Inits evaluationof thefinancialfactors,theBoardreviewsinformationregardingthefinancial conditionof theorganizationsinvolvedonbothparent-onlyandconsolidatedbases,as wellasinformationregardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.Inthisevaluation,the Boardconsidersavarietyof information,includingcapitaladequacy,assetquality, liquidity,andearningsperformance.TheBoardevaluatesthefinancialconditionof the combinedorganization,includingitscapitalposition,assetquality,liquidity,earningsprospects,andtheimpactof theproposedfundingof thetransaction.TheBoardalso considerstheabilityof theorganizationtoabsorbthecostsof theproposalandto completeeffectivelytheproposedintegrationof theoperationsof theinstitutions.In assessingfinancialfactors,theBoardconsiderscapitaladequacytobeespeciallyimportant. TheBoardconsidersthefutureprospectsof theorganizationsinvolvedintheproposalin lightof theirfinancialandmanagerialresourcesandtheproposedbusinessplan. SouthsideandDibollarebothwellcapitalized,andthecombinedentitywouldremainso onconsummationof theproposedtransaction.Theproposedtransactionisabank holdingcompanymerger,withasubsequentmergerof SouthsideBankandFirstBank.19 Theassetquality,earnings,andliquidityof bothSouthsideandDibollareconsistentwith approval,andSouthsideappearstohaveadequateresourcestoabsorbtherelatedcostsof theproposalandtocompleteintegrationof theinstitutions’operations.Inaddition,future prospectsof theinstitutionsundertheproposalareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords 18 12U.S.C.§§1842(c)(2),(5),and(6). 19 Toeffecttheholdingcompanymerger,awhollyownedsubsidiaryofSouthsideformedtofacilitatethetransactionwouldmergewithDiboll,withDibollasthesurvivingentity,andimmediatelythereafterDibollwould mergewithSouthside,withSouthsideasthesurvivingentity.UponconsummationofthemergerofDiboll withSouthside,eachshareofDibollcommonstockwouldbeexchangedforaportionoftheaggregatemerger consideration,whichwouldconsistofSouthsidecommonstockandcash.FirstBankwouldthenmergewith andintoSouthsideBank,withSouthsideBankasthesurvivingentity.Southsidehasthefinancialresourcesto effectthetransaction.

LegalDevelopments:FourthQuarter,2017 47 of Southside,Diboll,andtheirsubsidiarydepositoryinstitutions,includingassessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition,theBoardhas consideredinformationprovidedbySouthside;theBoard’ssupervisoryexperiencesand thoseof theFDICwiththeorganizations;andtheorganizations’recordsof compliance withapplicablebanking,consumerprotection,andanti-money-launderinglaws. Southside,Diboll,andtheirsubsidiarydepositoryinstitutionsareconsideredtobewell managed.Southside’sdirectorsandseniorexecutiveofficershaveknowledgeof andexperienceinthebankingandfinancialservicessectors,andSouthside’srisk-management programappearsconsistentwithapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredSouthside’splansforimplementingtheproposal.Southside hasconductedcomprehensiveduediligenceandisdevotingsignificantfinancialandother resourcestoaddressallaspectsof thepost-integrationprocessforthisproposal. Southsidewouldimplementitsrisk-managementpolicies,procedures,andcontrolsatthe combinedorganization,andtheseareconsideredacceptablefromasupervisoryperspective.Inaddition,Southside’smanagementhastheexperienceandresourcestooperatethe combinedorganizationinasafeandsoundmanner,andSouthsideplanstointegrate FirstBank’sexistingseniormanagementinamannerthataugmentsSouthsideBank’s management.20 Basedonallthefactsof record,includingthesupervisoryrecordsof Southside,Diboll, andtheirsubsidiarybanks,managerialandoperationalresources,andplansforoperating thecombinedinstitutionafterconsummation,theBoardconcludesthatconsiderations relatingtothefinancialandmanagerialresourcesandfutureprospectsof theorganizations involvedintheproposal,aswellastherecordsof effectivenessof SouthsideandDibollin combatingmoney-launderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCAct,theBoardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.21Initsevaluationof theeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thecommunitiestheyserve,aswellasotherpotentialeffectsof theproposalon theconvenienceandneedsof thecommunitiestobeserved.Inthisevaluation,theBoard placesparticularemphasisontherecordsof therelevantdepositoryinstitutionsunderthe CommunityReinvestmentAct(“CRA”).22TheCRArequiresthefederalfinancialsupervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeirsafeandsoundoperation,23andrequirestheappropriatefederalfinancialsupervisoryagencytoassessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof itsentirecommunity, includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.24 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandtheirrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideappli- 20 Onconsummation,twomemberscurrentlyontheboardofdirectorsofDibollwillbeappointedtotheboard ofSouthside. 21 12U.S.C.§1842(c)(2). 22 12U.S.C.§2901etseq.;12CFR225.13(b)(3). 23 12U.S.C.§2901(b). 24 12U.S.C.§2903.

48 FederalReserveBulletin|February2018 cantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,thesupervisoryviewsof examiners,othersupervisoryinformation,andinformationprovidedbythe applicant.TheBoardalsomayconsidertheinstitution’sbusinessmodel,itsmarketingand outreachplans,theorganization’splansafterconsummation,andanyotherinformation theBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof Southside BankandFirstBank,thefairlendingandcompliancerecordsof bothbanks,thesupervisoryviewsof theFDIC,confidentialsupervisoryinformation,andinformationprovided bySouthside. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardevaluates aninstitution’sperformancerecordinlightof examinationsbytheappropriatefederal supervisorsof theCRAperformanceof therelevantinstitutions,aswellasinformation andviewsprovidedbytheappropriatefederalsupervisors.25Inthiscase,theBoardconsideredthesupervisoryviewsof theFDIC. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.26Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplylending,investment,andserviceteststo evaluatetheperformanceof alargeinsureddepositoryinstitutioninhelpingtomeetthe creditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’shomemortgage,smallbusiness,smallfarm,andcommunitydevelopmentlendingto determinewhethertheinstitutionishelpingtomeetthecreditneedsof individualsand geographiesof allincomelevels.Aspartof thelendingtest,examinersreviewandanalyze aninstitution’sdatareportedundertheHomeMortgageDisclosureAct,27inadditionto smallbusiness,smallfarm,andcommunitydevelopmentloandatacollectedandreported undertheCRAregulations,toassessaninstitution’slendingactivitieswithrespectto borrowersandgeographiesof differentincomelevels.Theinstitution’slendingperformanceisbasedonavarietyof factors,including(1)thenumberandamountsof home mortgage,smallbusiness,smallfarm,andconsumerloans(asapplicable)intheinstitution’sassessmentareas(“AAs”);(2)thegeographicdistributionof theinstitution’slending, includingtheproportionanddispersionof theinstitution’slendinginitsAAsandthe numberandamountsof loansinlow-,moderate-,middle-,andupper-incomegeographies; (3)thedistributionof loansbasedonborrowercharacteristics,including,forhomemortgageloans,thenumberandamountsof loanstolow-,moderate-,middle-,andupper- 25 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48506, 48548(July25,2016). 26 12U.S.C.§2906. 27 12U.S.C.§2801etseq.

LegalDevelopments:FourthQuarter,2017 49 incomeindividuals;28(4)theinstitution’scommunitydevelopmentlending,includingthe numberandamountsof communitydevelopmentloansandtheircomplexityand innovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpracticesto addressthecreditneedsof LMIindividualsandgeographies.Intermediatesmallbanksare subjecttothelendingtest,aswellasacommunitydevelopmenttestthatevaluatesthe numberandamountsof theircommunitydevelopmentloansandqualifiedinvestments,the extenttowhichtheyprovidecommunitydevelopmentservices,andtheirresponsivenessto communitydevelopmentlending,investment,andserviceneeds.29 CRAPerformanceof SouthsideBank SouthsideBankwasassignedanoverallratingof “Outstanding”atitsmostrecentCRA performanceevaluationbytheFDIC,asof October19,2015(“SouthsideBankEvaluation”).30Thebankreceived“Outstanding”ratingsforeachof theInvestmentTestandthe ServiceTestanda“HighSatisfactory”ratingfortheLendingTest.SouthsideBank’s performanceintheTylerMSAAAwasweightedmostheavilybyexaminersduetothe levelof thebank’sactivityinthatarea. ExaminersconcludedthatSouthsideBank’sperformancedemonstratedanexcellent responsivenesstocreditneedsinitsassessmentareas.Inparticular,examinersfoundthat SouthsideBankexhibitedexcellentperformanceregardingthelevelof itslendingactivity, includinghomemortgageandsmallbusinesslending.Examinersnotedthata highpercentageof thebank’sloanswereoriginatedinsideitsAAs,includingthebank’s smallbusinessandhomemortgageloans.Examinersfurthernotedthat,basedon2013peer dataonlendingactivity,SouthsideBankrankedfirstamong54CRA-reportinginstitutionsintheTylerMSAAA. Examinersalsofoundthatthebankexhibitedanoverallgoodrecordof lendingto borrowersof differentincomeandrevenuelevels.Inreachingthisconclusion,examiners consideredthebank’sgoodrecordof lendingtosmallbusinessesof differentrevenuelevels tooffsetthebank’sadequaterecordof lendingtohomemortgageborrowersof different incomelevels.Examinersalsoconcludedthatthegeographicdistributionof thebank’s lendingwasgood.ExaminersnotedthatSouthsideBankmadeuseof innovativeandflexiblelendingpracticesinordertoservetheneedsof itsAAs,includingLMIborrowersand smallbusinesses.ExaminersobservedthatSouthsideBankparticipatesinseveralaffordable housingprogramsthatprovideloanswithrelaxedqualificationsorprovidegrantmoneyfor downpaymentandclosingcostassistance. Examinersalsoconsideredthebanktobealeaderincommunitydevelopmentlending. ExaminersfoundthatSouthsideBank’smanagementmadeextraordinaryeffortstoiden- 28 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless;smallbusinessandsmallfarmloansbyloanamountsat origination;andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals. See,e.g.,12CFR228.22(b)(3). 29 See12CFR228.26(c). 30 TheSouthsideBankEvaluationwasconductedusingtheLargeInstitutionCRAExaminationProcedures. Examinersreviewedhomepurchase,homeimprovement,andhomerefinancemortgageloans,andsmallbusinessandsmallfarmloans,fortheperiodbetweenJuly29,2013,andOctober19,2015.Theevaluationperiod forcommunitydevelopmentlending,investments,andserviceswasJuly29,2013,throughOctober19,2015. TheSouthsideBankEvaluationincludedafull-scopeevaluationoftheTylerMetropolitanStatisticalArea (“MSA”)AA.Limited-scopeevaluationswereperformedfortheLongviewMSAAA;Dallas-Plano-Irving MetropolitanDistrict(“MD”)AA;FortWorth-ArlingtonMDAA;andtheAustin-RoundRock-SanMarcos MSAAA.Datafromnon-metropolitanareasinTexaswereaggregatedtoformonenon-metropolitanAA,and examinersconductedalimited-scopeevaluationofthisAA.

50 FederalReserveBulletin|February2018 tifyandlocatecommunitydevelopmentlendingopportunities,asevidencedbythevariety andgeographicrangeof thebank’scommunitydevelopmentloans. ExaminersalsoconcludedthatSouthsideBank’sresponsivenesstocreditandcommunity developmentneedswasexcellent.Inreachingthisconclusion,examinersnotedthatallof thebank’sinvestmentsanddonationsbenefittedthebank’sAAsorthestateof Texas. Examinersalsodeterminedthatthelevelof thebank’squalifiedinvestmentsanddonations wasexcellent.Theynotedthatamajorityof thebank’sinvestmentsweremadeinschool districtsinTexas,including62schooldistrictswherethemajorityof studentsareeconomicallydisadvantaged. Inaddition,examinersfoundthatSouthsideBankprovideddeliverysystemsthatwere readilyaccessibletoitscustomers.Thebank’sdeliverychannelsincludedonlineandmobile banking,automatictellermachines,andbranches.Examinersconcludedthatthebank tailoreditsretailbankinglocationsandservicestomeettheneedsof LMIindividuals.In particular,examinersfoundthatchangestoSouthsideBank’sbranchnetworkoverthe evaluationperiodhadimprovedaccessibilityforLMIindividualsandnotedthatthebank hadtailoreditshoursandservicelocationstomeettheneedsof LMIindividuals. CRAPerformanceof FirstBank FirstBankwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRAperformanceevaluationbytheFDIC,asof May31,2016(“FirstBankEvaluation”).31First Bankreceiveda“Satisfactory”ratingfortheLendingTestandan“Outstanding”ratingfor theCommunityDevelopmentTest.AlthoughFirstBank’soverallratingtookintoconsiderationitsperformanceineachof itsMSAAAs,examinersgavesignificantlymore weighttothebank’srecordsinthebank’snon-MSAAAsduetothehighervolumeof loansinthoseareas. FortheLendingTest,examinersfocusedtheirevaluationonFirstBank’ssmallbusiness andhomemortgageloans.ExaminersfoundthatFirstBank’sloan-to-depositratiowas reasonablegivenitssize,businessstrategy,andfinancialconditionrelativetotheneedsof thebank’sAAs.ExaminersfoundthatFirstBankoriginatedamajorityof itslending withinitsAAs.Specifically,examinersnotedthatFirstBankoriginatedamajorityof its smallbusinessandmortgageloansinsideof itsAAsmeasuredbothbynumberanddollar volume.ExaminersalsofoundthatFirstBank’sdistributionof smallbusinessloansamong borrowersof differentincomesandrevenueswasreasonable.Similarly,examinersdeterminedthatFirstBankdemonstratedareasonablerecordof geographicallydistributingits smallbusinessloansthroughoutitsAAs.Examinersalsoconsideredthebank’sgeographic distributionof homemortgageloanstobereasonable. Withrespecttocommunitydevelopment,examinersconsideredFirstBank’scommunity developmentloans,communitydevelopmentinvestments,andcommunitydevelopment 31 TheFirstBankEvaluationwasconductedusingIntermediateSmallBankCRAExaminationProcedures.For theLendingTest,examinersreviewedsmallbusiness,smallfarm,homemortgage,andconsumerloansoriginatedbythebankfromAugust19,2013,throughMay31,2016.Becausecommercialloansandhomemortgage loanstogethercomprisedapproximately60.5percentofthebank’sloanportfolio,examinersfocusedthe LendingTestonsuchloans.FortheCommunityDevelopmentTest,examinersreviewedthebank’squalified communitydevelopmentlending,investments,andserviceactivitiesfromAugust19,2013,throughMay31, 2016.Examinersincludedqualifiedinvestmentsfromthepreviousexaminationperiodiftheinvestmentswere stilloutstanding. TheFirstBankEvaluationincludedfull-scopereviewsofFirstBank’sperformanceinitsnon-MSAAAsin AndersonCounty,Texas,andinNacogdoches,SanAugustine,Sabine,Angelina,andJaspercounties,allin Texas.Examinersconductedlimited-scopereviewsofperformanceintheHouston-Woodlands-SugarLand, TexasMSAAA,theLongview,TexasMSAAA,andtheTyler,TexasMSAAA.

LegalDevelopments:FourthQuarter,2017 51 services.ExaminersfoundthatFirstBank’srecordof communitydevelopmentlendingwas excellent.Inaddition,examinersconsideredFirstBank’sresponsivenesstocommunity developmentneedstobeexcellentgiventhebank’scapacityandtheavailabilityof opportunitiesinthebank’sAAs.ExaminersfoundthatFirstBankexhibitedanadequaterecord of providingcommunitydevelopmentinvestmentsanddonationsandanexcellentrecord of providingcommunitydevelopmentloans.Examinersnotedthatthebankdirecteda substantialmajorityof communitydevelopmentactivitiestowardseffortstorevitalizeand stabilizegeographieswithinitsAAs.Inaddition,examinersconcludedthatthebank demonstratedanadequaterecordof providingcommunitydevelopmentservices.This conclusionwasbasedonexcellentperformanceregardingtheavailabilityof services,but adequateperformanceregardingthetypesof services. Viewsof theFDIC Initsreviewof theproposal,theBoardconsultedwiththeFDICregardingSouthside Bank’sCRA,consumercompliance,andfairlendingrecords.TheBoardhasconsidered theresultsof themostrecentconsumercomplianceexaminationof SouthsideBank conductedbytheFDIC,whichincludedareviewof SouthsideBank’spoliciesandproceduresforcomplyingwithfairlendingandotherconsumercompliancelaws. TheBoardhastakentheresultsof theFDIC’sexaminationsanditsconsultationswiththe FDICintoaccountinevaluatingthisproposal,includinginconsideringwhether SouthsideBankhastheexperienceandresourcestoensurethatpoliciesandprogramsare implementedinamannerthatwouldallowthecombinedorganizationtoeffectivelyserve thecreditneedsof allthecommunitieswithinthefirm’sAAs. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.Southsiderepresentsthatuponconsummationof theproposal,existingcustomersof FirstBankwouldhaveaccesstoamoreexpansiveline of productsandservices.Southsidealsorepresentsthattheacquisitionwouldreduce expensesforbothinstitutionsandthusmakeavailableexpandedresourcestothecommunitiescurrentlyservedbySouthsideBankandFirstBank.Southsiderepresentsthat, followingtheproposedtransaction,itwillcontinuetoprovidealevelof serviceconsistent withSouthsideBank’scurrentCRAperformance. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtheCRArecordsof therelevant depositoryinstitutionsinvolved,theinstitutions’recordsof compliancewithfairlending andotherconsumerprotectionlaws,consultationswiththeFDIC,confidentialsupervisory information,informationprovidedbySouthside,andotherpotentialeffectsof theproposal ontheconvenienceandneedsof thecommunitiestobeserved.Basedonthatreview,the Boardconcludesthattheconvenienceandneedsfactorisconsistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedsection3of theBHCActtorequiretheBoardtoconsider“theextenttowhicha

52 FederalReserveBulletin|February2018 proposedacquisition,merger,orconsolidationwouldresultingreaterormoreconcentratedriskstothestabilityof theUnitedStatesbankingorfinancialsystem.”32 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the resultingfirm.33Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.34 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.35 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthatislessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.Both theacquirerandthetargetarepredominantlyengagedinavarietyof consumerand commercialbankingactivities.36Theproformaorganizationwouldhaveminimalcrossborderactivitiesandwouldnotexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.Inaddition,theorganizationwouldnotbeacriticalservicesprovideror sointerconnectedwithotherfirmsorthemarketsthatitwouldposeasignificantriskto thefinancialsystemintheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. 32 Dodd-FrankAct§§604(d)and(f),Pub.L.No.111-203,124Stat.1376,1601–1602(2010),codifiedat12U.S.C. §§1842(c)(7)and1828(c)(5). 33 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 34 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 35 SeePeoplesUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 36 Southsideprimarilyofferscommercialandconsumerbankingservices,mortgagebankingservices,commercial realestatelending,wealthmanagementservices,andtreasurymanagement.Dibollprimarilyofferscommercialandconsumerbankingservices,commercialrealestatelending,andtrustservices.Ineachoftheactivities inwhichitengages,Southsidehas,andasaresultoftheproposalwouldcontinuetohave,asmallmarketshare onanationwidebasis,andnumerouscompetitorswouldremainfortheseservices.

LegalDevelopments:FourthQuarter,2017 53 Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationshouldbe,andherebyis,approved.Inreachingitsconclusion,theBoardhasconsideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunderthe BHCActandotherapplicablestatutes.Approvalof thisproposalisspecificallyconditionedoncompliancebySouthsidewithalltheconditionsimposedinthisorder,including receiptof allrequiredregulatoryapprovals,andonthecommitmentsmadetotheBoard inconnectionwiththeapplication.Forpurposesof thisaction,theconditionsand commitmentsaredeemedtobeconditionsimposedinwritingbytheBoardinconnection withitsfindingsanddecisionhereinand,assuch,maybeenforcedinproceedingsunder applicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardorbytheFederalReserveBankof Dallas,actingunderdelegated authority. Byorderof theBoardof Governors,effectiveOctober30,2017. Votingforthisaction:ChairYellen,ViceChairmanforSupervisionQuarles,andGovernorsPowellandBrainard. AnnE.Misback Secretaryof theBoard

54 FederalReserveBulletin|February2018 South State Corporation Columbia, South Carolina OrderApprovingtheMergerof BankHoldingCompanies FRBOrderNo.2017–31(November14,2017) SouthStateCorporation(“SSC”),Columbia,SouthCarolina,abankholdingcompany withinthemeaningof theBankHoldingCompanyActof 1956(“BHCAct”),1has requestedtheBoard’sapprovalundersection3of theBHCAct2tomergewithParkSterlingCorporation(“PSC”)andtherebyindirectlyacquirePSC’ssubsidiarybank,ParkSterlingBank,bothof Charlotte,NorthCarolina.Followingtheproposedacquisition,Park SterlingBankwouldbemergedintoSSC’ssubsidiarybank,SouthStateBank,Columbia, SouthCarolina.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(82FederalRegister32812(July18,2017)).4Thetimeforsubmitting commentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct. SSC,withconsolidatedassetsof approximately$11.2billion,isthe119thlargestinsured depositoryorganizationintheUnitedStates.SSCcontrolsapproximately$9.0billionin consolidateddeposits,whichrepresentlessthan1percentof thetotalamountof deposits of insureddepositoryinstitutionsintheUnitedStates.5SSCcontrolsSouthStateBank, whichoperatesinGeorgia,NorthCarolina,andSouthCarolina.SSCisthe5thlargest insureddepositoryorganizationinSouthCarolina,controllingapproximately$5.6billion indeposits,whichrepresentapproximately7.1percentof thetotaldepositsof insured depositoryinstitutionsinthatstate.6SSCisthe38thlargestinsureddepositoryorganizationinNorthCarolina,controllingapproximately$399.1millionindeposits,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. SSCisthe14thlargestinsureddepositoryorganizationinGeorgia,controllingapproximately$2.8billionindeposits,whichrepresentapproximately1.2percentof thetotal depositsof insureddepositoryinstitutionsinthatstate. PSC,withconsolidatedassetsof approximately$3.3billion,isthe273rdlargestinsured depositoryorganizationintheUnitedStates.PSCcontrolsapproximately$2.5billionin consolidateddeposits,whichrepresentlessthan1percentof thetotalamountof deposits of insureddepositoryinstitutionsintheUnitedStates.PSCcontrolsParkSterlingBank, whichoperatesinGeorgia,NorthCarolina,SouthCarolina,andVirginia.PSCisthe15th largestinsureddepositoryorganizationinSouthCarolina,controllingapproximately $731.7millionindeposits,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.PSCisthe18thlargestinsureddepository organizationinNorthCarolina,controllingapproximately$965.9millionindeposits, whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutions inthatstate.PSCisthe65thlargestinsureddepositoryorganizationinGeorgia,controlling 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 ThemergerofParkSterlingBankintoSouthStateBankissubjecttoapprovaloftheFederalDepositInsuranceCorporation(“FDIC”),pursuanttosection18(c)oftheFederalDepositInsuranceAct.See12U.S.C. §1828(c).TheFDICapprovedthebankmergeronOctober31,2017. 4 12CFR262.3(b). 5 NationalassetanddepositdataareasofJune30,2017,unlessotherwisenoted. 6 StatedepositdataareasofJune30,2016.Inthiscontext,insureddepositoryinstitutionsincludecommercial banks,creditunions,savingsassociations,andsavingsbanks.

LegalDevelopments:FourthQuarter,2017 55 approximately$240.8millionindeposits,whichrepresentlessthan1percentof thetotal depositsof insureddepositoryinstitutionsinthatstate. Onconsummationof theproposal,SSCwouldbecomethe102ndlargestinsureddepositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $14.5billion,whichrepresentlessthan1percentof thetotalassetsof insureddepository institutionsintheUnitedStates.SSCwouldcontroltotaldepositsof approximately $11.6billion,whichrepresentlessthan1percentof thetotalamountof depositsof insured depositoryinstitutionsintheUnitedStates.InSouthCarolina,SSCwouldremainthe5th largestinsureddepositoryorganization,controllingdepositsof approximately$6.3billion, whichrepresentapproximately8percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.InNorthCarolina,SSCwouldbecomethe15thlargestinsureddepositoryorganization,controllingdepositsof approximately$1.4billion,whichrepresentless than1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.In Georgia,SSCwouldbecomethe13thlargestinsureddepositoryorganization,controlling depositsof approximately$3.0billion,whichrepresentapproximately1.3percentof the totaldepositsof insureddepositoryinstitutionsinthatstate. InterstateandDepositCapAnalysis Section3(d)of theBHCActgenerallyprovidesthat,if certainconditionsaremet,the Boardmayapproveanapplicationbyabankholdingcompanytoacquirecontrolof a banklocatedinastateotherthanthehomestateof thebankholdingcompany,without regardtowhetherthetransactionisprohibitedunderstatelaw.7Underthissection,the Boardmaynotapproveanapplicationthatwouldpermitanout-of-statebankholding companytoacquireabankinahoststateif thebankhasnotbeeninexistenceforthe lesserof thestatestatutoryminimumperiodof timeorfiveyears.8Inaddition,theBoard maynotapproveaninterstateapplicationif thebankholdingcompanycontrolsor,upon consummationof theproposedtransaction,wouldcontrolmorethan10percentof the totaldepositsof insureddepositoryinstitutionsintheUnitedStatesor,incertaincircumstances,thebankholdingcompany,uponconsummation,wouldcontrol30percentor moreof thetotaldepositsof insureddepositoryinstitutionsinanystateinwhichthe acquirerandtargethaveoverlappingbankingoperations.9 Forpurposesof theBHCAct,thehomestateof SSCisSouthCarolina,andParkSterling BankislocatedinGeorgia,NorthCarolina,SouthCarolina,andVirginia.10SSCiswell capitalizedandwellmanagedunderapplicablelaw,andSouthStateBankhasa“Satisfactory”ratingundertheCommunityReinvestmentActof 1977(“CRA”).11Thereareno minimumagerequirementsunderthelawsof Georgia,NorthCarolina,orVirginiathat wouldapplytoSSC’sacquisitionof ParkSterlingBank,andParkSterlingBankhasbeen inexistenceformorethanfiveyears.12 7 12U.S.C.§1842(d)(1)(A). 8 12U.S.C.§1842(d)(1)(B). 9 12U.S.C.§1842(d)(2)(A)and(B).Theacquiringandtargetinstitutionshaveoverlappingbankingoperationsin anystateinwhichanybanktobeacquiredislocatedandtheacquiringbankholdingcompanycontrolsany insureddepositoryinstitutionorabranch.Forpurposesofsection3(d)oftheBHCAct,theBoardconsidersa banktobelocatedinthestatesinwhichthebankischarteredorheadquarteredoroperatesabranch.See 12U.S.C.§1841(o)(4)–(7). 10 See12U.S.C.§1841(o)(4).Abankholdingcompany’shomestateisthestateinwhichthetotaldepositsofall bankingsubsidiariesofsuchcompanywerethelargestonJuly1,1966,orthedateonwhichthecompany becameabankholdingcompany,whicheverislater. 11 12U.S.C.§2901etseq. 12 SeeN.C.Gen.Stat.Ann.§53-211;Ga.CodeAnn.§7-1-622;Va.CodeAnn.§6.2-849etseq.

56 FederalReserveBulletin|February2018 Onconsummationof theproposedtransaction,SSCwouldcontrollessthan1percentof thetotalamountof consolidateddepositsininsureddepositoryinstitutionsintheUnited States.Inaddition,SSCwouldcontrollessthan30percentof thetotaldepositsof insured depositoryinstitutionsinGeorgia,NorthCarolina,andSouthCarolina,theonlystatesin whichSSCandPSChaveoverlappingbankingoperations.13TheBoardhasconsideredall otherrequirementsundersection3(d)of theBHCAct,includingSouthStateBank’s recordof meetingtheconvenienceandneedsof thecommunitiesitserves.Accordingly,in lightof allthefactsof record,theBoardmayapprovetheproposalundersection3(d)of theBHCAct. CompetitiveConsiderations Section3of theBHCActprohibitstheBoardfromapprovingaproposalthatwouldresult inamonopolyorwouldbeinfurtheranceof anattempttomonopolizethebusinessof bankinginanyrelevantmarket.14TheBHCActalsoprohibitstheBoardfromapprovinga proposalthatwouldsubstantiallylessencompetitionortendtocreateamonopolyinany bankingmarket,unlesstheanticompetitiveeffectsof theproposalareclearlyoutweighedin thepublicinterestbytheprobableeffectof theproposalinmeetingtheconvenienceand needsof thecommunitiestobeserved.15 SSCandPSChavesubsidiarydepositoryinstitutionsthatcompetedirectlyinthe Charleston,Columbia,Greenville,Greenwood,andNewberryCountybankingmarkets,all of whicharelocatedinSouthCarolina.16Thedepositoryinstitutionsubsidiariesof SSC andPSCalsocompetedirectlyintheCharlotte,NorthCarolina-SouthCarolina,banking market(“Charlottemarket”),17theSpartanburg,SouthCarolina-NorthCarolina,banking market(“Spartanburgmarket”),18andtheWilmington,NorthCarolina,bankingmarket (“Wilmingtonmarket”).19 TheBoardhasconsideredthecompetitiveeffectsof theproposalinthesebankingmarkets. Inparticular,theBoardhasconsideredthenumberof competitorsthatwouldremainin eachmarket;therelativeshareof totaldepositsininsureddepositoryinstitutionsineach 13 BothGeorgiaandSouthCarolinaimposea30percentlimitonthetotalamountofin-statedepositsthata singlebankingorganizationmaycontrol.SeeGa.CodeAnn.§7-1-622(b)(2)(B);S.C.CodeAnn.§34-25- 240(b).NorthCarolinadoesnotimposelimitsonthetotalamountofin-statedepositsthatasinglebanking organizationmaycontrol. 14 12U.S.C.§1842(c)(1). 15 12U.S.C.§1842(c)(1)(B). 16 TheCharleston,SouthCarolina,bankingmarket(“Charlestonmarket”)isdefinedasBerkeley,Charleston, andDorchestercounties,andthesoutheasternpartofColletonCounty(eastoftheSouthEdistoRiveron EdistoIsland),allofSouthCarolina.TheColumbia,SouthCarolina,bankingmarket(“Columbiamarket”)is definedasCalhoun,Fairfield,Kershaw,Lexington,andRichlandcounties,allofSouthCarolina.The Greenville,SouthCarolina,bankingmarket(“Greenvillemarket”)isdefinedasAnderson,Greenville,Laurens, andPickenscounties,allofSouthCarolina.TheGreenwood,SouthCarolina,bankingmarket(“Greenwood market”)isdefinedasAbbeville,Greenwood,andMcCormickcounties,allofSouthCarolina.TheNewberry County,SouthCarolina,bankingmarket(“NewberryCountymarket”)isdefinedasNewberryCounty, SouthCarolina. 17 TheCharlottemarketisdefinedasAnson,Cabarrus,Gaston,Lincoln,Mecklenburg,andUnioncounties,all ofNorthCarolina;thecityofMooresvilleandthetownshipsofDavidsonandCoddleCreek,allinIredell County,NorthCarolina;thetownshipsofAtwellandChinaGrove,allinRowanCounty,NorthCarolina;the King’sMountaintownshipinClevelandCounty,NorthCarolina;andLancasterandYorkcounties,bothof SouthCarolina. 18 TheSpartanburgmarketisdefinedasCherokee,Spartanburg,andUnioncounties,allofSouthCarolina,and PolkCounty,NorthCarolina. 19 TheWilmingtonmarketisdefinedasNewHanover,Pender,andBrunswick(excludingtheShallotteTownship) counties,allofNorthCarolina.

LegalDevelopments:FourthQuarter,2017 57 market(“marketdeposits”)thatSSCwouldcontrol;20theconcentrationlevelsof market depositsandtheincreaseintheselevels,asmeasuredbytheHerfindahl-HirschmanIndex (“HHI”)undertheDepartmentof JusticeBankMergerCompetitiveReviewguidelines (“DOJBankMergerGuidelines”);21andothercharacteristicsof themarkets. Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesforeachof thesemarkets.Onconsummationof theproposedtransaction,theCharlotteandColumbiamarketswouldremain highlyconcentrated,buttheincreaseintheHHIineachmarketwouldbeminimal(1point orless),andnumerouscompetitorswouldremain.22TheNewberryCountymarketalso wouldremainhighlyconcentratedonconsummationof theproposal,buttheincreasein theHHIwouldbebelowthethresholdintheDOJBankMergerGuidelines.23Further,six competitorswouldremaininthemarket,includingamarketleaderwith29.35percent marketshareandthreeothercompetitorsthatwouldeachhaveanover10percentmarket share. Onconsummationof theproposal,theCharleston,Greenwood,Spartanburg,and Wilmingtonmarketswouldremainmoderatelyconcentrated,asmeasuredbytheHHI,and theGreenvillemarketwouldremainunconcentrated.Numerouscompetitorswouldremain ineachmarket.24 20 LocaldepositandmarketsharedataareasofJune30,2016,andarebasedoncalculationsinwhichthe depositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhasindicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorstocommercialbanks.See, e.g.,MidwestFinancialGroup,75FederalReserveBulletin386(1989);NationalCityCorporation,70Federal ReserveBulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsinthemarketsharecalculation ona50-percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserveBulletin52(1991). 21 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableatwww.justice.gov/opa/pr/ 2010/August/10-at-938.html. 22 SSCoperatesthe10thlargestdepositoryinstitutionintheCharlottemarket,controllingapproximately $567.9millionindeposits,whichrepresentapproximately0.3percentofmarketdeposits.PSCoperatesthe 7thlargestdepositoryinstitutioninthesamemarket,controllingapproximately$819.1millionindeposits, whichrepresentapproximately0.4percentofmarketdeposits.Onconsummationoftheproposedtransaction, SSCwouldbecomethe7thlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately $1.4billion,whichrepresentapproximately0.7percentofmarketdeposits.TheHHIfortheCharlottemarket wouldincreasebylessthan1pointto5894,and42competitorswouldremaininthemarket. SSCoperatesthe8thlargestdepositoryinstitutionintheColumbiamarket,controllingapproximately $466.3millionindeposits,whichrepresentapproximately2.6percentofmarketdeposits.PSCoperatesthe 17thlargestdepositoryinstitutioninthesamemarket,controllingapproximately$50.1millionindeposits, whichrepresentapproximately0.3percentofmarketdeposits.Onconsummationoftheproposedtransaction, SSCwouldbecomethe7thlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately $516.4million,whichrepresentapproximately2.8percentofmarketdeposits.TheHHIfortheColumbia marketwouldincreaseby1pointto2028,and25competitorswouldremaininthemarket. 23 SSCoperatesthe6thlargestdepositoryinstitutionintheNewberryCountymarket,controllingapproximately $30.3millionindeposits,whichrepresentapproximately6.3percentofmarketdeposits.PSCoperatesthe 3rdlargestdepositoryinstitutioninthesamemarket,controllingapproximately$75.6millionindeposits,which representapproximately15.7percentofmarketdeposits.Onconsummationoftheproposedtransaction,SSC wouldbecomethe2ndlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately $105.9million,whichrepresentapproximately22.0percentofmarketdeposits.TheHHIfortheNewberry Countymarketwouldincreaseby197pointsto2015,and6competitorswouldremaininthemarket. 24 SSCoperatesthe3rdlargestdepositoryinstitutionintheCharlestonmarket,controllingapproximately $1.5billionindeposits,whichrepresentapproximately12.6percentofmarketdeposits.PSCoperatesthe 27thlargestdepositoryinstitutioninthesamemarket,controllingapproximately$12.6millionindeposits, whichrepresentapproximately0.1percentofmarketdeposits.Onconsummationoftheproposedtransaction,

58 FederalReserveBulletin|February2018 TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket.Inaddition,the appropriatebankingagencieshavebeenaffordedanopportunitytocommentandhavenot objectedtotheproposal. Basedonthefactsof record,theBoardconcludesthatconsummationof theproposal wouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheCharleston,Columbia,Greenville,Greenwood,NewberryCounty,Charlotte,Spartanburg,orWilmingtonbankingmarkets,orinanyotherrelevantbanking market.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistent withapproval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCAct,theBoardconsidersthefinancial andmanagerialresourcesandthefutureprospectsof theinstitutionsinvolved.25Inits evaluationof financialfactors,theBoardreviewsinformationregardingthefinancial conditionof theorganizationsinvolvedonbothparent-onlyandconsolidatedbases,as wellasinformationregardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.Inthisevaluation,the Boardconsidersavarietyof informationregardingcapitaladequacy,assetquality, liquidity,andearningsperformance,aswellaspubliccommentsontheproposal.The Boardevaluatesthefinancialconditionof thecombinedorganization,includingitscapital position,assetquality,liquidity,earningsprospects,andtheimpactof theproposed fundingof thetransaction.TheBoardalsoconsiderstheabilityof theorganizationto absorbthecostsof theproposalandtocompleteeffectivelytheproposedintegrationof the SSCwouldremainthe3rdlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately $1.5billion,whichrepresentapproximately12.7percentofmarketdeposits.TheHHIfortheCharleston marketwouldincreaseby2pointsto1224,and33competitorswouldremaininthemarket. SSCoperatesthe6thlargestdepositoryinstitutionintheGreenwoodmarket,controllingapproximately $86.9millionindeposits,whichrepresentapproximately7.5percentofmarketdeposits.PSCoperatesthe 3rdlargestdepositoryinstitutioninthesamemarket,controllingapproximately$180.2millionindeposits, whichrepresentapproximately15.5percentofmarketdeposits.Onconsummationoftheproposedtransaction, SSCwouldbecomethelargestdepositoryorganizationinthemarket,controllingdepositsofapproximately $267.2million,whichrepresentapproximately23.0percentofmarketdeposits.TheHHIfortheGreenwood marketwouldincreaseby232pointsto1728,and10competitorswouldremaininthemarket. SSCoperatesthe20thlargestdepositoryinstitutionintheSpartanburgmarket,controllingapproximately $33.5millionindeposits,whichrepresentapproximately0.6percentofmarketdeposits.PSCoperatesthe 16thlargestdepositoryinstitutioninthesamemarket,controllingapproximately$109.0millionindeposits, whichrepresentapproximately1.8percentofmarketdeposits.Onconsummationoftheproposedtransaction, SSCwouldbecomethe15thlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately$142.4million,whichrepresentapproximately2.4percentofmarketdeposits.TheHHIforthe Spartanburgmarketwouldincreaseby2pointsto1002,and22competitorswouldremaininthemarket. SSCoperatesthe11thlargestdepositoryinstitutionintheWilmingtonmarket,controllingapproximately $159.3millionindeposits,whichrepresentapproximately2.3percentofmarketdeposits.PSCoperatesthe 13thlargestdepositoryinstitutioninthesamemarket,controllingapproximately$69.5millionindeposits, whichrepresentapproximately1.0percentofmarketdeposits.Onconsummationoftheproposedtransaction, SSCwouldbecomethe9thlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately $228.7million,whichrepresentapproximately3.3percentofmarketdeposits.TheHHIfortheWilmington marketwouldincreaseby5pointsto1280,and21competitorswouldremaininthemarket. SSCoperatesthe7thlargestdepositoryinstitutionintheGreenvillemarket,controllingapproximately $773.4millionindeposits,whichrepresentapproximately5.1percentofmarketdeposits.PSCoperatesthe 14thlargestdepositoryinstitutioninthesamemarket,controllingapproximately$217.9millionindeposits, whichrepresentapproximately1.4percentofmarketdeposits.Onconsummationoftheproposedtransaction, SSCwouldbecomethe5thlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately $991.2million,whichrepresentapproximately6.5percentofmarketdeposits.TheHHIfortheGreenville marketwouldincreaseby14pointsto921,and35competitorswouldremaininthemarket. 25 12U.S.C.§1842(c)(2),(5),and(6).

LegalDevelopments:FourthQuarter,2017 59 operationsof theinstitutions.Inassessingfinancialfactors,theBoardconsiderscapital adequacytobeespeciallyimportant.TheBoardconsidersthefutureprospectsof theorganizationsinvolvedintheproposalinlightof theirfinancialandmanagerialresourcesand theproposedbusinessplan. SSCandPSCarebothwellcapitalized,andthecombinedorganizationwouldremainsoon consummationof theproposal.Theproposedtransactionisabankholdingcompany mergerthatisstructuredprimarilyasashareexchange,withasubsequentmergerof the subsidiarydepositoryinstitutions.26Theassetquality,earnings,andliquidityof both SouthStateBankandParkSterlingBankareconsistentwithapproval,andSSCappearsto haveadequateresourcestoabsorbtherelatedcostsof theproposalandtocompletethe integrationof theinstitutions’operations.Inaddition,thefutureprospectsof theinstitutionsundertheproposalareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of SSC,PSC,andtheirsubsidiarydepositoryinstitutions,includingassessmentsof their management,risk-managementsystems,andoperations.Inaddition,theBoardhasconsideredinformationprovidedbySSC;theBoard’ssupervisoryexperiencesandthoseof other relevantbanksupervisoryagencieswiththeorganizations;theorganizations’recordsof compliancewithapplicablebanking,consumerprotection,andanti-money-laundering laws;andinformationprovidedbythecommenter. SSC,PSC,andtheirsubsidiarydepositoryinstitutionsareeachconsideredtobewell managed.SSChasarecordof successfullyintegratingorganizationsintoitsoperationsand risk-managementsystemsafteracquisitions.Thedirectorsandseniorexecutiveofficersof SSChaveknowledgeof andexperienceinthebankingandfinancialservicessectors,and SSC’srisk-managementprogramappearsconsistentwithapprovalof thisexpansionary proposal. TheBoardalsohasconsideredSSC’splansforimplementingtheproposal.SSChas conductedcomprehensiveduediligenceandisdevotingsignificantfinancialandother resourcestoaddressallaspectsof thepost-acquisitionintegrationprocessforthisproposal. SSCwouldimplementitsrisk-managementpolicies,procedures,andcontrolsatthe combinedorganization,andtheseareconsideredacceptablefromasupervisoryperspective.Inaddition,SSC’smanagementhastheexperienceandresourcestooperatethe combinedorganizationinasafeandsoundmanner,andSSCplanstointegratePSC’s existingmanagementandpersonnelinamannerthataugmentsSSC’smanagement.27 Basedonallof thefactsof record,includingSSC’ssupervisoryrecord,managerialand operationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandthefutureprospectsof theorganizationsinvolvedintheproposal,aswellas therecordsof effectivenessof SSCandPSCincombatingmoney-launderingactivities,are consistentwithapproval. 26 Aspartoftheproposedtransaction,eachshareofPSCcommonstockwouldbeconvertedintoarightto receivesharesofSSCcommonstockbasedonanexchangeratio.CertainstockoptionsgrantedbyPSCwould becancelledandconvertedintotherighttoreceiveacashamountbasedonanexchangeratio.SSChasthe financialresourcestoeffecttheproposedtransaction. 27 SSCanticipatesthat,onconsummationoftheproposedtransaction,PSC’schiefexecutiveofficerandanindependentmemberofPSC’sboardofdirectorswouldbeappointedtotheboardsofdirectorsofSSCandSouth StateBank.

60 FederalReserveBulletin|February2018 ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCAct,theBoardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.28Initsevaluationof theeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thecommunitiestheyserve,aswellasotherpotentialeffectsof theproposalon theconvenienceandneedsof thecommunitiestobeserved.Inthisevaluation,theBoard placesparticularemphasisontherecordsof therelevantdepositoryinstitutionsunderthe CRA.TheCRArequiresthefederalfinancialsupervisoryagenciestoencourageinsured depositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesinwhichthey operate,consistentwiththeirsafeandsoundoperation,29andrequirestheappropriate federalfinancialsupervisoryagencytoassessadepositoryinstitution’srecordof helpingto meetthecreditneedsof itsentirecommunity,includinglow-andmoderate-income (“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.30 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideloan applicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainother characteristics.TheBoardalsoconsiderstheassessmentsof otherrelevantsupervisors,the supervisoryviewsof examiners,othersupervisoryinformation,informationprovidedby theapplicant,andcommentsreceivedontheproposal.TheBoardalsomayconsiderthe institution’sbusinessmodel,itsmarketingandoutreachplans,theorganization’splans followingconsummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallof thefactsof record,includingreportsof examinationof theCRAperformanceof South StateBankandParkSterlingBank;thefairlendingandcompliancerecordsof bothbanks; thesupervisoryviewsof theFDIC;confidentialsupervisoryinformation;information providedbySSC;andthepubliccommentreceivedontheproposal. PublicCommentontheProposal Acommenterobjectedtotheproposalonthebasisof allegeddisparitiesinSouthState Bank’slendingtoAfricanAmericansandHispanics,ascomparedtowhites,inthe Columbia,SouthCarolinaMetropolitanStatisticalArea(“ColumbiaMSA”),theCharlotte,NorthCarolinaMSA(“CharlotteMSA”),andtheAtlanta,GeorgiaMSA(“Atlanta MSA”),asreflectedindatareportedundertheHomeMortgageDisclosureAct (“HMDA”)31for2015.Specifically,thecommenterallegedthatSouthStateBankoriginatedlowlevelsof homemortgageloanstoAfricanAmericanandHispanicborrowersand hadhighdenialratesforhomepurchaseloanapplicationsfromsuchborrowers,compared towhiteborrowers,ineachMSA.Inaddition,thecommenterassertedthatSouthState Bankshouldprovideadditionalinformationconcerningthebranchesthatitplanstoclose inconnectionwiththeproposedtransaction,aswellasitscriteriaforclosingbranches. Businessesof theInvolvedInstitutionsandResponsetothePublicComment SSCoperatesprimarilythroughSouthStateBank,offeringabroadrangeof financial productsandservicestoconsumersandbusinesses.Throughitsnetworkof branches 28 12U.S.C.§1842(c)(2). 29 12U.S.C.§2901(b). 30 12U.S.C.§2903. 31 12U.S.C.§2801etseq.

LegalDevelopments:FourthQuarter,2017 61 acrossGeorgia,NorthCarolina,andSouthCarolina,thebankoffersavarietyof banking productsandservices,includingconsumerandcommercialloans,realestatemortgages, personalcheckingandsavingsaccounts,businesscheckingandsavingsaccounts,and privatebankingandassetmanagementservices. PSCoperatesprimarilythroughParkSterlingBankandoffersawidevarietyof banking productsandservicestoitscustomersinbranchesacrossGeorgia,NorthCarolina,South Carolina,andVirginia.Theseproductsandservicesincluderetailandcommercialbanking services;commercial,consumer,andmortgageloans;andtrustandinvestmentservices. SSCdisputesthecommenter’sallegationsthatSouthStateBankhasengagedindiscriminatorylendingpracticesandrepresentsthatitisfirmlycommittedtomakingitscredit productsandservicesavailabletocustomersonafairandequitablebasisandinstrict compliancewithfairlendinglawsandregulations.SSCassertsthatthedenialratesreferencedbythecommenterreflectdeterminationsbasedonnondiscriminatoryfactors, includingdebt-to-incomeratios,creditandemploymenthistory,andcollateral.SSCrepresentsthatitmaintainsafairlendingprogramwithpoliciesandproceduresthathelpensure compliancewithCRAandfairlendingrequirements.Theseincludeasecondreview programfordeniedconsumerloans,periodictestingandmonitoringof SouthStateBank’s HMDAdata,andperiodicanalysesof thebank’sconsumerlendingproductstodetect possibledisparatetreatmentwithrespecttocreditdecisionsandpricing.Inaddition,SSC representsthatitconductsextensivefairlendingcompliancetrainingforitsemployeesand providesperiodicreportingof fairlendingcomplianceriskassessments,issues,andtrends toseniormanagementanddirectors. SSCacknowledgesthatSouthStateBankplanstocloseorconsolidatecertainbranchesof thecombinedorganizationfollowingconsummationof theproposedtransaction,but disputesthecommenter’sallegationsthatithasnotpublicizedwhichbranchesitintendsto close.SSCassertsthatSouthStateBankhasbeentransparenttothepublicbydisclosing thelocationsof thebranchesthatitplanstocloseorconsolidateandprovidingexplanationsforitsdecisions.SSCrepresentsthatSouthStateBankconsideredavarietyof factors inidentifyingbranchesforclosure,includingtheproximityof otherbranchlocations,the financialperformanceandfutureprospectsof therelevantbranches,andtheimpactof branchclosuresoncustomersandthecommunity.SSCrepresentsthatcustomerswould receivepriornoticebeforeanybranchesareclosedorconsolidated.Moreover,SSCrepresentsthatanybranchclosureswouldbecompletedinaccordancewithregulatoryrequirementsassociatedwithclosingbranches.32 SSCrepresentsthatSouthStateBankoffersavarietyof mortgageloanproductsand programsdesignedtoincreaseaffordablehousingopportunitiesforLMIindividualsand communities.Specifically,SSCrepresentsthatSouthStateBankhasproprietaryloan programsforunderservedmarketsandparticipatesinavarietyof national,state,andlocal mortgagelendingprogramsdesignedtoassistLMIindividualsandLMIorminority communities.SSCcontendsthatSouthStateBankoffers,amongitsproprietaryprograms, anaffordablehomemortgageloanproductavailabletoborrowerspurchasinghomesin highminoritycensustractsandborrowersmeetingcertainincomethresholds,whichallows loan-to-valueratiosof upto100percent.SSCassertsthatSouthStateBankhastaken stepstoincreaseitshomemortgagelendingtoAfricanAmerican,Hispanic,andLMI 32 TheBoardnotesthatsection42oftheFederalDepositInsuranceAct(12U.S.C.§1831r-1),asimplementedby theJointPolicyStatementRegardingBranchClosings(64Fed.Reg.34844(June29,1999)),requiresthata bankprovidethepublicwithatleast30days’notice,andtheappropriatefederalsupervisoryagencywithat least90days’notice,beforethedateofaproposedbranchclosing.Thebankalsoisrequiredtoprovidereasons andothersupportingdatafortheclosure,consistentwiththeinstitution’swrittenpolicyforbranchclosings.

62 FederalReserveBulletin|February2018 borrowers,includingpartneringwithlocalorganizationsthatpromoteaffordablehousing, homeownership,andeconomicdevelopmentopportunities.SSCrepresentsthatSouth StateBankhashiredcommunitymortgageloanoriginatorsinvariousmarketswhohavea specificfocusoncommunityoutreachandmortgageoriginationsinmarketswhereSouth StateBank’sminorityapplicationsintakeratefallsbelowcertainbenchmarks.Inaddition, SSCrepresentsthatSouthStateBankhasbeenincreasingitsoutreacheffortstofurther promoteitsmortgagelendingproductsandservicesandrecentlyannouncedanew $100millionmortgagelendinginitiativetoassistLMIandminoritycommunities. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardconsiders substantialinformationinadditiontoinformationprovidedbypubliccommentersandthe responsetocommentsbytheapplicant.Inparticular,theBoardevaluatesaninstitution’s performancerecordinlightof examinationsbytheappropriatefederalsupervisorsof the CRAperformancerecordsof therelevantinstitutions,aswellasinformationandviews providedbytheappropriatefederalsupervisors.33Inthiscase,theBoardconsideredthe supervisoryviewsof theFDIC. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.34Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplylending,investment,andserviceteststo evaluatetheperformanceof alargeinsureddepositoryinstitutioninhelpingtomeetthe creditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’shomemortgage,smallbusiness,smallfarm,andcommunitydevelopmentlendingto determinewhethertheinstitutionishelpingtomeetthecreditneedsof individualsand geographiesof allincomelevels.Aspartof thelendingtest,examinersreviewandanalyze aninstitution’sHMDAdata,inadditiontosmallbusiness,smallfarm,andcommunity developmentloandatacollectedandreportedundertheCRAregulations,toassessan institution’slendingactivitieswithrespecttoborrowersandgeographiesof different incomelevels.Theinstitution’slendingperformanceisbasedonavarietyof factors, including(1)thenumberandamountsof homemortgage,smallbusiness,smallfarm,and consumerloans(asapplicable)intheinstitution’sassessmentareas(“AAs”);(2)the geographicdistributionof theinstitution’slending,includingtheproportionanddispersionof theinstitution’slendinginitsAAsandthenumberandamountsof loansinlow-, moderate-,middle-,andupper-incomegeographies;(3)thedistributionof loansbasedon borrowercharacteristics,including,forhomemortgageloans,thenumberandamountsof loanstolow-,moderate-,middle-,andupper-incomeindividuals;35(4)theinstitution’s communitydevelopmentlending,includingthenumberandamountsof communitydevelopmentloansandtheircomplexityandinnovativeness;and(5)theinstitution’suseof 33 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81Fed.Reg.48506,48548 (July25,2016). 34 12U.S.C.§2906. 35 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3).

LegalDevelopments:FourthQuarter,2017 63 innovativeorflexiblelendingpracticestoaddressthecreditneedsof LMIindividualsand geographies. TheBoardisconcernedwhenHMDAdatareflectdisparitiesintheratesof loanapplications,originations,anddenialsamongmembersof differentracialorethnicgroupsinlocal areas.Thesetypesof disparitiesmayindicateweaknessesintheadequacyof policiesand programsataninstitutionformeetingitsobligationstoextendcreditfairly.However,other informationcriticaltoaninstitution’screditdecisionsisnotavailablefromHMDAdata.36 Consequently,HMDAdatadisparitiesmustbeevaluatedinthecontextof otherinformationregardingthelendingrecordof aninstitution. CRAPerformanceof SouthStateBank SouthStateBankwasassignedanoverall“Satisfactory”ratingatitsmostrecentCRA performanceevaluationbytheFDIC,asof October31,2016(“SouthStateBankEvaluation”).37Thebankreceived“HighSatisfactory”ratingsfortheLendingTest,Investment Test,andServiceTest. ExaminersfoundthatSouthStateBank’soveralllendinglevelsreflectedgoodresponsivenesstothecreditneedsof itsAAs.Accordingtoexaminers,thebankoriginatedasubstantialmajorityof itsloanswithinitsAAs,andthedistributionof itsloansreflected adequatepenetrationamongretailcustomersof differentincomelevelsandbusinessesof differentsizes.Regardingthebank’sdistributionof borrowers,examinersfoundthatthe bank’shomemortgagelendingperformancetoLMIborrowerswasgenerallyconsistent withorbelowaggregateanddemographicdata,andthebank’slendingperformanceto smallbusinesseswasgenerallybelowaggregateanddemographicdata.However,examiners foundthatSouthStateBank’sgeographicdistributionof loansreflectedgoodpenetration throughoutitsAAsandnotedthatitshomemortgageandsmallbusinesslendingperformanceinLMIcensustractswasgenerallyconsistentwithoraboveaggregateanddemographicdata.Moreover,examinersnotedthatthebankusedflexiblelendingpracticesin ordertoservethecreditneedsof itsAAsandparticipatedinorusedseveralprogramsto helpborrowerswhootherwisemightnotqualifyforcredit.Thebank’sinnovativeorflexiblelendingpracticesnotedbyexaminersincludedanaffordablehousingresidentialmortgageloanprogramthatthebankdesignedtomeettheneedsof LMIfamiliesandaffordablehomemortgageloansthatfeatureddown-paymentassistance. IntheColumbiaMSAandCharlotteMMSA,bothareasof concerntothecommenter,the bank’slendinglevelswerefoundtoreflectgenerallyadequateresponsivenesstotheAAs’ creditneeds,and,intheAtlanta-SandySprings-RoswellMSA(“AtlantaMSA”),another areaof concerntothecommenter,examinersfoundthatthebank’slendingperformance reflectedgoodresponsivenesstothecreditneedsof theAA.Accordingtoexaminers,the 36 Otherinformationrelevanttocreditdecisionscouldincludecredithistory,debt-to-incomeratios,andloan-tovalueratios.Accordingly,whenconductingfairlendingexaminations,examinersanalyzesuchadditionalinformationbeforereachingadeterminationregardinganinstitution’scompliancewithfairlendinglaws. 37 TheSouthStateBankEvaluationwasconductedusingLargeInstitutionCRAExaminationProcedures. ExaminersreviewedmortgageloansreportedpursuanttoHMDAandsmallloansmadetobusinessesand farmsreportedunderCRAdatacollectionrequirementsfromJanuary1,2014,throughthesecondquarterof 2016.Theevaluationperiodforcommunitydevelopmentloans,investments,andserviceswasJuly2,2014, throughOctober31,2016.Asoftheevaluationdate,thebankhad16AAslocatedinthreestatesandtwo multistateMSAs.TheSouthStateBankEvaluationincludedfull-scopeevaluationsofthebank’sAAsinthe followinglocations:Charleston-NorthCharleston,Greenville-Anderson-Mauldin,Columbia(“Columbia MSA”),andHiltonHeadBeach-Bluffton-BeaufortMSAs,allofSouthCarolina,aswellastheSouthCarolina non-MSA;Savannah,Georgia,MSAandGeorgianon-MSA;Wilmington,NorthCarolina,MSA;andthe MultistateMSAs(“MMSAs”)ofCharlotte-Concord-Gastonia,NorthCarolina-SouthCarolina(“Charlotte MMSA”)andMyrtleBeach-Conway-NorthMyrtleBeach,NorthCarolina-SouthCarolina.Limitedscope evaluationswereperformedforthebank’sotherAAs.

64 FederalReserveBulletin|February2018 geographicdistributionof thebank’sHMDAlendingwasfoundtobeadequateinthe ColumbiaMSAandtheAtlantaMSAandgenerallyadequateintheCharlotteMMSA. Thebank’sdistributionof borrowersforHMDAlendingwasfoundtoreflectadequate penetrationamongretailcustomersof differentincomelevelsinboththeColumbiaMSA andCharlotteMMSA.IntheAtlantaMSA,examinersfoundthatthebank’sdistributionof borrowersforHMDAlendingreflectedgoodpenetrationamongretailcustomersof differentincomelevels,andthebank’slevelof homepurchaselendingtolow-income borrowerswassignificantlyaboveaggregateanddemographicdata.IntheColumbiaand AtlantaMSAs,examinersfoundthatthebankmadeanadequatelevelof community developmentloans;however,examinersdeterminedthatthebank’slevelof community developmentlendingwaslowintheCharlotteMMSA.Ineachof thesethreegeographic areas,examinersfoundthatthebankusedflexiblelendingpractices. ExaminersfoundthatSouthStateBankmaintainedasignificantlevelof qualifiedinvestments.Inlightof theavailableinvestmentopportunities,examinersfoundthattheleveland innovationof thebank’squalifiedinvestmentsdemonstratedgoodresponsivenesstothe creditandcommunitydevelopmentneedsof itsAAs.Examinersnotedthatthebankoccasionallyusedinnovativeandcomplexinvestmentstosupportcommunitydevelopment initiativesandthatthemajorityof itsinvestmentsbynumberanddollarvolumebenefited affordablehousing,followedbyeconomicdevelopmentandstabilization.Examinersfound thatthebankdemonstratedadequateresponsivenesstomeetingthecommunitydevelopmentinvestmentneedsof theColumbiaMSAandCharlotteMMSAandgoodresponsivenesstomeetingthecommunitydevelopmentinvestmentneedsof theAtlantaMSA. ExaminersfoundSouthStateBank’sdeliverysystemstobereasonablyaccessibletoessentiallyallportionsof itsAAs.Examinersfoundthatthebank’sopeningandclosingof branchesgenerallydidnotadverselyaffecttheaccessibilityof itsdeliverysystems,particularlyinLMIgeographiesortoLMIindividuals.Examinersdeterminedthatthebank’s servicesandbusinesshoursdidnotvaryinawaythatinconveniencedpartsof itsAAs. Examinersfoundthat,overall,thebankprovidedarelativelyhighlevelof community developmentservicesinitsAAs,includingtoorganizationsthatpromotedaffordable housing,economicandsmallbusinessdevelopment,financialeducation,andothercommunitydevelopmentgoals.Examinersfoundthatthebankprovidedarelativelyhighlevelof communitydevelopmentservicesintheColumbiaMSAandCharlotteMMSAandthat thebankwasaleaderinprovidingcommunitydevelopmentservicesintheAtlantaMSA. SouthStateBank’sActivitiesSincetheSouthStateBankEvaluation SSCrepresentsthat,sincetheSouthStateBankEvaluation,SouthStateBankhas furthereditscommitmenttocommunityreinvestmentandtoservingtheneedsof LMI geographiesandindividualsinallof itscommunities.AccordingtoSSC,thebankhasdone sothrougharangeof initiatives,includingcommunitydevelopmentserviceactivities, communitydevelopmentloansandinvestments,andlendingtosmallbusinessesandLMI borrowers.SSCrepresentsthatSouthStateBankhasdemonstrateditscommitmenttoflexibleandinnovativelendingbyparticipatinginseveralloanprogramsthatprovidefinancing toLMIborrowersorsmallbusinessesinLMIgeographies.SSCalsorepresentsthatSouth StateBankmadeavarietyof communitydevelopmentloansandinvestmentstopromote jobcreationandimproveservicesinLMIgeographies.SSCcontendsthatthebankhas providedfinancialliteracytrainingforyouth,youngadults,adults,andsmallbusiness ownersandhassupportedorganizationsthatprovidetargetedservicestoLMIindividuals andcommunities.

LegalDevelopments:FourthQuarter,2017 65 CRAPerformanceof ParkSterlingBank ParkSterlingBankreceivedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheFDIC,asof April24,2017(“ParkSterlingBankEvaluation”),38witha“HighSatisfactory”ratingfortheLendingTestand“LowSatisfactory” ratingsfortheInvestmentTestandServiceTest. ExaminersconcludedthatParkSterlingBank’soveralllendinglevelsreflectedgood responsivenesstothecreditneedsof thebank’sAAs.Examinersfoundthata highpercentageof thebank’sloans,bynumberanddollaramount,wasoriginatedinits AAs.Examinersfoundthatthegeographicdistributionof thebank’sloansreflectedgood penetrationthroughoutthebank’sAAs.Thedistributionof thebank’sborrowerswas foundtoreflectpoorpenetrationamongretailcustomersof differentincomelevelsand adequatepenetrationamongbusinessesof differentsizes.Examinersfoundthebanktobe aleaderinmakingcommunitydevelopmentloans.Examinersnotedthatthebank extendedasubstantialnumberanddollaramountof communitydevelopmentloans,with mostof theloansdirectlytargetedataffordablehousingforLMIfamilies. ExaminersfoundthatParkSterlingBankmaintainedanadequatelevelof qualifiedinvestments,particularlythosethatwerenotroutinelyprovidedbyprivateinvestors.Examiners foundthatthevolumeandpercentageof thebank’sinvestmentswerecommensuratewith thoseprovidedbysimilarlysituatedbanks.Themajorityof thebank’sinvestmentsby numberanddollaramountwasfoundtohavebenefitedaffordablehousing,followedby economicdevelopmentandrevitalizationorstabilization. Examinersfoundthatthebank’sdeliverysystemswerereasonablyaccessibletoessentially allportionsof thebank’sAAs.Totheextentthatchangeshadbeenmade,examinersdeterminedthatthebank’sopeningandclosingof branchesthroughouttheAAshadimproved theaccessibilityof thebank’sdeliverysystems,especiallyinLMIgeographiesortoLMI individuals.ExaminersalsofoundthatParkSterlingBank’sbankinghoursandservicesdid notvaryinawaythatinconveniencedportionsof thebank’sAAs,particularlyLMIgeographiesorindividuals.Examinersfoundthatthebankprovidedanadequatelevelof communitydevelopmentserviceswithinitsAAs,andsuchservicessupportedavarietyof communityorganizationsthatpromotedaffordablehousing,economicdevelopment,financialeducation,andsmallbusinessdevelopment. AdditionalSupervisoryViews Initsreviewof theproposal,theBoardconsultedwiththeFDICregardingSouthState Bank’sCRA,consumercompliance,andfairlendingrecords.TheFDICreviewedthebank mergerunderlyingthisproposaland,insodoing,consideredthecommentreceivedbythe Board.Inaddition,theBoardconsultedwiththeConsumerFinancialProtectionBureau (“CFPB”). TheBoardhasconsideredtheresultsof themostrecentconsumercomplianceexamination of SouthStateBankconductedbytheFDIC,whichincludedareviewof thebank’s 38 TheParkSterlingBankEvaluationwasconductedusingLargeInstitutionCRAExaminationProcedures. ExaminersreviewedmortgageloansreportedpursuanttoHMDAandsmallloansmadetobusinessesand farmsreportedunderCRAdatacollectionrequirementsfromJanuary1,2015,throughDecember31,2016. Theevaluationperiodforcommunitydevelopmentlending,investments,andserviceswasApril12,2014, throughApril24,2017.TheParkSterlingBankEvaluationincludedfull-scopeevaluationsofthebank’sAAs inthefollowinglocations:Charlotte-Concord-Gastonia,NorthCarolina-SouthCarolinaMultistateMSA; Greenville-Anderson-Mauldin,SouthCarolinaMSA;SouthCarolinanon-MSA;Wilmington,NorthCarolina MSA;Georgianon-MSA;andRichmond,VirginiaMSA.Limited-scopeevaluationswereperformedinthe bank’sotherAAs.

66 FederalReserveBulletin|February2018 compliancemanagementsystemandthebank’scompliancewithconsumerprotectionlaws, includingfairlendinglawsandregulations.Examinersalsoconductedtransactiontesting andafairlendingreview. TheBoardhastakentheconsultationswiththeFDICandtheCFPBandtheinformation discussedaboveintoaccountinevaluatingtheproposedtransaction,includinginconsideringwhetherSSChastheexperienceandresourcestoensurethattheorganizationeffectivelyimplementspoliciesandprogramsthatwouldallowthecombinedorganizationto serveeffectivelythecreditneedsof allthecommunitieswithinthefirm’sAAs. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.SSCrepresentsthat,asaresultof theproposal, existingcustomersof SouthStateBankandParkSterlingBankwouldbenefitfroman expandedbranchandATMnetworkandabroaderrangeof financialproductsand services.Moreover,SSCrepresentsthattheproposedtransactionwouldcreatepotential expense-savingopportunities,whichwouldcreateopportunitiestopasssavingsonto customersof thecombinedorganization. SSCcontendsthatthecombinedorganizationwouldhaveagreaterfocusonconsumer lending,asadditionalParkSterlingBankemployeeswouldbetrainedasconsumerlenders, andtheorganizationwouldbeabletoofferhigherunsecuredloanamounts.SSCasserts thatcurrentsmallbusinessandcommercialcustomersof ParkSterlingBankwouldgain accesstoabroaderretailnetwork,focusedondeliveringsmallbusinessloans,aswellasto enhancedsmallbusinesslendingthroughSouthStateBank’sparticipationandexperienceinSmallBusinessAdministrationlendingandotherstateandfederalloanassistance programs. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws,supervisoryviewsof theFDIC,confidential supervisoryinformation,informationprovidedbySSC,thepubliccommentonthe proposal,andotherpotentialeffectsof theproposalontheconvenienceandneedsof the communitiestobeserved.Basedonthatreview,theBoardconcludesthattheconvenience andneedsfactorisconsistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedsection3of theBHCActtorequiretheBoardtoconsider“theextenttowhicha proposedacquisition,merger,orconsolidationwouldresultingreaterrisktothestability of theUnitedStatesbankingorfinancialsystem.”39 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand 39 Dodd-FrankAct§604(d),Pub.L.No.111-203,124Stat.1376,1601(2010),codifiedat12U.S.C.§1842(c)(7).

LegalDevelopments:FourthQuarter,2017 67 servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the resultingfirm.40Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.41 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.42 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.Both theacquirerandthetargetarepredominatelyengagedinretailandcommercialbanking activities.43Theproformaorganizationwouldhaveminimalcross-borderactivitiesand wouldnotexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.In addition,theorganizationwouldnotbeacriticalservicesproviderorsointerconnected withotherfirmsorthemarketsthatitwouldposesignificantrisktothefinancialsystemin theeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationshouldbe,andherebyis,approved.44Inreachingitsconclusion,theBoardhasconsid- 40 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 41 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 42 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 43 SSCandPSCofferarangeofretailandcommercialbankingproductsandservices.SSChas,andasaresultof theproposedtransactionwouldcontinuetohave,asmallmarketshareintheseproductsandservicesona nationwidebasis. 44 ThecommenterrequestedthattheBoardholdapublichearingormeetingontheproposal.Section3(b)ofthe BHCActdoesnotrequirethattheBoardholdapublichearingonanyapplicationunlesstheappropriate supervisoryauthoritiesforthebanktobeacquiredmakeatimelywrittenrecommendationofdenialofthe application.12U.S.C.§1842(b);12CFR225.16(e).TheBoardhasnotreceivedsucharecommendationfrom theappropriatesupervisoryauthorities.Underitsrules,theBoardalsomay,initsdiscretion,holdapublic hearingifappropriatetoallowinterestedpersonsanopportunitytoproviderelevanttestimonywhenwritten commentswouldnotadequatelyrepresenttheirviews.TheBoardhasconsideredthecommenter’srequestin lightofallthefactsofrecord.IntheBoard’sview,thecommenterhashadampleopportunitytosubmit

68 FederalReserveBulletin|February2018 eredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunderthe BHCActandotherapplicablestatutes.TheBoard’sapprovalisspecificallyconditionedon compliancebySSCwithallof theconditionsimposedinthisorder,includingreceiptof all requiredregulatoryapprovals,andonthecommitmentsmadetotheBoardinconnection withtheapplication.Forpurposesof thisaction,theconditionsandcommitmentsare deemedtobeconditionsimposedinwritingbytheBoardinconnectionwithitsfindings anddecisionhereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorder,orlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardortheFederalReserveBankof Richmond,actingunder delegatedauthority. Byorderof theBoardof Governors,effectiveNovember15,2017. Votingforthisaction:ChairYellen,ViceChairmanforSupervisionQuarles,andGovernorsPowellandBrainard. AnnE.Misback Secretaryof theBoard commentsontheproposaland,infact,submittedwrittencommentsthattheBoardhasconsideredinactingon theproposal.Thecommenter’srequestdidnotidentifydisputedissuesoffactmaterialtotheBoard’sdecision thatwouldbeclarifiedbyapublicmeeting.Inaddition,therequestdidnotdemonstratewhywrittencomments donotpresentthecommenter’sviewsadequatelyorwhyahearingormeetingotherwisewouldbenecessaryor appropriate.Forthesereasons,andbasedonallthefactsofrecord,theBoardhasdeterminedthatapublic hearingormeetingisnotrequiredorwarrantedinthiscase.Accordingly,therequestforapublichearingon theproposalisdenied.

LegalDevelopments:FourthQuarter,2017 69 National Bank Holdings Corporation Greenwood Village, Colorado OrderApprovingtheMergerof BankHoldingCompanies,theMergerof Banks,andthe Establishmentof Branches FRBOrderNo.2017-34(November28,2017) NationalBankHoldingsCorporation(“NBH”),GreenwoodVillage,Colorado,abank holdingcompanywithinthemeaningof theBankHoldingCompanyActof 1956(“BHC Act”),1hasrequestedtheBoard’sapprovalundersection3of theBHCAct2tomergewith Peoples,Inc.(“Peoples”),Lawrence,Kansas,andtherebyindirectlyacquirePeoplesBank, Lawrence,Kansas,andPeoplesNationalBank(“PNB”),ColoradoSprings,Colorado. Inaddition,NBH’ssubsidiarystatememberbank,NBHBank(togetherwithNBH, “Applicants”),GreenwoodVillage,Colorado,hasrequestedtheBoard’sapprovalunder section18(c)of theFederalDepositInsuranceAct(“BankMergerAct”)tomergewith PeoplesBankandPNB,withNBHBankasthesurvivingentity.3NBHBankalsohas appliedundersection9of theFederalReserveAct(“FRA”)toestablishandoperate branchesatthemainofficesandbranchesof PeoplesBankandPNB.4 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(82FederalRegister37589(August11,2017)).5Thetimeforsubmitting commentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct,theBankMergerAct, andtheFRA.AsrequiredbytheBankMergerAct,areportonthecompetitiveeffectsof themergerwasrequestedfromtheUnitedStatesAttorneyGeneral,andacopyof the requesthasbeenprovidedtotheFederalDepositInsuranceCorporation. NBH,withconsolidatedassetsof approximately$4.7billion,isthe212thlargestinsured depositoryorganizationintheUnitedStates.NBHcontrolsapproximately$3.9billionin consolidateddeposits,whichrepresentlessthan1percentof thetotalamountof deposits of insureddepositoryinstitutionsintheUnitedStates.6NBHcontrolsNBHBank,which operatesinColorado,Kansas,Missouri,andTexas.NBHisthe25thlargestinsured depositoryorganizationinKansas,controllingdepositsof approximately$574.4million, whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutions inthatstate.7NBHisthe15thlargestinsureddepositoryorganizationinColorado, controllingdepositsof approximately$1.5billion,whichrepresentapproximately 1.2percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. Peoples,withconsolidatedassetsof approximately$924.3million,isthe796thlargest insureddepositoryorganizationintheUnitedStates.8Peoplescontrolsapproximately 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 12U.S.C.§1828(c). 4 12U.S.C.§321.Inaddition,NBHBankhasappliedundersection9oftheFRAtoestablishbranchesat certainlocationsofPeoplesBankthatcurrentlyonlyprovidelimitedservices.Thelocationsofallofthe branchestobeestablishedarelistedintheAppendix. 5 12CFR262.3(b). 6 Nationalassetdata,marketshare,andrankingdataareasofJune30,2017,unlessotherwisenoted. 7 StatedepositdataareasofJune30,2016.Inthiscontext,insureddepositoryinstitutionsincludecommercial banks,creditunions,savingsassociations,andsavingsbanks. 8 TheWinterTrustof12/3/74(“WinterTrust”),Lawrence,Kansas,isaregisteredbankholdingcompanythat controlsPeoples.Afterconsummationoftheproposedtransaction,theWinterTrustisexpectedtoderegister asabankholdingcompany.

70 FederalReserveBulletin|February2018 $724.3millioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.Peoplescontrols PeoplesBank,whichoperatesinKansasandNewMexico,andPNB,whichoperatesin Colorado.Peoplesisthe69thlargestinsureddepositoryorganizationinKansas,controllingdepositsof approximately$220.2million,whichrepresentlessthan1percentof the totaldepositsof insureddepositoryinstitutionsinthatstate.Peoplesisthe42ndlargest insureddepositoryorganizationinColorado,controllingdepositsof approximately $265.1million,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. Onconsummationof theproposal,NBHwouldbecomethe192ndlargestinsureddepositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $5.6billion,whichrepresentlessthan1percentof thetotalassetsof insureddepository institutionsintheUnitedStates.NBHwouldcontrolconsolidateddepositsof approximately$4.6billion,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryorganizationsintheUnitedStates.InKansas,NBHwouldbecomethe 14thlargestinsureddepositoryorganization,controllingdepositsof approximately $794.5million,whichrepresentapproximately1.1percentof thetotaldepositsof insured depositoryinstitutionsinthatstate.InColorado,NBHwouldbecomethe14thlargest insureddepositoryorganization,controllingdepositsof approximately$1.8billion,which representapproximately1.4percentof thetotaldepositsof insureddepositoryinstitutions inthatstate. InterstateandDepositCapAnalysis Section3(d)of theBHCActgenerallyprovidesthat,if certainconditionsaremet,the Boardmayapproveanapplicationbyabankholdingcompanytoacquirecontrolof a banklocatedinastateotherthanthehomestateof thebankholdingcompanywithout regardtowhetherthetransactionisprohibitedunderstatelaw.9Section44of theFederal DepositInsuranceAct(“FDIAct”)generallyprovidesthat,if certainconditionsaremet, theBoardmayapproveamergertransactionundertheBankMergerActbetweeninsured bankswithdifferenthomestateswithoutregardtowhetherthetransactionisprohibited understatelaw.10TheBoardmaynotapproveanapplicationthatwouldpermitanout-ofstatebankholdingcompanyorbanktoacquireabankinahoststateif thebankhasnot beeninexistenceforthelesserof thestatestatutoryminimumperiodof timeorfive years.11Inaddition,undersection3(d)of theBHCAct,theBoardmaynotapprovean interstateapplicationif thebankholdingcompanycontrolsor,uponconsummationof the proposedtransaction,wouldcontrolmorethan10percentof thetotaldepositsof insured depositoryinstitutionsintheUnitedStatesor,incertaincircumstances,if thebankholding company,uponconsummation,wouldcontrol30percentormoreof thetotaldepositsof insureddepositoryinstitutionsinanystateinwhichtheacquirerandtargethaveoverlappingoperations.12 9 12U.S.C.§1842(d)(1)(A). 10 12U.S.C.§1831u(a)(1). 11 12U.S.C.§§1831u(a)(5)and1842(d)(1)(B). 12 12U.S.C.§1842(d)(2)(A)&(B).SimilarprohibitionsapplytoactionbytheBoardoninterstatebankmerger applicationsundersection44oftheFDIAct.See12U.S.C.§1831u(b)(2).Forpurposesofsection3(d)ofthe BHCAct,theacquiringandtargetinstitutionshaveoverlappingbankingoperationsinanystateinwhichany banktobeacquiredislocatedandtheacquiringbankholdingcompanycontrolsanyinsureddepositoryinstitutionorabranch.TheBoardconsidersabanktobelocatedinthestatesinwhichthebankischarteredor headquarteredoroperatesabranch.See12U.S.C.§1841(o)(4)–(7).

LegalDevelopments:FourthQuarter,2017 71 Forpurposesof theBHCAct,thehomestateof NBHisMissouri,PeoplesBankislocated inKansasandNewMexico,andPNBislocatedinColorado.13Forpurposesof section44 of theFDIAct,thehomestateof NBHBankisColorado,andthehomestatesof PeoplesBankandPNBareKansasandColorado,respectively.14NBHandNBHBankare wellcapitalizedandwellmanagedunderapplicablelaw,andNBHBankhasa“Satisfactory”ratingundertheCommunityReinvestmentActof 1977(“CRA”).15Kansashasa five-yearminimumagerequirementandtherearenominimumagerequirementsunderthe lawsof ColoradoorNewMexicothatwouldapplytotheproposal.16PeoplesBankand PNBhaveeachbeeninexistenceformorethan5years. Onconsummationof theproposedtransaction,NBHwouldcontrollessthan1percentof thetotalamountof consolidateddepositsof insureddepositoryinstitutionsintheUnited States.Eachof Kansas,Colorado,andNewMexicoimposesalimitonthetotalamountof in-statedepositsthatasinglebankingorganizationmaycontrol.Specifically,Kansas imposesa15percentdepositlimit,Coloradoimposesa25percentdepositlimit,andNew Mexicoimposesa40percentdepositlimit.17Thecombinedorganizationwouldcontrol approximately1.1percentof thetotalamountof depositsof insureddepositoryinstitutionsinKansas,approximately1.4percentof thetotalamountof depositsof insured depositoryinstitutionsinColorado,andlessthan1percentof thetotalamountof deposits of insureddepositoryinstitutionsinNewMexico.TheBoardhasconsideredallother requirementsundersection3(d)of theBHCActandsection44of theFDIAct,including NBHBank’srecordof meetingtheconvenienceandneedsof thecommunitiesitserves. Accordingly,inlightof allthefactsof record,theBoardmayapprovetheproposalunder bothstatutes. CompetitiveConsiderations Section3of theBHCActandtheBankMergerActprohibittheBoardfromapprovinga proposalthatwouldresultinamonopolyorwouldbeinfurtheranceof anattemptto monopolizethebusinessof bankinginanyrelevantmarket.18Bothstatutesalsoprohibit theBoardfromapprovingaproposalthatwouldsubstantiallylessencompetitionortendto createamonopolyinanybankingmarket,unlesstheanticompetitiveeffectsof the proposalareclearlyoutweighedinthepublicinterestbytheprobableeffectof theproposal inmeetingtheconvenienceandneedsof thecommunitytobeserved.19 NBHandPeopleshavesubsidiarydepositoryinstitutionsthatcompetedirectlyinthe ColoradoSprings,Colorado,bankingmarket(“ColoradoSpringsmarket”)andthe KansasCity,Missouri,bankingmarket(“KansasCitymarket”).20TheBoardhasconsideredthecompetitiveeffectsof theproposalinthesebankingmarkets.Inparticular,the 13 See12U.S.C.§1841(o)(4).Abankholdingcompany’shomestateisthestateinwhichthetotaldepositsofall bankingsubsidiariesofsuchcompanywerethelargestonJuly1,1966,orthedateonwhichthecompany becameabankholdingcompany,whicheverislater.Astatebank’shomestateisthestateinwhichthebankis chartered. 14 Forpurposesofsection44oftheFDIAct,astatebank’shomestateisthestateinwhichthebankischartered, andanationalbank’shomestateisthestateinwhichthemainofficeofthebankislocated.12U.S.C. §1831u(g)(4). 15 12U.S.C.§2901etseq. 16 SeeKan.Stat.Ann.§9-541. 17 SeeKan.Stat.Ann.§9-520;Colo.Rev.Stat.§11-104-202(4);N.M.Stat.Ann.§58-1C-5(B). 18 12U.S.C.§§1842(c)(1)and1828(c)(5). 19 12U.S.C.§§1842(c)(1)(B)and1828(c)(5)(B). 20 TheColoradoSpringsmarketincludestheColoradoSprings,Colorado,RanallyMetropolitanArea(“RMA”), andthenon-RMAportionsofElPasoandTellercounties,bothofColorado.TheKansasCitymarketis definedasCass,Clay,Jackson,Lafayette,Platte,andRaycounties,allofMissouri;thetownsofTrimbleand HoltinClintonCounty,Missouri;thetownsofChilhowee,Holden,andKingsvilleinJohnsonCounty,

72 FederalReserveBulletin|February2018 Boardhasconsideredthenumberof competitorsthatwouldremaininthemarkets;the relativesharesof totaldepositsof insureddepositoryinstitutionsinthemarkets(“market deposits”)thatNBHwouldcontrol;21theconcentrationlevelsof marketdepositsandthe increasesintheselevelsasmeasuredbytheHerfindahl-HirschmanIndex(“HHI”)under theDepartmentof JusticeBankMergerCompetitiveReviewguidelines(“DOJBank MergerGuidelines”);22andothercharacteristicsof themarkets. Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesfortheColoradoSpringsandKansasCity markets.Onconsummationof theproposal,theColoradoSpringsmarketwouldremain moderatelyconcentratedandtheKansasCitymarketwouldremainunconcentrated,as measuredbytheHHI,accordingtotheDOJBankMergerGuidelines.Thechangeinthe HHIinthesemarketswouldbesmall,andnumerouscompetitorswouldremainineach bankingmarket.23 TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket.Inaddition,the appropriatebankingagencieshavebeenaffordedanopportunitytocommentandhavenot objectedtotheproposal. Basedonallof thefactsof record,theBoardconcludesthatconsummationof the proposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheColoradoSpringsorKansasCitymarkets,orinanyother relevantbankingmarket.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistentwithapproval. Missouri;thetownsofAdrian,Amsterdam,andButlerinBatesCounty,Missouri;Franklin,Johnson, Leavenworth,Miami,andWyandottecounties,allofKansas;andLinnCounty,Kansas(excludingthetowns ofBlueMoundandPrescott). 21 LocaldepositandmarketsharedataareasofJune30,2016,andarebasedoncalculationsinwhichthe depositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhasindicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorstocommercialbanks.See,e.g., MidwestFinancialGroup,75FederalReserveBulletin386(1989)andNationalCityCorporation,70Federal ReserveBulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsinthemarketsharecalculationona50percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserveBulletin52(1991). 22 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableatwww.justice.gov/opa/pr/ 2010/August/10-at-938.html. 23 NBHoperatesthe36thlargestdepositoryinstitutionintheColoradoSpringsmarket,controllingapproximately$18.1millionindeposits,whichrepresentapproximately0.2percentofmarketdeposits.Peoplesoperatesthe8thlargestdepositoryinstitutioninthesamemarket,controllingdepositsofapproximately $211.4million,whichrepresentapproximately2.8percentofmarketdeposits.Onconsummationofthe proposedtransaction,NBHwouldbecomethe8thlargestdepositoryorganizationinthemarket,controlling depositsofapproximately$229.4million,whichrepresentapproximately3percentofmarketdeposits.The HHIfortheColoradoSpringsmarketwouldincreaseby2pointsto1068,and38competitorswouldremainin themarket. NBHoperatesthe6thlargestdepositoryinstitutionintheKansasCitymarket,controllingapproximately $1.6billionindeposits,whichrepresentapproximately3.2percentofmarketdeposits.Peoplesoperatesthe 34thlargestdepositoryinstitutioninthesamemarket,controllingdepositsofapproximately$174.5million, whichrepresentapproximately0.4percentofmarketdeposits.Onconsummationoftheproposedtransaction, NBHwouldremainthe6thlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately$1.7billion,whichrepresentapproximately3.5percentofmarketdeposits.TheHHIfortheKansas Citymarketwouldincreaseby3pointsto847,and115competitorswouldremaininthemarket.

LegalDevelopments:FourthQuarter,2017 73 Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsidersthefinancialandmanagerialresourcesandthefutureprospectsof the institutionsinvolved.24Initsevaluationof thefinancialfactors,theBoardreviewsinformationregardingthefinancialconditionof theorganizationsinvolvedonbothparent-only andconsolidatedbases,aswellasinformationregardingthefinancialconditionof the subsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.Inthisevaluation,theBoardconsidersavarietyof information,regardingcapital adequacy,assetquality,liquidity,andearningsperformance.TheBoardevaluatesthefinancialconditionof thecombinedorganization,includingitscapitalposition,assetquality, liquidity,earningsprospects,andtheimpactof theproposedfundingof thetransaction. TheBoardalsoconsiderstheabilityof theorganizationtoabsorbthecostsof theproposal andtocompleteeffectivelytheproposedintegrationof theoperationsof theinstitutions. Inassessingfinancialfactors,theBoardconsiderscapitaladequacytobeespeciallyimportant.TheBoardconsidersthefutureprospectsof theorganizationsinvolvedinthe proposalinlightof theirfinancialandmanagerialresourcesandtheproposedbusiness plan. NBHandNBHBankarebothwellcapitalizedandwouldremainsoonconsummationof theproposedtransaction.Theproposedtransactionisabankholdingcompanymerger, withsubsequentmergersof PeoplesBankandPNBwithandintoNBHBank.25Theasset quality,earnings,andliquidityof NBHBank,PeoplesBank,andPNBareeachconsistentwithapproval,andNBHappearstohaveadequateresourcestoabsorbthecostsof the proposalandtocompleteintegrationof theinstitutions’operations.Inaddition,future prospectsundertheproposalareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of NBH,Peoples,andtheirsubsidiarydepositoryinstitutions,includingassessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition,theBoardhas consideredinformationprovidedbyNBH,theBoard’ssupervisoryexperiencesandthose of otherrelevantbanksupervisoryagencieswiththeorganizations,andtheorganizations’ recordsof compliancewithapplicablebanking,consumerprotection,andanti-moneylaunderinglaws. NBHanditssubsidiarydepositoryinstitutionareeachconsideredtobewellmanaged. NBHhasarecordof successfullyintegratingorganizationsintoitsoperationsandriskmanagementsystemsafteracquisitions.NBH’sdirectorsandseniorexecutiveofficershave substantialknowledgeof andexperienceinthebankingandfinancialsectors,andNBH’s risk-managementprogramappearsconsistentwithapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredNBH’splansforimplementingtheproposal.NBHhas conductedcomprehensiveduediligenceandisdevotingsignificantfinancialandother resourcestoaddressallaspectsof thepost-integrationprocessforthisproposal.NBH wouldimplementitsrisk-managementpolicies,procedures,andcontrolsatthecombined organization,andtheseareconsideredacceptablefromasupervisoryperspective.Inaddition,NBH’smanagementhastheexperienceandresourcestooperatethecombined 24 12U.S.C.§§1842(c)(2),(5)&(6),and1828(c)(5)&(11). 25 Toeffectthetransaction,eachshareofPeoplescommonstockwouldbeconvertedintoarighttoreceivecash andNBHcommonstock,basedonanexchangeratio.NBHhasthefinancialresourcestoeffecttheproposed transaction.

74 FederalReserveBulletin|February2018 organizationinasafeandsoundmanner,andNBHplanstointegratetheexistingmanagementandpersonnelof PeoplesinamannerthataugmentsNBH’smanagement.26 Basedonallthefactsof record,includingNBH’ssupervisoryrecord,managerialand operationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandfutureprospectsof theorganizationsinvolvedintheproposal,aswellasthe recordsof effectivenessof NBHandPeoplesincombattingmoney-launderingactivities, areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.27Initsevaluationof theeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecreditneedsof thecommunitiestheyserve,aswellasother potentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served.Inthisevaluation,theBoardplacesparticularemphasisontherecordsof the relevantdepositoryinstitutionsundertheCRA.28TheCRArequiresthefederalfinancial supervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeetthecredit needsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeinstitutions’safe andsoundoperation,29andrequirestheappropriatefederalfinancialsupervisoryagencyto assessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof itsentire community,includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluating bankexpansionaryproposals.30 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,thesupervisoryviewsof examiners,othersupervisoryinformation,andinformationprovidedbythe applicants.TheBoardalsomayconsidertheinstitution’sbusinessmodel,itsmarketingand outreachplans,theorganization’splansafterconsummation,andanyotherinformation theBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof NBH Bank,PeoplesBank,andPNB;thecompliancerecordsof eachbank;thesupervisoryviews of theFederalReserveBankof KansasCity(“ReserveBank”);confidentialsupervisory information;andinformationprovidedbyNBH. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardevaluates aninstitution’sperformancerecordinlightof examinationsbytheappropriatefederal supervisorsof theCRAperformancerecordsof therelevantinstitutions,aswellasinfor- 26 Followingconsummationoftheproposedtransaction,certainofficersandemployeesofPeoplesBankand PNBwilljoinNBHBank. 27 12U.S.C.§§1842(c)(2)and1828(c)(5). 28 12U.S.C.§2901etseq. 29 12U.S.C.§2901(b). 30 12U.S.C.§2903.

LegalDevelopments:FourthQuarter,2017 75 mationandviewsprovidedbytheappropriatefederalsupervisors.31Inthiscase,theBoard consideredtheviewsof theReserveBank. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.32Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplylending,investment,andserviceteststo evaluatetheperformanceof alargeinsureddepositoryinstitutioninhelpingtomeetthe creditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’shomemortgage,smallbusiness,smallfarm,andcommunitydevelopmentlendingto determinewhethertheinstitutionishelpingtomeetthecreditneedsof individualsand geographiesof allincomelevels.Aspartof thelendingtest,examinersreviewandanalyze aninstitution’sdatareportedundertheHomeMortgageDisclosureAct(“HMDA”),33in additiontosmallbusiness,smallfarm,andcommunitydevelopmentloandatacollected andreportedundertheCRAregulations,toassessaninstitution’slendingactivitieswith respecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slending performanceisbasedonavarietyof factors,including(1)thenumberandamountsof homemortgage,smallbusiness,smallfarm,andconsumerloans(asapplicable)intheinstitution’sassessmentareas(“AAs”);(2)thegeographicdistributionof theinstitution’s lending,includingtheproportionanddispersionof theinstitution’slendinginitsAAsand thenumberandamountsof loansinlow-,moderate-,middle-,andupper-incomegeographies;(3)thedistributionof loansbasedonborrowercharacteristics,including,forhome mortgageloans,thenumberandamountsof loanstolow-,moderate-,middle-,andupperincomeindividuals;34(4)theinstitution’scommunitydevelopmentlending,includingthe numberandamountsof communitydevelopmentloansandtheircomplexityand innovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpracticesto addressthecreditneedsof LMIindividualsandgeographies. CRAPerformanceof NBHBank NBHBankwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRAperformanceevaluationbytheReserveBank,asof December5,2016(“NBHBankEvaluation”).35Thebankreceivedan“Outstanding”ratingfortheLendingTestand“LowSatisfactory”ratingsfortheInvestmentTestandServiceTest.36ExaminersfoundthatNBH 31 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegisterS48506, 48548(July25,2016). 32 12U.S.C.§2906. 33 12U.S.C.§2801etseq. 34 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3). 35 TheNBHBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Examiners reviewedHMDA,business,andfarmloans,aswellascommunitydevelopmentactivities(loans,investments, andservices),fromJanuary1,2011,throughDecember31,2015. 36 TheNBHBankEvaluationincludedfull-scopeevaluationsintheKansasCity,CombinedStatisticalArea; Denver,ColoradoMetropolitanStatisticalArea(“MSA”);RuralColoradoAA;NorthwestRuralMissouriAA; andtheDallas,TexasMetropolitanDivision.LimitedscopeevaluationswereperformedintheColorado Springs,ColoradoMSA;FortCollins,ColoradoMSA;Greeley,ColoradoMSA;Pueblo,ColoradoMSA; GrandJunction,ColoradoMSA;NorthCentralRuralMissouriAA;NortheastRuralMissouriAA;and Austin,TexasMSA.

76 FederalReserveBulletin|February2018 Bank’soveralllendingactivityreflectedgoodresponsivenesstothecreditneedsof itsAAs. Examinersfoundthatthebankoriginatedasubstantialmajorityof itsHMDA,business, andfarmloanswithinitsAAsandthatthegeographicdistributionof thebank’sHMDA, business,andfarmloanswasgood.Inaddition,examinersnotedthatthebank’sloan distributionreflectedgoodpenetrationamongborrowersof differentincomelevelsand businessesandfarmsof differentsizes.ExaminersnotedthatNBHBankwasaleaderin makingloansthatrevitalizedandstabilizedLMIgeographies,aswellasloansforeconomic development. ExaminersdeterminedthatNBHBankdemonstratedanadequateresponsivenesstothe communitydevelopmentneedsof itsAAsthroughinvestmentsandserviceactivity.Examinersfoundthatthebank’scommunitydevelopmentinvestmentsprimarilyconsistedof mortgage-backedsecuritiescomprisedof loanstoLMIborrowersorsecuredbyaresidentialmortgagewithinanLMIcensustract.Inaddition,examinersfoundthatthebank’s products,services,andbusinesshoursdidnotvaryinawaythatinconveniencedcustomers initsAAs,particularlythoseinLMIgeographiesandindividuals. CRAPerformanceof PeoplesBank PeoplesBankwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheReserveBank,asof August6,2012(“PeoplesBankEvaluation”).37Thebankreceived“Satisfactory”ratingsforeachof theLendingTestandthe CommunityDevelopmentTest.38 ExaminersfoundthatPeoplesBank’saveragenetloan-to-depositratio,whichisameasure of theoveralllevelof lending,wasmorethanreasonablegiventhebank’ssizeandfinancial conditionandthecreditneedsof thebank’sAAs.Examinersalsofoundthatamajorityof thebank’shomepurchase,homeimprovement,andbusinessloanswereoriginatedwithin thebank’sAAsandthatthegeographicandborrowerdistributionof loansreflected reasonablepenetrationthroughoutthebank’sAAs. ExaminersnotedthatPeoplesBank’scommunitydevelopmentperformance,which includedloans,donations,andservices,demonstratedadequateresponsivenesstocommunitydevelopmentneedsthroughoutitsAAs.Thebankwasfoundtohaveperformedservice activitiesforvariousorganizations,particularlythoseprovidingcommunityservices targetedtoLMIindividualsorfamilies. CRAPerformanceof PNB PNBwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRAperformance evaluationbytheOfficeof theComptrollerof theCurrency,asof June6,2011(“PNB Evaluation”).39ExaminersfoundthatPNB’sloan-to-depositratiowasexcellent,givenarea competitionandthecreditneedsof thecommunity.Examinersalsofoundthatthe majorityof thebank’sloansbynumberanddollaramountwereoriginatedwithinitsAA 37 ThePeoplesBankEvaluationwasconductedusingtheIntermediateSmallBankCRAExaminationProcedures.ExaminersreviewedHMDAloansfrom2010and2011andbusinessloansfromasix-monthperiodthat endedJune12,2012.Examinersalsoreviewedcommunitydevelopmentactivities(loans,investments,and services),fromJune21,2010,throughAugust6,2012. 38 ThePeoplesBankEvaluationincludedfull-scopeevaluationsintheKansasCity,Missouri-KansasMSA,and theAlbuquerque,NewMexicoMSA.LimitedscopeevaluationswereperformedintheLawrence,KansasMSA andNon-Metropolitan,TaosCounty,NewMexicoNon-MSA. 39 ThePNBEvaluationwasconductedusingSmallBankCRAExaminationProcedures.Examinersreviewed commercialrealestateloansfromJanuary2006throughMay2011,andHMDAloansfromJanuary1,2010, throughMarch31,2011.ThePNBEvaluationincludedafull-scopereviewofthebank’sAA,theElPaso County,ColoradoMSA.

LegalDevelopments:FourthQuarter,2017 77 anditsoveralllendingtoborrowersof differentincomesandtosmallbusinesseswas reasonable.Examinersdeterminedthatthebank’slendingtosmallbusinesseswasexcellent andnotedthatthebank’sdistributionof loanstosmallbusinessesexceededthedemographiccomparator. Examinersfoundthatthegeographicdistributionof PNB’sresidentialrealestateloans reflectedreasonabledispersionthroughoutthegeographiesfordifferentincomelevels. Examinersalsofoundthatthegeographicdistributionof PNB’sbusinessloanswithinthe bank’sAAwasexcellent. AdditionalConvenienceandNeedsConsiderations TheBoardhasenteredintoaConsentOrderwithPeoplesBankwithrespecttodeceptive practicesinviolationof section5of theFederalTradeCommissionAct,40whichwere centeredinPeoplesBank’snationalmortgagebusinessline.Thisbusinessline,whichis separateandapartfromtheBank’scommunitybankingoperations,isbeingterminated andisnotbeingassumedbyNBHaspartof thisproposal.PursuanttotheConsentOrder, PeoplesBankhasagreedtopayrestitutiontoaffectedcustomersandtosetasideatleast $2.8millionforthispurpose.BecauseNBHisnotapartytotheConsentOrder,thisorder isconditionedonNBH’scommitmenttocauseNBHBanktocomplywithPeoplesBank’s restitutionandrelatedConsentOrderobligations. TheBoardalsoconsideredotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.NBHrepresentsthatitdoesnothaveanyplansto discontinueanyproductorservicecurrentlyofferedbyPeoplesBankorPNB.NBHrepresentsthat,followingtheproposedtransaction,itscustomerswouldgainaccesstoproductsandservicesnotcurrentlyofferedbyNBHBank,includingwealthandinvestment servicesthroughathird-partybroker-dealerrelationshipandhealthsavingsaccountsand payrollservicesthroughanotherthird-partyrelationship.Inaddition,NBHrepresentsthat theproposedtransactionwouldprovideexpandedproductcapabilitiestocustomersof PeoplesBankandPNB,includingaccesstoNBHBank’screditcardofferings,amerchantfundeddebitcardcashbackprogram,andvariousonlinebankingfeatures,suchaswire transfers,person-to-personpayments,andpersonalfinancialmanagementtools.Inaddition,NBHrepresentsthatcustomersof NBHandPeopleswouldbenefitfromalarger branchandATMnetwork. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtheCRArecordsof therelevant depositoryinstitutionsinvolved,theinstitutions’recordsof compliancewithconsumer protectionlaws,confidentialsupervisoryinformation,informationprovidedbyNBH,and otherpotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiesto beserved.Basedonthatreview,theBoardconcludesthattheconvenienceandneeds factorisconsistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedsection3of theBHCActandtheBankMergerActtorequiretheBoardto 40 15U.S.C.§45.

78 FederalReserveBulletin|February2018 consideraproposal’s“risktothestabilityof theUnitedStatesbankingorfinancial system.”41 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the resultingfirm.42Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.43 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.44 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.Both theacquirerandthetargetarepredominantlyengagedinavarietyof consumerand commercialbankingactivities.45Theproformaorganizationwouldhaveminimalcrossborderactivitiesandwouldnotexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.Inaddition,theorganizationwouldnotbeacriticalservicesprovideror sointerconnectedwithotherfirmsorthemarketsthatitwouldposeasignificantriskto thefinancialsystemintheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. 41 Dodd-FrankAct§§604(d)&(f),Pub.L.No.111-203,124Stat.1376,1601–1602(2010),codifiedat12U.S.C. §§1842(c)(7)and1828(c)(5). 42 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 43 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 44 SeePeoplesUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 45 NBHoffersavarietyofbankingproductsandservices,includingretailandcommercialbanking;consumer, commercial,andmortgagelending;andconsumerfinanceloans.Peoplesalsooffersavarietyofbankingproductsandservices,includingcommercial,mortgage,andconsumerloans.Ineachoftheactivitiesinwhichit engages,NBHhas,andasaresultoftheproposalwouldcontinuetohave,asmallmarketshareonanationwidebasis,andnumerouscompetitorswouldremainfortheseservices.

LegalDevelopments:FourthQuarter,2017 79 Establishmentof Branches NBHBankhasappliedundersection9of theFRAtoestablishbranchesatthecurrent locationsof PeoplesBankandPNB.46TheBoardhasassessedthefactorsitisrequiredto considerwhenreviewinganapplicationunderthatsection.47Specifically,theBoardhas consideredNBHBank’sfinancialcondition,management,capital,actionsinmeetingthe convenienceandneedsof thecommunitiestobeserved,CRAperformance,andinvestmentinbankpremises.Forthereasonsdiscussedinthisorder,theBoardfindsthose factorstobeconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationsshouldbe,andherebyare,approved.Inreachingitsconclusion,theBoardhas consideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunder theBHCAct,theBankMergerAct,theFRA,andotherapplicablestatutes.TheBoard’s approvalisspecificallyconditionedoncompliancebyApplicantswithallof theconditions imposedinthisorder,includingreceiptof allrequiredregulatoryapprovals,andonthe commitmentsmadetotheBoardinconnectionwiththeapplications.Forpurposesof this action,theconditionsandcommitmentsaredeemedtobeconditionsimposedinwriting bytheBoardinconnectionwithitsfindingsanddecisionhereinand,assuch,maybe enforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardorbytheReserveBank,actingunderdelegatedauthority. Byorderof theBoardof Governors,effectiveNovember28,2017. Votingforthisaction:ChairYellen,ViceChairmanforSupervisionQuarles,andGovernorsPowellandBrainard. AnnE.Misback Secretaryof theBoard 46 See12U.S.C.§321.Undersection9oftheFRA,statememberbanksmayestablishandoperatebrancheson thesametermsandconditionsasareapplicabletotheestablishmentofbranchesbynationalbanks.Anational bankmayestablishandoperateanewbranchwithinastateinwhichitissituated,ifsuchestablishmentand operationisauthorizedunderapplicablestatelaw.12U.S.C.§36(c).Anationalbankalsomayretainany branchfollowingamergerthatunderstatelawmaybeestablishedasanewbranchoftheresultingbankor retainedasanexistingbranchoftheresultingbank.See12U.S.C.§§36(b)(2)&(c).Inaddition,under section44oftheFDIAct,abankresultingfromaninterstatemergertransactionmayretainandoperate,asa mainofficeorabranch,anyofficethatanybankinvolvedinthemergerwasoperatingasamainofficeor branchimmediatelybeforethemergertransaction.12U.S.C.§1831u(d).Uponconsummation,NBHBank’s brancheswouldbepermissibleunderapplicablestatelaw.SeeKan.Stat.Ann.§9-1111(b);Colo.Rev.Stat. §§11-105-602and603;N.M.Stat.Ann.§58-5-2. 47 12U.S.C.§322;12CFR208.6.

80 FederalReserveBulletin|February2018 Appendix BranchestoBeEstablishedbyNBHBank 1. 745NewHampshireStreet,Lawrence,Kansas66044 2. 4831West6thStreet,Lawrence,Kansas66049 3. 1506SouthMainStreet,Ottawa,Kansas66067 4. 434SouthMainStreet,Ottawa,Kansas66067 5. 7579West151stStreet,OverlandPark,Kansas66223 6. 3045IowaStreet,Lawrence,Kansas66046 7. 212SouthBroadwayStreet,Louisburg,Kansas66053 8. 13180Metcalf Avenue,OverlandPark,Kansas66213 9. 5SupermarketRoad,Questa,NewMexico87556 10. 121EastMainStreet,RedRiver,NewMexico87558 11. 710PaseoDelPuebloSur,SuiteA,Taos,NewMexico87571 12. 219PaseoDelPuebloNorte,Taos,NewMexico87571 13. 2155LouisianaBoulevardNortheast,Suite1000,Albuquerque,NewMexico,87110 14. 1356PaseoDelPuebloSur,Taos,NewMexico87571 15. 19NorthTejon,Suite100,ColoradoSprings,Colorado80903 16. 5175NorthAcademyBoulevard,ColoradoSprings,Colorado80918 17. 13725StruthersRoad,Suite200,ColoradoSprings,Colorado80921 18. 400HarrisonAvenue,Leadville,Colorado80461 19. 1899WoodmoorDrive,Monument,Colorado80132 20. 651ScottAvenue,WoodlandPark,Colorado80863

LegalDevelopments:FourthQuarter,2017 81 CenterState Bank Corporation Winter Haven, Florida OrderApprovingtheAcquisitionof aBankHoldingCompany FRBOrder.No2017–35(December6,2017) CenterStateBankCorporation(“CenterState”),WinterHaven,Florida,afinancialholding companywithinthemeaningof theBankHoldingCompanyActof 1956(“BHCAct”),1 hasrequestedtheBoard’sapprovalundersection3of theBHCAct2toacquireHCBF HoldingCompany,Inc.(“HCBF”),andtherebyindirectlyacquireHarborCommunity Bank(“HarborBank”),bothof FortPierce,Florida.Followingtheproposedacquisition, HarborBankwouldbemergedintoCenterState’ssubsidiarybank,CenterStateBank, NationalAssociation(“CenterStateBank”),WinterHaven,Florida.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(82FederalRegister45587(September29,2017)).4Thetimeforsubmittingcommentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct. CenterState,withconsolidatedassetsof approximately$6.8billion,isthe171stlargest insureddepositoryorganizationintheUnitedStates.5CenterStatecontrolsapproximately $5.4billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.6CenterState controlsCenterStateBank,whichoperatesonlyinFlorida.CenterStateisthe21stlargest insureddepositoryorganizationinFlorida,controllingdepositsof approximately $4.1billion,whichrepresentlessthan1percentof thetotaldepositsof insureddepository institutionsinthatstate.7 HCBF,withconsolidatedassetsof approximately$2.2billion,isthe415thlargestdepositoryorganizationintheUnitedStates.HCBFcontrolsapproximately$1.8billionin consolidateddeposits,whichrepresentlessthan1percentof thetotalamountof deposits of insureddepositoryinstitutionsintheUnitedStates.HCBFcontrolsHarborBank, whichoperatesonlyinFlorida.8HCBFisthe44thlargestinsureddepositoryorganization inFlorida,controllingdepositsof approximately$1.5billion,whichrepresentlessthan 1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. Onconsummationof theproposal,CenterStatewouldbecomethe148thlargestinsured depositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $9.2billionafteradjustments,whichrepresentlessthan1percentof thetotalassetsof 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 ThemergerofHarborBankintoCenterStateBank,whichisexpectedtooccurimmediatelyafterCenterState’s acquisitionofHCBF,issubjecttotheapprovaloftheOfficeoftheComptrolleroftheCurrency(“OCC”), pursuanttosection18(c)oftheFederalDepositInsuranceAct.12U.S.C.§1828(c).TheOCCapprovedthe bankmergeronNovember29,2017. 4 12CFR262.3(b). 5 NationalassetanddepositdataandmarketshareareasofSeptember30,2017,unlessotherwisenoted. NationalrankingdataareasofJune30,2017. 6 Inthiscontext,insureddepositoryinstitutionsincludecommercialbanks,creditunions,savingsandloanassociations,andsavingsbanks. 7 Stateassetdata,marketshare,andrankingdataareasofJune30,2016,unlessotherwisenoted. 8 Theproposaldoesnotraiseinterstateissuesundersection3(d)oftheBHCActbecauseFloridaisthehome stateofbothCenterStateandHarborBank,andHarborBankoperatesonlyinFlorida.See12U.S.C. §1842(d).

82 FederalReserveBulletin|February2018 insureddepositoryorganizationsintheUnitedStates.CenterStatewouldcontrolconsolidateddepositsof approximately$7.2billion,whichrepresentlessthan1percentof the totalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.InFlorida, CenterStatewouldbecomethe17thlargestdepositoryorganization,controllingdepositsof approximately$5.6billion,whichrepresentapproximately1.0percentof thetotaldeposits of insureddepositoryinstitutionsinthatstate.9 CompetitiveConsiderations Section3of theBHCActprohibitstheBoardfromapprovingaproposalthatwouldresult inamonopolyorwouldbeinfurtheranceof anattempttomonopolizethebusinessof bankinginanyrelevantmarket.10TheBHCActalsoprohibitstheBoardfromapprovinga proposalthatwouldsubstantiallylessencompetitionortendtocreateamonopolyinany bankingmarket,unlesstheBoardfindsthattheanticompetitiveeffectsof theproposalare clearlyoutweighedinthepublicinterestbytheprobableeffectof theproposalinmeeting theconvenienceandneedsof thecommunitytobeserved.11 CenterStateandHCBFhavesubsidiarydepositoryinstitutionsthatcompetedirectlyin 11bankingmarketsinFlorida.TheBoardhasconsideredthecompetitiveeffectsof the proposalinthesebankingmarkets.Inparticular,theBoardhasconsideredthenumberof competitorsthatwouldremaininthemarkets,therelativesharesof thetotaldepositsin insureddepositoryinstitutionsinthemarkets(“marketdeposits”)thatCenterStatewould control,12theconcentrationlevelsof marketdepositsandtheincreaseintheselevelsas measuredbytheHerfindahl-HirschmanIndex(“HHI”)undertheDepartmentof Justice BankMergerCompetitiveReviewguidelines(“DOJBankMergerGuidelines”),13and othercharacteristicsof themarkets. 9 InadditiontotheproposedacquisitionofHCBF,CenterStatehasproposedtoacquireSunshineBancorp,Inc. (“Sunshine”),asavingsandloanholdingcompany,andSunshine’ssubsidiaryfederalsavingsassociation, SunshineBank,bothofPlantCity,Florida.TheOCCapprovedCenterStateBank’sapplicationforthemerger ofSunshineBankintoCenterStateBankonOctober26,2017.TheGeneralCounseloftheBoardhasopined thatnoregulatorypurposewouldbeservedbyrequiringafilingundersection3oftheBHCActforCenterState toacquireSunshine.LettertoBethS.DeSimonedatedSeptember21,2017;seealso12CFR225.12(d)(2). CenterStateplanstocompletetheacquisitionofSunshineinthefirstcalendarquarterof2018. UponconsummationofCenterState’sproposedacquisitionofbothSunshineandHCBF,CenterStatewould becomethe136thlargestinsureddepositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately$10.2billion,whichrepresentlessthan1percentofthetotalassetsofinsureddepositoryorganizationsintheUnitedStates.CenterStatewouldcontrolconsolidateddepositsofapproximately$7.9billion, whichrepresentlessthan1percentofthetotalamountofdepositsofinsureddepositoryinstitutionsinthe UnitedStates.InFlorida,CenterStatewouldbecomethe16thlargestdepositoryorganization,controlling depositsofapproximately$6.3billion,whichrepresentapproximately1.2percentofthetotaldepositsof insureddepositoryinstitutionsinthatstate. 10 12U.S.C.§1842(c)(1)(A). 11 12U.S.C.§1842(c)(1)(B). 12 LocaldepositandmarketsharedataareasofJune30,2017,andarebasedoncalculationsinwhichthe depositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhasindicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorstocommercialbanks.See,e.g., MidwestFinancialGroup,75FederalReserveBulletin386(1989);NationalCityCorporation,70FederalReserve Bulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsinthemarketsharecalculationona 50percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserveBulletin52(1991). 13 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthattheDOJBankMergerGuidelines,whichwereissuedin1995, werenotmodified.SeePressRelease,DepartmentofJustice(August19,2010), www.justice.gov/opa/pr/2010/August/10-at-938.html.

LegalDevelopments:FourthQuarter,2017 83 BankingMarketswithinEstablishedGuidelines Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesintheFortPierce,Gainesville,Indian River,Ocala,Okeechobee,Orlando,SaintAugustine,Sarasota,TampaBay,andWestPalm Beachbankingmarkets.14Onconsummation,theSarasotaandWestPalmBeachbanking marketswouldremainunconcentrated,theOkeechobeebankingmarketwouldremain highlyconcentrated,andtheothersevenbankingmarketswouldremainmoderately concentrated,asmeasuredbytheHHI.ThechangeintheHHIinthesemarketswouldbe small,consistentwithBoardprecedent,andwithinthethresholdsintheDOJBankMerger Guidelines.Inaddition,numerouscompetitorswouldremaininthesebankingmarkets. BankingMarketWarrantingSpecialScrutiny Thecompetitiveeffectsthatconsummationof theproposalwouldhaveinthePalatkaArea, Florida,bankingmarket(“Palatkabankingmarket”)15warrantadetailedreviewbecause theproposalwouldresultinconcentrationlevelswhichexceedthethresholdsintheDOJ BankMergeGuidelines.16Usingtheinitialcompetitivescreeningdata,CenterStateisthe fourthlargestdepositoryorganizationinthePalatkabankingmarket,controllingdeposits of approximately$78.6million,whichrepresentapproximately14.2percentof market deposits.HCBFisthesixthlargestdepositoryorganizationinthemarket,controlling depositsof approximately$60.5million,whichrepresentapproximately10.9percentof marketdeposits.Onconsummationof theproposal,thecombinedentitywouldbethe largestdepositoryorganizationinthePalatkamarket,controllingdepositsof approximately$139.1million,whichwouldrepresentapproximately25.2percentof market deposits.TheHHIinthemarketwouldincreaseby311points,from1,820to2,131. TheBoardhasconsideredwhetherotherfactorseithermitigatethecompetitiveeffectsof theproposalorindicatethattheproposalwouldnothaveasignificantlyadverseeffecton competitioninthePalatkabankingmarket.17FactorsindicatethattheincreaseinconcentrationinthePalatkamarket,asmeasuredbytheaboveHHIandmarketshare,overstatesthepotentialcompetitiveeffectsof theproposalinthemarket. TheBoardhasconsideredthecompetitiveinfluenceof twocreditunionsinthePalatka bankingmarket.Theseinstitutionsofferawiderangeof consumerbankingproducts, operatestreet-levelbranches,andhavebroadmembershipcriteriathatincludealmostallof theresidentsintherelevantbankingmarket.18TheBoardfindsthatthesecircumstances warrantincludingthedepositsof thesecreditunionsata50percentweightinestimating 14 Thebankingmarketsandthecompetitiveeffectsoftheproposalinthesemarketsaredescribedinthe Appendix.ConsummationoftheproposalwouldbewithinthethresholdsoftheDOJBankMergerGuidelines inthesemarketsevenifCenterState’sproposedacquisitionofSunshineistakenintoaccount. 15 ThePalatkabankingmarketisdefinedasPutnamCountyandtheHastingsareaofSt.JohnsCounty,bothin Florida. 16 TheanalysisofthisbankingmarketwouldnotchangeifCenterState’sproposedacquisitionofSunshineis takenintoaccount,asSunshinedoesnotoperateinthePalatkabankingmarket. 17 Thenumberandstrengthoffactorsnecessarytomitigatethecompetitiveeffectsofaproposaldependonthe sizeoftheincreasein,andresultinglevelof,concentrationinthebankingmarket.SeeNationsbankCorp., 84FederalReserveBulletin129(1998). 18 TheBoardpreviouslyhasconsideredcompetitionfromcertainactivecreditunionswiththesefeaturesasa mitigatingfactor.See,e.g.,CentralBancompany,Inc.,FRBOrderNo.2017-03(February8,2017);Chemical FinancialCorporation,FRBOrderNo.2015-13(April20,2015);MitsubishiUFJFinancialGroup,Inc.,FRB OrderNo.2012-12(November14,2012);OldNationalBancorp,FRBOrderNo.2012-9(August30,2012); UnitedBankshares,Inc.(orderdatedJune20,2011),97FederalReserveBulletin19(2ndQuar.2011);ThePNC FinancialServicesGroup,Inc.,94FederalReserveBulletinC38(2008);ThePNCFinancialServicesGroup,Inc., 93FederalReserveBulletinC65(2007);PassumpsicBancorp,92FederalReserveBulletinC175(2006);and WachoviaCorporation,92FederalReserveBulletinC183(2006).

84 FederalReserveBulletin|February2018 marketinfluence.Thisweightingtakesintoaccountthelimitedlendingdonebythesecredit unionstosmallbusinessesrelativetocommercialbanks’lendinglevels. Afterconsummation,adjustingtoreflectcompetitionfromthesecreditunions,themarket concentrationlevelinthePalatkabankingmarketasmeasuredbytheHHIwouldincrease by236points,fromalevelof 1,466to1,701,andthemarketshareof CenterState resultingfromthetransactionwouldincreasefrom12.4percentto21.9percent. TheBoardalsohasexaminedotheraspectsof thestructureof thePalatkabankingmarket thatmitigatethecompetitiveeffectsof theproposalorindicatethattheproposalwouldnot haveasignificantlyadverseeffectoncompetitioninthePalatkamarket.Afterconsummationof theproposal,CenterStatewouldfacecompetitionfromthetwocreditunionsand fivecommercialbanks.ExcludingCenterState,fourof thesecompetitorswouldeach controlover10percentof marketdeposits,includingonewithamarketshareof over 20percent.Thepresenceof theseviablecompetitorssuggeststhatCenterStatewouldhave limitedabilitytounilaterallyofferlessattractivetermstoconsumersandthatthese competitorsareabletoexertcompetitivepressureonCenterStateinthePalatkabanking market. ConclusionRegardingCompetitiveEffects TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket,includingthe Palatkabankingmarket.Inaddition,theappropriatebankingagencieshavebeenafforded anopportunitytocommentandhavenotobjectedtotheproposal. Basedonallof thefactsof record,inparticularthestructureof therelevantmarkets,the numberof remainingcompetitors,andotherfactorsdiscussedabove,theBoardconcludes thatconsummationof theproposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesinthePalatkabankingmarketorinanyother relevantbankingmarket.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCAct,theBoardconsidersthefinancial andmanagerialresourcesandthefutureprospectsof theinstitutionsinvolved.19Inits evaluationof financialfactors,theBoardreviewsinformationregardingthefinancial conditionof theorganizationsinvolvedonbothparent-onlyandconsolidatedbases,as wellasinformationregardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.Inthisevaluation,the Boardconsidersavarietyof informationregardingcapitaladequacy,assetquality, liquidity,andearningsperformance.TheBoardevaluatesthefinancialconditionof the combinedorganization,includingitscapitalposition,assetquality,liquidity,earningsprospects,andtheimpactof theproposedfundingof thetransaction.TheBoardalso considerstheabilityof theorganizationtoabsorbthecostsof theproposalandto completeeffectivelytheproposedintegrationof theoperationsof theinstitutions.In assessingfinancialfactors,theBoardconsiderscapitaladequacytobeespeciallyimportant. TheBoardconsidersthefutureprospectsof theorganizationsinvolvedintheproposalin lightof theirfinancialandmanagerialresourcesandtheproposedbusinessplan. 19 12U.S.C.§1842(c)(2),(5),and(6).

LegalDevelopments:FourthQuarter,2017 85 CenterStateandCenterStateBankarebothwellcapitalizedandwouldremainsoon consummationof theproposal.Theproposedtransactionisabankholdingcompany mergerthatisfundedprimarilythroughanexchangeof shares,withasubsequentmerger of thesubsidiarydepositoryinstitutions.20Theassetquality,earnings,andliquidityof bothCenterStateBankandHarborBankareconsistentwithapproval,andCenterState appearstohaveadequateresourcestoabsorbthecostsof theproposalandtocompletethe integrationof theinstitutions’operations.Inaddition,futureprospectsundertheproposal areconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of CenterState,HCBF,andtheirsubsidiarydepositoryinstitutions,includingassessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition,the BoardhasconsideredinformationprovidedbyCenterState;theBoard’ssupervisoryexperiencesandthoseof otherrelevantbanksupervisoryagencieswiththeorganizations;and theorganizations’recordsof compliancewithapplicablebanking,consumerprotection, andanti-money-launderinglaws. CenterState,HCBF,andtheirsubsidiarydepositoryinstitutionsareconsideredtobewell managed.CenterState’sdirectorsandseniorexecutiveofficershavesubstantialknowledge of andexperienceinthebankingandfinancialservicessectors,andCenterState’sriskmanagementprogramappearstobeconsistentwithapprovalof thisexpansionary proposal. TheBoardalsohasconsideredCenterState’splansforimplementingtheproposal. CenterStatehasconductedcomprehensiveduediligenceandisdevotingsignificantfinancialandotherresourcestoaddressallaspectsof thepost-integrationprocessforthis proposal.CenterStatewouldimplementitsrisk-managementpolicies,procedures,and controlsatthecombinedorganization,andtheseareconsideredacceptablefromasupervisoryperspective.Inaddition,CenterState’smanagementhastheexperienceandresources tooperatethecombinedorganizationinasafeandsoundmanner. Basedonallthefactsof record,includingCenterState’ssupervisoryrecord,managerial andoperationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandfutureprospectsof theorganizationsinvolvedintheproposal,aswellasthe recordsof effectivenessof CenterStateandHCBFincombattingmoney-launderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCAct,theBoardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.21Initsevaluationof theeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thecommunitiestheyserve,aswellasotherpotentialeffectsof theproposalon theconvenienceandneedsof thecommunitiestobeserved.Inthisevaluation,theBoard placesparticularemphasisontherecordsof therelevantdepositoryinstitutionsunderthe 20 Atthetimeofthemerger,eachshareofHCBFcommonstockwouldbeconvertedintoarighttoreceive CenterStatecommonstockandcash,basedonanexchangeratio.CenterStatewouldfundthecashportionof theexchangethroughavailablecashandborrowingfromathirdparty.CenterStatehasthefinancialresources tofundthetransaction. 21 12U.S.C.§1842(c)(2).

86 FederalReserveBulletin|February2018 CommunityReinvestmentActof 1977(“CRA”).22TheCRArequiresthefederalfinancial supervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeetthecredit needsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeinstitutions’safe andsoundoperation,23andrequirestheappropriatefederalfinancialsupervisoryagencyto assessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof itsentire community,includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluating bankexpansionaryproposals.24 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandtheirrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,thesupervisoryviewsof examiners,othersupervisoryinformation,andinformationprovidedbythe applicant.TheBoardalsomayconsidertheinstitution’sbusinessmodel,itsmarketingand outreachplans,theorganization’splansafterconsummation,andanyotherinformation theBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof CenterStateBankandHarborBank,thecompliancerecordsof bothbanks,supervisory informationfromtheOCCandtheFederalDepositInsuranceCorporation(“FDIC”),and informationprovidedbyCenterState. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardevaluates aninstitution’sperformancerecordinlightof examinationsbytheappropriatefederal supervisorsof theCRAperformancerecordsof therelevantinstitutions,aswellasinformationprovidedbytheappropriatefederalsupervisors.25Inthiscase,theBoardconsidered thesupervisoryviewsof theOCCandtheFDIC. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.26Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplylending,investment,andserviceteststo evaluatetheperformanceof alargeinsureddepositoryinstitution,suchasCenterState Bank,inhelpingtomeetthecreditneedsof thecommunitiesitserves.Thelendingtest specificallyevaluatestheinstitution’shomemortgage,smallbusiness,smallfarm,and communitydevelopmentlendingtodeterminewhethertheinstitutionishelpingtomeetthe creditneedsof individualsandgeographiesof allincomelevels.Aspartof thelendingtest, examinersreviewandanalyzeaninstitution’sdatareportedundertheHomeMortgage DisclosureActof 1975(“HMDA”),27inadditiontosmallbusiness,smallfarm,and 22 12U.S.C.§2901etseq. 23 12U.S.C.§2901(b). 24 12U.S.C.§2903. 25 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81Fed.Reg.48506,48548 (July25,2016). 26 12U.S.C.§2906. 27 12U.S.C.§2801etseq.

LegalDevelopments:FourthQuarter,2017 87 communitydevelopmentloandatacollectedandreportedundertheCRAregulations,to assessaninstitution’slendingactivitieswithrespecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slendingperformanceisbasedonavarietyof factors,including(1)thenumberandamountsof homemortgage,smallbusiness,small farm,andconsumerloans(asapplicable)intheinstitution’sassessmentareas(“AAs”); (2)thegeographicdistributionof theinstitution’slending,includingtheproportionand dispersionof theinstitution’slendinginitsAAsandthenumberandamountsof loansin low-,moderate-,middle-,andupper-incomegeographies;(3)thedistributionof loans basedonborrowercharacteristics,including,forhomemortgageloans,thenumberand amountsof loanstolow-,moderate-,middle-,andupper-incomeindividuals;28(4)the institution’scommunitydevelopmentlending,includingthenumberandamountsof communitydevelopmentloansandtheircomplexityandinnovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpracticestoaddressthecreditneedsof LMI individualsandgeographies.29Largeinstitutionsarealsosubjecttoaninvestmenttestthat evaluatesthenumberandamountsof qualifiedinvestmentsthatbenefittheirassessment areasandaservicetestthatevaluatestheavailabilityandeffectivenessof theirsystemsfor deliveringretailbankingservicesandtheextentandinnovativenessof theircommunity developmentservices.30Intermediatesmallbanks,suchasHarborBank,aresubjecttothe lendingtest,aswellasacommunitydevelopmenttestthatevaluatesthenumberand amountof theircommunitydevelopmentloansandqualifiedinvestments,theextentto whichtheyprovidecommunitydevelopmentservices,andtheirresponsivenesstocommunitydevelopmentlending,investment,andserviceneeds.31 CRAPerformanceof CenterStateBank CenterStateBankwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheOCC,asof April6,2015(“CenterStateBankEvaluation”).32Thebankreceived“HighSatisfactory”ratingsfortheLendingTestandthe ServiceTestanda“LowSatisfactory”ratingfortheInvestmentTest.33 ExaminersfoundthatCenterStateBank’soveralllendingactivityinitsAAswasgoodand notedthatthemajorityof thebank’sloanswereoriginatedinthebank’sAAs.Examiners notedthatthebank’shomemortgagelendingreflectedadequatepenetrationamong differentgeographiesandborrowerincomelevels.Additionally,examinersnotedthatthe bank’ssmallloanstobusinessesreflectedanexcellentpenetrationamongdifferentgeographiesandborrowerincomelevels.Examinersalsofoundthatthebank’scommunity developmentlendinghadapositiveimpactonthebank’soveralllendingperformance. 28 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3). 29 See12CFR228.22(b). 30 See12CFR228.21etseq. 31 See12CFR228.26(c). 32 TheCenterStateBankEvaluationwasconductedusingtheLargeBankCRAExaminationProcedures.ExaminersreviewedHMDAloansandsmallbusinessloansreportedbyCenterStateBankfor2012,2013,and2014. ExaminersreviewedcommunitydevelopmentactivitiesfromMarch6,2012,throughApril6,2015. 33 TheCenterStateBankExaminationincludedfull-scopeevaluationsofthreeAAs,theLakeland-WinterHaven, Florida,MetropolitanStatisticalArea(“MSA”);theOrlando-Kissimmee-Sanford,Florida,MSA;andthe Tampa-St.Petersburg-Clearwater,FloridaMSA.Limited-scopeevaluationswereperformedintheFort Lauderdale-PompanoBeach-DeerfieldBeach,Florida,MetropolitanDivision(“MD”);WestPalmBeach-Boca Raton-DelrayBeach,Florida,MD;Deltona-DaytonaBeach-OrmondBeach,Florida,MSA;Homosassa Springs,Florida,MSA;Jacksonville,Florida,MSA;Ocala,Florida,MSA;PortSt.Lucie,Florida,MSA; Sebastian-VeroBeach,Florida,MSA;TheVillages,Florida,MSA;andinHendry,Okeechobee,andPutnam counties,allinFlorida.

88 FederalReserveBulletin|February2018 Examinersfoundthatthebank’sperformanceundertheInvestmentTestwasadequate. Examinersnotedthatthebankhadasignificantlevelof qualifiedinvestments,butthatits investmentswerestatewideorregionalinscopeandwere,therefore,lessresponsivetoAA needs.Examinersfoundthatthebank’sperformanceundertheServiceTestwasgood. Examinersnotedthatthebank’sretaildeliverysystemswereaccessibletothebank’sgeographiesandtoindividualsof differentincomelevelswithinitsAAs.Examinersalsonoted thatthebankprovidedanadequatelevelof communityservices. CRAPerformanceof HarborBank HarborBankwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheFDIC,asof August8,2016(“HarborBankEvaluation”).34 Thebankreceived“Satisfactory”ratingsfortheLendingTestandtheCommunityDevelopmentTest.35 ExaminersfoundthatHarborBank’sloan-to-depositratiowasreasonablegiventheinstitution’ssizeandfinancialconditionandthecreditneedsof thebank’sAAs.Examiners notedthatasubstantialmajorityof thebank’sloanswereoriginatedwithinthebank’s AAsandthatthegeographicdistributionof thebank’sloansreflectedareasonabledispersionthroughoutthebank’sAAs.Examinersalsonotedthatthedistributionof borrowers reflectedareasonablepenetrationamongindividualsof differentincomelevelsandbusinessesof differentsizes.Additionally,examinersnotedthatHarborBankhadnotreceived anyCRA-relatedcomplaintssinceitspreviousevaluation. ExaminersfoundthatHarborBankdemonstratedanadequateresponsivenesstothe communitydevelopmentneedsof itsAAs.Examinersnotedthattheinstitutionmetthose needsthroughcommunitydevelopmentloans,qualifiedinvestments,andcommunitydevelopmentservices,asappropriate. AdditionalSupervisoryViews TheBoardhasconsideredtheresultsof themostrecentconsumercomplianceexamination of CenterStateBankconductedbytheOCC,whichincludedareviewof thebank’s compliancerisk-managementprogramandthebank’scompliancewithconsumerprotectionlawsandregulations.TheBoardalsohasconsideredtheresultsof themostrecent consumercomplianceexaminationof HarborBankconductedbytheFDIC,which includedareviewof thebank’sconsumercompliancefunction. TheBoardhastakenthisinformation,aswellastheCRAperformancerecordsof CenterStateBankandHarborBank,intoaccountinevaluatingtheproposedtransaction, includinginconsideringwhetherCenterStatehastheexperienceandresourcestoensure thatithelpstomeetthecreditneedsof thecommunitieswithinitsAAs. 34 TheHarborBankEvaluationwasconductedusingIntermediateSmallBankCRAExaminationProcedures, consistingoftheLendingTestandtheCommunityDevelopmentTest.ExaminersreviewedHMDAloans reportedbythebankfor2014,2015,andthefirstsixmonthsof2016,aswellassmallbusinessloansoriginated bythebankin2015andthefirstsixmonthsof2016.Examinersreviewedcommunitydevelopmentactivities fromJuly23,2013,throughAugust8,2016. 35 TheHarborBankEvaluationincludedfull-scopeevaluationsoftenAAs,alllocatedwithinFlorida:thePort St.LucieAA(composedofMartinandSt.Luciecounties);theOrlandoAA(composedofLake,Orange, Osceola,andSeminolecounties);theSt.JohnsAA(composedofSt.JohnsCounty);theNorthPortAA (composedofManateeandSarasotacounties);theGainesvilleAA(composedofAlachuaandGilchristcounties);theHighlandsAA(composedofHighlandsCounty);theMarionAA(composedofMarionCounty); theIndianRiverAA(composedofIndianRiverCounty);thePalmBeachAA(composedofportionsofPalm BeachCounty);andanAAcomposedofOkeechobeeandPutnamcounties.

LegalDevelopments:FourthQuarter,2017 89 AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.CenterStaterepresentsthatithasnoplansto discontinueanysignificantproductorservicecurrentlyofferedbyCenterStateBankor HarborBank.CenterStatealsorepresentsthat,followingtheproposedtransaction, customersof HarborBankwouldhaveaccesstoabroaderrangeof productsandservices thaniscurrentlyavailabletothem.CenterStateassertsthat,followingtheproposed transaction,CenterStateBankwouldcontinuetoprovidealevelof serviceconsistentwith orexceedingCenterStateBank’scurrentCRAperformance. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtheCRArecordsof therelevant depositoryinstitutionsinvolved,theinstitutions’recordsof compliancewithconsumer protectionlaws,supervisoryinformationfromtheOCCandtheFDIC,information providedbyCenterState,andotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.Basedonthatreview,theBoardconcludesthatthe convenienceandneedsfactorisconsistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedsection3of theBHCActtorequiretheBoardtoconsider“theextenttowhicha proposedacquisition,merger,orconsolidationwouldresultingreaterormoreconcentratedriskstothestabilityof theUnitedStatesbankingorfinancialsystem.”36 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the resultingfirm.37Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.38 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof 36 Dodd-FrankAct§604(d),Pub.L.No.111-203,124Stat.1376,1601(2010),codifiedat12U.S.C.§1842(c)(7). 37 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 38 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder 2012-2(February14,2012).

90 FederalReserveBulletin|February2018 thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.39 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.Both theacquirerandthetargetarepredominatelyengagedinavarietyof consumerand commercialbankingactivities.40Theproformaorganizationwouldhaveminimalcrossborderactivitiesandwouldnotexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.Inaddition,theorganizationwouldnotbeacriticalservicesprovideror sointerconnectedwithotherfirmsorthemarketsthatitwouldposeasignificantriskto thefinancialsystemintheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationshouldbe,andherebyis,approved.Inreachingitsconclusion,theBoardhasconsideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunderthe BHCActandotherapplicablestatutes.TheBoard’sapprovalisspecificallyconditionedon compliancebyCenterStatewithallof theconditionsimposedinthisorder,including receiptof allrequiredregulatoryapprovals,andonthecommitmentsmadetotheBoardin connectionwiththeapplication.Forpurposesof thisaction,theconditionsandcommitmentsaredeemedtobeconditionsimposedinwritingbytheBoardinconnectionwithits findingsanddecisionhereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardortheFederalReserveBankof Atlanta,actingunderdelegated authority. Byorderof theBoardof Governors,effectiveDecember6,2017. Votingforthisaction:ChairYellen,ViceChairmanforSupervisionQuarles,andGovernorsPowellandBrainard. AnnE.Misback Secretaryof theBoard 39 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 40 CenterStateprimarilyoffersconsumerandbusinessloananddepositproducts,withafocusoncommercial lending.HCBFprimarilyofferscommercial,residential,andconsumerloananddepositproducts,withafocus onhomemortgagelending.Ineachoftheactivitiesinwhichitengages,CenterStatehas,andasaresultofthe proposalwouldcontinuetohave,asmallmarketshareonanationwidebasis,andnumerouscompetitorswould remainfortheseservices.

LegalDevelopments:FourthQuarter,2017 91 Appendix CenterState/HCBFBankingMarkets ConsistentwithBoardPrecedentandDOJBankMergerGuidelines Remaining Amountof MarketDeposit Bank Rank ResultingHHI ChangeinHHI Numberof Deposits Shares(%) Competitors FortPierceArea,Florida(“FortPierce”)–includesSt.LucieCountyandMartinCountyminusthetownsofIndiantownandHobeSound. CenterStatePre-Consummation 8 $439.1M 5.07 HCBF 10 $316.6M 3.65 CenterStatePost-Consummation 5 $755.7M 8.72 1071 37 18 GainesvilleArea,Florida(“Gainesville”)–includesAlachua,Gilchrist,andLevycounties. CenterStatePre-Consummation 11 $76.6M 1.64 HCBF 8 $187.6M 4.03 CenterStatePost-Consummation 8 $264.2M 5.67 1301 13 18 IndianRiverCounty,Florida(“IndianRiver”)–includesIndianRiverCounty. CenterStatePre-Consummation 14 $68.0M 1.66 HCBF 15 $41.8M 1.02 CenterStatePost-Consummation 12 $109.8M 2.68 1035 3 15 OcalaArea,Florida(“Ocala”)–includesMarionCountyandthetownofCitrusSpringsinCitrusCounty. CenterStatePre-Consummation 7 $360.4M 6 HCBF 15 $59.4M 0.99 CenterStatePost-Consummation 7 $419.7M 6.99 1145 12 21 OkeechobeeCounty,Florida(“Okeechobee”)–includesOkeechobeeCounty. CenterStatePre-Consummation 4 $63.5M 12.44 HCBF 6 $35.0M 6.87 CenterStatePost-Consummation 3 $98.5M 19.31 2067 171 5 OrlandoArea,Florida(“Orlando”)–includesOrange,Osceola,andSeminolecounties,thewesternhalfofVolusiaCounty,andthetownsof ClermontandGrovelandinLakeCounty. CenterStatePre-Consummation 14 $598.6M 1.3 HCBF 25 $163.4M 0.35 CenterStatePost-Consummation 11 $762.0M 1.65 1346 1 42 SaintAugustineArea,Florida(“SaintAugustine”)–includesSt.JohnsCountyminusthetownsofFruitCove,PonteVedra,PonteVedraBeach, Jacksonville,St.Johns,Switzerland,andHastings. CenterStatePre-Consummation 15 $20.2M 0.99 HCBF 4 $213.2M 10.47 CenterStatePost-Consummation 4 $233.4M 11.47 1148 21 14 SarasotaArea,Florida(“Sarasota”)–includesManateeCounty,SarasotaCountylesstheportionthatisbotheastoftheMyakkaRiverand southofInterstate75(includingthetownofNorthPort),thepeninsularportionofCharlotteCountywestoftheMyakkaRiverthatincludesthe townsofEnglewood,EnglewoodBeach,NewPointComfort,GroveCity,CapeHaze,Rotonda,RotondaWest,andPlacida,andGasparillaIsland, includingthetownofBocaGrandeinLeeCounty. CenterStatePre-Consummation 17 $292.1M 1.43 HCBF 20 $235.8M 1.15 CenterStatePost-Consummation 10 $527.9M 2.58 942 1 35 TampaBayArea,Florida(“TampaBay”)–includesHernando,Hillsborough,Pinellas,andPascocounties. CenterStatePre-Consummation 14 $824.9M 1.02 HCBF 30 $238.1M 0.29 CenterStatePost-Consummation 11 $1,062.9M 1.31 1137 1 56 WestPalmBeachArea,Florida(“WestPalmBeach”)–includesPalmBeachCountyeastofLoxahatcheeandthetownsofIndiantownand HobeSoundinMartinCounty. CenterStatePre-Consummation 19 $377.5M 0.75 HCBF 36 $67.0M 0.13 CenterStatePost-Consummation 18 $444.5M 0.89 991 0 47 Note:DataandrankingsareasofJune30,2017.Allrankings,marketdepositshares,andHHIsarebasedonthriftdepositsweightedat 50percent.Theremainingnumberofcompetitorsnotedforeachmarketincludesthrifts,whereapplicable.

92 FederalReserveBulletin|February2018 Robertson Holding Company, L.P. Harrogate, Tennessee Unified Shares, LLC Harrogate, Tennessee Commercial Bancgroup, Inc. Harrogate, Tennessee OrderApprovingtheMergerof BankHoldingCompanies,theMergerof Banks,the Establishmentof Branches,andDeterminationonFinancialHoldingCompanyElections FRBOrderNo.2017–36(December15,2017) CommercialBancgroup,Inc.,anditsparentcompanies,RobertsonHoldingCompany, L.P.,andUnifiedShares,LLC,allof Harrogate,Tennessee(collectively,“Commercial”),all bankholdingcompanieswithinthemeaningof theBankHoldingCompanyActof 1956 (“BHCAct”),1haverequestedtheBoard’sapprovalundersection3of theBHCAct2for CommercialBancgroup,Inc.tomergewithCitizensBancorp,Inc.(“Citizens”),and therebyindirectlyacquireCitizens’subsidiarybank,CitizensBank,bothof NewTazewell, Tennessee. Inaddition,Commercial’ssubsidiarystatememberbank,CommercialBank,Harrogate, Tennessee,hasrequestedtheBoard’sapprovalundersection18(c)of theFederalDeposit InsuranceAct(“BankMergerAct”)tomergewithCitizensBank,withCommercialBank asthesurvivingentity.3CommercialBankalsohasappliedundersection9of theFederal ReserveAct(“FRA”)toestablishandoperatebranchesatthemainofficeandbranchesof CitizensBank.4RobertsonHoldingCompany,L.P.,andUnifiedShares,LLC,havefiled withtheBoardelectionstobecomefinancialholdingcompaniespursuanttosections 4(k)and(l)of theBHCActandsection225.82of theBoard’sRegulationY.5 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(82FederalRegister44183(September21,2017)).6Thetimeforsubmittingcommentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct,theBankMergerAct, andtheFRA.AsrequiredbytheBankMergerAct,areportonthecompetitiveeffectsof themergerwasrequestedfromtheUnitedStatesAttorneyGeneral,andacopyof the requesthasbeenprovidedtotheFederalDepositInsuranceCorporation(“FDIC”). Commercialisthe784thlargestinsureddepositoryorganizationintheUnitedStates. Commercialcontrolsapproximately$760.3millioninconsolidateddeposits,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutions intheUnitedStates.7CommercialcontrolsCommercialBank,whichoperatesinTennessee andKentucky.Commercialisthe42ndlargestinsureddepositoryorganizationin 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 12U.S.C.§1828(c). 4 12U.S.C.§321.ThesebranchlocationsarelistedintheAppendix. 5 12U.S.C.§§1843(k)and(l);12CFR225.82. 6 12CFR262.3(b). 7 Nationaldeposit,marketshare,andrankingdataareasofJune30,2017,unlessotherwisenoted.

LegalDevelopments:FourthQuarter,2017 93 Tennessee,controllingapproximately$536.2millionindeposits,whichrepresentapproximately0.4percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.8 Citizensisthe3001stlargestinsureddepositoryorganizationintheUnitedStates.Citizens controlsapproximately$179.3millioninconsolidateddeposits,whichrepresentlessthan 1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnited States.CitizenscontrolsCitizensBank,whichoperatesinTennessee.9Citizensisthe 115thlargestinsureddepositoryorganizationinTennessee,controllingapproximately $146.9millionindeposits,whichrepresentapproximately0.1percentof thetotaldeposits of insureddepositoryinstitutionsinthatstate. Onconsummationof theproposal,Commercialwouldbecomethe635thlargestinsured depositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $1.1billion,whichrepresentlessthan1percentof thetotalassetsof insureddepository institutionsintheUnitedStates.Commercialwouldcontrolconsolidateddepositsof approximately$939.6million,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.InTennessee,Commercial wouldbecomethe31stlargestinsureddepositoryorganization,controllingdepositsof approximately$683.1million,whichrepresentapproximately0.5percentof thetotal depositsof insureddepositoryinstitutionsinthatstate. CompetitiveConsiderations Section3of theBHCActandtheBankMergerActprohibittheBoardfromapprovinga proposalthatwouldresultinamonopolyorwouldbeinfurtheranceof anattemptto monopolizethebusinessof bankinginanyrelevantmarket.10Bothstatutesalsoprohibit theBoardfromapprovingaproposalthatwouldsubstantiallylessencompetitionortendto createamonopolyinanybankingmarket,unlesstheanticompetitiveeffectsof the proposalareclearlyoutweighedinthepublicinterestbytheprobableeffectof theproposal inmeetingtheconvenienceandneedsof thecommunitytobeserved.11 CommercialandCitizenshavesubsidiarydepositoryinstitutionsthatcompetedirectlyin theMiddlesboroArea,KY-TN-VAbankingmarket(“Middlesboromarket”).12TheBoard hasconsideredthecompetitiveeffectsof theproposalinthisbankingmarket.Inparticular, theBoardhasconsideredthenumberof competitorsthatwouldremaininthemarket;the relativesharesof totaldepositsof insureddepositoryinstitutionsinthemarket(“market deposits”)thatCommercialwouldcontrol;13theconcentrationlevelof marketdeposits andtheincreaseinthatlevel,asmeasuredbytheHerfindahl-HirschmanIndex(“HHI”) undertheDepartmentof JusticeBankMergerCompetitiveReviewguidelines(“DOJBank MergerGuidelines”);14andothercharacteristicsof theMiddlesboromarket. 8 Statedeposit,marketshare,andrankingdataareasofJune30,2016,unlessotherwisenoted.Inthiscontext, insureddepositoryinstitutionsincludecommercialbanks,savingsassociations,andsavingsbanks. 9 Theproposaldoesnotraiseinterstateissuesundersection3(d)oftheBHCActbecauseTennesseeisthehome stateofbothCommercialandCitizensBank,andCitizensBankoperatesonlyinTennessee.See12U.S.C. §1842(d). 10 12U.S.C.§§1842(c)(1)and1828(c)(5). 11 12U.S.C.§§1842(c)(1)(B)and1828(c)(5)(B). 12 TheMiddlesboromarketisdefinedasBellCounty,Kentucky,andClaiborneCounty,Tennessee;plusthe townsofRoseHillandEwinginLeeCounty,Virginia. 13 LocaldepositandmarketsharedataareasofJune30,2017. 14 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating

94 FederalReserveBulletin|February2018 Thecompetitiveeffectsof theproposalintheMiddlesboromarketwarrantadetailed reviewbecausetheproposalwouldresultinaconcentrationlevelthatwouldexceedthe thresholdsintheDOJBankMergerGuidelinesandwouldresultinthemarketdeposit shareof Commercialexceeding35percentwhenusinginitialcompetitivescreeningdata. CommercialisthelargestcompetitorintheMiddlesboromarket,controllingapproximately $281.6millionindeposits,whichrepresentapproximately22.7percentof marketdeposits. CitizensisthefifthlargestdepositoryorganizationintheMiddlesboromarket,controllingapproximately$110.9millionindeposits,whichrepresentapproximately12.6percent of marketdeposits.Onconsummationof theproposal,Commercialwouldremainthe largestdepositoryorganizationintheMiddlesboromarket,controllingapproximately $392.5millioninmarketdeposits,whichwouldrepresentapproximately35.3percentof marketdeposits.TheHHIinthismarketwouldincreaseby571points,from1626to2197. TheBoardhasconsideredwhetherfactorseithermitigatethecompetitiveeffectsof the proposalorindicatethattheproposalwouldnothaveasignificantlyadverseeffecton competitionintheMiddlesboromarket.15Severalfactorsindicatethattheincreasein concentrationintheMiddlesboromarket,asmeasuredbytheaboveHHIandmarket share,overstatesthepotentialcompetitiveeffectsof theproposalinthemarket. TheMiddlesboromarketisarelativelysmall,ruralbankingmarketandwouldcontinueto beservedbyninedepositoryinstitutionsafterconsummationof theproposal.These include,apartfromCommercial,onedepositoryinstitutionwithmorethana20percent shareof marketdeposits,twodepositoryinstitutionseachwithmorethana14percent shareof marketdeposits,andonedepositoryinstitutionwithmorethanafivepercent shareof marketdeposits.Inaddition,theBoardhasconsideredthecompetitiveinfluence of twocreditunionsamongtheninedepositoryinstitutionsremainingintheMiddlesboro market.Thesecreditunionshavebroadmembershipcriteria,offerawiderangeof consumerbankingproductsandoperatestreet-levelbranches.16Separatedbystatelines, eachof thesecreditunionsservesonlyaportionof theMiddlesboromarket.Forthat reason,theBoarddoesnotfindthatcircumstancessupportincludingthedepositsof these creditunionsinitscalculationstoestimatemarketinfluence.Nevertheless,thepresenceof theseviablecreditunions,alongwiththeotherdepositoryinstitutionsintheMiddlesboro market,suggeststhatCommercialwouldhavelimitedabilitytounilaterallyofferlessattractivetermstoconsumersandthatthesecompetitorsareabletoexertcompetitivepressure onCommercialintheMiddlesboromarket.17Thepresenceof theninedepositoryinstituanticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableatwww.justice.gov/opa/pr/ 2010/August/10-at-938.html. 15 Thenumberandstrengthoffactorsnecessarytomitigatethecompetitiveeffectsofaproposaldependonthe sizeoftheincreasein,andresultinglevelof,concentrationinabankingmarket.SeeNationsBankCorporation, 84FederalReserveBulletin129(1998). 16 TheBoardpreviouslyhasconsideredcompetitionfromcertainactivecreditunionswiththesefeaturesasa mitigatingfactor.See,e.g.,KeyCorp,FRBOrderNo.2016-12(July12,2016);OhioValleyBancCorp.,FRB OrderNo.2016-10(June28,2016);MitsubishiUFJFinancialGroup,Inc.,FRBOrderNo.2012-12 (November14,2012);OldNationalBancorp,FRBOrderNo.2012-9(August30,2012);UnitedBankshares,Inc. (orderdatedJune20,2011),97FederalReserveBulletin19(2ndQuar.2011);ThePNCFinancialServices Group,Inc.,94FederalReserveBulletinC38(2008);ThePNCFinancialServicesGroup,Inc.,93FederalReserve BulletinC65(2007);RegionsFinancialCorporation,93FederalReserveBulletinC16(2007);Passumpsic Bancorp,92FederalReserveBulletinC175(2006);andWachoviaCorporation,92FederalReserveBulletinC183 (2006). 17 Anadditionalassessmentofthetransaction,basedoncompetitors’sharesofthetotalnumberofbranchesin themarket,alsosupportstheviewthatthestructuraleffectsofthetransactionwouldnotsubstantiallylessen competition.Branchesareonewaybanksattractcustomersandareabletoprovideservicestocustomers throughoutthemarket.See,e.g.,KatherineHoandJoyIshi,“LocationandCompetitioninRetailBanking,” InternationalJournalofIndustrialOrganization,vol.29,no.5,pp.537-546(2011);AstridDick,“DemandEsti-

LegalDevelopments:FourthQuarter,2017 95 tions,includingCommercial,togetherindicatesthatthestructuraleffectsof thetransaction wouldnotsubstantiallylessencompetition. TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket,includingthe Middlesboromarket.Inaddition,theappropriatebankingagencieshavebeenaffordedan opportunitytocommentandhavenotobjectedtotheproposal. Basedonallof thefactsof record,inparticularthestructureof therelevantmarket,the numberof remainingcompetitors,andotherfactorsdiscussedabove,theBoardconcludes thatconsummationof theproposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheMiddlesboromarketorinanyother relevantbankingmarket.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsidersthefinancialandmanagerialresourcesandthefutureprospectsof the institutionsinvolved.18Initsevaluationof financialfactors,theBoardreviewsinformation regardingthefinancialconditionof theorganizationsinvolvedonbothparent-onlyand consolidatedbases,aswellasinformationregardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.In thisevaluation,theBoardconsidersavarietyof informationregardingcapitaladequacy, assetquality,liquidity,andearningsperformance.TheBoardevaluatesthefinancialconditionof thecombinedorganization,includingitscapitalposition,assetquality,liquidity, earningsprospects,andtheimpactof theproposedfundingof thetransaction.TheBoard alsoconsiderstheabilityof theorganizationtoabsorbthecostsof theproposalandto completeeffectivelytheproposedintegrationof theoperationsof theinstitutions.In assessingfinancialfactors,theBoardconsiderscapitaladequacytobeespeciallyimportant. TheBoardconsidersthefutureprospectsof theorganizationsinvolvedintheproposalin lightof theirfinancialandmanagerialresourcesandtheproposedbusinessplan. CommercialandCommercialBankarewellcapitalized,andthecombinedorganization wouldremainsoonconsummationof theproposal.Theproposedtransactionisabank holdingcompanymergerwithasubsequentmergerof thesubsidiarydepositoryinstitutions.19Theassetquality,earnings,andliquidityof bothCommercialBankandCitizens Bankareconsistentwithapproval,andCommercialappearstohaveadequateresourcesto absorbthecostsof theproposalandtocompleteintegrationof theinstitutions’operations. Inaddition,futureprospectsundertheproposalareconsideredconsistentwithapproval. mationandConsumerWelfareintheBankingIndustry,”JournalofBankingandFinance,vol.32,no.8, pp.1661-1676(2008);andRobertM.Adams,KennethP.Brevoort,andElizabethK.Kiser,“WhoCompetes withWhom?TheCaseofDepositoryInstitutions,”JournalofIndustrialEconomics,vol.55,no.1,pp.141-167 (2007).TheincreaseinproformabranchHHI,definedasthesumofthesquaredbranchshareforeachinstitutioninthemarket(wherethebranchshareisdefinedasaninstitution’snumberofbranchesinthemarket dividedbythetotalnumberofbranchesinthemarket),intheMiddlesboromarketwouldbe255pointstoa levelof1786. 18 12U.S.C.§§1842(c)(2),(5),&(6),and1828(c)(5)&(11). 19 Aspartoftheproposedtransaction,eachshareofCitizens’commonstockwouldbeconvertedintoarightto receivecashbasedonaformularelatedtoCitizens’totalequityonthelastdayofthemonthprecedingclosing. Commercialhasthefinancialresourcestoeffecttheproposedtransaction.

96 FederalReserveBulletin|February2018 TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of Commercial,Citizens,andtheirsubsidiarydepositoryinstitutions,includingassessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition,the BoardhasconsideredinformationprovidedbyCommercial;theBoard’ssupervisoryexperiencesandthoseof otherrelevantbanksupervisoryagencieswiththeorganizations;and theorganizations’recordsof compliancewithapplicablebanking,consumerprotection, andanti-money-launderinglaws. Commercial,Citizens,andtheirsubsidiarydepositoryinstitutionsareeachconsideredto bewellmanaged.Commercialhasarecordof successfullyintegratingorganizationsintoits operationsandrisk-managementsystemsafteracquisitions.Thedirectorsandsenior executiveofficersof Commercialhavesubstantialknowledgeof andexperienceinthe bankingandfinancialservicessectors,andCommercial’srisk-managementprogram appearsconsistentwithapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredCommercial’splansforimplementingtheproposal. Commercialhasconductedcomprehensiveduediligenceandisdevotingsignificantfinancialandotherresourcestoaddressallaspectsof thepost-acquisitionintegrationprocess forthisproposal.Commercialwouldimplementitsrisk-managementpolicies,procedures, andcontrolsatthecombinedorganization,andtheseareconsideredacceptablefroma supervisoryperspective.Inaddition,Commercial’smanagementhastheexperienceand resourcestooperatethecombinedorganizationinasafeandsoundmanner. Basedonallof thefactsof record,includingCommercial’ssupervisoryrecord,managerial andoperationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandthefutureprospectsof theorganizationsinvolvedintheproposal,aswellas therecordsof effectivenessof CommercialandCitizensincombattingmoney-laundering activities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.20Initsevaluationof theeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecreditneedsof thesecommunities,aswellasotherpotential effectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.In thisevaluation,theBoardplacesparticularemphasisontherecordsof therelevantdepositoryinstitutionsundertheCommunityReinvestmentAct(“CRA”).21TheCRArequires thefederalfinancialsupervisoryagenciestoencourageinsureddepositoryinstitutionsto helpmeetthecreditneedsof thelocalcommunitiesinwhichtheyoperate,consistentwith theirsafeandsoundoperation,22andrequirestheappropriatefederalfinancialsupervisory agencytoassessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof its entirecommunity,includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.23 20 12U.S.C.§§1842(c)(2)and1828(c)(5). 21 12U.S.C.§2901etseq. 22 12U.S.C.§2901(b). 23 12U.S.C.§2903.

LegalDevelopments:FourthQuarter,2017 97 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsiderstheassessmentsof otherrelevantsupervisors,the supervisoryviewsof examiners,othersupervisoryinformation,andinformationprovided bytheapplicants.TheBoardalsomayconsidertheinstitution’sbusinessmodel,its marketingandoutreachplans,theorganization’splansafterconsummation,andanyother informationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallof thefactsof record,includingreportsof examinationof theCRAperformanceof CommercialBankandCitizensBank;thefairlendingandcompliancerecordsof both banks;thesupervisoryviewsof theFederalReserveBankof Atlanta(“ReserveBank”) andtheFDIC;confidentialsupervisoryinformation;andinformationprovidedby Commercial. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardevaluates aninstitution’sperformancerecordinlightof examinationsbytheappropriatefederal supervisorsof theCRAperformancerecordsof therelevantinstitutions,aswellasinformationandviewsprovidedbytheappropriatefederalsupervisors.24Inthiscase,theBoard consideredthesupervisoryviewsof theReserveBankandtheFDIC. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.25Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplyalendingtesttoevaluatetheperformance of asmallinsureddepositoryinstitutioninhelpingtomeetthecreditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’slending-related activitiestodeterminewhethertheinstitutionishelpingtomeetthecreditneedsof individualsandgeographiesof allincomelevels.Aspartof thelendingtest,examinersreview andanalyzeaninstitution’sdatareportedundertheHomeMortgageDisclosureActof 1975(“HMDA”),26automatedloanreports,andotherreportsgeneratedbytheinstitution toassessaninstitution’slendingactivitieswithrespecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slendingperformanceisbasedontheinstitution’s loan-to-depositratio,loanoriginationsforsaletothesecondarymarket,lending-related activitiesinitsassessmentareas(“AAs”),recordof engaginginlending-relatedactivities forborrowersof differentincomelevelsandbusinessesandfarmsof differentsizes, geographicdistributionof loans,andrecordof takingactioninresponsetoanywritten complaintsaboutitsperformance.27Intermediatesmallbanksaresubjecttothelending test,aswellasacommunitydevelopmenttestthatevaluatesthenumberandamountsof theircommunitydevelopmentloansandqualifiedinvestments,theextenttowhichthey 24 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48506, 48548(July25,2016). 25 12U.S.C.§2906. 26 12U.S.C.§2801etseq. 27 See12CFR228.26(b).

