Federal Reserve Bulletin, 2019-01

February 2019 Vol. 105, No. 1 Legal Developments: Fourth Quarter, 2018 Orders Issued Under Bank Holding Company Act Orders Issued Under Section 3 of the Bank Holding Company Act Old National Bancorp Evansville, Indiana OrderApprovingtheMergerof BankHoldingCompanies FRBOrderNo.2018-22(October16,2018) OldNationalBancorp,Evansville,Indiana(“OldNational”),abankholdingcompany withinthemeaningof theBankHoldingCompanyActof 1956(“BHCAct”)1has requestedtheBoard’sapprovalundersection3of theBHCAct2toacquireandmergewith KleinFinancial,Inc.(“Klein”),andtherebyindirectlyacquireKleinBank,bothof Chaska, Minnesota.Followingtheproposedacquisition,KleinBankwouldbemergedintoOld National’ssubsidiarybank,OldNationalBank,Evansville,Indiana.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(83FederalRegister36935(July31,2018)).4Thetimeforsubmitting commentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct. OldNational,withconsolidatedassetsof approximately$17.5billion,isthe96thlargest insureddepositoryorganizationintheUnitedStates.5OldNationalcontrolsapproximately $12.6billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.OldNational controlsOldNationalBank,whichoperatesbranchesinIndiana,Minnesota,Illinois, Kentucky,Michigan,andWisconsin.OldNationalisthe6thlargestinsureddepository organizationinMinnesota,controllingdepositsof approximately$1.7billion,whichrepresent0.7percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.6 Klein,withconsolidatedassetsof approximately$2.0billion,isthe414thlargestinsured depositoryorganizationintheUnitedStates.Kleincontrolsapproximately$1.7billionin deposits,whichrepresentlessthan1percentof thetotalamountof depositsof insured 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 ThemergerofKleinBankintoOldNationalBankissubjecttoapprovalbytheOfficeoftheComptrollerofthe Currency(“OCC”),pursuanttosection18(c)oftheFederalDepositInsuranceAct(“BankMergerAct”).12U.S.C. §1828(c).TheOCCapprovedthebankmergeronOctober12,2018. 4 12CFR262.3(b). 5 NationalassetdataareasofJune30,2018.Nationaldeposit,ranking,andmarket-sharedataareasofJune30,2018, unlessotherwisenoted. 6 StatedepositdataareasofJune30,2017.

2 FederalReserveBulletin|February2019 depositoryinstitutionsintheUnitedStates.KleincontrolsKleinBank,whichoperatesonly inMinnesota.Kleinisthe7thlargestinsureddepositoryorganizationinMinnesota, controllingdepositsof approximately$1.6billion,whichrepresent0.7percentof thetotal depositsof insureddepositoryinstitutionsinthatstate. Onconsummationof theproposal,OldNationalwouldbecomethe91stlargestinsured depositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $19.5billion,whichrepresentlessthan1percentof thetotalassetsof insureddepository institutionsintheUnitedStates.OldNationalwouldcontrolconsolidateddepositsof approximately$14.3billion,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.7OldNationalwould controldepositsof approximately$3.4billioninMinnesota,whichwouldrepresent 1.4percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. InterstateandDepositCapAnalysis Section3(d)of theBHCActgenerallyprovidesthat,if certainconditionsaremet,the Boardmayapproveanapplicationbyabankholdingcompanytoacquirecontrolof a banklocatedinastateotherthanthehomestateof thebankholdingcompany,without regardtowhetherthetransactionisprohibitedunderstatelaw.8TheBoardmaynot approveanapplicationthatwouldpermitanout-of-statebankholdingcompanytoacquire abankinahoststateif thebankhasnotbeeninexistenceforthelesserof thestatestatutoryminimumperiodof timeorfiveyears.9Inaddition,theBoardmaynotapprovean interstateapplicationif thebankholdingcompanycontrolsor,uponconsummationof the proposedtransaction,wouldcontrolmorethan10percentof thetotaldepositsof insured depositoryinstitutionsintheUnitedStatesor,incertaincircumstances,if thebankholding company,uponconsummation,wouldcontrol30percentormoreof thetotaldepositsof insureddepositoryinstitutionsinanystateinwhichtheacquirerandtargethaveoverlappingbankingoperations.10 Forpurposesof theBHCAct,thehomestateof OldNationalisIndiana,andKleinBank islocatedonlyinMinnesota.11OldNationalandOldNationalBankarewellcapitalized andwellmanagedunderapplicablelaw,andOldNationalBankhasa“Satisfactory”rating undertheCommunityReinvestmentActof 1977(“CRA”).12Minnesotahasnostatutory minimumagerequirement,13andKleinBankhasbeenincontinuousexistenceformore thanfiveyears. Onconsummationof theproposedtransaction,OldNationalwouldcontrollessthan 1percentof thetotalamountof consolidateddepositsof insureddepositoryinstitutionsin theUnitedStates.Minnesotadoesnotimposealimitonthetotalamountof in-state 7 Inthiscontext,insureddepositoryinstitutionsincludecommercialbanks,savingsassociations,andsavings banks. 8 12U.S.C.§1842(d)(1)(A). 9 12U.S.C.§1842(d)(1)(B). 10 12U.S.C.§1842(d)(2)(A)and(B).Forpurposesofsection3(d)oftheBHCAct,theacquiringandtargetinstitutionshaveoverlappingbankingoperationsinanystateinwhichanybanktobeacquiredislocatedandthe acquiringbankholdingcompanycontrolsanyinsureddepositoryinstitutionorabranch.TheBoardconsiders abanktobelocatedinthestatesinwhichthebankischartered,headquartered,oroperatesabranch.See 12U.S.C.§1841(o)(4)–(7). 11 See12U.S.C.§1841(o)(4).Abankholdingcompany’shomestateisthestateinwhichthetotaldepositsofall bankingsubsidiariesofsuchcompanywerethelargestonJuly1,1966,orthedateonwhichthecompany becameabankholdingcompany,whicheverislater. 12 12U.S.C.§2901etseq. 13 Minn.Stat.49.411(2017)

LegalDevelopments:FourthQuarter,2018 3 depositsthatasinglebankingorganizationmaycontrol.TheBoardhasconsideredall otherrequirementsundersection3(d)of theBHCAct,includingOldNationalBank’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 OldNationalBankandKleinBankcompetedirectlyintheMinneapolis/SaintPaul,Minnesota,bankingmarket(“Minneapolis/SaintPaulmarket”).16TheBoardhasconsideredthe competitiveeffectsof theproposalinthisbankingmarket.Inparticular,theBoardhas consideredthenumberof competitorsthatwouldremaininthemarket;therelativeshare of totaldepositsininsureddepositoryinstitutionsinthemarket(“marketdeposits”)that OldNationalwouldcontrol;17theconcentrationlevelsof marketdepositsandtheincrease inthislevel,asmeasuredbytheHerfindahl-HirschmanIndex(“HHI”)undertheDepartmentof JusticeBankMergerCompetitiveReviewguidelines(“DOJBankMergerGuidelines”);18andothercharacteristicsof themarket. Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesintheMinneapolis/SaintPaulmarket.On consummationof theproposal,theMinneapolis/SaintPaulmarketwouldremainhighly concentratedasmeasuredbytheHHI,accordingtotheDOJBankMergerGuidelines; 14 12U.S.C.§1842(c)(1). 15 12U.S.C.§1842(c)(1)(B). 16 TheMinneapolis/SaintPaulmarketisdefinedasAnoka,Hennepin,Ramsey,Washington,Carver,Scott,and Dakotacounties,Minnesota;Lent,ChisagoLake,Shafer,Wyoming,andFranconiatownshipsinChisago County,Minnesota;BlueHill,Baldwin,Orrock,Livonia,andBigLaketownshipsandthecityofElkRiverin SherburneCounty,Minnesota;Monticello,Buffalo,RockfordandFranklintownshipsandthecitiesofOtsego, Albertville,HanoverandSaintMichaelinWrightCounty,Minnesota;Derrynane,Lanesburgh,andMontgomerytownshipsandMontgomerycityinLeSueurCounty,Minnesota;andHudsontownshipinSaintCroix County,Wisconsin. 17 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). 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.

4 FederalReserveBulletin|February2019 however,thechangeinHHIwouldbesmall,andnumerouscompetitorswouldremainin themarket.19 TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket.Inaddition,the appropriatebankingagencieshavebeenaffordedanopportunitytocommentandhavenot objectedtotheproposal. Basedonallof thefactsof record,theBoardconcludesthatconsummationof the proposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheMinneapolis/SaintPaulmarketorinanyotherrelevantbanking market.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistent withapproval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCAct,theBoardconsidersthefinancial andmanagerialresourcesandthefutureprospectsof theinstitutionsinvolved.20Inits 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. OldNationalandOldNationalBankarewellcapitalized,andthecombinedorganization wouldremainsoonconsummationof theproposal.Theproposedtransactionisabank holdingcompanymergerthatisstructuredasashareexchange,withasubsequentmerger of thesubsidiarydepositoryinstitutions.21Theassetquality,earnings,andliquidityof bothOldNationalBankandKleinBankareconsistentwithapproval,andOldNational appearstohaveadequateresourcestoabsorbtherelatedcostsof theproposalandto completetheintegrationof theinstitutions’operations.Inaddition,thefutureprospectsof theinstitutionsundertheproposalareconsideredconsistentwithapproval. 19 OldNationaloperatesthe6thlargestdepositoryinstitutionintheMinneapolis/SaintPaulmarket,controlling approximately$1.67billionindeposits,whichrepresentapproximately0.90percentofmarketdeposits.Klein operatesthe8thlargestdepositoryinstitutioninthesamemarket,controllingdepositsofapproximately $1.44billion,whichrepresentapproximately0.77percentofmarketdeposits.Onconsummationofthe proposedtransaction,OldNationalwouldbecomethe5thlargestdepositoryorganizationinthemarket, controllingdepositsofapproximately$3.12billion,whichrepresentapproximately1.68percentofmarket deposits.TheHHIfortheMinneapolis/SaintPaulmarketwouldincreaseby1pointto3141,and124competitorswouldremaininthemarket. 20 12U.S.C.§1842(c)(2),(5),and(6). 21 AttheeffectivetimeofthemergerofKleinwithandintoOldNational,eachshareofKleincommonstock thatisissuedandoutstandingwouldbeconvertedintoarighttoreceive7.92sharesofOldNationalcommon stock.OldNationalhasthefinancialresourcestoeffecttheproposedtransaction.

LegalDevelopments:FourthQuarter,2018 5 TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of OldNational,Klein,andtheirsubsidiarydepositoryinstitutions,includingassessments of theirmanagement,risk-managementsystems,andoperations.Inaddition,theBoard hasconsideredinformationprovidedbyOldNational;theBoard’ssupervisoryexperiences andthoseof otherrelevantbanksupervisoryagencieswiththeorganizations;andtheorganizations’recordsof compliancewithapplicablebanking,consumerprotection,andantimoney-launderinglaws. OldNational,Klein,andtheirsubsidiarydepositoryinstitutionsareeachconsideredtobe wellmanaged.OldNational’sdirectorsandseniorexecutiveofficershaveknowledgeof andexperienceinthebankingandfinancialservicessectors,andOldNational’sriskmanagementprogramappearsconsistentwithapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredOldNational’splansforimplementingtheproposal.Old Nationalhasconductedcomprehensiveduediligenceandisdevotingsignificantfinancial andotherresourcestoaddressallaspectsof thepost-acquisitionintegrationprocessfor thisproposal.OldNationalwouldimplementitsrisk-managementpolicies,procedures,and controlsatthecombinedorganization,andtheseareconsideredacceptablefromasupervisoryperspective.Inaddition,OldNational’smanagementhastheexperienceand resourcestooperatethecombinedorganizationinasafeandsoundmanner. Basedonallthefactsof record,includingOldNational’ssupervisoryrecord,managerial andoperationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandthefutureprospectsof theorganizationsinvolvedintheproposal,aswellas therecordsof effectivenessof OldNationalandKleinincombattingmoney-laundering activities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCAct,theBoardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.22Initsevaluation,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thesecommunities,aswellasotherpotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved,andplacesparticularemphasisonthe recordsof therelevantdepositoryinstitutionsundertheCRA.TheCRArequiresthe federalbanksupervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeet thecreditneedsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeinstitutions’safeandsoundoperations,23andrequirestheappropriatefederalbanksupervisory agencytoassessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof its entirecommunity,includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.24 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsiderstheassessmentsof otherrelevantsupervisors,the supervisoryviewsof examiners,othersupervisoryinformation,informationprovidedby 22 12U.S.C.§1842(c)(2). 23 12U.S.C.§2901(b). 24 12U.S.C.§2903.

6 FederalReserveBulletin|February2019 theapplicant,andpubliccommentsontheproposal.TheBoardalsomayconsiderthe acquiringinstitution’sbusinessmodelandmarketingandoutreachplans,theorganization’splansafterconsummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof Old NationalBankandKleinBank;thefairlendingandcompliancerecordsof bothbanks;the supervisoryviewsof theOCCandtheConsumerFinancialProtectionBureau(“CFPB”) withrespecttoOldNationalBank,andtheFederalDepositInsuranceCorporation (“FDIC”)withrespecttoKleinBank;confidentialsupervisoryinformation;information providedbyOldNational;andthepubliccommentsontheproposal.25 PublicCommentsontheProposal Inthiscase,acommenterobjectedtotheproposalonthebasisof allegeddisparitiesinthe numberof homemortgageloansmadebyOldNationalBankto,andintherateof denialsforhomemortgageapplicationsfrom,AfricanAmericansascomparedtowhitesin theEvansvilleandIndianapolisMetropolitanStatisticalAreas(“MSAs”),basedondata reportedundertheHomeMortgageDisclosureActof 1975(“HMDA”).26Thiscommenter alsocriticizedthebranchclosurepracticesof OldNationalBank.Anothercommenter requestedthatOldNational’sproposedacquisitionincludeaforward-lookingcommunity benefitsplan.27BothcommentersalsocitedobligationsimposedonKleinBankundera May2018settlementagreementwiththeDepartmentof Justice,relatedtoallegedredlining andotherdiscriminatorybehaviorof KleinBank(the“DOJSettlement”).Onecommenter requestedadditionalinformationaboutthestepsKleinBankhastakentomeettheconditionsof theDOJSettlementandabouthowOldNationalwouldcomplywiththetermsof theDOJSettlementonceitintegratesKlein. Businessesof theInvolvedInstitutionsandResponsetothePublicComments OldNationalBankisafull-servicebankthatoffersacomprehensivearrayof banking, trust,investment,leasing,mortgage,andcashmanagementproductsandservicestoindividualcustomersandcommercialenterprisesof allsizes,throughitsnetworkof branches. KleinBankisacommercialbankthatoffersawiderangeof loanproductsforcommercial, residentialrealestate,agricultural,andconsumerpurposes,inadditiontovarioustypesof retaildepositproducts. Inresponsetothecommenters’allegations,OldNationalassertsthatapprovalof the proposedtransactioniswarrantedbasedonOldNationalBank’sCRAperformanceevaluation.OldNationalnotesthatHMDAdatadonottakeintoconsiderationothercritical inputs,suchasborrowercreditworthiness,collateralvalue,creditscores,andotherfactors relevanttocreditdecisions.OldNationalalsoassertsthatHMDAdatadonotreflectthe 25 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81Fed.Reg.48506,48548 (July25,2016). 26 12U.S.C.§2801etseq. 27 TheBoardconsistentlyhasfoundthatneithertheCRAnorthefederalbankingagencies’CRAregulations requiredepositoryinstitutionstomakepledgesorenterintocommitmentsoragreementswithanyprivate party.See,e.g.,HarborOneMutualBankshares,FRBOrderNo2018-18at10n.26(September12,2018);TriCo Bancshares,FRBOrderNo.2018-13at9n.20(June6,2018);HowardBancorp,Inc.,FRBOrderNo.2018-05 at9n.21(February12,2018);SandySpringBancorp,Inc.,FRBOrderNo.2017-32at12n.31(November22, 2017);FirstMidwestBancorp,Inc.,FRBOrderNo.2016-18at11n.28(November10,2016);CITGroup,Inc., FRBOrderNo.2015-20at24n.54(July19,2015);CitigroupInc.,88FederalReserveBulletin485(2002);Fifth ThirdBancorp,80FederalReserveBulletin838,841(1994).Initsevaluation,theBoardreviewstheexisting CRAperformancerecordofanapplicantandtheprogramsthattheapplicanthasinplacetoservethecredit needsofitsCRAassessmentareas.

LegalDevelopments:FourthQuarter,2018 7 rangeof OldNationalBank’slendingactivitiesandeffortswithinthecommunitiesit serves.OldNationalrepresentsthatitiscommittedtoprovidingreasonableaccesstoits deliverysystemsthroughoutitsassessmentareasanddoesnotanticipateanybranch closuresasaresultof thistransaction. Thetermsof theDOJSettlementrequireKleinBanktoexpanditsbankingservicesin predominantlyminorityneighborhoodsintheMinneapolisarea,includingbyinvestingin aloansubsidyfundtoincreasetheamountof extendedcreditandbyengaginginadvertising,outreach,financialeducation,andcreditrepair.OldNationalrepresentsthat KleinBankhasmadeprogressinfulfillingitsobligationsinthisregard.OldNational acknowledgesthattheDOJSettlementtermsarebindingonKleinBank’ssuccessorsand transferees,andOldNationalrepresentsthatitiscommittedtofulfillingthetermsof the settlementagreementandensuringthattheneedsof thecommunitiescurrentlyservedby KleinBankaremet.OldNationalnotesthatOldNationalBank’sfairlendingpolicies, programs,andreviewswouldapplyatthecombinedentityfollowingconsummationof the transaction. Recordsof PerformanceundertheCRA TheCRArequiresthattheappropriatefederalbanksupervisorforadepositoryinstitution prepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecreditneeds of itsentirecommunity,includingLMIneighborhoods.28Aninstitution’smostrecent CRAperformanceevaluationisaparticularlyimportantconsiderationintheapplications processbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’sprimary federalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalbanksupervisorsapplyalendingtesttoevaluatetheperformanceof largeinsureddepositoryinstitutions,suchasOldNationalBankandKleinBank,inhelping tomeetthecreditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluates theinstitution’slendingtodeterminewhethertheinstitutionishelpingtomeetthecredit needsof individualsandgeographiesof allincomelevels.Aspartof thelendingtest,examinersreviewandanalyzeaninstitution’sdatareportedundertheHMDA,inadditionto 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-,andupperincomeindividuals;29(4)theinstitution’scommunitydevelopmentlending,includingthe numberandamountsof communitydevelopmentloansandtheircomplexityand innovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpracticesto addressthecreditneedsof LMIindividualsandgeographies.30Largeinstitutionsalsoare subjecttoaninvestmenttest,whichevaluatesthenumberandamountsof qualifiedinvest- 28 12U.S.C.§2906. 29 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountsat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals. See,e.g.,12CFR228.22(b)(3). 30 See12CFR228.22(b).