98 FederalReserveBulletin|February2018 providecommunitydevelopmentservices,andtheirresponsivenesstocommunitydevelopmentlending,investment,andserviceneeds.28 CRAPerformanceof CommercialBank CommercialBankwasassignedanoverall“Satisfactory”ratingbytheReserveBankatits mostrecentCRAperformanceevaluation,asof September21,2015(“CommercialBank Evaluation”).29Thebankreceived“Satisfactory”ratingsforeachof theLendingTestand theCommunityDevelopmentTest.”30Greaterweightwasgiventoperformancein Tennesseebecauseof thehigherpercentageof bankdeposits,branches,andloansinthat state. ExaminersconcludedthatCommercialBankwasrespondingtothecreditneedsof itsAAs. Inparticular,examinersfoundthattheloan-to-depositratiowasreasonablegiventhe bank’ssize,financialcondition,andAAcreditneeds.Examinersnotedthatthegeographic distributionof loansreflectedreasonabledispersionthroughouttheAAsandthatthe distributionof loansreflectedreasonablepenetrationamongindividualsof different incomelevelsandbusinessesof differentsizes. ExaminersnotedthatCommercialBank’scommunitydevelopmentperformance,which includedloans,investments,andservices,demonstratedadequateresponsivenessto communitydevelopmentneedsthroughoutthebank’sAAs.Examinersalsonotedthat bankrepresentativesprovidedcommunityservicehourstobenefitLMIfamiliesandsmall businessesthroughoutthebank’sAAs. CRAPerformanceof CitizensBank CitizensBankwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheFDIC,asof March9,2015(“CitizensBankEvaluation”).31 Examinersfocusedonthebank’sloan-to-depositratioandlendingrecordwithinthe bank’sAAs.ExaminersfoundthatCitizensBank’sloan-to-depositratioreflectedreasonableresponsivenesstothecreditneedsof theAAs,giventheinstitution’ssize,financial conditionandAAs.Examinersalsofoundthatthemajorityof thebank’shomemortgage andsmallbusinesslendingwasoriginatedwithinitsAAs,anditsoveralllendingto borrowersof differentincomeswasreasonable.Examinersdeterminedthatthebank’s smallbusinesslendingreflectedexcellentperformance. 28 See12CFR228.26(c). 29 TheCommercialBankEvaluationwasconductedusingtheIntermediateSmallInstitutionExaminationProcedures.ExaminersreviewedHMDA-reportableloansandasampleofcommercialloansoriginatedfrom January1,2013,throughDecember31,2014.Theevaluationperiodforcommunitydevelopmentlending,investments,andserviceswasfromApril17,2012,toSeptember20,2015. 30 TheCommercialBankEvaluationincludedafullscopeevaluationofthebank’sAAconsistingofKnoxand UnioncountieswithintheKnoxville,TennesseeMetropolitanStatisticalArea(“MSA”),aswellasitsAA consistingofBell-HarlanandKnoxcountiesinKentucky,whicharenotpartofanMSA.Alimitedscope evaluationwasperformedofthebank’sAAconsistingofClaiborneCounty,Tennessee,whichisnotpartof anyMSA,andofthebank’sAAconsistingofSullivanCountywithintheKingsport-Bristol-Bristol,Tennessee-VirginiaMSA. 31 TheCitizensBankEvaluationwasconductedusingtheSmallBankExaminationProcedures.Examiners reviewedasampleofsmallbusinessloansoriginatedfromJanuary1,2012,toDecember31,2014,andalso reviewedallHMDA-reportableloansfor2013and2014.TheCitizensBankEvaluationincludedafullscope evaluationofthebank’sAAlocatedwithinClaiborneCounty,Tennessee,whichisnotpartofanyMSA.A limitedscopeevaluationwasperformedoftheportionofthebank’sAAlocatedwithintheKnoxville, TennesseeMSAandofthebank’sAAconsistingofHamblenCounty,whichispartoftheMorristown, TennesseeMSA.

LegalDevelopments:FourthQuarter,2017 99 AdditionalSupervisoryViews TheBoardhasconsideredtheresultsof themostrecentconsumercomplianceexamination of CommercialBankconductedbyReserveBankexaminers,whichincludedareviewof thebank’scomplianceriskmanagementprogramandthebank’scompliancewith consumerprotectionlawsandregulations.TheBoardhasalsoconsideredtheresultsof the mostrecentconsumercomplianceexaminationof CitizensBankconductedbytheFDIC, whichincludedareviewof thebank’sconsumercompliancefunction. TheBoardhastakenthisinformation,aswellastheCRAperformancerecordsof CommercialBankandCitizensBank,intoaccountinevaluatingtheproposedtransaction, includinginconsideringwhetherCommercialhastheexperienceandresourcestoensure thatCommercialBankhelpstomeetthecreditneedsof thecommunitieswithinitsAAs. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.Commercialrepresentsthatthecombinedorganization,withitsgreatersizeandcapabilities,wouldhaveanincreasedlendinglimitand therebywouldincreasetheavailabilityof credittocustomersandpotentialcustomersof bothbanks,includingsmall-tomid-sizedbusinesses.Inaddition,Commercialrepresents thatcustomersof CitizensBankwouldbenefitfromCommercialBank’sexpansivebranch network,andcustomersof CommercialBankwouldbenefitfromadditionalbanking officesinClaiborneandHamblencounties,Tennessee,aswellasaloanproductionoffice inSullivanCounty,Tennessee.Commercialalsorepresentsthatcustomersincommunities servedbyCitizensBankwillbenefitfromtheavailabilityof additionalproductsand servicescurrentlyofferedbyCommercialBank.Finally,Commercialrepresentsthatthe increasedsizeandscaleof thecombinedorganizationmaypermitittodevelopandexpand productandserviceofferingstoitscustomers. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws,supervisoryviewsof theReserveBankand theFDIC,confidentialsupervisoryinformation,informationprovidedbyCommercial,and otherpotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiesto beserved.Basedonthatreview,theBoardconcludesthattheconvenienceandneeds factorisconsistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedsection3of theBHCActandtheBankMergerActtorequiretheBoardto consideraproposal’s“risktothestabilityof theUnitedStatesbankingorfinancial system.”32 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof 32 Dodd-FrankAct§§604(d)and(f),Pub.L.No.111-203,124Stat.1376,1601-1602(2010),codifiedat12U.S.C. §§1828(c)(5)and1842(c)(7).

100 FederalReserveBulletin|February2018 theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the resultingfirm.33Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.34 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.35 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.Both theacquirerandthetargetarepredominatelyengagedinretailandcommercialbanking activities.36Theproformaorganizationwouldhaveminimalcross-borderactivitiesand wouldnotexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.In addition,theorganizationwouldnotbeacriticalservicesproviderorsointerconnected withotherfirmsorthemarketsthatitwouldposeasignificantrisktothefinancialsystem intheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Establishmentof Branches CommercialBankhasappliedundersection9of theFRAtoestablishbranchesatthe currentlocationsof CitizensBank.37TheBoardhasassessedthefactorsitisrequiredto 33 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 34 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 35 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 36 Commercialoffersavarietyofbankingproductsandservices,includingretailandcommercialbanking; consumer,commercial,andmortgagelending;andconsumerfinanceloans.Citizensalsooffersavarietyof bankingproductsandservices,includingcommercial,mortgage,andconsumerloans.Ineachoftheactivities inwhichitengages,Commercialhas,andasaresultoftheproposalwouldcontinuetohave,asmallmarket shareonanationwidebasis,andnumerouscompetitorswouldremainfortheseservices. 37 See12U.S.C.§321.Undersection9oftheFRA,statememberbanksmayestablishandoperatebrancheson thesametermsandconditionsasareapplicabletotheestablishmentofbranchesbynationalbanks.Anational bankmayretainanybranchfollowingamergerthatunderstatelawmaybeestablishedasanewbranchofthe

LegalDevelopments:FourthQuarter,2017 101 considerwhenreviewinganapplicationunderthatsection.38Specifically,theBoardhas consideredCommercialBank’sfinancialcondition,management,capital,actionsin meetingtheconvenienceandneedsof thecommunitiestobeserved,CRAperformance, andinvestmentinbankpremises.39Forthereasonsdiscussedinthisorder,theBoardfinds thosefactorstobeconsistentwithapproval. FinancialHoldingCompanyElections Asnoted,RobertsonHoldingCompany,L.P.,andUnifiedShares,LLC,haveelectedto becomefinancialholdingcompaniesinconnectionwiththeproposal.RobertsonHolding Company,L.P.,andUnifiedShares,LLC,havecertifiedthat,uponconsummationof the proposal,theyandthedepositoryinstitutionstheywouldcontrolwouldbewellcapitalized andwellmanaged,andRobertsonHoldingCompany,L.P.,andUnifiedShares,LLC, haveprovidedalltheinformationrequiredundertheBoard’sRegulationY.40Basedonall thefactsof record,theBoarddeterminesthattheelectionsbyRobertsonHolding CompanyL.P.,andUnifiedShares,LLC,willbecomeeffectiveuponconsummationof the proposalif,onthatdate,theyarewellcapitalizedandwellmanagedandalldepository institutionstheycontrolarewellcapitalized,wellmanaged,andhaveCRAratingsof at least“Satisfactory.” Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationsshouldbe,andherebyare,approved.Inreachingitsconclusion,theBoardhas consideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunder theBHCAct,theBankMergerAct,theFRA,andotherapplicablestatutes.TheBoard’s approvalisspecificallyconditionedoncompliancebyCommercialandCommercialBank withallof theconditionsimposedinthisorder,includingreceiptof allrequiredregulatory approvals,andonthecommitmentsmadetotheBoardinconnectionwiththeapplications. Forpurposesof thisaction,theconditionsandcommitmentsaredeemedtobeconditions imposedinwritingbytheBoardinconnectionwithitsfindingsanddecisionhereinand,as such,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardorbytheReserveBank,actingunderdelegatedauthority. Byorderof theBoardof Governors,effectiveDecember15,2017. Votingforthisaction:ChairYellen,ViceChairmanforSupervisionQuarles,andGovernorsPowellandBrainard. AnnE.Misback Secretaryof theBoard resultingbankorretainedasanexistingbranchoftheresultingbank.See12U.S.C.§§36(b)(2)and(c).Upon consummation,CommercialBank’sbrancheswouldbepermissibleunderapplicablestatelaw.SeeTenn.Code Ann.§45-2-614. 38 12U.S.C.§322;12CFR208.6. 39 Uponconsummationoftheproposedtransaction,CommercialBank’sinvestmentsinbankpremiseswould remainwithinlegalrequirementsunder12CFR208.21. 40 SeeDodd-FrankAct§606(a),124Stat.at1607,amending12U.S.C.§1843(l)(1).

102 FederalReserveBulletin|February2018 Appendix BranchestoBeEstablishedbyCommercialBank 1. 130SouthBroadStreet,NewTazewell,Tennessee37825 2. 7100CumberlandGapParkway,Harrogate,Tennessee37752 3. 155TerraceLane,Morristown,Tennessee37813

LegalDevelopments:FourthQuarter,2017 103 NATCOM Bancshares, Inc. Superior, Wisconsin OrderApprovingtheAcquisitionof Sharesof aBankHoldingCompany FRBOrderNo.2017–37(December18,2017) NATCOMBancshares,Inc.(“Natcom”),Superior,Wisconsin,abankholdingcompany withinthemeaningof theBankHoldingCompanyActof 1956(“BHCAct”),1has requestedtheBoard’sapprovalundersection3of theBHCAct2toacquire49.0percentof thevotingsharesof RepublicBancshares,Inc.(“Republic”),andtherebyindirectly acquirecontrolof RepublicBank,Inc.(“RepublicBank”),bothof Duluth,Minnesota.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(82FederalRegister50128(October30,2017)).4Thetimeforsubmittingcommentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct. Natcomisthe1227thlargestinsureddepositoryorganizationintheUnitedStatesbytotal assets.5Natcomcontrolsapproximately$493.3millioninconsolidateddeposits,which representlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.6NatcomcontrolsNationalBankof Commerce,Superior, Wisconsin,withassetsof $610.0million,whichoperatesinMinnesotaandWisconsin. Natcomisthe168thlargestinsureddepositoryinstitutioninMinnesota,controlling depositsof approximately$89.9million,whichrepresentlessthan1percentof thetotal depositsof insureddepositoryinstitutionsinthatstate.7 Republicisthe1751stlargestinsureddepositoryorganizationintheUnitedStatesbytotal assets.Republiccontrolsapproximately$305.4millioninconsolidateddeposits,which representlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.RepublicBank,withassetsof $398.5million,operatesinMinnesota.Republicisthe56thlargestinsureddepositoryinstitutioninMinnesota,controlling depositsof approximately$290.6million,whichrepresentlessthan1percentof thetotal depositsof insureddepositoryinstitutionsinthatstate. Managementof RepublicandRepublicBankopposesNatcom’sproposalandsubmitted commentstotheBoardurgingdenialonseveralgrounds.TheBoardpreviouslyhasstated, inevaluatingacquisitionproposals,thatitmustapplythecriteriaintheBHCActinthe samemannertoallproposals,whethertheyaresupportedoropposedbythemanagement 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 TheBHCActcontemplatesthatabankholdingcompanymayseektoacquirelessthanamajorityinterestin anotherbankholdingcompanyorbank.See12U.S.C.§1842(a)(3).Onthisbasis,theBoardpreviouslyhas approvedtheacquisitionbyabankholdingcompanyoflessthanamajorityinterest.See,e.g.,C-B-G,Inc., 93FederalReserveBulletinC88(2007)(approvingtheacquisitionofupto35percentofabankholding company);JuniataValleyFinancialCorp.,92FederalReserveBulletinC171(2006)(approvingtheacquisitionof upto39.2percentofabank).TheBoardnotes,however,thattheBHCActrequiresNatcomtoreceivethe Board’sapprovalbeforedirectlyorindirectlyacquiringanyadditionalsharesofRepublicorRepublicBank.See 12U.S.C.§1842(a)(3). 4 12CFR262.3(b). 5 NationalassetdataareasofSeptember30,2017.Nationaldeposit,ranking,andmarket-sharedataareasof June30,2017,unlessotherwisenoted. 6 Inthiscontext,insureddepositoryinstitutionsincludecommercialbanks,savingsandloanassociations,and savingsbanks. 7 Statedeposit,ranking,andmarket-sharedataareasofJune30,2016,unlessotherwisenoted.

104 FederalReserveBulletin|February2018 of theinstitutionstobeacquired.8Section3(c)of theBHCActrequirestheBoardto revieweachapplicationinlightof certainfactorsspecifiedintheAct.TheBoardhaslong heldthat,if thestatutorycriteriaaremet,withholdingapprovalbasedonotherfactors, suchaswhethertheproposalisacceptabletothemanagementof theorganizationtobe acquired,wouldbeoutsidethescopeof factorstheBoardisauthorizedtoconsiderunder theBHCAct.9 InevaluatingthestatutoryfactorsundertheBHCAct,theBoardconsideredtheinformationandviewspresentedbythecommentersandtheinformationsubmittedbyNatcom.In addition,theBoardhasconsultedwithrelevantsupervisoryagenciesandreviewedconfidentialsupervisoryinformation,includingexaminationreportsof theinstitutionsinvolved. Afterareviewof allthefactsof record,andforthereasonsdiscussedinthisorder,the BoardhasconcludedthatthestatutoryfactorsitisrequiredtoconsiderundertheBHC Actareconsistentwithapprovalof theproposal. InterstateandDepositCapAnalysis Section3(d)of theBHCActgenerallyprovidesthat,if certainconditionsaremet,the Boardmayapproveanapplicationbyabankholdingcompanytoacquirecontrolof a banklocatedinastateotherthanthehomestateof thebankholdingcompanywithout regardtowhetherthetransactionisprohibitedunderstatelaw.10Underthissection,the Boardmaynotapproveanapplicationthatwouldpermitanout-of-statebankholding companytoacquireabankinahoststateif thebankhasnotbeeninexistenceforthe lesserof thestatestatutoryminimumperiodof timeorfiveyears.11Inaddition,theBoard maynotapproveaninterstateapplicationif thebankholdingcompanycontrolsor,upon consummationof theproposedtransaction,wouldcontrolmorethan10percentof the totaldepositsof insureddepositoryinstitutionsintheUnitedStatesor,incertaincircumstances,if thebankholdingcompany,uponconsummation,wouldcontrol30percentor moreof thetotaldepositsof insureddepositoryinstitutionsinanystateinwhichthe acquirerandtargethaveoverlappingbankingoperations.12 Forpurposesof theBHCAct,thehomestateof NatcomisWisconsin,andRepublic Bank’shomestateisMinnesota.13Minnesotahasafive-yearminimumagerequirement, andRepublicBankhasbeeninexistenceformorethanfiveyears.14Inaddition,Natcomis wellcapitalizedandwellmanagedunderapplicablelaw,anditssubsidiarybank,National Bankof Commerce,hasan“Outstanding”ratingundertheCommunityReinvestmentAct of 1977(“CRA”).15 8 See,e.g.,CentralPacificFinancialCorp.,90FederalReserveBulletin93,93(2004);NorthForkBancorporation, Inc.,86FederalReserveBulletin767,768(2000);TheBankofNewYorkCompany,Inc.,74FederalReserve Bulletin257,258–59(1988). 9 Seesupranote9. 10 12U.S.C.§1842(d)(1)(A). 11 12U.S.C.§1842(d)(1)(B). 12 12U.S.C.§1842(d)(2)(A)and(B).Theacquiringandtargetinstitutionshaveoverlappingbankingoperationsin anystateinwhichanybanktobeacquiredislocatedandtheacquiringbankholdingcompanycontrolsany insureddepositoryinstitutionorabranch.Forpurposesofsection3(d)oftheBHCAct,theBoardconsidersa banktobelocatedinthestatesinwhichthebankischarteredorheadquarteredoroperatesabranch.See 12U.S.C.§1841(o)(4)–(7). 13 See12U.S.C.§1841(o)(4).Abankholdingcompany’shomestateisthestateinwhichthetotaldepositsofall bankingsubsidiariesofsuchcompanywerethelargestonJuly1,1966,orthedateonwhichthecompany becameabankholdingcompany,whicheverislater.Anationalbank’shomestateisthestateinwhichthemain officeofthebankislocated. 14 SeeMinn.Stat.§48.93subd.4(6). 15 12U.S.C.§2901etseq.

LegalDevelopments:FourthQuarter,2017 105 Onconsummationof theproposedtransaction,Natcomwouldcontrollessthan1percent of thetotalamountof consolidateddepositsof insureddepositoryinstitutionsinthe UnitedStates.Inaddition,Natcomwouldcontrollessthan30percentof thetotaldeposits of insureddepositoryinstitutionsinMinnesota,theonlystateinwhichNatcomand Republichaveoverlappingbankingoperations.16TheBoardhasconsideredallother requirementsundersection3(d)of theBHCAct,includingNatcom’srecordof meeting theconvenienceandneedsof thecommunitiesitserves.Accordingly,inlightof allthefacts of record,theBoardmayapprovetheproposalundersection3(d)of theBHCAct. CompetitiveConsiderations Section3of theBHCActprohibitstheBoardfromapprovingaproposalthatwouldresult inamonopolyorwouldbeinfurtheranceof anattempttomonopolizethebusinessof bankinginanyrelevantmarket.TheBHCActalsoprohibitstheBoardfromapprovinga proposalthatwouldsubstantiallylessencompetitionortendtocreateamonopolyinany relevantbankingmarket,unlesstheanticompetitiveeffectsof theproposalareclearly outweighedinthepublicinterestbytheprobableeffectof theproposalinmeetingthe convenienceandneedsof thecommunitiestobeserved.17 TheBoard’sanalysisof thecompetitiveeffectsof theproposalassumesafullmerger betweenNatcom,Republic,andtheirsubsidiarybanks,withNatcomandNationalBank of Commerceasthesurvivingentities.Accordingly,theanalysisassumesthatRepublic Bankwouldnotcompeteindependentlyof NatcomandNationalBankof Commerce.18 NationalBankof CommerceandRepublicBankcompetedirectlyintheDuluth,Minnesotabankingmarket(“Duluthmarket”).19TheBoardhasconsideredthecompetitive effectsof theproposedacquisitionintheDuluthmarket.Inparticular,theBoardhas consideredthenumberof competitorsthatwouldremaininthebankingmarket;therela- 16 Minnesotadoesnotimposealimitonthetotalamountofin-statedepositsthatasinglebankingorganization maycontrol. 17 12U.S.C.§1842(c)(1). 18 SeeANBHoldingCompany,Ltd.,83FederalReserveBulletin902,903–04(1997)(approvingANBHolding Company,Ltd.’s(“ANB”)acquisitionof41percentofLakesideBancshares,Inc.,abankholdingcompany thatdirectlycompetedinthesamebankingmarketasANB). ThecommentersassertthatbyvirtueofbecomingashareholderofRepublic,Natcomwouldbeabletoaccess sensitivebusinessandcustomerinformationregardingbothRepublicandRepublicBankthatwouldallow Natcomtoengageinanti-competitivebehavior.Natcomrepresentsthatitenteredintoaconsentorderwiththe MinnesotaDepartmentofCommerce(“Department”)inconnectionwiththeDepartment’srecentapprovalof acorrespondingapplicationtothestatetoacquireaninterestinRepublic.TheconsentorderlimitsNatcom’s rightstoreceivecertaininformationthatotherwisewouldbeavailabletoanyshareholderofRepublicunder Minnesotalaw.Pursuanttotheconsentorder,Natcomwouldnothaveaccesstocertaininformationregarding Republic’sshareregister,recordsofshareholderandboardproceedings,articlesandbylaws,certainfinancial statements,reportsmadetoshareholders,certainvotingtrustandothershareholdercontrolagreements,names andbusinessaddressesofthedirectorsandprincipalofficers,agreementsincorporatedbyreferenceintothe articlesofincorporation,andotherinformationthatwouldbeavailabletoanyshareholderthatcouldshow thattherequestwasforaproperpurpose.SeeMinn.Stat.§302A.461,sub.4.RepublichasappealedtheDepartment’sorderapprovingtheapplicationtoacourtofcompetentjurisdiction,whichcouldasaresultsetaside theconsentorder,andhasrequestedthattheBoardpostponeitsdecisionuntiltheappealisresolvedfully. Actiononthisproposalwouldnotinterferewiththecourt’sabilitytoresolvethependinglitigation.M&P CommunityBancshares,Inc.,92FederalReserveBulletinC156,C156n.7(2006). 19 TheDuluthmarketisdefinedasLakeCounty;Fairbanks,Ellsburg,Ault,Kelsey,Cotton,Pequaywan,Elmer, Meadowlands,Northland,NorthStar,Alden,VanBuren,Ness,Alborn,NewIndependence,Fredenberg, Gnesen,Normanna,Halden,Floodwood,Culver,Industrial,GrandLake,Canosia,RiceLake,Lakewood, Duluth,PrairieLake,FineLakes,Arrowhead,StoneyBrook,Brevator,Solway,andMidwaytownships;the citiesofHermantown,Proctor,andDuluth;PotshotLakeandWhitefaceReservoirUnorganizedTerritories; andLinwoodLakeUnorganizedTerritorysouthofahorizontallinedrawnfromthenorthernborderofAult TownshipinSaintLouisCounty;andCarltonCounty(minusSplitRock,Silver,Barnum,MooseLake,and HolyoketownshipsandClearCreekUnorganizedTerritory),allofMinnesota;andDouglasCounty, Wisconsin.

106 FederalReserveBulletin|February2018 tivesharesof totaldepositsof insureddepositoryinstitutionsinthemarket(“market deposits”)thatNatcomwouldcontrol;20theconcentrationlevelsof marketdepositsand theincreaseintheselevelsasmeasuredbytheHerfindahlHirschmanIndex(“HHI”) undertheDepartmentof JusticeBankMergerCompetitiveReviewguidelines(“DOJBank MergerGuidelines”);21andothercharacteristicsof themarket. Usingtheinitialcompetitivescreeningdata,NationalBankof Commerceisthethird largestdepositoryinstitutionintheDuluthmarket,controllingapproximately $421.2millionindeposits,whichrepresent14.3percentof marketdeposits.RepublicBank isthefourthlargestdepositoryinstitutioninthemarket,controllingapproximately $272.7millionindeposits,whichrepresent9.3percentof marketdeposits.If considereda combinedorganizationonconsummationof theproposal,NationalBankof Commerce wouldbethesecondlargestdepositoryinstitutionintheDuluthmarket,controlling approximately$694.0millionindeposits,whichwouldrepresentapproximately 23.6percentof marketdeposits.TheHHIinthismarketwouldincrease265points,from 1578to1843. TheBoardhasconsideredwhetherotherfactorseithermitigatethecompetitiveeffectsof theproposalorindicatethattheproposalwouldnothaveasignificantlyadverseeffecton competitionintheDuluthmarket.22Inparticular,fivecreditunionsexertacompetitive influenceintheDuluthmarket.Eachinstitutionoffersawiderangeof consumerbanking products,operatesstreet-levelbranches,andhasbroadmembershipcriteriathatinclude almostallof theresidentsintherelevantbankingmarket.23TheBoardfindsthatthese circumstanceswarrantincludingthedepositsof thesecreditunionsata50percentweight incalculatingmarketinfluence.Thisweightingtakesintoaccountthelimitedlendingdone bycreditunionstosmallbusinessesrelativetocommercialbanks’lendinglevels. ThisadjustmentsuggeststhattheresultingmarketconcentrationintheDuluthmarketis lesssignificantthanwouldappearfromtheinitialcompetitivescreeningdata,which focusedoncommercial-bankandthriftcompetitors.Afterconsummation,andadjustingto 20 DepositandmarketsharedataareasofJune30,2016,andunlessotherwisenoted,arebasedoncalculationsin whichthedepositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhasindicatedthat thriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorstocommercialbanks. See,e.g.,MidwestFinancialGroup,75FederalReserveBulletin386(1989);NationalCityCorporation, 70FederalReserveBulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsinmarketshare calculationsona50percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserveBulletin52(1991). 21 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),www.justice.gov/opa/pr/2010/August /10-at-938.html. 22 Thenumberandstrengthoffactorsnecessarytomitigatethecompetitiveeffectsofaproposaldependonthe sizeoftheincreasein,andresultinglevelof,concentrationinabankingmarket.SeeNationsBankCorporation, 84FederalReserveBulletin129(1998). 23 TheBoardpreviouslyhasconsideredcompetitionfromcertainactivecreditunionswiththesefeaturesasa mitigatingfactor.See,e.g.,BB&TCorporation,FRBOrderNo.2015-18(July7,2015);MitsubishiUFJFinancialGroup,Inc.,FRBOrderNo.2012-12(November14,2012);OldNationalBancorp,FRBOrderNo.2012-9 (August30,2012);UnitedBankshares,Inc.(June20,2011),97FederalReserveBulletin19(2dQuar.2011);The PNCFinancialServicesGroup,Inc.,94FederalReserveBulletinC38(2008);ThePNCFinancialServicesGroup, Inc.,93FederalReserveBulletinC65(2007);RegionsFinancialCorporation,93FederalReserveBulletinC16 (2007);PassumpsicBancorp,92FederalReserveBulletinC175(2006);andWachoviaCorporation,92Federal ReserveBulletinC183(2006).Inthiscase,SuperiorChoiceCreditUnion,MembersCooperativeCreditUnion, CentricityCreditUnion,HarborPointeCreditUnion,andNorthwoodsCreditUniontogethercontrolapproximately$357.5millionindepositsintheDuluthmarketthat,ona50percentweightedbasis,representapproximately10.8percentofmarketdeposits.

LegalDevelopments:FourthQuarter,2017 107 reflectcompetitionfromcreditunionsinthemarket,themarketconcentrationlevelinthe DuluthmarketasmeasuredbytheHHIwouldincreaseby211points,from1282to1493,a levelthatwouldbewithintheDOJBankMergerGuidelines,andthemarketshareof Natcomwouldincreaseto21.0percent.Inadditiontothefivecreditunions,20insured depositoryinstitutionsotherthanNatcomwouldremaininthemarket,includingone insureddepositoryinstitutionwithamarketshareof morethan25percent. TheDOJconductedareviewof thepotentialcompetitiveeffectsof theproposalandhas advisedtheBoardthatconsummationof theproposalwouldnotlikelyhaveasignificantly adverseeffectoncompetitioninanyrelevantbankingmarket.Inaddition,theappropriatebankingagencieshavebeenaffordedanopportunitytocommentandhavenot objectedtotheproposal. Basedonallof thefactsof record,theBoardconcludesthatconsummationof the proposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheDuluthmarketorinanyotherrelevantbankingmarket.Accordingly,theBoardfindsthatcompetitiveconsiderationsareconsistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCAct,theBoardconsidersthefinancial andmanagerialresourcesandthefutureprospectsof theinstitutionsinvolved.24Inits evaluationof financialfactors,theBoardreviewsinformationregardingthefinancial conditionof theorganizationsinvolvedonbothparent-onlyandconsolidatedbases,as wellasinformationregardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.Inthisevaluation,the Boardconsidersavarietyof informationregardingcapitaladequacy,assetquality, liquidity,andearningsperformance.TheBoardevaluatesthefinancialconditionof the combinedorganization,includingitscapitalposition,assetquality,liquidity,earningsprospects,andtheimpactof theproposedfundingof thetransaction.TheBoardalso considerstheabilityof theorganizationtoabsorbthecostsof theproposal.Inassessing financialfactors,theBoardconsiderscapitaladequacytobeespeciallyimportant.The Boardconsidersthefutureprospectsof theorganizationsinvolvedintheproposalinlight of theirfinancialandmanagerialresources. NatcomandNationalBankof Commercearebothwellcapitalizedandwouldremainso onconsummationof theproposal.25Theproposedacquisitionwouldbefundedfrom Natcom’scashonhandandproceedsfromaloan.26Theassetquality,earnings,and liquidityof Natcomareconsistentwithapproval,andNatcomappearstohaveadequate resourcestoabsorbthecostsof theproposal.Inaddition,futureprospectsareconsidered consistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolved.27 TheBoardhasreviewedtheexaminationrecordsof Natcom,Republic,andtheirsubsid- 24 12U.S.C.§1842(c)(2),(5),and(6). 25 Thecommentersassertedthattheproposedacquisitionwillnegativelyimpactthefinancialconditionand operationsofRepublicBankthroughthelossofcustomersandcertainkeyemployees.TheBoardnotesthat RepublicandRepublicBankwouldbothremainwellcapitalizedonconsummationoftheproposal,and Natcom,whichisinsatisfactoryfinancialcondition,hasrepresentedthatitunderstandsitsstatutoryobligation toserveasasourceofstrengthforRepublicBank.See12U.S.C.§1831o-1;12CFR225.4(a)(1). 26 Natcomhasthefinancialresourcestofundtheproposalandthefinancialstrengthtosupportthedebt obligation. 27 ThecommentersassertedthatNatcom’sbecomingashareholderofRepublicwouldcauseRepublictoloseits abilitytobetreatedasanScorporation,whichwouldresultinthelossofsignificanttaxsavingsfortheowners

108 FederalReserveBulletin|February2018 iarydepositoryinstitutions,includingassessmentsof theirmanagement,risk-management systems,andoperations.Inaddition,theBoardhasconsideredinformationprovidedby Natcom,theBoard’ssupervisoryexperiencesandthoseof otherrelevantbanksupervisory agencieswiththeorganizations,andtheorganizations’recordsof compliancewithapplicablebanking,consumerprotection,andanti-money-launderinglaws. Natcom,Republic,andtheirsubsidiarydepositoryinstitutionsareeachconsideredtobe wellmanaged.Natcom’sdirectorsandseniorexecutiveofficershavesubstantialknowledge of andexperienceinthebankingandfinancialservicessectors,andNatcom’sriskmanagementprogramisconsistentwithapprovalof thisexpansionaryproposal.The existingmanagementandtheriskmanagementpoliciesandpracticesof Republicand RepublicBankwouldremaininplacefollowingtheproposedacquisition,andtheseare consideredsatisfactoryfromasupervisoryperspective. Basedonallthefactsof record,includingthesupervisoryrecordandmanagerialand operationalresourcesof Natcom,theBoardconcludesthatconsiderationsrelatingtothe financialandmanagerialresourcesandfutureprospectsof theorganizationsinvolvedin theproposal,aswellasrecordsof effectivenessof NatcomandRepublicincombatting money-launderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCAct,theBoardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.28Initsevaluationof theeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thesecommunities,aswellasotherpotentialeffectsof theproposalonthe convenienceandneedsof thecommunitiestobeserved.Inthisevaluation,theBoard placesparticularemphasisontherecordsof therelevantdepositoryinstitutionsunderthe CRA.TheCRArequiresthefederalfinancialsupervisoryagenciestoencourageinsured depositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesinwhichthey operate,consistentwiththeirsafeandsoundoperation,29andrequirestheappropriate federalfinancialsupervisoryagencytoassessadepositoryinstitution’srecordof helpingto meetthecreditneedsof itsentirecommunity,includinglow-andmoderate-income (“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.30 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,thesupervisoryviewsof examiners,othersupervisoryinformation,informationprovidedbytheapplicant,andcommentsreceivedontheproposal.TheBoardalsomayconsidertheinstitution’sbusinessmodel,itsmarketingandoutreachplans,theorganization’splansafter consummation,andanyotherinformationtheBoarddeemsrelevant. ofRepublic.Inaddition,thecommentersassertedthatNatcom’sproposalcouldresultinlitigationbetweenthe shareholdersofRepublicbecausesomecourtshaveheldthatsellingsharesinamannerthatresultsintheloss ofS-corporationstatusisabreachofaminorityshareholder’sfiduciarydutytoitsmajorityshareholder.Loss oftaxbenefitsfortheownersofafirmandpotentialshareholderlitigationaremattersofgeneralcorporate andtaxlawtobeadjudicatedbycourts.Thosemattersdonotfallwithinthescopeofstatutoryfactorsthe Boardisrequiredtoconsider.SeeWesternBancshares,Inc.v.BoardofGovernors,480F.2d749(10thCir.1973). 28 12U.S.C.§1842(c)(2). 29 12U.S.C.§2901(b). 30 12U.S.C.§2903.

LegalDevelopments:FourthQuarter,2017 109 Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof National Bankof CommerceandRepublicBank;thefairlendingandcompliancerecordsof both banks;thesupervisoryviewsof theOfficeof theComptrollerof theCurrency(“OCC”) andtheFederalDepositInsuranceCorporation(“FDIC”);confidentialsupervisoryinformation;informationprovidedbyNatcom;andthepubliccommentsreceivedonthe proposal. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardevaluates aninstitution’sperformancerecordinlightof examinationsbytheappropriatefederal supervisorsof theCRAperformancerecordsof therelevantinstitutions,aswellasinformationandviewsprovidedbytheappropriatefederalsupervisors.31Inthiscase,theBoard consideredthesupervisoryviewsof theOCCandtheFDIC. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.32Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplyalendingtesttoevaluatetheperformance of asmallinsureddepositoryinstitutioninhelpingtomeetthecreditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’slending-related activitiestodeterminewhethertheinstitutionishelpingtomeetthecreditneedsof individualsandgeographiesof allincomelevels.Aspartof thelendingtest,examinersreview andanalyzeaninstitution’sdatareportedundertheHomeMortgageDisclosureActof 1975(“HMDA”),33automatedloanreports,andotherreportsgeneratedbytheinstitution inordertoassesstheinstitution’slendingactivitieswithrespecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slendingperformanceisbasedontheinstitution’s(1)loan-to-depositratio,(2)loanoriginationsforsaletothesecondarymarket, (3)lending-relatedactivitiesinitsassessmentareas(“AAs”),(4)recordof engagingin lending-relatedactivitiesforborrowersof differentincomelevelsandbusinessesandfarms of differentsizes,(5)geographicdistributionof loans,and(6)recordof takingactionin responsetowrittencomplaintsabouttheinstitution’sperformance.Inadditiontothe lendingtest,intermediatesmallinstitutions,suchasNationalBankof Commerce,are subjecttoacommunitydevelopmenttestthatevaluatesthenumberandamountsof the institution’scommunitydevelopmentloansandqualifiedinvestments,theextenttowhich theinstitutionprovidescommunitydevelopmentservices,andtheinstitution’sresponsivenessthroughsuchactivitiestocommunitydevelopmentlending,investment,andservice needs.34 CRAPerformanceof NationalBankof Commerce NationalBankof Commercewasassignedanoverall“Outstanding”ratingatitsmost recentCRAperformanceevaluationbytheOCC,asof March7,2016(“NationalBankof 31 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81Fed.Reg.48506,48548 (July25,2016). 32 12U.S.C.§2906. 33 12U.S.C.§2801etseq. 34 See12CFR228.26.

110 FederalReserveBulletin|February2018 CommerceEvaluation”).35NationalBankof Commercereceived“Outstanding”ratings forboththeLendingTestandtheCommunityDevelopmentTest.36 Examinersdeterminedthatthebank’sloan-to-depositratiowasreasonablegiventhe bank’ssizeandAAcreditneeds.Examinersnotedthatasubstantialmajorityof National Bankof Commerce’sloanswereoriginatedinitsAA.ExaminersalsonotedthatNational Bankof Commerce’sdistributionof commercialloansreflectedreasonablepenetration amongbusinessesof differentsizes.Inaddition,examinersfoundthatthebank’s geographicdistributionof businessloansreflectedexcellentdispersionthroughoutthe bank’sAA. ExaminersfoundthatNationalBankof Commerce’scommunitydevelopmentactivities showedexcellentresponsivenesstothebank’sAAneeds.Examinersnotedthatthebank’s performanceinextendingcommunitydevelopmentloanswasexcellentandthatthelevelof qualifiedinvestmentsdemonstratedadequateresponsivenesstocommunityneeds.ExaminersalsofoundthatNationalBankof Commerce’scommunitydevelopmentserviceswere excellentandthatthebankofferedavarietyof productsandservicestocustomersof all incomelevelsandgeographies. CRAPerformanceof RepublicBank RepublicBankwasassignedanoverall“Outstanding”ratingatitsmostrecentCRA performanceevaluationbytheFDIC,asof July10,2017(“RepublicBankEvaluation”).37 RepublicBankreceiveda“Satisfactory”ratingfortheLendingTestandan“Outstanding” ratingfortheCommunityDevelopmentTest.38 Examinersfoundthatthebank’sloan-to-depositratiowasmorethanreasonablegiventhe bank’ssize,financialcondition,andAAcreditneeds.Examinersnotedthatthemajorityof thebank’ssmallbusinessandhomemortgageloanswereoriginatedinitsAA.Examiners alsonotedthatRepublicBank’sdistributionof borrowersreflectedreasonablepenetration of loansamongbusinessesof differentsizesandindividualsof differentincomelevels. Examinersfoundthatthegeographicdistributionof loansreflectedreasonabledispersion of loanstosmallbusinessesandexcellentdispersionof loanstoindividualsthroughoutthe bank’sAA. ExaminersfoundthatRepublicBankdemonstratedexcellentresponsivenesstoitsAA communitydevelopmentneedsthroughcommunitydevelopmentloansandservices.Examinersalsonotedthatthebank’squalifiedinvestmentsreflectedexcellentresponsivenessto itsAAcommunitydevelopmentneeds. 35 TheNationalBankofCommerceEvaluationwasconductedusingIntermediateSmallBankCRAExaminationProcedures,consistingofthelendingandcommunitydevelopmenttestsdescribedabove.TheNational BankofCommerceEvaluationreviewedasampleofcommercialloansfromJanuary1,2014,toDecember31, 2015.Examinersalsoreviewedcommunitydevelopmentloans,investments,andservicesfromMay1,2012,to December31,2015. 36 TheNationalBankofCommerceEvaluationreviewedthebank’sactivitiesintheDuluth,Minnesota– Wisconsinmultistatemetropolitanstatisticalarea. 37 TheRepublicBankEvaluationwasconductedusingIntermediateSmallBankCRAExaminationProcedures. ExaminersreviewedasampleofselectedsmallbusinessloansoriginatedorrenewedbetweenJanuary1,2016, andDecember31,2016,andallhomemortgageloansreportedonthebank’s2015and2016HMDAloan applicationregisters.Examinersreviewedcommunitydevelopmentloans,qualifiedinvestments,andcommunitydevelopmentservicessinceJune4,2014. 38 TheRepublicBankEvaluationreviewedthebank’sactivitiesineasternCarltonandsouthernSaintLouis counties,bothinMinnesota.

LegalDevelopments:FourthQuarter,2017 111 Viewsof theOCC TheBoardhasconsideredtherecordof NationalBankof Commerceincomplyingwith fairlendingandotherconsumerprotectionlaws.TheOCCconductedarecentconsumer complianceexaminationof NationalBankof Commerce,whichincludedareviewof the bank’sconsumercomplianceprogramandthebank’scompliancewithconsumerprotectionlawsandregulations.TheBoardhastakenthisinformationintoaccountinevaluating thisproposal. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws,confidentialsupervisoryinformation,informationprovidedbyNatcom,thecommentsontheproposal,andotherpotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.Basedon thatreview,theBoardconcludesthattheconvenienceandneedsfactorisconsistentwith approval.39 FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedsection3of theBHCActtorequiretheBoardtoconsider“theextenttowhicha proposedacquisition,merger,orconsolidationwouldresultingreaterormoreconcentratedriskstothestabilityof theUnitedStatesbankingorfinancialsystem.”40 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the resultingfirm.41Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.42 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are 39 Thecommentersassertedthattheacquisitionwouldresultinalossofacommunityinstitutionandtheservices thatRepublicandRepublicBankprovide.TheyalsonotedthatRepublicBankisrated“Outstanding”for CRA,implyingthatthetransactionwouldnegativelyaffectRepublicBank’sCRAperformance.Asdiscussed above,NatcomisacquiringaminorityinterestinRepublic.Natcomrepresentsthattheproposalwouldnot resultinanychangestotheprograms,products,orservicescurrentlyofferedbyRepublicBank.Uponconsummationoftheproposedtransaction,bothRepublicandRepublicBankwouldcontinuetooperateindependently.Inaddition,asnotedabove,NationalBankofCommercealsoisrated“Outstanding”forCRA. 40 Dodd-FrankAct§604(d),Pub.L.No.111-203,124Stat.1376,1601(2010),codifiedat12U.S.C.§1842(c)(7). 41 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 42 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012).

112 FederalReserveBulletin|February2018 generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.43 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthatislessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets. Natcom’sacquisitionof aminorityinterestinRepublicwouldnotresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.The transactionwouldnotbelikelytoposesystemicrisks. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationshouldbe,andherebyis,approved.Inreachingitsconclusion,theBoardhasconsideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunderthe BHCActandotherapplicablestatutes.TheBoard’sapprovalisspecificallyconditionedon compliancebyNatcomwithalltheconditionsimposedinthisorder,includingreceiptof all requiredregulatoryapprovals,andonthecommitmentsmadetotheBoardinconnection withtheapplication.Forpurposesof thisaction,theconditionsandcommitmentsare deemedtobeconditionsimposedinwritingbytheBoardinconnectionwithitsfindings anddecisionhereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethe15thcalendardayaftertheeffectivedate of thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedforgood causebytheBoardortheFederalReserveBankof Minneapolis,actingunderdelegated authority. Byorderof theBoardof Governors,effectiveDecember18,2017. Votingforthisaction:ChairYellen,ViceChairmanforSupervisionQuarles,andGovernorsPowellandBrainard. AnnE.Misback Secretaryof theBoard 43 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25–26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition.

LegalDevelopments:FourthQuarter,2017 113 Order Issued Under Sections 3 and 4 of the Bank Holding Company Act Sandy Spring Bancorp, Inc. Olney, Maryland OrderApprovingtheMergerof BankHoldingCompanies,theAcquisitionof aNonbanking Subsidiary,theMergerof Banks,andtheEstablishmentof Branches FRBOrderNo.2017–32(November22,2017) SandySpringBancorp,Inc.(“SandySpring”),Olney,Maryland,abankholdingcompany withinthemeaningof theBankHoldingCompanyActof 1956(“BHCAct”),1has requestedtheBoard’sapprovalundersection3of theBHCAct2tomergewith WashingtonFirstBankshares,Inc.(“WashingtonFirst”),andtherebyindirectlyacquire WashingtonFirstBank,bothof Reston,Virginia.SandySpringhasalsorequestedthe Board’sapprovalundersections4(c)(8)and4(j)of theBHCActandsection225.24of the Board’sRegulationY3toacquire1stPortfolio,Inc.(“1stPortfolio”),Fairfax,Virginia,a nonbankingsubsidiaryof WashingtonFirstthatisengagedinfinancialandinvestment advisoryactivities. Inaddition,SandySpring’ssubsidiarystatememberbank,SandySpringBank,Olney, Maryland,hasrequestedtheBoard’sapprovalundersection18(c)of theFederalDeposit InsuranceAct(“BankMergerAct”)tomergewithWashingtonFirstBank,withSandy SpringBankasthesurvivingentity.4SandySpringBankalsohasappliedundersection9 of theFederalReserveAct(“FRA”)toestablishandoperatebranchesatthemainoffice andbranchesof WashingtonFirstBank.5 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(82FederalRegister31973(July11,2017)).6Thetimeforsubmitting commentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsections3and4of theBHCAct,theBank MergerAct,andtheFRA.AsrequiredbytheBankMergerAct,areportonthecompetitiveeffectsof themergerwasrequestedfromtheUnitedStatesAttorneyGeneral,anda copyof therequesthasbeenprovidedtotheFederalDepositInsuranceCorporation (“FDIC”). SandySpring,withconsolidatedassetsof approximately$5.3billion,isthe201stlargest insureddepositoryorganizationintheUnitedStates.SandySpringcontrolsapproximately $3.9billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.7SandySpring controlsSandySpringBank,whichoperatesintheDistrictof Columbia,Maryland,and Virginia.SandySpringisthe27thlargestinsureddepositoryorganizationintheDistrictof Columbia,controllingdepositsof approximately$3.1million,whichrepresentlessthan 1percentof thetotaldepositsof insureddepositoryinstitutionsinthatjurisdiction.8Sandy Springisthe8thlargestinsureddepositoryorganizationinMaryland,controllingdeposits 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 12U.S.C.§§1843(c)(8)and(j);12CFR225.24. 4 12U.S.C.§1828(c). 5 12U.S.C.§321.TheselocationsarelistedintheAppendix. 6 12CFR262.3(b). 7 NationalassetanddepositdataareasofJune30,2017,unlessotherwisenoted. 8 StatedepositdataareasofJune30,2016,unlessotherwisenoted.Inthiscontext,insureddepositoryinstitutionsincludecommercialbanks,creditunions,savingsassociations,andsavingsbanks.

114 FederalReserveBulletin|February2018 of approximately$3.2billion,whichrepresentapproximately2.3percentof thetotal depositsof insureddepositoryinstitutionsinthatstate.SandySpringisthe59thlargest insureddepositoryorganizationinVirginia,controllingdepositsof approximately $329.5million,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. WashingtonFirst,withconsolidatedassetsof approximately$2.1billion,isthe 383rdlargestinsureddepositoryorganizationintheUnitedStates.WashingtonFirst controlsapproximately$1.7billioninconsolidateddeposits,whichrepresentlessthan 1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnited States.WashingtonFirstcontrolsWashingtonFirstBank,whichoperatesintheDistrictof Columbia,Maryland,andVirginia.WashingtonFirstisthe14thlargestinsureddepository organizationintheDistrictof Columbia,controllingdepositsof approximately $372.2million,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatjurisdiction.WashingtonFirstisthe62ndlargestinsureddepository organizationinMaryland,controllingdepositsof approximately$137.7million,which representlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthat state.WashingtonFirstisthe22ndlargestinsureddepositoryorganizationinVirginia, controllingdepositsof approximately$1.1billion,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. Onconsummationof thisproposal,SandySpringwouldbecomethe165thlargestinsured depositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $7.4billion,whichrepresentlessthan1percentof thetotalassetsof insureddepository institutionsintheUnitedStates.SandySpringwouldcontroltotaldepositsof approximately$5.6billion,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.SandySpringwouldbecomethe 14thlargestinsureddepositoryorganizationintheDistrictof Columbia,controlling depositsof approximately$375.2million,whichrepresentlessthan1percentof thetotal depositsof insureddepositoryinstitutionsinthatjurisdiction.SandySpringwouldremain the8thlargestinsureddepositoryorganizationinMaryland,controllingdepositsof approximately$3.3billion,whichrepresentapproximately2.4percentof thetotaldeposits of insureddepositoryinstitutionsinthatstate.InVirginia,SandySpringwouldbecomethe 18thlargestinsureddepositoryorganization,controllingdepositsof $1.4billion,which representlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsin thatstate. InterstateandDepositCapAnalysis Section3(d)of theBHCActgenerallyprovidesthat,if certainconditionsaremet,the Boardmayapproveanapplicationbyabankholdingcompanytoacquirecontrolof a banklocatedinastateotherthanthehomestateof thebankholdingcompany,without regardtowhetherthetransactionisprohibitedunderstatelaw.9Section44of theFederal DepositInsuranceAct(“FDIAct”)generallyprovidesthat,if certainconditionsaremet, theBoardmayapproveamergertransactionundertheBankMergerActbetweeninsured bankswithdifferenthomestateswithoutregardtowhetherthetransactionisprohibited understatelaw.10TheBoardmaynotapproveanapplicationthatwouldpermitanout-ofstatebankholdingcompanyorbanktoacquireabankinahoststateif thebankhasnot beeninexistenceforthelesserof thestatestatutoryminimumperiodof timeorfive 9 12U.S.C.§1842(d)(1)(A). 10 12U.S.C.§1831u(a)(1).

LegalDevelopments:FourthQuarter,2017 115 years.11Inaddition,undersection3(d)of theBHCAct,theBoardmaynotapprovean interstateapplicationif thebankholdingcompanycontrolsor,uponconsummationof the proposedtransaction,wouldcontrolmorethan10percentof thetotaldepositsof insured depositoryinstitutionsintheUnitedStatesor,incertaincircumstances,if thebankholding companywoulduponconsummationcontrol30percentormoreof thetotaldepositsof insureddepositoryinstitutionsinanystateinwhichtheacquirerandtargethaveoverlappingbankingoperations.12 Forpurposesof theBHCAct,thehomestateof SandySpringisMaryland,and WashingtonFirstBankislocatedintheDistrictof Columbia,Maryland,and Virginia.13Forpurposesof section44of theFDIAct,thehomestateof SandySpring BankisMaryland,andthehomestateof WashingtonFirstBankisVirginia.14Sandy SpringandSandySpringBankarewellcapitalizedandwellmanagedunderapplicablelaw, andSandySpringBankhasa“Satisfactory”ratingundertheCommunityReinvestment Actof 1977(“CRA”).NeithertheDistrictof ColumbianorVirginiahasstatutory minimumagerequirements,15andWashingtonFirstBankhasbeeninexistenceformore thanfiveyears. Onconsummationof theproposedtransaction,SandySpringwouldcontrollessthan 1percentof thetotalamountof consolidateddepositsof insureddepositoryinstitutionsin theUnitedStates.Marylandimposesa30percentlimitonthetotalamountof in-state depositsthatasinglebankingorganizationmaycontrol.16Thecombinedorganization wouldcontrolapproximately0.8percentof thetotalamountof depositsof insureddepositoryinstitutionsintheDistrictof Columbia,approximately2.4percentof thetotal amountof depositsof insureddepositoryinstitutionsinMaryland,andapproximately 0.5percentof thetotalamountof depositsof insureddepositoryinstitutionsinVirginia, theonlystatesinwhichSandySpringandWashingtonFirsthaveoverlappingbanking operations.TheBoardhasconsideredallotherrequirementsundersection3(d)of the BHCActandsection44of theFDIAct,includingSandySpringBank’srecordof meeting theconvenienceandneedsof thecommunitiesitserves.Accordingly,inlightof allthe factsof record,theBoardmayapprovetheproposalunderbothstatutes. CompetitiveConsiderations Section3of theBHCActandtheBankMergerActprohibittheBoardfromapprovinga proposalthatwouldresultinamonopolyorwouldbeinfurtheranceof anattemptto monopolizethebusinessof bankinginanyrelevantmarket.17Bothstatutesalsoprohibit theBoardfromapprovingaproposalthatwouldsubstantiallylessencompetitionortendto 11 12U.S.C.§1842(d)(1)(B);12U.S.C.§1831u(a)(5). 12 12U.S.C.§1842(d)(2)(A)and(B).SimilarprohibitionsapplytoactionbytheBoardoninterstatebankmerger applicationsundersection44oftheFDIAct.See12U.S.C.§1831u(b)(2).Forpurposesofsection3(d)ofthe BHCAct,theacquiringandtargetinstitutionshaveoverlappingbankingoperationsinanystateinwhichany banktobeacquiredislocatedandtheacquiringbankholdingcompanycontrolsanyinsureddepositoryinstitutionorabranch.TheBoardconsidersabanktobelocatedinthestatesinwhichthebankischarteredor headquarteredoroperatesabranch.See12U.S.C.§1841(o)(4)–(7). 13 See12U.S.C.§1841(o)(4).ForpurposesoftheBHCAct,abankholdingcompany’shomestateisthestatein whichthetotaldepositsofallbankingsubsidiariesofsuchcompanywerethelargestonJuly1,1966,orthe dateonwhichthecompanybecameabankholdingcompany,whicheverislater,andastatebank’shomestate isthestateinwhichthebankischartered. 14 Forpurposesofsection44oftheFDIAct,astatebank’shomestateisthestateinwhichthebankischartered. 12U.S.C.§1831u(g)(4). 15 SeeD.C.Code§26-731-741;Va.CodeAnn.§6.2-849-859. 16 Md.CodeAnn.,Fin.Inst.§5-1013.TheDistrictofColumbiaandVirginiadonotimposealimitonthetotal amountofin-statedepositsthatasinglebankingorganizationmaycontrol. 17 12U.S.C.§§1842(c)(1)and1828(c)(5).

116 FederalReserveBulletin|February2018 createamonopolyinanybankingmarket,unlesstheanticompetitiveeffectsof the proposalareclearlyoutweighedinthepublicinterestbytheprobableeffectof theproposal inmeetingtheconvenienceandneedsof thecommunitiestobeserved.18Inaddition,as describedinmoredetailbelow,theBoardmustconsiderthecompetitiveeffectsof a proposaltoacquireanonbankcompanyunderthebalancingtestof section4(j)of the BHCAct.19 SandySpringandWashingtonFirsthavesubsidiarydepositoryinstitutionsthatcompete directlyintheWashington,Districtof Columbia-Maryland-Virginia-WestVirginia bankingmarket(“Washingtonmarket”).20TheBoardhasconsideredthecompetitive effectsof theproposalinthisbankingmarket.Inparticular,theBoardhasconsideredthe numberof competitorsthatwouldremaininthemarket;therelativesharesof total depositsof insureddepositoryinstitutionsinthemarket(“marketdeposits”)thatSandy Springwouldcontrol;21theconcentrationlevelsof marketdepositsandtheincreasein theselevelsasmeasuredbytheHerfindahl-HirschmanIndex(“HHI”)undertheDepartmentof JusticeBankMergerCompetitiveReviewguidelines(“DOJBankMergerGuidelines”);22andothercharacteristicsof themarket. Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesintheWashingtonmarket.Onconsummationof theproposal,theWashingtonmarketwouldremainunconcentrated,asmeasured bytheHHI,accordingtotheDOJBankMergerGuidelines.ThechangeinHHIinthis marketwouldbesmall,andnumerouscompetitorswouldremaininthemarket.23 TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket,includingthe Washingtonmarket.Inaddition,theappropriatebankingagencieshavebeenaffordedan opportunitytocommentandhavenotobjectedtotheproposal. 18 12U.S.C.§§1842(c)(1)(B)and1828(c)(5)(B). 19 12U.S.C.§1843(j)(2)(A). 20 TheWashingtonmarketincludestheDistrictofColumbia;theMarylandcountiesofCharles,Calvert,Frederick,Montgomery,andPrinceGeorge’s;District7inAnneArundelCounty,Maryland;theClarksvilleand SavagedistrictsinHowardCounty,Maryland;theVirginiacountiesofArlington,Culpeper,Fairfax,Fauquier, Loudoun,PrinceWilliam,Rappahannock,Stafford,andWarren;theVirginiacitiesofAlexandria,Fairfax, FallsChurch,Manassas,andManassasPark;andJeffersonCounty,WestVirginia. 21 LocaldepositandmarketsharedataareasofJune30,2016,andarebasedoncalculationsinwhichthe depositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhasindicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorstocommercialbanks.See,e.g., MidwestFinancialGroup,75FederalReserveBulletin386(1989)andNationalCityCorporation,70Federal ReserveBulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsinthemarketsharecalculationona50percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserveBulletin52(1991). 22 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableatwww.justice.gov/opa/pr/ 2010/August/10-at-938.html. 23 SandySpringoperatesthe12thlargestdepositoryinstitutionintheWashingtonmarket,controllingapproximately$3.0billionindeposits,whichrepresent1.6percentofmarketdeposits.WashingtonFirstoperatesthe 16thlargestdepositoryinstitutioninthesamemarket,controllingapproximately$1.6billionindeposits,which representlessthan1percentofmarketdeposits.Onconsummationoftheproposedtransaction,SandySpring wouldremainthe12thlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately $4.6billion,whichrepresent2.4percentofmarketdeposits.TheHHIfortheWashingtonmarketwould increaseby2pointsto998,and77competitorswouldremaininthemarket.

LegalDevelopments:FourthQuarter,2017 117 Basedonallof thefactsof record,theBoardconcludesthatconsummationof the proposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheWashingtonmarketorinanyotherrelevantbankingmarket. Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistentwith approval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersections3and4of theBHCActandtheBankMergerAct, theBoardconsidersthefinancialandmanagerialresourcesandthefutureprospectsof theinstitutionsinvolved.24Initsevaluationof financialfactors,theBoardreviewsinformationregardingthefinancialconditionof theorganizationsinvolvedonbothparent-only andconsolidatedbases,aswellasinformationregardingthefinancialconditionof the subsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.Inthisevaluation,theBoardconsidersavarietyof informationregardingcapital adequacy,assetquality,liquidity,andearningsperformance,aswellaspubliccommentson theproposal.TheBoardevaluatesthefinancialconditionof thecombinedorganization, includingitscapitalposition,assetquality,liquidity,earningsprospects,andtheimpactof theproposedfundingof thetransaction.TheBoardalsoconsiderstheabilityof the organizationtoabsorbthecostsof theproposalandtocompleteeffectivelytheproposed integrationof theoperationsof theinstitutions.Inassessingfinancialfactors,theBoard considerscapitaladequacytobeespeciallyimportant.TheBoardconsidersthefutureprospectsof theorganizationsinvolvedintheproposalinlightof theirfinancialandmanagerialresourcesandtheproposedbusinessplan. SandySpringandWashingtonFirstarebothwellcapitalized,andthecombinedentity wouldremainsoonconsummationof theproposedtransaction.Theproposedtransaction isabankholdingcompanymergerthatisstructuredprimarilyasanexchangeof shares, withasubsequentmergerof thesubsidiarydepositoryinstitutions.25Theassetquality, earnings,andliquidityof SandySpringBankandWashingtonFirstBankareconsistent withapproval,andSandySpringappearstohaveadequateresourcestoabsorbtherelated costsof theproposalandtocompletetheintegrationof theinstitutions’operations.In addition,futureprospectsof theinstitutionsundertheproposalareconsideredconsistent withapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of SandySpring,WashingtonFirst,andtheirsubsidiarydepositoryinstitutions,including assessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition, theBoardhasconsideredinformationprovidedbySandySpring;theBoard’ssupervisory experiencesandthoseof otherrelevantbanksupervisoryagencieswiththeorganizations; theorganizations’recordsof compliancewithapplicablebanking,consumerprotection, andanti-money-launderinglaws;andinformationprovidedbythecommenters. 24 12U.S.C.§§1842(c)(2),(5),and(6);1843(j)(4);1828(c)(5)and(11). 25 Toeffecttheholdingcompanymerger,awhollyownedsubsidiaryofSandySpringformedtofacilitatethe transactionwouldmergewithWashingtonFirst,withWashingtonFirstasthesurvivingentity(“First-Step Merger”).AttheeffectivetimeoftheFirst-StepMerger,eachshareofWashingtonFirstcommonstockwould beconvertedintoanumberofsharesofSandySpringcommonstockbasedonanexchangeratio.Immediately thereafter,WashingtonFirstwouldmergewithSandySpring,withSandySpringasthesurvivingentity. WashingtonFirstBankwouldthenmergewithandintoSandySpringBank,withSandySpringBankasthe survivingentity.Aspartoftheholdingcompanymerger,SandySpringwouldacquire1stPortfoliofrom WashingtonFirstandimmediatelythereaftertransfer1stPortfoliotoSandySpringBank.

118 FederalReserveBulletin|February2018 SandySpring,WashingtonFirst,andtheirsubsidiarydepositoryinstitutionsareeach consideredtobewellmanaged.SandySpringhasarecordof successfullyintegratingorganizationsintoitsoperationsandrisk-managementsystemsafteracquisitions.Sandy Spring’sdirectorsandseniorexecutiveofficershavesignificantknowledgeof andexperienceinthebankingandfinancialservicessectors,andSandySpring’srisk-management programappearsconsistentwithapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredSandySpring’splansforimplementingtheproposal.Sandy Springhasconductedcomprehensiveduediligenceandisdevotingsignificantfinancialand otherresourcestoaddressallaspectsof thepost-integrationprocessforthisproposal. SandySpringwouldimplementitsrisk-managementpolicies,procedures,andcontrolsat thecombinedorganization,andtheseareconsideredacceptablefromasupervisory perspective.Inaddition,SandySpring’smanagementhastheexperienceandresourcesto operatethecombinedorganizationinasafeandsoundmanner.26SandySpringplansto integrateWashingtonFirst’sexistingmanagementandpersonnelinamannerthat augmentsSandySpring’smanagement.27 Basedonallthefactsof record,includingSandySpring’ssupervisoryrecord,managerial andoperationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandfutureprospectsof theorganizationsinvolvedintheproposal,aswellasthe recordsof effectivenessof SandySpringandWashingtonFirstincombatingmoneylaunderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.28Initsevaluationof theeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecreditneedsof thecommunitiestheyserve,aswellasother potentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served.Inthisevaluation,theBoardplacesparticularemphasisontherecordsof the relevantdepositoryinstitutionsundertheCRA.TheCRArequiresthefederalfinancial supervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeetthecredit needsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeirsafeandsound operation,29andrequirestheappropriatefederalfinancialsupervisoryagencytoassessa depositoryinstitution’srecordof helpingtomeetthecreditneedsof itsentirecommunity, 26 OnecommenteraskedtheBoardtoconsiderthediversityofSandySpring’smanagementinreviewingthe proposedtransaction.WhiletheBoardencouragesallfirmstopromotediversityintheirmanagementand workforce,thestatutoryfactorsthattheBoardisauthorizedtoconsiderwhenreviewinganapplicationunder theBHCActandBankMergerActarelimitedandspecificallydefined.See,e.g.,PacWestBancorp,102Federal ReserveBulletin82,88n.24(2015);CITGroup,Inc.,102FederalReserveBulletin1,7n.24(2015);Bankof AmericaCorporation,90FederalReserveBulletin217,223n.31(2004).SeealsoWesternBancshares,Inc.v. BoardofGovernors,480F.2d749(10thCir.1973).OtherprovisionsoflawauthorizetheBoard,togetherwith theotherfederalfinancialsupervisoryagencies,tomonitortheeffortsofregulatedentitiestopromotediversity andinclusion.FinalInteragencyPolicyStatementEstablishingJointStandardsforAssessingtheDiversityPoliciesandPracticesofEntitiesRegulatedbytheAgencies,80FederalRegister33016(June10,2015).SeePub.L. No.111-203,124Stat.1376,1541-44(2010),codifiedat12U.S.C.§5452. 27 Onconsummation,WashingtonFirst’spresidentandchiefexecutiveofficer,aswellasthechairmanandtwo additionalmembersofitsboardofdirectors,willbeappointedtotheboardsofdirectorsofSandySpringand SandySpringBank. 28 12U.S.C.§§1842(c)(2)and1828(c)(5). 29 12U.S.C.§2901(b).

LegalDevelopments:FourthQuarter,2017 119 includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.30 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,thesupervisoryviewsof examiners,othersupervisoryinformation,informationprovidedbytheapplicant,andcommentsreceivedontheproposal.TheBoardalsomayconsidertheinstitution’sbusinessmodel,itsmarketingandoutreachplans,theorganization’splansafter consummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof Sandy SpringBankandWashingtonFirstBank;thefairlendingandcompliancerecordsof both banks;thesupervisoryviewsof theFederalReserveBankof Richmond(“ReserveBank”) andtheFDIC;confidentialsupervisoryinformation;informationprovidedbySandy Spring;andthepubliccommentsreceivedontheproposal. PublicCommentsRegardingtheProposal ThreecommentersobjectedtotheproposalbasedonallegeddeficienciesintheCRA performanceandfairlendingrecordof SandySpringBank.31Allthreecommentersalleged lowlevelsof lendingtominorityborrowers,and/orinmajority-minorityareas,incommunitiesservedbySandySpringBank,asreflectedindatareportedundertheHomeMortgageDisclosureAct(“HMDA”).32Onecommenterallegedhighdenialratesin2015by SandySpringBanktoAfricanAmericanapplicantsandlowlevelsof lendingby WashingtonFirstBanktoAfricanAmericanandHispanicapplicantsincertaincommunities.TwocommenterscriticizedSandySpringBank’slendingtoLMIindividualsandin LMIcensustracts,andonesuchcommenteralsocriticizedthebank’slendinglevelsto smallbusinessesanditslevelsof communitydevelopmentloansandinvestmentsincertain communities.Specificgeographicareasof concernforcommentersincludedtheDistrict of Columbia;MontgomeryCounty,Maryland;PrinceGeorge’sCounty,Maryland;BaltimoreCity,Maryland;andBaltimoreCounty,Maryland. Onecommenterallegedthatthepercentagesof SandySpringBank’sbranchlocationsin LMIandmajority-minoritycensustractsinMontgomeryCounty,Maryland,and NorthernVirginiaareinadequate,andthattheproposedtransactionwillnotincreasethe bank’sbranchingpresenceinLMIandmajority-minoritymarkets.Further,one commentergenerallycriticizedtheadequacyof informationprovidedbySandySpring Bankregardingpotentialbranchclosingsthatwouldoccurinconnectionwiththe proposedtransaction. 30 12U.S.C.§2903. 31 TwocommentersrequestedthattheBoardnotapprovetheproposaluntilSandySpringentersintoacommunitybenefitsplanthatoutlineshowthebankplanstohelpmeettheconvenienceandneedsofthecommunities itserves.TheBoardhasconsistentlyfoundthatneithertheCRAnorthefederalbankingagencies’CRAregulationsrequiredepositoryinstitutionstomakepledgesorenterintocommitmentsoragreementswithanyorganizations.See,e.g.,HuntingtonBancsharesInc.,FRBOrderNo.2016-13at32n.50(July29,2016);CITGroup, Inc.,FRBOrderNo.2015-20at24n.54(July19,2015);CitigroupInc.,88FederalReserveBulletin485at488 n.18(2002);FifthThirdBancorp,80FederalReserveBulletin838,841(1994).Initsevaluation,theBoard reviewstheexistingCRAperformancerecordofanapplicantandtheprogramsthattheapplicanthasinplace toservethecreditneedsofitsCRAassessmentareas(“AAs”). 32 12U.S.C.§2801etseq.

120 FederalReserveBulletin|February2018 Businessesof theInvolvedInstitutionsandResponsetotheComments SandySpringprovidesabroadrangeof financialproductsandservices,primarilythrough SandySpringBank,whichoperatesthroughabranchnetworkintheDistrictof Columbia, Maryland,andVirginia.ProductsandservicesofferedbySandySpringBankincluderetail andcommercialbankingproductsandservices;consumer,commercial,andmortgage lending;trustandinvestmentservices;andinsuranceservices. WashingtonFirstoperatesprimarilythroughWashingtonFirstBankandoffersasimilar rangeof retailandcommercialproductsandservicesthroughbrancheslocatedinthe Districtof Columbia,Maryland,andVirginia.WashingtonFirstBank’sproductsand servicesincluderetailandcommercialbankingproductsandservices;consumer,commercial,andmortgagelending;andfinancialandinvestmentadvisoryservices. SandySpringdeniesthecommenters’allegationsregardingSandySpringBank’sCRAand fairlendingrecordsandassertsthatthebank’srecordof meetingtheconvenienceand needsof thecommunitiesthebankservesisconsistentwiththecriteriaforapprovalof the proposal.SandySpringassertsthattheallegationsbasedonHMDAdatadonotfully representSandySpringBank’slendingrecord.SandySpringrepresentsthatSandySpring Bankhasmadesignificanteffortsinrecentyearstoservethecreditneedsof itscommunities,includingincreasingmortgagelendingtoLMIborrowersandinLMIcensustracts. SandySpringalsostatesthatthebankhastakenstepstoenhancethedeliveryof products andservicestoLMIindividualsinitsAA,suchashiringmortgagebankerswithexperience inlendingtoLMIindividuals,expandingandenhancingtheroleof itsCRAandFair LendingCommittee,andadoptingaCommunityDevelopmentandFairLendingImplementationPlan(“ImplementationPlan”)containingpriorities,goals,andinitiativesfor homemortgage,smallbusiness,andcommunitydevelopmentlending,amongotherareas. SandySpringrepresentsthatinitiativesbeingundertakenundertheplaninclude enhancementof productsthatserveLMIcommunities,hiringmortgagebankersandCRA specialiststooriginateloansinLMIcommunities,andoutreachtoeducatemortgage bankersaboutCRAproducts. SandySpringrepresentsthatSandySpringBank’ssmallbusinesslendinghasincreasedin dollaramountsinceitslastCRAperformanceevaluation.Moreover,SandySpringrepresentsthatin2016,SandySpringBankexceededpeersinsmallbusinesslendinginLMI censustractswithinitsAAandinhighminoritycensustractsinseveralcounties.Sandy SpringalsorepresentsthatitsImplementationPlanincludesinitiativesrelatedtosmall businesslending,includingproactiveoutreachtoprospectiveandexistingbusinessclients inLMIcommunities.Further,SandySpringdeniesacommenter’sallegationsregardingits levelsof communitydevelopmentlendingandinvestmentsandrepresentsthatitscommunitydevelopmentloansandinvestmentshavesignificantlyincreasedsinceitslastCRA performanceevaluation. SandySpringalsoassertsthatitmaintainsappropriatecontrolstoensurecompliancewith applicablefairlendinglawsandregulations.SandySpringcontendsthatithascomprehensivepoliciesandproceduresthatensurebothsafeandsoundlendingandequalaccess tocreditforcreditworthyapplicants,includingongoingfairlendingtraining,internalfair lendingandCRAaudits,andannualassessmentsof underwritingandpricingdecisions. SandySpringrepresentsthatthedenialratesthatacommenterreferencedreflectdeterminationsbasedonapplicants’credithistory,existingdebtlevels,andother non-discriminatoryfactors. SandySpringrepresentsthatSandySpringBankhasacomprehensivebranchingstrategy andproceduresfordeterminingitsbranchlocations,andakeycomponentof itsdecisions

LegalDevelopments:FourthQuarter,2017 121 toopenorclosebranchesisthedemographicsof thecensustractinwhichthebranchis locatedandthecensustractssurroundingthebranchlocation.Moreover,SandySpring assertsthatwitheachbranchdecision,theoverallnetworkof branchingandavailabilityof servicesareconsideredfromaCRAperspectivetoensurethatbankingneedsaremetfora diversifiedpopulationwithoutexclusion.SandySpringrepresentsthatSandySpringBank hasnotspecificallyidentifiedbranchesthatitintendstocloseinconnectionwiththe proposedtransaction,butwillevaluateitscontinuedcoverageinLMIandhighminority censustractsasimportantfactorswhenconsideringbranchconsolidation.33 SandySpringdeniesonecommenter’sallegationsthatWashingtonFirstBankengagesin discriminatorylendingpractices.SandySpringassertsthattheallegationsbasedon HMDAdatadonotfullyrepresentWashingtonFirstBank’slendingrecord.SandySpring assertsthatWashingtonFirstmaintainsappropriatecontrolstoensurecompliancewith applicablefairlendinglawsandregulationsandhascomprehensivepoliciesandprocedures thatensurebothsafeandsoundlendingandequalaccesstocreditforcreditworthyapplicants,suchasongoingfairlendingtrainingandinternalfairlendingandCRAaudits. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardconsiders substantialinformationinadditiontoinformationprovidedbypubliccommentersandthe responsetocommentsbytheapplicant.Inparticular,theBoardevaluatesaninstitution’s performancerecordinlightof examinationsbytheappropriatefederalsupervisorsof the CRAperformancerecordsof therelevantinstitutions,aswellasinformationandviews providedbytheappropriatefederalsupervisors.34Inthiscase,theBoardconsideredthe viewsof theReserveBankandtheFDIC. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.35Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplylending,investment,andserviceteststo evaluatetheperformanceof alargeinsureddepositoryinstitutioninhelpingtomeetthe creditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’shomemortgage,smallbusiness,smallfarm,andcommunitydevelopmentlendingto determinewhethertheinstitutionishelpingtomeetthecreditneedsof individualsand geographiesof allincomelevels.Aspartof thelendingtest,examinersreviewandanalyze aninstitution’sHMDAdata,inadditiontosmallbusiness,smallfarm,andcommunity developmentloandatacollectedandreportedundertheCRAregulations,toassessan institution’slendingactivitieswithrespecttoborrowersandgeographiesof different incomelevels.Theinstitution’slendingperformanceisbasedonavarietyof factors, 33 SandySpringalsorepresentsthatonceSandySpringBankdetermineswhichbranchesitwillclose,itwill complywithitsbranchclosurepolicyandwillfollowallapplicableregulationswithrespecttonoticeofbranch closures.TheBoardnotesthatsection42oftheFederalDepositInsuranceAct(12U.S.C.§1831r-1),as implementedbytheJointPolicyStatementRegardingBranchClosings(64FederalRegister34844(1999)), requiresthatabankprovidethepublicwithatleast30days’notice,andtheappropriatefederalsupervisory agencywithatleast90days’notice,beforethedateofaproposedbranchclosing.Thebankalsoisrequiredto providereasonsandothersupportingdatafortheclosure,consistentwiththeinstitution’swrittenpolicyfor branchclosings. 34 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48506, 48548(July25,2016). 35 12U.S.C.§2906.

122 FederalReserveBulletin|February2018 including(1)thenumberandamountsof homemortgage,smallbusiness,smallfarm,and consumerloans(asapplicable)intheinstitution’sAAs;(2)thegeographicdistributionof theinstitution’slending,includingtheproportionanddispersionof theinstitution’s lendinginitsAAsandthenumberandamountsof loansinlow-,moderate-,middle-,and upper-incomegeographies;(3)thedistributionof loansbasedonborrowercharacteristics,including,forhomemortgageloans,thenumberandamountsof loanstolow-, moderate-,middle-,andupper-incomeindividuals;36(4)theinstitution’scommunitydevelopmentlending,includingthenumberandamountsof communitydevelopmentloans andtheircomplexityandinnovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpracticestoaddressthecreditneedsof LMIindividualsandgeographies. TheBoardisconcernedwhenHMDAdatareflectdisparitiesintheratesof loanapplications,originations,anddenialsamongmembersof differentracialorethnicgroupsinlocal areas.Thesetypesof disparitiesmayindicateweaknessesintheadequacyof policiesand programsataninstitutionformeetingitsobligationstoextendcreditfairly.However,other informationcriticaltoaninstitution’screditdecisionsisnotavailablefromHMDAdata.37 Consequently,HMDAdatadisparitiesmustbeevaluatedinthecontextof otherinformationregardingthelendingrecordof aninstitution. CRAPerformanceof SandySpringBank SandySpringBankwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheReserveBank,asof July14,2014(“SandySpringBank Evaluation”).38Thebankreceiveda“LowSatisfactory”ratingfortheLendingTest,and “HighSatisfactory”ratingsforeachof theInvestmentandtheServiceTests. Examinersconcludedthat,overall,thebank’slendingactivitywasconsistentwiththe bank’scapacityandmarketpresence.Examinersnotedthatasubstantialmajorityof the bank’sHMDAandsmallbusinessloanswereoriginatedwithinthebank’sAA.Examiners foundthatthebank’sgeographiclendingdistributionperformancerangedfrompoorto goodbyloanproductandyear,butfoundthebank’sgeographicdistributionperformance tobeadequateoverall.Examinersalsofoundthat,overall,SandySpringBank’sdistributionof loansbyborrowerincomeandrevenuesizeof businesswasadequate.Examiners explainedthatthisconclusionwasbasedonfindingsthatthebank’sdistributionof HMDAloanstoborrowersof differentincomelevelswasadequateanditsdistributionof loanstobusinessesof differentrevenuesizeswasgood,andthatgreaterweightwasgiven tothebank’sHMDAlendingperformance.ExaminersalsodeterminedthatSandySpring Bank’scommunitydevelopmentlendingactivitywasadequate,consideringthebank’s 36 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3). 37 Otherinformationrelevanttocreditdecisionscouldincludecredithistory,debt-to-incomeratio,andloan-tovalueratio.Accordingly,whenconductingfairlendingexaminations,examinersanalyzesuchadditionalinformationbeforereachingadeterminationregardinganinstitution’scompliancewithfairlendinglaws. 38 TheSandySpringBankEvaluationwasconductedusingLargeInstitutionCRAExaminationProcedures. ExaminersreviewedsmallbusinessloansandHMDAloansreportedbytheinstitutionfromJanuary1,2012, throughDecember31,2013.Theevaluationperiodforcommunitydevelopmentlending,investments,and serviceswasMay21,2012,throughJuly14,2014. Examinersevaluatedthebank’sperformanceinitssingleAA,whichincludedportionsoftheWashington- Baltimore-NorthernVirginia,DistrictofColumbia-Maryland-Virginia-WestVirginia,CombinedStatistical Area.Thebank’sAAincludedalloftheBethesda-Rockville-Fredrick,Maryland,MetropolitanDivisionand portionsofboththeBaltimore-Towson,Maryland,MetropolitanStatisticalArea(“MSA”)andthe Washington-Arlington-Alexandria,DistrictofColumbia-Maryland-Virginia-WestVirginia,Metropolitan Division.WiththeexceptionofBaltimoreCityandBaltimoreCounty,whereSandySpringBankhasalimited presence,theAAincludedallgeographicareasofconcerntothecommenters.

LegalDevelopments:FourthQuarter,2017 123 capacityandavailableopportunities.Examinersnotedthatthebank’scommunitydevelopmentlendingsupportedorganizationsfocusedonassistingLMIindividuals,promoting affordablehousing,andfinancingsmallbusinesses. ExaminersdeterminedthatSandySpringBankmaintainedasignificantlevelof qualified communitydevelopmentinvestmentsandthatitslevelof respondingtocommunitydevelopmentneedsthroughinvestmentactivitieswasratedHighSatisfactory,giventheinvestmentopportunitiesinthebank’sAA.Examinershighlightedseveralinvestmentsand/or grantsthatsupportedLMIindividualsandsmallbusinesseswithinthebank’sAA. Examinersfoundthatthebank’ssystemsfordeliveringretailbankingservicesandits branchlocationswerereadilyaccessibletoallsegmentsof theAA.Examinersalso observedthatthebankofferedmanyserviceswithnoorminimalservicecharges,including freemobileandinternetbanking,freebillpay,freeaccountalerts,noATMfees,andfree checkingaccounts.Examinersdeterminedthatthebank’sdistributionof brancheswas adequate,anditsrecordof openingandclosingbrancheshadnotadverselyaffectedthe accessibilityof itsdeliverysystems,particularlytoLMIgeographiesand/orindividuals. Whileexaminersnotedcertaindifferencesbetweenthehoursof thebank’sofficesinLMI censustractscomparedtomiddle-andupper-incomecensustracts,examinersdetermined that,whenviewedcomprehensively,thebank’sservicesdidnotvaryinawaythatinconveniencedcommunitieswithinitsAA,includingLMIgeographiesand/orindividuals. Examinersalsofoundthatbankemployeeshadparticipatedinarelativelyhighlevelof communitydevelopmentactivities.Examinersnotedthatthebankanditsemployees providedfinancialexpertisetoanumberof organizationsthatprovidecommunitydevelopmentservicesthattargetLMIindividuals,facilitatesmallbusinessdevelopment,orfocus onjobcreation.Examinersalsoobservedthatthebankparticipatedinvariouscommunity developmentserviceactivitiesthatservedLMIindividuals. SandySpringBank’sActivitiesSincetheSandySpringBankEvaluation SandySpringrepresentsthatsincetheSandySpringBankEvaluation,SandySpringBank hasfurthereditscommitmenttocommunityreinvestmentandservingtheneedsof LMI geographiesandindividualsinallof itscommunitiesthroughitshomemortgagelending, communityserviceactivities,outreachefforts,andinvestments.Specifically,SandySpring representsthatSandySpringBankhascontinuedtooriginatehomemortgageloansto LMIborrowersandinLMIcensustracts.SandySpringrepresentsthatSandySpringBank hasdemonstrateditscommitmenttoflexibleandinnovativelendingthroughitsparticipationinvariousaffordablehousingprograms,andhasalsomadeanumberof community developmentloansanddonationstocommunityorganizations.Further,SandySpring representsthatnumerousSandySpringBankemployeeshavecontinuedtoservethebank’s communitiesbyvolunteeringatnonprofitorganizations,includingorganizationsfocused onprovidingservicestargetedtoLMIindividualsorcommunities,offeringaffordable housingopportunitiestoLMIresidents,andprovidingfinancialliteracytrainingforyouth, youngadults,adults,andsmallbusinessowners. CRAPerformanceof WashingtonFirstBank WashingtonFirstBankwasassignedanoverallratingof “Satisfactory”atitsmostrecent CRAperformanceevaluationbytheFDIC,asof August18,2014(“WashingtonFirstBank

124 FederalReserveBulletin|February2018 Evaluation”).39WashingtonFirstBankreceived“Satisfactory”ratingsforboththeLending TestandtheCommunityDevelopmentTest. ExaminersfoundthatWashingtonFirstBank’sloan-to-depositratiowasreasonablegiven thebank’ssize,financialcondition,andAAs’creditneeds.Examinersdeterminedthat WashingtonFirstBankoriginatedasubstantialmajorityof itsloanswithinitsAAs.Examinersalsofoundthatthegeographicdistributionof WashingtonFirstBank’sloans reflectedareasonabledispersionthroughouttheAAs.Accordingtoexaminers,thebank’s geographicdistributionof smallbusinessloansreflectedareasonabledispersion,andits geographicdistributionof homemortgageloansreflectedanexcellentdispersion, throughouttheAAs.ExaminersalsofoundthatWashingtonFirstBank’sdistributionof loansbasedonborrowerprofiledisplayedareasonablelevelof penetrationandthatthe bank’srecordof lendingtobusinessesof differentsizesandindividualsof differentincome levelsreflectedreasonableperformance. Withrespecttocommunitydevelopment,examinersconsideredWashingtonFirstBank’s communitydevelopmentloans,investments,andservices.Examinersfoundthat WashingtonFirstBankdemonstratedadequateresponsivenesstothecommunitydevelopmentneedsof theWashingtonMMSA,wherethemajorityof itscommunitydevelopment activitiesoccurred,consideringthebank’scapacityandtheneedandavailabilityof opportunitiesforcommunitydevelopmentintheAA.Examinersobservedthat WashingtonFirstBank’scommunitydevelopmentlendingwasresponsivetocommunity creditneedsbecauseitsupportedcommunitydevelopmentorganizations,promoted economicdevelopment,andprovidedaffordablehousing.Examinersalsonotedthatbank managementandemployeesprovidedfinancialadviceandassistancetovariouscommunity developmentorganizations,aswellastoLMIindividualsandsmallbusinesses.Examiners furthernotedthatWashingtonFirstBankofferedvariouscost-effectiveservicesto customers,includingfreechecking,onlinebanking,billpay,telephonebanking,unlimited checkwritingonconsumercheckingaccounts,overdraft-protectionlinesof credit,and checkingaccountsfornonprofitorganizationsandsmallbusinesses. WashingtonFirstBank’sActivitiesSincetheWashingtonFirstBankEvaluation SandySpringrepresentsthatsincetheWashingtonFirstBankEvaluation,WashingtonFirst Bankhascontinuedtoserveitscommunitiesthroughitshomemortgagelending,communityserviceactivities,outreachefforts,andinvestments.SandySpringrepresentsthat WashingtonFirstBankhascontinuedtooriginatehomemortgageloanstoLMIborrowers andinLMIcensustracts.SandySpringrepresentsthatWashingtonFirstBankhas demonstrateditscommitmenttoflexibleandinnovativelendingthroughitsparticipationin variousaffordablehousingprograms.Further,SandySpringrepresentsthatnumerous WashingtonFirstBankofficersandemployeeshavecontinuedtoservethebank’scommunitiesthroughvolunteeringandleadershiprolesatseveralnonprofitorganizations, includingsupportingorganizationsthatprovideservicestargetedtoLMIindividualsor communities,servingonboardsandcommitteesof nonprofitorganizationsthatoffer 39 TheWashingtonFirstBankEvaluationwasconductedusingIntermediateSmallBankCRAExamination Procedures,consistingofthelendingandcommunitydevelopmenttests.FortheLendingTest,examiners reviewedhomemortgageloansreportedpursuanttoHMDAfor2012and2013,andsmallbusinessloans reportedunderCRAdatacollectionrequirementsfor2013.FortheCommunityDevelopmentTest,examiners reviewedthebank’squalifiedcommunitydevelopmentlending,investments,andserviceactivitiesfrom September19,2011,throughAugust18,2014. Examinersevaluatedthebank’sperformanceinthebank’stwoAAs,whichincludedportionsofthe Washington-Arlington-Alexandria,DistrictofColumbia-Virginia-Maryland-WestVirginia,MultistateMetropolitanStatisticalArea(“WashingtonMMSA”),andtheBethesda-Rockville-Fredrick,Maryland,MSA.

LegalDevelopments:FourthQuarter,2017 125 affordablehousingopportunitiestoLMIresidents,andprovidingfinancialliteracytraining foryouth,veterans,smallbusinessowners,andolderpersons. AdditionalSupervisoryViews TheBoardhasconsideredtheresultsof themostrecentconsumercomplianceexaminationsof SandySpringBankconductedbytheReserveBank,whichincludedareviewof thebank’scompliancemanagementprogramandthebank’scompliancewithconsumer protectionlawsandregulations.Aspartof theconsumercomplianceexaminations,the ReserveBankevaluatedSandySpringBank’sfairlendingmanagementprogram,including thebank’sfairlending-relatedpractices,policies,procedures,andinternalcontrols. TheBoardhasconsideredtheresultsof arecentconsumercompliancereviewof WashingtonFirstBankconductedbytheReserveBank.40TheBoardalsohasconsidered theresultsof acomplianceexaminationof WashingtonFirstBankbytheFDIC,which includedareviewof thebank’scompliancemanagementsystemandcompliancewith consumerprotectionlaws,includingfairlendinglawsandregulations,andof afairlending examinationof WashingtonFirstBank,whichincludedareviewof lendingproductsand distributions,andunderwritingandpricingpractices. TheBoardhastakentheresultsof theseexaminationsintoaccountinevaluatingthis proposal,includinginconsideringwhetherSandySpringhastheexperienceandresources toensurethatthecombinedorganizationwouldeffectivelyimplementpoliciesand programsthatwouldallowthecombinedorganizationtoserveeffectivelythecreditneeds of allthecommunitieswithinthefirm’sAAs. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.SandySpringrepresentsthat,followingthe proposedtransaction,thecombinedorganizationwouldcontinuetoofferarangeof depositandcreditproductsandservicesthatbenefitthecommunitiesinwhichSandy SpringBankandWashingtonFirstBankeachpresentlyconductbusiness,includingcredit productsandservicesthathelpfulfilltheneedsof LMIdemographics.SandySpringrepresentsthatcustomersof WashingtonFirstBankwouldhaveaccesstoenhancedproducts andservicesthataremoreexpansivethanthosecurrentlyavailabletoWashingtonFirst Bankcustomers,includingseveraladditionaltypesof checkingaccounts,healthsavings accounts,additionalIRAproducts,trustandfiduciaryservices,andafullrangeof personalandbusinessinsuranceproducts.Inaddition,SandySpringassertsthatcustomers of bothinstitutionswouldbenefitfromamoreexpansivebranchandATMnetwork.In addition,SandySpringrepresentsthattheproposedtransactionwouldincreaseSandy SpringBank’slendingcapacityandlendinglimits,whichwouldallowSandySpringBank tomakemoreandlargerloans.SandySpringalsoassertsthattheproposedtransaction wouldfacilitatefurtherinvestmentsinthebank’stechnology,marketing,andpersonnel, whichwouldenableSandySpringBanktoprovidenewservicesinacost-effectiveway, reachmoremembersof itscommunities,improveitsrisk-management,anddevelopand delivermoreproductsandservices. 40 WashingtonFirstBankwassubjecttotheFDIC’sjurisdictionuntilJanuary2017,whenitbecameastate memberbank.PriortotheBoard’sapprovalofWashingtonFirstBank’sapplicationtobecomeastatemember bank,theReserveBankconductedareviewofWashingtonFirstBank’spolicies,procedures,practices,and systems.

126 FederalReserveBulletin|February2018 ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws,supervisoryviewsof theReserveBankand FDIC,confidentialsupervisoryinformation,informationprovidedbySandySpringBank, thepubliccommentsontheproposal,andthepotentialeffectsof theproposalonthe convenienceandneedsof thecommunitiestobeserved.Basedonthatreview,theBoard concludesthattheconvenienceandneedsfactorisconsistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedsections3and4of theBHCActandtheBankMergerActtorequiretheBoard toconsideraproposal’srisk“tothestabilityof theUnitedStatesbankingorfinancial system.”41 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the resultingfirm.42Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.43 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.44 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthatislessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.Both theacquirerandthetargetarepredominantlyengagedinavarietyof consumerand 41 Dodd-FrankAct§§604(d),(e)and(f),Pub.L.No.111-203,124Stat.1376,1601–1602(2010),codifiedat 12U.S.C.§§1828(c)(5),1842(c)(7),and1843(j)(2)(A). 42 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 43 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 44 SeePeoplesUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition.

LegalDevelopments:FourthQuarter,2017 127 commercialbankingactivities.45Theproformaorganizationwouldhaveminimalcrossborderactivitiesandwouldnotexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.Inaddition,theorganizationwouldnotbeacriticalservicesprovideror sointerconnectedwithotherfirmsorthemarketsthatitwouldposeasignificantriskto thefinancialsystemintheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Acquisitionof aNonbankingCompany Asnoted,SandySpringhasfiledanoticeundersections4(c)(8)and4(j)of theBHCActto acquire1stPortfolio,whichengagesinfinancialandinvestmentadvisoryactivitiesthatthe Boardhasdeterminedbyregulationaresocloselyrelatedtobankingastobeaproperincidenttheretoforpurposesof section4(c)(8)of theBHCAct.46Inconnectionwithanotice undersection4(c)(8)of theBHCAct,section4(j)(2)of theBHCActrequirestheBoardto “considerwhetherperformanceof theactivitybyabankholdingcompanyorasubsidiary of suchcompanycanreasonablybeexpectedtoproducebenefitstothepublic,suchas greaterconvenience,increasedcompetition,orgainsinefficiency,thatoutweighpossible adverseeffects,suchasundueconcentrationof resources,decreasedorunfaircompetition, conflictsof interests,unsoundbankingpractices,orrisktothestabilityof theUnited Statesbankingorfinancialsystem.”47 TheBoardhasconsideredthattheproposedtransactionwouldpermitSandySpringto expanditsdeliveryof wealthadvisoryandretirementplanningservicesandenableSandy Springtoprovideservicesinamorecost-effectiveandefficientmanner.TheBoard concludesthattheconductof theproposednonbankingactivitieswithintheframeworkof RegulationY,Boardprecedent,andthisorderisnotlikelytoresultinsignificantadverse effects,suchasundueconcentrationof resources,decreasedorunfaircompetition, conflictsof interests,unsoundbankingpractices,orrisktothestabilityof theUnited Statesbankingorfinancialsystem.Onthebasisof theentirerecord,includingconditions notedinthisorder,andforthereasonsdiscussedabove,theBoardbelievesthatthebalance of benefitsandpotentialadverseeffectsrelatedtocompetition,financialandmanagerial resources,convenienceandneeds,financialstability,andotherfactorsweighinfavorof approvalof theproposal.Accordingly,theBoarddeterminesthatthebalanceof thepublic benefitsunderthestandardof section4(j)(2)of theBHCActisconsistentwithapproval. Establishmentof Branches SandySpringBankhasappliedundersection9of theFRAtoestablishbranchesatthe currentlocationsof WashingtonFirstBank.48TheBoardhasassessedthefactorsitis requiredtoconsiderwhenreviewinganapplicationunderthatsection,includingSandy 45 SandySpringandWashingtonFirstprimarilyofferarangeofretailandcommercialbankingproductsand services.SandySpringhas,andasaresultoftheproposedtransactionwouldcontinuetohave,asmallmarket shareintheseproductsandservicesonanationwidebasis,andnumerouscompetitorswouldremainforthese productsandservices. 46 12CFR225.28(b)(6). 47 12U.S.C.§1843(j)(2)(A). 48 See12U.S.C.§321.Undersection9oftheFRA,statememberbanksmayestablishandoperatebrancheson thesametermsandconditionsasareapplicabletotheestablishmentofbranchesbynationalbanks.Under

128 FederalReserveBulletin|February2018 SpringBank’sfinancialcondition,management,capital,actionsinmeetingtheconvenienceandneedsof thecommunitiestobeserved,CRAperformance,andinvestmentin bankpremises.49Forthereasonsdiscussedinthisorder,theBoardfindsthosefactorstobe consistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheproposal shouldbe,andherebyis,approved.50Inreachingitsconclusion,theBoardhasconsideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunderthe BHCAct,theBankMergerAct,theFRA,andotherapplicablestatutes.TheBoard’s approvalisspecificallyconditionedoncompliancebySandySpringandSandySpring Bankwithalltheconditionsimposedinthisorder,includingreceiptof allrequiredregulatoryapprovals,andonthecommitmentsmadetotheBoardinconnectionwiththeapplication.Forpurposesof thisaction,theconditionsandcommitmentsaredeemedtobe conditionsimposedinwritingbytheBoardinconnectionwithitsfindingsanddecision hereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardortheReserveBank,actingunderdelegatedauthority. Byorderof theBoardof Governors,effectiveNovember22,2017. Votingforthisaction:ChairYellen,ViceChairmanforSupervisionQuarles,andGovernorsPowellandBrainard AnnE.Misback Secretaryof theBoard section44oftheFDIAct,astatememberbankresultingfromaninterstatemergertransactionmayretainand operate,asamainofficeorabranch,anyofficethatanybankinvolvedinthemergerwasoperatingasamain officeorbranchimmediatelybeforethemergertransaction.See12U.S.C.§§36(d)and1831u(d). 49 12U.S.C.§322;12CFR208.6.Uponconsummationoftheproposedtransaction,SandySpringBank’sinvestmentsinbankpremiseswouldremainwithinlegalrequirementsunder12CFR208.21. 50 AcommenterrequestedthattheBoardholdpublichearingsontheproposal.TheBankMergerActand section9oftheFRAdonotrequireapublicmeetingoraformalpublichearingonanapplication. Section3(b)oftheBHCActdoesnotrequirethattheBoardholdapublichearingonanyapplicationunless theappropriatesupervisoryauthoritiesforthebanktobeacquiredmakeatimelywrittenrecommendationof denialoftheapplication.12U.S.C.§1842(b);12CFR225.16(e).TheBoardhasnotreceivedsucharecommendationfromtheappropriatesupervisoryauthorities.TheBoard’sregulationsprovideforahearingonanotice filedundersection4oftheBHCActiftherearedisputedissuesofmaterialfactthatcannotberesolvedin someothermanner.12CFR225.25(a)(2).Underitsrules,theBoardalsomay,initsdiscretion,holdapublic hearingifappropriatetoallowinterestedpersonsanopportunitytoproviderelevanttestimonywhenwritten commentswouldnotadequatelypresenttheirviews.TheBoardhasconsideredthecommenter’srequestinlight ofallthefactsofrecord.NoticeoftheproposalwaspublishedintheFederalRegisteronJuly11,2017,andin therelevantnewspaperofgeneralcirculation(TheWashingtonPost)onJune26,July3,andJuly10,2017. ThecommentperiodendedonAugust1,2017.IntheBoard’sview,thecommenterhashadampleopportunity tosubmitcommentsontheproposaland,infact,submittedawrittencommentthattheBoardhasconsidered inactingontheproposal.Thecommenter’srequestdoesnotidentifydisputedissuesoffactthatarematerialto theBoard’sdecisionandthatwouldbeclarifiedbyapublichearing.Inaddition,therequestdoesnotdemonstratewhythewrittencommentdoesnotpresentthecommenter’sviewsadequatelyorwhyahearingotherwise wouldbenecessaryorappropriate.Forthesereasons,andbasedonallthefactsofrecord,theBoardhas determinedthatapublichearingisnotrequiredorwarrantedinthiscase.Accordingly,therequestforapublic hearingontheproposalisdenied.

LegalDevelopments:FourthQuarter,2017 129 Appendix BranchestoBeEstablishedbySandySpringBank 1. 4501NorthFairfaxDrive,Arlington,Virginia22203 2. 115NorthWashingtonStreet,Alexandria,Virginia22314 3. 7023LittleRiverTurnpike,Suite101,Annandale,Virginia22003 4. 12735ShoppesLane,Fairfax,Virginia22033 5. 9851GeorgetownPike,GreatFalls,Virginia22066 6. 13081WorldgateDrive,Herndon,Virginia20170 7. 1356ChainBridgeRoad,McLean,Virginia22101 8. 11636PlazaAmericaDrive,Reston,Virginia20190 9. 2095ChainBridgeRoad,Vienna,Virginia22182 10. 10777MainStreet,Fairfax,Virginia22030 11. 46901CedarLakesPlaza,Sterling,Virginia20164 12. 9150ManassasDrive,ManassasPark,Virginia20111 13. 1025ConnecticutAvenue,N.W.,1stFloor,Districtof Columbia20036 14. 114619thStreet,N.W.,Districtof Columbia20036 15. 7708WoodmontAvenue,Bethesda,Maryland20814 16. 9812FallsRoad,Suite125,Potomac,Maryland20854 17. 14941ShadyGroveRoad,Rockville,Maryland20850 18. 6329GreenbeltRoad,CollegePark,Maryland20740 19. 6089OxonHillRoad,OxonHill,Maryland20745

130 FederalReserveBulletin|February2018 Orders Issued Under Bank Merger Act Sandy Spring Bancorp, Inc. Olney, Maryland OrderApprovingtheMergerof BankHoldingCompanies,theAcquisitionof aNonbanking Subsidiary,theMergerof Banks,andtheEstablishmentof Branches FRBOrderNo.2017–32(November22,2017) SandySpringBancorp,Inc.(“SandySpring”),Olney,Maryland,abankholdingcompany withinthemeaningof theBankHoldingCompanyActof 1956(“BHCAct”),1has requestedtheBoard’sapprovalundersection3of theBHCAct2tomergewith WashingtonFirstBankshares,Inc.(“WashingtonFirst”),andtherebyindirectlyacquire WashingtonFirstBank,bothof Reston,Virginia.SandySpringhasalsorequestedthe Board’sapprovalundersections4(c)(8)and4(j)of theBHCActandsection225.24of the Board’sRegulationY3toacquire1stPortfolio,Inc.(“1stPortfolio”),Fairfax,Virginia,a nonbankingsubsidiaryof WashingtonFirstthatisengagedinfinancialandinvestment advisoryactivities. Inaddition,SandySpring’ssubsidiarystatememberbank,SandySpringBank,Olney, Maryland,hasrequestedtheBoard’sapprovalundersection18(c)of theFederalDeposit InsuranceAct(“BankMergerAct”)tomergewithWashingtonFirstBank,withSandy SpringBankasthesurvivingentity.4SandySpringBankalsohasappliedundersection9 of theFederalReserveAct(“FRA”)toestablishandoperatebranchesatthemainoffice andbranchesof WashingtonFirstBank.5 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(82FederalRegister31973(July11,2017)).6Thetimeforsubmitting commentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsections3and4of theBHCAct,theBank MergerAct,andtheFRA.AsrequiredbytheBankMergerAct,areportonthecompetitiveeffectsof themergerwasrequestedfromtheUnitedStatesAttorneyGeneral,anda copyof therequesthasbeenprovidedtotheFederalDepositInsuranceCorporation (“FDIC”). SandySpring,withconsolidatedassetsof approximately$5.3billion,isthe201stlargest insureddepositoryorganizationintheUnitedStates.SandySpringcontrolsapproximately $3.9billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.7SandySpring controlsSandySpringBank,whichoperatesintheDistrictof Columbia,Maryland,and Virginia.SandySpringisthe27thlargestinsureddepositoryorganizationintheDistrictof Columbia,controllingdepositsof approximately$3.1million,whichrepresentlessthan 1percentof thetotaldepositsof insureddepositoryinstitutionsinthatjurisdiction.8Sandy Springisthe8thlargestinsureddepositoryorganizationinMaryland,controllingdeposits 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 12U.S.C.§§1843(c)(8)and(j);12CFR225.24. 4 12U.S.C.§1828(c). 5 12U.S.C.§321.TheselocationsarelistedintheAppendix. 6 12CFR262.3(b). 7 NationalassetanddepositdataareasofJune30,2017,unlessotherwisenoted. 8 StatedepositdataareasofJune30,2016,unlessotherwisenoted.Inthiscontext,insureddepositoryinstitutionsincludecommercialbanks,creditunions,savingsassociations,andsavingsbanks.

LegalDevelopments:FourthQuarter,2017 131 of approximately$3.2billion,whichrepresentapproximately2.3percentof thetotal depositsof insureddepositoryinstitutionsinthatstate.SandySpringisthe59thlargest insureddepositoryorganizationinVirginia,controllingdepositsof approximately $329.5million,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. WashingtonFirst,withconsolidatedassetsof approximately$2.1billion,isthe383rd largestinsureddepositoryorganizationintheUnitedStates.WashingtonFirstcontrols approximately$1.7billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates. WashingtonFirstcontrolsWashingtonFirstBank,whichoperatesintheDistrictof Columbia,Maryland,andVirginia.WashingtonFirstisthe14thlargestinsureddepository organizationintheDistrictof Columbia,controllingdepositsof approximately $372.2million,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatjurisdiction.WashingtonFirstisthe62ndlargestinsureddepository organizationinMaryland,controllingdepositsof approximately$137.7million,which representlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthat state.WashingtonFirstisthe22ndlargestinsureddepositoryorganizationinVirginia, controllingdepositsof approximately$1.1billion,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. Onconsummationof thisproposal,SandySpringwouldbecomethe165thlargestinsured depositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $7.4billion,whichrepresentlessthan1percentof thetotalassetsof insureddepository institutionsintheUnitedStates.SandySpringwouldcontroltotaldepositsof approximately$5.6billion,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.SandySpringwouldbecomethe 14thlargestinsureddepositoryorganizationintheDistrictof Columbia,controlling depositsof approximately$375.2million,whichrepresentlessthan1percentof thetotal depositsof insureddepositoryinstitutionsinthatjurisdiction.SandySpringwouldremain the8thlargestinsureddepositoryorganizationinMaryland,controllingdepositsof approximately$3.3billion,whichrepresentapproximately2.4percentof thetotaldeposits of insureddepositoryinstitutionsinthatstate.InVirginia,SandySpringwouldbecomethe 18thlargestinsureddepositoryorganization,controllingdepositsof $1.4billion,which representlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthat state. InterstateandDepositCapAnalysis Section3(d)of theBHCActgenerallyprovidesthat,if certainconditionsaremet,the Boardmayapproveanapplicationbyabankholdingcompanytoacquirecontrolof a banklocatedinastateotherthanthehomestateof thebankholdingcompany,without regardtowhetherthetransactionisprohibitedunderstatelaw.9Section44of theFederal DepositInsuranceAct(“FDIAct”)generallyprovidesthat,if certainconditionsaremet, theBoardmayapproveamergertransactionundertheBankMergerActbetweeninsured bankswithdifferenthomestateswithoutregardtowhetherthetransactionisprohibited understatelaw.10TheBoardmaynotapproveanapplicationthatwouldpermitanout-ofstatebankholdingcompanyorbanktoacquireabankinahoststateif thebankhasnot beeninexistenceforthelesserof thestatestatutoryminimumperiodof timeorfive 9 12U.S.C.§1842(d)(1)(A). 10 12U.S.C.§1831u(a)(1).

132 FederalReserveBulletin|February2018 years.11Inaddition,undersection3(d)of theBHCAct,theBoardmaynotapprovean interstateapplicationif thebankholdingcompanycontrolsor,uponconsummationof the proposedtransaction,wouldcontrolmorethan10percentof thetotaldepositsof insured depositoryinstitutionsintheUnitedStatesor,incertaincircumstances,if thebankholding companywoulduponconsummationcontrol30percentormoreof thetotaldepositsof insureddepositoryinstitutionsinanystateinwhichtheacquirerandtargethaveoverlappingbankingoperations.12 Forpurposesof theBHCAct,thehomestateof SandySpringisMaryland,and WashingtonFirstBankislocatedintheDistrictof Columbia,Maryland,and Virginia.13Forpurposesof section44of theFDIAct,thehomestateof SandySpring BankisMaryland,andthehomestateof WashingtonFirstBankisVirginia.14Sandy SpringandSandySpringBankarewellcapitalizedandwellmanagedunderapplicablelaw, andSandySpringBankhasa“Satisfactory”ratingundertheCommunityReinvestment Actof 1977(“CRA”).NeithertheDistrictof ColumbianorVirginiahasstatutory minimumagerequirements,15andWashingtonFirstBankhasbeeninexistenceformore thanfiveyears. Onconsummationof theproposedtransaction,SandySpringwouldcontrollessthan 1percentof thetotalamountof consolidateddepositsof insureddepositoryinstitutionsin theUnitedStates.Marylandimposesa30percentlimitonthetotalamountof in-state depositsthatasinglebankingorganizationmaycontrol.16Thecombinedorganization wouldcontrolapproximately0.8percentof thetotalamountof depositsof insureddepositoryinstitutionsintheDistrictof Columbia,approximately2.4percentof thetotal amountof depositsof insureddepositoryinstitutionsinMaryland,andapproximately 0.5percentof thetotalamountof depositsof insureddepositoryinstitutionsinVirginia, theonlystatesinwhichSandySpringandWashingtonFirsthaveoverlappingbanking operations.TheBoardhasconsideredallotherrequirementsundersection3(d)of the BHCActandsection44of theFDIAct,includingSandySpringBank’srecordof meeting theconvenienceandneedsof thecommunitiesitserves.Accordingly,inlightof allthe factsof record,theBoardmayapprovetheproposalunderbothstatutes. CompetitiveConsiderations Section3of theBHCActandtheBankMergerActprohibittheBoardfromapprovinga proposalthatwouldresultinamonopolyorwouldbeinfurtheranceof anattemptto monopolizethebusinessof bankinginanyrelevantmarket.17Bothstatutesalsoprohibit theBoardfromapprovingaproposalthatwouldsubstantiallylessencompetitionortendto 11 12U.S.C.§1842(d)(1)(B);12U.S.C.§1831u(a)(5). 12 12U.S.C.§1842(d)(2)(A)and(B).SimilarprohibitionsapplytoactionbytheBoardoninterstatebankmerger applicationsundersection44oftheFDIAct.See12U.S.C.§1831u(b)(2).Forpurposesofsection3(d)ofthe BHCAct,theacquiringandtargetinstitutionshaveoverlappingbankingoperationsinanystateinwhichany banktobeacquiredislocatedandtheacquiringbankholdingcompanycontrolsanyinsureddepositoryinstitutionorabranch.TheBoardconsidersabanktobelocatedinthestatesinwhichthebankischarteredor headquarteredoroperatesabranch.See12U.S.C.§1841(o)(4)–(7). 13 See12U.S.C.§1841(o)(4).ForpurposesoftheBHCAct,abankholdingcompany’shomestateisthestatein whichthetotaldepositsofallbankingsubsidiariesofsuchcompanywerethelargestonJuly1,1966,orthe dateonwhichthecompanybecameabankholdingcompany,whicheverislater,andastatebank’shomestate isthestateinwhichthebankischartered. 14 Forpurposesofsection44oftheFDIAct,astatebank’shomestateisthestateinwhichthebankischartered. 12U.S.C.§1831u(g)(4). 15 SeeD.C.Code§26-731-741;Va.CodeAnn.§6.2-849-859. 16 Md.CodeAnn.,Fin.Inst.§5-1013.TheDistrictofColumbiaandVirginiadonotimposealimitonthetotal amountofin-statedepositsthatasinglebankingorganizationmaycontrol. 17 12U.S.C.§§1842(c)(1)and1828(c)(5).

LegalDevelopments:FourthQuarter,2017 133 createamonopolyinanybankingmarket,unlesstheanticompetitiveeffectsof the proposalareclearlyoutweighedinthepublicinterestbytheprobableeffectof theproposal inmeetingtheconvenienceandneedsof thecommunitiestobeserved.18Inaddition,as describedinmoredetailbelow,theBoardmustconsiderthecompetitiveeffectsof a proposaltoacquireanonbankcompanyunderthebalancingtestof section4(j)of the BHCAct.19 SandySpringandWashingtonFirsthavesubsidiarydepositoryinstitutionsthatcompete directlyintheWashington,Districtof Columbia-Maryland-Virginia-WestVirginia bankingmarket(“Washingtonmarket”).20TheBoardhasconsideredthecompetitive effectsof theproposalinthisbankingmarket.Inparticular,theBoardhasconsideredthe numberof competitorsthatwouldremaininthemarket;therelativesharesof total depositsof insureddepositoryinstitutionsinthemarket(“marketdeposits”)thatSandy Springwouldcontrol;21theconcentrationlevelsof marketdepositsandtheincreasein theselevelsasmeasuredbytheHerfindahl-HirschmanIndex(“HHI”)undertheDepartmentof JusticeBankMergerCompetitiveReviewguidelines(“DOJBankMergerGuidelines”);22andothercharacteristicsof themarket. Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesintheWashingtonmarket.Onconsummationof theproposal,theWashingtonmarketwouldremainunconcentrated,asmeasured bytheHHI,accordingtotheDOJBankMergerGuidelines.ThechangeinHHIinthis marketwouldbesmall,andnumerouscompetitorswouldremaininthemarket.23 TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket,includingthe Washingtonmarket.Inaddition,theappropriatebankingagencieshavebeenaffordedan opportunitytocommentandhavenotobjectedtotheproposal. 18 12U.S.C.§§1842(c)(1)(B)and1828(c)(5)(B). 19 12U.S.C.§1843(j)(2)(A). 20 TheWashingtonmarketincludestheDistrictofColumbia;theMarylandcountiesofCharles,Calvert,Frederick,Montgomery,andPrinceGeorge’s;District7inAnneArundelCounty,Maryland;theClarksvilleand SavagedistrictsinHowardCounty,Maryland;theVirginiacountiesofArlington,Culpeper,Fairfax,Fauquier, Loudoun,PrinceWilliam,Rappahannock,Stafford,andWarren;theVirginiacitiesofAlexandria,Fairfax, FallsChurch,Manassas,andManassasPark;andJeffersonCounty,WestVirginia. 21 LocaldepositandmarketsharedataareasofJune30,2016,andarebasedoncalculationsinwhichthe depositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhasindicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorstocommercialbanks.See,e.g., MidwestFinancialGroup,75FederalReserveBulletin386(1989)andNationalCityCorporation,70Federal ReserveBulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsinthemarketsharecalculationona50percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserveBulletin52(1991). 22 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableatwww.justice.gov/opa/pr/ 2010/August/10-at-938.html. 23 SandySpringoperatesthe12thlargestdepositoryinstitutionintheWashingtonmarket,controllingapproximately$3.0billionindeposits,whichrepresent1.6percentofmarketdeposits.WashingtonFirstoperatesthe 16thlargestdepositoryinstitutioninthesamemarket,controllingapproximately$1.6billionindeposits,which representlessthan1percentofmarketdeposits.Onconsummationoftheproposedtransaction,SandySpring wouldremainthe12thlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately $4.6billion,whichrepresent2.4percentofmarketdeposits.TheHHIfortheWashingtonmarketwould increaseby2pointsto998,and77competitorswouldremaininthemarket.

134 FederalReserveBulletin|February2018 Basedonallof thefactsof record,theBoardconcludesthatconsummationof the proposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheWashingtonmarketorinanyotherrelevantbankingmarket. Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistentwith approval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersections3and4of theBHCActandtheBankMergerAct, theBoardconsidersthefinancialandmanagerialresourcesandthefutureprospectsof theinstitutionsinvolved.24Initsevaluationof financialfactors,theBoardreviewsinformationregardingthefinancialconditionof theorganizationsinvolvedonbothparent-only andconsolidatedbases,aswellasinformationregardingthefinancialconditionof the subsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.Inthisevaluation,theBoardconsidersavarietyof informationregardingcapital adequacy,assetquality,liquidity,andearningsperformance,aswellaspubliccommentson theproposal.TheBoardevaluatesthefinancialconditionof thecombinedorganization, includingitscapitalposition,assetquality,liquidity,earningsprospects,andtheimpactof theproposedfundingof thetransaction.TheBoardalsoconsiderstheabilityof the organizationtoabsorbthecostsof theproposalandtocompleteeffectivelytheproposed integrationof theoperationsof theinstitutions.Inassessingfinancialfactors,theBoard considerscapitaladequacytobeespeciallyimportant.TheBoardconsidersthefutureprospectsof theorganizationsinvolvedintheproposalinlightof theirfinancialandmanagerialresourcesandtheproposedbusinessplan. SandySpringandWashingtonFirstarebothwellcapitalized,andthecombinedentity wouldremainsoonconsummationof theproposedtransaction.Theproposedtransaction isabankholdingcompanymergerthatisstructuredprimarilyasanexchangeof shares, withasubsequentmergerof thesubsidiarydepositoryinstitutions.25Theassetquality, earnings,andliquidityof SandySpringBankandWashingtonFirstBankareconsistent withapproval,andSandySpringappearstohaveadequateresourcestoabsorbtherelated costsof theproposalandtocompletetheintegrationof theinstitutions’operations.In addition,futureprospectsof theinstitutionsundertheproposalareconsideredconsistent withapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of SandySpring,WashingtonFirst,andtheirsubsidiarydepositoryinstitutions,including assessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition, theBoardhasconsideredinformationprovidedbySandySpring;theBoard’ssupervisory experiencesandthoseof otherrelevantbanksupervisoryagencieswiththeorganizations; theorganizations’recordsof compliancewithapplicablebanking,consumerprotection, andanti-money-launderinglaws;andinformationprovidedbythecommenters. 24 12U.S.C.§§1842(c)(2),(5),and(6);1843(j)(4);1828(c)(5)and(11). 25 Toeffecttheholdingcompanymerger,awhollyownedsubsidiaryofSandySpringformedtofacilitatethe transactionwouldmergewithWashingtonFirst,withWashingtonFirstasthesurvivingentity(“First-Step Merger”).AttheeffectivetimeoftheFirst-StepMerger,eachshareofWashingtonFirstcommonstockwould beconvertedintoanumberofsharesofSandySpringcommonstockbasedonanexchangeratio.Immediately thereafter,WashingtonFirstwouldmergewithSandySpring,withSandySpringasthesurvivingentity. WashingtonFirstBankwouldthenmergewithandintoSandySpringBank,withSandySpringBankasthe survivingentity.Aspartoftheholdingcompanymerger,SandySpringwouldacquire1stPortfoliofrom WashingtonFirstandimmediatelythereaftertransfer1stPortfoliotoSandySpringBank.

LegalDevelopments:FourthQuarter,2017 135 SandySpring,WashingtonFirst,andtheirsubsidiarydepositoryinstitutionsareeach consideredtobewellmanaged.SandySpringhasarecordof successfullyintegratingorganizationsintoitsoperationsandrisk-managementsystemsafteracquisitions.Sandy Spring’sdirectorsandseniorexecutiveofficershavesignificantknowledgeof andexperienceinthebankingandfinancialservicessectors,andSandySpring’srisk-management programappearsconsistentwithapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredSandySpring’splansforimplementingtheproposal.Sandy Springhasconductedcomprehensiveduediligenceandisdevotingsignificantfinancialand otherresourcestoaddressallaspectsof thepost-integrationprocessforthisproposal. SandySpringwouldimplementitsrisk-managementpolicies,procedures,andcontrolsat thecombinedorganization,andtheseareconsideredacceptablefromasupervisory perspective.Inaddition,SandySpring’smanagementhastheexperienceandresourcesto operatethecombinedorganizationinasafeandsoundmanner.26SandySpringplansto integrateWashingtonFirst’sexistingmanagementandpersonnelinamannerthat augmentsSandySpring’smanagement.27 Basedonallthefactsof record,includingSandySpring’ssupervisoryrecord,managerial andoperationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandfutureprospectsof theorganizationsinvolvedintheproposal,aswellasthe recordsof effectivenessof SandySpringandWashingtonFirstincombatingmoneylaunderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.28Initsevaluationof theeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecreditneedsof thecommunitiestheyserve,aswellasother potentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served.Inthisevaluation,theBoardplacesparticularemphasisontherecordsof the relevantdepositoryinstitutionsundertheCRA.TheCRArequiresthefederalfinancial supervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeetthecredit needsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeirsafeandsound operation,29andrequirestheappropriatefederalfinancialsupervisoryagencytoassessa depositoryinstitution’srecordof helpingtomeetthecreditneedsof itsentirecommunity, 26 OnecommenteraskedtheBoardtoconsiderthediversityofSandySpring’smanagementinreviewingthe proposedtransaction.WhiletheBoardencouragesallfirmstopromotediversityintheirmanagementand workforce,thestatutoryfactorsthattheBoardisauthorizedtoconsiderwhenreviewinganapplicationunder theBHCActandBankMergerActarelimitedandspecificallydefined.See,e.g.,PacWestBancorp,102Federal ReserveBulletin82,88n.24(2015);CITGroup,Inc.,102FederalReserveBulletin1,7n.24(2015);Bankof AmericaCorporation,90FederalReserveBulletin217,223n.31(2004).SeealsoWesternBancshares,Inc.v. BoardofGovernors,480F.2d749(10thCir.1973).OtherprovisionsoflawauthorizetheBoard,togetherwith theotherfederalfinancialsupervisoryagencies,tomonitortheeffortsofregulatedentitiestopromotediversity andinclusion.FinalInteragencyPolicyStatementEstablishingJointStandardsforAssessingtheDiversityPoliciesandPracticesofEntitiesRegulatedbytheAgencies,80FederalRegister33016(June10,2015).SeePub.L. No.111-203,124Stat.1376,1541-44(2010),codifiedat12U.S.C.§5452. 27 Onconsummation,WashingtonFirst’spresidentandchiefexecutiveofficer,aswellasthechairmanandtwo additionalmembersofitsboardofdirectors,willbeappointedtotheboardsofdirectorsofSandySpringand SandySpringBank. 28 12U.S.C.§§1842(c)(2)and1828(c)(5). 29 12U.S.C.§2901(b).

136 FederalReserveBulletin|February2018 includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.30 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,thesupervisoryviewsof examiners,othersupervisoryinformation,informationprovidedbytheapplicant,andcommentsreceivedontheproposal.TheBoardalsomayconsidertheinstitution’sbusinessmodel,itsmarketingandoutreachplans,theorganization’splansafter consummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof Sandy SpringBankandWashingtonFirstBank;thefairlendingandcompliancerecordsof both banks;thesupervisoryviewsof theFederalReserveBankof Richmond(“ReserveBank”) andtheFDIC;confidentialsupervisoryinformation;informationprovidedbySandy Spring;andthepubliccommentsreceivedontheproposal. PublicCommentsRegardingtheProposal ThreecommentersobjectedtotheproposalbasedonallegeddeficienciesintheCRA performanceandfairlendingrecordof SandySpringBank.31Allthreecommentersalleged lowlevelsof lendingtominorityborrowers,and/orinmajority-minorityareas,incommunitiesservedbySandySpringBank,asreflectedindatareportedundertheHomeMortgageDisclosureAct(“HMDA”).32Onecommenterallegedhighdenialratesin2015by SandySpringBanktoAfricanAmericanapplicantsandlowlevelsof lendingby WashingtonFirstBanktoAfricanAmericanandHispanicapplicantsincertaincommunities.TwocommenterscriticizedSandySpringBank’slendingtoLMIindividualsandin LMIcensustracts,andonesuchcommenteralsocriticizedthebank’slendinglevelsto smallbusinessesanditslevelsof communitydevelopmentloansandinvestmentsincertain communities.Specificgeographicareasof concernforcommentersincludedtheDistrict of Columbia;MontgomeryCounty,Maryland;PrinceGeorge’sCounty,Maryland;BaltimoreCity,Maryland;andBaltimoreCounty,Maryland. Onecommenterallegedthatthepercentagesof SandySpringBank’sbranchlocationsin LMIandmajority-minoritycensustractsinMontgomeryCounty,Maryland,and NorthernVirginiaareinadequate,andthattheproposedtransactionwillnotincreasethe bank’sbranchingpresenceinLMIandmajority-minoritymarkets.Further,one commentergenerallycriticizedtheadequacyof informationprovidedbySandySpring Bankregardingpotentialbranchclosingsthatwouldoccurinconnectionwiththe proposedtransaction. 30 12U.S.C.§2903. 31 TwocommentersrequestedthattheBoardnotapprovetheproposaluntilSandySpringentersintoacommunitybenefitsplanthatoutlineshowthebankplanstohelpmeettheconvenienceandneedsofthecommunities itserves.TheBoardhasconsistentlyfoundthatneithertheCRAnorthefederalbankingagencies’CRAregulationsrequiredepositoryinstitutionstomakepledgesorenterintocommitmentsoragreementswithanyorganizations.See,e.g.,HuntingtonBancsharesInc.,FRBOrderNo.2016-13at32n.50(July29,2016);CITGroup, Inc.,FRBOrderNo.2015-20at24n.54(July19,2015);CitigroupInc.,88FederalReserveBulletin485at488 n.18(2002);FifthThirdBancorp,80FederalReserveBulletin838,841(1994).Initsevaluation,theBoard reviewstheexistingCRAperformancerecordofanapplicantandtheprogramsthattheapplicanthasinplace toservethecreditneedsofitsCRAassessmentareas(“AAs”). 32 12U.S.C.§2801etseq.

LegalDevelopments:FourthQuarter,2017 137 Businessesof theInvolvedInstitutionsandResponsetotheComments SandySpringprovidesabroadrangeof financialproductsandservices,primarilythrough SandySpringBank,whichoperatesthroughabranchnetworkintheDistrictof Columbia, Maryland,andVirginia.ProductsandservicesofferedbySandySpringBankincluderetail andcommercialbankingproductsandservices;consumer,commercial,andmortgage lending;trustandinvestmentservices;andinsuranceservices. WashingtonFirstoperatesprimarilythroughWashingtonFirstBankandoffersasimilar rangeof retailandcommercialproductsandservicesthroughbrancheslocatedinthe Districtof Columbia,Maryland,andVirginia.WashingtonFirstBank’sproductsand servicesincluderetailandcommercialbankingproductsandservices;consumer,commercial,andmortgagelending;andfinancialandinvestmentadvisoryservices. SandySpringdeniesthecommenters’allegationsregardingSandySpringBank’sCRAand fairlendingrecordsandassertsthatthebank’srecordof meetingtheconvenienceand needsof thecommunitiesthebankservesisconsistentwiththecriteriaforapprovalof the proposal.SandySpringassertsthattheallegationsbasedonHMDAdatadonotfully representSandySpringBank’slendingrecord.SandySpringrepresentsthatSandySpring Bankhasmadesignificanteffortsinrecentyearstoservethecreditneedsof itscommunities,includingincreasingmortgagelendingtoLMIborrowersandinLMIcensustracts. SandySpringalsostatesthatthebankhastakenstepstoenhancethedeliveryof products andservicestoLMIindividualsinitsAA,suchashiringmortgagebankerswithexperience inlendingtoLMIindividuals,expandingandenhancingtheroleof itsCRAandFair LendingCommittee,andadoptingaCommunityDevelopmentandFairLendingImplementationPlan(“ImplementationPlan”)containingpriorities,goals,andinitiativesfor homemortgage,smallbusiness,andcommunitydevelopmentlending,amongotherareas. SandySpringrepresentsthatinitiativesbeingundertakenundertheplaninclude enhancementof productsthatserveLMIcommunities,hiringmortgagebankersandCRA specialiststooriginateloansinLMIcommunities,andoutreachtoeducatemortgage bankersaboutCRAproducts. SandySpringrepresentsthatSandySpringBank’ssmallbusinesslendinghasincreasedin dollaramountsinceitslastCRAperformanceevaluation.Moreover,SandySpringrepresentsthatin2016,SandySpringBankexceededpeersinsmallbusinesslendinginLMI censustractswithinitsAAandinhighminoritycensustractsinseveralcounties.Sandy SpringalsorepresentsthatitsImplementationPlanincludesinitiativesrelatedtosmall businesslending,includingproactiveoutreachtoprospectiveandexistingbusinessclients inLMIcommunities.Further,SandySpringdeniesacommenter’sallegationsregardingits levelsof communitydevelopmentlendingandinvestmentsandrepresentsthatitscommunitydevelopmentloansandinvestmentshavesignificantlyincreasedsinceitslastCRA performanceevaluation. SandySpringalsoassertsthatitmaintainsappropriatecontrolstoensurecompliancewith applicablefairlendinglawsandregulations.SandySpringcontendsthatithascomprehensivepoliciesandproceduresthatensurebothsafeandsoundlendingandequalaccess tocreditforcreditworthyapplicants,includingongoingfairlendingtraining,internalfair lendingandCRAaudits,andannualassessmentsof underwritingandpricingdecisions. SandySpringrepresentsthatthedenialratesthatacommenterreferencedreflectdeterminationsbasedonapplicants’credithistory,existingdebtlevels,andother non-discriminatoryfactors. SandySpringrepresentsthatSandySpringBankhasacomprehensivebranchingstrategy andproceduresfordeterminingitsbranchlocations,andakeycomponentof itsdecisions

138 FederalReserveBulletin|February2018 toopenorclosebranchesisthedemographicsof thecensustractinwhichthebranchis locatedandthecensustractssurroundingthebranchlocation.Moreover,SandySpring assertsthatwitheachbranchdecision,theoverallnetworkof branchingandavailabilityof servicesareconsideredfromaCRAperspectivetoensurethatbankingneedsaremetfora diversifiedpopulationwithoutexclusion.SandySpringrepresentsthatSandySpringBank hasnotspecificallyidentifiedbranchesthatitintendstocloseinconnectionwiththe proposedtransaction,butwillevaluateitscontinuedcoverageinLMIandhighminority censustractsasimportantfactorswhenconsideringbranchconsolidation.33 SandySpringdeniesonecommenter’sallegationsthatWashingtonFirstBankengagesin discriminatorylendingpractices.SandySpringassertsthattheallegationsbasedon HMDAdatadonotfullyrepresentWashingtonFirstBank’slendingrecord.SandySpring assertsthatWashingtonFirstmaintainsappropriatecontrolstoensurecompliancewith applicablefairlendinglawsandregulationsandhascomprehensivepoliciesandprocedures thatensurebothsafeandsoundlendingandequalaccesstocreditforcreditworthyapplicants,suchasongoingfairlendingtrainingandinternalfairlendingandCRAaudits. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardconsiders substantialinformationinadditiontoinformationprovidedbypubliccommentersandthe responsetocommentsbytheapplicant.Inparticular,theBoardevaluatesaninstitution’s performancerecordinlightof examinationsbytheappropriatefederalsupervisorsof the CRAperformancerecordsof therelevantinstitutions,aswellasinformationandviews providedbytheappropriatefederalsupervisors.34Inthiscase,theBoardconsideredthe viewsof theReserveBankandtheFDIC. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.35Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplylending,investment,andserviceteststo evaluatetheperformanceof alargeinsureddepositoryinstitutioninhelpingtomeetthe creditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’shomemortgage,smallbusiness,smallfarm,andcommunitydevelopmentlendingto determinewhethertheinstitutionishelpingtomeetthecreditneedsof individualsand geographiesof allincomelevels.Aspartof thelendingtest,examinersreviewandanalyze aninstitution’sHMDAdata,inadditiontosmallbusiness,smallfarm,andcommunity developmentloandatacollectedandreportedundertheCRAregulations,toassessan institution’slendingactivitieswithrespecttoborrowersandgeographiesof different incomelevels.Theinstitution’slendingperformanceisbasedonavarietyof factors, 33 SandySpringalsorepresentsthatonceSandySpringBankdetermineswhichbranchesitwillclose,itwill complywithitsbranchclosurepolicyandwillfollowallapplicableregulationswithrespecttonoticeofbranch closures.TheBoardnotesthatsection42oftheFederalDepositInsuranceAct(12U.S.C.§1831r-1),as implementedbytheJointPolicyStatementRegardingBranchClosings(64FederalRegister34844(1999)), requiresthatabankprovidethepublicwithatleast30days’notice,andtheappropriatefederalsupervisory agencywithatleast90days’notice,beforethedateofaproposedbranchclosing.Thebankalsoisrequiredto providereasonsandothersupportingdatafortheclosure,consistentwiththeinstitution’swrittenpolicyfor branchclosings. 34 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48506, 48548(July25,2016). 35 12U.S.C.§2906.

LegalDevelopments:FourthQuarter,2017 139 including(1)thenumberandamountsof homemortgage,smallbusiness,smallfarm,and consumerloans(asapplicable)intheinstitution’sAAs;(2)thegeographicdistributionof theinstitution’slending,includingtheproportionanddispersionof theinstitution’s lendinginitsAAsandthenumberandamountsof loansinlow-,moderate-,middle-,and upper-incomegeographies;(3)thedistributionof loansbasedonborrowercharacteristics,including,forhomemortgageloans,thenumberandamountsof loanstolow-, moderate-,middle-,andupper-incomeindividuals;36(4)theinstitution’scommunitydevelopmentlending,includingthenumberandamountsof communitydevelopmentloans andtheircomplexityandinnovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpracticestoaddressthecreditneedsof LMIindividualsandgeographies. TheBoardisconcernedwhenHMDAdatareflectdisparitiesintheratesof loanapplications,originations,anddenialsamongmembersof differentracialorethnicgroupsinlocal areas.Thesetypesof disparitiesmayindicateweaknessesintheadequacyof policiesand programsataninstitutionformeetingitsobligationstoextendcreditfairly.However,other informationcriticaltoaninstitution’screditdecisionsisnotavailablefromHMDAdata.37 Consequently,HMDAdatadisparitiesmustbeevaluatedinthecontextof otherinformationregardingthelendingrecordof aninstitution. CRAPerformanceof SandySpringBank SandySpringBankwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheReserveBank,asof July14,2014(“SandySpringBank Evaluation”).38Thebankreceiveda“LowSatisfactory”ratingfortheLendingTest,and “HighSatisfactory”ratingsforeachof theInvestmentandtheServiceTests. Examinersconcludedthat,overall,thebank’slendingactivitywasconsistentwiththe bank’scapacityandmarketpresence.Examinersnotedthatasubstantialmajorityof the bank’sHMDAandsmallbusinessloanswereoriginatedwithinthebank’sAA.Examiners foundthatthebank’sgeographiclendingdistributionperformancerangedfrompoorto goodbyloanproductandyear,butfoundthebank’sgeographicdistributionperformance tobeadequateoverall.Examinersalsofoundthat,overall,SandySpringBank’sdistributionof loansbyborrowerincomeandrevenuesizeof businesswasadequate.Examiners explainedthatthisconclusionwasbasedonfindingsthatthebank’sdistributionof HMDAloanstoborrowersof differentincomelevelswasadequateanditsdistributionof loanstobusinessesof differentrevenuesizeswasgood,andthatgreaterweightwasgiven tothebank’sHMDAlendingperformance.ExaminersalsodeterminedthatSandySpring Bank’scommunitydevelopmentlendingactivitywasadequate,consideringthebank’s 36 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3). 37 Otherinformationrelevanttocreditdecisionscouldincludecredithistory,debt-to-incomeratio,andloan-tovalueratio.Accordingly,whenconductingfairlendingexaminations,examinersanalyzesuchadditionalinformationbeforereachingadeterminationregardinganinstitution’scompliancewithfairlendinglaws. 38 TheSandySpringBankEvaluationwasconductedusingLargeInstitutionCRAExaminationProcedures. ExaminersreviewedsmallbusinessloansandHMDAloansreportedbytheinstitutionfromJanuary1,2012, throughDecember31,2013.Theevaluationperiodforcommunitydevelopmentlending,investments,and serviceswasMay21,2012,throughJuly14,2014. Examinersevaluatedthebank’sperformanceinitssingleAA,whichincludedportionsoftheWashington- Baltimore-NorthernVirginia,DistrictofColumbia-Maryland-Virginia-WestVirginia,CombinedStatistical Area.Thebank’sAAincludedalloftheBethesda-Rockville-Fredrick,Maryland,MetropolitanDivisionand portionsofboththeBaltimore-Towson,Maryland,MetropolitanStatisticalArea(“MSA”)andthe Washington-Arlington-Alexandria,DistrictofColumbia-Maryland-Virginia-WestVirginia,Metropolitan Division.WiththeexceptionofBaltimoreCityandBaltimoreCounty,whereSandySpringBankhasalimited presence,theAAincludedallgeographicareasofconcerntothecommenters.

140 FederalReserveBulletin|February2018 capacityandavailableopportunities.Examinersnotedthatthebank’scommunitydevelopmentlendingsupportedorganizationsfocusedonassistingLMIindividuals,promoting affordablehousing,andfinancingsmallbusinesses. ExaminersdeterminedthatSandySpringBankmaintainedasignificantlevelof qualified communitydevelopmentinvestmentsandthatitslevelof respondingtocommunitydevelopmentneedsthroughinvestmentactivitieswasratedHighSatisfactory,giventheinvestmentopportunitiesinthebank’sAA.Examinershighlightedseveralinvestmentsand/or grantsthatsupportedLMIindividualsandsmallbusinesseswithinthebank’sAA. Examinersfoundthatthebank’ssystemsfordeliveringretailbankingservicesandits branchlocationswerereadilyaccessibletoallsegmentsof theAA.Examinersalso observedthatthebankofferedmanyserviceswithnoorminimalservicecharges,including freemobileandinternetbanking,freebillpay,freeaccountalerts,noATMfees,andfree checkingaccounts.Examinersdeterminedthatthebank’sdistributionof brancheswas adequate,anditsrecordof openingandclosingbrancheshadnotadverselyaffectedthe accessibilityof itsdeliverysystems,particularlytoLMIgeographiesand/orindividuals. Whileexaminersnotedcertaindifferencesbetweenthehoursof thebank’sofficesinLMI censustractscomparedtomiddle-andupper-incomecensustracts,examinersdetermined that,whenviewedcomprehensively,thebank’sservicesdidnotvaryinawaythatinconveniencedcommunitieswithinitsAA,includingLMIgeographiesand/orindividuals. Examinersalsofoundthatbankemployeeshadparticipatedinarelativelyhighlevelof communitydevelopmentactivities.Examinersnotedthatthebankanditsemployees providedfinancialexpertisetoanumberof organizationsthatprovidecommunitydevelopmentservicesthattargetLMIindividuals,facilitatesmallbusinessdevelopment,orfocus onjobcreation.Examinersalsoobservedthatthebankparticipatedinvariouscommunity developmentserviceactivitiesthatservedLMIindividuals. SandySpringBank’sActivitiesSincetheSandySpringBankEvaluation SandySpringrepresentsthatsincetheSandySpringBankEvaluation,SandySpringBank hasfurthereditscommitmenttocommunityreinvestmentandservingtheneedsof LMI geographiesandindividualsinallof itscommunitiesthroughitshomemortgagelending, communityserviceactivities,outreachefforts,andinvestments.Specifically,SandySpring representsthatSandySpringBankhascontinuedtooriginatehomemortgageloansto LMIborrowersandinLMIcensustracts.SandySpringrepresentsthatSandySpringBank hasdemonstrateditscommitmenttoflexibleandinnovativelendingthroughitsparticipationinvariousaffordablehousingprograms,andhasalsomadeanumberof community developmentloansanddonationstocommunityorganizations.Further,SandySpring representsthatnumerousSandySpringBankemployeeshavecontinuedtoservethebank’s communitiesbyvolunteeringatnonprofitorganizations,includingorganizationsfocused onprovidingservicestargetedtoLMIindividualsorcommunities,offeringaffordable housingopportunitiestoLMIresidents,andprovidingfinancialliteracytrainingforyouth, youngadults,adults,andsmallbusinessowners. CRAPerformanceof WashingtonFirstBank WashingtonFirstBankwasassignedanoverallratingof “Satisfactory”atitsmostrecent CRAperformanceevaluationbytheFDIC,asof August18,2014(“WashingtonFirstBank

LegalDevelopments:FourthQuarter,2017 141 Evaluation”).39WashingtonFirstBankreceived“Satisfactory”ratingsforboththeLending TestandtheCommunityDevelopmentTest. ExaminersfoundthatWashingtonFirstBank’sloan-to-depositratiowasreasonablegiven thebank’ssize,financialcondition,andAAs’creditneeds.Examinersdeterminedthat WashingtonFirstBankoriginatedasubstantialmajorityof itsloanswithinitsAAs.Examinersalsofoundthatthegeographicdistributionof WashingtonFirstBank’sloans reflectedareasonabledispersionthroughouttheAAs.Accordingtoexaminers,thebank’s geographicdistributionof smallbusinessloansreflectedareasonabledispersion,andits geographicdistributionof homemortgageloansreflectedanexcellentdispersion, throughouttheAAs.ExaminersalsofoundthatWashingtonFirstBank’sdistributionof loansbasedonborrowerprofiledisplayedareasonablelevelof penetrationandthatthe bank’srecordof lendingtobusinessesof differentsizesandindividualsof differentincome levelsreflectedreasonableperformance. Withrespecttocommunitydevelopment,examinersconsideredWashingtonFirstBank’s communitydevelopmentloans,investments,andservices.Examinersfoundthat WashingtonFirstBankdemonstratedadequateresponsivenesstothecommunitydevelopmentneedsof theWashingtonMMSA,wherethemajorityof itscommunitydevelopment activitiesoccurred,consideringthebank’scapacityandtheneedandavailabilityof opportunitiesforcommunitydevelopmentintheAA.Examinersobservedthat WashingtonFirstBank’scommunitydevelopmentlendingwasresponsivetocommunity creditneedsbecauseitsupportedcommunitydevelopmentorganizations,promoted economicdevelopment,andprovidedaffordablehousing.Examinersalsonotedthatbank managementandemployeesprovidedfinancialadviceandassistancetovariouscommunity developmentorganizations,aswellastoLMIindividualsandsmallbusinesses.Examiners furthernotedthatWashingtonFirstBankofferedvariouscost-effectiveservicesto customers,includingfreechecking,onlinebanking,billpay,telephonebanking,unlimited checkwritingonconsumercheckingaccounts,overdraft-protectionlinesof credit,and checkingaccountsfornonprofitorganizationsandsmallbusinesses. WashingtonFirstBank’sActivitiesSincetheWashingtonFirstBankEvaluation SandySpringrepresentsthatsincetheWashingtonFirstBankEvaluation,WashingtonFirst Bankhascontinuedtoserveitscommunitiesthroughitshomemortgagelending,communityserviceactivities,outreachefforts,andinvestments.SandySpringrepresentsthat WashingtonFirstBankhascontinuedtooriginatehomemortgageloanstoLMIborrowers andinLMIcensustracts.SandySpringrepresentsthatWashingtonFirstBankhas demonstrateditscommitmenttoflexibleandinnovativelendingthroughitsparticipationin variousaffordablehousingprograms.Further,SandySpringrepresentsthatnumerous WashingtonFirstBankofficersandemployeeshavecontinuedtoservethebank’scommunitiesthroughvolunteeringandleadershiprolesatseveralnonprofitorganizations, includingsupportingorganizationsthatprovideservicestargetedtoLMIindividualsor communities,servingonboardsandcommitteesof nonprofitorganizationsthatoffer 39 TheWashingtonFirstBankEvaluationwasconductedusingIntermediateSmallBankCRAExamination Procedures,consistingofthelendingandcommunitydevelopmenttests.FortheLendingTest,examiners reviewedhomemortgageloansreportedpursuanttoHMDAfor2012and2013,andsmallbusinessloans reportedunderCRAdatacollectionrequirementsfor2013.FortheCommunityDevelopmentTest,examiners reviewedthebank’squalifiedcommunitydevelopmentlending,investments,andserviceactivitiesfrom September19,2011,throughAugust18,2014. Examinersevaluatedthebank’sperformanceinthebank’stwoAAs,whichincludedportionsofthe Washington-Arlington-Alexandria,DistrictofColumbia-Virginia-Maryland-WestVirginia,MultistateMetropolitanStatisticalArea(“WashingtonMMSA”),andtheBethesda-Rockville-Fredrick,Maryland,MSA.

142 FederalReserveBulletin|February2018 affordablehousingopportunitiestoLMIresidents,andprovidingfinancialliteracytraining foryouth,veterans,smallbusinessowners,andolderpersons. AdditionalSupervisoryViews TheBoardhasconsideredtheresultsof themostrecentconsumercomplianceexaminationsof SandySpringBankconductedbytheReserveBank,whichincludedareviewof thebank’scompliancemanagementprogramandthebank’scompliancewithconsumer protectionlawsandregulations.Aspartof theconsumercomplianceexaminations,the ReserveBankevaluatedSandySpringBank’sfairlendingmanagementprogram,including thebank’sfairlending-relatedpractices,policies,procedures,andinternalcontrols. TheBoardhasconsideredtheresultsof arecentconsumercompliancereviewof WashingtonFirstBankconductedbytheReserveBank.40TheBoardalsohasconsidered theresultsof acomplianceexaminationof WashingtonFirstBankbytheFDIC,which includedareviewof thebank’scompliancemanagementsystemandcompliancewith consumerprotectionlaws,includingfairlendinglawsandregulations,andof afairlending examinationof WashingtonFirstBank,whichincludedareviewof lendingproductsand distributions,andunderwritingandpricingpractices. TheBoardhastakentheresultsof theseexaminationsintoaccountinevaluatingthis proposal,includinginconsideringwhetherSandySpringhastheexperienceandresources toensurethatthecombinedorganizationwouldeffectivelyimplementpoliciesand programsthatwouldallowthecombinedorganizationtoserveeffectivelythecreditneeds of allthecommunitieswithinthefirm’sAAs. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.SandySpringrepresentsthat,followingthe proposedtransaction,thecombinedorganizationwouldcontinuetoofferarangeof depositandcreditproductsandservicesthatbenefitthecommunitiesinwhichSandy SpringBankandWashingtonFirstBankeachpresentlyconductbusiness,includingcredit productsandservicesthathelpfulfilltheneedsof LMIdemographics.SandySpringrepresentsthatcustomersof WashingtonFirstBankwouldhaveaccesstoenhancedproducts andservicesthataremoreexpansivethanthosecurrentlyavailabletoWashingtonFirst Bankcustomers,includingseveraladditionaltypesof checkingaccounts,healthsavings accounts,additionalIRAproducts,trustandfiduciaryservices,andafullrangeof personalandbusinessinsuranceproducts.Inaddition,SandySpringassertsthatcustomers of bothinstitutionswouldbenefitfromamoreexpansivebranchandATMnetwork.In addition,SandySpringrepresentsthattheproposedtransactionwouldincreaseSandy SpringBank’slendingcapacityandlendinglimits,whichwouldallowSandySpringBank tomakemoreandlargerloans.SandySpringalsoassertsthattheproposedtransaction wouldfacilitatefurtherinvestmentsinthebank’stechnology,marketing,andpersonnel, whichwouldenableSandySpringBanktoprovidenewservicesinacost-effectiveway, reachmoremembersof itscommunities,improveitsrisk-management,anddevelopand delivermoreproductsandservices. 40 WashingtonFirstBankwassubjecttotheFDIC’sjurisdictionuntilJanuary2017,whenitbecameastate memberbank.PriortotheBoard’sapprovalofWashingtonFirstBank’sapplicationtobecomeastatemember bank,theReserveBankconductedareviewofWashingtonFirstBank’spolicies,procedures,practices,and systems.

LegalDevelopments:FourthQuarter,2017 143 ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws,supervisoryviewsof theReserveBankand FDIC,confidentialsupervisoryinformation,informationprovidedbySandySpringBank, thepubliccommentsontheproposal,andthepotentialeffectsof theproposalonthe convenienceandneedsof thecommunitiestobeserved.Basedonthatreview,theBoard concludesthattheconvenienceandneedsfactorisconsistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedsections3and4of theBHCActandtheBankMergerActtorequiretheBoard toconsideraproposal’srisk“tothestabilityof theUnitedStatesbankingorfinancial system.”41 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the resultingfirm.42Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.43 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.44 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthatislessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.Both theacquirerandthetargetarepredominantlyengagedinavarietyof consumerand 41 Dodd-FrankAct§§604(d),(e)and(f),Pub.L.No.111-203,124Stat.1376,1601–1602(2010),codifiedat 12U.S.C.§§1828(c)(5),1842(c)(7),and1843(j)(2)(A). 42 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 43 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 44 SeePeoplesUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition.

144 FederalReserveBulletin|February2018 commercialbankingactivities.45Theproformaorganizationwouldhaveminimalcrossborderactivitiesandwouldnotexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.Inaddition,theorganizationwouldnotbeacriticalservicesprovideror sointerconnectedwithotherfirmsorthemarketsthatitwouldposeasignificantriskto thefinancialsystemintheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Acquisitionof aNonbankingCompany Asnoted,SandySpringhasfiledanoticeundersections4(c)(8)and4(j)of theBHCActto acquire1stPortfolio,whichengagesinfinancialandinvestmentadvisoryactivitiesthatthe Boardhasdeterminedbyregulationaresocloselyrelatedtobankingastobeaproperincidenttheretoforpurposesof section4(c)(8)of theBHCAct.46Inconnectionwithanotice undersection4(c)(8)of theBHCAct,section4(j)(2)of theBHCActrequirestheBoardto “considerwhetherperformanceof theactivitybyabankholdingcompanyorasubsidiary of suchcompanycanreasonablybeexpectedtoproducebenefitstothepublic,suchas greaterconvenience,increasedcompetition,orgainsinefficiency,thatoutweighpossible adverseeffects,suchasundueconcentrationof resources,decreasedorunfaircompetition, conflictsof interests,unsoundbankingpractices,orrisktothestabilityof theUnited Statesbankingorfinancialsystem.”47 TheBoardhasconsideredthattheproposedtransactionwouldpermitSandySpringto expanditsdeliveryof wealthadvisoryandretirementplanningservicesandenableSandy Springtoprovideservicesinamorecost-effectiveandefficientmanner.TheBoard concludesthattheconductof theproposednonbankingactivitieswithintheframeworkof RegulationY,Boardprecedent,andthisorderisnotlikelytoresultinsignificantadverse effects,suchasundueconcentrationof resources,decreasedorunfaircompetition, conflictsof interests,unsoundbankingpractices,orrisktothestabilityof theUnited Statesbankingorfinancialsystem.Onthebasisof theentirerecord,includingconditions notedinthisorder,andforthereasonsdiscussedabove,theBoardbelievesthatthebalance of benefitsandpotentialadverseeffectsrelatedtocompetition,financialandmanagerial resources,convenienceandneeds,financialstability,andotherfactorsweighinfavorof approvalof theproposal.Accordingly,theBoarddeterminesthatthebalanceof thepublic benefitsunderthestandardof section4(j)(2)of theBHCActisconsistentwithapproval. Establishmentof Branches SandySpringBankhasappliedundersection9of theFRAtoestablishbranchesatthe currentlocationsof WashingtonFirstBank.48TheBoardhasassessedthefactorsitis requiredtoconsiderwhenreviewinganapplicationunderthatsection,includingSandy 45 SandySpringandWashingtonFirstprimarilyofferarangeofretailandcommercialbankingproductsand services.SandySpringhas,andasaresultoftheproposedtransactionwouldcontinuetohave,asmallmarket shareintheseproductsandservicesonanationwidebasis,andnumerouscompetitorswouldremainforthese productsandservices. 46 12CFR225.28(b)(6). 47 12U.S.C.§1843(j)(2)(A). 48 See12U.S.C.§321.Undersection9oftheFRA,statememberbanksmayestablishandoperatebrancheson thesametermsandconditionsasareapplicabletotheestablishmentofbranchesbynationalbanks.Under

LegalDevelopments:FourthQuarter,2017 145 SpringBank’sfinancialcondition,management,capital,actionsinmeetingtheconvenienceandneedsof thecommunitiestobeserved,CRAperformance,andinvestmentin bankpremises.49Forthereasonsdiscussedinthisorder,theBoardfindsthosefactorstobe consistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheproposal shouldbe,andherebyis,approved.50Inreachingitsconclusion,theBoardhasconsideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunderthe BHCAct,theBankMergerAct,theFRA,andotherapplicablestatutes.TheBoard’s approvalisspecificallyconditionedoncompliancebySandySpringandSandySpring Bankwithalltheconditionsimposedinthisorder,includingreceiptof allrequiredregulatoryapprovals,andonthecommitmentsmadetotheBoardinconnectionwiththeapplication.Forpurposesof thisaction,theconditionsandcommitmentsaredeemedtobe conditionsimposedinwritingbytheBoardinconnectionwithitsfindingsanddecision hereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardortheReserveBank,actingunderdelegatedauthority. Byorderof theBoardof Governors,effectiveNovember22,2017. Votingforthisaction:ChairYellen,ViceChairmanforSupervisionQuarles,andGovernorsPowellandBrainard AnnE.Misback Secretaryof theBoard section44oftheFDIAct,astatememberbankresultingfromaninterstatemergertransactionmayretainand operate,asamainofficeorabranch,anyofficethatanybankinvolvedinthemergerwasoperatingasamain officeorbranchimmediatelybeforethemergertransaction.See12U.S.C.§§36(d)and1831u(d). 49 12U.S.C.§322;12CFR208.6.Uponconsummationoftheproposedtransaction,SandySpringBank’sinvestmentsinbankpremiseswouldremainwithinlegalrequirementsunder12CFR208.21. 50 AcommenterrequestedthattheBoardholdpublichearingsontheproposal.TheBankMergerActand section9oftheFRAdonotrequireapublicmeetingoraformalpublichearingonanapplication. Section3(b)oftheBHCActdoesnotrequirethattheBoardholdapublichearingonanyapplicationunless theappropriatesupervisoryauthoritiesforthebanktobeacquiredmakeatimelywrittenrecommendationof denialoftheapplication.12U.S.C.§1842(b);12CFR225.16(e).TheBoardhasnotreceivedsucharecommendationfromtheappropriatesupervisoryauthorities.TheBoard’sregulationsprovideforahearingonanotice filedundersection4oftheBHCActiftherearedisputedissuesofmaterialfactthatcannotberesolvedin someothermanner.12CFR225.25(a)(2).Underitsrules,theBoardalsomay,initsdiscretion,holdapublic hearingifappropriatetoallowinterestedpersonsanopportunitytoproviderelevanttestimonywhenwritten commentswouldnotadequatelypresenttheirviews.TheBoardhasconsideredthecommenter’srequestinlight ofallthefactsofrecord.NoticeoftheproposalwaspublishedintheFederalRegisteronJuly11,2017,andin therelevantnewspaperofgeneralcirculation(TheWashingtonPost)onJune26,July3,andJuly10,2017.The commentperiodendedonAugust1,2017.IntheBoard’sview,thecommenterhashadampleopportunitytosubmit commentsontheproposaland,infact,submittedawrittencommentthattheBoardhasconsideredinactingonthe proposal.Thecommenter’srequestdoesnotidentifydisputedissuesoffactthatarematerialtotheBoard’sdecisionandthatwouldbeclarifiedbyapublichearing.Inaddition,therequestdoesnotdemonstratewhythewritten commentdoesnotpresentthecommenter’sviewsadequatelyorwhyahearingotherwisewouldbenecessaryor appropriate.Forthesereasons,andbasedonallthefactsofrecord,theBoardhasdeterminedthatapublichearing isnotrequiredorwarrantedinthiscase.Accordingly,therequestforapublichearingontheproposalisdenied.

146 FederalReserveBulletin|February2018 Appendix BranchestoBeEstablishedbySandySpringBank 1. 4501NorthFairfaxDrive,Arlington,Virginia22203 2. 115NorthWashingtonStreet,Alexandria,Virginia22314 3. 7023LittleRiverTurnpike,Suite101,Annandale,Virginia22003 4. 12735ShoppesLane,Fairfax,Virginia22033 5. 9851GeorgetownPike,GreatFalls,Virginia22066 6. 13081WorldgateDrive,Herndon,Virginia20170 7. 1356ChainBridgeRoad,McLean,Virginia22101 8. 11636PlazaAmericaDrive,Reston,Virginia20190 9. 2095ChainBridgeRoad,Vienna,Virginia22182 10. 10777MainStreet,Fairfax,Virginia22030 11. 46901CedarLakesPlaza,Sterling,Virginia20164 12. 9150ManassasDrive,ManassasPark,Virginia20111 13. 1025ConnecticutAvenue,N.W.,1stFloor,Districtof Columbia20036 14. 114619thStreet,N.W.,Districtof Columbia20036 15. 7708WoodmontAvenue,Bethesda,Maryland20814 16. 9812FallsRoad,Suite125,Potomac,Maryland20854 17. 14941ShadyGroveRoad,Rockville,Maryland20850 18. 6329GreenbeltRoad,CollegePark,Maryland20740 19. 6089OxonHillRoad,OxonHill,Maryland20745

LegalDevelopments:FourthQuarter,2017 147 National Bank Holdings Corporation Greenwood Village, Colorado OrderApprovingtheMergerof BankHoldingCompanies,theMergerof Banks,andthe Establishmentof Branches FRBOrderNo.2017-34(November28,2017) NationalBankHoldingsCorporation(“NBH”),GreenwoodVillage,Colorado,abank holdingcompanywithinthemeaningof theBankHoldingCompanyActof 1956(“BHC Act”),1hasrequestedtheBoard’sapprovalundersection3of theBHCAct2tomergewith Peoples,Inc.(“Peoples”),Lawrence,Kansas,andtherebyindirectlyacquirePeoplesBank, Lawrence,Kansas,andPeoplesNationalBank(“PNB”),ColoradoSprings,Colorado. Inaddition,NBH’ssubsidiarystatememberbank,NBHBank(togetherwithNBH, “Applicants”),GreenwoodVillage,Colorado,hasrequestedtheBoard’sapprovalunder section18(c)of theFederalDepositInsuranceAct(“BankMergerAct”)tomergewith PeoplesBankandPNB,withNBHBankasthesurvivingentity.3NBHBankalsohas appliedundersection9of theFederalReserveAct(“FRA”)toestablishandoperate branchesatthemainofficesandbranchesof PeoplesBankandPNB.4 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(82FederalRegister37589(August11,2017)).5Thetimeforsubmitting commentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct,theBankMergerAct, andtheFRA.AsrequiredbytheBankMergerAct,areportonthecompetitiveeffectsof themergerwasrequestedfromtheUnitedStatesAttorneyGeneral,andacopyof the requesthasbeenprovidedtotheFederalDepositInsuranceCorporation. NBH,withconsolidatedassetsof approximately$4.7billion,isthe212thlargestinsured depositoryorganizationintheUnitedStates.NBHcontrolsapproximately$3.9billionin consolidateddeposits,whichrepresentlessthan1percentof thetotalamountof deposits of insureddepositoryinstitutionsintheUnitedStates.6NBHcontrolsNBHBank,which operatesinColorado,Kansas,Missouri,andTexas.NBHisthe25thlargestinsured depositoryorganizationinKansas,controllingdepositsof approximately$574.4million, whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutions inthatstate.7NBHisthe15thlargestinsureddepositoryorganizationinColorado, controllingdepositsof approximately$1.5billion,whichrepresentapproximately 1.2percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. Peoples,withconsolidatedassetsof approximately$924.3million,isthe796thlargest insureddepositoryorganizationintheUnitedStates.8Peoplescontrolsapproximately 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 12U.S.C.§1828(c). 4 12U.S.C.§321.Inaddition,NBHBankhasappliedundersection9oftheFRAtoestablishbranchesat certainlocationsofPeoplesBankthatcurrentlyonlyprovidelimitedservices.Thelocationsofallofthe branchestobeestablishedarelistedintheAppendix. 5 12CFR262.3(b). 6 Nationalassetdata,marketshare,andrankingdataareasofJune30,2017,unlessotherwisenoted. 7 StatedepositdataareasofJune30,2016.Inthiscontext,insureddepositoryinstitutionsincludecommercial banks,creditunions,savingsassociations,andsavingsbanks. 8 TheWinterTrustof12/3/74(“WinterTrust”),Lawrence,Kansas,isaregisteredbankholdingcompanythat controlsPeoples.Afterconsummationoftheproposedtransaction,theWinterTrustisexpectedtoderegister asabankholdingcompany.

148 FederalReserveBulletin|February2018 $724.3millioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.Peoplescontrols PeoplesBank,whichoperatesinKansasandNewMexico,andPNB,whichoperatesin Colorado.Peoplesisthe69thlargestinsureddepositoryorganizationinKansas,controllingdepositsof approximately$220.2million,whichrepresentlessthan1percentof the totaldepositsof insureddepositoryinstitutionsinthatstate.Peoplesisthe42ndlargest insureddepositoryorganizationinColorado,controllingdepositsof approximately $265.1million,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. Onconsummationof theproposal,NBHwouldbecomethe192ndlargestinsureddepositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $5.6billion,whichrepresentlessthan1percentof thetotalassetsof insureddepository institutionsintheUnitedStates.NBHwouldcontrolconsolidateddepositsof approximately$4.6billion,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryorganizationsintheUnitedStates.InKansas,NBHwouldbecomethe 14thlargestinsureddepositoryorganization,controllingdepositsof approximately $794.5million,whichrepresentapproximately1.1percentof thetotaldepositsof insured depositoryinstitutionsinthatstate.InColorado,NBHwouldbecomethe14thlargest insureddepositoryorganization,controllingdepositsof approximately$1.8billion,which representapproximately1.4percentof thetotaldepositsof insureddepositoryinstitutions inthatstate. InterstateandDepositCapAnalysis Section3(d)of theBHCActgenerallyprovidesthat,if certainconditionsaremet,the Boardmayapproveanapplicationbyabankholdingcompanytoacquirecontrolof a banklocatedinastateotherthanthehomestateof thebankholdingcompanywithout regardtowhetherthetransactionisprohibitedunderstatelaw.9Section44of theFederal DepositInsuranceAct(“FDIAct”)generallyprovidesthat,if certainconditionsaremet, theBoardmayapproveamergertransactionundertheBankMergerActbetweeninsured bankswithdifferenthomestateswithoutregardtowhetherthetransactionisprohibited understatelaw.10TheBoardmaynotapproveanapplicationthatwouldpermitanout-ofstatebankholdingcompanyorbanktoacquireabankinahoststateif thebankhasnot beeninexistenceforthelesserof thestatestatutoryminimumperiodof timeorfive years.11Inaddition,undersection3(d)of theBHCAct,theBoardmaynotapprovean interstateapplicationif thebankholdingcompanycontrolsor,uponconsummationof the proposedtransaction,wouldcontrolmorethan10percentof thetotaldepositsof insured depositoryinstitutionsintheUnitedStatesor,incertaincircumstances,if thebankholding company,uponconsummation,wouldcontrol30percentormoreof thetotaldepositsof insureddepositoryinstitutionsinanystateinwhichtheacquirerandtargethaveoverlappingoperations.12 9 12U.S.C.§1842(d)(1)(A). 10 12U.S.C.§1831u(a)(1). 11 12U.S.C.§§1831u(a)(5)and1842(d)(1)(B). 12 12U.S.C.§1842(d)(2)(A)&(B).SimilarprohibitionsapplytoactionbytheBoardoninterstatebankmerger applicationsundersection44oftheFDIAct.See12U.S.C.§1831u(b)(2).Forpurposesofsection3(d)ofthe BHCAct,theacquiringandtargetinstitutionshaveoverlappingbankingoperationsinanystateinwhichany banktobeacquiredislocatedandtheacquiringbankholdingcompanycontrolsanyinsureddepositoryinstitutionorabranch.TheBoardconsidersabanktobelocatedinthestatesinwhichthebankischarteredor headquarteredoroperatesabranch.See12U.S.C.§1841(o)(4)–(7).

LegalDevelopments:FourthQuarter,2017 149 Forpurposesof theBHCAct,thehomestateof NBHisMissouri,PeoplesBankislocated inKansasandNewMexico,andPNBislocatedinColorado.13Forpurposesof section44 of theFDIAct,thehomestateof NBHBankisColorado,andthehomestatesof PeoplesBankandPNBareKansasandColorado,respectively.14NBHandNBHBankare wellcapitalizedandwellmanagedunderapplicablelaw,andNBHBankhasa“Satisfactory”ratingundertheCommunityReinvestmentActof 1977(“CRA”).15Kansashasa five-yearminimumagerequirementandtherearenominimumagerequirementsunderthe lawsof ColoradoorNewMexicothatwouldapplytotheproposal.16PeoplesBankand PNBhaveeachbeeninexistenceformorethan5years. Onconsummationof theproposedtransaction,NBHwouldcontrollessthan1percentof thetotalamountof consolidateddepositsof insureddepositoryinstitutionsintheUnited States.Eachof Kansas,Colorado,andNewMexicoimposesalimitonthetotalamountof in-statedepositsthatasinglebankingorganizationmaycontrol.Specifically,Kansas imposesa15percentdepositlimit,Coloradoimposesa25percentdepositlimit,andNew Mexicoimposesa40percentdepositlimit.17Thecombinedorganizationwouldcontrol approximately1.1percentof thetotalamountof depositsof insureddepositoryinstitutionsinKansas,approximately1.4percentof thetotalamountof depositsof insured depositoryinstitutionsinColorado,andlessthan1percentof thetotalamountof deposits of insureddepositoryinstitutionsinNewMexico.TheBoardhasconsideredallother requirementsundersection3(d)of theBHCActandsection44of theFDIAct,including NBHBank’srecordof meetingtheconvenienceandneedsof thecommunitiesitserves. Accordingly,inlightof allthefactsof record,theBoardmayapprovetheproposalunder bothstatutes. CompetitiveConsiderations Section3of theBHCActandtheBankMergerActprohibittheBoardfromapprovinga proposalthatwouldresultinamonopolyorwouldbeinfurtheranceof anattemptto monopolizethebusinessof bankinginanyrelevantmarket.18Bothstatutesalsoprohibit theBoardfromapprovingaproposalthatwouldsubstantiallylessencompetitionortendto createamonopolyinanybankingmarket,unlesstheanticompetitiveeffectsof the proposalareclearlyoutweighedinthepublicinterestbytheprobableeffectof theproposal inmeetingtheconvenienceandneedsof thecommunitytobeserved.19 NBHandPeopleshavesubsidiarydepositoryinstitutionsthatcompetedirectlyinthe ColoradoSprings,Colorado,bankingmarket(“ColoradoSpringsmarket”)andthe KansasCity,Missouri,bankingmarket(“KansasCitymarket”).20TheBoardhasconsideredthecompetitiveeffectsof theproposalinthesebankingmarkets.Inparticular,the 13 See12U.S.C.§1841(o)(4).Abankholdingcompany’shomestateisthestateinwhichthetotaldepositsofall bankingsubsidiariesofsuchcompanywerethelargestonJuly1,1966,orthedateonwhichthecompany becameabankholdingcompany,whicheverislater.Astatebank’shomestateisthestateinwhichthebankis chartered. 14 Forpurposesofsection44oftheFDIAct,astatebank’shomestateisthestateinwhichthebankischartered, andanationalbank’shomestateisthestateinwhichthemainofficeofthebankislocated.12U.S.C. §1831u(g)(4). 15 12U.S.C.§2901etseq. 16 SeeKan.Stat.Ann.§9-541. 17 SeeKan.Stat.Ann.§9-520;Colo.Rev.Stat.§11-104-202(4);N.M.Stat.Ann.§58-1C-5(B). 18 12U.S.C.§§1842(c)(1)and1828(c)(5). 19 12U.S.C.§§1842(c)(1)(B)and1828(c)(5)(B). 20 TheColoradoSpringsmarketincludestheColoradoSprings,Colorado,RanallyMetropolitanArea(“RMA”), andthenon-RMAportionsofElPasoandTellercounties,bothofColorado.TheKansasCitymarketis definedasCass,Clay,Jackson,Lafayette,Platte,andRaycounties,allofMissouri;thetownsofTrimbleand HoltinClintonCounty,Missouri;thetownsofChilhowee,Holden,andKingsvilleinJohnsonCounty,

150 FederalReserveBulletin|February2018 Boardhasconsideredthenumberof competitorsthatwouldremaininthemarkets;the relativesharesof totaldepositsof insureddepositoryinstitutionsinthemarkets(“market deposits”)thatNBHwouldcontrol;21theconcentrationlevelsof marketdepositsandthe increasesintheselevelsasmeasuredbytheHerfindahl-HirschmanIndex(“HHI”)under theDepartmentof JusticeBankMergerCompetitiveReviewguidelines(“DOJBank MergerGuidelines”);22andothercharacteristicsof themarkets. Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesfortheColoradoSpringsandKansasCity markets.Onconsummationof theproposal,theColoradoSpringsmarketwouldremain moderatelyconcentratedandtheKansasCitymarketwouldremainunconcentrated,as measuredbytheHHI,accordingtotheDOJBankMergerGuidelines.Thechangeinthe HHIinthesemarketswouldbesmall,andnumerouscompetitorswouldremainineach bankingmarket.23 TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket.Inaddition,the appropriatebankingagencieshavebeenaffordedanopportunitytocommentandhavenot objectedtotheproposal. Basedonallof thefactsof record,theBoardconcludesthatconsummationof the proposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheColoradoSpringsorKansasCitymarkets,orinanyother relevantbankingmarket.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistentwithapproval. Missouri;thetownsofAdrian,Amsterdam,andButlerinBatesCounty,Missouri;Franklin,Johnson, Leavenworth,Miami,andWyandottecounties,allofKansas;andLinnCounty,Kansas(excludingthetowns ofBlueMoundandPrescott). 21 LocaldepositandmarketsharedataareasofJune30,2016,andarebasedoncalculationsinwhichthe depositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhasindicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorstocommercialbanks.See,e.g., MidwestFinancialGroup,75FederalReserveBulletin386(1989)andNationalCityCorporation,70Federal ReserveBulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsinthemarketsharecalculationona50percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserveBulletin52(1991). 22 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableatwww.justice.gov/opa/pr/ 2010/August/10-at-938.html. 23 NBHoperatesthe36thlargestdepositoryinstitutionintheColoradoSpringsmarket,controllingapproximately$18.1millionindeposits,whichrepresentapproximately0.2percentofmarketdeposits.Peoplesoperatesthe8thlargestdepositoryinstitutioninthesamemarket,controllingdepositsofapproximately $211.4million,whichrepresentapproximately2.8percentofmarketdeposits.Onconsummationofthe proposedtransaction,NBHwouldbecomethe8thlargestdepositoryorganizationinthemarket,controlling depositsofapproximately$229.4million,whichrepresentapproximately3percentofmarketdeposits.The HHIfortheColoradoSpringsmarketwouldincreaseby2pointsto1068,and38competitorswouldremainin themarket. NBHoperatesthe6thlargestdepositoryinstitutionintheKansasCitymarket,controllingapproximately $1.6billionindeposits,whichrepresentapproximately3.2percentofmarketdeposits.Peoplesoperatesthe 34thlargestdepositoryinstitutioninthesamemarket,controllingdepositsofapproximately$174.5million, whichrepresentapproximately0.4percentofmarketdeposits.Onconsummationoftheproposedtransaction, NBHwouldremainthe6thlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately$1.7billion,whichrepresentapproximately3.5percentofmarketdeposits.TheHHIfortheKansas Citymarketwouldincreaseby3pointsto847,and115competitorswouldremaininthemarket.

LegalDevelopments:FourthQuarter,2017 151 Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsidersthefinancialandmanagerialresourcesandthefutureprospectsof the institutionsinvolved.24Initsevaluationof thefinancialfactors,theBoardreviewsinformationregardingthefinancialconditionof theorganizationsinvolvedonbothparent-only andconsolidatedbases,aswellasinformationregardingthefinancialconditionof the subsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.Inthisevaluation,theBoardconsidersavarietyof information,regardingcapital adequacy,assetquality,liquidity,andearningsperformance.TheBoardevaluatesthefinancialconditionof thecombinedorganization,includingitscapitalposition,assetquality, liquidity,earningsprospects,andtheimpactof theproposedfundingof thetransaction. TheBoardalsoconsiderstheabilityof theorganizationtoabsorbthecostsof theproposal andtocompleteeffectivelytheproposedintegrationof theoperationsof theinstitutions. Inassessingfinancialfactors,theBoardconsiderscapitaladequacytobeespeciallyimportant.TheBoardconsidersthefutureprospectsof theorganizationsinvolvedinthe proposalinlightof theirfinancialandmanagerialresourcesandtheproposedbusiness plan. NBHandNBHBankarebothwellcapitalizedandwouldremainsoonconsummationof theproposedtransaction.Theproposedtransactionisabankholdingcompanymerger, withsubsequentmergersof PeoplesBankandPNBwithandintoNBHBank.25Theasset quality,earnings,andliquidityof NBHBank,PeoplesBank,andPNBareeachconsistentwithapproval,andNBHappearstohaveadequateresourcestoabsorbthecostsof the proposalandtocompleteintegrationof theinstitutions’operations.Inaddition,future prospectsundertheproposalareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of NBH,Peoples,andtheirsubsidiarydepositoryinstitutions,includingassessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition,theBoardhas consideredinformationprovidedbyNBH,theBoard’ssupervisoryexperiencesandthose of otherrelevantbanksupervisoryagencieswiththeorganizations,andtheorganizations’ recordsof compliancewithapplicablebanking,consumerprotection,andanti-moneylaunderinglaws. NBHanditssubsidiarydepositoryinstitutionareeachconsideredtobewellmanaged. NBHhasarecordof successfullyintegratingorganizationsintoitsoperationsandriskmanagementsystemsafteracquisitions.NBH’sdirectorsandseniorexecutiveofficershave substantialknowledgeof andexperienceinthebankingandfinancialsectors,andNBH’s risk-managementprogramappearsconsistentwithapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredNBH’splansforimplementingtheproposal.NBHhas conductedcomprehensiveduediligenceandisdevotingsignificantfinancialandother resourcestoaddressallaspectsof thepost-integrationprocessforthisproposal.NBH wouldimplementitsrisk-managementpolicies,procedures,andcontrolsatthecombined organization,andtheseareconsideredacceptablefromasupervisoryperspective.Inaddition,NBH’smanagementhastheexperienceandresourcestooperatethecombined 24 12U.S.C.§§1842(c)(2),(5)&(6),and1828(c)(5)&(11). 25 Toeffectthetransaction,eachshareofPeoplescommonstockwouldbeconvertedintoarighttoreceivecash andNBHcommonstock,basedonanexchangeratio.NBHhasthefinancialresourcestoeffecttheproposed transaction.

152 FederalReserveBulletin|February2018 organizationinasafeandsoundmanner,andNBHplanstointegratetheexistingmanagementandpersonnelof PeoplesinamannerthataugmentsNBH’smanagement.26 Basedonallthefactsof record,includingNBH’ssupervisoryrecord,managerialand operationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandfutureprospectsof theorganizationsinvolvedintheproposal,aswellasthe recordsof effectivenessof NBHandPeoplesincombattingmoney-launderingactivities, areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.27Initsevaluationof theeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecreditneedsof thecommunitiestheyserve,aswellasother potentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served.Inthisevaluation,theBoardplacesparticularemphasisontherecordsof the relevantdepositoryinstitutionsundertheCRA.28TheCRArequiresthefederalfinancial supervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeetthecredit needsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeinstitutions’safe andsoundoperation,29andrequirestheappropriatefederalfinancialsupervisoryagencyto assessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof itsentire community,includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluating bankexpansionaryproposals.30 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,thesupervisoryviewsof examiners,othersupervisoryinformation,andinformationprovidedbythe applicants.TheBoardalsomayconsidertheinstitution’sbusinessmodel,itsmarketingand outreachplans,theorganization’splansafterconsummation,andanyotherinformation theBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof NBH Bank,PeoplesBank,andPNB;thecompliancerecordsof eachbank;thesupervisoryviews of theFederalReserveBankof KansasCity(“ReserveBank”);confidentialsupervisory information;andinformationprovidedbyNBH. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardevaluates aninstitution’sperformancerecordinlightof examinationsbytheappropriatefederal supervisorsof theCRAperformancerecordsof therelevantinstitutions,aswellasinfor- 26 Followingconsummationoftheproposedtransaction,certainofficersandemployeesofPeoplesBankand PNBwilljoinNBHBank. 27 12U.S.C.§§1842(c)(2)and1828(c)(5). 28 12U.S.C.§2901etseq. 29 12U.S.C.§2901(b). 30 12U.S.C.§2903.

LegalDevelopments:FourthQuarter,2017 153 mationandviewsprovidedbytheappropriatefederalsupervisors.31Inthiscase,theBoard consideredtheviewsof theReserveBank. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.32Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplylending,investment,andserviceteststo evaluatetheperformanceof alargeinsureddepositoryinstitutioninhelpingtomeetthe creditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’shomemortgage,smallbusiness,smallfarm,andcommunitydevelopmentlendingto determinewhethertheinstitutionishelpingtomeetthecreditneedsof individualsand geographiesof allincomelevels.Aspartof thelendingtest,examinersreviewandanalyze aninstitution’sdatareportedundertheHomeMortgageDisclosureAct(“HMDA”),33in additiontosmallbusiness,smallfarm,andcommunitydevelopmentloandatacollected andreportedundertheCRAregulations,toassessaninstitution’slendingactivitieswith respecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slending performanceisbasedonavarietyof factors,including(1)thenumberandamountsof homemortgage,smallbusiness,smallfarm,andconsumerloans(asapplicable)intheinstitution’sassessmentareas(“AAs”);(2)thegeographicdistributionof theinstitution’s lending,includingtheproportionanddispersionof theinstitution’slendinginitsAAsand thenumberandamountsof loansinlow-,moderate-,middle-,andupper-incomegeographies;(3)thedistributionof loansbasedonborrowercharacteristics,including,forhome mortgageloans,thenumberandamountsof loanstolow-,moderate-,middle-,andupperincomeindividuals;34(4)theinstitution’scommunitydevelopmentlending,includingthe numberandamountsof communitydevelopmentloansandtheircomplexityand innovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpracticesto addressthecreditneedsof LMIindividualsandgeographies. CRAPerformanceof NBHBank NBHBankwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRAperformanceevaluationbytheReserveBank,asof December5,2016(“NBHBankEvaluation”).35Thebankreceivedan“Outstanding”ratingfortheLendingTestand“LowSatisfactory”ratingsfortheInvestmentTestandServiceTest.36ExaminersfoundthatNBH 31 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48506, 48548(July25,2016). 32 12U.S.C.§2906. 33 12U.S.C.§2801etseq. 34 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3). 35 TheNBHBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Examiners reviewedHMDA,business,andfarmloans,aswellascommunitydevelopmentactivities(loans,investments, andservices),fromJanuary1,2011,throughDecember31,2015. 36 TheNBHBankEvaluationincludedfull-scopeevaluationsintheKansasCity,CombinedStatisticalArea; Denver,ColoradoMetropolitanStatisticalArea(“MSA”);RuralColoradoAA;NorthwestRuralMissouriAA; andtheDallas,TexasMetropolitanDivision.LimitedscopeevaluationswereperformedintheColorado Springs,ColoradoMSA;FortCollins,ColoradoMSA;Greeley,ColoradoMSA;Pueblo,ColoradoMSA; GrandJunction,ColoradoMSA;NorthCentralRuralMissouriAA;NortheastRuralMissouriAA;and Austin,TexasMSA.

154 FederalReserveBulletin|February2018 Bank’soveralllendingactivityreflectedgoodresponsivenesstothecreditneedsof itsAAs. Examinersfoundthatthebankoriginatedasubstantialmajorityof itsHMDA,business, andfarmloanswithinitsAAsandthatthegeographicdistributionof thebank’sHMDA, business,andfarmloanswasgood.Inaddition,examinersnotedthatthebank’sloan distributionreflectedgoodpenetrationamongborrowersof differentincomelevelsand businessesandfarmsof differentsizes.ExaminersnotedthatNBHBankwasaleaderin makingloansthatrevitalizedandstabilizedLMIgeographies,aswellasloansforeconomic development. ExaminersdeterminedthatNBHBankdemonstratedanadequateresponsivenesstothe communitydevelopmentneedsof itsAAsthroughinvestmentsandserviceactivity.Examinersfoundthatthebank’scommunitydevelopmentinvestmentsprimarilyconsistedof mortgage-backedsecuritiescomprisedof loanstoLMIborrowersorsecuredbyaresidentialmortgagewithinanLMIcensustract.Inaddition,examinersfoundthatthebank’s products,services,andbusinesshoursdidnotvaryinawaythatinconveniencedcustomers initsAAs,particularlythoseinLMIgeographiesandindividuals. CRAPerformanceof PeoplesBank PeoplesBankwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheReserveBank,asof August6,2012(“PeoplesBankEvaluation”).37Thebankreceived“Satisfactory”ratingsforeachof theLendingTestandthe CommunityDevelopmentTest.38 ExaminersfoundthatPeoplesBank’saveragenetloan-to-depositratio,whichisameasure of theoveralllevelof lending,wasmorethanreasonablegiventhebank’ssizeandfinancial conditionandthecreditneedsof thebank’sAAs.Examinersalsofoundthatamajorityof thebank’shomepurchase,homeimprovement,andbusinessloanswereoriginatedwithin thebank’sAAsandthatthegeographicandborrowerdistributionof loansreflected reasonablepenetrationthroughoutthebank’sAAs. ExaminersnotedthatPeoplesBank’scommunitydevelopmentperformance,which includedloans,donations,andservices,demonstratedadequateresponsivenesstocommunitydevelopmentneedsthroughoutitsAAs.Thebankwasfoundtohaveperformedservice activitiesforvariousorganizations,particularlythoseprovidingcommunityservices targetedtoLMIindividualsorfamilies. CRAPerformanceof PNB PNBwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRAperformance evaluationbytheOfficeof theComptrollerof theCurrency,asof June6,2011(“PNB Evaluation”).39ExaminersfoundthatPNB’sloan-to-depositratiowasexcellent,givenarea competitionandthecreditneedsof thecommunity.Examinersalsofoundthatthe majorityof thebank’sloansbynumberanddollaramountwereoriginatedwithinitsAA 37 ThePeoplesBankEvaluationwasconductedusingtheIntermediateSmallBankCRAExaminationProcedures.ExaminersreviewedHMDAloansfrom2010and2011andbusinessloansfromasix-monthperiodthat endedJune12,2012.Examinersalsoreviewedcommunitydevelopmentactivities(loans,investments,and services),fromJune21,2010,throughAugust6,2012. 38 ThePeoplesBankEvaluationincludedfull-scopeevaluationsintheKansasCity,Missouri-KansasMSA,and theAlbuquerque,NewMexicoMSA.LimitedscopeevaluationswereperformedintheLawrence,KansasMSA andNon-Metropolitan,TaosCounty,NewMexicoNon-MSA. 39 ThePNBEvaluationwasconductedusingSmallBankCRAExaminationProcedures.Examinersreviewed commercialrealestateloansfromJanuary2006throughMay2011,andHMDAloansfromJanuary1,2010, throughMarch31,2011.ThePNBEvaluationincludedafull-scopereviewofthebank’sAA,theElPaso County,ColoradoMSA.

LegalDevelopments:FourthQuarter,2017 155 anditsoveralllendingtoborrowersof differentincomesandtosmallbusinesseswas reasonable.Examinersdeterminedthatthebank’slendingtosmallbusinesseswasexcellent andnotedthatthebank’sdistributionof loanstosmallbusinessesexceededthedemographiccomparator. Examinersfoundthatthegeographicdistributionof PNB’sresidentialrealestateloans reflectedreasonabledispersionthroughoutthegeographiesfordifferentincomelevels. Examinersalsofoundthatthegeographicdistributionof PNB’sbusinessloanswithinthe bank’sAAwasexcellent. AdditionalConvenienceandNeedsConsiderations TheBoardhasenteredintoaConsentOrderwithPeoplesBankwithrespecttodeceptive practicesinviolationof section5of theFederalTradeCommissionAct,40whichwere centeredinPeoplesBank’snationalmortgagebusinessline.Thisbusinessline,whichis separateandapartfromtheBank’scommunitybankingoperations,isbeingterminated andisnotbeingassumedbyNBHaspartof thisproposal.PursuanttotheConsentOrder, PeoplesBankhasagreedtopayrestitutiontoaffectedcustomersandtosetasideatleast $2.8millionforthispurpose.BecauseNBHisnotapartytotheConsentOrder,thisorder isconditionedonNBH’scommitmenttocauseNBHBanktocomplywithPeoplesBank’s restitutionandrelatedConsentOrderobligations. TheBoardalsoconsideredotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.NBHrepresentsthatitdoesnothaveanyplansto discontinueanyproductorservicecurrentlyofferedbyPeoplesBankorPNB.NBHrepresentsthat,followingtheproposedtransaction,itscustomerswouldgainaccesstoproductsandservicesnotcurrentlyofferedbyNBHBank,includingwealthandinvestment servicesthroughathird-partybroker-dealerrelationshipandhealthsavingsaccountsand payrollservicesthroughanotherthird-partyrelationship.Inaddition,NBHrepresentsthat theproposedtransactionwouldprovideexpandedproductcapabilitiestocustomersof PeoplesBankandPNB,includingaccesstoNBHBank’screditcardofferings,amerchantfundeddebitcardcashbackprogram,andvariousonlinebankingfeatures,suchaswire transfers,person-to-personpayments,andpersonalfinancialmanagementtools.Inaddition,NBHrepresentsthatcustomersof NBHandPeopleswouldbenefitfromalarger branchandATMnetwork. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtheCRArecordsof therelevant depositoryinstitutionsinvolved,theinstitutions’recordsof compliancewithconsumer protectionlaws,confidentialsupervisoryinformation,informationprovidedbyNBH,and otherpotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiesto beserved.Basedonthatreview,theBoardconcludesthattheconvenienceandneeds factorisconsistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedsection3of theBHCActandtheBankMergerActtorequiretheBoardto 40 15U.S.C.§45.

156 FederalReserveBulletin|February2018 consideraproposal’s“risktothestabilityof theUnitedStatesbankingorfinancial system.”41 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the resultingfirm.42Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.43 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.44 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.Both theacquirerandthetargetarepredominantlyengagedinavarietyof consumerand commercialbankingactivities.45Theproformaorganizationwouldhaveminimalcrossborderactivitiesandwouldnotexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.Inaddition,theorganizationwouldnotbeacriticalservicesprovideror sointerconnectedwithotherfirmsorthemarketsthatitwouldposeasignificantriskto thefinancialsystemintheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. 41 Dodd-FrankAct§§604(d)&(f),Pub.L.No.111-203,124Stat.1376,1601–1602(2010),codifiedat12U.S.C. §§1842(c)(7)and1828(c)(5). 42 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 43 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 44 SeePeoplesUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 45 NBHoffersavarietyofbankingproductsandservices,includingretailandcommercialbanking;consumer, commercial,andmortgagelending;andconsumerfinanceloans.Peoplesalsooffersavarietyofbankingproductsandservices,includingcommercial,mortgage,andconsumerloans.Ineachoftheactivitiesinwhichit engages,NBHhas,andasaresultoftheproposalwouldcontinuetohave,asmallmarketshareonanationwidebasis,andnumerouscompetitorswouldremainfortheseservices.

LegalDevelopments:FourthQuarter,2017 157 Establishmentof Branches NBHBankhasappliedundersection9of theFRAtoestablishbranchesatthecurrent locationsof PeoplesBankandPNB.46TheBoardhasassessedthefactorsitisrequiredto considerwhenreviewinganapplicationunderthatsection.47Specifically,theBoardhas consideredNBHBank’sfinancialcondition,management,capital,actionsinmeetingthe convenienceandneedsof thecommunitiestobeserved,CRAperformance,andinvestmentinbankpremises.Forthereasonsdiscussedinthisorder,theBoardfindsthose factorstobeconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationsshouldbe,andherebyare,approved.Inreachingitsconclusion,theBoardhas consideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunder theBHCAct,theBankMergerAct,theFRA,andotherapplicablestatutes.TheBoard’s approvalisspecificallyconditionedoncompliancebyApplicantswithallof theconditions imposedinthisorder,includingreceiptof allrequiredregulatoryapprovals,andonthe commitmentsmadetotheBoardinconnectionwiththeapplications.Forpurposesof this action,theconditionsandcommitmentsaredeemedtobeconditionsimposedinwriting bytheBoardinconnectionwithitsfindingsanddecisionhereinand,assuch,maybe enforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardorbytheReserveBank,actingunderdelegatedauthority. Byorderof theBoardof Governors,effectiveNovember28,2017. Votingforthisaction:ChairYellen,ViceChairmanforSupervisionQuarles,andGovernorsPowellandBrainard. AnnE.Misback Secretaryof theBoard 46 See12U.S.C.§321.Undersection9oftheFRA,statememberbanksmayestablishandoperatebrancheson thesametermsandconditionsasareapplicabletotheestablishmentofbranchesbynationalbanks.Anational bankmayestablishandoperateanewbranchwithinastateinwhichitissituated,ifsuchestablishmentand operationisauthorizedunderapplicablestatelaw.12U.S.C.§36(c).Anationalbankalsomayretainany branchfollowingamergerthatunderstatelawmaybeestablishedasanewbranchoftheresultingbankor retainedasanexistingbranchoftheresultingbank.See12U.S.C.§§36(b)(2)&(c).Inaddition,under section44oftheFDIAct,abankresultingfromaninterstatemergertransactionmayretainandoperate,asa mainofficeorabranch,anyofficethatanybankinvolvedinthemergerwasoperatingasamainofficeor branchimmediatelybeforethemergertransaction.12U.S.C.§1831u(d).Uponconsummation,NBHBank’s brancheswouldbepermissibleunderapplicablestatelaw.SeeKan.Stat.Ann.§9-1111(b);Colo.Rev.Stat. §§11-105-602and603;N.M.Stat.Ann.§58-5-2. 47 12U.S.C.§322;12CFR208.6.

158 FederalReserveBulletin|February2018 Appendix BranchestoBeEstablishedbyNBHBank 1. 745NewHampshireStreet,Lawrence,Kansas66044 2. 4831West6thStreet,Lawrence,Kansas66049 3. 1506SouthMainStreet,Ottawa,Kansas66067 4. 434SouthMainStreet,Ottawa,Kansas66067 5. 7579West151stStreet,OverlandPark,Kansas66223 6. 3045IowaStreet,Lawrence,Kansas66046 7. 212SouthBroadwayStreet,Louisburg,Kansas66053 8. 13180Metcalf Avenue,OverlandPark,Kansas66213 9. 5SupermarketRoad,Questa,NewMexico87556 10. 121EastMainStreet,RedRiver,NewMexico87558 11. 710PaseoDelPuebloSur,SuiteA,Taos,NewMexico87571 12. 219PaseoDelPuebloNorte,Taos,NewMexico87571 13. 2155LouisianaBoulevardNortheast,Suite1000,Albuquerque,NewMexico,87110 14. 1356PaseoDelPuebloSur,Taos,NewMexico87571 15. 19NorthTejon,Suite100,ColoradoSprings,Colorado80903 16. 5175NorthAcademyBoulevard,ColoradoSprings,Colorado80918 17. 13725StruthersRoad,Suite200,ColoradoSprings,Colorado80921 18. 400HarrisonAvenue,Leadville,Colorado80461 19. 1899WoodmoorDrive,Monument,Colorado80132 20. 651ScottAvenue,WoodlandPark,Colorado80863

LegalDevelopments:FourthQuarter,2017 159 Robertson Holding Company, L.P. Harrogate, Tennessee Unified Shares, LLC Harrogate, Tennessee Commercial Bancgroup, Inc. Harrogate, Tennessee OrderApprovingtheMergerof BankHoldingCompanies,theMergerof Banks,the Establishmentof Branches,andDeterminationonFinancialHoldingCompanyElections FRBOrderNo.2017–36(December15,2017) CommercialBancgroup,Inc.,anditsparentcompanies,RobertsonHoldingCompany, L.P.,andUnifiedShares,LLC,allof Harrogate,Tennessee(collectively,“Commercial”),all bankholdingcompanieswithinthemeaningof theBankHoldingCompanyActof 1956 (“BHCAct”),1haverequestedtheBoard’sapprovalundersection3of theBHCAct2for CommercialBancgroup,Inc.tomergewithCitizensBancorp,Inc.(“Citizens”),and therebyindirectlyacquireCitizens’subsidiarybank,CitizensBank,bothof NewTazewell, Tennessee. Inaddition,Commercial’ssubsidiarystatememberbank,CommercialBank,Harrogate, Tennessee,hasrequestedtheBoard’sapprovalundersection18(c)of theFederalDeposit InsuranceAct(“BankMergerAct”)tomergewithCitizensBank,withCommercialBank asthesurvivingentity.3CommercialBankalsohasappliedundersection9of theFederal ReserveAct(“FRA”)toestablishandoperatebranchesatthemainofficeandbranchesof CitizensBank.4RobertsonHoldingCompany,L.P.,andUnifiedShares,LLC,havefiled withtheBoardelectionstobecomefinancialholdingcompaniespursuanttosections 4(k)and(l)of theBHCActandsection225.82of theBoard’sRegulationY.5 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(82FederalRegister44183(September21,2017)).6Thetimeforsubmittingcommentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct,theBankMergerAct, andtheFRA.AsrequiredbytheBankMergerAct,areportonthecompetitiveeffectsof themergerwasrequestedfromtheUnitedStatesAttorneyGeneral,andacopyof the requesthasbeenprovidedtotheFederalDepositInsuranceCorporation(“FDIC”). Commercialisthe784thlargestinsureddepositoryorganizationintheUnitedStates. Commercialcontrolsapproximately$760.3millioninconsolidateddeposits,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutions intheUnitedStates.7CommercialcontrolsCommercialBank,whichoperatesinTennessee andKentucky.Commercialisthe42ndlargestinsureddepositoryorganizationin 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 12U.S.C.§1828(c). 4 12U.S.C.§321.ThesebranchlocationsarelistedintheAppendix. 5 12U.S.C.§§1843(k)and(l);12CFR225.82. 6 12CFR262.3(b). 7 Nationaldeposit,marketshare,andrankingdataareasofJune30,2017,unlessotherwisenoted.

160 FederalReserveBulletin|February2018 Tennessee,controllingapproximately$536.2millionindeposits,whichrepresentapproximately0.4percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.8 Citizensisthe3001stlargestinsureddepositoryorganizationintheUnitedStates.Citizens controlsapproximately$179.3millioninconsolidateddeposits,whichrepresentlessthan 1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnited States.CitizenscontrolsCitizensBank,whichoperatesinTennessee.9Citizensisthe115th largestinsureddepositoryorganizationinTennessee,controllingapproximately $146.9millionindeposits,whichrepresentapproximately0.1percentof thetotaldeposits of insureddepositoryinstitutionsinthatstate. Onconsummationof theproposal,Commercialwouldbecomethe635thlargestinsured depositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $1.1billion,whichrepresentlessthan1percentof thetotalassetsof insureddepository institutionsintheUnitedStates.Commercialwouldcontrolconsolidateddepositsof approximately$939.6million,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.InTennessee,Commercial wouldbecomethe31stlargestinsureddepositoryorganization,controllingdepositsof approximately$683.1million,whichrepresentapproximately0.5percentof thetotal depositsof insureddepositoryinstitutionsinthatstate. CompetitiveConsiderations Section3of theBHCActandtheBankMergerActprohibittheBoardfromapprovinga proposalthatwouldresultinamonopolyorwouldbeinfurtheranceof anattemptto monopolizethebusinessof bankinginanyrelevantmarket.10Bothstatutesalsoprohibit theBoardfromapprovingaproposalthatwouldsubstantiallylessencompetitionortendto createamonopolyinanybankingmarket,unlesstheanticompetitiveeffectsof the proposalareclearlyoutweighedinthepublicinterestbytheprobableeffectof theproposal inmeetingtheconvenienceandneedsof thecommunitytobeserved.11 CommercialandCitizenshavesubsidiarydepositoryinstitutionsthatcompetedirectlyin theMiddlesboroArea,KY-TN-VAbankingmarket(“Middlesboromarket”).12TheBoard hasconsideredthecompetitiveeffectsof theproposalinthisbankingmarket.Inparticular, theBoardhasconsideredthenumberof competitorsthatwouldremaininthemarket;the relativesharesof totaldepositsof insureddepositoryinstitutionsinthemarket(“market deposits”)thatCommercialwouldcontrol;13theconcentrationlevelof marketdeposits andtheincreaseinthatlevel,asmeasuredbytheHerfindahl-HirschmanIndex(“HHI”) undertheDepartmentof JusticeBankMergerCompetitiveReviewguidelines(“DOJBank MergerGuidelines”);14andothercharacteristicsof theMiddlesboromarket. 8 Statedeposit,marketshare,andrankingdataareasofJune30,2016,unlessotherwisenoted.Inthiscontext, insureddepositoryinstitutionsincludecommercialbanks,savingsassociations,andsavingsbanks. 9 Theproposaldoesnotraiseinterstateissuesundersection3(d)oftheBHCActbecauseTennesseeisthehome stateofbothCommercialandCitizensBank,andCitizensBankoperatesonlyinTennessee.See12U.S.C. §1842(d). 10 12U.S.C.§§1842(c)(1)and1828(c)(5). 11 12U.S.C.§§1842(c)(1)(B)and1828(c)(5)(B). 12 TheMiddlesboromarketisdefinedasBellCounty,Kentucky,andClaiborneCounty,Tennessee;plusthe townsofRoseHillandEwinginLeeCounty,Virginia. 13 LocaldepositandmarketsharedataareasofJune30,2017. 14 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating

LegalDevelopments:FourthQuarter,2017 161 Thecompetitiveeffectsof theproposalintheMiddlesboromarketwarrantadetailed reviewbecausetheproposalwouldresultinaconcentrationlevelthatwouldexceedthe thresholdsintheDOJBankMergerGuidelinesandwouldresultinthemarketdeposit shareof Commercialexceeding35percentwhenusinginitialcompetitivescreeningdata. CommercialisthelargestcompetitorintheMiddlesboromarket,controllingapproximately $281.6millionindeposits,whichrepresentapproximately22.7percentof marketdeposits. CitizensisthefifthlargestdepositoryorganizationintheMiddlesboromarket,controllingapproximately$110.9millionindeposits,whichrepresentapproximately12.6percent of marketdeposits.Onconsummationof theproposal,Commercialwouldremainthe largestdepositoryorganizationintheMiddlesboromarket,controllingapproximately $392.5millioninmarketdeposits,whichwouldrepresentapproximately35.3percentof marketdeposits.TheHHIinthismarketwouldincreaseby571points,from1626to2197. TheBoardhasconsideredwhetherfactorseithermitigatethecompetitiveeffectsof the proposalorindicatethattheproposalwouldnothaveasignificantlyadverseeffecton competitionintheMiddlesboromarket.15Severalfactorsindicatethattheincreasein concentrationintheMiddlesboromarket,asmeasuredbytheaboveHHIandmarket share,overstatesthepotentialcompetitiveeffectsof theproposalinthemarket. TheMiddlesboromarketisarelativelysmall,ruralbankingmarketandwouldcontinueto beservedbyninedepositoryinstitutionsafterconsummationof theproposal.These include,apartfromCommercial,onedepositoryinstitutionwithmorethana20percent shareof marketdeposits,twodepositoryinstitutionseachwithmorethana14percent shareof marketdeposits,andonedepositoryinstitutionwithmorethanafivepercent shareof marketdeposits.Inaddition,theBoardhasconsideredthecompetitiveinfluence of twocreditunionsamongtheninedepositoryinstitutionsremainingintheMiddlesboro market.Thesecreditunionshavebroadmembershipcriteria,offerawiderangeof consumerbankingproductsandoperatestreet-levelbranches.16Separatedbystatelines, eachof thesecreditunionsservesonlyaportionof theMiddlesboromarket.Forthat reason,theBoarddoesnotfindthatcircumstancessupportincludingthedepositsof these creditunionsinitscalculationstoestimatemarketinfluence.Nevertheless,thepresenceof theseviablecreditunions,alongwiththeotherdepositoryinstitutionsintheMiddlesboro market,suggeststhatCommercialwouldhavelimitedabilitytounilaterallyofferlessattractivetermstoconsumersandthatthesecompetitorsareabletoexertcompetitivepressure onCommercialintheMiddlesboromarket.17Thepresenceof theninedepositoryinstituanticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableatwww.justice.gov/opa/pr/ 2010/August/10-at-938.html. 15 Thenumberandstrengthoffactorsnecessarytomitigatethecompetitiveeffectsofaproposaldependonthe sizeoftheincreasein,andresultinglevelof,concentrationinabankingmarket.SeeNationsBankCorporation, 84FederalReserveBulletin129(1998). 16 TheBoardpreviouslyhasconsideredcompetitionfromcertainactivecreditunionswiththesefeaturesasa mitigatingfactor.See,e.g.,KeyCorp,FRBOrderNo.2016-12(July12,2016);OhioValleyBancCorp.,FRB OrderNo.2016-10(June28,2016);MitsubishiUFJFinancialGroup,Inc.,FRBOrderNo.2012-12 (November14,2012);OldNationalBancorp,FRBOrderNo.2012-9(August30,2012);UnitedBankshares,Inc. (orderdatedJune20,2011),97FederalReserveBulletin19(2ndQuar.2011);ThePNCFinancialServices Group,Inc.,94FederalReserveBulletinC38(2008);ThePNCFinancialServicesGroup,Inc.,93FederalReserve BulletinC65(2007);RegionsFinancialCorporation,93FederalReserveBulletinC16(2007);Passumpsic Bancorp,92FederalReserveBulletinC175(2006);andWachoviaCorporation,92FederalReserveBulletinC183 (2006). 17 Anadditionalassessmentofthetransaction,basedoncompetitors’sharesofthetotalnumberofbranchesin themarket,alsosupportstheviewthatthestructuraleffectsofthetransactionwouldnotsubstantiallylessen competition.Branchesareonewaybanksattractcustomersandareabletoprovideservicestocustomers throughoutthemarket.See,e.g.,KatherineHoandJoyIshi,“LocationandCompetitioninRetailBanking,” InternationalJournalofIndustrialOrganization,vol.29,no.5,pp.537-546(2011);AstridDick,“DemandEsti-

162 FederalReserveBulletin|February2018 tions,includingCommercial,togetherindicatesthatthestructuraleffectsof thetransaction wouldnotsubstantiallylessencompetition. TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket,includingthe Middlesboromarket.Inaddition,theappropriatebankingagencieshavebeenaffordedan opportunitytocommentandhavenotobjectedtotheproposal. Basedonallof thefactsof record,inparticularthestructureof therelevantmarket,the numberof remainingcompetitors,andotherfactorsdiscussedabove,theBoardconcludes thatconsummationof theproposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheMiddlesboromarketorinanyother relevantbankingmarket.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsidersthefinancialandmanagerialresourcesandthefutureprospectsof the institutionsinvolved.18Initsevaluationof financialfactors,theBoardreviewsinformation regardingthefinancialconditionof theorganizationsinvolvedonbothparent-onlyand consolidatedbases,aswellasinformationregardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.In thisevaluation,theBoardconsidersavarietyof informationregardingcapitaladequacy, assetquality,liquidity,andearningsperformance.TheBoardevaluatesthefinancialconditionof thecombinedorganization,includingitscapitalposition,assetquality,liquidity, earningsprospects,andtheimpactof theproposedfundingof thetransaction.TheBoard alsoconsiderstheabilityof theorganizationtoabsorbthecostsof theproposalandto completeeffectivelytheproposedintegrationof theoperationsof theinstitutions.In assessingfinancialfactors,theBoardconsiderscapitaladequacytobeespeciallyimportant. TheBoardconsidersthefutureprospectsof theorganizationsinvolvedintheproposalin lightof theirfinancialandmanagerialresourcesandtheproposedbusinessplan. CommercialandCommercialBankarewellcapitalized,andthecombinedorganization wouldremainsoonconsummationof theproposal.Theproposedtransactionisabank holdingcompanymergerwithasubsequentmergerof thesubsidiarydepositoryinstitutions.19Theassetquality,earnings,andliquidityof bothCommercialBankandCitizens Bankareconsistentwithapproval,andCommercialappearstohaveadequateresourcesto absorbthecostsof theproposalandtocompleteintegrationof theinstitutions’operations. Inaddition,futureprospectsundertheproposalareconsideredconsistentwithapproval. mationandConsumerWelfareintheBankingIndustry,”JournalofBankingandFinance,vol.32,no.8, pp.1661-1676(2008);andRobertM.Adams,KennethP.Brevoort,andElizabethK.Kiser,“WhoCompetes withWhom?TheCaseofDepositoryInstitutions,”JournalofIndustrialEconomics,vol.55,no.1,pp.141-167 (2007).TheincreaseinproformabranchHHI,definedasthesumofthesquaredbranchshareforeachinstitutioninthemarket(wherethebranchshareisdefinedasaninstitution’snumberofbranchesinthemarket dividedbythetotalnumberofbranchesinthemarket),intheMiddlesboromarketwouldbe255pointstoa levelof1786. 18 12U.S.C.§§1842(c)(2),(5),&(6),and1828(c)(5)&(11). 19 Aspartoftheproposedtransaction,eachshareofCitizens’commonstockwouldbeconvertedintoarightto receivecashbasedonaformularelatedtoCitizens’totalequityonthelastdayofthemonthprecedingclosing. Commercialhasthefinancialresourcestoeffecttheproposedtransaction.

LegalDevelopments:FourthQuarter,2017 163 TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of Commercial,Citizens,andtheirsubsidiarydepositoryinstitutions,includingassessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition,the BoardhasconsideredinformationprovidedbyCommercial;theBoard’ssupervisoryexperiencesandthoseof otherrelevantbanksupervisoryagencieswiththeorganizations;and theorganizations’recordsof compliancewithapplicablebanking,consumerprotection, andanti-money-launderinglaws. Commercial,Citizens,andtheirsubsidiarydepositoryinstitutionsareeachconsideredto bewellmanaged.Commercialhasarecordof successfullyintegratingorganizationsintoits operationsandrisk-managementsystemsafteracquisitions.Thedirectorsandsenior executiveofficersof Commercialhavesubstantialknowledgeof andexperienceinthe bankingandfinancialservicessectors,andCommercial’srisk-managementprogram appearsconsistentwithapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredCommercial’splansforimplementingtheproposal. Commercialhasconductedcomprehensiveduediligenceandisdevotingsignificantfinancialandotherresourcestoaddressallaspectsof thepost-acquisitionintegrationprocess forthisproposal.Commercialwouldimplementitsrisk-managementpolicies,procedures, andcontrolsatthecombinedorganization,andtheseareconsideredacceptablefroma supervisoryperspective.Inaddition,Commercial’smanagementhastheexperienceand resourcestooperatethecombinedorganizationinasafeandsoundmanner. Basedonallof thefactsof record,includingCommercial’ssupervisoryrecord,managerial andoperationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandthefutureprospectsof theorganizationsinvolvedintheproposal,aswellas therecordsof effectivenessof CommercialandCitizensincombattingmoney-laundering activities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.20Initsevaluationof theeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecreditneedsof thesecommunities,aswellasotherpotential effectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.In thisevaluation,theBoardplacesparticularemphasisontherecordsof therelevantdepositoryinstitutionsundertheCommunityReinvestmentAct(“CRA”).21TheCRArequires thefederalfinancialsupervisoryagenciestoencourageinsureddepositoryinstitutionsto helpmeetthecreditneedsof thelocalcommunitiesinwhichtheyoperate,consistentwith theirsafeandsoundoperation,22andrequirestheappropriatefederalfinancialsupervisory agencytoassessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof its entirecommunity,includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.23 20 12U.S.C.§§1842(c)(2)and1828(c)(5). 21 12U.S.C.§2901etseq. 22 12U.S.C.§2901(b). 23 12U.S.C.§2903.

164 FederalReserveBulletin|February2018 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsiderstheassessmentsof otherrelevantsupervisors,the supervisoryviewsof examiners,othersupervisoryinformation,andinformationprovided bytheapplicants.TheBoardalsomayconsidertheinstitution’sbusinessmodel,its marketingandoutreachplans,theorganization’splansafterconsummation,andanyother informationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallof thefactsof record,includingreportsof examinationof theCRAperformanceof CommercialBankandCitizensBank;thefairlendingandcompliancerecordsof both banks;thesupervisoryviewsof theFederalReserveBankof Atlanta(“ReserveBank”) andtheFDIC;confidentialsupervisoryinformation;andinformationprovidedby Commercial. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardevaluates aninstitution’sperformancerecordinlightof examinationsbytheappropriatefederal supervisorsof theCRAperformancerecordsof therelevantinstitutions,aswellasinformationandviewsprovidedbytheappropriatefederalsupervisors.24Inthiscase,theBoard consideredthesupervisoryviewsof theReserveBankandtheFDIC. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.25Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplyalendingtesttoevaluatetheperformance of asmallinsureddepositoryinstitutioninhelpingtomeetthecreditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’slending-related activitiestodeterminewhethertheinstitutionishelpingtomeetthecreditneedsof individualsandgeographiesof allincomelevels.Aspartof thelendingtest,examinersreview andanalyzeaninstitution’sdatareportedundertheHomeMortgageDisclosureActof 1975(“HMDA”),26automatedloanreports,andotherreportsgeneratedbytheinstitution toassessaninstitution’slendingactivitieswithrespecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slendingperformanceisbasedontheinstitution’s loan-to-depositratio,loanoriginationsforsaletothesecondarymarket,lending-related activitiesinitsassessmentareas(“AAs”),recordof engaginginlending-relatedactivities forborrowersof differentincomelevelsandbusinessesandfarmsof differentsizes, geographicdistributionof loans,andrecordof takingactioninresponsetoanywritten complaintsaboutitsperformance.27Intermediatesmallbanksaresubjecttothelending test,aswellasacommunitydevelopmenttestthatevaluatesthenumberandamountsof theircommunitydevelopmentloansandqualifiedinvestments,theextenttowhichthey 24 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48506, 48548(July25,2016). 25 12U.S.C.§2906. 26 12U.S.C.§2801etseq. 27 See12CFR228.26(b).

LegalDevelopments:FourthQuarter,2017 165 providecommunitydevelopmentservices,andtheirresponsivenesstocommunitydevelopmentlending,investment,andserviceneeds.28 CRAPerformanceof CommercialBank CommercialBankwasassignedanoverall“Satisfactory”ratingbytheReserveBankatits mostrecentCRAperformanceevaluation,asof September21,2015(“CommercialBank Evaluation”).29Thebankreceived“Satisfactory”ratingsforeachof theLendingTestand theCommunityDevelopmentTest.”30Greaterweightwasgiventoperformancein Tennesseebecauseof thehigherpercentageof bankdeposits,branches,andloansinthat state. ExaminersconcludedthatCommercialBankwasrespondingtothecreditneedsof itsAAs. Inparticular,examinersfoundthattheloan-to-depositratiowasreasonablegiventhe bank’ssize,financialcondition,andAAcreditneeds.Examinersnotedthatthegeographic distributionof loansreflectedreasonabledispersionthroughouttheAAsandthatthe distributionof loansreflectedreasonablepenetrationamongindividualsof different incomelevelsandbusinessesof differentsizes. ExaminersnotedthatCommercialBank’scommunitydevelopmentperformance,which includedloans,investments,andservices,demonstratedadequateresponsivenessto communitydevelopmentneedsthroughoutthebank’sAAs.Examinersalsonotedthat bankrepresentativesprovidedcommunityservicehourstobenefitLMIfamiliesandsmall businessesthroughoutthebank’sAAs. CRAPerformanceof CitizensBank CitizensBankwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheFDIC,asof March9,2015(“CitizensBankEvaluation”).31 Examinersfocusedonthebank’sloan-to-depositratioandlendingrecordwithinthe bank’sAAs.ExaminersfoundthatCitizensBank’sloan-to-depositratioreflectedreasonableresponsivenesstothecreditneedsof theAAs,giventheinstitution’ssize,financial conditionandAAs.Examinersalsofoundthatthemajorityof thebank’shomemortgage andsmallbusinesslendingwasoriginatedwithinitsAAs,anditsoveralllendingto borrowersof differentincomeswasreasonable.Examinersdeterminedthatthebank’s smallbusinesslendingreflectedexcellentperformance. 28 See12CFR228.26(c). 29 TheCommercialBankEvaluationwasconductedusingtheIntermediateSmallInstitutionExaminationProcedures.ExaminersreviewedHMDA-reportableloansandasampleofcommercialloansoriginatedfrom January1,2013,throughDecember31,2014.Theevaluationperiodforcommunitydevelopmentlending,investments,andserviceswasfromApril17,2012,toSeptember20,2015. 30 TheCommercialBankEvaluationincludedafullscopeevaluationofthebank’sAAconsistingofKnoxand UnioncountieswithintheKnoxville,TennesseeMetropolitanStatisticalArea(“MSA”),aswellasitsAA consistingofBell-HarlanandKnoxcountiesinKentucky,whicharenotpartofanMSA.Alimitedscope evaluationwasperformedofthebank’sAAconsistingofClaiborneCounty,Tennessee,whichisnotpartof anyMSA,andofthebank’sAAconsistingofSullivanCountywithintheKingsport-Bristol-Bristol,Tennessee-VirginiaMSA. 31 TheCitizensBankEvaluationwasconductedusingtheSmallBankExaminationProcedures.Examiners reviewedasampleofsmallbusinessloansoriginatedfromJanuary1,2012,toDecember31,2014,andalso reviewedallHMDA-reportableloansfor2013and2014.TheCitizensBankEvaluationincludedafullscope evaluationofthebank’sAAlocatedwithinClaiborneCounty,Tennessee,whichisnotpartofanyMSA.A limitedscopeevaluationwasperformedoftheportionofthebank’sAAlocatedwithintheKnoxville, TennesseeMSAandofthebank’sAAconsistingofHamblenCounty,whichispartoftheMorristown, TennesseeMSA.

166 FederalReserveBulletin|February2018 AdditionalSupervisoryViews TheBoardhasconsideredtheresultsof themostrecentconsumercomplianceexamination of CommercialBankconductedbyReserveBankexaminers,whichincludedareviewof thebank’scomplianceriskmanagementprogramandthebank’scompliancewith consumerprotectionlawsandregulations.TheBoardhasalsoconsideredtheresultsof the mostrecentconsumercomplianceexaminationof CitizensBankconductedbytheFDIC, whichincludedareviewof thebank’sconsumercompliancefunction. TheBoardhastakenthisinformation,aswellastheCRAperformancerecordsof CommercialBankandCitizensBank,intoaccountinevaluatingtheproposedtransaction, includinginconsideringwhetherCommercialhastheexperienceandresourcestoensure thatCommercialBankhelpstomeetthecreditneedsof thecommunitieswithinitsAAs. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.Commercialrepresentsthatthecombinedorganization,withitsgreatersizeandcapabilities,wouldhaveanincreasedlendinglimitand therebywouldincreasetheavailabilityof credittocustomersandpotentialcustomersof bothbanks,includingsmall-tomid-sizedbusinesses.Inaddition,Commercialrepresents thatcustomersof CitizensBankwouldbenefitfromCommercialBank’sexpansivebranch network,andcustomersof CommercialBankwouldbenefitfromadditionalbanking officesinClaiborneandHamblencounties,Tennessee,aswellasaloanproductionoffice inSullivanCounty,Tennessee.Commercialalsorepresentsthatcustomersincommunities servedbyCitizensBankwillbenefitfromtheavailabilityof additionalproductsand servicescurrentlyofferedbyCommercialBank.Finally,Commercialrepresentsthatthe increasedsizeandscaleof thecombinedorganizationmaypermitittodevelopandexpand productandserviceofferingstoitscustomers. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws,supervisoryviewsof theReserveBankand theFDIC,confidentialsupervisoryinformation,informationprovidedbyCommercial,and otherpotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiesto beserved.Basedonthatreview,theBoardconcludesthattheconvenienceandneeds factorisconsistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedsection3of theBHCActandtheBankMergerActtorequiretheBoardto consideraproposal’s“risktothestabilityof theUnitedStatesbankingorfinancial system.”32 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof 32 Dodd-FrankAct§§604(d)and(f),Pub.L.No.111-203,124Stat.1376,1601-1602(2010),codifiedat12U.S.C. §§1828(c)(5)and1842(c)(7).

LegalDevelopments:FourthQuarter,2017 167 theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the resultingfirm.33Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.34 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.35 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.Both theacquirerandthetargetarepredominatelyengagedinretailandcommercialbanking activities.36Theproformaorganizationwouldhaveminimalcross-borderactivitiesand wouldnotexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.In addition,theorganizationwouldnotbeacriticalservicesproviderorsointerconnected withotherfirmsorthemarketsthatitwouldposeasignificantrisktothefinancialsystem intheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Establishmentof Branches CommercialBankhasappliedundersection9of theFRAtoestablishbranchesatthe currentlocationsof CitizensBank.37TheBoardhasassessedthefactorsitisrequiredto 33 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 34 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 35 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 36 Commercialoffersavarietyofbankingproductsandservices,includingretailandcommercialbanking; consumer,commercial,andmortgagelending;andconsumerfinanceloans.Citizensalsooffersavarietyof bankingproductsandservices,includingcommercial,mortgage,andconsumerloans.Ineachoftheactivities inwhichitengages,Commercialhas,andasaresultoftheproposalwouldcontinuetohave,asmallmarket shareonanationwidebasis,andnumerouscompetitorswouldremainfortheseservices. 37 See12U.S.C.§321.Undersection9oftheFRA,statememberbanksmayestablishandoperatebrancheson thesametermsandconditionsasareapplicabletotheestablishmentofbranchesbynationalbanks.Anational bankmayretainanybranchfollowingamergerthatunderstatelawmaybeestablishedasanewbranchofthe

168 FederalReserveBulletin|February2018 considerwhenreviewinganapplicationunderthatsection.38Specifically,theBoardhas consideredCommercialBank’sfinancialcondition,management,capital,actionsin meetingtheconvenienceandneedsof thecommunitiestobeserved,CRAperformance, andinvestmentinbankpremises.39Forthereasonsdiscussedinthisorder,theBoardfinds thosefactorstobeconsistentwithapproval. FinancialHoldingCompanyElections Asnoted,RobertsonHoldingCompany,L.P.,andUnifiedShares,LLC,haveelectedto becomefinancialholdingcompaniesinconnectionwiththeproposal.RobertsonHolding Company,L.P.,andUnifiedShares,LLC,havecertifiedthat,uponconsummationof the proposal,theyandthedepositoryinstitutionstheywouldcontrolwouldbewellcapitalized andwellmanaged,andRobertsonHoldingCompany,L.P.,andUnifiedShares,LLC, haveprovidedalltheinformationrequiredundertheBoard’sRegulationY.40Basedonall thefactsof record,theBoarddeterminesthattheelectionsbyRobertsonHolding CompanyL.P.,andUnifiedShares,LLC,willbecomeeffectiveuponconsummationof the proposalif,onthatdate,theyarewellcapitalizedandwellmanagedandalldepository institutionstheycontrolarewellcapitalized,wellmanaged,andhaveCRAratingsof at least“Satisfactory.” Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationsshouldbe,andherebyare,approved.Inreachingitsconclusion,theBoardhas consideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunder theBHCAct,theBankMergerAct,theFRA,andotherapplicablestatutes.TheBoard’s approvalisspecificallyconditionedoncompliancebyCommercialandCommercialBank withallof theconditionsimposedinthisorder,includingreceiptof allrequiredregulatory approvals,andonthecommitmentsmadetotheBoardinconnectionwiththeapplications. Forpurposesof thisaction,theconditionsandcommitmentsaredeemedtobeconditions imposedinwritingbytheBoardinconnectionwithitsfindingsanddecisionhereinand,as such,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardorbytheReserveBank,actingunderdelegatedauthority. Byorderof theBoardof Governors,effectiveDecember15,2017. Votingforthisaction:ChairYellen,ViceChairmanforSupervisionQuarles,andGovernorsPowellandBrainard. AnnE.Misback Secretaryof theBoard resultingbankorretainedasanexistingbranchoftheresultingbank.See12U.S.C.§§36(b)(2)and(c).Upon consummation,CommercialBank’sbrancheswouldbepermissibleunderapplicablestatelaw.SeeTenn.Code Ann.§45-2-614. 38 12U.S.C.§322;12CFR208.6. 39 Uponconsummationoftheproposedtransaction,CommercialBank’sinvestmentsinbankpremiseswould remainwithinlegalrequirementsunder12CFR208.21. 40 SeeDodd-FrankAct§606(a),124Stat.at1607,amending12U.S.C.§1843(l)(1).

LegalDevelopments:FourthQuarter,2017 169 Appendix BranchestoBeEstablishedbyCommercialBank 1. 130SouthBroadStreet,NewTazewell,Tennessee37825 2. 7100CumberlandGapParkway,Harrogate,Tennessee37752 3. 155TerraceLane,Morristown,Tennessee37813

170 FederalReserveBulletin|February2018 Orders Issued Under Federal Reserve Act Frost Bank San Antonio, Texas OrderApprovingtheEstablishmentof aBranch FRBOrderNo.2017–33(November22,2017) FrostBank,astatememberbanksubsidiaryof Cullen/FrostBankersIncorporated,both of SanAntonio,Texas,hasrequestedtheBoard’sapprovalundersection9of theFederal ReserveAct(“FRA”)1andtheBoard’sRegulationH2toestablishabranchlocatedat 640TaylorStreet,FortWorth,Texas. Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublishedinaccordancewiththeBoard’sRulesof Procedure.3Thetimefor submittingcommentshasexpired,andtheBoardhasconsideredtheproposalandthe commentsreceivedinlightof thefactorsspecifiedintheFRA. Cullen/FrostBankersIncorporated,withtotalassetsof $31.0billion,isthe48thlargest depositoryorganizationintheUnitedStates,controllingapproximately$25.6billionin deposits,whichrepresentlessthan1.0percentof thetotalamountof depositsof insured depositoryinstitutionsintheUnitedStates.4FrostBankoperatesthrough148branches locatedinTexas,andthebank’smainofficeisinSanAntonio,Texas. Undersection208.6of theBoard’sRegulationH,5whichimplementssection9of the FRA,thefactorsthattheBoardmustconsiderinactingonabranchapplicationinclude (1)thefinancialhistoryandconditionof theapplyingbankandthegeneralcharacterof its management;(2)theadequacyof thebank’scapitalanditsfutureearningsprospects; (3)theconvenienceandneedsof thecommunitytobeservedbythebranch;(4)inthecase of brancheswithdeposit-takingcapability,thebank’sperformanceundertheCommunity ReinvestmentAct(“CRA”);6and(5)whetherthebank’sinvestmentinbankpremisesin establishingthebranchsatisfiescertaincriteria.7TheBoardhasconsideredtheapplication inlightof thesefactorsandthepubliccommentsreceivedontheproposal. Financial,Managerial,andOtherSupervisoryConsiderations Inconsideringthefinancialhistoryandcondition,earningsprospects,andcapital adequacyof FrostBank,theBoardhasreviewedreportsof examination,othersupervisory information,publiclyreportedandotherfinancialinformation,informationprovidedby FrostBank,andthecommentsreceivedontheproposal.FrostBankiswellcapitalizedand wouldremainsouponconsummationof theproposal.Theassetquality,earnings,and liquidityof FrostBankareconsistentwithapproval,andFrostBankappearstohave adequateresourcestoabsorbthecostsof theproposal.Inaddition,futureearningsprospectsareconsideredconsistentwithapproval.TheBoardalsohasreviewedFrostBank’s 1 12U.S.C.§321. 2 12CFRpart208. 3 12CFR262.3(b). 4 TotalassetsareasofSeptember30,2017.NationalassetrankinganddepositdataareasofJune30,2017. 5 12CFR208.6(b). 6 12U.S.C.§2901etseq. 7 12CFR208.21(a).

LegalDevelopments:FourthQuarter,2017 171 proposedinvestmentinthebranchandconcludesthatthebank’sinvestmentisconsistent withregulatorylimitationsoninvestmentinbankpremises.8 InconsideringFrostBank’smanagerialresources,theBoardhasreviewedthebank’s examinationrecord,includingassessmentsof itsmanagement,risk-managementsystems, andoperations.TheBoardalsohasconsidereditssupervisoryexperienceswithFrostBank andthebank’srecordof compliancewithapplicablebankinglaws,includingconsumer protectionandanti-money-launderinglaws.FrostBankisconsideredtobewellmanaged. FrostBank’sdirectorsandseniorexecutiveofficershavesubstantialknowledgeof and experienceinthebankingandfinancialservicessectors,andthebank’srisk-management programappearstobeconsistentwithapproval. Basedonthisreviewandallthefactsof record,theBoardconcludesthatFrostBank’s management,financialhistoryandcondition,capitaladequacy,andfutureearningsprospects,aswellastheeffectivenessof FrostBankincombattingmoney-launderingactivities, areconsistentwithapprovalof theproposal. ConvenienceandNeedsConsiderations Inconsideringtheeffectsof theproposalontheconvenienceandneedsof thecommunities tobeserved,theBoardconsiderswhethertherelevantinstitutionishelpingtomeetthe creditneedsof thecommunitiesitserves,aswellasotherpotentialeffectsof theproposal ontheconvenienceandneedsof thecommunitiestobeserved.9Inthisevaluation,the Boardplacesparticularemphasisontherecordof therelevantdepositoryinstitutionunder theCRA.TheCRArequiresthefederalfinancialsupervisoryagenciestoencourage insureddepositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesin whichtheyoperate,consistentwiththeirsafeandsoundoperation,10andrequiresthe appropriatefederalfinancialsupervisoryagencytoassessadepositoryinstitution’srecord of helpingtomeetthecreditneedsof itsentirecommunity,includinglow-and moderate-income(“LMI”)neighborhoods,inevaluatingabankbranchingproposal.11 Inaddition,theBoardconsidersthebank’soverallcompliancerecordandtheresultsof recentfairlendingexaminations.Fairlendinglawsrequirealllendinginstitutionsto provideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertain othercharacteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors, thesupervisoryviewsof examiners,othersupervisoryinformation,informationprovided bytheapplicant,andcommentsreceivedontheproposal.TheBoardalsomayconsiderthe institution’sbusinessmodel,itsmarketingandoutreachplans,theorganization’splans afterconsummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof Frost Bank,thefairlendingandcompliancerecordsof thebank,confidentialsupervisoryinformation,informationprovidedbyFrostBank,andthepubliccommentsreceivedonthe proposal. 8 12CFR208.21(a). 9 12CFR208.6(b)(3). 10 12U.S.C.§2901(b). 11 12U.S.C.§2903.

172 FederalReserveBulletin|February2018 PublicCommentsontheProposal Acommenterobjectedtotheproposal,allegingthatFrostBankhasengagedinredliningin DallasandHouston,Texas.12Specifically,thecommenterallegedthatFrostBankdisfavorscertainAfricanAmericanneighborhoodsinHoustonandDallasandhaslimitedits lending,marketingactivities,communitydevelopmentactivities,andbranchinginthose areas. Businessof theApplicantandResponsetoComments Throughitsnetworkof branches,FrostBankoffersabroadrangeof loananddeposit productsandservicestoconsumersandbusinesses,includingcommercialandindustrial, residential,agricultural,andconsumerloans;personalcheckingandsavingsaccounts; internationalbanking,correspondentbanking,andtrustservices;andtreasurymanagementservices.Inresponsetothecomment,FrostBankdeniesthecommenter’sallegations andrepresentsthatsince2015,ithasopenedninebranchesthatdirectlycontributeto servingtheneedsof majority-minoritycommunities,includingthreeinDallasandthreein Houston.Inaddition,FrostBankrepresentsthatithasdevelopedandimplementeda comprehensivemarketingandoutreachprogramtoservetheneedsof historicallyunderservedneighborhoods,includingmajority-minorityneighborhoodsandindividuals. Recordof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardconsiders substantialinformationinadditiontoinformationprovidedbypubliccommentersandthe responsetocommentsbytheapplicant.Inparticular,theBoardevaluatesaninstitution’s performanceinlightof examinationsandothersupervisoryinformationandinformation andviewsprovidedbytheappropriatefederalsupervisors.13Inthiscase,theBoardconsideredtheinformationcollectedbyandthefindingsof examinersfromtheFederalReserve Bankof Dallas(“ReserveBank”),whoconductedanon-siteCRAperformanceevaluation of FrostBank. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.14Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplylending,investment,andserviceteststo evaluatetheperformanceof alargeinsureddepositoryinstitutioninhelpingtomeetthe creditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’shomemortgage,smallbusiness,smallfarm,andcommunitydevelopmentlendingto determinewhethertheinstitutionishelpingtomeetthecreditneedsof individualsand geographiesof allincomelevels.Aspartof thelendingtest,examinersreviewandanalyze aninstitution’sdatareportedundertheHomeMortgageDisclosureAct(“HMDA”),15in 12 Redliningisthepracticeofprovidingunequalaccesstocredit,orunequaltermsofcredit,becauseoftherace, color,nationalorigin,orotherprohibitedcharacteristicsoftheresidentsoftheareainwhichacreditseeker residesorwillresideorinwhichapropertytobemortgagedislocated.SeeInteragencyFairLendingExaminationProcedures(August2009),availableathttps//www.ffiec.gov/pdf/fairlend.pdf. 13 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48506, 48548(July25,2016). 14 12U.S.C.§2906. 15 12U.S.C.§2801etseq.

LegalDevelopments:FourthQuarter,2017 173 additiontosmallbusiness,smallfarm,andcommunitydevelopmentloandatacollected andreportedundertheCRAregulations,toassessaninstitution’slendingactivitieswith respecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slending performanceisbasedonavarietyof factors,including(1)thenumberandamountsof homemortgage,smallbusiness,smallfarm,andconsumerloans(asapplicable)intheinstitution’sassessmentareas(“AAs”);(2)thegeographicdistributionof theinstitution’s lending,includingtheproportionanddispersionof theinstitution’slendinginitsassessmentareasandthenumberandamountsof loansinlow-,moderate-,middle-,andupperincomegeographies;(3)thedistributionof loansbasedonborrowercharacteristics, includingforhomemortgageloans,thenumberandamountsof loanstolow-,moderate-, middle-,andupper-incomeindividuals;16(4)theinstitution’scommunitydevelopment lending,includingthenumberandamountsof communitydevelopmentloansandtheir complexityandinnovativeness;and(5)theinstitution’suseof innovativeorflexiblelending practicestoaddressthecreditneedsof LMIindividualsandgeographies. CRAPerformanceof FrostBank FrostBankwasassignedanoverall“Satisfactory”ratingatitsmostrecentCRAperformanceevaluationbytheReserveBank,asof July13,2015(“FrostBankEvaluation”).17 Thebankreceivedan“Outstanding”ratingfortheInvestmentTestand“HighSatisfactory”ratingsfortheLendingTestandtheServiceTest.18 ExaminersfoundthatFrostBank’soveralllendingactivitywasresponsivetothecredit needsinallof itsAAs.Accordingtoexaminers,thebankmadeasubstantialmajorityof its loansinsideitsAAs.Examinersnotedthat,overall,thedistributionof thebank’shome mortgageborrowersof differentincomelevelswasadequateandthebank’sdistributionof smallbusinesslendingreflectedgoodpenetrationamongbusinessesof differentrevenue sizes.Examinersfoundthatthebank’soverallgeographicdistributionof loansreflected excellentpenetration.Examinersnotedthatthebankmadearelativelyhighlevelof communitydevelopmentloansforavarietyof purposes,includingmultifamilyhousing, butthemajoritywereforaffordablehousingandcommunityservicestoindividualsorLMI areas. ExaminersfoundFrostBank’slendingperformanceintheHoustonAAtobegood.Examinersfoundthatthegeographicdistributionof thebank’sloansinthisAAreflectedexcellentpenetration,andthebank’sborrowersreflectedadequatepenetrationamong individualsof differentincomelevelsandbusinessesof differentrevenuesizes.Examiners foundthebank’scommunitydevelopmentlendingtobeexcellent,notingthatthebankwas aleaderinmakingcommunitydevelopmentloans.IntheDallasAA,anotherareaof 16 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloansmadetobusinesses andfarmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamount atorigination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals. See,e.g.,12CFR228.22(b)(3). 17 TheFrostBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Examiners reviewedHMDAandsmallbusinessandsmallfarmlendingactivitiesreportedbythebankfromJanuary1, 2012,throughDecember31,2014.FortheMidlandandOdessa,Texas,MetropolitanStatisticalAreas (“MSAs”),thelendingperformancewasbaseduponloandatafortheperiodJanuary1,2014,through December31,2014.Theevaluationperiodforcommunitydevelopmentlending,investments,andserviceswas January1,2012,throughDecember31,2014.FortheMidlandandOdessaMSAs,thereviewperiodfor communitydevelopmentactivitywasfromJanuary1,2014,throughDecember31,2014. 18 TheFrostBankEvaluationincludedafull-scopereviewofthebank’sAAswithinthefollowingMSAs:Austin- RoundRock-SanMarcos,Texas,MSA;FortWorth-Arlington,Texas,MetropolitanDivision;Houston-Sugar Land-Bayton,Texas,MSA(“HoustonAA”);McAllen-Edinburg-Mission,Texas,MSA;SanAntonio-New Braunfels,Texas,MSA.Alimited-scopereviewwasconductedinthebank’sAAswithintheBrownsville- Harlington,Texas,MSA;CorpusChristi,Texas,MSA;Dallas-Plano-Irving,Texas,MetropolitanDivision (“DallasAA”);Midland,Texas,MSA;Odessa,Texas,MSA;andWillacyCounty,Texas.

174 FederalReserveBulletin|February2018 concernforthecommenter,examinersfoundthebank’slendingperformancetobebelow itsoveralllendingperformance,notingthebank’slowerlevelsof communitydevelopment lending. Examinersfoundthatthebank’sinvestmentsdemonstratedexcellentresponsivenesstothe mostpressingcreditandcommunitydevelopmentneedsthroughoutitsAAs.Examiners foundthatthebankhadanexcellentlevelof qualifiedcommunitydevelopmentinvestmentsandgrants,particularlythosetypesnotroutinelyprovidedbyprivateinvestors.In addition,examinersnotedthatthebankmadeextensiveuseof innovativeand/orcomplex investmentstosupportcommunitydevelopmentinitiatives.IntheHoustonAA,examiners foundthatthebankexhibitedexcellentresponsivenesstocreditandcommunitydevelopmentneedsthoughitsinvestmentactivities,whichincludedinvestmentsforaffordable housing.Thebank’sinvestmentperformanceintheDallasAAwasfoundtobeconsistent withthebank’soverallinvestmentperformance. ExaminersfoundthatFrostBankprovidedarelativelyhighlevelof communitydevelopmentservicesthroughoutitsAAs.FrostBank’sretaildeliverysystemswerefoundtobe reasonablyaccessibletogeographiesandindividualsof differentincomelevelslocatedinits AAs.ExaminersfurthernotedthatFrostBank’sopeningandclosingof branchesgenerallydidnotadverselyaffecttheaccessibilityof bankingservices,particularlytoLMIgeographiesand/orindividuals.Examinersfoundthatthebankingservicesdidnotvaryinaway thatinconvenienceditsAAs,particularlyLMIgeographiesandindividuals. IntheHoustonAA,examinersfoundthatFrostBank’sperformanceundertheService Testwasadequate.Examinerscomparedthedistributionof thebank’sdeliverysystemsto householdsandbusinesseswithinthearea,andfoundthedistributionimpactedaccessibilitytoportionsof thebank’sgeographiesandindividualsof differentincomelevels. Examinersfound,however,thatthebank’sretailandcommunitydevelopmentservices reflectedadequateresponsivenesstotheneedsof theAA.Moreover,examinersfoundthat thebank’srecordof openingorclosingbranchesintheHoustonAAhadgenerallynot affectedtheaccessibilityof itsdeliverysystems.IntheDallasAA,examinersconcluded thatFrostBank’sserviceperformancewasconsistentwithitsoverallserviceperformance. FrostBank’sEffortsSincethe2015CRAEvaluation FrostBankrepresentsthatsincetheFrostBankEvaluation,ithascontinuedtohelpmeet thecreditneedsof itsAAs,includingtheneedsof LMIcommunitiesandindividuals.Frost Bankrepresentsthatithasmadecommunitydevelopmentloansthatpromoteaffordable housingandsupporteconomicdevelopmentandrevitalization,aswellasloanstoorganizationsprovidingcommunityservicestoLMIindividualsandfamilies.Inaddition,the bankassertsthatithascontinuedtopurchasemortgage-backedsecuritiessecuredbymortgageloansmadetoLMIborrowers,investedinschoolbondsthatfundeconomically disadvantagedschooldistrictsthroughoutTexas,andmadecontributionstobenefitthe communitydirectlyineachof thebank’sAAs,includingDallasandHouston.Thebank representsthatithascontinuedtomakeavailablealow-costcheckingaccountandlow-cost unsecuredandsecuredhomeimprovementloansforLMIindividuals.Additionally,Frost Bankassertsthatithascontinuedtoprovidefinancialeducationforyouths,adults,seniors, andsmallbusinessesandhasconductededucationaleventsforLMIhomeownersonhome improvement,home-improvementloanoptions,andtheimportanceof goodcredit. AdditionalSupervisoryViews TheBoardhasconsideredtheresultsof themostrecentconsumercomplianceexaminationsof FrostBankconductedbytheReserveBank,whichincludedareviewof the

LegalDevelopments:FourthQuarter,2017 175 compliancemanagementprogramandcompliancewithconsumerprotectionlawsand regulations.Aspartof theconsumercomplianceexaminations,ReserveBankexaminers alsoevaluatedFrostBank’sfairlendingmanagementprogram,includingthebank’sfairlending-relatedpractices,policies,procedures,andinternalcontrols.Inaddition,theBoard hasconsultedwiththeConsumerFinancialProtectionBureauconcerningthebank’s supervisoryrecord. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.Thebankrepresentsthatanexistingbankbranch willbeclosedconcurrentlywiththeopeningof theproposedbranchandthatthedistance betweenthetwobrancheswasjustslightlyoverthethresholdrequiringthebanktotreat thisasabranchopening/closureratherthanarelocation.Thebankassertsthatthe proposedbranchwouldbeeasiertoaccessthanthecurrentbranch,providecustomers accesstoallof thebank’sfinancialservicesinasinglelocation,andprovideahigherlevel of securityforthebank’semployeesandcustomers. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtheCRArecordof FrostBank, thebank’srecordof compliancewithfairlendingandotherconsumerprotectionlaws, confidentialsupervisoryinformation,informationprovidedbyFrostBank,thepublic commentsontheproposal,andotherpotentialeffectsof theproposalontheconvenience andneedsof thecommunitiestobeserved.Basedonthatreview,theBoardconcludesthat theconvenienceandneedsfactorisconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationshouldbe,andherebyis,approved.19TheBoard’sapprovalisspecificallyconditioned onFrostBank’scompliancewithallthecommitmentsmadetotheBoardinconnection withtheproposal,aswellasallconditionsimposedinthisorder.Forpurposesof this action,theconditionsandcommitmentsaredeemedtobeconditionsimposedinwriting bytheBoardinconnectionwithitsfindingsanddecisionhereinand,assuch,maybe enforcedinproceedingsunderapplicablelaw. Thebranchmustbeestablishedwithinoneyearof thedateof thisorder,unlesssuch periodisextendedforgoodcausebytheBoardortheReserveBank,actingunder authoritydelegatedbytheBoard. Byorderof theBoardof Governors,effectiveNovember22,2017. 19 TheBoardconstruesthecommentsreceivedontheproposaltoincludearequestthattheBoardholdpublic hearingsontheproposal.Underitsrules,theBoardmay,initsdiscretion,holdapublichearingifappropriate toallowinterestedpersonsanopportunitytoproviderelevanttestimonywhenwrittencommentswouldnot adequatelypresenttheirviews.12CFR262.3(e).TheBoardhasconsideredthecommenter’srequestinlightof allthefactsofrecord.Noticeoftheproposalwaspublishedinarelevantnewspaperofgeneralcirculationon July13,2017.ThecommentperiodendedonJuly28,2017.IntheBoard’sview,thecommenterhashadample opportunitytosubmitcommentsontheproposaland,infact,submittedwrittencommentsthattheBoard hasconsideredinactingontheproposal.Thecommenter’srequestdoesnotidentifydisputedissuesoffactthat arematerialtotheBoard’sdecisionandthatwouldbeclarifiedbyapublichearing.Inaddition,therequest doesnotdemonstratewhythewrittencommentdoesnotpresentthecommenter’sviewsadequatelyorwhya hearingotherwisewouldbenecessaryorappropriate.Forthesereasons,andbasedonallthefactsofrecord, theBoardhasdeterminedthatapublichearingisnotrequiredorwarrantedinthiscase.Accordingly,the requestforapublichearingontheproposalisdenied.

176 FederalReserveBulletin|February2018 Votingforthisaction:ChairYellen,ViceChairmanforSupervisionQuarles,andGovernorsPowellandBrainard. AnnE.Misback Secretaryof theBoard

LegalDevelopments:FourthQuarter,2017 177 National Bank Holdings Corporation Greenwood Village, Colorado OrderApprovingtheMergerof BankHoldingCompanies,theMergerof Banks,andthe Establishmentof Branches FRBOrderNo.2017-34(November28,2017) NationalBankHoldingsCorporation(“NBH”),GreenwoodVillage,Colorado,abank holdingcompanywithinthemeaningof theBankHoldingCompanyActof 1956(“BHC Act”),1hasrequestedtheBoard’sapprovalundersection3of theBHCAct2tomergewith Peoples,Inc.(“Peoples”),Lawrence,Kansas,andtherebyindirectlyacquirePeoplesBank, Lawrence,Kansas,andPeoplesNationalBank(“PNB”),ColoradoSprings,Colorado. Inaddition,NBH’ssubsidiarystatememberbank,NBHBank(togetherwithNBH, “Applicants”),GreenwoodVillage,Colorado,hasrequestedtheBoard’sapprovalunder section18(c)of theFederalDepositInsuranceAct(“BankMergerAct”)tomergewith PeoplesBankandPNB,withNBHBankasthesurvivingentity.3NBHBankalsohas appliedundersection9of theFederalReserveAct(“FRA”)toestablishandoperate branchesatthemainofficesandbranchesof PeoplesBankandPNB.4 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(82FederalRegister37589(August11,2017)).5Thetimeforsubmitting commentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct,theBankMergerAct, andtheFRA.AsrequiredbytheBankMergerAct,areportonthecompetitiveeffectsof themergerwasrequestedfromtheUnitedStatesAttorneyGeneral,andacopyof the requesthasbeenprovidedtotheFederalDepositInsuranceCorporation. NBH,withconsolidatedassetsof approximately$4.7billion,isthe212thlargestinsured depositoryorganizationintheUnitedStates.NBHcontrolsapproximately$3.9billionin consolidateddeposits,whichrepresentlessthan1percentof thetotalamountof deposits of insureddepositoryinstitutionsintheUnitedStates.6NBHcontrolsNBHBank,which operatesinColorado,Kansas,Missouri,andTexas.NBHisthe25thlargestinsured depositoryorganizationinKansas,controllingdepositsof approximately$574.4million, whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutions inthatstate.7NBHisthe15thlargestinsureddepositoryorganizationinColorado, controllingdepositsof approximately$1.5billion,whichrepresentapproximately 1.2percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. Peoples,withconsolidatedassetsof approximately$924.3million,isthe796thlargest insureddepositoryorganizationintheUnitedStates.8Peoplescontrolsapproximately 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 12U.S.C.§1828(c). 4 12U.S.C.§321.Inaddition,NBHBankhasappliedundersection9oftheFRAtoestablishbranchesat certainlocationsofPeoplesBankthatcurrentlyonlyprovidelimitedservices.Thelocationsofallofthe branchestobeestablishedarelistedintheAppendix. 5 12CFR262.3(b). 6 Nationalassetdata,marketshare,andrankingdataareasofJune30,2017,unlessotherwisenoted. 7 StatedepositdataareasofJune30,2016.Inthiscontext,insureddepositoryinstitutionsincludecommercial banks,creditunions,savingsassociations,andsavingsbanks. 8 TheWinterTrustof12/3/74(“WinterTrust”),Lawrence,Kansas,isaregisteredbankholdingcompanythat controlsPeoples.Afterconsummationoftheproposedtransaction,theWinterTrustisexpectedtoderegister asabankholdingcompany.

178 FederalReserveBulletin|February2018 $724.3millioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.Peoplescontrols PeoplesBank,whichoperatesinKansasandNewMexico,andPNB,whichoperatesin Colorado.Peoplesisthe69thlargestinsureddepositoryorganizationinKansas,controllingdepositsof approximately$220.2million,whichrepresentlessthan1percentof the totaldepositsof insureddepositoryinstitutionsinthatstate.Peoplesisthe42ndlargest insureddepositoryorganizationinColorado,controllingdepositsof approximately $265.1million,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. Onconsummationof theproposal,NBHwouldbecomethe192ndlargestinsureddepositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $5.6billion,whichrepresentlessthan1percentof thetotalassetsof insureddepository institutionsintheUnitedStates.NBHwouldcontrolconsolidateddepositsof approximately$4.6billion,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryorganizationsintheUnitedStates.InKansas,NBHwouldbecomethe 14thlargestinsureddepositoryorganization,controllingdepositsof approximately $794.5million,whichrepresentapproximately1.1percentof thetotaldepositsof insured depositoryinstitutionsinthatstate.InColorado,NBHwouldbecomethe14thlargest insureddepositoryorganization,controllingdepositsof approximately$1.8billion,which representapproximately1.4percentof thetotaldepositsof insureddepositoryinstitutions inthatstate. InterstateandDepositCapAnalysis Section3(d)of theBHCActgenerallyprovidesthat,if certainconditionsaremet,the Boardmayapproveanapplicationbyabankholdingcompanytoacquirecontrolof a banklocatedinastateotherthanthehomestateof thebankholdingcompanywithout regardtowhetherthetransactionisprohibitedunderstatelaw.9Section44of theFederal DepositInsuranceAct(“FDIAct”)generallyprovidesthat,if certainconditionsaremet, theBoardmayapproveamergertransactionundertheBankMergerActbetweeninsured bankswithdifferenthomestateswithoutregardtowhetherthetransactionisprohibited understatelaw.10TheBoardmaynotapproveanapplicationthatwouldpermitanout-ofstatebankholdingcompanyorbanktoacquireabankinahoststateif thebankhasnot beeninexistenceforthelesserof thestatestatutoryminimumperiodof timeorfive years.11Inaddition,undersection3(d)of theBHCAct,theBoardmaynotapprovean interstateapplicationif thebankholdingcompanycontrolsor,uponconsummationof the proposedtransaction,wouldcontrolmorethan10percentof thetotaldepositsof insured depositoryinstitutionsintheUnitedStatesor,incertaincircumstances,if thebankholding company,uponconsummation,wouldcontrol30percentormoreof thetotaldepositsof insureddepositoryinstitutionsinanystateinwhichtheacquirerandtargethaveoverlappingoperations.12 9 12U.S.C.§1842(d)(1)(A). 10 12U.S.C.§1831u(a)(1). 11 12U.S.C.§§1831u(a)(5)and1842(d)(1)(B). 12 12U.S.C.§1842(d)(2)(A)&(B).SimilarprohibitionsapplytoactionbytheBoardoninterstatebankmerger applicationsundersection44oftheFDIAct.See12U.S.C.§1831u(b)(2).Forpurposesofsection3(d)ofthe BHCAct,theacquiringandtargetinstitutionshaveoverlappingbankingoperationsinanystateinwhichany banktobeacquiredislocatedandtheacquiringbankholdingcompanycontrolsanyinsureddepositoryinstitutionorabranch.TheBoardconsidersabanktobelocatedinthestatesinwhichthebankischarteredor headquarteredoroperatesabranch.See12U.S.C.§1841(o)(4)–(7).

LegalDevelopments:FourthQuarter,2017 179 Forpurposesof theBHCAct,thehomestateof NBHisMissouri,PeoplesBankislocated inKansasandNewMexico,andPNBislocatedinColorado.13Forpurposesof section44 of theFDIAct,thehomestateof NBHBankisColorado,andthehomestatesof PeoplesBankandPNBareKansasandColorado,respectively.14NBHandNBHBankare wellcapitalizedandwellmanagedunderapplicablelaw,andNBHBankhasa“Satisfactory”ratingundertheCommunityReinvestmentActof 1977(“CRA”).15Kansashasa five-yearminimumagerequirementandtherearenominimumagerequirementsunderthe lawsof ColoradoorNewMexicothatwouldapplytotheproposal.16PeoplesBankand PNBhaveeachbeeninexistenceformorethan5years. Onconsummationof theproposedtransaction,NBHwouldcontrollessthan1percentof thetotalamountof consolidateddepositsof insureddepositoryinstitutionsintheUnited States.Eachof Kansas,Colorado,andNewMexicoimposesalimitonthetotalamountof in-statedepositsthatasinglebankingorganizationmaycontrol.Specifically,Kansas imposesa15percentdepositlimit,Coloradoimposesa25percentdepositlimit,andNew Mexicoimposesa40percentdepositlimit.17Thecombinedorganizationwouldcontrol approximately1.1percentof thetotalamountof depositsof insureddepositoryinstitutionsinKansas,approximately1.4percentof thetotalamountof depositsof insured depositoryinstitutionsinColorado,andlessthan1percentof thetotalamountof deposits of insureddepositoryinstitutionsinNewMexico.TheBoardhasconsideredallother requirementsundersection3(d)of theBHCActandsection44of theFDIAct,including NBHBank’srecordof meetingtheconvenienceandneedsof thecommunitiesitserves. Accordingly,inlightof allthefactsof record,theBoardmayapprovetheproposalunder bothstatutes. CompetitiveConsiderations Section3of theBHCActandtheBankMergerActprohibittheBoardfromapprovinga proposalthatwouldresultinamonopolyorwouldbeinfurtheranceof anattemptto monopolizethebusinessof bankinginanyrelevantmarket.18Bothstatutesalsoprohibit theBoardfromapprovingaproposalthatwouldsubstantiallylessencompetitionortendto createamonopolyinanybankingmarket,unlesstheanticompetitiveeffectsof the proposalareclearlyoutweighedinthepublicinterestbytheprobableeffectof theproposal inmeetingtheconvenienceandneedsof thecommunitytobeserved.19 NBHandPeopleshavesubsidiarydepositoryinstitutionsthatcompetedirectlyinthe ColoradoSprings,Colorado,bankingmarket(“ColoradoSpringsmarket”)andthe KansasCity,Missouri,bankingmarket(“KansasCitymarket”).20TheBoardhasconsideredthecompetitiveeffectsof theproposalinthesebankingmarkets.Inparticular,the 13 See12U.S.C.§1841(o)(4).Abankholdingcompany’shomestateisthestateinwhichthetotaldepositsofall bankingsubsidiariesofsuchcompanywerethelargestonJuly1,1966,orthedateonwhichthecompany becameabankholdingcompany,whicheverislater.Astatebank’shomestateisthestateinwhichthebankis chartered. 14 Forpurposesofsection44oftheFDIAct,astatebank’shomestateisthestateinwhichthebankischartered, andanationalbank’shomestateisthestateinwhichthemainofficeofthebankislocated.12U.S.C. §1831u(g)(4). 15 12U.S.C.§2901etseq. 16 SeeKan.Stat.Ann.§9-541. 17 SeeKan.Stat.Ann.§9-520;Colo.Rev.Stat.§11-104-202(4);N.M.Stat.Ann.§58-1C-5(B). 18 12U.S.C.§§1842(c)(1)and1828(c)(5). 19 12U.S.C.§§1842(c)(1)(B)and1828(c)(5)(B). 20 TheColoradoSpringsmarketincludestheColoradoSprings,Colorado,RanallyMetropolitanArea(“RMA”), andthenon-RMAportionsofElPasoandTellercounties,bothofColorado.TheKansasCitymarketis definedasCass,Clay,Jackson,Lafayette,Platte,andRaycounties,allofMissouri;thetownsofTrimbleand HoltinClintonCounty,Missouri;thetownsofChilhowee,Holden,andKingsvilleinJohnsonCounty,

180 FederalReserveBulletin|February2018 Boardhasconsideredthenumberof competitorsthatwouldremaininthemarkets;the relativesharesof totaldepositsof insureddepositoryinstitutionsinthemarkets(“market deposits”)thatNBHwouldcontrol;21theconcentrationlevelsof marketdepositsandthe increasesintheselevelsasmeasuredbytheHerfindahl-HirschmanIndex(“HHI”)under theDepartmentof JusticeBankMergerCompetitiveReviewguidelines(“DOJBank MergerGuidelines”);22andothercharacteristicsof themarkets. Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesfortheColoradoSpringsandKansasCity markets.Onconsummationof theproposal,theColoradoSpringsmarketwouldremain moderatelyconcentratedandtheKansasCitymarketwouldremainunconcentrated,as measuredbytheHHI,accordingtotheDOJBankMergerGuidelines.Thechangeinthe HHIinthesemarketswouldbesmall,andnumerouscompetitorswouldremainineach bankingmarket.23 TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket.Inaddition,the appropriatebankingagencieshavebeenaffordedanopportunitytocommentandhavenot objectedtotheproposal. Basedonallof thefactsof record,theBoardconcludesthatconsummationof the proposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheColoradoSpringsorKansasCitymarkets,orinanyother relevantbankingmarket.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistentwithapproval. Missouri;thetownsofAdrian,Amsterdam,andButlerinBatesCounty,Missouri;Franklin,Johnson, Leavenworth,Miami,andWyandottecounties,allofKansas;andLinnCounty,Kansas(excludingthetowns ofBlueMoundandPrescott). 21 LocaldepositandmarketsharedataareasofJune30,2016,andarebasedoncalculationsinwhichthe depositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhasindicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorstocommercialbanks.See,e.g., MidwestFinancialGroup,75FederalReserveBulletin386(1989)andNationalCityCorporation,70Federal ReserveBulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsinthemarketsharecalculationona50percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserveBulletin52(1991). 22 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableatwww.justice.gov/opa/pr/ 2010/August/10-at-938.html. 23 NBHoperatesthe36thlargestdepositoryinstitutionintheColoradoSpringsmarket,controllingapproximately$18.1millionindeposits,whichrepresentapproximately0.2percentofmarketdeposits.Peoplesoperatesthe8thlargestdepositoryinstitutioninthesamemarket,controllingdepositsofapproximately $211.4million,whichrepresentapproximately2.8percentofmarketdeposits.Onconsummationofthe proposedtransaction,NBHwouldbecomethe8thlargestdepositoryorganizationinthemarket,controlling depositsofapproximately$229.4million,whichrepresentapproximately3percentofmarketdeposits.The HHIfortheColoradoSpringsmarketwouldincreaseby2pointsto1068,and38competitorswouldremainin themarket. NBHoperatesthe6thlargestdepositoryinstitutionintheKansasCitymarket,controllingapproximately $1.6billionindeposits,whichrepresentapproximately3.2percentofmarketdeposits.Peoplesoperatesthe 34thlargestdepositoryinstitutioninthesamemarket,controllingdepositsofapproximately$174.5million, whichrepresentapproximately0.4percentofmarketdeposits.Onconsummationoftheproposedtransaction, NBHwouldremainthe6thlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately$1.7billion,whichrepresentapproximately3.5percentofmarketdeposits.TheHHIfortheKansas Citymarketwouldincreaseby3pointsto847,and115competitorswouldremaininthemarket.

LegalDevelopments:FourthQuarter,2017 181 Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsidersthefinancialandmanagerialresourcesandthefutureprospectsof the institutionsinvolved.24Initsevaluationof thefinancialfactors,theBoardreviewsinformationregardingthefinancialconditionof theorganizationsinvolvedonbothparent-only andconsolidatedbases,aswellasinformationregardingthefinancialconditionof the subsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.Inthisevaluation,theBoardconsidersavarietyof information,regardingcapital adequacy,assetquality,liquidity,andearningsperformance.TheBoardevaluatesthefinancialconditionof thecombinedorganization,includingitscapitalposition,assetquality, liquidity,earningsprospects,andtheimpactof theproposedfundingof thetransaction. TheBoardalsoconsiderstheabilityof theorganizationtoabsorbthecostsof theproposal andtocompleteeffectivelytheproposedintegrationof theoperationsof theinstitutions. Inassessingfinancialfactors,theBoardconsiderscapitaladequacytobeespeciallyimportant.TheBoardconsidersthefutureprospectsof theorganizationsinvolvedinthe proposalinlightof theirfinancialandmanagerialresourcesandtheproposedbusiness plan. NBHandNBHBankarebothwellcapitalizedandwouldremainsoonconsummationof theproposedtransaction.Theproposedtransactionisabankholdingcompanymerger, withsubsequentmergersof PeoplesBankandPNBwithandintoNBHBank.25Theasset quality,earnings,andliquidityof NBHBank,PeoplesBank,andPNBareeachconsistentwithapproval,andNBHappearstohaveadequateresourcestoabsorbthecostsof the proposalandtocompleteintegrationof theinstitutions’operations.Inaddition,future prospectsundertheproposalareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of NBH,Peoples,andtheirsubsidiarydepositoryinstitutions,includingassessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition,theBoardhas consideredinformationprovidedbyNBH,theBoard’ssupervisoryexperiencesandthose of otherrelevantbanksupervisoryagencieswiththeorganizations,andtheorganizations’ recordsof compliancewithapplicablebanking,consumerprotection,andanti-moneylaunderinglaws. NBHanditssubsidiarydepositoryinstitutionareeachconsideredtobewellmanaged. NBHhasarecordof successfullyintegratingorganizationsintoitsoperationsandriskmanagementsystemsafteracquisitions.NBH’sdirectorsandseniorexecutiveofficershave substantialknowledgeof andexperienceinthebankingandfinancialsectors,andNBH’s risk-managementprogramappearsconsistentwithapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredNBH’splansforimplementingtheproposal.NBHhas conductedcomprehensiveduediligenceandisdevotingsignificantfinancialandother resourcestoaddressallaspectsof thepost-integrationprocessforthisproposal.NBH wouldimplementitsrisk-managementpolicies,procedures,andcontrolsatthecombined organization,andtheseareconsideredacceptablefromasupervisoryperspective.Inaddition,NBH’smanagementhastheexperienceandresourcestooperatethecombined 24 12U.S.C.§§1842(c)(2),(5)&(6),and1828(c)(5)&(11). 25 Toeffectthetransaction,eachshareofPeoplescommonstockwouldbeconvertedintoarighttoreceivecash andNBHcommonstock,basedonanexchangeratio.NBHhasthefinancialresourcestoeffecttheproposed transaction.

182 FederalReserveBulletin|February2018 organizationinasafeandsoundmanner,andNBHplanstointegratetheexistingmanagementandpersonnelof PeoplesinamannerthataugmentsNBH’smanagement.26 Basedonallthefactsof record,includingNBH’ssupervisoryrecord,managerialand operationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandfutureprospectsof theorganizationsinvolvedintheproposal,aswellasthe recordsof effectivenessof NBHandPeoplesincombattingmoney-launderingactivities, areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.27Initsevaluationof theeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecreditneedsof thecommunitiestheyserve,aswellasother potentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served.Inthisevaluation,theBoardplacesparticularemphasisontherecordsof the relevantdepositoryinstitutionsundertheCRA.28TheCRArequiresthefederalfinancial supervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeetthecredit needsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeinstitutions’safe andsoundoperation,29andrequirestheappropriatefederalfinancialsupervisoryagencyto assessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof itsentire community,includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluating bankexpansionaryproposals.30 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,thesupervisoryviewsof examiners,othersupervisoryinformation,andinformationprovidedbythe applicants.TheBoardalsomayconsidertheinstitution’sbusinessmodel,itsmarketingand outreachplans,theorganization’splansafterconsummation,andanyotherinformation theBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof NBH Bank,PeoplesBank,andPNB;thecompliancerecordsof eachbank;thesupervisoryviews of theFederalReserveBankof KansasCity(“ReserveBank”);confidentialsupervisory information;andinformationprovidedbyNBH. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardevaluates aninstitution’sperformancerecordinlightof examinationsbytheappropriatefederal supervisorsof theCRAperformancerecordsof therelevantinstitutions,aswellasinfor- 26 Followingconsummationoftheproposedtransaction,certainofficersandemployeesofPeoplesBankand PNBwilljoinNBHBank. 27 12U.S.C.§§1842(c)(2)and1828(c)(5). 28 12U.S.C.§2901etseq. 29 12U.S.C.§2901(b). 30 12U.S.C.§2903.

LegalDevelopments:FourthQuarter,2017 183 mationandviewsprovidedbytheappropriatefederalsupervisors.31Inthiscase,theBoard consideredtheviewsof theReserveBank. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.32Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplylending,investment,andserviceteststo evaluatetheperformanceof alargeinsureddepositoryinstitutioninhelpingtomeetthe creditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’shomemortgage,smallbusiness,smallfarm,andcommunitydevelopmentlendingto determinewhethertheinstitutionishelpingtomeetthecreditneedsof individualsand geographiesof allincomelevels.Aspartof thelendingtest,examinersreviewandanalyze aninstitution’sdatareportedundertheHomeMortgageDisclosureAct(“HMDA”),33in additiontosmallbusiness,smallfarm,andcommunitydevelopmentloandatacollected andreportedundertheCRAregulations,toassessaninstitution’slendingactivitieswith respecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slending performanceisbasedonavarietyof factors,including(1)thenumberandamountsof homemortgage,smallbusiness,smallfarm,andconsumerloans(asapplicable)intheinstitution’sassessmentareas(“AAs”);(2)thegeographicdistributionof theinstitution’s lending,includingtheproportionanddispersionof theinstitution’slendinginitsAAsand thenumberandamountsof loansinlow-,moderate-,middle-,andupper-incomegeographies;(3)thedistributionof loansbasedonborrowercharacteristics,including,forhome mortgageloans,thenumberandamountsof loanstolow-,moderate-,middle-,andupperincomeindividuals;34(4)theinstitution’scommunitydevelopmentlending,includingthe numberandamountsof communitydevelopmentloansandtheircomplexityand innovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpracticesto addressthecreditneedsof LMIindividualsandgeographies. CRAPerformanceof NBHBank NBHBankwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRAperformanceevaluationbytheReserveBank,asof December5,2016(“NBHBankEvaluation”).35Thebankreceivedan“Outstanding”ratingfortheLendingTestand“LowSatisfactory”ratingsfortheInvestmentTestandServiceTest.36ExaminersfoundthatNBH 31 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48506, 48548(July25,2016). 32 12U.S.C.§2906. 33 12U.S.C.§2801etseq. 34 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3). 35 TheNBHBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Examiners reviewedHMDA,business,andfarmloans,aswellascommunitydevelopmentactivities(loans,investments, andservices),fromJanuary1,2011,throughDecember31,2015. 36 TheNBHBankEvaluationincludedfull-scopeevaluationsintheKansasCity,CombinedStatisticalArea; Denver,ColoradoMetropolitanStatisticalArea(“MSA”);RuralColoradoAA;NorthwestRuralMissouriAA; andtheDallas,TexasMetropolitanDivision.LimitedscopeevaluationswereperformedintheColorado Springs,ColoradoMSA;FortCollins,ColoradoMSA;Greeley,ColoradoMSA;Pueblo,ColoradoMSA; GrandJunction,ColoradoMSA;NorthCentralRuralMissouriAA;NortheastRuralMissouriAA;and Austin,TexasMSA.

184 FederalReserveBulletin|February2018 Bank’soveralllendingactivityreflectedgoodresponsivenesstothecreditneedsof itsAAs. Examinersfoundthatthebankoriginatedasubstantialmajorityof itsHMDA,business, andfarmloanswithinitsAAsandthatthegeographicdistributionof thebank’sHMDA, business,andfarmloanswasgood.Inaddition,examinersnotedthatthebank’sloan distributionreflectedgoodpenetrationamongborrowersof differentincomelevelsand businessesandfarmsof differentsizes.ExaminersnotedthatNBHBankwasaleaderin makingloansthatrevitalizedandstabilizedLMIgeographies,aswellasloansforeconomic development. ExaminersdeterminedthatNBHBankdemonstratedanadequateresponsivenesstothe communitydevelopmentneedsof itsAAsthroughinvestmentsandserviceactivity.Examinersfoundthatthebank’scommunitydevelopmentinvestmentsprimarilyconsistedof mortgage-backedsecuritiescomprisedof loanstoLMIborrowersorsecuredbyaresidentialmortgagewithinanLMIcensustract.Inaddition,examinersfoundthatthebank’s products,services,andbusinesshoursdidnotvaryinawaythatinconveniencedcustomers initsAAs,particularlythoseinLMIgeographiesandindividuals. CRAPerformanceof PeoplesBank PeoplesBankwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheReserveBank,asof August6,2012(“PeoplesBankEvaluation”).37Thebankreceived“Satisfactory”ratingsforeachof theLendingTestandthe CommunityDevelopmentTest.38 ExaminersfoundthatPeoplesBank’saveragenetloan-to-depositratio,whichisameasure of theoveralllevelof lending,wasmorethanreasonablegiventhebank’ssizeandfinancial conditionandthecreditneedsof thebank’sAAs.Examinersalsofoundthatamajorityof thebank’shomepurchase,homeimprovement,andbusinessloanswereoriginatedwithin thebank’sAAsandthatthegeographicandborrowerdistributionof loansreflected reasonablepenetrationthroughoutthebank’sAAs. ExaminersnotedthatPeoplesBank’scommunitydevelopmentperformance,which includedloans,donations,andservices,demonstratedadequateresponsivenesstocommunitydevelopmentneedsthroughoutitsAAs.Thebankwasfoundtohaveperformedservice activitiesforvariousorganizations,particularlythoseprovidingcommunityservices targetedtoLMIindividualsorfamilies. CRAPerformanceof PNB PNBwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRAperformance evaluationbytheOfficeof theComptrollerof theCurrency,asof June6,2011(“PNB Evaluation”).39ExaminersfoundthatPNB’sloan-to-depositratiowasexcellent,givenarea competitionandthecreditneedsof thecommunity.Examinersalsofoundthatthe majorityof thebank’sloansbynumberanddollaramountwereoriginatedwithinitsAA 37 ThePeoplesBankEvaluationwasconductedusingtheIntermediateSmallBankCRAExaminationProcedures.ExaminersreviewedHMDAloansfrom2010and2011andbusinessloansfromasix-monthperiodthat endedJune12,2012.Examinersalsoreviewedcommunitydevelopmentactivities(loans,investments,and services),fromJune21,2010,throughAugust6,2012. 38 ThePeoplesBankEvaluationincludedfull-scopeevaluationsintheKansasCity,Missouri-KansasMSA,and theAlbuquerque,NewMexicoMSA.LimitedscopeevaluationswereperformedintheLawrence,KansasMSA andNon-Metropolitan,TaosCounty,NewMexicoNon-MSA. 39 ThePNBEvaluationwasconductedusingSmallBankCRAExaminationProcedures.Examinersreviewed commercialrealestateloansfromJanuary2006throughMay2011,andHMDAloansfromJanuary1,2010, throughMarch31,2011.ThePNBEvaluationincludedafull-scopereviewofthebank’sAA,theElPaso County,ColoradoMSA.

LegalDevelopments:FourthQuarter,2017 185 anditsoveralllendingtoborrowersof differentincomesandtosmallbusinesseswas reasonable.Examinersdeterminedthatthebank’slendingtosmallbusinesseswasexcellent andnotedthatthebank’sdistributionof loanstosmallbusinessesexceededthedemographiccomparator. Examinersfoundthatthegeographicdistributionof PNB’sresidentialrealestateloans reflectedreasonabledispersionthroughoutthegeographiesfordifferentincomelevels. Examinersalsofoundthatthegeographicdistributionof PNB’sbusinessloanswithinthe bank’sAAwasexcellent. AdditionalConvenienceandNeedsConsiderations TheBoardhasenteredintoaConsentOrderwithPeoplesBankwithrespecttodeceptive practicesinviolationof section5of theFederalTradeCommissionAct,40whichwere centeredinPeoplesBank’snationalmortgagebusinessline.Thisbusinessline,whichis separateandapartfromtheBank’scommunitybankingoperations,isbeingterminated andisnotbeingassumedbyNBHaspartof thisproposal.PursuanttotheConsentOrder, PeoplesBankhasagreedtopayrestitutiontoaffectedcustomersandtosetasideatleast $2.8millionforthispurpose.BecauseNBHisnotapartytotheConsentOrder,thisorder isconditionedonNBH’scommitmenttocauseNBHBanktocomplywithPeoplesBank’s restitutionandrelatedConsentOrderobligations. TheBoardalsoconsideredotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.NBHrepresentsthatitdoesnothaveanyplansto discontinueanyproductorservicecurrentlyofferedbyPeoplesBankorPNB.NBHrepresentsthat,followingtheproposedtransaction,itscustomerswouldgainaccesstoproductsandservicesnotcurrentlyofferedbyNBHBank,includingwealthandinvestment servicesthroughathird-partybroker-dealerrelationshipandhealthsavingsaccountsand payrollservicesthroughanotherthird-partyrelationship.Inaddition,NBHrepresentsthat theproposedtransactionwouldprovideexpandedproductcapabilitiestocustomersof PeoplesBankandPNB,includingaccesstoNBHBank’screditcardofferings,amerchantfundeddebitcardcashbackprogram,andvariousonlinebankingfeatures,suchaswire transfers,person-to-personpayments,andpersonalfinancialmanagementtools.Inaddition,NBHrepresentsthatcustomersof NBHandPeopleswouldbenefitfromalarger branchandATMnetwork. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtheCRArecordsof therelevant depositoryinstitutionsinvolved,theinstitutions’recordsof compliancewithconsumer protectionlaws,confidentialsupervisoryinformation,informationprovidedbyNBH,and otherpotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiesto beserved.Basedonthatreview,theBoardconcludesthattheconvenienceandneeds factorisconsistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedsection3of theBHCActandtheBankMergerActtorequiretheBoardto 40 15U.S.C.§45.

186 FederalReserveBulletin|February2018 consideraproposal’s“risktothestabilityof theUnitedStatesbankingorfinancial system.”41 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the resultingfirm.42Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.43 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.44 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.Both theacquirerandthetargetarepredominantlyengagedinavarietyof consumerand commercialbankingactivities.45Theproformaorganizationwouldhaveminimalcrossborderactivitiesandwouldnotexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.Inaddition,theorganizationwouldnotbeacriticalservicesprovideror sointerconnectedwithotherfirmsorthemarketsthatitwouldposeasignificantriskto thefinancialsystemintheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. 41 Dodd-FrankAct§§604(d)&(f),Pub.L.No.111-203,124Stat.1376,1601–1602(2010),codifiedat12U.S.C. §§1842(c)(7)and1828(c)(5). 42 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 43 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 44 SeePeoplesUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 45 NBHoffersavarietyofbankingproductsandservices,includingretailandcommercialbanking;consumer, commercial,andmortgagelending;andconsumerfinanceloans.Peoplesalsooffersavarietyofbankingproductsandservices,includingcommercial,mortgage,andconsumerloans.Ineachoftheactivitiesinwhichit engages,NBHhas,andasaresultoftheproposalwouldcontinuetohave,asmallmarketshareonanationwidebasis,andnumerouscompetitorswouldremainfortheseservices.

LegalDevelopments:FourthQuarter,2017 187 Establishmentof Branches NBHBankhasappliedundersection9of theFRAtoestablishbranchesatthecurrent locationsof PeoplesBankandPNB.46TheBoardhasassessedthefactorsitisrequiredto considerwhenreviewinganapplicationunderthatsection.47Specifically,theBoardhas consideredNBHBank’sfinancialcondition,management,capital,actionsinmeetingthe convenienceandneedsof thecommunitiestobeserved,CRAperformance,andinvestmentinbankpremises.Forthereasonsdiscussedinthisorder,theBoardfindsthose factorstobeconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationsshouldbe,andherebyare,approved.Inreachingitsconclusion,theBoardhas consideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunder theBHCAct,theBankMergerAct,theFRA,andotherapplicablestatutes.TheBoard’s approvalisspecificallyconditionedoncompliancebyApplicantswithallof theconditions imposedinthisorder,includingreceiptof allrequiredregulatoryapprovals,andonthe commitmentsmadetotheBoardinconnectionwiththeapplications.Forpurposesof this action,theconditionsandcommitmentsaredeemedtobeconditionsimposedinwriting bytheBoardinconnectionwithitsfindingsanddecisionhereinand,assuch,maybe enforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardorbytheReserveBank,actingunderdelegatedauthority. Byorderof theBoardof Governors,effectiveNovember28,2017. Votingforthisaction:ChairYellen,ViceChairmanforSupervisionQuarles,andGovernorsPowellandBrainard. AnnE.Misback Secretaryof theBoard 46 See12U.S.C.§321.Undersection9oftheFRA,statememberbanksmayestablishandoperatebrancheson thesametermsandconditionsasareapplicabletotheestablishmentofbranchesbynationalbanks.Anational bankmayestablishandoperateanewbranchwithinastateinwhichitissituated,ifsuchestablishmentand operationisauthorizedunderapplicablestatelaw.12U.S.C.§36(c).Anationalbankalsomayretainany branchfollowingamergerthatunderstatelawmaybeestablishedasanewbranchoftheresultingbankor retainedasanexistingbranchoftheresultingbank.See12U.S.C.§§36(b)(2)&(c).Inaddition,under section44oftheFDIAct,abankresultingfromaninterstatemergertransactionmayretainandoperate,asa mainofficeorabranch,anyofficethatanybankinvolvedinthemergerwasoperatingasamainofficeor branchimmediatelybeforethemergertransaction.12U.S.C.§1831u(d).Uponconsummation,NBHBank’s brancheswouldbepermissibleunderapplicablestatelaw.SeeKan.Stat.Ann.§9-1111(b);Colo.Rev.Stat. §§11-105-602and603;N.M.Stat.Ann.§58-5-2. 47 12U.S.C.§322;12CFR208.6.

188 FederalReserveBulletin|February2018 Appendix BranchestoBeEstablishedbyNBHBank 1. 745NewHampshireStreet,Lawrence,Kansas66044 2. 4831West6thStreet,Lawrence,Kansas66049 3. 1506SouthMainStreet,Ottawa,Kansas66067 4. 434SouthMainStreet,Ottawa,Kansas66067 5. 7579West151stStreet,OverlandPark,Kansas66223 6. 3045IowaStreet,Lawrence,Kansas66046 7. 212SouthBroadwayStreet,Louisburg,Kansas66053 8. 13180Metcalf Avenue,OverlandPark,Kansas66213 9. 5SupermarketRoad,Questa,NewMexico87556 10. 121EastMainStreet,RedRiver,NewMexico87558 11. 710PaseoDelPuebloSur,SuiteA,Taos,NewMexico87571 12. 219PaseoDelPuebloNorte,Taos,NewMexico87571 13. 2155LouisianaBoulevardNortheast,Suite1000,Albuquerque,NewMexico,87110 14. 1356PaseoDelPuebloSur,Taos,NewMexico87571 15. 19NorthTejon,Suite100,ColoradoSprings,Colorado80903 16. 5175NorthAcademyBoulevard,ColoradoSprings,Colorado80918 17. 13725StruthersRoad,Suite200,ColoradoSprings,Colorado80921 18. 400HarrisonAvenue,Leadville,Colorado80461 19. 1899WoodmoorDrive,Monument,Colorado80132 20. 651ScottAvenue,WoodlandPark,Colorado80863

LegalDevelopments:FourthQuarter,2017 189 Robertson Holding Company, L.P. Harrogate, Tennessee Unified Shares, LLC Harrogate, Tennessee Commercial Bancgroup, Inc. Harrogate, Tennessee OrderApprovingtheMergerof BankHoldingCompanies,theMergerof Banks,the Establishmentof Branches,andDeterminationonFinancialHoldingCompanyElections FRBOrderNo.2017–36(December15,2017) CommercialBancgroup,Inc.,anditsparentcompanies,RobertsonHoldingCompany, L.P.,andUnifiedShares,LLC,allof Harrogate,Tennessee(collectively,“Commercial”),all bankholdingcompanieswithinthemeaningof theBankHoldingCompanyActof 1956 (“BHCAct”),1haverequestedtheBoard’sapprovalundersection3of theBHCAct2for CommercialBancgroup,Inc.tomergewithCitizensBancorp,Inc.(“Citizens”),and therebyindirectlyacquireCitizens’subsidiarybank,CitizensBank,bothof NewTazewell, Tennessee. Inaddition,Commercial’ssubsidiarystatememberbank,CommercialBank,Harrogate, Tennessee,hasrequestedtheBoard’sapprovalundersection18(c)of theFederalDeposit InsuranceAct(“BankMergerAct”)tomergewithCitizensBank,withCommercialBank asthesurvivingentity.3CommercialBankalsohasappliedundersection9of theFederal ReserveAct(“FRA”)toestablishandoperatebranchesatthemainofficeandbranchesof CitizensBank.4RobertsonHoldingCompany,L.P.,andUnifiedShares,LLC,havefiled withtheBoardelectionstobecomefinancialholdingcompaniespursuanttosections 4(k)and(l)of theBHCActandsection225.82of theBoard’sRegulationY.5 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(82FederalRegister44183(September21,2017)).6Thetimeforsubmittingcommentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct,theBankMergerAct, andtheFRA.AsrequiredbytheBankMergerAct,areportonthecompetitiveeffectsof themergerwasrequestedfromtheUnitedStatesAttorneyGeneral,andacopyof the requesthasbeenprovidedtotheFederalDepositInsuranceCorporation(“FDIC”). Commercialisthe784thlargestinsureddepositoryorganizationintheUnitedStates. Commercialcontrolsapproximately$760.3millioninconsolidateddeposits,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutions intheUnitedStates.7CommercialcontrolsCommercialBank,whichoperatesinTennessee andKentucky.Commercialisthe42ndlargestinsureddepositoryorganizationin 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 12U.S.C.§1828(c). 4 12U.S.C.§321.ThesebranchlocationsarelistedintheAppendix. 5 12U.S.C.§§1843(k)and(l);12CFR225.82. 6 12CFR262.3(b). 7 Nationaldeposit,marketshare,andrankingdataareasofJune30,2017,unlessotherwisenoted.

190 FederalReserveBulletin|February2018 Tennessee,controllingapproximately$536.2millionindeposits,whichrepresentapproximately0.4percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.8 Citizensisthe3001stlargestinsureddepositoryorganizationintheUnitedStates.Citizens controlsapproximately$179.3millioninconsolidateddeposits,whichrepresentlessthan 1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnited States.CitizenscontrolsCitizensBank,whichoperatesinTennessee.9Citizensisthe 115thlargestinsureddepositoryorganizationinTennessee,controllingapproximately $146.9millionindeposits,whichrepresentapproximately0.1percentof thetotaldeposits of insureddepositoryinstitutionsinthatstate. Onconsummationof theproposal,Commercialwouldbecomethe635thlargestinsured depositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $1.1billion,whichrepresentlessthan1percentof thetotalassetsof insureddepository institutionsintheUnitedStates.Commercialwouldcontrolconsolidateddepositsof approximately$939.6million,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.InTennessee,Commercial wouldbecomethe31stlargestinsureddepositoryorganization,controllingdepositsof approximately$683.1million,whichrepresentapproximately0.5percentof thetotal depositsof insureddepositoryinstitutionsinthatstate. CompetitiveConsiderations Section3of theBHCActandtheBankMergerActprohibittheBoardfromapprovinga proposalthatwouldresultinamonopolyorwouldbeinfurtheranceof anattemptto monopolizethebusinessof bankinginanyrelevantmarket.10Bothstatutesalsoprohibit theBoardfromapprovingaproposalthatwouldsubstantiallylessencompetitionortendto createamonopolyinanybankingmarket,unlesstheanticompetitiveeffectsof the proposalareclearlyoutweighedinthepublicinterestbytheprobableeffectof theproposal inmeetingtheconvenienceandneedsof thecommunitytobeserved.11 CommercialandCitizenshavesubsidiarydepositoryinstitutionsthatcompetedirectlyin theMiddlesboroArea,KY-TN-VAbankingmarket(“Middlesboromarket”).12TheBoard hasconsideredthecompetitiveeffectsof theproposalinthisbankingmarket.Inparticular, theBoardhasconsideredthenumberof competitorsthatwouldremaininthemarket;the relativesharesof totaldepositsof insureddepositoryinstitutionsinthemarket(“market deposits”)thatCommercialwouldcontrol;13theconcentrationlevelof marketdeposits andtheincreaseinthatlevel,asmeasuredbytheHerfindahl-HirschmanIndex(“HHI”) undertheDepartmentof JusticeBankMergerCompetitiveReviewguidelines(“DOJBank MergerGuidelines”);14andothercharacteristicsof theMiddlesboromarket. 8 Statedeposit,marketshare,andrankingdataareasofJune30,2016,unlessotherwisenoted.Inthiscontext, insureddepositoryinstitutionsincludecommercialbanks,savingsassociations,andsavingsbanks. 9 Theproposaldoesnotraiseinterstateissuesundersection3(d)oftheBHCActbecauseTennesseeisthehome stateofbothCommercialandCitizensBank,andCitizensBankoperatesonlyinTennessee.See12U.S.C. §1842(d). 10 12U.S.C.§§1842(c)(1)and1828(c)(5). 11 12U.S.C.§§1842(c)(1)(B)and1828(c)(5)(B). 12 TheMiddlesboromarketisdefinedasBellCounty,Kentucky,andClaiborneCounty,Tennessee;plusthe townsofRoseHillandEwinginLeeCounty,Virginia. 13 LocaldepositandmarketsharedataareasofJune30,2017. 14 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating

LegalDevelopments:FourthQuarter,2017 191 Thecompetitiveeffectsof theproposalintheMiddlesboromarketwarrantadetailed reviewbecausetheproposalwouldresultinaconcentrationlevelthatwouldexceedthe thresholdsintheDOJBankMergerGuidelinesandwouldresultinthemarketdeposit shareof Commercialexceeding35percentwhenusinginitialcompetitivescreeningdata. CommercialisthelargestcompetitorintheMiddlesboromarket,controllingapproximately $281.6millionindeposits,whichrepresentapproximately22.7percentof marketdeposits. CitizensisthefifthlargestdepositoryorganizationintheMiddlesboromarket,controllingapproximately$110.9millionindeposits,whichrepresentapproximately12.6percent of marketdeposits.Onconsummationof theproposal,Commercialwouldremainthe largestdepositoryorganizationintheMiddlesboromarket,controllingapproximately $392.5millioninmarketdeposits,whichwouldrepresentapproximately35.3percentof marketdeposits.TheHHIinthismarketwouldincreaseby571points,from1626to2197. TheBoardhasconsideredwhetherfactorseithermitigatethecompetitiveeffectsof the proposalorindicatethattheproposalwouldnothaveasignificantlyadverseeffecton competitionintheMiddlesboromarket.15Severalfactorsindicatethattheincreasein concentrationintheMiddlesboromarket,asmeasuredbytheaboveHHIandmarket share,overstatesthepotentialcompetitiveeffectsof theproposalinthemarket. TheMiddlesboromarketisarelativelysmall,ruralbankingmarketandwouldcontinueto beservedbyninedepositoryinstitutionsafterconsummationof theproposal.These include,apartfromCommercial,onedepositoryinstitutionwithmorethana20percent shareof marketdeposits,twodepositoryinstitutionseachwithmorethana14percent shareof marketdeposits,andonedepositoryinstitutionwithmorethanafivepercent shareof marketdeposits.Inaddition,theBoardhasconsideredthecompetitiveinfluence of twocreditunionsamongtheninedepositoryinstitutionsremainingintheMiddlesboro market.Thesecreditunionshavebroadmembershipcriteria,offerawiderangeof consumerbankingproductsandoperatestreet-levelbranches.16Separatedbystatelines, eachof thesecreditunionsservesonlyaportionof theMiddlesboromarket.Forthat reason,theBoarddoesnotfindthatcircumstancessupportincludingthedepositsof these creditunionsinitscalculationstoestimatemarketinfluence.Nevertheless,thepresenceof theseviablecreditunions,alongwiththeotherdepositoryinstitutionsintheMiddlesboro market,suggeststhatCommercialwouldhavelimitedabilitytounilaterallyofferlessattractivetermstoconsumersandthatthesecompetitorsareabletoexertcompetitivepressure onCommercialintheMiddlesboromarket.17Thepresenceof theninedepositoryinstituanticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableatwww.justice.gov/opa/pr/ 2010/August/10-at-938.html. 15 Thenumberandstrengthoffactorsnecessarytomitigatethecompetitiveeffectsofaproposaldependonthe sizeoftheincreasein,andresultinglevelof,concentrationinabankingmarket.SeeNationsBankCorporation, 84FederalReserveBulletin129(1998). 16 TheBoardpreviouslyhasconsideredcompetitionfromcertainactivecreditunionswiththesefeaturesasa mitigatingfactor.See,e.g.,KeyCorp,FRBOrderNo.2016-12(July12,2016);OhioValleyBancCorp.,FRB OrderNo.2016-10(June28,2016);MitsubishiUFJFinancialGroup,Inc.,FRBOrderNo.2012-12 (November14,2012);OldNationalBancorp,FRBOrderNo.2012-9(August30,2012);UnitedBankshares,Inc. (orderdatedJune20,2011),97FederalReserveBulletin19(2ndQuar.2011);ThePNCFinancialServices Group,Inc.,94FederalReserveBulletinC38(2008);ThePNCFinancialServicesGroup,Inc.,93FederalReserve BulletinC65(2007);RegionsFinancialCorporation,93FederalReserveBulletinC16(2007);Passumpsic Bancorp,92FederalReserveBulletinC175(2006);andWachoviaCorporation,92FederalReserveBulletinC183 (2006). 17 Anadditionalassessmentofthetransaction,basedoncompetitors’sharesofthetotalnumberofbranchesin themarket,alsosupportstheviewthatthestructuraleffectsofthetransactionwouldnotsubstantiallylessen competition.Branchesareonewaybanksattractcustomersandareabletoprovideservicestocustomers throughoutthemarket.See,e.g.,KatherineHoandJoyIshi,“LocationandCompetitioninRetailBanking,” InternationalJournalofIndustrialOrganization,vol.29,no.5,pp.537-546(2011);AstridDick,“DemandEsti-

192 FederalReserveBulletin|February2018 tions,includingCommercial,togetherindicatesthatthestructuraleffectsof thetransaction wouldnotsubstantiallylessencompetition. TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket,includingthe Middlesboromarket.Inaddition,theappropriatebankingagencieshavebeenaffordedan opportunitytocommentandhavenotobjectedtotheproposal. Basedonallof thefactsof record,inparticularthestructureof therelevantmarket,the numberof remainingcompetitors,andotherfactorsdiscussedabove,theBoardconcludes thatconsummationof theproposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheMiddlesboromarketorinanyother relevantbankingmarket.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsidersthefinancialandmanagerialresourcesandthefutureprospectsof the institutionsinvolved.18Initsevaluationof financialfactors,theBoardreviewsinformation regardingthefinancialconditionof theorganizationsinvolvedonbothparent-onlyand consolidatedbases,aswellasinformationregardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.In thisevaluation,theBoardconsidersavarietyof informationregardingcapitaladequacy, assetquality,liquidity,andearningsperformance.TheBoardevaluatesthefinancialconditionof thecombinedorganization,includingitscapitalposition,assetquality,liquidity, earningsprospects,andtheimpactof theproposedfundingof thetransaction.TheBoard alsoconsiderstheabilityof theorganizationtoabsorbthecostsof theproposalandto completeeffectivelytheproposedintegrationof theoperationsof theinstitutions.In assessingfinancialfactors,theBoardconsiderscapitaladequacytobeespeciallyimportant. TheBoardconsidersthefutureprospectsof theorganizationsinvolvedintheproposalin lightof theirfinancialandmanagerialresourcesandtheproposedbusinessplan. CommercialandCommercialBankarewellcapitalized,andthecombinedorganization wouldremainsoonconsummationof theproposal.Theproposedtransactionisabank holdingcompanymergerwithasubsequentmergerof thesubsidiarydepositoryinstitutions.19Theassetquality,earnings,andliquidityof bothCommercialBankandCitizens Bankareconsistentwithapproval,andCommercialappearstohaveadequateresourcesto absorbthecostsof theproposalandtocompleteintegrationof theinstitutions’operations. Inaddition,futureprospectsundertheproposalareconsideredconsistentwithapproval. mationandConsumerWelfareintheBankingIndustry,”JournalofBankingandFinance,vol.32,no.8, pp.1661-1676(2008);andRobertM.Adams,KennethP.Brevoort,andElizabethK.Kiser,“WhoCompetes withWhom?TheCaseofDepositoryInstitutions,”JournalofIndustrialEconomics,vol.55,no.1,pp.141-167 (2007).TheincreaseinproformabranchHHI,definedasthesumofthesquaredbranchshareforeachinstitutioninthemarket(wherethebranchshareisdefinedasaninstitution’snumberofbranchesinthemarket dividedbythetotalnumberofbranchesinthemarket),intheMiddlesboromarketwouldbe255pointstoa levelof1786. 18 12U.S.C.§§1842(c)(2),(5),&(6),and1828(c)(5)&(11). 19 Aspartoftheproposedtransaction,eachshareofCitizens’commonstockwouldbeconvertedintoarightto receivecashbasedonaformularelatedtoCitizens’totalequityonthelastdayofthemonthprecedingclosing. Commercialhasthefinancialresourcestoeffecttheproposedtransaction.

LegalDevelopments:FourthQuarter,2017 193 TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of Commercial,Citizens,andtheirsubsidiarydepositoryinstitutions,includingassessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition,the BoardhasconsideredinformationprovidedbyCommercial;theBoard’ssupervisoryexperiencesandthoseof otherrelevantbanksupervisoryagencieswiththeorganizations;and theorganizations’recordsof compliancewithapplicablebanking,consumerprotection, andanti-money-launderinglaws. Commercial,Citizens,andtheirsubsidiarydepositoryinstitutionsareeachconsideredto bewellmanaged.Commercialhasarecordof successfullyintegratingorganizationsintoits operationsandrisk-managementsystemsafteracquisitions.Thedirectorsandsenior executiveofficersof Commercialhavesubstantialknowledgeof andexperienceinthe bankingandfinancialservicessectors,andCommercial’srisk-managementprogram appearsconsistentwithapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredCommercial’splansforimplementingtheproposal. Commercialhasconductedcomprehensiveduediligenceandisdevotingsignificantfinancialandotherresourcestoaddressallaspectsof thepost-acquisitionintegrationprocess forthisproposal.Commercialwouldimplementitsrisk-managementpolicies,procedures, andcontrolsatthecombinedorganization,andtheseareconsideredacceptablefroma supervisoryperspective.Inaddition,Commercial’smanagementhastheexperienceand resourcestooperatethecombinedorganizationinasafeandsoundmanner. Basedonallof thefactsof record,includingCommercial’ssupervisoryrecord,managerial andoperationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandthefutureprospectsof theorganizationsinvolvedintheproposal,aswellas therecordsof effectivenessof CommercialandCitizensincombattingmoney-laundering activities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.20Initsevaluationof theeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecreditneedsof thesecommunities,aswellasotherpotential effectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.In thisevaluation,theBoardplacesparticularemphasisontherecordsof therelevantdepositoryinstitutionsundertheCommunityReinvestmentAct(“CRA”).21TheCRArequires thefederalfinancialsupervisoryagenciestoencourageinsureddepositoryinstitutionsto helpmeetthecreditneedsof thelocalcommunitiesinwhichtheyoperate,consistentwith theirsafeandsoundoperation,22andrequirestheappropriatefederalfinancialsupervisory agencytoassessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof its entirecommunity,includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.23 20 12U.S.C.§§1842(c)(2)and1828(c)(5). 21 12U.S.C.§2901etseq. 22 12U.S.C.§2901(b). 23 12U.S.C.§2903.

194 FederalReserveBulletin|February2018 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsiderstheassessmentsof otherrelevantsupervisors,the supervisoryviewsof examiners,othersupervisoryinformation,andinformationprovided bytheapplicants.TheBoardalsomayconsidertheinstitution’sbusinessmodel,its marketingandoutreachplans,theorganization’splansafterconsummation,andanyother informationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallof thefactsof record,includingreportsof examinationof theCRAperformanceof CommercialBankandCitizensBank;thefairlendingandcompliancerecordsof both banks;thesupervisoryviewsof theFederalReserveBankof Atlanta(“ReserveBank”) andtheFDIC;confidentialsupervisoryinformation;andinformationprovidedby Commercial. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardevaluates aninstitution’sperformancerecordinlightof examinationsbytheappropriatefederal supervisorsof theCRAperformancerecordsof therelevantinstitutions,aswellasinformationandviewsprovidedbytheappropriatefederalsupervisors.24Inthiscase,theBoard consideredthesupervisoryviewsof theReserveBankandtheFDIC. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.25Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplyalendingtesttoevaluatetheperformance of asmallinsureddepositoryinstitutioninhelpingtomeetthecreditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’slending-related activitiestodeterminewhethertheinstitutionishelpingtomeetthecreditneedsof individualsandgeographiesof allincomelevels.Aspartof thelendingtest,examinersreview andanalyzeaninstitution’sdatareportedundertheHomeMortgageDisclosureActof 1975(“HMDA”),26automatedloanreports,andotherreportsgeneratedbytheinstitution toassessaninstitution’slendingactivitieswithrespecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slendingperformanceisbasedontheinstitution’s loan-to-depositratio,loanoriginationsforsaletothesecondarymarket,lending-related activitiesinitsassessmentareas(“AAs”),recordof engaginginlending-relatedactivities forborrowersof differentincomelevelsandbusinessesandfarmsof differentsizes, geographicdistributionof loans,andrecordof takingactioninresponsetoanywritten complaintsaboutitsperformance.27Intermediatesmallbanksaresubjecttothelending test,aswellasacommunitydevelopmenttestthatevaluatesthenumberandamountsof theircommunitydevelopmentloansandqualifiedinvestments,theextenttowhichthey 24 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48506, 48548(July25,2016). 25 12U.S.C.§2906. 26 12U.S.C.§2801etseq. 27 See12CFR228.26(b).

LegalDevelopments:FourthQuarter,2017 195 providecommunitydevelopmentservices,andtheirresponsivenesstocommunitydevelopmentlending,investment,andserviceneeds.28 CRAPerformanceof CommercialBank CommercialBankwasassignedanoverall“Satisfactory”ratingbytheReserveBankatits mostrecentCRAperformanceevaluation,asof September21,2015(“CommercialBank Evaluation”).29Thebankreceived“Satisfactory”ratingsforeachof theLendingTestand theCommunityDevelopmentTest.”30Greaterweightwasgiventoperformancein Tennesseebecauseof thehigherpercentageof bankdeposits,branches,andloansinthat state. ExaminersconcludedthatCommercialBankwasrespondingtothecreditneedsof itsAAs. Inparticular,examinersfoundthattheloan-to-depositratiowasreasonablegiventhe bank’ssize,financialcondition,andAAcreditneeds.Examinersnotedthatthegeographic distributionof loansreflectedreasonabledispersionthroughouttheAAsandthatthe distributionof loansreflectedreasonablepenetrationamongindividualsof different incomelevelsandbusinessesof differentsizes. ExaminersnotedthatCommercialBank’scommunitydevelopmentperformance,which includedloans,investments,andservices,demonstratedadequateresponsivenessto communitydevelopmentneedsthroughoutthebank’sAAs.Examinersalsonotedthat bankrepresentativesprovidedcommunityservicehourstobenefitLMIfamiliesandsmall businessesthroughoutthebank’sAAs. CRAPerformanceof CitizensBank CitizensBankwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheFDIC,asof March9,2015(“CitizensBankEvaluation”).31 Examinersfocusedonthebank’sloan-to-depositratioandlendingrecordwithinthe bank’sAAs.ExaminersfoundthatCitizensBank’sloan-to-depositratioreflectedreasonableresponsivenesstothecreditneedsof theAAs,giventheinstitution’ssize,financial conditionandAAs.Examinersalsofoundthatthemajorityof thebank’shomemortgage andsmallbusinesslendingwasoriginatedwithinitsAAs,anditsoveralllendingto borrowersof differentincomeswasreasonable.Examinersdeterminedthatthebank’s smallbusinesslendingreflectedexcellentperformance. 28 See12CFR228.26(c). 29 TheCommercialBankEvaluationwasconductedusingtheIntermediateSmallInstitutionExaminationProcedures.ExaminersreviewedHMDA-reportableloansandasampleofcommercialloansoriginatedfrom January1,2013,throughDecember31,2014.Theevaluationperiodforcommunitydevelopmentlending,investments,andserviceswasfromApril17,2012,toSeptember20,2015. 30 TheCommercialBankEvaluationincludedafullscopeevaluationofthebank’sAAconsistingofKnoxand UnioncountieswithintheKnoxville,TennesseeMetropolitanStatisticalArea(“MSA”),aswellasitsAA consistingofBell-HarlanandKnoxcountiesinKentucky,whicharenotpartofanMSA.Alimitedscope evaluationwasperformedofthebank’sAAconsistingofClaiborneCounty,Tennessee,whichisnotpartof anyMSA,andofthebank’sAAconsistingofSullivanCountywithintheKingsport-Bristol-Bristol,Tennessee-VirginiaMSA. 31 TheCitizensBankEvaluationwasconductedusingtheSmallBankExaminationProcedures.Examiners reviewedasampleofsmallbusinessloansoriginatedfromJanuary1,2012,toDecember31,2014,andalso reviewedallHMDA-reportableloansfor2013and2014.TheCitizensBankEvaluationincludedafullscope evaluationofthebank’sAAlocatedwithinClaiborneCounty,Tennessee,whichisnotpartofanyMSA.A limitedscopeevaluationwasperformedoftheportionofthebank’sAAlocatedwithintheKnoxville, TennesseeMSAandofthebank’sAAconsistingofHamblenCounty,whichispartoftheMorristown, TennesseeMSA.

196 FederalReserveBulletin|February2018 AdditionalSupervisoryViews TheBoardhasconsideredtheresultsof themostrecentconsumercomplianceexamination of CommercialBankconductedbyReserveBankexaminers,whichincludedareviewof thebank’scomplianceriskmanagementprogramandthebank’scompliancewith consumerprotectionlawsandregulations.TheBoardhasalsoconsideredtheresultsof the mostrecentconsumercomplianceexaminationof CitizensBankconductedbytheFDIC, whichincludedareviewof thebank’sconsumercompliancefunction. TheBoardhastakenthisinformation,aswellastheCRAperformancerecordsof CommercialBankandCitizensBank,intoaccountinevaluatingtheproposedtransaction, includinginconsideringwhetherCommercialhastheexperienceandresourcestoensure thatCommercialBankhelpstomeetthecreditneedsof thecommunitieswithinitsAAs. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.Commercialrepresentsthatthecombinedorganization,withitsgreatersizeandcapabilities,wouldhaveanincreasedlendinglimitand therebywouldincreasetheavailabilityof credittocustomersandpotentialcustomersof bothbanks,includingsmall-tomid-sizedbusinesses.Inaddition,Commercialrepresents thatcustomersof CitizensBankwouldbenefitfromCommercialBank’sexpansivebranch network,andcustomersof CommercialBankwouldbenefitfromadditionalbanking officesinClaiborneandHamblencounties,Tennessee,aswellasaloanproductionoffice inSullivanCounty,Tennessee.Commercialalsorepresentsthatcustomersincommunities servedbyCitizensBankwillbenefitfromtheavailabilityof additionalproductsand servicescurrentlyofferedbyCommercialBank.Finally,Commercialrepresentsthatthe increasedsizeandscaleof thecombinedorganizationmaypermitittodevelopandexpand productandserviceofferingstoitscustomers. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws,supervisoryviewsof theReserveBankand theFDIC,confidentialsupervisoryinformation,informationprovidedbyCommercial,and otherpotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiesto beserved.Basedonthatreview,theBoardconcludesthattheconvenienceandneeds factorisconsistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedsection3of theBHCActandtheBankMergerActtorequiretheBoardto consideraproposal’s“risktothestabilityof theUnitedStatesbankingorfinancial system.”32 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof 32 Dodd-FrankAct§§604(d)and(f),Pub.L.No.111-203,124Stat.1376,1601-1602(2010),codifiedat12U.S.C. §§1828(c)(5)and1842(c)(7).

LegalDevelopments:FourthQuarter,2017 197 theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the resultingfirm.33Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.34 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.35 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.Both theacquirerandthetargetarepredominatelyengagedinretailandcommercialbanking activities.36Theproformaorganizationwouldhaveminimalcross-borderactivitiesand wouldnotexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.In addition,theorganizationwouldnotbeacriticalservicesproviderorsointerconnected withotherfirmsorthemarketsthatitwouldposeasignificantrisktothefinancialsystem intheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Establishmentof Branches CommercialBankhasappliedundersection9of theFRAtoestablishbranchesatthe currentlocationsof CitizensBank.37TheBoardhasassessedthefactorsitisrequiredto 33 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 34 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 35 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 36 Commercialoffersavarietyofbankingproductsandservices,includingretailandcommercialbanking; consumer,commercial,andmortgagelending;andconsumerfinanceloans.Citizensalsooffersavarietyof bankingproductsandservices,includingcommercial,mortgage,andconsumerloans.Ineachoftheactivities inwhichitengages,Commercialhas,andasaresultoftheproposalwouldcontinuetohave,asmallmarket shareonanationwidebasis,andnumerouscompetitorswouldremainfortheseservices. 37 See12U.S.C.§321.Undersection9oftheFRA,statememberbanksmayestablishandoperatebrancheson thesametermsandconditionsasareapplicabletotheestablishmentofbranchesbynationalbanks.Anational bankmayretainanybranchfollowingamergerthatunderstatelawmaybeestablishedasanewbranchofthe

198 FederalReserveBulletin|February2018 considerwhenreviewinganapplicationunderthatsection.38Specifically,theBoardhas consideredCommercialBank’sfinancialcondition,management,capital,actionsin meetingtheconvenienceandneedsof thecommunitiestobeserved,CRAperformance, andinvestmentinbankpremises.39Forthereasonsdiscussedinthisorder,theBoardfinds thosefactorstobeconsistentwithapproval. FinancialHoldingCompanyElections Asnoted,RobertsonHoldingCompany,L.P.,andUnifiedShares,LLC,haveelectedto becomefinancialholdingcompaniesinconnectionwiththeproposal.RobertsonHolding Company,L.P.,andUnifiedShares,LLC,havecertifiedthat,uponconsummationof the proposal,theyandthedepositoryinstitutionstheywouldcontrolwouldbewellcapitalized andwellmanaged,andRobertsonHoldingCompany,L.P.,andUnifiedShares,LLC, haveprovidedalltheinformationrequiredundertheBoard’sRegulationY.40Basedonall thefactsof record,theBoarddeterminesthattheelectionsbyRobertsonHolding CompanyL.P.,andUnifiedShares,LLC,willbecomeeffectiveuponconsummationof the proposalif,onthatdate,theyarewellcapitalizedandwellmanagedandalldepository institutionstheycontrolarewellcapitalized,wellmanaged,andhaveCRAratingsof at least“Satisfactory.” Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationsshouldbe,andherebyare,approved.Inreachingitsconclusion,theBoardhas consideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunder theBHCAct,theBankMergerAct,theFRA,andotherapplicablestatutes.TheBoard’s approvalisspecificallyconditionedoncompliancebyCommercialandCommercialBank withallof theconditionsimposedinthisorder,includingreceiptof allrequiredregulatory approvals,andonthecommitmentsmadetotheBoardinconnectionwiththeapplications. Forpurposesof thisaction,theconditionsandcommitmentsaredeemedtobeconditions imposedinwritingbytheBoardinconnectionwithitsfindingsanddecisionhereinand,as such,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardorbytheReserveBank,actingunderdelegatedauthority. Byorderof theBoardof Governors,effectiveDecember15,2017. Votingforthisaction:ChairYellen,ViceChairmanforSupervisionQuarles,andGovernorsPowellandBrainard. AnnE.Misback Secretaryof theBoard resultingbankorretainedasanexistingbranchoftheresultingbank.See12U.S.C.§§36(b)(2)and(c).Upon consummation,CommercialBank’sbrancheswouldbepermissibleunderapplicablestatelaw.SeeTenn.Code Ann.§45-2-614. 38 12U.S.C.§322;12CFR208.6. 39 Uponconsummationoftheproposedtransaction,CommercialBank’sinvestmentsinbankpremiseswould remainwithinlegalrequirementsunder12CFR208.21. 40 SeeDodd-FrankAct§606(a),124Stat.at1607,amending12U.S.C.§1843(l)(1).

LegalDevelopments:FourthQuarter,2017 199 Appendix BranchestoBeEstablishedbyCommercialBank 1. 130SouthBroadStreet,NewTazewell,Tennessee37825 2. 7100CumberlandGapParkway,Harrogate,Tennessee37752 3. 155TerraceLane,Morristown,Tennessee37813

200 FederalReserveBulletin|February2018 Order Issued Under International Banking Act ING Bank N.V. Amsterdam, The Netherlands OrderApprovingtheEstablishmentof aRepresentativeOffice FRBOrderNo.2017–27(October20,2017) INGBankN.V.(“INGBank”),Amsterdam,TheNetherlands,aforeignbankwithinthe meaningof theInternationalBankingActof 1978(“IBA”),hasappliedunder section10(a)of theIBA1toestablisharepresentativeofficeinDallas,Texas.TheIBA providesthataforeignbankmustobtaintheapprovalof theBoardtoestablisharepresentativeofficeintheUnitedStates. Noticeof theapplication,affordinginterestedpersonsanopportunitytocomment,has beenpublishedinanewspaperof generalcirculationinDallas,Texas(TheDallasMorning News,June25,2017).Thetimeforsubmittingcommentshasexpired,andtheBoardhas consideredallcommentsreceived. INGBankisawhollyownedsubsidiaryof INGGroepN.V.(“INGGroup”),Amsterdam, TheNetherlands.INGGroup,withtotalassetsof $983.5billion,isoneof theworld’s largestfinancialservicesproviders,offeringcommercialandinvestmentbanking,asset management,andrelatedproductsandservices.INGGroupsharesarewidelyheld,with BlackRock,Inc.,NewYork,NewYork,beingtheonlyshareholderthatholdsfivepercent ormoreof itsvotingshares.2 INGBank,withtotalassetsof approximately$983.5billion,isthelargestbankinthe Netherlandsbyassetsize.3INGBankengagesinretail,wholesale,andinternational bankingandoperatesinEurope,NorthandSouthAmerica,Asia,andAustralia.Inthe UnitedStates,INGBankoperatesarepresentativeofficeinNewYork,NewYork(the “NewYorkRepresentativeOffice”),andoperatessubsidiariesthatengageinsecurities brokerageanddealing,swapsdealing,andwholesalefinanciallendingandadvisory services. TheproposedrepresentativeofficewouldactasaliaisonwithU.S.clientsandprospective clientsof INGBank.Theproposedrepresentativeofficealsowouldengageinotherrepresentationalactivities,includingmarketingandconductingresearch.4 UndertheIBAandRegulationK,inactingonanapplicationbyaforeignbanktoestablisharepresentativeoffice,theBoardmustconsiderwhether(1)theforeignbankhas furnishedtotheBoardtheinformationitneedstoassesstheapplicationadequately,(2)the foreignbankandanyforeignbankparentengagedirectlyinthebusinessof banking 1 12U.S.C.§3107(a). 2 StichtingContinuiteitING,Amsterdam,TheNetherlands(“Stichting”),afoundationorganizedtoensureING Group’scontinuityintheeventofahostiletakeoverattempt,holdscalloptionsexercisableforasmuchas one-thirdofINGGroup’sissuedsharecapital.StichtingengagesinnoactivitiesotherthanholdingtheING GroupcalloptionsandisnotregulatedasafinancialinstitutionbyDeNederlandscheBankortheEuropean CentralBank. 3 AssetandrankingdataareasofJune30,2017. 4 Arepresentativeofficemayengageinrepresentationalandadministrativefunctionsinconnectionwiththe bankingactivitiesofaforeignbank,includingsolicitingnewbusinessfortheforeignbank,conducting research,actingasaliaisonbetweentheforeignbank’sheadofficeandcustomersintheUnitedStates, performingpreliminaryandservicingstepsinconnectionwithlendingandperformingback-officefunctions.A representativeofficemaynotcontractforanydepositordeposit-likeliability,lendmoney,orengageinany otherbankingactivity.12CFR211.24(d)(1).

LegalDevelopments:FourthQuarter,2017 201 outsidetheUnitedStates,and(3)theforeignbankandanyforeignbankparentaresubject tocomprehensivesupervisiononaconsolidatedbasisbytheirhomecountrysupervisor.5 TheBoardalsoconsidersadditionalstandardssetforthintheIBAandRegulationK.6 TheBoardpreviouslydetermined,inconnectionwithINGBank’sapplicationtoestablish theNewYorkRepresentativeOffice,thatINGBankwassubjecttocomprehensivesupervisiononaconsolidatedbasisbyDeNederlandscheBank(“DNB”).7Asof November4, 2014,INGBankissubjecttothedirectprudentialsupervisionof theEuropeanCentral Bank(“ECB”)withinthecontextof theSingleSupervisoryMechanism(“SSM”)because thetotalvalueof itsassetsexceeds€30billionanditisoneof thethreelargestbanksina MemberStateof theEuropeanUnion.TheSSMisasystemof financialsupervision composedof theECBandthenationalcompetentauthoritiesof theparticipatingMember StatesinwhichspecifictasksareallocatedbetweentheECBandeachnationalcompetent authority.UndertheSSM,theECBhasdirectprudentialsupervisoryresponsibilityfor INGBank,whiletheDNB,astherelevantnationalcompetentauthorityforINGBank, retainssupervisoryauthorityoverallotherareas,includingconsumerprotectionandthe preventionof moneylaunderingandterroristfinancing. Themethodologiesandstandardsthatunderpintheday-to-daysupervisionof largeEuropeanUnionbankingorganizationsbytheECBundertheSSMregulatoryframeworkare aimedatachievingaconsistentsupervisoryapproachacrosstheEuropeanUnion.The BoardhaspreviouslyfoundthatthreeotherEuropeanbankingorganizationssupervisedby theSSMandtherelevantnationalcompetentauthorityaresubjecttocomprehensive consolidatedsupervision.8Thesupervisoryprocessesof theDNBandthesystemof supervisionappliedtoalllargebankswithintheEuropeanUnionhavenotchangedmaterially sincetheywerelastconsideredbytheBoard. Basedonallthefactsof record,includingtheaboveinformation,theBoarddetermined thatINGBankissubjecttocomprehensivesupervisiononaconsolidatedbasisbytheECB andtheDNBactingthroughtheSSM. 5 12U.S.C.§3107(a)(2);12CFR211.24(d)(2).Inassessingthesupervisionstandard,theBoardconsiders,among otherindiciaofcomprehensive,consolidatedsupervision,theextenttowhichhomecountrysupervisors (i)ensurethatthebankhasadequateproceduresformonitoringandcontrollingitsactivitiesworldwide; (ii)obtaininformationontheconditionofthebankanditssubsidiariesandofficesthroughregularexaminationreports,auditreports,orotherwise;(iii)obtaininformationonthedealingsandrelationshipsbetweenthe bankanditsaffiliates,bothforeignanddomestic;(iv)receivefromthebankfinancialreportsthatareconsolidatedonaworldwidebasisorcomparableinformationthatpermitsanalysisofthebank’sfinancialcondition onaworldwideconsolidatedbasis;and(v)evaluateprudentialstandards,suchascapitaladequacyandrisk assetexposure,onaworldwidebasis.Nosinglefactorisessential,andotherelementsmayinformtheBoard’s determination. 6 See12U.S.C.§3105(d)(3)–(4);12CFR211.24(c)(2).Thesestandardsincludethefollowing:whetherthebank’s homecountrysupervisorhasconsentedtotheestablishmentoftheoffice;thefinancialandmanagerial resourcesofthebank;whetherthebankhasprocedurestocombatmoneylaundering,whetherthereisalegal regimeinplaceinthehomecountrytoaddressmoneylaundering,andwhetherthehomecountryisparticipatinginmultilateraleffortstocombatmoneylaundering;whethertheappropriatesupervisorsinthehome countrymayshareinformationonthebank’soperationswiththeBoard;whetherthebankanditsU.S.affiliatesareincompliancewithU.S.law;theneedsofthecommunity;andthebank’srecordofoperation.The Boardmayalso,inthecaseofaforeignbankthatpresentsarisktothestabilityoftheUnitedStates,takeinto account,totheextentappropriate,whetherthehomecountryoftheforeignbankhasadopted,orismaking demonstrableprogresstowardsadopting,anappropriatesystemoffinancialregulationforthefinancialsystem ofsuchhomecountrytomitigatesuchrisk.12U.S.C.§3105(d)(3)(E). 7 INGBank,N.V.,85FederalReserveBulletin448(1999). 8 SeeBoardlettertoRitaMilazzodatedAugust1,2017(comprehensiveconsolidatedsupervisionforBanco BilbaoVizcayaArgentaria,S.A.);BoardlettertoAndreaTokheimdatedJuly24,2017(comprehensiveconsolidatedsupervisionforBankofIrelandGroupplc);andUnionediBancheItaliane,S.p.A.,FRBOrder2016-01 (January19,2016).

202 FederalReserveBulletin|February2018 TheBoardalsohasconsideredthefollowingadditionalstandardssetforthintheIBAand RegulationK:(1)whetherthebankhasprocedurestocombatmoneylaundering, whetherthereisalegalregimeinplaceinthehomecountrytoaddressmoneylaundering, andwhetherthehomecountryisparticipatinginmultilateraleffortstocombatmoney laundering;(2)thefinancialandmanagerialresourcesof thebank; (3)whethertheappropriatesupervisorsinthehomecountrymayshareinformationonthe bank’soperationswiththeBoard;and(4)whetherthebank’shomecountrysupervisorhas consentedtotheestablishmentof theoffice.9 TheNetherlandsisamemberof theFinancialActionTaskForceandsubscribestoits recommendationsonmeasurestocombatmoneylaunderingandinternationalterrorism. Inaccordancewiththoserecommendations,theNetherlandshasenactedlawsandcreated legislativeandregulatorystandardstodetermoneylaundering,terroristfinancing,and otherillicitactivities.MoneylaunderingisacriminaloffenseintheNetherlands,andcredit institutionsarerequiredtoestablishinternalpolicies,procedures,andsystemsforthedetectionandpreventionof moneylaundering.INGBankhaspoliciesandproceduresto complywiththeselawsandregulationsthataremonitoredbygovernmentalentities responsibleforanti-money-launderingcompliance. INGBankappearstohavetheexperienceandcapacitytosupporttheproposedrepresentativeoffice.Inaddition,INGBankhasestablishedcontrolsandproceduresforthe proposedrepresentativeofficetoensurecompliancewithU.S.law,aswellascontrolsand proceduresforitsworldwideoperationsgenerally.TakingintoconsiderationINGBank’s recordof operationsinitshomecountryandintheUnitedStates,itsoverallfinancial resources,anditsstandingwithitshomecountrysupervisors,financialandmanagerial factorsareconsistentwithapprovalof theproposedrepresentativeoffice. INGBankhascommittedtomakeavailabletotheBoardsuchinformationontheoperationsof INGBankandanyof itsaffiliatesthattheBoarddeemsnecessarytodetermine andenforcecompliancewiththeIBA,theBankHoldingCompanyActof 1956,as amended,andotherapplicablefederallaw.Totheextentthatprovidingsuchinformationto theBoardmaybeprohibitedbylaworotherwise,INGBankhascommittedtocooperate withtheBoardtoobtainanynecessaryconsentsorwaiversthatmightberequiredfrom thirdpartiesforthedisclosureof suchinformation.Inaddition,subjecttocertainconditions,theECBandtheDNBmayshareinformationonINGBank’soperationswithother supervisors,includingtheBoard.Inlightof thesecommitmentsandotherfactsof record, andsubjecttotheconditiondescribedbelow,ithasbeendeterminedthatINGBankhas providedadequateassurancesof accesstoanynecessaryinformationthattheBoardmay request.Inaddition,theECBhasnoobjectiontotheestablishmentof theproposedrepresentativeoffice. TheBoardhasalsoconsideredwhetherINGBank’sproposalwouldpresentarisktothe stabilityof theUnitedStates.Theproposalwouldnotappeartoaffectfinancialstabilityin theUnitedStates.Inparticular,theabsoluteandrelativesizeof INGBankinitshome country;thescopeof INGBank’sactivities,includingthetypesof activitiesitproposesto conductintheUnitedStatesandthepotentialforthoseactivitiestoincreaseortransmit financialinstability;andtheframeworkinplaceforsupervisingINGBankinitshome countrydonotappeartocreatesignificantrisktothefinancialstabilityof theUnited States.Basedontheseandotherfactors,financialstabilityconsiderationsinthisproposal areconsistentwithapproval. 9 See12U.S.C.§3105(d)(3)–(4);12CFR211.24(c)(2).

LegalDevelopments:FourthQuarter,2017 203 Onthebasisof allthefactsof recordandsubjecttocommitmentsmadebyINGBank, INGBank’sapplicationtoestablishtheproposedrepresentativeofficeisherebyapproved bytheDirectorof theDivisionof SupervisionandRegulation,withtheconcurrenceof the GeneralCounsel,pursuanttoauthoritydelegatedbytheBoard.10Shouldanyrestrictions onaccesstoinformationontheoperationsoractivitiesof INGBankanditsaffiliates subsequentlyinterferewiththeBoard’sabilitytoobtaininformationtodetermineand enforcecompliancebyINGBankoritsaffiliateswithapplicablefederalstatutes,theBoard mayrequireterminationof anyof INGBank’sdirectorindirectactivitiesintheUnited States.Approvalof thisapplicationalsoisspecificallyconditionedoncompliancebyING BankwiththeconditionsimposedinthisorderandthecommitmentsmadetotheBoardin connectionwiththisapplication.11Forpurposesof thisaction,thesecommitmentsand conditionsaredeemedtobeconditionsimposedbytheBoardinwritinginconnectionwith thisdecisionand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Byorder,approvedpursuanttoauthoritydelegatedbytheBoard,effectiveOctober20, 2017. AnnE.Misback Secretaryof theBoard 10 12CFR265.7(d)(12). 11 TheBoard’sauthoritytoapprovetheestablishmentoftheproposedrepresentativeofficeparallelsthe continuingauthorityoftheStateofTexastolicenseofficesofaforeignbank.TheBoard’sapprovalofthis applicationdoesnotsupplanttheauthorityoftheStateofTexasoritsagent,theTexasDepartmentof Banking,tolicensetheproposedofficeofINGinaccordancewithanytermsorconditionsthattheymay impose.