8 FederalReserveBulletin|February2019 mentsthatbenefittheirAAs,andaservicetest,whichevaluatestheavailabilityandeffectivenessof theirsystemsfordeliveringretailbankingservicesandtheextentand innovativenessof theircommunitydevelopmentservices.31 TheBoardisconcernedwhenHMDAdatareflectdisparitiesintheratesof loanapplications,originations,anddenialsamongmembersof differentracialorethnicgroupsinlocal areas.Thesetypesof disparitiesmayindicateweaknessesintheadequacyof policiesand programsataninstitutionformeetingitsobligationstoextendcreditfairly.However,other informationcriticaltoaninstitution’screditdecisionsisnotavailablefromHMDAdata.32 Consequently,HMDAdatadisparitiesmustbeevaluatedinthecontextof otherinformationregardingthelendingrecordof aninstitution. CRAPerformanceof OldNationalBank OldNationalBankwasassignedanoverall“Satisfactory”ratingatitsmostrecentCRA performanceevaluationbytheOCC,asof February13,2017(“OldNationalBankEvaluation”).33Thebankreceiveda“HighSatisfactory”ratingfortheLendingTest,an “Outstanding”ratingfortheInvestmentTest,anda“HighSatisfactory”ratingforthe ServiceTest.34OldNational’sperformanceinthestateof Indianawasweightedmost heavilybyexaminersduetothebank’svolumeof lendinganddepositactivityinthisarea. ExaminersfoundthatOldNationalBank’sgeographicdistributionof loanswasgood, thegeographicdistributionof homemortgageloanswasadequate,andthegeographic distributionof smallloanstobusinesseswasexcellent.Examinersnotedthat,overall,the distributionof loansbyincomelevelof theborrowerandof homemortgageloansby incomelevelof theborrowerwasgood.Examinersfoundthebank’sdistributionof loans tobusinessesof differentrevenuesizestobeadequate. ExaminersfoundthatOldNationalBankoriginatedanoverallexcellentlevelof qualified communitydevelopmentinvestmentsthatweregenerallyresponsivetocommunityneeds. Examinersfoundthatthishadasignificantlypositiveimpactonlendingperformancefor mostof thebank’sAAs. Overall,examinersconcludedthatbankbrancheswereaccessibletoindividualsandgeographiesof differentincomelevels.ExaminersalsofoundthatinmostAAs,branchdistributionwasgoodorexcellent. IntheEvansville-HendersonIN-KYMMSA,35whichincludesanareaof concerntoone of thecommenters,examinersfoundOldNationalBank’sperformancetobeoutstanding. Examinersnotedthatthegeographicdistributionof loansreflectedgoodpenetration throughouttheEvansville-HendersonIN-KYMMSA,includingoverallgoodpenetration forhomemortgageloansandexcellentpenetrationforsmallbusinessloans.Examiners foundthatcommunitydevelopmentlendingwasresponsivetoidentifiedneedsandthatthe 31 See12CFR228.21etseq. 32 Otherinformationrelevanttocreditdecisionscouldincludecredithistory,debt-to-incomeratios,andloan-tovalueratios.Accordingly,whenconductingfairlendingexaminations,examinersanalyzesuchadditionalinformationbeforereachingadeterminationregardinganinstitution’scompliancewithfairlendinglaws. 33 TheOldNationalBankEvaluationwasconductedusingLargeInstitutionCRAExaminationProcedures. Examinersreviewedhomepurchase,homeimprovement,andhomerefinancemortgageloansreported pursuanttotheHMDAandsmallloanstobusinessesandfarmsreportedundertheCRAfromJanuary1, 2013,throughDecember31,2015.Theevaluationperiodforcommunitydevelopmentloans,investments,and serviceswasJanuary1,2013,throughDecember31,2015. 34 TheOldNationalBankEvaluationincluded,ineachstateandmultistatemetropolitanarea(“MMA”)where thebankhasanoffice,afull-scopereviewofasampleofAAswithinthatarea. 35 MultistateMetropolitanStatisticalArea

LegalDevelopments:FourthQuarter,2018 9 geographicdistributionof branchofficesandthelevelof communitydevelopmentservices wereexcellent.ExaminersnotedthatOldNationalBankexhibitedexcellentresponsivenesstothecommunitydevelopmentinvestmentneedsintheAA.ExaminersalsofoundOld NationalBank’sbranchestobeaccessibletoallportionsof theAAandthataccessto bankingservicesinLMIgeographieswasexcellent. IntheIndianapolis-Carmel-AndersonMSA,whichincludesanotherareaof concernto oneof thecommenters,examinersfoundthebank’soveralllendingactivitytobegood, includingforhomemortgagesandsmallbusinessloans.Examinersconcludedthatthe bank’srecordof openingandclosingbrancheshadadverselyaffectedtheaccessibilityof itsdeliverysystems,particularlyinLMIgeographiesortoLMIindividuals.Examiners neverthelessfoundthattheservicesofferedandhoursof operationwerecomparable amonglocationsregardlessof incomelevelof thegeographyandthatOldNationalBank hadmadeadequateuseof alternativedeliverysystemsthroughtelephoneandon-line banking,electronicbillpay,andmobilebankingoptions. OldNational’sEffortssincetheOldNationalBankEvaluation OldNationalstatesthat,sincetheOldNationalBankEvaluation,OldNationalBankhas engagedinsignificantactivitiestocontinuetoimproveitsCRAperformance.Specifically, thebankhasfundedgrantsandscholarshipsforseveralcommunityorganizationsand madecommercialloanstodevelopaffordablehousing,economicdevelopment,and communityrevitalizationinitiativesinLMIneighborhoods.OldNationalBankalsohas madeseveralCRA-eligiblecommunitydevelopmentinvestments.OldNationalBank’s employeeshaveprovidedtechnicalsupporttononprofitorganizationsthatfocusondevelopingaffordablehousingaswellastosmallbusinesses,andtheyhavetaughtfinancial literacy. CRAPerformanceof KleinBank KleinBankreceivedanoverallratingof “Satisfactory”atitsmostrecentCRAperformance evaluationbytheFDIC,asof November19,2015(“KleinBankEvaluation”).36Thebank receiveda“Highsatisfactory”ratingfortheLendingTest,a“NeedstoImprove”ratingfor theInvestmentTest,and“Lowsatisfactory”ratingfortheServiceTest.37 ExaminersconcludedthatKleinBank’slendinglevelsreflectedgoodresponsivenesstothe AAs’creditneeds,andahighpercentageof loanswasmadeintheAAs.Examinersconsideredthat,collectively,thegeographicdistributionof smallbusiness,homemortgage,and smallfarmlendingreflectedadequatepenetrationthroughouttheAAsgivendemographic information,andthedistributionof loanstoborrowersreflectedgoodpenetrationamong businessesandfarmsof differentsizesandindividualsof differentincomelevels,given thebank’sproductlines. ExaminersconcludedthatKleinBankhadapoorlevelof qualifiedcommunitydevelopmentinvestmentsandgrants,particularlythosethatarenotroutinelyprovidedbyprivate 36 TheKleinBankEvaluationwasconductedusingtheLargeInstitutionCRAExaminationProcedures.ExaminersreviewedmortgageloansreportedpursuanttoHMDAandsmallbusinessloansreportedundertheCRA fromJanuary1,2013,throughNovember18,2015.Theevaluationperiodforcommunitydevelopmentlending, investments,andserviceswasApril8,2013,throughNovember18,2015. 37 TheKleinBankEvaluationincludedareviewofthebank’sMetroandWesternAAs,which,collectively,consist ofportionsofHennepinCountyandallofAnoka,Carver,Dakota,McLeod,Scott,Sherburne,Sibley,and Wrightcounties.Allofthesecounties,withtheexceptionofMcLeodandSibleycounties,arepartofthe Minneapolis-SaintPaul-Bloomington,Minnesota-WisconsinMSA.TheKleinBankEvaluationalsoincludeda reviewofChippewa,LacquiParle,andYellowMedicinecountiesinsouth-centralMinnesota.

10 FederalReserveBulletin|February2019 investors.Thebankdemonstratedpoorresponsivenesstocreditandcommunityeconomic developmentneedsandrarelyusedinnovativeorcomplexinvestmentstosupport communitydevelopmentinitiatives.Examinersfoundthatthebankprovidedanadequate levelof communitydevelopmentserviceswithdeliverysystemsthatwerereasonablyaccessibletoallportionsof itsAAs.Examinersconsideredthattheinstitution’sopeningand closingof branchesgenerallyhadnotadverselyaffectedtheaccessibilityof itsdelivery systems,particularlyinLMIgeographiesandtoLMIindividuals.Examinersconcluded thatservices(includingbusinesshours)didnotvaryinawaythatinconveniencedportions of theAAs,particularlyLMIgeographiesandindividuals. Klein’sEffortssincetheKleinBankEvaluation OldNationalrepresentsthat,sincetheKleinBankEvaluation,KleinBankhassoughtto improveitsCRAperformanceandaddressthetermsof theDOJsettlement.Specifically, thebankhasdevelopedseveralkeypartnershipswithcommunitiesinmajority-minority censustractsandisintheprocessof formalizingafinancialassistanceprogramtoincrease theamountof creditextendedtominoritycommunities.Inaddition,thebankhas submittedaproposalforadvertising,outreach,financialeducation,andcreditrepairinitiativestotheDOJ,hiredacommunitydevelopmentofficertooverseethebank’slendingin predominantlyminoritycommunities,andconductedemployeetrainingwithrespecttofair lending. Viewsof theOCC,FDIC,andCFPB Initsreviewof theproposal,theBoardconsultedwiththeOCCandFDIC,respectively, regardingtheCRA,consumercompliance,andfairlendingrecordsof OldNationalBank andKleinBank.Inaddition,theBoardconsultedwiththeCFPBregardingOldNational Bank’sconsumercomplianceandfairlendingrecords.TheBoardhasconsideredthe resultsof themostrecentconsumercomplianceexaminationsof OldNationalBankand KleinBankconductedbyOCCandFDIC,respectively,whichincludedreviewsof the banks’compliancemanagementprogramsandthebanks’compliancewithconsumer protectionlawsandregulations.TheOCCreviewedandapprovedtheBankMergerAct applicationrelatedtotheproposaland,indoingso,consideredthesamecommentsaswere submittedtotheBoardontheBHCActapplication. TheBoardhastakenthisinformation,aswellastheCRAperformancerecordsof Old NationalBankandKleinBank,intoaccountinevaluatingtheproposal,includingin consideringwhetherOldNationalhastheexperienceandresourcestoensurethatOld NationalBankwouldhelpmeetthecreditneedsof thecommunitieswithinitsAAs followingtheproposedtransaction. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.OldNationalrepresentsthat,followingconsummationof theproposal,existingcustomersof KleinBankwouldbenefitfromaccesstoan expandedarrayof productsandservices,includingwealthmanagement,investment,and student-focusedoptions,andfromanexpandedbranchnetwork.Inaddition,OldNational representsthatcommercialcustomersof OldNationalBankandKleinBankwouldbenefit fromaccesstoawiderarrayof treasurymanagementservicesandOldNationalBank’s greaterlendingcapacity. OldNationalrepresentsthatithasprograms,products,andactivitiesthatwouldmeetthe anticipatedneedsof OldNationalBank’scommunitiesundertheCRA,includingthe

LegalDevelopments:FourthQuarter,2018 11 needsof LMIareasandindividuals.OldNationalfurtherrepresentsthatitiscommittedto workingcloselywithcommunityleaders,governmententities,andresidentsof the communitiesitservestodevelopasoundandsensiblestructureforchannelingresources andexpertisetotargetedeconomicdevelopmentinitiativesservinglowerincomehouseholdsandsmallbusinessesandtomeetcommunityinfrastructurerequirements. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA;theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws;supervisoryviewsof theOCC,FDIC,and CFPB;confidentialsupervisoryinformation;informationprovidedbyOldNational;the publiccommentsontheproposal;thetermsof theDOJSettlement;andotherpotential effectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved. Basedonthatreview,theBoardconcludesthattheconvenienceandneedsfactorisconsistentwithapproval. FinancialStability Section3of theBHCActrequirestheBoardtoconsider“theextenttowhichaproposed acquisition,merger,orconsolidationwouldresultingreaterormoreconcentratedrisksto thestabilityof theUnitedStatesbankingorfinancialsystem.”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 resultingfirm.39Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamageonthebroadereconomy.40 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billionintotalassets,orthatresultinafirmwithlessthan$100billionintotalassets, aregenerallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthata proposaldoesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbelow eitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificantincreaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.41 38 Dodd-FrankWallStreetReformandConsumerProtectionAct§604(d),Pub.L.No.111-203,124Stat.1376, 1601(2010),codifiedat12U.S.C.§1842(c)(7). 39 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 40 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 41 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition.

12 FederalReserveBulletin|February2019 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billionintotalassetsandaproformaorganizationof lessthan$100billionintotal assets.Boththeacquirerandthetargetarepredominatelyengagedinretailandcommercial bankingactivities.42Theproformaorganizationwouldhaveminimalcross-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.43Inreachingitsconclusion,theBoardhasconsideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunderthe BHCActandotherapplicablestatutes.TheBoard’sapprovalisspecificallyconditionedon compliancebyOldNationalwithalltheconditionsimposedinthisorder,includingreceipt of allrequiredregulatoryapprovals,andonanycommitmentsmadetotheBoardin connectionwiththeproposal.Forpurposesof thisaction,theconditionsandcommitmentsaredeemedtobeconditionsimposedinwritingbytheBoardinconnectionwithits findingsanddecisionhereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethe15thcalendardayaftertheeffectivedate of thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedforgood causebytheBoardortheFederalReserveBankof St.Louis,actingunderdelegated authority. Byorderof theBoardof Governors,effectiveOctober16,2018. 42 OldNationalandKleinbothofferarangeofretailandcommercialbankingproductsandservices.Old Nationalhas,andasaresultoftheproposalwouldcontinuetohave,asmallmarketshareintheseproducts andservicesonanationwidebasis. 43 TheBoardconstruesthecommentsreceivedontheproposaltoincluderequeststhattheBoardholdpublic hearingsontheproposal.Section3(b)oftheBHCActdoesnotrequirethattheBoardholdapublichearing onanyproposalunlesstheappropriatesupervisoryauthoritiesfortheacquiringbankorthebanktobe acquiredmakeatimelywrittenrecommendationofdisapprovaloftheproposal.12U.S.C.§1842(b);12CFR 225.16(e).TheBoardhasnotreceivedsucharecommendationfromtheappropriatesupervisoryauthoritiesin connectionwiththisapplication.Underitsrules,theBoardalso,initsdiscretion,mayholdapublichearingif appropriatetoallowinterestedpersonsanopportunitytoproviderelevanttestimonywhenwrittencomments wouldnotadequatelypresenttheirviews.TheBoardhasconsideredthecommenters’requestsinlightofallof thefactsofrecord.IntheBoard’sview,thecommentershavehadampleopportunitytosubmitcommentson theproposaland,infact,submittedwrittencommentsthattheBoardhasconsideredinactingontheproposal. Thecommenters’requestsdonotidentifydisputedissuesoffactthatarematerialtotheBoard’sdecisionand thatwouldbeclarifiedbyapublichearing.Inaddition,therequestsdonotdemonstratewhythewritten commentsdonotpresentthecommenters’viewsadequatelyorwhyahearingotherwisewouldbenecessaryor appropriate.Forthesereasons,andbasedonallthefactsofrecord,theBoardhasdeterminedthatapublic hearingisnotrequiredorwarrantedinthiscase.Accordingly,therequestsforapublichearingontheproposal aredenied.

LegalDevelopments:FourthQuarter,2018 13 Votingforthisaction:ChairmanPowell,ViceChairmanClarida,ViceChairmanfor SupervisionQuarles,andGovernorBrainard. MargaretMcCloskeyShanks DeputySecretaryof theBoard

14 FederalReserveBulletin|February2019 Cadence Bancorporation Houston, Texas OrderApprovingtheMergerof BankHoldingCompanies FRBOrderNo.2018-26(December7,2018) CadenceBancorporation(“Cadence”),Houston,Texas,abankholdingcompanywithin themeaningof theBankHoldingCompanyActof 1956(“BHCAct”),1hasrequestedthe Board’sapprovalundersection3of theBHCAct2toacquireandmergewithStateBank FinancialCorporation(“SBFC”),Atlanta,Georgia,andtherebyindirectlyacquireSBFC’s subsidiarynonmemberbank,StateBankandTrustCompany(“StateBank”),Macon, Georgia.Followingtheproposedacquisition,StateBankwouldbemergedintoCadence’s subsidiarybank,CadenceBank,N.A.(“CadenceBank”),Birmingham,Alabama.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(83FederalRegister48425(September25,2018)).4Thetimeforsubmittingcommentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct. Cadence,withconsolidatedassetsof approximately$11.3billion,isthe132ndlargest insureddepositoryorganizationintheUnitedStates.5Cadencecontrolsapproximately $9.5billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.Cadence controlsCadenceBank,whichoperatesbranchesinAlabama,Florida,Mississippi, Tennessee,andTexas.6 SBFC,withconsolidatedassetsof approximately$5.0billion,isthe216thlargestinsured depositoryorganizationintheUnitedStates.SBFCcontrolsapproximately$4.3billionin deposits,whichrepresentlessthan1percentof thetotalamountof depositsof insured depositoryinstitutionsintheUnitedStates.SBFCcontrolsStateBank,whichoperates onlyinGeorgia. Onconsummationof theproposal,Cadencewouldbecomethe100thlargestinsured depositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $16.3billion,whichrepresentlessthan1percentof thetotalassetsof insureddepository organizationsintheUnitedStates.Cadencewouldcontrolconsolidateddepositsof approximately$13.8billion,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.7InGeorgia,Cadence wouldbecomethe12thlargestinsureddepositoryorganization,controllingdepositsof approximately$4.4billion,whichwouldrepresentapproximately1.7percentof thetotal depositsof insureddepositoryinstitutionsinthatstate. 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 ThemergerofStateBankintoCadenceBankissubjecttoapprovalbytheOfficeoftheComptrollerofthe Currency(“OCC”),pursuanttosection18(c)oftheFederalDepositInsuranceAct(“BankMergerAct”). 12U.S.C.§1828(c).TheOCCapprovedthebankmergeronOctober4,2018. 4 12CFR262.3(b). 5 NationalassetdataareasofJune30,2018.Nationaldeposit,ranking,andmarket-sharedataareasofJune30, 2018,unlessotherwisenoted. 6 StatedepositdataareasofJune30,2018. 7 Inthiscontext,insureddepositoryinstitutionsincludecommercialbanks,savingsassociations,andsavings banks.