May 2018 Vol. 104, No. 2 Legal Developments: First Quarter, 2018 Orders Issued Under Bank Holding Company Act Orders Issued Under Section 3 of the Bank Holding Company Act Howard Bancorp, Inc. Ellicott City, Maryland OrderApprovingtheAcquisitionof aBank FRBOrderNo.2018-05(February12,2018) HowardBancorp,Inc.(“Howard”),EllicottCity,Maryland,abankholdingcompany withinthemeaningof theBankHoldingCompanyActof 1956(“BHCAct”),1has requestedtheBoard’sapprovalundersection3of theBHCAct2toacquireFirstMariner Bank(“FMBank”),Baltimore,Maryland.FMBankwouldbemergedintoHoward’s subsidiarybank,HowardBank,EllicottCity,Maryland.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(82FederalRegister48081(October16,2017)).4Thetimeforsubmittingcommentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct. Howard,withconsolidatedassetsof approximately$1.1billion,isthe655thlargestinsured depositoryorganizationintheUnitedStates.Howardcontrolsapproximately $870.1millioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.5Howard controlsHowardBank,whichoperatesonlyinMaryland.6Howardisthe18thlargest insureddepositoryorganizationinMaryland,controllingdepositsof approximately $810.6million,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.7 FMBank,withassetsof approximately$975.2million,operatesonlyinMaryland.FM Bankisthe19thlargestinsureddepositoryorganizationinMaryland,controllingdeposits 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 ThemergerofFMBankintoHowardBankissubjecttoapprovalbytheFederalDepositInsuranceCorporation (“FDIC”),pursuanttosection18(c)oftheFederalDepositInsuranceAct.12U.S.C.§1828(c).TheFDICapproved thebankmergeronJanuary31,2018. 4 12CFR262.3(b). 5 NationalassetanddepositdataareasofJune30,2017,unlessotherwisenoted. 6 Theproposaldoesnotraiseinterstateissuesundersection3(d)oftheBHCActbecauseMarylandisthehomestateof Howard,andFMBankislocatedonlyinMaryland.See12U.S.C.§1842(d). 7 StatedepositdataareasofJune30,2016.Inthiscontext,insureddepositoryinstitutionsincludecommercialbanks, savingsassociations,andsavingsbanks.

2 FederalReserveBulletin|May2018 of approximately$770.0million,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. Onconsummationof theproposal,Howardwouldbecomethe384thlargestdepository organizationintheUnitedStates,withconsolidatedassetsof approximately$2.1billion, whichrepresentlessthan1percentof thetotalassetsof insureddepositoryorganizations intheUnitedStates.Howardwouldcontrolconsolidateddepositsof approximately $1.6billion,whichrepresentlessthan1percentof thetotalamountof depositsof insured depositoryinstitutionsintheUnitedStates.InMaryland,Howardwouldbecomethe 12thlargestdepositoryorganization,controllingdepositsof approximately$1.6billion, whichrepresent1.2percentof thetotaldepositsof insureddepositoryinstitutionsinthat state. CompetitiveConsiderations Section3of theBHCActprohibitstheBoardfromapprovingaproposalthatwouldresult inamonopolyorwouldbeinfurtheranceof anattempttomonopolizethebusinessof bankinginanyrelevantmarket.8TheBHCActalsoprohibitstheBoardfromapprovinga proposalthatwouldsubstantiallylessencompetitionortendtocreateamonopolyinany bankingmarket,unlesstheanticompetitiveeffectsof theproposalareclearlyoutweighedin thepublicinterestbytheprobableeffectof theproposalinmeetingtheconvenienceand needsof thecommunitytobeserved.9 HowardBankandFMBankcompetedirectlyintheAnnapolis,Maryland,banking market(“Annapolismarket”)andtheBaltimore,Maryland,bankingmarket(“Baltimore market”).10TheBoardhasconsideredthecompetitiveeffectsof theproposalinthese bankingmarkets.Inparticular,theBoardhasconsideredthenumberof competitorsthat wouldremainineachmarket;therelativeshareof totaldepositsininsureddepository institutionsineachmarket(“marketdeposits”)thatHowardwouldcontrol;11theconcentrationlevelsof marketdepositsandtheincreaseintheselevels,asmeasuredbythe Herfindahl-HirschmanIndex(“HHI”)undertheDepartmentof JusticeBankMerger CompetitiveReviewguidelines(“DOJBankMergerGuidelines”);12andothercharacteristicsof themarket. Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesintheAnnapolisandBaltimoremarkets. 8 12U.S.C.§1842(c)(1). 9 12U.S.C.§1842(c)(1)(B). 10 TheAnnapolismarketisdefinedasAnneArundelCounty(excludingDistrict7)andQueenAnne’sCounty, bothofMaryland.TheBaltimoremarketisdefinedasBaltimoreCityandBaltimore,Carroll,Harford,and Howardcounties(excludingtheClarksvilleandSavagedistricts),allofMaryland. 11 LocaldepositandmarketsharedataareasofJune30,2016,andarebasedoncalculationsinwhichthe depositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhasindicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorstocommercialbanks.See,e.g., MidwestFinancialGroup,75FederalReserveBulletin386(1989);NationalCityCorporation,70FederalReserve Bulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsinthemarketsharecalculationona 50percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserveBulletin52(1991). 12 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableatwww.justice.gov/opa/pr/ 2010/August/10-at-938.html.

LegalDevelopments:FirstQuarter,2018 3 Onconsummationof theproposal,theAnnapolisandBaltimoremarketswouldeach remainmoderatelyconcentratedasmeasuredbytheHHI,accordingtotheDOJBank MergerGuidelines.ThechangeintheHHIinthesemarketswouldbesmall,andnumerous competitorswouldremainineachbankingmarket.13 TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket.Inaddition,the appropriatebankingagencieshavebeenaffordedanopportunitytocommentandhavenot objectedtotheproposal. Basedonallof thefactsof record,theBoardconcludesthatconsummationof the proposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheAnnapolisorBaltimoremarkets,orinanyotherrelevantbanking market.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistent withapproval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCAct,theBoardconsidersthefinancial andmanagerialresourcesandthefutureprospectsof theinstitutionsinvolved.14Inits evaluationof financialfactors,theBoardreviewsinformationregardingthefinancial conditionof theorganizationsinvolvedonbothparent-onlyandconsolidatedbases,as wellasinformationregardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.Inthisevaluation,the Boardconsidersavarietyof informationregardingcapitaladequacy,assetquality, liquidity,andearningsperformance,aswellaspubliccommentsontheproposal.The Boardevaluatesthefinancialconditionof thecombinedorganization,includingitscapital position,assetquality,liquidity,earningsprospects,andtheimpactof theproposed fundingof thetransaction.TheBoardalsoconsiderstheabilityof theorganizationto absorbthecostsof theproposalandtocompleteeffectivelytheproposedintegrationof the operationsof theinstitutions.Inassessingfinancialfactors,theBoardconsiderscapital adequacytobeespeciallyimportant.TheBoardconsidersthefutureprospectsof theorganizationsinvolvedintheproposalinlightof theirfinancialandmanagerialresourcesand theproposedbusinessplan. HowardandFMBankarebothwellcapitalized,andthecombinedorganizationwould remainsoonconsummationof theproposedtransaction.Theproposedtransactionis structuredprimarilyasanexchangeof shares,withasubsequentmergerof depository 13 Howardoperatesthe25thlargestdepositoryinstitutionintheAnnapolismarket,controllingapproximately $26.3millionindeposits,whichrepresent0.24percentofmarketdeposits.FMBankisthe17thlargestdepositoryinstitutioninthesamemarket,controllingdepositsofapproximately$91.2million,whichrepresent approximately0.82percentofmarketdeposits.Onconsummationoftheproposedtransaction,Howardwould becomethe15thlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately $117.5million,whichrepresentapproximately1.05percentofmarketdeposits.TheHHIfortheAnnapolis marketwouldincreaseby1pointto1110,and30bankingorganizationswouldremaininthemarket. Howardoperatesthe8thlargestdepositoryinstitutionintheBaltimoremarket,controllingapproximately $657.3millionindeposits,whichrepresent1.25percentofmarketdeposits.FMBankisthe7thlargestdepositoryinstitutioninthesamemarket,controllingdepositsofapproximately$678.8million,whichrepresent approximately1.29percentofmarketdeposits.Onconsummationoftheproposedtransaction,Howardwould becomethe7thlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately $1.34billion,whichrepresentapproximately2.54percentofmarketdeposits.TheHHIfortheBaltimore marketwouldincreaseby3pointsto1789,and43bankingorganizationswouldremaininthemarket. 14 12U.S.C.§1842(c)(2),(5),and(6).

4 FederalReserveBulletin|May2018 institutions.15Theassetquality,earnings,andliquidityof HowardBankandFMBankare consistentwithapproval,andHowardappearstohaveadequateresourcestoabsorbthe relatedcostsof theproposalandtocompleteintegrationof theinstitutions’operations.In addition,thefutureprospectsof theinstitutionsundertheproposalareconsidered consistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of Howard,HowardBank,andFMBank,includingassessmentsof theirmanagement, riskmanagementsystems,andoperations.Inaddition,theBoardhasconsideredinformationprovidedbyHoward;theBoard’ssupervisoryexperiencesandthoseof otherrelevant banksupervisoryagencieswiththeorganizations;theorganizations’recordsof compliance withapplicablebanking,consumerprotection,andanti-money-launderinglaws;and informationprovidedbythecommenter. Howard,HowardBank,andFMBankareeachconsideredtobewellmanaged.Thedirectorsandseniorexecutiveofficersof Howardhaveknowledgeof andexperienceinthe bankingandfinancialservicessectors,andHoward’srisk-managementprogramappears consistentwithapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredHoward’splansforimplementingtheproposal.Howardhas conductedcomprehensiveduediligenceandisdevotingsignificantfinancialandother resourcestoaddressallaspectsof thepost-integrationprocessforthisproposal.Howard wouldimplementitsrisk-managementpolicies,procedures,andcontrolsatthecombined organizationandmayaugmentthesepolicies,procedures,andcontrolsbasedontheneeds of thecombinedorganization.Howard’srisk-managementpolicies,procedures,and controlsareconsideredacceptablefromasupervisoryperspective.Inaddition,Howard’s managementhastheexperienceandresourcestooperatethecombinedorganizationina safeandsoundmanner,andHowardplanstointegrateFMBank’sexistingmanagement andpersonnelinamannerthataugmentsHoward’smanagement.16 Basedonallthefactsof record,includingHoward’ssupervisoryrecord,managerialand operationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandfutureprospectsof theorganizationsinvolvedintheproposal,aswellasthe recordsof effectivenessof HowardandFMBankincombatingmoney-launderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCAct,theBoardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.17Initsevaluationof theeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thesecommunities,aswellasotherpotentialeffectsof theproposalonthe 15 Toeffectthetransaction,eachshareofFMBankcommonandSeriesApreferredstockwouldbeconverted intoarighttoreceiveHowardcommonstock,basedonanexchangeratio.Certainwarrantsandoptions grantedbyFMBankwouldbecancelledandconvertedintotherighttoreceiveacashamount.Howardhas thefinancialresourcestoeffecttheproposedtransaction. 16 Followingconsummationoftheproposedtransaction,Howard’sboardofdirectorswillconsistoffourteen directors,includingeightofthethirteenmembersnowonHoward’sboardandsixmemberschosenbyFM BankfromFMBank’scurrentboard. 17 12U.S.C.§1842(c)(2).

LegalDevelopments:FirstQuarter,2018 5 convenienceandneedsof thecommunitiestobeserved.Inthisevaluation,theBoard placesparticularemphasisontherecordsof therelevantdepositoryinstitutionsunderthe CommunityReinvestmentAct(“CRA”).18TheCRArequiresthefederalfinancialsupervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeirsafeandsoundoperation,19andrequirestheappropriatefederalfinancialsupervisoryagencytoassessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof itsentirecommunity, includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.20 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,thesupervisoryviewsof examiners,othersupervisoryinformation,informationprovidedbytheapplicant,andcommentsreceivedontheproposal.TheBoardalsomayconsidertheinstitution’sbusinessmodel,itsmarketingandoutreachplans,theorganization’splansafter consummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof Howard BankandFMBank,thefairlendingandcompliancerecordsof bothbanks,thesupervisoryviewsof theFDIC,confidentialsupervisoryinformation,informationprovidedby Howard,andthepubliccommentreceivedontheproposal. PublicCommentontheProposal Inthiscase,acommenterobjectedtotheproposalonthebasisof thefairlendingand CRAperformancesof HowardBankandFMBank.Specifically,thecommenteralleged thatthebankshaveapoorrecordof lendingandinvestinginAfricanAmericanandother minoritycommunitiesinBaltimoreandMaryland.Thecommenterrequestedthatapproval of theproposalbeconditionedonHoward(i)meetingwithmembersof theAfrican AmericancommunityinBaltimoretodeterminehowHowardcanbettermeetthecommunity’scapitalneedsand(ii)adoptingaforward-lookingCRAplanthatincludescommitmentstoincreaselendingtominoritiesinBaltimore,investinAfricanAmericancommunitiesinBaltimore,andincreasethenumberof branchesinAfricanAmericancommunities inBaltimore.21 Businessesof theInvolvedInstitutionsandResponsetothePublicComment HowardBankprovidesabroadrangeof financialproductsandservicestoconsumersand businesses,withanemphasisonservinglocalmarketsandsmall-andmedium-sizedbusinesses.Throughitsnetworkof branchesinMaryland,HowardBankoffersavarietyof 18 12U.S.C.§2901etseq. 19 12U.S.C.§2901(b). 20 12U.S.C.§2903. 21 TheBoardhasconsistentlyfoundthatneithertheCRAnorthefederalbankingagencies’CRAregulations requiredepositoryinstitutionstomakepledgesorenterintocommitmentsoragreementswithanyorganizations.See,e.g.,UnitedBancshares,Inc.,FRBOrderNo.2017-10at12fn.28(April6,2017);Huntington BancsharesInc.,FRBOrderNo.2016-13at32fn.50(July29,2016);CITGroup,Inc.,FRBOrderNo.2015-20 at24fn.54(July19,2015);CitigroupInc.,88FederalReserveBulletin485(2002);FifthThirdBancorp, 80FederalReserveBulletin838,841(1994).Initsevaluation,theBoardreviewstheexistingCRAperformance recordofanapplicantandtheprogramsthattheapplicanthasinplacetoservethecreditneedsofitsCRA AssessmentAreas.

6 FederalReserveBulletin|May2018 productsandservices,includingchecking,savings,moneymarket,andcertificateof depositaccounts;commercial,residential,andconsumerloans;businesscheckingand savingsaccounts;andcreditcardandmerchantcardservices. FMBankoffersarangeof retailandcommercialbankingproductsandservicesthrough itsbranchesinMaryland.Itsproductsandservicesincludechecking,savings,money market,andcertificateof depositaccounts;avarietyof businessaccounts;merchantcard services;andtreasurymanagement. Howarddisputesthecommenter’sallegationsandassertsthatapprovalof theproposed transactioniswarrantedbasedonthebanks’CRAperformanceevaluations,Howard Bank’srecentlendingactivitiesinBaltimore,andHowardBank’sinvolvementinother collectiveeffortstoaddressfinancialconditionsinBaltimore.HowardassertsthatHoward BankandFMBankhaveconsistentlymettherequirementsof theCRAandthatHoward Bankiscommittedtocontinuingtomeetthegoalsof theCRAafterconsummationof the transaction.Howardnotesthataspartof HowardBank’sandFMBank’sCRAperformanceevaluations,FDICexaminersfoundthatthebanks’activitiestomeetthecredit needsof LMIcommunitiesweresatisfactory. HowardrepresentsthatHowardBankiscurrentlyengagedinseveralCRA-relatedactivitiesthathavebeenrecognizedinitsmostrecentCRAperformanceevaluationandparticipatesinmeetingswithgovernmentofficials,otherfinancialinstitutions,andcommunity groupstodiscusscreditandinvestmentneedsinBaltimore.Howardalsorepresentsthat HowardBankhasbeenanactivehomemortgageandsmallbusinesslenderinBaltimore City. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardconsiders substantialinformationinadditiontoinformationprovidedbypubliccommentersandthe responsetocommentsbytheapplicant.Inparticular,theBoardevaluatesaninstitution’s performancerecordinlightof examinationsbytheappropriatefederalsupervisorsof the CRAperformancerecordsof therelevantinstitutions,aswellasinformationandviews providedbytheappropriatefederalsupervisors.22Inthiscase,theBoardconsideredthe supervisoryviewsof theFDIC. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.23Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplylending,investment,andserviceteststo evaluatetheperformanceof alargeinsureddepositoryinstitutioninhelpingtomeetthe creditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’slendingtodeterminewhethertheinstitutionishelpingtomeetthecreditneedsof individualsandgeographiesof allincomelevels.Aspartof thelendingtest,examiners reviewandanalyzeaninstitution’sdatareportedundertheHomeMortgageDisclosure 22 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48506, 48548(July25,2016). 23 12U.S.C.§2906.

LegalDevelopments:FirstQuarter,2018 7 Act,24inadditiontosmallbusiness,smallfarm,andcommunitydevelopmentloandata collectedandreportedundertheCRAregulations,toassessaninstitution’slendingactivitieswithrespecttoborrowersandgeographiesof differentincomelevels.Theinstitution’s lendingperformanceisbasedonavarietyof factors,including(1)thenumberand amountsof homemortgage,smallbusiness,smallfarm,andconsumerloans(asapplicable) intheinstitution’sCRAAssessmentAreas(“AAs”);(2)thegeographicdistributionof the institution’slending,includingtheproportionanddispersionof theinstitution’slendingin itsAAsandthenumberandamountsof loansinlow-,moderate-,middle-,andupperincomegeographies;(3)thedistributionof loansbasedonborrowercharacteristics, including,forhomemortgageloans,thenumberandamountsof loanstolow-,moderate-, middle-,andupper-incomeindividuals;25(4)theinstitution’scommunitydevelopment lending,includingthenumberandamountsof communitydevelopmentloansandtheir complexityandinnovativeness;and(5)theinstitution’suseof innovativeorflexiblelending practicestoaddressthecreditneedsof LMIindividualsandgeographies.26Largeinstitutionsarealsosubjecttoaninvestmenttest,whichevaluatesthenumberandamountsof qualifiedinvestmentsthatbenefittheirAAs,andaservicetest,whichevaluatestheavailabilityandeffectivenessof theirsystemsfordeliveringretailbankingservicesandthe extentandinnovativenessof theircommunitydevelopmentservices.27Intermediatesmall banksaresubjecttothelendingtest,aswellasacommunitydevelopmenttestthatevaluatesthenumberandamountsof theircommunitydevelopmentloansandqualifiedinvestments,theextenttowhichtheyprovidecommunitydevelopmentservices,andtheirresponsivenesstocommunitydevelopmentlending,investment,andserviceneeds.28 CRAPerformanceof HowardBank HowardBankwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheFDIC,asof November2,2015(“HowardBankEvaluation”).29Thebankreceived“Satisfactory”ratingsfortheLendingTestandtheCommunity DevelopmentTest.30 Examinersfoundthatthebankmadeamajorityof itshomemortgageloansandsmall businessloansinitsthreeAAs.Examinersdeterminedthatthebank’sborrowerprofile revealedreasonablepenetrationamongborrowersof differentincomelevelsandbusinesses of differentsizes.Examinersfurtherfoundthatthegeographicdistributionof thebank’s loansreflectedreasonabledispersionthroughoutitsAAs.Examinersnotedthatthebank’s loan-to-depositratiowasmorethanreasonablegivenitssize,financialcondition,andits AAs’creditneeds.ExaminersfoundthatHowardBank’soverallperformanceunderthe CommunityDevelopmentTestdemonstratedadequateresponsivenesstothecommunity 24 12U.S.C.§2801etseq. 25 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3). 26 See12CFR228.22(b). 27 See12CFR228.21etseq. 28 See12CFR228.26(c). 29 TheHowardBankEvaluationwasconductedusingIntermediateSmallBankCRAExaminationProcedures, consistingofthelendingtestandthecommunitydevelopmenttest.TheHowardBankEvaluationreviewed residentialmortgageloansfromJanuary1,2013,throughSeptember30,2015;smallbusinessloansfrom January1,2013,throughNovember2,2015;andcommunitydevelopmentactivitiesfromApril19,2012,to November2,2015. 30 TheHowardBankEvaluationreviewedthebank’sactivitiesintheBaltimore-Columbia-Towson,Maryland, MetropolitanStatisticalArea(“MSA”);thePhiladelphia-Camden-Wilmington,Pennsylvania-NewJersey- Delaware-Maryland,MSA;andtheLancaster,Pennsylvania,MSA.AtthetimeoftheHowardBankEvaluation,HowardBankmaintainedabranchinPennsylvania,whichithassinceclosed.

8 FederalReserveBulletin|May2018 developmentneedsof itsAAs,consideringthecapacityandavailabilityof opportunities forcommunitydevelopmentintheAAs. IntheBaltimore-Columbia-Towson,MarylandMSA(the“BaltimoreMSA”),which includestheareaof concerntothecommenter,examinersfoundthatthegeographicdistributionof HowardBank’sloansreflectedareasonabledistributionthroughouttheAA. Examinersfoundthat,during2014and2015,HowardBanksubstantiallyincreasedits homemortgagelendingvolumeintheBaltimoreMSAandsubstantiallyincreased thepercentageof itshomemortgageloansinLMIcensustractsintheBaltimoreMSA, whichreflectedapositivetrend.ExaminersalsodeterminedthatHowardBank’ssmall businesslendingintheBaltimoreMSAreflectedreasonablegeographicdistribution throughouttheAA.Examinersfoundthatthedistributionof HowardBank’sborrowers withintheBaltimoreMSAreflectedreasonablepenetrationamongindividualsof different incomelevelsandbusinessesof differentsizes.ExaminersdeterminedthatHowardBank demonstratedadequateresponsivenesstothecommunitydevelopmentneedsof itsAAin theBaltimoreMSAthroughcommunitydevelopmentloans,qualifiedinvestments,and communitydevelopmentservices. HowardBank’sEffortssincetheHowardBankEvaluation Howardrepresentsthat,sincetheHowardBankEvaluation,HowardBankhascontinued, andinsomecasesexpanded,itsmortgageandsmallbusinesslending,communitydevelopmentinvestments,andservicesinBaltimoreinwaysthatconfirmthebank’scommitmenttothegoalsof theCRA.Specifically,HowardrepresentsthatHowardBankhas madeasubstantialnumberandamountof mortgageandsmallbusinessloansinBaltimore City,includingloanstominorityandLMIborrowers.Howardfurtherrepresentsthat HowardBankhasusedinnovativeandflexibleloanprogramstoaddresstheneedsof LMI borrowersinitscommunity.Inaddition,HowardrepresentsthatHowardBankhasparticipatedinstateandlocalprogramsthataredesignedtoenhancemortgagelendingtoLMI borrowers.HowardalsorepresentsthatHowardBankhasbeenactiveincommunitydevelopmentlendingandhasmadesignificantinvestmentsinLMIcommunitiesintheBaltimorearea. CRAPerformanceof FMBank FMBankreceivedanoverallratingof “Satisfactory”atitsmostrecentCRAperformance evaluationbytheFDIC,asof June27,2015(“FMBankEvaluation”).31Thebankreceived a“LowSatisfactory”ratingfortheLendingTest,a“HighSatisfactory”ratingforthe InvestmentTest,andan“Outstanding”ratingfortheServiceTest.32 ExaminersconcludedthatFMBank’slendingactivityreflectedgoodresponsivenesstothe creditneedsof itsAA.Althoughexaminersnotedthatthebank’slevelof homemortgage lendingtolow-incomeborrowerswasnotcommensuratewiththepercentageof low-incomefamiliesinitsAA,examinersconcludedthatthebank’sborrowerprofile reflectedgoodpenetrationamongborrowersof differentincomelevels(includingLMI 31 AlthoughFMBankisclassifiedasanIntermediateSmallBank,theFMBankEvaluationwasconductedusing LargeBankExaminationProceduresattherequestofFMBank’smanagement.Examinersreviewedhome mortgageandsmallbusinessloansfromJanuary1,2013,throughMarch31,2015.Theevaluationperiodfor communitydevelopmentloans,investments,andserviceswasfromNovember2,2012,throughJuly27,2015. 32 TheFMBankEvaluationincludedafull-scopeevaluationofoneAAthatincludestheBaltimore-Columbia- Towson,Maryland,MSA;theWashington-Arlington-Alexandria,DistrictofColumbia-Virginia-Maryland- WestVirginia,MSA;andtheCalifornia-LexingtonPark,Maryland,MSA.Thebank’sentireAAiswithinthe Washington-Baltimore-Arlington,DistrictofColumbia-Maryland-Virginia-WestVirginia-Pennsylvania, CombinedStatisticalArea.

LegalDevelopments:FirstQuarter,2018 9 borrowers).Examinersnotedthatthebank’shomemortgagelendingperformanceinLMI geographiesfelljustbelowtheaggregate’sperformanceinLMIgeographiesinitsAA. However,examinersfoundthatmarketsharedataandFMBank’slendingperformancein LMIgeographies,whencomparedtothebank’speers,supportedtheconclusionthatthe geographicdistributionof thebank’shomemortgagelendingwasadequate.Withrespect tobusinesslending,examinersfoundthatthebank’slendingtobusinessesof differentsizes reflectedgoodpenetrationandthatthebank’sperformancewithrespecttosmallbusiness lendinginLMIgeographieswasexcellent.Examinersalsodeterminedthatthebank madeanadequatelevelof communitydevelopmentloans,includinginBaltimoreCounty andBaltimoreCity,Maryland,bothareasof concerntothecommenter.Examinersfound thatthebankmadeextensiveuseof innovativeandflexibleloanproductsinorderto servethecreditneedsof theAAandhighlightedthebank’suseof innovativeandflexible loanprogramsinBaltimoreCountyandBaltimoreCity,Maryland. Examinersfoundthatthebankmadeandmaintainedasignificantlevelof qualified communitydevelopmentinvestmentsanddonations.Thebank’squalifiedinvestmentswere foundtoexhibitgoodresponsivenesstocreditandcommunityeconomicdevelopment needs,mostof whichsupportdevelopmentof affordablehousing. ExaminersconcludedthatFMBank’sretaildeliverysystemswereaccessibletoessentially allportionsof itsAA,includingLMIgeographies,andthatservicesdidnotvaryinaway thatinconveniencedportionsof itsAA.Moreover,examinersfoundthebanktobealeader inprovidingcommunitydevelopmentservicesthroughoutitsAA. FMBank’sEffortssincetheFMBankEvaluation HowardrepresentsthatsincetheFMBankEvaluation,FMBankhascontinued,andin somecasesexpanded,itsmortgageandsmallbusinesslending,communitydevelopment investments,andservicesinBaltimore,includingwithrespecttominorityandLMI borrowersandgeographies.HowardfurtherrepresentsthatFMBankhasusedinnovative andflexibleprogramstoenhanceitslendingtoLMIborrowers.Howardrepresentsthat FMBankhasbeenactiveincommunitydevelopmentlendingandhasmadesignificant investmentsinLMIcommunitiesintheBaltimorearea. Viewsof theFDIC Initsreviewof theproposal,theBoardconsultedwiththeFDICregardingHoward Bank’sandFMBank’sCRA,consumercompliance,andfairlendingrecords.TheFDIC reviewedthebankmergerunderlyingthisproposaland,insodoing,consideredthe commentreceivedbytheBoard.TheBoardhasconsideredtheresultsof theFDIC’smost recentconsumercomplianceexaminationsof HowardBankandFMBank,whichincluded evaluationsof thebanks’compliancemanagementsystemsandthebanks’compliancewith consumerprotectionlaws,includingfairlendinglawsandregulations.Examinersalso conductedtransactiontestingandfairlendingreviewsforbothbanks. TheBoardhastakentheconsultationswiththeFDICandtheinformationdiscussedabove intoaccountinevaluatingtheproposal,includinginconsideringwhetherHowardhasthe experienceandresourcestoensurethattheorganizationeffectivelyimplementspoliciesand programsthatwouldallowthecombinedorganizationtoserveeffectivelythecreditneeds of thecommunitieswithinitsAAs.

10 FederalReserveBulletin|May2018 AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.Howardrepresentsthat,followingconsummation of theproposal,existingcustomersof HowardBankandFMBankwouldbenefitfroman expandedbranchandATMnetworkandabroaderrangeof financialproductsand services.Howardrepresentsthatexistingcustomersof FMBankalsowouldbenefitfrom issuanceof anewdebitcardthatismorefraudpreventativethanthecurrentFMBank debitcardandbygainingaccesstomobilebankingforbusinessservicesandtoSmallBusinessAdministrationloanproducts. HowardrepresentsthatHowardBankwouldnotdiscontinueanymaterialproductsor servicescurrentlyprovidedbyFMBank.Further,HowardrepresentsthatHowardBank intendstocontinueallof FMBank’sCRA-relatedactivities,althoughsomeactivities wouldbeintegratedintoHowardBank’sexistingprogram.Inaddition,Howardrepresents thatHowardBankintendstocontinuetoparticipateinaleadershiproleinFMBank’s currentcommunityinitiativesinthemetropolitanBaltimorearea. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws,supervisoryviewsof theFDIC,confidential supervisoryinformation,informationprovidedbyHoward,thepubliccommentonthe proposal,andotherpotentialeffectsof theproposalontheconvenienceandneedsof the communitiestobeserved.Basedonthatreview,theBoardconcludesthattheconvenience andneedsfactorisconsistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedsection3of theBHCActtorequiretheBoardtoconsider“theextenttowhicha proposedacquisition,merger,orconsolidationwouldresultingreaterormoreconcentratedriskstothestabilityof theUnitedStatesbankingorfinancialsystem.”33 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the resultingfirm.34Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe 33 Dodd-FrankAct§604(d),Pub.L.No.111-203,124Stat.1376,1601(2010),codifiedat12U.S.C.§1842(c)(7). 34 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem.

LegalDevelopments:FirstQuarter,2018 11 resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.35 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.36 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.Both theacquirerandthetargetarepredominantlyengagedinavarietyof consumerand commercialbankingactivities.37Theproformaorganizationwouldhaveminimalcrossborderactivitiesandwouldnotexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.Inaddition,theorganizationwouldnotbeacriticalservicesprovideror sointerconnectedwithotherfirmsorthemarketsthatitwouldposeasignificantriskto thefinancialsystemintheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationshouldbe,andherebyis,approved.Inreachingitsconclusion,theBoardhasconsideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunderthe BHCActandotherapplicablestatutes.TheBoard’sapprovalisspecificallyconditionedon compliancebyHowardwithalltheconditionsimposedinthisorder,includingreceiptof allrequiredregulatoryapprovals,andonthecommitmentsmadetotheBoardinconnectionwiththeproposal.Forpurposesof thisaction,theconditionsandcommitmentsare deemedtobeconditionsimposedinwritingbytheBoardinconnectionwithitsfindings anddecisionhereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardortheFederalReserveBankof Richmond,actingunder delegatedauthority. Byorderof theBoardof Governors,effectiveFebruary12,2018. 35 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder 2012-2(February14,2012). 36 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 37 HowardandFMBankofferarangeofretailandcommercialbankingproductsandservices.Howardhas,and asaresultoftheproposalwouldcontinuetohave,asmallmarketshareintheseproductsandservicesona nationwidebasis.

12 FederalReserveBulletin|May2018 Votingforthisaction:ChairmanPowell,ViceChairmanforSupervisionQuarles,and GovernorBrainard MargaretMcCloskeyShanks DeputySecretaryof theBoard

LegalDevelopments:FirstQuarter,2018 13 First Financial Bancorp Cincinnati, Ohio First Financial Bank Cincinnati, Ohio OrderApprovingtheMergerof BankHoldingCompanies,theMergerof Banks,andthe Establishmentof Branches,andDeterminationonaFinancialHoldingCompanyElection FRBOrderNo.2018-07(February22,2018) FirstFinancialBancorp(“FirstFinancial”),Cincinnati,Ohio,abankholdingcompany withinthemeaningof theBankHoldingCompanyActof 1956(“BHCAct”),1has requestedtheBoard’sapprovalundersection3of theBHCAct2tomergewith MainSourceFinancialGroup,Inc.(“MainSource”),andtherebyindirectlyacquire MainSourceBank,bothof Greensburg,Indiana. Inaddition,FirstFinancial’ssubsidiarystatememberbank,FirstFinancialBank,Cincinnati,Ohio,hasrequestedtheBoard’sapprovalundersection18(c)of theFederalDeposit InsuranceAct(“BankMergerAct”)tomergewithMainSourceBank,withFirstFinancial Bankasthesurvivingentity.3FirstFinancialBankalsohasappliedundersection9of the FederalReserveAct(“FRA”)toestablishandoperatebranchesatthemainofficeand branchesof MainSourceBank.4 Inconnectionwiththisproposal,FirstFinancialalsohasfiledwiththeBoardanelection tobecomeafinancialholdingcompanypursuanttosections4(k)and(l)of theBHCAct andsection225.82of theBoard’sRegulationY.5 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(82FederalRegister195(October11,2017)).6Thetimeforsubmitting commentshasexpired,andnocommentswerereceived.TheBoardhasconsideredthe proposalinlightof thefactorssetforthinsection3of theBHCAct,theBankMergerAct, andtheFRA.AsrequiredbytheBankMergerAct,areportonthecompetitiveeffectsof themergerof FirstFinancialBankandMainSourceBankwasrequestedfromtheUnited StatesAttorneyGeneral,andacopyof therequesthasbeenprovidedtotheFederal DepositInsuranceCorporation. FirstFinancial,withconsolidatedassetsof approximately$8.8billion,isthe149thlargest insureddepositoryorganizationintheUnitedStates.FirstFinancialcontrolsapproximately$6.7billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.7FirstFinancialcontrolsFirstFinancialBank,whichoperatesinIndiana,Kentucky,andOhio.First Financialisthe14thlargestinsureddepositoryorganizationinIndiana,controlling depositsof approximately$2.8billion,whichrepresent2.2percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.FirstFinancialisthe71stlargestinsured depositoryorganizationinKentucky,controllingdepositsof approximately$187.7million, 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 12U.S.C.§1828(c). 4 12U.S.C.§321.TheselocationsarelistedinAppendixA. 5 12U.S.C.§1843(k)and(l);12CFR225.82. 6 12CFR262.3(b). 7 NationwideassetanddepositdataareasofSeptember30,2017,unlessotherwisenoted.

14 FederalReserveBulletin|May2018 whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutions inthatstate.8FirstFinancialisthe11thlargestinsureddepositoryorganizationinOhio, controllingdepositsof approximately$3.6billion,whichrepresent1.1percentof thetotal depositsof insureddepositoryinstitutionsinthatstate. MainSource,withconsolidatedassetsof approximately$4.6billion,isthe218thlargest insureddepositoryorganizationintheUnitedStates.MainSourcecontrolsapproximately $3.4billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.MainSource controlsMainSourceBank,whichoperatesinIllinois,Indiana,Kentucky,andOhio. MainSourceisthe233rdlargestinsureddepositoryorganizationinIllinois,controlling depositsof approximately$146.7million,whichrepresentlessthan1percentof thetotal depositsof insureddepositoryinstitutionsinthatstate.MainSourceisthe17thlargest insureddepositoryorganizationinIndiana,controllingdepositsof approximately $2.3billion,whichrepresent1.8percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.MainSourceisthe31stlargestinsureddepositoryorganizationin Kentucky,controllingdepositsof approximately$486.6million,whichrepresentlessthan 1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.MainSource isthe41stlargestinsureddepositoryorganizationinOhio,controllingdepositsof approximately$613.7million,whichrepresentlessthan1percentof thetotaldepositsof insured depositoryinstitutionsinthatstate. Onconsummationof theproposal,FirstFinancialwouldhaveconsolidatedassetsof approximately$13.8billion,whichrepresentlessthan1percentof thetotalassetsof insureddepositoryorganizationsintheUnitedStates.9FirstFinancialwouldcontroltotal depositsof approximately$10.1billion,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.InIllinois,First Financialwouldbecomethe233rdlargestinsureddepositoryorganization,controlling depositsof approximately$146.7million,whichrepresentlessthan1percentof thetotal depositsof insureddepositoryinstitutionsinthatstate.InIndiana,FirstFinancialwould becomethe6thlargestinsureddepositoryorganization,controllingdepositsof approximately$5.1billion,whichrepresent4.1percentof thetotaldepositsof insureddepository institutionsinthatstate.InKentucky,FirstFinancialwouldbecomethe24thlargest insureddepositoryorganization,controllingdepositsof approximately$674.4million, whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutions inthatstate.InOhio,FirstFinancialwouldremainthe11thlargestinsureddepository organization,controllingdepositsof approximately$4.2billion,whichrepresentapproximately1.2percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. InterstateandDepositCapAnalysis Section3(d)of theBHCActgenerallyprovidesthat,if certainconditionsaremet,the Boardmayapproveanapplicationbyabankholdingcompanytoacquirecontrolof a banklocatedinastateotherthanthehomestateof thebankholdingcompany,without regardtowhetherthetransactionisprohibitedunderstatelaw.10Section44of theFederal DepositInsuranceAct(“FDIAct”)generallyprovidesthat,if certainconditionsaremet, theBoardmayapproveamergertransactionundertheBankMergerActbetweeninsured bankswithdifferenthomestateswithoutregardtowhetherthetransactionisprohibited 8 StatedepositdataareasofJune30,2017,unlessotherwisenoted. 9 Excludingpurchaseaccountingadjustments,FirstFinancialwouldbecomethe109thlargestinsureddepository institutionintheUnitedStates,withconsolidatedassetsofapproximately$13.4billion. 10 12U.S.C.§1842(d)(1)(A).

LegalDevelopments:FirstQuarter,2018 15 understatelaw.11TheBoardmaynotapproveanapplicationthatwouldpermitanout-ofstatebankholdingcompanyorbanktoacquireabankinahoststateif thebankhasnot beeninexistenceforthelesserof thestatestatutoryminimumperiodof timeorfive years.12Inaddition,undersection3(d)of theBHCAct,theBoardmaynotapprovean interstateapplicationif thebankholdingcompanycontrolsor,uponconsummationof the proposedtransaction,wouldcontrolmorethan10percentof thetotaldepositsof insured depositoryinstitutionsintheUnitedStatesor,incertaincircumstances,if thebankholding company,uponconsummation,wouldcontrol30percentormoreof thetotaldepositsof insureddepositoryinstitutionsinanystateinwhichtheacquirerandtargethaveoverlappingbankingoperations.13 Forpurposesof theBHCAct,thehomestateof FirstFinancialisOhio,andMainSource BankislocatedinIllinois,Indiana,Kentucky,andOhio.14Forpurposesof section44of theFDIAct,thehomestateof FirstFinancialBankisOhio,andthehomestateof MainSourceBankisIndiana.FirstFinancialandFirstFinancialBankarewellcapitalized andwellmanagedunderapplicablelaw,andFirstFinancialBankhasa“Satisfactory” ratingundertheCommunityReinvestmentActof 1977(“CRA”).15NeitherIndiananor Kentuckyhasstatutoryminimumagerequirements,16andMainSourceBankhasbeenin existenceformorethanfiveyears. Onconsummationof theproposedtransaction,FirstFinancialwouldcontrollessthan 1percentof thetotalamountof consolidateddepositsininsureddepositoryinstitutionsin theUnitedStates.Kentuckyimposesa15percentlimitonthetotalamountof in-state depositsthatasinglebankingorganizationmaycontrol.17Ohioimposesa30percentlimit onthetotalamountof in-statedepositsthatasinglebankingorganizationmaycontrol.18 Thecombinedorganizationwouldcontrolapproximately4.1percentof thetotalamount of depositsof insureddepositoryinstitutionsinIndiana,approximately0.9percentof the totalamountof depositsof insureddepositoryinstitutionsinKentucky,andapproximately 1.2percentof thetotalamountof depositsof insureddepositoryinstitutionsinOhio,the onlystatesinwhichFirstFinancialandMainSourcehaveoverlappingbankingoperations. TheBoardhasconsideredallotherrequirementsof section3(d)of theBHCActand section44of theFDIAct,includingFirstFinancialBank’srecordof meetingtheconvenienceandneedsof thecommunitiesitserves.Accordingly,inlightof allthefactsof record,theBoardmayapprovetheproposalunderbothstatutes. 11 12U.S.C.§1831u(a)(1). 12 12U.S.C.§§1831u(a)(5)and1842(d)(1)(B). 13 12U.S.C.§1842(d)(2)(A)and(B).SimilarprohibitionsapplytoactionbytheBoardoninterstatebankmerger applicationsundersection44oftheFDIAct.See12U.S.C.§1831u(b)(2).Forpurposesofsection3(d)ofthe BHCAct,theacquiringandtargetinstitutionshaveoverlappingbankingoperationsinanystateinwhichany banktobeacquiredislocatedandtheacquiringbankholdingcompanycontrolsanyinsureddepositoryinstitutionorabranch.TheBoardconsidersabanktobelocatedinthestatesinwhichthebankischarteredor headquarteredoroperatesabranch.See12U.S.C.§1841(o)(4)–(7). 14 See12U.S.C.§§1831u(g)(4)and1841(o)(4).Abankholdingcompany’shomestateisthestateinwhichthe totaldepositsofallbankingsubsidiariesofsuchcompanywerethelargestonJuly1,1966,orthedateon whichthecompanybecameabankholdingcompany,whicheverislater.Astatebank’shomestateisthestate inwhichthebankischartered. 15 12U.S.C.§2901etseq. 16 SeeInd.Code§28-2-17;Ky.Rev.Stat.Ann.286.3-900.Illinoishasastatutoryminimumagerequirement,but itonlyappliestotheacquisitionofabankthatisorganizedunderthelawsofthatstate.See205Ill.Comp. Stat.5/21.2.ThisagerequirementisnotapplicabletotheproposedtransactionbecauseMainSourceBankis organizedunderthelawsofIndiana. 17 Ky.Rev.Stat.Ann.§286.3-900(2),-920(4).Indianadoesnotimposealimitonthetotalamountofin-state depositsthatasinglebankingorganizationmaycontrol. 18 OhioRev.CodeAnn.§1115.05.

16 FederalReserveBulletin|May2018 CompetitiveConsiderations Section3of theBHCActandtheBankMergerActprohibittheBoardfromapprovinga proposalthatwouldresultinamonopolyorwouldbeinfurtheranceof anattemptto monopolizethebusinessof bankinginanyrelevantmarket.19Bothstatutesalsoprohibit theBoardfromapprovingaproposalthatwouldsubstantiallylessencompetitionortendto createamonopolyinanybankingmarket,unlesstheanticompetitiveeffectsof the proposalareclearlyoutweighedinthepublicinterestbytheprobableeffectof theproposal inmeetingtheconvenienceandneedsof thecommunitiestobeserved.20 FirstFinancialandMainSourcehavesubsidiarydepositoryinstitutionsthatcompete directlyineightbankingmarketsinIndianaandOhio.21TheBoardhasconsideredthe competitiveeffectsof theproposalineachof thesebankingmarkets.Inparticular,the Boardhasconsideredthenumberof competitorsthatwouldremainineachmarket;the relativeshareof totaldepositsininsureddepositoryinstitutionsineachmarket(“market deposits”)thatFirstFinancialwouldcontrol;22theconcentrationlevelsof marketdeposits andtheincreaseintheselevels,asmeasuredbytheHerfindahl-HirschmanIndex(“HHI”) undertheU.S.Departmentof JusticeBankMergerCompetitiveReviewguidelines (“DOJBankMergerGuidelines”);23othercharacteristicsof themarkets;and,asdiscussed below,commitmentsmadebyFirstFinancialtodivestthreebranchesintheColumbus marketandonebranchintheGreensburgmarket. BankingMarketsWithinEstablishedGuidelines Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesinfiveof theeightbankingmarketsin whichFirstFinancialBankandMainSourceBankcompetedirectly.24Onconsummation of theproposal,oneof thesemarketswouldremainhighlyconcentrated,andthefour othermarketswouldremainmoderatelyconcentrated,asmeasuredbytheHHI.The changeintheHHIinthehighlyconcentratedbankingmarketandthemoderatelyconcentratedbankingmarketswouldbesmallandconsistentwithBoardprecedentandthe thresholdsintheDOJBankMergerGuidelines.Inaddition,numerouscompetitorswould remaininallfivebankingmarkets. 19 12U.S.C.§§1842(c)(1)and1828(c)(5). 20 12U.S.C.§§1842(c)(1)(B)and1828(c)(5)(B). 21 TheColumbusbankingmarket(“Columbusmarket”),FayetteCountybankingmarket(“FayetteCounty market”),andGreensburgbankingmarket(“Greensburgmarket”),allinIndiana,aredefinedbelow.Theother fivebankingmarketsaredefinedinAppendixB. 22 LocaldepositandmarketsharedataareasofJune30,2017,and,unlessotherwiseindicated,arebasedon calculationsinwhichthedepositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhas indicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorsto commercialbanks.See,e.g.,MidwestFinancialGroup,75FederalReserveBulletin386(1989);NationalCity Corporation,70FederalReserveBulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsin themarketsharecalculationona50percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserve Bulletin52(1991). 23 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableatwww.justice.gov/opa/pr/ 2010/August/10-at-938.html. 24 ThecompetitiveeffectsoftheproposalinthesefivemarketsaredescribedinAppendixB.

LegalDevelopments:FirstQuarter,2018 17 BankingMarketsWarrantingSpecialScrutiny Thestructuraleffectsthatconsummationof theproposalwouldhaveintheColumbus, FayetteCounty,andGreensburgmarketswarrantadetailedreviewbecausetheconcentrationlevelsonconsummationwouldexceedthethresholdsintheDOJBankMerger Guidelineswhenusinginitialcompetitivescreeningdata. ColumbusMarket Usinginitialscreeningdata,FirstFinancialisthelargestdepositoryorganizationinthe Columbusmarket,controllingapproximately$652.7millionindeposits,whichrepresent approximately27.0percentof marketdeposits.25MainSourceisthefourthlargestdepositoryorganizationintheColumbusmarket,controllingapproximately$247.8millionin deposits,whichrepresentapproximately10.2percentof marketdeposits.Onconsummation,FirstFinancialwouldremainthelargestdepositoryorganizationintheColumbus market,controllingapproximately$900.5millioninmarketdeposits,whichwouldrepresentapproximately37.2percentof marketdeposits.TheHHIinthismarketwouldincrease by552points,from1465to2017. Tomitigatethepotentiallyadversecompetitiveeffectsof theproposalintheColumbus market,FirstFinancialhascommittedtodivestthreeof MainSourceBank’sninebranches inthatmarket,whichaccountforapproximately$112.9millionindeposits,toacompetitivelysuitable,in-marketpurchaser.26Afterthedivestiture,FirstFinancialwouldremain thelargestdepositoryorganizationinthemarket,controllingapproximately$787.6million indeposits,whichwouldrepresentapproximately32.5percentof marketdeposits. Inadditiontothedivestiture,theBoardalsohasconsideredwhetherotherfactorseither mitigatethecompetitiveeffectsof theproposalorindicatethattheproposalwouldnot haveasignificantlyadverseeffectoncompetitionintheColumbusmarket.27Several factorsindicatethattheincreaseinconcentrationintheColumbusmarket,asmeasuredby theaboveHHI,overstatesthepotentialcompetitiveeffectsof theproposalinthemarket. TheBoardhasconsideredthecompetitiveinfluenceof onecreditunionintheColumbus marketthatoffersawiderangeof consumerbankingproducts,operatesstreet-level branches,andhasbroadmembershipcriteriathatincludealmostallof theresidentsinthe market.28TheBoardfindsthatthesecircumstanceswarrantincludingthedepositsof this creditunionata50percentweightinitscalculationstoestimatemarketinfluence.This 25 TheColumbusmarketisdefinedasBartholomew,Jennings,Jackson,andBrowncounties,allinIndiana. 26 Asaconditionofconsummationoftheproposal,FirstFinancialhascommittedthatitwillexecute,before consummatingtheproposal,anagreementtosellthethreebranchestooneormorepurchasersdeterminedby theBoardtobecompetitivelysuitable.FirstFinancialalsohascommittedtocompletethedivestiturewithin 180daysafterconsummationoftheproposedmerger.Inaddition,FirstFinancialhascommittedthat,ifthe proposeddivestitureisnotcompletedwithinthe180-dayperiod,FirstFinancialwilltransfertheunsold branchestoanindependenttrustee,whowillbeinstructedtosellthemtoanalternatepurchaserorpurchasers inaccordancewiththetermsofthisorderandwithoutregardtoprice.Boththetrusteeandanyalternate purchasersmustbedeemedacceptabletotheBoard.See,e.g.,BankAmericaCorporation,78FederalReserve Bulletin338(1992);UnitedNewMexicoFinancialCorporation,77FederalReserveBulletin484(1991). 27 Thenumberandstrengthofthefactorsnecessarytomitigatethecompetitiveeffectsofaproposaldependon thesizeoftheincreasein,andresultinglevelof,concentrationinabankingmarket.SeeNationsbankCorp., 84FederalReserveBulletin129(1998). 28 TheBoardpreviouslyhasconsideredcompetitionfromcertainactivecreditunionswiththesefeaturesasa mitigatingfactor.See,e.g.,CentralBancompany,Inc.,FRBOrderNo.2017-03(February8,2017);KeyCorp, FRBOrderNo.2016-12(July12,2016);OhioValleyBancCorp.,FRBOrderNo.2016-10(June28,2016); ChemicalFinancialCorporation,FRBOrderNo.2015-13(April20,2015);MitsubishiUFJFinancialGroup, Inc.,FRBOrderNo.2012-12(November14,2012);OldNationalBancorp,FRBOrderNo.2012-9(August30, 2012);UnitedBankshares,Inc.(orderdatedJune20,2011),97FederalReserveBulletin19(2ndQuar.2011);The PNCFinancialServicesGroup,Inc.,94FederalReserveBulletinC38(2008);ThePNCFinancialServicesGroup,

18 FederalReserveBulletin|May2018 weightingtakesintoaccountthelimitedlendingdonebythecredituniontosmallbusinessesrelativetocommercialbanks’lendinglevels. Takingintoaccountthedivestitureof thethreeMainSourceBankbranchestoan in-marketcompetitor,andadjustingtoreflectcompetitionfromthecreditunion,after consummationFirstFinancial’smarketsharewouldincreaseto29.6percent,andthe marketconcentrationlevelasmeasuredbytheHHIwouldincreaseby231points,froma levelof 1295to1526.Themarketconcentration,aswellastheresultingmarketshare, wouldbewithintheDOJBankMergerGuidelines.Includingthecreditunion,14other depositoryorganizationswouldcontinuetoservetheColumbusmarket,includingtwowith marketsharesgreaterthan12percenteach. FayetteCountyMarket Usinginitialscreeningdata,FirstFinancialisthesecondlargestdepositoryorganizationin theFayetteCountymarket,controllingapproximately$54.7millionindeposits,which representapproximately19.7percentof marketdeposits.29MainSourceisthesixthlargest depositoryorganizationintheFayetteCountymarket,controllingapproximately $21.0millionindeposits,whichrepresentapproximately7.6percentof marketdeposits.On consummation,FirstFinancialwouldbecomethelargestdepositoryorganizationinthe FayetteCountymarket,controllingapproximately$75.7millionindeposits,whichwould representapproximately27.2percentof marketdeposits.TheHHIinthismarketwould increaseby297points,from1704to2001. TheBoardhasconsideredwhetherotherfactorseithermitigatethecompetitiveeffectsof theproposalorindicatethattheproposalwouldnothaveasignificantlyadverseeffecton competitionintheFayetteCountymarket.Severalfactorsindicatethattheincreasein concentrationintheFayetteCountymarket,asmeasuredbytheaboveHHI,overstatesthe potentialcompetitiveeffectsof theproposalinthemarket. TheBoardhasconsideredthecompetitiveinfluenceof twocreditunionsintheFayette CountymarketthatmeettheBoard’sstandardconditionsforinclusioninitsstructural calculations,thedepositsof whicharegiven50percentweightintheBoard’sanalysis.After consummation,adjustingtoreflectcompetitionfromthesetwocreditunions,themarket concentrationlevelintheFayetteCountymarket,asmeasuredbytheHHI,wouldincrease by267pointsfromalevelof 1547to1814,andFirstFinancial’smarketsharewould increasefrom19.7percentto25.8percent.Afterconsummation,theFayetteCounty marketwouldcontinuetobeservedbysevenotherdepositoryorganizations,includingthe twocreditunionsnotedabove,includingthreewhichwouldeachcontrolmorethan 16percentof marketdeposits. GreensburgMarket Usinginitialscreeningdata,FirstFinancialisthefifthlargestdepositoryorganizationin theGreensburgmarket,controllingapproximately$31.9millionindeposits,whichrepresentapproximately5.8percentof marketdeposits.30MainSourceisthelargestdepository organizationintheGreensburgmarket,controllingapproximately$343.0millionin deposits,whichrepresentapproximately62.6percentof marketdeposits.Onconsumma- Inc.,93FederalReserveBulletinC65(2007);RegionsFinancialCorporation,93FederalReserveBulletinC16 (2007);PassumpsicBancorp,92FederalReserveBulletinC175(2006);andWachoviaCorporation,92Federal ReserveBulletinC183(2006). 29 TheFayetteCountymarketisdefinedasFayetteCounty,Indiana. 30 TheGreensburgmarketisdefinedasDecaturCounty,Indiana.

LegalDevelopments:FirstQuarter,2018 19 tion,FirstFinancialwouldbecomethelargestdepositoryorganizationintheGreensburg market,controllingapproximately$374.9millioninmarketdeposits,whichwouldrepresentapproximately68.5percentof marketdeposits.TheHHIinthismarketwouldincrease by729points,from4300to5029. Tomitigatethepotentiallyadversecompetitiveeffectsof theproposalintheGreensburg market,FirstFinancialhascommittedtodivestoneof MainSourceBank’stwobranches intheGreensburgmarkettoacompetitivelysuitable,out-of-marketpurchaser.Thebranch tobedivestedisslightlysmallerthantheonlybranchcurrentlyoperatedbyFirstFinancialintheGreensburgmarket.31Afterthisdivestiture,FirstFinancialwouldbecomethe largestdepositoryorganizationinthemarket,controllingapproximately$345.1millionin deposits,whichwouldrepresentapproximately63percentof marketdeposits.If thebranch issoldtoanout-of-marketcompetitor,thestructureof theGreensburgmarketwouldbe approximatelythesamebothbeforeandafterconsummationof theproposal.32 Inadditiontothedivestiture,theBoardalsohasconsideredwhetherotherfactorseither mitigatethecompetitiveeffectsof theproposalorindicatethattheproposalwouldnot haveasignificantlyadverseeffectoncompetitionintheGreensburgmarket.Severalfactors indicatethattheincreaseinconcentrationasmeasuredbytheaboveHHI,aswellasFirst Financial’sresultingmarketshare,overstatethepotentialcompetitiveeffectsof the proposalintheGreensburgmarket. TheBoardhasconsideredthecompetitiveinfluenceof onecreditunionintheGreensburg marketthatmeetstheBoard’sstandardconditionsforinclusioninthestructuralcalculations,thedepositsof whicharegiven50percentweightintheBoard’sanalysis.After consummation,takingintoaccountthedivestitureof theMainSourceBankbranchtoan out-of-marketcompetitor,andadjustingtoreflectcompetitionfromthecreditunion,the marketconcentrationlevelintheGreensburgmarketasmeasuredbytheHHIwould increaseby40points,fromalevelof 3967to4007,andFirstFinancial’sshareof market depositsresultingfromthetransactionwouldbe60.4percent.Includingthecreditunion andanewcompetitorenteringthemarketthroughthedivestiture,afterconsummationthe Greensburgmarketwouldbeservedbyfiveotherdepositoryorganizations,includingtwo withmarketsharesgreaterthan10percenteach.Thepresenceof thesemarketcompetitors suggeststhatFirstFinancialwouldhavelimitedabilityunilaterallytoofferlessattractive termstoconsumersandthatthesecompetitorsareabletoexertcompetitivepressureon FirstFinancialintheGreensburgmarket. Notwithstandingthesecircumstances,theBoardviewsthecompetitiveeffectsinthis marketaspresentingaclosecase. ConclusionRegardingCompetitiveEffects TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposal,withtheproposeddivestituresof branchesintheColumbusandGreensburgmarkets,wouldnotlikelyhaveasignificantlyadverseeffectoncompetitionintheColumbus,FayetteCounty,andGreensburg marketsorinanyotherrelevantbankingmarket.Inaddition,theappropriatebanking 31 FirstFinancialBank’sonlybranchintheGreensburgmarkethas$31.9millionindeposits,representing 5.6percentoftotalmarketdeposits.MainSourceBankhastwobrancheswithdepositsinGreensburg,with $312.8millionand$29.8million,respectively.FirstFinancialproposestodivestthesmallerofthesebranches, representing5.2percentofmarketdeposits. 32 TheBoardhaspreviouslyapprovedtwoapplicationsinwhichthepost-divestitureHHIandthepercentageof marketdepositsexceededthepost-divestitureeffectsinthiscase.SeeUmpquaHoldingsCorp.,100Federal ReserveBulletin42(2014);SouthernNationalCorp.,83FederalReserveBulletin597(1997).

20 FederalReserveBulletin|May2018 agencieshavebeenaffordedanopportunitytocommentandhavenotobjectedtothe proposal. Basedonthefactsof record,includingFirstFinancial’scommitmenttodivestatotalof fourbranchesintheColumbusandGreensburgmarkets,theBoardconcludesthat consummationof theproposalwouldnothaveasignificantlyadverseeffectoncompetition orontheconcentrationof resourcesinanyof theeightbankingmarketsinwhichFirst FinancialBankandMainSourceBankcompetedirectlyorinanyotherrelevantbanking market.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistent withapproval. Financial,Managerial,andOtherSupervisoryConsideration Inreviewingaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsidersthefinancialandmanagerialresourcesandthefutureprospectsof the institutionsinvolved.33Initsevaluationof financialfactors,theBoardreviewsinformation regardingthefinancialconditionof theorganizationsinvolvedonbothparent-onlyand consolidatedbases,aswellasinformationregardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.In thisevaluation,theBoardconsidersavarietyof informationregardingcapitaladequacy, assetquality,liquidity,andearningsperformance,aswellaspubliccommentsonthe proposal.TheBoardevaluatesthefinancialconditionof thecombinedorganization, includingitscapitalposition,assetquality,liquidity,earningsprospects,andtheimpactof theproposedfundingof thetransaction.TheBoardalsoconsiderstheabilityof the organizationtoabsorbthecostsof theproposalandtocompleteeffectivelytheproposed integrationof theoperationsof theinstitutions.Inassessingfinancialfactors,theBoard considerscapitaladequacytobeespeciallyimportant.TheBoardconsidersthefutureprospectsof theorganizationsinvolvedintheproposalinlightof theirfinancialandmanagerialresourcesandtheproposedbusinessplan. FirstFinancialandMainSourcearebothwellcapitalized,andthecombinedorganization wouldremainsoonconsummationof theproposal.Theproposedtransactionisabank holdingcompanymergerthatisstructuredasashareexchange,withasubsequentmerger of thesubsidiarydepositoryinstitutions.34Theassetquality,earnings,andliquidityof bothFirstFinancialBankandMainSourceBankareconsistentwithapproval,andFirst Financialappearstohaveadequateresourcestoabsorbtherelatedcostsof theproposal andtocompletetheintegrationof theinstitutions’operations.Inaddition,thefutureprospectsof theinstitutionsundertheproposalareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of FirstFinancial,MainSource,andtheirsubsidiarydepositoryinstitutions,including assessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition, theBoardhasconsideredinformationprovidedbyFirstFinancial;theBoard’ssupervisory experiencesandthoseof otherrelevantbanksupervisoryagencieswiththeorganizations; andtheorganizations’recordsof compliancewithapplicablebanking,consumerprotection,andanti-money-launderinglaws. 33 12U.S.C.§§1842(c)(2),(5),and(6)and1828(c)(5). 34 Aspartoftheproposedtransaction,eachshareofMainSourcecommonstockwouldbeconvertedintothe righttoreceive1.3875sharesofFirstFinancialcommonstock.

LegalDevelopments:FirstQuarter,2018 21 FirstFinancial,MainSource,andtheirsubsidiarydepositoryinstitutionsareeachconsideredtobewellmanaged.FirstFinancialhasarecordof successfullyintegratingorganizationsintoitsoperationsandrisk-managementsystemsafteracquisitions.FirstFinancial’sdirectorsandseniorexecutiveofficershaveknowledgeof andexperienceinthe bankingandfinancialservicessectors,andFirstFinancial’srisk-managementprogram appearsconsistentwithapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredFirstFinancial’splansforimplementingtheproposal.First Financialhasconductedcomprehensiveduediligenceandisdevotingsignificantfinancial andotherresourcestoaddressallaspectsof thepost-acquisitionintegrationprocessfor thisproposal.FirstFinancialwouldimplementitsrisk-managementpolicies,procedures, andcontrolsatthecombinedorganization,andtheseareconsideredacceptablefroma supervisoryperspective.Inaddition,FirstFinancial’smanagementhastheexperienceand resourcestooperatethecombinedorganizationinasafeandsoundmanner,andFirst FinancialplanstointegrateMainSource’sexistingmanagementandpersonnelinamanner thataugmentsFirstFinancial’sandFirstFinancialBank’smanagement.35 Basedonallof thefactsof record,includingFirstFinancial’ssupervisoryrecord,managerialandoperationalresources,andplansforoperatingthecombinedinstitutionafter consummation,theBoardconcludesthatconsiderationsrelatingtothefinancialand managerialresourcesandthefutureprospectsof theorganizationsinvolvedinthe proposal,aswellastherecordsof effectivenessof FirstFinancialandMainSourcein combattingmoney-launderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.36Initsevaluationof theeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecreditneedsof thecommunitiestheyserve,aswellasother potentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served.Inthisevaluation,theBoardplacesparticularemphasisontherecordsof the relevantdepositoryinstitutionsundertheCRA.37TheCRArequiresthefederalfinancial supervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeetthecredit needsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeinstitutions’safe andsoundoperation,38andrequirestheappropriatefederalfinancialsupervisoryagencyto assessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof itsentire community,includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluating bankexpansionaryproposals.39 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideloan applicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainother characteristics.TheBoardalsoconsiderstheassessmentsof otherrelevantsupervisors,the supervisoryviewsof examiners,othersupervisoryinformation,informationprovidedby theapplicant,andcommentsreceivedontheproposal.TheBoardalsomayconsiderthe 35 Followingconsummationoftheproposedtransaction,sixMainSourcedirectorswilljoinFirstFinancial’s boardofdirectors. 36 12U.S.C.§§1842(c)(2)and1828(c)(5). 37 12U.S.C.§2901etseq. 38 12U.S.C.§2901(b). 39 12U.S.C.§2903.

22 FederalReserveBulletin|May2018 institution’sbusinessmodel,itsmarketingandoutreachplans,theorganization’splans followingconsummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallof thefactsof record,includingreportsof examinationof theCRAperformanceof First FinancialBankandMainSourceBank;thefairlendingandcompliancerecordsof both banks;thesupervisoryviewsof theFederalReserveBankof Cleveland(“ReserveBank”) andotherfederalregulatoryagencies;confidentialsupervisoryinformation;andinformationprovidedbyFirstFinancial. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardconsiders examinationsbytheappropriatefederalsupervisorsof theCRAperformancerecordsof therelevantinstitutions,aswellasinformationandviewsprovidedbythosesupervisors.40 Inthiscase,theBoardconsideredthesupervisoryviewsof theReserveBankandtheOffice of theComptrollerof theCurrency(“OCC”)withrespecttoFirstFinancialBankandthe FederalDepositInsuranceCorporation(“FDIC”)withrespecttoMainSourceBank.41 TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.42Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplylending,investment,andserviceteststo evaluatetheperformanceof alargeinsureddepositoryinstitutioninhelpingtomeetthe creditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’shomemortgage,smallbusiness,smallfarm,andcommunitydevelopmentlendingto determinewhethertheinstitutionishelpingtomeetthecreditneedsof individualsand geographiesof allincomelevels.Aspartof thelendingtest,examinersreviewandanalyze aninstitution’sdatareportedundertheHomeMortgageDisclosureAct(“HMDA”),43in additiontosmallbusiness,smallfarm,andcommunitydevelopmentloandatacollected andreportedundertheCRAregulations,toassessaninstitution’slendingactivitieswith respecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slending performanceisbasedonavarietyof factors,including(1)thenumberandamountsof homemortgage,smallbusiness,smallfarm,andconsumerloans(asapplicable)intheinstitution’sassessmentareas(“AAs”);(2)thegeographicdistributionof theinstitution’s lending,includingtheproportionanddispersionof theinstitution’slendinginitsAAsand thenumberandamountsof loansinlow-,moderate-,middle-,andupper-incomegeographies;(3)thedistributionof loansbasedonborrowercharacteristics,including,forhome mortgageloans,thenumberandamountsof loanstolow-,moderate-,middle-,andupperincomeindividuals;44(4)theinstitution’scommunitydevelopmentlending,includingthe 40 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81Fed.Reg.48506,48548 (July25,2016). 41 UntilitsconversiononDecember30,2016,toastatememberbanksupervisedbytheBoard,FirstFinancial BankwasanationalbanksupervisedbytheOCC. 42 12U.S.C.§2906. 43 12U.S.C.§2801etseq. 44 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3).

LegalDevelopments:FirstQuarter,2018 23 numberandamountsof communitydevelopmentloansandtheircomplexityand innovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpracticesto addressthecreditneedsof LMIindividualsandgeographies.Largeinstitutionsarealso subjecttoaninvestmenttestthatevaluatesthenumberandamountsof qualifiedinvestmentsthatbenefittheirassessmentareasandaservicetestthatevaluatestheavailability andeffectivenessof theirsystemsfordeliveringretailbankingservicesandtheextentand innovativenessof theircommunitydevelopmentservices.45 CRAPerformanceof FirstFinancialBank FirstFinancialBankwasassignedanoverall“Satisfactory”ratingbytheOCCatitsmost recentCRAperformanceevaluation,asof November4,2013(“FirstFinancialBank Evaluation”).46Thebankreceiveda“HighSatisfactory”ratingfortheLendingTestand “LowSatisfactory”ratingsfortheInvestmentTestandtheServiceTest.47 ExaminersfoundthatFirstFinancialBankoriginatedamajorityof itsloansinsideitsAAs andthatthebank’soveralllendingactivitywasgood.Examinersalsonotedthatthebank’s geographicdistributionof homemortgageloansandsmallloanstobusinesseswasgood. Inaddition,examinersfoundthebank’sdistributionof homemortgageloansbyincome levelof theborrowertobegoodandthebank’sdistributionof loanstobusinesseswith differentrevenuesizestobeadequate. ExaminersdeterminedthatFirstFinancialBank’slevelof qualifiedcommunitydevelopmentinvestmentswasadequateandresponsivetocommunityneeds.Examinersfoundthat thebank’sservicedeliverysystemswereaccessibletogeographiesandindividualsof differentincomelevelswithinthebank’sAAs.Examinersalsonotedthat,inthestateof Indiana,thebank’sbrancheswerereasonablyaccessible.Overall,examinersfoundthatthe communitydevelopmentservicesprovidedbythebankwereadequateandthatthebank providedagoodlevelof servicesinOhio. CRAPerformanceof MainSourceBank MainSourceBankwasassignedanoverallCRAratingof “Satisfactory”atitsmostrecent CRAperformanceevaluationbytheFDIC,asof September29,2014(“MainSource BankEvaluation”).48Thebankreceived“LowSatisfactory”ratingsforeachof the LendingTest,theInvestmentTest,andtheServiceTest.49 45 See12CFR228.21etseq. 46 TheFirstFinancialBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.ExaminersreviewedHMDAandsmallbusinessloansoriginatedfromJanuary1,2010,throughDecember31,2011. Theevaluationperiodforcommunitydevelopmentloans,investments,andserviceswasfromJune1,2010, throughDecember31,2011. 47 TheFirstFinancialBankEvaluationincludedfull-scopeevaluationsoftheCincinnati-MiddletonOhio- Kentucky-IndianaMultistateMetropolitanStatisticalArea(“MSA”);Columbus,IndianaMSA;andtheOhio Non-MSAAA.LimitedscopeevaluationswereperformedoftheBloomington,IndianaMSA;Indianapolis, IndianaMSA;Gary,IndianaMSA;Lafayette,IndianaMSA;IndianaNon-MSAAA;Lima,OhioMSA;and theDayton,OhioMSA. 48 TheMainSourceBankEvaluationwasconductedusingLargeBankCRAEvaluationProcedures.Examiners reviewedHMDA,smallbusiness,andsmallfarmloansoriginatedfromJanuary1,2012,throughDecember31, 2013.Theevaluationperiodforcommunitydevelopmentloans,investments,andserviceswasfromOctober20, 2011,throughSeptember29,2014. 49 TheMainSourceBankEvaluationincludedfull-scopeevaluationsoftheLouisville-JeffersonCounty, Kentucky-IndianaMultistateMSA;Cincinnati-Middletown,Ohio-Indiana-KentuckyMultistateMSA;State ofIndianaNon-MSAAA;Kankakee-Bradley,IllinoisMSA;Dayton,OhioMSA;andtheKentucky Non-MSAAA.Limited-scopeevaluationswereperformedoftheAnderson,IndianaMSA;Bloomington, IndianaMSA;Columbus,IndianaMSA;GaryMetropolitanDivision,IndianaAA;Indianapolis-Carmel, IndianaMSA;Danville,IllinoisMSA;andtheStateofIllinoisNon-MSAAA.

24 FederalReserveBulletin|May2018 ExaminersfoundthatMainSourceBank’slendinglevelsreflectedgoodresponsivenessto creditneedswithinitsAAsandthatasubstantialmajorityof thebank’sloansweremade withinitsAAs.Examinersfurtherfoundthatthegeographicdistributionof MainSource Bank’sloansreflectedadequatepenetrationthroughoutitsAAs.Examinersnotedthatthe bank’sdistributionof borrowersreflectedadequatepenetrationamongretailcustomersof differentincomelevelsandbusinessesof differentsizes.Examinersfoundthatthebank exhibitedanadequaterecordof servingthecreditneedsof themosteconomicallydisadvantagedareasof itsAAs,low-incomeindividuals,andverysmallbusinesses,consistent withsafeandsoundbankingpractices.ExaminersstatedthatMainSourceBankmadea relativelyhighlevelof communitydevelopmentloansandoriginatedqualifyingcommunity developmentloansinallof thebank’sAAs.Further,thebankwasfoundtouseinnovative and/orflexiblelendingpracticesinordertoserveAAcreditneeds. ExaminersfoundthatMainSourceBankmadeanadequatelevelof qualifiedcommunity developmentinvestmentsandgrants,particularlythosethatwerenotroutinelyprovidedby privateinvestors,althoughrarelyinaleadershipposition.Examinersfurthernotedthat thebankexhibitedadequateresponsivenesstocreditandcommunityeconomicdevelopmentneeds,butthatthebankrarelyusedinnovativeorcomplexinvestmentstosupport communitydevelopmentinitiatives. Examinersfoundthatthebank’sdeliverysystemswerereasonablyaccessibletoessentially allportionsof thebank’sAAs.ExaminersalsofoundthatMainSourceBank’srecordof openingandclosingbrancheshadnotadverselyaffectedtheaccessibilityof itsdelivery systems,particularlyinLMIgeographiesortoLMIindividuals,andthatbranchservices andbusinesshoursdidnotvaryinawaythatinconveniencedcertainportionsof theAAs, particularlyLMIgeographiesandindividuals.Examinersfurthernotedthatthebank providedanadequatelevelof communitydevelopmentservices. AdditionalSupervisoryViews Initsreviewof theproposal,theBoardconsultedwiththeReserveBankregardingits viewsof FirstFinancialBank’sconsumercompliancerisk-managementsystems.The Boardconsideredthemostrecentconsumercomplianceexaminationandfairlending reviewof FirstFinancialBankbytheOCC.TheBoardalsoconsideredthemostrecent consumercomplianceexaminationof MainSourceBankconductedbytheFDIC. TheBoardhastakenthisinformation,aswellastheCRAperformancerecordsof First FinancialBankandMainSourceBankintoaccountinevaluatingtheproposedtransaction, includinginconsideringwhetherFirstFinancialhastheexperienceandresourcestoeffectivelyimplementpoliciesandprogramsthatwouldassistthecombinedorganizationin helpingtomeetthecreditneedsof allof thecommunitieswithinthefirm’sAAs. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.FirstFinancialrepresentsthatitwouldprovidea fullrangeof deposit,savings,andotherfinancialproductsandservicestoconsumersand small-andmedium-sizedbusinessesinOhio,Indiana,andKentucky.FirstFinancialstates thatitwouldcontinueofferingallof thesignificantproductsandservicescurrently offeredbyFirstFinancialBankandMainSourceBankafterconsummationof the proposal.Further,FirstFinancialrepresentsthat,followingtheproposedtransaction,the combinedorganizationwouldbeabletoincreaseitslendinglimitsandbettermeetthe creditandbankingneedsof thesmall-andmedium-sizedbusinessesinitsexpandedservice area.

LegalDevelopments:FirstQuarter,2018 25 ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws,confidentialsupervisoryinformation,informationprovidedbyFirstFinancial,andthepotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.Basedonthatreview,theBoard concludesthattheconvenienceandneedsfactorisconsistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedsection3of theBHCActandtheBankMergerActtorequiretheBoardto consider“theextenttowhichaproposedacquisition,merger,orconsolidationwouldresult ingreaterrisktothestabilityof theUnitedStatesbankingorfinancialsystem.”50 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the resultingfirm.51Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.52 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.53 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthatislessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.Both theacquirerandthetargetarepredominatelyengagedinretailandcommercialbanking 50 Dodd-FrankAct§604(d)and(f),Pub.L.No.111-203,124Stat.1376,1601-02(2010),codifiedat12U.S.C. §§1842(c)(7)and1828(c)(5). 51 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 52 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 53 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition.

26 FederalReserveBulletin|May2018 activities.54Theproformaorganizationwouldhaveminimalcross-borderactivitiesand wouldnotexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.In addition,theorganizationwouldnotbeacriticalservicesproviderorsointerconnected withotherfirmsorthemarketsthatitwouldposesignificantrisktothefinancialsystemin theeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Establishmentof Branches FirstFinancialBankhasappliedundersection9of theFRAtoestablishandoperate branchesatthecurrentmainofficeandbranchesof MainSourceBank.55TheBoardhas assessedthefactorsitisrequiredtoconsiderwhenreviewinganapplicationunderthat section.Specifically,theBoardhasconsideredFirstFinancialBank’sfinancialcondition, management,capital,actionsinmeetingtheconvenienceandneedsof thecommunitiesto beserved,CRAperformance,andinvestmentinbankpremises.56Forthereasonsdiscussed inthisorder,theBoardfindsthosefactorstobeconsistentwithapproval. FinancialHoldingCompanyElection Asnoted,FirstFinancialhaselectedtobecomeafinancialholdingcompanyinconnection withtheproposal.FirstFinancialhascertifiedthat,uponconsummationof theproposal, FirstFinancialandFirstFinancialBankwouldbewellcapitalizedandwellmanaged,and FirstFinancialhasprovidedallof theinformationrequiredundertheBoard’sRegulationY.57 Basedonallthefactsof record,theBoarddeterminesthatFirstFinancial’selectionwill becomeeffectiveuponconsummationof theproposalif,onthatdate,FirstFinancialis wellcapitalizedandwellmanagedandalldepositoryinstitutionsitcontrolsarewellcapitalizedandwellmanagedandhaveCRAratingsof atleast“Satisfactory.” Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheproposal shouldbe,andherebyis,approved.Inreachingitsconclusion,theBoardhasconsideredall 54 FirstFinancialBankandMainSourceBankofferabroadrangeofretailandcommercialbankingproducts andservices.FirstFinancialhas,andasaresultoftheproposedtransactionwouldcontinuetohave,asmall marketshareintheseproductsandservicesonanationwidebasis,andnumerouscompetitorswouldremainfor theseproductsandservices. 55 See12U.S.C.§321.Undersection9oftheFRA,statememberbanksmayestablishandoperatebrancheson thesametermsandconditionsasareapplicabletotheestablishmentofbranchesbynationalbanks.Anational bankmayestablishandoperateanewbranchwithinastateinwhichitissituated,ifsuchestablishmentand operationisauthorizedunderapplicablestatelaw.12U.S.C.§36(c).Anationalbankalsomayretainany branchfollowingamergerthatunderstatelawmaybeestablishedasanewbranchoftheresultingbankor retainedasanexistingbranchoftheresultingbank.See12U.S.C.§§36(b)(2),(c).Inaddition,undersection44 oftheFDIAct,astatememberbankresultingfromaninterstatemergertransactionmayretainandoperate, asamainofficeorabranch,anyofficethatanybankinvolvedinthemergerwasoperatingasamainofficeor branchimmediatelybeforethemergertransaction.12U.S.C.§1831u(d).Uponconsummation,FirstFinancial Bank’sbrancheswouldbepermissibleunderapplicablestatelaw.See205Ill.Comp.Stat.5/21.4;Ind.Code §28-2-13-19;Ky.Rev.Stat.Ann.286.3-920;OhioRev.CodeAnn.§1117.01. 56 12U.S.C.§322;12CFR208.6.Uponconsummationoftheproposal,FirstFinancialBank’sinvestmentinbank premiseswouldremainwithinthelegalrequirementsof12CFR208.21. 57 SeeDodd-FrankAct§606(a),124Stat.at1607,amending12U.S.C.§1843(l)(1).

LegalDevelopments:FirstQuarter,2018 27 thefactsof recordinlightof thefactorsthatitisrequiredtoconsiderundertheBHCAct, theBankMergerAct,andotherapplicablestatutes.TheBoard’sapprovalisspecifically conditionedoncompliancebyFirstFinancialwithalltheconditionsimposedinthisorder, includingreceiptof allrequiredregulatoryapprovals,andonthecommitmentsmadeto theBoardinconnectionwiththeproposal.Theconditionsandcommitmentsaredeemed tobeconditionsimposedinwritingbytheBoardinconnectionwithitsfindingsanddecisionhereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardortheReserveBank,actingunderdelegatedauthority. Byorderof theBoardof Governors,\effectiveFebruary22,2018. Votingforthisaction:ChairmanPowell,ViceChairmanforSupervisionQuarles,and GovernorBrainard. AnnE.Misback Secretaryof theBoard AppendixA BranchestobeEstablishedbyFirstFinancialBank IllinoisBranches 1. 101NorthHilgertDrive,GrantPark,Illinois60940 2. 323EastMainStreet,Hoopeston,Illinois60942 3. 2000WestCourtStreet,Kankakee,Illinois60901 4. 216SouthFourthStreet,Watseka,Illinois60970 IndianaBranches 1. 202NorthHarrisonStreet,Alexandria,Indiana46001 2. 1802AllisonLane,Jeffersonville,Indiana47130 3. 104EastLink'sWay,Aurora,Indiana47001 4. 136EastHarriman,Bargersville,Indiana46106 5. 1053StateRoad229North,Batesville,Indiana47006 6. 3205EastThirdStreet,Bloomington,Indiana47401 7. 24004StatelineRoad,Lawrenceburg,Indiana47025 8. 9014StateRoad101,Brookville,Indiana47012 9. 1051WestSpringStreet,Brownstown,Indiana47220 10. 221EastMainStreet,Crawfordsville,Indiana47933 11. 8740SouthEmersonAvenue,Indianapolis,Indiana46237 12. 597BantaStreet,Franklin,Indiana46131 13. 6671Highway150,FloydsKnobs,Indiana47119 14. 7700StateRoad64,Georgetown,Indiana47122 15. 3610GrantLineRoad,NewAlbany,Indiana47150 16. 122WestWashingtonStreet,Greensburg,Indiana47240 17. 102WestMainStreet,Hagerstown,Indiana47346 18. 136ThorntonRoad,Hanover,Indiana47243 19. 555EastThirdStreet,Hobart,Indiana46342 20. 8475NorthStateRoad9,Hope,Indiana47246 21. 3535East96thStreet,Indianapolis,Indiana46240 22. 120EastMainStreet,Knightstown,Indiana46148 23. 2253StateRoad54East,Linton,Indiana47441 24. 201SouthMainStreet,Lynn,Indiana47355

28 FederalReserveBulletin|May2018 25. 1315CliftyDrive,Madison,Indiana47250 26. 417JeffersonStreet,Madison,Indiana47250 27. 201NorthBroadway,Greensburg,Indiana47240 28. 11SouthMeridian,Ste101,Indianapolis,Indiana46204 29. 100EastSpringStreet,NewAlbany,Indiana47150 30. 600SouthMemorialDrive,NewCastle,Indiana47362 31. 501CliftyDrive,Madison,Indiana47250 32. 521NorthStateStreet,NorthVernon,Indiana47265 33. 112NorthMeridianStreet,Portland,Indiana47371 34. 3433EastMainStreet,Richmond,Indiana47374 35. 230MainStreet,RisingSun,Indiana47040 36. 202NorthMainStreet,Rushville,Indiana46173 37. 1130EastTiptonStreet,Seymour,Indiana47274 38. 28287StateRoute1,WestHarrison,Indiana47060 39. 3880WestPresidentialWay,Edinburgh,Indiana46124 40. 1012SouthAdamsStreet,Versailles,Indiana47042 41. 102WestMainStreet,Vevay,Indiana47043 42. 1263NorthIndiana135,Greenwood,Indiana46142 43. 120NorthMonroeStreet,Williamsport,Indiana47993 KentuckyBranches 1. 1905BlankenbakerParkway,Louisville,Kentucky40299 2. 9819BrownsboroRoad,Louisville,Kentucky40241 3. 6512BardstownRoad,Louisville,Kentucky40291 4. 2862FrankfortAvenue,Louisville,Kentucky40206 5. 201LimestoneDrive,Frankfort,Kentucky40601 6. 104SouthChilesStreet,Harrodsburg,Kentucky40330 7. 1012BypassNorth,Lawrenceburg,Kentucky40342 8. 293NorthHubbardsLane,Louisville,Kentucky40207 9. 293NorthHubbardsLane,Louisville,Kentucky40207 10. 13704ShelbyvilleRoad,Louisville,Kentucky40245 11. 1734MidlandTrail,Shelbyville,Kentucky40065 12. 2735BardstownRoad,Louisville,Kentucky40205 13. 9306TaylorsvilleRoad,Louisville,Kentucky40299 14. 211WestOakStreet,Louisville,Kentucky40203 15. 295NorthHubbardsLane,Louisville,Kentucky40207 OhioBranches 1. 7637BeechmontAvenue,Cincinnati,Ohio45255 2. 3723GlenmoreAvenue,Cincinnati,Ohio45211 3. SummitWoods1,100EastBusinessWay,Suite150,Cincinnati,Ohio45241 4. 585AndersonFerryRoad,Cincinnati,Ohio45238 5. 6300HarrisonAvenue,Cincinnati,Ohio45247 6. 10425HarrisonAvenue,Harrison,Ohio45030 7. 3442EdwardsRoad,Cincinnati,Ohio45208 8. 5550CheviotRoad,Cincinnati,Ohio45239 9. 2000MadisonRoad,Cincinnati,Ohio45208 10. 7615ReadingRoad,Cincinnati,Ohio45237 11. 11186ReadingRoad,Cincinnati,Ohio45241 12. 635SouthMarketStreet,Troy,Ohio45373 13. 1580WestMainStreet,Troy,Ohio45373 14. 101EastElmStreet,UnionCity,Ohio45390 15. 5791GlenwayAvenue,Cincinnati,Ohio45238

LegalDevelopments:FirstQuarter,2018 29 AppendixB FirstFinancial/MainSourceBankingMarketsConsistentwithBoardPrecedentandDOJBankMerger Guidelines Remaining Amountof MarketDeposit Bank Rank ResultingHHI ChangeinHHI Numberof Deposits Shares(%) Competitors Bloomington,Indiana–includesGreene,Monroe,andLawrencecounties. FirstFinancialPre-Consummation 3 $317.3M 10.04 MainSource 9 $137.0M 4.33 FirstFinancialPost-Consummation 3 $454.3M 14.37 1499 87 15 Gary/Hammond,Indiana–includesLake,Porter,LaPorte,Newton,Jaspercounties;andCenter,Jackson,California(minusthecityofBass Lake),Wayne,andRailroadtownshipsinStarkeCounty. FirstFinancialPre-Consummation 9 $702.5M 4.81 MainSource 16 $134.2M 0.92 FirstFinancialPost-Consummation 8 $836.7M 5.73 1003 8 29 Indianapolis,Indiana–includesBoone,Hamilton,Hancock,Hendricks,Henry,Johnson,Madison,Marion,Morgan,Owen,Putnam,Rush,Shelby, andTiptoncounties. FirstFinancialPre-Consummation 14 $620.0M 1.32 MainSource 18 $452.7M 0.91 FirstFinancialPost-Consummation 12 $1.05B 2.23 1125 2 48 Cincinnati,Ohio–includesBrown,Butler,Clermont,Hamilton,andWarrencounties,Ohio;DearbornCounty,Indiana;Boone,Bracken,Campbell, Gallatin,Grant,Kenton,andPendletoncounties,Kentucky;andtheNewLibertyandOwentoncensuscountydivisionsinOwenCounty,Kentucky. FirstFinancialPre-Consummation 6 $2.24B 2.03 MainSource 11 $568.5M 0.52 FirstFinancialPost-Consummation 4 $2.80B 2.54 3426 2 63 Dayton,Ohio–includesMontgomery,Miami,Greene,andPreblecounties. FirstFinancialPre-Consummation 7 $370.3M 3.13 MainSource 11 $144.3M 1.22 FirstFinancialPost-Consummation 7 $514.7M 4.35 1534 8 28 DataandrankingsareasofJune30,2017.Allrankings,marketdepositshares,andHHIsarebasedonthriftdepositsweightedat50percent. Theremainingnumberofcompetitorsnotedforeachmarketincludesthrifts,whereapplicable.

30 FederalReserveBulletin|May2018 Order Issued Under Section 4 of the Bank Holding Company Act Associated Banc-Corp Green Bay, Wisconsin OrderApprovingtheAcquisitionof aSavingsandLoanHoldingCompanyandAcquisitionof aSavingsAssociation FRBOrderNo.2018-03(January23,2018) AssociatedBanc-Corp(“Associated”),GreenBay,Wisconsin,abankholdingcompany withinthemeaningof theBankHoldingCompanyActof 1956(“BHCAct”),1has requestedtheBoard’sapprovalundersections4(c)(8)and4(j)of theBHCActand section225.24of theBoard’sRegulationY2toacquireBankMutualCorporation(“Bank MutualCorp”),Milwaukee,Wisconsin,asavingsandloanholdingcompany,andthereby indirectlyacquireitssubsidiary,BankMutual,BrownDeer,Wisconsin,afederalsavings association.Followingtheproposedacquisition,BankMutualwouldbemergedintoAssociated’ssubsidiarybank,AssociatedBank,N.A.(“AssociatedBank”),GreenBay, Wisconsin.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(82FederalRegister43237(September14,2017)).4Thetimeforsubmittingcommentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection4of theBHCAct. Associated,withconsolidatedassetsof approximately$30.1billion,isthe62ndlargest insureddepositoryorganizationintheUnitedStates.Associatedcontrolsapproximately $22.3billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.5Associated controlsAssociatedBank,whichoperatesinWisconsin,Illinois,andMinnesota.Associatedisthe3rdlargestinsureddepositoryorganizationinWisconsin,controllingdepositsof approximately$15.0billion,whichrepresent9.7percentof thetotaldepositsof insured depositoryinstitutionsinthatstate.6Associatedisthe8thlargestinsureddepositoryorganizationinMinnesota,controllingdepositsof approximately$1.6billion,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. BankMutualCorp,withconsolidatedassetsof approximately$2.7billion,isthe321st largestinsureddepositoryorganizationintheUnitedStates.BankMutualCorpcontrols approximately$2.0billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.Bank MutualCorpcontrolsBankMutual,whichoperatesinWisconsinandMinnesota.Bank MutualCorpisthe9thlargestinsureddepositoryorganizationinWisconsin,controlling depositsof approximately$1.9billion,whichrepresent1.2percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.BankMutualCorpisthe305thlargestinsured depositoryorganizationinMinnesota,controllingdepositsof approximately 1 12U.S.C.§1841etseq. 2 12U.S.C.§1843(c)(8)and(j);12CFR225.24. 3 ThemergerofBankMutualintoAssociatedBankissubjecttotheapprovaloftheOfficeoftheComptrollerof theCurrency(“OCC”)pursuanttosection18(c)oftheFederalDepositInsuranceAct.12U.S.C.§1828(c). TheOCCapprovedthedepositoryinstitutionmergeronJanuary4,2018. 4 12CFR262.3(b). 5 Nationalassetdata,marketshare,andrankingdataareasofSeptember30,2017,unlessotherwisenoted. 6 StatedepositdataareasofJune30,2017.Inthiscontext,insureddepositoryinstitutionsincludecommercial banks,savingsassociations,andsavingsbanks.

LegalDevelopments:FirstQuarter,2018 31 $22.7million,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. Onconsummationof theproposal,Associatedwouldbecomethe59thlargestinsured depositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $32.8billion,whichrepresentlessthan1percentof thetotalassetsof insureddepository organizationsintheUnitedStates.Associatedwouldcontrolconsolidateddepositsof approximately$24.3billion,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.InWisconsin,Associated wouldremainthe3rdlargestinsureddepositoryorganization,controllingdepositsof approximately$17.0billion,whichrepresentapproximately11percentof thetotaldeposits of insureddepositoryinstitutionsinthatstate.InMinnesota,Associatedwouldremain the8thlargestinsureddepositoryorganization,controllingdepositsof approximately $1.6billion,whichrepresentlessthan1percentof thetotaldepositsof insureddepository institutionsinthatstate. FactorsGoverningBoardReviewof theTransaction TheBoardpreviouslyhasdeterminedbyregulationthattheoperationof asavingsassociationbyabankholdingcompanyiscloselyrelatedtobankingforpurposesof section4(c)(8)of theBHCAct.7TheBoardrequiresthatasavingsassociationacquiredby abankholdingcompanyconformitsdirectandindirectactivitiestothosepermissiblefora bankholdingcompanyundersection4of theBHCAct.Associatedhascommittedthatall theactivitiesof BankMutualCorpanditssubsidiarieswillconformtothosepermissible undersection4of theBHCActandRegulationYorbedivested. Section4(j)(2)(A)of theBHCActrequirestheBoardtoconsiderwhethertheproposed acquisitionof BankMutualCorp“canreasonablybeexpectedtoproducebenefitstothe public,suchasgreaterconvenience,increasedcompetition,orgainsinefficiency,that outweighpossibleadverseeffects,suchasundueconcentrationof resources,decreasedor unfaircompetition,conflictsof interests,unsoundbankingpractices,orrisktothestability of theUnitedStatesbankingorfinancialsystem.”8Aspartof itsevaluationof these factors,theBoardreviewsthefinancialandmanagerialresourcesof thecompanies involved,theeffectof theproposaloncompetitionintherelevantmarkets,therisktothe stabilityof theUnitedStatesbankingorfinancialsystem,andthepublicbenefitsof the proposal.9Inactingonanoticetoacquireasavingsassociation,theBoardalsoreviewsthe recordsof performanceof therelevantinsureddepositoryinstitutionsundertheCommunityReinvestmentAct(“CRA”).10 CompetitiveConsiderations Aspartof theBoard’sconsiderationof thefactorsundersection4(j)(2)of theBHCAct, theBoardevaluatesthecompetitiveeffectsof aproposalinlightof allof thefactsof the 7 12CFR225.28(b)(4)(ii). 8 12U.S.C.§1843(j)(2)(A). 9 See12CFR225.26.Seee.g.,M&TBankCorporation,FRBOrder2015-27(September30,2015);Southside Bancshares,Inc.,FRBOrder2014-21(December10,2014);CapitalOneFinancialCorporation,FRBOrder 2012-2(February14,2012);BankofAmericaCorporation/Countrywide,94FederalReserveBulletinC81(2008); WachoviaCorporation,92FederalReserveBulletinC138(2006);andBancOneCorporation,83FederalReserve Bulletin602(1997). 10 12U.S.C.§2901etseq;12CFR225.13(b)(3).Theproposaldoesnotraiseinterstateissuesunder section4(i)(8)oftheBHCActbecauseWisconsinisthehomestateofbothAssociatedandBankMutual.See 12U.S.C.§§1841(o)(4),1843(i)(8).

32 FederalReserveBulletin|May2018 record.11AssociatedandBankMutualCorphavesubsidiarydepositoryinstitutionsthat competedirectlyin16bankingmarketslocatedinWisconsinandMinnesota.12TheBoard hasconsideredthecompetitiveeffectsof theproposalinthesebankingmarketsinlightof allthefactsof record.Inparticular,theBoardhasconsideredthenumberof competitors thatwouldremainineachmarket;therelativeshareof totaldepositsininsureddepository institutionsinthemarkets(“marketdeposits”)thatAssociatedwouldcontrol;13the concentrationlevelsof marketdepositsandtheincreasesintheselevelsasmeasuredbythe Herfindahl-HirschmanIndex(“HHI”)undertheDepartmentof JusticeBankMerger CompetitiveReviewguidelines(“DOJBankMergerGuidelines”);14andothercharacteristicsof themarkets. BankingMarketsWithinEstablishedGuidelines Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesintheAppleton,Beloit-Janesville,Chicago, EauClaire,FondduLac,Madison,Milwaukee,Marinette,Minneapolis/SaintPaul,Red Wing,RiceLake,SaintCroixFalls,Sheboygan,andSturgeonBaymarkets.15Onconsummationof theproposal,thechangesintheHHIintheChicago,EauClaire,andMadison marketswouldbesmall(22pointsorless),andthemarketswouldremainunconcentrated. Onconsummationof theproposal,thechangesintheHHIintheAppleton,Beloit- Janesville,FondduLac,RedWing,RiceLake,SaintCroixFalls,andSheboyganmarkets wouldbebelowthethresholdintheDOJBankMergerGuidelines;eachof themarkets wouldremainmoderatelyconcentrated,andnumerouscompetitorswouldremainineach market.TheSturgeonBaymarketwouldremainhighlyconcentrated,buttheincreasein theHHIwouldbebelowthethresholdintheDOJBankMergerGuidelines.16Furthermore,fivecompetitorswouldremainintheSturgeonBaymarket,includingamarket 11 12U.S.C.§1843(j)(2). 12 AllofthesebankingmarketsaredefinedintheAppendix,exceptfortheShawano,Wisconsinbankingmarket (“Shawanomarket”)andtheGreenBay,Wisconsinbankingmarket(“GreenBaymarket”),whicharedefined inthediscussionbelow. 13 LocaldepositandmarketsharedataareasofJune30,2017,andarebasedoncalculationsinwhichthe depositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhasindicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorstocommercialbanks.See,e.g., MidwestFinancialGroup,75FederalReserveBulletin386(1989)andNationalCityCorporation,70Federal ReserveBulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsinthemarketsharecalculationona50percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserveBulletin52(1991).For purposesofcompetitiveanalysis,afterasavingsassociationisacquiredbyabankholdingcompany,theBoard weightsthedepositscontrolledbythesavingsassociationat100percent,similartoacommercialbank.See, e.g.,SterlingBancorp,FRBOrder2017-21(August30,2017). 14 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),www.justice.gov/opa/pr/2010/August /10-at-938.html. 15 ThecompetitiveeffectsoftheproposalinthesemarketsaredescribedintheAppendix. 16 Whenanalyzingbankingmarketsthatwarrantspecialscrutiny,theBoardhasregularlyweightedat100percent thedepositsofthriftsthatserveasasignificantsourceofcommercialloansandprovideabroadrangeof consumer,mortgage,andotherbankingproducts.See,e.g.,FirstHorizonNat’lCorp.,FRBOrderNo.2017-29 (October30,2017).BankMutualhasacommercialandindustrialloanportfoliosimilartothoseofcommercial banksingeneral.WeightingthedepositsofBankMutualat100percentintheSturgeonBaymarketwould resultinanincreaseintheHHIof221pointsto4796.However,theSturgeonBaymarketincludesonecredit unionthatoffersawiderangeofconsumerbankingproducts,operatesstreet-levelbranches,andhasbroad membershipcriteriathatincludealmostalloftheresidentsintherelevantmarket.Takingintoaccountthe competitiveinfluenceofthiscreditunion,theHHIwouldincreaseby194pointsto4249,whichiswithinthe thresholdsintheDOJBankMergerGuidelines.

LegalDevelopments:FirstQuarter,2018 33 leaderwithamarketshareover60percent.TheMarinette,Minneapolis/SaintPaul,and Milwaukeemarketswouldalsoremainhighlyconcentrated;however,thechangesinthe HHIinthesemarketswouldbesmall(22pointsorless),andnumerouscompetitorswould remainineachmarket. BankingMarketsWarrantingSpecialScrutiny Thestructuraleffectsof theproposalintheShawanomarketandtheGreenBaymarket warrantadetailedreviewbecausetheconcentrationlevelsonconsummationwouldexceed thethresholdsintheDOJBankMergerGuidelineswhenusinginitialcompetitivescreening data.17 GreenBay,WisconsinBankingMarket. Usinginitialscreeningdata,AssociatedisthelargestdepositoryorganizationintheGreen Baymarket,controllingapproximately$2.5billionindeposits,whichrepresentapproximately33.5percentof marketdeposits.BankMutualCorpisthe12thlargestdepository organizationintheGreenBaymarketandistreatedascontrollingapproximately $142.9millionindeposits(i.e.,actualdepositsweightedat50percent),whichrepresent approximately1.9percentof marketdeposits.Onconsummation,Associatedwouldremain thelargestdepositoryorganizationintheGreenBaymarket,controllingapproximately $2.8billioninmarketdeposits,whichwouldrepresentapproximately36.6percentof marketdeposits.TheHHIinthismarketwouldincreaseby194pointsto1846. TheBoardhasconsideredwhetherotherfactorseithermitigatethecompetitiveeffectsof theproposalorindicatethattheproposalwouldnothaveasignificantlyadverseeffecton competitionintheGreenBaymarket.18Factorsindicatethattheincreaseinconcentration intheGreenBaymarket,asmeasuredbytheabovemarketshare,overstatesthepotential competitiveeffectsof theproposalinthemarket.Inparticular,fivecreditunionsexerta competitiveinfluenceintheGreenBaymarket.Theseinstitutionsofferawiderangeof consumerbankingproducts,operatestreet-levelbranches,andhavebroadmembership criteriathatincludealmostallof theresidentsintherelevantmarket.19TheBoardfinds thatthesecircumstanceswarrantincludingthedepositsof thesecreditunionsata 50-percentweightinitscalculationstoestimatemarketinfluence.Thisweightingtakesinto accountthelimitedcommerciallendingdonebycreditunionsrelativetocommercial banks’lendinglevels. Afterconsummation,adjustingtoreflectcompetitionfromcreditunionsinthemarket,the marketconcentrationlevelintheGreenBaymarketasmeasuredbytheHHIwould increaseby169,fromalevelof 1435to1604,andthemarketshareof Associatedresulting fromthetransactionwouldincreasefrom31percentto33.9percent.Twenty-sixother competitorswouldremaininthemarket(includingthefivecreditunions),includingone 17 TheShawanomarketisdefinedasMenomineeCounty,Wisconsin,plusShawanoCounty,Wisconsin(except Angelica,MapleGrove,Aniwa,Birnamwood,Wittenberg,andGermaniatownships). 18 Thenumberandstrengthofthefactorsnecessarytomitigatethecompetitiveeffectsofaproposaldependon thesizeoftheincreasein,andresultinglevelof,concentrationinabankingmarket.SeeNationsbankCorp., 84FederalReserveBulletin129(1998). 19 TheBoardpreviouslyhasconsideredcompetitionfromcertainactivecreditunionswiththesefeaturesasa mitigatingfactor.See,e.g.,CentralBancompany,Inc.,FRBOrderNo.2017-03(February8,2017);Chemical FinancialCorporation,FRBOrderNo.2015-13(April20,2015);MitsubishiUFJFinancialGroup,Inc.,FRB OrderNo.2012-12(November14,2012);OldNationalBancorp,FRBOrderNo.2012-9(August30,2012); UnitedBankshares,Inc.(orderdatedJune20,2011),97FederalReserveBulletin19(2ndQuar.2011);ThePNC FinancialServicesGroup,Inc.,94FederalReserveBulletinC38(2008);ThePNCFinancialServicesGroup,Inc., 93FederalReserveBulletinC65(2007);PassumpsicBancorp,92FederalReserveBulletinC175(2006);and WachoviaCorporation,92FederalReserveBulletinC183(2006).

34 FederalReserveBulletin|May2018 competitorwithover14percentof marketdepositsandonecompetitorwithover 11percentof marketdeposits.Thepresenceof theseviablecompetitorssuggeststhatAssociatedwouldhavelimitedabilitytounilaterallyofferlessattractivetermstoconsumersand thesecompetitorswouldbeabletoexertcompetitivepressureonAssociatedintheGreen Baymarket. Shawano,WisconsinBankingMarket Usinginitialscreeningdata,Associatedisthelargestdepositoryorganizationinthe Shawanomarket,controllingapproximately$123.7millionindeposits,whichrepresent approximately30.7percentof marketdeposits.BankMutualCorpistheninthlargest depositoryorganizationintheShawanomarketandistreatedascontrollingapproximately $13.7millionindeposits(i.e.,actualdepositsweightedat50percent),whichrepresent approximately3.4percentof marketdeposits.Onconsummation,Associatedwouldremain thelargestdepositoryorganizationintheShawanomarket,controllingapproximately $151.2millioninmarketdeposits,whichwouldrepresentapproximately36.2percentof marketdeposits.TheHHIinthismarketwouldincreaseby305pointsto2124. FactorsindicatethattheincreaseinconcentrationintheShawanomarket,asmeasuredby theabovemarketshare,overstatesthepotentialcompetitiveeffectsof theproposalinthe market.Inparticular,twocreditunionsexertacompetitiveinfluenceintheShawano market.Bothinstitutionsofferawiderangeof consumerbankingproducts,operatestreetlevelbranches,andhavebroadmembershipcriteriathatincludealmostallof theresidents intherelevantmarket.Takingintoaccountthelimitedlendingdonebycreditunions relativetocommercialbanks,theBoardfindsthatthesecircumstanceswarrantincluding thedepositsof thesecreditunionsata50-percentweightinitscalculationstoestimate marketinfluence.Takingintoaccountthisadjustment,themarketconcentrationlevelin theShawanomarketasmeasuredbytheHHIwouldincreaseby188,fromalevelof 1437to1625,andthemarketshareof Associatedresultingfromthetransactionwould increasefrom24percentto28.5percent.Nineotherdepositoryinstitutionswouldremain inthemarket(includingthetwocreditunions),includingtwocompetitorsthateachwould haveover17percentof marketdeposits.Thepresenceof theseviablecompetitorssuggests thatAssociatedwouldhavelimitedabilitytounilaterallyofferlessattractivetermsto consumersandthesecompetitorswouldbeabletoexertcompetitivepressureonAssociatedintheShawanomarket. ConclusionRegardingCompetitiveEffects TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket,includingthe GreenBayandShawanomarkets.Inaddition,theappropriatebankingagencieshavebeen affordedanopportunitytocommentandhavenotobjectedtotheproposal. Basedonallof thefactsof record,theBoardconcludesthatconsummationof the proposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheGreenBaymarket,theShawanomarket,orinanyotherrelevant bankingmarket.20Accordingly,theBoarddeterminesthatcompetitiveconsiderationsare consistentwithapproval. 20 TheBoardreceivedpubliccommentsthatexpressedgeneralconcernsaboutthecompetitiveaspectsofthe proposalandthegrowthinthesizeofbanksintheUnitedStates.TheBoardconsideredthesecommentsas partofitsreviewofthepotentialcompetitiveeffectsoftheproposal.

LegalDevelopments:FirstQuarter,2018 35 Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingproposalsundersection4(j)(2)of theBHCAct,theBoardconsidersthe financialandmanagerialresourcesandthefutureprospectsof theinstitutionsinvolved.21 Initsevaluationof thefinancialfactors,theBoardreviewsinformationregardingthe financialconditionof theorganizationsinvolvedonbothparent-onlyandconsolidated bases,aswellasinformationregardingthefinancialconditionof thesubsidiarydepository institutionsandtheorganizations’significantnonbankingoperations.Inthisevaluation, theBoardconsidersavarietyof information,includingpublicandsupervisoryinformation regardingcapitaladequacy,assetquality,liquidity,andearningsperformance,aswellas publiccommentsontheproposal.TheBoardevaluatesthefinancialconditionof the combinedorganization,includingitscapitalposition,assetquality,liquidity,andearnings prospects,andtheimpactof theproposedfundingof thetransaction.TheBoardalso considerstheabilityof theorganizationtoabsorbthecostsof theproposalandto completeeffectivelytheproposedintegrationof theoperationsof theinstitutions.In assessingfinancialfactors,theBoardconsiderscapitaladequacytobeespeciallyimportant. TheBoardconsidersthefutureprospectsof theorganizationsinvolvedintheproposalin lightof theirfinancialandmanagerialresourcesandtheproposedbusinessplan. AssociatedandAssociatedBankarebothwellcapitalizedandwouldremainsoonconsummationof theproposedtransaction.Theproposedtransactionisaholdingcompany merger,withasubsequentmergerof thesubsidiarydepositoryinstitutions.22Theasset quality,earnings,andliquidityof AssociatedBankandBankMutualareconsistentwith approval,andAssociatedappearstohaveadequateresourcestoabsorbthecostsof the proposalandtocompleteintegrationof theinstitutions’operations.Inaddition,thefuture prospectsof theinstitutionsundertheproposalareconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of Associated,BankMutualCorp,andtheirsubsidiarydepositoryinstitutions,including assessmentsof theirmanagement,risk-managementprograms,andoperations.Inaddition, theBoardhasconsideredinformationprovidedbyAssociated,theBoard’ssupervisory experiencesandthoseof otherrelevantbanksupervisoryagencieswiththeorganizations, andtheorganizations’recordsof compliancewithapplicablebanking,consumerprotection,andanti-money-launderinglaws,aswellasinformationprovidedbythecommenters. Associated,BankMutualCorp,andtheirsubsidiarydepositoryinstitutionsareeach consideredtobewellmanaged.Associatedhasarecordof successfullyintegratingorganizationsintoitsoperationsandrisk-managementsystemsafteracquisitions.Associated’s directorsandseniorexecutiveofficershaveknowledgeof andexperienceinthebanking andfinancialsectors,andAssociated’srisk-managementprogramappearsconsistentwith approvalof thisexpansionaryproposal. TheBoardalsohasconsideredAssociated’splansforimplementingtheproposal.Associatedhasconductedcomprehensiveduediligenceandisdevotingsignificantfinancialand otherresourcestoaddressallaspectsof thepost-integrationprocessforthisproposal. Associatedwouldimplementitsrisk-managementpolicies,procedures,andcontrolsatthe combinedorganization,andtheseareconsideredacceptablefromasupervisoryperspective.Inaddition,Associated’smanagementhastheexperienceandresourcestooperatethe 21 12CFR225.26(b). 22 Toeffectthetransaction,eachshareofBankMutualCorpcommonstockandoutstandingoptionstoacquire BankMutualCorpcommonstockwouldbeconvertedintotherighttoreceiveAssociatedcommonstock, basedonanexchangeratio.

36 FederalReserveBulletin|May2018 combinedorganizationinasafeandsoundmanner,andAssociatedplanstointegratethe existingmanagementandpersonnelof BankMutualCorpinamannerthataugments Associated’smanagement.23 Basedonallthefactsof record,includingAssociated’ssupervisoryrecord,managerialand operationalresources,andplansforoperatingthecombinedorganizationafterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandfutureprospectsof theorganizationsinvolvedintheproposal,aswellasthe recordsof effectivenessof AssociatedandBankMutualCorpincombattingmoneylaunderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Aspartof weighingthepossibleadverseeffectsof atransactionagainstitspublicbenefits asrequiredbysection4(j)(2)of theBHCAct,theBoardconsiderstheeffectsof the proposalontheconvenienceandneedsof thecommunitiestobeserved.24Initsevaluation of theeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thesecommunities,aswellasotherpotentialeffectsof theproposalonthe convenienceandneedsof thecommunitiestobeserved.Inthisevaluation,theBoard placesparticularemphasisontherecordsof therelevantdepositoryinstitutionsunderthe CRA.TheCRArequiresthefederalfinancialsupervisoryagenciestoencourageinsured depositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesinwhichthey operate,consistentwiththeinstitutions’safeandsoundoperation,25andrequiresthe appropriatefederalfinancialsupervisoryagencytoassessadepositoryinstitution’srecord of helpingtomeetthecreditneedsof itsentirecommunity,includinglow-and moderate-income(“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.26 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideloan applicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainother characteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,the supervisoryviewsof examiners,othersupervisoryinformation,informationprovidedby theapplicant,andcommentsreceivedontheproposal.TheBoardalsomayconsiderthe institution’sbusinessmodel,itsmarketingandoutreachplans,theorganization’splans afterconsummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof Associated BankandBankMutual,thefairlendingandcompliancerecordsof eachbank,thesupervisoryviewsof theOCCandtheConsumerFinancialProtectionBureau(“CFPB”),confidentialsupervisoryinformation,informationprovidedbyAssociated,andthepublic commentsreceivedontheproposal. 23 Followingconsummationoftheproposedtransaction,thecurrentchairmanoftheboardsofdirectorsof BankMutualCorpandBankMutualwillbenominatedtojointheboardsofdirectorsofAssociatedand AssociatedBank. 24 12U.S.C.§1843(j)(2). 25 12U.S.C.§2901(b). 26 12U.S.C.§2903.

LegalDevelopments:FirstQuarter,2018 37 PublicCommentsontheProposal TheBoardreceivedcommentsfromfourorganizations,togetherrepresentingapproximately400publiccommenters,whoobjectedtotheproposalbasedonallegedweaknesses intheCRAandfairlendingrecordsof AssociatedBank.Commentersexpressedgeneral concernthattheproposedtransactioncouldaffectthecommunitiesthatAssociatedand BankMutualCorpserve,particularlyinWisconsin,whereAssociatedBankandBank Mutualareheadquarteredandhaveasignificantbankingpresence.Somecommenters allegedthatAssociatedBankhadlowlevelsof lendingtoAfricanAmericanandHispanic borrowers,majority-minorityareas,andLMIindividualsandcensustracts,asreflectedin datareportedundertheHomeMortgageDisclosureActof 1975(“HMDA”).27Some commentersalsocriticizedAssociatedBank’ssmallbusinesslendingactivityandthe amountof itscommunitydevelopmentloansandinvestmentsinLMIcommunities.The majorityof thesecommentersbasedtheirallegationsonAssociatedBank’sCRAperformanceduringthe2013through2015reviewperiod;onecommentercriticizedAssociated Bank’smortgagelendingtoAfricanAmericansbasedon2016HMDAdata.28 SomecommentersnotedrecentimprovementincertainCRA-relatedactivitiesof AssociatedBankandBankMutual,suchasthedepositoryinstitutionsofferingflexibleloan products,supportingcommunityorganizations,andmakinginvestmentsinaffordable housing.However,eachof thosecommenterscriticizedotheraspectsof AssociatedBank’s CRAandfairlendingrecord.29Forexample,commenterscriticizedAssociatedBank’s CommunityCommitmentPlanforthe2016through2018period.Inparticular, commentersarguedthatthemortgage,smallbusiness,andcommunitydevelopment lendingbenchmarksintheplanarelowerthanthebank’sactualCRAperformanceduring the2013through2015evaluationperiod.Theseandothercommentersrequestedthatthe Boardconditionitsapprovalof theproposalonAssociatedBankenteringintoanupdated CRAplanthatincludesformalinputfromcommunityorganizationsandCRA-related benchmarksdesignedtomeettheneedsof LMIindividualsandcommunities,minority individuals,andmajority-minorityareas.30Inaddition,somecommentersrequestedthatas partof itsreviewof theproposal,theBoardnottakeintoconsiderationCRA-related actionsbyAssociatedBankthatrelatetotheagreementthatthebankenteredintowiththe UnitedStatesDepartmentof HousingandUrbanDevelopment(“HUD”)in2015.31 27 12U.S.C.§2801etseq. 28 SpecificgeographicareasofconcernforcommentersincludedpartsorallofAssociatedBank’sassessment areas(“AAs”)intheChicago-Naperville-ArlingtonHeightsMetropolitanDivision(“MD”)(“ChicagoAA”); CookCounty,Illinois;theMilwaukee,WisconsinMetropolitanStatisticalArea(“MSA”);theMinneapolis-St. Paul-Bloomington,Minnesota-WisconsinMultistateMSA(“MMSA”);HennepinCounty,Minnesota;Ramsey County,Minnesota;RacineCounty,Wisconsin;KenoshaCounty,Wisconsin;andLakeCounty,Illinois. 29 ThecommentersalsomadesuggestionsregardingspecificproductsandservicesthatAssociatedBankshould offerandrecommendedotherchangestoAssociatedBank’scurrentproductandserviceofferings.Although theBoardhasrecognizedthatbankscanhelptoservethebankingneedsofcommunitiesbymakingcertain productsorservicesavailableoncertaintermsoratcertainrates,theCRAneitherrequiresaninstitutionto provideanyspecifictypesofproductsorservicesnorprescribesthecostschargedforthem.See,e.g.,First HorizonNationalCorporationFRBOrderNo.2017-29at18fn.39(October30,2017);PacWestBancorp,FRB OrderNo.2015-26at10fn.24(2015). 30 TheBoardhasconsistentlyfoundthatneithertheCRAnorthefederalbankingagencies’CRAregulations requiredepositoryinstitutionstomakepledgesorenterintocommitmentsoragreementswithanyorganizations.See,e.g.,SterlingBancorp,FRBOrderNo.2017-21at10fn.24(August30,2017);Huntington Bancshares,Inc.,FRBOrderNo.2016-13at32fn.50(July29,2016);CITGroup,Inc.,FRBOrderNo.2015-20 at24fn.54(July19,2015);CitigroupInc.,88FederalReserveBulletin485(2002).Initsevaluationofa proposal,theBoardreviewstheexistingCRAperformancerecordofanapplicantandtheprogramsthatthe applicanthasinplacetoservethecreditneedsofitsCRAAAs. 31 Commentersnotedthat,inMay2015,AssociatedBankenteredintoaconciliationagreement(“Agreement”) withHUDtoresolveacomplaintbyHUDallegingthatAssociatedBankdiscriminatedonthebasisofrace andnationaloriginbydisproportionatelydenyingtheloanapplicationsofAfricanAmericanandHispanic applicantsduringtheperiodof2008through2010.ThecomplaintalsoallegedthatAssociatedBankunder-

38 FederalReserveBulletin|May2018 Inaddition,somecommentersexpressedconcernthatAssociatedBank’splanstocloseor consolidatebranchesinconnectionwiththeproposedtransactionmayadverselyaffect communitieswherethebranchesarelocated.Furthermore,somecommentersexpressed concernregardingthepercentageof branchesthatAssociatedBankhasinLMIor majority-minoritycensustractsinthebank’sChicagoAAandRacineCounty, WisconsinAA. Businessesof theInvolvedInstitutionsandResponsetotheComments Associatedprovidesadiverserangeof financialservices,primarilythroughitsprincipal subsidiary,AssociatedBank,whichoperatesthroughabranchnetworkinWisconsin,Illinois,andMinnesota.ProductsandservicesofferedbyAssociatedincludeconsumerand commercialbankingservices,mortgagebankingservices,commercialrealestatelending, creditcardlending,communitydevelopmentinvestments,fiduciarytrustservices,andasset managementservices. BankMutualCorpistheholdingcompanyof BankMutual,whichisafederalsavings associationthatoperatesthroughabranchnetworkinWisconsinandMinnesota.Bank Mutualprovidescommunitybankingproductsandservicessuchasresidentialmortgages; commercialrealestateloans;constructionanddevelopmentcommercialandindustrialand consumerloans;andinvestment,wealthmanagement,andinsuranceproductsandservices. Inresponsetothecomments,Associatedassertsthatapprovalof theproposalisjustified basedonAssociatedBank’smostrecentCRAperformanceevaluation.Associatednotes thatitoffersavarietyof mortgageloanprogramsdesignedtoincreaseaffordablehousing opportunitiesforLMIindividualsandcommunities.Forexample,Associatedrepresents thatAssociatedBankoffersproprietarymortgageloanproducts,whicharedesignedto assistLMIborrowersandfirst-timehomebuyersthroughfeaturessuchashigherloan-tovalueratios,downpaymentassistance,andaffordablesecondaryfinancing.Inaddition, Associatedrepresentsthatthebankparticipatesinavarietyof federal,state,andlocal mortgageassistanceprogramsandhasrecentlyestablishedcommunityadvisorycouncilsin Chicago,Milwaukee,andMinneapolisthatprovidethebankwithanadditionalplatform tohelpidentifyandaddresscommunitydevelopmentneedsinitsAAs. AssociatednotesthatAssociatedBankpublicizedathree-yearCommunityCommitment Planin2016,whichisspecificallydesignedtoexpandthebank’sCRA-relatedlendingto LMIandminorityindividualsinWisconsin,Illinois,andMinnesota.Associatedasserts thatAssociatedBankhassubstantiallyexceededormeteachof itsgoalsundertheplanfor 2016andexpectstomeetorexceedallgoalsoutlinedfor2017and2018. Associateddeniesthecommenters’allegationsthatAssociatedBankhasfairlendingshortcomings.Associatedrepresentsthatitisfirmlycommittedtomakingitscreditproducts andservicesavailabletocustomersonafairandequitablebasisandinstrictcompliance withfairlendinglawsandregulations.AssociatedrepresentsthatAssociatedBankmaintainsafairlendingprogramwithpoliciesandproceduresthathelpensurecompliancewith applicableCRAandfairlendingrequirements.Associatedrepresentsthatthisprogram includestestingandmonitoringof thebank’sloansforHMDAaccuracyandcompleteness;periodicanalysisof marketing,redlining,andsteeringrisks;andperiodicreviewsby servedneighborhoodswithsignificantAfricanAmericanorHispanicpopulations.AssociateddeniesthatAssociatedBankengagedintheprohibiteddiscriminationallegedintheHUDcomplaint.Associatedrepresentsthat thebankagreedtoenterintotheAgreementandimplementnewinitiativesthatwouldincreaseitslendingto minorityborrowersandcommunities.AssociatedassertsthatAssociatedBankhasmetorexceededtheAgreement’sannualrequirementsinatimelymannerandisaheadofscheduleinachievingvariousoverallrequirementsundertheAgreement.

LegalDevelopments:FirstQuarter,2018 39 thebank’sfairlendingteamtodeterminewhetherthereareprogram,operational,or compliancegapsinitsfairlendingprogram.Inaddition,Associatedrepresentsthatthe bankconductsperiodicfairlendingcomplianceriskassessmentsandescalatespotential issuestoitsseniormanagementanddirectors. AssociatedassertsthatAssociatedBank’sCRAperformance,asmeasuredthrough HMDAdatafrom2016throughmid-year2017,hasimprovedsincethebank’slastCRA performanceevaluation,whichanalyzedHMDAdatafrom2013through2015.For example,AssociatedassertsthatAssociatedBankhasincreasedthepercentageof itstotal HMDAloansandhomepurchaseloansthatitoriginatedinLMIcensustractsacrosseach of thegeographiesdiscussedbythecommenters.Similarly,Associatedassertsthat,from 2016throughmid-2017,AssociatedBankincreasedthepercentageof totalHMDAloans thatitoriginatedinmajority-minoritycensustractsandtoAfricanAmericanandHispanic borrowers. AssociatedassertsthatAssociatedBankhastakenstepstoincreaseitslendingtoLMIand minorityborrowers,includingthroughadvertisingandoutreachprograms,community developmentinvestments,andthebank’smulticultural-affordable-lendingteam.Associated alsonotesthatAssociatedBankhastakenstepstoimproveitssmallbusinesslending, particularlytobusinesseswithrevenuesof $1millionorless,businessesinLMIcensus tracts,andminority-andwomen-ownedbusinesses.Theseinitiativesincludeenhancingthe bank’screditunderwritingprocess,modifyingthebank’sSmallBusinessAdministration loanpolicies,investingintechnology,andpursuingformalizedpartnershipswithcommunitydevelopmentfinancialinstitutions. AssociateddisputestheassertionbysomecommentersthatAssociatedBank’scommunity developmentlendingandinvestmentactivitydoesnotcomparefavorablytocertaininstitutionswithasimilarprofile.Specifically,Associatedarguesthatthedatareferencedbythe commentersareinaccurateandthat,whenAssociatedBank’sentireportfolioof communitydevelopmentloansandinvestmentsisaccountedfor,thebank’sperformanceis comparabletothereferencedinstitutions. AssociatedrepresentsthatAssociatedBankconsideredavarietyof factorsinidentifying branchesforclosure,includingtheproximityof otherbranchlocations,therespective conditionsandavailableservicesattheconsolidatingorclosingbranchesandtherecipient branches,theeffectof branchclosuresoncustomersandtherelevantcommunities,andthe financialperformanceandfutureprospectsof theconsolidatingorclosingbranches. Associatedrepresentsthattheproposedbranchclosureswouldbecompletedinaccordance withtheapplicableregulatoryrequirementsassociatedwithclosingbranches.32With respecttoAssociatedBank’sbranchingstrategy,Associatedrepresentsthatthebankhas recentlytakenstepstoincreaseitspresenceinLMIgeographies.Forexample,Associated notesthatsince2014,AssociatedBankhasopenedabranchinamajority-minoritycensus tractof Racine,Wisconsin,andtwobranchesandtwoloanproductionofficesinLMI andmajority-minoritycommunitiesinChicago,Illinois. 32 TheBoardnotesthatsection42oftheFederalDepositInsuranceAct(12U.S.C.§1831r-1),asimplementedby theJointPolicyStatementRegardingBranchClosings(64Fed.Reg.34844(June29,1999)),requiresthata bankprovidethepublicwithatleast30days’notice,andtheappropriatefederalsupervisoryagencywithat least90days’notice,beforethedateofaproposedbranchclosing.Thebankalsoisrequiredtoprovidereasons andothersupportingdatafortheclosure,consistentwiththeinstitution’swrittenpolicyforbranchclosings.

40 FederalReserveBulletin|May2018 Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardevaluates aninstitution’sperformancerecordinlightof examinationsbytheappropriatefederal supervisorsof theCRAperformancerecordsof therelevantinstitutions,aswellasinformationandviewsprovidedbytheappropriatefederalsupervisors,publiccomments receivedontheproposal,andtheresponsetocommentsbytheapplicant.33Inthiscase,the Boardconsideredthesupervisoryviewsof theOCCandtheCFPB. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.34Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplylending,investment,andserviceteststo evaluatetheperformanceof alargeinsureddepositoryinstitutioninhelpingtomeetthe creditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’shomemortgage,smallbusiness,smallfarm,andcommunitydevelopmentlendingto determinewhethertheinstitutionishelpingtomeetthecreditneedsof individualsand geographiesof allincomelevels.Aspartof thelendingtest,examinersreviewandanalyze aninstitution’sdatareportedunderHMDA,inadditiontosmallbusiness,smallfarm,and communitydevelopmentloandatacollectedandreportedundertheCRAregulations,to assessaninstitution’slendingactivitieswithrespecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slendingperformanceisbasedonavarietyof factors,including(1)thenumberandamountsof homemortgage,smallbusiness,small farm,andconsumerloans(asapplicable)intheinstitution’sAAs;(2)thegeographicdistributionof theinstitution’slending,includingtheproportionanddispersionof theinstitution’slendinginitsAAsandthenumberandamountsof loansinlow-,moderate-, middle-,andupper-incomegeographies;(3)thedistributionof loansbasedonborrower characteristics,including,forhomemortgageloans,thenumberandamountsof loansto low-,moderate-,middle-,andupper-incomeindividuals;35(4)theinstitution’scommunity developmentlending,includingthenumberandamountsof communitydevelopmentloans andtheircomplexityandinnovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpracticestoaddressthecreditneedsof LMIindividualsandgeographies. TheBoardisconcernedwhencommentersassertthatHMDAdatareflectdisparitiesinthe ratesof loanapplications,originations,ordenialsamongmembersof differentracialor ethnicgroupsinlocalareas.Thesetypesof disparitiesmayindicateweaknessesinthe adequacyof policiesandprogramsataninstitutionformeetingitsobligationstoextend creditfairly.However,otherinformationcriticaltoaninstitution’screditdecisionsisnot availablefromHMDAdata.36Consequently,HMDAdatadisparitiesmustbeevaluatedin thecontextof otherinformationregardingthelendingrecordof aninstitution. 33 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48506, 48548(July25,2016). 34 12U.S.C.§2906. 35 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See e.g.,12CFR228.22(b)(3). 36 Otherdatarelevanttocreditdecisionscouldincludecredithistory,debt-to-incomeratios,andloan-to-value ratios.Accordingly,whenconductingfairlendingexaminations,examinersanalyzesuchadditionalinformation beforereachingadeterminationregardinganinstitution’scompliancewithfairlendinglaws.

LegalDevelopments:FirstQuarter,2018 41 CRAPerformanceof AssociatedBank AssociatedBankwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheOCC,asof July27,2015(“AssociatedBankEvaluation”).37 Thebankreceived“LowSatisfactory”ratingsfortheLendingTestandtheServiceTest anda“HighSatisfactory”ratingfortheInvestmentTest.38Examinersnotedthatthe bank’sperformanceinWisconsinreceivedthegreatestemphasisbecauseitrepresentedthe bank’smostsignificantmarket. ExaminersfoundthatAssociatedBank’soveralllendingactivitywasgood.InWisconsin, examinersfoundthatthebank’slevelof lendingwasexcellent,particularlyforhomemortgageloans.Examinersfoundthatthedistributionof thebank’sloansamongborrowersof differentincomelevelswasgood,andthedistributionof thebank’sloansamongdifferent geographieswasadequate.Examinersdeterminedthatthebankmadeanadequatelevel of communitydevelopmentloansinWisconsin.IntheMilwaukeeMSA,anareaof particularconcerntocommenters,examinersfoundthatAssociatedBank’soveralllending activitywasexcellent.InIllinois,examinersfoundthatthebankhadanadequatelevelof lendingforhomemortgageloansandforsmallbusinessloans.Examinersfoundthatthe distributionof thebank’sloansamongborrowersof differentincomelevelswasgood,and thedistributionof thebank’sloansamongdifferentgeographieswasadequate.InMinnesota,examinersfoundthatthebankhadagoodlevelof lendingforhomemortgageloans andsmallbusinessloansandthatthedistributionof thebank’sloansamongborrowersof differentincomelevelswasgood.Examinersalsofoundthatthebank’sdistributionof loansamongdifferentgeographieswasadequateinMinnesota. ExaminersfoundthatAssociatedBankhadanoverallgoodamountof investmentsinits AAs.Examinersnotedthatthebank’sinvestmentssupported,amongotherthings,affordablehousingneedsinitsAAs,communitydevelopmentservices,andeconomicdevelopment.InWisconsinandMinnesota,examinersfoundthatthebankhadanadequatelevel of qualifiedinvestmentsthatwereresponsivetocommunityneeds.IntheMilwaukeeMSA, examinersfoundthatAssociatedBankdemonstratedadequateresponsivenesstothe communitydevelopmentneedsof thecommunityandmadeoccasionaluseof innovative andcomplexinstruments.InIllinois,examinersfoundthatthebank’sperformanceunder theInvestmentTestwas“Outstanding”basedonanexcellentlevelof investmentsinthe Rockford,IllinoisMSAandanadequatelevelof investmentsintheSt.Louis,IllinoisMSA. ExaminersfoundthatAssociatedBank’sbrancheswerereasonablyaccessibletoessentially allportionsof thebank’sAAs.Inaddition,examinersdeterminedthatthebankhadan adequatedistributionof retailservicesinthemajorityof itsAAsandthatthebank’slevel of communitydevelopmentservicesinitsAAswasgood.InWisconsin,examinersfound thatthebank’sbrancheswereaccessibletoessentiallyallLMIindividualsandgeographies. Inaddition,examinersnotedthatthebankhadagoodlevelof communitydevelopment servicesthatwerefoundtoberesponsivetocommunityneeds.ExaminersnotedthatAsso- 37 TheAssociatedBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.TheevaluationperiodforHMDAandsmallbusinessloanswasJanuary1,2011,throughDecember31,2013.TheevaluationperiodforcommunitydevelopmentloansandserviceswasJanuary1,2011,throughJuly27,2015.The evaluationperiodforinvestmentswasJuly1,2011,throughJuly27,2015. 38 TheAssociatedBankEvaluationincludedfull-scopeevaluationsinallorpartsoftheChicago-Naperville- ArlingtonHeightsMD;theMinneapolis-St.Paul-Bloomington,Minnesota-WisconsinMMSA;theRockford, IllinoisMSA;theSt.Louis,IllinoisMSA;theRochester,MinnesotaMSA;theMilwaukee-Waukesha-West Allis,WisconsinMSA(“MilwaukeeMSA”);theGreenBay,WisconsinMSA;theWisconsinNon-MSAAA (Ashland,Clark,Crawford,Dodge,Door,Forest,Green(2011-2013),Iron,Jefferson,Lincoln,Manitowoc, Marinette,Oneida,Portage,Price,Richland,Sauk,Sawyer,Shawano,Taylor,Vernon,Vilas,Walworth, Waupaca,andWoodcounties);andtheMadison,WisconsinMSA.Limited-scopeevaluationswereperformed ofthebank’sotherAAs.

42 FederalReserveBulletin|May2018 ciatedBank’semployeesparticipatedinavarietyof organizationsthatbenefitedLMIindividuals,promotedeconomicdevelopment,andprovidedaffordablehousing.Inthe MilwaukeeMSA,examinersfoundthatAssociatedBank’sbrancheswereaccessibleto individualsof differentincomelevelsandthatthebankdemonstratedanexcellentlevelof serviceactivitiesandexcellentresponsivenesstotheaffordablehousingneedsof the community.InIllinois,examinersfoundthatthebank’sbranchdistributionwasaccessible toessentiallyallportionsof thebank’sAAsandthatthebankhadagoodlevelof communitydevelopmentservices.InMinnesota,examinersconcludedthatthebank’sbranch distributionwasaccessibletolimitedportionsof theRochester,MinnesotaMSA,the bank’sfull-scopeAAinthestate. AssociatedBank’sActivitiesSincetheAssociatedBankEvaluation Associatedrepresentsthat,sincetheAssociatedBankEvaluation,AssociatedBankhas strengtheneditsCRAperformanceacrossitsAAs.Inparticular,Associatedassertsthatthe bankhasfocusedconsiderableeffortsonimprovingitslendinginLMIgeographiesacross itsAAs.Associatedrepresentsthat,sincetheAssociatedBankEvaluation,thebankhas increaseditslendingtoLMIindividualsinkeymarketsforthebank,suchasthe MilwaukeeMSA,theChicagoAA,andtheMinneapolisAA.Inaddition,Associatednotes thatthebank’sCommunityCommitmentPlanfor2016through2018includesloansand grantstoLMIandminorityindividualsandcommunitiesandanincreasedcommitmentto marketingthebank’sproductsandservicestoLMIandminorityindividualsthrough outreachefforts,financialeducationprograms,andpartnershipswithcommunitygroups. Associatedrepresentsthat,aspartof thoseefforts,thebankformedadvisorycouncilsin Chicago,Milwaukee,andMinneapolisthroughwhichitpartnerswithavarietyof communityorganizations.Inaddition,Associatednotesthatthebankhasopenedfivenewoffices inLMIcommunitiessinceitsmostrecentCRAevaluationaspartof itseffortstoexpand itspresenceinLMIgeographies. Aspartof itseffortstoenhanceitsCRAprogram,AssociatedrepresentsthatAssociated BankhassignificantlyincreaseditstotalqualifiedinvestmentssincetheAssociatedBank Evaluation.AccordingtoAssociated,thebank’sinvestmentsandgrantssupportavariety of activities,includingminoritymicro-enterprisesandsmallbusinesses,jobskillstraining, employmentservices,work-studyprogramsforLMIstudents,andfinancialeducation. Associatedassertsthatthebankhascontinuedtosupportitscommunitiesthroughan activevolunteerprogramandhasdoubledthehoursithasspentprovidingqualified communitydevelopmentservices,comparedtothehoursreportedintheAssociatedBank Evaluation.Associatedrepresentsthatthebank’sserviceactivitiesincludeparticipatingon boardsandcommitteesof nonprofitorganizationsandprovidingfinancialliteracy training. CRAPerformanceof BankMutual BankMutualwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheOCC,asof January28,2013(“BankMutualEvaluation”).39Thebankreceived“HighSatisfactory”ratingsfortheLendingTestandthe ServiceTestanda“LowSatisfactory”ratingfortheInvestmentTest.40 39 TheBankMutualEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Theevaluation periodforHMDAloans,smallbusinessloans,investments,andserviceswasJanuary1,2008,through December31,2012.TheevaluationperiodforcommunitydevelopmentloanswasMay22,2008,through January28,2013. 40 TheBankMutualEvaluationincludedfull-scopeevaluationsinallorpartsoftheAppleton,WisconsinMSA; theEauClaire,WisconsinMSA;theGreenBay,WisconsinMSA;theMadison,WisconsinMSA;the Milwaukee-Waukesha-WestAllis,WisconsinMSA;theRacine,WisconsinMSA;theWisconsin

LegalDevelopments:FirstQuarter,2018 43 ExaminersconcludedthatBankMutual’slendinglevelsreflectedgoodresponsivenessto thecreditneedsof itsoverallAAs.Examinersfoundthatahighpercentageof thebank’s HMDAandsmallbusinessloanswasmadewithinitsAAs.Examinersconcludedthatthe distributionof thebank’sloansamongborrowersof differentincomelevelswasgoodand thatthebank’sdistributionof smallbusinessloanstosmallbusinesseswasexcellent. Examinersnotedthatthebank’soveralldistributionof HMDAandsmallbusinessloans reflectedadequategeographicdistributionthroughoutthebank’sAAs.Examinersfound thatthebankhadnumerousinnovativeorflexibleloanproductsorservicesthathelpedto servethecreditneedsof itsAAs.Examinersnotedthatmanyof thoseproductswere especiallybeneficialtoLMIborrowers. ExaminersconcludedthatBankMutualhadanadequatelevelof qualifiedcommunity developmentinvestments,grants,anddonations.Examinersnotedthatthebankmade numerousqualifyinggrantsanddonationsduringthereviewperiod,includingtoorganizationsthatprovideservicestoLMIindividualsandfamilies.Examinersfoundthatthe bank’sdeliverysystemswereaccessibletoessentiallyallportionsof itsoverallAAs.ExaminersfoundthatthebankdidnothavebranchesorATMsinlow-incomeareas,butnoted thatthebank’spercentageof branchesandATMslocatedinmoderate-incomeAAswas commensuratewiththedemographicsof itsAAsasawhole. BankMutual’sActivitiesSincetheBankMutualEvaluation Associatedrepresentsthat,sincetheBankMutualEvaluation,BankMutualhasmaintainedstrongCRAperformanceacrossitsAAs,asreflectedinthenumberandamountof thebank’sHMDA,smallbusiness,andcommunitydevelopmentloansandqualifiedgrants anddonationsmadesince2013.AssociatedrepresentsthatBankMutualhasutilized lendingprogramsdesignedtoassistLMIhomebuyersandcommunitiesandhasfocusedits communitydevelopmentlending,investments,andgrantactivityonsupportingnonprofit organizationsthatsupporthousingforLMIindividuals.Associatedalsorepresentsthat BankMutual’scommunitydevelopmentserviceactivitieshaveincludedproviding financial-relatedtechnicalassistancetononprofitcommunityorganizationsandconducting homeownershipcounselingandfirst-timehomebuyereducationseminars. AdditionalSupervisoryViews Initsreviewof theproposal,theBoardconsultedwiththeOCCregardingtheCRA, consumercompliance,andfairlendingrecordsof AssociatedBankandBankMutual.The OCCreviewedthedepositoryinstitutionmergerunderlyingthisproposal,aswellasthe commentsreceivedbytheBoard.TheBoardhasalsoconsideredtheresultsof themost recentconsumercomplianceexaminationsof bothAssociatedBankandBankMutual conductedbytheOCC,whichincludedreviewsof thedepositoryinstitutions’compliance managementsystemsandthedepositoryinstitutions’compliancewithcertainfair lendinglawsandregulations.Examinersalsoconductedfairlendingriskassessmentsof bothinstitutions.Inaddition,theBoardconsultedwiththeCFPBregardingAssociated Bank’sconsumercompliancerecord. TheBoardhastakentheconsultationswiththeOCCandtheCFPBandtheinformation discussedaboveintoaccountinevaluatingtheproposedtransaction,includinginconsideringwhetherAssociatedhastheexperienceandresourcestoensurethattheorganization nonmetropolitanAA(consistingofallofBarron,Dodge,Door,Dunn,GreenLake,Marinette,Polk,Sawyer, Shawano,Washburn,andWaupacacounties,andaportionofManitowocCounty);andtheMinneapolis-St. Paul-Bloomington,Minnesota-WisconsinMMSA.Limited-scopeevaluationswereperformedofthebank’s otherAAs.

44 FederalReserveBulletin|May2018 effectivelyimplementspoliciesandprogramsthatwouldallowthecombinedorganization toserveeffectivelythecreditneedsof allthecommunitieswithinthefirm’sAAs. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsideredotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.Associatedrepresentsthat,afterconsummationof theproposedtransaction,itwouldconsolidatecertainduplicativeproductsof the combinedorganization.Associatedrepresentsthatitbelievestheproductsandservicesthat wouldremainwouldbecomparabletothosecurrentlyofferedbyAssociatedBankand BankMutualandwouldcontinuetomeettheneedsof thecustomersandAAsof AssociatedBankandBankMutual. AssociatedrepresentsthatAssociatedBankwouldbenefitfromBankMutual’srelationshipswithvariouscommunityorganizations,whichwouldresultinnewoutreachopportunitiestoincreasetheuseof AssociatedBank’sproductsandservices.Inaddition,Associatedrepresentsthattheproposalwouldprovideexpandedproductcapabilitiestocustomers of BankMutual,includingaccesstoAssociatedBank’sdebitcardtransaction-based rewardsprogram,modernizedhealthsavingsaccountsolutions,SmallBusinessAdministrationloans,privatebankingservices,avarietyof newbusinesslendingproducts,and AssociatedBank’shigherlendinglimitsandenhancedbusinesscapabilities.Inaddition, Associatedrepresentsthatcustomersof AssociatedBankandBankMutualwouldbenefit fromalargerbranchandATMnetwork. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws,supervisoryviewsof theOCCandtheCFPB, confidentialsupervisoryinformation,informationprovidedbyAssociated,thepublic commentsontheproposal,andotherpotentialeffectsof theproposalontheconvenience andneedsof thecommunitiestobeserved.Basedonthatreview,theBoardconcludesthat theconvenienceandneedsfactorisconsistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) added“risktothestabilityof theUnitedStatesbankingorfinancialsystem”tothelistof possibleadverseeffectsthattheBoardmustweighagainstanyexpectedpublicbenefitsin consideringaproposalundersection4(j)of theBHCAct.”41 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the 41 Dodd-FrankAct§604(e),Pub.L.No.111-203,124Stat.1376,1601–1602(2010),codifiedat12U.S.C. §1843(j)(2)(A).

LegalDevelopments:FirstQuarter,2018 45 resultingfirm.42Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.43 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.44 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.Both theacquirerandthetargetarepredominantlyengagedinavarietyof consumerand commercialbankingactivities.45Theproformaorganizationwouldhaveminimalcrossborderactivitiesandwouldnotexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.Inaddition,theorganizationwouldnotbeacriticalservicesprovideror sointerconnectedwithotherfirmsorthemarketsthatitwouldposeasignificantriskto thefinancialsystemintheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. AdditionalPublicBenefitsof theProposal Asnoted,inconnectionwithanoticeundersection4(c)(8)of theBHCAct, section4(j)(2)of theBHCActrequirestheBoardtoconsiderwhetherperformanceof the activitybyabankholdingcompanycanreasonablybeexpectedtoproducebenefitstothe publicthatoutweighpossibleadverseeffects.46Asdiscussedabove,theBoardhasconsideredthattheproposedtransactionwouldprovidegreaterservices,productofferings,and geographicscopetocustomersof AssociatedBankandBankMutual.Inaddition,the acquisitionwouldensurecontinuityandstrengthof servicetothesecustomers. TheBoardconcludesthattheconductof theproposednonbankingactivitieswithinthe frameworkof RegulationY,Boardprecedent,andthisorder,isnotlikelytoresultin 42 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 43 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 44 SeePeoplesUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 45 AssociatedandBankMutualCorpofferarangeofretailandcommercialbankingproductsandservices.Associatedhas,andasaresultoftheproposalwouldcontinuetohave,asmallmarketshareintheseproductsand servicesonanationwidebasis. 46 12U.S.C.§1843(j)(2)(A).

46 FederalReserveBulletin|May2018 significantadverseeffects,suchasundueconcentrationof resources,decreasedorunfair competition,conflictsof interests,unsoundbankingpractices,orrisktothestabilityof the UnitedStatesbankingorfinancialsystem.Onthebasisof theentirerecord,including conditionsnotedinthisorder,andforthereasonsdiscussedabove,theBoardbelievesthat thebalanceof benefitsandpotentialadverseeffectsrelatedtocompetition,financialand managerialresources,convenienceandneeds,financialstability,andotherfactorsweighin favorof approvalof theproposal.Accordingly,theBoarddeterminesthatthebalanceof thepublicbenefitsof theproposalunderthestandardof section4(j)(2)of theBHCActis consistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthatthenotice shouldbe,andherebyis,approved.47Inreachingitsconclusion,theBoardhasconsidered allthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderundertheBHC Actandotherapplicablestatutes.TheBoard’sapprovalisspecificallyconditionedon compliancebyAssociatedwithallof theconditionsimposedinthisorder,includingreceipt of allrequiredregulatoryapprovals,andwiththecommitmentsmadetotheBoardin connectionwiththenotice.Forpurposesof thisaction,theconditionsandcommitments aredeemedtobeconditionsimposedinwritingbytheBoardinconnectionwithitsfindingsanddecisionhereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Byorderof theBoardof Governors,effectiveJanuary23,2018. Votingforthisaction:ChairYellen,ViceChairmanforSupervisionQuarles,andGovernorsPowellandBrainard. MargaretMcCloskeyShanks DeputySecretaryof theBoard Appendix Associated/BankMutualCorpBankingMarketsConsistentwithBoardPrecedentandDOJBankMerger Guidelines Remaining Amountof MarketDeposit Bank Rank ResultingHHI ChangeinHHI Numberof Deposits Shares(%) Competitors Appleton,Wisconsin(“Appleton”)–DefinedasOutagamieCounty,Wisconsin(exceptOneidatownship);Winchester,Clayton,Neenah,and MenashatownshipsinWinnebagoCounty,Wisconsin;andHarrison,Woodville,Brillion,Rantoul,Chilton,Stockbridge,BrothertownandCharlestown townshipsinCalumetCounty,Wisconsin. AssociatedPre-Consummation 3 $600.2M 12.8 BankMutualCorp 25 $7.9M 0.1 AssociatedPost-Consummation 3 $616.2M 13.2 1069 5 28 (continuedonnextpage) 47 AcommenterrequestedthattheBoardholdapublichearingormeetingontheproposal.TheBoard’sregulationsprovideforahearingornoticeundersection4oftheBHCActiftherearedisputedissuesofmaterial factthatcannotberesolvedinsomeothermanner.12CFR225.28(a)(2).Underitsrules,theBoardalsomay,in itsdiscretion,holdapublichearingifappropriatetoallowinterestedpersonsanopportunitytoprovide relevanttestimonywhenwrittencommentswouldnotadequatelyrepresenttheirviews.12CFR262.3(e).The Boardhasconsideredthecommenter’srequestinlightofallthefactsofrecord.IntheBoard’sview,the commenterhashadampleopportunitytosubmitcommentsontheproposaland,infact,submittedwritten commentsthattheBoardhasconsideredinactingontheproposal.Thecommenter’srequestdidnotidentify disputedissuesoffactmaterialtotheBoard’sdecisionthatwouldbeclarifiedbyapublicmeeting.Inaddition, therequestdidnotdemonstratewhywrittencommentsdonotpresentthecommenter’sviewsadequatelyor whyahearingormeetingotherwisewouldbenecessaryorappropriate.Forthesereasons,andbasedonallthe factsofrecord,theBoardhasdeterminedthatapublichearingormeetingisnotrequiredorwarrantedinthis case.Accordingly,therequestforapublichearingontheproposalisdenied.

LegalDevelopments:FirstQuarter,2018 47 Appendix—continued Associated/BankMutualCorpBankingMarketsConsistentwithBoardPrecedentandDOJBankMerger Guidelines—continued Remaining Amountof MarketDeposit Bank Rank ResultingHHI ChangeinHHI Numberof Deposits Shares(%) Competitors Beloit-Janesville,Wisconsin(“Beloit-Janesville”)–DefinedasRockCounty,Wisconsin;plusSumnertownshipinJeffersonCounty,Wisconsin; andAlbiontownshipinDaneCounty,Wisconsin. AssociatedPre-Consummation 1 $579.2M 21.5 BankMutualCorp 16 $16.3M 0.6 AssociatedPost-Consummation 1 $611.9M 22.6 1318 37 18 Chicago,Illinois(“Chicago”)–DefinedasCook,DuPage,Lake,Will,Kane,McHenry,Kendall,DeKalb,Grundy,andKankakeecountiesofIllinois; plusMilksGrove,Chebanse,Papineau,Beaverville,Ashkum,Martinton,andBeavertownshipsofIroquoisCounty,Illinois;plusRoger,Mona,Pella, andBrentontownshipsinFordCounty,Illinois;andPleasantPrairie,Bristol,Salem,andRandalltownshipsinKenoshaCounty,Wisconsin. AssociatedPre-Consummation 15 $4.1B 1.1 BankMutualCorp 169 $4.7M Less than0.1 AssociatedPost-Consummation 15 $4.1B 1.1 925 0 178 EauClaire,Wisconsin(“EauClaire”)–DefinedasChippewa,EauClaire,andDunncountiesofWisconsin;PepinCounty,Wisconsin(minusthe townsofStockholmandPepin);thetownsofMondovi,Naples,Gilmanton,Dover,andMontanainBuffaloCounty,Wisconsin;thetownsofAlbion, Unity,Sumner,ChimneyRock,Hale,Burnside,Lincoln,andPigeoninTrempealeauCounty,Wisconsin;andthetownsofGarfield,Cleveland, Northfield,GardenValley,andAlmainJacksonCounty,Wisconsin. AssociatedPre-Consummation 10 $134.0M 3.5 BankMutualCorp 15 $96.5M 2.5 AssociatedPost-Consummation 3 $327.1M 8.4 649 22 29 FondduLac,Wisconsin(“FondduLac”)–DefinedasFondduLacCounty,Wisconsin(exceptAshford,Auburn,andCalumettownships);and Lomira,Leroy,Chester,Burnett,OakGrove,Trenton,BeaverDam,FoxLake,andWestfordtownshipsinDodgeCounty,Wisconsin. AssociatedPre-Consummation 11 $89.9M 3.5 BankMutualCorp 15 $26.3M 1 AssociatedPost-Consummation 7 $142.7M 5.5 1390 -11 17 Madison,Wisconsin(“Madison”)–DefinedasIowa,Sauk,Green,andColumbiacountiesofWisconsin;DaneCounty,Wisconsin(exceptAlbion township);WaynetownshipinLafayetteCounty,Wisconsin;plusCalamus,Elba,Portland,andLowelltownshipsinDodgeCounty,Wisconsin;and Waterloo,LakeMills,andOaklandtownshipsinJeffersonCounty,Wisconsin. AssociatedPre-Consummation 2 $2.6B 13 BankMutualCorp 45 $40.3M 0.2 AssociatedPost-Consummation 2 $2.7B 13.4 668 8 56 Marinette,Wisconsin(“Marinette”)–DefinedasMarinetteCounty,Wisconsin(minusNiagaratown);andMenomineeCounty,Minnesota(minus Meyer,Spalding,andHarristownships). AssociatedPre-Consummation 6 $48.8M 4.8 BankMutualCorp 7 $42.4M 4.2 AssociatedPost-Consummation 3 $133.6M 12.8 1827 -22 12 Milwaukee,Wisconsin(“Milwaukee”)–DefinedasMilwaukee,Ozaukee,Racine,Washington,andWaukeshacountiesofWisconsin;EastTroy townshipinWalworthCounty,Wisconsin;Somers,Paris,Brighton,andWheatlandtownshipsinKenoshaCounty,Wisconsin;JeffersonCounty, Wisconsin(exceptWaterloo,LakeMills,Oakland,andSumnertownships);AshfordandAuburntownshipsinFondduLacCounty,Wisconsin;and theeasternhalfofDodgeCounty,Wisconsin(Theresa,Herman,Williamstown,Hubbard,Rubicon,Ashippun,Hustisford,Lebanon,Clyman,Emmet, andShieldstownships). AssociatedPre-Consummation 4 $5.5B 7.5 BankMutualCorp 19 $413.7M 0.5 AssociatedPost-Consummation 4 $6.3B 8.7 2130 -6 57 Minneapolis/St.Paul,Minnesota(“Minneapolis/St.Paul”)–DefinedasAnoka,Hennepin,Ramsey,Washington,Carver,Scott,andDakota countiesofMinnesota;Lent,ChisagoLake,Shafer,Wyoming,andFranconiatownshipsinChisagoCounty,Minnesota;BlueHill,Baldwin,Orrock, Livonia,andBigLaketownshipsandthecityofElkRiverinSherburneCounty,Minnesota;Monticello,Buffalo,Rockford,andFranklintownships andthecitiesofOtsego,Albertville,Hanover,andSaintMichaelinWrightCounty,Minnesota;Derrynane,Lanesburgh,andMontgomerytownships andMontgomerycityinLeSueurCounty,Minnesota;andHudsontownshipinSaintCroixCounty,Wisconsin. AssociatedPre-Consummation 8 $1.4B 0.8 BankMutualCorp 108 $23.8M Less than0.1 AssociatedPost-Consummation 7 $1.5B 0.8 3170 -1 128 RedWing,Minnesota(“RedWing”)–DefinedasGoodhueCounty,Minnesota(minusWarsaw,Holden,Wanamingo,Minneola,Zumbrota, Kenyon,CherryGrove,Roscoe,andPineIslandtownships);MountPleasantandLaketownshipsinWabashaCounty,Minnesota;Stockholmand PepintownshipsinPepinCounty,Wisconsin;andPierceCounty,Wisconsin(minusthetownsofClifton,RiverFalls,Martell,Gilman,andSpring Lake). (continuedonnextpage)

48 FederalReserveBulletin|May2018 Appendix—continued Associated/BankMutualCorpBankingMarketsConsistentwithBoardPrecedentandDOJBankMerger Guidelines—continued Remaining Amountof MarketDeposit Bank Rank ResultingHHI ChangeinHHI Numberof Deposits Shares(%) Competitors AssociatedPre-Consummation 4 $124.1M 12.2 BankMutualCorp 9 $31.0M 3 AssociatedPost-Consummation 2 $186.2M 17.9 1217 103 15 RiceLake,Wisconsin(“RiceLake”)–DefinedasWashburnandBarroncountiesofWisconsin;andthetownsofLenroot,Hayward,BassLake, SandLake,andEdgewaterinSawyerCounty,Wisconsin. AssociatedPre-Consummation 14 $25.9M 1.7 BankMutualCorp 13 $30.4M 2 AssociatedPost-Consummation 9 $86.7M 5.6 1082 -18 14 SaintCroixFalls,Wisconsin(“SaintCroixFalls”)–DefinedasBurnettandPolkcountiesofWisconsin;SaintCroixCounty,Wisconsin(minusthe townofHudson);andthetownsofClifton,RiverFalls,Martell,Gilman,andSpringLakeinPierceCounty,Wisconsin. AssociatedPre-Consummation 13 $29.2M 1.8 BankMutualCorp 18 $6.1M 0.4 AssociatedPost-Consummation 12 $41.5M 2.6 1015 -5 17 Sheboygan,Wisconsin(“Sheboygan”)–DefinedasSheboyganCounty,Wisconsin;CalumettownshipinFondduLacCounty,Wisconsin; SchleswigtownshipinManitowocCounty,Wisconsin;andNewHolsteintownshipinCalumetCounty,Wisconsin. AssociatedPre-Consummation 8 $120.3M 5.5 BankMutualCorp 13 $34.7M 1.6 AssociatedPost-Consummation 5 $189.8M 8.6 1150 6 14 SturgeonBay,Wisconsin(“SturgeonBay”)–DefinedasDoorCounty,Wisconsin. AssociatedPre-Consummation 2 $144.7M 22.3 BankMutualCorp 5 $16.8M 2.6 AssociatedPost-Consummation 2 $178.3M 26.9 4796 0 4 DataandrankingsareasofJune30,2017.Allrankings,marketdepositshares,andHHIsarebasedonthriftdepositsweightedat50percent. Theremainingnumberofcompetitorsnotedforeachmarketincludesthrifts,whereapplicable.

LegalDevelopments:FirstQuarter,2018 49 Orders Issued Under Bank Merger Act Huron Community Bank East Tawas, Michigan OrderApprovingtheAcquisitionof AssetsandAssumptionof Liabilities FRBOrderNo.2018-02(January16,2018) HuronCommunityBank(“HuronBank”),thestatememberbanksubsidiaryof Huron CommunityFinancialServices,Inc.(“HuronFinancial”),bothofEastTawas,Michigan, hasrequestedtheBoard’sapprovalundersection18(c)of theFederalDepositInsurance Act(“BankMergerAct”)1toacquirecertainassetsandassumecertainliabilitiesof a branchof FirstFederalof NorthernMichigan(“FirstFederal”),afederalsavingsassociationsubsidiaryof FirstFederalof NorthernMichiganBancorp,Inc.(“FirstFederal Bancorp”),bothof Alpena,Michigan. Undertheproposal,HuronBankwouldassumeapproximately$11.5millionof First Federal’s$286.5millionindeposits,aswellasacquireapproximately$1.5millionof First Federal’sloansandrelatedassets.ThedepositsandassetsarecurrentlyheldatFirstFederal’sbranchinOscoda,Michigan(“OscodaBranch”),and,uponconsummationof the proposal,wouldbeintegratedintoHuronBank.2 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeengiveninaccordancewiththeBankMergerActandtheBoard’sRulesof Procedure.3Thetimeforsubmittingcommentshasexpired,andnocommentswerereceived.The Boardhasconsideredtheproposalinlightof thefactorssetforthintheBankMergerAct. AsrequiredbytheBankMergerAct,areportonthecompetitiveeffectsof theproposal wasrequestedfromtheUnitedStatesAttorneyGeneral,andacopyof therequesthas beenprovidedtotheFederalDepositInsuranceCorporation. HuronFinancialisthe2,898thlargestinsureddepositoryorganizationintheUnitedStates bydeposits,controllingdepositsof approximately$160.8million,whichrepresentless than1percentof thetotalamountof depositsof insureddepositoryinstitutions4inthe UnitedStates.5HuronFinancialcontrolsHuronBank,whichhasofficesonlyinMichigan. HuronBankisthe81stlargestinsureddepositoryinstitutioninMichigan,controlling approximately$160.8millionindeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsinthatstate.HuronBankhastotal assetsof approximately$215million.6 FirstFederalBancorpisthe1,890thlargestinsureddepositoryorganizationintheUnited Statesbydeposits,controllingdepositsof approximately$286.5million,whichrepresent lessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsinthe UnitedStates.FirstFederalBancorpcontrolsFirstFederal,whichhasofficesonlyin 1 12U.S.C.§1828(c). 2 TheOscodaBranchislocatedat201NorthStateStreet,Oscoda,Michigan48750.HuronBankwouldnot acquiretheOscodaBranchasaresultofthetransaction.Instead,HuronBankwouldassumeallofthedeposit liabilitiesheldatthebranchasoftheclosingdateofthetransaction,inadditiontoasmallamountofthe branch’sloans. 3 12U.S.C.§1828(c)(3);12CFR262.3(b). 4 Inthiscontext,insureddepositoryinstitutionsincludecommercialbanks,savingsbanks,andsavings associations. 5 Nationaldeposit,ranking,andmarketsharedataareasofJune30,2017.Statedepositrankingdataareasof June30,2017.MarketdepositdataareasofJune30,2017. 6 TotalassetdataareasofSeptember30,2017.