LegalDevelopments:FourthQuarter,2018 15 InterstateandDepositCapAnalysis Section3(d)of theBHCActgenerallyprovidesthat,if certainconditionsaremet,the Boardmayapproveanapplicationbyabankholdingcompanytoacquirecontrolof a banklocatedinastateotherthanthehomestateof thebankholdingcompany,without regardtowhetherthetransactionisprohibitedunderstatelaw.8TheBoardmaynot approveanapplicationthatwouldpermitanout-of-statebankholdingcompanytoacquire abankinahoststateif thebankhasnotbeeninexistenceforthelesserof thestatestatutoryminimumperiodof timeorfiveyears.9Inaddition,theBoardmaynotapprovean interstateapplicationif thebankholdingcompanycontrolsor,uponconsummationof the proposedtransaction,wouldcontrolmorethan10percentof thetotaldepositsof insured depositoryinstitutionsintheUnitedStatesor,incertaincircumstances,if thebankholding company,uponconsummation,wouldcontrol30percentormoreof thetotaldepositsof insureddepositoryinstitutionsinanystateinwhichtheacquirerandtargethaveoverlappingbankingoperations.10 Forpurposesof theBHCAct,thehomestateof CadenceisMississippiandStateBankis locatedonlyinGeorgia.11CadenceandCadenceBankarewellcapitalizedandwell managedunderapplicablelaw,andCadenceBankhasa“Satisfactory”ratingunderthe CommunityReinvestmentActof 1977(“CRA”).12Georgia’sthree-yearstatutory minimumagerequirementhasbeenmet.13 Onconsummationof theproposedtransaction,Cadencewouldcontrollessthan1percent of thetotalamountof consolidateddepositsof insureddepositoryinstitutionsinthe UnitedStates.Inaddition,therearenostatesinwhichCadenceandSBFChaveoverlappingbankingoperations,suchthatastatedepositcapwouldapply.TheBoardhasconsideredallotherrequirementsundersection3(d)of theBHCAct,includingCadenceBank’s recordof meetingtheconvenienceandneedsof thecommunitiesitserves.Accordingly,in lightof allthefactsof record,theBoardmayapprovetheproposalundersection3(d)of theBHCAct. CompetitiveConsiderations Section3of theBHCActprohibitstheBoardfromapprovingaproposalthatwouldresult inamonopolyorwouldbeinfurtheranceof anattempttomonopolizethebusinessof bankinginanyrelevantmarket.14TheBHCActalsoprohibitstheBoardfromapprovinga proposalthatwouldsubstantiallylessencompetitionortendtocreateamonopolyinany bankingmarket,unlesstheanticompetitiveeffectsof theproposalareclearlyoutweighedin 8 12U.S.C.§1842(d)(1)(A). 9 12U.S.C.§1842(d)(1)(B). 10 12U.S.C.§1842(d)(2)(A)and(B).Forpurposesofsection3(d)oftheBHCAct,theacquiringandtargetinstitutionshaveoverlappingbankingoperationsinanystateinwhichanybanktobeacquiredislocatedandthe acquiringbankholdingcompanycontrolsanyinsureddepositoryinstitutionorabranch.TheBoardconsiders abanktobelocatedinthestatesinwhichthebankischartered,headquartered,oroperatesabranch.See 12U.S.C.§1841(o)(4)–(7). 11 See12U.S.C.§1841(o)(4).Abankholdingcompany’shomestateisthestateinwhichthetotaldepositsofall bankingsubsidiariesofsuchcompanywerethelargestonJuly1,1966,orthedateonwhichthecompany becameabankholdingcompany,whicheverislater.Cadence(thennamedCommunityBancorpLLC)became abankholdingcompanyonMarch4,2011,whenitacquiredCadenceBank.Atthattime,Mississippiwasthe stateinwhichthetotaldepositsofCadenceBankwerelargest. 12 12U.S.C.§2901etseq. 13 Ga.CodeAnn.§7-1-622(b)(1). 14 12U.S.C.§1842(c)(1).

16 FederalReserveBulletin|February2019 thepublicinterestbytheprobableeffectof theproposalinmeetingtheconvenienceand needsof thecommunitiestobeserved.15 CadenceBankandStateBankdonotcompetedirectlyinanybankingmarket.The Departmentof JusticehasadvisedtheBoardthatconsummationof theproposalwould notlikelyhaveasignificantlyadverseeffectoncompetitioninanyrelevantbankingmarket. Inaddition,theappropriatebankingagencieshavebeenaffordedanopportunityto commentandhavenotobjectedtotheproposal. Basedonallof thefactsof record,theBoardconcludesthatconsummationof the proposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesinanyrelevantbankingmarket.Accordingly,theBoarddeterminesthat competitiveconsiderationsareconsistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCAct,theBoardconsidersthefinancial andmanagerialresourcesandthefutureprospectsof theinstitutionsinvolved.16Inits 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. CadenceandCadenceBankarewellcapitalized,andthecombinedorganizationwould remainsoonconsummationof theproposal.Theproposedtransactionisabankholding companymergerthatisstructuredasashareexchange,withasubsequentmergerof the subsidiarydepositoryinstitutions.17Theassetquality,earnings,andliquidityof both CadenceBankandStateBankareconsistentwithapproval,andCadenceappearstohave adequateresourcestoabsorbtherelatedcostsof theproposalandtocompletetheintegrationof theinstitutions’operations.Inaddition,thefutureprospectsof theinstitutions undertheproposalareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of Cadence,SBFC,andtheirsubsidiarydepositoryinstitutions,includingassessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition,theBoardhas 15 12U.S.C.§1842(c)(1)(B). 16 12U.S.C.§1842(c)(2),(5),and(6). 17 AttheeffectivetimeofthemergerofSBFCwithandintoCadence,eachshareofSBFCcommonstockthatis issuedandoutstandingwouldbeconvertedintoarighttoreceivesharesofCadencecommonstock,basedon anexchangeratio.However,nofractionalsharesofCadencecommonstockwouldbeissuedinthisshare exchange,andsuchfractionalshareswouldbecashedout.Cadencehasthefinancialresourcestoeffectthe proposedtransaction.

LegalDevelopments:FourthQuarter,2018 17 consideredinformationprovidedbyCadence;theBoard’ssupervisoryexperiencesand thoseof otherrelevantbanksupervisoryagencieswiththeorganizations;andtheorganizations’recordsof compliancewithapplicablebanking,consumerprotection,andantimoney-launderinglaws. Cadence,SBFC,andtheirsubsidiarydepositoryinstitutionsareeachconsideredtobewell managed.Cadence’sdirectorsandseniorexecutiveofficershaveknowledgeof andexperienceinthebankingandfinancialservicessectors,andCadence’srisk-management programappearstobeconsistentwithapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredCadence’splansforimplementingtheproposal.Cadence hasconductedcomprehensiveduediligenceandisdevotingsignificantfinancialandother resourcestoaddressallaspectsof thepost-acquisitionintegrationprocessforthisproposal. Cadencewouldimplementitsrisk-managementpolicies,procedures,andcontrolsatthe combinedorganization,andtheseareconsideredacceptablefromasupervisoryperspective.Inaddition,Cadence’smanagementhastheexperienceandresourcestooperatethe combinedorganizationinasafeandsoundmanner. Basedonallthefactsof record,includingCadence’ssupervisoryrecord,managerialand operationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandthefutureprospectsof theorganizationsinvolvedintheproposal,aswellas therecordsof effectivenessof CadenceandSBFCincombattingmoney-launderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCAct,theBoardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.18Initsevaluation,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thesecommunities,aswellasotherpotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved,andplacesparticularemphasisonthe recordsof therelevantdepositoryinstitutionsundertheCRA.TheCRArequiresthe federalbanksupervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeet thecreditneedsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeinstitutions’safeandsoundoperations,19andrequirestheappropriatefederalbanksupervisory agencytoassessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof its entirecommunity,includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.20 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsiderstheassessmentsof otherrelevantsupervisors,the supervisoryviewsof examiners,othersupervisoryinformation,informationprovidedby theapplicant,andpubliccommentsontheproposal.TheBoardalsomayconsiderthe acquiringinstitution’sbusinessmodelandmarketingandoutreachplans,theorganization’splansafterconsummation,andanyotherinformationtheBoarddeemsrelevant. 18 12U.S.C.§1842(c)(2). 19 12U.S.C.§2901(b). 20 12U.S.C.§2903.

18 FederalReserveBulletin|February2019 Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof Cadence BankandStateBank;thefairlendingandcompliancerecordsof bothbanks;thesupervisoryviewsof theOCCwithrespecttoCadenceBankandof theFederalDepositInsurance Corporation(“FDIC”)withrespecttoStateBank;confidentialsupervisoryinformation; informationprovidedbyCadence;andthepubliccommentsontheproposal. PublicCommentsontheProposal TheBoardreceivedcommentsfromfivecommunityorganizationsinHoustonsupporting theproposal.ThesecommentersgenerallydescribedthebenefitsthatCadenceBank providestothecommunitiesitservesintheHoustonarea.Forexample,thesecommenters describedCadenceBank’sparticipationinvariousprojectsandpartnershipsthathave benefitedthecommunity,includinginitiativesfocusedonenhancingeconomicmobility, financialservices,andhomeownershipforLMIindividuals.Thesecommentersalsohighlightedtheopeningof abranchinamajority-minorityLMIcensustractinHouston,anda commenterpraisedCadenceBankforfundingacommunitydevelopmentconstruction loantodeveloparetailcenterinanLMIandminoritycommunityinHouston. Onecommenterobjectedtotheproposalonthebasisof allegeddisparitiesinthenumber of homemortgageloansmadebyCadenceBanktoAfricanAmericansintheDallas- Plano-Irving,TexasMetropolitanDivision(“DallasMD”)andtheBirmingham-Hoover, AlabamaMetropolitanStatisticalArea(“BirminghamMSA”),andtoAfricanAmericans andLatinosintheHouston-TheWoodlands-SugarLand,TexasMetropolitanStatistical Area(“HoustonMSA”),ineachcaseascomparedtowhitesintherelevantareas,basedon datareportedundertheHomeMortgageDisclosureActof 1975(“HMDA”).21The commenteralsocitedacustomercomplaintallegingracistmanagementpracticesat CadenceBankandallegedthatCadenceandSBFCareoperatingasasingleentitypriorto theBoard’sapprovalof theproposal.22 Businessesof theInvolvedInstitutionsandResponsetoPublicComments CadenceBankisafull-servicebankthatoffersacomprehensivearrayof commercialand consumerbanking,trustandinvestment,mortgage,andwealthmanagementproductsand servicestoindividualcustomersandcommercialenterprisesof allsizes,throughits networkof branches.StateBank,throughitsnetworkof branchesinGeorgia,offersa rangeof traditionalbankingproductsandservicestoindividualsandsmallandmediumsizedbusinesses,aswellasloansforcommercial,residentialrealestate,agricultural,and consumerpurposes. Inresponsetoonecommenter’sallegationsregardingCadenceBank’shomemortgage lendingrecord,CadencenotesthatHMDAdatadonottakeintoconsiderationother criticalinputs,suchasborrowercreditworthiness,housingprices,collateralvalues,credit scores,andotherfactorsrelevanttocreditunderwritingdecisions.Additionally,Cadence assertsthatHMDAdatadonotreflecttherangeof CadenceBank’scommunityreinvestmentactivitiesandefforts.CadenceassertsthatCadenceBank’shomemortgagelending recordisareflectionof thebank’shavingtorebuildinheritedmortgagelendingoperations andthebank’sbrief tenureandsmallmarketpresence.Inaddition,Cadenceindicatesthat 21 12U.S.C.§2801etseq. 22 Thecommenter’sallegationthatthepartiesareoperatingasasingleentitypriortotheBoard’sapprovalofthe proposalrelatedtoaninvestorconferencecallduringwhichtheChiefExecutiveOfficerofCadencestatedthat heintendedtoreferaCadencecustomertoadivisionofStateBank.TheBoarddoesnotgenerallyviewa customerreferral,withoutmore,asconstitutingpriorcontrolofanentity.

LegalDevelopments:FourthQuarter,2018 19 CadenceBankrecentlyhastakenmeasurestoenhanceitsCRAcomplianceprogram significantly,includingadoptingaCRAplanthrough2021,whichincludesannualCRA performancegoalsineachof thebank’sCRAassessmentareas(“AAs”).Thesegoals include(a)increasedmortgagelendingtoLMIborrowersandinLMIcensustracts; (b)increasedlendingtosmallbusinessesandbusinessesinLMIcensustracts;and (c)increasedcommunitydevelopmentlending,investments,andservices.CadencerepresentsthatCadenceBankisintheprocessof formallyrevisingitsCRAplantoincludeits fairlendingactionplan’sannualperformancegoalsforincreasedmortgagelendingto minorityborrowersandinminoritycensustractsineachof itsAAs. WithrespecttotheDallasMD,CadencenotesthatCadenceBankneitherhasany branchesnormarketsitsproductsinDallasandthatthebank’slimitedlendingactivitiesin Dallasprimarilyresultfromreferralsfromotherinstitutionsinthemarketforaniche mortgageloanproduct(i.e.,asecond-lienpurchasemoneymortgageloan).Cadenceasserts thatonlyasmallnumberof homeloanapplicationswerereceivedfromAfricanAmerican borrowersintheDallasMD,andamajorityof thoseloanapplicationswereapproved,but certainapprovedloanswerenotultimatelyacceptedbytheborrowers.Withrespecttothe HoustonMSA,Cadencerepresentsthatonlyasmallnumberof homepurchaseloanapplicationswerereceivedfromAfricanAmericanandHispanicborrowers,andthatamajority of theloanswereoriginated.Cadencefurtherassertsthat,asaresultof ongoingeffortsto increaseitsvisibilityinHoustonminoritycommunities,CadenceBankhassignificantly increasedthepercentageof itshomemortgageloanapplicationsfrom,andoriginationsto, minoritiesandinmajority-minoritycensustractsintheHoustonMSAin2018. CadencerepresentsthatCadenceBankhastakenstepstoimproveitsrecordof homemortgagelendingtominoritiesintheBirminghamMSA,includingestablishingapartnershipto constructnewhomeswithaffordablemortgages;formingapartnershiptoprovideassistancetolow-incomeresidentsforhousingrepairsorrenovationsinamajorityAfrican- Americanneighborhood;andworkingwithminorityrealestateorganizationstoincrease loanapplicationsfromandoriginationstominorities.Cadencerepresentsthat,asaresult of theseefforts,CadenceBankhasimproveditsrecordof homemortgagelendingto AfricanAmericansandinmajority-minoritycensustractsintheBirminghamMSA. Withrespecttothecustomercomplaintcitedbyacommenter,Cadenceassertsthatit maintainsarobustcustomercomplaintsystem.Underthissystem,allcustomercomplaints areinvestigatedandappropriatelydocumented.Whenallegationsorconcernsabout discriminationorunfairtreatmentareraised,suchclaimsareescalatedtotheFairLending OfficerandtheLegalDepartmentforanalysis,response,andcorrectiveaction,as necessary. Recordsof PerformanceundertheCRA InevaluatingtheCRAperformanceof theinvolvedinstitutions,theBoardgenerally considerseachinstitution’smostrecentCRAevaluation,aswellasotherinformationand supervisoryviewsfromtherelevantfederalfinancialsupervisororsupervisors,whichin thiscasearetheFDICandtheOCC.23Inaddition,theBoardconsidersinformation providedbytheapplicantandbypubliccommenters. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit 23 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81Fed.Reg.48506,48548 (July25,2016).

20 FederalReserveBulletin|February2019 needsof itsentirecommunity,includingLMIneighborhoods.24Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplyalendingtesttoevaluatetheperformance of largeinsureddepositoryinstitutions,suchasCadenceBankandStateBank,inhelping tomeetthecreditneedsof thecommunitiestheyserve.TheLendingTestspecificallyevaluatesaninstitution’slendingtodeterminewhethertheinstitutionishelpingtomeetthe creditneedsof individualsandgeographiesof allincomelevels.Aspartof theLending Test,examinersreviewandanalyzeaninstitution’sdatareportedunderHMDA,inadditiontosmallbusiness,smallfarm,andcommunitydevelopmentloandatacollectedand reportedundertheCRAregulations,toassessaninstitution’slendingactivitieswith respecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slending performanceisbasedonavarietyof factors,including(1)thenumberandamountsof homemortgage,smallbusiness,smallfarm,andconsumerloans(asapplicable)intheinstitution’sCRAAAs;(2)thegeographicdistributionof theinstitution’slending,including theproportionanddispersionof theinstitution’slendinginitsAAsandthenumberand amountsof loansinlow-,moderate-,middle-,andupper-incomegeographies;(3)the distributionof loansbasedonborrowercharacteristics,including,forhomemortgage loans,thenumberandamountsof loanstolow-,moderate-,middle-,andupper-income individuals;25(4)theinstitution’scommunitydevelopmentlending,includingthenumber andamountsof communitydevelopmentloansandtheircomplexityandinnovativeness; and(5)theinstitution’suseof innovativeorflexiblelendingpracticestoaddressthecredit needsof LMIindividualsandgeographies.26Largeinstitutionsalsoaresubjecttoan investmenttest,whichevaluatesthenumberandamountsof qualifiedinvestmentsthat benefittheirAAs,andaservicetest,whichevaluatestheavailabilityandeffectivenessof theirsystemsfordeliveringretailbankingservicesandtheextentandinnovativenessof theircommunitydevelopmentservices.27 TheBoardisconcernedwhenHMDAdatareflectdisparitiesintheratesof loanapplications,originations,anddenialsamongmembersof differentracialorethnicgroupsinlocal areas.Thesetypesof disparitiesmayindicateweaknessesintheadequacyof policiesand programsataninstitutionformeetingitsobligationstoextendcreditfairly.However,other informationcriticaltoaninstitution’screditdecisionsisnotavailablefromHMDAdata.28 Consequently,HMDAdatadisparitiesmustbeevaluatedinthecontextof otherinformationregardingthelendingrecordof aninstitution. CRAPerformanceof CadenceBank CadenceBankwasassignedanoverall“Satisfactory”ratingatitsmostrecentCRAPerformanceEvaluationbytheOCC,asof July27,2015(“CadenceBankEvaluation”).29The 24 12U.S.C.§2906. 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 Otherinformationrelevanttocreditdecisionscouldincludecredithistory,debt-to-incomeratios,andloan-tovalueratios.Accordingly,whenconductingfairlendingexaminations,examinersanalyzesuchadditionalinformationbeforereachingadeterminationregardinganinstitution’scompliancewithfairlendinglaws. 29 TheCadenceBankEvaluationwasconductedusingLargeInstitutionCRAExaminationProcedures.Dueto mergerandacquisitionactivity,theevaluationperiodstartdatesvariedbyAA.Accordingly,examiners

LegalDevelopments:FourthQuarter,2018 21 bankreceived“LowSatisfactory”ratingsfortheLendingTest,InvestmentTest,and ServiceTest.30CadenceBank’sperformanceinAlabamaandTexaswasweightedmost heavilybyexaminers. ExaminersnotedthattheCadenceBankEvaluationwasthefirstCRAexaminationforthe bankfollowingthecombinationof aseverelytroubledbank,afailedbank,andanichemarketbank.Examinersobservedthatthenecessaryallocationof resourcestostabilize andimprovethebank’sfinancialconditionimpededthebank’sabilitytodevotesignificant resourcestoenhancinglendingperformanceacrossthebank’sAAsandthattheseconsiderationscompensatedforthenotedweaknessesinthevolumeanddistributionof loans. ExaminersfoundthatCadenceBank’sgeographicdistributionof loans,includingthe distributionof homemortgageloans,wasgenerallypoor,althoughthedistributionof smallloanstobusinesseswasgood.Examinersnotedthattheoveralldistributionof loans andthedistributionof homemortgageloansbyincomelevelof theborrowerwere adequate.Examinersalsofoundthattheperformanceof smallloanstobusinesseswas generallygood.Examinersfoundthatcommunitydevelopmentlendinghadagenerally neutralimpactontheLendingTestandnotedthatthebankfocusedcommunitydevelopmentlendingongeographieswhereitlackedsufficientresourcestomarkedlyimproveretail lendingduringtheevaluationperiod. ExaminersfoundthatCadenceBankoriginatedanoveralladequatelevelof qualified communitydevelopmentinvestmentsthatweregenerallyresponsivetocommunityneedsin thebank’sAAs.Examinersnotedthatthebankreceivedconsiderationforaregional investmentthatdidnotserveanyof thebank’sAAs,becausethebankwasgenerally responsivetoneedsintheAAs. Overall,examinersconcludedthatbankbranchesrangedfromreasonablyaccessibleto accessibleforlimitedportionsof individualratingareas.Examinersnotedthatthebank’s hoursdidnotshowsignificantdifferencesbetweenbrancheslocatedinareaswithdifferent incomelevels.ExaminersfoundthatCadenceBankofferedanadequatelevelof banking servicesthroughalternatedeliverysystemsandthatthebank’sopeningandclosingof branchesthroughoutitsAAshadnotadverselyimpactedaccesstobankingservices. IntheHoustonAA,anareaof concerntoacommenter,examinersfoundCadenceBank’s performancetobeadequate.Inreachingthisconclusion,examinersgaveconsiderationto theimpactthattherestructuringof CadenceBank’sentiremortgageoriginationfunction reviewedhomepurchase,homeimprovement,andhomerefinancemortgageloansreportedunderHMDAand smallloanstobusinessesreportedundertheCRAfromOctober1,2010,throughDecember31,2014,forthe BirminghamMSA,Tuscaloosa,AlabamaMSA(“TuscaloosaMSA”),NorthPort-Bradenton-Sarasota,Florida MSA(“SarasotaMSA”),Georgianon-MSACounties,Mississippinon-MSACounties,Memphis,Tennessee- Mississippi-ArkansasMSA(“MemphisMSA”),andNashvilleMSAAAs;fromJanuary1,2012,through December31,2014,forallAAsinAlabamaandFlorida,exceptfortheBirminghamMSA,TuscaloosaMSA, HomosassaSpringsMSA,andSarasotaMSAAAs;andfromSeptember14,2012,toDecember31,2014,for theHoustonMSAandSanAntonioMSAAAs.Theevaluationperiodforcommunitydevelopmentloans,the InvestmentTest,andtheServiceTestwasfromSeptember14,2010,throughDecember31,2014,forthe BirminghamMSA,TuscaloosaMSA,SarasotaMSA,Georgianon-MSACounties,Mississippinon-MSA Counties,MemphisMSA,andNashvilleMSAAAs;fromNovember11,2011,throughDecember31,2014,for allAAswithinthestatesofAlabamaandFlorida,exceptfortheBirminghamMSA,TuscaloosaMSA, HomosassaSpringsMSA,andSarasotaMSAAAs;andfromSeptember14,2012,throughDecember31, 2014,fortheHoustonMSAandSanAntonioMSAAAs. 30 TheCadenceBankEvaluationincludedafull-scopereviewofatleastoneAAineachstateinwhichthebank hasbranches.Eachofthebank’s23AAswasreviewedforlending,investment,andserviceperformanceusing eitherfull-scopeorlimited-scopeexaminationprocedures.AtthetimeoftheCadenceBankEvaluation, CadenceBankoperatedonlyonebranchinGeorgia,whichhassincebeenclosed.TheCadenceBankEvaluationdidnotassessthebank’sperformanceintheDallasMDbecausethebankdidnotoperateabranchinthe DallasMDduringtheevaluationperiod.

22 FederalReserveBulletin|February2019 hadonitsperformanceinTexas,asacompleteoverhaulof thesupportandsalesteams,a rewritingof operatingandunderwritingpoliciesandprocedures,andthedevelopmentof newcustomerrelationshipsinthecompetitiveHoustonmarketwerenecessaryduringthe evaluationperiod.ExaminersconsideredCadenceBank’soveralllendingactivityinthe HoustonAAtobeexcellent,consideringthestrongcompetitionforalltypesof loansin thisAA.Althoughthedistributionof homemortgageloansbygeographyandborrower incomewasconsideredverypoor,examinersfoundthatCadenceBank’scommunitydevelopmentlendinghadasignificantlypositiveimpactonlendingperformanceintheAA. Examinersobservedthatthebank’scommunitydevelopmentloansintheHoustonAA exhibitedexcellentresponsivenesstoidentifiedcommunitydevelopmentneedsintheAA, includingaffordablehousing,activitiesthatrevitalizedorstabilizedLMIgeographies,and communityservicestargetedtoLMIindividuals.Thebank’sperformanceundertheInvestmentTestandtheServiceTestintheHoustonAAwasconsideredadequate.Examiners notedthatthebank’sbranchdistributionintheHoustonAAwasconsideredadequate becausethelocationof mostof thebank’sbranchesresultedfromits2012acquisitionof a nichemarketbank,andthebrancheswereonmajorthoroughfaresnearpublictransportationorLMIcensustracts. IntheBirminghamAA,anotherareaof concerntoacommenter,examinersfound CadenceBank’soveralllendingactivitytobeadequate.ExaminersconcludedthatCadence Bank’shomemortgagelendingactivitywaspooranditssmallbusinesslendingactivitywas good,consideringcompetitionintheAA.Examinersfoundthatthegeographicdistributionof homemortgageloanswaspoor,andthedistributionof homemortgageloansby borrowerincomewasadequate.ExaminersratedCadenceBank’sperformanceunderthe ServiceTestandInvestmentTestintheBirminghamAAasadequateandnotedthatthe bank’sexcellentperformanceinprovidingcommunitydevelopmentservicescompensated forpoorretailperformancewithrespecttotheServiceTest. Cadence’sEffortssincetheCadenceBankEvaluation Cadencerepresentsthat,sincetheCadenceBankEvaluation,CadenceBankhasengaged insignificantactivitiestocontinuetoimproveitsCRAperformance,includingadoptinga CRAplanthatrunsthrough2021,whichincludesannualCRAperformancegoalsin eachof thebank’sAAs,asdescribedabove.Inaddition,CadencerepresentsthatCadence Bankhasimplementedanumberof measurestobetterserveLMIandminority borrowersandcommunities,including,amongothers,hiringanewCRAofficerandtwo regionalCRAdevelopmentofficers,includingoneinBirmingham;launchinganewmortgageproductforowner-occupiedprimaryresidencesof LMIborrowersorinLMIcensus tracts;increasingandfocusingmarketingonunderservedpopulationstopromotethisnew mortgageproduct;introducinganewloanproductforsmallbusinesses;launchinganew low-costdepositproducttoserveLMIandotherunderbankedorunbankedcustomers; anddevelopingpartnershipswithlocalgovernmentsandcommunity-basedorganizations tofacilitatehomemortgage,smallbusiness,andcommunitydevelopmentlendinginLMI andmajority-minoritycommunities.CadencerepresentsthatCadenceBankisalso committedtoopeningmorebranchesinLMIandmajority-minoritycensustractsand recentlyopenedanewbranchinHoustoninanLMIandmajority-minoritycensustract. CRAPerformanceof StateBank StateBankreceivedanoverallratingof “Satisfactory”atitsmostrecentCRAPerformance EvaluationbytheFDIC,asof April24,2017(“StateBankEvaluation”).31Thebank 31 TheStateBankEvaluationwasconductedusingtheLargeInstitutionCRAExaminationProcedures.ExaminersreviewedmortgageloansreportedpursuanttoHMDAandsmallbusinessloansreportedundertheCRA

LegalDevelopments:FourthQuarter,2018 23 receiveda“Highsatisfactory”ratingfortheServiceTestandreceived“Lowsatisfactory” ratingsfortheLendingTestandtheInvestmentTest.32 ExaminersconcludedthatStateBank’slendinglevelsreflectedadequateresponsivenessto theAAs’creditneeds,andamajorityof loansweremadeinthebank’sAAs.Examiners consideredthegeographicdistributionof loanstoreflectadequatepenetrationthroughout theAAsandthedistributionof borrowerstoreflectgenerallyadequatepenetration amongretailcustomersof differentincomelevelsandbusinessesof differentsizes.Examinersfoundthattheinstitutionmadeanadequatelevelof communitydevelopmentloans andusedflexiblelendingpracticestoservethecreditneedsof itsAAs. ExaminersfoundthatStateBankhadanadequatelevelof qualifiedcommunitydevelopmentinvestmentsandgrantsandthatafewof theinvestmentswereinleadershippositions, particularlythosenotroutinelyprovidedbyprivateinvestors.Examinersnotedthatthe bankexhibitedgoodresponsivenesstocreditandcommunitydevelopmentneeds.Examinersobservedthattheinstitutionoccasionallyusedinnovativeand/orcomplexinvestments tosupportcommunitydevelopmentinitiatives. Examinersfoundthebank’sretaildeliverysystemswerereasonablyaccessibletoessentially allportionsof thebank’sAAsandthattheopeningandclosingof branchesgenerallyhad notadverselyaffectedtheaccessibilityof itsdeliverysystems.Examinersconcludedthat services,includingbusinesshours,didnotvaryinawaythatinconveniencedportionsof theAAs,particularlyLMIgeographiesandindividuals.Examinersalsodeterminedthatthe bankprovidedarelativelyhighlevelof communitydevelopmentserviceswithinitsAAs. SBFC’sEffortssincetheStateBankEvaluation Cadencerepresentsthat,sincetheStateBankEvaluation,StateBankhastakenactionsto improveitsCRAperformance.Specifically,StateBankoriginatedcommunitydevelopment loans,includinganumberof extensionsof credit,torevitalizebusinessesaswellasprovide financingforstudenthousinginLMIareas.Inaddition,CadencerepresentsthatState Bank’slevelof qualifiedinvestmentshascontinuedtogrowsincetheStateBankEvaluation.Cadencefurtherreportsthatanumberof StateBank’scommunitydevelopment investmentsinthebank’sAAsincludedqualifiedaffordablelow-incomehousingtaxcredits tosupportmultifamilyhousinginLMIareas.Cadencerepresentsthatthebank’sofficers, directors,andemployeeshavecontinuedtoparticipateinanumberof activitiesandorganizationswithinitsAAsthatprovidesupporttoLMIandminorityindividualsandpromote communitydevelopmentandfinancialliteracy. Viewsof theOCCandFDIC Initsreviewof theproposal,theBoardhasconsultedwiththeOCCregardingtheCRA, consumercompliance,andfairlendingrecordof CadenceBank.TheBoardhasalso consideredtheresultsof themostrecentconsumercomplianceexaminationsof Cadence BankandStateBankconductedbytheOCCandFDIC,respectively,whichincluded reviewsof thebanks’compliancemanagementprogramsandthebanks’compliancewith consumerprotectionlawsandregulations.TheOCCreviewedandapprovedtheBank MergerActapplicationrelatedtotheproposaland,indoingso,consideredadverse fortheyears2014,2015,and2016.Theevaluationperiodforcommunitydevelopmentloans,theInvestment Test,andtheServiceTestwasJanuary21,2014,throughApril24,2017.Thebranchofficedistributionwasas ofApril24,2017. 32 TheStateBankEvaluationincludedareviewofthebank’sAAsinGeorgia,whichincludedfull-scopeexaminationsoftheMacon,Atlanta,andAugustaMSAs,aswellaslimited-scopeexaminationsoftheWarner RobinsMSAandtheDoolyCountynon-MSA.

24 FederalReserveBulletin|February2019 commentsregardingtheBirminghamMSAthatweresimilartothecommentsubmittedto theBoardontheBHCActapplicationregardingtheBirminghamMSA. TheBoardhastakenthisinformation,aswellastheCRAperformancerecordsof Cadence BankandStateBank,intoaccountinevaluatingtheproposal,includinginconsidering whetherCadencehastheexperienceandresourcestoensurethatCadenceBankwouldhelp meetthecreditneedsof thecommunitieswithinitsAAsfollowingtheproposedtransaction. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.Cadencerepresentsthat,followingconsummation of theproposal,existingcustomersof StateBankandCadenceBankwouldbenefitfroma moreextensivenetworkof branchesandATMsacrosssixstates,andStateBank’sexisting customersparticularlywouldbenefitfromaccesstoanexpandedarrayof productsand services,includingwealthmanagement,investment,andmobilebankingoptions.Inaddition,Cadencerepresentsthatexistingbusinesscustomersof CadenceBankwouldbenefit fromtheSmallBusinessAdministrationlendingprograms,asset-basedlendingactivities, andpayrollservicesofferedbyStateBank,whichCadenceBankwouldcontinueafter consummationof theproposal. Cadencerepresentsthat,followingconsummationof theproposal,CadenceBankwould maintainahighlevelof communitydevelopmentlending,investment,services,andother CRAactivitiesthroughoutthecombinedorganization’sserviceareas.Cadencerepresents thatthecombinedbankwouldcontinuetoexpanditsmortgagelendingtoLMIand minorityborrowersandcommunities;itssmallbusinesslending,includinginLMIand minoritycommunities;anditscommunitydevelopment,investment,andserviceactivities. Cadencefurtherrepresentsthatitiscommittedtoworkingcloselywithcommunityleaders, smallbusinessowners,membersof nonprofitorganizations,andresidentsinitsAAsto provideinformationabouttheCRAservicesCadenceBankoffersandtoassessthe communitydevelopmentneedsintheAAs. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA;theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws;supervisoryviewsof theOCCandFDIC; confidentialsupervisoryinformation;informationprovidedbyCadence;thepublic commentsontheproposal;andotherpotentialeffectsof theproposalontheconvenience andneedsof thecommunitiestobeserved.Basedonthatreview,theBoardconcludesthat theconvenienceandneedsfactorisconsistentwithapproval. FinancialStability Section3of theBHCActrequirestheBoardtoconsider“theextenttowhichaproposed acquisition,merger,orconsolidationwouldresultingreaterormoreconcentratedrisksto thestabilityof theUnitedStatesbankingorfinancialsystem.”33 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon 33 12U.S.C.§1842(c)(7).

LegalDevelopments:FourthQuarter,2018 25 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 resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamageonthebroadereconomy.35 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billionintotalassets,orthatresultinafirmwithlessthan$100billionintotalassets, aregenerallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthata proposaldoesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbelow eitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificantincreaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.36 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billionintotalassetsandaproformaorganizationof lessthan$100billionintotal assets.Boththeacquirerandthetargetarepredominatelyengagedinretailandcommercial bankingactivities.37Theproformaorganizationwouldhaveminimalcross-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.38Inreachingitsconclusion,theBoardhasconsid- 34 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 35 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 36 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 37 CadenceandSBFCbothofferarangeofretailandcommercialbankingproductsandservices.Cadencehas, andasaresultoftheproposalwouldcontinuetohave,asmallmarketshareintheseproductsandservicesona nationwidebasis. 38 AcommenterrequestedthattheBoardholdapublichearingontheproposal.Section3(b)oftheBHCAct doesnotrequirethattheBoardholdapublichearingonanyproposalunlesstheappropriatesupervisory authoritiesfortheacquiringbankorthebanktobeacquiredmakeatimelywrittenrecommendationofdisapprovaloftheproposal.12U.S.C.§1842(b);12CFR225.16(e).TheBoardhasnotreceivedsucharecommendationfromtheappropriatesupervisoryauthoritiesinconnectionwiththisapplication.Underitsrules,theBoard

26 FederalReserveBulletin|February2019 eredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunderthe BHCActandotherapplicablestatutes.TheBoard’sapprovalisspecificallyconditionedon compliancebyCadencewithalltheconditionsimposedinthisorder,includingreceiptof allrequiredregulatoryapprovals,andonanycommitmentsmadetotheBoardinconnectionwiththeproposal.Forpurposesof thisaction,theconditionsandcommitmentsare deemedtobeconditionsimposedinwritingbytheBoardinconnectionwithitsfindings anddecisionhereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethe15thcalendardayaftertheeffectivedate of thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedforgood causebytheBoardortheFederalReserveBankof Dallas,actingunderdelegated authority. Byorderof theBoardof Governors,effectiveDecember7,2018. Votingforthisaction:ChairmanPowell,ViceChairmanClarida,ViceChairmanfor SupervisionQuarles,andGovernorsBrainardandBowman. AnnE.Misback Secretaryof theBoard also,initsdiscretion,mayholdapublichearingifappropriatetoallowinterestedpersonsanopportunityto providerelevanttestimonywhenwrittencommentswouldnotadequatelypresenttheirviews.TheBoardhas consideredthecommenter’srequestinlightofallofthefactsofrecord.IntheBoard’sview,thecommenter hashadampleopportunitytosubmitcommentsontheproposaland,infact,submittedawrittencomment thattheBoardhasconsideredinactingontheproposal.Thecommenter’srequestdoesnotidentifydisputed issuesoffactthatarematerialtotheBoard’sdecisionandthatwouldbeclarifiedbyapublichearing.Inaddition,therequestdoesnotdemonstratewhythewrittencommentdoesnotpresentthecommenter’sviews adequatelyorwhyahearingotherwisewouldbenecessaryorappropriate.Forthesereasons,andbasedonall thefactsofrecord,theBoardhasdeterminedthatapublichearingisnotrequiredorwarrantedinthiscase. Accordingly,therequestforapublichearingontheproposalisdenied. Inaddition,thiscommenterrequestedanextensionofthecommentperiodfortheproposal.TheBoard’srules contemplatethatthepubliccommentperiodwillnotbeextendedabsentacleardemonstrationofhardshipor othermeritoriousreasonforseekingadditionaltime.Thecommenter’srequestforadditionaltimetocomment doesnotidentifycircumstancesthatwouldwarrantanextensionofthepubliccommentperiodforthis proposal.Accordingly,theBoarddeterminesnottoextendthecommentperiod.