50 FederalReserveBulletin|May2018 Michigan.TheOscodaBranchof FirstFederalhas$11.5millionindeposits,whichrepresentsasmallpercentageof FirstFederal’stotalstatedepositsof $286.5million.First Federalhastotalassetsof $335.1million. Onconsummationof theproposal,HuronFinancialwouldcontrolapproximately $172.3millionindeposits.HuronBankwouldbecomethe77thlargestinsureddepository institutioninMichigan,controllingapproximately0.1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. CompetitiveConsiderations TheBankMergerActprohibitstheBoardfromapprovingaproposalthatwouldresultina monopolyorwouldbeinfurtheranceof anattempttomonopolizethebusinessof banking inanyrelevantmarket.7TheBankMergerActalsoprohibitstheBoardfromapprovinga proposalthatwouldsubstantiallylessencompetitionortendtocreateamonopolyinany bankingmarket,unlesstheanticompetitiveeffectsof theproposalareclearlyoutweighedin thepublicinterestbytheprobableeffectof theproposalinmeetingtheconvenienceand needsof thecommunitiestobeserved.8 HuronBankandFirstFederalcompetedirectlyintheOscoda,Michigan,bankingmarket (“Oscodamarket”).9TheBoardhasconsideredthecompetitiveeffectsof theproposalin thisbankingmarket.Inparticular,theBoardhasconsideredthenumberof competitors thatwouldremaininthemarket;therelativesharesof totaldepositsof insureddepository institutionsinthemarket(“marketdeposits”)thatHuronBankwouldcontrol;10the concentrationlevelof marketdepositsandtheincreaseinthatlevel,asmeasuredbythe Herfindahl-HirschmanIndex(“HHI”)undertheDepartmentof JusticeBankMerger CompetitiveReviewguidelines(“DOJBankMergerGuidelines”);11andothercharacteristicsof theOscodamarket. Thecompetitiveeffectsof theproposalintheOscodamarketwarrantadetailedreview becauseHuronBank’sproformashareof marketdepositsexceeds35percent,usinginitial competitivescreeningdata.HuronBankisthelargestcompetitorintheOscodamarket, controllingapproximately$151.5millionindeposits,whichrepresentapproximately 44.5percentof marketdeposits.FirstFederalisthefifthlargestdepositoryinstitutionin theOscodamarket,controllingapproximately$5.8millioninweighteddeposits,which representapproximately1.7percentof marketdeposits.Onconsummationof theproposal, HuronBankwouldremainthelargestdepositoryinstitutionintheOscodamarket, 7 12U.S.C.§1828(c)(5)(A). 8 12U.S.C.§1828(c)(5)(B). 9 TheOscodamarketisdefinedasfollows:IoscoCounty;Mason,Turner,andWhitneytownshipsofArenac County;andAlconaCounty,exceptCaledonia,Alcona,Haynes,andMitchelltownships––allinMichigan. 10 LocaldepositandmarketsharedataareasofJune30,2017,andarebasedoncalculationsinwhichthe depositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhasindicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorstocommercialbanks.See,e.g., MidwestFinancialGroup,75FederalReserveBulletin386(1989)andNationalCityCorporation,70Federal ReserveBulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsinthemarketsharecalculationona50percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserveBulletin52(1991). 11 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableatwww.justice.gov/opa/pr/ 2010/August/10-at-938.html.

LegalDevelopments:FirstQuarter,2018 51 controllingapproximately$163.0millioninmarketdeposits,whichwouldrepresent approximately47.1percentof marketdeposits.TheHHIinthemarketwouldincreaseby 192points,from3248to3440. TheBoardhasconsideredwhetherotherfactorseithermitigatethecompetitiveeffectsof theproposalorindicatethattheproposalwouldnothaveasignificantlyadverseeffecton competitionintheOscodamarket.12SeveralfactorsindicatethattheincreaseinconcentrationintheOscodamarket,asmeasuredbytheaboveHHIandmarketshare,overstatesthe potentialcompetitiveeffectsof theproposalinthemarket. TheBoardhasconsideredthecompetitiveinfluenceof onecreditunionintheOscoda marketthatoffersawiderangeof consumerbankingproducts,operatesstreet-level branches,andhasbroadmembershipcriteriathatincludealmostallof theresidentsinthe relevantbankingmarket.13TheBoardfindsthatthesecircumstanceswarrantincludingthe depositsof thiscreditunionata50percentweightinitscalculationstoestimatemarket influence.Thisweightingtakesintoaccountthelimitedlendingdonebythiscreditunionto smallbusinessesrelativetocommercialbanks’lendinglevels. Afterconsummation,adjustingtoreflectcompetitionfromthiscreditunion,themarket concentrationlevelintheOscodamarketasmeasuredbytheHHIwouldincreaseby 157points,fromalevelof 2673to2830,andthemarketshareof HuronBankresulting fromthetransactionwouldincreasefrom39.3percentto41.7percent. TheBoardhasalsoexaminedotheraspectsof thestructureof theOscodamarketthat mitigatethecompetitiveeffectsof theproposalorindicatethattheproposalwouldnot haveasignificantlyadverseeffectoncompetitionintheOscodamarket.TheOscoda marketisarelativelysmall,ruralbankingmarket,andthechangeinHuronBank’smarket sharewouldberelativelysmall.Althoughconsummationof thisproposalwouldeliminate oneexistingcompetitor,themarketwouldcontinuetobeservedbyfivedepositoryinstitutions,includingthecreditunionnotedabove.Theseinclude,apartfromHuronBank,one depositoryinstitutionwithamorethan25percentshareof marketdepositsandtwo depositoryinstitutionseachwithamorethan10percentshareof marketdeposits.Inaddition,theBoardhasconsideredthecompetitiveinfluenceof asecondcreditunionthat servesasignificantportionof theOscodamarket.14Thepresenceof thesemarketcompetitorssuggeststhatHuronBankwouldhavelimitedabilitytounilaterallyofferlessattractivetermstoconsumersandthatthesecompetitorsareabletoexertcompetitivepressure onHuronBankintheOscodamarket. TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea 12 Thenumberandstrengthoffactorsnecessarytomitigatethecompetitiveeffectsofaproposaldependonthe sizeoftheincreasein,andresultinglevelof,concentrationinabankingmarket.SeeNationsBankCorporation, 84FederalReserveBulletin129(1998). 13 TheBoardpreviouslyhasconsideredcompetitionfromcertainactivecreditunionswiththesefeaturesasa mitigatingfactor.See,e.g.,CentralBancompany,Inc.,FRBOrderNo.2017-03(February8,2017);KeyCorp, FRBOrderNo.2016-12(July12,2016);OhioValleyBancCorp.,FRBOrderNo.2016-10(June28,2016); ChemicalFinancialCorporation,FRBOrderNo.2015-13(April20,2015);MitsubishiUFJFinancialGroup, Inc.,FRBOrderNo.2012-12(November14,2012);OldNationalBancorp,FRBOrderNo.2012-9(August30, 2012);UnitedBankshares,Inc.(orderdatedJune20,2011),97FederalReserveBulletin19(2ndQuar.2011); ThePNCFinancialServicesGroup,Inc.,94FederalReserveBulletinC38(2008);ThePNCFinancialServices Group,Inc.,93FederalReserveBulletinC65(2007);RegionsFinancialCorporation,93FederalReserveBulletin C16(2007);PassumpsicBancorp,92FederalReserveBulletinC175(2006);andWachoviaCorporation, 92FederalReserveBulletinC183(2006). 14 TheBoardfindsthatthepresenceofthiscreditunionincreasescompetitionintheOscodamarket.However, becausethemembershipcriteriaonlyincludesasimplemajorityratherthanessentiallytheentiremarketpopulation,thedepositsofthiscreditunionarenotincludedincalculatingmarketinfluence.

52 FederalReserveBulletin|May2018 significantlyadverseeffectoncompetitioninanyrelevantbankingmarket,includingthe Oscodamarket.Inaddition,theappropriatebankingagencieshavebeenaffordedan opportunitytocommentandhavenotobjectedtotheproposal. Basedonallof thefactsof record,inparticularthestructureof therelevantmarket,the numberof remainingcompetitors,andotherfactorsdiscussedabove,theBoardconcludes thatconsummationof theproposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheOscodamarketorinanyotherrelevant bankingmarket.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsare consistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations InreviewingaproposalundertheBankMergerAct,theBoardconsidersthefinancialand managerialresourcesandthefutureprospectsof theinstitutionsinvolved.15Initsevaluationof financialfactors,theBoardreviewsinformationregardingthefinancialconditionof theorganizationsinvolvedonbothparent-onlyandconsolidatedbases,aswellasinformationregardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandthe organizations’significantnonbankingoperations.Inthisevaluation,theBoardconsidersa varietyof informationregardingcapitaladequacy,assetquality,liquidity,andearnings performance.TheBoardevaluatesthefinancialconditionof thecombinedorganization, includingitscapitalposition,assetquality,liquidity,earningsprospects,andtheimpactof theproposedfundingof thetransaction.TheBoardalsoconsiderstheabilityof the organizationtoabsorbthecostsof theproposalandtocompleteeffectivelytheproposed integrationof theoperationsof theinstitutions.Inassessingfinancialfactors,theBoard considerscapitaladequacytobeespeciallyimportant.TheBoardconsidersthefutureprospectsof theorganizationsinvolvedintheproposalinlightof theirfinancialandmanagerialresourcesandtheproposedbusinessplan. HuronBankiswellcapitalizedandwouldremainsoonconsummationof theproposal.As noted,theproposedtransactioninvolvesanassumptionof depositsandanacquisitionof loansandrelatedassets.HuronBankappearstohaveadequatefinancialresourcestoeffect theproposal.Theassetquality,earnings,andliquidityof HuronBankareconsistentwith approval,andHuronBankappearstohaveadequateresourcestoabsorbthecostsof the proposalandtocompletetheintegrationof thedepositstobeassumedandassetstobe acquired.Inaddition,thefutureprospectsof HuronBankareconsideredconsistentwith approval. TheBoardalsohasconsideredthemanagerialresourcesof theinstitutionsinvolvedandof HuronBankafterconsummationof theproposal.TheBoardhasreviewedtheexamination recordof HuronBank,includingassessmentsof itsmanagement,risk-management systems,andoperations.Inaddition,theBoardhasconsideredinformationprovidedby HuronBank;theBoard’ssupervisoryexperienceswiththeinstitution;andHuronBank’s recordof compliancewithapplicablebanking,consumerprotection,andanti-moneylaunderinglaws. HuronBankisconsideredtobewellmanaged.HuronBank’sboardof directorsandsenior managementhavesubstantialknowledgeof andexperienceinthebankingsector,andthe bank’srisk-managementprogramappearsconsistentwithapprovalof thisexpansionary proposal.HuronBankhasconductedcomprehensiveduediligenceandisdevotingsufficientfinancialandotherresourcestoaddressthepost-integrationprocessforthisproposal. 15 12U.S.C.§1828(c)(5).

LegalDevelopments:FirstQuarter,2018 53 HuronBankwouldcontinuetoapplyitsrisk-managementpolicies,procedures,and controlsfollowingtheacquisition,andtheseareconsideredacceptablefromasupervisory perspective.Inaddition,HuronBank’smanagementhastheexperienceandresourcesto ensurethatthebankoperatesinasafeandsoundmannerafterconsummationof the proposal. Basedonallof thefactsof record,includingHuronBank’ssupervisoryrecord,managerial andoperationalresources,andplansforoperatingthebankafterconsummation,the Boardconcludesthatconsiderationsrelatingtothefinancialandmanagerialresourcesand thefutureprospectsof theorganizationsinvolvedintheproposal,aswellastherecordsof effectivenessof HuronBankandFirstFederalincombattingmoney-launderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations InactingonaproposalundertheBankMergerAct,theBoardconsiderstheeffectsof the proposalontheconvenienceandneedsof thecommunitiestobeserved.16Initsevaluation of theeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thesecommunities,aswellasotherpotentialeffectsof theproposalonthe convenienceandneedsof thecommunitiestobeserved.Inthisevaluation,theBoard placesparticularemphasisontherecordsof therelevantdepositoryinstitutionsunderthe CommunityReinvestmentAct(“CRA”).17TheCRArequiresthefederalfinancialsupervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeirsafeandsoundoperation,18andrequirestheappropriatefederalfinancialsupervisoryagencytoassessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof itsentirecommunity, includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.19 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsiderstheassessmentsof otherrelevantsupervisors,the supervisoryviewsof examiners,othersupervisoryinformation,andinformationprovided bytheapplicant.TheBoardalsomayconsidertheinstitution’sbusinessmodel,its marketingandoutreachplans,theorganization’splansafterconsummation,andanyother informationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallof thefactsof record,includingreportsof examinationof theCRAperformanceof Huron BankandFirstFederal;thecompliancerecordof HuronBank;thesupervisoryviewsof theFederalReserveBankof Chicago(“ReserveBank”)andtheOfficeof theComptroller of theCurrency(“OCC”);confidentialsupervisoryinformation;andinformationprovided byHuronBank. 16 12U.S.C.§1828(c)(5). 17 12U.S.C.§2901etseq. 18 12U.S.C.§2901(b). 19 12U.S.C.§2903.

54 FederalReserveBulletin|May2018 Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardevaluates aninstitution’sperformancerecordinlightof examinationsbytheappropriatefederal supervisorsof theCRAperformancerecordsof therelevantinstitutions,aswellasinformationandviewsprovidedbytheappropriatefederalsupervisors.20Inthiscase,theBoard consideredthesupervisoryviewsof theReserveBankandtheOCC. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.21Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplyalendingtesttoevaluatetheperformance of asmallinsureddepositoryinstitutioninhelpingtomeetthecreditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’slending-related activitiestodeterminewhethertheinstitutionishelpingtomeetthecreditneedsof individualsandgeographiesof allincomelevels.Aspartof thelendingtest,examinersreview andanalyzeaninstitution’sdatareportedundertheHomeMortgageDisclosureActof 1975,22automatedloanreports,andotherreportsgeneratedbytheinstitutiontoassessan institution’slendingactivitieswithrespecttoborrowersandgeographiesof different incomelevels.Theinstitution’slendingperformanceisbasedontheinstitution’sloan-todepositratio,loanoriginationsforsaletothesecondarymarket,lending-relatedactivities initsassessmentareas(“AAs”),recordof engaginginlending-relatedactivitiesfor borrowersof differentincomelevelsandbusinessesandfarmsof differentsizes,geographic distributionof loans,andrecordof takingactioninresponsetowrittencomplaintsabout theinstitution’sperformance.23 CRAPerformanceof HuronBank HuronBankwasassignedanoverall“Satisfactory”ratingbytheReserveBankatitsmost recentCRAperformanceevaluation,asof September21,2015(“HuronBankEvaluation”).24ExaminersfoundthatHuronBank’saverageloan-to-depositratio,whichisa measureof theoveralllevelof lending,wasreasonablegivenitsfinancialconditionandAA creditneeds.Examinersalsofoundthatamajorityof thebank’shomemortgageandsmall businessloanswereoriginatedwithinitsAAandthatthegeographicdistributionof those loansreflectedreasonabledispersionthroughoutthebank’sAA.Examinersdetermined thatthedistributionof thebank’shomemortgageloansreflectedreasonablepenetration amongindividualsof differentincomelevels.Examinersnotedthatthedistributionof the bank’shomemortgageloanstolow-incomeborrowerswasreasonable.Examinersalso notedthatthepercentageof thebank’shomemortgageloanstomoderate-income borrowers,asmeasuredbyloanvolumeanddollaramount,wascomparableto thepercentageof moderate-incomefamiliesinitsAA.Inaddition,examinersdetermined 20 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48506, 48548(July25,2016). 21 12U.S.C.§2906. 22 12U.S.C.§2801etseq. 23 See12CFR228.26(b). 24 TheHuronBankEvaluationwasconductedusingSmallInstitutionCRAExaminationProcedures.Examiners reviewedhomemortgageloansandsmallbusinessloansfromJanuary1,2014,throughDecember31,2014. TheHuronBankEvaluationincludedafull-scopeevaluationintheMichiganNon-MetropolitanStatistical Area(consistingofAlcona,Arenac,andIoscocounties),itssoleAA.

LegalDevelopments:FirstQuarter,2018 55 thatthedistributionof HuronBank’ssmallbusinesslendingreflectedreasonablepenetrationamongbusinessesof differentsizes. CRAPerformanceof FirstFederal FirstFederalwasassignedanoverallCRAratingof “Outstanding”atitsmostrecentCRA performanceevaluationbytheOCC,asof September29,2014(“FirstFederalEvaluation”).25ExaminersdeterminedthatFirstFederal’saverageloan-to-depositratiowasmore thanreasonablegiventhebank’ssizeandfinancialconditionandthecreditneedsof its community. ExaminersfoundthatFirstFederal’slendinglevelswithinitsAAwereexcellentandthata substantialmajorityof thebank’sloansweremadewithinthebank’sAA.Accordingto examiners,thegeographicdistributionof residentialmortgageandbusinessloans throughoutthebank’sAAwasexcellent.ExaminersalsonotedthatFirstFederal’sdistributionof loanstoborrowersreflectedreasonablepenetrationamongretailcustomersof differentincomelevelsandbusinessesof differentsizes. ExaminersdeterminedthatFirstFederalengagedinavarietyof qualifiedcommunity developmentinvestmentsandgrants,includingcontributionstoaffordablehousing, economicdevelopment,revitalizationandstabilizationof businessdistricts,andcommunityservicestoLMIindividualsandhouseholds.Examinersfurthernotedthatthebank exhibitedexcellentresponsivenesstocommunitydevelopmentserviceneeds. AdditionalSupervisoryViews TheBoardhasconsideredtheresultsof themostrecentconsumercomplianceexamination of HuronBankconductedbyReserveBankexaminers,whichincludedareviewof the bank’sconsumercompliancerisk-managementprogramandthebank’scompliancewith consumerprotectionlawsandregulations.TheBoardhasalsoconsideredtheresultsof the mostrecentexaminationof FirstFederalconductedbytheOCC,whichincludedareview of thebank’scompliancefunctionandthebank’scompliancewithcertainconsumer protectionlawsandregulations. TheBoardhastakenthisinformation,aswellastheCRAperformancerecordsof Huron BankandFirstFederal,intoaccountinevaluatingtheproposedtransaction,includingin consideringwhetherHuronFinancialhastheexperienceandresourcestoensurethat HuronBankhelpstomeetthecreditneedsof thecommunitieswithinitsAA. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.HuronBankrepresentsthatitdoesnothaveany planstodiscontinueorsignificantlychangeanyof itsproductsorservicesasaresultof the proposal.Inaddition,HuronBankrepresentsthatcustomersof FirstFederalthatbecome customersof HuronBankasaresultof theproposedtransactionwouldhaveaccessto thesameproductsandservicesthatarecurrentlyavailabletocustomersof HuronBank. Furthermore,HuronBankrepresentsthattheseFirstFederalcustomerswouldbenefit fromaccesstoHuronBank’sbranchnetwork,whichincludesthreebrancheswithin approximately20milesof theOscodaBranchof FirstFederal. 25 TheFirstFederalEvaluationwasconductedusingSmallInstitutionCRAExaminationProcedures.Examiners reviewedresidentialmortgageloansandbusinessloansfrom2012and2013.TheFirstFederalEvaluation includedanevaluationofitssoleAA,consistingofAlcona,Alpena,Charlevoix,Cheboygan,Crawford, Emmet,Iosco,Montmorency,Ogemaw,Oscoda,Otsego,andPresqueIslecountiesinMichigan.

56 FederalReserveBulletin|May2018 ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws,supervisoryviewsof theReserveBankand theOCC,confidentialsupervisoryinformation,informationprovidedbyHuronBank,and otherpotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiesto beserved.Basedonthatreview,theBoardconcludesthattheconvenienceandneeds factorisconsistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedtheBankMergerActtorequiretheBoardtoconsideraproposal’s“risktothe stabilityof theUnitedStatesbankingorfinancialsystem.”26 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the resultingfirm.27Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.28 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.29 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.The proformaorganizationwouldhaveminimalcross-borderactivitiesandwouldnotexhibit anorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthat wouldcomplicateresolutionof theorganizationintheeventof financialdistress.Inaddition,theorganizationwouldnotbeacriticalservicesproviderorsointerconnectedwith 26 Dodd-FrankAct§604(f),Pub.L.No.111-203,124Stat.1376,1602(2010),codifiedat12U.S.C.§1828(c)(5). 27 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 28 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 29 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition.

LegalDevelopments:FirstQuarter,2018 57 otherfirmsorthemarketsthatitwouldposeasignificantrisktothefinancialsysteminthe eventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationshouldbe,andherebyis,approved.Inreachingitsconclusion,theBoardhasconsideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunderthe BankMergerActandotherapplicablestatutes.TheBoard’sapprovalisspecificallyconditionedoncompliancebyHuronBankwithallof theconditionsimposedinthisorder, includingreceiptof allrequiredregulatoryapprovals,andonthecommitmentsmadetothe Boardinconnectionwiththeapplication.Forpurposesof thisaction,theconditionsand commitmentsaredeemedtobeconditionsimposedinwritingbytheBoardinconnection withitsfindingsanddecisionhereinand,assuch,maybeenforcedinproceedingsunder applicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardorbytheReserveBank,actingunderdelegatedauthority. Byorderof theBoardof Governors,effectiveJanuary16,2018. Votingforthisaction:ChairYellen,ViceChairmanforSupervisionQuarles,andGovernorsPowellandBrainard. AnnE.Misback Secretaryof theBoard

58 FederalReserveBulletin|May2018 IBERIABANK Lafayette, Louisiana OrderApprovingtheMergerof DepositoryInstitutionsandEstablishmentof Branches FRBOrderNo.18-06(February21,2018) IBERIABANK,thestatememberbanksubsidiaryof IBERIABANKCorporation (“IBKC”),1bothof Lafayette,Louisiana,hasrequestedtheBoard’sapprovalunder section18(c)of theFederalDepositInsuranceAct(“BankMergerAct”)2tomergewith GibraltarPrivateBank&TrustCompany(“Gibraltar”),CoralGables,Florida,afederal savingsbank,withIBERIABANKasthesurvivingentity.IBERIABANKalsohasapplied undersection9of theFederalReserveAct(“FRA”)toestablishandoperatebranchesat thelocationsof Gibraltar’smainofficeandbranches.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublishedinaccordancewiththeBankMergerActandtheBoard’sRulesof Procedure.4AsrequiredbytheBankMergerAct,areportonthecompetitiveeffectsof the bankmergerwasrequestedfromtheUnitedStatesAttorneyGeneral,andacopyof the requesthasbeenprovidedtotheFederalDepositInsuranceCorporation.Thetimefor submittingcommentshasexpired,andtheBoardhasconsideredtheproposalandall commentsreceivedinlightof thefactorssetforthintheBankMergerActandtheFRA. IBKC,withconsolidatedassetsof approximately$28.0billion,isthe65thlargestinsured depositoryorganizationintheUnitedStates,controllingdepositsof approximately $21.3billion,whichrepresentlessthan1percentof thetotalamountof depositsof insured depositoryinstitutionsintheUnitedStates.5IBKCcontrolsIBERIABANK,whichhas officesineightstates.IBKCisthe14thlargestinsureddepositoryorganizationinFlorida, withapproximately$8.7billionindeposits,whichrepresentapproximately1.5percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.6 Gibraltar,withconsolidatedassetsof approximately$1.6billion,isthe476thlargest insureddepositoryorganizationintheUnitedStates,controllingdepositsof approximately $1.1billion,whichrepresentlessthan1percentof thetotalamountof depositsof insured depositoryinstitutionsintheUnitedStates.GibraltarhasofficesinFloridaandNewYork. Gibraltaristhe49thlargestinsureddepositoryinstitutioninFlorida,withapproximately $1.0billionindeposits,whichrepresentlessthan1percentof thetotaldepositsof insured depositoryinstitutionsinFlorida.Gibraltaristhe173rdlargestinsureddepositoryinstitutioninNewYork,withapproximately$79.2millionindeposits,whichrepresentlessthan 1percentof thetotaldepositsof insureddepositoryinstitutionsinNewYork. Onconsummationof theproposal,IBKCwouldbecomethe64thlargestdepositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately$29.6billion. IBKCwouldcontrolapproximately$22.4billionindeposits,representinglessthan 1percentof thetotaldepositsof insureddepositoryinstitutionsintheUnitedStates.IBKC wouldcontinuetooperatethe14thlargestinsureddepositoryinstitutioninFlorida, 1 IBKCisafinancialholdingcompanywithinthemeaningoftheBankHoldingCompanyActof1956. 2 12U.S.C.§1828(c). 3 12U.S.C.§321.TheselocationsarelistedintheAppendix. 4 12U.S.C.§1828(c)(3);12CFR262.3(b). 5 Assetandnationwidedeposit-rankingdataareasofSeptember30,2017,unlessotherwisenoted.Inthis context,insureddepositoryinstitutionsincludeinsuredcommercialbanks,savingsandloanassociations,and savingsbanks. 6 Statedeposit-rankingdataareasofJune30,2017,unlessotherwisenoted.

LegalDevelopments:FirstQuarter,2018 59 controllingdepositsof approximately$9.7billion,representingapproximately1.7percent of thetotaldepositsof insureddepositoryinstitutionsinthestate.IBKCwouldoperatethe 173rdlargestinsureddepositoryinstitutioninNewYork,controllingdepositsof approximately$79.2million,representinglessthan1percentof thetotaldepositsof insured depositoryinstitutionsinthestate. InterstateandDepositCapAnalysis TheBankMergerActgenerallyprovidesthattheBoardmaynotapproveanapplicationby oneinsureddepositoryinstitutiontoacquireanotherinsureddepositoryinstitutionif the homestateof thetargetinsureddepositoryinstitutionisastateotherthanthehomestate of theapplicantandtheapplicantcontrolsorwouldcontroluponconsummationof the proposedtransactionmorethan10percentof thetotalamountof depositsof insured depositoryinstitutionsintheUnitedStates.7Forpurposesof theBankMergerAct,the homestateof IBERIABANKisLouisianaandthehomestateof GibraltarisFlorida.8 Consummationof theproposalwouldresultinIBERIABANKcontrollinglessthan 1percentof thedepositsof insureddepositoryinstitutionsintheUnitedStates.The proposedacquisitionof Gibraltarwouldnotbeprohibitedbythelawof anystateinwhich Gibraltarislocated.9Accordingly,inlightof allthefactsof record,theBoardisnot requiredtodenytheproposalundertheinterstatemergerprovisionsof theBank MergerAct. CompetitiveConsiderations TheBankMergerActprohibitstheBoardfromapprovingaproposalthatwouldresultina monopolyorwouldbeinfurtheranceof anyattempttomonopolizethebusinessof banking.10TheBankMergerActalsoprohibitstheBoardfromapprovingaproposalthat wouldsubstantiallylessencompetitionortendtocreateamonopolyinanyrelevant market,unlesstheBoardfindsthattheanticompetitiveeffectsof theproposedtransaction areclearlyoutweighedinthepublicinterestbytheprobableeffectof thetransactionin meetingtheconvenienceandneedsof communitiestobeserved.11 IBERIABANKandGibraltarcompetedirectlyintheMiami-FortLauderdaleandNaples, Floridabankingmarkets.12TheBoardhasreviewedthecompetitiveeffectsof the proposalinthosebankingmarketsinlightof allthefactsof record.Inparticular,the Boardhasconsideredthenumberof competitorsthatwouldremainineachmarket;the relativesharesof totaldepositsininsureddepositoryinstitutionsinthemarkets(“market deposits”)thatIBERIABANKwouldcontrol;13theconcentrationlevelsof market depositsandtheincreaseintheselevelsasmeasuredbytheHerfindahl-HirschmanIndex 7 12U.S.C.§1828(c)(13). 8 Astatebank’shomestateisthestatebywhichthebankischartered.12U.S.C.§1828(c)(13)(C)(ii)(II).Afederal savingsassociation’shomestateisthestateinwhichthehomeofficeofthesavingsassociationislocated. 12U.S.C.§1828(c)(13)(C)(ii)(III). 9 Floridalawpermitsanout-of-statebanktoacquireaFloridabankthroughaninterstatemergerprovidedthe resultingbankwouldnotcontrol30percentormoreofthetotalamountofdepositsheldbyallinsureddepositoryinstitutionsinFlorida.SeeFla.Stat.Ann.§658.2953.Onconsummation,IBERIABANKwouldcontrol lessthan30percentofthetotaldepositsofinsureddepositoryinstitutionsinFlorida.NewYorkdoesnothave adepositcapapplicabletothisproposal. 10 12U.S.C.§1828(c)(5)(A). 11 12U.S.C.§1828(c)(5)(B). 12 TheMiami-FortLauderdalebankingmarketincludesBrowardandMiami-Dadecounties,andtheNaples bankingmarketconsistsofCollierCounty,allinFlorida. 13 LocaldepositandmarketsharefiguresareasofJune30,2017,andarebasedoncalculationsinwhichthe depositsofthriftinstitutionsareincludedat50percent.TheBoardhaspreviouslyindicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorsofcommercialbanks.See,e.g.,

60 FederalReserveBulletin|May2018 (“HHI”)undertheDepartmentof JusticeBankMergerCompetitiveReviewguidelines (“DOJBankMergerGuidelines”);14andothercharacteristicsof themarkets. Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesforthesemarkets.Onconsummationof the proposal,boththeMiami-FortLauderdaleandNaples,Floridabankingmarketswould remainunconcentrated,asmeasuredbytheHHI,accordingtotheDOJBankMerger Guidelines.ThechangeinHHIineachmarketwouldbeminimal,andnumerouscompetitorswouldremainineachmarket.15 TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket.Inaddition,the appropriatebankingagencieshavebeenaffordedanopportunitytocommentandhavenot objectedtotheproposal. Basedonallthefactsof record,theBoardconcludesthatconsummationof theproposal wouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheMiami-FortLauderdaleandNaplesbankingmarketsorinanyother relevantbankingmarket.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations InreviewingaproposalundertheBankMergerAct,theBoardconsidersthefinancialand managerialresourcesandthefutureprospectsof theinstitutionsinvolved.16Initsevaluationof thefinancialfactors,theBoardreviewsinformationregardingthefinancialconditionof theorganizationsinvolvedonbothparent-onlyandconsolidatedbases,aswellas informationregardingthefinancialconditionof thesubsidiarydepositoryinstitutionsand theorganizations’significantnonbankingoperations.Inthisevaluation,theBoard MidwestFinancialGroup,75FederalReserveBulletin386(1989);NationalCityCorporation,70FederalReserve Bulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsinthemarketsharecalculationona 50-percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserveBulletin53(1991). 14 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionhaveissuedrevisedHorizontal MergerGuidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995, werenotmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableatwww.justice.gov/ opa/pr/2010/August/10-at-938.html. 15 IntheMiami-FortLauderdalebankingmarket,IBKCoperatesthe13thlargestdepositoryinstitution,controllingapproximately$3.2billionindeposits,whichrepresentapproximately1.8percentofmarketdeposits. Gibraltaristhe39thlargestdepositoryinstitutioninthesamemarket,controllingapproximately$412.2million indeposits,whichrepresentlessthan1percentofmarketdeposits.Onconsummationoftheproposedtransaction,IBKCwouldbecomethe12thlargestdepositoryorganizationinthemarket,controllingdepositsof approximately$4.0billion,whichrepresentapproximately2.2percentofmarketdeposits.TheHHIforthe Miami-FortLauderdalebankingmarketwoulddecreaseby2pointsto793,and78competitorswouldremain inthemarket. IntheNaplesbankingmarket,IBKCoperatesthe5thlargestdepositoryinstitution,controllingapproximately $991.8millionindeposits,whichrepresentapproximately5.9percentofmarketdeposits.Gibraltaristhe33rd largestdepositoryinstitutioninthemarket,controllingapproximately$21.8millionindeposits,whichrepresentlessthan1percentofmarketdeposits.Onconsummationoftheproposedtransaction,IBKCwould remainthe5thlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately$1.0billion, whichrepresentapproximately6.2percentofmarketdeposits.TheHHIfortheNaplesbankingmarketwould increaseby1pointto957,and35competitorswouldremaininthemarket. 16 12U.S.C.§1828(c)(5).

LegalDevelopments:FirstQuarter,2018 61 considersavarietyof informationregardingcapitaladequacy,assetquality,liquidity,and earningsperformance.TheBoardevaluatesthefinancialconditionof thecombinedorganization,includingitscapitalposition,assetquality,liquidity,earningsprospects,andthe impactof theproposedfundingof thetransaction.TheBoardalsoconsiderstheabilityof theorganizationtoabsorbthecostsof theproposalandtocompleteeffectivelythe proposedintegrationof theoperationsof theinstitutions.Inassessingfinancialfactors,the Boardconsiderscapitaladequacytobeespeciallyimportant.TheBoardconsidersthe futureprospectsof theorganizationsinvolvedintheproposalinlightof theirfinancialand managerialresourcesandtheproposedbusinessplan. IBERIABANKandGibraltararewellcapitalized,andIBERIABANKwouldremainso onconsummationof theproposedtransaction.Theproposalisamergerstructuredasa stockconversion.17Theassetquality,earnings,andliquidityof IBERIABANKand Gibraltarareconsistentwithapproval.IBERIABANKappearstohaveadequateresources toabsorbthecostsof theproposalandtointegrateGibraltar’soperations.Inaddition,the futureprospectsof IBERIABANKareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theinstitutionsinvolvedandof IBERIABANKafterconsummationof theproposal.TheBoardhasreviewedtheexaminationrecordsof IBKC,IBERIABANK,andGibraltar,includingassessmentsof their management,risk-managementsystems,andoperations.Inaddition,theBoardhasconsideredinformationprovidedbyIBERIABANK;theBoard’ssupervisoryexperiencesand thoseof otherrelevantbanksupervisoryagencieswithIBERIABANKandGibraltar;and theorganizations’recordof compliancewithapplicablebanking,consumerprotection,and anti-money-launderinglaws. IBERIABANKandGibraltarareconsideredtobewellmanaged.IBERIABANK’sboard of directorsandseniormanagementhavesubstantialknowledgeof andexperienceinthe bankingsector,andthebank’srisk-managementprogramappearsconsistentwithapproval of thisexpansionaryproposal. TheBoardhasalsoconsideredIBERIABANK’splansforimplementingtheproposal. IBERIABANKhasconductedcomprehensiveduediligenceandisdevotingsufficient financialandotherresourcestoaddressthepost-integrationprocessforthisproposal. IBERIABANKwouldapplyitsrisk-managementpolicies,procedures,andcontrolsatthe combinedorganizationandtheseareconsideredacceptablefromasupervisoryperspective. Inaddition,IBERIABANK’smanagementhastheexperienceandresourcestoensurethat thebankoperatesinasafeandsoundmannerafterconsummationof theproposal. Basedonallthefactsof record,includingIBERIABANK’ssupervisoryrecord,managerial andoperationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandfutureprospectsof theorganizationsinvolved,aswellastherecordsof effectivenessof theorganizationsincombattingmoney-launderingactivities,areconsistent withapproval. 17 Attheeffectivetimeofthemerger,eachshareofGibraltarcommonstockwouldconvertintoarighttoreceive sharesofIBKCcommonstock.

62 FederalReserveBulletin|May2018 ConvenienceandNeedsConsiderations InactingonaproposalundertheBankMergerAct,theBoardconsiderstheeffectsof the proposalontheconvenienceandneedsof thecommunitiestobeserved.18Initsevaluation of theeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thesecommunities,aswellasotherpotentialeffectsof theproposalonthe convenienceandneedsof thecommunitiestobeserved.Inthisevaluation,theBoard placesparticularemphasisontherecordsof therelevantdepositoryinstitutionsunderthe CommunityReinvestmentAct(“CRA”).19TheCRArequiresthefederalfinancialsupervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeirsafeandsoundoperation,20andrequirestheappropriatefederalfinancialsupervisoryagencytoassessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof itsentirecommunity, includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.21 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandtheresultsof recentfairlendingexaminations.Fairlendinglawsrequirealllendinginstitutionsto provideloanapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,or certainothercharacteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,thesupervisoryviewsof examiners,othersupervisoryinformation,information providedbytheapplicant,andcommentsreceivedontheproposal.TheBoardalsomay considertheapplicantinstitution’sbusinessmodel,itsmarketingandoutreachplans,the institution’splansfollowingconsummation,andanyotherinformationtheBoarddeems relevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof IBERIABANKandGibraltar,thecompliancerecordsof bothbanks,thesupervisory viewsof theFederalReserveBankof Atlanta(“ReserveBank”)andtheOfficeof the Comptrollerof theCurrency(“OCC”),confidentialsupervisoryinformation,information providedbyIBERIABANK,andthepubliccommentreceivedontheproposal. PublicCommentRegardingtheProposal Inthiscase,acommenterobjectedtotheproposal,expressingfairlendingandconvenience andneedsconcernswithrespecttoIBERIABANK.22Thecommenterallegedthat IBERIABANK’scurrentbranchingactivitiesinAfricanAmericancommunitiesandthe bank’smarketingof productsandservicestoAfricanAmericanbusinessesandprofessionalsarelimited.Specifically,thecommenterassertedthatIBERIABANKhasavoided placingbranchesinproximitytodenselypopulatedAfricanAmericanneighborhoods.23In 18 12U.S.C.§1828(c)(5). 19 12U.S.C.§2901etseq. 20 12U.S.C.§2901(b). 21 12U.S.C.§2903. 22 ThecommenteralsoallegedthatIBERIABANKhasengagedindiscriminatoryemploymentpractices.A bank’sinternalemploymentpractices,however,areoutsideofthelimitedstatutoryfactorsthattheBoardis authorizedtoconsiderwhenreviewinganapplicationornoticeundertheBankMergerAct. 23 Forexample,thecommenterallegedthatIBERIABANKhasestablishednobranchesintheAfricanAmerican communitiesofSouthAtlanta,inGeorgia,andSouthDallasandSouthHouston,inTexas.Inaddition,the commentercontendsthatonlysevenofIBERIABANK’sbranchesarelocatedinlow-incomeneighborhoods andthatfiveofthesebranchesappeartoengageinlimiteddeposit-takingactivities,whichthecommenter allegesindicatesminimalactivityandcommitmentinthesecommunities.

LegalDevelopments:FirstQuarter,2018 63 addition,thecommenterallegedthatIBERIABANKdoesnothaveanorganizedoutreach programfordevelopingcommerciallendingrelationshipswithAfricanAmericanbusinessesandprofessionals.24Basedontheseallegedpractices,thecommenterexpressed concernthatIBERIABANKwillnotmeettheneedsof disadvantagedAfricanAmerican communitiesinSouthFloridaif theproposalisapproved. Businessof theInvolvedInstitutionsandResponsetothePublicComment Throughitsnetworkof branchesinsevenstates,25IBERIABANKoffersarangeof retail andcommercialproductsandservicestoindividualcustomersandbusinesses,including checking,savings,moneymarket,andcertificateof depositaccounts;consumer,residential, commercial,construction,andautoloans;wealthmanagementservices;creditcardand merchantcardservices;andtreasurymanagementservices. Gibraltarprovidesprivatecomprehensivewealthmanagementandprivatebankingservices toindividualsandfamilies,businesses,foundations,andnonprofitorganizations.Gibraltar alsoofferscommercial,commercialrealestate,constructionandlanddevelopment,and consumerloans. Inresponsetothecommenter’sallegations,IBERIABANKstatesthatithasanextensive legacyof meetingtheneedsof allcommunitiesinitsfootprint,includingLMIcommunities,andhighlightsacommunitydevelopmentplanthebankenteredintowiththeNational CommunityReinvestmentCoalitionthatbecameeffectiveonJanuary1,2018(“CRA Plan”). Withrespecttothecommenter’sallegationsaboutIBERIABANK’sbranchlocations,the banknotesthataspartof itsmostrecentCRAperformanceevaluation,ReserveBank examinersfoundthebank’sretaildeliverysystemstobereasonablyaccessibletothebank’s geographiesandtoindividualsof differentincomelevelsinitsassessmentareas(“AAs”). Thebankassertsthatitiscommittedtomaintainingthisaccessibilityforindividualsof differentincomelevelsthroughoutthecommunitiesitserves.IBERIABANKrepresents thatitcurrentlyoperates47active,full-servicebranchesinLMIcensustracts,representing approximately22.6percentof allof IBERIABANK’sfull-servicebranches,andthat,as partof itsCRAPlan,ithasagreedtoopentwonewbankbranchesinLMIcensustracts, oneinMiami-DadeCounty,Florida,andoneinAtlanta,Georgia. Inresponsetothecommenter’scriticismthatIBERIABANKhasnoorganizedoutreach programtoAfricanAmericanbusinessesandprofessionals,IBERIABANKassertsthatit doesnotdeveloportargetproductsorservicesspecificallybasedonraceorethnicity becauseitdoesnotassumeallborrowersof aparticularraceorethnicityhavethesame creditneeds.IBERIABANKrepresentsthatitrecognizesthecreditchallengesfacedby LMIcommunitiesandhasdevelopedinitiativesdesignedtomeetthecreditneedsof such communities,includingthroughcommunitydevelopmentloans,CRA-qualifiedinvestments,andaffordablefinancialproductofferingstoimprovebankingaccessforunderservedcommunities.IBERIABANKassertsthat,amongotherprogramsdesignedspecificallytomeettheneedsof LMIcommunities,ithascreatedtheIBERIABANKSubsidy 24 ThecommenterallegedthatIBERIABANKonlyfinancesAfricanAmericanbusinessesandprofessionalsthat comeintothebank’soffices,ratherthanactivelysolicitingbusinessfromthemintheircommunities,inmarkets suchasAtlanta,Dallas,andHouston,wheretherearealargenumberofcreditworthyAfricanAmerican businesses. 25 IBERIABANKhasbranchlocationsinLouisiana,Florida,Arkansas,Alabama,Texas,Tennessee,and Georgia.IBERIABANKdoesnotoperateanyfull-servicebranchesinSouthCarolina,buthasonelimited serviceadministrativeofficeinthatstate,whichdoesnotacceptdepositsormakeloans.Inaddition, IBERIABANKhasrecentlybeenapprovedtoestablishabranchinNorthCarolina.

64 FederalReserveBulletin|May2018 Programtoprovide$4,000indown-paymentandclosing-costassistanceforthepurchase orrefinancingof loansforLMIborrowers.Thebankalsooffersanunsecuredhome improvementloandesignedtoassisthomeownerswholackequity,investsinLow-Income HousingTaxCreditprojectsthatprovideaffordablerentalhousing,andprovidesgrants anddonationstocommunitydevelopmentorganizationsengagedincommunityservices forLMIindividualsandcommunities.IBERIABANKfurtherrepresentsthatthebankwill providesupporttoLMIcommunitiesinthosestateswhereitcurrentlyhasabranchpresenceconsistentwithitsCRAPlan. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardconsiders substantialinformationinadditiontoinformationprovidedbypubliccommentersandthe responsetocommentsbytheapplicant.Inparticular,theBoardevaluatesaninstitution’s performancerecordinlightof examinationsbytheappropriatefederalsupervisorsof the CRAperformancerecordsof therelevantinstitution,aswellasinformationandviews providedbytheappropriatefederalsupervisors.26Inthiscase,theBoardconsideredthe supervisoryviewsof theReserveBankandtheOCC. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.27Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplylending,investment,andserviceteststo evaluatetheperformanceof alargeinsureddepositoryinstitution,suchasIBERIABANK, inhelpingtomeetthecreditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’shomemortgage,smallbusiness,smallfarm,andcommunity developmentlendingtodeterminewhethertheinstitutionishelpingtomeetthecredit needsof individualsandgeographiesof allincomelevels.Aspartof thelendingtest,examinersreviewandanalyzeaninstitution’sdataundertheHomeMortgageDisclosureAct (“HMDA”),28inadditiontosmallbusiness,smallfarm,andcommunitydevelopmentloan datacollectedandreportedundertheCRAregulations,toassessaninstitution’slending activitieswithrespecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slendingperformanceisbasedonavarietyof factors,including(1)thenumberand amountsof homemortgage,smallbusiness,smallfarm,andconsumerloans(asapplicable) intheinstitution’sAAs;(2)thegeographicdistributionof suchloans,includingthe proportionanddispersionof theinstitution’slendinginitsAAsandthenumberand amountsof loansinlow-,moderate-,middle-,andupper-incomegeographies;(3)the distributionof suchloansbasedonborrowercharacteristics,includingthenumberand amountsof homemortgageloanstolow-,moderate-,middle-,andupper-incomeindividuals;29(4)theinstitution’scommunitydevelopmentlending,includingthenumberand amountsof communitydevelopmentloansandtheircomplexityandinnovativeness;and (5)theinstitution’suseof innovativeorflexiblelendingpracticestoaddressthecredit 26 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48506, 48548(July25,2016). 27 12U.S.C.§2906. 28 12U.S.C.§2801etseq. 29 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless;smallbusinessandsmallfarmloansbyloanamountat origination;andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3).

LegalDevelopments:FirstQuarter,2018 65 needsof LMIindividualsandgeographies.30Largeinstitutionsarealsosubjecttoan investmenttest,whichevaluatesthenumberandamountsof qualifiedinvestmentsthat benefittheirAAs,andaservicetest,whichevaluatestheavailabilityandeffectivenessof theirsystemsfordeliveringretailbankingservicesandtheextentandinnovativenessof theircommunitydevelopmentservices.31 CRAPerformanceof IBERIABANK IBERIABANKwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheReserveBank,asof August5,2013(“IBERIABANK Evaluation”).32IBERIABANKreceived“HighSatisfactory”ratingsfortheLendingTest, InvestmentTest,andServiceTest.33 ExaminersfoundIBERIABANK’soveralllendingperformancetobegoodinAlabama, Arkansas,Louisiana,andTexasandadequateinFloridaandTennessee.Examinersfound thatIBERIABANKoriginatedasubstantialmajorityof itsloanswithinitsAAs,reflecting excellentAApenetration.Examinersfoundthatthebank’spenetrationof loansamong borrowersof differentincomelevelsandbusinessesof differentsizeswasadequate.Examinersnotedthattheoveralldistributionof smallbusinesslendingreflectedadequate penetrationinLMIgeographiesandamongsmallbusinesses(businesseswithrevenuesof $1millionorless).Examinersfurthernotedthatthebankmadeahighlevelof community developmentloansduringthereviewperiod.Thecommunitydevelopmentloanswerefor avarietyof purposes,includingfinancingaffordablehousingforLMIindividuals, promotingeconomicdevelopmentbyfinancingsmallbusinessesthatresultedinjob creationand/orretention,revitalizingand/orstabilizingtargetedLMIcensustractsor otherqualifiedgeographies,andcommunityservicestargetedtoLMIindividuals. IntheHoustonAA,anareaof concerntothecommenter,examinersconsidered IBERIABANK’slendingperformancetobegood.Thegeographicdistributionof small businessloanswasfoundtoreflectgoodpenetrationthroughouttheAA,andexaminers notedthatthebank’ssmallbusinesslendinginlow-incomecensustractswasexcellent. ExaminersfoundIBERIABANK’sinvestmentperformancetobeexcellentinLouisiana, goodinAlabama,Arkansas,andTexas,andadequateinFloridaandTennessee.Examiners notedthatIBERIABANKhadmadesubstantialqualifiedinvestmentsandprovided 30 See12CFR228.22(b). 31 See12CFR228.21etseq. 32 TheIBERIABANKEvaluationwasconductedusingLargeInstitutionCRAExaminationProcedures.ExaminersreviewedloansreportableunderHMDAandsmallbusinessloansfortheperiodJanuary1,2011,through December31,2012.TheevaluationperiodforcommunitydevelopmentloansandinvestmentswasJanuary1, 2011,throughMarch31,2013.DuetoIBERIABANK’ssignificantexpansionandgrowthduringthereview period,thebank’sperformancein2012wasweightedslightlymorethanitsperformancein2011indetermining thefinalratingforlending. 33 TheIBERIABANKEvaluationincludedafull-scopereviewintheNewOrleans-Metairie-KennerMSA; LafayetteMSA;LittleRock-NorthLittleRock-ConwayMSA;Fayetteville-Springdale-RogersMSA;North Port-Bradenton-SarasotaMSA;Naples-MarcoIslandMSA;Birmingham-HooverMSA;Houston-Sugar Land-BaytownMSA;andMemphis-ForestCityCombinedStatisticalArea.Alimited-scopereviewwas performedinBaldwinCounty,Alabama;HuntsvilleMSA;MobileMSA;MontgomeryMSA;JonesboroMSA; NortheastArkansas;PalmBeach-BrowardMSA;Ft.MyersMSA;FloridaKeys,Florida;Acadiana,Louisiana;Allen,Louisiana;BatonRougeMSA;HoumaMSA;LakeCharlesMSA;Lincoln,Louisiana;Monroe MSA;Morehouse,Louisiana;andShreveportMSA. TheIBERIABANKEvaluationdidnotincludeareviewofDallasorAtlanta,areasofconcerntothe commenter,becauseIBERIABANKdidnotentertheDallasmarketuntilcompletionofitsacquisitionofFirst PrivateBankortheAtlantamarketuntilcompletionofitsacquisitionofGeorgiaCommerceBancsharesInc., bothin2015.

66 FederalReserveBulletin|May2018 significantfinancialsupporttoaddresstheneedsforaffordablehousing,financialcounseling,emergencyassistance,jobtraining,andtherevitalizationof LMIcommunities. Examinershighlightedthebank’sprovisionof anexcellentlevelof communitydevelopmentservicesthroughoutitsAAs.Examinersfoundthebank’sretaildeliverysystemstobe reasonablyaccessibletogeographiesandindividualsof differentincomelevelsandthatthe bank’srecordof openingandclosingbrancheshadnotadverselyaffectedtheaccessibility of deliverysystems,particularlyinLMIgeographiesandtoLMIindividuals.Examiners notedthatthebankofferedseveralretailproductsdesignedtomeetthefinancialneedsof lower-incomecustomersandsmallbusinessesandthatthebankparticipatedinorganized programsandotheroutreacheffortstoexpandbankingaccesstoLMIcustomersacrossits entirebankingfootprint.Duringtheexaminationreviewperiod,thebankandits employeesprovidedover10,000hoursof communitydevelopmentservicesthroughservice activitiesaimedatpromotingorfacilitatingaffordablehousingforLMIindividuals, economicdevelopment,andtherevitalizationof LMIareas. IntheHoustonAA,anareaof concerntothecommenter,IBERIABANK’sperformance wasfoundtobeadequate.Examinersobservedthatthebank’sretaildeliverysystems werereasonablyaccessibletogeographiesandindividualsof differentincomelevels, includingLMIgeographiesandindividuals.ExaminersalsonotedthatIBERIABANK providedarelativelyhighlevelof communitydevelopmentservicesthatbenefitedresidents of,andsmallbusinessesin,theHoustonAA.Duringthereviewperiod,thebankandits employeesprovidedalmost500hoursof communitydevelopmentservices,including providingfinancialeducation,homeownershipcounseling,andsmallbusinessassistance,as wellasworkingwithavarietyof organizationsthatprovidedcommunityservicesinLMI geographiesandforLMIindividuals. IBERIABANK’sEffortssincetheIBERIABANKEvaluation IBERIABANKrepresentsthat,sincetheIBERIABANKEvaluation,ithascontinuedto builduponitscommitmenttoprovidefinancialservicestoLMIindividuals,withinLMI geographies,tosmallbusinesses,andtounderservedcommunities.IBERIABANKalso representsthatithasopenedeightbankbranchesinLMIcommunitiessincethe IBERIABANKEvaluation,includingoneinDallasandoneinHouston,andthatithas committedtoopentwonewbankbranchesinLMIcensustracts,includingoneinMiami- DadeCountyandoneinAtlanta. IBERIABANKassertsthatithascontinuedtomakeahighlevelof communitydevelopmentloansthroughoutitsAAstoincreaseaffordablehousing,revitalizeLMIgeographies, andpromoteeconomicdevelopmentthroughfinancingsmallbusinessesinLMIcommunities.IBERIABANKrepresentsthatsincetheIBERIABANKEvaluationithasoriginatedcommunitydevelopmentloanstosupportnonprofitorganizationsinvolvedinaffordablehousingandeconomicactivitiesthatbenefitLMIindividualsandcommunitiesin Atlanta,hasmaintaineditshighlevelof communitydevelopmentlendinginHouston,and haspartneredwiththeDallasHabitatforHumanitytoprovideaffordablemortgageloans toitsclienteleandextendedalineof credittothenonprofitorganizationLiftFundforits minority-ownedsmallbusinessloanfundthattargetsbusinessesintheDallasmarket. IBERIABANKalsorepresentsthatitmadeanequityinvestmentinLibertyFinancial Services,theholdingcompanyof LibertyBank,anAfrican-Americanownedfinancial institution.Inaddition,thebankhasofferedasuiteof productsandservicestoaddressthe financialneedsof LMIborrowers,includingmortgageloanproductsandlow-costindividualdevelopmentaccounts.

LegalDevelopments:FirstQuarter,2018 67 Asnoted,aspartof itsCRAPlan,thebankhasagreedtocommitmentsandgoals designedtomeettheneedsof underservedcommunitiesinthestatesinwhichthebank currentlyhasabranchpresence.Suchcommitmentsandgoalsrelatetomortgageandsmall businesslending,communitydevelopmentlendingandinvestments,philanthropy,and increasingaccesstofinancialservicesinLMIcommunities.IBERIABANKrepresentsthat ithascommittedtoincreaseitssmallbusinesslendinginLMIcensustractsby5percent annuallyforthefirstthreeyearsandby2.5percentannuallyforthelasttwoyearsof the plan.IBERIABANKalsorepresentsthatithascommittedtoincreasehomemortgage lendingtoLMIborrowersandLMIgeographiesby3percentannuallyoverfiveyears. CRAPerformanceof Gibraltar Gibraltarwasassignedanoverallratingof “Outstanding”atitsmostrecentCRAperformanceevaluationbytheOCC,asof July11,2016(“GibraltarEvaluation”).34Gibraltar received“Outstanding”ratingsfortheLendingTestandInvestmentTestanda“High Satisfactory”ratingfortheServiceTest.35AlthoughGibraltar’soverallratingtookinto considerationthebank’sperformanceineachAAthatreceivedafull-scopereview,examinersgavethegreatestweighttothebank’srecordintheMiami-Dade-BrowardAAdueto thehighervolumeof depositsandloansinthatarea. ExaminersfoundthatGibraltardemonstratedexcellentresponsivenesstothecreditneeds of itsAAs.Examinersnotedthat,overall,Gibraltaroriginatedasubstantialmajorityof its loanswithinitsAAs.Examinersfoundthatthebankhadgooddistributionamong borrowersof differentincomelevelsandthatthegeographicdistributionof loansreflected goodpenetration.Examinersalsodeterminedthatthebankmadeanexcellentlevelof communitydevelopmentloans. Examinersfoundthatthebank’scommunitydevelopmentinvestmentswereresponsiveto thecreditneedsof itsAAsinthestateof Florida,primarilyaddressingtheneedforrehabilitationof affordablehousingforLMIindividuals.Examinersobservedthatthebank’s retaildeliverysystemswereadequatelydistributedthroughoutthebank’sAAs.Moreover, brancheswerefoundtobereasonablyaccessibletogeographiesandindividualsof different incomelevelsinFlorida.36 AdditionalSupervisoryViews TheBoardhasconsideredtheresultsof arecentconsumercomplianceexaminationof IBERIABANKconductedbyReserveBankexaminers,whichincludedareviewof the 34 TheGibraltarEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Theexaminers reviewedresidentialmortgageandsmallbusinessloansfromJanuary1,2013,throughDecember31,2015.The evaluationperiodforcommunitydevelopmentloansandserviceswasJanuary1,2013,throughDecember31, 2015.TheevaluationperiodforcommunitydevelopmentinvestmentswasAugust1,2013,through February29,2016. 35 TheGibraltarEvaluationincludedafull-scopeevaluationoftheMiami-Dade-BrowardAAandtheNewYork- NorthernNewJersey-LongIsland,NewYork-NewJersey-PennsylvaniaMSA(“NY-NJ-PAMSA”).The Miami-Dade-BrowardAAiscomposedoftheFortLauderdale-PompanoBeach-DeerfieldBeach,Florida MetropolitanDivision(“MD”),andtheMiami-MiamiBeach-Kendall,FloridaMD.Alimited-scopereview wasperformedintheCollierCounty,FloridaMSA,andMonroeCounty,FloridaNon-MSA.Theratingsin theStateofFloridawerebasedonthebank’sperformanceintheMiami-Dade-BrowardAA. 36 NoneofGibraltar’sFloridabranchesislocatedinaLMIgeography.AlthoughtwoFloridabranchesarein reasonableproximitytoLMIgeographies,easeofaccessislimitedduetotheirlocationwithincommercial officetowers.However,Gibraltarofferselectronicbankingservicesthatincludeno-chargeautomatedteller machine(“ATM”)accesswhenusingPublixSupermarket’sPRESTOATMnetwork,onlinebanking,and mobilebanking.Gibraltar’sNewYorkbranchislocatedinproximitytoLMIgeographies,butprimarily provideswealthmanagementservices.However,GibraltarofferselectronicbankingservicesinNewYork, includingthroughATMnetworks,onlinebanking,andmobilebanking.

68 FederalReserveBulletin|May2018 bank’sconsumercompliancerisk-managementprogram.TheBoardhasconsideredthe preliminaryresultsof apendingreviewof IBERIABANK’scompliancewiththeFair HousingAct(“FHA”),37whichincludedaredlininganalysis,andtheresultsof aprevious reviewof IBERIABANK’scompliancewiththeFHA.TheBoardalsoconsideredthe preliminaryresultsof anewCRAevaluationof IBERIABANKandconsidered IBERIABANK’ssupervisoryrecordwiththeConsumerFinancialProtectionBureau. Moreover,theBoardhasconsideredtheresultsof themostrecentconsumercompliance examinationof GibraltarconductedbytheOCC,whichincludedareviewof thebank’s consumercomplianceprogramandcompliancewithcertainconsumerprotectionlawsand regulations. TheBoardhastakenthisinformation,aswellastheCRAperformancerecordsof both banks,intoaccountinevaluatingtheproposal,includinginconsideringwhether IBERIABANKhastheexperienceandresourcestoensurethatithelpstomeetthecredit needsof thecommunitieswithinitsAAs. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.IBERIABANKrepresentsthat,followingconsummationof theproposal,existingcustomersof IBERIABANKandlegacycustomersof GibraltarwouldbenefitfromanexpandedbranchandATMnetwork,expandedcommercialloancapacity,andabroaderrangeof financialproductsandservices.IBERIABANK alsorepresentsthatitdoesnotexpecttodiscontinueanymaterialproductsorservices currentlyprovidedbyGibraltar. ConclusionsonConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewith consumerprotectionlaws,supervisoryviewsof theReserveBankandtheOCC,confidentialsupervisoryinformation,informationprovidedbyIBERIABANK,thepubliccomment ontheproposal,andotherpotentialeffectsof theproposalontheconvenienceandneeds of thecommunitiestobeserved.Basedonthatreview,theBoardconcludesthattheconvenienceandneedsfactorisconsistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) added“risktothestabilityof theUnitedStatesbankingorfinancialsystem”asafactor thatmustbeconsideredundertheBankMergerAct.38 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the 37 42U.S.C.§3601etseq. 38 Dodd-FrankAct§604(f),Pub.L.No.111-203,124Stat.1376,1601(2010),amending12U.S.C.§1828(c)(5).

LegalDevelopments:FirstQuarter,2018 69 resultingfirm.39Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.40 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.41 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.As noted,theacquirerispredominatelyengagedinavarietyof consumerandcommercial bankingactivities,andthetargetengagesinprivatewealthmanagementandcommercial andconsumerloanactivities.Theproformaorganizationwouldhaveminimalcross-border activitiesandwouldnotexhibitanorganizationalstructure,complexinterrelationships,or uniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financial distress.Inaddition,theorganizationwouldnotbeacriticalservicesproviderorsointerconnectedwithotherfirmsorthemarketsthatitwouldposeasignificantrisktothefinancialsystemintheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Establishmentof Branches Asnoted,IBERIABANKhasappliedundersection9of theFRAtoestablishbranchesat thecurrentlocationsof Gibraltar.42TheBoardhasassessedthefactorsitisrequiredto considerwhenreviewinganapplicationunderthatsection.Specifically,theBoardhas consideredIBERIABANK’sfinancialcondition,management,capital,actionsinmeeting theconvenienceandneedsof thecommunitiestobeserved,CRAperformance,andinvest- 39 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 40 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder 2012-2(February14,2012). 41 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 42 See12U.S.C.§321.Undersection9oftheFRA,astatememberbankmayestablishandoperatebrancheson thesametermsandconditionsasareapplicabletotheestablishmentofbranchesbynationalbanks.Anational bankmayretainanybranchfollowingamergerthatunderstatelawmaybeestablishedasanewbranchofthe resultingbankorretainedasanexistingbranchoftheresultingbank.See12U.S.C.§36(b)(2)and(c).Inaddition,section341oftheDodd-FrankActprovidesauthorityforsavingsassociationsthatbecomebanksto continuetooperatebranchesthattheyoperatedimmediatelybeforebecomingabank.Dodd-FrankAct§341, Pub.L.No.111-203,124Stat.1376,1540-41(2010)),codifiedat12U.S.C.§5451.Uponconsummation, IBERIABANK’sbrancheswouldbepermissibleunderapplicablestatelaw.SeeFla.Stat.Ann.§658.2953and N.Y.BankingLawArticle5-C,§§223and225.

70 FederalReserveBulletin|May2018 mentinbankpremises.43Forthereasonsdiscussedinthisorder,theBoardfindsthose factorstobeconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationshouldbe,andherebyis,approved.Inreachingitsconclusion,theBoardhasconsideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunderthe BankMergerActandotherapplicablestatutes.TheBoard’sapprovalisspecificallyconditionedoncompliancebyIBERIABANKwithalltheconditionsimposedinthisorder, includingreceiptof allrequiredregulatoryapprovals,andonthecommitmentsmadetothe Boardinconnectionwiththeproposal.Theconditionsandcommitmentsaredeemedtobe conditionsimposedinwritingbytheBoardinconnectionwithitsfindingsanddecision hereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardortheReserveBank,actingunderdelegatedauthority. Byorderof theBoardof Governors,effectiveFebruary21,2018. Votingforthisaction:ChairmanPowell,ViceChairmanforSupervisionQuarles,and GovernorBrainard. AnnE.Misback Secretaryof theBoard Appendix BranchestobeEstablishedbyIBERIABANK FloridaBranches 450EastLasOlasBoulevard,Suite1220 FortLauderdale,Florida 5551RidgewoodDrive,Suite100 Naples,Florida 200SouthBiscayneBoulevard,Suite2850 Miami,Florida 1575SanIgnacioAvenue CoralGables,Florida 55AlhambraPlaza,8thFloor CoralGables,Florida 400ArthurGodfreyRoad,Suite102 MiamiBeach,Florida 43 12U.S.C.§§321and322;12CFR208.6.Inaddition,uponconsummationoftheproposal,IBERIABANK’s investmentinbankpremiseswouldremainwithinthelegalrequirementsof12CFR208.21.

LegalDevelopments:FirstQuarter,2018 71 35OceanReef Drive,Suite100 KeyLargo,Florida NewYorkBranch 280ParkAvenue,29thFloor NewYork,NewYork

72 FederalReserveBulletin|May2018 First Financial Bancorp Cincinnati, Ohio First Financial Bank Cincinnati, Ohio OrderApprovingtheMergerof BankHoldingCompanies,theMergerof Banks,andthe Establishmentof Branches,andDeterminationonaFinancialHoldingCompanyElection FRBOrderNo.2018-07(February22,2018) FirstFinancialBancorp(“FirstFinancial”),Cincinnati,Ohio,abankholdingcompany withinthemeaningof theBankHoldingCompanyActof 1956(“BHCAct”),1has requestedtheBoard’sapprovalundersection3of theBHCAct2tomergewith MainSourceFinancialGroup,Inc.(“MainSource”),andtherebyindirectlyacquire MainSourceBank,bothof Greensburg,Indiana. Inaddition,FirstFinancial’ssubsidiarystatememberbank,FirstFinancialBank,Cincinnati,Ohio,hasrequestedtheBoard’sapprovalundersection18(c)of theFederalDeposit InsuranceAct(“BankMergerAct”)tomergewithMainSourceBank,withFirstFinancial Bankasthesurvivingentity.3FirstFinancialBankalsohasappliedundersection9of the FederalReserveAct(“FRA”)toestablishandoperatebranchesatthemainofficeand branchesof MainSourceBank.4 Inconnectionwiththisproposal,FirstFinancialalsohasfiledwiththeBoardanelection tobecomeafinancialholdingcompanypursuanttosections4(k)and(l)of theBHCAct andsection225.82of theBoard’sRegulationY.5 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(82FederalRegister195(October11,2017)).6Thetimeforsubmitting commentshasexpired,andnocommentswerereceived.TheBoardhasconsideredthe proposalinlightof thefactorssetforthinsection3of theBHCAct,theBankMergerAct, andtheFRA.AsrequiredbytheBankMergerAct,areportonthecompetitiveeffectsof themergerof FirstFinancialBankandMainSourceBankwasrequestedfromtheUnited StatesAttorneyGeneral,andacopyof therequesthasbeenprovidedtotheFederal DepositInsuranceCorporation. FirstFinancial,withconsolidatedassetsof approximately$8.8billion,isthe149thlargest insureddepositoryorganizationintheUnitedStates.FirstFinancialcontrolsapproximately$6.7billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.7FirstFinancialcontrolsFirstFinancialBank,whichoperatesinIndiana,Kentucky,andOhio.First Financialisthe14thlargestinsureddepositoryorganizationinIndiana,controlling depositsof approximately$2.8billion,whichrepresent2.2percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.FirstFinancialisthe71stlargestinsured depositoryorganizationinKentucky,controllingdepositsof approximately$187.7million, 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 12U.S.C.§1828(c). 4 12U.S.C.§321.TheselocationsarelistedinAppendixA. 5 12U.S.C.§1843(k)and(l);12CFR225.82. 6 12CFR262.3(b). 7 NationwideassetanddepositdataareasofSeptember30,2017,unlessotherwisenoted.

LegalDevelopments:FirstQuarter,2018 73 whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutions inthatstate.8FirstFinancialisthe11thlargestinsureddepositoryorganizationinOhio, controllingdepositsof approximately$3.6billion,whichrepresent1.1percentof thetotal depositsof insureddepositoryinstitutionsinthatstate. MainSource,withconsolidatedassetsof approximately$4.6billion,isthe218thlargest insureddepositoryorganizationintheUnitedStates.MainSourcecontrolsapproximately $3.4billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.MainSource controlsMainSourceBank,whichoperatesinIllinois,Indiana,Kentucky,andOhio. MainSourceisthe233rdlargestinsureddepositoryorganizationinIllinois,controlling depositsof approximately$146.7million,whichrepresentlessthan1percentof thetotal depositsof insureddepositoryinstitutionsinthatstate.MainSourceisthe17thlargest insureddepositoryorganizationinIndiana,controllingdepositsof approximately $2.3billion,whichrepresent1.8percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.MainSourceisthe31stlargestinsureddepositoryorganizationin Kentucky,controllingdepositsof approximately$486.6million,whichrepresentlessthan 1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.MainSource isthe41stlargestinsureddepositoryorganizationinOhio,controllingdepositsof approximately$613.7million,whichrepresentlessthan1percentof thetotaldepositsof insured depositoryinstitutionsinthatstate. Onconsummationof theproposal,FirstFinancialwouldhaveconsolidatedassetsof approximately$13.8billion,whichrepresentlessthan1percentof thetotalassetsof insureddepositoryorganizationsintheUnitedStates.9FirstFinancialwouldcontroltotal depositsof approximately$10.1billion,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.InIllinois,First Financialwouldbecomethe233rdlargestinsureddepositoryorganization,controlling depositsof approximately$146.7million,whichrepresentlessthan1percentof thetotal depositsof insureddepositoryinstitutionsinthatstate.InIndiana,FirstFinancialwould becomethe6thlargestinsureddepositoryorganization,controllingdepositsof approximately$5.1billion,whichrepresent4.1percentof thetotaldepositsof insureddepository institutionsinthatstate.InKentucky,FirstFinancialwouldbecomethe24thlargest insureddepositoryorganization,controllingdepositsof approximately$674.4million, whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutions inthatstate.InOhio,FirstFinancialwouldremainthe11thlargestinsureddepository organization,controllingdepositsof approximately$4.2billion,whichrepresentapproximately1.2percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. InterstateandDepositCapAnalysis Section3(d)of theBHCActgenerallyprovidesthat,if certainconditionsaremet,the Boardmayapproveanapplicationbyabankholdingcompanytoacquirecontrolof a banklocatedinastateotherthanthehomestateof thebankholdingcompany,without regardtowhetherthetransactionisprohibitedunderstatelaw.10Section44of theFederal DepositInsuranceAct(“FDIAct”)generallyprovidesthat,if certainconditionsaremet, theBoardmayapproveamergertransactionundertheBankMergerActbetweeninsured bankswithdifferenthomestateswithoutregardtowhetherthetransactionisprohibited 8 StatedepositdataareasofJune30,2017,unlessotherwisenoted. 9 Excludingpurchaseaccountingadjustments,FirstFinancialwouldbecomethe109thlargestinsureddepository institutionintheUnitedStates,withconsolidatedassetsofapproximately$13.4billion. 10 12U.S.C.§1842(d)(1)(A).

74 FederalReserveBulletin|May2018 understatelaw.11TheBoardmaynotapproveanapplicationthatwouldpermitanout-ofstatebankholdingcompanyorbanktoacquireabankinahoststateif thebankhasnot beeninexistenceforthelesserof thestatestatutoryminimumperiodof timeorfive years.12Inaddition,undersection3(d)of theBHCAct,theBoardmaynotapprovean interstateapplicationif thebankholdingcompanycontrolsor,uponconsummationof the proposedtransaction,wouldcontrolmorethan10percentof thetotaldepositsof insured depositoryinstitutionsintheUnitedStatesor,incertaincircumstances,if thebankholding company,uponconsummation,wouldcontrol30percentormoreof thetotaldepositsof insureddepositoryinstitutionsinanystateinwhichtheacquirerandtargethaveoverlappingbankingoperations.13 Forpurposesof theBHCAct,thehomestateof FirstFinancialisOhio,andMainSource BankislocatedinIllinois,Indiana,Kentucky,andOhio.14Forpurposesof section44of theFDIAct,thehomestateof FirstFinancialBankisOhio,andthehomestateof MainSourceBankisIndiana.FirstFinancialandFirstFinancialBankarewellcapitalized andwellmanagedunderapplicablelaw,andFirstFinancialBankhasa“Satisfactory” ratingundertheCommunityReinvestmentActof 1977(“CRA”).15NeitherIndiananor Kentuckyhasstatutoryminimumagerequirements,16andMainSourceBankhasbeenin existenceformorethanfiveyears. Onconsummationof theproposedtransaction,FirstFinancialwouldcontrollessthan 1percentof thetotalamountof consolidateddepositsininsureddepositoryinstitutionsin theUnitedStates.Kentuckyimposesa15percentlimitonthetotalamountof in-state depositsthatasinglebankingorganizationmaycontrol.17Ohioimposesa30percentlimit onthetotalamountof in-statedepositsthatasinglebankingorganizationmaycontrol.18 Thecombinedorganizationwouldcontrolapproximately4.1percentof thetotalamount of depositsof insureddepositoryinstitutionsinIndiana,approximately0.9percentof the totalamountof depositsof insureddepositoryinstitutionsinKentucky,andapproximately 1.2percentof thetotalamountof depositsof insureddepositoryinstitutionsinOhio,the onlystatesinwhichFirstFinancialandMainSourcehaveoverlappingbankingoperations. TheBoardhasconsideredallotherrequirementsof section3(d)of theBHCActand section44of theFDIAct,includingFirstFinancialBank’srecordof meetingtheconvenienceandneedsof thecommunitiesitserves.Accordingly,inlightof allthefactsof record,theBoardmayapprovetheproposalunderbothstatutes. 11 12U.S.C.§1831u(a)(1). 12 12U.S.C.§§1831u(a)(5)and1842(d)(1)(B). 13 12U.S.C.§1842(d)(2)(A)and(B).SimilarprohibitionsapplytoactionbytheBoardoninterstatebankmerger applicationsundersection44oftheFDIAct.See12U.S.C.§1831u(b)(2).Forpurposesofsection3(d)ofthe BHCAct,theacquiringandtargetinstitutionshaveoverlappingbankingoperationsinanystateinwhichany banktobeacquiredislocatedandtheacquiringbankholdingcompanycontrolsanyinsureddepositoryinstitutionorabranch.TheBoardconsidersabanktobelocatedinthestatesinwhichthebankischarteredor headquarteredoroperatesabranch.See12U.S.C.§1841(o)(4)–(7). 14 See12U.S.C.§§1831u(g)(4)and1841(o)(4).Abankholdingcompany’shomestateisthestateinwhichthe totaldepositsofallbankingsubsidiariesofsuchcompanywerethelargestonJuly1,1966,orthedateon whichthecompanybecameabankholdingcompany,whicheverislater.Astatebank’shomestateisthestate inwhichthebankischartered. 15 12U.S.C.§2901etseq. 16 SeeInd.Code§28-2-17;Ky.Rev.Stat.Ann.286.3-900.Illinoishasastatutoryminimumagerequirement,but itonlyappliestotheacquisitionofabankthatisorganizedunderthelawsofthatstate.See205Ill.Comp. Stat.5/21.2.ThisagerequirementisnotapplicabletotheproposedtransactionbecauseMainSourceBankis organizedunderthelawsofIndiana. 17 Ky.Rev.Stat.Ann.§286.3-900(2),-920(4).Indianadoesnotimposealimitonthetotalamountofin-state depositsthatasinglebankingorganizationmaycontrol. 18 OhioRev.CodeAnn.§1115.05.

LegalDevelopments:FirstQuarter,2018 75 CompetitiveConsiderations Section3of theBHCActandtheBankMergerActprohibittheBoardfromapprovinga proposalthatwouldresultinamonopolyorwouldbeinfurtheranceof anattemptto monopolizethebusinessof bankinginanyrelevantmarket.19Bothstatutesalsoprohibit theBoardfromapprovingaproposalthatwouldsubstantiallylessencompetitionortendto createamonopolyinanybankingmarket,unlesstheanticompetitiveeffectsof the proposalareclearlyoutweighedinthepublicinterestbytheprobableeffectof theproposal inmeetingtheconvenienceandneedsof thecommunitiestobeserved.20 FirstFinancialandMainSourcehavesubsidiarydepositoryinstitutionsthatcompete directlyineightbankingmarketsinIndianaandOhio.21TheBoardhasconsideredthe competitiveeffectsof theproposalineachof thesebankingmarkets.Inparticular,the Boardhasconsideredthenumberof competitorsthatwouldremainineachmarket;the relativeshareof totaldepositsininsureddepositoryinstitutionsineachmarket(“market deposits”)thatFirstFinancialwouldcontrol;22theconcentrationlevelsof marketdeposits andtheincreaseintheselevels,asmeasuredbytheHerfindahl-HirschmanIndex(“HHI”) undertheU.S.Departmentof JusticeBankMergerCompetitiveReviewguidelines (“DOJBankMergerGuidelines”);23othercharacteristicsof themarkets;and,asdiscussed below,commitmentsmadebyFirstFinancialtodivestthreebranchesintheColumbus marketandonebranchintheGreensburgmarket. BankingMarketsWithinEstablishedGuidelines Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesinfiveof theeightbankingmarketsin whichFirstFinancialBankandMainSourceBankcompetedirectly.24Onconsummation of theproposal,oneof thesemarketswouldremainhighlyconcentrated,andthefour othermarketswouldremainmoderatelyconcentrated,asmeasuredbytheHHI.The changeintheHHIinthehighlyconcentratedbankingmarketandthemoderatelyconcentratedbankingmarketswouldbesmallandconsistentwithBoardprecedentandthe thresholdsintheDOJBankMergerGuidelines.Inaddition,numerouscompetitorswould remaininallfivebankingmarkets. 19 12U.S.C.§§1842(c)(1)and1828(c)(5). 20 12U.S.C.§§1842(c)(1)(B)and1828(c)(5)(B). 21 TheColumbusbankingmarket(“Columbusmarket”),FayetteCountybankingmarket(“FayetteCounty market”),andGreensburgbankingmarket(“Greensburgmarket”),allinIndiana,aredefinedbelow.Theother fivebankingmarketsaredefinedinAppendixB. 22 LocaldepositandmarketsharedataareasofJune30,2017,and,unlessotherwiseindicated,arebasedon calculationsinwhichthedepositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhas indicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorsto commercialbanks.See,e.g.,MidwestFinancialGroup,75FederalReserveBulletin386(1989);NationalCity Corporation,70FederalReserveBulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsin themarketsharecalculationona50percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserve Bulletin52(1991). 23 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableatwww.justice.gov/opa/pr/ 2010/August/10-at-938.html. 24 ThecompetitiveeffectsoftheproposalinthesefivemarketsaredescribedinAppendixB.

76 FederalReserveBulletin|May2018 BankingMarketsWarrantingSpecialScrutiny Thestructuraleffectsthatconsummationof theproposalwouldhaveintheColumbus, FayetteCounty,andGreensburgmarketswarrantadetailedreviewbecausetheconcentrationlevelsonconsummationwouldexceedthethresholdsintheDOJBankMerger Guidelineswhenusinginitialcompetitivescreeningdata. ColumbusMarket Usinginitialscreeningdata,FirstFinancialisthelargestdepositoryorganizationinthe Columbusmarket,controllingapproximately$652.7millionindeposits,whichrepresent approximately27.0percentof marketdeposits.25MainSourceisthefourthlargestdepositoryorganizationintheColumbusmarket,controllingapproximately$247.8millionin deposits,whichrepresentapproximately10.2percentof marketdeposits.Onconsummation,FirstFinancialwouldremainthelargestdepositoryorganizationintheColumbus market,controllingapproximately$900.5millioninmarketdeposits,whichwouldrepresentapproximately37.2percentof marketdeposits.TheHHIinthismarketwouldincrease by552points,from1465to2017. Tomitigatethepotentiallyadversecompetitiveeffectsof theproposalintheColumbus market,FirstFinancialhascommittedtodivestthreeof MainSourceBank’sninebranches inthatmarket,whichaccountforapproximately$112.9millionindeposits,toacompetitivelysuitable,in-marketpurchaser.26Afterthedivestiture,FirstFinancialwouldremain thelargestdepositoryorganizationinthemarket,controllingapproximately$787.6million indeposits,whichwouldrepresentapproximately32.5percentof marketdeposits. Inadditiontothedivestiture,theBoardalsohasconsideredwhetherotherfactorseither mitigatethecompetitiveeffectsof theproposalorindicatethattheproposalwouldnot haveasignificantlyadverseeffectoncompetitionintheColumbusmarket.27Several factorsindicatethattheincreaseinconcentrationintheColumbusmarket,asmeasuredby theaboveHHI,overstatesthepotentialcompetitiveeffectsof theproposalinthemarket. TheBoardhasconsideredthecompetitiveinfluenceof onecreditunionintheColumbus marketthatoffersawiderangeof consumerbankingproducts,operatesstreet-level branches,andhasbroadmembershipcriteriathatincludealmostallof theresidentsinthe market.28TheBoardfindsthatthesecircumstanceswarrantincludingthedepositsof this creditunionata50percentweightinitscalculationstoestimatemarketinfluence.This 25 TheColumbusmarketisdefinedasBartholomew,Jennings,Jackson,andBrowncounties,allinIndiana. 26 Asaconditionofconsummationoftheproposal,FirstFinancialhascommittedthatitwillexecute,before consummatingtheproposal,anagreementtosellthethreebranchestooneormorepurchasersdeterminedby theBoardtobecompetitivelysuitable.FirstFinancialalsohascommittedtocompletethedivestiturewithin 180daysafterconsummationoftheproposedmerger.Inaddition,FirstFinancialhascommittedthat,ifthe proposeddivestitureisnotcompletedwithinthe180-dayperiod,FirstFinancialwilltransfertheunsold branchestoanindependenttrustee,whowillbeinstructedtosellthemtoanalternatepurchaserorpurchasers inaccordancewiththetermsofthisorderandwithoutregardtoprice.Boththetrusteeandanyalternate purchasersmustbedeemedacceptabletotheBoard.See,e.g.,BankAmericaCorporation,78FederalReserve Bulletin338(1992);UnitedNewMexicoFinancialCorporation,77FederalReserveBulletin484(1991). 27 Thenumberandstrengthofthefactorsnecessarytomitigatethecompetitiveeffectsofaproposaldependon thesizeoftheincreasein,andresultinglevelof,concentrationinabankingmarket.SeeNationsbankCorp., 84FederalReserveBulletin129(1998). 28 TheBoardpreviouslyhasconsideredcompetitionfromcertainactivecreditunionswiththesefeaturesasa mitigatingfactor.See,e.g.,CentralBancompany,Inc.,FRBOrderNo.2017-03(February8,2017);KeyCorp, FRBOrderNo.2016-12(July12,2016);OhioValleyBancCorp.,FRBOrderNo.2016-10(June28,2016); ChemicalFinancialCorporation,FRBOrderNo.2015-13(April20,2015);MitsubishiUFJFinancialGroup, Inc.,FRBOrderNo.2012-12(November14,2012);OldNationalBancorp,FRBOrderNo.2012-9(August30, 2012);UnitedBankshares,Inc.(orderdatedJune20,2011),97FederalReserveBulletin19(2ndQuar.2011);The PNCFinancialServicesGroup,Inc.,94FederalReserveBulletinC38(2008);ThePNCFinancialServicesGroup,

LegalDevelopments:FirstQuarter,2018 77 weightingtakesintoaccountthelimitedlendingdonebythecredituniontosmallbusinessesrelativetocommercialbanks’lendinglevels. Takingintoaccountthedivestitureof thethreeMainSourceBankbranchestoan in-marketcompetitor,andadjustingtoreflectcompetitionfromthecreditunion,after consummationFirstFinancial’smarketsharewouldincreaseto29.6percent,andthe marketconcentrationlevelasmeasuredbytheHHIwouldincreaseby231points,froma levelof 1295to1526.Themarketconcentration,aswellastheresultingmarketshare, wouldbewithintheDOJBankMergerGuidelines.Includingthecreditunion,14other depositoryorganizationswouldcontinuetoservetheColumbusmarket,includingtwowith marketsharesgreaterthan12percenteach. FayetteCountyMarket Usinginitialscreeningdata,FirstFinancialisthesecondlargestdepositoryorganizationin theFayetteCountymarket,controllingapproximately$54.7millionindeposits,which representapproximately19.7percentof marketdeposits.29MainSourceisthesixthlargest depositoryorganizationintheFayetteCountymarket,controllingapproximately $21.0millionindeposits,whichrepresentapproximately7.6percentof marketdeposits.On consummation,FirstFinancialwouldbecomethelargestdepositoryorganizationinthe FayetteCountymarket,controllingapproximately$75.7millionindeposits,whichwould representapproximately27.2percentof marketdeposits.TheHHIinthismarketwould increaseby297points,from1704to2001. TheBoardhasconsideredwhetherotherfactorseithermitigatethecompetitiveeffectsof theproposalorindicatethattheproposalwouldnothaveasignificantlyadverseeffecton competitionintheFayetteCountymarket.Severalfactorsindicatethattheincreasein concentrationintheFayetteCountymarket,asmeasuredbytheaboveHHI,overstatesthe potentialcompetitiveeffectsof theproposalinthemarket. TheBoardhasconsideredthecompetitiveinfluenceof twocreditunionsintheFayette CountymarketthatmeettheBoard’sstandardconditionsforinclusioninitsstructural calculations,thedepositsof whicharegiven50percentweightintheBoard’sanalysis.After consummation,adjustingtoreflectcompetitionfromthesetwocreditunions,themarket concentrationlevelintheFayetteCountymarket,asmeasuredbytheHHI,wouldincrease by267pointsfromalevelof 1547to1814,andFirstFinancial’smarketsharewould increasefrom19.7percentto25.8percent.Afterconsummation,theFayetteCounty marketwouldcontinuetobeservedbysevenotherdepositoryorganizations,includingthe twocreditunionsnotedabove,includingthreewhichwouldeachcontrolmorethan 16percentof marketdeposits. GreensburgMarket Usinginitialscreeningdata,FirstFinancialisthefifthlargestdepositoryorganizationin theGreensburgmarket,controllingapproximately$31.9millionindeposits,whichrepresentapproximately5.8percentof marketdeposits.30MainSourceisthelargestdepository organizationintheGreensburgmarket,controllingapproximately$343.0millionin deposits,whichrepresentapproximately62.6percentof marketdeposits.Onconsumma- Inc.,93FederalReserveBulletinC65(2007);RegionsFinancialCorporation,93FederalReserveBulletinC16 (2007);PassumpsicBancorp,92FederalReserveBulletinC175(2006);andWachoviaCorporation,92Federal ReserveBulletinC183(2006). 29 TheFayetteCountymarketisdefinedasFayetteCounty,Indiana. 30 TheGreensburgmarketisdefinedasDecaturCounty,Indiana.

78 FederalReserveBulletin|May2018 tion,FirstFinancialwouldbecomethelargestdepositoryorganizationintheGreensburg market,controllingapproximately$374.9millioninmarketdeposits,whichwouldrepresentapproximately68.5percentof marketdeposits.TheHHIinthismarketwouldincrease by729points,from4300to5029. Tomitigatethepotentiallyadversecompetitiveeffectsof theproposalintheGreensburg market,FirstFinancialhascommittedtodivestoneof MainSourceBank’stwobranches intheGreensburgmarkettoacompetitivelysuitable,out-of-marketpurchaser.Thebranch tobedivestedisslightlysmallerthantheonlybranchcurrentlyoperatedbyFirstFinancialintheGreensburgmarket.31Afterthisdivestiture,FirstFinancialwouldbecomethe largestdepositoryorganizationinthemarket,controllingapproximately$345.1millionin deposits,whichwouldrepresentapproximately63percentof marketdeposits.If thebranch issoldtoanout-of-marketcompetitor,thestructureof theGreensburgmarketwouldbe approximatelythesamebothbeforeandafterconsummationof theproposal.32 Inadditiontothedivestiture,theBoardalsohasconsideredwhetherotherfactorseither mitigatethecompetitiveeffectsof theproposalorindicatethattheproposalwouldnot haveasignificantlyadverseeffectoncompetitionintheGreensburgmarket.Severalfactors indicatethattheincreaseinconcentrationasmeasuredbytheaboveHHI,aswellasFirst Financial’sresultingmarketshare,overstatethepotentialcompetitiveeffectsof the proposalintheGreensburgmarket. TheBoardhasconsideredthecompetitiveinfluenceof onecreditunionintheGreensburg marketthatmeetstheBoard’sstandardconditionsforinclusioninthestructuralcalculations,thedepositsof whicharegiven50percentweightintheBoard’sanalysis.After consummation,takingintoaccountthedivestitureof theMainSourceBankbranchtoan out-of-marketcompetitor,andadjustingtoreflectcompetitionfromthecreditunion,the marketconcentrationlevelintheGreensburgmarketasmeasuredbytheHHIwould increaseby40points,fromalevelof 3967to4007,andFirstFinancial’sshareof market depositsresultingfromthetransactionwouldbe60.4percent.Includingthecreditunion andanewcompetitorenteringthemarketthroughthedivestiture,afterconsummationthe Greensburgmarketwouldbeservedbyfiveotherdepositoryorganizations,includingtwo withmarketsharesgreaterthan10percenteach.Thepresenceof thesemarketcompetitors suggeststhatFirstFinancialwouldhavelimitedabilityunilaterallytoofferlessattractive termstoconsumersandthatthesecompetitorsareabletoexertcompetitivepressureon FirstFinancialintheGreensburgmarket. Notwithstandingthesecircumstances,theBoardviewsthecompetitiveeffectsinthis marketaspresentingaclosecase. ConclusionRegardingCompetitiveEffects TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposal,withtheproposeddivestituresof branchesintheColumbusandGreensburgmarkets,wouldnotlikelyhaveasignificantlyadverseeffectoncompetitionintheColumbus,FayetteCounty,andGreensburg marketsorinanyotherrelevantbankingmarket.Inaddition,theappropriatebanking 31 FirstFinancialBank’sonlybranchintheGreensburgmarkethas$31.9millionindeposits,representing 5.6percentoftotalmarketdeposits.MainSourceBankhastwobrancheswithdepositsinGreensburg,with $312.8millionand$29.8million,respectively.FirstFinancialproposestodivestthesmallerofthesebranches, representing5.2percentofmarketdeposits. 32 TheBoardhaspreviouslyapprovedtwoapplicationsinwhichthepost-divestitureHHIandthepercentageof marketdepositsexceededthepost-divestitureeffectsinthiscase.SeeUmpquaHoldingsCorp.,100Federal ReserveBulletin42(2014);SouthernNationalCorp.,83FederalReserveBulletin597(1997).

LegalDevelopments:FirstQuarter,2018 79 agencieshavebeenaffordedanopportunitytocommentandhavenotobjectedtothe proposal. Basedonthefactsof record,includingFirstFinancial’scommitmenttodivestatotalof fourbranchesintheColumbusandGreensburgmarkets,theBoardconcludesthat consummationof theproposalwouldnothaveasignificantlyadverseeffectoncompetition orontheconcentrationof resourcesinanyof theeightbankingmarketsinwhichFirst FinancialBankandMainSourceBankcompetedirectlyorinanyotherrelevantbanking market.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistent withapproval. Financial,Managerial,andOtherSupervisoryConsideration Inreviewingaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsidersthefinancialandmanagerialresourcesandthefutureprospectsof the institutionsinvolved.33Initsevaluationof financialfactors,theBoardreviewsinformation regardingthefinancialconditionof theorganizationsinvolvedonbothparent-onlyand consolidatedbases,aswellasinformationregardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.In thisevaluation,theBoardconsidersavarietyof informationregardingcapitaladequacy, assetquality,liquidity,andearningsperformance,aswellaspubliccommentsonthe proposal.TheBoardevaluatesthefinancialconditionof thecombinedorganization, includingitscapitalposition,assetquality,liquidity,earningsprospects,andtheimpactof theproposedfundingof thetransaction.TheBoardalsoconsiderstheabilityof the organizationtoabsorbthecostsof theproposalandtocompleteeffectivelytheproposed integrationof theoperationsof theinstitutions.Inassessingfinancialfactors,theBoard considerscapitaladequacytobeespeciallyimportant.TheBoardconsidersthefutureprospectsof theorganizationsinvolvedintheproposalinlightof theirfinancialandmanagerialresourcesandtheproposedbusinessplan. FirstFinancialandMainSourcearebothwellcapitalized,andthecombinedorganization wouldremainsoonconsummationof theproposal.Theproposedtransactionisabank holdingcompanymergerthatisstructuredasashareexchange,withasubsequentmerger of thesubsidiarydepositoryinstitutions.34Theassetquality,earnings,andliquidityof bothFirstFinancialBankandMainSourceBankareconsistentwithapproval,andFirst Financialappearstohaveadequateresourcestoabsorbtherelatedcostsof theproposal andtocompletetheintegrationof theinstitutions’operations.Inaddition,thefutureprospectsof theinstitutionsundertheproposalareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of FirstFinancial,MainSource,andtheirsubsidiarydepositoryinstitutions,including assessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition, theBoardhasconsideredinformationprovidedbyFirstFinancial;theBoard’ssupervisory experiencesandthoseof otherrelevantbanksupervisoryagencieswiththeorganizations; andtheorganizations’recordsof compliancewithapplicablebanking,consumerprotection,andanti-money-launderinglaws. 33 12U.S.C.§§1842(c)(2),(5),and(6)and1828(c)(5). 34 Aspartoftheproposedtransaction,eachshareofMainSourcecommonstockwouldbeconvertedintothe righttoreceive1.3875sharesofFirstFinancialcommonstock.

80 FederalReserveBulletin|May2018 FirstFinancial,MainSource,andtheirsubsidiarydepositoryinstitutionsareeachconsideredtobewellmanaged.FirstFinancialhasarecordof successfullyintegratingorganizationsintoitsoperationsandrisk-managementsystemsafteracquisitions.FirstFinancial’sdirectorsandseniorexecutiveofficershaveknowledgeof andexperienceinthe bankingandfinancialservicessectors,andFirstFinancial’srisk-managementprogram appearsconsistentwithapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredFirstFinancial’splansforimplementingtheproposal.First Financialhasconductedcomprehensiveduediligenceandisdevotingsignificantfinancial andotherresourcestoaddressallaspectsof thepost-acquisitionintegrationprocessfor thisproposal.FirstFinancialwouldimplementitsrisk-managementpolicies,procedures, andcontrolsatthecombinedorganization,andtheseareconsideredacceptablefroma supervisoryperspective.Inaddition,FirstFinancial’smanagementhastheexperienceand resourcestooperatethecombinedorganizationinasafeandsoundmanner,andFirst FinancialplanstointegrateMainSource’sexistingmanagementandpersonnelinamanner thataugmentsFirstFinancial’sandFirstFinancialBank’smanagement.35 Basedonallof thefactsof record,includingFirstFinancial’ssupervisoryrecord,managerialandoperationalresources,andplansforoperatingthecombinedinstitutionafter consummation,theBoardconcludesthatconsiderationsrelatingtothefinancialand managerialresourcesandthefutureprospectsof theorganizationsinvolvedinthe proposal,aswellastherecordsof effectivenessof FirstFinancialandMainSourcein combattingmoney-launderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.36Initsevaluationof theeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecreditneedsof thecommunitiestheyserve,aswellasother potentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served.Inthisevaluation,theBoardplacesparticularemphasisontherecordsof the relevantdepositoryinstitutionsundertheCRA.37TheCRArequiresthefederalfinancial supervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeetthecredit needsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeinstitutions’safe andsoundoperation,38andrequirestheappropriatefederalfinancialsupervisoryagencyto assessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof itsentire community,includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluating bankexpansionaryproposals.39 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideloan applicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainother characteristics.TheBoardalsoconsiderstheassessmentsof otherrelevantsupervisors,the supervisoryviewsof examiners,othersupervisoryinformation,informationprovidedby theapplicant,andcommentsreceivedontheproposal.TheBoardalsomayconsiderthe 35 Followingconsummationoftheproposedtransaction,sixMainSourcedirectorswilljoinFirstFinancial’s boardofdirectors. 36 12U.S.C.§§1842(c)(2)and1828(c)(5). 37 12U.S.C.§2901etseq. 38 12U.S.C.§2901(b). 39 12U.S.C.§2903.

LegalDevelopments:FirstQuarter,2018 81 institution’sbusinessmodel,itsmarketingandoutreachplans,theorganization’splans followingconsummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallof thefactsof record,includingreportsof examinationof theCRAperformanceof First FinancialBankandMainSourceBank;thefairlendingandcompliancerecordsof both banks;thesupervisoryviewsof theFederalReserveBankof Cleveland(“ReserveBank”) andotherfederalregulatoryagencies;confidentialsupervisoryinformation;andinformationprovidedbyFirstFinancial. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardconsiders examinationsbytheappropriatefederalsupervisorsof theCRAperformancerecordsof therelevantinstitutions,aswellasinformationandviewsprovidedbythosesupervisors.40 Inthiscase,theBoardconsideredthesupervisoryviewsof theReserveBankandtheOffice of theComptrollerof theCurrency(“OCC”)withrespecttoFirstFinancialBankandthe FederalDepositInsuranceCorporation(“FDIC”)withrespecttoMainSourceBank.41 TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.42Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplylending,investment,andserviceteststo evaluatetheperformanceof alargeinsureddepositoryinstitutioninhelpingtomeetthe creditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’shomemortgage,smallbusiness,smallfarm,andcommunitydevelopmentlendingto determinewhethertheinstitutionishelpingtomeetthecreditneedsof individualsand geographiesof allincomelevels.Aspartof thelendingtest,examinersreviewandanalyze aninstitution’sdatareportedundertheHomeMortgageDisclosureAct(“HMDA”),43in additiontosmallbusiness,smallfarm,andcommunitydevelopmentloandatacollected andreportedundertheCRAregulations,toassessaninstitution’slendingactivitieswith respecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slending performanceisbasedonavarietyof factors,including(1)thenumberandamountsof homemortgage,smallbusiness,smallfarm,andconsumerloans(asapplicable)intheinstitution’sassessmentareas(“AAs”);(2)thegeographicdistributionof theinstitution’s lending,includingtheproportionanddispersionof theinstitution’slendinginitsAAsand thenumberandamountsof loansinlow-,moderate-,middle-,andupper-incomegeographies;(3)thedistributionof loansbasedonborrowercharacteristics,including,forhome mortgageloans,thenumberandamountsof loanstolow-,moderate-,middle-,andupperincomeindividuals;44(4)theinstitution’scommunitydevelopmentlending,includingthe 40 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81Fed.Reg.48506,48548 (July25,2016). 41 UntilitsconversiononDecember30,2016,toastatememberbanksupervisedbytheBoard,FirstFinancial BankwasanationalbanksupervisedbytheOCC. 42 12U.S.C.§2906. 43 12U.S.C.§2801etseq. 44 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3).

82 FederalReserveBulletin|May2018 numberandamountsof communitydevelopmentloansandtheircomplexityand innovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpracticesto addressthecreditneedsof LMIindividualsandgeographies.Largeinstitutionsarealso subjecttoaninvestmenttestthatevaluatesthenumberandamountsof qualifiedinvestmentsthatbenefittheirassessmentareasandaservicetestthatevaluatestheavailability andeffectivenessof theirsystemsfordeliveringretailbankingservicesandtheextentand innovativenessof theircommunitydevelopmentservices.45 CRAPerformanceof FirstFinancialBank FirstFinancialBankwasassignedanoverall“Satisfactory”ratingbytheOCCatitsmost recentCRAperformanceevaluation,asof November4,2013(“FirstFinancialBank Evaluation”).46Thebankreceiveda“HighSatisfactory”ratingfortheLendingTestand “LowSatisfactory”ratingsfortheInvestmentTestandtheServiceTest.47 ExaminersfoundthatFirstFinancialBankoriginatedamajorityof itsloansinsideitsAAs andthatthebank’soveralllendingactivitywasgood.Examinersalsonotedthatthebank’s geographicdistributionof homemortgageloansandsmallloanstobusinesseswasgood. Inaddition,examinersfoundthebank’sdistributionof homemortgageloansbyincome levelof theborrowertobegoodandthebank’sdistributionof loanstobusinesseswith differentrevenuesizestobeadequate. ExaminersdeterminedthatFirstFinancialBank’slevelof qualifiedcommunitydevelopmentinvestmentswasadequateandresponsivetocommunityneeds.Examinersfoundthat thebank’sservicedeliverysystemswereaccessibletogeographiesandindividualsof differentincomelevelswithinthebank’sAAs.Examinersalsonotedthat,inthestateof Indiana,thebank’sbrancheswerereasonablyaccessible.Overall,examinersfoundthatthe communitydevelopmentservicesprovidedbythebankwereadequateandthatthebank providedagoodlevelof servicesinOhio. CRAPerformanceof MainSourceBank MainSourceBankwasassignedanoverallCRAratingof “Satisfactory”atitsmostrecent CRAperformanceevaluationbytheFDIC,asof September29,2014(“MainSource BankEvaluation”).48Thebankreceived“LowSatisfactory”ratingsforeachof the LendingTest,theInvestmentTest,andtheServiceTest.49 45 See12CFR228.21etseq. 46 TheFirstFinancialBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.ExaminersreviewedHMDAandsmallbusinessloansoriginatedfromJanuary1,2010,throughDecember31,2011. Theevaluationperiodforcommunitydevelopmentloans,investments,andserviceswasfromJune1,2010, throughDecember31,2011. 47 TheFirstFinancialBankEvaluationincludedfull-scopeevaluationsoftheCincinnati-MiddletonOhio- Kentucky-IndianaMultistateMetropolitanStatisticalArea(“MSA”);Columbus,IndianaMSA;andtheOhio Non-MSAAA.LimitedscopeevaluationswereperformedoftheBloomington,IndianaMSA;Indianapolis, IndianaMSA;Gary,IndianaMSA;Lafayette,IndianaMSA;IndianaNon-MSAAA;Lima,OhioMSA;and theDayton,OhioMSA. 48 TheMainSourceBankEvaluationwasconductedusingLargeBankCRAEvaluationProcedures.Examiners reviewedHMDA,smallbusiness,andsmallfarmloansoriginatedfromJanuary1,2012,through December31,2013.Theevaluationperiodforcommunitydevelopmentloans,investments,andserviceswas fromOctober20,2011,throughSeptember29,2014. 49 TheMainSourceBankEvaluationincludedfull-scopeevaluationsoftheLouisville-JeffersonCounty, Kentucky-IndianaMultistateMSA;Cincinnati-Middletown,Ohio-Indiana-KentuckyMultistateMSA;State ofIndianaNon-MSAAA;Kankakee-Bradley,IllinoisMSA;Dayton,OhioMSA;andtheKentucky Non-MSAAA.Limited-scopeevaluationswereperformedoftheAnderson,IndianaMSA;Bloomington, IndianaMSA;Columbus,IndianaMSA;GaryMetropolitanDivision,IndianaAA;Indianapolis-Carmel, IndianaMSA;Danville,IllinoisMSA;andtheStateofIllinoisNon-MSAAA.

LegalDevelopments:FirstQuarter,2018 83 ExaminersfoundthatMainSourceBank’slendinglevelsreflectedgoodresponsivenessto creditneedswithinitsAAsandthatasubstantialmajorityof thebank’sloansweremade withinitsAAs.Examinersfurtherfoundthatthegeographicdistributionof MainSource Bank’sloansreflectedadequatepenetrationthroughoutitsAAs.Examinersnotedthatthe bank’sdistributionof borrowersreflectedadequatepenetrationamongretailcustomersof differentincomelevelsandbusinessesof differentsizes.Examinersfoundthatthebank exhibitedanadequaterecordof servingthecreditneedsof themosteconomicallydisadvantagedareasof itsAAs,low-incomeindividuals,andverysmallbusinesses,consistent withsafeandsoundbankingpractices.ExaminersstatedthatMainSourceBankmadea relativelyhighlevelof communitydevelopmentloansandoriginatedqualifyingcommunity developmentloansinallof thebank’sAAs.Further,thebankwasfoundtouseinnovative and/orflexiblelendingpracticesinordertoserveAAcreditneeds. ExaminersfoundthatMainSourceBankmadeanadequatelevelof qualifiedcommunity developmentinvestmentsandgrants,particularlythosethatwerenotroutinelyprovidedby privateinvestors,althoughrarelyinaleadershipposition.Examinersfurthernotedthat thebankexhibitedadequateresponsivenesstocreditandcommunityeconomicdevelopmentneeds,butthatthebankrarelyusedinnovativeorcomplexinvestmentstosupport communitydevelopmentinitiatives. Examinersfoundthatthebank’sdeliverysystemswerereasonablyaccessibletoessentially allportionsof thebank’sAAs.ExaminersalsofoundthatMainSourceBank’srecordof openingandclosingbrancheshadnotadverselyaffectedtheaccessibilityof itsdelivery systems,particularlyinLMIgeographiesortoLMIindividuals,andthatbranchservices andbusinesshoursdidnotvaryinawaythatinconveniencedcertainportionsof theAAs, particularlyLMIgeographiesandindividuals.Examinersfurthernotedthatthebank providedanadequatelevelof communitydevelopmentservices. AdditionalSupervisoryViews Initsreviewof theproposal,theBoardconsultedwiththeReserveBankregardingits viewsof FirstFinancialBank’sconsumercompliancerisk-managementsystems.The Boardconsideredthemostrecentconsumercomplianceexaminationandfairlending reviewof FirstFinancialBankbytheOCC.TheBoardalsoconsideredthemostrecent consumercomplianceexaminationof MainSourceBankconductedbytheFDIC. TheBoardhastakenthisinformation,aswellastheCRAperformancerecordsof First FinancialBankandMainSourceBankintoaccountinevaluatingtheproposedtransaction, includinginconsideringwhetherFirstFinancialhastheexperienceandresourcestoeffectivelyimplementpoliciesandprogramsthatwouldassistthecombinedorganizationin helpingtomeetthecreditneedsof allof thecommunitieswithinthefirm’sAAs. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.FirstFinancialrepresentsthatitwouldprovidea fullrangeof deposit,savings,andotherfinancialproductsandservicestoconsumersand small-andmedium-sizedbusinessesinOhio,Indiana,andKentucky.FirstFinancialstates thatitwouldcontinueofferingallof thesignificantproductsandservicescurrently offeredbyFirstFinancialBankandMainSourceBankafterconsummationof the proposal.Further,FirstFinancialrepresentsthat,followingtheproposedtransaction,the combinedorganizationwouldbeabletoincreaseitslendinglimitsandbettermeetthe creditandbankingneedsof thesmall-andmedium-sizedbusinessesinitsexpandedservice area.

84 FederalReserveBulletin|May2018 ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws,confidentialsupervisoryinformation,informationprovidedbyFirstFinancial,andthepotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.Basedonthatreview,theBoard concludesthattheconvenienceandneedsfactorisconsistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedsection3of theBHCActandtheBankMergerActtorequiretheBoardto consider“theextenttowhichaproposedacquisition,merger,orconsolidationwouldresult ingreaterrisktothestabilityof theUnitedStatesbankingorfinancialsystem.”50 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the resultingfirm.51Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.52 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.53 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthatislessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.Both theacquirerandthetargetarepredominatelyengagedinretailandcommercialbanking 50 Dodd-FrankAct§604(d)and(f),Pub.L.No.111-203,124Stat.1376,1601-02(2010),codifiedat12U.S.C. §§1842(c)(7)and1828(c)(5). 51 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 52 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 53 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition.

LegalDevelopments:FirstQuarter,2018 85 activities.54Theproformaorganizationwouldhaveminimalcross-borderactivitiesand wouldnotexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.In addition,theorganizationwouldnotbeacriticalservicesproviderorsointerconnected withotherfirmsorthemarketsthatitwouldposesignificantrisktothefinancialsystemin theeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Establishmentof Branches FirstFinancialBankhasappliedundersection9of theFRAtoestablishandoperate branchesatthecurrentmainofficeandbranchesof MainSourceBank.55TheBoardhas assessedthefactorsitisrequiredtoconsiderwhenreviewinganapplicationunderthat section.Specifically,theBoardhasconsideredFirstFinancialBank’sfinancialcondition, management,capital,actionsinmeetingtheconvenienceandneedsof thecommunitiesto beserved,CRAperformance,andinvestmentinbankpremises.56Forthereasonsdiscussed inthisorder,theBoardfindsthosefactorstobeconsistentwithapproval. FinancialHoldingCompanyElection Asnoted,FirstFinancialhaselectedtobecomeafinancialholdingcompanyinconnection withtheproposal.FirstFinancialhascertifiedthat,uponconsummationof theproposal, FirstFinancialandFirstFinancialBankwouldbewellcapitalizedandwellmanaged,and FirstFinancialhasprovidedallof theinformationrequiredundertheBoard’sRegulationY.57 Basedonallthefactsof record,theBoarddeterminesthatFirstFinancial’selectionwill becomeeffectiveuponconsummationof theproposalif,onthatdate,FirstFinancialis wellcapitalizedandwellmanagedandalldepositoryinstitutionsitcontrolsarewellcapitalizedandwellmanagedandhaveCRAratingsof atleast“Satisfactory.” Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheproposal shouldbe,andherebyis,approved.Inreachingitsconclusion,theBoardhasconsideredall 54 FirstFinancialBankandMainSourceBankofferabroadrangeofretailandcommercialbankingproducts andservices.FirstFinancialhas,andasaresultoftheproposedtransactionwouldcontinuetohave,asmall marketshareintheseproductsandservicesonanationwidebasis,andnumerouscompetitorswouldremainfor theseproductsandservices. 55 See12U.S.C.§321.Undersection9oftheFRA,statememberbanksmayestablishandoperatebrancheson thesametermsandconditionsasareapplicabletotheestablishmentofbranchesbynationalbanks.Anational bankmayestablishandoperateanewbranchwithinastateinwhichitissituated,ifsuchestablishmentand operationisauthorizedunderapplicablestatelaw.12U.S.C.§36(c).Anationalbankalsomayretainany branchfollowingamergerthatunderstatelawmaybeestablishedasanewbranchoftheresultingbankor retainedasanexistingbranchoftheresultingbank.See12U.S.C.§§36(b)(2),(c).Inaddition,undersection44 oftheFDIAct,astatememberbankresultingfromaninterstatemergertransactionmayretainandoperate, asamainofficeorabranch,anyofficethatanybankinvolvedinthemergerwasoperatingasamainofficeor branchimmediatelybeforethemergertransaction.12U.S.C.§1831u(d).Uponconsummation,FirstFinancial Bank’sbrancheswouldbepermissibleunderapplicablestatelaw.See205Ill.Comp.Stat.5/21.4;Ind.Code §28-2-13-19;Ky.Rev.Stat.Ann.286.3-920;OhioRev.CodeAnn.§1117.01. 56 12U.S.C.§322;12CFR208.6.Uponconsummationoftheproposal,FirstFinancialBank’sinvestmentinbank premiseswouldremainwithinthelegalrequirementsof12CFR208.21. 57 SeeDodd-FrankAct§606(a),124Stat.at1607,amending12U.S.C.§1843(l)(1).

86 FederalReserveBulletin|May2018 thefactsof recordinlightof thefactorsthatitisrequiredtoconsiderundertheBHCAct, theBankMergerAct,andotherapplicablestatutes.TheBoard’sapprovalisspecifically conditionedoncompliancebyFirstFinancialwithalltheconditionsimposedinthisorder, includingreceiptof allrequiredregulatoryapprovals,andonthecommitmentsmadeto theBoardinconnectionwiththeproposal.Theconditionsandcommitmentsaredeemed tobeconditionsimposedinwritingbytheBoardinconnectionwithitsfindingsanddecisionhereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardortheReserveBank,actingunderdelegatedauthority. Byorderof theBoardof Governors,\effectiveFebruary22,2018. Votingforthisaction:ChairmanPowell,ViceChairmanforSupervisionQuarles,and GovernorBrainard. AnnE.Misback Secretaryof theBoard AppendixA BranchestobeEstablishedbyFirstFinancialBank IllinoisBranches 1. 101NorthHilgertDrive,GrantPark,Illinois60940 2. 323EastMainStreet,Hoopeston,Illinois60942 3. 2000WestCourtStreet,Kankakee,Illinois60901 4. 216SouthFourthStreet,Watseka,Illinois60970 IndianaBranches 1. 202NorthHarrisonStreet,Alexandria,Indiana46001 2. 1802AllisonLane,Jeffersonville,Indiana47130 3. 104EastLink'sWay,Aurora,Indiana47001 4. 136EastHarriman,Bargersville,Indiana46106 5. 1053StateRoad229North,Batesville,Indiana47006 6. 3205EastThirdStreet,Bloomington,Indiana47401 7. 24004StatelineRoad,Lawrenceburg,Indiana47025 8. 9014StateRoad101,Brookville,Indiana47012 9. 1051WestSpringStreet,Brownstown,Indiana47220 10. 221EastMainStreet,Crawfordsville,Indiana47933 11. 8740SouthEmersonAvenue,Indianapolis,Indiana46237 12. 597BantaStreet,Franklin,Indiana46131 13. 6671Highway150,FloydsKnobs,Indiana47119 14. 7700StateRoad64,Georgetown,Indiana47122 15. 3610GrantLineRoad,NewAlbany,Indiana47150 16. 122WestWashingtonStreet,Greensburg,Indiana47240 17. 102WestMainStreet,Hagerstown,Indiana47346 18. 136ThorntonRoad,Hanover,Indiana47243 19. 555EastThirdStreet,Hobart,Indiana46342 20. 8475NorthStateRoad9,Hope,Indiana47246 21. 3535East96thStreet,Indianapolis,Indiana46240 22. 120EastMainStreet,Knightstown,Indiana46148 23. 2253StateRoad54East,Linton,Indiana47441 24. 201SouthMainStreet,Lynn,Indiana47355

LegalDevelopments:FirstQuarter,2018 87 25. 1315CliftyDrive,Madison,Indiana47250 26. 417JeffersonStreet,Madison,Indiana47250 27. 201NorthBroadway,Greensburg,Indiana47240 28. 11SouthMeridian,Ste101,Indianapolis,Indiana46204 29. 100EastSpringStreet,NewAlbany,Indiana47150 30. 600SouthMemorialDrive,NewCastle,Indiana47362 31. 501CliftyDrive,Madison,Indiana47250 32. 521NorthStateStreet,NorthVernon,Indiana47265 33. 112NorthMeridianStreet,Portland,Indiana47371 34. 3433EastMainStreet,Richmond,Indiana47374 35. 230MainStreet,RisingSun,Indiana47040 36. 202NorthMainStreet,Rushville,Indiana46173 37. 1130EastTiptonStreet,Seymour,Indiana47274 38. 28287StateRoute1,WestHarrison,Indiana47060 39. 3880WestPresidentialWay,Edinburgh,Indiana46124 40. 1012SouthAdamsStreet,Versailles,Indiana47042 41. 102WestMainStreet,Vevay,Indiana47043 42. 1263NorthIndiana135,Greenwood,Indiana46142 43. 120NorthMonroeStreet,Williamsport,Indiana47993 KentuckyBranches 1. 1905BlankenbakerParkway,Louisville,Kentucky40299 2. 9819BrownsboroRoad,Louisville,Kentucky40241 3. 6512BardstownRoad,Louisville,Kentucky40291 4. 2862FrankfortAvenue,Louisville,Kentucky40206 5. 201LimestoneDrive,Frankfort,Kentucky40601 6. 104SouthChilesStreet,Harrodsburg,Kentucky40330 7. 1012BypassNorth,Lawrenceburg,Kentucky40342 8. 293NorthHubbardsLane,Louisville,Kentucky40207 9. 293NorthHubbardsLane,Louisville,Kentucky40207 10. 13704ShelbyvilleRoad,Louisville,Kentucky40245 11. 1734MidlandTrail,Shelbyville,Kentucky40065 12. 2735BardstownRoad,Louisville,Kentucky40205 13. 9306TaylorsvilleRoad,Louisville,Kentucky40299 14. 211WestOakStreet,Louisville,Kentucky40203 15. 295NorthHubbardsLane,Louisville,Kentucky40207 OhioBranches 1. 7637BeechmontAvenue,Cincinnati,Ohio45255 2. 3723GlenmoreAvenue,Cincinnati,Ohio45211 3. SummitWoods1,100EastBusinessWay,Suite150,Cincinnati,Ohio45241 4. 585AndersonFerryRoad,Cincinnati,Ohio45238 5. 6300HarrisonAvenue,Cincinnati,Ohio45247 6. 10425HarrisonAvenue,Harrison,Ohio45030 7. 3442EdwardsRoad,Cincinnati,Ohio45208 8. 5550CheviotRoad,Cincinnati,Ohio45239 9. 2000MadisonRoad,Cincinnati,Ohio45208 10. 7615ReadingRoad,Cincinnati,Ohio45237 11. 11186ReadingRoad,Cincinnati,Ohio45241 12. 635SouthMarketStreet,Troy,Ohio45373 13. 1580WestMainStreet,Troy,Ohio45373 14. 101EastElmStreet,UnionCity,Ohio45390 15. 5791GlenwayAvenue,Cincinnati,Ohio45238

88 FederalReserveBulletin|May2018 AppendixB FirstFinancial/MainSourceBankingMarketsConsistentwithBoardPrecedentandDOJBankMerger Guidelines Remaining Amountof MarketDeposit Bank Rank ResultingHHI ChangeinHHI Numberof Deposits Shares(%) Competitors Bloomington,Indiana–includesGreene,Monroe,andLawrencecounties. FirstFinancialPre-Consummation 3 $317.3M 10.04 MainSource 9 $137.0M 4.33 FirstFinancialPost-Consummation 3 $454.3M 14.37 1499 87 15 Gary/Hammond,Indiana–includesLake,Porter,LaPorte,Newton,Jaspercounties;andCenter,Jackson,California(minusthecityofBass Lake),Wayne,andRailroadtownshipsinStarkeCounty. FirstFinancialPre-Consummation 9 $702.5M 4.81 MainSource 16 $134.2M 0.92 FirstFinancialPost-Consummation 8 $836.7M 5.73 1003 8 29 Indianapolis,Indiana–includesBoone,Hamilton,Hancock,Hendricks,Henry,Johnson,Madison,Marion,Morgan,Owen,Putnam,Rush,Shelby, andTiptoncounties. FirstFinancialPre-Consummation 14 $620.0M 1.32 MainSource 18 $452.7M 0.91 FirstFinancialPost-Consummation 12 $1.05B 2.23 1125 2 48 Cincinnati,Ohio–includesBrown,Butler,Clermont,Hamilton,andWarrencounties,Ohio;DearbornCounty,Indiana;Boone,Bracken,Campbell, Gallatin,Grant,Kenton,andPendletoncounties,Kentucky;andtheNewLibertyandOwentoncensuscountydivisionsinOwenCounty,Kentucky. FirstFinancialPre-Consummation 6 $2.24B 2.03 MainSource 11 $568.5M 0.52 FirstFinancialPost-Consummation 4 $2.80B 2.54 3426 2 63 Dayton,Ohio–includesMontgomery,Miami,Greene,andPreblecounties. FirstFinancialPre-Consummation 7 $370.3M 3.13 MainSource 11 $144.3M 1.22 FirstFinancialPost-Consummation 7 $514.7M 4.35 1534 8 28 DataandrankingsareasofJune30,2017.Allrankings,marketdepositshares,andHHIsarebasedonthriftdepositsweightedat50percent. Theremainingnumberofcompetitorsnotedforeachmarketincludesthrifts,whereapplicable.

LegalDevelopments:FirstQuarter,2018 89 Orders Issued Under Federal Reserve Act IBERIABANK Lafayette, Louisiana OrderApprovingtheMergerof DepositoryInstitutionsandEstablishmentof Branches FRBOrderNo.18-06(February21,2018) IBERIABANK,thestatememberbanksubsidiaryof IBERIABANKCorporation (“IBKC”),1bothof Lafayette,Louisiana,hasrequestedtheBoard’sapprovalunder section18(c)of theFederalDepositInsuranceAct(“BankMergerAct”)2tomergewith GibraltarPrivateBank&TrustCompany(“Gibraltar”),CoralGables,Florida,afederal savingsbank,withIBERIABANKasthesurvivingentity.IBERIABANKalsohasapplied undersection9of theFederalReserveAct(“FRA”)toestablishandoperatebranchesat thelocationsof Gibraltar’smainofficeandbranches.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublishedinaccordancewiththeBankMergerActandtheBoard’sRulesof Procedure.4AsrequiredbytheBankMergerAct,areportonthecompetitiveeffectsof the bankmergerwasrequestedfromtheUnitedStatesAttorneyGeneral,andacopyof the requesthasbeenprovidedtotheFederalDepositInsuranceCorporation.Thetimefor submittingcommentshasexpired,andtheBoardhasconsideredtheproposalandall commentsreceivedinlightof thefactorssetforthintheBankMergerActandtheFRA. IBKC,withconsolidatedassetsof approximately$28.0billion,isthe65thlargestinsured depositoryorganizationintheUnitedStates,controllingdepositsof approximately $21.3billion,whichrepresentlessthan1percentof thetotalamountof depositsof insured depositoryinstitutionsintheUnitedStates.5IBKCcontrolsIBERIABANK,whichhas officesineightstates.IBKCisthe14thlargestinsureddepositoryorganizationinFlorida, withapproximately$8.7billionindeposits,whichrepresentapproximately1.5percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.6 Gibraltar,withconsolidatedassetsof approximately$1.6billion,isthe476thlargest insureddepositoryorganizationintheUnitedStates,controllingdepositsof approximately $1.1billion,whichrepresentlessthan1percentof thetotalamountof depositsof insured depositoryinstitutionsintheUnitedStates.GibraltarhasofficesinFloridaandNewYork. Gibraltaristhe49thlargestinsureddepositoryinstitutioninFlorida,withapproximately $1.0billionindeposits,whichrepresentlessthan1percentof thetotaldepositsof insured depositoryinstitutionsinFlorida.Gibraltaristhe173rdlargestinsureddepositoryinstitutioninNewYork,withapproximately$79.2millionindeposits,whichrepresentlessthan 1percentof thetotaldepositsof insureddepositoryinstitutionsinNewYork. Onconsummationof theproposal,IBKCwouldbecomethe64thlargestdepositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately$29.6billion. IBKCwouldcontrolapproximately$22.4billionindeposits,representinglessthan 1 IBKCisafinancialholdingcompanywithinthemeaningoftheBankHoldingCompanyActof1956. 2 12U.S.C.§1828(c). 3 12U.S.C.§321.TheselocationsarelistedintheAppendix. 4 12U.S.C.§1828(c)(3);12CFR262.3(b). 5 Assetandnationwidedeposit-rankingdataareasofSeptember30,2017,unlessotherwisenoted.Inthis context,insureddepositoryinstitutionsincludeinsuredcommercialbanks,savingsandloanassociations,and savingsbanks. 6 Statedeposit-rankingdataareasofJune30,2017,unlessotherwisenoted.

90 FederalReserveBulletin|May2018 1percentof thetotaldepositsof insureddepositoryinstitutionsintheUnitedStates.IBKC wouldcontinuetooperatethe14thlargestinsureddepositoryinstitutioninFlorida, controllingdepositsof approximately$9.7billion,representingapproximately1.7percent of thetotaldepositsof insureddepositoryinstitutionsinthestate.IBKCwouldoperatethe 173rdlargestinsureddepositoryinstitutioninNewYork,controllingdepositsof approximately$79.2million,representinglessthan1percentof thetotaldepositsof insured depositoryinstitutionsinthestate. InterstateandDepositCapAnalysis TheBankMergerActgenerallyprovidesthattheBoardmaynotapproveanapplicationby oneinsureddepositoryinstitutiontoacquireanotherinsureddepositoryinstitutionif the homestateof thetargetinsureddepositoryinstitutionisastateotherthanthehomestate of theapplicantandtheapplicantcontrolsorwouldcontroluponconsummationof the proposedtransactionmorethan10percentof thetotalamountof depositsof insured depositoryinstitutionsintheUnitedStates.7Forpurposesof theBankMergerAct,the homestateof IBERIABANKisLouisianaandthehomestateof GibraltarisFlorida.8 Consummationof theproposalwouldresultinIBERIABANKcontrollinglessthan 1percentof thedepositsof insureddepositoryinstitutionsintheUnitedStates.The proposedacquisitionof Gibraltarwouldnotbeprohibitedbythelawof anystateinwhich Gibraltarislocated.9Accordingly,inlightof allthefactsof record,theBoardisnot requiredtodenytheproposalundertheinterstatemergerprovisionsof theBank MergerAct. CompetitiveConsiderations TheBankMergerActprohibitstheBoardfromapprovingaproposalthatwouldresultina monopolyorwouldbeinfurtheranceof anyattempttomonopolizethebusinessof banking.10TheBankMergerActalsoprohibitstheBoardfromapprovingaproposalthat wouldsubstantiallylessencompetitionortendtocreateamonopolyinanyrelevant market,unlesstheBoardfindsthattheanticompetitiveeffectsof theproposedtransaction areclearlyoutweighedinthepublicinterestbytheprobableeffectof thetransactionin meetingtheconvenienceandneedsof communitiestobeserved.11 IBERIABANKandGibraltarcompetedirectlyintheMiami-FortLauderdaleandNaples, Floridabankingmarkets.12TheBoardhasreviewedthecompetitiveeffectsof the proposalinthosebankingmarketsinlightof allthefactsof record.Inparticular,the Boardhasconsideredthenumberof competitorsthatwouldremainineachmarket;the relativesharesof totaldepositsininsureddepositoryinstitutionsinthemarkets(“market 7 12U.S.C.§1828(c)(13). 8 Astatebank’shomestateisthestatebywhichthebankischartered.12U.S.C.§1828(c)(13)(C)(ii)(II).Afederal savingsassociation’shomestateisthestateinwhichthehomeofficeofthesavingsassociationislocated. 12U.S.C.§1828(c)(13)(C)(ii)(III). 9 Floridalawpermitsanout-of-statebanktoacquireaFloridabankthroughaninterstatemergerprovidedthe resultingbankwouldnotcontrol30percentormoreofthetotalamountofdepositsheldbyallinsureddepositoryinstitutionsinFlorida.SeeFla.Stat.Ann.§658.2953.Onconsummation,IBERIABANKwouldcontrol lessthan30percentofthetotaldepositsofinsureddepositoryinstitutionsinFlorida.NewYorkdoesnot haveadepositcapapplicabletothisproposal. 10 12U.S.C.§1828(c)(5)(A). 11 12U.S.C.§1828(c)(5)(B). 12 TheMiami-FortLauderdalebankingmarketincludesBrowardandMiami-Dadecounties,andtheNaples bankingmarketconsistsofCollierCounty,allinFlorida.

LegalDevelopments:FirstQuarter,2018 91 deposits”)thatIBERIABANKwouldcontrol;13theconcentrationlevelsof market depositsandtheincreaseintheselevelsasmeasuredbytheHerfindahl-HirschmanIndex (“HHI”)undertheDepartmentof JusticeBankMergerCompetitiveReviewguidelines (“DOJBankMergerGuidelines”);14andothercharacteristicsof themarkets. Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesforthesemarkets.Onconsummationof the proposal,boththeMiami-FortLauderdaleandNaples,Floridabankingmarketswould remainunconcentrated,asmeasuredbytheHHI,accordingtotheDOJBankMerger Guidelines.ThechangeinHHIineachmarketwouldbeminimal,andnumerouscompetitorswouldremainineachmarket.15 TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket.Inaddition,the appropriatebankingagencieshavebeenaffordedanopportunitytocommentandhavenot objectedtotheproposal. Basedonallthefactsof record,theBoardconcludesthatconsummationof theproposal wouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheMiami-FortLauderdaleandNaplesbankingmarketsorinanyother relevantbankingmarket.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations InreviewingaproposalundertheBankMergerAct,theBoardconsidersthefinancialand managerialresourcesandthefutureprospectsof theinstitutionsinvolved.16Initsevalua- 13 LocaldepositandmarketsharefiguresareasofJune30,2017,andarebasedoncalculationsinwhichthe depositsofthriftinstitutionsareincludedat50percent.TheBoardhaspreviouslyindicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorsofcommercialbanks.See,e.g., MidwestFinancialGroup,75FederalReserveBulletin386(1989);NationalCityCorporation,70FederalReserve Bulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsinthemarketsharecalculationona 50-percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserveBulletin53(1991). 14 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionhaveissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableatwww.justice.gov/opa/pr/ 2010/August/10-at-938.html. 15 IntheMiami-FortLauderdalebankingmarket,IBKCoperatesthe13thlargestdepositoryinstitution,controllingapproximately$3.2billionindeposits,whichrepresentapproximately1.8percentofmarketdeposits. Gibraltaristhe39thlargestdepositoryinstitutioninthesamemarket,controllingapproximately$412.2million indeposits,whichrepresentlessthan1percentofmarketdeposits.Onconsummationoftheproposedtransaction,IBKCwouldbecomethe12thlargestdepositoryorganizationinthemarket,controllingdepositsof approximately$4.0billion,whichrepresentapproximately2.2percentofmarketdeposits.TheHHIforthe Miami-FortLauderdalebankingmarketwoulddecreaseby2pointsto793,and78competitorswouldremain inthemarket. IntheNaplesbankingmarket,IBKCoperatesthe5thlargestdepositoryinstitution,controllingapproximately $991.8millionindeposits,whichrepresentapproximately5.9percentofmarketdeposits.Gibraltaristhe33rd largestdepositoryinstitutioninthemarket,controllingapproximately$21.8millionindeposits,whichrepresentlessthan1percentofmarketdeposits.Onconsummationoftheproposedtransaction,IBKCwould remainthe5thlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately$1.0billion, whichrepresentapproximately6.2percentofmarketdeposits.TheHHIfortheNaplesbankingmarketwould increaseby1pointto957,and35competitorswouldremaininthemarket. 16 12U.S.C.§1828(c)(5).

92 FederalReserveBulletin|May2018 tionof thefinancialfactors,theBoardreviewsinformationregardingthefinancialconditionof theorganizationsinvolvedonbothparent-onlyandconsolidatedbases,aswellas informationregardingthefinancialconditionof thesubsidiarydepositoryinstitutionsand theorganizations’significantnonbankingoperations.Inthisevaluation,theBoard considersavarietyof informationregardingcapitaladequacy,assetquality,liquidity,and earningsperformance.TheBoardevaluatesthefinancialconditionof thecombinedorganization,includingitscapitalposition,assetquality,liquidity,earningsprospects,andthe impactof theproposedfundingof thetransaction.TheBoardalsoconsiderstheabilityof theorganizationtoabsorbthecostsof theproposalandtocompleteeffectivelythe proposedintegrationof theoperationsof theinstitutions.Inassessingfinancialfactors,the Boardconsiderscapitaladequacytobeespeciallyimportant.TheBoardconsidersthe futureprospectsof theorganizationsinvolvedintheproposalinlightof theirfinancialand managerialresourcesandtheproposedbusinessplan. IBERIABANKandGibraltararewellcapitalized,andIBERIABANKwouldremainso onconsummationof theproposedtransaction.Theproposalisamergerstructuredasa stockconversion.17Theassetquality,earnings,andliquidityof IBERIABANKand Gibraltarareconsistentwithapproval.IBERIABANKappearstohaveadequateresources toabsorbthecostsof theproposalandtointegrateGibraltar’soperations.Inaddition,the futureprospectsof IBERIABANKareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theinstitutionsinvolvedandof IBERIABANKafterconsummationof theproposal.TheBoardhasreviewedtheexaminationrecordsof IBKC,IBERIABANK,andGibraltar,includingassessmentsof their management,risk-managementsystems,andoperations.Inaddition,theBoardhasconsideredinformationprovidedbyIBERIABANK;theBoard’ssupervisoryexperiencesand thoseof otherrelevantbanksupervisoryagencieswithIBERIABANKandGibraltar;and theorganizations’recordof compliancewithapplicablebanking,consumerprotection,and anti-money-launderinglaws. IBERIABANKandGibraltarareconsideredtobewellmanaged.IBERIABANK’sboard of directorsandseniormanagementhavesubstantialknowledgeof andexperienceinthe bankingsector,andthebank’srisk-managementprogramappearsconsistentwithapproval of thisexpansionaryproposal. TheBoardhasalsoconsideredIBERIABANK’splansforimplementingtheproposal. IBERIABANKhasconductedcomprehensiveduediligenceandisdevotingsufficient financialandotherresourcestoaddressthepost-integrationprocessforthisproposal. IBERIABANKwouldapplyitsrisk-managementpolicies,procedures,andcontrolsatthe combinedorganizationandtheseareconsideredacceptablefromasupervisoryperspective. Inaddition,IBERIABANK’smanagementhastheexperienceandresourcestoensurethat thebankoperatesinasafeandsoundmannerafterconsummationof theproposal. Basedonallthefactsof record,includingIBERIABANK’ssupervisoryrecord,managerial andoperationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandfutureprospectsof theorganizationsinvolved,aswellastherecordsof effectivenessof theorganizationsincombattingmoney-launderingactivities,areconsistent withapproval. 17 Attheeffectivetimeofthemerger,eachshareofGibraltarcommonstockwouldconvertintoarighttoreceive sharesofIBKCcommonstock.

LegalDevelopments:FirstQuarter,2018 93 ConvenienceandNeedsConsiderations InactingonaproposalundertheBankMergerAct,theBoardconsiderstheeffectsof the proposalontheconvenienceandneedsof thecommunitiestobeserved.18Initsevaluation of theeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thesecommunities,aswellasotherpotentialeffectsof theproposalonthe convenienceandneedsof thecommunitiestobeserved.Inthisevaluation,theBoard placesparticularemphasisontherecordsof therelevantdepositoryinstitutionsunderthe CommunityReinvestmentAct(“CRA”).19TheCRArequiresthefederalfinancialsupervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeirsafeandsoundoperation,20andrequirestheappropriatefederalfinancialsupervisoryagencytoassessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof itsentirecommunity, includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.21 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandtheresultsof recentfairlendingexaminations.Fairlendinglawsrequirealllendinginstitutionsto provideloanapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,or certainothercharacteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,thesupervisoryviewsof examiners,othersupervisoryinformation,information providedbytheapplicant,andcommentsreceivedontheproposal.TheBoardalsomay considertheapplicantinstitution’sbusinessmodel,itsmarketingandoutreachplans,the institution’splansfollowingconsummation,andanyotherinformationtheBoarddeems relevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof IBERIABANKandGibraltar,thecompliancerecordsof bothbanks,thesupervisory viewsof theFederalReserveBankof Atlanta(“ReserveBank”)andtheOfficeof the Comptrollerof theCurrency(“OCC”),confidentialsupervisoryinformation,information providedbyIBERIABANK,andthepubliccommentreceivedontheproposal. PublicCommentRegardingtheProposal Inthiscase,acommenterobjectedtotheproposal,expressingfairlendingandconvenience andneedsconcernswithrespecttoIBERIABANK.22Thecommenterallegedthat IBERIABANK’scurrentbranchingactivitiesinAfricanAmericancommunitiesandthe bank’smarketingof productsandservicestoAfricanAmericanbusinessesandprofessionalsarelimited.Specifically,thecommenterassertedthatIBERIABANKhasavoided placingbranchesinproximitytodenselypopulatedAfricanAmericanneighborhoods.23In 18 12U.S.C.§1828(c)(5). 19 12U.S.C.§2901etseq. 20 12U.S.C.§2901(b). 21 12U.S.C.§2903. 22 ThecommenteralsoallegedthatIBERIABANKhasengagedindiscriminatoryemploymentpractices.A bank’sinternalemploymentpractices,however,areoutsideofthelimitedstatutoryfactorsthattheBoardis authorizedtoconsiderwhenreviewinganapplicationornoticeundertheBankMergerAct. 23 Forexample,thecommenterallegedthatIBERIABANKhasestablishednobranchesintheAfricanAmerican communitiesofSouthAtlanta,inGeorgia,andSouthDallasandSouthHouston,inTexas.Inaddition,the commentercontendsthatonlysevenofIBERIABANK’sbranchesarelocatedinlow-incomeneighborhoods andthatfiveofthesebranchesappeartoengageinlimiteddeposit-takingactivities,whichthecommenter allegesindicatesminimalactivityandcommitmentinthesecommunities.

94 FederalReserveBulletin|May2018 addition,thecommenterallegedthatIBERIABANKdoesnothaveanorganizedoutreach programfordevelopingcommerciallendingrelationshipswithAfricanAmericanbusinessesandprofessionals.24Basedontheseallegedpractices,thecommenterexpressed concernthatIBERIABANKwillnotmeettheneedsof disadvantagedAfricanAmerican communitiesinSouthFloridaif theproposalisapproved. Businessof theInvolvedInstitutionsandResponsetothePublicComment Throughitsnetworkof branchesinsevenstates,25IBERIABANKoffersarangeof retail andcommercialproductsandservicestoindividualcustomersandbusinesses,including checking,savings,moneymarket,andcertificateof depositaccounts;consumer,residential, commercial,construction,andautoloans;wealthmanagementservices;creditcardand merchantcardservices;andtreasurymanagementservices. Gibraltarprovidesprivatecomprehensivewealthmanagementandprivatebankingservices toindividualsandfamilies,businesses,foundations,andnonprofitorganizations.Gibraltar alsoofferscommercial,commercialrealestate,constructionandlanddevelopment,and consumerloans. Inresponsetothecommenter’sallegations,IBERIABANKstatesthatithasanextensive legacyof meetingtheneedsof allcommunitiesinitsfootprint,includingLMIcommunities,andhighlightsacommunitydevelopmentplanthebankenteredintowiththeNational CommunityReinvestmentCoalitionthatbecameeffectiveonJanuary1,2018(“CRA Plan”). Withrespecttothecommenter’sallegationsaboutIBERIABANK’sbranchlocations,the banknotesthataspartof itsmostrecentCRAperformanceevaluation,ReserveBank examinersfoundthebank’sretaildeliverysystemstobereasonablyaccessibletothebank’s geographiesandtoindividualsof differentincomelevelsinitsassessmentareas(“AAs”). Thebankassertsthatitiscommittedtomaintainingthisaccessibilityforindividualsof differentincomelevelsthroughoutthecommunitiesitserves.IBERIABANKrepresents thatitcurrentlyoperates47active,full-servicebranchesinLMIcensustracts,representing approximately22.6percentof allof IBERIABANK’sfull-servicebranches,andthat,as partof itsCRAPlan,ithasagreedtoopentwonewbankbranchesinLMIcensustracts, oneinMiami-DadeCounty,Florida,andoneinAtlanta,Georgia. Inresponsetothecommenter’scriticismthatIBERIABANKhasnoorganizedoutreach programtoAfricanAmericanbusinessesandprofessionals,IBERIABANKassertsthatit doesnotdeveloportargetproductsorservicesspecificallybasedonraceorethnicity becauseitdoesnotassumeallborrowersof aparticularraceorethnicityhavethesame creditneeds.IBERIABANKrepresentsthatitrecognizesthecreditchallengesfacedby LMIcommunitiesandhasdevelopedinitiativesdesignedtomeetthecreditneedsof such communities,includingthroughcommunitydevelopmentloans,CRA-qualifiedinvestments,andaffordablefinancialproductofferingstoimprovebankingaccessforunderservedcommunities.IBERIABANKassertsthat,amongotherprogramsdesignedspecificallytomeettheneedsof LMIcommunities,ithascreatedtheIBERIABANKSubsidy 24 ThecommenterallegedthatIBERIABANKonlyfinancesAfricanAmericanbusinessesandprofessionalsthat comeintothebank’soffices,ratherthanactivelysolicitingbusinessfromthemintheircommunities,inmarkets suchasAtlanta,Dallas,andHouston,wheretherearealargenumberofcreditworthyAfricanAmerican businesses. 25 IBERIABANKhasbranchlocationsinLouisiana,Florida,Arkansas,Alabama,Texas,Tennessee,and Georgia.IBERIABANKdoesnotoperateanyfull-servicebranchesinSouthCarolina,buthasonelimited serviceadministrativeofficeinthatstate,whichdoesnotacceptdepositsormakeloans.Inaddition, IBERIABANKhasrecentlybeenapprovedtoestablishabranchinNorthCarolina.

LegalDevelopments:FirstQuarter,2018 95 Programtoprovide$4,000indown-paymentandclosing-costassistanceforthepurchase orrefinancingof loansforLMIborrowers.Thebankalsooffersanunsecuredhome improvementloandesignedtoassisthomeownerswholackequity,investsinLow-Income HousingTaxCreditprojectsthatprovideaffordablerentalhousing,andprovidesgrants anddonationstocommunitydevelopmentorganizationsengagedincommunityservices forLMIindividualsandcommunities.IBERIABANKfurtherrepresentsthatthebankwill providesupporttoLMIcommunitiesinthosestateswhereitcurrentlyhasabranchpresenceconsistentwithitsCRAPlan. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardconsiders substantialinformationinadditiontoinformationprovidedbypubliccommentersandthe responsetocommentsbytheapplicant.Inparticular,theBoardevaluatesaninstitution’s performancerecordinlightof examinationsbytheappropriatefederalsupervisorsof the CRAperformancerecordsof therelevantinstitution,aswellasinformationandviews providedbytheappropriatefederalsupervisors.26Inthiscase,theBoardconsideredthe supervisoryviewsof theReserveBankandtheOCC. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.27Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplylending,investment,andserviceteststo evaluatetheperformanceof alargeinsureddepositoryinstitution,suchasIBERIABANK, inhelpingtomeetthecreditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’shomemortgage,smallbusiness,smallfarm,andcommunity developmentlendingtodeterminewhethertheinstitutionishelpingtomeetthecredit needsof individualsandgeographiesof allincomelevels.Aspartof thelendingtest,examinersreviewandanalyzeaninstitution’sdataundertheHomeMortgageDisclosureAct (“HMDA”),28inadditiontosmallbusiness,smallfarm,andcommunitydevelopmentloan datacollectedandreportedundertheCRAregulations,toassessaninstitution’slending activitieswithrespecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slendingperformanceisbasedonavarietyof factors,including(1)thenumberand amountsof homemortgage,smallbusiness,smallfarm,andconsumerloans(asapplicable) intheinstitution’sAAs;(2)thegeographicdistributionof suchloans,includingthe proportionanddispersionof theinstitution’slendinginitsAAsandthenumberand amountsof loansinlow-,moderate-,middle-,andupper-incomegeographies;(3)the distributionof suchloansbasedonborrowercharacteristics,includingthenumberand amountsof homemortgageloanstolow-,moderate-,middle-,andupper-incomeindividuals;29(4)theinstitution’scommunitydevelopmentlending,includingthenumberand amountsof communitydevelopmentloansandtheircomplexityandinnovativeness;and (5)theinstitution’suseof innovativeorflexiblelendingpracticestoaddressthecredit 26 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48506,48548 (July25,2016). 27 12U.S.C.§2906. 28 12U.S.C.§2801etseq. 29 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless;smallbusinessandsmallfarmloansbyloanamountat origination;andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3).

96 FederalReserveBulletin|May2018 needsof LMIindividualsandgeographies.30Largeinstitutionsarealsosubjecttoan investmenttest,whichevaluatesthenumberandamountsof qualifiedinvestmentsthat benefittheirAAs,andaservicetest,whichevaluatestheavailabilityandeffectivenessof theirsystemsfordeliveringretailbankingservicesandtheextentandinnovativenessof theircommunitydevelopmentservices.31 CRAPerformanceof IBERIABANK IBERIABANKwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheReserveBank,asof August5,2013(“IBERIABANK Evaluation”).32IBERIABANKreceived“HighSatisfactory”ratingsfortheLendingTest, InvestmentTest,andServiceTest.33 ExaminersfoundIBERIABANK’soveralllendingperformancetobegoodinAlabama, Arkansas,Louisiana,andTexasandadequateinFloridaandTennessee.Examinersfound thatIBERIABANKoriginatedasubstantialmajorityof itsloanswithinitsAAs,reflecting excellentAApenetration.Examinersfoundthatthebank’spenetrationof loansamong borrowersof differentincomelevelsandbusinessesof differentsizeswasadequate.Examinersnotedthattheoveralldistributionof smallbusinesslendingreflectedadequate penetrationinLMIgeographiesandamongsmallbusinesses(businesseswithrevenuesof $1millionorless).Examinersfurthernotedthatthebankmadeahighlevelof community developmentloansduringthereviewperiod.Thecommunitydevelopmentloanswerefor avarietyof purposes,includingfinancingaffordablehousingforLMIindividuals, promotingeconomicdevelopmentbyfinancingsmallbusinessesthatresultedinjob creationand/orretention,revitalizingand/orstabilizingtargetedLMIcensustractsor otherqualifiedgeographies,andcommunityservicestargetedtoLMIindividuals. IntheHoustonAA,anareaof concerntothecommenter,examinersconsidered IBERIABANK’slendingperformancetobegood.Thegeographicdistributionof small businessloanswasfoundtoreflectgoodpenetrationthroughouttheAA,andexaminers notedthatthebank’ssmallbusinesslendinginlow-incomecensustractswasexcellent. ExaminersfoundIBERIABANK’sinvestmentperformancetobeexcellentinLouisiana, goodinAlabama,Arkansas,andTexas,andadequateinFloridaandTennessee.Examiners notedthatIBERIABANKhadmadesubstantialqualifiedinvestmentsandprovided 30 See12CFR228.22(b). 31 See12CFR228.21etseq. 32 TheIBERIABANKEvaluationwasconductedusingLargeInstitutionCRAExaminationProcedures.ExaminersreviewedloansreportableunderHMDAandsmallbusinessloansfortheperiodJanuary1,2011,through December31,2012.TheevaluationperiodforcommunitydevelopmentloansandinvestmentswasJanuary1, 2011,throughMarch31,2013.DuetoIBERIABANK’ssignificantexpansionandgrowthduringthereview period,thebank’sperformancein2012wasweightedslightlymorethanitsperformancein2011indetermining thefinalratingforlending. 33 TheIBERIABANKEvaluationincludedafull-scopereviewintheNewOrleans-Metairie-KennerMSA; LafayetteMSA;LittleRock-NorthLittleRock-ConwayMSA;Fayetteville-Springdale-RogersMSA;North Port-Bradenton-SarasotaMSA;Naples-MarcoIslandMSA;Birmingham-HooverMSA;Houston-Sugar Land-BaytownMSA;andMemphis-ForestCityCombinedStatisticalArea.Alimited-scopereviewwas performedinBaldwinCounty,Alabama;HuntsvilleMSA;MobileMSA;MontgomeryMSA;JonesboroMSA; NortheastArkansas;PalmBeach-BrowardMSA;Ft.MyersMSA;FloridaKeys,Florida;Acadiana,Louisiana;Allen,Louisiana;BatonRougeMSA;HoumaMSA;LakeCharlesMSA;Lincoln,Louisiana;Monroe MSA;Morehouse,Louisiana;andShreveportMSA. TheIBERIABANKEvaluationdidnotincludeareviewofDallasorAtlanta,areasofconcerntothe commenter,becauseIBERIABANKdidnotentertheDallasmarketuntilcompletionofitsacquisitionofFirst PrivateBankortheAtlantamarketuntilcompletionofitsacquisitionofGeorgiaCommerceBancsharesInc., bothin2015.

LegalDevelopments:FirstQuarter,2018 97 significantfinancialsupporttoaddresstheneedsforaffordablehousing,financialcounseling,emergencyassistance,jobtraining,andtherevitalizationof LMIcommunities. Examinershighlightedthebank’sprovisionof anexcellentlevelof communitydevelopmentservicesthroughoutitsAAs.Examinersfoundthebank’sretaildeliverysystemstobe reasonablyaccessibletogeographiesandindividualsof differentincomelevelsandthatthe bank’srecordof openingandclosingbrancheshadnotadverselyaffectedtheaccessibility of deliverysystems,particularlyinLMIgeographiesandtoLMIindividuals.Examiners notedthatthebankofferedseveralretailproductsdesignedtomeetthefinancialneedsof lower-incomecustomersandsmallbusinessesandthatthebankparticipatedinorganized programsandotheroutreacheffortstoexpandbankingaccesstoLMIcustomersacrossits entirebankingfootprint.Duringtheexaminationreviewperiod,thebankandits employeesprovidedover10,000hoursof communitydevelopmentservicesthroughservice activitiesaimedatpromotingorfacilitatingaffordablehousingforLMIindividuals, economicdevelopment,andtherevitalizationof LMIareas. IntheHoustonAA,anareaof concerntothecommenter,IBERIABANK’sperformance wasfoundtobeadequate.Examinersobservedthatthebank’sretaildeliverysystems werereasonablyaccessibletogeographiesandindividualsof differentincomelevels, includingLMIgeographiesandindividuals.ExaminersalsonotedthatIBERIABANK providedarelativelyhighlevelof communitydevelopmentservicesthatbenefitedresidents of,andsmallbusinessesin,theHoustonAA.Duringthereviewperiod,thebankandits employeesprovidedalmost500hoursof communitydevelopmentservices,including providingfinancialeducation,homeownershipcounseling,andsmallbusinessassistance,as wellasworkingwithavarietyof organizationsthatprovidedcommunityservicesinLMI geographiesandforLMIindividuals. IBERIABANK’sEffortssincetheIBERIABANKEvaluation IBERIABANKrepresentsthat,sincetheIBERIABANKEvaluation,ithascontinuedto builduponitscommitmenttoprovidefinancialservicestoLMIindividuals,withinLMI geographies,tosmallbusinesses,andtounderservedcommunities.IBERIABANKalso representsthatithasopenedeightbankbranchesinLMIcommunitiessincethe IBERIABANKEvaluation,includingoneinDallasandoneinHouston,andthatithas committedtoopentwonewbankbranchesinLMIcensustracts,includingoneinMiami- DadeCountyandoneinAtlanta. IBERIABANKassertsthatithascontinuedtomakeahighlevelof communitydevelopmentloansthroughoutitsAAstoincreaseaffordablehousing,revitalizeLMIgeographies, andpromoteeconomicdevelopmentthroughfinancingsmallbusinessesinLMIcommunities.IBERIABANKrepresentsthatsincetheIBERIABANKEvaluationithasoriginatedcommunitydevelopmentloanstosupportnonprofitorganizationsinvolvedinaffordablehousingandeconomicactivitiesthatbenefitLMIindividualsandcommunitiesin Atlanta,hasmaintaineditshighlevelof communitydevelopmentlendinginHouston,and haspartneredwiththeDallasHabitatforHumanitytoprovideaffordablemortgageloans toitsclienteleandextendedalineof credittothenonprofitorganizationLiftFundforits minority-ownedsmallbusinessloanfundthattargetsbusinessesintheDallasmarket. IBERIABANKalsorepresentsthatitmadeanequityinvestmentinLibertyFinancial Services,theholdingcompanyof LibertyBank,anAfrican-Americanownedfinancial institution.Inaddition,thebankhasofferedasuiteof productsandservicestoaddressthe financialneedsof LMIborrowers,includingmortgageloanproductsandlow-costindividualdevelopmentaccounts.

98 FederalReserveBulletin|May2018 Asnoted,aspartof itsCRAPlan,thebankhasagreedtocommitmentsandgoals designedtomeettheneedsof underservedcommunitiesinthestatesinwhichthebank currentlyhasabranchpresence.Suchcommitmentsandgoalsrelatetomortgageandsmall businesslending,communitydevelopmentlendingandinvestments,philanthropy,and increasingaccesstofinancialservicesinLMIcommunities.IBERIABANKrepresentsthat ithascommittedtoincreaseitssmallbusinesslendinginLMIcensustractsby5percent annuallyforthefirstthreeyearsandby2.5percentannuallyforthelasttwoyearsof the plan.IBERIABANKalsorepresentsthatithascommittedtoincreasehomemortgage lendingtoLMIborrowersandLMIgeographiesby3percentannuallyoverfiveyears. CRAPerformanceof Gibraltar Gibraltarwasassignedanoverallratingof “Outstanding”atitsmostrecentCRAperformanceevaluationbytheOCC,asof July11,2016(“GibraltarEvaluation”).34Gibraltar received“Outstanding”ratingsfortheLendingTestandInvestmentTestanda“High Satisfactory”ratingfortheServiceTest.35AlthoughGibraltar’soverallratingtookinto considerationthebank’sperformanceineachAAthatreceivedafull-scopereview,examinersgavethegreatestweighttothebank’srecordintheMiami-Dade-BrowardAAdueto thehighervolumeof depositsandloansinthatarea. ExaminersfoundthatGibraltardemonstratedexcellentresponsivenesstothecreditneeds of itsAAs.Examinersnotedthat,overall,Gibraltaroriginatedasubstantialmajorityof its loanswithinitsAAs.Examinersfoundthatthebankhadgooddistributionamong borrowersof differentincomelevelsandthatthegeographicdistributionof loansreflected goodpenetration.Examinersalsodeterminedthatthebankmadeanexcellentlevelof communitydevelopmentloans. Examinersfoundthatthebank’scommunitydevelopmentinvestmentswereresponsiveto thecreditneedsof itsAAsinthestateof Florida,primarilyaddressingtheneedforrehabilitationof affordablehousingforLMIindividuals.Examinersobservedthatthebank’s retaildeliverysystemswereadequatelydistributedthroughoutthebank’sAAs.Moreover, brancheswerefoundtobereasonablyaccessibletogeographiesandindividualsof different incomelevelsinFlorida.36 AdditionalSupervisoryViews TheBoardhasconsideredtheresultsof arecentconsumercomplianceexaminationof IBERIABANKconductedbyReserveBankexaminers,whichincludedareviewof the 34 TheGibraltarEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Theexaminers reviewedresidentialmortgageandsmallbusinessloansfromJanuary1,2013,throughDecember31,2015.The evaluationperiodforcommunitydevelopmentloansandserviceswasJanuary1,2013,throughDecember31, 2015.TheevaluationperiodforcommunitydevelopmentinvestmentswasAugust1,2013,through February29,2016. 35 TheGibraltarEvaluationincludedafull-scopeevaluationoftheMiami-Dade-BrowardAAandtheNewYork- NorthernNewJersey-LongIsland,NewYork-NewJersey-PennsylvaniaMSA(“NY-NJ-PAMSA”).The Miami-Dade-BrowardAAiscomposedoftheFortLauderdale-PompanoBeach-DeerfieldBeach,Florida MetropolitanDivision(“MD”),andtheMiami-MiamiBeach-Kendall,FloridaMD.Alimited-scopereview wasperformedintheCollierCounty,FloridaMSA,andMonroeCounty,FloridaNon-MSA.Theratingsin theStateofFloridawerebasedonthebank’sperformanceintheMiami-Dade-BrowardAA. 36 NoneofGibraltar’sFloridabranchesislocatedinaLMIgeography.AlthoughtwoFloridabranchesarein reasonableproximitytoLMIgeographies,easeofaccessislimitedduetotheirlocationwithincommercial officetowers.However,Gibraltarofferselectronicbankingservicesthatincludeno-chargeautomatedteller machine(“ATM”)accesswhenusingPublixSupermarket’sPRESTOATMnetwork,onlinebanking,and mobilebanking.Gibraltar’sNewYorkbranchislocatedinproximitytoLMIgeographies,butprimarily provideswealthmanagementservices.However,GibraltarofferselectronicbankingservicesinNewYork, includingthroughATMnetworks,onlinebanking,andmobilebanking.

LegalDevelopments:FirstQuarter,2018 99 bank’sconsumercompliancerisk-managementprogram.TheBoardhasconsideredthe preliminaryresultsof apendingreviewof IBERIABANK’scompliancewiththeFair HousingAct(“FHA”),37whichincludedaredlininganalysis,andtheresultsof aprevious reviewof IBERIABANK’scompliancewiththeFHA.TheBoardalsoconsideredthe preliminaryresultsof anewCRAevaluationof IBERIABANKandconsidered IBERIABANK’ssupervisoryrecordwiththeConsumerFinancialProtectionBureau. Moreover,theBoardhasconsideredtheresultsof themostrecentconsumercompliance examinationof GibraltarconductedbytheOCC,whichincludedareviewof thebank’s consumercomplianceprogramandcompliancewithcertainconsumerprotectionlawsand regulations. TheBoardhastakenthisinformation,aswellastheCRAperformancerecordsof both banks,intoaccountinevaluatingtheproposal,includinginconsideringwhether IBERIABANKhastheexperienceandresourcestoensurethatithelpstomeetthecredit needsof thecommunitieswithinitsAAs. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.IBERIABANKrepresentsthat,followingconsummationof theproposal,existingcustomersof IBERIABANKandlegacycustomersof GibraltarwouldbenefitfromanexpandedbranchandATMnetwork,expandedcommercialloancapacity,andabroaderrangeof financialproductsandservices.IBERIABANK alsorepresentsthatitdoesnotexpecttodiscontinueanymaterialproductsorservices currentlyprovidedbyGibraltar. ConclusionsonConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewith consumerprotectionlaws,supervisoryviewsof theReserveBankandtheOCC,confidentialsupervisoryinformation,informationprovidedbyIBERIABANK,thepubliccomment ontheproposal,andotherpotentialeffectsof theproposalontheconvenienceandneeds of thecommunitiestobeserved.Basedonthatreview,theBoardconcludesthattheconvenienceandneedsfactorisconsistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) added“risktothestabilityof theUnitedStatesbankingorfinancialsystem”asafactor thatmustbeconsideredundertheBankMergerAct.38 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the 37 42U.S.C.§3601etseq. 38 Dodd-FrankAct§604(f),Pub.L.No.111-203,124Stat.1376,1601(2010),amending12U.S.C.§1828(c)(5).

100 FederalReserveBulletin|May2018 resultingfirm.39Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.40 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.41 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.As noted,theacquirerispredominatelyengagedinavarietyof consumerandcommercial bankingactivities,andthetargetengagesinprivatewealthmanagementandcommercial andconsumerloanactivities.Theproformaorganizationwouldhaveminimalcross-border activitiesandwouldnotexhibitanorganizationalstructure,complexinterrelationships,or uniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financial distress.Inaddition,theorganizationwouldnotbeacriticalservicesproviderorsointerconnectedwithotherfirmsorthemarketsthatitwouldposeasignificantrisktothefinancialsystemintheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Establishmentof Branches Asnoted,IBERIABANKhasappliedundersection9of theFRAtoestablishbranchesat thecurrentlocationsof Gibraltar.42TheBoardhasassessedthefactorsitisrequiredto considerwhenreviewinganapplicationunderthatsection.Specifically,theBoardhas consideredIBERIABANK’sfinancialcondition,management,capital,actionsinmeeting theconvenienceandneedsof thecommunitiestobeserved,CRAperformance,andinvest- 39 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 40 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder 2012-2(February14,2012). 41 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 42 See12U.S.C.§321.Undersection9oftheFRA,astatememberbankmayestablishandoperatebrancheson thesametermsandconditionsasareapplicabletotheestablishmentofbranchesbynationalbanks.Anational bankmayretainanybranchfollowingamergerthatunderstatelawmaybeestablishedasanewbranchofthe resultingbankorretainedasanexistingbranchoftheresultingbank.See12U.S.C.§36(b)(2)and(c).In addition,section341oftheDodd-FrankActprovidesauthorityforsavingsassociationsthatbecomebanksto continuetooperatebranchesthattheyoperatedimmediatelybeforebecomingabank.Dodd-FrankAct§341, Pub.L.No.111-203,124Stat.1376,1540-41(2010)),codifiedat12U.S.C.§5451.Uponconsummation, IBERIABANK’sbrancheswouldbepermissibleunderapplicablestatelaw.SeeFla.Stat.Ann.§658.2953and N.Y.BankingLawArticle5-C,§§223and225.

LegalDevelopments:FirstQuarter,2018 101 mentinbankpremises.43Forthereasonsdiscussedinthisorder,theBoardfindsthose factorstobeconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationshouldbe,andherebyis,approved.Inreachingitsconclusion,theBoardhasconsideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunderthe BankMergerActandotherapplicablestatutes.TheBoard’sapprovalisspecificallyconditionedoncompliancebyIBERIABANKwithalltheconditionsimposedinthisorder, includingreceiptof allrequiredregulatoryapprovals,andonthecommitmentsmadetothe Boardinconnectionwiththeproposal.Theconditionsandcommitmentsaredeemedtobe conditionsimposedinwritingbytheBoardinconnectionwithitsfindingsanddecision hereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardortheReserveBank,actingunderdelegatedauthority. Byorderof theBoardof Governors,effectiveFebruary21,2018. Votingforthisaction:ChairmanPowell,ViceChairmanforSupervisionQuarles,and GovernorBrainard. AnnE.Misback Secretaryof theBoard Appendix BranchestobeEstablishedbyIBERIABANK FloridaBranches 450EastLasOlasBoulevard,Suite1220 FortLauderdale,Florida 5551RidgewoodDrive,Suite100 Naples,Florida 200SouthBiscayneBoulevard,Suite2850 Miami,Florida 1575SanIgnacioAvenue CoralGables,Florida 55AlhambraPlaza,8thFloor CoralGables,Florida 400ArthurGodfreyRoad,Suite102 MiamiBeach,Florida 43 12U.S.C.§§321and322;12CFR208.6.Inaddition,uponconsummationoftheproposal,IBERIABANK’s investmentinbankpremiseswouldremainwithinthelegalrequirementsof12CFR208.21.