LegalDevelopments:FourthQuarter,2018 27 Order Issued Under Federal Reserve Act Comerica Bank Dallas, Texas OrderApprovingtheEstablishmentof Branches FRBOrderNo.2018-24(November6,2018) ComericaBank,astatememberbanksubsidiaryof ComericaIncorporated,bothof Dallas,Texas,hasrequestedtheBoard’sapprovalundersection9of theFederalReserve Act(“FRA”)1andtheBoard’sRegulationH2toestablishtwobranchesinTexas.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublishedinaccordancewiththeBoard’sRulesof Procedure.4Thetimefor submittingcommentshasexpired,andtheBoardhasconsideredtheproposalandthe publiccommentreceivedinlightof thefactorsspecifiedintheFRA. ComericaIncorporated,withconsolidatedassetsof $72.2billion,isthe42ndlargest depositoryorganizationintheUnitedStates,controllingapproximately$57.7billionin deposits,whichrepresentlessthan1percentof thetotalamountof depositsof insured depositoryinstitutionsintheUnitedStates.5ComericaBankoperatesthrough441offices locatedinArizona,California,Florida,Michigan,andTexas,andComericaBank’smain officeisinDallas,Texas.InTexas,ComericaBankisthe11thlargestdepositoryinstitution, with122offices,controllingapproximately$9.5billionindeposits,whichrepresent approximately1.2percentof thetotalamountof depositsinthatstate.6 Undersection208.6of theBoard’sRegulationH,7whichimplementssection9of the FRA,thefactorsthattheBoardmustconsiderinactingonabranchapplicationinclude (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.9TheBoardhasconsideredtheHouston andDallasbranchapplicationsinlightof thesefactorsandthepubliccommentreceived ontheproposal. Financial,Managerial,andOtherSupervisoryConsiderations Inconsideringthefinancialhistoryandcondition,earningsprospects,andcapital adequacyof ComericaBank,theBoardhasreviewedreportsof examination,othersuper- 1 12U.S.C.§321. 2 12CFRPart208. 3 ComericaBankproposestoestablishonebranchat6829HillcrestAvenue,Dallas,Texas(“Dallasbranch”)and onebranchat2RiverwayDrive,Suite160,Houston,Texas(“Houstonbranch”).ComericaBankrepresents thattheHoustonbranchisintendedtoreplaceabranchthatislocated2.8milesaway. 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).

28 FederalReserveBulletin|February2019 visoryinformation,publiclyreportedandotherfinancialinformation,information providedbyComericaBank,andthepubliccommentreceivedontheproposal.Comerica Bankiswellcapitalizedandwouldremainsouponconsummationof theproposal.The assetquality,earnings,andliquidityof ComericaBankareconsistentwithapproval,and ComericaBankappearstohaveadequateresourcestoabsorbthecostof theproposal.In addition,futureearningsprospectsareconsistentwithapproval.TheBoardalsohas reviewedComericaBank’sproposedinvestmentinthebranchesandconcludesthatthe bank’sinvestmentisconsistentwithregulatorylimitationsoninvestmentinbankpremises.10 InconsideringComericaBank’smanagerialresources,theBoardhasreviewedthebank’s examinationrecord,includingassessmentsof itsmanagement,risk-managementsystems, andoperations.TheBoardalsohasconsidereditssupervisoryexperienceswithComerica Bankandthebank’srecordof compliancewithapplicablebanking,consumerprotection, andanti-money-launderinglaws.ComericaBank’sdirectorsandseniorexecutiveofficers havesubstantialknowledgeof andexperienceinthebankingandfinancialservicessectors, andthebank’srisk-managementprogramappearstobeconsistentwithapproval. Basedonthisreviewandallthefactsof therecord,theBoardconcludesthatComerica Bank’smanagement,financialhistoryandcondition,capitaladequacy,andfutureearnings prospects,aswellastheeffectivenessof ComericaBankincombattingmoneylaundering activities,areconsistentwithapprovalof theproposal. ConvenienceandNeedsConsiderations Inconsideringtheeffectsof aproposalontheconvenienceandneedsof thecommunities tobeserved,theBoardconsiderswhethertherelevantinstitutionishelpingtomeetthe creditneedsof thecommunitiesitserves,aswellasotherpotentialeffectsof theproposal ontheconvenienceandneedsof thecommunitiestobeserved.Inthisevaluation,the Boardplacesparticularemphasisontherecordof thedepositoryinstitutionunderthe CRA.TheCRArequiresthefederalfinancialsupervisoryagenciestoencourageinsured depositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesinwhichthey operate,consistentwiththeirsafeandsoundoperation,11andrequirestheappropriate federalfinancialsupervisoryagencytoassessadepositoryinstitution’srecordof helpingto meetthecreditneedsof itsentirecommunity,includinglow-andmoderate-income (“LMI”)neighborhoods,inevaluatingabankbranchingproposal.12 Inaddition,theBoardconsidersthebank’soverallcompliancerecordandtheresultsof recentfairlendingexaminations.Fairlendinglawsrequirealllendinginstitutionsto provideloanapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,or certainothercharacteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,thesupervisoryviewsof examiners,othersupervisoryinformation,information providedbytheapplicant,andpubliccommentsreceivedontheproposal.TheBoardalso mayconsidertheinstitution’sbusinessmodel,marketingandoutreachplans,plansafter consummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof Comerica Bank,thefairlendingandcompliancerecordsof ComericaBank,confidentialsupervisory 10 12CFR208.21(a). 11 12U.S.C.§2901(b). 12 12U.S.C.§2903.

LegalDevelopments:FourthQuarter,2018 29 information,informationprovidedbyComericaBank,andthepubliccommentreceivedon theproposal. PublicCommentontheProposal Acommenterobjectedtotheproposal,allegingthatComericaBankhasengagedin redlininganddiscriminatesagainstAfricanAmericansinHoustonandDallas,Texas.13 Specifically,thecommenterallegedthatComericaBankhasdeniedAfricanAmericanindividualsandAfricanAmerican-ownedbusinessesequalaccesstocapitalandcreditby heavilyconcentratingitsoutreachandbankingactivitiesinpredominantlywhiteneighborhoodsandtowhiteindividualsandwhite-ownedbusinesses.Thecommenteralsoalleges thatComericaBankdisfavorscertainAfricanAmericanneighborhoodsinHoustonand Dallaswithrespecttoitslending,marketing,communitydevelopment,andbranching activities. Businessof theApplicantandResponsetoComment Throughitsnetworkof branches,ComericaBankoffersavarietyof retailandcommercial bankingproductsandservicestoconsumersandbusinesses,includingconsumerand commercialproducts,suchascommercialandindustrialloans,wealthmanagement services,treasurymanagementservices,capitalmarketproducts,internationaltrade finance,andinvestmentmanagementandadvisoryservices.ComericaBankrepresentsthat ithaspoliciesandprocessesinplacetoensurecompliancewithallanti-discriminationlaws andregulationsandemphasizesthatithasreceivedanOutstandingorSatisfactoryCRA ratingformanyyears.Inaddition,ComericaBankrepresentsthatithasalongstanding commitmenttoinvestmentinitscommunities,particularlytheHoustonarea,andhastwo programsinplacetoenhancelendingtoLMIcommunitiesandcommunitiesof color. Recordof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandtheCRAperformanceof aninstitution,theBoardgenerallyconsiderstheinstitution’smostrecentCRAevaluation,aswellas otherinformationandsupervisoryviewsfromtherelevantfederalsupervisororsupervisors,whichinthiscaseistheFederalReserveBankof Dallas(“ReserveBank”).14Inaddition,theBoardconsidersinformationprovidedbytheapplicantandbypubliccommenters. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.15Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplylending,investment,andserviceteststo evaluatetheperformanceof alargeinsureddepositoryinstitutioninhelpingtomeetthe creditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’shomemortgage,smallbusiness,smallfarm,andcommunitydevelopmentlendingto 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.

30 FederalReserveBulletin|February2019 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 suchloansbasedonborrowercharacteristics,includingfor homemortgageloans,thenumberandamountsof loanstolow-,moderate-,middle-,and upper-incomeindividuals;17(4)theinstitution’scommunitydevelopmentlending,including thenumberandamountsof communitydevelopmentloansandtheircomplexityand innovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpracticesto addressthecreditneedsof LMIindividualsandgeographies.Largeinstitutionsalsoare subjecttoaninvestmenttest,whichevaluatesthenumberandamountsof qualifiedinvestmentsthatbenefittheirAAs,andaservicetest,whichevaluatestheavailabilityandeffectivenessof theirsystemsfordeliveringretailbankingservicesandtheextentand innovativenessof theircommunitydevelopmentservices. CRAPerformanceof ComericaBank ComericaBankwasassignedanoverall“Satisfactory”ratingatitsmostrecentCRA performanceevaluationbytheReserveBank,asof June22,2015(“ComericaBankEvaluation”).18ComericaBankreceived“HighSatisfactory”ratingsfortheLendingtestand theServicetestandan“Outstanding”ratingfortheInvestmenttest.19 ExaminersfoundthatComericaBank’soveralllendingactivitywasgoodinallthestatesin whichitoperates,includingTexas.Accordingtoexaminers,thegeographicdistributionof loansthroughoutthebank’sAAswasexcellent.Examinersfoundthatthebankhadan adequatedistributionof loansamongborrowersof differentincomelevelsandbusinesses of differentsizes.Inaddition,examinersfoundthatthebank’slendingactivityreflected goodresponsivenesstothecreditneedsof theAAs,andasubstantialmajorityof theloans weremadeinthebank’sAAs.Examinersalsonotedthatthebankmadearelativelyhigh levelof communitydevelopmentloansduringthereviewperiodforavarietyof purposes, includingforfinancingaffordablehousingandhigh-impactcommunitydevelopmentproj- 16 12U.S.C.§2801etseq. 17 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloansmadetobusinesses andfarmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamount atorigination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals. Seee.g.,12CFR228.22(b)(3). 18 TheComericaBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Examiners reviewedHMDA-reportableandsmallbusinessloans,andhomeequitylinesofcreditfromJanuary1,2012, throughDecember31,2014.Theevaluationperiodforcommunitydevelopmentloans,investments,and serviceswasApril1,2012,throughDecember31,2014. 19 TheComericaBankEvaluationincludedafull-scopereviewofthebank’sAAswithinthefollowingareas:the Phoenix-Mesa-Scottsdale,ArizonaMetropolitanStatisticalArea(“MSA”);theLosAngeles-Anaheim-Long Beach,CaliforniaMSA;theSanJose-Sunnyvale-SantaClara,CaliforniaMSA;theMiami-FortLauderdale- WestPalmBeach,FloridaMSA;theDetroit-Warren-Dearborn,MichiganMSA;theGrandRapids-Wyoming, MichiganMSA;theDallas-FortWorth-Arlington,TexasMSA(“DallasAA”);andtheHouston–The Woodlands-SugarLand,TexasMSA(“HoustonAA”).Limited-scopereviewswereconductedin24other assessmentareasinCalifornia,Florida,Michigan,andTexas.

LegalDevelopments:FourthQuarter,2018 31 ects,promotingeconomicdevelopment,includingjobcreation,andrevitalizingorstabilizingtargetedcommunitiesinLMIcensustractsandempowermentzones. ExaminersratedComericaBank’sperformanceinTexasundertheLendingtestas“High Satisfactory.”InboththeDallasandHoustonAAs,thetwoareasof interesttothe commenter,examinersdeterminedthatComericaBank’slendinglevelsreflectedgood responsivenesstotheAAs’creditneeds.Examinersfoundthatthebank’sgeographicdistributionof loansreflectedexcellentpenetrationthroughoutTexas,includinginboththe HoustonandDallasAAs.Examinersalsofoundthatthebank’sdistributionof loansto borrowersof differentincomelevelsandtobusinessesof differentrevenuesizeswas adequateinboththeHoustonandDallasAAs.ExaminersdeterminedthatComericaBank madearelativelyhighlevelof communitydevelopmentloansinTexas.IntheDallasAA, examinersfoundComericaBanktobealeaderincommunitydevelopmentlending; however,examinersfoundthatComericaBankmadealowlevelof communitydevelopmentloansintheHoustonAA. ExaminersfoundthatComericaBankhadanexcellentlevelof qualifiedcommunitydevelopmentinvestmentsandgrantsandwasofteninaleadershippositionthroughoutitsAAs, includinginTexas.Examinersnotedthatthebank’sinvestmentsdemonstratedgood responsivenesstothemostpressingcreditandcommunitydevelopmentneedsthroughout itsAAs.Examinersfoundthatthebank’sprimaryvehicleforqualifiedcommunitydevelopmentinvestmentswasthroughLowIncomeHousingTaxCredit(“LIHTC”)20projectsin thestatesinwhichitoperates.ExaminersnotedthattheseLIHTCinvestmentsaddressed vitalneedsforaffordablehousingthroughoutthebank’sAAsandhadamaterialimpacton thecommunitiesthebankserved.Examinersfoundthat,inadditiontostatewidedonationsandinvestments,theDallasandHoustonAAsbenefittedfromComericaBank’s LIHTCinvestments. ExaminersfoundthatComericaBank’sretaildeliverysystemswereaccessibletogeographiesandindividualsof differentincomelevelswithinitsAAs.Examinersnotedthat ComericaBank’sbankingservicesandbusinesshoursdidnotvaryinawaythatinconveniencedanyportionof thebank’sAAs,particularlyLMIgeographiesandindividuals. Examinersalsonotedthatinmostareas,ComericaBankhadSaturdayandextended morningandeveninghoursandofferedno-orlow-costdepositaccounts.Examinersfound thatthebank’srecordof openingandclosingofficesinTexasduringthereviewperiodhad notaffectedtheaccessibilityof itsdeliverysystems,includingtoLMIgeographiesor individuals. IntheHoustonandDallasAAs,examinersfoundComericaBank’sperformanceonthe Servicetesttobeadequateandexcellent,respectively.Examinersnotedthatthebank’slevel of communitydevelopmentserviceswasgoodinTexas.Examinersnotedthatthebank’s employeeswereinvolvedinorganizationsandactivitiesthatpromotedorfacilitatedaffordablehousingforLMIindividuals;providedcommunityservicesforLMIindividuals,such asfinancialliteracyeducation;andpromotedtheeconomicdevelopmentandrevitalization of LMIareas. IntheDallasAA,examinersfoundthatComericaBankwasaleaderinprovidingretail andcommunitydevelopmentservicesandthattheseservicesreflectedexcellentresponsivenesstotheneedsof theAA.IntheHoustonAA,examinersfoundthatComericaBank’s retailandcommunitydevelopmentservicesreflectedadequateresponsivenesstothecredit needsof theAA. 20 See26U.S.C.§42.

32 FederalReserveBulletin|February2019 ComericaBank’sEffortssincetheComericaBankEvaluation ComericaBankrepresentsthatsincetheComericaBankEvaluationithasmadeseveral enhancementstoitsCRAprogram,includingbyestablishingaCRAworkinggroupin early2017.ComericaBankrepresentsthatitrestructureditsCRADepartmentin2018to utilizeafirstlineof defense/secondlineof defensestrategyandthatitssystemsarebeing upgradedtoimproveefficiencyandaccuracyof reporting.ComericaBanknotesthatithas madeasignificantnumberof loanstobusinesseslocatedinLMIcensustractsinDallas andHoustonandasignificantnumberof communitydevelopmentloansintheDallasand HoustonAAs.Finally,ComericaBankrepresentsthatithasmadeasignificantnumberof CRA-qualifiedinvestmentsandCRA-qualifiedcharitablecontributionsinboththe DallasandHoustonAAs. AdditionalSupervisoryViewsof theReserveBank TheBoardhasconsideredtheresultsof arecenttargetexaminationof ComericaBank’s FairHousingActfairlendingprogram,whichincludedaredliningreviewof anumberof markets,includingtheDallasandHoustonAAs.Theredliningreviewincludedanevaluationof thebank’sAAdelineation,lending,marketingandoutreachefforts,andbranching. TheBoardalsohasconsideredComericaBank’ssupervisoryrecordwiththeBureauof ConsumerFinancialProtection. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.ComericaBankassertsthattheproposedbranches wouldofferexpandedhoursforcustomerstohandletransactionsthroughvideoand othernewtechnologies.Excludingsafedepositandnightdepositaryservices,Comerica BankrepresentsthattheproductsandservicestobeofferedattheHoustonbranchwould besubstantiallythesameasthoseofferedattheexistingbranchthattheproposedbranch wouldreplace.ComericaBankassertsthattheDallasbranchwouldprovideadditional convenienceandaccessibilitytoproductsandservicesforthesurroundingneighborhoods, businesses,andofficebuildingcomplexes,andthegreaterDallascommunityandeconomy. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtheCRArecordof Comerica Bank,thebank’srecordof compliancewithfairlendingandotherconsumerprotection laws,confidentialsupervisoryinformation,informationprovidedbyComericaBank,the publiccommentontheproposal,andotherpotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.Basedonthatreview,theBoard concludesthattheconvenienceandneedsfactorisconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationsshouldbe,andherebyare,approved.21TheBoard’sapprovalisspecificallycondi- 21 TheBoardconstruesthepubliccommenttoincludearequestthattheBoardholdpublichearingsontheapplications.Underitsrules,theBoardmay,initsdiscretion,holdapublichearingifappropriatetoallowinterestedpersonsanopportunitytoproviderelevanttestimonywhenwrittencommentswouldnotadequately presenttheirviews.12CFR262.3(e).TheBoardhasconsideredthecommenter’srequestinlightofallthefacts ofrecord.NoticeoftheDallasbranchapplicationwaspublishedinrelevantnewspapersofgeneralcirculation onAugust17,2018,andthecommentperiodendedonSeptember1,2018.NoticeoftheHoustonbranch applicationwaspublishedinrelevantnewspapersofgeneralcirculationonJuly19,2018,andthecomment

LegalDevelopments:FourthQuarter,2018 33 tionedoncompliancebyComericaBankwithalltheconditionsimposedinthisorder, includingreceiptof allrequiredregulatoryapprovals,andonanycommitmentsmadeto theBoardinconnectionwiththeproposal.Forpurposesof thisaction,theconditionsand commitmentsaredeemedtobeconditionsimposedinwritingbytheBoardinconnection withitsfindingsanddecisionhereinand,assuch,maybeenforcedinproceedingsunder applicablelaw. Approvalof theapplicationsisalsosubjecttotheestablishmentof theproposedbranches inDallasandHouston,respectively,withinoneyearof thedateof thisorder,unlesssuch periodisextendedbytheBoardortheReserveBankactingunderauthoritydelegatedby theBoard. Byorderof theBoardof Governors,effectiveNovember6,2018. Votingforthisaction:ChairmanPowell,ViceChairmanClarida,ViceChairmanfor SupervisionQuarles,andGovernorBrainard. AnnE.Misback Secretaryof theBoard periodendedonAugust4,2018.IntheBoard’sview,thecommenterhashadampleopportunitytosubmit commentsontheproposaland,infact,submittedawrittencommentthattheBoardhasconsideredinacting ontheproposal.Thecommenter’srequestdoesnotidentifydisputedissuesoffactthatarematerialtothe Board’sdecisionandwouldbeclarifiedbyapublichearing.Inaddition,therequestdoesnotdemonstratewhy thewrittencommentsdonotpresentthecommenter’sviewsadequatelyorwhyahearingotherwisewouldbe necessaryorappropriate.Forthesereasons,andbasedonallthefactsofrecord,theBoardhasdeterminedthat apublichearingisnotrequiredorwarrantedinthiscase.Accordingly,therequestforapublichearingonthe proposalisdenied.

34 FederalReserveBulletin|February2019 Order Issued Under International Banking Act Joint Stock Commercial Bank for Foreign Trade of Vietnam Hanoi, Vietnam OrderApprovingtheEstablishmentof aRepresentativeOffice FRBOrderNo.2018-23(October26,2018) JointStockCommercialBankforForeignTradeof Vietnam(“Vietcombank”),Hanoi, Vietnam,aforeignbankwithinthemeaningof theInternationalBankingActof 1978 (“IBA”),hasappliedundersection10(a)of theIBA1toestablisharepresentativeofficein NewYork,NewYork(the“NewYorkRepresentativeOffice”).TheIBAprovidesthata foreignbankmustobtaintheapprovalof theBoardtoestablisharepresentativeofficein theUnitedStates. Noticeof theapplication,affordinginterestedpersonsanopportunitytocomment,has beenpublishedinanewspaperof generalcirculationinNewYork,NewYork(NewYork DailyNews,December21,2017).Thetimeforsubmittingcommentshasexpired,andthe Boardhasconsideredallcommentsreceived. Vietcombank,withtotalassetsof approximately$43.6billion,isthefourthlargestbankin Vietnambyassetsize.2Vietcombankprovidesretailandcommercialbankingservicesto individuals,corporations,andfinancialinstitutions,includinginternationaltradefinance, foreignexchangeandfixed-incometrading,lending,projectfinance,moneytransfer,and correspondentbankingservices.Vietcombankoperatesfourdomesticsubsidiariesthat engageinsecuritiesactivities,financialservices,officeleasing,andremittanceactivities. Foreignoperationsof thebankincludearepresentativeofficeinSingapore,afinance companysubsidiaryinHongKong,andaU.S.moneytransmittersubsidiary,VCBMoney Inc.,GardenGrove,California(“VCBMoney”).3 Vietcombank’slargestshareholderisthegovernmentof VietnamthroughtheStateBank of Vietnam(“SBV”),thecentralbankof Vietnam,whichcurrentlyownsapproximately 77percentof thebank’svotingshares.Thesecondlargestshareholder,with15percentof Vietcombank’svotingshares,isMizuhoBank,Ltd.,Tokyo,Japan.Theremainingsharesof Vietcombankarewidelyheld. TheNewYorkRepresentativeOfficewouldactasaliaisonwithU.S.clientsandprospectiveclientsof Vietcombank.TheNewYorkRepresentativeOfficealsowouldengagein otherrepresentationalactivities,suchasprovidinganalysisof thebankingsectorandfinancialservicesmarket,actingasaliaisonwithcorrespondentbanksintheUnitedStates,and participatinginbusinesssymposiumsandconferences.4 1 12U.S.C.§3107(a). 2 AssetdataisasofJune30,2018.RankingdataisasofDecember31,2016. 3 VCBMoneyisasubsidiaryofVietcombankandwasfirstlicensedasamoneytransmitterinCaliforniain 2011.VCBMoneyprovidesoutboundmoneytransmissionservicestoU.S.residentsseekingtosendmoneyto Vietnam.VCBMoneycurrentlyislicensedasamoneytransmitterinseventeenadditionalstates,andprovides servicesthroughitsownofficesandanetworkofauthorizedagentsintheU.S. 4 Arepresentativeofficemayengageinrepresentationalandadministrativefunctionsinconnectionwiththe bankingactivitiesofaforeignbank,includingsolicitingnewbusinessfortheforeignbank,conducting research,actingasaliaisonbetweentheforeignbank’sheadofficeandcustomersintheUnitedStates, performingpreliminaryandservicingstepsinconnectionwithlendingandperformingback-officefunctions.A representativeofficemaynotcontractforanydepositordeposit-likeliability,lendmoney,orengageinany otherbankingactivity.12CFR211.24(d)(1).

LegalDevelopments:FourthQuarter,2018 35 UndertheIBAandRegulationK,inactingonanapplicationbyaforeignbanktoestablisharepresentativeoffice,theBoardmustconsiderwhether(1)theforeignbankhas furnishedtotheBoardtheinformationitneedstoassesstheapplicationadequately,(2)the foreignbankandanyforeignbankparentengagedirectlyinthebusinessof banking outsidetheUnitedStates,and(3)theforeignbankandanyforeignbankparentaresubject tocomprehensivesupervisiononaconsolidatedbasisbytheirhomecountrysupervisor.5 TheBoardalsoconsidersadditionalstandardssetforthintheIBAandRegulationK.6 Inthecaseof anapplicationtoestablisharepresentativeoffice,theBoardhasbyrule determinedthatthesupervisionstandardmaybemetif theBoarddeterminesthatthe applicantbankissubjecttoasupervisoryframeworkthatisconsistentwiththeactivitiesof theproposedoffice,takingintoaccountthenatureof suchactivitiesandtheoperating recordof theapplicantbank.7Thisisalesserstandardthanthecomprehensive,consolidatedsupervisionstandardapplicabletoapplicationstoestablishbranchoragencyoffices of aforeignbank.TheBoardconsidersthelesserstandardsufficientforapprovalof representativeofficeapplicationsbecauserepresentativeofficesmaynotengageinbanking activities.Thisapplicationhasbeenconsideredunderthelesserstandard. Inconnectionwiththisapplication,Vietcombankhasprovidedcertaincommitmentsthat limittheactivitiesof theNewYorkRepresentativeOffice.Inparticular,Vietcombankhas committedthattheNewYorkRepresentativeOfficewouldnotsolicitdeposits,makecredit decisionsoranyotherdecisionsthatbindVietcombank(exceptforlocaladministrative matters),orengageinactivitiesrelatedtosecuritiestrading,foreignexchange,ormoney transmission.TheNewYorkRepresentativeOfficealsowouldnotshareofficespaceor premiseswithVCBMoney.TheNewYorkRepresentativeOfficewouldengageonlyinthe activitiesdescribedinitsapplicationtotheBoard. Asnotedabove,Vietcombankengagesdirectlyinthebusinessof bankingoutsidethe UnitedStates.VietcombankhasprovidedtheBoardwiththeinformationnecessaryto assesstheapplication,throughsubmissionsthataddresstherelevantissues.Withrespectto supervisionbyhomecountryauthorities,theBoardhasconsideredthatVietcombankis supervisedbytheSBV. 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 See12CFR211.24(d)(2).Inadoptingtheregulationsgoverningapplicationstoestablishrepresentativeoffices, theBoardnotedthat“[a]lesserstandardappliesbecauserepresentativeofficesdonotconductabankingbusiness,suchastakingdepositsormakingloans,andthereforepresentlessrisktoU.S.customersthando branchesoragencies.”66Fed.Reg.54346,54365(October26,2001).

36 FederalReserveBulletin|February2019 TheSBVservesasthechief supervisoryauthorityoverthebankingandfinancialsectorin Vietnam,conductsmonetarypolicy,andissuesnationalcurrency.TheSBVappliesariskbasedsupervisoryapproachwithafocusoncredit,liquidity,market,andoperationalrisks. TheSBVsupervisesbankingorganizationsthroughacombinationof off-sitemonitoring andon-siteexaminationsthatfocusoncompliancewithapplicablelawsandregulations, includinganti-money-launderingrules,corporategovernance,audit,internalcontrols,risk management,andfinancialcondition,includingassetquality,capital,liquidity,andprofitability.TheSBVconductsoff-sitemonitoringof Vietcombankthroughthereviewof aset of periodicreportsonthebank’sconsolidatedoperations,includingitsbranches,subsidiaries,andaffiliates,bothdomesticandforeign.Vietcombankisrequiredtoprovideannual auditedfinancialstatementstotheSBV.VietnamisexpectedtofullytransitiontoInternationalFinancialReportingStandardsinthenextfewyears. Vietnamwasthesubjectof a2014FinancialSectorAssessmentProgram(“FSAP”)review thatrevealedweaknessesinbanksupervisioninVietnam,includinglowqualityfinancial data,lowcompliancewithBaselCorePrinciples,infrequentSBVon-siteinspections,and conflictingrolesof theSBV.VietcombankhasindicatedthattheSBVandtheGovernment of VietnamhavetakensignificantstepstoaddressthedeficienciesrevealedintheFSAP report.Theseincludetheissuanceof newregulationstoimprovethequalityof financial data,aswellasparticipationinajointVietnam-CanadainitiativetotransitionVietnam’s regulatoryandsupervisoryregimetointernationalstandards.Toaddressitsindependence, theSBVissuedanewregulationinFebruary2017onthefunctions,powers,duties,and structureof theSBV. Basedonallthefactsof record,includingthecommitmentsprovidedbyVietcombank limitingtheactivitiesof theNewYorkRepresentativeOffice,ithasbeendeterminedthat Vietcombankissubjecttoasupervisoryframeworkthatisconsistentwiththecurrentand proposedactivitiesof theNewYorkRepresentativeOffice,takingintoaccountthenature of suchactivities. TheBoardalsohasconsideredthefollowingadditionalstandardssetforthintheIBAand RegulationK:(1)whetherthebankhasprocedurestocombatmoneylaundering, whetherthereisalegalregimeinplaceinthehomecountrytoaddressmoneylaundering, andwhetherthehomecountryisparticipatinginmultilateraleffortstocombatmoney laundering;(2)thefinancialandmanagerialresourcesof thebank;(3)whethertheappropriatesupervisorsinthehomecountrymayshareinformationonthebank’soperations withtheBoard;and(4)whetherthebank’shomecountrysupervisorhasconsentedtothe establishmentof theoffice.8 Vietnamisamemberof theAsia/PacificGroup(“APG”)onmoneylaunderingand subscribestoitsrecommendationsonmeasurestocombatmoneylaunderingandinternationalterrorism.Inaccordancewiththoserecommendations,Vietnamhascreatedlegislativeandregulatorystandardstodetermoneylaundering,terroristfinancing,andother illicitactivities.MoneylaunderingisacriminaloffenceinVietnam,andfinancialinstitutionsarerequiredtoestablishinternalpolicies,procedures,andsystemsforthedetection andpreventionof moneylaundering.TheSBVenforcestheserequirementswithrespectto Vietnamesebanks,includingVietcombank.Vietcombankhaspoliciesandproceduresto complywiththeselawsandregulations,whicharemonitoredbygovernmententities responsibleforanti-money-launderingcompliance. 8 See12U.S.C.§3105(d)(3)–(4);12CFR211.24(c)(2).

LegalDevelopments:FourthQuarter,2018 37 VietcombankappearstohavetheexperienceandcapacitytosupporttheNewYorkRepresentativeOffice.Inaddition,Vietcombankhasestablishedcontrolsandproceduresforthe NewYorkRepresentativeOfficetoensurecompliancewithU.S.law,aswellascontrolsand proceduresforitsworldwideoperationsgenerally.TakingintoconsiderationVietcombank’s recordof operationsinitshomecountry,itsoverallfinancialresources,anditsstanding withitshomecountrysupervisors,financialandmanagerialfactorsareconsistentwith approvalof Vietcombank’sapplicationtoestablishtheNewYorkRepresentativeOffice. VietcombankhascommittedtomakeavailabletotheBoardsuchinformationonthe operationsof Vietcombankandanyof itsaffiliatesthattheBoarddeemsnecessaryto determineandenforcecompliancewiththeIBA,theBankHoldingCompanyActof 1956, asamended,9andotherapplicablefederallaw.TotheextentthatprovidingsuchinformationtotheBoardmaybeprohibitedbylaworotherwise,Vietcombankhascommittedto cooperatewiththeBoardtoobtainanynecessaryconsentsorwaiversthatmightbe requiredfromthirdpartiesforthedisclosureof suchinformation.Inaddition,subjectto certainconditions,theSBVmayshareinformationonVietcombank’soperationswith othersupervisors,includingtheBoard.Inlightof thesecommitmentsandotherfactsof record,andsubjecttotheconditiondescribedbelow,ithasbeendeterminedthat Vietcombankhasprovidedadequateassurancesof accesstoanynecessaryinformation thattheBoardmayrequest.Inaddition,theSBVhasnoobjectiontotheestablishmentof theNewYorkRepresentativeOffice. TheBoardhasalsoconsideredwhetherVietcombank’sproposalwouldpresentarisktothe stabilityof theUnitedStates.Theproposalwouldnotappeartoaffectfinancialstabilityin theUnitedStates.Inparticular,theabsoluteandrelativesizeof Vietcombankinitshome country;thescopeof Vietcombank’sactivities,includingthetypesof activitiesitproposes toconductintheUnitedStatesandthepotentialforthoseactivitiestoincreaseortransmit financialinstability;andtheframeworkinplaceforsupervisingVietcombankinitshome countrydonotappeartocreatesignificantrisktothefinancialstabilityof theUnited States.Basedontheseandotherfactors,financialstabilityconsiderationsinthisproposal areconsistentwithapproval. Onthebasisof allthefactsof recordandsubjecttocommitmentsmadebyVietcombank, Vietcombank’sapplicationtoestablishtheNewYorkRepresentativeOfficeishereby approvedbytheDirectorof theDivisionof SupervisionandRegulation,withtheconcurrenceof theGeneralCounsel,pursuanttoauthoritydelegatedbytheBoard.10Should anyrestrictionsonaccesstoinformationontheoperationsoractivitiesof Vietcombank anditsaffiliatessubsequentlyinterferewiththeBoard’sabilitytoobtaininformationto determineandenforcecompliancebyVietcombankoritsaffiliateswithapplicablefederal statutes,theBoardmayrequireterminationof anyof Vietcombank’sdirectorindirect activitiesintheUnitedStates.Approvalof thisapplicationalsoisspecificallyconditioned oncompliancebyVietcombankwiththeconditionsimposedinthisorderandthecommitmentsmadetotheBoardinconnectionwiththisapplication.11Forpurposesof thisaction, thesecommitmentsandconditionsaredeemedtobeconditionsimposedbytheBoardin writinginconnectionwiththisdecisionand,assuch,maybeenforcedinproceedingsunder applicablelaw. 9 12U.S.C.§1841etseq. 10 12CFR265.7(d)(12). 11 TheBoard’sauthoritytoapprovetheestablishmentoftheNewYorkRepresentativeOfficeparallelsthe continuingauthorityoftheStateofNewYorktolicenseofficesofaforeignbank.TheBoard’sapprovalof thisapplicationdoesnotsupplanttheauthorityoftheStateofNewYorkoritsagent,theNewYorkState DepartmentofFinancialServices,tolicensetheNewYorkRepresentativeOfficeinaccordancewithanyterms orconditionsthattheymayimpose.

38 FederalReserveBulletin|February2019 Byorder,approvedpursuanttoauthoritydelegatedbytheBoard,effective October26,2018. AnnE.Misback Secretaryof theBoard

LegalDevelopments:FourthQuarter,2018 39 Order Issued Under Section 3 of the Bank Holding Company Act, Bank Merger Act, and Federal Reserve Act Synovus Financial Corp. Columbus, Georgia Synovus Bank Columbus, Georgia OrderApprovingtheMergerof BankHoldingCompanies,theMergerof Banks,andthe Establishmentof Branches FRBOrderNo.2018-25(December7,2018) SynovusFinancialCorp.(“SynovusFinancial”),Columbus,Georgia,afinancialholding companywithinthemeaningof theBankHoldingCompanyActof 1956(“BHCAct”),1 hasrequestedtheBoard’sapprovalundersection3of theBHCAct2toacquireandmerge withFCBFinancialHoldings,Inc.(“FCBFinancial”),andtherebyindirectlyacquireFCB Financial’ssubsidiarybank,FloridaCommunityBank,N.A.(“FloridaCommunity Bank”),bothof Weston,Florida. Inaddition,SynovusFinancial’ssubsidiarystatememberbank,SynovusBank,Columbus, Georgia,hasrequestedtheBoard’sapprovalundersection18(c)of theFederalDeposit InsuranceAct(“BankMergerAct”)tomergewithFloridaCommunityBank,with SynovusBankasthesurvivingentity.3SynovusBankalsohasappliedundersection9of theFederalReserveAct(“FRA”)toestablishandoperatebranchesatthemainofficeand branchesof FloridaCommunityBank.4 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(83FederalRegister44271(August30,2018)).5Thetimeforsubmitting commentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct,theBankMergerAct, andtheFRA.AsrequiredbytheBankMergerAct,areportonthecompetitiveeffectsof themergerof SynovusBankandFloridaCommunityBankwasrequestedfromtheUnited StatesAttorneyGeneral,andacopyof therequesthasbeenprovidedtotheFederal DepositInsuranceCorporation. SynovusFinancial,withconsolidatedassetsof approximately$32.1billion,isthe64th largestinsureddepositoryorganizationintheUnitedStates.SynovusFinancialcontrols approximately$26.4billioninconsolidateddeposits,whichrepresent0.2percentof the totalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.6Synovus FinancialcontrolsSynovusBank,whichoperatesinAlabama,Florida,Georgia,South Carolina,andTennessee.SynovusFinancialisthe27thlargestinsureddepositoryorganizationinFlorida,controllingdepositsof approximately$3.1billion,whichrepresent 0.5percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.7 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 NationwideassetdataareasofSeptember30,2018,anddepositdataareasofJune30,2018,unlessotherwise noted. 7 StatedepositdataareasofJune30,2018,unlessotherwisenoted.