102 FederalReserveBulletin|May2018 35OceanReef Drive,Suite100 KeyLargo,Florida NewYorkBranch 280ParkAvenue,29thFloor NewYork,NewYork

LegalDevelopments:FirstQuarter,2018 103 First Financial Bancorp Cincinnati, Ohio First Financial Bank Cincinnati, Ohio OrderApprovingtheMergerof BankHoldingCompanies,theMergerof Banks,andthe Establishmentof Branches,andDeterminationonaFinancialHoldingCompanyElection FRBOrderNo.2018-07(February22,2018) FirstFinancialBancorp(“FirstFinancial”),Cincinnati,Ohio,abankholdingcompany withinthemeaningof theBankHoldingCompanyActof 1956(“BHCAct”),1has requestedtheBoard’sapprovalundersection3of theBHCAct2tomergewith MainSourceFinancialGroup,Inc.(“MainSource”),andtherebyindirectlyacquire MainSourceBank,bothof Greensburg,Indiana. Inaddition,FirstFinancial’ssubsidiarystatememberbank,FirstFinancialBank,Cincinnati,Ohio,hasrequestedtheBoard’sapprovalundersection18(c)of theFederalDeposit InsuranceAct(“BankMergerAct”)tomergewithMainSourceBank,withFirstFinancial Bankasthesurvivingentity.3FirstFinancialBankalsohasappliedundersection9of the FederalReserveAct(“FRA”)toestablishandoperatebranchesatthemainofficeand branchesof MainSourceBank.4 Inconnectionwiththisproposal,FirstFinancialalsohasfiledwiththeBoardanelection tobecomeafinancialholdingcompanypursuanttosections4(k)and(l)of theBHCAct andsection225.82of theBoard’sRegulationY.5 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(82FederalRegister195(October11,2017)).6Thetimeforsubmitting commentshasexpired,andnocommentswerereceived.TheBoardhasconsideredthe proposalinlightof thefactorssetforthinsection3of theBHCAct,theBankMergerAct, andtheFRA.AsrequiredbytheBankMergerAct,areportonthecompetitiveeffectsof themergerof FirstFinancialBankandMainSourceBankwasrequestedfromtheUnited StatesAttorneyGeneral,andacopyof therequesthasbeenprovidedtotheFederal DepositInsuranceCorporation. FirstFinancial,withconsolidatedassetsof approximately$8.8billion,isthe149thlargest insureddepositoryorganizationintheUnitedStates.FirstFinancialcontrolsapproximately$6.7billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.7FirstFinancialcontrolsFirstFinancialBank,whichoperatesinIndiana,Kentucky,andOhio.First Financialisthe14thlargestinsureddepositoryorganizationinIndiana,controlling depositsof approximately$2.8billion,whichrepresent2.2percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.FirstFinancialisthe71stlargestinsured depositoryorganizationinKentucky,controllingdepositsof approximately$187.7million, 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 12U.S.C.§1828(c). 4 12U.S.C.§321.TheselocationsarelistedinAppendixA. 5 12U.S.C.§1843(k)and(l);12CFR225.82. 6 12CFR262.3(b). 7 NationwideassetanddepositdataareasofSeptember30,2017,unlessotherwisenoted.

104 FederalReserveBulletin|May2018 whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutions inthatstate.8FirstFinancialisthe11thlargestinsureddepositoryorganizationinOhio, controllingdepositsof approximately$3.6billion,whichrepresent1.1percentof thetotal depositsof insureddepositoryinstitutionsinthatstate. MainSource,withconsolidatedassetsof approximately$4.6billion,isthe218thlargest insureddepositoryorganizationintheUnitedStates.MainSourcecontrolsapproximately $3.4billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.MainSource controlsMainSourceBank,whichoperatesinIllinois,Indiana,Kentucky,andOhio. MainSourceisthe233rdlargestinsureddepositoryorganizationinIllinois,controlling depositsof approximately$146.7million,whichrepresentlessthan1percentof thetotal depositsof insureddepositoryinstitutionsinthatstate.MainSourceisthe17thlargest insureddepositoryorganizationinIndiana,controllingdepositsof approximately $2.3billion,whichrepresent1.8percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.MainSourceisthe31stlargestinsureddepositoryorganizationin Kentucky,controllingdepositsof approximately$486.6million,whichrepresentlessthan 1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.MainSource isthe41stlargestinsureddepositoryorganizationinOhio,controllingdepositsof approximately$613.7million,whichrepresentlessthan1percentof thetotaldepositsof insured depositoryinstitutionsinthatstate. Onconsummationof theproposal,FirstFinancialwouldhaveconsolidatedassetsof approximately$13.8billion,whichrepresentlessthan1percentof thetotalassetsof insureddepositoryorganizationsintheUnitedStates.9FirstFinancialwouldcontroltotal depositsof approximately$10.1billion,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.InIllinois,First Financialwouldbecomethe233rdlargestinsureddepositoryorganization,controlling depositsof approximately$146.7million,whichrepresentlessthan1percentof thetotal depositsof insureddepositoryinstitutionsinthatstate.InIndiana,FirstFinancialwould becomethe6thlargestinsureddepositoryorganization,controllingdepositsof approximately$5.1billion,whichrepresent4.1percentof thetotaldepositsof insureddepository institutionsinthatstate.InKentucky,FirstFinancialwouldbecomethe24thlargest insureddepositoryorganization,controllingdepositsof approximately$674.4million, whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutions inthatstate.InOhio,FirstFinancialwouldremainthe11thlargestinsureddepository organization,controllingdepositsof approximately$4.2billion,whichrepresentapproximately1.2percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. InterstateandDepositCapAnalysis Section3(d)of theBHCActgenerallyprovidesthat,if certainconditionsaremet,the Boardmayapproveanapplicationbyabankholdingcompanytoacquirecontrolof a banklocatedinastateotherthanthehomestateof thebankholdingcompany,without regardtowhetherthetransactionisprohibitedunderstatelaw.10Section44of theFederal DepositInsuranceAct(“FDIAct”)generallyprovidesthat,if certainconditionsaremet, theBoardmayapproveamergertransactionundertheBankMergerActbetweeninsured bankswithdifferenthomestateswithoutregardtowhetherthetransactionisprohibited 8 StatedepositdataareasofJune30,2017,unlessotherwisenoted. 9 Excludingpurchaseaccountingadjustments,FirstFinancialwouldbecomethe109thlargestinsureddepository institutionintheUnitedStates,withconsolidatedassetsofapproximately$13.4billion. 10 12U.S.C.§1842(d)(1)(A).

LegalDevelopments:FirstQuarter,2018 105 understatelaw.11TheBoardmaynotapproveanapplicationthatwouldpermitanout-ofstatebankholdingcompanyorbanktoacquireabankinahoststateif thebankhasnot beeninexistenceforthelesserof thestatestatutoryminimumperiodof timeorfive years.12Inaddition,undersection3(d)of theBHCAct,theBoardmaynotapprovean interstateapplicationif thebankholdingcompanycontrolsor,uponconsummationof the proposedtransaction,wouldcontrolmorethan10percentof thetotaldepositsof insured depositoryinstitutionsintheUnitedStatesor,incertaincircumstances,if thebankholding company,uponconsummation,wouldcontrol30percentormoreof thetotaldepositsof insureddepositoryinstitutionsinanystateinwhichtheacquirerandtargethaveoverlappingbankingoperations.13 Forpurposesof theBHCAct,thehomestateof FirstFinancialisOhio,andMainSource BankislocatedinIllinois,Indiana,Kentucky,andOhio.14Forpurposesof section44of theFDIAct,thehomestateof FirstFinancialBankisOhio,andthehomestateof MainSourceBankisIndiana.FirstFinancialandFirstFinancialBankarewellcapitalized andwellmanagedunderapplicablelaw,andFirstFinancialBankhasa“Satisfactory” ratingundertheCommunityReinvestmentActof 1977(“CRA”).15NeitherIndiananor Kentuckyhasstatutoryminimumagerequirements,16andMainSourceBankhasbeenin existenceformorethanfiveyears. Onconsummationof theproposedtransaction,FirstFinancialwouldcontrollessthan 1percentof thetotalamountof consolidateddepositsininsureddepositoryinstitutionsin theUnitedStates.Kentuckyimposesa15percentlimitonthetotalamountof in-state depositsthatasinglebankingorganizationmaycontrol.17Ohioimposesa30percentlimit onthetotalamountof in-statedepositsthatasinglebankingorganizationmaycontrol.18 Thecombinedorganizationwouldcontrolapproximately4.1percentof thetotalamount of depositsof insureddepositoryinstitutionsinIndiana,approximately0.9percentof the totalamountof depositsof insureddepositoryinstitutionsinKentucky,andapproximately 1.2percentof thetotalamountof depositsof insureddepositoryinstitutionsinOhio,the onlystatesinwhichFirstFinancialandMainSourcehaveoverlappingbankingoperations. TheBoardhasconsideredallotherrequirementsof section3(d)of theBHCActand section44of theFDIAct,includingFirstFinancialBank’srecordof meetingtheconvenienceandneedsof thecommunitiesitserves.Accordingly,inlightof allthefactsof record,theBoardmayapprovetheproposalunderbothstatutes. 11 12U.S.C.§1831u(a)(1). 12 12U.S.C.§§1831u(a)(5)and1842(d)(1)(B). 13 12U.S.C.§1842(d)(2)(A)and(B).SimilarprohibitionsapplytoactionbytheBoardoninterstatebankmerger applicationsundersection44oftheFDIAct.See12U.S.C.§1831u(b)(2).Forpurposesofsection3(d)ofthe BHCAct,theacquiringandtargetinstitutionshaveoverlappingbankingoperationsinanystateinwhichany banktobeacquiredislocatedandtheacquiringbankholdingcompanycontrolsanyinsureddepositoryinstitutionorabranch.TheBoardconsidersabanktobelocatedinthestatesinwhichthebankischarteredor headquarteredoroperatesabranch.See12U.S.C.§1841(o)(4)–(7). 14 See12U.S.C.§§1831u(g)(4)and1841(o)(4).Abankholdingcompany’shomestateisthestateinwhichthe totaldepositsofallbankingsubsidiariesofsuchcompanywerethelargestonJuly1,1966,orthedateon whichthecompanybecameabankholdingcompany,whicheverislater.Astatebank’shomestateisthestate inwhichthebankischartered. 15 12U.S.C.§2901etseq. 16 SeeInd.Code§28-2-17;Ky.Rev.Stat.Ann.286.3-900.Illinoishasastatutoryminimumagerequirement,but itonlyappliestotheacquisitionofabankthatisorganizedunderthelawsofthatstate.See205Ill.Comp. Stat.5/21.2.ThisagerequirementisnotapplicabletotheproposedtransactionbecauseMainSourceBankis organizedunderthelawsofIndiana. 17 Ky.Rev.Stat.Ann.§286.3-900(2),-920(4).Indianadoesnotimposealimitonthetotalamountofin-state depositsthatasinglebankingorganizationmaycontrol. 18 OhioRev.CodeAnn.§1115.05.

106 FederalReserveBulletin|May2018 CompetitiveConsiderations Section3of theBHCActandtheBankMergerActprohibittheBoardfromapprovinga proposalthatwouldresultinamonopolyorwouldbeinfurtheranceof anattemptto monopolizethebusinessof bankinginanyrelevantmarket.19Bothstatutesalsoprohibit theBoardfromapprovingaproposalthatwouldsubstantiallylessencompetitionortendto createamonopolyinanybankingmarket,unlesstheanticompetitiveeffectsof the proposalareclearlyoutweighedinthepublicinterestbytheprobableeffectof theproposal inmeetingtheconvenienceandneedsof thecommunitiestobeserved.20 FirstFinancialandMainSourcehavesubsidiarydepositoryinstitutionsthatcompete directlyineightbankingmarketsinIndianaandOhio.21TheBoardhasconsideredthe competitiveeffectsof theproposalineachof thesebankingmarkets.Inparticular,the Boardhasconsideredthenumberof competitorsthatwouldremainineachmarket;the relativeshareof totaldepositsininsureddepositoryinstitutionsineachmarket(“market deposits”)thatFirstFinancialwouldcontrol;22theconcentrationlevelsof marketdeposits andtheincreaseintheselevels,asmeasuredbytheHerfindahl-HirschmanIndex(“HHI”) undertheU.S.Departmentof JusticeBankMergerCompetitiveReviewguidelines (“DOJBankMergerGuidelines”);23othercharacteristicsof themarkets;and,asdiscussed below,commitmentsmadebyFirstFinancialtodivestthreebranchesintheColumbus marketandonebranchintheGreensburgmarket. BankingMarketsWithinEstablishedGuidelines Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesinfiveof theeightbankingmarketsin whichFirstFinancialBankandMainSourceBankcompetedirectly.24Onconsummation of theproposal,oneof thesemarketswouldremainhighlyconcentrated,andthefour othermarketswouldremainmoderatelyconcentrated,asmeasuredbytheHHI.The changeintheHHIinthehighlyconcentratedbankingmarketandthemoderatelyconcentratedbankingmarketswouldbesmallandconsistentwithBoardprecedentandthe thresholdsintheDOJBankMergerGuidelines.Inaddition,numerouscompetitorswould remaininallfivebankingmarkets. 19 12U.S.C.§§1842(c)(1)and1828(c)(5). 20 12U.S.C.§§1842(c)(1)(B)and1828(c)(5)(B). 21 TheColumbusbankingmarket(“Columbusmarket”),FayetteCountybankingmarket(“FayetteCounty market”),andGreensburgbankingmarket(“Greensburgmarket”),allinIndiana,aredefinedbelow.Theother fivebankingmarketsaredefinedinAppendixB. 22 LocaldepositandmarketsharedataareasofJune30,2017,and,unlessotherwiseindicated,arebasedon calculationsinwhichthedepositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhas indicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorsto commercialbanks.See,e.g.,MidwestFinancialGroup,75FederalReserveBulletin386(1989);NationalCity Corporation,70FederalReserveBulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsin themarketsharecalculationona50percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserve Bulletin52(1991). 23 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableatwww.justice.gov/opa/pr/ 2010/August/10-at-938.html. 24 ThecompetitiveeffectsoftheproposalinthesefivemarketsaredescribedinAppendixB.

LegalDevelopments:FirstQuarter,2018 107 BankingMarketsWarrantingSpecialScrutiny Thestructuraleffectsthatconsummationof theproposalwouldhaveintheColumbus, FayetteCounty,andGreensburgmarketswarrantadetailedreviewbecausetheconcentrationlevelsonconsummationwouldexceedthethresholdsintheDOJBankMerger Guidelineswhenusinginitialcompetitivescreeningdata. ColumbusMarket Usinginitialscreeningdata,FirstFinancialisthelargestdepositoryorganizationinthe Columbusmarket,controllingapproximately$652.7millionindeposits,whichrepresent approximately27.0percentof marketdeposits.25MainSourceisthefourthlargestdepositoryorganizationintheColumbusmarket,controllingapproximately$247.8millionin deposits,whichrepresentapproximately10.2percentof marketdeposits.Onconsummation,FirstFinancialwouldremainthelargestdepositoryorganizationintheColumbus market,controllingapproximately$900.5millioninmarketdeposits,whichwouldrepresentapproximately37.2percentof marketdeposits.TheHHIinthismarketwouldincrease by552points,from1465to2017. Tomitigatethepotentiallyadversecompetitiveeffectsof theproposalintheColumbus market,FirstFinancialhascommittedtodivestthreeof MainSourceBank’sninebranches inthatmarket,whichaccountforapproximately$112.9millionindeposits,toacompetitivelysuitable,in-marketpurchaser.26Afterthedivestiture,FirstFinancialwouldremain thelargestdepositoryorganizationinthemarket,controllingapproximately$787.6million indeposits,whichwouldrepresentapproximately32.5percentof marketdeposits. Inadditiontothedivestiture,theBoardalsohasconsideredwhetherotherfactorseither mitigatethecompetitiveeffectsof theproposalorindicatethattheproposalwouldnot haveasignificantlyadverseeffectoncompetitionintheColumbusmarket.27Several factorsindicatethattheincreaseinconcentrationintheColumbusmarket,asmeasuredby theaboveHHI,overstatesthepotentialcompetitiveeffectsof theproposalinthemarket. TheBoardhasconsideredthecompetitiveinfluenceof onecreditunionintheColumbus marketthatoffersawiderangeof consumerbankingproducts,operatesstreet-level branches,andhasbroadmembershipcriteriathatincludealmostallof theresidentsinthe market.28TheBoardfindsthatthesecircumstanceswarrantincludingthedepositsof this creditunionata50percentweightinitscalculationstoestimatemarketinfluence.This 25 TheColumbusmarketisdefinedasBartholomew,Jennings,Jackson,andBrowncounties,allinIndiana. 26 Asaconditionofconsummationoftheproposal,FirstFinancialhascommittedthatitwillexecute,before consummatingtheproposal,anagreementtosellthethreebranchestooneormorepurchasersdeterminedby theBoardtobecompetitivelysuitable.FirstFinancialalsohascommittedtocompletethedivestiturewithin 180daysafterconsummationoftheproposedmerger.Inaddition,FirstFinancialhascommittedthat,ifthe proposeddivestitureisnotcompletedwithinthe180-dayperiod,FirstFinancialwilltransfertheunsold branchestoanindependenttrustee,whowillbeinstructedtosellthemtoanalternatepurchaserorpurchasers inaccordancewiththetermsofthisorderandwithoutregardtoprice.Boththetrusteeandanyalternate purchasersmustbedeemedacceptabletotheBoard.See,e.g.,BankAmericaCorporation,78FederalReserve Bulletin338(1992);UnitedNewMexicoFinancialCorporation,77FederalReserveBulletin484(1991). 27 Thenumberandstrengthofthefactorsnecessarytomitigatethecompetitiveeffectsofaproposaldependon thesizeoftheincreasein,andresultinglevelof,concentrationinabankingmarket.SeeNationsbankCorp., 84FederalReserveBulletin129(1998). 28 TheBoardpreviouslyhasconsideredcompetitionfromcertainactivecreditunionswiththesefeaturesasa mitigatingfactor.See,e.g.,CentralBancompany,Inc.,FRBOrderNo.2017-03(February8,2017);KeyCorp, FRBOrderNo.2016-12(July12,2016);OhioValleyBancCorp.,FRBOrderNo.2016-10(June28,2016); ChemicalFinancialCorporation,FRBOrderNo.2015-13(April20,2015);MitsubishiUFJFinancialGroup, Inc.,FRBOrderNo.2012-12(November14,2012);OldNationalBancorp,FRBOrderNo.2012-9(August30, 2012);UnitedBankshares,Inc.(orderdatedJune20,2011),97FederalReserveBulletin19(2ndQuar.2011);The PNCFinancialServicesGroup,Inc.,94FederalReserveBulletinC38(2008);ThePNCFinancialServicesGroup,

108 FederalReserveBulletin|May2018 weightingtakesintoaccountthelimitedlendingdonebythecredituniontosmallbusinessesrelativetocommercialbanks’lendinglevels. Takingintoaccountthedivestitureof thethreeMainSourceBankbranchestoan in-marketcompetitor,andadjustingtoreflectcompetitionfromthecreditunion,after consummationFirstFinancial’smarketsharewouldincreaseto29.6percent,andthe marketconcentrationlevelasmeasuredbytheHHIwouldincreaseby231points,froma levelof 1295to1526.Themarketconcentration,aswellastheresultingmarketshare, wouldbewithintheDOJBankMergerGuidelines.Includingthecreditunion,14other depositoryorganizationswouldcontinuetoservetheColumbusmarket,includingtwowith marketsharesgreaterthan12percenteach. FayetteCountyMarket Usinginitialscreeningdata,FirstFinancialisthesecondlargestdepositoryorganizationin theFayetteCountymarket,controllingapproximately$54.7millionindeposits,which representapproximately19.7percentof marketdeposits.29MainSourceisthesixthlargest depositoryorganizationintheFayetteCountymarket,controllingapproximately $21.0millionindeposits,whichrepresentapproximately7.6percentof marketdeposits.On consummation,FirstFinancialwouldbecomethelargestdepositoryorganizationinthe FayetteCountymarket,controllingapproximately$75.7millionindeposits,whichwould representapproximately27.2percentof marketdeposits.TheHHIinthismarketwould increaseby297points,from1704to2001. TheBoardhasconsideredwhetherotherfactorseithermitigatethecompetitiveeffectsof theproposalorindicatethattheproposalwouldnothaveasignificantlyadverseeffecton competitionintheFayetteCountymarket.Severalfactorsindicatethattheincreasein concentrationintheFayetteCountymarket,asmeasuredbytheaboveHHI,overstatesthe potentialcompetitiveeffectsof theproposalinthemarket. TheBoardhasconsideredthecompetitiveinfluenceof twocreditunionsintheFayette CountymarketthatmeettheBoard’sstandardconditionsforinclusioninitsstructural calculations,thedepositsof whicharegiven50percentweightintheBoard’sanalysis.After consummation,adjustingtoreflectcompetitionfromthesetwocreditunions,themarket concentrationlevelintheFayetteCountymarket,asmeasuredbytheHHI,wouldincrease by267pointsfromalevelof 1547to1814,andFirstFinancial’smarketsharewould increasefrom19.7percentto25.8percent.Afterconsummation,theFayetteCounty marketwouldcontinuetobeservedbysevenotherdepositoryorganizations,includingthe twocreditunionsnotedabove,includingthreewhichwouldeachcontrolmorethan 16percentof marketdeposits. GreensburgMarket Usinginitialscreeningdata,FirstFinancialisthefifthlargestdepositoryorganizationin theGreensburgmarket,controllingapproximately$31.9millionindeposits,whichrepresentapproximately5.8percentof marketdeposits.30MainSourceisthelargestdepository organizationintheGreensburgmarket,controllingapproximately$343.0millionin deposits,whichrepresentapproximately62.6percentof marketdeposits.Onconsumma- Inc.,93FederalReserveBulletinC65(2007);RegionsFinancialCorporation,93FederalReserveBulletinC16 (2007);PassumpsicBancorp,92FederalReserveBulletinC175(2006);andWachoviaCorporation,92Federal ReserveBulletinC183(2006). 29 TheFayetteCountymarketisdefinedasFayetteCounty,Indiana. 30 TheGreensburgmarketisdefinedasDecaturCounty,Indiana.

LegalDevelopments:FirstQuarter,2018 109 tion,FirstFinancialwouldbecomethelargestdepositoryorganizationintheGreensburg market,controllingapproximately$374.9millioninmarketdeposits,whichwouldrepresentapproximately68.5percentof marketdeposits.TheHHIinthismarketwouldincrease by729points,from4300to5029. Tomitigatethepotentiallyadversecompetitiveeffectsof theproposalintheGreensburg market,FirstFinancialhascommittedtodivestoneof MainSourceBank’stwobranches intheGreensburgmarkettoacompetitivelysuitable,out-of-marketpurchaser.Thebranch tobedivestedisslightlysmallerthantheonlybranchcurrentlyoperatedbyFirstFinancialintheGreensburgmarket.31Afterthisdivestiture,FirstFinancialwouldbecomethe largestdepositoryorganizationinthemarket,controllingapproximately$345.1millionin deposits,whichwouldrepresentapproximately63percentof marketdeposits.If thebranch issoldtoanout-of-marketcompetitor,thestructureof theGreensburgmarketwouldbe approximatelythesamebothbeforeandafterconsummationof theproposal.32 Inadditiontothedivestiture,theBoardalsohasconsideredwhetherotherfactorseither mitigatethecompetitiveeffectsof theproposalorindicatethattheproposalwouldnot haveasignificantlyadverseeffectoncompetitionintheGreensburgmarket.Severalfactors indicatethattheincreaseinconcentrationasmeasuredbytheaboveHHI,aswellasFirst Financial’sresultingmarketshare,overstatethepotentialcompetitiveeffectsof the proposalintheGreensburgmarket. TheBoardhasconsideredthecompetitiveinfluenceof onecreditunionintheGreensburg marketthatmeetstheBoard’sstandardconditionsforinclusioninthestructuralcalculations,thedepositsof whicharegiven50percentweightintheBoard’sanalysis.After consummation,takingintoaccountthedivestitureof theMainSourceBankbranchtoan out-of-marketcompetitor,andadjustingtoreflectcompetitionfromthecreditunion,the marketconcentrationlevelintheGreensburgmarketasmeasuredbytheHHIwould increaseby40points,fromalevelof 3967to4007,andFirstFinancial’sshareof market depositsresultingfromthetransactionwouldbe60.4percent.Includingthecreditunion andanewcompetitorenteringthemarketthroughthedivestiture,afterconsummationthe Greensburgmarketwouldbeservedbyfiveotherdepositoryorganizations,includingtwo withmarketsharesgreaterthan10percenteach.Thepresenceof thesemarketcompetitors suggeststhatFirstFinancialwouldhavelimitedabilityunilaterallytoofferlessattractive termstoconsumersandthatthesecompetitorsareabletoexertcompetitivepressureon FirstFinancialintheGreensburgmarket. Notwithstandingthesecircumstances,theBoardviewsthecompetitiveeffectsinthis marketaspresentingaclosecase. ConclusionRegardingCompetitiveEffects TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposal,withtheproposeddivestituresof branchesintheColumbusandGreensburgmarkets,wouldnotlikelyhaveasignificantlyadverseeffectoncompetitionintheColumbus,FayetteCounty,andGreensburg marketsorinanyotherrelevantbankingmarket.Inaddition,theappropriatebanking 31 FirstFinancialBank’sonlybranchintheGreensburgmarkethas$31.9millionindeposits,representing 5.6percentoftotalmarketdeposits.MainSourceBankhastwobrancheswithdepositsinGreensburg,with $312.8millionand$29.8million,respectively.FirstFinancialproposestodivestthesmallerofthesebranches, representing5.2percentofmarketdeposits. 32 TheBoardhaspreviouslyapprovedtwoapplicationsinwhichthepost-divestitureHHIandthepercentageof marketdepositsexceededthepost-divestitureeffectsinthiscase.SeeUmpquaHoldingsCorp.,100Federal ReserveBulletin42(2014);SouthernNationalCorp.,83FederalReserveBulletin597(1997).

110 FederalReserveBulletin|May2018 agencieshavebeenaffordedanopportunitytocommentandhavenotobjectedtothe proposal. Basedonthefactsof record,includingFirstFinancial’scommitmenttodivestatotalof fourbranchesintheColumbusandGreensburgmarkets,theBoardconcludesthat consummationof theproposalwouldnothaveasignificantlyadverseeffectoncompetition orontheconcentrationof resourcesinanyof theeightbankingmarketsinwhichFirst FinancialBankandMainSourceBankcompetedirectlyorinanyotherrelevantbanking market.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistent withapproval. Financial,Managerial,andOtherSupervisoryConsideration Inreviewingaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsidersthefinancialandmanagerialresourcesandthefutureprospectsof the institutionsinvolved.33Initsevaluationof financialfactors,theBoardreviewsinformation regardingthefinancialconditionof theorganizationsinvolvedonbothparent-onlyand consolidatedbases,aswellasinformationregardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.In thisevaluation,theBoardconsidersavarietyof informationregardingcapitaladequacy, assetquality,liquidity,andearningsperformance,aswellaspubliccommentsonthe proposal.TheBoardevaluatesthefinancialconditionof thecombinedorganization, includingitscapitalposition,assetquality,liquidity,earningsprospects,andtheimpactof theproposedfundingof thetransaction.TheBoardalsoconsiderstheabilityof the organizationtoabsorbthecostsof theproposalandtocompleteeffectivelytheproposed integrationof theoperationsof theinstitutions.Inassessingfinancialfactors,theBoard considerscapitaladequacytobeespeciallyimportant.TheBoardconsidersthefutureprospectsof theorganizationsinvolvedintheproposalinlightof theirfinancialandmanagerialresourcesandtheproposedbusinessplan. FirstFinancialandMainSourcearebothwellcapitalized,andthecombinedorganization wouldremainsoonconsummationof theproposal.Theproposedtransactionisabank holdingcompanymergerthatisstructuredasashareexchange,withasubsequentmerger of thesubsidiarydepositoryinstitutions.34Theassetquality,earnings,andliquidityof bothFirstFinancialBankandMainSourceBankareconsistentwithapproval,andFirst Financialappearstohaveadequateresourcestoabsorbtherelatedcostsof theproposal andtocompletetheintegrationof theinstitutions’operations.Inaddition,thefutureprospectsof theinstitutionsundertheproposalareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of FirstFinancial,MainSource,andtheirsubsidiarydepositoryinstitutions,including assessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition, theBoardhasconsideredinformationprovidedbyFirstFinancial;theBoard’ssupervisory experiencesandthoseof otherrelevantbanksupervisoryagencieswiththeorganizations; andtheorganizations’recordsof compliancewithapplicablebanking,consumerprotection,andanti-money-launderinglaws. 33 12U.S.C.§§1842(c)(2),(5),and(6)and1828(c)(5). 34 Aspartoftheproposedtransaction,eachshareofMainSourcecommonstockwouldbeconvertedintothe righttoreceive1.3875sharesofFirstFinancialcommonstock.

LegalDevelopments:FirstQuarter,2018 111 FirstFinancial,MainSource,andtheirsubsidiarydepositoryinstitutionsareeachconsideredtobewellmanaged.FirstFinancialhasarecordof successfullyintegratingorganizationsintoitsoperationsandrisk-managementsystemsafteracquisitions.FirstFinancial’sdirectorsandseniorexecutiveofficershaveknowledgeof andexperienceinthe bankingandfinancialservicessectors,andFirstFinancial’srisk-managementprogram appearsconsistentwithapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredFirstFinancial’splansforimplementingtheproposal.First Financialhasconductedcomprehensiveduediligenceandisdevotingsignificantfinancial andotherresourcestoaddressallaspectsof thepost-acquisitionintegrationprocessfor thisproposal.FirstFinancialwouldimplementitsrisk-managementpolicies,procedures, andcontrolsatthecombinedorganization,andtheseareconsideredacceptablefroma supervisoryperspective.Inaddition,FirstFinancial’smanagementhastheexperienceand resourcestooperatethecombinedorganizationinasafeandsoundmanner,andFirst FinancialplanstointegrateMainSource’sexistingmanagementandpersonnelinamanner thataugmentsFirstFinancial’sandFirstFinancialBank’smanagement.35 Basedonallof thefactsof record,includingFirstFinancial’ssupervisoryrecord,managerialandoperationalresources,andplansforoperatingthecombinedinstitutionafter consummation,theBoardconcludesthatconsiderationsrelatingtothefinancialand managerialresourcesandthefutureprospectsof theorganizationsinvolvedinthe proposal,aswellastherecordsof effectivenessof FirstFinancialandMainSourcein combattingmoney-launderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.36Initsevaluationof theeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecreditneedsof thecommunitiestheyserve,aswellasother potentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served.Inthisevaluation,theBoardplacesparticularemphasisontherecordsof the relevantdepositoryinstitutionsundertheCRA.37TheCRArequiresthefederalfinancial supervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeetthecredit needsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeinstitutions’safe andsoundoperation,38andrequirestheappropriatefederalfinancialsupervisoryagencyto assessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof itsentire community,includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluating bankexpansionaryproposals.39 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideloan applicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainother characteristics.TheBoardalsoconsiderstheassessmentsof otherrelevantsupervisors,the supervisoryviewsof examiners,othersupervisoryinformation,informationprovidedby theapplicant,andcommentsreceivedontheproposal.TheBoardalsomayconsiderthe 35 Followingconsummationoftheproposedtransaction,sixMainSourcedirectorswilljoinFirstFinancial’s boardofdirectors. 36 12U.S.C.§§1842(c)(2)and1828(c)(5). 37 12U.S.C.§2901etseq. 38 12U.S.C.§2901(b). 39 12U.S.C.§2903.

112 FederalReserveBulletin|May2018 institution’sbusinessmodel,itsmarketingandoutreachplans,theorganization’splans followingconsummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallof thefactsof record,includingreportsof examinationof theCRAperformanceof First FinancialBankandMainSourceBank;thefairlendingandcompliancerecordsof both banks;thesupervisoryviewsof theFederalReserveBankof Cleveland(“ReserveBank”) andotherfederalregulatoryagencies;confidentialsupervisoryinformation;andinformationprovidedbyFirstFinancial. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardconsiders examinationsbytheappropriatefederalsupervisorsof theCRAperformancerecordsof therelevantinstitutions,aswellasinformationandviewsprovidedbythosesupervisors.40 Inthiscase,theBoardconsideredthesupervisoryviewsof theReserveBankandtheOffice of theComptrollerof theCurrency(“OCC”)withrespecttoFirstFinancialBankandthe FederalDepositInsuranceCorporation(“FDIC”)withrespecttoMainSourceBank.41 TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.42Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplylending,investment,andserviceteststo evaluatetheperformanceof alargeinsureddepositoryinstitutioninhelpingtomeetthe creditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’shomemortgage,smallbusiness,smallfarm,andcommunitydevelopmentlendingto determinewhethertheinstitutionishelpingtomeetthecreditneedsof individualsand geographiesof allincomelevels.Aspartof thelendingtest,examinersreviewandanalyze aninstitution’sdatareportedundertheHomeMortgageDisclosureAct(“HMDA”),43in additiontosmallbusiness,smallfarm,andcommunitydevelopmentloandatacollected andreportedundertheCRAregulations,toassessaninstitution’slendingactivitieswith respecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slending performanceisbasedonavarietyof factors,including(1)thenumberandamountsof homemortgage,smallbusiness,smallfarm,andconsumerloans(asapplicable)intheinstitution’sassessmentareas(“AAs”);(2)thegeographicdistributionof theinstitution’s lending,includingtheproportionanddispersionof theinstitution’slendinginitsAAsand thenumberandamountsof loansinlow-,moderate-,middle-,andupper-incomegeographies;(3)thedistributionof loansbasedonborrowercharacteristics,including,forhome mortgageloans,thenumberandamountsof loanstolow-,moderate-,middle-,andupperincomeindividuals;44(4)theinstitution’scommunitydevelopmentlending,includingthe 40 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81Fed.Reg.48506,48548 (July25,2016). 41 UntilitsconversiononDecember30,2016,toastatememberbanksupervisedbytheBoard,FirstFinancial BankwasanationalbanksupervisedbytheOCC. 42 12U.S.C.§2906. 43 12U.S.C.§2801etseq. 44 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3).

LegalDevelopments:FirstQuarter,2018 113 numberandamountsof communitydevelopmentloansandtheircomplexityand innovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpracticesto addressthecreditneedsof LMIindividualsandgeographies.Largeinstitutionsarealso subjecttoaninvestmenttestthatevaluatesthenumberandamountsof qualifiedinvestmentsthatbenefittheirassessmentareasandaservicetestthatevaluatestheavailability andeffectivenessof theirsystemsfordeliveringretailbankingservicesandtheextentand innovativenessof theircommunitydevelopmentservices.45 CRAPerformanceof FirstFinancialBank FirstFinancialBankwasassignedanoverall“Satisfactory”ratingbytheOCCatitsmost recentCRAperformanceevaluation,asof November4,2013(“FirstFinancialBank Evaluation”).46Thebankreceiveda“HighSatisfactory”ratingfortheLendingTestand “LowSatisfactory”ratingsfortheInvestmentTestandtheServiceTest.47 ExaminersfoundthatFirstFinancialBankoriginatedamajorityof itsloansinsideitsAAs andthatthebank’soveralllendingactivitywasgood.Examinersalsonotedthatthebank’s geographicdistributionof homemortgageloansandsmallloanstobusinesseswasgood. Inaddition,examinersfoundthebank’sdistributionof homemortgageloansbyincome levelof theborrowertobegoodandthebank’sdistributionof loanstobusinesseswith differentrevenuesizestobeadequate. ExaminersdeterminedthatFirstFinancialBank’slevelof qualifiedcommunitydevelopmentinvestmentswasadequateandresponsivetocommunityneeds.Examinersfoundthat thebank’sservicedeliverysystemswereaccessibletogeographiesandindividualsof differentincomelevelswithinthebank’sAAs.Examinersalsonotedthat,inthestateof Indiana,thebank’sbrancheswerereasonablyaccessible.Overall,examinersfoundthatthe communitydevelopmentservicesprovidedbythebankwereadequateandthatthebank providedagoodlevelof servicesinOhio. CRAPerformanceof MainSourceBank MainSourceBankwasassignedanoverallCRAratingof “Satisfactory”atitsmostrecent CRAperformanceevaluationbytheFDIC,asof September29,2014(“MainSource BankEvaluation”).48Thebankreceived“LowSatisfactory”ratingsforeachof the LendingTest,theInvestmentTest,andtheServiceTest.49 45 See12CFR228.21etseq. 46 TheFirstFinancialBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.ExaminersreviewedHMDAandsmallbusinessloansoriginatedfromJanuary1,2010,throughDecember31,2011. Theevaluationperiodforcommunitydevelopmentloans,investments,andserviceswasfromJune1,2010, throughDecember31,2011. 47 TheFirstFinancialBankEvaluationincludedfull-scopeevaluationsoftheCincinnati-MiddletonOhio- Kentucky-IndianaMultistateMetropolitanStatisticalArea(“MSA”);Columbus,IndianaMSA;andtheOhio Non-MSAAA.LimitedscopeevaluationswereperformedoftheBloomington,IndianaMSA;Indianapolis, IndianaMSA;Gary,IndianaMSA;Lafayette,IndianaMSA;IndianaNon-MSAAA;Lima,OhioMSA;and theDayton,OhioMSA. 48 TheMainSourceBankEvaluationwasconductedusingLargeBankCRAEvaluationProcedures.Examiners reviewedHMDA,smallbusiness,andsmallfarmloansoriginatedfromJanuary1,2012,throughDecember31, 2013.Theevaluationperiodforcommunitydevelopmentloans,investments,andserviceswasfromOctober20, 2011,throughSeptember29,2014. 49 TheMainSourceBankEvaluationincludedfull-scopeevaluationsoftheLouisville-JeffersonCounty, Kentucky-IndianaMultistateMSA;Cincinnati-Middletown,Ohio-Indiana-KentuckyMultistateMSA;State ofIndianaNon-MSAAA;Kankakee-Bradley,IllinoisMSA;Dayton,OhioMSA;andtheKentucky Non-MSAAA.Limited-scopeevaluationswereperformedoftheAnderson,IndianaMSA;Bloomington, IndianaMSA;Columbus,IndianaMSA;GaryMetropolitanDivision,IndianaAA;Indianapolis-Carmel, IndianaMSA;Danville,IllinoisMSA;andtheStateofIllinoisNon-MSAAA.

114 FederalReserveBulletin|May2018 ExaminersfoundthatMainSourceBank’slendinglevelsreflectedgoodresponsivenessto creditneedswithinitsAAsandthatasubstantialmajorityof thebank’sloansweremade withinitsAAs.Examinersfurtherfoundthatthegeographicdistributionof MainSource Bank’sloansreflectedadequatepenetrationthroughoutitsAAs.Examinersnotedthatthe bank’sdistributionof borrowersreflectedadequatepenetrationamongretailcustomersof differentincomelevelsandbusinessesof differentsizes.Examinersfoundthatthebank exhibitedanadequaterecordof servingthecreditneedsof themosteconomicallydisadvantagedareasof itsAAs,low-incomeindividuals,andverysmallbusinesses,consistent withsafeandsoundbankingpractices.ExaminersstatedthatMainSourceBankmadea relativelyhighlevelof communitydevelopmentloansandoriginatedqualifyingcommunity developmentloansinallof thebank’sAAs.Further,thebankwasfoundtouseinnovative and/orflexiblelendingpracticesinordertoserveAAcreditneeds. ExaminersfoundthatMainSourceBankmadeanadequatelevelof qualifiedcommunity developmentinvestmentsandgrants,particularlythosethatwerenotroutinelyprovidedby privateinvestors,althoughrarelyinaleadershipposition.Examinersfurthernotedthat thebankexhibitedadequateresponsivenesstocreditandcommunityeconomicdevelopmentneeds,butthatthebankrarelyusedinnovativeorcomplexinvestmentstosupport communitydevelopmentinitiatives. Examinersfoundthatthebank’sdeliverysystemswerereasonablyaccessibletoessentially allportionsof thebank’sAAs.ExaminersalsofoundthatMainSourceBank’srecordof openingandclosingbrancheshadnotadverselyaffectedtheaccessibilityof itsdelivery systems,particularlyinLMIgeographiesortoLMIindividuals,andthatbranchservices andbusinesshoursdidnotvaryinawaythatinconveniencedcertainportionsof theAAs, particularlyLMIgeographiesandindividuals.Examinersfurthernotedthatthebank providedanadequatelevelof communitydevelopmentservices. AdditionalSupervisoryViews Initsreviewof theproposal,theBoardconsultedwiththeReserveBankregardingits viewsof FirstFinancialBank’sconsumercompliancerisk-managementsystems.The Boardconsideredthemostrecentconsumercomplianceexaminationandfairlending reviewof FirstFinancialBankbytheOCC.TheBoardalsoconsideredthemostrecent consumercomplianceexaminationof MainSourceBankconductedbytheFDIC. TheBoardhastakenthisinformation,aswellastheCRAperformancerecordsof First FinancialBankandMainSourceBankintoaccountinevaluatingtheproposedtransaction, includinginconsideringwhetherFirstFinancialhastheexperienceandresourcestoeffectivelyimplementpoliciesandprogramsthatwouldassistthecombinedorganizationin helpingtomeetthecreditneedsof allof thecommunitieswithinthefirm’sAAs. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.FirstFinancialrepresentsthatitwouldprovidea fullrangeof deposit,savings,andotherfinancialproductsandservicestoconsumersand small-andmedium-sizedbusinessesinOhio,Indiana,andKentucky.FirstFinancialstates thatitwouldcontinueofferingallof thesignificantproductsandservicescurrently offeredbyFirstFinancialBankandMainSourceBankafterconsummationof the proposal.Further,FirstFinancialrepresentsthat,followingtheproposedtransaction,the combinedorganizationwouldbeabletoincreaseitslendinglimitsandbettermeetthe creditandbankingneedsof thesmall-andmedium-sizedbusinessesinitsexpandedservice area.

LegalDevelopments:FirstQuarter,2018 115 ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws,confidentialsupervisoryinformation,informationprovidedbyFirstFinancial,andthepotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.Basedonthatreview,theBoard concludesthattheconvenienceandneedsfactorisconsistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedsection3of theBHCActandtheBankMergerActtorequiretheBoardto consider“theextenttowhichaproposedacquisition,merger,orconsolidationwouldresult ingreaterrisktothestabilityof theUnitedStatesbankingorfinancialsystem.”50 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the resultingfirm.51Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.52 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.53 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthatislessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.Both theacquirerandthetargetarepredominatelyengagedinretailandcommercialbanking 50 Dodd-FrankAct§604(d)and(f),Pub.L.No.111-203,124Stat.1376,1601-02(2010),codifiedat12U.S.C. §§1842(c)(7)and1828(c)(5). 51 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 52 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 53 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition.

116 FederalReserveBulletin|May2018 activities.54Theproformaorganizationwouldhaveminimalcross-borderactivitiesand wouldnotexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.In addition,theorganizationwouldnotbeacriticalservicesproviderorsointerconnected withotherfirmsorthemarketsthatitwouldposesignificantrisktothefinancialsystemin theeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Establishmentof Branches FirstFinancialBankhasappliedundersection9of theFRAtoestablishandoperate branchesatthecurrentmainofficeandbranchesof MainSourceBank.55TheBoardhas assessedthefactorsitisrequiredtoconsiderwhenreviewinganapplicationunderthat section.Specifically,theBoardhasconsideredFirstFinancialBank’sfinancialcondition, management,capital,actionsinmeetingtheconvenienceandneedsof thecommunitiesto beserved,CRAperformance,andinvestmentinbankpremises.56Forthereasonsdiscussed inthisorder,theBoardfindsthosefactorstobeconsistentwithapproval. FinancialHoldingCompanyElection Asnoted,FirstFinancialhaselectedtobecomeafinancialholdingcompanyinconnection withtheproposal.FirstFinancialhascertifiedthat,uponconsummationof theproposal, FirstFinancialandFirstFinancialBankwouldbewellcapitalizedandwellmanaged,and FirstFinancialhasprovidedallof theinformationrequiredundertheBoard’sRegulationY.57 Basedonallthefactsof record,theBoarddeterminesthatFirstFinancial’selectionwill becomeeffectiveuponconsummationof theproposalif,onthatdate,FirstFinancialis wellcapitalizedandwellmanagedandalldepositoryinstitutionsitcontrolsarewellcapitalizedandwellmanagedandhaveCRAratingsof atleast“Satisfactory.” Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheproposal shouldbe,andherebyis,approved.Inreachingitsconclusion,theBoardhasconsideredall 54 FirstFinancialBankandMainSourceBankofferabroadrangeofretailandcommercialbankingproducts andservices.FirstFinancialhas,andasaresultoftheproposedtransactionwouldcontinuetohave,asmall marketshareintheseproductsandservicesonanationwidebasis,andnumerouscompetitorswouldremainfor theseproductsandservices. 55 See12U.S.C.§321.Undersection9oftheFRA,statememberbanksmayestablishandoperatebrancheson thesametermsandconditionsasareapplicabletotheestablishmentofbranchesbynationalbanks.Anational bankmayestablishandoperateanewbranchwithinastateinwhichitissituated,ifsuchestablishmentand operationisauthorizedunderapplicablestatelaw.12U.S.C.§36(c).Anationalbankalsomayretainany branchfollowingamergerthatunderstatelawmaybeestablishedasanewbranchoftheresultingbankor retainedasanexistingbranchoftheresultingbank.See12U.S.C.§§36(b)(2),(c).Inaddition,undersection44 oftheFDIAct,astatememberbankresultingfromaninterstatemergertransactionmayretainandoperate, asamainofficeorabranch,anyofficethatanybankinvolvedinthemergerwasoperatingasamainofficeor branchimmediatelybeforethemergertransaction.12U.S.C.§1831u(d).Uponconsummation,FirstFinancial Bank’sbrancheswouldbepermissibleunderapplicablestatelaw.See205Ill.Comp.Stat.5/21.4;Ind.Code §28-2-13-19;Ky.Rev.Stat.Ann.286.3-920;OhioRev.CodeAnn.§1117.01. 56 12U.S.C.§322;12CFR208.6.Uponconsummationoftheproposal,FirstFinancialBank’sinvestmentinbank premiseswouldremainwithinthelegalrequirementsof12CFR208.21. 57 SeeDodd-FrankAct§606(a),124Stat.at1607,amending12U.S.C.§1843(l)(1).

LegalDevelopments:FirstQuarter,2018 117 thefactsof recordinlightof thefactorsthatitisrequiredtoconsiderundertheBHCAct, theBankMergerAct,andotherapplicablestatutes.TheBoard’sapprovalisspecifically conditionedoncompliancebyFirstFinancialwithalltheconditionsimposedinthisorder, includingreceiptof allrequiredregulatoryapprovals,andonthecommitmentsmadeto theBoardinconnectionwiththeproposal.Theconditionsandcommitmentsaredeemed tobeconditionsimposedinwritingbytheBoardinconnectionwithitsfindingsanddecisionhereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardortheReserveBank,actingunderdelegatedauthority. Byorderof theBoardof Governors,\effectiveFebruary22,2018. Votingforthisaction:ChairmanPowell,ViceChairmanforSupervisionQuarles,and GovernorBrainard. AnnE.Misback Secretaryof theBoard AppendixA BranchestobeEstablishedbyFirstFinancialBank IllinoisBranches 1. 101NorthHilgertDrive,GrantPark,Illinois60940 2. 323EastMainStreet,Hoopeston,Illinois60942 3. 2000WestCourtStreet,Kankakee,Illinois60901 4. 216SouthFourthStreet,Watseka,Illinois60970 IndianaBranches 1. 202NorthHarrisonStreet,Alexandria,Indiana46001 2. 1802AllisonLane,Jeffersonville,Indiana47130 3. 104EastLink'sWay,Aurora,Indiana47001 4. 136EastHarriman,Bargersville,Indiana46106 5. 1053StateRoad229North,Batesville,Indiana47006 6. 3205EastThirdStreet,Bloomington,Indiana47401 7. 24004StatelineRoad,Lawrenceburg,Indiana47025 8. 9014StateRoad101,Brookville,Indiana47012 9. 1051WestSpringStreet,Brownstown,Indiana47220 10. 221EastMainStreet,Crawfordsville,Indiana47933 11. 8740SouthEmersonAvenue,Indianapolis,Indiana46237 12. 597BantaStreet,Franklin,Indiana46131 13. 6671Highway150,FloydsKnobs,Indiana47119 14. 7700StateRoad64,Georgetown,Indiana47122 15. 3610GrantLineRoad,NewAlbany,Indiana47150 16. 122WestWashingtonStreet,Greensburg,Indiana47240 17. 102WestMainStreet,Hagerstown,Indiana47346 18. 136ThorntonRoad,Hanover,Indiana47243 19. 555EastThirdStreet,Hobart,Indiana46342 20. 8475NorthStateRoad9,Hope,Indiana47246 21. 3535East96thStreet,Indianapolis,Indiana46240 22. 120EastMainStreet,Knightstown,Indiana46148 23. 2253StateRoad54East,Linton,Indiana47441 24. 201SouthMainStreet,Lynn,Indiana47355

118 FederalReserveBulletin|May2018 25. 1315CliftyDrive,Madison,Indiana47250 26. 417JeffersonStreet,Madison,Indiana47250 27. 201NorthBroadway,Greensburg,Indiana47240 28. 11SouthMeridian,Ste101,Indianapolis,Indiana46204 29. 100EastSpringStreet,NewAlbany,Indiana47150 30. 600SouthMemorialDrive,NewCastle,Indiana47362 31. 501CliftyDrive,Madison,Indiana47250 32. 521NorthStateStreet,NorthVernon,Indiana47265 33. 112NorthMeridianStreet,Portland,Indiana47371 34. 3433EastMainStreet,Richmond,Indiana47374 35. 230MainStreet,RisingSun,Indiana47040 36. 202NorthMainStreet,Rushville,Indiana46173 37. 1130EastTiptonStreet,Seymour,Indiana47274 38. 28287StateRoute1,WestHarrison,Indiana47060 39. 3880WestPresidentialWay,Edinburgh,Indiana46124 40. 1012SouthAdamsStreet,Versailles,Indiana47042 41. 102WestMainStreet,Vevay,Indiana47043 42. 1263NorthIndiana135,Greenwood,Indiana46142 43. 120NorthMonroeStreet,Williamsport,Indiana47993 KentuckyBranches 1. 1905BlankenbakerParkway,Louisville,Kentucky40299 2. 9819BrownsboroRoad,Louisville,Kentucky40241 3. 6512BardstownRoad,Louisville,Kentucky40291 4. 2862FrankfortAvenue,Louisville,Kentucky40206 5. 201LimestoneDrive,Frankfort,Kentucky40601 6. 104SouthChilesStreet,Harrodsburg,Kentucky40330 7. 1012BypassNorth,Lawrenceburg,Kentucky40342 8. 293NorthHubbardsLane,Louisville,Kentucky40207 9. 293NorthHubbardsLane,Louisville,Kentucky40207 10. 13704ShelbyvilleRoad,Louisville,Kentucky40245 11. 1734MidlandTrail,Shelbyville,Kentucky40065 12. 2735BardstownRoad,Louisville,Kentucky40205 13. 9306TaylorsvilleRoad,Louisville,Kentucky40299 14. 211WestOakStreet,Louisville,Kentucky40203 15. 295NorthHubbardsLane,Louisville,Kentucky40207 OhioBranches 1. 7637BeechmontAvenue,Cincinnati,Ohio45255 2. 3723GlenmoreAvenue,Cincinnati,Ohio45211 3. SummitWoods1,100EastBusinessWay,Suite150,Cincinnati,Ohio45241 4. 585AndersonFerryRoad,Cincinnati,Ohio45238 5. 6300HarrisonAvenue,Cincinnati,Ohio45247 6. 10425HarrisonAvenue,Harrison,Ohio45030 7. 3442EdwardsRoad,Cincinnati,Ohio45208 8. 5550CheviotRoad,Cincinnati,Ohio45239 9. 2000MadisonRoad,Cincinnati,Ohio45208 10. 7615ReadingRoad,Cincinnati,Ohio45237 11. 11186ReadingRoad,Cincinnati,Ohio45241 12. 635SouthMarketStreet,Troy,Ohio45373 13. 1580WestMainStreet,Troy,Ohio45373 14. 101EastElmStreet,UnionCity,Ohio45390 15. 5791GlenwayAvenue,Cincinnati,Ohio45238

LegalDevelopments:FirstQuarter,2018 119 AppendixB FirstFinancial/MainSourceBankingMarketsConsistentwithBoardPrecedentandDOJBankMerger Guidelines Remaining Amountof MarketDeposit Bank Rank ResultingHHI ChangeinHHI Numberof Deposits Shares(%) Competitors Bloomington,Indiana–includesGreene,Monroe,andLawrencecounties. FirstFinancialPre-Consummation 3 $317.3M 10.04 MainSource 9 $137.0M 4.33 FirstFinancialPost-Consummation 3 $454.3M 14.37 1499 87 15 Gary/Hammond,Indiana–includesLake,Porter,LaPorte,Newton,Jaspercounties;andCenter,Jackson,California(minusthecityofBass Lake),Wayne,andRailroadtownshipsinStarkeCounty. FirstFinancialPre-Consummation 9 $702.5M 4.81 MainSource 16 $134.2M 0.92 FirstFinancialPost-Consummation 8 $836.7M 5.73 1003 8 29 Indianapolis,Indiana–includesBoone,Hamilton,Hancock,Hendricks,Henry,Johnson,Madison,Marion,Morgan,Owen,Putnam,Rush,Shelby, andTiptoncounties. FirstFinancialPre-Consummation 14 $620.0M 1.32 MainSource 18 $452.7M 0.91 FirstFinancialPost-Consummation 12 $1.05B 2.23 1125 2 48 Cincinnati,Ohio–includesBrown,Butler,Clermont,Hamilton,andWarrencounties,Ohio;DearbornCounty,Indiana;Boone,Bracken,Campbell, Gallatin,Grant,Kenton,andPendletoncounties,Kentucky;andtheNewLibertyandOwentoncensuscountydivisionsinOwenCounty,Kentucky. FirstFinancialPre-Consummation 6 $2.24B 2.03 MainSource 11 $568.5M 0.52 FirstFinancialPost-Consummation 4 $2.80B 2.54 3426 2 63 Dayton,Ohio–includesMontgomery,Miami,Greene,andPreblecounties. FirstFinancialPre-Consummation 7 $370.3M 3.13 MainSource 11 $144.3M 1.22 FirstFinancialPost-Consummation 7 $514.7M 4.35 1534 8 28 DataandrankingsareasofJune30,2017.Allrankings,marketdepositshares,andHHIsarebasedonthriftdepositsweightedat50percent. Theremainingnumberofcompetitorsnotedforeachmarketincludesthrifts,whereapplicable.

120 FederalReserveBulletin|May2018 Order Issued Under International Banking Act Deutsche Pfandbriefbank AG Unterschleissheim, Germany OrderApprovingtheEstablishmentof aRepresentativeOffice FRBOrderNo.2018-01(January3,2018) DeutschePfandbriefbankAG(“PBB”),Unterschleissheim,Germany,aforeignbank withinthemeaningof theInternationalBankingActof 1978(“IBA”),hasappliedunder section10(a)of theIBA1toestablisharepresentativeofficeinNewYork,NewYork.The IBAprovidesthataforeignbankmustobtaintheapprovalof theBoardtoestablisha representativeofficeintheUnitedStates. Noticeof theapplication,affordinginterestedpersonsanopportunitytocomment,has beenpublishedinanewspaperof generalcirculationinNewYork,NewYork(NewYork DailyNews,June5,2017).Thetimeforsubmittingcommentshasexpired,andtheBoard hasconsideredallcommentsreceived. HypoRealEstateHoldingGmbH(“HREHolding”),Munich,Germany,owns20percent of PBB’soutstandingsharesandisthelargestindividualshareholderof PBB.TheGerman governmentisthesoleownerof HREHolding.2Noothershareholderownsmorethan 5percentof thesharesof PBB. PBB,withtotalassetsof approximately$68billion,isthe15thlargestbankinGermanyby assetsize.3PBBengagesprimarilyincommercialrealestateandpublicinvestmentfinance throughfiveofficesinGermany.PBBoperatesbranchesinFrance,Spain,Sweden,andthe UnitedKingdom.PBBhastwononbanksubsidiariesintheUnitedStates,HypoReal EstateInternationalTrustIandHypoRealEstateInternationalLLCI.4 TheproposedrepresentativeofficewouldactasaliaisonbetweenPBBontheonehand anditsexistingandpotentialcustomers,U.S.serviceproviders,andbusinesscontactson theother.Theproposedrepresentativeofficewouldalsoengageinotherrepresentational activities,includingsolicitingbusiness,conductingresearch,andperformingpreliminary stepsinconnectionwithlending,includingassemblingcreditinformation.5Theseactivities wouldbelimitedtofacilitatingtheoriginationof commercialrealestatefinancing transactions. UndertheIBAandRegulationK,inactingonanapplicationbyaforeignbanktoestablisharepresentativeoffice,theBoardmustconsiderwhether(1)theforeignbankhas furnishedtotheBoardtheinformationitneedstoassesstheapplicationadequately,(2)the foreignbankandanyforeignbankparentengagedirectlyinthebusinessof banking outsidetheUnitedStates,and(3)theforeignbankandanyforeignbankparentaresubject 1 12U.S.C.§3107(a). 2 TheGermanFinancialMarketStabilizationFund,whichisunderthecontroloftheGermanFederalMinistry ofFinance,owns100percentofHREHolding. 3 AssetandrankingdataareasofSeptember30,2017,andarebasedontheexchangerateasofthatdate. 4 PBBplanstodissolvethesesubsidiariesinthenearfuture. 5 Arepresentativeofficemayengageinrepresentationalandadministrativefunctionsinconnectionwiththe bankingactivitiesofaforeignbank,includingsolicitingnewbusinessfortheforeignbank,conducting research,actingasaliaisonbetweentheforeignbank’sheadofficeandcustomersintheUnitedStates, performingpreliminaryandservicingstepsinconnectionwithlending,andperformingback-officefunctions. Arepresentativeofficemaynotcontractforanydepositordeposit-likeliability,lendmoney,orengageinany otherbankingactivity.12CFR211.24(d)(1).

LegalDevelopments:FirstQuarter,2018 121 tocomprehensivesupervisiononaconsolidatedbasisbytheirhomecountrysupervisor.6 TheBoardalsoconsidersadditionalstandardssetforthintheIBAandRegulationK.7 Asnotedabove,PBBengagesdirectlyinthebusinessof bankingoutsidetheUnitedStates. PBBalsohasprovidedtheBoardwiththeinformationnecessarytoassesstheapplication, throughsubmissionsthataddresstherelevantissues. PBBissubjecttothedirectprudentialsupervisionof theEuropeanCentralBank(“ECB”) withinthecontextof theSingleSupervisoryMechanism(“SSM”)becausethetotalvalue of itsassetsexceeds€30billion.TheSSMisasystemof financialsupervisioncomposedof theECBandthenationalcompetentauthoritiesof theparticipatingmemberstatesin whichspecifictasksaredistributedbetweentheECBandeachnationalcompetent authority.UndertheSSM,theECBhasdirectprudentialsupervisoryresponsibilityfor PBB,whileBundesanstaltfürFinanzdienstleistungsaufsicht(“BaFin”),astherelevant nationalcompetentauthorityforPBB,retainssupervisoryauthorityoverallotherareas, includingconsumerprotectionandthepreventionof moneylaunderingandterrorist financing. Themethodologiesandstandardsthatunderpintheday-to-daysupervisionof largeEuropeanUnionbankingorganizationsbytheECBundertheSSMregulatoryframeworkare aimedatachievingaconsistentsupervisoryapproachacrosstheEuropeanUnion.The BoardhaspreviouslyfoundthatotherEuropeanbankingorganizationssupervisedbythe SSMandtherelevantnationalcompetentauthorityaresubjecttocomprehensiveconsolidatedsupervision.8Thesystemof supervisionappliedtoalllargebankswithintheEuropeanUnionhasnotchangedmateriallysinceitwaslastconsideredbytheBoard. Basedonallthefactsof record,includingtheaboveinformation,ithasbeendetermined thatPBBissubjecttocomprehensivesupervisiononaconsolidatedbasisbytheECBand BaFinactingthroughtheSSM. TheBoardalsohasconsideredthefollowingadditionalstandardssetforthintheIBAand RegulationK:(1)whetherthebankhasprocedurestocombatmoneylaundering, whetherthereisalegalregimeinplaceinthehomecountrytoaddressmoneylaundering, 6 12U.S.C.§3107(a)(2);12CFR211.24(d)(2).Inassessingthesupervisionstandard,theBoardconsiders,among otherindiciaofcomprehensive,consolidatedsupervision,theextenttowhichhomecountrysupervisors (i)ensurethatthebankhasadequateproceduresformonitoringandcontrollingitsactivitiesworldwide; (ii)obtaininformationontheconditionofthebankanditssubsidiariesandofficesthroughregularexaminationreports,auditreports,orotherwise;(iii)obtaininformationonthedealingsandrelationshipsbetweenthe bankanditsaffiliates,bothforeignanddomestic;(iv)receivefromthebankfinancialreportsthatareconsolidatedonaworldwidebasisorcomparableinformationthatpermitsanalysisofthebank’sfinancialcondition onaworldwideconsolidatedbasis;and(v)evaluateprudentialstandards,suchascapitaladequacyandrisk assetexposure,onaworldwidebasis.Nosinglefactorisessential,andotherelementsmayinformtheBoard’s determination. 7 See12U.S.C.§3105(d)(3)–(4);12CFR211.24(c)(2).Thesestandardsincludewhetherthebank’shomecountry supervisorhasconsentedtotheestablishmentoftheoffice;thefinancialandmanagerialresourcesofthebank; whetherthebankhasprocedurestocombatmoneylaundering,whetherthereisalegalregimeinplaceinthe homecountrytoaddressmoneylaundering,andwhetherthehomecountryisparticipatinginmultilateral effortstocombatmoneylaundering;whethertheappropriatesupervisorsinthehomecountrymayshareinformationonthebank’soperationswiththeBoard;whetherthebankanditsU.S.affiliatesareincompliance withU.S.law;theneedsofthecommunity;andthebank’srecordofoperation.Inthecaseofaforeignbank thatpresentsarisktothestabilityoftheUnitedStates,theBoardalsomaytakeintoaccount,totheextent appropriate,whetherthehomecountryoftheforeignbankhasadopted,orismakingdemonstrableprogress towardsadopting,anappropriatesystemoffinancialregulationforthefinancialsystemofsuchhomecountry tomitigatesuchrisk.12U.S.C.§3105(d)(3)(E). 8 SeeINGBankN.V.,FRBOrder2017-27(October20,2017);BoardlettertoRitaMilazzodatedAugust1,2017 (comprehensiveconsolidatedsupervisionforBancoBilbaoVizcayaArgentaria,S.A.);BoardlettertoAndrea TokheimdatedJuly24,2017(comprehensiveconsolidatedsupervisionforBankofIrelandGroupplc);and UnionediBancheItaliane,S.p.A.,FRBOrder2016-01(January19,2016).

122 FederalReserveBulletin|May2018 andwhetherthehomecountryisparticipatinginmultilateraleffortstocombatmoney laundering;(2)thefinancialandmanagerialresourcesof thebank;(3)whethertheappropriatesupervisorsinthehomecountrymayshareinformationonthebank’soperations withtheBoard;and(4)whetherthebank’shomecountrysupervisorhasconsentedtothe establishmentof theoffice.9 Germanyisamemberof theFinancialActionTaskForceandsubscribestoitsrecommendationsonmeasurestocombatmoneylaunderingandinternationalterrorism.Inaccordancewiththoserecommendations,Germanyhasenactedlawsandcreatedlegislativeand regulatorystandardstodetermoneylaundering,terroristfinancing,andotherillicitactivities.MoneylaunderingisacriminaloffenseinGermany,andcreditinstitutionsare requiredtoestablishinternalpolicies,procedures,andsystemsforthedetectionandpreventionof moneylaundering.BaFinenforcestheserequirementswithrespecttoGerman banks,includingPBB.PBBhaspoliciesandprocedurestocomplywiththeselawsand regulationsthataremonitoredbygovernmentalentities,includingBaFin,responsiblefor anti-money-launderingcompliance. PBBappearstohavetheexperienceandcapacitytosupporttheproposedrepresentative office.Inaddition,PBBhasestablishedcontrolsandproceduresfortheproposedrepresentativeofficetoensurecompliancewithU.S.law,aswellascontrolsandproceduresforits worldwideoperationsgenerally.TakingintoconsiderationPBB’srecordof operationsinits homecountry,itsoverallfinancialresources,anditsstandingwithitshomecountrysupervisors,financialandmanagerialfactorsareconsistentwithapprovalof theproposedrepresentativeoffice. PBBhascommittedtomakeavailabletotheBoardsuchinformationontheoperationsof PBBandanyof itsaffiliatesthattheBoarddeemsnecessarytodetermineandenforce compliancewiththeIBA,theBankHoldingCompanyActof 1956,asamended,10and otherapplicablefederallaw.TotheextentthatprovidingsuchinformationtotheBoard maybeprohibitedbylaworotherwise,PBBhascommittedtocooperatewiththeBoardto obtainanynecessaryconsentsorwaiversthatmightberequiredfromthirdpartiesforthe disclosureof suchinformation.Inaddition,subjecttocertainconditions,theECBand BaFinmayshareinformationonPBB’soperationswithothersupervisors,includingthe Board.Inlightof thesecommitmentsandotherfactsof record,andsubjecttotheconditiondescribedbelow,ithasbeendeterminedthatPBBhasprovidedadequateassurancesof accesstoanynecessaryinformationthattheBoardmayrequest.Inaddition,theECBhas noobjectiontotheestablishmentof theproposedrepresentativeoffice. TheBoardhasalsoconsideredwhetherPBB’sproposalwouldpresentarisktothestability of theUnitedStates.Theproposalwouldnotappeartoaffectfinancialstabilityinthe UnitedStates.Inparticular,theabsoluteandrelativesizeof PBBinitshomecountry;the scopeof PBB’sactivities,includingthetypesof activitiesitproposestoconductinthe UnitedStatesandthepotentialforthoseactivitiestoincreaseortransmitfinancialinstability;andtheframeworkinplaceforsupervisingPBBinitshomecountrydonotappear tocreatesignificantrisktothefinancialstabilityof theUnitedStates.Basedontheseand otherfactors,financialstabilityconsiderationsinthisproposalareconsistentwith approval. Onthebasisof allthefactsof recordandsubjecttocommitmentsmadebyPBB,PBB’s applicationtoestablishtheproposedrepresentativeofficeisherebyapprovedbythe 9 See12U.S.C.§3105(d)(3)–(4);12CFR211.24(c)(2). 10 12U.S.C.§1841etseq.

LegalDevelopments:FirstQuarter,2018 123 Directorof theDivisionof SupervisionandRegulation,withtheconcurrenceof the GeneralCounsel,pursuanttoauthoritydelegatedbytheBoard.11Shouldanyrestrictions onaccesstoinformationontheoperationsoractivitiesof PBBanditsaffiliatessubsequentlyinterferewiththeBoard’sabilitytoobtaininformationtodetermineandenforce compliancebyPBBoritsaffiliateswithapplicablefederalstatutes,theBoardmayrequire terminationof anyof PBB’sdirectorindirectactivitiesintheUnitedStates.Approvalof thisapplicationalsoisspecificallyconditionedoncompliancebyPBBwiththeconditions imposedinthisorderandthecommitmentsmadetotheBoardinconnectionwiththis application.12Forpurposesof thisaction,thesecommitmentsandconditionsaredeemed tobeconditionsimposedbytheBoardinwritinginconnectionwiththisdecisionand,as such,maybeenforcedinproceedingsunderapplicablelaw. Byorder,approvedpursuanttoauthoritydelegatedbytheBoard,effectiveDecember21, 2017. AnnE.Misback Secretaryof theBoard 11 12CFR265.7(d)(12). 12 TheBoard’sauthoritytoapprovetheestablishmentoftheproposedrepresentativeofficeparallelsthe continuingauthorityoftheStateofNewYorktolicenseofficesofaforeignbank.TheBoard’sapprovalof thisapplicationdoesnotsupplanttheauthorityoftheStateofNewYorkoritsagent,theNewYorkState DepartmentofFinancialServices,tolicensetheproposedofficeofPBBinaccordancewithanytermsor conditionsthattheymayimpose.

124 FederalReserveBulletin|May2018 Order Issued Under Home Owners’ Loan Act The Charles Schwab Corporation San Francisco, California OrderApprovingtheAcquisitionof aStateSavingsBank FRBOrderNo.2018-08(March20,2018) TheCharlesSchwabCorporation(“CharlesSchwab”),SanFrancisco,California,asavings andloanholdingcompany(“SLHC”),hasrequestedtheBoard’sapprovalunder section10(e)of theHomeOwners’LoanAct,asamended(“HOLA”),1toacquireCharles SchwabTrustBank,Henderson,Nevada,adenovostatesavingsbankthathaselectedtobe treatedasasavingsassociationpursuanttosection10(l)of HOLA.2 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(82FederalRegister58604(December13,2017)).3Thetimeforsubmittingcommentshasexpired,andtheBoardhasconsideredtheproposal,allcomments received,andthefactorssetforthinsection10(e)of HOLAinlightof alltheinformation of record.4TheFederalDepositInsuranceCorporation(“FDIC”)hasapprovedtherelated applicationundersection18(c)of theFederalDepositInsuranceAct5forCharlesSchwab TrustBanktoacquirecertainassetsandassumecertainliabilitiesfromCharlesSchwab Bank,Henderson,Nevada.6 CharlesSchwab,withconsolidatedassetsof approximately$243.3billion,isthe15th largestinsureddepositoryorganizationintheUnitedStates.7CharlesSchwabcontrolstwo insureddepositoryinstitutions,CharlesSchwabBankandCharlesSchwabSignatureBank, bothof Henderson,Nevada,withapproximately$165.3billioninconsolidateddeposits, whichrepresentapproximately1.3percentof thetotalamountof depositsof insured depositoryinstitutionsintheUnitedStates.8 CompetitiveConsiderations Section10(e)(2)of HOLAprohibitstheBoardfromapprovingaproposalthatwouldresult inamonopoly,orthatwouldbeinfurtheranceof anycombinationorconspiracyto monopolizeortoattempttomonopolizethesavingsandloanbusinessinanypartof the 1 12U.S.C.§1467a(e). 2 12U.S.C.§1467a(l). 3 12CFR238.14(c)(2). 4 12U.S.C.§1467a(e)(2);seealso12CFR238.15. 5 12U.S.C.§1828(c). 6 CharlesSchwabproposestoestablishCharlesSchwabTrustBankasadenovostate-charteredsavingsbankto consolidatethefirm’strustservicesandrelatedactivitiesintoasinglefiduciary-orientedbank.CharlesSchwab TrustBankwouldacquirecertaintrustassetsandassumecertainliabilitiesfromCharlesSchwabBank.On December26,2017,theFDICapprovedCharlesSchwabTrustBank’sdepositinsuranceapplication.On December28,2017,thestateofNevadaapprovedCharlesSchwabTrustBank’scharterapplication. 7 ThenationalassetdatumisasofDecember31,2017,andthedepositandrankingdataareasofSeptember30, 2017. 8 ForpurposesofHOLA,astatebankorstatesavingsassociation’shomestateisthestatebywhichthesavings associationischartered.See12U.S.C.§1467a(e)(7)(B)(ii).AnSLHC’shomestateisthestateinwhichthetotal depositsofallinsureddepositoryinstitutionsubsidiariesofsuchcompanywerethelargestonthedateon whichthecompanybecameanSLHC.See12U.S.C.§1467a(e)(7)(B)(iv).NevadaisthehomestateforCharles Schwab,itssubsidiarydepositoryinstitutions,andCharlesSchwabTrustBank.Inaddition,CharlesSchwab TrustBankhasofficesonlyinNevada.Accordingly,theproposedacquisitiondoesnottriggertheinterstate provisionsofHOLA.See12U.S.C.§1467a(e)(2)(E)and1467a(e)(3).

LegalDevelopments:FirstQuarter,2018 125 UnitedStates.9HOLAalsoprohibitstheBoardfromapprovingaproposalif theproposal wouldsubstantiallylessencompetition,tendtocreateamonopoly,orinanyother mannerrestraintradeinanysectionof thecountry,unlesstheanticompetitiveeffectsof theproposalareclearlyoutweighedinthepublicinterestbytheprobableeffectof the proposalinmeetingtheconvenienceandneedsof thecommunitytobeserved.10 Theproposalinvolvestheformationandacquisitionof adenovostate-charteredsavings bankintheLasVegas,Nevadabankingmarket,whichwouldexpandtheoperationsof CharlesSchwabinthemarketandincreaseitsabilitytoofferproductsandservicesto customersinthatmarket.11TheBoardpreviouslyhasnotedthattheestablishmentof ade novobankenhancescompetitionintherelevantbankingmarketandisapositiveconsiderationinanapplicationundersection3of theBankHoldingCompanyAct.12TheBoard believesthesameconsiderationsareapplicableundersection10(e)of HOLA. TheDOJhasconductedareviewof thepotentialcompetitiveeffectsof theproposaland hasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhaveasignificantlyadverseeffectoncompetitioninanyrelevantbankingmarket.Inaddition,the appropriatebankingagencieshavebeenaffordedanopportunitytocommentandhavenot objectedtotheproposal. Basedonallof thefactsof record,theBoardconcludesthatconsummationof the proposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesinanyrelevantbankingmarket.Accordingly,theBoarddeterminesthat competitiveconsiderationsareconsistentwithapproval. FinancialandManagerialResourcesandFutureProspects InreviewingproposalsunderHOLA,theBoardconsidersthefinancialandmanagerial resourcesandthefutureprospectsof theinstitutionsinvolved.Initsevaluationof financial factors,theBoardreviewspublicandsupervisoryinformationregardingthefinancial conditionof theorganizationsinvolvedonbothparent-onlyandconsolidatedbases,as wellasinformationregardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.Inthisevaluation,the Boardconsidersavarietyof informationregardingcapitaladequacy,assetquality, liquidity,andearningsperformance,aswellasthepubliccommentontheproposal.The Boardevaluatesthefinancialconditionof thecombinedorganization,includingitscapital position,assetquality,liquidity,earningsprospects,andtheimpactof theproposed fundingof thetransaction.TheBoardalsoconsiderstheabilityof theorganizationto absorbthecostsof theproposalandtocompleteeffectivelytheproposedintegrationof the operationsof theinstitution.Inaddressingfinancialfactors,theBoardconsiderscapital adequacytobeespeciallyimportant.TheBoardconsidersthefutureprospectsof theorganizationsinvolvedinlightof theirfinancialandmanagerialresourcesandtheproposed businessplan.TheBoardhasconsultedwiththeOfficeof theComptrollerof theCurrency (“OCC”)andtheConsumerFinancialProtectionBureau(“CFPB”)regardingthis proposal. 9 12U.S.C.§1467a(e)(2)(A);seealso12CFR238.15(a)(1). 10 12U.S.C.§1467a(e)(2)(B);seealso12CFR238.15(a)(2). 11 TheLasVegas,Nevada,bankingmarketisdefinedastheLasVegasMetropolitanAreainClarkCounty, Nevada. 12 SeeSynovusFinancialCorp.,91FederalReserveBulletin273,274(2005);WilsonBankHoldingCompany, 82FederalReserveBulletin568,568(1996).

126 FederalReserveBulletin|May2018 CharlesSchwabiswellcapitalizedandwouldremainsoonconsummationof theproposal. Theassetquality,earnings,andliquidityof CharlesSchwabanditssubsidiarydepository institutionsareconsistentwithapproval,andCharlesSchwabappearstohaveadequate resourcestoabsorbthecostsof theproposal.Inaddition,futureprospectsof theinstitutionsundertheproposalareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof CharlesSchwabandCharles SchwabTrustBank.13Thisconsiderationincludedanevaluationof thecompetence,experience,andintegrityof theofficers,directors,andprincipalshareholdersof CharlesSchwab andCharlesSchwabTrustBank;theirrecordof compliancewithlawsandregulations;and therecordof CharlesSchwabanditsaffiliatesof fulfillinganycommitmentsto,andany conditionsimposedby,theBoardinconnectionwithpriorapplications.14TheBoardhas reviewedtheexaminationrecordsof CharlesSchwabanditssubsidiarydepositoryinstitutions,includingassessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition,theBoardhasconsideredinformationprovidedbyCharlesSchwab;the supervisoryexperiencesof theBoardandof otherrelevantbanksupervisoryagencieswith CharlesSchwabanditssubsidiarydepositoryinstitutions;andtheorganization’srecordof compliancewithapplicablebanking,consumerprotection,andanti-money-laundering laws. Theexistingrisk-managementprogramandthedirectorsandseniormanagementof CharlesSchwabareconsideredtobesatisfactory.Thedirectorsandseniorexecutiveofficersof CharlesSchwabhaveknowledgeof andexperienceinthebankingandfinancial servicessectors.CharlesSchwabhasindicatedthatitwilldevotesignificantfinancialand otherresourcestoaddressallaspectsof thepost-integrationprocessforthisproposal. Basedonallthefactsof record,includingthesupervisoryrecordof CharlesSchwabandits subsidiarydepositoryinstitutions,themanagerialandoperationalresourcesof Charles Schwab,thebusinessplanof CharlesSchwabTrustBankafterconsummation,andthe publiccommentreceivedontheproposal,theBoardconcludesthatconsiderationsrelating tothefinancialandmanagerialresourcesandfutureprospectsof theorganizations involvedintheproposal,aswellastherecordof effectivenessof CharlesSchwabin combattingmoney-launderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection10(e)of HOLA,theBoardconsiderstheeffectof the transactionontheconvenienceandneedsof thecommunitiestobeserved.15Initsevaluationof theeffectof theproposalontheconvenienceandneedsof thecommunitiestobe served,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thesecommunities,aswellasotherpotentialeffectsof theproposalonthe convenienceandneedsof thecommunitiestobeserved.Inthisevaluation,theBoard placesparticularemphasisontherecordsof therelevantdepositoryinstitutionsunderthe CommunityReinvestmentActof 1977(“CRA”).16TheCRArequiresthefederalfinancialsupervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeetthe creditneedsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeirsafeand soundoperation,17andrequirestheappropriatefederalfinancialsupervisoryagencyto 13 12CFR238.15(b)(2). 14 See12U.S.C.§1467a(e)(1)(B);12CFR238.15(b)(2). 15 12U.S.C.§1467a(e)(2);12CFR238.15(b)(3). 16 12CFR238.15(b)(3). 17 12U.S.C.§2901(b).

LegalDevelopments:FirstQuarter,2018 127 assessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof itsentire community,includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluating expansionaryproposals.18 Inaddition,theBoardconsiderstheinstitutions’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,thesupervisoryviewsof examiners,othersupervisoryinformation,informationprovidedbytheapplicant,andpubliccommentsreceivedontheproposal.TheBoardalsomayconsiderthe institutions’businessmodels,theirmarketingandoutreachplans,thecombinedorganization’splansfollowingconsummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof Charles SchwabBankandCharlesSchwabSignatureBank,thefairlendingandcompliance recordsof bothsavingsassociations,thesupervisoryviewsof theOCCandtheCFPB, confidentialsupervisoryinformation,informationprovidedbyCharlesSchwab,andthe publiccommentreceivedontheproposal. Summaryof PublicCommentonConvenienceandNeeds Acommenterobjectedtotheproposalallegingthat,basedondatareportedunderthe HomeMortgageDisclosureActof 1975(“HMDA”),19CharlesSchwabBanklentonlyto whiteborrowerswithincomesabove120percentof theareamedianincomeintheReno, Nevada,MetropolitanStatisticalArea(“RenoMSA”).20 Businessesof InvolvedInstitutionsandResponsetoComment CharlesSchwab,asavingsandloanholdingcompanyheadquarteredinSanFrancisco, California,engagesinsecuritiesbrokerage,retailbanking,andrelatedfinancialservices. Thesubsidiarydepositoryinstitutionsof CharlesSchwabofferarangeof loananddeposit products,includingchecking,savings,andresidentialmortgageloans,aswellastrustand custodyservicesandrelatedproductstoretirementplansponsorsandparticipants.With respecttoCharlesSchwabBank’slendingrecordintheRenoMSA,CharlesSchwabnotes thatCharlesSchwabBank’sexistingCRAratingis“Outstanding.”CharlesSchwabalso arguesthatwithrespecttoitsfulllendingrecordintheRenoMSA,itismeetingtheneeds of thecommunitiesitserves. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardevaluates aninstitution’sperformancerecordinlightof examinationsbytheappropriatefederal 18 12U.S.C.§2903. 19 12U.S.C.§2801etseq. 20 ThecommenteralsocriticizedtheworkplacebenefitplansofCharlesSchwab,notingthatemployeesof CharlesSchwabhadfiledalawsuitallegingthatthe401(k)plansofCharlesSchwabhaveexpensivefeesand poorperformancethathavebenefitedCharlesSchwabattheexpenseofitsemployees.SeeSeversonv.Charles SchwabCorp.,No.4:17-cv-00285-CW(N.D.Cal.2017).CharlesSchwabhasdeniedanywrongdoing.Theallegationsregardingtheperformanceof401(k)plansandfeeschargedbyplansponsorsaremattersthatare reviewedundertheEmployeeRetirementIncomeSecurityActof1974.See29U.S.C.§1001etseq.Theallegationsarecurrentlyunderreviewintheappropriatelegalforum,andactiononthisproposalwouldnotinterferewiththecourt’sabilitytoresolvethependinglitigation.SeeNatcomBancsharesInc.,FRBOrderNo. 2017-37at6n.18(December18,2017);M&PCommunityBancshares,Inc.,92FederalReserveBulletinC156, C156n.7(2006).

128 FederalReserveBulletin|May2018 supervisorsof theCRAperformancerecordsof therelevantinstitutions,aswellasinformationandviewsbytheappropriatefederalsupervisors.21Inthiscase,theBoardconsideredthesupervisoryviewsof theOCCandCFPB. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.22Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. UndertheCRA,aninstitutionmayelecttouseastrategicplanfortheevaluationof its recordof helpingtomeetthecreditneedsof itsassessmentareas.Underthisalternative,a banksubmitsaplan,subjecttotheapprovalof thefirm’sprimarilyfederalregulator,specifyingmeasurablegoalsformeetingthelending,investment,andserviceneedsof thebank’s assessmentareas.23Theprimaryfederalregulatorthenevaluatesthebankonitssuccessin achievingthegoalsintheapprovedplan.24Theprimaryfederalregulatorgenerallyevaluatestheplan’smeasurablegoalsbyexamining(1)theextentandbreadthof lendingor lending-relatedactivities;(2)thedistributionof loansamongdifferentgeographies,businessesandfarmsof differentsizes,andindividualsof differentincomelevels;(3)theextent of communitydevelopmentlending;(4)theuseof innovativeorflexiblelendingpractices toaddresscreditneeds;(5)theamountandinnovativeness,complexity,andresponsiveness of thebank’squalifiedinvestments;and(6)theavailabilityandeffectivenessof thebank’s systemsfordeliveringretailbankingservicesandtheextentandinnovativenessof the bank’scommunitydevelopmentservices.25 TheBoardisconcernedwhenHMDAdatareflectdisparitiesintheratesof loanapplications,originations,anddenialsamongmembersof differentracialorethnicgroupsinlocal areas.Thesetypesof disparitiesmayindicateweaknessesintheadequacyof policiesand programsataninstitutionformeetingitsobligationstoextendcreditfairly.However,other informationcriticaltoaninstitution’screditdecisionsisnotavailablefromHMDAdata.26 Consequently,HMDAdatadisparitiesmustbeevaluatedinthecontextof otherinformationregardingthelendingrecordof aninstitution. CRAPerformanceof CharlesSchwabBank CharlesSchwabBankwasassignedanoverall“Outstanding”ratingbytheOCCatitsmost recentCRAperformanceevaluation,asof January6,2014(the“CharlesSchwabBank Evaluation”).27CharlesSchwabBankreceived“Outstanding”ratingsforeachof the LendingTest,theInvestmentTest,andtheServiceTest. 21 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81Fed.Reg.48506,48548 (July25,2016). 22 12U.S.C.§2906. 23 See12CFR25.27,12CFR228.27,and12CFR345.27.Beforesubmittingitsplanforapproval,theinstitution mustseeksuggestionsfrommembersofthepublicinthebank’sassessmentareas,and,oncetheplanhasbeen developed,thebankmustsolicitpubliccommentonitsplanforatleast30days.See,e.g.,12CFR228.27(d). 24 See,e.g.,12CFR228.27(f)(3). 25 Id. 26 Otherdatarelevanttocreditdecisionscouldincludecredithistory,debt-to-incomeratios,andloan-to-value ratios.Accordingly,whenconductingfairlendingexaminations,examinersanalyzesuchadditionalinformation beforereachingadeterminationregardinganinstitution’scompliancewithfairlendinglaws. 27 TheCharlesSchwabBankEvaluationwasconductedpursuanttoanOCC-approvedstrategicCRAplan.See 12CFR25.27.TheevaluationperiodfortheCharlesSchwabBankEvaluationwasOctober1,2010,through December31,2013,andtheevaluationreviewedthebank’sCRAperformanceunderstrategicplansapproved bytheOCCinOctober2012fortheperiodofOctober1,2012,throughDecember31,2015(the“2012Plan”)

LegalDevelopments:FirstQuarter,2018 129 ExaminersfoundthatCharlesSchwabBanksignificantlyexceededthecommunitydevelopmentlendingthresholdsinboththe2009Planandthe2012Planforoutstandingperformance.Examinersalsonotedthatthebank’spercentageof LMIloansexceededthe2009 Planthresholdsforsatisfactoryperformanceandmetthe2012goalsforsatisfactoryperformance.IntheRenoMSA,anareaof concerntothecommenter,examinersfoundthatthe bank’soveralllendingperformanceexceededthegoalsforoutstandingperformanceforthe entireevaluationperiod.ExaminersalsonotedthatCharlesSchwabBank’slendingto LMIborrowersandinLMIgeographiesexceededthesatisfactoryperformancegoalsset forthinthebank’splans.ExaminersfoundthatthebankexceededitssatisfactoryperformancegoalsfororiginatingHMDAloanstoLMIborrowersandinLMIgeographies. ExaminersfoundthatCharlesSchwabBank’scommunitydevelopmentinvestments exceededthethresholdforsatisfactoryperformanceinthe2009Planandsubstantially exceededthe2012Planthresholdsforoutstandingperformance.IntheRenoMSA,examinersfoundthebankexceededitsgoalsforoutstandingperformanceinoriginatingcommunitydevelopmentinvestments.Examinersalsonotedthatsomeof thebank’sinvestments werehighlyresponsivetoassessmentareaneeds. Examinersfoundthatthebank’scommunitydevelopmentservicesexceededthegoalsset foroutstandingperformanceinthe2009Planandsubstantiallyexceededthethresholdsfor outstandingperformanceinthe2012Plan.IntheRenoMSA,examinersnotedthat CharlesSchwabBankexceededitsoutstandingperformancegoalsforcommunitydevelopmentservices.ExaminersfoundthatCharlesSchwabBankwasaserviceleaderintheReno MSA,anditscommunitydevelopmentserviceswerehighlyresponsivetoidentifiedneeds intheRenoMSA. CharlesSchwabBank’sEffortsSincethe2014CRAEvaluation CharlesSchwabrepresentsthat,sincetheCharlesSchwabBankEvaluation,thebankhas continueditsCRAeffortsinitscommunityandcontinuestostrivetoimplementinnovative andcomplexlending,investing,andservicesprograms.CharlesSchwabBankrepresents thatitisnowoperatingunderanewstrategicplanthatrunsfrom2016through2018.The bankalsorepresentsthatitsCRAprogramincludesanumberof servicesinitsassessment areas,includingtopromotefinancialopportunitiesforlow-incomestudentsandtobring togethercommunitypartnerstoworkonimprovinginitiativesforthepublicbenefit,such asfoodaccess,employmentopportunities,affordablehousing,healthcareaccess,and healtheducation. CRAPerformanceof CharlesSchwabSignatureBank CharlesSchwabacquiredNordstromfsb(“NordstromBank”)inNovember2017, renamingitCharlesSchwabSignatureBankandfundamentallychangingitsbusinessplan. TheOCChasnotyetconductedaCRAevaluationof CharlesSchwabSignatureBank.28 andbytheOfficeofThriftSupervisionin2009fortheperiodofOctober1,2009,throughSeptember30,2012 (the“2009Plan”).TheCharlesSchwabBankEvaluationreviewedthebank’sperformancetowardmeetingthe strategicplanintheRenoMSA,aswellastheSanFrancisco–Oakland–HaywardandtheSanJose–Sunnyvale– SantaClaraMSAs,bothinCalifornia. 28 NordstromBank,thepredecessorbanktoCharlesSchwabSignatureBank,receivedan“Outstanding”rating bytheOCCatitsmostrecentCRAperformanceevaluation,asofSeptember28,2015(the“NordstromBank Evaluation”).TheNordstromBankEvaluationwasconductedusinglimited-purposeCRAexaminationprocedures.Thelimited-purposeevaluationreviewedthebank’scommunitydevelopmentlending,qualifiedinvestmentsorcommunitydevelopmentservices,useofinnovativeorcomplexqualifiedinvestments,community developmentloansorcommunitydevelopmentservices,andthebank’sresponsivenesstocommunitydevelopmentcreditneedswithinitsassessmentarea.TheevaluationperiodwasfromJanuary1,2010,through August31,2015.TheNordstromBankEvaluationincludedareviewofthebank’sassessmentareainthe

130 FederalReserveBulletin|May2018 CharlesSchwabnotesitisintheprocessof constitutinganewCRAprogramatCharles SchwabSignatureBank.CharlesSchwabrepresentsthatthenewCRAprogramwillbe basedonCharlesSchwabBank’sexistingCRAprogramandwillbeintegratedwiththe overallCRAeffortsof CharlesSchwab. AdditionalSupervisoryViews Initsreviewof theproposal,theBoardhasconsideredthesupervisoryviewsof theOCC andtheCFPBregardingtherecordsof CharlesSchwabBankandCharlesSchwabSignatureBankincomplyingwiththeCRA,fairlendinglaws,andotherconsumerstatutes TheBoardhasconsideredtheresultsof recentconsumercomplianceexaminationsof CharlesSchwabBankconductedbytheOCCandtheCFPB.Aspartof itsconsumer compliancereview,theOCCreviewedCharlesSchwabBank’spolicies,procedures,board reports,audits,internalriskreports,riskassessments,andconsumercompliancemanagementprocessesforcomplyingwithfairlendingandotherconsumercompliancelaws.The CFPBalsoconductedsupervisoryreviewsof CharlesSchwabBank’scompliancewith certainconsumerlaws,includingareviewof thebank’scompliancepolicies,procedures, training,andmonitoringandcorrectiveactionprocess.29 TheBoardhastakentheseconsultationsintoaccountinevaluatingthisproposal,including inconsideringwhetherCharlesSchwabhastheexperienceandresourcestoensurethatit helpstomeetthecreditneedsof thecommunitieswithinitsassessmentareas. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.CharlesSchwabrepresentsthat,asaresultof the proposal,CharlesSchwabTrustBankwouldbeafiduciary-orientedbankthatoffersthe trustandcustodyservicesandrelatedproductscurrentlyofferedbyadivisionof Charles SchwabBanktoretirementplansponsorsandparticipantsandthatthiswillbetterallow thefirmtoservetheneedsof thegrowingretirementmarket.CharlesSchwabalsorepresentsthatCharlesSchwabTrustBankwouldbeabletooffermoreconsistentservicesthat arebettertailoredtoitscustomers’needsthanthosecurrentlyofferedbyCharlesSchwab Bank. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof CharlesSchwab BankandCharlesSchwabSignatureBankundertheCRA,therecordsof compliancewith fairlendingandotherconsumerprotectionlaws,consultationswiththeOCCandthe CFPB,confidentialsupervisoryinformation,informationprovidedbyCharlesSchwab,the publiccommentontheproposal,andotherpotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.Basedonthatreview,theBoard concludesthattheconvenienceandneedsfactorisconsistentwithapproval. Phoenix–Mesa–Scottsdale,ArizonaMSA.Examinersfoundthatthebankdemonstratedahighlevelof communitydevelopmentlending,qualifiedinvestments,andcommunitydevelopmentservices.Examinersalso notedthatthebankdemonstratedexcellentresponsivenesstocreditandcommunitydevelopmentneedsinits assessmentarea. 29 NoconsumercomplianceexaminationofCharlesSchwabSignatureBankhasyetbeencompleted.

LegalDevelopments:FirstQuarter,2018 131 Effectof theTransactionontheSavingsAssociationandInsuranceRisktotheDeposit InsuranceFund Inactingonaproposalundersection10(e)of HOLA,theBoardconsidersthelikelyeffect of thetransactiononthesavingsassociationandanyinsurancerisktotheDepositInsuranceFund.30Asdiscussedabove,thefinancialandmanagerialresourcesandthefuture prospectsof thecombinedorganizationareconsistentwithapproval.TheBoardhas consideredthelikelyeffectof thetransactionontheinsureddepositoryinstitutionsof CharlesSchwabandbelievesthatitisconsistentwithapproval.Inviewof thecurrent resources,capital,andfutureprospectsof CharlesSchwab;themanagerialresourcesof CharlesSchwabanditsinsureddepositoryinstitutions;thesignificantfinancial,managerial,andotherresourcesbeingdevotedtosupportthedenovobank;andthelikelyeffectof thetransactionontheproposedorganization,theBoard,afterconsultingwiththeFDIC, believesthattheproposalwouldnotappearlikelytohaveanymaterialeffectontheinsurancerisktotheDepositInsuranceFund. Conclusion Basedontheforegoingandallthefactsof record,theBoardhasdeterminedthattheapplicationshouldbe,andherebyis,approved.Inreachingitsconclusion,theBoardhas consideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunder HOLA.TheBoard’sapprovalisspecificallyconditionedoncompliancebyCharlesSchwab withalltheconditionsimposedinthisorder,includingreceiptof allrequiredregulatory approvals,andonthecommitmentsmadetotheBoardinconnectionwiththeapplication. Forpurposesof thisaction,theconditionsandcommitmentsaredeemedtobeconditionsimposedinwritingbytheBoardinconnectionwithitsfindingsanddecisionherein and,assuch,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedlaterthanthreemonthsaftertheeffectivedateof thisorderunlesssuchperiodisextendedforgoodcausebytheBoardortheFederal ReserveBankof SanFrancisco,actingpursuanttodelegatedauthority. Byorderof theBoardof Governors,effectiveMarch20,2018. Votingforthisaction:ChairmanPowell,ViceChairmanforSupervisionQuarles,and GovernorBrainard. MargaretMcCloskeyShanks DeputySecretaryof theBoard 30 12U.S.C.§1467a(e)(2).

June 2018 Vol. 104, No. 3 Survey of Finance Companies, 2015 LisaChen,GregoryElliehausen,andMarkWicks Introduction and Summary Financecompaniesarenondepositoryfinancialfirmswhoseprimarybusinessisproviding debtandleasefinancingtoconsumersandbusinesses.Attheendof 2015,finance companiesheldnearly$747billionof consumercreditandleasereceivables,$160billionof realestatedebt,and$405billionof businesscreditandleasereceivables.1Of note,finance companiesarethethird-largestinstitutionalsupplierof consumercredit,behindbanksand thefederalgovernment,holdingnearlyone-thirdof consumermotorvehicledebtand providingasubstantialamountof leasefinancingof motorvehicles.Bycontrast,while financecompaniescontinuetoaccountforasubstantialshareof residentialmortgage originations,theyholdonlyamodestshareof suchcredit.Inaddition,financecompanies’ businessportfoliosincludeshort-andmedium-termcreditandleasestofinanceinventory, accountsreceivable,andacquisitionof motorvehiclesandequipment.Financecompaniesholdasmallamountof commercialrealestatedebtaswell. TheFederalReserveproducescomprehensivedataonthevolumeandcompositionof creditandleasefinancingprovidedbythefinancecompanyindustryandreportsthesedata initsG.19,“ConsumerCredit”;G.20,“FinanceCompanies”;andZ.1,“Financial Accountsof theUnitedStates”statisticalreleases.Tomaintainthequalityof itsstatistics, theFederalReserveconductsaSurveyof FinanceCompanieseveryfiveyearstobenchmarkitsfinancecompanyestimates.2Thisarticlereportsdevelopmentsinthefinance companyindustryusingdatafromitslatestsurveyin2015.Inadditiontothebalancesheet datausedtobenchmarkitsstatisticalreleases,theFederalReserveforthefirsttime requestedrespondentstothe2015surveytoprovideincomestatementdata.Thelast sectionof thisarticlepresentsthenew2015incomestatementdata,thefirsttimesuchdata havebeencollectedsincethelate1980s. Thefollowinglisthighlightsseveralprominentfindingsfromouranalysis: ‰ Thefinancecompanyindustryishighlyconcentrated.Smallfirmsarenumerousbut accountedforaverysmallshareof aggregateindustryassetsin2015.Incontrast,firms 1 ConsumercreditisreportedintheBoardofGovernorsoftheFederalReserve’sStatisticalReleaseG.19,“Consumer Credit,”availableathttps://www.federalreserve.gov/releases/g19/current/default.htm.Consumercreditconsistsofall typesofcreditthatareusedbyindividualsandthatarenotcollateralizedbyrealestateorbyspecificfinancialassets (suchasstocksandbonds)orusedforbusinesspurposes.FinancecompanyreceivablesarereportedintheBoardof GovernorsoftheFederalReserve’sStatisticalReleaseG.20,“FinanceCompanies,”availableathttps://www .federalreserve.gov/releases/g20/current/g20.htm. 2 TheFederalReservecollectsmonthlydataonloansandleasesandbenchmarksthesedatausingtheuniverseestimates derivedfromaquinquennialcensusoftheindustryandtheSurveyofFinanceCompanies.Benchmarkingalignsthe monthlysampleestimateswiththehigher-qualitypopulationestimatesproducedeveryfiveyears.Thisprocedure ensurescoherenceandconsistencybetweenthetwotime-seriesdatawhileminimizingrevisionsoftheobservedmovementsinthebenchmarkedseries.

2 FederalReserveBulletin|June2018 withassetsof $20billionormoreaccountedforlessthan0.5percentof firmsbut provided71percentof theindustry’sassetsin2015. ‰ Financecompaniesprovidemanytypesof financingtohouseholdsandbusinesses,but theirprimarybusinessisconsumercreditandconsumerleasefinancing.Consumerloans andleasesaccountedforoverone-half of receivablesof financecompaniesin2015. ‰ Overall,totalassetsof thefinancecompanyindustrywas10percentlowerin2015than in2010.Declinesincreditandleasefinancingwerebroadlydistributed,withtheexceptionsof consumermotorvehicle,businessmotorvehiclewholesale,andbusinessequipmentfinancing. ‰ Whilethefinancecompanyindustryprovidesawidevarietyof creditandleaseproducts, firmsintheindustryarehighlyspecialized.Nearlyallfinancecompaniesholdamajority of theirassetsinonetypeof credit—consumer,realestate,orbusinesscredit. ‰ In2015,aboutone-half of consumerlenders’assetsconsistedof motorvehicleloansand leases,butconsumerlendersalsoheldaconsiderableshareof assetsinother(nonvehicle) closed-endconsumercredit.Byfar,mostrealestatelenders’assetsweremortgageson one-tofour-familyhomes,withmultifamilyorothercommercialmortgagesconstituting thesmallremainingshare.Morethanone-half of businesslenders’assetsconsistedof equipmentloansandleases.Businesslendersalsoprovidedbusinessmotorvehicle– relatedfinancing,butthatfinancingaccountedforonlyarelativelysmallshareof assets. ‰ Financechargesamongtheconsumer,realestate,andbusinesslendersvariedsignificantlyin2015,inlargepartreflectingdifferencesinoperatingcosts.Despitelargedifferencesinrevenueandexpenses,operatingreturnonassets(ameasureof theefficiencyof generatingincomefromassets)wasaboutthesameforthethreetypesof lenders. ‰ Amongconsumerlenders,autolendershadrelativelylowoperatingexpenses.Lowoperatingcostscanbeattributedatleastinparttotheprevalenceof salesfinanceinauto lending,inwhichautodealersincurmuchof theexpenseof originatingloansandleases. Personalloancompanieshavehigherrevenueper$100of outstandingcreditandhigher operatingcoststhanautolenders.Personalloancompanies’relativelyhighfinance chargesandoperatingexpensescanlargelybeattributedtotheirloans’highriskand smalldollaramount. ‰ Comparingrevenuesandcostsof personalloancompaniesin2015withavailable historicaldatafromselectedearlieryears,wefindthatrevenuesandoperatingcostsin 2015werehigherthanin1987,oneof thelastyearsinwhichsuchindustrydatawere collected.However,operatingincomein2015wassomewhatlowerthanin1987.Greater riskmayatleastinpartexplaingreaterfinancechargesandlossesandadditionstoloss reservesforpersonalloansin2015. ‰ Thecostof borrowedfundsdidnotaccountformuchof grossrevenueintherecent low-rateenvironment.Thecostof borrowedfundswasjust8percentof grossrevenuein 2015,aconsiderablylowerpercentagethanin1959,1983,and1987. Theremainderof thisarticleisdividedintosixsections: ‰ ABrief Historyof theFederalReserve’sSurveyof FinanceCompanies ‰ RecentFinanceCompanyIndustryDevelopments ‰ FinancialCharacteristicsof DifferentSpecializedTypesof FinanceCompanies ‰ MajorTypesof ConsumerLenders:AutoLendersandPersonalLoanCompanies ‰ TrendsinRevenue,Cost,andPerformanceatPersonalFinanceCompanies ‰ Appendix:HistoricalSurveyPractices,RecentInnovations,andCurrentProcedures

Surveyof FinanceCompanies,2015 3 A Brief History of the Federal Reserve’s Survey of Finance Companies TheFederalReserve’sstatisticsonfinancecompaniesdatebackto1919.3Atthattime,two distincttypesof financecompaniesfocusingonconsumerlendinghademerged.Sales financecompaniesprimarilypurchasedfromretailersinstallmentpaperarisingfromsales of automobilesandotherconsumergoods.Consumerfinancecompanies(alsoknownas small-loancompaniesorlicensedlenders)primarilyprovideddirectpersonalloansauthorizedbystatesmall-loanlaws,whichcreatedexemptionsfromrateceilingsinstateusury lawsforfirmsthatobtainedalicense.4Consumercreditoutstandingatsalesfinance companiesandatconsumerfinancecompanieswerereportedinseparatecategoriesinthe FederalReserve’sstatisticalsystembetween1919and1964.5 TheFederalReserveobtainedestimatesof financecompanylendingbefore1939fromdata collectedbytheRussellSageFoundation,theNationalBureauof EconomicResearch (NBER),andtheDepartmentof Commerce.Between1939and1954,estimatesof sales financeandconsumerfinancelendingwerederivedfrommonthlysurveysandwere benchmarkedbyavailableCensusBureausurveys,FederalReservesurveys,orregulatory reports.InFebruary1945,theCensusBureau’ssurveyof salesfinancecompanieswas transferredtotheFederalReserve,whichearlierhadbeguntocollectconsumercreditdata toimplementwartimecreditrestrictions.Thetransfercentralizedthecollectionof statistics forconsumerinstallmentcreditatfinancecompaniesinoneagency,theFederalReserve. Bythe1950s,manysalesfinancecompanieshadestablishedsubsidiariesthatlentdirectly toconsumers.Someof thelargercompaniesalsofinancedorfactoredbusinessaccounts receivableorfinancedsalesof commercial,industrial,andfarmequipment.Similarly, consumerfinancecompaniespurchasedsomesalesfinancecontractsandoriginatedbusinesscredit.6Beginningin1955,theFederalReservebeganconductingregularbenchmark surveyscoveringthefinancecompanyindustryonaregularfive-yearinterval.7The1955 benchmarksurveycoverednondepositoryfinancialinstitutionsthatwereprimarily engagedininstallmentlendingtoconsumers.TheFederalReserveexpandedthe1960 benchmarksurveytoincludefinancecompaniesspecializinginfinancingsalesof business andfarmequipmentandfinancingorfactoringbusinessreceivables.Assetsandliabilities of thespecialistbusinessfinancecompanieswerefirstreportedinanOctober1961Federal ReserveBulletinarticlediscussingchangesinfinancesof salesfinanceandconsumer financecompaniesfrom1955to1960.8 3 ForadetaileddiscussionofthehistoryoftheFederalReserve’sstatisticsonfinancecompanies,seesection16 inBoardofGovernorsoftheFederalReserveSystem(1976),BankingandMonetaryStatistics,1941–1970 (Washington:BoardofGovernors),pp.1049–81,https://fraser.stlouisfed.org/title/41. 4 Thedistinctionbetweensalesandconsumerfinancecompaniesisinlargepartaconsequenceofstateregulationofinterestrates.SeeThomasA.Durkin,GregoryElliehausen,MichaelE.Staten,andToddJ.Zywicki (2014),“StateRegulationofConsumerCredit,”chapter11inConsumerCreditandtheAmericanEconomy (NewYork:OxfordUniversityPress),pp.482–541. 5 SeeBoardofGovernors,BankingandMonetaryStatistics,1941–1970,innote3.Until1950,theFederal Reserve’sconsumerfinancecategorycontainedconsumercreditheldbyothertypesoffinancialinstitutions, whichincludedconsumercreditheldbymutualsavingsbanksandsavingsandloancompanies. 6 SeePaulF.SmithandFrancisR.Pawley(1957),“SurveyofFinanceCompanies,Mid-1955,”FederalReserve Bulletin,vol.43(April),pp.392–408,https://fraser.stlouisfed.org/files/docs/publications/FRB/1950s/frb_041957 .pdf. 7 Foradescriptionofthe1955survey,seeSmithandPawley,“SurveyofFinanceCompanies,Mid-1955,”in note6. 8 FrancisR.Pawley(1961),“SurveyofFinanceCompanies,Mid-1960,”FederalReserveBulletin,vol.47 (October),pp.1140–60,https://fraser.stlouisfed.org/files/docs/publications/FRB/1960s/frb_101961.pdf.Forthe 1965benchmarksurvey,aseparatearticlefocusingsolelyonbusinessfinancecompanieswaswritten;see EvelynM.Hurley(1968),“BusinessFinancingbyBusinessFinanceCompanies,”FederalReserveBulletin,vol. 54(October),pp.815–27,https://fraser.stlouisfed.org/files/docs/publications/FRB/1960s/frb_101968.pdf.An articlereportingchangesinfinancingforeachofthedifferenttypesoffinancecompaniesbetweenthe1960

4 FederalReserveBulletin|June2018 Reflectingatrendtowardmultiproductcreditofferingsinthefinancecompanyindustry, theFederalReservein1965combinedthesalesfinanceandconsumerfinancecategoriesin itsconsumercreditreleases.Initsfinancecompanyreleases,however,theFederalReserve continuedtoreportsalesfinanceandconsumerfinancecompanylendingseparatelyuntil September1970.Atthattime,anew,consolidatedG.20“FinanceCompanies”release replacedthepreviousG.20“SalesFinanceCompanies”andG.22“ConsumerCreditat ConsumerFinanceCompanies”releases.ThenewG.20“FinanceCompanies”releasealso reflectedtheexpansionof thefinancecompanyindustrytoincludelendingbybusiness financecompanies.9 Recent Additions in Finance Company Industry Coverage TheFederalReservecontinuestoupdateitscoverageof thefinancecompanyindustryto reflectdevelopmentsintheindustry.Financecompanieshistoricallyhavenotbeenalarge supplierof mortgagecredit.However,financecompaniesparticipatedinthegrowthin homeequitylendinginthemid-1990s.10Inaddition,nondepositorymortgagelenders specializinginoriginatingresidentialmortgagesusingtheirownorborrowedfundshadan increasingmarketpresenceinthelate1990sand2000s.Thesenondepositorymortgage lenderstypicallydidnotholdthemortgagesintheirownassetportfoliosbutinsteadsold themtoinvestors.Theexpansionof mortgageoriginationsbynondepositorymortgage lenderspromptedtheFederalReservein2005toexpanditscoverageof thefinance companyindustrytoincludenondepositorymortgagelenders. Forthe2015survey,theprominenceof high-rate,single-paymentlendersledtheFederal Reservetofurtherexpanditscoverageof thefinancecompanyindustrytoincludepawn shops,paydaylenders,andvehicletitlelenders.Eachof thesesingle-paymentlenders’ primaryproductisadistinctsmall,short-term(commonlyonemonthorless),singlepaymentcashloan.Anotherconsiderationinincludingtheselendersisthatsomeof these firmsalsooffersmallinstallmentcashloans,whichisthemainproductof traditional consumerfinancecompanies. Income Statement Data Thecollectionof incomestatementdataisafurtherinnovationof the2015Surveyof FinanceCompanies.Previously,thesurveydidnotcollectincomestatementdata.Past effortstocollectincomestatementdataincludeErnstDauerfortheNBERinthe1930s and1940s,PaulSmithfortheNBERinthe1940sand1950s,andtheAmericanFinancial ServicesAssociation(AFSA)inthe1960s,1970s,and1980s.Themostrecentincomestatementdataavailablearefromthe1989AFSAsurvey,whichwereanalyzedbyDurkinand Elliehausen(1998).11 and1965benchmarksurveyswasalsowritten;seeEvelynM.Hurley(1967),“SurveyofFinanceCompanies, Mid-1965,”FederalReserveBulletin,vol.53(April),pp.534–59,https://fraser.stlouisfed.org/files/docs/ publications/FRB/1960s/frb_041967.pdf. 9 BoardofGovernorsoftheFederalReserveSystem(1970),StatisticalReleaseG.20,“FinanceCompanies” (November12),https://fraser.stlouisfed.org/files/docs/releases/g20/g20_19701112.pdf. 10 SeeGlennB.Canner,ThomasA.Durkin,andCharlesA.Luckett(1998),“RecentDevelopmentsinHome EquityLending,”FederalReserveBulletin,vol.84(April),pp.241–51,https://www.federalreserve.gov/pubs/ bulletin/1998/199804lead.pdf. 11 SeeErnstA.Dauer(1944),ComparativeOperatingExperienceofConsumerInstalmentFinancingAgenciesand CommercialBanks,1929–41,NationalBureauofEconomicResearch,StudiesinConsumerInstalment FinancingNo.10(NewYork:NBER);PaulF.Smith(1964),ConsumerCreditCosts,1949–59,NationalBureau ofEconomicResearch,StudiesinConsumerInstalmentFinancingNo.11(Princeton,N.J.:PrincetonUniversityPress);ThomasA.DurkinandGregoryElliehausen(1998),“TheCostStructureoftheConsumerFinance Industry,”JournalofFinancialServicesResearch,vol.13(February),pp.71–86.

Surveyof FinanceCompanies,2015 5 Incomestatementdataareusefultounderstandtherelationshipsbetweenoperationalscale andcosts,competitionandthelevelof financecharges,andrateceilingsandcreditavailability.Furthermore,incomestatementdataalsospeaktotheeffectsof deregulationand financialinnovation.However,themostrecentevidenceonthecoststructure(forexample, economiesof scaleatfirmandofficelevelsaswellaseconomiesof averageloansize)is basedonthelastfourAFSAsurveysinthelate1980s.Advancesincreditreportingand creditevaluationaswellaschangesinconsumerprotectionregulationhavesignificantly influencedcreditunderwriting,monitoring,andcollection.Researchbasedonmorerecent dataisneededtoinformpolicyandislongoverdue. Recent Finance Company Industry Developments WelookfirstatthebalancesheetdatathattheFederalReserveusestobenchmarkthe financecompanyindustry.Thefinancecompanyindustryhasalargepercentageof small firms.Justoverone-half of financecompanieshadassetsof lessthan$1millionin2015, and82percenthadassetsof lessthan$10million(table1).Thesesmallfirmsprovidedan insignificantshareof aggregateassetsin2015,however.Incontrast,thelargestfinance companies(lessthan0.5percentof allcompanies)provided71percentof theindustry’s assetsin2015. Thepercentageof firmsinthetwosmallestassetgroupsincreasedbetween2010and2015, andthepercentageof firmsinthethirdassetgroupdeclined.Theseresultslargelyreflect changesinthesizedistributionof realestatelenders(notshownintables).Thepercentages of firmsinlargerasset-sizegroupswerelittlechangedbetween2010and2015.Inboth years,firmsinthelargesttwoassetcategoriesaccountedfornearlyallof aggregateassets. Thefinancecompanyindustryprovidesmanytypesof financing,butconsumerfinancing predominates.Indollarvolume,thelargesttypeisconsumermotorvehiclefinancing (consistingof bothcreditandleases).In2015,financecompaniesheld$479billionof consumermotorvehiclecreditandleases,of which$303billion(63percent)wascredit financingand$176billion(37percent)wasleasefinancing(table2).Motorvehicle financingincludesnotonlydealer-originatedcreditandleasesheldbythelargecaptive Table1.Percentagedistributionoffinancecompaniesbynumberoffirmsandassetsize,2005,2010, and2015 Numberoffirms(percent) Aggregateassets(percent) Assetsize(dollars) 2005 2010 2015 2005 2010 2015 Lessthan1million 25 44 52 <0.5 1 <0.5 1–10million 38 25 30 <0.5 <0.5 1 10–100million 23 24 12 1 3 2 100million–1billion 9 5 5 2 4 5 1–20billion 4 2 1 17 18 21 20billionorgreater 1 <0.5 <0.5 81 74 71 Total 100 100 100 100 100 100 Note:Componentsmaynotsumtototalsbecauseofrounding. Source:BoardofGovernorsoftheFederalReserveSystem(2005,2010,and2015),CensusofFinanceCompanies(Washington:Boardof Governors).

6 FederalReserveBulletin|June2018 Table2.Loanandleasereceivablesbyassetcategory,2005,2010,and2015 Level($billion) Percentchange Shareoftotalassets(percent) Assetcategory 2005 2010 2015 2005-2010 2010-2015 2005 2010 2015 Consumer Motorvehicleloans 278 277 303 0 9 13 15 18 Motorvehicleleases 85 112 176 32 57 4 6 11 Revolving 66 85 26 29 -69 3 5 2 Other 175 346 233 98 -33 8 19 14 Subtotal 604 820 738 36 -10 28 44 44 Realestate 1–4family 466 170 123 -64 -28 22 9 7 Other 48 74 36 54 -51 2 4 2 Subtotal 513 244 159 -52 -35 24 13 10 Business Motorvehicles 106 117 104 10 -11 5 6 6 Retailloans 15 18 15 20 -17 1 1 1 Wholesaleloans 61 69 80 13 16 3 4 5 Leases 29 30 9 3 -70 1 2 1 Equipment 286 204 219 -29 7 13 11 13 Loans 98 118 122 20 3 5 6 7 Leases 188 86 97 -54 13 9 5 6 Other 92 86 82 -7 -5 4 5 5 Subtotal 484 408 405 -16 -1 23 22 24 Totalloansandleases 1,601 1,472 1,302 -8 -12 75 79 78 Memo:Totalassets 2,142 1,875 1,680 -12 -10 100 100 100 Note:Componentsmaynotsumtototalsbecauseofrounding. Source:BoardofGovernorsoftheFederalReserveSystem(2005,2010,and2015),SurveyofFinanceCompanies(Washington:Boardof Governors). financecompaniesof motorvehiclemanufacturers,butalsocreditheldbyindependent financecompanies,especiallyintheusedvehiclemarketsegment.12 Otherconsumercreditisthesecond-largesttypeof financingprovidedbyfinancecompanies.Thiscategoryconsistsmainlyof closed-endsalescreditforother(nonvehicle) consumergoods,cashloans,andstudentloans.Financecompaniesheld$233billionof suchcredit,whichaccountedfor14percentof industryassets.Theindustryalsoheldabout $26billionof revolvingconsumercredit,whichwasjust2percentof industryassets. At$219billion,businessequipmentfinancingwasthethird-largesttypeof financing.It accountedfor13percentof industryassetsin2015andalittlemorethanone-half of the industry’snonmortgagebusinessassets.Businessequipmentfinancingincludesloansand leasesfordiverseequipmentsuchasconstructionequipment,aircraft,farmequipment, railwaycars,computers,andofficeequipment.Loansaccountedfor$122billion (56percent)of businessequipmentfinancing,andleasesaccountedfor$97billion (44percent)of businessequipmentfinancing.Leasescanbeclassifiedaseithercapital leasesoroperatingleases.Capitalleasesextendovermostof theeconomiclifeof theasset andarenotcancelablebythelesseewithoutpenalty.Operatingleasesareshorttermand 12 SeeMelindaZabritski(2018)“StateoftheAutomotiveFinanceMarket:ALookatLoansandLeasesinQ4 2017,”Experian,presentationslides,http://www.experian.com/automotive/automotive-credit-webinar.html.

Surveyof FinanceCompanies,2015 7 arecancelableattheoptionof thelessee.In2015,42percentof businessequipmentleases werecapitalleases,and58percentwereoperatingleases(numbersnotshownintables). Financecompaniesalsoprovidemotorvehiclefinancingtobusinesses.Wholesaleloans financedealerinventoriesof commercialandlightmotorvehiclesforsale($80billionin 2015).Businessretailloansandleasesfinancevehicleacquisitionsbybusinesses($15billion and$9billion,respectively,in2015). Financecompaniesheld$159billionof realestatedebtontheirbalancesheetsin2015 (10percentof totalassets).Of thisamount,$123billionwasmortgagesonone-tofourfamilyhomes,and$36billionwasmortgagesonmultifamilyhousingorcommercialrealestate. Intotal,loansandleaseswere$1,302billionin2015,whichwas78percentof totalassets. Non-loan,non-leaseassetsconsistof cash,deposits,securities,andanyotherassets. Overall,thefinancecompanyindustryshrankbetween2010and2015.Inpercentageterms, thegreatestdeclineswereinbusinessmotorvehicleleasefinancing,revolvingconsumer credit,otherrealestatefinancing,andotherconsumercredit,allof whichareamongthe generallyriskierareasof financecompanylending.Financecompaniesoriginatedmany near-primeandsubprimeloansandclosed-endsecondmortgagesbeforethemostrecent recession.Licensedsmall-loancompaniesprovidesmallhigh-riskcashloansinmany states.13Mostrevolvingconsumercreditconsistsof unsecuredcreditcardlending.The financialcrisisin2008and2009andthesubsequentrecessionapparentlypromptedmany lenderstoreducetheirexposuretoriskierformsof credit.14 Consumermotorvehicleandbusinessequipmentfinancingwereamongthetypesof financingthatdidnotdecline.Consumermotorvehiclefinancingincreased$90billion from2010to2015.Leasescontributedstronglytothisincrease,with57percentgrowthin leasescomparedto9percentgrowthinmotorvehicleloans.Consumermotorvehicleand businessequipmentfinancinggenerallyinvolvessecuredlending,whichtendstoreduce risk.Collateralmakesdefaultscostlyforborrowersbecausetheylosetheasset,andit reduceslenders’losseswhenborrowersdefault.15Thus,theseformsof financingtendtobe lessriskyforthelenderthanmanyothertypesof credit.Financecompaniesmayhave increasedtheirrelianceonsecuredlendingasaresultof arecessionthatpromptedlenders toreduceexposuretoriskiertypesof credit. Theloanandleaseshareof totalassetswasjust1percentagepointlowerin2015compared with2010. Regardingtheirfinancing,financecompaniesreliedheavilyonnonrecoursedebtassociated withstructuredfinancingactivities($648billion)andnotes,bonds,anddebentures ($242billion)tofundtheirlendingactivitiesin2015(table3).16Togetherthesesources 13 SeeDurkinandothers,“StateRegulationofConsumerCredit,”innote4. 14 Forevidenceoncreditcardandsmallconsumerfinancelendingbetweenthesecondquarterof2007andthe secondquarterof2012,seeGregoryElliehausenandSimonaM.Hannon(2018),“TheCreditCardActand ConsumerFinanceCompanyLending,”JournalofFinancialIntermediation,vol.34(April),pp.109–19. 15 SeeRobertJ.Barro(1976)“TheLoanMarket,Collateral,andRatesofInterest,”JournalofMoney,Creditand Banking,vol.8(November),pp.439–56;andDanielK.Benjamin(1978),“TheUseofCollateraltoEnforce DebtContracts,”EconomicInquiry,vol.16(July),pp.333–59. 16 Nonrecoursedebtassociatedwithstructuredfinancingactivitiesisdebtthatisrepaidsolelyfromcashflowson underlyingloansorsecurities.Thistypeofdebtarisesfromassetsecuritization,loanparticipation,andother structuredfinancingactivities,includingliabilitiesthatwerebroughtonbalancesheetasaresultofFinancial AccountingStandard166orFinancialAccountingStandard167.

8 FederalReserveBulletin|June2018 Table3.Liabilitiesandnetworthoffinancecompanies,2005,2010,and2015 Level($billion) Percentchange Shareoftotalassets(percent) Liabilitycategoryornetworth 2005 2010 2015 2005–2010 2010–2015 2005 2010 2015 Commercialpaper 182 99 67 −46 −32 8 5 4 Bankloans 71 92 156 30 70 3 5 9 Nonrecoursedebt n.a. 471 648 n.a. 38 n.a. 25 39 Notes,bonds,anddebentures n.a. 608 242 n.a. −60 n.a. 32 14 Combinedtotalofnonrecourse debtandnotes,bonds,and debentures 892 1,078 890 21 −17 42 57 53 Debtduetoparentcompany 221 181 157 −18 −13 10 10 9 Otherliabilities 512 192 190 −63 −1 24 10 11 Totalliabilities 1,878 1,642 1,460 −13 −11 88 88 87 Networth 264 233 220 −12 −6 12 12 13 Totalliabilitiesandnetworth 2,142 1,875 1,680 −12 −10 100 100 100 Note:Componentsmaynotsumtototalsbecauseofrounding. n.a.Notavailable. Source:BoardofGovernorsoftheFederalReserveSystem(2005,2010,and2015),SurveyofFinanceCompanies(Washington:Boardof Governors). accountedformorethanone-half of totalliabilitiesandnetworth.Equity(networth)was $220billion,whichwas13percentof totalliabilitiesandnetworthin2015. Nonrecoursedebtincreased38percentbetween2010and2015.Theincreasereflects recoveryincapitalmarketsfromsteepdeclinesfollowingthefinancialcrisisandrecession. Bankloansalsoincreased,up70percentfrom2010.Theequityshareof liabilitiesand networthin2015wasnotmuchdifferentfromitssharein2010or2005. Althoughstillanimportantlargesourceof funds,traditionalsortsof borrowingthrough notes,bonds,anddebentures(14percentof totalliabilitiesandnetequityin2015)declined 60percentbetween2010and2015.Short-termcommercialpaper,arelativelysmallsource of fundsfollowingthefinancialcrisisandrecession(4percentof totalliabilitiesandnet worthin2015),fell32percentbetween2010and2015. Financial Characteristics of Different Specialized Types of Finance Companies Thefinancecompanyindustryprovidesawidevarietyof creditandleaseproducts,which tendtobeofferedbyspecializedfirms:Nearlyallfinancecompaniesholdmostof their assetsinonespecifictypeof credit.17Consumerlenderswerethemostnumerousspecialist financecompany.In2015,68percentof financecompanieswereconsumerlendingspecialists,17percentwererealestatelendingspecialists,and13percentwerebusinesslending specialists(numbersnotshownintables).Onlyaverysmallpercentage(2percent)of financecompaniescanbecharacterizedasdiversifiedbroadlyacrossdifferenttypesof financing.Inthetablesthatfollow,diversifiedfirmsarenotincludedbecausestatistics derivedfromsuchasmallsamplearenotreliable. 17 Respondentsself-definedtheirspecializationinthe2005CensusofFinanceCompanies.The2010and2015 censusesdefinedspecializationashaving50percentormoreofassetsinconsumer,realestate,orbusinessloans andleases.Allthreecensusesalsoprovidedrespondentswitha“nospecialization”choice.

Surveyof FinanceCompanies,2015 9 Overall,specialistfinancecompanies Table4.Assetsharesbytypeoffinancingand heldfarmorethanone-half of their specializationoflender,2005,2010,and2015 assetsintheirspecialtytypeof Shareoftotalassets(percent) financing.Consumerlendersheld Typeoffinancing 79percentof assetsinconsumer 2005 2010 2015 loansandleasesin2015(table4). Consumerlender Theirshareof consumerloansand Consumer 84 79 79 leasesisunchangedfrom2010and Realestate 1 4 1 onlyabitsmallerthanin2005. Business 5 8 10 Consumerlenders’realestate Totalloansandleases 90 90 90 lendingsharein2015wassmalland Realestatelender notmuchdifferentfromprevious Consumer 1 16 2 years.Theirbusinessloansand Realestate 71 59 74 leasessharewas10percentof assets Business 2 7 2 in2015,upfrom5percentof assets Totalloansandleases 73 82 78 in2005. Businesslender Consumer 2 8 2 Realestatelendersheld74percentof Realestate <0.5 9 1 theirassetsinrealestateloansin Business 73 49 84 2015.Thisshareishigherthanthe Totalloansandleases 75 66 86 shareof realestatelendingin2010, Note:Componentsmaynotsumtototalsbecauseofrounding. butnotmuchdifferentfromthe Source:BoardofGovernorsoftheFederalReserveSystem(2005,2010,and shareof realestatelendingin2005. 2015),SurveyofFinanceCompanies(Washington:BoardofGovernors). Thelowerrealestatesharein2010 maybeareflectionof theslow recoveryof realestatelendingfollowingthe2007–09recession.Consumerlending accountedforamuchlargershareof assetsin2010(16percentof assets)thanin2005 (1percent)and2015(2percent). Businessloansandleasesmadeup84percentof businesslenders’assetsin2015,which accountedfornearlyallof businesslenders’loansandleases.Consumerloansandleases andrealestateloanswereanegligibleshareof businesslenders’assets. Theremainderof thissectiondiscussesfinancialcharacteristics(firmsize,balancesheets, andincomestatements)of consumer,realestate,andbusinesslendersin2015. Distribution of Firms Foreachtypeof specialization,most lendershadlessthan$10millionof assets.Consumerlendershadthe Table5.Percentagedistributionoffinancecompaniesby largestshareof smallfirms: assetsizeandspecializationoflender,2015 61percentof consumerlendershad Typeoffinancecompany lessthan$1millionof assets,and Assetsize(dollars) another32percenthadbetween Consumer Realestate Business $1millionand$10millionof assets Lessthan1million 61 37 27 (table5).Bycontrast,27percentof 1–10million 32 17 33 businesslendershadlessthan 10–100million 5 36 18 $1millionof assets,and33percent 100million–1billion 1 8 17 1–20billion <0.5 2 4 hadbetween$1millionand 20billionorgreater <0.5 <0.5 1 $10millionof assets.Forrealestate Total 100 100 100 lenders,alittlemorethanone-half had$10millionorlessof assets Note:Componentsmaynotsumtototalsbecauseofrounding. Source:BoardofGovernorsoftheFederalReserveSystem(2015),Censusof (37percenthadlessthan$1million FinanceCompanies(Washington:BoardofGovernors). of assets,and17percenthad

10 FederalReserveBulletin|June2018 between$1millionand$10million Table6.Assetsharesbytypeoffinancecompany,2015 of assets). (Percentoftotalassets) Regardlessof type,relativelyfew Typeoffinancecompany Assetcategory financecompanieswerelarge. Consumer Realestate Business Amongthetypesof specialist Consumer companies,businesslendershadthe Motorvehicleloans 31 2 <0.5 greatestpercentageof largefirms, Motorvehicleleases 20 <0.5 <0.5 with5percentof firmshavingassets Revolving 3 <0.5 1 of $1billionormore. Other 26 <0.5 1 Subtotal 79 2 2 Balance Sheets for Realestate Specialized Lenders 1–4family 1 63 <0.5 Other 1 12 <0.5 Aspreviouslymentioned,almostall Subtotal 1 74 1 financecompaniesarespecialized Business lenders.Table6providesmore Motorvehicles 9 <0.5 6 detailedinformationontheextentof Retailloans 1 <0.5 2 specializationin2015.Themost Wholesaleloans 8 <0.5 3 commonformsof financing Leases <0.5 <0.5 2 providedbyconsumerlenderswere Equipment <0.5 <0.5 58 Loans <0.5 <0.5 34 motorvehicleloansandleases Leases <0.5 <0.5 24 (31percentand20percentof assets, Other 1 1 19 respectively).Otherconsumercredit Subtotal 10 2 84 accountedfor26percentof assets Totalloansandleases 90 78 86 andconsistsof varioustypesof closed-endcredit.Thiscategory Note:Componentsmaynotsumtototalsbecauseofrounding. includesinstallmentcashloans,some Source:BoardofGovernorsoftheFederalReserveSystem(2015),Surveyof FinanceCompanies(Washington:BoardofGovernors). nonvehiclesalescredit,andsmall, single-paymentloans(principally pawn,payday,andautotitle lenders).Consumerlenders’nonconsumerlendingconsistslargelyof businesswholesale loans(8percentof assets)financingdealers’inventoriesof motorvehicles.Consumer financecompaniesdidnotprovidemuchrevolvingcredit.Revolvingconsumercredit amountedtojust3percentof assets.Allothertypesof businessfinancingandmortgage loanscollectivelywereonlyaverysmallpercentageof assets. Realestatelendersheldmostlyhouseholdrealestateloansontheirbalancesheets (63percentof assets).Commercialrealestateholdingsaccountedforasmallpercentageof assetsof realestatelenders(12percentof assets).Assetsharesof consumerloansandbusinessloansatrealestatelenderswereinconsiderable. Businesslenders’financingactivitiesconsistedmostlyof businessequipmentloansand leases(58percentof assets).Theirotherbusinessofferings—wholesaleloansandretail motorvehicleloansandleases—wereasmallshareof assets(6percent).18Sharesof consumerloansandleasesandrealestateloanswereinconsiderable. Table7showsthatfinancecompanies’fundingof lendingactivitiesvariesbyspecialization. Consumerlendersrelyheavilyondebtcapitalmarkets.Nonrecourseloansassociatedwith structuredfinancingactivitiesprovidednearlyone-half of theirfunding(44percentof total 18 Thispercentagedoesnotincludewholesaleloansorretailbusinessvehicleloansandleasesofmostvehicle manufacturers’captivefinancecompanies.Vehiclemanufacturers’captivefinancecompaniesaretypicallyclassifiedasconsumerfinancecompanies,asthemajorityoftheirassetsareconsumerloansandleases.

Surveyof FinanceCompanies,2015 11 liabilitiesandnetworth)in2015. Table7.Liabilityandnetworthsharesbytypeoffinance Notes,bonds,anddebentures—the company,2015 second-largestsourceof funds— (Percentoftotalassets) accountedfor21percentof total liabilitiesandnetworth.Bankswere Typeoffinancecompany asmallsourceof fundsforconsumer Liabilitycategoryornetworth Consumer Realestate Business lenders(7percent).Equitywas 10percentof totalliabilitiesandnet Commercialpaper 5 1 6 worth. Bankloans 7 20 17 Nonrecoursedebt 44 20 20 Notes,bonds,anddebentures 21 19 7 Realestatelendersalsoreliedon Debtduetoparentcompany 7 13 18 debtmarketsforfinancingbut Otherliabilities 6 9 18 obtainedsubstantialfundingfrom Totalliabilities 90 81 85 banksaswell.Twentypercentof Networth 10 19 15 theirfundswasfromnonrecourse loans,and19percentwasfrom Totalliabilitiesandnetworth 100 100 100 notes,bonds,anddebentures.The Note:Componentsmaynotsumtototalsbecauseofrounding. bankloansharewas20percent. Source:BoardofGovernorsoftheFederalReserveSystem(2015),Surveyof Owners’equitywas19percentof FinanceCompanies(Washington:BoardofGovernors). totalliabilitiesandnetworth. Businesslendersreliedlessondebtmarketsthanconsumerorrealestatelenders.They obtained20percentof theirfundsfromnonrecoursedebtand7percentfromnotes,bonds, anddebentures.Loansfrombanksandfromparentcompaniesaccountedforlargeshares of theirfunding(17percentand18percent,respectively).Owners’equityaccountedfor 15percentof totalliabilitiesandnetworth. Income Statements for Specialized Lenders Finance Charges and Operating Expenses Financechargesdifferwidelyacrossthedifferentspecializedfinancecompanies.Finance chargesof mortgagelenders,at$20per$100of outstandingcredit,werenearly60percent largerthanthoseof consumerlendersandjustunder2¼timesgreaterthanthoseof businesslenders(table8).Thelargevariationinfinancechargesamongconsumer,real estate,andbusinesslendersinlargepartreflectstheirdifferencesinoperatingcosts.19For example,realestatelenders’operatingcostswere83percentof grossrevenuecompared withabout50percentof revenueforconsumerandbusinesslenders.Salaryandwages ($8.65per$100of outstandingcredit)accountedfor43percentof grossrevenue.Therelativelyhighsalaryandwageshareof realestatelenders’financechargesmaybeattributedat leastinparttoalabor-intensive,comprehensiveunderwritingprocessandextensivedocumentationrequirementsformortgageloans.20 19 Asthisarticleisconcernedwithcoverageofcostsbyrevenue,theterm“financecharge”asusedhereincludes chargesforancillaryproductssuchascreditinsurancesoldinconjunctionwiththecredit.Thistreatmentof ancillaryproductsdiffersfromthatindisclosureregulation,whichisconcernedwiththepriceofcreditand includesinthefinancechargeonlythosecostsassociatedwiththecredit. 20 Comparisonsoffinancecompanieswithbanksaredifficultbecausebanksaremultiproductfirmsanddonot accountforcostsseparatelyforeachproduct.Costaccountingdataforconsumerlendingatbanksareavailable fromtheFederalReserveSystem’sFunctionalCostAnalysisProgramthrough1999,whenitwasdiscontinued. Datafor1999indicatethatgrossrevenueper$100ofoutstandingcreditforconsumerlendingatbankswas aboutone-halfthatoffinancecompanies.Thedifferencecanbeattributedlargelytodifferencesinrisk.Operatingexpensesforconsumerlendingatbankswere45percentofgrossrevenue.Forfurtherdiscussion,see ThomasA.Durkin,GregoryElliehausen,MichaelE.Staten,andToddJ.Zywicki(2014),“TheSupplyof ConsumerCredit,”chapter5inConsumerCreditandtheAmericanEconomy(NewYork:OxfordUniversity Press),pp.173–240.

12 FederalReserveBulletin|June2018 Strictcreditstandardsandcompre- Table8.Revenue,costs,andprofitabilitybytypeof hensiveunderwritingproducedrelafinancecompany,2015 tivelylowloanlossesandadditions tolossreservesforrealestatelenders, Typeoffinancecompany at$0.82per$100of outstanding Item Consumer Realestate Business credit(4percentof financecharges). Businesslendersspecializeinbusi- Dollarsper$100ofoutstandingcredit nessequipmentloansandleases, Grossrevenue(financecharges) 12.56 20.00 8.92 Totaloperatingcosts 6.54 16.60 4.42 whicharegenerallysecuredbythe Salariesandwages 1.62 8.65 1.16 equipmentbeingfinanced.Thus, Losses/additionstoloss theirloanlossesandadditionsto reserves 1.60 0.82 0.42 Otheroperatingcosts 3.33 7.14 2.85 lossreserveswererelativelysmall. Operatingincome 6.01 3.40 4.49 Consumerlendersprovideboth Costofborrowedfunds 2.26 2.69 1.58 Before-taxincome 3.76 0.71 2.92 securedandunsecuredfinancing. Motorvehicleloansgenerallyare Percentofgrossrevenue securedbyassetsthathaveeffective Grossrevenue(financecharges) 100 100 100 marketsforusedvehicles.Personal Totaloperatingcosts 52 83 50 financeandothernonvehicle Salariesandwages 13 43 13 Losses/additionstoloss closed-endinstallmentloansmaybe reserves 13 4 5 unsecuredorsecuredbycollateral Otheroperatingcosts 27 36 32 thatdoesnothaveawell-developed Operatingincome 48 17 50 Costofborrowedfunds 18 13 18 secondarymarket.Lendersthat Before-taxincome 30 4 33 providesingle-paymentloans(pawn, payday,andautotitleloans)provide Rateofreturn short-termcredittoconsumerswho Operatingreturnonassets 5 3 4 otherwisemightnotbeableto Before-taxreturnonassets 3 1 3 obtainadditionalcredit.Becauseof Note:Componentsmaynotsumtototalsbecauseofrounding. thepresenceof riskypersonalloan Source:BoardofGovernorsoftheFederalReserveSystem(2015),Surveyof FinanceCompanies(Washington:BoardofGovernors). companiesandsingle-payment lenders,loanlossesandadditionsto lossreservesof consumerlenders wererelativelyhigh.Thenextsectionprovidesfurtherevidenceof operatingcostsandrisks inconsumerlending,focusingontwotypesof consumerlenders—lendersthatspecializein motorvehicleloansandleases,andlendersthatspecializeinpersonalloans. Funding Costs Amongthespecializedfinancecompanies,realestatelendershadthehighestfundingcosts, $2.69per$100of outstandingcredit,comparedwith$2.26forconsumerlendersand$1.58 forbusinesslenders.However,becausetheyhadrelativelyhighgrossrevenueandoperatingcosts,realestatelenders’fundingcostswereasmallerpercentageof grossrevenue (13percent)thanthoseof consumerlenders(18percent)orbusinesslenders(18percent). Profitability Despiteconsiderabledifferencesingrossrevenue,operatingreturnonassets,anindicatorof theefficiencyingeneratingincomefromassets,didnotdiffermuchacrossthethreetypes of lenders.Before-taxreturnonassetsdidnotvaryeither. Major Types of Consumer Lenders: Auto Lenders and Personal Loan Companies Thissectioncomparesincomestatementsof twodifferenttypesof consumerlenders—auto lendersandpersonalloancompanies—thathistoricallyhavebeenandcontinuetobemajor

Surveyof FinanceCompanies,2015 13 participantsinthefinancecompanyindustry.Therevenueandcostsof thesetwotypesof consumerlendersreflecttheproductdifferencesinautoandpersonallending. Autolenders,definedhereasconsumerlendershavingmorethan50percentof assetsin consumermotorvehicleloansandleases,includenotonlythecaptivefinancecompaniesof vehiclemanufacturers,butalsomanyindependentfinancecompanies.Thecaptivefinance companiesprimarilypurchasepaperoriginatedbydealersandaccountforaboutone-half of newvehiclefinancings.Independentfinancecompaniesfinancealargeshareof used vehicleacquisitions.21Asmentionedearlier,vehicleloanstypicallyaresecuredbythe vehiclebeingacquired. Personalloansareclosed-endinstallmentcashloans,whichareoftenextendedbycompaniesthatoperateunderstatesmall-loanlaws.Personalloancompaniesaredefinedhereas consumerlendersthathavemorethan50percentof assetsinother(nonvehicle)consumer creditanddonotmakepawn,payday,orautotitleloans.22Personalloancompanies ordinarilydonotoffersinglepaymentloans.Lendersspecializing Table9.Revenue,costs,andprofitabilityofautolenders instudentloansormobile-home andpersonalloancompanies,2015 loansalsoarenotincluded.Some firmsinthepersonalloancompany Typeofconsumerinstallmentlender categorymayhavesignificant Item Personalloan Autolender nonvehiclesalesfinanceshares.Such company firmshaveforalongtimealsomade Dollarsper$100ofoutstandingcredit directcashloans,however.Their Grossrevenue(financecharges) 14.65 29.20 presencehasdeclinedasrevolving Totaloperatingcosts 6.96 20.82 credithasincreasinglysubstituted Salariesandwages 1.47 8.81 forclosed-endcreditforfinancing Losses/additionstoloss reserves 1.49 5.88 consumers’nonvehicledurables Otheroperatingcosts 4.00 6.13 acquisitions.23Personalloansare Operatingincome 7.69 8.38 oftenunsecured. Costofborrowedfunds 2.79 2.28 Before-taxincome 4.90 6.10 Financechargesforautolenders, $14.65per$100of outstanding Percentofgrossrevenue Grossrevenue(financecharges) 100 100 credit,wereaboutone-half of the Totaloperatingcosts 47 71 financechargesforpersonalloan Salariesandwages 10 30 companies,$29.20(table9).Low Losses/additionstoloss reserves 10 20 operatingcostsatautolenderscan Otheroperatingcosts 27 21 beattributedatleastinparttothe Operatingincome 53 29 prevalenceof salesfinanceinauto Costofborrowedfunds 19 8 lending.Someautolenders—notably Before-taxincome 33 21 thelargecaptivefinancecompanies Rateofreturn of vehiclemanufacturersbutalso Operatingreturnonassets 7 8 manyindependentfinance Before-taxreturnonassets 4 6 companies—purchaseloansorigi- Note:Componentsmaynotsumtototalsbecauseofrounding. natedbyautodealers.Thedealers Source:BoardofGovernorsoftheFederalReserveSystem(2015),Surveyof handlemanyof theactivitiesneces- FinanceCompanies(Washington:BoardofGovernors). 21 SeeZabritski,“StateoftheAutomotiveFinanceMarket,”innote12. 22 Paydaylendersinseveralstatesarerequiredtoofferinstallmentloansunderspecifiedcircumstances(usually afteraspecifiednumberofloansorrenewals),andinthefaceofregulatorypressuresomepaydaylendershave beguntoofferinstallmentloans.Afewauto-titlelendersofferfullyamortizingauto-titleloansaswellastypical single-paymentloans. 23 SeeThomasA.Durkin,GregoryElliehausen,MichaelE.Staten,andToddJ.Zywicki(2014),“Introduction andOverviewofConsumerCredit:Development,Uses,Kinds,andPolicyIssues,”chapter1inConsumer CreditandtheAmericanEconomy(NewYork:OxfordUniversityPress),pp.1–33.

14 FederalReserveBulletin|June2018 sarytooriginateloansorleases.24Dealers’employeesrespondtoquestionsabout financing,takeapplications,andprepareloandocuments.Lowsalaryandwageexpenses ($1.47per$100of outstandingcredit,or10percentof revenue)areconsistentwithauto financecompaniesavoidingmuchof theoriginationcostonpurchasedautocontracts. Financecompaniesoperatinginthismanneralsodonotincurtheexpenseof maintaining largenumbersof retailbranchestoacquireloansandleases.Inaddition,takingsecurity interestmayalsocontributetoautofinancecompanies’willingnesstoacceptrelativelylow financecharges.Autoloansaretypicallysecuredbyliensonfinancedvehicles.Lenders’ securityinterestoffsetslossesondefaultedloans,andtheprospectof losingthevehiclein theeventof defaultreinforcesborrowers’incentivetorepayaspromised.25Theseconsiderationshelpexplainrelativelylowlossesandadditionstolossreservesforthesecompanies ($1.49per$100of outstandingcredit,or10percentof financecharges). Personalloancompanies’relativelyhighfinancechargescanlargelybeattributedtotheir loans’highriskandsmalldollaramount.Manyloansmadebytheselendersareunsecured (smallcashloans,forexample).Othersaresecuredbyhouseholddurablesbeingfinanced thathavelittleresalevalueandthereforedolittletooffsetlosses(salesfinance).Borrowers fromfirmsthatmakesmallcashloansoftenhavehadpreviouscreditproblems.Insteadof relyingoncollateral,thesecompaniesworkwithborrowerstoarrangeloanswithrelatively lowmonthlypayments,whichborrowerscanaffordtopaywithease.Yetdespitesuch arrangements,delinquenciesarecommoninthismarketsegment.26Originationandcollectionsarelaborintensive,givingrisetorelativelyhighsalaryandwageexpenses(30percent of financecharges).Lossesandadditionstolossreserves,$5.88per$100of credit outstanding(20percentof financecharges),aremarkedlyhigherforpersonalloancompaniesthanforautolenders,suggestingthehigherriskinthissegment.Finally,manyof the activitiesperformedtooriginateloans,processpayments,andcollectdelinquentaccounts occurbecauseanapplicationistakenorcreditisgrantedanddonotvarymuchbyloan size.Consequently,financechargesmustbelargerelativetoloansizetocoverlenders’costs andprovideareturnoninvestors’funds. Trends in Revenue, Cost, and Performance at Personal Finance Companies Statisticsintheprevioussectionsindicatedthatrevenuesandcostsdifferbythetypeof financecompany.Inthissection,weexaminerevenuesandcostsforfinancecompaniesthat specializeinpersonalloans(thatis,non-autoclosed-endconsumerinstallmentlending). Thistypeof financecompanylikelyissimilartoconsumerfinancecompaniesexaminedin earlierstudies.Inbothcategories,cashloansaretheprimarytypeof loan,butthesefirms alsoheldsomesalesfinancecontracts. Aspreviouslymentioned,historicalincomestatementdataareavailablefromstudiesby PaulSmithandtheAFSA.Smithexaminedcostsatninelarge,nationwideconsumer financecompaniesinthe1940sand1950s.Thesecompaniesheldabout70percentof the FederalReserve’sestimateof theloansoutstandingatconsumerfinancecompaniesatthe endof 1959.Thecompaniesoperatedprimarilyunderstatesmall-loanlaws,butmost alsopurchasedsalesfinancecontractsormadeloansunderotherstatelaws. 24 Tocompensatedealersfortheseactivities,dealersreceiveashareoffinancecharges.Dealers’shareoffinance chargesisnotincludedinfinancecompanies’grossrevenueintable8. 25 SeeBarro,“TheLoanMarket,Collateral,andRatesofInterest,”innote15orBenjamin,“TheUseofCollateraltoEnforceDebtContracts,”innote15. 26 Forfurtherdiscussionofpersonalloancompanies’operations,seeDurkinandothers,“TheSupplyof ConsumerCredit,”innote20.

Surveyof FinanceCompanies,2015 15 TheAFSAsurveyedmembercompaniesinthe1960s,1970s,and1980s.Membercompaniesincludedbothsalesfinanceandconsumerfinancecompanies.Attheendof the1980s, theAFSAsurveyaccountedforabout90percentof theFederalReserve’sestimateof outstandingcreditatfinancecompanies.Becauseassetdiversificationhadincreasingly blurreddistinctionsbetweensalesfinanceandconsumerfinance,bythe1980stheAFSA nolongerdistinguishedbetweenthetwotypesof financecompaniesinitsreports. However,thereportsdidproduceseparatestatisticsforfirmswith50percentormoreof receivablesinpersonalloans.Aspreviouslynoted,personalloansatfinancecompanies typicallyarecashloansmadeunderstatesmall-loanlaws.Inselectingdataforfirmsthat have50percentormoreof receivablesinpersonalloans,wehaveacategorythatisroughly comparablewithSmith’sconsumerfinanceandournon-autoclosed-endconsumer installmentcategories.Nevertheless,thepossibilitythatAFSAmembersinthesampleare notrepresentativeof thepopulationof financecompaniescannotberuledout. Revenuein2015,$29.20per$100of outstandingcredit,wasnoticeably higherthaninpreviousyears Table10.Trendsinrevenue,costs,andprofitabilityof personalloancompanies,1959,1983,1987,and2015 (table10).Operatingcostin2015, $20.82per$100of outstanding Year credit,wasalsohigherthanin Item previousyears.However,operating 1959 1983 1987 2015 incomein2015,$8.38per$100of Dollarsper$100ofoutstandingcredit outstandingcredit,waslowerthanin Grossrevenue(financecharges) 23.87 23.31 18.88 29.20 previousyears.Operatingreturnon Totaloperatingcosts 14.25 11.40 8.69 20.82 assets,ameasureof profitability Salariesandwages 6.45 3.35 2.97 8.81 Losses/additionstoloss relatingoperatingincometoafirm’s reserves 1.98 1.37 2.12 5.88 assets,wasaboutthesameasin Otheroperatingcosts 5.82 6.67 3.61 6.13 previousyears. Operatingincome 9.62 11.92 10.18 8.38 Costofborrowedfunds 3.97 7.65 6.90 2.28 Before-taxincome 5.65 4.27 3.28 6.10 Salariesandwagesaswellaslosses andadditionstolossreserves Percentofgrossrevenue contributedtothehigheroperating Grossrevenue(financecharges) 100 100 100 100 costsin2015.Lossesandadditions Totaloperatingcosts 60 49 46 71 tolossreservesin2015,$5.88per Salariesandwages 27 14 16 30 Losses/additionstoloss $100of outstandingcredit,were reserves 8 6 11 20 severaltimesthe$1or$2per$100 Otheroperatingcosts 24 29 19 21 forlossesandadditionstoloss Operatingincome 40 51 54 29 Costofborrowedfunds 17 33 37 8 reservesinpreviousyears.Salaries Before-taxincome 24 18 17 21 andwagesin2015werealittlemore thanone-thirdhigherthanin1959 Rateofreturn butnearlythreetimeshigherthanin Operatingreturnonassets 9 9 10 8 1983and1987. Before-taxreturnonassets 5 3 3 6 Note:Componentsmaynotsumtototalsbecauseofrounding. Greaterriskmayatleastinpart Source:For1959data,PaulF.Smith(1964),ConsumerCreditCosts,1949–59, explaingreaterfinancechargesand NationalBureauofEconomicResearch,StudiesinConsumerInstalment FinancingNo.11(Princeton,N.J.:PrincetonUniversityPress);for1983data, lossesandadditionstolossreserves ThomasA.DurkinandYsabelM.Burns(1984),FinanceCompaniesin1983: in2015.Rapidinflationinthelate AmericanFinancialServicesAssociationResearchReportandSecond MortgageLendingReport(Washington:AFSA);for1987data,YsabelBurns 1970sand1980spushedinterest McAleer(1988),FinanceCompaniesin1987:AmericanFinancialServices ratestorateceilingsandseverely AssociationResearchReportandSecondMortgageLendingReport (Washington:AFSA);for2015data,BoardofGovernorsoftheFederalReserve restrictedthesupplyof credit,espe- System(2015),SurveyofFinanceCompanies(Washington:Boardof ciallyforhigher-riskconsumers.27 Governors). 27 SeeDonnaC.Vandenbrink(1982),“TheEffectsofUsuryCeilings,”FederalReserveBankofChicago,

16 FederalReserveBulletin|June2018 Thisdevelopmentreducedriskylendingintheshortrun,buteventuallysomestatesrelaxed ceilingstomakecreditmorebroadlyavailable.Asinflationsubsidedandinterestratesfell tolowerlevels,higher-rateceilingsinthosestatesthatraisedceilingswouldenablegreater lendingtoriskyconsumers. Regardlessof year,salariesandwageswereamajorcomponentof costs,accountingfor about15percentof grossrevenueper$100of outstandingcreditin1983and1987and around30percentof grossrevenuein1959and2015.Greaterriskmighthelpexplainthe highersalariesandwagesin2015.Thetasksof evaluatingapplications,arrangingloan termsthatfitriskyapplicants’budgets,collectinglatepayments,andnegotiatingrefinancingof existingloanswouldbeespeciallylaborintensiveandcostlyrelativetothesize of theloan. Highratesof inflationhadasizableeffectonfundingcostsinthe1980s.Thecostof borrowedfundswas17percentof grossrevenuein1959,33percentof grossrevenuein 1983,and37percentof grossrevenuein1987.Incontrast,fundingcostsdidnotaccount formuchof grossrevenueintherecentlow-rateenvironment.Thecostof borrowedfunds wasjust8percentof grossrevenuein2015. Operatingreturnonassetsdidnotdiffermuchintheseyears.Reflectinghighercostof fundsinthe1980s,before-taxincometoassetswaslowerin1983and1987thanin1959or 2015. Appendix: Historical Survey Practices, Recent Innovations, and Current Procedures Through1975,theknownuniverseof financecompanieswassurveyed.In1980,toreduce reportingburden,thesurveywassplitintotwoparts.Thefirstpartwasabrief screening censususedtoidentifytheknownuniverseof financecompanies.Thesecondpartwasa longerfollow-upsurveyusedtoobtainbalancesheetdatafromcompaniesidentifiedinthe censusstage. In1983,theFederalReservecreatedthemonthlyDomesticFinanceCompanyReportof ConsolidatedAssetsandLiabilities(DFCR).TheDFCRcollectsdatafromasmaller sampleof companiesbutdoessomorefrequentlytobetterfollowemergingtrends.Aswith manysurveysbasedonafixedsample,estimationerrorstendtoincreaseovertimeand requireperiodiccalibration.Theseerrorsreflecttheevolutionof thefinancialmarketsas newcompaniesenterthemarketandmarketshareschangeaswellasthedeteriorationof themonthlysamplepanelasrespondentsclose,merge,orotherwiseleavethepanel.The FederalReservehasusedthequinquennialsurveydatatobenchmarkthemonthlysample data. In2005,thedefinitionof afinancecompanywasrevisedtoencompasscompanieswhose largestportionof assetswasmadeupof realestateloans.Thischangeeffectivelybrought mortgagecompaniesintotheuniverse.Furthermore,thesurveywasrevisedtoinstruct financecompaniestoincludetheassetsandliabilitiesof theirmortgagecompany subsidiaries. EconomicPerspectives,vol.6(Midyear),pp.44–55,https://fraser.stlouisfed.org/files/docs/historical/frbchi/ economicperspectives/frbchi_econper_1982midyear.pdf;DonnaC.Vandenbrink(1985),“UsuryCeilingsand DIDMCA,”FederalReserveBankofChicago,EconomicPerspectives,vol.9(September/October),pp.25–30, https://www.chicagofed.org/publications/economic-perspectives/1985/september-october-vandenbrink.

Surveyof FinanceCompanies,2015 17 Survey Methodology Modernization in 2010 In2010,thequinquennialsurveyunderwentamajorrevision.Thesurveysamplingproceduresandinstrumentswereredesignedtoimprovecoverageof thepopulation,increase surveyparticipation,developsystematicmeansof addressingnonresponse,andreduce reportingerrors.28 Forthepurposesof thissurvey,thetargetpopulationisthesetof domesticallyoperated financecompanies,definedasentitiesthathaveatleast50percentof totalassetsinloans orleasestoconsumersorbusinesses.However,entitiescannotbeagovernmentagency,a nonprofitorganization,acooperative,abank,abankholdingcompany,acreditunion, partof thefarmcreditsystem,orarealestateinvestmenttrust.Structurally,theycanbea subsidiaryof abankholdingcompanybutnotasubsidiaryof abankorafinance company. Inthepast,theabsenceof acomprehensivelistof financecompanieswasakeychallenge tothesurvey.Theregulationof financecompaniesisfragmentedatthefederalandstate levels,andnoadministrativeorcomprehensivedataarepubliclyavailabletoserveasa sampleframeforfinancecompanies.Therefore,theFederalReservedevelopedaprocedure foridentifyingeligiblefinancecompanieswithinalistframeobtainedprimarilyfrom commercialvendorsand,toalesserdegree,fromotherinternallyavailablesources.Thelist wasbroadandcomprehensive,withtheintentionof includingallnondepositorycompanies thatprovidedcredittohouseholdsorbusinesses. Thesurveyinstrumentswereredesignedin2010followingmodernformdesignprinciples.29 Theintentionof theredesignwastoprovidemorevisualappealviatheuseof colorandan attractivefont.Embeddedinstructionsandthegroupingof relatedquestionswereadded tomakethesurveyeasiertofollow. Thetitlesof thetwostagesof thequinquennialsurveywerechangedto“Censusof FinanceCompanies”and“Surveyof FinanceCompanies”toclearlydefinethenatureof eachstage.Tomirrortheflowof identifyingafinancecompany,severalquestionsonthe censuswererestructuredasadecisiontreeratherthanaskingrespondentstoself-identify. Revisionstothesecondstageof thesurveywerecomposedof thefollowing:reordering assetsandliabilitydataitemsfrommostliquidtoleastliquid;askingforadditionaldetail onassetsandliabilities;andcreatingaclearerdistinctionamongthebroadbalancesheet dataitems,detailedloanandleasedataitems,andoff-balance-sheetsecuritizationdata items.Inanattempttoimproveparticipation,anonlineresponseoptionwasofferedin additiontothetraditionalchoiceof mailingthepaperform. Responsestothefirststageof thesurveyrevealedthatthesampleframecontaineda complextangleof ofteninterrelatedcompanies.Asaresult,anewstatisticalmethodology wasdevelopedforthenonresponsefollow-upstudytobettercharacterizeandaccountfor thepatternsobservedaswellasthesubstantialnonresponsethatdidnotappeartobe missingatrandom.Resultsof thestudyshowedthatthesizeof theuniverseof finance companieswassmallerthanwhatwouldhavebeenestimatedfromtheoriginalrespondents if itwasassumedthatmissingobservationsweredistributedinthesamewayastheinitial respondents. 28 ArthurKennickellwasinstrumentalintheworkofmodernizingthesurveymethodology. 29 SeeDonA.Dillman,ArinaGertseva,andTajMahon-Haft(2005),“AchievingUsabilityinEstablishment SurveysthroughtheApplicationofVisualDesignPrinciples,”JournalofOfficialStatistics,vol.21(June), pp.183–214.