40 FederalReserveBulletin|February2019 FCBFinancial,withconsolidatedassetsof approximately$12.4billion,isthe122ndlargest insureddepositoryorganizationintheUnitedStates.FCBFinancialcontrolsapproximately$9.9billionindeposits,whichrepresentlessthan0.1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.FCBFinancialcontrols FloridaCommunityBank,whichoperatesonlyinFlorida.FCBFinancialisthe15th largestinsureddepositoryorganizationinFlorida,controllingdepositsof approximately $9.9billion,whichrepresent1.7percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. Onconsummationof theproposal,SynovusFinancialwouldbecomethe51stlargest insureddepositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately$45.5billion,whichrepresent0.2percentof thetotalassetsof insureddepository organizationsintheUnitedStates.SynovusFinancialwouldcontroltotaldepositsof approximately$36.3billion,whichrepresent0.3percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.InFlorida,SynovusFinancialwould becomethe12thlargestinsureddepositoryorganization,controllingdepositsof approximately$13.0billion,whichrepresentapproximately2.2percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. InterstateandDepositCapAnalysis Section3(d)of theBHCActgenerallyprovidesthat,if certainconditionsaremet,the Boardmayapproveanapplicationbyabankholdingcompanytoacquirecontrolof a banklocatedinastateotherthanthehomestateof thebankholdingcompany,without regardtowhetherthetransactionisprohibitedunderstatelaw.8Section44of theFederal DepositInsuranceAct(“FDIAct”)generallyprovidesthat,if certainconditionsaremet, theBoardmayapproveamergertransactionundertheBankMergerActbetweeninsured bankswithdifferenthomestateswithoutregardtowhetherthetransactionisprohibited understatelaw.9TheBoardmaynotapproveanapplicationthatwouldpermitanout-ofstatebankholdingcompanyorbanktoacquireabankinahoststateif thebankhasnot beeninexistenceforthelesserof thestatestatutoryminimumperiodof timeorfive years.10Inaddition,undersection3(d)of theBHCAct,theBoardmaynotapprovean interstateapplicationif thebankholdingcompanycontrolsor,uponconsummationof the proposedtransaction,wouldcontrolmorethan10percentof thetotaldepositsof insured depositoryinstitutionsintheUnitedStatesor,incertaincircumstances,if thebankholding company,uponconsummation,wouldcontrol30percentormoreof thetotaldepositsof insureddepositoryinstitutionsinanystateinwhichtheacquirerandtargethaveoverlappingbankingoperations.11 Forpurposesof theBHCAct,thehomestateof SynovusFinancialisGeorgia,and FloridaCommunityBankislocatedonlyinFlorida.12Forpurposesof section44of the FDIAct,thehomestateof SynovusBankisGeorgia,andthehomestateof Florida 8 12U.S.C.§1842(d)(1)(A). 9 12U.S.C.§1831u(a)(1). 10 12U.S.C.§§1831u(a)(5)and1842(d)(1)(B). 11 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). 12 See12U.S.C.§1841(o)(4).Abankholdingcompany’shomestateisthestateinwhichthetotaldepositsofall bankingsubsidiariesofsuchcompanywerethelargestonJuly1,1966,orthedateonwhichthecompany becameabankholdingcompany,whicheverislater.

LegalDevelopments:FourthQuarter,2018 41 CommunityBankisFlorida.SynovusFinancialandSynovusBankarewellcapitalizedand wellmanagedunderapplicablelaw,andSynovusBankhasa“Satisfactory”ratingunder theCommunityReinvestmentActof 1977(“CRA”).13Therearenostatutoryminimum agerequirementsunderthelawsof Florida,andFloridaCommunityBankhasbeenin existenceformorethanfiveyears.14 Onconsummationof theproposedtransaction,SynovusFinancialwouldcontrollessthan 1percentof thetotalamountof consolidateddepositsininsureddepositoryinstitutions intheUnitedStates.Floridadoesnotimposealimitonthetotalamountof in-state depositsthatasinglebankingorganizationmaycontrol.Floridaistheonlystateinwhich SynovusFinancialandFCBFinancialhaveoverlappingoperations,andSynovusFinancial wouldcontrollessthan30percentof totaldepositsof bankingorganizationsinFloridaas aresultof thetransaction.TheBoardhasconsideredallotherrequirementsof section3(d)of theBHCActandsection44of theFDIAct,includingSynovusBank’s recordof meetingtheconvenienceandneedsof thecommunitiesitserves.Accordingly,in lightof allthefactsof record,theBoardmayapprovetheproposalundersection3(d)of theBHCActandsection44of theFDIAct. CompetitiveConsiderations Section3of theBHCActandtheBankMergerActprohibittheBoardfromapprovinga proposalthatwouldresultinamonopolyorwouldbeinfurtheranceof anattemptto monopolizethebusinessof bankinginanyrelevantmarket.15Bothstatutesalsoprohibit theBoardfromapprovingaproposalthatwouldsubstantiallylessencompetitionortendto createamonopolyinanybankingmarket,unlesstheanticompetitiveeffectsof the proposalareclearlyoutweighedinthepublicinterestbytheprobableeffectof theproposal inmeetingtheconvenienceandneedsof thecommunitiestobeserved.16 SynovusBankandFloridaCommunityBankcompetedirectlyintheFortMyersArea bankingmarket(“FortMyersmarket”),theNaplesAreabankingmarket(“Naples market”),theOrlandoAreabankingmarket(“Orlandomarket”),theSarasotaArea bankingmarket(“Sarasotamarket”),andtheTampaBayAreabankingmarket(“Tampa Baymarket”),allof whicharelocatedinFlorida.17TheBoardhasconsideredthecompetitiveeffectsof theproposalinthesebankingmarkets.Inparticular,theBoardhasconsideredthenumberof competitorsthatwouldremainineachmarket;therelativeshareof totaldepositsininsureddepositoryinstitutionsineachmarket(“marketdeposits”)that SynovusFinancialwouldcontrol;18theconcentrationlevelsof marketdepositsandthe increaseintheselevels,asmeasuredbytheHerfindahl-HirschmanIndex(“HHI”)under 13 12U.S.C.§2901etseq. 14 SeeFla.Stat.§658.2953. 15 12U.S.C.§§1842(c)(1)and1828(c)(5) 16 12U.S.C.§§1842(c)(1)(B)and1828(c)(5)(B). 17 TheFortMyersmarketisdefinedasCollierandLeecounties,Florida.TheNaplesmarketisdefinedasCollier County(excludingthetownofImmokalee),Florida.TheOrlandomarketisdefinedasOrange,Osceola,and Seminolecounties,thewesternhalfofVolusiaCounty,andthetownsofClermontandGrovelandinLake County,Florida.TheSarasotamarketisdefinedasManateeCounty,SarasotaCounty(notincludingthe portionthatisbotheastoftheMyakkaRiverandsouthofInterstate75,whichincludesthetownofNorth Port),thepeninsularportionofCharlotteCounty(theportionwestoftheMyakkaRiverthatincludesthe townsofEnglewood,EnglewoodBeach,NewPointComfort,GroveCity,CapeHaze,Rotonda,RotondaWest, andPlacida),andGasparillaIsland,includingthetownofBocaGrande,inLeeCounty,Florida.TheTampa BaymarketisdefinedasHernando,Hillsborough,Pinellas,andPascocounties,Florida. 18 StatedepositandmarketsharedataareasofJune30,2018,and,unlessotherwiseindicated,arebasedon calculationsinwhichthedepositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhas indicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorsto commercialbanks.See,e.g.,MidwestFinancialGroup,75FederalReserveBulletin386(1989);NationalCity

42 FederalReserveBulletin|February2019 theDepartmentof JusticeBankMergerCompetitiveReviewguidelines(“DOJBank MergerGuidelines”);19andothercharacteristicsof eachmarket. Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesintheFortMyers,Naples,Orlando, Sarasota,andTampaBaymarkets.Onconsummationof theproposal,theOrlandoand TampaBaymarketswouldremainmoderatelyconcentratedasmeasuredbytheHHI, accordingtotheDOJBankMergerGuidelines.ThechangeintheHHIintheOrlando marketwouldbesmall,and44othercompetitorswouldremaininthemarket.20The changeintheHHIintheTampaBaymarketwouldalsobesmall,and54othercompetitors wouldremaininthemarket.21TheFortMyers,Naples,andSarasotamarketswouldeach remainunconcentratedasmeasuredbytheHHI,accordingtotheDOJBankMerger Guidelines,andnumerouscompetitorswouldremainineachmarket.22 Corporation,70FederalReserveBulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsin themarketsharecalculationona50percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserve Bulletin52(1991). 19 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. 20 SynovusFinancialoperatesthe41stlargestdepositoryinstitutionintheOrlandomarket,controllingapproximately$16.5millionindeposits,whichrepresentlessthan0.1percentofmarketdeposits.FCBFinancialoperatesthe11thlargestdepositoryinstitutioninthesamemarket,controllingdepositsofapproximately $889.3million,whichrepresentapproximately1.8percentofmarketdeposits.Onconsummationofthe proposedtransaction,SynovusFinancialwouldbecomethe11thlargestdepositoryorganizationinthemarket, controllingdepositsofapproximately$905.8million,whichrepresentapproximately1.8percentofmarket deposits.TheHHIfortheOrlandomarketwouldincreaseby1pointto1281. 21 SynovusFinancialoperatesthe16thlargestdepositoryinstitutionintheTampaBaymarket,controlling approximately$768.7millionindeposits,whichrepresentapproximately0.9percentofmarketdeposits.FCB Financialoperatesthe20thlargestdepositoryinstitutioninthesamemarket,controllingdepositsofapproximately$612.5million,whichrepresentapproximately0.7percentofmarketdeposits.Onconsummationofthe proposedtransaction,SynovusFinancialwouldbecomethe11thlargestdepositoryorganizationinthe market,controllingdepositsofapproximately$1.4billion,whichrepresentapproximately1.6percentof marketdeposits.TheHHIfortheTampaBaymarketwouldincreaseby1pointto1193. 22 SynovusFinancialoperatesthe30thlargestdepositoryinstitutionintheFortMyersmarket,controlling approximately$30.6millionindeposits,whichrepresentapproximately0.2percentofmarketdeposits.FCB Financialoperatesthe8thlargestdepositoryinstitutioninthesamemarket,controllingdepositsofapproximately$612.6million,whichrepresentapproximately4.0percentofmarketdeposits.Onconsummationofthe proposedtransaction,SynovusFinancialwouldbecomethe8thlargestdepositoryorganizationinthemarket, controllingdepositsofapproximately$643.2million,whichrepresentapproximately4.2percentofmarket deposits.TheHHIfortheFortMyersmarketwouldincreaseby2pointsto902,and31otherbankingorganizationswouldremaininthemarket. SynovusFinancialoperatesthe29thlargestdepositoryinstitutionintheNaplesmarket,controllingapproximately$56.6millionindeposits,whichrepresentapproximately0.3percentofmarketdeposits.FCBFinancial operatesthe8thlargestdepositoryinstitutioninthesamemarket,controllingdepositsofapproximately $774.9million,whichrepresentapproximately4.5percentofmarketdeposits.Onconsummationofthe proposedtransaction,SynovusFinancialwouldbecomethe8thlargestdepositoryorganizationinthemarket, controllingdepositsofapproximately$831.5million,whichrepresentapproximately4.9percentofmarket deposits.TheHHIfortheNaplesmarketwouldincreaseby3pointsto874,and32otherbankingorganizationswouldremaininthemarket. SynovusFinancialoperatesthe19thlargestdepositoryinstitutionintheSarasotamarket,controllingapproximately$270.0millionindeposits,whichrepresentapproximately1.3percentofmarketdeposits.FCBFinancial operatesthe9thlargestdepositoryinstitutioninthesamemarket,controllingdepositsofapproximately $554.0million,whichrepresentapproximately2.7percentofmarketdeposits.Onconsummationofthe proposedtransaction,SynovusFinancialwouldbecomethe7thlargestdepositoryorganizationinthemarket, controllingdepositsofapproximately$824.0million,whichrepresentapproximately3.9percentofmarket deposits.TheHHIfortheSarasotamarketwouldincreaseby7pointsto927,and34otherbankingorganizationswouldremaininthemarket.

LegalDevelopments:FourthQuarter,2018 43 TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket.Inaddition,the appropriatebankingagencieshavebeenaffordedanopportunitytocommentandhavenot objectedtotheproposal. Basedonthefactsof record,theBoardconcludesthatconsummationof theproposal wouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheFortMyers,Naples,Orlando,Sarasota,orTampaBaymarkets,orinany otherrelevantbankingmarket.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsidersthefinancialandmanagerialresourcesandthefutureprospectsof the institutionsinvolved.23Initsevaluationof 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. SynovusFinancialandFCBFinancialarewellcapitalized,andthecombinedorganization wouldremainsoonconsummationof theproposal.Theproposedtransactionisabank holdingcompanymergerthatisstructuredasashareexchange,withasubsequentmerger of thesubsidiarydepositoryinstitutions.24Theassetquality,earnings,andliquidityof bothSynovusBankandFloridaCommunityBankareconsistentwithapproval,and SynovusFinancialappearstohaveadequateresourcestoabsorbthecostsof theproposal andtocompletetheintegrationof theinstitutions’operations.Inaddition,thefutureprospectsof theinstitutionsundertheproposalareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of SynovusFinancial,FCBFinancial,andtheirsubsidiarydepositoryinstitutions, includingassessmentsof theirmanagement,risk-managementsystems,andoperations.In addition,theBoardhasconsideredinformationprovidedbySynovusFinancial;the Board’ssupervisoryexperiencesandthoseof otherrelevantbanksupervisoryagencies withtheorganizations;theorganizations’recordsof compliancewithapplicablebanking, 23 12U.S.C.§§1842(c)(2),(5),and(6)and1828(c)(5). 24 Toeffecttheholdingcompanymerger,awhollyownedsubsidiaryofSynovusFinancialwouldmergewithFCB Financial,withFCBFinancialasthesurvivingentity.Immediatelythereafter,FCBFinancialwouldmergewith SynovusFinancial,withSynovusFinancialasthesurvivingentity.FloridaCommunityBankwouldthenmerge withandintoSynovusBank,withSynovusBankasthesurvivingentity.

44 FederalReserveBulletin|February2019 consumerprotection,andanti-money-launderinglaws;andthepubliccommentsonthe proposal. SynovusFinancial,FCBFinancial,andtheirsubsidiarydepositoryinstitutionsareeach consideredtobewellmanaged.Thedirectorsandseniorexecutiveofficersof Synovus Financialhaveappropriateknowledgeof andexperienceinthebankingandfinancial servicessectors,andSynovusFinancial’srisk-managementprogramappearsconsistent withapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredSynovusFinancial’splansforimplementingtheproposal. SynovusFinancialhasconductedcomprehensiveduediligenceandisdevotingsignificant financialandotherresourcestoaddressthepost-acquisitionintegrationprocessforthis proposal.SynovusFinancialwouldimplementitsrisk-managementpolicies,procedures, andcontrolsatthecombinedorganization,andtheseareconsideredacceptablefroma supervisoryperspective.Inaddition,SynovusFinancial’smanagementhastheexperience andresourcestooperatethecombinedorganizationinasafeandsoundmanner.25 Basedonallof thefactsof record,includingSynovusFinancial’ssupervisoryrecord, managerialandoperationalresources,andplansforoperatingthecombinedinstitution afterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialand managerialresourcesandthefutureprospectsof theorganizationsinvolvedinthe proposal,aswellastherecordsof effectivenessof SynovusFinancialandFCBFinancialin combattingmoney-launderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.26Initsevaluation,theBoardconsiderswhethertherelevantinstitutions arehelpingtomeetthecreditneedsof thesecommunities,aswellasotherpotentialeffects of theproposalontheconvenienceandneedsof thecommunitiestobeserved,andplaces particularemphasisontherecordsof therelevantdepositoryinstitutionsunderthe CRA.27TheCRArequiresthefederalfinancialsupervisoryagenciestoencourageinsured depositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesinwhichthey operate,consistentwiththeinstitutions’safeandsoundoperation,28andrequiresthe appropriatefederalfinancialsupervisoryagencytoassessadepositoryinstitution’srecord of helpingtomeetthecreditneedsof itsentirecommunity,includinglow-and moderate-income(“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.29 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. 25 Followingconsummationoftheproposedtransaction,FloridaCommunityBank’schiefexecutiveofficer wouldjoinSynovusFinancial’smanagementasexecutivevicepresident. 26 12U.S.C.§§1842(c)(2)and1828(c)(5). 27 12U.S.C.§2901etseq. 28 12U.S.C.§2901(b). 29 12U.S.C.§2903.

LegalDevelopments:FourthQuarter,2018 45 Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof Synovus BankandFloridaCommunityBank;thefairlendingandcompliancerecordsof both banks;confidentialsupervisoryinformation;informationprovidedbyandconsultations withrelevantsupervisors;informationprovidedbySynovusFinancial;andthepublic commentsontheproposal. PublicCommentsontheProposal TheBoardreceivedcommentsfromtwocommentersontheproposal.Onecommenter requestedthatSynovusBankprovideacommunitybenefitsplantoaddressthe commenter’sconcernswithSynovusBank’slendingandCRAperformance,aswellasto detailhowthetransactionwouldbenefittheunderservedthroughoutthebank’sfootprint.30Thecommenterassertedthatacommunitybenefitsplanwasparticularly warrantedinlightof thefactthatSynovusBankreceived“LowSatisfactory”ratingson eachof theLending,Investment,andServicetestsatitsmostrecentCRAperformance evaluation,whereasFloridaCommunityBankreceived“HighSatisfactory”ratingsoneach of thethreeperformancetestsatitslastCRAperformanceevaluation.Thecommenter expressedconcernswithSynovusBank’shomemortgagelendingtoLMIandminority individualsandinminorityareasof certainmarketsbasedondatareportedunderthe HomeMortgageDisclosureActof 1975(“HMDA”);31smallbusinesslendingincertain markets;branchdistributioninLMIandminorityareasof particularmarkets;and communitydevelopmentactivityincertainmarkets. Asecondcommenterobjectedtotheproposal,allegingdisparitiesindenialratesandhome mortgageoriginationstoAfricanAmericansand/orHispanics,ascomparedtowhites,in certainmarkets.ThecommenteralsonotedacomplaintfiledwiththeBureauof Consumer FinancialProtection(“Bureau”)againstSynovusBankrelatingtocollectingonadebt allegedlynotowedandacustomerreviewallegingpoorcustomerservicebyaSynovus Bankbranchrelatedtoacheckhold.Finally,thecommenterassertedthattheproposal wouldnotproduceapublicbenefit. Businessesof theInvolvedInstitutionsandResponsetothePublicComments Throughitsnetworkof branchesinAlabama,Florida,Georgia,SouthCarolina,and Tennessee,SynovusBankoffersavarietyof productsandservices,includingretail,mortgage,commercialbanking,trust,andinvestmentservicestoretail,business,andinstitutionalclients. Throughitsnetworkof branchesinFlorida,FloridaCommunityBankoffersafullrange of traditionalbankingproductsandservicestoindividuals,smallandmedium-sizebusinesses,andotherlocalentities,andtargetscommercialcustomersengagedinawidevariety of industries. 30 Whilethecommenterdidnotexplicitlyrequestthatacommunitybenefitsplaninvolveanagreementbetween thegroupandSynovusBank,thecommenterindicatedthatitwouldlookforwardtomeetingwithSynovus Banktodiscussdevelopmentofacommunitybenefitsplan.TheBoardconsistentlyhasfoundthatneitherthe CRAnorthefederalbankingagencies’CRAregulationsrequiredepositoryinstitutionstomakepledgesor enterintocommitmentsoragreementswithanyprivateparty.See,e.g.,HarborOneMutualBancsharesand HarborOneBancorp,Inc.,FRBOrderNo.2018-18at10n.26(September12,2018);TriCoBancshares,FRB OrderNo.2018-13at9n.20(June6,2018);CitigroupInc.,88FederalReserveBulletin485(2002);FifthThird Bancorp,80FederalReserveBulletin838,841(1994).Initsevaluation,theBoardreviewstheexistingCRA performancerecordofanapplicantandtheprogramsthattheapplicanthasinplacetoservethecreditneeds ofitsCRAassessmentareas. 31 12U.S.C.§2801etseq.