18 FederalReserveBulletin|June2018 Updates in 2015 The2015quinquennialsurveyisthemostrecentof thefive-yearbenchmarksurveys.We introducednewquestionsintheCensusof FinanceCompaniesforfindingdetailedtypesof creditofferedbyfinancecompanies.Questionsabouttheincomestatement,scaleof companyoperations,andsmallbusinesscreditwereaddedtotheSurveyof Finance Companies.Postcardremindersweresentaftereachof thetwopaperformmailings.In contrasttohistoricalpractices,tofurtherencourageparticipation,preliminaryresultsfrom theCensusof FinanceCompaniesweremailedalongwiththeSurveyof FinanceCompaniestosurveyrecipients. Assemblingasampleframethatbestsuitsthecomplexdefinitionof afinancecompany remainschallenging.Followingthemethodforconstructingthesampleframeadoptedin 2010,weincludedfiveStandardIndustrialClassification(SIC)codestocapturecompanies withatleastsomefinancingoperationasfollows:5932,6099,6141,6153,and6159.This approachreflectedthefurtherexpansionof thesampleframetoincorporatepawnbrokers andcheck-cashingservicesforthe2015quinquennialsurvey.Datacollectedunderthe HomeMortgageDisclosureActwereusedtosupplementthelistof mortgagelenders. Overall,theCensusof FinanceCompanieswasmailedtoapproximately37,000companies inJune2015tocapturebasicfinancialinformationasof March31,2015.TheSurveyof FinanceCompanieswassenttomorethan2,300eligiblefinancecompaniesinMarch2016 toobtaindetailedbalancesheetandincomestatementdataasof December31,2015. About41percentof thesefinancecompaniesresponded,andattemptsweremadeto contactandcollectdatafromallnonrespondents. Similartosurveyactivitiesinpreviousyears,the2015quinquennialsurveyfacedmultiple challenges.Thesechallengeswerepartlyduetotheuniquenatureof thissurvey,partlydue totheimperfectsampleframe,andpartlyduetothereluctanceof manycompanies surveyed.Thequinquennialsurveyaimedtocollectdatafrombusinessentities,butits voluntarynaturefurthercompoundedthedifficultyof improvingsurveyparticipation. Maintainingandimprovingtheexistingparticipationrateremainsahighpriorityfor futuresurveys. Takingintoaccountthecomplexandinterrelatednatureof thefinancecompanyuniverse, wecontinuedtoutilizethestatisticalmethodologydevelopedin2010forthenonresponse follow-uptotheCensusof FinanceCompanies.Wesplitthefollow-upsampleof approximately4,000observationsintotwomajorparts:onepartfocusedonasampleof observationsincandidateclusterarrangementsprimarilybasedonverysimilaroridentical companynames,andtheotherpartfocusedontheremainingunclusteredcases.Outreach andcontactswereattemptedbyFederalReserveBankstaff memberstocollectenough informationtodeterminewhetheranyof theseobservationswerein-scopefinance companies. Analysisweightswerecreatedforcompaniesincludedinthenonresponsefollow-upsample torepresentthenonrespondents.Westartedwithabaseweightthatistheinverseof a company’sinclusionprobabilityinthesample.Wethenadjustedthebaseweightinamultistageprocesstoaccountforthefollowing:theprobabilitythatsomeof thenonrespondents tothefollow-upwerestillinbusiness;theprobabilitythatthecompanyhadatleast 50percentof itsassetsinloansorleases,giventhatitwasinbusiness;and,finally,the probabilitythatitwasanindependentfinancecompany,notasubsidiaryorabranchof a relatedfinancecompany.Eachfollow-uprespondent’sweightnotonlyconstitutesits directlyestimatedshareinthepopulation,butalsotheshareof thenonrespondentstothe follow-upthatweremostsimilartothefollow-uprespondent.

Surveyof FinanceCompanies,2015 19 WethoroughlyreviewedthedatathatwerecollectedinboththeCensusof Finance CompaniesandtheSurveyof FinanceCompanies.Moredataeditingwasneededforthe lattersurvey,whichincludedagreaternumberof,andmorecomplex,questions.Many respondentsreportedresponsesindollarsinsteadof inthousandsof dollarsasrequested. Lessthanone-half of theresponses(42percent)didnotreportbalancedbalancesheetor incomestatements,andsomerequiredfollow-uptoclarifyandcorrectreportingerrors. Onelaststepbeforeestimatingtheuniverseof financecompanieswasaddressingtheissue of missingitems.Weusedatypeof randomizedhotdeckmultipleimputation.This methodinvolvescreatingclassesof respondentsbasedondatathatareavailableforall respondentsandrandomlymatchinga“donor”respondentwhohascompleteinformation witha“recipient”respondent.Theprocesswasrepeatedfivetimestoenableestimationof theuncertaintysurroundingthisimputation.30 30 SeeDonaldB.Rubin(1987),MultipleImputationforNonresponseinSurveys(NewYork:Wiley).

August 2018 Vol. 104, No. 3 Legal Developments: Second Quarter, 2018 Orders Issued Under Bank Holding Company Act Orders Issued Under Section 3 of the Bank Holding Company Act Independent Bank Group, Inc. McKinney, Texas OrderApprovingtheMergerof BankHoldingCompanies FRBOrderNo.2018-11(May02,2018) IndependentBankGroup,Inc.(“IBG”),McKinney,Texas,abankholdingcompany withinthemeaningof theBankHoldingCompanyActof 1956(“BHCAct”),1has requestedtheBoard’sapprovalundersection3of theBHCAct2tomergewithIntegrity Bancshares,Inc.(“Integrity”),andtherebyindirectlyacquireIntegrityBankSSB(“IntegrityBank”),bothof Houston,Texas.Followingtheproposedacquisition,IntegrityBank wouldbemergedintoIBG’ssubsidiarybank,IndependentBank,McKinney,Texas.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(83FederalRegister2988(January22,2018)).4Thetimeforsubmitting commentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct. IBG,withconsolidatedassetsof approximately$8.7billion,isthe147thlargestinsured depositoryorganizationintheUnitedStates.5IBGcontrolsapproximately$6.6billionin consolidateddeposits,whichrepresentlessthan1percentof thetotalamountof deposits of insureddepositoryinstitutionsintheUnitedStates.IBGcontrolsIndependentBank, whichhasoperationsinTexasandColorado.IBGisthe17thlargestinsureddepository organizationinTexas,controllingdepositsof approximately$6.2billion,whichrepresent lessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.6 Integrity,withconsolidatedassetsof approximately$759.3million,isthe978thlargest insureddepositoryorganizationintheUnitedStates.Integritycontrolsapproximately $639.7millioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.Integrity 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 ThemergerofIntegrityBankintoIndependentBank,whichisexpectedtooccurimmediatelyafterIBG’sacquisition ofIntegrity,issubjecttoapprovaloftheFederalDepositInsuranceCorporation(“FDIC”),pursuantto section18(c)oftheFederalDepositInsuranceAct.See12U.S.C.§1828(c). 4 12CFR262.3(b). 5 Nationaldeposit,marketshare,asset,andrankingdataareasofDecember31,2017,unlessotherwisenoted. 6 Statedeposit,marketshare,andrankingdataareasofJune30,2017.Inthiscontext,insureddepositoryinstitutions includecommercialbanks,savingsassociations,andsavingsbanks.

2 FederalReserveBulletin|August2018 controlsIntegrityBank,whichoperatesonlyinTexas.Integrityisthe95thlargestinsured depositoryorganizationinTexas,controllingdepositsof approximately$648.4million, whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutions inthatstate. Onconsummationof theproposal,IBGwouldbecomethe138thlargestinsureddepositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $9.5billion,whichrepresentlessthan1percentof thetotalassetsof insureddepository organizationsintheUnitedStates.IBGwouldcontrolconsolidateddepositsof approximately$7.3billion,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.IBGwouldbecomethe15thlargest insureddepositoryorganizationinTexas,controllingdepositsof approximately$6.9billion, whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutions inthatstate. CompetitiveConsiderations Section3of theBHCActprohibitstheBoardfromapprovingaproposalthatwouldresult inamonopolyorwouldbeinfurtheranceof anattempttomonopolizethebusinessof bankinginanyrelevantmarket.7TheBHCActalsoprohibitstheBoardfromapprovinga proposalthatwouldsubstantiallylessencompetitionortendtocreateamonopolyinany bankingmarket,unlesstheanticompetitiveeffectsof theproposalareclearlyoutweighedin thepublicinterestbytheprobableeffectof theproposalinmeetingtheconvenienceand needsof thecommunitytobeserved.8 IBGandIntegrityhavesubsidiarydepositoryinstitutionsthatcompetedirectlyinthe Houston,Texasbankingmarket(“Houstonmarket”).9TheBoardhasconsideredthe competitiveeffectsof theproposalinthisbankingmarket.Inparticular,theBoardhas consideredthenumberof competitorsthatwouldremaininthemarket;therelativeshares of totaldepositsof insureddepositoryinstitutionsinthemarket(“marketdeposits”)that IBGwouldcontrol;10theconcentrationlevelof marketdepositsandtheincreaseinthat level,asmeasuredbytheHerfindahl-HirschmanIndex(“HHI”)undertheU.S.Departmentof JusticeBankMergerCompetitiveReviewguidelines(“DOJBankMergerGuidelines”);11andothercharacteristicsof themarket. 7 12U.S.C.§1842(c)(1). 8 12U.S.C.§1842(c)(1)(B). 9 TheHoustonmarketisdefinedastheHouston-Sugarland-BaytownMetropolitanStatisticalArea(“MSA”), whichincludesAustin,Brazoria,Chambers,FortBend,Galveston,Harris,Liberty,Montgomery,SanJacinto, andWallerCounties,allinTexas. 10 LocaldepositandmarketsharedataareasofJune30,2017,and,unlessotherwiseindicated,arebasedon calculationsinwhichthedepositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhas indicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorsto commercialbanks.See,e.g.,MidwestFinancialGroup,75FederalReserveBulletin386(1989);NationalCity Corporation,70FederalReserveBulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsin themarketsharecalculationona50percentweightedbasis.Seee.g.,FirstHawaiian,Inc.,77FederalReserve Bulletin52(1991). 11 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableatwww.justice.gov/opa/pr/ 2010/August/10-at-938.html.

LegalDevelopments:SecondQuarter,2018 3 Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesfortheHoustonmarket.Onconsummationof theproposal,theHoustonmarketwouldremainhighlyconcentrated,asmeasured bytheHHI.ThechangeintheHHIinthismarketwouldbesmall,consistentwithBoard precedent,andwithinthethresholdsintheDOJBankMergerGuidelines.Inaddition, numerouscompetitorswouldremaininthemarket.12 TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket,includingthe Houstonmarket.Inaddition,theappropriatebankingagencieshavebeenaffordedan opportunitytocommentandhavenotobjectedtotheproposal. Basedonallthefactsof record,theBoardconcludesthatconsummationof theproposal wouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheHoustonmarketorinanyotherrelevantbankingmarket.Accordingly,the Boarddeterminesthatcompetitiveconsiderationsareconsistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCAct,theBoardconsidersthefinancial andmanagerialresourcesandthefutureprospectsof theinstitutionsinvolved.13Inits evaluationof financialfactors,theBoardreviewsinformationregardingthefinancial conditionof theorganizationsinvolvedonbothparent-onlyandconsolidatedbases,as wellasinformationregardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.Inthisevaluation,the Boardconsidersavarietyof informationregardingcapitaladequacy,assetquality, liquidity,andearningsperformanceaswellaspubliccommentsontheproposal.TheBoard evaluatesthefinancialconditionof thecombinedorganization,includingitscapitalposition,assetquality,liquidity,earningsprospects,andtheimpactof theproposedfundingof thetransaction.TheBoardalsoconsiderstheabilityof theorganizationtoabsorbthecosts of theproposalandtocompleteeffectivelytheproposedintegrationof theoperationsof theinstitutions.Inassessingfinancialfactors,theBoardconsiderscapitaladequacytobe especiallyimportant.TheBoardconsidersthefutureprospectsof theorganizations involvedintheproposalinlightof theirfinancialandmanagerialresourcesandthe proposedbusinessplan. IBGandIndependentBankarebothwellcapitalized,andthecombinedorganization wouldremainsoonconsummationof theproposal.Theproposedtransactionisabank holdingcompanymergerthatisfundedprimarilythroughanexchangeof shares,witha subsequentmergerof thesubsidiarydepositoryinstitutions.14Theassetquality,earnings, andliquidityof bothIndependentBankandIntegrityBankareconsistentwithapproval, andIBGappearstohaveadequateresourcestoabsorbtherelatedcostsof theproposal 12 IBGoperatesthe24thlargestdepositoryinstitutionintheHoustonmarket,controllingapproximately$1.0billion indeposits,whichrepresentlessthan1percentofmarketdeposits.Integrityoperatesthe29thlargestdepositoryinstitutioninthesamemarket,controllingapproximately$648.4millionindeposits,whichrepresentless than1percentofmarketdeposits.Onconsummationoftheproposedtransaction,IBGwouldbecomethe 16thlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately$1.7billion,which representlessthan1percentofmarketdeposits.TherewouldbenoincreaseintheHHI,and94competitors wouldremaininthemarket. 13 12U.S.C.§§1842(c)(2),(5),&(6). 14 Atthetimeofthemerger,eachshareofIntegritycommonstockwouldbeconvertedintoarighttoreceive IBGcommonstockandcash,basedonanexchangeratio.IBGwouldfundthecashportionoftheexchange throughavailablecash.IBGhasthefinancialresourcestoeffecttheproposedtransaction.

4 FederalReserveBulletin|August2018 andtocompletetheintegrationof theinstitutions’operations.Inaddition,futureprospectsof theinstitutionsundertheproposalareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of IBG,Integrity,andtheirsubsidiarydepositoryinstitutions,includingassessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition,theBoardhas consideredinformationprovidedbyIBG;theBoard’ssupervisoryexperiencesandthoseof otherrelevantbanksupervisoryagencieswiththeorganizations;andtheorganizations’ recordsof compliancewithapplicablebanking,consumerprotection,andanti-moneylaunderinglaws. IBG,Integrity,andtheirsubsidiarydepositoryinstitutionsareeachconsideredtobewell managed.IBGhasarecordof successfullyintegratingorganizationsintoitsoperations andrisk-managementsystemsafteracquisitions.Thedirectorsandseniorexecutiveofficers of IBGhavesubstantialknowledgeof andexperienceinthebankingandfinancialservices sectors,andIBG’srisk-managementprogramappearsconsistentwithapprovalof this expansionaryproposal. TheBoardalsohasconsideredIBG’splansforimplementingtheproposal.IBGhas conductedcomprehensiveduediligenceandisdevotingsignificantfinancialandother resourcestoaddressallaspectsof thepost-acquisitionintegrationprocessforthisproposal. IBGwouldimplementitsrisk-managementpolicies,procedures,andcontrolsatthe combinedorganization,andtheseareconsideredacceptablefromasupervisoryperspective.Inaddition,IBG’smanagementhastheexperienceandresourcestooperatethe combinedorganizationinasafeandsoundmanner. Basedonallof thefactsof record,includingIBG’ssupervisoryrecord,managerialand operationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandthefutureprospectsof theorganizationsinvolvedintheproposal,aswellas therecordsof effectivenessof IBGandIntegrityincombattingmoney-launderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCAct,theBoardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.15Initsevaluationof theeffectsof theproposalontheconvenienceandneedsof thecommunitiesthey serve,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thesecommunities,aswellasotherpotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.Inthisevaluation,theBoardplaces particularemphasisontherecordsof therelevantdepositoryinstitutionsunderthe CommunityReinvestmentAct(“CRA”).16TheCRArequiresthefederalfinancialsupervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeinstitutions’safeand soundoperation,17andrequirestheappropriatefederalfinancialsupervisoryagencyto assessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof itsentire 15 12U.S.C.§1842(c)(2). 16 12U.S.C.§2901etseq. 17 12U.S.C.§2901(b).

LegalDevelopments:SecondQuarter,2018 5 community,includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluating bankexpansionaryproposals.18 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsiderstheassessmentsof otherrelevantsupervisors,the supervisoryviewsof examiners,othersupervisoryinformation,informationprovidedby theapplicant,andcommentsreceivedontheproposal.TheBoardalsomayconsiderthe institution’sbusinessmodel,itsmarketingandoutreachplans,theorganization’splans afterconsummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallof thefactsof record,includingreportsof examinationof theCRAperformanceof IndependentBankandIntegrityBank;thefairlendingandcompliancerecordsof bothbanks;the supervisoryviewsof theFDIC;confidentialsupervisoryinformation;information providedbyIBG;andthepubliccommentreceivedontheproposal. PublicCommentontheProposal Inthiscase,acommenterobjectedtotheproposal,allegingthatIndependentBankhas engagedinredlininginDallasandHouston,Texas.19Specifically,thecommenteralleged thatIndependentBankdisfavorscertainAfricanAmericanneighborhoodsinDallasand Houstonandhaslimiteditslending,marketingactivities,communitydevelopmentactivities,andbranchinginthoseareas. Businessof theInvolvedInstitutionsandResponsetothePublicComment IBGandIndependentBankofferarangeof financialproductsandservicestoindividual customersandbusinesses.Throughitsnetworkof 70branches,IndependentBankoffers variousdepositproductsandlendingservicestoconsumersandbusinesses,including certificatesof deposits,moneymarketaccounts,commercialcheckingaccounts,commercialandconsumerloans,residentialmortgages,homeequityloans,andcommercialreal estatelending.IntegrityBankprovidesarangeof bankingservicesthroughitsfour branches,withafocusoncommercialbanking.IntegrityBankoffersitscustomersdeposit productsandlendingservicesandalsoconductsresidentialmortgageoperations. Inresponsetothecomment,IBGandIndependentBankdenythecommenter’sallegations. TheyrepresentthatIndependentBank’sbranchnetworkwasnotstructuredtoavoid servinganypotentialgeographicareas,butinsteadislargelybaseduponthelocationsof thebanksthatIBGhasacquired.Theynotethatallof thebanksIBGhasacquiredover thepastfiveyearshavehada“Satisfactory”CRArating,indicatingthatthebankshada provenrecordof servingthecreditneedsof theircommunities.Inaddition,IBGrepresents thatitispreparingastrategicbranchingpolicytohelpmonitorIndependentBank’sbranch networkandensurethatIndependentBankhaslocationsthatserveallof thecommunities withinitsassessmentareas(“AAs”).IBGandIndependentBankfurtherrepresentthat theyhaveimplementeddeliverysystemsthatallowIndependentBanktomakeitsproducts andservicesavailableregardlessof thegeographiclocationof itsbranches.Thesesystems 18 12U.S.C.§2903. 19 Redliningisthepracticeofprovidingunequalaccesstocredit,orunequaltermsofcredit,becauseoftherace, color,nationalorigin,orotherprohibitedcharacteristicsoftheresidentsoftheareainwhichacreditseeker residesorwillresideorinwhichapropertytobemortgagedislocated.SeeInteragencyFairLendingExaminationProcedures(August2009),availableathttps://www.ffiec.gov/pdf/fairlend.pdf.

6 FederalReserveBulletin|August2018 includeelectronicbankingproducts,suchasonlinebanking,telephonicandtext messaging,debitcardsandautomatedtellermachines(“ATMs”),andmobilebanking applications.Inaddition,IndependentBankrepresentsthatithasmarketeditsbanking servicesthroughestablishedrelationshipswithcommunityleadersandgroups,including participatinginaprogramadvancedbyaconsumeradvocacygrouptoestablishalow-cost checkingaccountthatwouldalleviatecheckcashingandmoneyorderfeesandbemarketed towardLMIindividuals. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardconsiders substantialinformationinadditiontoinformationprovidedbypubliccommentersandthe responsetocommentsbytheapplicant.Inparticular,theBoardconsidersexaminations bytheappropriatefederalsupervisorsof theCRAperformancerecordsof therelevant institutions,aswellasinformationandviewsprovidedbythosesupervisors.20Inthiscase, theBoardconsideredthesupervisoryviewsof theFDICwithrespecttobothinstitutions. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.21Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplyalendingtesttoevaluatetheperformance of alargeinsureddepositoryinstitutioninhelpingtomeetthecreditneedsof thecommunitiesitserves.Thistestspecificallyevaluatestheinstitution’shomemortgage,smallbusiness,smallfarm,andcommunitydevelopmentlendingtodeterminewhethertheinstitution ishelpingtomeetthecreditneedsof individualsandgeographiesof allincomelevels.As partof thelendingtest,examinersreviewandanalyzeaninstitution’sdatareportedunder theHomeMortgageDisclosureAct(“HMDA”),22inadditiontosmallbusiness,small farm,andcommunitydevelopmentloandatacollectedandreportedundertheCRAregulations,toassessaninstitution’slendingactivitieswithrespecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slendingperformanceisbasedonavariety of factors,including(1)thenumberandamountsof homemortgage,smallbusiness,small farm,andconsumerloans(asapplicable)intheinstitution’sAAs;(2)thegeographicdistributionof theinstitution’slending,includingtheproportionanddispersionof theinstitution’slendinginitsAAsandthenumberandamountsof loansinlow-,moderate-, middle-,andupper-incomegeographies;(3)thedistributionof loansbasedonborrower characteristics,including,forhomemortgageloans,thenumberandamountsof loansto low-,moderate-,middle-,andupper-incomeindividuals;23(4)theinstitution’scommunity developmentlending,includingthenumberandamountsof communitydevelopmentloans andtheircomplexityandinnovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpracticestoaddressthecreditneedsof LMIindividualsandgeographies. Largeinstitutionsalsoaresubjecttoaninvestmenttestthatevaluatesthenumberand amountsof qualifiedinvestmentsthatbenefittheirAAsandaservicetestthatevaluatesthe 20 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48506, 48548(July25,2016). 21 12U.S.C.§2906. 22 12U.S.C.§2801etseq. 23 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3).

LegalDevelopments:SecondQuarter,2018 7 availabilityandeffectivenessof theirsystemsfordeliveringretailbankingservicesandthe extentandinnovativenessof theircommunitydevelopmentservices.24Intermediatesmall banks,suchasIntegrityBank,aresubjecttothelendingtest,aswellasacommunitydevelopmenttestthatevaluatesthenumberandamountsof theircommunitydevelopment loansandqualifiedinvestments;theextenttowhichtheyprovidecommunitydevelopment services;andtheirresponsivenesstocommunitydevelopmentlending,investment,and serviceneeds.25 CRAPerformanceof IndependentBank IndependentBankwasassignedanoverall“Satisfactory”ratingbytheFDICatitsmost recentCRAperformanceevaluation,asof August21,2017(“IndependentBankEvaluation”).26Thebankreceiveda“HighSatisfactory”ratingfortheInvestmentTestand“Low Satisfactory”ratingsfortheLendingTestandtheServiceTest.27IndependentBank’s performanceintheDallasandHoustonAAswasweightedmostheavilybyexaminersdue tothebank’svolumeof lendinganddepositactivityintheseareas. ExaminersfoundthatIndependentBankdemonstratedgoodperformanceregardingits lendingactivitiesforhomemortgageandsmallbusinessloans,originatedahighpercentage of itsloansinsideitsAAs,anddemonstratedanoveralladequaterecordregardingits distributionof loansbasedongeographyandtheborrower’sincomelevelorrevenuesize. Further,examinersfoundthatIndependentBankwasaleaderingrantingcommunity developmentloansanddemonstratedexcellentresponsivenesstocommunityneeds. IntheDallasAA,anareaof concerntothecommenter,examinersfoundthatthebank’s geographicdistributionof smallbusinessloansinlow-incomecensustractswasadequate. Withrespecttohomepurchaseandhomeimprovementloans,examinersprovidedlimited weighttolendinginlow-incomecensustractsgiventhelimitedlendingopportunities withinLMIgeographiesintheAA.Examinersfound,withrespecttoloandistribution basedonbusinessrevenuesize,thatthebank’sdistributionof smallbusinessloansinthe DallasAAreflectedgoodperformance.Examinersfoundthatthebank’sdistributionof loansbasedonborrowerincomelevelwasadequateforhomepurchasemortgagesand excellentforhomeimprovementloans.Examinersnotedthelimitedlendingopportunities tolow-incomeborrowersrelatingtothebank’sdistributionof homepurchaseloansin theDallasAA,butexaminersfoundthatthebank’sdistributionof homeimprovement loanstolow-incomeborrowersreflectedexcellentperformance. IntheHoustonAA,theotherareaof concerntothecommenter,examinersfoundthatthe geographicdistributionof thebank’ssmallbusinessandhomemortgageloansreflected adequateperformance.IndependentBank’sdistributionof smallbusinessloansbasedon businessrevenuesizeintheAAreflectedgoodperformance.Further,whileperformance relatingtohomemortgagelendingtoLMIborrowersintheHoustonAAdidnotreflect 24 See12CFR228.21etseq. 25 See12CFR228.26(c). 26 TheIndependentBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Examiners reviewedHMDA-reportableandsmallbusinessloansoriginatedfromJanuary1,2015,throughJune30,2017. Theevaluationperiodforcommunitydevelopmentinvestmentswasfromthedateeachinvestmentwas purchasedtoAugust21,2017,andtheevaluationperiodforcommunitydevelopmentloansandserviceswas fromSeptember8,2014,throughAugust21,2017.IndependentBankacquiredCarlileBancshares,Inc.,andits subsidiary,NorthstarBank,bothofDenton,Texas,onApril1,2017.Examinersdidnotconsiderthenewly acquiredlocationsandloansassociatedwiththisacquisitionaspartoftheirreview. 27 TheIndependentBankEvaluationincludedfull-scopeevaluationsoftheDallas-Plano-Irving,TexasMetropolitanDivisionAA(“DallasAA”)andtheHouston-Baytown-Sugarland,TexasMSAAA(“HoustonAA”). Limited-scopeevaluationswereperformedoftheAustin-RoundRock-SanMarcos,TexasMSAAA,the Sherman-Denison,TexasMSAAA,andtheWaco,TexasMSAAA.

8 FederalReserveBulletin|August2018 adequateperformance,examinersnotedthatthebankdidshowimprovementwithrespect toitshomepurchaseloansin2016. ExaminersfoundthatIndependentBankwasaleaderingrantingcommunitydevelopment loansanddemonstratedexcellentresponsivenesstocommunitydevelopmentneeds.In particular,examinersnotedthatbankmanagementmadeextensiveeffortstoidentifyand locatethesetypesof loans.Thebank’scommunityloansprimarilyaddressedrevitalization andstabilizationandbenefittedbusinessesthatsupportedpermanentjobcreationorretentioninLMIgeographies.Finally,examinersfoundthatthebankmadeoccasionaluseof innovativeorflexiblelendingpractices,suchasthroughSmallBusinessAdministration lendingaswellasFederalHousingAdministrationandVeteransAffairsresidentialmortgagelending,toreachLMIborrowersandneighborhoods. ExaminersfoundthatIndependentBank’sinvestmentsdemonstratedasignificantlevelof qualifiedinvestmentactivity,andtheseinvestmentswereresponsivetoneedsof LMI individuals.Inaddition,examinersfoundthatthebank’sdeliverysystemswerereasonably accessibleandthatthebankmaintainedsomebranchesinLMIcensustracts.Examiners furthernotedthatthebank’sdeliverysystems,suchasservicesthroughtheinternet,by phone,viatextmessaging,throughdebitcards,andatATMs,increasedtheaccessibilityof bankingservices. CRAPerformanceof IntegrityBank IntegrityBankwasassignedanoverall“Satisfactory”ratingbytheFDICatitsmostrecent CRAperformanceevaluation,asof September8,2015(“IntegrityBankEvaluation”).28 Thebankreceiveda“Satisfactory”ratingfortheLendingTestandan“Outstanding” ratingfortheCommunityDevelopmentTest.”29 ExaminersconcludedthatIntegrityBankhadasatisfactoryrecordof helpingtomeetthe creditneedsof itsAA.Inparticular,examinersfoundthatthebankhadamorethan reasonablerecordregardingitsloan-to-depositratio.Inaddition,examinersfoundthatthe bankoriginatedamajorityof itsloans,includingsmallbusinessandhomemortgage loans,insideitsAA.ExaminersnotedthatIntegrityBankhadareasonablerecord regardingitsdistributionof loansbasedongeographyandtheborrower’sincomelevelor revenuesize.Finally,examinersnotedthatthebankhadnotreceivedanyCRA-related complaintssincethepreviousevaluation. ExaminersnotedthatIntegrityBank’scommunitydevelopmentperformancedemonstratedexcellentresponsivenesstothecommunitydevelopmentneedsof itsAAthrough communitydevelopmentloans,investments,andservices. AdditionalSupervisoryViews TheBoardhasconsideredtheresultsof themostrecentconsumercomplianceexamination of IndependentBankconductedbyFDICexaminers,whichincludedareviewof the bank’scompliance-riskmanagementprogramandthebank’scompliancewithconsumer protectionlawsandregulations.TheBoardalsohasconsideredtheresultsof themost 28 TheIntegrityBankEvaluationwasconductedusingtheIntermediateSmallInstitutionExaminationProcedures.ExaminersreviewedHMDA-reportableloansandcommercialloansoriginatedfromJanuary1,2013, throughJune30,2015.Theevaluationperiodforcommunitydevelopmentlending,investments,andservices wasfromDecember3,2012,toSeptember8,2015. 29 TheIntegrityBankevaluationincludedafull-scopeevaluationoftheHouston-TheWoodlands-Sugarland, TexasMSAAA.

LegalDevelopments:SecondQuarter,2018 9 recentconsumercomplianceexaminationof IntegrityBankconductedbytheFDIC,which includedareviewof thebank’sconsumercompliancefunction. TheBoardhastakenthisinformation,aswellastheCRAperformancerecordsof IndependentBankandIntegrityBank,intoaccountinevaluatingtheproposedtransaction, includinginconsideringwhetherIBGhastheexperienceandresourcestoensurethatIndependentBankhelpstomeetthecreditneedsof thecommunitieswithinitsAAs. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.IBGrepresentsthatexistingcustomersof Integrity BankwouldbenefitfromaccesstolargerbranchandATMnetworks.Inparticular, bankingofficesintheHoustonAAavailabletoIntegrityBankcustomerswouldexpand fromfourto14locations.Finally,thecombinedorganizationwouldhaveadditionalcapital tosupportalargerlegallendinglimitand,becausethetransactionshouldprovideopportunitiesforIBGtoachievecostsavings,IBGrepresentsthatitwouldbeabletoprovideits customerswithmoreefficientandcost-effectivebankservices. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws,supervisoryviewsof theFDIC,confidential supervisoryinformation,informationprovidedbyIBG,thepubliccommentonthe proposal,andotherpotentialeffectsof theproposalontheconvenienceandneedsof the communitiestobeserved.Basedonthatreview,theBoardconcludesthattheconvenience andneedsfactorisconsistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedsection3of theBHCActtorequiretheBoardtoconsideraproposal’s“riskto thestabilityof theUnitedStatesbankingorfinancialsystem.”30 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the resultingfirm.31Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe 30 Dodd-FrankAct§604(d),Pub.L.No.111-203,124Stat.1376,1601-1602(2010),codifiedat12U.S.C. §1842(c)(7). 31 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem.

10 FederalReserveBulletin|August2018 resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.32 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.33 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.Both theacquirerandthetargetarepredominatelyengagedinretailandcommercialbanking activities.34Theproformaorganizationwouldhaveminimalcross-borderactivitiesand wouldnotexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.In addition,theorganizationwouldnotbeacriticalservicesproviderorsointerconnected withotherfirmsorthemarketsthatitwouldposeasignificantrisktothefinancialsystem intheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheproposal shouldbe,andherebyis,approved.35Inreachingitsconclusion,theBoardhasconsideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunderthe BHCActandotherapplicablestatutes.TheBoard’sapprovalisspecificallyconditionedon compliancebyIBGwithallof theconditionsimposedinthisorder,includingreceiptof all 32 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 33 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 34 Asnoted,IBGandIntegrityofferarangeofretailandcommercialbankingproductsandservices.IBGhas and,asaresultofthetransaction,wouldcontinuetohave,asmallmarketshareintheseproductsandservices onanationwidebasis,andnumerouscompetitorswouldremainfortheseproductsandservices. 35 TheBoardconstruesthecommentreceivedontheproposaltoincludearequestthattheBoardholdpublic hearingsontheproposal.Section3(b)oftheBHCActdoesnotrequirethattheBoardholdapublichearing onanyapplicationunlesstheappropriatesupervisoryauthoritiesfortheacquiringbankorthebanktobe acquiredmakeatimelywrittenrecommendationofdisapprovaloftheapplication.12U.S.C.§1842(b); 12CFR225.16(e).TheBoardhasnotreceivedsucharecommendationfromtheappropriatesupervisory authorities.Underitsrules,theBoardalso,initsdiscretion,mayholdapublichearingifappropriatetoallow interestedpersonsanopportunitytoproviderelevanttestimonywhenwrittencommentswouldnotadequately presenttheirviews.TheBoardhasconsideredthecommenter’srequestinlightofallofthefactsofrecord.In theBoard’sview,thecommenterhashadampleopportunitytosubmitcommentsontheproposaland,infact, submittedawrittencommentthattheBoardhasconsideredinactingontheproposal.Thecommenter’s requestdoesnotidentifydisputedissuesoffactthatarematerialtotheBoard’sdecisionandthatwouldbe clarifiedbyapublichearing.Inaddition,therequestdoesnotdemonstratewhythewrittencommentdoesnot presentthecommenter’sviewsadequatelyorwhyahearingotherwisewouldbenecessaryorappropriate.For thesereasons,andbasedonallthefactsofrecord,theBoardhasdeterminedthatapublichearingisnot requiredorwarrantedinthiscase.Accordingly,therequestforpublichearingontheproposalisdenied.

LegalDevelopments:SecondQuarter,2018 11 requiredregulatoryapprovals,andonthecommitmentsmadetotheBoardinconnection withtheapplication.Theconditionsandcommitmentsaredeemedtobeconditions imposedinwritingbytheBoardinconnectionwithitsfindingsanddecisionhereinand,as such,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethe15thcalendardayaftertheeffectivedate of thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedforgood causebytheBoardorbytheFederalReserveBankof Dallas,actingunderdelegatedauthority. Byorderof theBoardof Governors,effectiveMay2,2018. Votingforthisaction:ChairmanPowell,ViceChairmanforSupervisionQuarles,and GovernorBrainard. MargaretMcCloskeyShanks DeputySecretaryof theBoard

12 FederalReserveBulletin|August2018 Ameris Bancorp Moultrie, Georgia OrderApprovingtheAcquisitionof aBankHoldingCompany FRBOrderNo.2018-12(May9,2018) AmerisBancorp(“Ameris”),Moultrie,Georgia,abankholdingcompanywithinthe meaningof theBankHoldingCompanyActof 1956(“BHCAct”),1hasrequestedthe Board’sapprovalundersection3of theBHCAct2tomergewithAtlanticCoastFinancial Corporation(“Atlantic”),andtherebyindirectlyacquireAtlanticCoastBank,bothof Jacksonville,Florida.AtlanticCoastBankwouldbemergedintoAmeris’ssubsidiary bank,AmerisBank,Moultrie,Georgia.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(83FederalRegister813(January8,2017)).4Thetimeforsubmitting commentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct. Ameris,withconsolidatedassetsof approximately$7.6billion,isthe159thlargestinsured depositoryorganizationintheUnitedStates.Ameriscontrolsapproximately$5.9billionin consolidateddeposits,whichrepresentlessthan1percentof thetotalamountof deposits of insureddepositoryinstitutionsintheUnitedStates.5AmeriscontrolsAmerisBank, whichoperatesinGeorgia,Florida,Alabama,andSouthCarolina.Amerisisthe 14thlargestinsureddepositoryorganizationinGeorgia,controllingdepositsof approximately$2.8billion,whichrepresent1.2percentof thetotaldepositsof insureddepository institutionsinthatstate.6Amerisisthe32ndlargestinsureddepositoryorganizationin Florida,controllingdepositsof approximately$2.3billion,whichrepresent0.4percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. Atlantic,withconsolidatedassetsof approximately$913.9million,isthe800thlargest insureddepositoryorganizationintheUnitedStates.Atlanticcontrolsapproximately $678.9millioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.Atlantic controlsAtlanticCoastBank,whichoperatesinFloridaandGeorgia.Atlanticisthe 77thlargestinsureddepositoryorganizationinFlorida,controllingdepositsof approximately$453.6million,whichrepresent0.1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.Atlanticisthe72ndlargestinsureddepositoryorganizationin Georgia,controllingdepositsof approximately$236.6million,whichrepresent0.1percent of thetotaldepositsof insureddepositoryinstitutionsinthatstate. Onconsummationof theproposal,Ameriswouldbecomethe152ndlargestinsured depositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $8.6billion,whichrepresentlessthan1percentof thetotalassetsof insureddepository organizationsintheUnitedStates.Ameriswouldcontroltotaldepositsof approximately 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 ThemergerofAtlanticCoastBankintoAmerisBankissubjecttoapprovalbytheFederalDepositInsurance Corporation(“FDIC”),pursuanttosection18(c)oftheFederalDepositInsuranceAct.12U.S.C.§1828(c). TheFDICapprovedthebankmergeronApril24,2018. 4 12CFR262.3(b). 5 NationalassetanddepositdataareasofSeptember30,2017,unlessotherwisenoted. 6 StatedepositdataareasofJune30,2017,unlessotherwisenoted.Inthiscontext,insureddepositoryinstitutionsincludecommercialbanks,savingsassociations,andsavingsbanks.

LegalDevelopments:SecondQuarter,2018 13 $6.6billion,whichrepresentlessthan1percentof thetotalamountof depositsof insured depositoryinstitutionsintheUnitedStates.InGeorgia,Ameriswouldbecomethe 13thlargestinsureddepositoryorganization,controllingdepositsof approximately$3.1billion, whichrepresent1.3percentof thetotaldepositsof insureddepositoryinstitutionsinthe state.InFlorida,Ameriswouldbecomethe29thlargestinsureddepositoryorganization, controllingdepositsof approximately$2.7billion,whichrepresent0.5percentof thetotal depositsof insureddepositoryinstitutionsinthestate. InterstateandDepositCapAnalysis Section3(d)of theBHCActgenerallyprovidesthat,if certainconditionsaremet,the Boardmayapproveanapplicationbyabankholdingcompanytoacquirecontrolof a banklocatedinastateotherthanthehomestateof thebankholdingcompany,without regardtowhetherthetransactionisprohibitedunderstatelaw.7TheBoardmaynot approveanapplicationthatwouldpermitanout-of-statebankholdingcompanyorbank toacquireabankinahoststateif thebankhasnotbeeninexistenceforthelesserof the statestatutoryminimumperiodof timeorfiveyears.8Inaddition,undersection3(d)of theBHCAct,theBoardmaynotapproveaninterstateapplicationif thebankholding companycontrolsor,uponconsummationof theproposedtransaction,wouldcontrol morethan10percentof thetotaldepositsof insureddepositoryinstitutionsintheUnited Statesor,incertaincircumstances,if thebankholdingcompany,uponconsummation, wouldcontrol30percentormoreof thetotaldepositsof insureddepositoryinstitutionsin anystateinwhichtheacquirerandtargethaveoverlappingbankingoperations.9 Forpurposesof theBHCAct,thehomestateof AmerisisGeorgia,andAtlanticCoast BankislocatedinFloridaandGeorgia.10AmerisandAmerisBankarewellcapitalized andwellmanagedunderapplicablelaw,andAmerisBankhasa“Satisfactory”ratingunder theCommunityReinvestmentActof 1977(“CRA”).11Therearenominimumagerequirementsunderthelawsof FloridathatwouldapplytoAmeris’sacquisitionof Atlantic,and AtlanticCoastBankhasbeeninexistenceformorethanfiveyears.12 Onconsummationof theproposedtransaction,Ameriswouldcontrollessthan1percent of thetotalamountof consolidateddepositsininsureddepositoryinstitutionsinthe UnitedStates.NeitherFloridanorGeorgiaimposesalimitonthetotalamountof in-state depositsthatasinglebankingorganizationmaycontrol.Thesearetheonlystatesinwhich AmerisandAtlantichaveoverlappingoperations.TheBoardhasconsideredallother requirementsof section3(d)of theBHCAct,includingAmerisBank’srecordof meeting theconvenienceandneedsof thecommunitiesitserves.Accordingly,inlightof allthefacts of record,theBoardmayapprovetheproposalundersection3(d)of theBHCAct. 7 12U.S.C.§1842(d)(1)(A). 8 12U.S.C.§1842(d)(1)(B). 9 12U.S.C.§1842(d)(2)(A)and(B).Forpurposesofsection3(d)oftheBHCAct,theacquiringandtargetinstitutionshaveoverlappingbankingoperationsinanystateinwhichanybanktobeacquiredislocatedandthe acquiringbankholdingcompanycontrolsanyinsureddepositoryinstitutionorabranch.TheBoardconsiders abanktobelocatedinthestatesinwhichthebankischarteredorheadquarteredoroperatesabranch.See 12U.S.C.§1841(o)(4)-(7). 10 See12U.S.C.§1841(o)(4).Abankholdingcompany’shomestateisthestateinwhichthetotaldepositsofall bankingsubsidiariesofsuchcompanywerethelargestonJuly1,1966,orthedateonwhichthecompany becameabankholdingcompany,whicheverislater. 11 12U.S.C.§2901etseq. 12 SeeFla.Stat.§658.2953.

14 FederalReserveBulletin|August2018 CompetitiveConsiderations Section3of theBHCActprohibitstheBoardfromapprovingaproposalthatwouldresult inamonopolyorwouldbeinfurtheranceof anattempttomonopolize thebusinessof bankinginanyrelevantmarket.13TheBHCActalsoprohibitstheBoard fromapprovingaproposalthatwouldsubstantiallylessencompetitionortendtocreatea monopolyinanybankingmarket,unlesstheanticompetitiveeffectsof theproposalare clearlyoutweighedinthepublicinterestbytheprobableeffectof theproposalinmeeting theconvenienceandneedsof thecommunitytobeserved.14 AmerisBankandAtlanticCoastBankcompetedirectlyintheJacksonvilleArea,Florida, bankingmarket(“Jacksonvillemarket”);theDouglasArea,Georgia,bankingmarket (“Douglasmarket”);andtheWaycrossArea,Georgia,bankingmarket(“Waycross market”).15TheBoardhasconsideredthecompetitiveeffectsof theproposalinthese bankingmarkets.Inparticular,theBoardhasconsideredthenumberof competitorsthat wouldremainineachmarket;therelativeshareof totaldepositsininsureddepository institutionsineachmarket(“marketdeposits”)thatAmeriswouldcontrol;16theconcentrationlevelsof marketdepositsandtheincreaseintheselevels,asmeasuredbythe Herfindahl-HirschmanIndex(“HHI”)undertheDepartmentof Justice BankMergerCompetitiveReviewguidelines(“DOJBankMergerGuidelines”);17and othercharacteristicsof themarket. Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesintheJacksonville,Douglas,andWaycross markets.Onconsummationof theproposal,theJacksonvillemarketwouldremainhighly concentratedasmeasuredbytheHHI,accordingtotheDOJBankMergerGuidelines; however,thechangeinHHIwouldbesmallandnumerouscompetitorswouldremainin themarket.18TheDouglasandWaycrossmarketswouldremainmoderatelyconcentrated 13 12U.S.C.§1842(c)(1). 14 12U.S.C.§1842(c)(1)(B). 15 TheJacksonvillemarketisdefinedasBaker,Clay,Duval,andNassauCounties,Florida;thetownsofFruit Cove,PonteVedra,PonteVedraBeach,Jacksonville,St.Johns,andSwitzerlandinSt.JohnsCounty,Florida; andthecityofFolkstoninCharltonCounty,Georgia.TheDouglasmarketisdefinedasAtkinsonandCoffee Counties,Georgia.TheWaycrossmarketisdefinedasPierceandWareCounties,Georgia. 16 LocaldepositandmarketsharedataareasofJune30,2017,andarebasedoncalculationsinwhichthe depositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhasindicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorstocommercialbanks.See,e.g., MidwestFinancialGroup,75FederalReserveBulletin386(1989);NationalCityCorporation,70FederalReserve Bulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsinthemarketsharecalculationona 50percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserveBulletin52(1991). 17 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableatwww.justice.gov/opa/pr/ 2010/August/10-at-938.html. 18 Amerisoperatesthe7thlargestdepositoryinstitutionintheJacksonvillemarket,controllingapproximately $741.5millionindeposits,whichrepresent1.5percentofmarketdeposits.Atlanticoperatesthe11thlargest depositoryinstitutioninthesamemarket,controllingdepositsofapproximately$453.6million,whichrepresentapproximately0.9percentofmarketdeposits.Onconsummationoftheproposedtransaction,Ameris wouldbecomethe6thlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately $1.2billion,whichrepresentapproximately2.5percentofmarketdeposits.TheHHIfortheJacksonville marketwouldincreaseby3pointsto2840,and32otherbankingorganizationswouldremaininthemarket.

LegalDevelopments:SecondQuarter,2018 15 asmeasuredbytheHHI,accordingtotheDOJBankMergerGuidelines.Thechangein theHHIintheDouglasmarketwouldbesmall,andninecompetitorswouldremaininthe market.19SevencompetitorswouldremainintheWaycrossmarket.20 TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket.Inaddition,the appropriatebankingagencieshavebeenaffordedanopportunitytocommentandhavenot objectedtotheproposal. Basedonallof thefactsof record,theBoardconcludesthatconsummationof the proposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheJacksonville,Douglas,orWaycrossmarkets,orinanyother relevantbankingmarket.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCAct,theBoardconsidersthefinancial andmanagerialresourcesandthefutureprospectsof theinstitutionsinvolved.21Inits evaluationof financialfactors,theBoardreviewsinformationregardingthefinancial conditionof theorganizationsinvolvedonbothparent-onlyandconsolidatedbases,as wellasinformationregardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.Inthisevaluation,the Boardconsidersavarietyof informationregardingcapitaladequacy,assetquality, liquidity,andearningsperformance,aswellaspubliccommentsontheproposal.The Boardevaluatesthefinancialconditionof thecombinedorganization,includingitscapital position,assetquality,liquidity,earningsprospects,andtheimpactof theproposed fundingof thetransaction.TheBoardalsoconsiderstheabilityof theorganizationto absorbthecostsof theproposalandtocompleteeffectivelytheproposedintegrationof the operationsof theinstitutions.Inassessingfinancialfactors,theBoardconsiderscapital adequacytobeespeciallyimportant.TheBoardconsidersthefutureprospectsof theorganizationsinvolvedintheproposalinlightof theirfinancialandmanagerialresourcesand theproposedbusinessplan. AmerisandAmerisBankarewellcapitalized,andthecombinedorganizationwould remainsoonconsummationof theproposal.Theproposedtransactionisabankholding companymergerthatisstructuredasacash-shareexchange,withasubsequentmergerof 19 Amerisoperatesthe4thlargestdepositoryinstitutionintheDouglasmarket,controllingapproximately $92.5millionindeposits,whichrepresent11.6percentofmarketdeposits.Atlanticoperatesthe9thlargest depositoryinstitutioninthesamemarket,controllingdepositsofapproximately$37.9million,whichrepresent approximately4.8percentofmarketdeposits.Onconsummationoftheproposedtransaction,Ameriswould becomethe2ndlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately $130.4million,whichrepresentapproximately16.4percentofmarketdeposits.TheHHIfortheDouglas marketwouldincreaseby110pointsto1295. 20 Amerisoperatesthe8thlargestdepositoryinstitutionintheWaycrossmarket,controllingapproximately $42.0millionindeposits,whichrepresent4.7percentofmarketdeposits.Atlanticoperatesthe2ndlargest depositoryinstitutioninthesamemarket,controllingdepositsofapproximately$198.7million,whichrepresentapproximately22.2percentofmarketdeposits.Onconsummationoftheproposedtransaction,Ameris wouldbecomethelargestdepositoryorganizationinthemarket,controllingdepositsofapproximately $240.7million,whichrepresentapproximately26.8percentofmarketdeposits.TheHHIfortheWaycross marketwouldincreaseby208pointsto1777. 21 12U.S.C.§1842(c)(2),(5),and(6).

16 FederalReserveBulletin|August2018 thesubsidiarydepositoryinstitutions.22Theassetquality,earnings,andliquidityof both AmerisBankandAtlanticCoastBankareconsistentwithapproval,andAmerisappearsto haveadequateresourcestoabsorbtherelatedcostsof theproposalandtocompletethe integrationof theinstitutions’operations.Inaddition,thefutureprospectsof theinstitutionsundertheproposalareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of Ameris,Atlantic,andtheirsubsidiarydepositoryinstitutions,includingassessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition,theBoardhas consideredinformationprovidedbyAmeris;theBoard’ssupervisoryexperiencesandthose of otherrelevantbanksupervisoryagencieswiththeorganizations;theorganizations’ recordsof compliancewithapplicablebanking,consumerprotection,anti-moneylaunderinglaws;andinformationprovidedbythecommenter. Ameris,Atlantic,andtheirsubsidiarydepositoryinstitutionsareeachconsideredtobewell managed.Amerishasarecordof successfullyintegratingorganizationsintoitsoperations andrisk-managementsystemsafteracquisitions.Ameris’sdirectorsandseniorexecutive officershaveknowledgeof andexperienceinthebankingandfinancialservicessectors, andAmeris’srisk-managementprogramappearsconsistentwithapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredAmeris’splansforimplementingtheproposal.Amerishas conductedcomprehensiveduediligenceandisdevotingsignificantfinancialandother resourcestoaddressallaspectsof thepost-acquisitionintegrationprocessforthisproposal. Ameriswouldimplementitsrisk-managementpolicies,procedures,andcontrolsatthe combinedorganization,andtheseareconsideredacceptablefromasupervisoryperspective.Inaddition,Ameris’smanagementhastheexperienceandresourcestooperatethe combinedorganizationinasafeandsoundmanner,andAmerisrepresentsthatthereare noanticipatedchangeswithrespecttotheexecutiveofficersanddirectorsof Amerisor AmerisBankasaresultof theproposal. Basedonallof thefactsof record,includingAmeris’ssupervisoryrecord,managerialand operationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandthefutureprospectsof theorganizationsinvolvedintheproposal,aswellas therecordsof effectivenessof AmerisandAtlanticincombattingmoney-launderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCAct,theBoardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.23Initsevaluationof theeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thecommunitiestheyserve,aswellasotherpotentialeffectsof theproposalon theconvenienceandneedsof thecommunitiestobeserved.Inthisevaluation,theBoard placesparticularemphasisontherecordsof therelevantdepositoryinstitutionsunderthe 22 Aspartoftheproposedtransaction,eachshareofAtlanticcommonstockwouldbeconvertedintotherightto receive(i)0.17sharesofAmeriscommonstocktogetherwithcashinlieuofanyfractionalsharesand(ii)$1.39 incash.Amerishasthefinancialresourcestoeffecttheproposedtransaction. 23 12U.S.C.§1842(c)(2).

LegalDevelopments:SecondQuarter,2018 17 CRA.24TheCRArequiresthefederalfinancialsupervisoryagenciestoencourageinsured depositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesinwhichthey operate,consistentwiththeinstitutions’safeandsoundoperation,25andrequiresthe appropriatefederalfinancialsupervisoryagencytoassessadepositoryinstitution’srecord of helpingtomeetthecreditneedsof itsentirecommunity,includinglow-and moderate-income(“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.26 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,thesupervisoryviewsof examiners,othersupervisoryinformation,informationprovidedbytheapplicant,andcommentsreceivedontheproposal.TheBoardalsomayconsidertheinstitution’sbusinessmodel,itsmarketingandoutreachplans,theorganization’splansafter consummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof Ameris BankandAtlanticCoastBank,thefairlendingandcompliancerecordsof bothbanks,the supervisoryviewsof theFDIC,confidentialsupervisoryinformation,information providedbyAmeris,andthepubliccommentreceivedontheproposal. PublicCommentontheProposal Inthiscase,acommenterobjectedtotheproposalonthebasisof allegeddisparitiesinthe numberof homemortgageloanstoand/orintherateof denialsforhomemortgage applicationsfromAfricanAmericansand/orHispanics,ascomparedtowhites,inAtlanta, Georgia;Jacksonville,Florida;andTallahassee,Florida,basedondatareportedunderthe HomeMortgageDisclosureActof 1975(“HMDA”).27Thecommenteralsoallegedthat AmerisBankengagedinpredatorycollectionof overdraftfeesandexpressedconcernover Ameris’srecentrecordof mergersandacquisitionsandplannedbranchclosures. Businessesof theInvolvedInstitutionsandResponsetothePublicComment Throughitsnetworkof branchesinGeorgia,Florida,Alabama,andSouthCarolina, AmerisBankoffersavarietyof productsandservices,includingrealestateloans,autosecuredandrecreational-vehicle-securedloans,andhomeequitylinesof credit.Ameris Bankalsooffersvariousdepositproductsforbothbusinessesandconsumers. AtlanticCoastBankoffersavarietyof loananddepositproducts,withafocusonresidentialrealsestateloansandcommercialrealestateloansand,toalesserextent,commercial businessloansandconsumerloansthroughitsbranchesinFloridaandGeorgia.Atlantic CoastBank’sproductsandservicesalsoincludecheckingandsavingsaccountsandan alternativetopaydaylending. Inresponsetothecommenter’sallegations,Amerisassertsthatapprovalof theproposed transactioniswarrantedbasedonAmerisBank’sCRAperformanceevaluationand AmerisBank’sinvolvementinotherprogramstailoredtoassistLMIindividualsandfirsttimehomebuyersinpursuingormaintaininghomeownership.AmerisnotesthatHMDA 24 12U.S.C.§2901etseq. 25 12U.S.C.§2901(b). 26 12U.S.C.§2903. 27 12U.S.C.§2801etseq.

18 FederalReserveBulletin|August2018 datadonottakeintoconsiderationothercriticalinputs,suchasborrowercreditworthiness, collateralvalue,creditscores,andotherfactorsrelevanttocreditdecisions.Amerisalso assertsthatHMDAdatadonotreflecttherangeof AmerisBank’slendingactivitiesand effortswithinthecommunitiesitserves.Amerisarguesthatthecommenter’sallegationof predatoryoverdraftfeesisbasedonanisolatedcallreporterrorforwhichacorrectionwas filedbyAmerisBankafterreceivingclarificationfromtheFDIC.Amerisalsoassertsthat AmerisBank’sproposedbranchclosuresarelimitedtothosemarketsinwhichAmeris BankandAtlanticCoastBankoverlapandthatAmerisBankiscommittedtoproviding reasonableaccesstoitsdeliverysystemsthroughoutitsassessmentareas. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardconsiders substantialinformationinadditiontoinformationprovidedbypubliccommentersandthe responsetocommentsbytheapplicant.Inparticular,theBoardconsidersexaminations bytheappropriatefederalsupervisorsof theCRAperformancerecordsof therelevant institutions,aswellasinformationandviewsprovidedbythosesupervisors.28Inthiscase, theBoardconsideredthesupervisoryviewsof theFDICwithrespecttobothinstitutions. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.29Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplyalendingtesttoevaluatetheperformance of alargeinsureddepositoryinstitution,suchasAmerisBank,inhelpingtomeetthecredit needsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’s lendingtodeterminewhethertheinstitutionishelpingtomeetthecreditneedsof individualsandgeographiesof allincomelevels.Aspartof thelendingtest,examinersreview andanalyzeaninstitution’sdatareportedunderHMDA,inadditiontosmallbusiness, smallfarm,andcommunitydevelopmentloandatacollectedandreportedundertheCRA regulations,toassessaninstitution’slendingactivitieswithrespecttoborrowersand geographiesof differentincomelevels.Theinstitution’slendingperformanceisbasedona varietyof factors,including(1)thenumberandamountsof homemortgage,smallbusiness,smallfarm,andconsumerloans(asapplicable)intheinstitution’sCRAassessment areas(“AAs”);(2)thegeographicdistributionof theinstitution’slending,includingthe proportionanddispersionof theinstitution’slendinginitsAAsandthenumberand amountsof loansinlow-,moderate-,middle-,andupper-incomegeographies;(3)the distributionof loansbasedonborrowercharacteristics,including,forhomemortgage loans,thenumberandamountsof loanstolow-,moderate-,middle-,andupper-income individuals;30(4)theinstitution’scommunitydevelopmentlending,includingthenumber andamountsof communitydevelopmentloansandtheircomplexityandinnovativeness; and(5)theinstitution’suseof innovativeorflexiblelendingpracticestoaddressthecredit 28 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48506, 48548(July25,2016). 29 12U.S.C.§2906. 30 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3).

LegalDevelopments:SecondQuarter,2018 19 needsof LMIindividualsandgeographies.31Largeinstitutionsalsoaresubjecttoan investmenttest,whichevaluatesthenumberandamountsof qualifiedinvestmentsthat benefittheirAAs,andaservicetest,whichevaluatestheavailabilityandeffectivenessof theirsystemsfordeliveringretailbankingservicesandtheextentandinnovativenessof theircommunitydevelopmentservices.32Intermediatesmallbanks,suchasAtlanticCoast Bank,aresubjecttothelendingtest,aswellasacommunitydevelopmenttestthatevaluatesthenumberandamountsof theircommunitydevelopmentloansandqualifiedinvestments,theextenttowhichtheyprovidecommunitydevelopmentservices,andtheirresponsivenesstocommunitydevelopmentlending,investment,andserviceneeds.33 TheBoardisconcernedwhenHMDAdatareflectdisparitiesintheratesof loanapplications,originations,anddenialsamongmembersof differentracialorethnicgroupsinlocal areas.Thesetypesof disparitiesmayindicateweaknessesintheadequacyof policiesand programsataninstitutionformeetingitsobligationstoextendcreditfairly.However,other informationcriticaltoaninstitution’screditdecisionsisnotavailablefromHMDAdata.34 Consequently,HMDAdatadisparitiesmustbeevaluatedinthecontextof otherinformationregardingthelendingrecordof aninstitution. CRAPerformanceof AmerisBank AmerisBankwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheFDIC,asof October3,2016(“AmerisBankEvaluation”).35 Thebankreceived“HighSatisfactory”ratingsfortheLendingTestandtheServiceTest anda“LowSatisfactory”ratingfortheInvestmentTest.36 Examinersfoundthatthebank’slendinglevelsreflectedgoodresponsivenesstothebank’s AAneedsandthatthebankmadeamajorityof itsloanswithinitsAAs.Examiners determinedthatthebank’sborrowerprofilerevealedgoodpenetrationamongretail customersof differentincomelevelsandbusinessesof differentsizes.Examinersfurther foundthatthegeographicdistributionof thebank’sloansreflectedgoodpenetration throughoutthebank’sAAs.Examinersnotedthatthebankexhibitedagoodrecordof servingthecreditneedsof themosteconomicallydisadvantagedareasof itsAAs,LMI individuals,andverysmallbusinesses,consistentwithsafeandsoundbankingpractices. ExaminersfoundthatAmerisBankmadeahighlevelof communitydevelopmentloans andthatitusedflexiblelendingpracticesinordertoserveitsAAs.Withrespecttothe Atlantamarket,examinersfoundthatlendinglevelsreflectedgoodresponsivenesstocredit needsandthatHMDAdatareflectedexcellentpenetrationthroughouttheAA.With respecttotheTallahasseemarket,examinersfoundthatlendinglevelsreflectedgood responsivenesstocreditneedsandthatHMDAdatareflectedgoodpenetrationthroughout theAA.WithrespecttotheJacksonvillemarket,examinersfoundthatlendinglevels 31 See12CFR228.22(b). 32 See12CFR228.21etseq. 33 See12CFR228.26(c). 34 Otherinformationrelevanttocreditdecisionscouldincludecredithistory,debt-to-incomeratios,andloan-tovalueratios.Accordingly,whenconductingfairlendingexaminations,examinersanalyzesuchadditionalinformationbeforereachingadeterminationregardinganinstitution’scompliancewithfairlendinglaws. 35 TheAmerisBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Examiners reviewedresidentialmortgage,smallbusiness,andsmallfarmloansfromJanuary1,2014,throughJune30, 2016.Inaddition,examinersconsideredthecommunitydevelopmentloansoriginatedbyAmerisBankbetween January21,2014,andOctober3,2016,aswellasallqualifiedinvestmentseitherpurchasedpriortobutstill outstandingasoftheevaluationdateorpurchasedduringtheevaluationperiodandallcommunitydevelopmentservicesperformedduringtheevaluationperiod. 36 TheAmerisBankEvaluationreviewedthebank’sactivitiesineachofits22AAsthroughoutGeorgia,Florida, Alabama,andSouthCarolina.

20 FederalReserveBulletin|August2018 reflectedadequateresponsivenesstocreditneedsandthatHMDAdatareflectedgood penetrationthroughouttheAA. ExaminersfoundthatAmerisBankhadanadequatelevelof qualifiedcommunitydevelopmentinvestmentsanddonationsandthatthebankexhibitedadequateresponsivenessto creditandcommunityeconomicdevelopmentneeds.Examinersnotedthatthebankoccasionallyusedinnovativeorcomplexinvestmentstosupportitscommunitydevelopment initiatives. ExaminersfoundthatAmerisBank’sdeliverysystemswerereasonablyaccessibletoessentiallyallportionsof itsAAsandthat,totheextentchangeshavebeenmade,thebank’s openingandclosingof branchesthroughoutitsAAshavenotadverselyaffectedtheaccessibilityof itsdeliverysystems,particularlyinLMIgeographiesandtoLMIindividuals. Examinersfurtherfoundthatservicesandbusinesshoursdonotvaryinawaythatinconveniencescertainportionsof itsAAs,particularlyLMIgeographiesandindividuals,and thatthebankprovidesarelativelyhighlevelof communitydevelopmentserviceswithin itsAAs. AmerisBank’sEffortssincetheAmerisBankEvaluation Amerisrepresentsthat,sincetheAmerisBankEvaluation,AmerisBankhascontinuedto meetthecreditneedsof itscommunities.Specifically,AmerisrepresentsthatAmerisBank reportedasignificantvolumeof loanstofirst-timehomebuyersin2017.AmerisalsorepresentsthatAmerisBankparticipatesinfederalloanprogramstailoredtoassistLMIindividualsandfirst-timehomebuyers. CRAPerformanceof AtlanticCoastBank AtlanticCoastBankreceivedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheOfficeof theComptrollerof theCurrency(“OCC”),asof March31,2014(“AtlanticCoastBankEvaluation”).37Thebankreceiveda“Satisfactory” ratingfortheLendingTestandtheCommunityDevelopmentTest.38 ExaminersconcludedthatAtlanticCoastBank’sloan-to-depositratiowasmorethan reasonableandthatthebank’slendingtoborrowersof differentincomesdemonstrateda reasonabledistribution.Examinersfurtherfoundthatamajorityof thebank’sloanoriginationsandpurchaseswaswithinthebank’sAAsandthatthebankhadareasonable geographicdistributionof loanstoLMIcensustracts.Examinersalsofoundthatthe bank’soveralllevelandresponsivenessof communitydevelopmentlending,investments, andservicesmetthestandardsof satisfactoryperformance. Viewsof theFDIC Initsreviewof theproposal,theBoardconsultedwiththeFDICregardingAmerisBank’s CRA,consumercompliance,andfairlendingrecords.TheFDICreviewedthebankmerger underlyingthisproposaland,insodoing,consideredthecommentreceivedbytheBoard. TheBoardhasconsideredtheresultsof theFDIC’smostrecentconsumercompliance examinationof AmerisBank,whichincludedanevaluationof thebank’scompliance managementsystem,withanemphasisonareasexhibitingthepotentialriskof consumer 37 TheAtlanticCoastBankEvaluationwasconductedusingIntermediateSmallBankCRAExaminationProcedures.ExaminersreviewedhomemortgageandsmallbusinessloansfromJanuary1,2009,through December31,2013,andcommunitydevelopmentactivitiesfromFebruary23,2009,toMarch31,2014. 38 TheAtlanticCoastBankEvaluationincludedfull-scopeevaluationsoftheJacksonvilleMSAAAandthe GeorgiaNon-MSAAAandalimited-scopereviewoftheSavannahMSAAA.

LegalDevelopments:SecondQuarter,2018 21 harm.Asapartof theexamination,thefairlendingreviewincludedananalysisof the bank’sresidentiallending. TheBoardalsohasconsideredtheresultsof theFDIC’svisitationof AtlanticCoastBank inconnectionwiththebank’sconversionfromafederalsavingsbanktoaFlorida non-membercommercialbank.39TheFDIC’svisitationincludedanassessmentof Atlantic CoastBank’scompliancemanagementsystem,whichincludedareasexhibitingpotential consumerrisk,andalimitedreviewof thebank’sCRAperformancefactors. TheBoardhastakentheconsultationswiththeFDICandtheinformationdiscussedabove intoaccountinevaluatingtheproposal,includinginconsideringwhetherAmerishasthe experienceandresourcestoensurethatAmerisBankhelpstomeetthecreditneedsof the communitieswithinitsAAs. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.Amerisrepresentsthat,followingconsummationof theproposal,existingcustomersof AtlanticCoastBankwouldbenefitfromthetechnical expertiseandresourcesthatAmerisBankhasdeveloped.Amerisfurtherrepresentsthat AmerisBankwouldprovideacomparablesuiteof mortgageandconsumerloanproducts tothoseprovidedbyAtlanticCoastBankpriortothemerger.AmerisassertsthatAmeris BankwouldmaintainAtlanticCoastBank’sinvolvementincommunityactivitiesthrough membershipsincommunityservice,educational,andcivicorganizationsandthatAmeris Bankwoulduseallavailablemedia,includingcommunitypublications,tomarketitscredit servicestotheentirecommunity.AmerisrepresentsthatAmerisBank’sboardof directorswouldcontinuetoreviewandapproveallCRAprogramsandthatlocalofficerswould routinelyanalyzedemographicdataandloanactivitytoensurethatlendingservicesare accessibletoallareasof thecommunity,includingLMIneighborhoods. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewith consumerprotectionlaws,supervisoryviewsof theFDIC,confidentialsupervisoryinformation,informationprovidedbyAmeris,thepubliccommentontheproposal,andother potentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served.Basedonthatreview,theBoardconcludesthattheconvenienceandneedsfactoris consistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedsection3of theBHCActtorequiretheBoardtoconsider“theextenttowhicha proposedacquisition,merger,orconsolidationwouldresultingreaterormoreconcentratedriskstothestabilityof theUnitedStatesbankingorfinancialsystem.”40 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon 39 AtlanticCoastBankconvertedfromafederalsavingsbanktoaFloridanon-membercommercialbankon December27,2016. 40 Dodd-FrankAct§604(d),Pub.L.No.111-203,124Stat.1376,1601(2010),codifiedat12U.S.C.§1842(c)(7).

22 FederalReserveBulletin|August2018 thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the resultingfirm.41Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamageonthebroadereconomy.42 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.43 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.Both theacquirerandthetargetarepredominantlyengagedinavarietyof consumerand commercialbankingactivities.44Theproformaorganizationwouldhaveminimalcrossborderactivitiesandwouldnotexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.Inaddition,theorganizationwouldnotbeacriticalservicesprovideror sointerconnectedwithotherfirmsorthemarketsthatitwouldposeasignificantriskto thefinancialsystemintheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationshouldbe,andherebyis,approved.Inreachingitsconclusion,theBoardhasconsideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunderthe BHCActandotherapplicablestatutes.TheBoard’sapprovalisspecificallyconditionedon compliancebyAmeriswithalltheconditionsimposedinthisorder,includingreceiptof all requiredregulatoryapprovals,andonthecommitmentsmadetotheBoardinconnection 41 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 42 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder 2012-2(February14,2012). 43 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 44 AmerisandAtlanticofferarangeofretailandcommercialbankingproductsandservices.Amerishasand,as aresultoftheproposalwouldcontinuetohave,asmallmarketshareintheseproductsandservicesona nationwidebasis.

LegalDevelopments:SecondQuarter,2018 23 withtheproposal.Forpurposesof thisaction,theconditionsandcommitmentsare deemedtobeconditionsimposedinwritingbytheBoardinconnectionwithitsfindings anddecisionhereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardortheFederalReserveBankof Atlanta,actingunderdelegated authority. Byorderof theBoardof Governors,effectiveMay9,2018. Votingforthisaction:ChairmanPowell,ViceChairmanforSupervisionQuarles,and GovernorBrainard. MargaretMcCloskeyShanks DeputySecretaryof theBoard

24 FederalReserveBulletin|August2018 TriCo Bancshares Chico, California OrderApprovingtheMergerof BankHoldingCompanies FRBOrderNo.2018-13(June6,2018) TriCoBancshares(“TriCo”),Chico,California,abankholdingcompanywithinthe meaningof theBankHoldingCompanyActof 1956(“BHCAct”),1hasrequestedthe Board’sapprovalundersection3of theBHCActtomergewithFNBBancorpandthereby indirectlyacquireFNBBancorp’ssubsidiarybank,FirstNationalBankof NorthernCalifornia(“FNBank”),bothof SouthSanFrancisco,California.Followingtheproposed acquisition,FNBankwouldbemergedintoTriCo’ssubsidiarybank,TriCountiesBank (“TriCoBank”),Chico,California.2 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(83FederalRegister8,084(February23,2018)).3Thetimeforsubmittingcommentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct. TriCo,withconsolidatedassetsof approximately$4.8billion,isthe214thlargestinsured depositoryorganizationintheUnitedStates.TriCocontrolsapproximately$4.0billionin consolidateddeposits,whichrepresentlessthan1percentof thetotalamountof deposits of insureddepositoryinstitutionsintheUnitedStates.4TriCocontrolsTriCoBank,which operatesonlyinCalifornia.5TriCoisthe31stlargestinsureddepositoryorganizationin California,controllingdepositsof approximately$3.9billion,whichrepresent0.3percent of thetotaldepositsof insureddepositoryinstitutionsinthatstate.6 FNBBancorp,withconsolidatedassetsof approximately$1.3billion,isthe582ndlargest insureddepositoryorganizationintheUnitedStates.FNBBancorpcontrolsapproximately $1.1billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.FNBBancorp controlsFNBank,whichoperatesonlyinCalifornia.FNBankisthe68thlargestinsured depositoryorganizationinCalifornia,controllingdepositsof approximately$1billion, whichrepresentlessthan0.1percentof thetotaldepositsof insureddepositoryinstitutions inthatstate. Onconsummationof theproposal,TriCowouldbecomethe183rdlargestdepositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately$6.2billion,which representlessthan1percentof thetotalassetsof insureddepositoryorganizationsinthe UnitedStates.TriCowouldcontrolconsolidateddepositsof approximately$5.1billion, whichrepresentlessthan1percentof thetotalamountof depositsof insureddepository institutionsintheUnitedStates.InCalifornia,TriCowouldbecomethe28thlargest 1 12U.S.C.§1841etseq. 2 ThemergerofFNBankintoTriCoBank,whichisexpectedtooccurimmediatelyafterTriCo’sacquisitionof FNBBancorp,issubjecttotheapprovaloftheFederalDepositInsuranceCorporation(“FDIC”),pursuantto section18(c)oftheFederalDepositInsuranceAct.12U.S.C.§1828(c).TheFDICapprovedthebankmerger onMay29,2018. 3 12CFR262.3(b). 4 Nationaldeposit,marketshare,andrankingdataareasofDecember31,2017,andassetdataisasof March31,2018,unlessotherwisenoted. 5 Theproposaldoesnotraiseinterstateissuesundersection3(d)oftheBHCActbecauseCaliforniaisthehome stateofTriCo,andFNBankislocatedonlyinCalifornia.See12U.S.C.§1842(d). 6 Statedeposit,marketshare,andrankingdataareasofJune30,2017.Inthiscontext,insureddepositoryinstitutionsincludecommercialbanks,savingsassociations,andsavingsbanks.

LegalDevelopments:SecondQuarter,2018 25 depositoryorganization,controllingdepositsof approximately$4.9billion,whichrepresent0.4percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. CompetitiveConsiderations Section3of theBHCActprohibitstheBoardfromapprovingaproposalthatwouldresult inamonopolyorwouldbeinfurtheranceof anattempttomonopolizethebusinessof bankinginanyrelevantmarket.7TheBHCActalsoprohibitstheBoardfromapprovinga proposalthatwouldsubstantiallylessencompetitionortendtocreateamonopolyinany bankingmarket,unlesstheanticompetitiveeffectsof theproposalareclearlyoutweighedin thepublicinterestbytheprobableeffectof theproposalinmeetingtheconvenienceand needsof thecommunitytobeserved.8 TriCoandFNBBancorphavesubsidiarydepositoryinstitutionsthatcompetedirectlyin theSanFrancisco-Oakland-SanJosecombinedstatisticalareamarket(“sharedmarket”).9 TheBoardhasconsideredthecompetitiveeffectsof theproposalinthisbankingmarket. Inparticular,theBoardhasconsideredthenumberof competitorsthatwouldremainin themarket;therelativeshareof totaldepositsininsureddepositoryinstitutionsinthe market(“marketdeposits”)thatTriCowouldcontrol;10theconcentrationlevelsof market depositsandtheincreaseintheselevels,asmeasuredbytheHerfindahl-HirschmanIndex (“HHI”)undertheDepartmentof JusticeBankMergerCompetitiveReviewguidelines (“DOJBankMergerGuidelines”);11andothercharacteristicsof themarket. Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesforthesharedmarket.Onconsummation of theproposal,thesharedmarketwouldremainmoderatelyconcentratedasmeasuredby theHHI,accordingtotheDOJBankMergerGuidelines,andtherewouldbeonlyasmall changeintheHHI.Inaddition,numerouscompetitorswouldremaininthesharedmarket.12 7 12U.S.C.§1842(c)(1). 8 12U.S.C.§1842(c)(1)(B). 9 ThesharedmarketisdefinedastheSanFrancisco-Oakland-SanJosecombinedstatisticalareainAlameda, ContraCosta,Marin,SanFrancisco,SanMateo,andSantaClaraCounties;thesouthernportionsofSonoma andSolanoCounties;thenorthernportionofSanBenitoCounty;andthesouthernedgeofNapaCounty;all ofCalifornia. 10 LocaldepositandmarketsharedataareasofJune30,2017,andarebasedoncalculationsinwhichthe depositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhasindicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorstocommercialbanks.See,e.g., MidwestFinancialGroup,75FederalReserveBulletin386(1989);NationalCityCorporation,70FederalReserve Bulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsinthemarketsharecalculationona 50percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserveBulletin52(1991). 11 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableatwww.justice.gov/opa/pr/ 2010/August/10-at-938.html. 12 TriCooperatesthe70thlargestdepositoryinstitutioninthesharedmarket,controllingapproximately $19.8millionindeposits,whichrepresentlessthan0.05percentofmarketdeposits.FNBBancorpoperatesthe 23rdlargestdepositoryinstitutioninthesamemarket,controllingapproximately$1.04billionindeposits, whichrepresentapproximately0.21percentofmarketdeposits.Onconsummationoftheproposal,TriCo wouldbecomethe23rdlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately $1.04billion,whichrepresentapproximately0.26percentofmarketdeposits.Seventy-eightbankingorganizationswouldremaininthemarket.

26 FederalReserveBulletin|August2018 TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket.Inaddition,the appropriatebankingagencieshavebeenaffordedanopportunitytocommentandhavenot objectedtotheproposal. Basedonallof thefactsof record,theBoardconcludesthatconsummationof the proposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesinthesharedmarketorinanyotherrelevantbankingmarket.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCAct,theBoardconsidersthefinancial andmanagerialresourcesandthefutureprospectsof theinstitutionsinvolved.13Inits evaluationof financialfactors,theBoardreviewsinformationregardingthefinancial conditionof theorganizationsinvolvedonbothparent-onlyandconsolidatedbases,as wellasinformationregardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.Inthisevaluation,the Boardconsidersavarietyof informationregardingcapitaladequacy,assetquality, liquidity,andearningsperformance,aswellaspubliccommentsontheproposal.The Boardevaluatesthefinancialconditionof thecombinedorganization,includingitscapital position,assetquality,liquidity,earningsprospects,andtheimpactof theproposed fundingof thetransaction.TheBoardalsoconsiderstheabilityof theorganizationto absorbthecostsof theproposalandtocompleteeffectivelytheproposedintegrationof the operationsof theinstitutions.Inassessingfinancialfactors,theBoardconsiderscapital adequacytobeespeciallyimportant.TheBoardconsidersthefutureprospectsof theorganizationsinvolvedintheproposalinlightof theirfinancialandmanagerialresourcesand theproposedbusinessplan. TriCoandTriCoBankarebothwellcapitalized,andthecombinedorganizationwould remainsoonconsummationof theproposal.Theproposalisabankholdingcompany mergerthatisfundedprimarilythroughanexchangeof shares,withasubsequentmerger of thesubsidiarydepositoryinstitutions.14Theassetquality,earnings,andliquidityof bothTriCoBankandFNBankareconsistentwithapproval,andTriCoappearstohave adequateresourcestoabsorbtherelatedcostsof theproposalandtocompletetheintegrationof theinstitutions’operations.Inaddition,thefutureprospectsof theinstitutions undertheproposalareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of TriCo,FNBBancorp,andtheirsubsidiarydepositoryinstitutions,includingassessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition,the BoardhasconsideredinformationprovidedbyTriCo;theBoard’ssupervisoryexperiences andthoseof otherrelevantbanksupervisoryagencieswiththeorganizations;theorganizations’recordsof compliancewithapplicablebanking,consumerprotection,andantimoney-launderinglaws;andinformationprovidedbythecommenters. 13 12U.S.C.§1842(c)(2),(5),&(6). 14 Toeffectthetransaction,eachshareofFNBBancorpcommonstockwouldbeconvertedintoarighttoreceive TriCocommonstock,basedonanexchangeratio.CertainstockoptionsgrantedbyFNBBancorpwouldbe canceledandconvertedintotherighttoreceiveacashamount.TriCohasthefinancialresourcestoeffectthe proposal.

LegalDevelopments:SecondQuarter,2018 27 TriCo,FNBBancorp,andtheirsubsidiarydepositoryinstitutionsareeachconsideredto bewellmanaged.Thedirectorsandseniorexecutiveofficersof TriCohaveknowledgeof andexperienceinthebankingandfinancialservicessectors,andTriCo’srisk-management programappearsconsistentwithapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredTriCo’splansforimplementingtheproposal.TriCohas conductedcomprehensiveduediligenceandisdevotingsignificantfinancialandother resourcestoaddressallaspectsof thepost-acquisitionintegrationprocessforthisproposal. TriCowouldimplementitsrisk-managementpolicies,procedures,andcontrolsatthe combinedorganization,andtheseareconsideredacceptablefromasupervisoryperspective.Inaddition,TriCo’smanagementhastheexperienceandresourcestooperatethe combinedorganizationinasafeandsoundmanner,andTriCoplanstointegrateFNB Bancorp’sexistingmanagementandpersonnelinamannerthataugmentsTriCo’smanagement.15 Basedonallthefactsof record,includingTriCo’ssupervisoryrecord,managerialand operationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandthefutureprospectsof theorganizationsinvolvedintheproposal,aswellas therecordsof effectivenessof TriCoandFNBBancorpincombatingmoney-laundering activities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCAct,theBoardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.16Initsevaluationof theeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thesecommunities,aswellasotherpotentialeffectsof theproposalonthe convenienceandneedsof thesecommunities.Inthisevaluation,theBoardplaces particularemphasisontherecordsof therelevantdepositoryinstitutionsunderthe CommunityReinvestmentAct(“CRA”).17TheCRArequiresthefederalfinancialsupervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeirsafeandsoundoperation,18andrequirestheappropriatefederalfinancialsupervisoryagencytoassessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof itsentirecommunity, includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.19 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsiderstheassessmentsof otherrelevantsupervisors,the supervisoryviewsof examiners,othersupervisoryinformation,informationprovidedby theapplicant,andcommentsreceivedontheproposal.TheBoardalsomayconsiderthe 15 Followingconsummationoftheproposal,TriCo’sboardofdirectorswouldconsistofthirteendirectors, includingelevenmembersthatarecurrentlyonTriCo’sboardofdirectorsandtwomemberschosenbyTriCo thatarecurrentlyonFNBBancorp’sboardofdirectors.TriCoalsowouldhirethreeexecutiveofficersofFNB Bancorpasemployees. 16 12U.S.C.§1842(c)(2). 17 12U.S.C.§2901etseq. 18 12U.S.C.§2901(b). 19 12U.S.C.§2903.

28 FederalReserveBulletin|August2018 institution’sbusinessmodel,itsmarketingandoutreachplans,theorganization’splans afterconsummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof TriCo BankandFNBank,thefairlendingandcompliancerecordsof bothbanks,thesupervisoryviewsof theFDICandOfficeof theComptrollerof theCurrency(“OCC”),confidentialsupervisoryinformation,informationprovidedbyTriCo,andthepubliccomments receivedontheproposal. PublicCommentsontheProposal TheBoardreceivedsevenlettersobjectingtotheproposal.Allsevencommentersrequested thatapprovalof theproposalbeconditionedonTriCoBankadoptingarevisedCRAplan developedincollaborationwithcommunityorganizationsrepresentingminorityandLMI borrowers.ThecommentersrequestedthattheCRAplanincludecommitmentstoincrease lendingtominorityandLMIborrowersandsmallbusinesses,increasethenumberof TriCoBankemployeesanddirectorsthatareminorities,disclosedemographicinformation aboutthebank’sworkforce,partnerwithcommunityorganizationstoidentifyandprovide loansandtechnicalassistancetominority-ownedsmallbusinesses,developasupplierdiversityprogram,marketbankproductsinmultiplelanguagesandinpartnershipwith minority-ownedmediaoutlets,andaccepttaxidentificationnumbersfromcustomersto openaccounts.20Thesecommentersstatedthat,withoutarevisedCRAplan,theproposal wouldnotprovidepublicbenefits.OnecommenteralsoallegedthatTriCoBankhasapoor recordof lendingtominorityborrowerscomparedtoitspeerinstitutions,includingin ButteCountyandShastaCounty,bothof California.Anothercommentersuggestedthat TriCoBankshouldofferservicesdesignedspecificallyforminorityandLMIborrowers, includingparticipatingintheCaliforniaSmallBusinessLoanGuaranteeProgramand offeringmoreconsumerlendingproductsthatcompetewithbutaremoreaffordablethan paydayloans. Businessesof theInvolvedInstitutionsandResponsetothePublicComment TriCooperatesprimarilythroughTriCoBankandthebank’snetworkof branchesinCalifornia.TriCoBankoffersabroadrangeof financialproductsandservicestoconsumers andbusinesses,includingchecking,savings,moneymarket,individualretirement,educationsavings,healthsavings,andcertificateof depositaccounts;commercial,residential, smallbusiness,andconsumerloans;creditcardandmerchantcardservices,treasury management,andsimplifiedemployeepensionplans;andinvestmentadvisoryservices. FNBBancorpoperatesprimarilythroughFNBankandthebank’snetworkof branchesin California.FNBankoffersabroadrangeof financialproductstoconsumersandbusinesses,includingchecking,savings,moneymarket,healthsavings,andcertificateof deposit accounts;commercial,residential,smallbusiness,andconsumerloans;merchantcard servicesandtreasurymanagement;andinvestmentadvisoryservices. 20 TheBoardhasconsistentlyfoundthatneithertheCRAnorthefederalbankingagencies’CRAregulations requiredepositoryinstitutionstomakepledgesorenterintocommitmentsoragreementswithanyorganizations.See,e.g.,HowardBancorp,Inc.,FRBOrderNo.2018-05at9fn.21(February12,2018);SandySpring Bancorp,Inc.,FRBOrderNo.2017-32at12fn31(November22,2017);UnitedBancshares,Inc.,FRBOrder No.2017-10at12fn.28(April6,2017);HuntingtonBancsharesInc.,FRBOrderNo.2016-13at32fn.50 (July29,2016);CITGroup,Inc.,FRBOrderNo.2015-20at24fn.54(July19,2015);CitigroupInc.,88Federal ReserveBulletin485(2002);FifthThirdBancorp,80FederalReserveBulletin838,841(1994).Initsevaluation, theBoardreviewstheexistingCRAperformancerecordofanapplicantandtheprogramsthattheapplicant hasinplacetoservethecreditneedsofitsCRAAssessmentAreas.

LegalDevelopments:SecondQuarter,2018 29 TriCoassertsthatapprovalof theproposaliswarrantedbasedonthebanks’CRAperformanceevaluationsandcompliancewithstatutoryandregulatoryrequirementsrelatedto CRAandfairlendingandonTriCoBank’shistoryof engagingmembersof thecommunityabouttheirbankingneeds.TriCoassertsthatTriCoBankandFNBankhaveconsistentlymettherequirementsof theCRAandthatTriCoBankiscommittedtocontinuing tomeetitsobligationsundertheCRAafterconsummationof thetransaction. Withrespecttothecommenters’requestforaCRAplanandrelatedassertions,TriCo notesthatTriCoBankhasapublicCRAplanthatwascreatedinconsultationwith communityorganizationsandincludesgoalsforthebankrelatedtolendingtoLMI borrowers.TriCostatesthatTriCoBankhasastronghistoryof lendingtosmallbusinesses andwouldcontinuetoprioritizelendingtosmallbusinessesuponconsummationof the proposal.TriComaintainsthatTriCoBankhascompliedwithalllegalrequirements concerninghiring,reportingworkforcedemographicinformation,andcollaboratingwith diversitysuppliers.TriCoassertsthatitemploysmultilingualemployeesandhascollaboratedwithnonprofitorganizationsinitsexistingbankingmarkets.TriCoalsostatesthatit isforminganadvisorypanelof communityleadersinthemarketcurrentlyservedbyFN Banktolearnaboutandaddressthemarket’sbankingneeds. TriCodisputestheallegationof onecommenterthatTriCoBank’srecordof lendingto minorityborrowersispoor.TriCostatesthatthecommenter’sanalysisisflawedbecause theanalysisreliedonasmallsample,andTriConotesthatthecommenterdidnotfully disclosethemethodologyfortheanalysis. TriCoalsomaintainsthatitcurrentlyofferstheproductsandservicesrequestedbysomeof thecommenters.Forexample,TriCostatesthatTriCoBankhasinvestedincommunity developmentfinancialinstitutionsthatprovidesmalldollarloanstoconsumersasanalternativetopaydayloansandopensbankaccountsusingindividualtaxidentification numbers.TriCoalsostatesthatithasexistingprogramstoassistsmallbusinessborrowers inobtainingloans,includingprogramsthatinvolveloansguaranteedbytheSmallBusiness Administration. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardconsiders asubstantialamountof informationinadditiontoinformationprovidedbypublic commentersandtheresponsetocommentsbytheapplicant.Inparticular,theBoard considersexaminationsbytheappropriatefederalsupervisorsof theCRAperformance recordsof therelevantinstitutions,aswellasinformationandviewsprovidedbytheappropriatefederalsupervisors.21Inthiscase,theBoardconsideredthesupervisoryviewsof the FDICwithrespecttoTriCoBankandof theOCCwithrespecttoFNBank. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.22Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. 21 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48506, 48548(July25,2016). 22 12U.S.C.§2906.

30 FederalReserveBulletin|August2018 Ingeneral,federalfinancialsupervisorsapplyalendingtesttoevaluatetheperformanceof alargeinsureddepositoryinstitutioninhelpingtomeetthecreditneedsof thecommunitiesitserves.Thistestspecificallyevaluatestheinstitution’shomemortgage,smallbusiness, smallfarm,andcommunitydevelopmentlendingtodeterminewhethertheinstitutionis helpingtomeetthecreditneedsof individualsandgeographiesof allincomelevels.Aspart of thelendingtest,examinersreviewandanalyzeaninstitution’sdatareportedunderthe HomeMortgageDisclosureAct(“HMDA”),23inadditiontosmallbusiness,smallfarm, andcommunitydevelopmentloandatacollectedandreportedundertheCRAregulations, toassessaninstitution’slendingactivitieswithrespecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slendingperformanceisbasedonavarietyof factors,including(1)thenumberandamountsof homemortgage,smallbusiness,small farm,andconsumerloans(asapplicable)intheinstitution’sCRAAssessmentAreas (“AAs”);(2)thegeographicdistributionof theinstitution’slending,includingtheproportionanddispersionof theinstitution’slendinginitsAAsandthenumberandamountsof loansinlow-,moderate-,middle-,andupper-incomegeographies;(3)thedistributionof loansbasedonborrowercharacteristics,including,forhomemortgageloans,thenumber andamountsof loanstolow-,moderate-,middle-,andupper-incomeindividuals;24(4)the institution’scommunitydevelopmentlending,includingthenumberandamountsof communitydevelopmentloansandtheircomplexityandinnovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpracticestoaddressthecreditneedsof LMI individualsandgeographies.25Largeinstitutions,suchasTriCoBank,arealsosubjectto aninvestmenttestthatevaluatesthenumberandamountsof qualifiedinvestmentsthat benefittheirAAsandtoaservicetestthatevaluatestheavailabilityandeffectivenessof theirsystemsfordeliveringretailbankingservicesandtheextentandinnovativenessof theircommunitydevelopmentservices.26Intermediatesmallbanks,suchasFNBank,are subjecttothelendingtest,aswellasacommunitydevelopmenttestthatevaluatesthe numberandamountsof theircommunitydevelopmentloansandqualifiedinvestments;the extenttowhichtheyprovidecommunitydevelopmentservices;andtheirresponsivenessto communitydevelopmentlending,investment,andserviceneeds.27 CRAPerformanceof TriCoBank TriCoBankwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRAperformanceevaluationbytheFDIC,asof April20,2015(“TriCoBankEvaluation”).28The bankreceiveda“HighSatisfactory”ratingfortheInvestmentTestand“LowSatisfactory” ratingsfortheLendingTestandServiceTest.29TriCoBank’sperformanceintheChico MSAwasweightedmostheavilybyexaminersduetothebank’svolumeof lendingand depositactivityinthisarea. 23 12U.S.C.§2801etseq. 24 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3). 25 See12CFR228.22(b). 26 See12CFR228.21etseq. 27 12CFR228.26(c). 28 TheTriCoBankEvaluationwasconductedusingLargeInstitutionCRAExaminationProcedures.Examiners reviewedmortgageloansreportedpursuanttoHMDA,andsmallloansmadetobusinessesandfarmsas reportedunderCRAdatacollectionrequirements,from2013and2014.Theevaluationperiodforcommunity developmentloans,investments,andserviceswasJanuary7,2013,throughApril20,2015. 29 TheTriCoBankEvaluationincludedfull-scopeevaluationsoftheChicoMetropolitanStatisticalArea (“MSA”),ReddingMSA,andYubaCityMSA,allinCalifornia.Limited-scopeevaluationswereperformedfor thebank’sotherAAs.

LegalDevelopments:SecondQuarter,2018 31 Examinersfoundthatthebankmadeamajorityof itsloanswithinits23AAsandthatthe bank’slendinglevelsreflectedadequateresponsivenesstothecreditneedsof theAAs. Examinersfoundthatthedistributionof borrowersreflectedadequatepenetrationamong retailcustomersof differentincomelevelsandbusinessesandfarmcustomersof various revenuesizes.Examinersfoundthatthegeographicdistributionof loansreflectedgood penetrationthroughoutthebank’sAAs.Examinersalsofoundthatthebankexhibiteda goodrecordof servingthecreditneedsof themosteconomicallydisadvantagedareasof its AAs,low-incomeindividuals,andverysmallbusinesses. IntheChicoMSA,whichincludesanareaof concerntoonecommenter,examinersfound thatTriCoBank’slendinglevelsreflectedadequateresponsivenesstocreditneeds.ExaminersfoundthatTriCoBankhadthehighestmarketshareof smallbusinessandsmallfarm originationsof alllendersreportingCRAlendingdataintheChicoMSAduringthe examinationreviewperiod.Examinersfoundthatthegeographicdistributionof loans reflectedgoodpenetrationthroughouttheChicoMSA,notinggoodpenetrationforsmall businessloans,adequatepenetrationforhomemortgageloans,andpoorpenetrationfor smallfarmloans.Examinersfoundthatthedistributionof borrowersreflectedoverall adequatepenetrationamongretailcustomersof differentincomelevelsandamongbusinessandfarmborrowersof differentrevenuesizes,includingadequatepenetrationfor smallbusinessloansandhomemortgageloansandgoodpenetrationforsmallfarmloans. IntheReddingMSA,whichincludesanotherareaof concerntothesamecommenter, examinersfoundthatTriCoBank’slendinglevelsreflectedadequateresponsivenessto creditneeds.ExaminersfoundthatTriCoBankhadthehighestmarketshareof smallbusinessandsmallfarmoriginationsof alllendersreportingCRAlendingdataintheRedding MSAduringtheexaminationreviewperiod.Examinersfoundthatthegeographicdistributionof loansreflectedgoodpenetrationthroughouttheReddingMSA,includingoverall goodpenetrationforsmallbusinessloans,goodpenetrationformortgageloans,andexcellentpenetrationforsmallfarmloans.Examinersfoundthatthe distributionof borrowersreflectedoverallgoodpenetrationamongretailcustomersof differentincomelevelsandbusinessandamongfarmborrowersof differentrevenuesizes, includingadequatepenetrationforsmallbusinessloansandgoodpenetrationforhome mortgageandsmallfarmloans. Inallof itsAAs,examinersfoundthatTriCoBankhadasignificantlevelof community developmentinvestmentsthatreflectedgoodresponsivenesstocreditandcommunity economicdevelopmentneeds.Examinersfoundthatthebankmadesignificantuseof innovativeandcomplexinvestmentstosupportcommunitydevelopmentinitiatives, includingforaffordablehousingandeconomicdevelopment. ExaminersfoundthatTriCoBank’sdeliverysystemswereaccessibletoallportionsof the bank’sAAs.Examinersfoundthatthebank’sbrancheswerereasonablydistributedand thatthebank’sservicesandhoursof operationdidnotvaryinawaythatinconvenienced anyportionof thebank’sAAs,includinginLMIgeographies.ExaminersfoundthatTriCo Bankprovidedanadequatelevelof communitydevelopmentservices. TriCoBank’sEffortsSincetheTriCoBankEvaluation TriCostatesthat,sincetheTriCoBankEvaluation,TriCoBankhasengagedinsignificant activitiestocontinueandimproveitsCRAperformance.Specifically,TriCoBankhasmade commercialloanstodevelopaffordablehousingandcontinuedtoinvestinprojects receivingFederalLowIncomeHousingTaxCredits.TriCoBankhasinvestedincommunitydevelopmentfinancialinstitutionsthatinvestinaffordablehousingandsmallbusi-

32 FederalReserveBulletin|August2018 nesses.TriCoBankhasalsoassistedvariousnonprofitorganizationsinobtaininggrants fromtheFederalHomeLoanBankof SanFranciscotodevelopaffordablehousing.TriCo Bank’semployeesalsohaveprovidedtechnicalsupporttononprofitorganizationsthat focusondevelopingaffordablehousingandtosmallbusinessesandteachingfinancial literacy.TriCofurtherstatesthatTriCoBankhasenteredintoapublicCRAplanto, amongotherthings,obtainanoverall“Outstanding”CRArating;meetorexceedlending byitscompetitorstoLMIborrowers,smallbusinesses,andsmallfarms;andachieve specificlevelsof communitydevelopmentlendingandCRAinvestments. CRAPerformanceof FNBank FNBankreceivedanoverallratingof “Satisfactory”atitsmostrecentCRAperformance evaluationbytheOCC,asof March14,2016(“FNBankEvaluation”).30Thebank received“Satisfactory”ratingsfortheLendingTestandCommunityDevelopmentTest.31 ExaminersfoundthatFNBankachievedreasonablepenetrationinitslendingtoborrowers of differentincomelevelsandthatthegeographicdistributionof thebank’sloans throughoutcensustractsrepresentedexcellentdispersion.ExaminersfoundthatFN Bank’sloan-to-depositratiowasreasonableandthatthemajorityof thebank’sloansare madewithinitsAAs. ExaminersfoundthatFNBank’scommunitydevelopmentactivitiesdemonstrated adequateresponsivenesstothecommunitydevelopmentneedsof itsAAs.Examiners foundthatFNBank’scommunitydevelopmentlendingandinvestmentsdemonstrated adequateandexcellentresponsiveness,respectively,tocommunitydevelopmentneedsinthe bank’sAAs. AdditionalSupervisoryViews TheBoardhasconsideredtheresultsof themostrecentconsumercomplianceexamination of TriCoBankconductedbyFDICexaminers,whichincludedareviewof thebank’s compliancemanagementprogramandthebank’scompliancewithconsumerprotection lawsandregulations.TheBoardhasalsoconsideredtheresultsof themostrecent consumercomplianceexaminationof FNBankconductedbytheOCC,whichincludeda reviewof thebank’sconsumercompliancefunction. TheBoardhastakenthisinformation,aswellastheCRAperformancerecordsof TriCo BankandFNBank,intoaccountinevaluatingtheproposal,includinginconsidering whetherTriCohastheexperienceandresourcestoensurethatTriCoBankhelpstomeet thecreditneedsof thecommunitieswithinitsAAs. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.TriCorepresentsthat,followingconsummationof theproposal,existingcustomersof TriCoBankandFNBankwouldbenefitfroman expandedbranchandATMnetworkandabroaderrangeof financialproductsandservices. 30 TheFNBankEvaluationwasconductedusingtheIntermediateSmallInstitutionExaminationProcedures. ExaminersreviewedhomemortgageandsmallbusinessloansoriginatedorpurchasedfromJanuary1,2013, throughDecember31,2015.Theevaluationperiodforcommunitydevelopmentlending,investments,and serviceswasfromJanuary7,2013,toMarch14,2016. 31 TheFNBankEvaluationincludedafull-scopeevaluationoftheSanFrancisco-RedwoodCity-SouthSan FranciscoMetropolitanDistrict.Alimited-scopeevaluationwasconductedinthebank’sotherAA.

LegalDevelopments:SecondQuarter,2018 33 TriComaintainsthatexistingcustomersof FNBankwouldbenefitfromparticipationin TriCoBank’sprogramthatofferscustomersaccesstoalargenetworkof ATMsfornofee. TriCorepresentsthatthecombinedorganizationwouldachievegreatereconomiesof scale thatwouldresultinexpandedservicesatmoreaffordableprices.TriCoalsonotesthatthe combinedorganizationwouldhaveadditionalcapitaltosupportalargerlegallendinglimit. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws,supervisoryviewsof theFDICandOCC, confidentialsupervisoryinformation,informationprovidedbyTriCo,thepubliccomments ontheproposal,andotherpotentialeffectsof theproposalontheconvenienceandneeds of thecommunitiestobeserved.Basedonthatreview,theBoardconcludesthattheconvenienceandneedsfactorisconsistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedsection3of theBHCActandtheBankMergerActtorequiretheBoardto consider“theextenttowhichaproposedacquisition,merger,orconsolidationwouldresult ingreaterormoreconcentratedriskstothestabilityof theUnitedStatesbankingor financialsystem.”32 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theU.S.bankingor financialsystem,theBoardconsidersavarietyof metricsthatcapturethesystemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactiononthesystemic footprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresulting firm,theavailabilityof substituteprovidersforanycriticalproductsandservicesofferedby theresultingfirm,theinterconnectednessof theresultingfirmwiththebankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothecomplexityof the financialsystem,andtheextentof thecross-borderactivitiesof theresultingfirm.33These categoriesarenotexhaustive,andadditionalcategoriescouldinformtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoardconsidersqualitativefactors, suchastheopaquenessandcomplexityof aninstitution’sinternalorganization,thatare indicativeof therelativedegreeof difficultyof resolvingtheresultingfirm.Afinancial institutionthatcanberesolvedinanorderlymannerislesslikelytoinflictmaterialdamage tothebroadereconomy.34 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof 32 Dodd-FrankAct§604(d),Pub.L.No.111-203,124Stat.1376,1601-1602(2010),codifiedat12U.S.C. §1842(c)(7). 33 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheU.S.financial system. 34 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012).

34 FederalReserveBulletin|August2018 thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.35 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the U.S.bankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.Both theacquirerandthetargetarepredominantlyengagedinretailandcommercialbanking activities.36Theproformaorganizationwouldhaveminimalcross-borderactivitiesand wouldnotexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.In addition,theorganizationwouldnotbeacriticalservicesproviderorsointerconnected withotherfirmsorthemarketsthatitwouldposeasignificantrisktothefinancialsystem intheeventof financialdistress.Inlightof allthefactsandcircumstances,thistransaction wouldnotappeartoresultinmeaningfullygreaterormoreconcentratedriskstothe stabilityof theU.S.bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheproposal shouldbe,andherebyis,approved.37Inreachingitsconclusion,theBoardhasconsideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunderthe BHCActandotherapplicablestatutes.TheBoard’sapprovalisspecificallyconditionedon compliancebyTriCowithalltheconditionsimposedinthisorder,includingreceiptof all requiredregulatoryapprovals,andonanycommitmentsmadetotheBoardinconnection withtheproposal.Theconditionsandcommitmentsaredeemedtobeconditionsimposed inwritingbytheBoardinconnectionwithitsfindingsanddecisionhereinand,assuch, maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethe15thcalendardayaftertheeffectivedate of thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedforgood causebytheBoardortheFederalReserveBankof SanFrancisco,actingunderdelegated authority. 35 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 36 Asnoted,TriCoandFNBBancorpofferarangeofretailandcommercialbankingproductsandservices. TriCohas,andasaresultoftheproposalwouldcontinuetohave,asmallmarketshareintheseproductsand servicesonanationwidebasis. 37 TheBoardconstruesthecommentsreceivedontheproposaltoincluderequeststhattheBoardholdpublic hearingsontheproposal.Section3(b)oftheBHCActdoesnotrequirethattheBoardholdapublichearing onanyproposalunlesstheappropriatesupervisoryauthoritiesfortheacquiringbankorthebanktobe acquiredmakeatimelywrittenrecommendationofdisapprovaloftheproposal.12U.S.C.§1842(b);12CFR 225.16(e).TheBoardhasnotreceivedsucharecommendationfromtheappropriatesupervisoryauthorities. Underitsrules,theBoardalso,initsdiscretion,mayholdapublichearingifappropriatetoallowinterested personsanopportunitytoproviderelevanttestimonywhenwrittencommentswouldnotadequatelypresent theirviews.TheBoardhasconsideredthecommenters’requestsinlightofallofthefactsofrecord.Inthe Board’sview,thecommentershavehadampleopportunitytosubmitcommentsontheproposaland,infact, submittedwrittencommentsthattheBoardhasconsideredinactingontheproposal.Thecommenters’ requestsdonotidentifydisputedissuesoffactthatarematerialtotheBoard’sdecisionandthatwouldbeclarifiedbyapublichearing.Inaddition,therequestsdonotdemonstratewhythewrittencommentsdonotpresent thecommenters’viewsadequatelyorwhyahearingotherwisewouldbenecessaryorappropriate.Forthese reasons,andbasedonallthefactsofrecord,theBoardhasdeterminedthatapublichearingisnotrequiredor warrantedinthiscase.Accordingly,therequestsforpublichearingontheproposalaredenied.

LegalDevelopments:SecondQuarter,2018 35 Byorderof theBoardof Governors,effectiveJune6,2018. Votingforthisaction:ChairmanPowell,ViceChairmanforSupervisionQuarles,and GovernorBrainard. AnnE.Misback Secretaryof theBoard

36 FederalReserveBulletin|August2018 Ameris Bancorp Moultrie, Georgia OrderApprovingtheAcquisitionof aBankHoldingCompany FRBOrderNo.2018-14(June13,2018) AmerisBancorp(“Ameris”),Moultrie,Georgia,abankholdingcompanywithinthe meaningof theBankHoldingCompanyActof 1956(“BHCAct”),1hasrequestedthe Board’sapprovalundersection3of theBHCAct2tomergewithHamiltonState Bancshares,Inc.(“Hamilton”),andtherebyindirectlyacquireHamiltonStateBank,both of Hoschton,Georgia.HamiltonStateBankwouldbemergedintoAmeris’ssubsidiary bank,AmerisBank,Moultrie,Georgia.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(83FederalRegister10,852(March13,2018)).4Thetimeforsubmitting commentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct. Ameris,withconsolidatedassetsof approximately$7.9billion,isthe158thlargestinsured depositoryorganizationintheUnitedStates.Ameriscontrolsapproximately$6.6billionin consolidateddeposits,whichrepresentlessthan1percentof thetotalamountof deposits of insureddepositoryinstitutionsintheUnitedStates.5AmeriscontrolsAmerisBank, whichoperatesinGeorgia,Florida,Alabama,andSouthCarolina.Amerisisthe 14thlargestinsureddepositoryorganizationinGeorgia,controllingdepositsof approximately$2.8billion,whichrepresent1.2percentof thetotaldepositsof insureddepository institutionsinthatstate.6 Hamilton,withconsolidatedassetsof approximately$1.8billion,isthe430thlargest insureddepositoryorganizationintheUnitedStates.Hamiltoncontrolsapproximately $1.5billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.Hamilton controlsHamiltonStateBank,whichoperatesonlyinGeorgia.Hamiltonisthe 19thlargestinsureddepositoryorganizationinGeorgia,controllingdepositsof approximately$1.5billion,whichrepresent0.6percentof thetotaldepositsof insureddepository institutionsinthatstate. Onconsummationof theproposal,Ameriswouldbecomethe136thlargestinsureddepositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $9.6billion,7whichrepresentlessthan1percentof thetotalassetsof insureddepository organizationsintheUnitedStates.Ameriswouldcontroltotaldepositsof approximately $8.2billion,whichrepresentlessthan1percentof thetotalamountof depositsof insured depositoryinstitutionsintheUnitedStates.InGeorgia,Ameriswouldbecomethe 9thlargestinsureddepositoryorganization,controllingdepositsof approximately 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 ThemergerofHamiltonStateBankintoAmerisBankissubjecttoapprovalbytheFederalDepositInsurance Corporation(“FDIC”),pursuanttosection18(c)oftheFederalDepositInsuranceAct.12U.S.C.§1828(c). 4 12CFR262.3(b). 5 NationalassetanddepositdataareasofDecember31,2017,unlessotherwisenoted. 6 StatedepositdataareasofJune30,2017,unlessotherwisenoted.Inthiscontext,insureddepositoryinstitutionsincludecommercialbanks,savingsassociations,andsavingsbanks. 7 ConsolidatedassetsareasofMarch31,2018,anddonotreflectAmeris’srecentacquisitionofAtlanticCoast FinancialCorporation.SeeAmerisBancorp,FRBOrderNo.2018-12(May9,2018).

LegalDevelopments:SecondQuarter,2018 37 $4.4billion,whichrepresent1.8percentof thetotaldepositsof insureddepositoryinstitutionsinthestate. CompetitiveConsiderations Section3of theBHCActprohibitstheBoardfromapprovingaproposalthatwouldresult inamonopolyorwouldbeinfurtheranceof anattempttomonopolizethebusinessof bankinginanyrelevantmarket.8TheBHCActalsoprohibitstheBoardfromapprovinga proposalthatwouldsubstantiallylessencompetitionortendtocreateamonopolyinany bankingmarket,unlesstheanticompetitiveeffectsof theproposalareclearlyoutweighedin thepublicinterestbytheprobableeffectof theproposalinmeetingtheconvenienceand needsof thecommunitytobeserved.9 AmerisBankandHamiltonStateBankcompetedirectlyintheAtlanta,Georgia,banking market(“Atlantamarket”).10TheBoardhasconsideredthecompetitiveeffectsof the proposalinthisbankingmarket.Inparticular,theBoardhasconsideredthenumberof competitorsthatwouldremaininthemarket;therelativeshareof totaldepositsininsured depositoryinstitutionsinthemarket(“marketdeposits”)thatAmeriswouldcontrol;11the concentrationlevelof marketdepositsandtheincreaseinthislevel,asmeasuredbythe Herfindahl-HirschmanIndex(“HHI”)undertheDepartmentof JusticeBankMerger CompetitiveReviewguidelines(“DOJBankMergerGuidelines”);12andothercharacteristicsof themarket. Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesintheAtlantamarket.Onconsummation of theproposal,theAtlantamarketwouldremainmoderatelyconcentratedasmeasuredby theHHI,accordingtotheDOJBankMergerGuidelines.TheHHIwouldnotchange,and numerouscompetitorswouldremaininthemarket.13 8 12U.S.C.§1842(c)(1). 9 12U.S.C.§1842(c)(1)(B). 10 TheAtlantamarketisdefinedasBartow,Cherokee,Clayton,Cobb,Coweta,Dawson,DeKalb,Douglas, Fayette,Forsyth,Fulton,Gwinnett,Henry,Newton,Paulding,Rockdale,andWaltonCounties,HallCounty minusthetownofClermont,thetownsofAuburnandWinderinBarrowCounty,andLuthersvillein MeriwetherCounty,allinGeorgia. 11 LocaldepositandmarketsharedataareasofJune30,2017,andarebasedoncalculationsinwhichthe depositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhasindicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorstocommercialbanks.See,e.g., MidwestFinancialGroup,75FederalReserveBulletin386(1989);NationalCityCorporation,70FederalReserve Bulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsinthemarketsharecalculationona 50percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserveBulletin52(1991). 12 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableatwww.justice.gov/opa/pr/ 2010/August/10-at-938.html. 13 Amerisoperatesthe57thlargestdepositoryinstitutionintheAtlantamarket,controllingapproximately $81.1millionindeposits,whichrepresent0.05percentofmarketdeposits.Hamiltonoperatesthe17thlargest depositoryinstitutioninthesamemarket,controllingdepositsofapproximately$1.2billion,whichrepresent approximately0.72percentofmarketdeposits.Onconsummationoftheproposedtransaction,Ameriswould becomethe17thlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately $1.3billion,whichrepresentapproximately0.77percentofmarketdeposits.TheHHIfortheAtlantamarket wouldremainunchangedat1616,and81otherbankingorganizationswouldremaininthemarket.

38 FederalReserveBulletin|August2018 TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket.Inaddition,the appropriatebankingagencieshavebeenaffordedanopportunitytocommentandhavenot objectedtotheproposal. Basedonallof thefactsof record,theBoardconcludesthatconsummationof the proposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheAtlantamarketorinanyotherrelevantbankingmarket.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCAct,theBoardconsidersthefinancial andmanagerialresourcesandthefutureprospectsof theinstitutionsinvolved.14Inits evaluationof financialfactors,theBoardreviewsinformationregardingthefinancial conditionof theorganizationsinvolvedonbothparent-onlyandconsolidatedbases,as wellasinformationregardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.Inthisevaluation,the Boardconsidersavarietyof informationregardingcapitaladequacy,assetquality, liquidity,andearningsperformance,aswellaspubliccommentsontheproposal.The Boardevaluatesthefinancialconditionof thecombinedorganization,includingitscapital position,assetquality,liquidity,earningsprospects,andtheimpactof theproposed fundingof thetransaction.TheBoardalsoconsiderstheabilityof theorganizationto absorbthecostsof theproposalandtocompleteeffectivelytheproposedintegrationof the operationsof theinstitutions.Inassessingfinancialfactors,theBoardconsiderscapital adequacytobeespeciallyimportant.TheBoardconsidersthefutureprospectsof theorganizationsinvolvedintheproposalinlightof theirfinancialandmanagerialresourcesand theproposedbusinessplan. AmerisandAmerisBankarewellcapitalized,andthecombinedorganizationwould remainsoonconsummationof theproposal.Theproposedtransactionisabankholding companymergerthatisstructuredasacash-shareexchange,withasubsequentmergerof thesubsidiarydepositoryinstitutions.15Theassetquality,earnings,andliquidityof both AmerisBankandHamiltonStateBankareconsistentwithapproval,andAmerisappears tohaveadequateresourcestoabsorbtherelatedcostsof theproposalandtocompletethe integrationof theinstitutions’operations.Inaddition,thefutureprospectsof theinstitutionsundertheproposalareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of Ameris,Hamilton,andtheirsubsidiarydepositoryinstitutions,includingassessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition,theBoardhas consideredinformationprovidedbyAmeris;theBoard’ssupervisoryexperiencesandthose of otherrelevantbanksupervisoryagencieswiththeorganizations;theorganizations’ recordsof compliancewithapplicablebanking,consumerprotection,andanti-moneylaunderinglaws;andinformationprovidedbythecommenter. 14 12U.S.C.§1842(c)(2),(5),and(6). 15 Aspartoftheproposedtransaction,eachshareofHamiltoncommonstockwouldbeconvertedintotheright toreceive(i)0.16sharesofAmeriscommonstocktogetherwithcashinlieuofanyfractionalsharesand (ii)$0.93incash.Amerishasthefinancialresourcestoeffecttheproposedtransaction.

LegalDevelopments:SecondQuarter,2018 39 Ameris,Hamilton,andtheirsubsidiarydepositoryinstitutionsareeachconsideredtobe wellmanaged.Amerishasarecordof successfullyintegratingorganizationsintoitsoperationsandrisk-managementsystemsafteracquisitions.Ameris’sdirectorsandsenior executiveofficershaveknowledgeof andexperienceinthebankingandfinancialservices sectors,andAmeris’srisk-managementprogramappearsconsistentwithapprovalof this expansionaryproposal. TheBoardalsohasconsideredAmeris’splansforimplementingtheproposal.Amerishas conductedcomprehensiveduediligenceandisdevotingsignificantfinancialandother resourcestoaddressallaspectsof thepost-acquisitionintegrationprocessforthisproposal. Ameriswouldimplementitsrisk-managementpolicies,procedures,andcontrolsatthe combinedorganization,andtheseareconsideredacceptablefromasupervisoryperspective.Inaddition,Ameris’smanagementhastheexperienceandresourcestooperatethe combinedorganizationinasafeandsoundmanner,andAmerisrepresentsthatthereare noanticipatedchangeswithrespecttotheexecutiveofficersanddirectorsof Amerisor AmerisBankasaresultof theproposal. Basedonallof thefactsof record,includingAmeris’ssupervisoryrecord,managerialand operationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandthefutureprospectsof theorganizationsinvolvedintheproposal,aswellas therecordsof effectivenessof AmerisandHamiltonincombattingmoney-laundering activities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCAct,theBoardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.16Initsevaluationof theeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thecommunitiestheyserve,aswellasotherpotentialeffectsof theproposalon theconvenienceandneedsof thecommunitiestobeserved.Inthisevaluation,theBoard placesparticularemphasisontherecordsof therelevantdepositoryinstitutionsunderthe CommunityReinvestmentAct(“CRA”).17TheCRArequiresthefederalfinancialsupervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeinstitutions’safeand soundoperation,18andrequirestheappropriatefederalfinancialsupervisoryagencyto assessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof itsentire community,includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluating bankexpansionaryproposals.19 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,thesupervisoryviewsof examiners,othersupervisoryinformation,informationprovidedbytheapplicant,andcommentsreceivedontheproposal.TheBoardalsomayconsidertheinstitu- 16 12U.S.C.§1842(c)(2). 17 12U.S.C.§2901etseq. 18 12U.S.C.§2901(b). 19 12U.S.C.§2903.

40 FederalReserveBulletin|August2018 tion’sbusinessmodel,itsmarketingandoutreachplans,theorganization’splansafter consummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof Ameris BankandHamiltonStateBank,thefairlendingandcompliancerecordsof bothbanks, thesupervisoryviewsof theFDIC,confidentialsupervisoryinformation,information providedbyAmeris,andthepubliccommentreceivedontheproposal. PublicCommentontheProposal Inthiscase,acommenterobjectedtotheproposalonthebasisof allegeddisparitiesinthe numberof homemortgageloansmadebyAmerisBankto,and/orintherateof denialsfor homemortgageapplicationsfrom,AfricanAmericansand/orHispanics,ascomparedto whites,inAtlanta,Georgia;Jacksonville,Florida;andTallahassee,Florida,basedondata reportedundertheHomeMortgageDisclosureActof 1975(“HMDA”).20Thecommenter alsoallegedthatAmerisBankengagedinpredatorycollectionof overdraftfeesand expressedconcernoverAmeris’srecentrecordof mergersandacquisitions.Theallegations againstAmeriswereconsideredbytheBoardinitsMay9,2018,approvalof Ameris’s applicationtoacquireAtlanticCoastFinancialCorporation21andbytheFDICinits April24,2018,approvalof therelatedbankmergerapplication. Inaddition,thecommenteralleged,basedonHMDAdata,disparitiesinHamiltonState Bank’srateof denialstoAfricanAmericansinAtlanta,Georgia.Thecommenteralso allegeddisparitiesinthelevelof applicationsfromAfricanAmericansinAtlanta,whichit attributedtodisparatemarketingbyHamiltonStateBank. Businessesof theInvolvedInstitutionsandResponsetothePublicComment Throughitsnetworkof branchesinGeorgia,Florida,Alabama,andSouthCarolina, AmerisBankoffersavarietyof productsandservices,includingrealestateloans,autosecuredandrecreational-vehicle-securedloans,andhomeequitylinesof credit.Ameris Bankalsooffersvariousdepositproductsforbothbusinessesandconsumers. HamiltonStateBankoffersafulllineof consumerandbusinessloananddepositproducts, aswellasrelatedfinancialservices,throughitsbranchesinGeorgia.HamiltonStateBank’s productsandservicesincludecommercialandresidentialrealestateloans,equipment financing,checkingandsavingsaccounts,certificatesof deposit,andretirementaccounts. Inresponsetothecommenter’sallegations,Amerisassertsthatapprovalof theproposed transactioniswarrantedbasedonAmerisBank’sCRAperformanceevaluationand AmerisBank’sinvolvementinotherprogramstailoredtoassistLMIindividualsandfirsttimehomebuyersinpursuingormaintaininghomeownership.AmerisnotesthatHMDA datadonottakeintoconsiderationothercriticalinputs,suchasborrowercreditworthiness, collateralvalue,creditscores,andotherfactorsrelevanttocreditdecisions.Amerisalso assertsthatHMDAdatadonotreflecttherangeof AmerisBank’slendingactivitiesand effortswithinthecommunitiesitserves.Amerisarguesthatthecommenter’sallegationof predatoryoverdraftfeesisbasedonanisolatedcallreporterrorforwhichacorrectionwas filedbyAmerisBankafterreceivingclarificationfromtheFDIC. 20 12U.S.C.§2801etseq. 21 SeeAmerisBancorp,FRBOrderNo.2018-12at11(May9,2018).

LegalDevelopments:SecondQuarter,2018 41 Inresponsetothecommenter’sallegationsregardingHamiltonStateBank,Amerisasserts thatHamiltonStateBankhastraditionallyfocusedoncommercialbankingandthatits mortgageproductsarelimitedtoqualifiedmortgagesthatincludeconventionalfixed-rate andARMloansandarenotactivelypursuedbyHamiltonStateBank.Amerisalsoasserts thatHamiltonStateBank’sCRAperformanceisconsistentwithapprovalandthat HamiltonStateBankhasnotreceivedanyfairlendingcomplaints. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardconsiders asubstantialamountof informationinadditiontoinformationprovidedbypublic commentersandtheresponsetocommentsbytheapplicant.Inparticular,theBoard considersexaminationsbytheappropriatefederalsupervisorsof theCRAperformance recordsof therelevantinstitutions,aswellasinformationandviewsprovidedbythose supervisors.22Inthiscase,theBoardconsideredthesupervisoryviewsof theFDICwith respecttobothinstitutions. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.23Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplyalendingtesttoevaluatetheperformance of largeinsureddepositoryinstitutions,suchasAmerisBankandHamiltonStateBank,in helpingtomeetthecreditneedsof thecommunitiestheyserve.Thelendingtestspecificallyevaluatestheinstitution’slendingtodeterminewhethertheinstitutionishelpingto meetthecreditneedsof individualsandgeographiesof allincomelevels.Aspartof the lendingtest,examinersreviewandanalyzeaninstitution’sdatareportedunderHMDA,in additiontosmallbusiness,smallfarm,andcommunitydevelopmentloandatacollected andreportedundertheCRAregulations,toassessaninstitution’slendingactivitieswith respecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slending performanceisbasedonavarietyof factors,including(1)thenumberandamountsof homemortgage,smallbusiness,smallfarm,andconsumerloans(asapplicable)intheinstitution’sCRAassessmentareas(“AAs”);(2)thegeographicdistributionof theinstitution’slending,includingtheproportionanddispersionof theinstitution’slendinginits AAsandthenumberandamountsof loansinlow-,moderate-,middle-,andupper-income geographies;(3)thedistributionof loansbasedonborrowercharacteristics,including,for homemortgageloans,thenumberandamountsof loanstolow-,moderate-,middle-, andupper-incomeindividuals;24(4)theinstitution’scommunitydevelopmentlending, includingthenumberandamountsof communitydevelopmentloansandtheircomplexity andinnovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpractices toaddressthecreditneedsof LMIindividualsandgeographies.25Largeinstitutionsalso aresubjecttoaninvestmenttest,whichevaluatesthenumberandamountsof qualified investmentsthatbenefittheirAAs,andaservicetest,whichevaluatestheavailabilityand 22 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48,506, 48,548(July25,2016). 23 12U.S.C.§2906. 24 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3). 25 See12CFR228.22(b).

42 FederalReserveBulletin|August2018 effectivenessof theirsystemsfordeliveringretailbankingservicesandtheextentand innovativenessof theircommunitydevelopmentservices.26 TheBoardisconcernedwhenHMDAdatareflectdisparitiesintheratesof loanapplications,originations,anddenialsamongmembersof differentracialorethnicgroupsinlocal areas.Thesetypesof disparitiesmayindicateweaknessesintheadequacyof policiesand programsataninstitutionformeetingitsobligationstoextendcreditfairly.However,other informationcriticaltoaninstitution’screditdecisionsisnotavailablefromHMDAdata.27 Consequently,HMDAdatadisparitiesmustbeevaluatedinthecontextof otherinformationregardingthelendingrecordof aninstitution. CRAPerformanceof AmerisBank AmerisBankwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheFDIC,asof October3,2016(“AmerisBankEvaluation”).28 Thebankreceived“HighSatisfactory”ratingsfortheLendingTestandtheServiceTest anda“LowSatisfactory”ratingfortheInvestmentTest.29 Examinersfoundthatthebank’slendinglevelsreflectedgoodresponsivenesstothebank’s AAneedsandthatthebankmadeamajorityof itsloanswithinitsAAs.Examiners determinedthatthebank’sborrowerprofilerevealedgoodpenetrationamongretail customersof differentincomelevelsandbusinessesof differentsizes.Examinersfurther foundthatthegeographicdistributionof thebank’sloansreflectedgoodpenetration throughoutthebank’sAAs.Examinersnotedthatthebankexhibitedagoodrecordof servingthecreditneedsof themosteconomicallydisadvantagedareasof itsAAs,LMI individuals,andverysmallbusinesses,consistentwithsafeandsoundbankingpractices. ExaminersfoundthatAmerisBankmadeahighlevelof communitydevelopmentloans andthatitusedflexiblelendingpracticesinordertoserveitsAAs.Withrespecttothe Atlantamarket,examinersfoundthatlendinglevelsreflectedgoodresponsivenesstocredit needsandthatHMDAdatareflectedexcellentpenetrationthroughouttheAA.With respecttotheTallahasseemarket,examinersfoundthatlendinglevelsreflectedgood responsivenesstocreditneedsandthatHMDAdatareflectedgoodpenetrationthroughout theAA.WithrespecttotheJacksonvillemarket,examinersfoundthatlendinglevels reflectedadequateresponsivenesstocreditneedsandthatHMDAdatareflectedgood penetrationthroughouttheAA. ExaminersfoundthatAmerisBankhadanadequatelevelof qualifiedcommunitydevelopmentinvestmentsanddonationsandthatthebankexhibitedadequateresponsivenessto creditandcommunityeconomicdevelopmentneeds.Examinersnotedthatthebankoccasionallyusedinnovativeorcomplexinvestmentstosupportitscommunitydevelopment initiatives. 26 See12CFR228.21etseq. 27 Otherinformationrelevanttocreditdecisionscouldincludecredithistory,debt-to-incomeratios,andloan-tovalueratios.Accordingly,whenconductingfairlendingexaminations,examinersanalyzesuchadditionalinformationbeforereachingadeterminationregardinganinstitution’scompliancewithfairlendinglaws. 28 TheAmerisBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Examiners reviewedresidentialmortgage,smallbusiness,andsmallfarmloansfromJanuary1,2014,throughJune30, 2016.Inaddition,examinersconsideredthecommunitydevelopmentloansoriginatedbyAmerisBankbetween January21,2014,andOctober3,2016,aswellasallqualifiedinvestmentseitherpurchasedpriortobutstill outstandingasoftheevaluationdateorpurchasedduringtheevaluationperiodandallcommunitydevelopmentservicesperformedduringtheevaluationperiod. 29 TheAmerisBankEvaluationreviewedthebank’sactivitiesineachofits22AAsthroughoutGeorgia,Florida, Alabama,andSouthCarolina.

LegalDevelopments:SecondQuarter,2018 43 ExaminersfoundthatAmerisBank’sdeliverysystemswerereasonablyaccessibletoessentiallyallportionsof itsAAsandthat,totheextentchangeshadbeenmade,thebank’s openingandclosingof branchesthroughoutitsAAshadnotadverselyaffectedtheaccessibilityof itsdeliverysystems,particularlyinLMIgeographiesandtoLMIindividuals. Examinersfurtherfoundthatservicesandbusinesshoursdidnotvaryinawaythatinconveniencedcertainportionsof itsAAs,particularlyLMIgeographiesandindividuals,and thatthebankprovidedarelativelyhighlevelof communitydevelopmentserviceswithin itsAAs. AmerisBank’sEffortssincetheAmerisBankEvaluation Amerisrepresentsthat,sincetheAmerisBankEvaluation,AmerisBankhascontinuedto meetthecreditneedsof itscommunities.Specifically,AmerisrepresentsthatAmerisBank reportedasignificantvolumeof loanstofirst-timehomebuyersin2017.AmerisalsorepresentsthatAmerisBankparticipatesinfederalloanprogramstailoredtoassistLMIindividualsandfirst-timehomebuyers. CRAPerformanceof HamiltonStateBank HamiltonStateBankreceivedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheFDIC,asof October19,2015(“HamiltonStateBank Evaluation”).30Thebankreceiveda“HighSatisfactory”ratingfortheLendingTestand “LowSatisfactory”ratingsfortheInvestmentTestandtheServiceTest.31 ExaminersconcludedthatHamiltonStateBank’slendingperformancereflectedgood responsivenesstothecreditneedsinitsAAsandthatahighpercentageof thebank’sloans wereoriginatedinitsAAs.Examinersfoundthatthegeographicdistributionof thebank’s homemortgageandsmallbusinessloansreflectedanexcellentdispersionthroughoutits AAs.Examinersalsofoundthatthebank’sdistributionof loansamongindividualsof differentincomelevelsandbusinessesof differentsizeswasgood.Examinersnotedthatthe bankhadanadequatelevelof qualifiedcommunitydevelopmentinvestmentsanddonationsandthatthebankshowedadequateresponsivenesstocreditandcommunity economicdevelopmentneeds.Finally,examinersfoundthebank’sdeliverysystemstobe reasonablyaccessibletoessentiallyallportionsof thebank’sAAs,includinginLMIareas andtoLMIindividuals. Viewsof theFDIC TheBoardhasconsultedwiththeFDICregardingAmerisBank’sCRA,consumercompliance,andfairlendingrecords.TheFDICreviewedthebankmergerapplicationunderlying thisproposaland,insodoing,consideredthecommentreceivedbytheBoard.TheBoard hasconsideredtheresultsof theFDIC’smostrecentconsumercomplianceexaminationof AmerisBank,whichincludedanevaluationof thebank’scompliancemanagement system,withanemphasisonareasexhibitingthepotentialriskof consumerharm.Asa partof theexamination,thefairlendingreviewincludedananalysisof thebank’sresidentiallending. TheBoardalsohasconsideredtheresultsof theFDIC’smostrecentconsumercompliance examinationof HamiltonStateBank,whichincludedarisk-focusedreviewof thebank’s 30 TheHamiltonStateBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.ExaminersreviewedsmallbusinessloansfromJanuary1,2014,throughJune30,2015,andhomemortgageloans reportedonthebank’s2013,2014,andyear-to-date2015HMDALoanApplicationRegisters. 31 TheHamiltonStateBankEvaluationincludedfull-scopeevaluationsoftheAtlantaMetropolitanStatistical Area(MSA)AAandtheGainesvilleMSAAA.

44 FederalReserveBulletin|August2018 compliancemanagementsystem,withanemphasisonareasexhibitinggreaterpotential riskof consumerharm,andafairlendingreview. TheBoardhastakentheconsultationswiththeFDICandtheinformationdiscussedabove intoaccountinevaluatingtheproposal,includinginconsideringwhetherAmerishasthe experienceandresourcestoensurethatAmerisBankhelpstomeetthecreditneedsof the communitieswithinitsAAs. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.Amerisrepresentsthat,followingconsummationof theproposal,existingcustomersof HamiltonStateBankwouldbenefitfromthetechnical expertiseandresourcesthatAmerisBankhasdeveloped.Amerisfurtherrepresentsthat AmerisBankwouldprovideasubstantiallysimilarsuiteof retailandcommercialbanking servicesandproductstothoseprovidedbyHamiltonStateBankpriortothemerger. AmerisassertsthatAmerisBankwouldstrivetomaintainastrongworkingrelationship withcityandcountygovernmentsintheformerHamiltonStateBankmarketsandthat AmerisBankwoulduseallavailablemedia,includingcommunitypublications,tomarket itscreditservicestotheentirecommunity.AmerisrepresentsthatAmerisBank’sboardof directorswouldcontinuetoreviewandapproveallCRAprogramsandthatlocalofficers wouldroutinelyanalyzedemographicdataandloanactivitytoensurethatlendingservices areaccessibletoallareasof thecommunity,includingLMIneighborhoods.AmerisindicatedthatAmerisBank’sCRAandconsumercomplianceprogramsandpolicieswouldbe implementedatthecombinedinstitution. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewith consumerprotectionlaws,supervisoryviewsof theFDIC,confidentialsupervisoryinformation,informationprovidedbyAmeris,thepubliccommentontheproposal,andother potentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served.Basedonthatreview,theBoardconcludesthattheconvenienceandneedsfactoris consistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedsection3of theBHCActtorequiretheBoardtoconsider“theextenttowhicha proposedacquisition,merger,orconsolidationwouldresultingreaterormoreconcentratedriskstothestabilityof theUnitedStatesbankingorfinancialsystem.”32 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the 32 Dodd-FrankAct§604(d),Pub.L.No.111-203,124Stat.1376,1601(2010),codifiedat12U.S.C.§1842(c)(7).

LegalDevelopments:SecondQuarter,2018 45 resultingfirm.33Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamageonthebroadereconomy.34 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.35 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.Both theacquirerandthetargetarepredominantlyengagedinavarietyof consumerand commercialbankingactivities.36Theproformaorganizationwouldhaveminimalcrossborderactivitiesandwouldnotexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.Inaddition,theorganizationwouldnotbeacriticalservicesprovideror sointerconnectedwithotherfirmsorthemarketsthatitwouldposeasignificantriskto thefinancialsystemintheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationshouldbe,andherebyis,approved.Inreachingitsconclusion,theBoardhasconsideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunderthe BHCActandotherapplicablestatutes.TheBoard’sapprovalisspecificallyconditionedon compliancebyAmeriswithalltheconditionsimposedinthisorder,includingreceiptof all requiredregulatoryapprovals,andonanycommitmentsmadetotheBoardinconnection withtheproposal.Forpurposesof thisaction,theconditionsandcommitmentsare deemedtobeconditionsimposedinwritingbytheBoardinconnectionwithitsfindings anddecisionhereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. 33 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 34 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder 2012-2(February14,2012). 35 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 36 AmerisandHamiltonofferarangeofretailandcommercialbankingproductsandservices.Amerishas,andas aresultoftheproposalwouldcontinuetohave,asmallmarketshareintheseproductsandservicesona nationwidebasis.

46 FederalReserveBulletin|August2018 Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardortheFederalReserveBankof Atlanta,actingunderdelegatedauthority. Byorderof theBoardof Governors,effectiveJune13,2018. Votingforthisaction:ChairmanPowell,ViceChairmanforSupervisionQuarles,and GovernorBrainard. MargaretMcCloskeyShanks DeputySecretaryof theBoard

LegalDevelopments:SecondQuarter,2018 47 Order Issued Under International Banking Act JN Bank Limited Kingston, Jamaica OrderApprovingtheEstablishmentof aRepresentativeOffice FRBOrderNo.2018-10(April13,2018) JNBankLimited(“JNBank”),Kingston,Jamaica,aforeignbankwithinthemeaningof theInternationalBankingActof 1978(“IBA”),hasappliedundersection10(a)of the IBA1toestablisharepresentativeofficeinTamarac,Florida(the“FloridaRepresentative Office”),inconnectionwithacorporatereorganization.TheIBAprovidesthataforeign bankmustobtaintheapprovalof theBoardtoestablisharepresentativeofficeinthe UnitedStates. Noticeof theapplication,affordinginterestedpersonsanopportunitytocomment,has beenpublishedinanewspaperof generalcirculationinTamarac,Florida(Sun-Sentinel, January14,2018).Thetimeforsubmittingcommentshasexpired,andnocommentswere received. JNBank,withassetsof approximately$1.2billion,isthethirdlargestdeposit-takingfinancialinstitutioninJamaica.2JNBankisalicensedcommercialbankthatoffersbanking servicesacross35locationsinJamaicaandhasadditionalrepresentativeofficesinthe UnitedKingdomandCanada.JNBankisanindirectsubsidiaryof TheJamaicaNational GroupLimited(“JNGroup”),Kingston,Jamaica.3JNGroup,withconsolidatedassets of approximately$1.6billion,isamutualholdingcompanythatoffersavarietyof productsandservicesthroughitssubsidiaries.4JNBankwasformedaspartof acorporate reorganizationthatinvolveditspredecessorinstitution,JamaicaNationalBuildingSociety (“JNBS”).5Aspartof thereorganization,onFebruary1,2017,JNBSconvertedfroma buildingsocietytoacommercialbankunderJamaicanlawandwasrenamedJNBank Limited.JNBankhasfiledthisapplicationtoestablishtheFloridaRepresentativeOffice undertheIBA.6 TheFloridaRepresentativeOfficewouldcontinuetoengageinrepresentationaland administrativeactivities,includingmarketingandpromotionalactivities;loansolicitation activities;providingtechnicalassistance,suchasaidingcustomersincompletingloanapplications,transmittingcompletedloanapplicationstoJNBank’sheadquartersinJamaica forapproval,andansweringcustomerinquiries;andresearchandconsultingactivities.JN 1 12U.S.C.§3107(a). 2 AssetdataareasofOctober2017.RankingdataareasofJune2017. 3 JNBankisawhollyownedsubsidiaryofJNFinancialGroupLimited(“JNFinancial”),whichisresponsible foroversightofthefinancialactivitiesofJNGroup.JNFinancialisawhollyownedsubsidiaryofJNGroup. 4 JNGroupisownedbyitsmembers,whicharecustomersofJNBank.EachmemberofJNGrouphasonevote onmatterssubjecttomembershipapproval.JNGroup’ssubsidiariesofferavarietyofproductsandservices, includingbankingandfinancialservices,remittanceservices,lifeinsurance,advertisementservices,information technologyservices,andvehiclemanagementservices.JNGrouphasonenonbanksubsidiaryintheUnited States,JNMoneyServices(USA)Incorporated,whichisamoneytransmitterlicensedinsevenstatesandthe DistrictofColumbia. 5 TheBoardapprovedJNBStoestablishtherepresentativeofficeinTamarac,Florida,in2002.JamaicaNational BuildingSociety,88FederalReserveBulletin59(2002). 6 JNBankislicensedbytheFloridaOfficeofFinancialRegulationtooperatetheFloridaRepresentativeOffice.

48 FederalReserveBulletin|August2018 Bankproposestoexpandtheactivitiesof theFloridaRepresentativeOfficetoincludethe solicitationof deposits.7 UndertheIBAandRegulationK,inactingonanapplicationbyaforeignbanktoestablisharepresentativeoffice,theBoardmustconsiderwhether(1)theforeignbankhas furnishedtotheBoardtheinformationitneedstoassesstheapplicationadequately,(2)the foreignbankandanyforeignbankparentengagedirectlyinthebusinessof banking outsidetheUnitedStates,and(3)theforeignbankandanyforeignbankparentaresubject tocomprehensivesupervisiononaconsolidatedbasisbytheirhomecountrysupervisor.8 TheBoardalsoconsidersadditionalstandardssetforthintheIBAandRegulationK.9 Inthecaseof anapplicationtoestablisharepresentativeoffice,theBoardhasbyrule determinedthatthesupervisionstandardmaybemetif theBoarddeterminesthatthe applicantbankissubjecttoasupervisoryframeworkthatisconsistentwiththeactivitiesof theproposedrepresentativeoffice,takingintoaccountthenatureof suchactivitiesandthe operatingrecordof theapplicantbank.10Thisisalesserstandardthanthecomprehensive,consolidatedsupervisionstandardapplicabletoapplicationstoestablishbranchor agencyofficesof aforeignbank.TheBoardconsidersthelesserstandardsufficientfor approvalof representativeofficeapplicationsbecauserepresentativeofficesmaynotengage inbankingactivities.Thisapplicationhasbeenconsideredunderthelesserstandard. Inconnectionwiththisapplication,JNBankhasprovidedcertaincommitmentsthatlimit theactivitiesof theFloridaRepresentativeOffice.Ithascommittedtoengageonlyin activitiespermissibleforarepresentativeofficeunderRegulationK.Inparticular,JNBank hascommittedthattheFloridaRepresentativeOfficewouldnotmakecreditdecisionsor anyotherdecisionsthatbindJNBank(exceptforlocaladministrativematters),orengage inactivitiesrelatedtosecuritiestrading,foreignexchange,ormoneytransmission.The 7 Arepresentativeofficemayengageinrepresentationalandadministrativefunctionsinconnectionwiththe bankingactivitiesofaforeignbank,includingsolicitingnewbusinessfortheforeignbank,conducting research,actingasaliaisonbetweentheforeignbank’sheadofficeandcustomersintheUnitedStates, performingpreliminaryandservicingstepsinconnectionwithlending,andperformingback-officefunctions. Arepresentativeofficemaynotcontractforanydepositordeposit-likeliability,lendmoney,orengageinany otherbankingactivity,butitcansolicitdepositsforthebank’sheadoffice.12CFR211.24(d)(1)(i). 8 12U.S.C.§3107(a)(2);12CFR211.24(d)(2).Inassessingthesupervisorystandard,theBoardconsiders,among otherindiciaofcomprehensive,consolidatedsupervision,theextenttowhichhomecountrysupervisors(i)ensure thatthebankhasadequateproceduresformonitoringandcontrollingitsactivitiesworldwide;(ii)obtaininformationontheconditionofthebankanditssubsidiariesandofficesthroughregularexaminationreports, auditreports,orotherwise;(iii)obtaininformationonthedealingsandrelationshipsbetweenthebankandits affiliates,bothforeignanddomestic;(iv)receivefromthebankfinancialreportsthatareconsolidatedona worldwidebasisorcomparableinformationthatpermitsanalysisofthebank’sfinancialconditiononaworldwideconsolidatedbasis;and(v)evaluateprudentialstandards,suchascapitaladequacyandriskassetexposure,onaworldwidebasis.Nosinglefactorisessential,andotherelementsmayinformtheBoard’s determination. 9 See12U.S.C.§3105(d)(3)-(4);12CFR211.24(c)(2).Thesestandardsincludewhetherthebank’shomecountry supervisorhasconsentedtotheestablishmentoftheoffice;thefinancialandmanagerialresourcesofthe bank,includingthebank’sexperienceandcapacitytoengageininternationalbanking;whetherthebankhas procedurestocombatmoneylaundering,whetherthereisalegalregimeinplaceinthehomecountryto addressmoneylaundering,andwhetherthehomecountryisparticipatinginmultilateraleffortstocombat moneylaundering;whethertheappropriatesupervisorsinthehomecountrymayshareinformationonthe bank’soperationswiththeBoard;whetherthebankanditsU.S.affiliatesareincompliancewithU.S.law;the needsofthecommunity;andthebank’srecordofoperation.Inthecaseofaforeignbankthatpresentsa risktothestabilityoftheUnitedStates,theBoardalsomaytakeintoaccount,totheextentappropriate, whetherthehomecountryoftheforeignbankhasadopted,orismakingdemonstrableprogresstowards adopting,anappropriatesystemoffinancialregulationforthefinancialsystemofsuchhomecountrytomitigatesuchrisk.12U.S.C.§3105(d)(3)(E). 10 See12CFR211.24(d)(2).Inadoptingtheregulationsgoverningapplicationstoestablishrepresentativeoffices, theBoardnotedthat“[a]lesserstandardappliesbecauserepresentativeofficesdonotconductabankingbusiness,suchastakingdepositsormakingloans,andthereforepresentlessrisktoU.S.customersandmarkets thandobranchesoragencies.”66Fed.Reg.54346,54365(October26,2001).

LegalDevelopments:SecondQuarter,2018 49 FloridaRepresentativeOfficealsowouldnotshareofficespaceorpremiseswithJNMoney Services(USA)Incorporated,JNGroup’smoneytransmittersubsidiaryintheUnited States.TheFloridaRepresentativeOfficewouldengageonlyintheactivitiesindicatedinits applicationtotheBoard,anditisplannedthattheofficewouldnotbestaffedbymore thanthreeemployees. Asnotedabove,JNBankengagesdirectlyinthebusinessof bankingoutsidetheUnited States.JNBankhasprovidedtheBoardwiththeinformationnecessarytoassesstheapplication,throughsubmissionsthataddresstherelevantissues. Withrespecttosupervisionbyhomecountryauthorities,theBoardhasconsideredthatJN BankissupervisedbytheBankof Jamaica(the“BOJ”).UnderJamaicanlaw,afinancial groupthatincludesadeposit-takinginstitutionisrequiredtoformafinancialholding company(“FHC”)parent,whichissupervisedbytheBOJ.JNBankiswhollyownedbyits FHCparent,JNFinancial. TheBOJsupervisesbankingorganizationsthroughacombinationof on-siteexaminations andoff-sitemonitoring.On-siteexaminationsarerisk-basedandfocusoncreditadministrationandcreditriskmanagement;capitalmanagement;liquidityriskmanagement; corporategovernance;andinternalcontrols,includingtoensurecompliancewithantimoney-launderingandcounter-terrorist-financinglaws.Off-sitemonitoringincludesa reviewof periodicreportssubmittedbysupervisedentities.JNGroupanditssubsidiaries arerequiredtosubmitconsolidatedfinancialstatements,whicharereviewedbytheBOJ.In addition,JNGroupandJNBankaresubjecttoanannualreviewbyexternalauditors.The BOJhastheauthoritytorequestinformationfromtherelevantexternalauditorsinconnectionwithitssupervisoryauthority.Whenthereisevidenceof unsafeandunsoundpracticesbydeposit-takinginstitutions,theBOJhastheauthoritytoimposesanctions. TheBoardhaspreviouslyconsideredthesupervisoryregimeinJamaicaforfinancialinstitutionsinconnectionwithapplicationsinvolvingJamaicanbuildingsocieties.11JNBank, asalicensedcommercialbank,issubjecttosupervisiononsubstantiallysimilartermsas thoseapplicabletoJamaicanbuildingsocieties.Basedonallthefactsof record,including thecommitmentsprovidedbyJNBanklimitingtheactivitiesof theFloridaRepresentative Office,ithasbeendeterminedthatJNBankissubjecttoasupervisoryframeworkthatis consistentwiththecurrentandproposedactivitiesof theFloridaRepresentativeOffice, takingintoaccountthenatureof suchactivities. TheBoardalsohasconsideredthefollowingadditionalstandardssetforthintheIBAand RegulationK:(1)whetherthebankhasprocedurestocombatmoneylaundering, whetherthereisalegalregimeinplaceinthehomecountrytoaddressmoneylaundering, andwhetherthehomecountryisparticipatinginmultilateraleffortstocombatmoney laundering;(2)thefinancialandmanagerialresourcesof thebank;(3)whethertheappropriatesupervisorsinthehomecountrymayshareinformationonthebank’soperations withtheBoard;and(4)whetherthebank’shomecountrysupervisorhasconsentedtothe establishmentof theoffice.12 Jamaicaisamemberof theCaribbeanFinancialActionTaskForceandsubscribestoits recommendationsonmeasurestocombatmoneylaunderingandinternationalterrorism. Inaccordancewiththoserecommendations,Jamaicahascreatedlegislativeandregulatory 11 SeeBoardlettertoCharlesL.Stutts,Esq.,datedFebruary8,2018.SeealsoVictoriaMutualBuildingSociety, 93FederalReserveBulletinC106(2007);JamaicaNationalBuildingSociety,88FederalReserveBulletin59 (2002). 12 See12U.S.C.§3105(d)(3)-(4);12CFR211.24(c)(2).

50 FederalReserveBulletin|August2018 standardstodetermoneylaundering,terroristfinancing,andotherillicitactivities.Money launderingisacriminaloffenceinJamaica,andfinancialinstitutionsarerequiredto establishinternalpolicies,procedures,andsystemsforthedetectionandpreventionof moneylaundering.TheBOJenforcestheserequirementswithrespecttoJamaicanbanks, includingJNBank.JNBankhaspoliciesandprocedurestocomplywiththeselawsand regulations,whicharemonitoredbygovernmententitiesresponsibleforanti-moneylaunderingcompliance. JNBankappearstohavetheexperienceandcapacitytosupporttheFloridaRepresentativeOffice.Inaddition,JNBankhasestablishedcontrolsandproceduresfortherepresentativeofficetoensurecompliancewithU.S.law,aswellascontrolsandproceduresforits worldwideoperationsgenerally.GivenJNBank’srecordof operationsinitshomecountry, itsoverallfinancialresources,anditsstandingwithitshomecountrysupervisor,financial andmanagerialfactorsareconsistentwithapprovalof JNBank’sapplicationtoestablish theFloridaRepresentativeOffice. JNBankhascommittedtomakeavailabletotheBoardsuchinformationontheoperations of JNBankandanyof itsaffiliatesthattheBoarddeemsnecessarytodetermineand enforcecompliancewiththeIBA,theBankHoldingCompanyActof 1956,asamended,13 andotherapplicablefederallaw.Totheextentthatprovidingsuchinformationtothe Boardmaybeprohibitedbylaworotherwise,JNBankhascommittedtocooperatewith theBoardtoobtainanynecessarywaiversorexemptionsthatmightberequiredfromthird partiesforthedisclosureof suchinformation.Inaddition,subjecttocertainconditions, theBOJmayshareinformationonJNBank’soperationswithothersupervisors,including theBoard.Inlightof thesecommitmentsandotherfactsof record,andsubjecttothe conditiondescribedbelow,ithasbeendeterminedthatJNBankhasprovidedadequate assurancesof accesstoanynecessaryinformationthattheBoardmayrequest.Inaddition, theBOJhasnoobjectiontotheestablishmentof theFloridaRepresentativeOffice. TheBoardhasalsoconsideredwhetherJNBank’sproposalwouldpresentarisktothe stabilityof theUnitedStates.Theproposalwouldnotappeartoaffectthefinancial stabilityof theUnitedStates.Inparticular,theabsoluteandrelativesizeof JNBankinits homecountry;thescopeof JNBank’sactivities,includingthetypesof activitiesit proposestoconductintheUnitedStatesandthepotentialforthoseactivitiestoincreaseor transmitfinancialinstability;andtheframeworkinplaceforsupervisingJNBankinits homecountrydonotappeartocreatesignificantrisktothefinancialstabilityof the UnitedStates.Basedontheseandotherfactors,financialstabilityconsiderationsinthis proposalareconsistentwithapproval. Onthebasisof allthefactsof recordandsubjecttocommitmentsmadebyJNBank,JN Bank’sapplicationtoestablishtheFloridaRepresentativeOfficeisherebyapprovedbythe Directorof theDivisionof SupervisionandRegulation,withtheconcurrenceof the GeneralCounsel,pursuanttoauthoritydelegatedbytheBoard.14Shouldanyrestrictions onaccesstoinformationontheoperationsoractivitiesof JNBankanditsaffiliatessubsequentlyinterferewiththeBoard’sabilitytoobtaininformationtodetermineandenforce compliancebyJNBankoritsaffiliateswithapplicablefederalstatutes,theBoardmay requireterminationof anyof JNBank’sdirectorindirectactivitiesintheUnitedStates. Approvalof thisapplicationalsoisspecificallyconditionedoncompliancebyJNBank withtheconditionsimposedinthisorderandthecommitmentsmadetotheBoardin 13 12U.S.C.§1841etseq. 14 12CFR265.7(d)(12).

LegalDevelopments:SecondQuarter,2018 51 connectionwiththisapplication.15Forpurposesof thisaction,thesecommitmentsand conditionsaredeemedtobeconditionsimposedbytheBoardinwritinginconnectionwith thisdecisionand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Byorder,approvedpursuanttoauthoritydelegatedbytheBoard,effectiveApril13,2018. AnnE.Misback Secretaryof theBoard 15 TheBoard’sauthoritytoapprovetheestablishmentoftheFloridaRepresentativeOfficeparallelsthe continuingauthorityoftheStateofFloridatolicenseofficesofaforeignbank.TheBoard’sapprovalofthis applicationdoesnotsupplanttheauthorityoftheStateofFloridaoritsagent,theFloridaOfficeofFinancial Regulation,tolicensetheFloridaRepresentativeOfficeinaccordancewithanytermsorconditionsthatthey mayimpose.

52 FederalReserveBulletin|August2018 Order Issued Under Section 3 of the Bank Holding Company Act, Bank Merger Act, & Federal Reserve Act Arvest Bank Group, Inc. Bentonville, Arkansas Arvest Holdings, Inc. Bentonville, Arkansas Arvest Bank Fayetteville, Arkansas OrderApprovingtheAcquisitionof aBankHoldingCompany,theMergerof Banks,andthe Establishmentof Branches FRBOrderNo.2018-09(April2,2018) ArvestBank,Fayetteville,Arkansas,astatememberbank,anditsparentcompanies, ArvestBankGroup,Inc.,andArvestHoldings,Inc.(together,withArvestBank, “Arvest”),bothof Bentonville,Arkansas,andbothbankholdingcompanieswithinthe meaningof theBankHoldingCompanyActof 1956(“BHCAct”),1haverequestedthe Board’sapprovalundersection3of theBHCAct2toacquireBearStateFinancial,Inc. (“BearState”),abankholdingcompany,andtherebyindirectlyacquireBearStateBank,a statememberbank,bothof LittleRock,Arkansas. Inaddition,ArvestBankhasrequestedtheBoard’sapprovalundersection18(c)of the FederalDepositInsuranceAct(“BankMergerAct”)tomergewithBearStateBank,with ArvestBankasthesurvivingentity.3ArvestBankalsohasappliedundersection9of the FederalReserveAct(“FRA”)toestablishandoperatebranchesatthemainofficeand branchesof BearStateBank.4 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(82FederalRegister50426(October31,2017)).5Thetimeforsubmittingcommentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct,theBankMergerAct, andtheFRA.AsrequiredbytheBankMergerAct,areportonthecompetitiveeffectsof themergerwasrequestedfromtheUnitedStatesAttorneyGeneral,andacopyof the requesthasbeenprovidedtotheFederalDepositInsuranceCorporation. Arvest,withconsolidatedassetsof approximately$16.8billion,isthe93rdlargestdepositoryorganizationintheUnitedStates.Arvestcontrolsapproximately$14.5billionin consolidateddeposits,whichrepresentlessthan1percentof thetotalamountof deposits of insureddepositoryinstitutionsintheUnitedStates.6ArvestcontrolsArvestBank, whichoperatesinArkansas,Kansas,Missouri,andOklahoma.Arvestisthelargestinsured depositoryorganizationinArkansas,controllingapproximately$8.5billionindeposits, whichrepresentapproximately13.2percentof thetotaldepositsof insureddepository 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 12U.S.C.§1828(c). 4 12U.S.C.§321.TheselocationsarelistedinAppendixA. 5 12CFR262.3(b). 6 Nationaldeposit,marketshare,andrankingdataareasofSeptember30,2017,andassetdataisasof December31,2017,unlessotherwisenoted.

LegalDevelopments:SecondQuarter,2018 53 institutionsinthestate.7Arvestisthe19thlargestinsureddepositoryorganizationin Missouri,controllingapproximately$1.3billionindeposits,whichrepresentapproximately 0.7percentof thetotaldepositsof insureddepositoryinstitutionsinthestate.Arvestisthe 4thlargestinsureddepositoryorganizationinOklahoma,controllingapproximately $4.9billionindeposits,whichrepresentapproximately5.7percentof thetotaldepositsof insureddepositoryinstitutionsinthestate. BearState,withconsolidatedassetsof approximately$2.2billion,isthe368thlargest insureddepositoryorganizationintheUnitedStates.BearStatecontrolsapproximately $1.6billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.BearState controlsBearStateBank,whichoperatesinArkansas,Missouri,andOklahoma.Bear Stateisthe10thlargestinsureddepositoryorganizationinArkansas,controllingapproximately$1.3billionindeposits,whichrepresentapproximately2.0percentof thetotal depositsof insureddepositoryinstitutionsinthestate.BearStateisthe66thlargestinsured depositoryorganizationinMissouri,controllingapproximately$358.3millionindeposits, whichrepresentapproximately0.2percentof thetotaldepositsof insureddepositoryinstitutionsinthestate.BearStateisthe167thlargestinsureddepositoryorganizationin Oklahoma,controllingapproximately$55.5millionindeposits,whichrepresentapproximately0.1percentof thetotaldepositsof insureddepositoryinstitutionsinthestate. Onconsummationof theproposal,Arvestwouldbecomethe89thlargestinsureddepositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $18.8billion,whichrepresentlessthan1percentof thetotalassetsof insureddepository organizationsintheUnitedStates.Arvestwouldcontrolconsolidateddepositsof approximately$16.1billion,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.InArkansas,Arvestwouldremainthe largestinsureddepositoryorganization,controllingdepositsof approximately$9.7billion, whichrepresentapproximately15.2percentof thetotaldepositsof insureddepository institutionsinthestate.InMissouri,Arvestwouldbecomethe15thlargestinsureddepositoryorganization,controllingdepositsof approximately$1.7billion,whichrepresent approximately0.9percentof thetotaldepositsof insureddepositoryinstitutionsinthe state.InOklahoma,Arvestwouldremainthe4thlargestinsureddepositoryorganization, controllingdepositsof approximately5.0billion,whichrepresentapproximately5.7percent of totaldepositsof insureddepositoryinstitutionsinthestate. InterstateandDepositCapAnalysis Section3(d)of theBHCActgenerallyprovidesthat,if certainconditionsaremet,the Boardmayapproveanapplicationbyabankholdingcompanytoacquirecontrolof a banklocatedinastateotherthanthehomestateof thebankholdingcompanywithout regardtowhetherthetransactionisprohibitedunderstatelaw.8Underthissection,the Boardmaynotapproveanapplicationthatwouldpermitanout-of-statebankholding companytoacquireabankinahoststateif thebankhasnotbeeninexistenceforthe lesserof thestatestatutoryminimumperiodof timeorfiveyears.9Inaddition,theBoard maynotapproveaninterstateapplicationif thebankholdingcompanycontrolsor,upon consummationof theproposedtransaction,wouldcontrolmorethan10percentof the 7 Statedeposit,marketshare,andrankingdataareasofJune30,2017,unlessotherwisenoted.Inthiscontext, insureddepositoryinstitutionsincludecommercialbanks,savingsassociations,andsavingsbanks. 8 12U.S.C.§1842(d)(1)(A). 9 12U.S.C.§1842(d)(1)(B).

54 FederalReserveBulletin|August2018 totaldepositsof insureddepositoryinstitutionsintheUnitedStates10or,incertaincircumstances,if thebankholdingcompany,uponconsummation,wouldcontrol30percentor moreof thetotaldepositsof insureddepositoryinstitutionsinanystateinwhichthe acquirerandtargethaveoverlappingbankingoperations.11 Forpurposesof theBHCAct,thehomestateof ArvestisArkansas,andBearStateBank islocatedinArkansas,Missouri,andOklahoma.12Arvestiswellcapitalizedandwell managedunderapplicablelaw,andArvestBankhasa“Satisfactory”ratingunderthe CommunityReinvestmentActof 1977(“CRA”).13Missourihasafive-yearminimumage requirement,14andOklahomahasnominimumagerequirement.BearStateBankhasbeen inexistenceformorethanfiveyears. Onconsummationof theproposedtransaction,Arvestwouldcontrollessthan1percentof thetotalamountof consolidateddepositsof insureddepositoryinstitutionsintheUnited States.Arkansasimposesa25percentlimit,15Missouriimposesa13percentlimit,16and Oklahomaimposesa20percentlimit,17onthetotalamountof in-statedepositsthata singlebankingorganizationmaycontrol.Ineachof thesestates,theonlystatesinwhich ArvestandBearStatehaveoverlappingoperations,thecombinedorganizationwould controllessthanthetotalamountof in-statedepositsthatasinglebankingorganization maycontrol.TheBoardhasconsideredallotherrequirementsundersection3(d)of the BHCAct,includingArvest’srecordof meetingtheconvenienceandneedsof thecommunitiesitserves.Accordingly,inlightof allof thefactsof record,theBoardmayapprovethe proposalundersection3(d)of theBHCAct. CompetitiveConsiderations Section3of theBHCActandtheBankMergerActprohibittheBoardfromapprovinga proposalthatwouldresultinamonopolyorwouldbeinfurtheranceof anattemptto monopolizethebusinessof bankinginanyrelevantmarket.18Bothstatutesalsoprohibit theBoardfromapprovingaproposalthatwouldsubstantiallylessencompetitionortendto createamonopolyinanybankingmarket,unlesstheanticompetitiveeffectsof the proposalareclearlyoutweighedinthepublicinterestbytheprobableeffectof theproposal inmeetingtheconvenienceandneedsof thecommunitytobeserved.19 10 Similarly,theBankMergerActprovidesthat,ingeneral,theBoardmaynotapproveabankmergerifthe transactioninvolvesinsureddepositoryinstitutionswithdifferenthomestatesandtheresultingbankwould controlmorethan10percentofthetotalamountofdepositsofinsureddepositoryinstitutionsintheUnited States.12U.S.C.§1828(c)(13).ForpurposesoftheBankMergerAct,thehomestateofbothArvestBankand BearStateBankisArkansas.12U.S.C.§1828(c)(13)(ii)(II).Accordingly,thedepositcaprequirementofthe BankMergerActdoesnotapplytotheproposedbankmerger. 11 12U.S.C.§1842(d)(2)(A)and(B).Theacquiringandtargetinstitutionshaveoverlappingbankingoperationsin anystateinwhichanybanktobeacquiredislocatedandtheacquiringbankholdingcompanycontrolsany insureddepositoryinstitutionorabranch.Forpurposesofsection3(d)oftheBHCAct,theBoardconsidersa banktobelocatedinthestateinwhichthebankischarteredorheadquarteredoroperatesabranch.See 12U.S.C.§1841(o)(4)-(7). 12 See12U.S.C.§1841(o)(4).Abankholdingcompany’shomestateisthestateinwhichthetotaldepositsofall bankingsubsidiariesofsuchcompanywerethelargestonJuly1,1966,orthedateonwhichthecompany becameabankholdingcompany,whicheverislater.Astatebank’shomestateisthestateinwhichthebankis chartered. 13 12U.S.C.§2901etseq. 14 SeeMo.Rev.Stat.§362.077(1). 15 Ark.CodeAnn.§23-48-406. 16 Mo.Rev.Stat.§362.915. 17 6Okl.St.Ann.§501.1. 18 12U.S.C.§§1842(c)(1)and1828(c)(5). 19 12U.S.C.§§1842(c)(1)(B)and1828(c)(5)(B).

LegalDevelopments:SecondQuarter,2018 55 ArvestandBearStatehavesubsidiarydepositoryinstitutionsthatcompetedirectlyinthe MountainHome,Arkansas,bankingmarket(“MountainHomemarket”);theFayetteville/ Rogers,Arkansas,bankingmarket(“Fayetteville/Rogersmarket”);theHotSprings, Arkansas,bankingmarket(“HotSpringsmarket”);theHarrison,Arkansas,banking market(“Harrisonmarket”);theLittleRock,Arkansas,bankingmarket(“LittleRock market”);theMena,Arkansas,bankingmarket(“Menamarket”);theSpringfield, Missouri,bankingmarket(“Springfieldmarket”);andtheBranson,Missouri,banking market(“Bransonmarket”).20TheBoardhasconsideredthecompetitiveeffectsof the proposalinthesebankingmarkets.Inparticular,theBoardhasconsideredthenumberof competitorsthatwouldremaininthemarket;therelativesharesof totaldepositsof insureddepositoryinstitutionsinthemarket(“marketdeposits”)thatArvestwould control;21theconcentrationlevelof marketdepositsandtheincreaseinthatlevel,asmeasuredbytheHerfindahl-HirschmanIndex(“HHI”)undertheU.S.Departmentof Justice BankMergerCompetitiveReviewguidelines(“DOJBankMergerGuidelines”);22other characteristicsof themarkets;and,asdiscussedbelow,commitmentsmadebyArvestto divestonebranchintheMenamarket. BankingMarketsWithinEstablishedGuidelines Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesintheMountainHome,HotSprings,Little Rock,Springfield,andBransonmarkets.Onconsummationof theproposal,theSpringfieldmarketwouldremainunconcentrated,theBransonmarketwouldbecomemoderately concentrated,andtheMountainHome,HotSprings,andLittleRockmarketswould remainmoderatelyconcentrated.Ineachof thesebankingmarkets,numerouscompetitors wouldremain. BankingMarketsWarrantingSpecialScrutiny Thestructuraleffectsthatconsummationof theproposalwouldhaveintheFayetteville/ Rogers,Harrison,andMenamarketswarrantadetailedreviewbecausetheconcentration levelsonconsummationwouldexceedthethresholdsintheDOJBankMergerGuidelinesorwouldresultinthemarketdepositshareof Arvestexceeding35percentwhenusing initialcompetitivescreeningdata. 20 AllofthesebankingmarketsaredefinedinAppendixB,exceptfortheFayetteville/Rogers,Harrison,and Menamarkets,whicharedefinedinthediscussionbelow. 21 LocaldepositandmarketsharedataareasofJune30,2017,and,unlessotherwiseindicated,arebasedoncalculationsinwhichthedepositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhasindicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorstocommercialbanks.See,e.g.,MidwestFinancialGroup,75FederalReserveBulletin386(1989);NationalCityCorporation,70FederalReserveBulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsinthemarket sharecalculationona50percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserveBulletin52 (1991). 22 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableatwww.justice.gov/opa/pr/ 2010/August/10-at-938.html.

56 FederalReserveBulletin|August2018 Fayetteville/Rogersmarket Usinginitialscreeningdata,ArvestisthelargestcompetitorintheFayetteville/Rogers market,controllingapproximately$5.3billionindeposits,whichrepresentapproximately 49.2percentof marketdeposits.23BearStateisthe20thlargestdepositoryorganizationin theFayetteville/Rogersmarket,controllingapproximately$109.9millionindeposits,which representapproximately1.0percentof marketdeposits.Onconsummationof theproposal, ArvestwouldremainthelargestdepositoryorganizationintheFayetteville/Rogersmarket, controllingapproximately$5.4billioninmarketdeposits,whichwouldrepresentapproximately50.2percentof marketdeposits.TheHHIinthismarketwouldincreaseby 100points,from2571to2671. TheBoardhasconsideredwhetherfactorseithermitigatethecompetitiveeffectsof the proposalorindicatethattheproposalwouldnothaveasignificantlyadverseeffecton competitionintheFayetteville/Rogersmarket.24Factorsindicatethattheincreasein concentrationintheFayetteville/Rogersmarket,asmeasuredbytheabovemarketshare, overstatesthepotentialcompetitiveeffectsof theproposalinthemarket.Inparticular,one creditunionexertsacompetitiveinfluenceintheFayetteville/Rogersmarket.Theinstitutionoffersawiderangeof consumerbankingproducts,operatesstreet-levelbranches,and hasbroadmembershipcriteriathatincludealmostallof theresidentsinthemarket.25The Boardfindsthatthesecircumstanceswarrantincludingthedepositsof thiscreditunionat a50percentweightinestimatingmarketinfluence.Thisweightingtakesintoaccountthe limitedlendingdonebythiscredituniontosmallbusinessesrelativetocommercialbanks’ lendinglevels. Afterreweightingthedepositsof thecreditunionat50percent,Arvestwouldcontrol approximately49.0percentof marketdeposits,andtheHHIwouldincreaseby100points, from2556to2656.Althoughtheadjustedmarketshareandmarketconcentrationlevels stillexceedtheDOJBankMergerGuidelines,anadditionalfactorindicatesthatthe competitiveeffectsof theproposalwouldnotlikelybesignificantlyadverse.Afterconsummationof theproposal,40depositoryinstitutionswouldcompetewithArvestinthe Fayetteville/Rogersmarket.Thepresenceof theseviablecompetitorssuggeststhatArvest wouldhavelimitedabilityunilaterallytoofferlessattractivetermstoconsumers,andthese competitorswouldbeabletoexertcompetitivepressureonArvestinthemarket. Harrisonmarket Usinginitialscreeningdata,Arvestisthe4thlargestcompetitorintheHarrisonmarket, controllingapproximately$116.5millionindeposits,whichrepresentapproximately 11.8percentof marketdeposits.26BearStateisthe3rdlargestdepositoryorganizationin 23 TheFayetteville/RogersmarketisdefinedasBenton,Madison,andWashingtoncounties,allofArkansas; McDonaldCounty,Missouri;andthetownofWestSiloamSpringsinDelawareCounty,Oklahoma. 24 Thenumberandstrengthoffactorsnecessarytomitigatethecompetitiveeffectsofaproposaldependonthe sizeoftheincreasein,andresultinglevelof,concentrationinabankingmarket.SeeNationsbankCorp., 84FederalReserveBulletin129(1998). 25 TheBoardpreviouslyhasconsideredcompetitionfromcertainactivecreditunionswiththesefeaturesasa mitigatingfactor.See,e.g.,KeyCorp,FRBOrderNo.2016-12(July12,2016);OhioValleyBancCorp.,FRB OrderNo.2016-10(June28,2016);MitsubishiUFJFinancialGroup,Inc.,FRBOrderNo.2012-12(November14, 2012);OldNationalBancorp,FRBOrderNo.2012-9(August30,2012);UnitedBankshares,Inc.(orderdated June20,2011),97FederalReserveBulletin19(2ndQuar.2011);ThePNCFinancialServicesGroup,Inc.,94 FederalReserveBulletinC38(2008);ThePNCFinancialServicesGroup,Inc.,93FederalReserveBulletinC65 (2007);RegionsFinancialCorporation,93FederalReserveBulletinC16(2007);PassumpsicBancorp,92Federal ReserveBulletinC175(2006);andWachoviaCorporation,92FederalReserveBulletinC183(2006). 26 TheHarrisonmarketisdefinedasBoone,Newton,andSearcyCounties,allofArkansas;andthewesternhalf ofMarionCounty,Arkansas(excludingthecitiesofYellvilleandSummit).

LegalDevelopments:SecondQuarter,2018 57 theHarrisonmarket,controllingapproximately$168.9millionindeposits,whichrepresent approximately17.1percentof marketdeposits.Onconsummationof theproposal,Arvest wouldbecomethelargestdepositoryorganizationintheHarrisonmarket,controlling approximately$285.4millioninmarketdeposits,whichwouldrepresentapproximately 28.9percentof marketdeposits.TheHHIinthismarketwouldincreaseby404points, from1562to1966. FactorsindicatethattheincreaseinconcentrationintheHarrisonmarket,asmeasuredby theabovemarketshareandchangeinHHI,overstatesthepotentialcompetitiveeffectsof theproposalinthemarket.Inparticular,afterconsummationof theproposal,10depositoryinstitutionswouldcompetewithArvestintheHarrisonmarket.Theseincludetwo depositoryinstitutionseachwithmorethana20percentshareof marketdeposits,one depositoryinstitutionwithamorethan10percentshareof marketdeposits,andone depositoryinstitutionwithamorethanfivepercentshareof marketdeposits.Thepresence of theseviablecompetitorssuggeststhatArvestwouldhavelimitedabilityunilaterallyto offerlessattractivetermstoconsumers,andthesecompetitorswouldbeabletoexert competitivepressureonArvestintheHarrisonmarket.Moreover,recententryandexpansionaryactivitysuggeststhatthemarketisattractivetopotentialcompetitors.Two depositoryinstitutionshaveestablisheddenovobranchesintheHarrisonmarketsince2016. Menamarket Usinginitialscreeningdata,Arvestisthe3rdlargestcompetitorintheMenamarket, controllingapproximately$27.7millionindeposits,whichrepresentapproximately 7.6percentof marketdeposits.27BearStateisthesecondlargestdepositoryorganizationin theMenamarket,controllingapproximately$66.4millionindeposits,whichrepresent approximately18.2percentof marketdeposits.Onconsummationof theproposal,Arvest wouldbecomethesecondlargestdepositoryorganizationintheHarrisonmarket, controllingapproximately$94.1millioninmarketdeposits,whichwouldrepresentapproximately25.8percentof marketdeposits.TheHHIinthismarketwouldincreaseby 277points,from4149to4426.28 Tomitigatethepotentiallyadversecompetitiveeffectsof theproposalintheMenamarket, Arvesthascommittedtodivestoneof BearStateBank’stwobranchesinthemarkettoa competitivelysuitableout-of-marketpurchaser.29Afteraccountingforthebranchdivestitureandfollowingconsummationof theproposal,Arvestwouldcontrolapproximately 8.2percentof marketdeposits,andtheHHIwoulddecreaseby12points,from4149to 4137.Accordingly,consummationof theproposalwouldbewithinthethresholdsinthe DOJBankMergerGuidelines. 27 TheMenamarketisdefinedasPolkCounty,Arkansas. 28 Thehighdegreeofconcentrationinthemarketisattributabletothepresenceofalargecompetitor,which controlsapproximately60.6percentofmarketdeposits. 29 Asaconditionofconsummatingtheproposal,Arvesthascommittedthatitwillexecute,beforeconsummation oftheproposal,anagreementtosellthebranchtoapurchaserorpurchasersdeterminedbytheBoardtobe competitivelysuitable.Arvestalsohascommittedtocompletethedivestiturewithin180daysafterconsummationoftheproposedmerger.Inaddition,Arvesthascommittedthat,iftheproposeddivestitureisnot completedwithinthe180-dayperiod,Arvestwouldtransfertheunsoldbranchtoanindependenttrustee,who wouldbeinstructedtosellthebranchtoanalternatepurchaserorpurchasersinaccordancewiththetermsof thisorderandwithoutregardtoprice.BoththetrusteeandanyalternatepurchasersmustbedeemedacceptabletotheBoard.See,e.g.,BankAmericaCorporation,78FederalReserveBulletin338(1992);UnitedNew MexicoFinancialCorporation,77FederalReserveBulletin484(1991).

58 FederalReserveBulletin|August2018 ConclusionRegardingCompetitiveEffects TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposal,withtheproposeddivestitureof abranchintheMenamarket,wouldnotlikelyhaveasignificantlyadverseeffecton competitioninanyrelevantbankingmarket.Inaddition,theappropriatebankingagencieshavebeenaffordedanopportunitytocommentandhavenotobjectedtotheproposal. Basedonallof thefactsof record,includingArvest’scommitmenttodivestabranchinthe Menamarket,theBoardconcludesthatconsummationof theproposalwouldnothavea significantlyadverseeffectoncompetitionorontheconcentrationof resourcesinanyof theeightbankingmarketsinwhichArvestBankandBearStateBankcompetedirectlyor inanyotherrelevantbankingmarket.Accordingly,theBoarddeterminesthatcompetitive considerationsareconsistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsidersthefinancialandmanagerialresourcesandthefutureprospectsof the institutionsinvolved.30Initsevaluationof financialfactors,theBoardreviewsinformation regardingthefinancialconditionof theorganizationsinvolvedonbothparent-onlyand consolidatedbases,aswellasinformationregardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.In thisevaluation,theBoardconsidersavarietyof informationregardingcapitaladequacy, assetquality,liquidity,andearningsperformance.TheBoardevaluatesthefinancialconditionof thecombinedorganization,includingitscapitalposition,assetquality,liquidity, earningsprospects,andtheimpactof theproposedfundingof thetransaction.TheBoard alsoconsiderstheabilityof theorganizationtoabsorbthecostsof theproposalandto completeeffectivelytheproposedintegrationof theoperationsof theinstitutions.In assessingfinancialfactors,theBoardconsiderscapitaladequacytobeespeciallyimportant. TheBoardconsidersthefutureprospectsof theorganizationsinvolvedintheproposalin lightof theirfinancialandmanagerialresourcesandtheproposedbusinessplan. ArvestandBearStatearewellcapitalized,andthecombinedorganizationwouldremainso onconsummationof theproposal.Theproposedtransactionisamergerof BearStatewith ArvestBank’swhollyownedacquisitionsubsidiary31withasubsequentmergerof Bear StateBankintoArvestBank.32Theassetquality,earnings,andliquidityof bothArvest BankandBearStateBankareconsistentwithapproval,andArvestappearstohave adequateresourcestoabsorbthecostsof theproposalandtocompletetheintegrationof theinstitutions’operations.Inaddition,futureprospectsof theinstitutionsunderthe proposalareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of Arvest,BearState,andtheirsubsidiarydepositoryinstitutions,includingassessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition,theBoardhas consideredinformationprovidedbyArvest;theBoard’ssupervisoryexperiencesandthose of otherrelevantbanksupervisoryagencieswiththeorganizations;andtheorganiza- 30 12U.S.C.§§1842(c)(2),(5),&(6),and1828(c)(5)&(11). 31 Asaresult,ArvestBankwillbecomeabankholdingcompanyforamomentintimebeforeBearStateis dissolvedandBearStateBankismergedwithandintoArvestBank. 32 Aspartoftheproposedtransaction,eachshareofBearState’scommonstockwouldbeconvertedintoaright toreceivecash.Arvesthasthefinancialresourcestoeffecttheproposedtransaction.

LegalDevelopments:SecondQuarter,2018 59 tions’recordsof compliancewithapplicablebanking,consumerprotection,andantimoney-launderinglaws. Arvest,BearState,andtheirsubsidiarydepositoryinstitutionsareeachconsideredtobe wellmanaged.Arvesthasarecordof successfullyintegratingorganizationsintoitsoperationsandrisk-managementsystemsafteracquisitions.Thedirectorsandseniorexecutive officersof Arvesthavesubstantialknowledgeof andexperienceinthebankingandfinancialservicessectors,andArvest’srisk-managementprogramappearsconsistentwith approvalof thisexpansionaryproposal. TheBoardalsohasconsideredArvest’splansforimplementingtheproposal.Arvesthas conductedcomprehensiveduediligenceandisdevotingsignificantfinancialandother resourcestoaddressallaspectsof thepost-acquisitionintegrationprocessforthisproposal. Arvestwouldimplementitsrisk-managementpolicies,procedures,andcontrolsatthe combinedorganization,andtheseareconsideredacceptablefromasupervisoryperspective.Inaddition,Arvest’smanagementhastheexperienceandresourcestooperatethe combinedorganizationinasafeandsoundmanner. Basedonallof thefactsof record,includingArvest’ssupervisoryrecord,managerialand operationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandthefutureprospectsof theorganizationsinvolvedintheproposal,aswellas therecordsof effectivenessof ArvestandBearStateincombattingmoney-laundering activities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.33Initsevaluationof theeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecreditneedsof thecommunitiestheyserve,aswellasother potentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served.Inthisevaluation,theBoardplacesparticularemphasisontherecordsof the relevantdepositoryinstitutionsundertheCRA.34TheCRArequiresthefederalfinancial supervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeetthecredit needsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeinstitutions’safe andsoundoperation,35andrequirestheappropriatefederalfinancialsupervisoryagencyto assessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof itsentire community,includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluating bankexpansionaryproposals.36 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsiderstheassessmentsof otherrelevantsupervisors,the supervisoryviewsof examiners,othersupervisoryinformation,andinformationprovided bytheapplicants.TheBoardalsomayconsidertheinstitution’sbusinessmodel,its 33 12U.S.C.§§1842(c)(2)and1828(c)(5). 34 12U.S.C.§2901etseq. 35 12U.S.C.§2901(b). 36 12U.S.C.§2903.

60 FederalReserveBulletin|August2018 marketingandoutreachplans,theorganization’splansafterconsummation,andanyother informationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallof thefactsof record,includingreportsof examinationof theCRAperformanceof Arvest BankandBearStateBank;thefairlendingandcompliancerecordsof bothbanks;the supervisoryviewsof theFederalReserveBankof St.Louis(“ReserveBank”)andthe ConsumerFinancialProtectionBureau(“CFPB”);confidentialsupervisoryinformation; andinformationprovidedbyArvest. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardconsiders examinationsbytheappropriatefederalsupervisorsof theCRAperformancerecordsof therelevantinstitutions,aswellasinformationandviewsprovidedbythosesupervisors.37 Inthiscase,theBoardconsideredthesupervisoryviewsof theReserveBankandtheCFPB. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.38Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplyalendingtesttoevaluatetheperformance of alargeinsureddepositoryinstitutioninhelpingtomeetthecreditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’shomemortgage,small business,smallfarm,andcommunitydevelopmentlendingtodeterminewhethertheinstitutionishelpingtomeetthecreditneedsof individualsandgeographiesof allincome levels.Aspartof thelendingtest,examinersreviewandanalyzeaninstitution’sdata reportedundertheHomeMortgageDisclosureAct(“HMDA”),39inadditiontosmall business,smallfarm,andcommunitydevelopmentloandatacollectedandreportedunder theCRAregulations,toassessaninstitution’slendingactivitieswithrespecttoborrowers andgeographiesof differentincomelevels.Theinstitution’slendingperformanceisbased onavarietyof factors,including(1)thenumberandamountsof homemortgage,small business,smallfarm,andconsumerloans(asapplicable)intheinstitution’sassessment areas(“AAs”);(2)thegeographicdistributionof theinstitution’slending,includingthe proportionanddispersionof theinstitution’slendinginitsAAsandthenumberand amountsof loansinlow-,moderate-,middle-,andupper-incomegeographies;(3)the distributionsof loansbasedonborrowercharacteristics,including,forhomemortgage loans,thenumberandamountsof loanstolow-,moderate-,middle-,andupper-income individuals;40(4)theinstitution’scommunitydevelopmentlending,includingthenumber andamountsof communitydevelopmentloansandtheircomplexityandinnovativeness; and(5)theinstitution’suseof innovativeorflexiblelendingpracticestoaddressthecredit needsof LMIindividualsandgeographies.Largeinstitutionsalsoaresubjecttoan investmenttestthatevaluatesthenumberandamountsof qualifiedinvestmentsthat 37 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48506, 48548(July25,2016). 38 12U.S.C.§2906. 39 12U.S.C.§2801etseq. 40 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3).

LegalDevelopments:SecondQuarter,2018 61 benefittheirassessmentareasandaservicetestthatevaluatestheavailabilityandeffectivenessof theirsystemsfordeliveringretailbankingservicesandtheextentand innovativenessof theircommunitydevelopmentservices.41Intermediatesmallbanksare subjecttothelendingtest,aswellasacommunitydevelopmenttestthatevaluatesthe numberandamountsof theircommunitydevelopmentloansandqualifiedinvestments,the extenttowhichtheyprovidecommunitydevelopmentservices,andtheirresponsivenessto communitydevelopmentlending,investment,andserviceneeds.42 CRAPerformanceof ArvestBank ArvestBankwasassignedanoverall“Satisfactory”ratingbytheReserveBankatitsmost recentCRAperformanceevaluation,asof September21,2015(“ArvestBankEvaluation”).43Thebankreceiveda“LowSatisfactory”ratingfortheLendingTestand“High Satisfactory”ratingsfortheInvestmentTestandtheServiceTest.44 ExaminersfoundthatArvestBankoriginatedamajorityof itsloansinsideitsAAsand thatthebank’soveralllendingactivityreflectedgoodresponsivenesstoAAcreditneeds. Examinersalsonotedthatthebank’ssmallloanstobusinessesreflectedadequate geographicpenetrationthroughtheAAs.Inaddition,examinersfoundthebank’sdistributionof productlinesbyincomelevelof theborrowerandthebank’sdistributionof loans tobusinesseswithdifferentrevenuesizestobegood. ExaminersdeterminedthatArvestBank’slevelof qualifiedcommunitydevelopment investmentswasadequateandresponsivetocommunityneeds.Examinersfoundthatthe bank’sservicedeliverysystemswereaccessibletogeographiesandindividualsof different incomelevelswithinthebank’sAAs.Examinersalsonotedthatinthestatesof Arkansas andMissouri,thebank’sbrancheswereaccessibleandthat,inthestateof Oklahoma,the bank’sbrancheswerereasonablyaccessible. CRAPerformanceof BearStateBank BearStateBankwasassignedanoverall“Satisfactory”ratingbytheReserveBankatits mostrecentCRAperformanceevaluation,asof June12,2017(“BearStateBankEvaluation”).45Thebankreceiveda“Satisfactory”ratingfortheLendingTestandan “Outstanding”ratingfortheCommunityDevelopmentTest.”46Greaterweightwasgiven 41 12CFR228.21etseq. 42 12CFR228.26(c). 43 TheArvestBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Examiners reviewedHMDAandsmallbusinessloansoriginatedfromJanuary1,2013,throughDecember31,2014.The evaluationforcommunitydevelopmentloans,investments,andserviceswasfromApril15,2013,through September21,2015. 44 TheArvestBankEvaluationincludedfull-scopeevaluationsoftheFayetteville-Springdale-Rogers,Arkansas- MissouriMetropolitanStatisticalArea(“MSA”);FortSmith,Arkansas-OklahomaMSA;KansasCity, Missouri-KansasMSA,LittleRock-NorthLittleRock-Conway,ArkansasMSA;Joplin,MissouriMSA;OklahomaCity,OklahomaMSA;Tulsa,OklahomaMSA;theArkansasNon-MSAAA;andtheOklahoma Non-MSAAA.Limited-scopeevaluationswereperformedoftheHotSprings,ArkansasMSA;Springfield, MissouriMSA;Lawton,OklahomaMSA;andtheMissouriNon-MSAAA. 45 TheBearStateBankEvaluationwasconductedusingtheIntermediateSmallInstitutionExaminationProcedures.ExaminersreviewedHMDA-reportableloansandcommercialloansoriginatedfromJanuary1,2015, throughDecember31,2015.Theevaluationperiodforcommunitydevelopmentlending,investments,and serviceswasfromJune3,2013,toJune11,2017. 46 TheBearStateBankEvaluationincludedfull-scopeevaluationsoftheFayetteville,ArkansasMSA;Jonesboro, ArkansasMSA;Springfield,MissouriMSA;theSouthwest,ArkansasNon-MSAAA;theNorthCentral, ArkansasNon-MSAAA;andtheOklahomaNon-MSAAA.LimitedScopeevaluationswereperformedofthe HotSprings,ArkansasMSA;LittleRock,ArkansasMSA;Texarkana,ArkansasMSA;BartonCounty, MissouriMSA;andtheMississippiCounty,ArkansasNon-MSAAA.

62 FederalReserveBulletin|August2018 tothebank’sperformanceinArkansasbecauseof thehigherpercentageof bankdeposits, branches,andloansinthestate. ExaminersconcludedthatBearStateBankwasrespondingtothecreditneedsof itsAAs. Inparticular,examinersfoundthattheloan-to-depositratiowasmorethanreasonable giventhebank’ssize,financialcondition,andAAcreditneeds.Examinersnotedthatthe geographicdistributionof loansreflectedreasonabledispersionthroughouttheAAsand thatthedistributionof loansreflectedreasonablepenetrationamongindividualsof differentincomelevelsandbusinessesof differentsizes. Examinersnotedthatthebank’scommunitydevelopmentperformance,whichincluded loans,investments,andservices,demonstratedexcellentresponsivenesstocommunity developmentneedsthroughoutthebank’sAAs. AdditionalSupervisoryViews TheBoardhasconsideredtheresultsof themostrecentconsumercomplianceexamination of ArvestBankconductedbyReserveBankexaminers,whichincludedareviewof the bank’scomplianceriskmanagementprogramandthebank’scompliancewithconsumer protectionlawsandregulations.TheBoardalsohasconsideredtheresultsof themost recentconsumercomplianceexaminationof BearStateBankconductedbyReserveBank examiners,whichincludedareviewof thebank’sconsumercompliancefunction.In addition,theBoardhastakenintoconsiderationthesupervisoryviewsof theCFPB regardingArvestBank. TheBoardhastakenthisinformation,aswellastheCRAperformancerecordsof Arvest BankandBearStateBank,intoaccountinevaluatingtheproposedtransaction,including inconsideringwhetherArvesthastheexperienceandresourcestoensurethatArvestBank helpstomeetthecreditneedsof thecommunitieswithinitsAAs. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.Arvestrepresentsthatexistingcustomersof Bear StateBankwillbenefitfromArvestBank’sexpansivebranchnetworkwithlongerhours, broaderdigitalservicesofferings,andawidervarietyof productsandcustomerservice.In particular,Arvestrepresentsthatexistingcustomersof BearStatewillgainaccesstoArvest Bank’snetworkof morethan250branchlocationsand350ATMs.Further,existing customersof BearStateBankwillhaveaccesstoincreasedofferingsintheareasof personalaccountservices,businessaccountservices,andadvanceddigitalbankingservices. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws,supervisoryviewsof theReserveBankand theCFPB,confidentialsupervisoryinformation,informationprovidedbyArvest,andthe potentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served.Basedonthatreview,theBoardconcludesthattheconvenienceandneedsfactoris consistentwithapproval.

LegalDevelopments:SecondQuarter,2018 63 FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedsection3of theBHCActandtheBankMergerActtorequiretheBoardto consideraproposal’s“risktothestabilityof theUnitedStatesbankingorfinancial system.”47 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the resultingfirm.48Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.49 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.50 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.Both theacquirerandthetargetarepredominatelyengagedinretailandcommercialbanking activities.51Theproformaorganizationwouldhaveminimalcross-borderactivitiesand wouldnotexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.In addition,theorganizationwouldnotbeacriticalservicesproviderorsointerconnected withotherfirmsorthemarketsthatitwouldposeasignificantrisktothefinancialsystem intheeventof financialdistress. 47 Dodd-FrankAct§§604(d)and(f),Pub.L.No.111-203,124Stat.1376,1601-1602(2010),codifiedat12U.S.C. §§1828(c)(5)and1842(c)(7). 48 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 49 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 50 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 51 ArvestBankoffersavarietyofbankingproductsandservices,includingretailandcommercialbanking; consumer,commercial,andmortgagelending;andconsumerfinanceloans.BearStateBankalsooffersa varietyofbankingproductsandservices,includingcommercial,mortgage,andconsumerloans.Ineachofthe activitiesinwhichitengages,Arvesthas,andasaresultoftheproposalwouldcontinuetohave,asmallmarket shareintheseproductsandservicesonanationwidebasis,andnumerouscompetitorswouldremainforthese productsandservices.

64 FederalReserveBulletin|August2018 Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Establishmentof Branches ArvestBankhasappliedundersection9of theFRAtoestablishbranchesatthecurrent locationsof BearStateBank.52TheBoardhasassessedthefactorsitisrequiredto considerwhenreviewinganapplicationunderthatsection.53Specifically,theBoardhas consideredArvestBank’sfinancialcondition,management,capital,actionsinmeetingthe convenienceandneedsof thecommunitiestobeserved,CRAperformance,andinvestmentinbankpremises.54Forthereasonsdiscussedinthisorder,theBoardfindsthose factorstobeconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationsshouldbe,andherebyare,approved.Inreachingitsconclusion,theBoardhas consideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunder theBHCAct,theBankMergerAct,theFRA,andotherapplicablestatutes.TheBoard’s approvalisspecificallyconditionedoncompliancebyArvestwithallof theconditions imposedinthisorder,includingreceiptof allrequiredregulatoryapprovals,andonthe commitmentsmadetotheBoardinconnectionwiththeapplications.Theconditionsand commitmentsaredeemedtobeconditionsimposedinwritingbytheBoardinconnection withitsfindingsanddecisionhereinand,assuch,maybeenforcedinproceedingsunder applicablelaw. Theproposalmaynotbeconsummatedbeforethe15thcalendardayaftertheeffectivedate of thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedforgood causebytheBoardortheReserveBank,actingunderdelegatedauthority. Byorderof theBoardof Governors,effectiveApril2,2018. Votingforthisaction:ChairmanPowell,ViceChairmanforSupervisionQuarles,and GovernorBrainard. AnnE.Misback Secretaryof theBoard 52 See12U.S.C.§321.Undersection9oftheFRA,statememberbanksmayestablishandoperatebrancheson thesametermsandconditionsasareapplicabletotheestablishmentofbranchesbynationalbanks.Anational bankmayestablishandoperateanewbranchwithinastateinwhichitissituated,ifsuchestablishmentand operationisauthorizedunderapplicablestatelaw.12U.S.C.§36(c).Anationalbankalsomayretainany branchfollowingamergerthatunderstatelawmaybeestablishedasanewbranchoftheresultingbankor retainedasanexistingbranchoftheresultingbank.See12U.S.C.§36(b)(2),(c).Inaddition,undersection44 oftheFDIAct,astatememberbankresultingfromaninterstatemergertransactionmayretainandoperate,as amainofficeorabranch,anyofficethatanybankinvolvedinthemergerwasoperatingasamainofficeor branchimmediatelybeforethemergertransaction.12U.S.C.§1831u(d).Uponconsummation,ArvestBank’s brancheswouldbepermissibleunderapplicablestatelaw.SeeArk.CodeAnn.§23-48-702;Mo.Rev.Stat. §362.107;6Okl.St.Ann.§501.1. 53 12U.S.C.§322;12CFR208.6. 54 Uponconsummationoftheproposedtransaction,ArvestBank’sinvestmentinbankpremiseswouldremain withinlegalrequirements,under12CFR208.21.

LegalDevelopments:SecondQuarter,2018 65 AppendixA BranchestoBeEstablishedbyArvestBank Arkansas 1. 2009BrownsLane,Jonesboro,Arkansas72401 2. 5205EastJohnsonAvenue,Jonesboro,Arkansas72401 3. 3101SouthwestDrive,Jonesboro,Arkansas72404 4. 110WestMainStreet,Ashdown,Arkansas71822 5. 307NorthWaltonBoulevard,Bentonville,Arkansas72712 6. 2885PrinceStreet,Conway,Arkansas72034 7. 504WestCollinRayeDrive,DeQueen,Arkansas71832 8. 103WestThirdStreet,Dierks,Arkansas71833 9. 3460NorthCollegeAvenue,Fayetteville,Arkansas72703 10. 214NorthFirstStreet,Glenwood,Arkansas71943 11. 324SouthHighway6265Bypass,Harrison,Arkansas72601 12. 1401Highway6265N,Harrison,Arkansas72601 13. 2223AlbertPikeRoad,HotSprings,Arkansas71913 14. 135SectionLineRoad,HotSprings,Arkansas71913 15. 3835NorthHighway7,HotSpringsVillage,Arkansas71909 16. 5315HighlandDrive,LittleRock,Arkansas72223 17. 709WestFleeman,Manila,Arkansas72442 18. 600Highway71South,Mena,Arkansas71953 19. 600Highway71North,Mena,Arkansas71953 20. 301EastDrewAvenue,Monette,Arkansas72447 21. 742Highway270East,MountIda,Arkansas71957 22. 221SouthGeorgeStreet,MountIda,Arkansas71957 23. 1337Highway62West,MountainHome,Arkansas72653 24. 3027Highway62East,MountainHome,Arkansas72653 25. 668Highway62East,MountainHome,Arkansas72653 26. 420SouthMainStreet,Nashville,Arkansas71852 27. 2000SouthPromenadeBoulevard,Rogers,Arkansas72758 28. 3300WestSunsetAvenue,Springdale,Arkansas72762 29. 181Highway71Bypass,Waldron,Arkansas72958 30. 301Highway62W,Yellville,Arkansas72687 Missouri 1. 9863StateHighway76,BransonWest,Missouri65737 2. 403MainStreet,GoldenCity,Missouri64748 3. 150SouthTownBoulevard,Hollister,Missouri65672 4. 12661StateHighway13,KimberlingCity,Missouri65686 5. 1105Gulf Street,Lamar,Missouri64759 6. 1101SpurDrive,Marshfield,Missouri65706 7. 716WestMountVernonStreet,Nixa,Missouri65714 8. 2835EastBattlefieldStreet,Springfield,Missouri65804 9. 3340EastCherryStreet,Springfield,Missouri65802 10. 600SouthGlenstoneAvenue,Springfield,Missouri65802 11. 3550SouthNationalAvenue,Springfield,Missouri65807 Oklahoma 1. 409SouthParkDrive,BrokenBow,Oklahoma74728 2. 702SoutheastWashingtonStreet,Idabel,Oklahoma74745

66 FederalReserveBulletin|August2018 AppendixB Arvest/BearStateBankingMarketsConsistentwithBoardPrecedentandDOJBankMergerGuidelines Remaining Amountof Marketdeposit Bank Rank ResultingHHI ChangeinHHI numberof deposits shares(%) competitors MountainHome,Arkansas(“MountainHome”)–BaxterCounty,Arkansas;thewesternthirdofFultonCounty,Arkansas,includingBigCreek, Cleveland,Fulton,MountCalmandVidettetownships;theeasternhalfofMarionCounty,Arkansas,includingthecitiesofYellvilleandSummit;and OzarkCounty,Missouri. ArvestPre-Consummation 2 $225.7M 16.81 BearState 4 $118.4M 8.82 ArvestPost-Consummation 1 $444.1M 25.6 1558 296 9 HotSprings,Arkansas(“HotSprings”)–GarlandandHotSpringsCounties,AR;andtheportionofHotSpringsVillagelocatedinSalineCounty, Arkansas ArvestPre-Consummation 3 $299.5M 12.16 BearState 7 $140M 5.68 ArvestPost-Consummation 1 $439.5 17.8 1205 138 9 LittleRock,Arkansas(“LittleRock”)–Conway,Faulkner,Grant,PerryandPulaskicounties,Arkansas;SalineCounty,Arkansas(minusthecity ofHotSpringsVillage);PrairieCounty,Arkansas(minusBelcher,RocRoe,andTylertownships);theextremesouthernportionofWhiteCounty, Arkansas,thatincludesElPaso,Royal,andUniontownships;andthesoutheasternportionofVanBurenCounty,Arkansas,thatincludesBarnett, Bradley,Cadron,andCargiletownships,thesouthwesternpartofDavistownship,andthecitiesofBeeBranchandMorganton. ArvestPre-Consummation 6 $1.45B 7.1 BearState 13 $227.7M 1.1 ArvestPost-Consummation 5 $1.68B 8.2 1166 16 37 Springfield,Missouri(“Springfield”)–Christian,Dade,Dallas,Greene,Polk,andWebstercounties,Missouri;andthenorthernhalfofLawrence County,Missouri,thatincludesRedOak,Green,Lincoln,Ozark,Turnback,MountVernon,andVineyardtownshipsandthecityofMountVernon. ArvestPre-Consummation 18 $152M 1.51 BearState 15 $208M 2.07 ArvestPost-Consummation 10 $360M 3.58 681 6 35 Branson,Missouri(“Branson”)–StoneandTaneycounties,Missouri. ArvestPre-Consummation 3 $131.8M 9.81 BearState 4 $110.0M 8.18 ArvestPost-Consummation 2 $231.8M 18 1155 161 16 DataandrankingsareasofJune30,2017.Allrankings,marketdepositshares,andHHIsarebasedonthriftdepositsweightedat50percent. Theremainingnumberofcompetitorsnotedforeachmarketincludesthrifts,whereapplicable.

October 2018 Vol. 104, No. 4 Legal Developments: Third Quarter, 2018 Order Issued Under Bank Holding Company Act Order Issued Under Section 3 of the Bank Holding Company Act HarborOne Mutual Bancshares Brockton, Massachusetts HarborOne Bancorp, Inc. Brockton, Massachusetts OrderApprovingtheMergerof BankHoldingCompanies FRBOrderNo.2018-18 HarborOneBancorp,Inc.,anditsparentcompany,HarborOneMutualBancshares,both of Brockton,Massachusetts(collectively,“HarborOne”),bothbankholdingcompanies withinthemeaningof theBankHoldingCompanyActof 1956(“BHCAct”),1have requestedtheBoard’sapprovalundersection3of theBHCAct2forHarborOneBancorp, Inc.toacquireandmergewithCoastwayBancorp,Inc.(“Coastway”),andtherebyindirectlyacquireCoastwayCommunityBank,bothof Warwick,RhodeIsland.Followingthe proposedacquisition,CoastwayCommunityBankwouldbemergedintoHarborOne’s subsidiarybank,HarborOneBank,Brockton,Massachusetts.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(83FederalRegister17661(April23,2018)).4Thetimeforsubmitting commentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct. HarborOne,withconsolidatedassetsof approximately$2.9billion,isthe325thlargest insureddepositoryorganizationintheUnitedStates.5HarborOnecontrolsapproximately $2.1billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.HarborOne controlsHarborOneBank,whichoperatesbranchesonlyinMassachusetts. Coastwayisthe1,022ndlargestinsureddepositoryorganizationintheUnitedStates. Coastwaycontrolsapproximately$494.9millionindeposits,whichrepresentlessthan 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 ThemergerofCoastwayCommunityBankintoHarborOneBankissubjecttoapprovalbytheFederalDepositInsuranceCorporation(“FDIC”),pursuanttosection18(c)oftheFederalDepositInsuranceAct(“BankMergerAct”). 12U.S.C.§1828(c).TheFDICapprovedthebankmergeronAugust31,2018. 4 12CFR262.3(b). 5 NationalassetdataareasofJune30,2018.Nationaldeposit,ranking,andmarket-sharedataareasofMarch31, 2018,unlessotherwisenoted.

2 FederalReserveBulletin|October2018 1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnited States.CoastwaycontrolsCoastwayCommunityBank,withassetsof $837million,which operatesonlyinRhodeIsland. Onconsummationof theproposal,HarborOnewouldbecomethe274thlargestinsured depositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $3.7billion,whichrepresentlessthan1percentof thetotalassetsof insureddepository institutionsintheUnitedStates.HarborOnewouldcontrolconsolidateddepositsof approximately$2.6billion,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.6 InterstateandDepositCapAnalysis Section3(d)of theBHCActgenerallyprovidesthat,if certainconditionsaremet,the Boardmayapproveanapplicationbyabankholdingcompanytoacquirecontrolof a banklocatedinastateotherthanthehomestateof thebankholdingcompany,without regardtowhetherthetransactionisprohibitedunderstatelaw.7TheBoardmaynot approveanapplicationthatwouldpermitanout-of-statebankholdingcompanytoacquire abankinahoststateif thebankhasnotbeeninexistenceforthelesserof thestatestatutoryminimumperiodof timeorfiveyears.8Inaddition,theBoardmaynotapprovean interstateapplicationif thebankholdingcompanycontrolsor,uponconsummationof the proposedtransaction,wouldcontrolmorethan10percentof thetotaldepositsof insured depositoryinstitutionsintheUnitedStatesor,incertaincircumstances,if thebankholding company,uponconsummation,wouldcontrol30percentormoreof thetotaldepositsof insureddepositoryinstitutionsinanystateinwhichtheacquirerandtargethaveoverlappingbankingoperations.9 Forpurposesof theBHCAct,thehomestateof HarborOneisMassachusetts,and CoastwayCommunityBankislocatedonlyinRhodeIsland.10HarborOneand HarborOneBankarewellcapitalizedandwellmanagedunderapplicablelaw,and HarborOneBankhasan“Outstanding”ratingundertheCommunityReinvestmentActof 1977(“CRA”).11RhodeIslandhasnostatutoryminimumagerequirement,12and CoastwayCommunityBankhasbeeninexistenceformorethanfiveyears. Onconsummationof theproposedtransaction,HarborOnewouldcontrollessthan 1percentof thetotalamountof consolidateddepositsof insureddepositoryinstitutionsin theUnitedStates.Inaddition,therearenostatesinwhichHarborOneandCoastwayhave overlappingbankingoperations;thus,thereisnoapplicablestatedepositcap.TheBoard hasconsideredallotherrequirementsundersection3(d)of theBHCAct,including HarborOneBank’srecordof meetingtheconvenienceandneedsof thecommunitiesit 6 Inthiscontext,insureddepositoryinstitutionsincludecommercialbanks,savingsassociations,andsavings banks. 7 12U.S.C.§1842(d)(1)(A). 8 12U.S.C.§1842(d)(1)(B). 9 12U.S.C.§1842(d)(2)(A)and(B).Forpurposesofsection3(d)oftheBHCAct,theacquiringandtargetinstitutionshaveoverlappingbankingoperationsinanystateinwhichanybanktobeacquiredislocatedandthe acquiringbankholdingcompanycontrolsanyinsureddepositoryinstitutionorabranch.TheBoardconsiders abanktobelocatedinthestatesinwhichthebankischartered,headquartered,oroperatesabranch. See12U.S.C.§1841(o)(4)–(7). 10 See12U.S.C.§1841(o)(4).Abankholdingcompany’shomestateisthestateinwhichthetotaldepositsofall bankingsubsidiariesofsuchcompanywerethelargestonJuly1,1966,orthedateonwhichthecompany becameabankholdingcompany,whicheverislater. 11 12U.S.C.§2901etseq. 12 SeeR.I.Gen.Laws§19-7-1etseq.

LegalDevelopments:ThirdQuarter,2018 3 serves.Accordingly,inlightof allthefactsof record,theBoardmayapprovetheproposal undersection3(d)of theBHCAct. CompetitiveConsiderations Section3of theBHCActprohibitstheBoardfromapprovingaproposalthatwouldresult inamonopolyorwouldbeinfurtheranceof anattempttomonopolizethebusinessof bankinginanyrelevantmarket.13TheBHCActalsoprohibitstheBoardfromapprovinga proposalthatwouldsubstantiallylessencompetitionortendtocreateamonopolyinany bankingmarket,unlesstheanticompetitiveeffectsof theproposalareclearlyoutweighedin thepublicinterestbytheprobableeffectof theproposalinmeetingtheconvenienceand needsof thecommunitiestobeserved.14 HarborOneBankandCoastwayCommunityBankcompetedirectlyintheProvidence, RhodeIsland,bankingmarket(“Providencemarket”).15TheBoardhasconsideredthe competitiveeffectsof theproposalinthisbankingmarket.Inparticular,theBoardhas consideredthenumberof competitorsthatwouldremaininthemarket;therelativeshare of totaldepositsininsureddepositoryinstitutionsinthemarket(“marketdeposits”)that HarborOnewouldcontrol;16theconcentrationlevelsof marketdepositsandtheincreasein thislevel,asmeasuredbytheHerfindahl-HirschmanIndex(“HHI”)undertheDepartmentof JusticeBankMergerCompetitiveReviewguidelines(“DOJBankMergerGuidelines”);17andothercharacteristicsof themarket. Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesintheProvidencemarket.Onconsummationof theproposal,theProvidencemarketwouldremainhighlyconcentratedasmeasured bytheHHI,accordingtotheDOJBankMergerGuidelines;however,thechangeinHHI wouldbesmall,andnumerouscompetitorswouldremaininthemarket.18 13 12U.S.C.§1842(c)(1). 14 12U.S.C.§1842(c)(1)(B). 15 TheProvidencemarketisdefinedasBristol,Kent,Newport,andProvidencecounties,allofRhodeIsland;the townshipsofCharlestown,Exeter,Narragansett,NewShoreham,NorthKingstown,Richmond,andSouth Kingstown,allinWashingtonCounty,RhodeIsland;thecityofAttleboroandthetownshipsofFallRiver, Rehoboth,Seekonk,Somerset,Swansea,andWestport,allinBristolCounty,Massachusetts.HarborOneBank hasabranchlocatedintheMassachusettsportionofthismarketanddoesnothaveabranchpresenceinthe portionofthemarketlocatedinRhodeIsland.CoastwayCommunityBankhasabranchpresenceonlyinthe portionofthemarketlocatedinRhodeIsland.Nevertheless,thebanksareconsideredtocompeteinthe entiremarket. 16 StatedepositandmarketsharedataareasofJune30,2017,andarebasedoncalculationsinwhichthedeposits ofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhasindicatedthatthriftinstitutionshave become,orhavethepotentialtobecome,significantcompetitorstocommercialbanks.See,e.g.,MidwestFinancialGroup,75FederalReserveBulletin386(1989);NationalCityCorporation,70FederalReserveBulletin743 (1984).Thus,theBoardregularlyhasincludedthriftdepositsinthemarketsharecalculationona50-percent weightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserveBulletin52(1991). 17 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableatwww.justice.gov/opa/pr/ 2010/August/10-at-938.html. 18 HarborOneoperatesthe18thlargestdepositoryinstitutionintheProvidencemarket,controllingapproximately $93.2millionindeposits,whichrepresentapproximately0.3percentofmarketdeposits.Coastwayoperatesthe 11thlargestdepositoryinstitutioninthesamemarket,controllingdepositsofapproximately$479.8million, whichrepresentapproximately1.5percentofmarketdeposits.Onconsummationoftheproposedtransaction,

4 FederalReserveBulletin|October2018 TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket.Inaddition,the appropriatebankingagencieshavebeenaffordedanopportunitytocommentandhavenot objectedtotheproposal. Basedonallof thefactsof record,theBoardconcludesthatconsummationof the proposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheProvidencemarketorinanyotherrelevantbankingmarket. Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistentwith approval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCAct,theBoardconsidersthefinancial andmanagerialresourcesandthefutureprospectsof theinstitutionsinvolved.19Inits evaluationof financialfactors,theBoardreviewsinformationregardingthefinancial conditionof theorganizationsinvolvedonbothparent-onlyandconsolidatedbases,as wellasinformationregardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.Inthisevaluation,the Boardconsidersavarietyof informationregardingcapitaladequacy,assetquality, liquidity,andearningsperformance,aswellaspubliccommentsontheproposal.The Boardevaluatesthefinancialconditionof thecombinedorganization,includingitscapital position,assetquality,liquidity,earningsprospects,andtheimpactof theproposed fundingof thetransaction.TheBoardalsoconsiderstheabilityof theorganizationto absorbthecostsof theproposalandtocompleteeffectivelytheproposedintegrationof the operationsof theinstitutions.Inassessingfinancialfactors,theBoardconsiderscapital adequacytobeespeciallyimportant.TheBoardconsidersthefutureprospectsof theorganizationsinvolvedintheproposalinlightof theirfinancialandmanagerialresourcesand theproposedbusinessplan. HarborOneandHarborOneBankarewellcapitalized,andthecombinedorganization wouldremainsoonconsummationof theproposal.Theproposedtransactionisabank holdingcompanymergerthatisstructuredasacash-shareexchange,withasubsequent mergerof thesubsidiarydepositoryinstitutions.20Theassetquality,earnings,andliquidity of bothHarborOneBankandCoastwayCommunityBankareconsistentwithapproval, andHarborOneappearstohaveadequateresourcestoabsorbtherelatedcostsof the proposalandtocompletetheintegrationof theinstitutions’operations.Inaddition,the futureprospectsof theinstitutionsundertheproposalareconsideredconsistentwith approval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of HarborOne,Coastway,andtheirsubsidiarydepositoryinstitutions,includingassess- HarborOnewouldbecomethe9thlargestdepositoryorganizationinthemarket,controllingdepositsof approximately$573.0million,whichrepresentapproximately1.8percentofmarketdeposits.TheHHIforthe Providencemarketwouldincreaseby1pointto2111,and23competitorswouldremaininthemarket. 19 12U.S.C.§1842(c)(2),(5),and(6). 20 Toeffecttheholdingcompanymerger,awhollyownedsubsidiaryofHarborOneBancorp,Inc.,whichwas formedtofacilitatethetransaction,wouldmergewithCoastway,withCoastwayasthesurvivingentity(“First- StepMerger”).AttheeffectivetimeoftheFirst-StepMerger,eachshareofCoastwaycommonstockthatis issuedandoutstandingwouldbeconvertedintoarighttoreceiveanamountofcash.Immediatelythereafter, CoastwaywouldmergewithHarborOneBancorp,Inc.,withHarborOneBancorp,Inc.asthesurvivingentity. HarborOnehasthefinancialresourcestoeffecttheproposedtransaction.

LegalDevelopments:ThirdQuarter,2018 5 mentsof theirmanagement,risk-managementsystems,andoperations.Inaddition,the BoardhasconsideredinformationprovidedbyHarborOne;theBoard’ssupervisoryexperiencesandthoseof otherrelevantbanksupervisoryagencieswiththeorganizations;andthe organizations’recordsof compliancewithapplicablebanking,consumerprotection,and anti-money-launderinglaws. HarborOne,Coastway,andtheirsubsidiarydepositoryinstitutionsareeachconsideredto bewellmanaged.HarborOne’sdirectorsandseniorexecutiveofficershaveknowledgeof andexperienceinthebankingandfinancialservicessectors,andHarborOne’sriskmanagementprogramappearsconsistentwithapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredHarborOne’splansforimplementingtheproposal. HarborOnehasconductedcomprehensiveduediligenceandisdevotingsignificantfinancialandotherresourcestoaddressallaspectsof thepost-acquisitionintegrationprocess forthisproposal.HarborOnewouldimplementitsrisk-managementpolicies,procedures, andcontrolsatthecombinedorganization,andtheseareconsideredacceptablefroma supervisoryperspective.Inaddition,HarborOne’smanagementhastheexperienceand resourcestooperatethecombinedorganizationinasafeandsoundmanner,and HarborOneplanstointegrateCoastway’sexistingmanagementandpersonnelinamanner thataugmentsHarborOne’smanagement.21 Basedonallthefactsof record,includingHarborOne’ssupervisoryrecord,managerial andoperationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandthefutureprospectsof theorganizationsinvolvedintheproposal,aswellas therecordsof effectivenessof HarborOneandCoastwayincombattingmoney-laundering activities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCAct,theBoardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.22Initsevaluationof theeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thesecommunities,aswellasotherpotentialeffectsof theproposalonthe convenienceandneedsof thecommunitiestobeserved.Inthisevaluation,theBoard placesparticularemphasisontherecordsof therelevantdepositoryinstitutionsunderthe CRA.TheCRArequiresthefederalbanksupervisoryagenciestoencourageinsured depositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesinwhichthey operate,consistentwiththeinstitutions’safeandsoundoperations,23andrequiresthe appropriatefederalbanksupervisoryagencytoassessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof itsentirecommunity,includinglow-andmoderateincome(“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.24 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsiderstheassessmentsof otherrelevantsupervisors,the 21 Followingconsummationoftheproposal,Coastway’spresidentandchiefexecutiveofficerwouldbecomethe DirectorofBanking,RhodeIsland,atHarborOneBank. 22 12U.S.C.§1842(c)(2). 23 12U.S.C.§2901(b). 24 12U.S.C.§2903.

6 FederalReserveBulletin|October2018 supervisoryviewsof examiners,othersupervisoryinformation,informationprovidedby theapplicant,andcommentsreceivedontheproposal.TheBoardalsomayconsiderthe acquiringinstitution’sbusinessmodelandmarketingandoutreachplans,theorganization’splansafterconsummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof HarborOne BankandCoastwayCommunityBank,thefairlendingandcompliancerecordsof both banks,thesupervisoryviewsof theFDIC,confidentialsupervisoryinformation,informationprovidedbyHarborOne,andthepubliccommentontheproposal.25Thecommenter requestedthatHarborOne’sproposedacquisitionof Coastwayincludeaforward-looking communitybenefitsplan.26 Recordsof PerformanceundertheCRA TheCRArequiresthattheappropriatefederalbanksupervisorforadepositoryinstitution prepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecreditneeds of itsentirecommunity,includingLMIneighborhoods.27Aninstitution’smostrecent CRAperformanceevaluationisaparticularlyimportantconsiderationintheapplications processbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’sprimary federalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalbanksupervisorsapplyalendingtesttoevaluatetheperformanceof a largeinsureddepositoryinstitution,suchasHarborOneBank,inhelpingtomeetthecredit needsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’s lendingtodeterminewhethertheinstitutionishelpingtomeetthecreditneedsof individualsandgeographiesof allincomelevels.Aspartof thelendingtest,examinersreview andanalyzeaninstitution’sdatareportedundertheHomeMortgageDisclosureAct (“HMDA”),28inadditiontosmallbusiness,smallfarm,andcommunitydevelopmentloan datacollectedandreportedundertheCRAregulations,toassessaninstitution’slending activitieswithrespecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slendingperformanceisbasedonavarietyof factors,including(1)thenumberand amountsof homemortgage,smallbusiness,smallfarm,andconsumerloans(asapplicable) intheinstitution’sassessmentareas(“AAs”);(2)thegeographicdistributionof theinstitution’slending,includingtheproportionanddispersionof theinstitution’slendinginits AAsandthenumberandamountsof loansinlow-,moderate-,middle-,andupper-income geographies;(3)thedistributionof loansbasedonborrowercharacteristics,including,for homemortgageloans,thenumberandamountsof loanstolow-,moderate-,middle-, 25 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81Fed.Reg.48506, 48548(July25,2016). 26 TheBoardconsistentlyhasfoundthatneithertheCRAnorthefederalbankingagencies’CRAregulations requiredepositoryinstitutionstomakepledgesorenterintocommitmentsoragreementswithanyprivate party.See,e.g.,TriCoBancshares,FRBOrderNo.2018-13at9n.20(June6,2018);HowardBancorp,Inc., FRBOrderNo.2018-05at9n.21(February12,2018);SandySpringBancorp,Inc.,FRBOrderNo.2017-32at 12n.31(November22,2017);FirstMidwestBancorp,Inc.,FRBOrderNo.2016-18at11n.28(November10, 2016);CITGroup,Inc.,FRBOrderNo.2015-20at24n.54(July19,2015);CitigroupInc.,88FederalReserve Bulletin485(2002);FifthThirdBancorp,80FederalReserveBulletin838,841(1994).Initsevaluation,the BoardreviewstheexistingCRAperformancerecordofanapplicantandtheprogramsthattheapplicanthasin placetoservethecreditneedsofitsCRAassessmentareas. 27 12U.S.C.§2906. 28 12U.S.C.§2801etseq.

LegalDevelopments:ThirdQuarter,2018 7 andupper-incomeindividuals;29(4)theinstitution’scommunitydevelopmentlending, includingthenumberandamountsof communitydevelopmentloansandtheircomplexity andinnovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpractices toaddressthecreditneedsof LMIindividualsandgeographies.30Largeinstitutionsalso aresubjecttoaninvestmenttest,whichevaluatesthenumberandamountsof qualified investmentsthatbenefittheirAAs,andaservicetest,whichevaluatestheavailabilityand effectivenessof theirsystemsfordeliveringretailbankingservicesandtheextentand innovativenessof theircommunitydevelopmentservices.31Intermediatesmallbanks,such asCoastwayCommunityBank,aresubjecttothelendingtest,aswellasacommunity developmenttestthatevaluatesthenumberandamountsof theircommunitydevelopment loansandqualifiedinvestments;theextenttowhichtheyprovidecommunitydevelopmentservices;andtheirresponsivenesstocommunitydevelopmentlending,investment, andserviceneeds.32 CRAPerformanceof HarborOneBank HarborOneBankwasassignedanoverall“Outstanding”ratingatitsmostrecentCRA performanceevaluationbytheFDIC,asof December18,2017(“HarborOneBankEvaluation”).33Thebankreceived“Outstanding”ratingsfortheLendingTest,InvestmentTest, andServiceTest.34 ExaminersfoundthatHarborOneBank’soveralllendinglevelsreflectedgoodresponsivenesstothecreditneedsof itsAA.Examinersnotedthatahighpercentageof thebank’s homemortgageandsmallbusinessloans,asmeasuredbynumberof loansanddollar volume,wasoriginatedwithinitsAA.Examinersfoundthatthegeographicdistributionof thebank’sloansreflectedgoodpenetrationthroughoutitsAAandthatthedistributionof thebank’sborrowersreflectedexcellentpenetrationamongborrowersof differentincome levelsandbusinessesof differentsizes.ExaminersdeterminedthatHarborOneBankwasa leaderinmakingcommunitydevelopmentloansandnotedthatthebankmadeextensive useof innovateandflexiblelendingpractices. ExaminersfoundthatHarborOneBankhadanexcellentlevelof qualifiedcommunity developmentinvestments,grants,anddonations.Inaddition,examinersdeterminedthat thebankwasaleaderinprovidingcommunitydevelopmentservicesinitsAA.Examiners foundthatthebank’sdeliverysystemswerereadilyaccessibletoallportionsof itsAA,and thebank’sbranchhoursandservicesweretailoredtotheconvenienceandneedsof the bank’sAA. 29 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3). 30 See12CFR228.22(b). 31 See12CFR228.21etseq. 32 12CFR228.26(c). 33 TheHarborOneBankEvaluationwasconductedusingLargeInstitutionCRAExaminationProcedures. ExaminersreviewedmortgageloansreportedpursuanttoHMDAandsmallbusinessloansasreportedunder CRAdatacollectionrequirements,fromJanuary1,2015,throughDecember31,2016.Theevaluationperiod forcommunitydevelopmentloans,investments,andserviceswasAugust25,2014,throughDecember18,2017. 34 TheHarborOneBankEvaluationincludedafull-scopeevaluationofthebank’ssoleAA,whichconsistsof partsoftheBoston,MassachusettsMetropolitanDivisionandtheProvidence-Warwick,RhodeIsland- MassachusettsMetropolitanStatisticalArea(“MSA”).

8 FederalReserveBulletin|October2018 CRAPerformanceof CoastwayCommunityBank CoastwayCommunityBankreceivedanoverallratingof “Outstanding”atitsmostrecent CRAperformanceevaluationbytheFDIC,asof May30,2017(“CoastwayEvaluation”).35Thebankreceived“Outstanding”ratingsfortheLendingTestandtheCommunityDevelopmentTest.36 ExaminersconcludedthatCoastwayCommunityBankwasresponsivetothecreditneeds of itsAA.Inparticular,examinersfoundthatthebank’sloan-to-depositratiowasreasonablegiventhebank’sassetsize,financialcondition,andthecreditneedsof itsAA.Examinersnotedthatthebankmadeasubstantialmajorityof itshomemortgageandsmall businessloanswithinitsAA.Examinersfoundthatthegeographicdistributionof the bank’shomemortgageandsmallbusinessloansreflectedexcellentdispersionthroughout itsAA.Examinersalsofoundthat,giventhedemographicsof thebank’sAA,thedistributionof thebank’sborrowersreflectedexcellentpenetrationamongindividualsof different incomelevelsandbusinessesof differentsizes. ExaminersconcludedthatCoastwayCommunityBankdemonstratedexcellentresponsivenesstothecommunitydevelopmentneedsof itsAAthroughcommunitydevelopment loans,qualifiedinvestments,andcommunitydevelopmentservices. Viewsof theFDIC Initsreviewof theproposal,theBoardconsultedwiththeFDICregardingHarborOne Bank’sCRA,consumercompliance,andfairlendingrecords.TheFDICreviewedand approvedtheBankMergerActapplicationrelatedtotheproposal.TheBoardhasconsideredtheresultsof themostrecentconsumercomplianceexaminationsof HarborOneBank andCoastwayCommunityBankconductedbyFDICexaminers,whichincludedareview of thebanks’compliancemanagementprogramsandthebanks’compliancewith consumerprotectionlawsandregulations.TheBoardhastakenthisinformation,aswellas theCRAperformancerecordsof HarborOneBankandCoastwayCommunityBank,into accountinevaluatingtheproposal,includinginconsideringwhetherHarborOnehasthe experienceandresourcestoensurethatHarborOneBankhelpstomeetthecreditneedsof thecommunitieswithinitsAA. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.HarborOnerepresentsthat,followingconsummationof theproposal,existingcustomersof HarborOneBankandCoastwayCommunity BankwouldbenefitfromanexpandedbranchandATMnetwork.Inaddition,HarborOne representsthattheproposalwouldresultinacombinedorganizationwithlowerfixedcosts andgreaterresourcesforlendingandcommunityinvestmentactivities. HarborOneassertsthatthecombinedorganizationwouldremaincommittedtofulfilling theneedsof LMIcommunities.HarborOnestatesthatitwillcontinuetoofferitsexisting productsandservicesfollowingconsummationof theproposal.Thisincludesproductsthat areintendedtoincreaseaffordablehousingandthecreationof smallbusinesses,suchas 35 TheCoastwayEvaluationwasconductedusingIntermediateSmallBankCRAExaminationProcedures. ExaminersreviewedmortgageloansreportedpursuanttoHMDAandsmallbusinessloansreportedunder CRAdatacollectionrequirements,fromJanuary1,2015,throughDecember31,2016.Theevaluationperiod forcommunitydevelopmentlending,investments,andserviceswasJuly1,2014,throughMay30,2017. 36 TheCoastwayEvaluationincludedanevaluationofthebank’ssoleAA,whichconsistsofpartsofthe Providence-Warwick,RhodeIsland-MassachusettsMSA.

LegalDevelopments:ThirdQuarter,2018 9 first-timehomebuyerloans,MassHousingmortgages,FederalHomeLoanBankgrants, andSmallBusinessAdministrationloans. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws,supervisoryviewsof theFDIC,confidential supervisoryinformation,informationprovidedbyHarborOne,thepubliccommentonthe proposal,andotherpotentialeffectsof theproposalontheconvenienceandneedsof the communitiestobeserved.Basedonthatreview,theBoardconcludesthattheconvenience andneedsfactorisconsistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedsection3of theBHCActtorequiretheBoardtoconsider“theextenttowhicha proposedacquisition,merger,orconsolidationwouldresultingreaterormoreconcentratedriskstothestabilityof theUnitedStatesbankingorfinancialsystem.”37 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the resultingfirm.38Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamageonthebroadereconomy.39 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billionintotalassets,orthatresultinafirmwithlessthan$100billionintotalassets, aregenerallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthata proposaldoesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbelow eitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificantincreaseininterconnectedness,complexity,cross-borderactivities,orotherrisk factors.40 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan 37 Dodd-FrankAct§604(d),Pub.L.No.111-203,124Stat.1376,1601(2010),codifiedat12U.S.C.§1842(c)(7). 38 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 39 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 40 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition.

10 FederalReserveBulletin|October2018 $10billionintotalassetsandaproformaorganizationof lessthan$100billionintotal assets.Boththeacquirerandthetargetarepredominatelyengagedinretailandcommercial bankingactivities.41Theproformaorganizationwouldhaveminimalcross-borderactivitiesandwouldnotexhibitanorganizationalstructure,complexinterrelationships,or uniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financial distress.Inaddition,theorganizationwouldnotbeacriticalservicesproviderorsointerconnectedwithotherfirmsorthemarketsthatitwouldposeasignificantrisktothefinancialsystemintheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationshouldbe,andherebyis,approved.Inreachingitsconclusion,theBoardhasconsideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunderthe BHCActandotherapplicablestatutes.TheBoard’sapprovalisspecificallyconditionedon compliancebyHarborOnewithalltheconditionsimposedinthisorder,includingreceipt of allrequiredregulatoryapprovals,andonanycommitmentsmadetotheBoardin connectionwiththeproposal.Forpurposesof thisaction,theconditionsandcommitmentsaredeemedtobeconditionsimposedinwritingbytheBoardinconnectionwithits findingsanddecisionhereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardortheFederalReserveBankof Boston,actingunderdelegated authority. Byorderof theBoardof Governors,effectiveSeptember12,2018. Votingforthisaction:ChairmanPowell,ViceChairmanforSupervisionQuarles,and GovernorBrainard. AnnE.Misback Secretaryof theBoard 41 HarborOneandCoastwayofferarangeofretailandcommercialbankingproductsandservices.HarborOne has,andasaresultoftheproposalwouldcontinuetohave,asmallmarketshareintheseproductsandservices onanationwidebasis.

LegalDevelopments:ThirdQuarter,2018 11 Orders Issued Under Federal Reserve Act Origin Bank Choudrant, Louisiana OrderApprovingtheEstablishmentof aBranch FRBOrderNo.2018-17(September4,2018) OriginBank,Choudrant,Louisiana,astatememberbanksubsidiaryof OriginBancorp, Inc.,Ruston,Louisiana,hasrequestedtheBoard’sapprovalundersection9of theFederal ReserveAct(“FRA”)1andtheBoard’sRegulationH2toestablishabranchonLaBranch Street,Houston,Texas.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublishedinaccordancewiththeBoard’sRulesof Procedure.4Thetimefor submittingcommentshasexpired,andtheBoardhasconsideredtheproposalandthe commentsreceivedinlightof thefactorsspecifiedintheFRA. OriginBank,withtotalassetsof $4.4billion,isthe61stlargestdepositoryorganizationin Texas,with17branchesthroughoutTexas,controllingapproximately$1.1billionin deposits,whichrepresentlessthan1percentof thetotalamountof depositsof insured depositoryinstitutionsinthatstate.5OriginBankoperatesthrough45branches throughoutLouisiana,Mississippi,andTexas,andthebank’smainofficeisinChoudrant, Louisiana. Undersection208.6of theBoard’sRegulationH,6whichimplementssection9of the FRA,thefactorsthattheBoardmustconsiderinactingonbranchapplicationsinclude (1)thefinancialhistoryandconditionof theapplyingbankandthegeneralcharacterof its management;(2)theadequacyof thebank’scapitalanditsfutureearningsprospects; (3)theconvenienceandneedsof thecommunitytobeservedbythebranch;(4)inthecase of brancheswithdeposit-takingcapability,thebank’sperformanceundertheCommunity ReinvestmentAct(“CRA”);7and(5)whetherthebank’sinvestmentinbankpremisesin establishingthebranchsatisfiescertaincriteria.8TheBoardhasconsideredtheapplication inlightof thesefactorsandthepubliccommentreceivedontheproposal. 1 Section9oftheFRA,12U.S.C.§321,whichappliestheinterstatebranchingprovisionsoftheNationalBank Act,12U.S.C.§36(c)(2),permitsastatememberbankwithabranchinastateotherthanthebank’shome statetoestablishadditionalbranchesinthatstatetothesameextentasabankcharteredinthatstate.Origin BankcurrentlyoperatesbranchesinTexasandispermittedundersection9oftheFRAandTexasstatelawto establishadditionalbranchesinTexas.See12U.S.C.§36(c)(2);Texas.Fin.CodeAnn.§203.006(permittingan out-of-statebankthathasestablishedoracquiredabranchinTexastoestablishoracquireadditionalbranches inTexastothesameextentthataTexasstate-charteredbankcouldunderstateorfederallaw). 2 12CFRpart208. 3 Thebranchwillbelocatedontwoadjacentparcelsoflandwithacurrentaddressof5515&5521LaBranch Street.Thesetwoparcelsareintheprocessofbeingreplattedintoasingleproperty.TheCityofHoustonhas designatedapreliminaryaddressof1511BinzStreettothereplattedproperty,buttheexactstreetaddressof thebranchhasnotyetbeendetermined.OriginBankwillprovidethefinalstreetaddresstotheBoardassoon asithasbeendetermined. 4 12CFR262.3(b). 5 AssetdataareasofJune30,2018.StatedepositdataareasofMarch31,2018,unlessotherwisenoted.Inthis context,insureddepositoryinstitutionsincludecommercialbanks,savingsassociations,andsavingsbanks. 6 12CFR208.6(b). 7 12U.S.C.§2901etseq. 8 12CFR208.21(a).

12 FederalReserveBulletin|October2018 Financial,Managerial,andOtherSupervisoryConsiderations Inconsideringthefinancialhistoryandcondition,earningsprospects,andcapital adequacyof OriginBank,theBoardhasreviewedreportsof examination,othersupervisoryinformation,publiclyreportedandotherfinancialinformation,informationprovided byOriginBank,andthecommentreceivedontheproposal.OriginBankiswellcapitalized andwouldremainsouponconsummationof theproposal.Theassetquality,earnings,and liquidityof OriginBankareconsistentwithapproval,andOriginBankappearstohave adequateresourcestoabsorbthecostsof theproposal.Inaddition,futureearningsprospectsareconsideredconsistentwithapproval.TheBoardalsohasreviewedOriginBank’s proposedinvestmentinthebranchandconcludesthatthebank’sinvestmentisconsistent withregulatorylimitationsoninvestmentinbankpremises.9 InconsideringOriginBank’smanagerialresources,theBoardhasreviewedthebank’s examinationrecord,includingassessmentsof itsmanagement,risk-managementsystems, andoperations.TheBoardalsohasconsidereditssupervisoryexperienceswithOrigin Bankandthebank’srecordof compliancewithapplicablebankinglaws,including consumerprotectionandanti-money-launderinglaws.OriginBankisconsideredtobewell managed.OriginBank’sdirectorsandseniorexecutiveofficershavesubstantialknowledge of andexperienceinthebankingandfinancialservicessectors,andthebank’sriskmanagementprogramappearstobeconsistentwithapproval. Basedonthisreviewandallthefactsof record,theBoardconcludesthatOriginBank’s management,financialhistoryandcondition,capitaladequacy,andfutureearningsprospects,aswellastheeffectivenessof OriginBankincombattingmoney-launderingactivities,areconsistentwithapprovalof theproposal. ConvenienceandNeedsConsiderations Inconsideringtheeffectsof theproposalontheconvenienceandneedsof thecommunities tobeserved,theBoardconsiderswhethertherelevantinstitutionishelpingtomeetthe creditneedsof thesecommunities,aswellasotherpotentialeffectsof theproposalonthe convenienceandneedsof thecommunitiestobeserved.10Inthisevaluation,theBoard placesparticularemphasisontherecordof therelevantdepositoryinstitutionunderthe CRA.TheCRArequiresthefederalfinancialsupervisoryagenciestoencourageinsured depositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesinwhichthey operate,consistentwiththeirsafeandsoundoperation,11andrequirestheappropriate federalfinancialsupervisoryagencytoassessadepositoryinstitution’srecordof helpingto meetthecreditneedsof itsentirecommunity,includinglow-andmoderate-income (“LMI”)neighborhoods,inevaluatingabankbranchingproposal.12 Inaddition,theBoardconsidersthebank’soverallcompliancerecordandtheresultsof recentfairlendingexaminations.Fairlendinglawsrequirealllendinginstitutionsto provideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertain othercharacteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors, thesupervisoryviewsof examiners,othersupervisoryinformation,informationprovided bytheapplicant,andcommentsreceivedontheproposal.TheBoardalsomayconsiderthe 9 12CFR208.21(a). 10 12CFR208.6(b)(3). 11 12U.S.C.§2901(b). 12 12U.S.C.§2903.

LegalDevelopments:ThirdQuarter,2018 13 institution’sbusinessmodel,itsmarketingandoutreachplans,theorganization’splans afterconsummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof OriginBank, thefairlendingandcompliancerecordsof thebank,confidentialsupervisoryinformation, informationprovidedbyOriginBank,andthepubliccommentreceivedontheproposal. PublicCommentontheProposal Onecommenterobjectstotheproposal,allegingthatOriginBankhasengagedinredlining inDallasandHouston,Texas.13Specifically,thecommenterallegesthatOriginBank disfavorscertainAfricanAmericanneighborhoodsinHoustonandDallasandhaslimited itslending,marketactivities,communitydevelopmentactivities,andbranchingin thoseareas. Businessof theApplicantandResponsetotheComment Throughitsnetworkof branchesinthreestates,OriginBankoffersabroadrangeof loan anddepositproductsandservicestoconsumersandbusinesses,includingcommercial,residential,agricultural,andconsumerloans,andpersonalcheckingandsavingsaccounts. OriginBankdeniesthecommenter’sallegations.Thebankrepresentsthatthebank’s compliancepersonnelregularlyreviewinformationrelatingtoloanvolumeandgeographic penetrationwiththebank’smarketpresidents,andcommunitydevelopmentloans,services, donationsandinvestmentsaretrackedandareroutinelycommunicatedtobankmanagement.OriginBankfurtherassertsthatitmaintainspolicies,procedures,andpracticesto ensurecompliancewiththeCRAandapplicablefairlendinglawsandregulations.Additionally,OriginBankassertsthatitcontinuallyseeksmeaningfulpartnershipswith nonprofitorganizations,schools,communityorganizations,andsmallbusinessestofoster communitydevelopment. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardconsiders substantialinformationinadditiontoinformationprovidedbypubliccommentersandthe responsetocommentsbytheapplicant.Inparticular,theBoardevaluatesaninstitution’s performanceinlightof examinationsandothersupervisoryinformationandinformation andviewsprovidedbytheappropriatefederalsupervisors.14Inthiscase,theBoardconsideredtheinformationcollectedbyandthefindingsof examinersfromtheFederalReserve Bankof Dallas(“ReserveBank”),whoconductedanon-siteCRAperformanceevaluation of OriginBank. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.15Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheappli- 13 Redliningisthepracticeofprovidingunequalaccesstocredit,orunequaltermsofcredit,becauseoftherace, color,nationalorigin,orotherprohibitedcharacteristicsoftheresidentsoftheareainwhichacreditseeker residesorwillresideorinwhichapropertytobemortgagedislocated.SeeInteragencyFairLendingExaminationProcedures(August2009),availableathttps://www.ffiec.gov/pdf/fairlend.pdf. 14 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48506, 48548(July25,2016). 15 12U.S.C.§2906.

14 FederalReserveBulletin|October2018 cationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplylending,investment,andserviceteststo evaluatetheperformanceof alargeinsureddepositoryinstitutioninhelpingtomeetthe creditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’shomemortgage,smallbusiness,smallfarm,andcommunitydevelopmentlendingto determinewhethertheinstitutionishelpingtomeetthecreditneedsof individualsand geographiesof allincomelevels.Aspartof thelendingtest,examinersreviewandanalyze aninstitution’sdatareportedundertheHomeMortgageDisclosureAct(“HMDA”),16in additiontosmallbusiness,smallfarm,andcommunitydevelopmentloandatacollected andreportedundertheCRAregulations,toassessaninstitution’slendingactivitieswith respecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slending performanceisbasedonavarietyof factors,including(1)thenumberandamountsof homemortgage,smallbusiness,smallfarm,andconsumerloans(asapplicable)intheinstitution’sassessmentareas(“AAs”);(2)thegeographicdistributionof theinstitution’s lending,includingtheproportionanddispersionof theinstitution’slendinginitsAAsand thenumberandamountsof loansinlow-,moderate-,middle-,andupper-incomegeographies;(3)thedistributionof loansbasedonborrowercharacteristics,including,forhome mortgageloans,thenumberandamountsof loanstolow-,moderate-,middle-,andupperincomeindividuals;17(4)theinstitution’scommunitydevelopmentlending,includingthe numberandamountsof communitydevelopmentloansandtheircomplexityand innovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpracticesto addressthecreditneedsof LMIindividualsandgeographies. CRAPerformanceof OriginBank OriginBankwasassignedanoverall“Satisfactory”ratingatitsmostrecentCRAperformanceevaluationbytheReserveBank,asof October24,2016(“OriginBankEvaluation”).18OriginBankreceiveda“HighSatisfactory”ratingforeachof theLendingTest andtheServiceTestanda“LowSatisfactory”ratingfortheInvestmentTest.19 ExaminersfoundthatOriginBank’soveralllendingactivityreflectedgoodresponsiveness tocreditneedsinitsAAs.Accordingtoexaminers,thebankmadeanadequatepercentage of itsloansinsideitsAAs.Examinersnotedthat,overall,thebank’sdistributionof borrowersreflectedgoodpenetrationamongindividualsof differentincomelevelsand businessesof differentrevenuesizes.Examinersfoundthatthebank’sgeographicdistributionof loansreflectedadequatepenetrationthroughouttheAAs.Examinersnotedthatthe bankmadearelativelyhighlevelof communitydevelopmentloansforavarietyof 16 12U.S.C.§2801etseq. 17 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloansmadetobusinesses andfarmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamount atorigination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals. See,e.g.,12CFR228.22(b)(3). 18 TheOriginBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Examiners reviewedHMDAandsmallbusinessandsmallfarmlendingactivitiesreportedbythebankfromJanuary1, 2013,throughDecember31,2015.Theevaluationperiodforcommunitydevelopmentlending,investments, andserviceswasSeptember16,2013,throughOctober24,2016. 19 TheOriginBankEvaluationincludedafull-scopereviewofthebank’sAAswithintheMonroe,Louisiana, MetropolitanStatisticalArea(“MSA”);theLincolnParish,Louisiana,MSA;theDallas-FortWorth Metroplex,whichiscomposedofcountiesintheDallas-FortWorth-ArlingtonMSAandtheDallas-Plano- Irving,Texas,MetropolitanDivision(“DallasAA”);andtheNorthCentral,Mississippi,MSA.Alimited-scope reviewwasconductedinthebank’sAAswithintheHouston-SugarLand-Bayton,Texas,MSA(“Houston AA”);theMorehouseParish,Louisiana,MSA;theNorthwest,Louisiana,MSA;andthebank’sOxford, Mississippinon-MSAMississippiAA.

LegalDevelopments:ThirdQuarter,2018 15 purposes,includingcommunityservices,economicdevelopment,andrevitalizationand stabilization,butthemajoritywereforaffordablehousing. ExaminersfoundOriginBank’slendingperformanceintheDallasAA,anareaof concern forthecommenter,tobeadequate.Examinersfoundthatthegeographicdistributionof the bank’sloansinthisAAreflectedpoorpenetration,andthebank’sdistributionof lending toborrowersof differentincomelevelsandbusinessesof differentrevenuesizesreflected adequatepenetration.Examinersfoundthatthebankmadearelativelyhighlevelof communitydevelopmentloans.IntheHoustonAA,anotherareaof concernforthe commenter,examinersfoundthebank’slendingperformancetobeconsistentwithits overalllendingperformanceintheDallasAA. Examinersfoundthatthebank’sinvestmentsdemonstratedgoodresponsivenesstocredit andcommunitydevelopmentneedsthroughoutitsAAs.Examinersfoundthatthebank hadanadequatelevelof qualifiedcommunitydevelopmentinvestmentsandgrants, particularlythosenotroutinelyprovidedbyprivateinvestors.IntheDallasAA,examiners foundthatthebankhadanadequatelevelof qualifiedcommunitydevelopmentinvestmentsandgrants,withinvestmentsprimarilyfocusedoneconomicdevelopmentinitiatives. Thebank’sinvestmentperformanceintheHoustonAAwasfoundtobeconsistentwith thebank’soverallinvestmentperformanceintheDallasAA. ExaminersfoundthatOriginBankprovidedarelativelyhighlevelof communitydevelopmentservicesthroughoutitsAAs.OriginBank’sretaildeliverysystemswerefoundtobe accessibletogeographiesandindividualsof differentincomelevelslocatedinitsAAs. ExaminersfurthernotedthatOriginBank’sopeningandclosingof branchesdidnot adverselyaffecttheaccessibilityof bankingservices,particularlytoLMIgeographies and/orindividuals.Examinersfoundthatthebankingservicesdidnotvaryinawaythat inconveniencedthebank’sAAs,particularlyLMIgeographiesandindividuals. IntheDallasAA,examinersfoundthatOriginBank’sperformanceundertheServiceTest wasgood.Examinerscomparedthedistributionof thebank’sdeliverysystemstohouseholdsandbusinesseswithintheareaandfoundthatthebank’sdeliverysystemswere readilyaccessibletothebank’sgeographiesandindividualsof differentincomelevels. Examinersalsofoundthatthebank’sretailandcommunitydevelopmentservicesreflected goodresponsivenesstotheneedsof theAA.Moreover,examinersfoundthatthebank’s recordof openingorclosingbranchesintheDallasAAgenerallyhadnotaffectedthe accessibilityof itsdeliverysystems.IntheHoustonAA,examinersconcludedthatOrigin Bank’sserviceperformancewasconsistentwithitsoverallserviceperformanceinthe DallasAA. OriginBank’sEffortssincethe2016CRAEvaluation OriginBankrepresentsthatsincetheOriginBankEvaluation,ithascontinuedtohelp meetthecreditneedsof itsAAs,includingtheneedsof LMIcommunitiesandindividuals. OriginBankrepresentsthatithasmadecommunitydevelopmentloansthatsupport economicdevelopmentandrevitalization,aswellasloanstoorganizationsproviding communityservicestoLMIindividualsandfamilies.Thebankalsoassertsthatithas continuedtoofferabroadrangeof productsandbankingservicesthataredesignedto addresstheneedsof LMIindividualsandgeographies,includingfreeonlinebankingand mobilebankingservicesandalow-costcheckingaccountwithnominimumdepositto open.Thebankrepresentsthatitparticipatesinanumberof grantprogramstofacilitate itsfinancingof affordablehousing,grantstohelpLMIfamilies,andeconomicdevelopmentprogramstopromoteeconomicgrowthactivitiesinthebank’sAAs,includingin Houston.Additionally,OriginBankassertsthatithascontinuedtopartnerwithnonprofit

16 FederalReserveBulletin|October2018 organizationsbyhavingitsemployeesserveontheirboards,developingrelationshipswith smallbusinessgroups,promotingfinancialliteracy,andsponsoringfirst-timehomebuyers’ eventsthataretargetedtoLMIconsumers. AdditionalSupervisoryViews TheBoardhasconsideredtheresultsof arecentconsumercomplianceexamination conductedbyReserveBankexaminers,whichincludedareviewof thebank’scompliance riskmanagementprogramanditscompliancewithconsumerprotectionlawsandregulations.Aspartof theconsumercomplianceexamination,ReserveBankexaminersalso evaluatedOriginBank’sfairlendingcompliancemanagementprogram,whichincludedan evaluationof thebank’sfair-lending-relatedpolicies,procedures,andinternalcontrols. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.Theproposedbranchwouldbelocatedlessthan one-half milefromacurrentlyoperatingbranch,whichwouldbeclosed.Thebankbelieves thatthelocationof theproposedbranchwouldprovidemoresafetyandconvenienceto thebank’scustomersbecausethedrive-infacilitywouldbepartof thebranch,whereasthe existingbranch’sdrive-infacilityislocatedacrossthestreetfromtheexistingbranch. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtheCRArecordof Origin Bank,thebank’srecordof compliancewithfairlendingandotherconsumerprotection laws,confidentialsupervisoryinformation,informationprovidedbyOriginBank,the publiccommentontheproposal,andotherpotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.Basedonthatreview,theBoard concludesthattheconvenienceandneedsfactorisconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationshouldbe,andherebyis,approved.20TheBoard’sapprovalisspecificallyconditioned onOriginBank’scompliancewithallthecommitmentsmadetotheBoardinconnection withtheproposal,aswellasallconditionsimposedinthisorder.Forpurposesof this action,theconditionsandcommitmentsaredeemedtobeconditionsimposedinwriting bytheBoardinconnectionwithitsfindingsanddecisionhereinand,assuch,maybe enforcedinproceedingsunderapplicablelaw. 20 TheBoardconstruesthecommentreceivedontheproposaltoincludearequestthattheBoardholdapublic hearingontheproposal.Underitsrules,theBoardmay,initsdiscretion,holdapublichearingifappropriate toallowinterestedpersonsanopportunitytoproviderelevanttestimonywhenwrittencommentswouldnot adequatelypresenttheirviews.12CFR262.3(e).TheBoardhasconsideredthecommenter’srequestinlightof allthefactsofrecord.Noticeoftheproposalwaspublishedinrelevantnewspapersofgeneralcirculationon June12,2018.ThecommentperiodendedonJune27,2018.IntheBoard’sview,thecommenterhashadample opportunitytosubmitcommentsontheproposaland,infact,submittedawrittencommentthattheBoardhas consideredinactingontheproposal.Thecommenter’srequestdoesnotidentifydisputedissuesoffactthatare materialtotheBoard’sdecisionandthatwouldbeclarifiedbyapublichearing.Inaddition,therequestdoes notdemonstratewhythewrittencommentdoesnotpresentthecommenter’sviewsadequatelyorwhyahearing otherwisewouldbenecessaryorappropriate.Forthesereasons,andbasedonallthefactsofrecord,theBoard hasdeterminedthatapublichearingisnotrequiredorwarrantedinthiscase.Accordingly,therequestfora publichearingontheproposalisdenied.

LegalDevelopments:ThirdQuarter,2018 17 Thebranchmustbeestablishedwithinoneyearof thedateof thisorder,unlesssuch periodisextendedbytheBoardortheReserveBank,actingunderauthoritydelegatedby theBoard. Byorderof theBoardof Governors,effectiveSeptember4,2018. Votingforthisaction:ChairmanPowell,ViceChairmanforSupervisionQuarles,and GovernorBrainard. AnnE.Misback Secretaryof theBoard

18 FederalReserveBulletin|October2018 Compass Bank Birmingham, Alabama OrderApprovingtheEstablishmentof aBranch FRBOrderNo.2018-19(September25,2018) CompassBank,Birmingham,Alabama,astatememberbanksubsidiaryof BancoBilbao VizcayaArgentaria,S.A.,Bilbao,Spain,andBBVACompassBancshares,Inc.,Houston, Texas(“BBVACompass”),hasrequestedtheBoard’sapprovalundersection9of the FederalReserveAct(“FRA”)1andtheBoard’sRegulationH2toestablishabranchat 12525MemorialDrive,Houston,Texas.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublishedinaccordancewiththeBoard’sRulesof Procedure.4Thetimefor submittingcommentshasexpired,andtheBoardhasconsideredtheproposalandthe commentsreceivedinlightof thefactorsspecifiedintheFRA. BBVACompass,withconsolidatedassetsof $87.6billion,isthe40thlargestdepository organizationintheUnitedStates,controllingapproximately$69.9billionindeposits,which representlessthan1.0percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.5CompassBankoperatesthrough646officeslocatedin Alabama,Arizona,California,Colorado,Florida,NewMexico,andTexas,andthebank’s mainofficeisinBirmingham,Alabama.InTexas,CompassBankisthefifthlargest depositoryinstitution,with342offices,controllingapproximately$36.2billionindeposits, whichrepresentapproximately4.4percentof thetotalamountof depositsinthatstate.6 Undersection208.6of theBoard’sRegulationH,7whichimplementssection9of the FRA,thefactorsthattheBoardmustconsiderinactingonbranchapplicationsinclude (1)thefinancialhistoryandconditionof theapplyingbankandthegeneralcharacterof its management;(2)theadequacyof thebank’scapitalandfutureearningsprospects;(3)the convenienceandneedsof thecommunitytobeservedbythebranch;(4)inthecaseof brancheswithdeposit-takingcapability,thebank’sperformanceundertheCommunity ReinvestmentAct(“CRA”);8and(5)whetherthebank’sinvestmentinbankpremisesin establishingthebranchsatisfiescertaincriteria.9TheBoardhasconsideredtheapplication inlightof thesefactorsandthepubliccommentreceivedontheproposal. Financial,Managerial,andOtherSupervisoryConsiderations Inconsideringthefinancialhistoryandcondition,earningsprospects,andcapital adequacyof CompassBank,theBoardhasreviewedreportsof examination,othersupervisoryinformation,publiclyreportedandotherfinancialinformation,information providedbyCompassBank,andthecommentreceivedontheproposal.CompassBankis 1 12U.S.C.§321. 2 12CFRPart208. 3 Theproposedbranchwouldreplaceanexistingbranchlocatedonly0.4milesawayfromandinthesamecensus tractastheproposedbranch. 4 12CFR262.3(b). 5 TotalassetsareasofJune30,2018.NationalassetrankinganddepositdataareasofMarch31,2018.Inthis context,insureddepositoryinstitutionsincludecommercialbanks,savingsassociations,andsavingsbanks. 6 StatedepositdataareasofJune30,2017. 7 12CFR208.6(b). 8 12U.S.C.§2901etseq. 9 12CFR208.21(a).

LegalDevelopments:ThirdQuarter,2018 19 wellcapitalizedandwouldremainsouponconsummationof theproposal.Theasset quality,earnings,andliquidityof CompassBankareconsistentwithapproval,and CompassBankappearstohaveadequateresourcestoabsorbthecostsof theproposal. Inaddition,futureearningsprospectsareconsistentwithapproval.TheBoardalsohas reviewedCompassBank’sproposedinvestmentinthebranchandconcludesthatthe bank’sinvestmentisconsistentwithregulatorylimitationsoninvestmentinbank premises.10 InconsideringCompassBank’smanagerialresources,theBoardhasreviewedthebank’s examinationrecord,includingassessmentsof itsmanagement,risk-managementsystems, andoperations.TheBoardalsohasconsidereditssupervisoryexperienceswithCompass Bankandthebank’srecordof compliancewithapplicablebankinglaws,includingantimoney-launderinglaws.CompassBank’sdirectorsandseniorexecutiveofficershave substantialknowledgeof andexperienceinthebankingandfinancialservicessectors,and thebank’srisk-managementprogramappearstobeconsistentwithapproval. Basedonthisreviewandallthefactsof record,theBoardconcludesthatCompassBank’s management,financialhistoryandcondition,capitaladequacy,andfutureearningsprospects,aswellastheeffectivenessof CompassBankincombattingmoneylaundering activities,areconsistentwithapprovalof theproposal. ConvenienceandNeedsConsiderations Inconsideringtheeffectsof theproposalontheconvenienceandneedsof thecommunities tobeserved,theBoardconsiderswhethertherelevantinstitutionishelpingtomeetthe creditneedsof thecommunitiesitserves,aswellasotherpotentialeffectsof theproposal ontheconvenienceandneedsof thecommunitiestobeserved.11Inthisevaluation,the Boardplacesparticularemphasisontherecordof therelevantdepositoryinstitutionunder theCRA.TheCRArequiresthefederalfinancialsupervisoryagenciestoencourage insureddepositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesin whichtheyoperate,consistentwiththeirsafeandsoundoperation,12andrequiresthe appropriatefederalfinancialsupervisoryagencytoassessadepositoryinstitution’srecord of helpingtomeetthecreditneedsof itsentirecommunity,includinglow-and moderate-income(“LMI”)neighborhoods,inevaluatingabankbranchingproposal.13 Inaddition,theBoardconsidersthebank’soverallcompliancerecordandtheresultsof recentfairlendingexaminations.Fairlendinglawsrequirealllendinginstitutionsto provideloanapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,or certainothercharacteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,thesupervisoryviewsof examiners,othersupervisoryinformation,information providedbytheapplicant,andcommentsreceivedontheproposal.TheBoardalsomay considertheinstitution’sbusinessmodel,marketingandoutreachplans,andplansafter consummationandanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof Compass Bank,thefairlendingandcompliancerecordsof thebank,confidentialsupervisoryinfor- 10 12CFR208.21(a). 11 12CFR208.6(b)(3). 12 12U.S.C.§2901(b). 13 12U.S.C.§2903.

20 FederalReserveBulletin|October2018 mation,informationprovidedbyCompassBank,andthepubliccommentreceivedonthe proposal. PublicCommentontheProposal Acommenterobjectedtotheproposal,allegingthatCompassBankhasengagedin redlininginHouston,Texas.14Specifically,thecommenterallegedthatCompassBank disfavorscertainAfricanAmericanneighborhoodsinHoustoninitslending,marketing, communitydevelopment,andbranchingandinotherrespects. Businessof theApplicantandResponsetoComment Throughitsnetworkof branches,CompassBankoffersavarietyof loananddepositproductsandservicestoconsumersandbusinesses,includingresidentialrealestate,consumer, andcommercialloanproducts.Withrespecttothecomment,CompassBankdeniesthe commenter’sallegationsandrepresentsthatthebanktreatsallrequestsforcreditequally anddoesnotconsiderracewhenunderwritingloans.CompassBankfurtherrepresentsthat itattemptstoserveallsegmentsof thepopulationinitsHoustonassessmentarea(“AA”), includingunderserved,underbanked,andLMIconsumers.Additionally,CompassBank representsthatitcloselymonitorsitsmortgageapplicationandoriginationsactivity,paying particularattentiontohigh-minoritycensustracts,andthatitmaintainsandmonitors marketingandoutreachplansforareasthathavestatisticallyhighredliningrisk. Recordof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardconsiders substantialinformationinadditiontoinformationprovidedbypubliccommentersandthe responsetocommentsbytheapplicant.Inparticular,theBoardevaluatesaninstitution’s performanceinlightof examinationsandothersupervisoryinformation,andinformation andviewsprovidedbytheappropriatefederalsupervisors.15Inthiscase,theBoardconsideredinformationcollectedbyandfindingsof examinersfromtheFederalReserveBankof Atlanta(“ReserveBank”). TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.16Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplylending,investment,andserviceteststo evaluatetheperformanceof alargeinsureddepositoryinstitutioninhelpingtomeetthe creditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’shomemortgage,smallbusiness,smallfarm,andcommunitydevelopmentlendingto determinewhethertheinstitutionishelpingtomeetthecreditneedsof individualsand geographiesof allincomelevels.Aspartof thelendingtest,examinersreviewandanalyze 14 Redliningisthepracticeofprovidingunequalaccesstocredit,orunequaltermsofcredit,becauseoftherace, color,nationalorigin,orotherprohibitedcharacteristicsoftheresidentsoftheareainwhichacreditseeker residesorwillresideorinwhichapropertytobemortgagedislocated.SeeInteragencyFairLendingExaminationProcedures(August2009),availableathttps://www.ffiec.gov/pdf/fairlend.pdf. 15 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48506, 48548(July25,2016). 16 12U.S.C.§2906.

LegalDevelopments:ThirdQuarter,2018 21 aninstitution’sdatareportedundertheHomeMortgageDisclosureAct(“HMDA”),17in additiontosmallbusiness,smallfarm,andcommunitydevelopmentloandatacollected andreportedundertheCRAregulations,toassessaninstitution’slendingactivitieswith respecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slending performanceisbasedonavarietyof factors,including(1)thenumberandamountsof homemortgage,smallbusiness,smallfarm,andconsumerloans(asapplicable)intheinstitution’sAAs;(2)thegeographicdistributionof theinstitution’slending,includingthe proportionanddispersionof theinstitution’slendinginitsAAsandthenumberand amountsof loansinlow-,moderate-,middle-,andupper-incomegeographies;(3)the distributionof suchloansbasedonborrowercharacteristics,including,forhomemortgage loans,thenumberandamountsof loanstolow-,moderate-,middle-,andupper-income individuals;18(4)theinstitution’scommunitydevelopmentlending,includingthenumber andamountsof communitydevelopmentloansandtheircomplexityandinnovativeness; and(5)theinstitution’suseof innovativeorflexiblelendingpracticestoaddressthecredit needsof LMIindividualsandgeographies. CRAPerformanceof CompassBank CompassBankwasassignedanoverall“Satisfactory”ratingatitsmostrecentCRA performanceevaluationbytheReserveBank,asof December7,2015(“CompassBank Evaluation”).19CompassBankreceived“HighSatisfactory”ratingsfortheLendingTest andtheInvestmentTestanda“LowSatisfactory”ratingfortheServiceTest.20 ExaminersfoundthatCompassBank’soveralllendingactivityinitsAAsinTexasandin fiveotherstateswasgood.21Accordingtoexaminers,thegeographicdistributionof loans throughoutthebank’sAAswasgood.Examinersalsofoundthatthebankhadagood distributionof loansamongborrowersof differentincomelevelsandbusinessesof differentsizes.Examinersnotedthatthebankmadeanadequatelevelof communitydevelopmentloansduringthereviewperiod.ExaminersfoundthatCompassBank’scommunitydevelopmentloansweremadeforavarietyof purposes,includingprovidingcommunityservicestargetedtoLMIindividuals,promotingeconomicdevelopmentbyfinancing smallbusinesses,supportingaffordablehousing,andrevitalizingorstabilizingtargeted LMIcensustracts. 17 12U.S.C.§2801etseq. 18 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloansmadetobusinesses andfarmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamount atorigination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals. See,e.g.,12CFR228.22(b)(3). 19 TheCompassBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Examiners reviewedHMDA-reportableandCRAsmallbusinesslendingfromJanuary1,2014,throughDecember31, 2014,exceptforcommunitydevelopmentloans,whichwereevaluatedfromApril1,2013,throughMarch31, 2015.Theevaluationperiodforthebank’sretailbankingserviceswas2014,exceptingitsrecordofopeningand closingbranchoffices,whichwasevaluatedfromJanuary1,2013,throughDecember31,2014.Theevaluation periodforcommunitydevelopmentloans,investments,andserviceswasApril1,2013,throughMarch31,2015. 20 TheCompassBankEvaluationincludedafull-scopereviewofthebank’sAAswithinthefollowingareas:the Birmingham–Hoover,Alabama,MetropolitanStatisticalArea(“MSA”);theMobile,Alabama,MSA;the Phoenix–Mesa–Glendale,Arizona,MSA;theRiverside–SanBernardino–Ontario,California,MSA;theSan Diego–Carlsbad–SanMarcos,California,MSA;theStockton,California,MSA;theDenver–Aurora– Broomfield,Colorado,MSA;theJacksonville,Florida,MSA;theAlbuquerque,NewMexico,MSA;the Dallas–FortWorth–Arlington,Texas,MSA;theHouston–SugarLand–Baytown,Texas,MSA(“Houston AA”);theSanAntonio–NewBraunfels,Texas,MSA;andtheAAcomprisingValVerdeandMaverickcounties, bothinTexas.Alimited-scopereviewwasconductedin65otherassessmentareasinAlabama,Arizona,California,Colorado,Florida,NewMexico,andTexas. 21 CompassBankshowedgoodlendingperformanceinAlabama,Arizona,Colorado,Florida,NewMexico,and Texas.CompassBankshowedadequatelendingperformanceinCalifornia.

22 FederalReserveBulletin|October2018 IntheHoustonAA,theareaof interesttothecommenter,examinersdeterminedthat CompassBankexhibitedgoodlendingperformance.Thebank’sgeographicdistributionof loanswasfoundtoreflectgoodpenetrationthroughouttheAA.Examinersfoundthatthe bank’sdistributionof borrowersreflectedgoodpenetrationamongborrowersof different incomelevelsandbusinessesof differentrevenuesizes.CompassBankwasfoundtohave madearelativelyhighlevelof communitydevelopmentloansintheHoustonAA. ExaminersfoundthatCompassBank’soverallinvestmentperformancewasgoodinTexas andAlabamaandadequateintheotherstatesinwhichitoperates.22Amajorityof CompassBank’sinvestmentssupportedaffordablehousing.CompassBankpurchased securitiesbackedbygovernment-guaranteedmortgagestoqualifiedLMIborrowers, investedinLowIncomeHousingTaxCreditprojects,23andinvestedincommunitydevelopmentfinancialinstitutionsthatfinanceaffordablehousingforLMIborrowersand promoteeconomicdevelopmentviasmallbusinessloanfundsandmicrofinancing.Examinersfoundthatthemajorityof thebank’squalifiedcontributionssupportedorganizations engagedincommunityservicesforLMIindividualsorcommunities,includingfinancial counseling,youthandfamilyprograms,homerepairs,healthservices,andjobtraining. IntheHoustonAA,examinersfoundthatCompassBankmadeasignificantlevelof qualifiedinvestmentsandwasinaleadershippositionwithrespecttosomeof itsinvestments.ExaminersnotedthatCompassBank’scontributionswereresponsivetoseveral identifiedcommunitydevelopmentneedsinthisAA,whichincludedinvestmentsinprojectsthatsupportedaffordablehousing,financialeducationandliteracy,andsmallbusiness development. CompassBank’sServiceTestperformanceinAlabamawasgood,anditwasadequatein theotherstatesinwhichthebankoperates,includingTexas.Examinersnotedthat,overall, CompassBank’sretaildeliverysystemswerereasonablyaccessibletothegeographiesand individualsof differentincomelevels.Examinersfoundthatthebank’sbankingservices andbusinesshoursdidnotvaryinawaythatinconveniencedthebank’sAAs,including LMIgeographies.ExaminersalsonotedthatCompassBankofferedno-orlow-cost depositaccountsandvariousalternativedeliverysystems.However,examinersfoundthat CompassBank’sclosingof branchesadverselyaffectedtheaccessibilityof bankingservices insomeAAs,includingtheHoustonAA.Duringthereviewperiod,thebankclosed 39branches,themajorityinTexas,and10of thesebrancheswerelocatedinLMIcensus tracts.24 Examinersindicatedthatthebankprovidedanadequatelevelof communitydevelopment servicesthroughoutthebank’sAAs.Examinersnotedthatthebank’semployeeswere involvedinorganizationsandactivitiesthatpromotedorfacilitatedaffordablehousingfor LMIindividuals;providedcommunityservicesforLMIindividuals,suchasfinancial literacyeducation;andpromotedeconomicdevelopmentandrevitalizationof LMIareas. IntheHoustonAA,CompassBank’sperformanceontheServiceTestwasfoundtobe adequate.Examinersnotedthat,duringthereviewperiod,twobrancheswereopened(both inupper-incomecensustracts)andthreebrancheswereclosed(twoinLMItractsandone inanupper-incometract),andthatthechangestobranchdistributionasaresultof the closuresadverselyimpactedtheaccessibilityof retailbankingservicesforsomeLMIgeog- 22 CompassBank’sperformanceinTexashadthegreatestimpactonitsperformanceundertheInvestmentTest duetotherelativelyhighconcentrationofbranches,deposits,andlendinginthestate. 23 See26U.S.C.§42. 24 CompassBankrepresentsthatitcompletesafullCRAandfairlendingimpactanalysispriortoclosingor consolidatinganybranchesinaccordancewithitsbranch-closingpolicy.

LegalDevelopments:ThirdQuarter,2018 23 raphiesandindividualsintheAA.ExaminersfoundthatCompassBankprovidedarelativelyhighlevelof communitydevelopmentservicesintheAAandthattheseserviceswere responsivetoidentifiedcommunitydevelopmentneedsintheAA. CompassBank’sEffortssincetheCompassBankEvaluation CompassBankrepresentsthatsincetheCompassBankEvaluation,ithascontinuedto helpmeetthecreditneedsinitsAAs,includingtheneedsof LMIcommunitiesandindividuals.CompassBankrepresentsthatithasdevelopednewtoolsandprogramstomonitor andimproveitsCRAperformance.Inaddition,thebankassertsthatithasincreasedits levelsof communitydevelopmentlendingandinvestmentandhasdevelopednewretail servicesandpartnershipstobetterrespondtotheneedsof LMIcustomers.IntheHouston AA,CompassBankrepresentsthatithasmadeloansandinvestmentstargetedtowardthe constructionof affordablehousingandhasprovidedgrantstoorganizationsthatsupport affordablehousing,economicdevelopment,anddisasterrecoveryefforts. AdditionalSupervisoryViewsof theReserveBank TheBoardhasconsideredtheresultsof a2015targetexaminationof CompassBank’sFair HousingAct(“FHA”)fairlendingprogram.TheBoardalsohasconsideredthepreliminaryfindingsof amorerecentFHAexamination,whichincludedaredliningreviewof a numberof markets,includingtheHoustonAA.Theredliningreviewincludedanevaluationof thebank’slending,marketingandoutreach,assessmentarea,andbranching.With respecttobranching,thereviewintheHoustonAAincludedareviewof CompassBank’s branchdistribution,branchopeningsandclosures,branchproductsandservices,and branchhours.25 AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.Asnoted,theproposedbranchwouldreplacean existingbranchlocated0.4milesaway.Thebankassertsthattheproposedbranchwould allowthebanktocontinuetoserveexistingcustomers’bankingneeds.Whiletheproducts andservicesofferedattheproposedbranchwouldbesubstantiallythesameasthose offeredattheexistingbranch,thebankrepresentsthatthenewbranch’sdesignand featureswouldenhancecurrentservicesandallowthebanktoserveadditionalcustomers inthecommunity. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtheCRArecordof Compass Bank,thebank’srecordof compliancewithfairlendingandotherconsumerprotection laws,confidentialsupervisoryinformation,informationprovidedbyCompassBank,the publiccommentontheproposal,andotherpotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.Basedonthatreview,theBoard concludesthattheconvenienceandneedsfactorisconsistentwithapproval. 25 TheBoardalsoconsideredCompassBank’ssupervisoryrecordwiththeBureauofConsumerFinancial Protection.

24 FederalReserveBulletin|October2018 Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationshouldbe,andherebyis,approved.26TheBoard’sapprovalisspecificallyconditioned oncompliancebyCompassBankwithalltheconditionsimposedinthisorder,including receiptof allrequiredregulatoryapprovals,andonanycommitmentsmadetotheBoardin connectionwiththeproposal.Forpurposesof thisaction,theconditionsandcommitmentsaredeemedtobeconditionsimposedinwritingbytheBoardinconnectionwithits findingsanddecisionhereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Approvalof thisapplicationisalsosubjecttotheestablishmentof theproposedbranch withinoneyearof thedateof thisorder,unlesssuchperiodisextendedbytheBoardorthe ReserveBankactingunderauthoritydelegatedbytheBoard. Byorderof theBoardof Governors,effectiveSeptember25,2018. Votingforthisaction:ChairmanPowell,ViceChairmanClarida,ViceChairmanfor SupervisionQuarles,andGovernorBrainard. AnnE.Misback Secretaryof theBoard 26 TheBoardconstruesthecommentreceivedontheproposaltoincludearequestthattheBoardholdpublic hearingsontheproposal.Underitsrules,theBoardmay,initsdiscretion,holdapublichearingifappropriate toallowinterestedpersonsanopportunitytoproviderelevanttestimonywhenwrittencommentswouldnot adequatelypresenttheirviews.12CFR262.3(e).TheBoardhasconsideredthecommenter’srequestinlightof allthefactsofrecord.Noticeoftheproposalwaspublishedinrelevantnewspapersofgeneralcirculationon May18,2018.ThecommentperiodendedonJune4,2018.IntheBoard’sview,thecommenterhashadample opportunitytosubmitcommentsontheproposaland,infact,submittedawrittencommentthattheBoardhas consideredinactingontheproposal.Thecommenter’srequestdoesnotidentifydisputedissuesoffactthatare materialtotheBoard’sdecisionandthatwouldbeclarifiedbyapublichearing.Inaddition,therequestdoes notdemonstratewhythewrittencommentdoesnotpresentthecommenter’sviewsadequatelyorwhyahearing otherwisewouldbenecessaryorappropriate.Forthesereasons,andbasedonallthefactsofrecord,theBoard hasdeterminedthatapublichearingisnotrequiredorwarrantedinthiscase.Accordingly,therequestfora publichearingontheproposalisdenied.

LegalDevelopments:ThirdQuarter,2018 25 Orders Issued Under International Banking Act Lloyds Bank Corporate Markets plc London, England OrderApprovingEstablishmentof aBranch FRBOrderNo.2018-15(July9,2018) LloydsBankCorporateMarketsplc(“LBCM”),London,England,aforeignbankwithin themeaningof theInternationalBankingActof 1978(“IBA”),hasappliedunder section7(d)of theIBA1toestablishastate-licensedbranchinNewYork,NewYork.The IBAprovidesthataforeignbankmustobtaintheapprovalof theBoardtoestablisha branchintheUnitedStates. Noticeof theapplication,affordinginterestedpersonsanopportunitytocomment,has beenpublishedinanewspaperof generalcirculationinNewYork,NewYork(TheNew YorkTimes,May15,2018).Thetimeforsubmittingcommentshasexpired,andtheBoard hasconsideredallcommentsreceived. LBCMisasubsidiaryof LloydsBankingGroupplc(“LBG”),London,England.2LBG, withconsolidatedassetsof approximately$1.1trillion,istheparentcompanyof thethird largestbankinggroupintheUnitedKingdom.3LBGoperatesthroughsubsidiariesthat provideavarietyof retail,corporate,andinvestmentbankingservices.OutsidetheUnited Kingdom,LBGhasoperationsincontinentalEurope,theChannelIslands,theIsleof Man,Gibraltar,Singapore,andtheUnitedStates.LBGprimarilyoperatesintheUnited Statesthroughalicensedbroker-dealer,LloydsSecuritiesInc.(“LSI”),andofficesof LBG’sbanksubsidiaries,LloydsBankplc(“LloydsBank”),London,England,andBank of Scotlandplc(“BoS”),Edinburgh,Scotland.Currently,LloydsBankandBoSeachhave astate-licensedbranchinNewYork,NewYork,andBoSoperatesarepresentativeofficein Houston,Texas.In2008,LBGelectedtobetreatedasafinancialholdingcompanywithin themeaningof theBankHoldingCompanyActof 1956,asamended(“BHCAct”).4 LBGisintheprocessof reorganizingitsoperationstocomplywithU.K.“ring-fencing” requirements,whichgenerallygointofulleffectonJanuary1,2019.5Undertheapplicable ring-fencingrules,U.K.bankinggroupswithretaildepositsand/ordepositsfromsmalland medium-sizedenterprisesinaggregateamountsabove£25billionmustseparatethe bankingentitiesholdingthosedepositsfromcertainotheroperations.Inresponse,LBGis reorganizingitscorebankingoperationsintoaring-fencedbankinggroup(“RFB group”)andanon-ring-fencedbankinggroup(“NRFBgroup”).6TheRFBgroupwould includeLloydsBankandBoS,aswellasthemajorityof theircurrentU.K.basedoperations;theNRFBgroupwouldincludeLBCMandcertainentitiesnotpermissibleforringfencedbankingentities(“RFBs”)toown.7Aspartof thisreorganization,LBGproposes 1 12U.S.C.§3105(d). 2 LBGisapubliclytradedcompany,anditssharesarewidelyheld.AsofFebruary23,2018,BlackRockInc.and HarrisAssociatesL.P.eachownedapproximately5percentoftheissuedordinarysharesofLBG,andnoother shareholderownedmorethan5percentofLBG’sshares. 3 AssetandrankingdataareasofDecember31,2017. 4 12U.S.C.§1841etseq.;seealso12CFR225.91. 5 SeeTheFinancialService(BankingReform)Act2013. 6 InadditiontotheRFBgroupandNRFBgroup,LBG’spost-ring-fenceorganizationalstructurewouldinclude insuranceandequity-investmentsubgroups. 7 UndertheU.K.ring-fencingrules,RFBsaresubjecttorestrictionsthatincludegeneralprohibitionsonestablishingbranchesorsubsidiariesoutsideoftheEuropeanEconomicArea(“EEA”),owningsubstantialequity

26 FederalReserveBulletin|October2018 thatthebankingoperationsconductedbytheNewYorkbranchesof LloydsBankandBoS transitiontobecometheoperationsthatwouldbeconductedbytheNewYorkbranchof LBCM.8Followingthismigrationof clientsandassetstoLBCM,LloydsBankandBoS wouldclosetheirexistingU.S.offices. LBCMreceiveditsbankinglicensefromthePrudentialRegulationAuthority(“PRA”)on July25,2017,andhascommencedbankingoperationsintheUnitedKingdom.Onceitis fullyoperational,LBCMwillengageinbusinessgenerallyprohibitedforRFBs,suchas transactionsthatresultinfinancialexposuretocreditinstitutions,investmentfirms,and structuredfinancevehicles.Inaddition,LBCMwilloperateinjurisdictionswhereRFBs aregenerallyprohibitedfrombookingtransactionsorowningsubstantialequityinterests. TheproposedU.S.branchof LBCMwouldengageinwholesalebankingactivities, includinglendingandrelatedextensionsof credit,moneymarketactivities,andforeign exchangeandderivativesactivities. UndertheIBAandRegulationK,inactingonanapplicationbyaforeignbanktoestablishabranch,theBoardmustconsiderwhether(1)theforeignbankhasfurnishedtothe Boardtheinformationitneedstoassesstheapplicationadequately,(2)theforeignbank andanyforeignbankparentengagedirectlyinthebusinessof bankingoutsideof the UnitedStates,and(3)theforeignbankandanyforeignbankparentaresubjecttocomprehensivesupervisiononaconsolidatedbasisbytheirhomecountrysupervisor.9TheBoard alsoconsidersadditionalstandardssetforthintheIBAandRegulationK.10 Asnotedabove,LBCMengagesdirectlyinthebusinessof bankingoutsidetheUnited States.LBCMalsohasprovidedtheBoardwiththeinformationnecessarytoassessthe application,throughsubmissionsthataddresstherelevantissues. interestsinentitiesorganizedoutsideoftheEEA,dealingininvestmentsasprincipalandinmostderivative andotherhedgingproducts,andincurringfinancialexposuretocertainfinancialcompaniessuchascredit institutionsandinvestmentfirms. 8 InconnectionwiththereorganizationofLBG,LloydsAmericaSecuritiesCorporation,NewYork,NewYork, anditsU.S.registeredbroker-dealersubsidiary,LSI,wouldbecomewhollyownedsubsidiariesofLBCM. 9 12U.S.C.§3105(d)(2);12CFR211.24(c)(1).RegulationKprovidesthataforeignbankissubjecttoconsolidatedhomecountrysupervisioniftheforeignbankissupervisedorregulatedinsuchamannerthatitshome countrysupervisorsreceivesufficientinformationontheworldwideoperationsoftheforeignbank(including therelationshipsofthebanktoanyaffiliate)toassesstheforeignbank’soverallfinancialconditionand compliancewithlawandregulation.12CFR211.24(c)(1)(ii).Inassessingthissupervisorystandard,theBoard considers,amongotherindiciaofcomprehensive,consolidatedsupervision,theextenttowhichhomecountry supervisors(i)ensurethatthebankhasadequateproceduresformonitoringandcontrollingitsactivitiesworldwide;(ii)obtaininformationontheconditionofthebankanditssubsidiariesandofficesthroughregular examinationreports,auditreports,orotherwise;(iii)obtaininformationonthedealingsandrelationships betweenthebankanditsaffiliates,bothforeignanddomestic;(iv)receivefromthebankfinancialreportsthat areconsolidatedonaworldwidebasis,orcomparableinformationthatpermitsanalysisofthebank’sfinancial conditiononaworldwideconsolidatedbasis;and(v)evaluateprudentialstandards,suchascapitaladequacy andriskassetexposure,onaworldwidebasis.Nosinglefactorisessential,andotherelementsmayinformthe Board’sdetermination. 10 See12U.S.C.§3105(d)(3)-(4);12CFR211.24(c)(2)-(3).Thesestandardsincludewhetherthebank’shome countrysupervisorhasconsentedtotheestablishmentoftheoffice;thefinancialandmanagerialresourcesof thebank,includingthebank’sexperienceandcapacitytoengageininternationalbanking;whetherthebank hasprocedurestocombatmoneylaundering,whetherthereisalegalregimeinplaceinthehomecountryto addressmoneylaundering,andwhetherthehomecountryisparticipatinginmultilateraleffortstocombat moneylaundering;whethertheappropriatesupervisorsinthehomecountrymayshareinformationonthe bank’soperationswiththeBoard;whetherthebankanditsU.S.affiliatesareincompliancewithU.S.law;the needsofthecommunity;andthebank’srecordofoperation.Inthecaseofaforeignbankthatpresentsa risktothestabilityoftheUnitedStates,theBoardalsomaytakeintoaccount,totheextentappropriate, whetherthehomecountryoftheforeignbankhasadopted,orismakingdemonstrableprogresstowards adopting,anappropriatesystemoffinancialregulationforthefinancialsystemofsuchhomecountrytomitigatesuchrisk.12U.S.C.§3105(d)(3)(E).

LegalDevelopments:ThirdQuarter,2018 27 TheBoardpreviouslyhasfoundthatLloydsBank’spredecessorwassubjecttocomprehensivesupervisiononaconsolidatedbasisbyitshomecountrysupervisor.11LBCMissupervisedbythePRA,whichispartof theBankof England.ThePRAsupervisesU.K. bankinggroupsonaconsolidatedbasis,whichincludesareviewof bankinggroups’ management,governance,risk-managementcontrols,compliancewithcapitalandliquidity requirements,andresolvability.Underitssupervisoryauthority,thePRAperformsstress testsforcertainbankinggroups,suchasLBG,andregularlyobtainsinformationfromthe groupinconnectionwiththoseexercises.TheFinancialConductAuthority(“FCA”) regulatesthemarketconductof U.K.financialfirms,includingLBCM,andhassupervisoryresponsibilitiesthatincludemonitoringbanks’compliancewithanti-moneylaundering(“AML”)andcounter-terrorism-financing(“CTF”)requirementsunder U.K.law. Basedonallthefactsof record,includingtheaboveinformation,ithasbeendetermined thatLBCMissubjecttocomprehensivesupervisiononaconsolidatedbasisbyitshome countrysupervisor. TheBoardhasalsoconsideredthefinancialandmanagerialandotherapplicablefactorsin thiscase.ThePRAhasnoobjectionstotheestablishmentof theproposedbranch.LBCM hasprovidedtheBoardwithinformationregardingitsfinancialcondition,management, proposedactivities,policiesandprocedures,andotherinformationrelevanttoitscurrent andproposedoperations.LBCM’scapitalisinexcessof theminimumlevelsthatwouldbe requiredbytheBaselCapitalAccordandisconsideredequivalenttocapitalthatwouldbe requiredof aU.S.bankinginstitution. LBCMhasestablishedcontrolsandproceduresfortheproposedbranchtoensurecompliancewithU.S.lawandforitsoperationsingeneral.Specifically,theproposedbranch wouldoperateunderthesameregulatorycomplianceframeworkasLBG’sexistingU.S. operationsandwouldretainmembersof therisk,credit,andcomplianceteamsthat currentlymanagetheU.S.operationsof LBG.TakingintoconsiderationLBCM’soverall financialandmanagerialresources,financialandmanagerialfactorsareconsideredconsistentwithapproval. TheUnitedKingdomisamemberof theFinancialActionTaskForceandsubscribestoits recommendationsonmeasurestocombatmoneylaunderingandinternationalterrorism. Inaccordancewiththoserecommendations,theUnitedKingdomhasenactedlawsand createdlegislativeandregulatorystandardstodetermoneylaundering,terroristfinancing, andotherillicitactivities.MoneylaunderingisacriminaloffenseintheUnitedKingdom, andfinancialinstitutionsarerequiredtoestablishinternalpolicies,procedures,andsystems forthedetectionandpreventionof moneylaunderingthroughouttheirworldwideoperations.TheFCAenforcesthoserequirementswithrespecttoU.K.banks,includingLBCM. LBCMadherestothesamegroup-levelpolicies,procedures,andstandardsregardingAML andCTFthatapplytoLBGandLBG’sothersubsidiaries.LBCM’scompliancewith applicablelawsandregulationsismonitoredbygovernmentalentitiesresponsibleforAML compliance,includingtheFCA. LBCMhascommittedtomakeavailabletotheBoardsuchinformationonitsoperations andonthoseof anyof itsaffiliatesthattheBoarddeemsnecessarytodetermineand enforcecompliancewiththeIBA,theBHCAct,andotherapplicablefederallaw.Tothe extentthattheprovisionof suchinformationtotheBoardmaybeprohibitedbylawor otherwise,LBCMhascommittedtocooperatewiththeBoardtoobtainanynecessary 11 SeeLloydsTSBOffshoreLimited,92FederalReserveBulletinC62(2006).

28 FederalReserveBulletin|October2018 exemptionsorwaiversthatmightberequiredfromthirdpartiesfordisclosureof such information.Inlightof thesecommitmentsandsubjecttotheconditiondescribedbelow,it hasbeendeterminedthatLBCMhasprovidedadequateassurancesof accesstoanynecessaryinformationthattheBoardmayrequest. Section173of theDodd-FrankWallStreetReformandConsumerProtectionAct amendedtheIBAtoprovidethattheBoardmayconsider,foraforeignbankthatpresents arisktothestabilityof theUnitedStatesfinancialsystem,whetherthehomecountryof theforeignbankhasadopted,orismakingdemonstrableprogresstowardadopting,an appropriatesystemof financialregulationforthefinancialsystemof suchhomecountryto mitigatesuchrisk.12Informationrelevanttothestandardregardingrisktothestabilityof theUnitedStatesfinancialsystemhasalsobeenreviewed.Inparticular,considerationhas beengivento(1)therelativesizeof LBCMinitshomecountry;(2)thescopeof LBCM’s activities,includingthetypeof activitiesitproposestoconductintheUnitedStatesand thepotentialfortheseactivitiestoincreaseortransmitfinancialinstability;and(3)the frameworkinplaceforsupervisingLBCMinitshomejurisdiction.Takingintoaccount theseconsiderations,ithasbeendeterminedthattheproposedreorganizationof LBG wouldresultinabankingorganizationthatwouldnotaddanynewactivitiesorfinancial stabilityrisktotheUnitedStatesfinancialsystem.Basedontheseandotherfactors,financialstabilityconsiderationsforthisproposalareconsistentwithapproval. Onthebasisof allthefactsof record,andsubjecttothecommitmentsmadebyLBCMas wellasthetermsandconditionssetforthinthisorder,LBCM’sapplicationtoestablisha branchinNewYork,NewYork,isherebyapprovedbytheDirectorof theDivisionof SupervisionandRegulation,withtheconcurrenceof theGeneralCounsel,pursuantto authoritydelegatedbytheBoard.13Shouldanyrestrictionsonaccesstoinformationonthe operationsoractivitiesof LBCManditsaffiliatessubsequentlyinterferewiththeBoard’s abilitytoobtaininformationtodetermineandenforcecompliancebyLBCManditsaffiliateswithapplicablefederalstatutes,theBoardmayrequireterminationof anyof LBCM’s directorindirectactivitiesintheUnitedStates.Approvalof thisapplicationalsois specificallyconditionedoncompliancebyLBCMwiththecommitmentsmadeinconnectionwiththisapplicationandwiththeconditionsinthisorder.14 Byorder,approvedpursuanttoauthoritydelegatedbytheBoard,effectiveJuly9,2018. MargaretMcCloskeyShanks DeputySecretaryof theBoard 12 Pub.L.No.111-203,124Stat.1376,1440(2010),codifiedat12U.S.C.§3105(d)(3)(E). 13 12CFR265.7(d)(12). 14 TheBoard’sauthoritytoapprovetheestablishmentofbranchesparallelsthecontinuingauthorityoftheState ofNewYorktolicenseofficesofaforeignbank.TheBoard’sapprovalofthisapplicationdoesnotsupplant theauthorityoftheStateofNewYorkanditsagent,theNewYorkStateDepartmentofFinancialServices (“NYDFS”),tolicensetheproposedbranchofLBCMinaccordancewithanytermsandconditionsthatthe NYDFSmayimpose.

LegalDevelopments:ThirdQuarter,2018 29 Nordea Bank Abp Helsinki, Finland OrderApprovingEstablishmentof aBranch FRBOrderNo.2018-16(August3,2018) NordeaBankAbp(“NordeaFinland”),Helsinki,Finland,aforeignbankwithinthe meaningof theInternationalBankingActof 1978(“IBA”),hasappliedunder section7(d)of theIBA1toretainthestate-licensedbranchinNewYork,NewYork (“ExistingNYBranch”),of NordeaBankAB(publ)(“NordeaBankSweden”),Stockholm,Sweden,followingconsummationof themergerof NordeaBankSwedenwithand intoNordeaFinland(the“Merger”),withNordeaFinlandasthesurvivingentity.The ForeignBankSupervisionEnhancementActof 1991,whichamendedtheIBA,provides thataforeignbankmustobtaintheapprovalof theBoardtoestablishabranchinthe UnitedStates. Noticeof theapplication,affordinginterestedpersonsanopportunitytocomment,has beenpublishedinanewspaperof generalcirculationinNewYork,NewYork(NewYork Post,January22,2018).Thetimeforsubmittingcommentshasexpired,andtheBoardhas consideredallcommentsreceived. NordeaFinlandwillbethetop-tierparentcompanyof theNordeaGroup,abankingorganizationthatwillbecomprisedof NordeaFinlandanditsconsolidatedsubsidiaries, followingconsummationof theMerger.NordeaFinlandwasestablishedbyNordeaBank Swedenforthepurposeof changingthedomicileof theNordeaGroup’sparentcompany fromSwedentoFinland.NordeaFinlandcurrentlyiswhollyownedbyNordeaBank Sweden.NordeaFinlandwasgrantedabankinglicensebytheEuropeanCentralBank (“ECB”)onJune26,2018.NordeaFinlandplanstomergewithNordeaBankSweden, withNordeaFinlandasthesurvivingentity,inthefourthquarterof 2018.2Nordea FinlandproposestoretainNordeaBankSweden’sExistingNYBranch(“ProposedNY Branch”)followingconsummationof theMerger. Sampoplc(“Sampo”),Helsinki,Finland,owns21.3percentof NordeaBankSweden’s outstandingsharesandisthelargestshareholderof NordeaBankSweden.Noothershareholderownsmorethan5percentof thesharesof NordeaBankSweden.Sampowillown acorrespondingpercentageof NordeaFinland’ssharesfollowingconsummationof the Merger.3 NordeaBankSwedenhasconsolidatedassetsof approximately$698billion.4Itisanoperatingbankthatengagesdirectlyinactivitiesusualinconnectionwiththebusinessof bankinginthecountriesinwhichitoperates,includingbyofferingretailandwholesale bankingproductstocustomersinsideandoutsideof theNordicregion(Finland,Sweden, Norway,andDenmark).IntheUnitedStates,NordeaBankSwedenoperatestheExisting NYBranchandindirectlyownsNordeaInvestmentManagementNorthAmerica,Inc.,a 1 12U.S.C.§3105(d). 2 TheMergerwillbestructuredasatransferofalltheassetsandliabilitiesofNordeaBankSwedentoNordea Finland.PursuanttoFinnishlaw,uponconsummationoftheMerger,thecurrentshareholdersofNordea BankSwedenwillbecometheshareholdersofNordeaFinlandwithoutanychangeintheirlevelofownership. 3 SampohastwodirectorinterlockswithNordeaBankSwedenand,uponconsummationoftheMerger,would beconsideredtocontrolNordeaFinlandforpurposesoftheBankHoldingCompanyAct(“BHCAct”). 12U.S.C.§1841etseq.NordeaFinlandandSampohaveeachcommittedtonotifytheBoardifSampo’s ownershipinterestinNordeaFinlandincreasestomorethan21.3percent.Sampo’sholdingofNordeaFinland wouldbeconsistentwithsection4oftheBHCAct. 4 AssetdataareasofDecember31,2017.

30 FederalReserveBulletin|October2018 U.S.assetmanagementcompanyincorporatedinDelawareandregisteredwiththeU.S. SecuritiesandExchangeCommission.NordeaBankSwedenis,andfollowingtheMerger, NordeaFinlandwillbe,aqualifyingforeignbankingorganizationunderRegulationK.5 TheExistingNYBranchservicesNordeaBankSweden’scustomersdoingbusinessinthe UnitedStates.Italsooffersloans,othercreditservices,andcashmanagementservices,and itmarketsservicesincludingforeignexchange.FollowingtheMerger,theProposedNY Branchwillcarryonthebusinessof theExistingNYBranchinthesamemannerasthe businesscurrentlyisconducted. UndertheIBAandRegulationK,inactingonanapplicationbyaforeignbanktoestablishabranch,theBoardmustconsiderwhether(1)theforeignbankhasfurnishedtothe Boardtheinformationitneedstoassesstheapplicationadequately,(2)theforeignbank andanyforeignbankparentengagedirectlyinthebusinessof bankingoutsideof the UnitedStates,and(3)theforeignbankandanyforeignbankparentaresubjecttocomprehensivesupervisiononaconsolidatedbasisbytheirhomecountrysupervisor.6TheBoard alsoconsidersadditionalstandardssetforthintheIBAandRegulationK.7 Inthiscase,NordeaFinlandwillbesubjecttosupervisionbytheECBandthe Finanssivalvota(“FinnishFSA”)actingthroughtheSingleSupervisoryMechanism (“SSM”)becausethetotalvalueof itsassetswillexceed€30billion.TheBoardhaspreviouslydeterminedthattheECB,actingthroughtheSSM,exercisescomprehensivesupervisionovercertainEuropeanbanks.8TheSSMisasystemof financialsupervisioncomposed of theECBandthenationalcompetentauthoritiesof theparticipatingEuropeanUnion MemberStatesinwhichspecifictasksaredistributedbetweentheECBandthenational competentauthority.UndertheSSM,theECBhasdirectprudentialsupervisoryresponsibilityforNordeaFinland,whiletheFinnishFSA,astherelevantnationalcompetent 5 12CFR211.23(a).SampoandNordeaFinlandtogetheralsowouldmeetthestandardstobeaqualifying foreignbankingorganization.NordeaFinlandhascommittedtoinformtheBoardifeitherSamponolonger qualifiesasaqualifyingforeignbankingorganizationorSampoengagesinactivitiesormakesinvestmentsin theUnitedStatesthatarenotpermissibleunderregulationspromulgatedbytheBoard,including section211.23(f)ofRegulationK.Separately,Sampohascommittedtoprovide,onanannualbasis,awritten statementindicatingwhetheritis,directlyorindirectly,engagedinactivitiesintheUnitedStatesasdefinedin theBoard’sRegulationK. 6 12U.S.C.§3105(d)(2);12CFR211.24.Inassessingthesupervisionstandard,theBoardconsiders,among otherindiciaofcomprehensive,consolidatedsupervision,theextenttowhichthehomecountrysupervisors (i)ensurethatthebankhasadequateproceduresformonitoringandcontrollingitsactivitiesworldwide; (ii)obtaininformationontheconditionofthebankanditssubsidiariesandofficesthroughregularexaminationreports,auditreports,orotherwise;(iii)obtaininformationonthedealingswithandrelationshipsbetween thebankanditsaffiliates,bothforeignanddomestic;(iv)receivefromthebankfinancialreportsthatare consolidatedonaworldwidebasis,orcomparableinformationthatpermitsanalysisofthebank’sfinancial conditiononaworldwideconsolidatedbasis;and(v)evaluateprudentialstandards,suchascapitaladequacy andriskassetexposure,onaworldwidebasis.Nosinglefactorisessential,andotherelementsmayinformthe Board’sdetermination. 7 12U.S.C.§3105(d)(3)-(4);12CFR211.24(c)(2)-(3).Thesestandardsincludewhetherthebank’shomecountry supervisorhasconsentedtotheestablishmentoftheoffice;thefinancialandmanagerialresourcesofthebank, includingthebank’sexperienceandcapacitytoengageininternationalbanking;whetherthebankhasprocedurestocombatmoneylaundering,whetherthereisalegalregimeinplaceinthehomecountrytoaddress moneylaundering,andwhetherthehomecountryisparticipatinginmultilateraleffortstocombatmoneylaundering;whethertheappropriatesupervisorsinthehomecountrymayshareinformationonthebank’soperationswiththeBoard;whetherthebankanditsU.S.affiliatesareincompliancewithU.S.law;theneedsofthe community;andthebank’srecordofoperation.Inthecaseofaforeignbankthatpresentsarisktothe stabilityoftheUnitedStates,theBoardalsomaytakeintoaccount,totheextentappropriate,whetherthe homecountryoftheforeignbankhasadopted,orismakingdemonstrableprogresstowardadopting,an appropriatesystemoffinancialregulationforthefinancialsystemofsuchhomecountrytomitigatesuchrisk. 12U.S.C.§3105(d)(3)(E). 8 See,e.g.,DeutschePfandbriefbankAG,FRBOrder2018-01(January3,2018);INGBankN.V.,FRBOrder 2017-27(October20,2017);BoardlettertoRitaMilazzodatedAugust1,2017(comprehensiveconsolidated supervisionforBancoBilbaoVizcayaArgentaria,S.A.);BoardlettertoAndreaTokheimdatedJuly24,2017 (comprehensiveconsolidatedsupervisionforBankofIrelandGroupplc);andUnionediBancheItaliane, S.p.A.,FRBOrder2016-01(January19,2016).

LegalDevelopments:ThirdQuarter,2018 31 authorityforNordeaFinland,retainssupervisoryauthorityoverallotherareas,including consumerprotectionandthepreventionof moneylaunderingandterroristfinancing. Themethodologiesandstandardsthatunderpintheday-to-daysupervisionof largeEuropeanUnionbankingorganizationsbytheECBundertheSSMregulatoryframeworkare aimedatachievingaconsistentsupervisoryapproachacrosstheEuropeanUnion.The systemof supervisionappliedtolargebankswithintheEuropeanUnionhasnotchanged materiallysinceitwaslastconsideredbytheBoard. TheFinnishFSAwillremaintheprimarynationalcompetentauthorityforNordea Finlandandtheprimarysupervisorof Sampoonaconsolidatedbasisfollowingconsummationof theMerger.TheFinnishFSAisprimarilyresponsibleforthesupervisionof Finnishbankingandinsuranceorganizations.Sampo,whichisheadquarteredinFinland andownssharesincompaniesengagedinbanking,fundmanagement,andinsurancein severalcountriesintheEuropeanEconomicArea,isconsideredafinancialconglomerate undertheEU’sFinancialConglomeratesDirective.TheBoardhaspreviouslydetermined thatSampoissubjecttocomprehensivesupervisiononaconsolidatedbasisbytheFinnish FSA.9SamporemainssubjecttosupervisionbytheFinnishFSAonsubstantiallythesame termsandconditions. Basedonallthefactsof record,includingtheaboveinformation,ithasbeendetermined thatNordeaFinlandissubjecttocomprehensivesupervisiononaconsolidatedbasisbythe ECBandtheFinnishFSAactingthroughtheSSMandthatSampoissubjecttocomprehensivesupervisiononaconsolidatedbasisbytheFinnishFSA. TheBoardhasalsoconsideredthefinancialandmanagerialandotherapplicablefactorsin thecase.TheECBhasnoobjectiontotheestablishmentof theproposedbranch.The ECB’srisk-basedcapitalstandardsareconsistentwiththoseestablishedbytheBasel CapitalAccord(“BaselAccord”).NordeaBankSweden’scapitalis,andfollowingthe Merger,NordeaFinland’swillbe,inexcessof theminimumlevelsthatwouldberequired bytheBaselAccordandisconsideredequivalenttocapitalthatwouldberequiredof aU.S. bankingorganization.Managerialandotherfinancialresourcesof NordeaFinlandare consideredconsistentwithapproval,andNordeaFinlandappearstohavetheexperience andcapacitytosupporttheproposedbranch.Inaddition,NordeaBankSwedenhasestablishedcontrolsandproceduresfortheproposedbranchtoensurecompliancewithU.S.law andforitsoperationsingeneral,andthesewillbecontinuedatNordeaFinlandfollowing theMerger. Finlandisamemberof theFinancialActionTaskForceandsubscribestoitsrecommendationsonmeasurestocombatmoneylaunderingandinternationalterrorism.InaccordancewiththeserecommendationsandEuropeanUnionmoneylaunderingdirectives, Finlandhasenactedlawsandregulationstodetermoneylaundering,terroristfinancing, andotherillicitactivities.Banksaresubjecttoknow-your-customerrequirementsandmust considerwhetheratransactionisunusualforacustomer.Banksreportsuspicioustransactionstoaspecialmoneylaunderingclearinghousethatispartof Finland’sNational Bureauof Investigation.Failuretoreportasuspicioustransactioncanresultinafineor imprisonmentforuptosixmonths.TheFinnishFSAisresponsibleforenforcingcompliancewithFinland’santi-money-launderinglawsandregulations,andFinnishbanksare expectedtohavewrittenanti-money-launderingpoliciesandprocedures.NordeaBank Swedenhassuchpoliciesandprocedurestocomplywithapplicableanti-money-laundering andcounterterroristfinancinglawsandregulations,andthesepolicieswillremainineffect atNordeaFinlandfollowingconsummationof theMerger.NordeaFinland’scompliance 9 NordeaBankAB(publ),FRBOrder2017-11(April13,2017).

32 FederalReserveBulletin|October2018 withapplicablelawsandregulationswillbemonitoredbygovernmentalentitiesresponsible foranti-money-launderingcompliance. NordeaFinlandhascommittedtomakeavailabletotheBoardsuchinformationonits operationsandonthoseof anyof itsaffiliates,includingSampo,thattheBoarddeems necessarytodetermineandenforcecompliancewiththeIBA,theBHCAct,andother applicablefederallaw.Totheextentthattheprovisionof suchinformationtotheBoard maybeprohibitedbylaworotherwise,NordeaFinlandhascommittedtocooperatewith theBoardtoobtainanynecessaryconsentsorwaiversthatmightberequiredfromthird partiesfordisclosureof suchinformation.Inlightof thesecommitmentsandotherfactsof record,ithasbeendeterminedthatNordeaFinlandhasprovidedadequateassurancesof accesstoanynecessaryinformationthattheBoardmayrequest. Section173of theDodd-FrankWallStreetReformandConsumerProtectionAct amendedtheIBAtoprovidethattheBoardmayconsider,foraforeignbankthatpresents arisktothestabilityof theUnitedStatesfinancialsystem,whetherthehomecountryof theforeignbankhasadopted,orismakingdemonstrableprogresstowardadopting,an appropriatesystemof financialregulationforthefinancialsystemof suchhomecountryto mitigatesuchrisk.10Informationrelevanttothestandardregardingrisktothestabilityof theUnitedStatesfinancialsystemhasalsobeenreviewed.Inparticular,considerationhas beengivento(1)thesizeandscopeof NordeaFinland’sactivities,includingthetypeof activitiesitproposestoconductintheUnitedStatesandthepotentialfortheseactivitiesto increaseortransmitfinancialinstability,and(2)theframeworkinplaceforsupervising NordeaFinlandinitshomejurisdiction.Takingintoaccounttheseconsiderations,ithas beendeterminedthattheproposedMergerwouldresultinabankingorganizationthat wouldnotaddanynewactivitiesorfinancialstabilityrisktotheUnitedStatesfinancial system.Basedontheseandotherfactors,financialstabilityconsiderationsforthisproposal areconsistentwithapproval. Onthebasisof allthefactsof record,andsubjecttothecommitmentsmadebyNordea FinlandaswellasthetermsandconditionssetforthinthisOrder,NordeaFinland’sapplicationtoestablishabranchinNewYorkisherebyapprovedbytheDirectorof theDivisionof SupervisionandRegulation,withtheconcurrenceof theGeneralCounsel, pursuanttoauthoritydelegatedbytheBoard.11Shouldanyrestrictionsonaccesstoinformationontheoperationsoractivitiesof NordeaFinlandanditsaffiliates,including Sampo,subsequentlyinterferewiththeBoard’sabilitytoobtaininformationtodetermine andenforcecompliancebyNordeaFinlandanditsaffiliates,includingSampo,with applicablefederalstatutes,theBoardmayrequireterminationof anyof NordeaFinland’s directorindirectactivitiesintheUnitedStates.Approvalof thisapplicationalsois specificallyconditionedoncompliancebyNordeaFinlandwiththecommitmentsmadein connectionwiththisapplicationandwiththeconditionsinthisOrder.12Thecommitments andconditionsreferredtoaboveareconditionsimposedinwritingbytheBoardin connectionwiththisdecisionandmaybeenforcedinproceedingsunderapplicablelaw. Byorder,approvedpursuanttoauthoritydelegatedbytheBoard,effectiveAugust3,2018. AnnE.Misback Secretaryof theBoard 10 12U.S.C.§3105(d)(3)(E). 11 12CFR265.7(d)(12). 12 TheBoard’sauthoritytoapprovetheestablishmentofabranchparallelsthecontinuingauthorityoftheState ofNewYorktolicenseofficesofaforeignbank.TheBoard’sapprovalofthisapplicationdoesnotsupplant theauthorityoftheStateofNewYorkanditsagent,theNewYorkStateDepartmentofFinancialServices,to licensetheproposedbranchofNordeaFinlandinaccordancewithanytermsandconditionsthattheNew YorkStateDepartmentofFinancialServicesmayimpose.

LegalDevelopments:ThirdQuarter,2018 33 Abanca Corporación Bancaria, S.A. Betanzos, La Coruña, Spain OrderApprovingEstablishmentof aBranch FRBOrderNo.2018-20(September28,2018) AbancaCorporaciónBancaria,S.A.(“Abanca”),Betanzos,LaCoruña,Spain,aforeign bankwithinthemeaningof theInternationalBankingActof 1978(“IBA”),hasapplied undersection7(d)of theIBA1toestablishastate-licensedbranchinMiami,Florida.The ForeignBankSupervisionEnhancementAct,whichamendedtheIBA,providesthata foreignbankmustobtaintheapprovalof theBoardtoestablishabranchintheUnited States. Noticeof theapplication,affordinginterestedpersonsanopportunitytocomment,has beenpublishedinanewspaperof generalcirculationinMiami,Florida(TheMiami Herald,November16,2017).Thetimeforsubmittingcommentshasexpired,andthe Boardhasconsideredallcommentsreceived. Abanca,whichisthe11thlargestbankinSpainandhasconsolidatedassetsof approximately$58.2billion,isasubsidiaryof AbancaHoldingFinanciero,S.A.(“Abanca Holding,”and,togetherwithAbanca,the“AbancaGroup”),Madrid,Spain,afinancial holdingcompanyorganizedunderthelawsof Spain2withconsolidatedassetsof approximately$58.6billion.3AbancaHoldingcurrentlyholds86.8percentof Abanca’svoting stock.Theprincipalshareholderof AbancaHoldingisMr.JuanCarlosEscotet,whoowns 89.6percentof AbancaHolding’svotingstockandisthusindirectlythelargestshareholderof Abanca.4InadditiontocontrollingAbanca,Mr.Escotetisalsoacontrolling shareholderof banksinvariousothercountries. Abancaoffersarangeof bankingandfinancialproductsandservicestoindividualand corporatecustomers.Inadditiontohavingadistributionnetworkof branchesthroughout Spain,thebankprovidesinsurance,pensionmanagement,andinvestmentadvisoryservices throughseveraldomesticsubsidiaries.AbancaalsooperatesbranchofficesinPortugaland Switzerland,aswellasrepresentativeofficesinBrazil,Venezuela,Panama,Mexico,France, theUnitedKingdom,Germany,andSwitzerland.Currently,Abancahasnobranchesor otherofficesintheUnitedStates.Abancaalsocontrolscompaniesengagedinvarious commercialandindustrialactivities,includingthreesubsidiariesintheUnitedStates.Upon establishmentof theproposedbranchof Abanca,theAbancaGroupwouldbeaqualifyingforeignbankingorganizationasdefinedinsection211.23of RegulationK.5 TheproposedU.S.branchof Abancawouldengageinpersonalandcommerciallending, remittanceservices,advisoryservices,tradefinance,andwholesaledeposit-takingactivities permissibletoastate-licensedentity. UndertheIBAandRegulationK,inactingonanapplicationbyaforeignbanktoestablishabranch,theBoardmustconsiderwhether(1)theforeignbankhasfurnishedtothe 1 12U.S.C.§3105(d). 2 AbancaHoldinghasnotelectedtobetreatedasafinancialholdingcompanyunderU.S.law. 3 AssetdataareasofJune30,2018,andarebasedontheexchangerateonthatdate.Rankingdataareasof November15,2017. 4 OtherthanAbanca’sownershipof8.8percentofitsstockintheformoftreasuryshares,noothershareholder ownsmorethan5percentofthevotingstockofAbancaorAbancaHolding. 5 12CFR211.23(a).AsAbancaGroupwillbeaqualifyingforeignbankingorganization,theactivitiesof Abanca’snonbankingsubsidiaries,includingthoseintheUnitedStates,wouldbepermissiblepursuantto section211.23(f)ofRegulationK.12CFR211.23(f).

34 FederalReserveBulletin|October2018 Boardtheinformationitneedstoassesstheapplicationadequately,(2)theforeignbank andanyforeignbankparentengagedirectlyinthebusinessof bankingoutsideof the UnitedStates,and(3)theforeignbankandanyforeignbankparentaresubjecttocomprehensivesupervisiononaconsolidatedbasisbytheirhomecountrysupervisor.6TheBoard alsoconsidersadditionalstandardssetforthintheIBAandRegulationK.7 Asnotedabove,Abancaengagesdirectlyinthebusinessof bankingoutsidetheUnited States.AbancaalsohasprovidedtheBoardwiththeinformationnecessarytoassessthe application,throughsubmissionsthataddresstherelevantissues. TheAbancaGroupissubjecttosupervisionbytheEuropeanCentralBank(“ECB”)and theBancodeEspaña(“Bankof Spain”)actingthroughtheSingleSupervisoryMechanism (“SSM”)becausethetotalvalueof itsassetsexceeds€30billion.TheBoardhaspreviously determinedthattheECB,actingthroughtheSSM,exercisescomprehensivesupervision overcertainEuropeanbanks.8TheSSMisasystemof financialsupervisioncomposedof theECBandthenationalcompetentauthoritiesof participatingEuropeanUnionMember statesbywhichspecifictasksaredistributedbetweentheECBandthenationalcompetent authority.UndertheSSM,theECBhasdirectprudentialsupervisoryresponsibilityforthe AbancaGroup,whiletheBankof Spain,astherelevantnationalcompetentauthorityfor theAbancaGroup,retainssupervisoryauthorityoverallotherareas,includingconsumer protectionandthepreventionof moneylaunderingandterroristfinancing.Themethodologiesandstandardsthatunderpintheday-to-daysupervisionof largeEuropeanUnion bankingorganizationsbytheECBundertheSSMregulatoryframeworkareaimedat achievingaconsistentsupervisoryapproachacrosstheEuropeanUnion.Thesystemof supervisionappliedtolargebankswithintheEuropeanUnionhasnotchangedmaterially sinceitwaslastconsideredbytheBoard. 6 12U.S.C.§3105(d)(2);12CFR211.24(c)(1).RegulationKprovidesthataforeignbankissubjecttoconsolidatedhomecountrysupervisioniftheforeignbankissupervisedorregulatedinsuchamannerthatitshome countrysupervisorsreceivesufficientinformationontheworldwideoperationsoftheforeignbank(including therelationshipsofthebanktoanyaffiliate)toassesstheforeignbank’soverallfinancialconditionand compliancewithlawandregulation.12CFR211.24(c)(1)(ii).Inassessingthissupervisorystandard,theBoard considers,amongotherindiciaofcomprehensive,consolidatedsupervision,theextenttowhichhomecountry supervisors(i)ensurethatthebankhasadequateproceduresformonitoringandcontrollingitsactivitiesworldwide;(ii)obtaininformationontheconditionofthebankanditssubsidiariesandofficesthroughregular examinationreports,auditreports,orotherwise;(iii)obtaininformationonthedealingsandrelationships betweenthebankanditsaffiliates,bothforeignanddomestic;(iv)receivefromthebankfinancialreportsthat areconsolidatedonaworldwidebasis,orcomparableinformationthatpermitsanalysisofthebank’sfinancial conditiononaworldwideconsolidatedbasis;and(v)evaluateprudentialstandards,suchascapitaladequacy andriskassetexposure,onaworldwidebasis.Nosinglefactorisessential,andotherelementsmayinformthe Board’sdetermination. 7 See12U.S.C.§3105(d)(3)-(4);12CFR211.24(c)(2)-(3).Thesestandardsincludewhetherthebank’shome countrysupervisorhasconsentedtotheestablishmentoftheoffice;thefinancialandmanagerialresourcesof thebank,includingthebank’sexperienceandcapacitytoengageininternationalbanking;whetherthebank hasprocedurestocombatmoneylaundering,whetherthereisalegalregimeinplaceinthehomecountryto addressmoneylaundering,andwhetherthehomecountryisparticipatinginmultilateraleffortstocombat moneylaundering;whethertheappropriatesupervisorsinthehomecountrymayshareinformationonthe bank’soperationswiththeBoard;whetherthebankanditsU.S.affiliatesareincompliancewithU.S.law;the needsofthecommunity;andthebank’srecordofoperation.Inthecaseofaforeignbankthatpresentsa risktothestabilityoftheUnitedStates,theBoardalsomaytakeintoaccount,totheextentappropriate, whetherthehomecountryoftheforeignbankhasadopted,orismakingdemonstrableprogresstowards adopting,anappropriatesystemoffinancialregulationforthefinancialsystemofsuchhomecountrytomitigatesuchrisk.12U.S.C.§3105(d)(3)(E). 8 See,e.g.,NordeaBankAbp,FRBOrder2018-16(August3,2018);DeutschePfandbriefbankAG,FRBOrder 2018-01(January3,2018);INGBankN.V.,FRBOrder2017-27(October20,2017);BoardlettertoRita MilazzodatedAugust1,2017(comprehensiveconsolidatedsupervisionforBancoBilbaoVizcayaArgentaria, S.A.);BoardlettertoAndreaTokheimdatedJuly24,2017(comprehensiveconsolidatedsupervisionforBank ofIrelandGroupplc);andUnionediBancheItaliane,S.p.A.,FRBOrder2017-11(April13,2017).

LegalDevelopments:ThirdQuarter,2018 35 Basedonallthefactsof record,includingtheaboveinformation,ithasbeendetermined thattheAbancaGroupissubjecttocomprehensivesupervisiononaconsolidatedbasisby theECBandtheBankof SpainactingthroughtheSSM. TheBoardhasalsoconsideredthefinancialandmanagerialandotherapplicablefactorsin thiscase.TheAbancaGroup,Mr.Escotet,andMr.Escotet’sothercontrolledcompanies haveprovidedcommitmentstotheBoardintendedtoaddresssupervisoryconcerns.9The ECBhasnoobjectionstotheestablishmentof theproposedbranch.TheECB’srisk-based capitalstandardsareconsistentwiththoseestablishedbytheBaselCapitalAccord(“Basel Accord”).Abanca’scapitalisinexcessof theminimumlevelsthatwouldberequiredbythe BaselAccordandisconsideredequivalenttocapitalthatwouldberequiredof aU.S. bankinginstitution.Managerialandotherfinancialresourcesof Abancaareconsidered consistentwithapproval,andAbancaappearstohavetheexperienceandcapacityto supporttheproposedbranch.Inaddition,Abancahasestablishedcontrolsandprocedures fortheproposedbranchtoensurecompliancewithU.S.lawandforitsoperationsin general. Spainisamemberof theFinancialActionTaskForceandsubscribestoitsrecommendationsonmeasurestocombatmoneylaunderingandinternationalterrorism.Inaccordance withthoserecommendations,Spainhasenactedlawsandcreatedlegislativeandregulatorystandardstodetermoneylaundering,terroristfinancing,andotherillicitactivities. MoneylaunderingisacriminaloffenseinSpain,andcreditinstitutionsarerequiredto establishinternalpolicies,procedures,andsystemsforthedetectionandpreventionof moneylaunderingthroughouttheiroperations,includingforeignbranches.TheBankof SpainenforcesthoserequirementswithrespecttoSpanishbanks,includingAbanca. Abancahaspoliciesandprocedurestocomplywiththeselawsandregulationsthatare monitoredbygovernmententities,includingtheBankof Spain,whichisresponsiblefor anti-money-launderingcompliance. TheAbancaGrouphascommittedtomakeavailabletotheBoardsuchinformationonits operations,andonthoseof anyof itsaffiliates,thattheBoarddeemsnecessarytodetermineandenforcecompliancewiththeIBA,theBankHoldingCompanyAct,andother applicablefederallaw.Totheextentthattheprovisionof suchinformationtotheBoard maybeprohibitedbylaworotherwise,theAbancaGrouphascommittedtocooperate withtheBoardtoobtainanynecessaryexemptionsorwaiversthatmightberequiredfrom thirdpartiesfordisclosureof suchinformation.Inlightof thesecommitmentsand subjecttotheconditiondescribedbelow,ithasbeendeterminedthatAbancahasprovided adequateassurancesof accesstoanynecessaryinformationthattheBoardmayrequest. Section173of theDodd-FrankWallStreetReformandConsumerProtectionAct amendedtheIBAtoprovidethattheBoardmayconsider,foraforeignbankthatpresents arisktothestabilityof theUnitedStatesfinancialsystem,whetherthehomecountryof theforeignbankhasadopted,orismakingdemonstrableprogresstowardadopting,an appropriatesystemof financialregulationforthefinancialsystemof suchhomecountryto mitigatesuchrisk.10Informationrelevanttothestandardregardingrisktothestabilityof theUnitedStatesfinancialsystemhasalsobeenreviewed.Inparticular,considerationhas 9 Abancaiscurrently,andwouldremain,partofaparallel-ownedbankingorganizationbecauseMr.Escotethas directorindirectcontroloverseveralbanksandnosinglesupervisorexercisesconsolidatedsupervisionoverall ofthesecommonlycontrolledbanks.Thecommitmentsprovideforrestrictionsontransactionsbetween Abanca’sproposedU.S.branchandaffiliatedcompanies,aswellasregularreportingrequirementsandother undertakingstohelpensureongoingcompliancewiththecommitmentsandU.S.law.SeeJointAgencyStatementonParallel-OwnedBankingOrganizations,availableat:http://www.federalreserve.gov/boarddocs/press/ general/2002/20020423/attachment.pdf. 10 Pub.L.No.111-203,124Stat.1376,1440(2010),codifiedat12U.S.C.3105(d)(3)(E).

36 FederalReserveBulletin|October2018 beengivento(1)therelativesizeof Abancainitshomecountry;(2)thescopeof Abanca’s activities,includingthetypeof activitiesitproposestoconductintheUnitedStatesand thepotentialfortheseactivitiestoincreaseortransmitfinancialinstability;and(3)the frameworkinplaceforsupervisingAbancainitshomejurisdiction.Takingintoaccount theseconsiderations,ithasbeendeterminedthattheproposalwouldnotcreatesignificant risktothefinancialstabilityof theUnitedStates.Basedontheseandotherfactors, financialstabilityconsiderationsforthisproposalareconsistentwithapproval. Onthebasisof allthefactsof record,andsubjecttothecommitmentsmadebythe AbancaGroup,Mr.Escotet,andMr.Escotet’sothercontrolledcompanies,aswellasthe termsandconditionssetforthinthisorder,Abanca’sapplicationtoestablishabranchin Miami,Florida,isherebyapprovedbytheDirectorof theDivisionof Supervisionand Regulation,withtheconcurrenceof theGeneralCounsel,pursuanttoauthoritydelegated bytheBoard.11Shouldanyrestrictionsonaccesstoinformationontheoperationsor activitiesof AbancaanditsaffiliatessubsequentlyinterferewiththeBoard’sabilityto obtaininformationtodetermineandenforcecompliancebyAbancaanditsaffiliateswith applicablefederalstatutes,theBoardmayrequireterminationof anyof Abanca’sdirector indirectactivitiesintheUnitedStates.Approvalof thisapplicationalsoisspecifically conditionedoncompliancebyAbancawiththecommitmentsmadeinconnectionwiththis applicationandwiththeconditionsinthisorder.12Thecommitmentsandconditions referredtoabovebeconditionsimposedinwritingbytheBoardinconnectionwiththis decisionandmaybeenforcedinproceedingsunderapplicablelaw. Byorder,approvedpursuanttoauthoritydelegatedbytheBoard,effectiveSeptember28, 2018. AnnE.Misback Secretaryof theBoard 11 12CFR265.7(d)(12). 12 TheBoard’sauthoritytoapprovetheestablishmentofbranchesparallelsthecontinuingauthorityoftheState ofFloridatolicenseofficesofaforeignbank.TheBoard’sapprovalofthisapplicationdoesnotsupplantthe authorityoftheStateofFloridaanditsagent,theFloridaOfficeofFinancialRegulation(“OFR”),tolicense theproposedbranchofAbancainaccordancewithanytermsandconditionsthattheOFRmayimpose.