46 FederalReserveBulletin|February2019 InresponsetotheassertionthatSynovusBankshoulddevelopacommunitybenefitsplan toaddressperceivedweaknessesinthebank’sCRAperformanceandinotherrespects, SynovusFinancialnotesthatprovidingacommunitybenefitsplanisnotalegalrequirementandthatSynovusBankatitsmostrecentCRAperformanceevaluationreceivedan overall“Satisfactory”rating,aswellasaratingof “Satisfactory”foreachof itsstateand multi-stateassessments.SynovusFinancialcitesthisperformanceevaluationasevidence thatSynovusBankhadadequatepenetrationinLMIgeographieswithrespecttoHMDAreportablelending,excellentpenetrationinLMIgeographieswithrespecttosmallbusinesslending,andadequatedistributionof bothHMDA-reportableandsmallbusiness loansamongborrowersof differentincomelevelsandbusinessesof differentsizes.Synovus Financialnotesthattherehavebeenrecentyear-over-yearincreasesintheproportionof theorganization’smortgageloanapplicationsfromminoritycensustracts,aswellasinthe proportionof itsapplicationsfromandoriginationstoAfricanAmericansinkeymarkets. WithrespecttoSynovusBank’scommunitydevelopmentlending,SynovusFinancial assertsthatthebank’slevelof communitydevelopmentlendingwasfoundtobeadequate initslastCRAperformanceevaluationandnotesthatSynovusBankhascontinuedto expanditsaffordablecreditprogramsandincreaseitscommunityinvestmentportfolio. SynovusFinancialalsonotesthatSynovusBankroutinelyevaluatesitsdistributionof branchesandisdevelopingwaystoincreasethenumberof alternativesystemsfordeliveringretailbankingservicestocustomers. SynovusFinancialalsonotesthatSynovusBankiscommittedtoidentifyingandcontinuouslymonitoringgapsinitsCRAperformanceandfairlendingperformanceandcontinues toimplementaplantoenhancebranchawareness,improvecommunityoutreach,and increasedistributionof loanapplicationsinunderservedmarkets. InresponsetotheallegationsregardingSynovusBank’shomemortgagelendingrecord, SynovusFinancialassertsthatthebank’srecordreflectsdecisionsbaseduponunderwriting criteriaappliedwithoutregardtotheraceof theborrower.SynovusFinancialrepresentsit isitcommittedtocompliancewithfairlendinglawsandregulationsandhasdeveloped strategiestoincreaselendinginhighminoritycensustracts.Withrespecttothecomplaint andcustomerreviewcited,SynovusFinancialassertsthatitmaintainsarobustcustomer complaintsystemandthatSynovusFinancialanditsthird-partyvendorstookappropriate measurestoinvestigatethemattersandrespondappropriately,includingbyexplainingthe applicablebankpoliciestothecustomer. Recordsof PerformanceundertheCRA InevaluatingtheCRAperformanceof theinvolvedinstitutions,theBoardgenerally considerseachinstitution’smostrecentCRAperformanceevaluation,aswellasother informationandsupervisoryviewsfromtherelevantfederalfinancialsupervisororsupervisors,whichinthiscasearetheFederalReserveBankof Atlanta(“ReserveBank”)andthe Officeof theComptrollerof theCurrency(“OCC”).32Inaddition,theBoardconsiders informationprovidedbytheapplicantandbypubliccommenters. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.33Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheappli- 32 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48506,48548 (July25,2016). 33 12U.S.C.§2906.

LegalDevelopments:FourthQuarter,2018 47 cationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalfinancialsupervisorof theinstitution’soverallrecordof lendinginits communities. Ingeneral,federalfinancialsupervisorsapplyalendingtesttoevaluatetheperformanceof largeinsureddepositoryinstitutions,suchasSynovusBankandFloridaCommunityBank, inhelpingtomeetthecreditneedsof thecommunitiestheyserve.Thelendingtestspecificallyevaluatesaninstitution’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;34(4)theinstitution’scommunitydevelopmentlending, includingthenumberandamountsof communitydevelopmentloansandtheircomplexity andinnovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpractices toaddressthecreditneedsof LMIindividualsandgeographies.35Largeinstitutionsalso aresubjecttoaninvestmenttest,whichevaluatesthenumberandamountsof qualified investmentsthatbenefittheirAAs,andaservicetest,whichevaluatestheavailabilityand effectivenessof theirsystemsfordeliveringretailbankingservicesandtheextentand innovativenessof theircommunitydevelopmentservices.36 TheBoardisconcernedwhenHMDAdatareflectdisparitiesintheratesof loanapplications,originations,anddenialsamongmembersof differentracialorethnicgroupsinlocal areas.Thesetypesof disparitiesmayindicateweaknessesintheadequacyof policiesand programsataninstitutionformeetingitsobligationstoextendcreditfairly.However,other informationcriticaltoaninstitution’screditdecisionsisnotavailablefromHMDAdata.37 Consequently,HMDAdatadisparitiesmustbeevaluatedinthecontextof otherinformationregardingthelendingrecordof aninstitution. CRAPerformanceof SynovusBank SynovusBankwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheReserveBank,asof November6,2017(“SynovusBank Evaluation”).38Thebankreceived“LowSatisfactory”ratingsfortheLendingTest,InvestmentTest,andServiceTest.39 34 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3). 35 See12CFR228.22(b). 36 See12CFR228.21etseq. 37 Otherinformationrelevanttocreditdecisionscouldincludecredithistory,debt-to-incomeratios,andloan-tovalueratios.Accordingly,whenconductingfairlendingexaminations,examinersanalyzesuchadditionalinformationbeforereachingadeterminationregardinganinstitution’scompliancewithfairlendinglaws. 38 TheSynovusBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Examiners reviewedresidentialmortgageloansofSynovusBankanditswhollyownedmortgageaffiliate,SynovusMort-

48 FederalReserveBulletin|February2019 Examinersfoundthatthebank’soverallgeographicdistributionof lendinginLMIgeographieswasadequateforHMDA-reportablelendingandexcellentforsmallbusinesslending. Examinersconcludedthatthebank’soveralldistributionof HMDA-reportablelending wasadequateamongborrowersof differentincomelevelsandthatitsoveralldistribution of smallbusinesslendingamongbusinessesof differentsizeswasadequate.Examiners notedthatSynovusBankmadeanadequatelevelof communitydevelopmentloans. ExaminersfoundthatSynovusBankmadeanadequatelevelof qualifiedcommunitydevelopmentinvestmentsinresponsetocommunitydevelopmentneedsof itsAAs.Examiners notedthatthebank’sinvestmentsincludedprojectstosupportaffordablehousingand investmentstopromoteeconomicdevelopment.Examinersnotedthatthebank’scontributionssupportedorganizationsengagedincommunityservicesforLMIindividualsor communities.Examinersalsonotedthatthebankcontributedtoothercommunitydevelopmentneeds,suchastoprovideaffordablehousingsupporttononprofitsdeveloping affordablehousingandofferinghomebuyereducation. ExaminersfoundthatSynovusBank’sdeliverysystemswerereasonablyaccessibletothe bank’sgeographiesandindividualsof differentincomelevelsandthat,totheextent changeshadbeenmade,thebank’sopeningandclosingof branchesthroughoutitsAAs generallyhadnotadverselyaffectedtheaccessibilityof thebank’sdeliverysystems, particularlyinLMIgeographiesandtoLMIindividuals.Examinersfurtherfoundthat servicesandbusinesshoursdidnotvaryinawaythatinconveniencedcertainportionsof thebank’sAAs,particularlyLMIgeographiesandindividuals,andthatthebankprovided anadequatelevelof communitydevelopmentserviceswithinitsAAs. SynovusBank’sEffortssincetheSynovusBankEvaluation SynovusFinancialrepresentsthat,sincetheSynovusBankEvaluation,SynovusBankhas continuedtodevelopitsCRAstrategyandplan.Specifically,SynovusFinancialstatesthat SynovusBankhasdevelopedCRAperformancetargetsfortheLending,Investment,and Servicetestsineachof thebank’sAAs.SynovusFinancialcitesnumerousexamplesof CRAactivitiesundertakenbySynovusBanksincetheSynovusBankEvaluation,including communitydevelopmentloans,investments,andservices.SynovusFinancialalsorepresentsthatSynovusBankcontinuestomaintainstrongpartnershipswithcommunitydevelopmentorganizationsandhasworkedtomakeitsretailbankingservicesmoreaccessible. CRAPerformanceof FloridaCommunityBank FloridaCommunityBankreceivedanoverallratingof “Satisfactory”atitsmostrecent CRAperformanceevaluationbytheOCC,asof March6,2017(“FloridaCommunity gageCorporation,aswellassmallbusinessloansofSynovusBankfromJanuary1,2014,throughDecember31, 2016.Inaddition,examinersconsideredthecommunitydevelopmentloansoriginatedbySynovusBank betweenJanuary1,2014,andJune30,2017,aswellasallqualifiedinvestmentsthatwerefundedpriortobut stilloutstandingasofDecember31,2016,orpurchasedbetweenJanuary1,2014,andJune30,2017,andall communitydevelopmentservicesperformedduringthatsameperiodoftime. 39 TheSynovusBankEvaluationincludedafull-scopereviewofatleastoneAAineachstatewherethebankhas branches.Eachofthebank’s49AAswasreviewedforlending,investment,andserviceperformanceusing eitherfull-scopeorlimited-scopeexaminationprocedures.

LegalDevelopments:FourthQuarter,2018 49 BankEvaluation”).40Thebankreceived“HighSatisfactory”ratingsfortheLendingTest, theInvestmentTest,andtheServiceTest.41 ExaminersfoundthatFloridaCommunityBank’slendingactivityreflectedgoodresponsivenesstocreditneedsinthebank’sAAs.Examinersnotedthatthebank’slendingactivity reflectedadequateresponsivenesstoAAcreditneedsformortgagesandsmallbusiness loansandconsideredthelevelof communitydevelopmentlendingtobeexcellent.Examinersfoundthatthegeographicdistributionof loansandthedistributionof loansby incomelevelof theborrowerwereadequate.ExaminersalsonotedthatFloridaCommunityBankusedinnovativeandflexiblelendingpracticestoaddresscreditneedswithin itsAAs. ExaminersfoundthatFloridaCommunityBankmadeagoodlevelof qualifiedinvestmentsandgrants/donationsandthatafewof theinvestmentswereinnovativeorcomplex andnotroutinelyprovidedbyprivateinvestors. ExaminersfoundFloridaCommunityBank’sretaildeliverysystemstobereasonably accessibletogeographiesandindividualsof differentincomelevelsinthebank’sAAs. Examinersdeterminedthatthelevelof communitydevelopmentservicesprovidedbythe bankwasexcellent.ExaminersstatedthattheservicesprovidedwereresponsivetoAA needs,suchasfinancialliteracy,communityservice,training,andaffordablehousing. AdditionalSupervisoryViews Initsreviewof theproposal,theBoardhasconsultedwiththeReserveBankregardingthe CRAandconsumercompliance,includingfairlending,recordsof SynovusBankand consideredtheresultsof theOCC’smostrecentCRAandconsumercomplianceexaminationsof FloridaCommunityBank.TheBoardalsohasconsideredSynovusBank’s supervisoryrecordwiththeBureau. TheBoardhastakentheconsultationswiththeReserveBankandtheinformation discussedaboveintoaccountinevaluatingtheproposal,includinginconsideringwhether SynovusFinancialhastheexperienceandresourcestoensurethatSynovusBankhelpsto meetthecreditneedsof thecommunitieswithinitsAAs. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.SynovusFinancialrepresentsthat,following consummationof theproposal,customersof thecombinedorganizationwouldhaveaccess toalargerbranchandATMnetworkandagreatervarietyof bankingproductsand servicesthaneitherSynovusFinancialorFCBFinancialcouldprovidealone.Synovus Financialfurtherrepresentsthattheservicescurrentlyofferedbythetwobankingorgani- 40 TheFloridaCommunityBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures. ExaminersreviewedresidentialmortgageandsmallbusinessloansfromJanuary1,2014,throughDecember31, 2016.Theevaluationperiodforcommunitydevelopmentloans,investments,andserviceswasfromOctober15, 2013,throughDecember31,2016. 41 TheFloridaCommunityBankEvaluationincludedfull-scopeevaluationsoftheFt.Lauderdale-Pompano Beach-DeerfieldBeachMetropolitanDistrict(“MD”)AA;Miami-MiamiBeach-KendallMDAA;WestPalm Beach-BocaRaton-BoyntonMDAA;andNaples-MarcoIslandMetropolitanStatisticalArea(“MSA”)AA. Examinersconductedlimited-scopeevaluationsoftheCapeCoral-Ft.MyersMSAAA;Deltona-Daytona Beach-OrmondBeachMSAAA;NorthPort-Bradenton-SarasotaMSAAA;Orlando-Kissimmee-Sanford MSAAA;PalmBay-Melbourne-TitusvilleMSAAA;PortSt.LucieMSAAA;PuntaGordaMSAAA; Sebastian-VeroBeachMSAAA;Tampa-St.Petersburg-ClearwaterMSAAA;andHendryCounty Non-MSAAA.

50 FederalReserveBulletin|February2019 zationsarecomplementaryandthatcustomerswouldbewellservedbythecombined organization.SynovusFinancialalsorepresentsthattheresultingorganizationwould remaincommittedtothecommunitiesitserves,includingunderbankedcommunities. SynovusFinancialintendstocontinueFloridaCommunityBank’sexistingCRAprograms intheareasFloridaCommunityBankcurrentlyoperatesandtoretainallCRAstaff within thecombinedorganization.SynovusFinancialassertsthatthecombinedorganization wouldsynergizetheCRAstrengthsof bothbanksandenhancethecurrentCRArecords of eachbank. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA;theinstitutions’recordsof compliancewith consumerprotectionlaws;supervisoryviewsof theReserveBank,theOCC,andthe Bureau;confidentialsupervisoryinformation;informationprovidedbySynovusFinancial; thepubliccommentsontheproposal;andotherpotentialeffectsof theproposalonthe convenienceandneedsof thecommunitiestobeserved.Basedonitsreview,theBoard concludesthattheconvenienceandneedsfactorisconsistentwithapproval. FinancialStability Section3of theBHCActandtheBankMergerActrequiretheBoardtoconsidera proposal’s“risktothestabilityof 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 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 42 12U.S.C.§§1842(c)(7)and1828(c)(5). 43 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 44 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 45 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition.

LegalDevelopments:FourthQuarter,2018 51 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthatisgreater than$10billioninassetsbutaproformaorganizationof lessthan$100billioninassets. Boththeacquirerandthetargetarepredominatelyengagedinretailandcommercial bankingactivities.46Theproformaorganizationwouldhaveminimalcross-borderactivitiesandwouldnotexhibitanorganizationalstructure,complexinterrelationships,or uniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financial distress.Inaddition,theorganizationwouldnotbeacriticalservicesproviderorsointerconnectedwithotherfirmsorthemarketsthatitwouldposesignificantrisktothefinancialsystemintheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Establishmentof Branches SynovusBankhasappliedundersection9of theFRAtoestablishbranchesatthecurrent locationsof FloridaCommunityBank.47TheBoardhasassessedthefactorsitisrequired toconsiderwhenreviewinganapplicationunderthatsection.48Specifically,theBoard hasconsideredSynovusBank’sfinancialcondition,management,capital,actionsin meetingtheconvenienceandneedsof thecommunitiestobeserved,CRAperformance, andinvestmentinbankpremises.49Forthereasonsdiscussedinthisorder,theBoardfinds thosefactorstobeconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationsshouldbe,andherebyare,approved.50Inreachingitsconclusion,theBoardhas 46 SynovusBankandFloridaCommunityBankofferabroadrangeofretailandcommercialbankingproducts andservices.SynovusFinancialhas,andasaresultoftheproposedtransactionwouldcontinuetohave,asmall marketshareintheseproductsandservicesonanationwidebasis,andnumerouscompetitorsforthemwould remain. 47 See12U.S.C.§321.Undersection9oftheFRA,statememberbanksmayestablishandoperatebrancheson thesametermsandconditionsasareapplicabletotheestablishmentofbranchesbynationalbanks.Anational bankmayestablishandoperateanewbranchwithinastateinwhichitislocated,ifsuchestablishmentand operationisauthorizedunderapplicablestatelaw.12U.S.C.§36(c).Anationalbankalsomayretainany branchfollowingamergerthatunderstatelawmaybeestablishedasanewbranchoftheresultingbankor retainedasanexistingbranchoftheresultingbank.See12U.S.C.§§36(b)(2)&(c).Inaddition,under section44oftheFDIAct,astatememberbankresultingfromaninterstatemergertransactionmayretainand operate,asamainofficeorabranch,anyofficethatanybankinvolvedinthemergerwasoperatingasamain officeorbranchimmediatelybeforethemergertransaction.12U.S.C.§1831u(d).Uponconsummation,allof SynovusBank’sbrancheswouldbepermissibleunderapplicablestatelaw.SeeFla.Stat.§658.2953. 48 12U.S.C.§322;12CFR208.6. 49 Uponconsummationoftheproposedtransaction,SynovusBank’sinvestmentinbankpremiseswouldremain withinlegalrequirements,under12CFR208.21. 50 AcommenterrequestedthattheBoardholdpublichearingsormeetingsontheproposal.Section3(b)ofthe BHCActdoesnotrequirethattheBoardholdapublichearingonanyproposalunlesstheappropriatesupervisoryauthoritiesfortheacquiringbankorthebanktobeacquiredmakeatimelywrittenrecommendationof disapprovaloftheapplication.12U.S.C.§1842(b);12CFR225.16(e).TheBoardhasnotreceivedsucha recommendationfromtheappropriatesupervisoryauthorities.Underitsrules,theBoardalso,initsdiscretion, mayholdapublichearingifappropriatetoallowinterestedpersonsanopportunitytoproviderelevanttestimonywhenwrittencommentswouldnotadequatelypresenttheirviews.TheBoardhasconsideredthe commenter’srequestinlightofallthefactsofrecord.IntheBoard’sview,thecommenterhashadample opportunitytosubmitcommentsontheproposaland,infact,submittedawrittencommentthattheBoardhas consideredinactingontheproposal.Thecommenter’srequestdoesnotidentifydisputedissuesoffactthatare materialtotheBoard’sdecisionandthatwouldbeclarifiedbyapublichearing.Inaddition,therequestdoes

52 FederalReserveBulletin|February2019 consideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunder theBHCAct,theBankMergerAct,theFRA,andotherapplicablestatutes.TheBoard’s approvalisspecificallyconditionedoncompliancebySynovusFinancialandSynovus Bankwithalltheconditionsimposedinthisorder,includingreceiptof allrequiredregulatoryapprovals,andonthecommitmentsmadetotheBoardinconnectionwiththe proposal.Forpurposesof thisaction,theconditionsandcommitmentsaredeemedtobe conditionsimposedinwritingbytheBoardinconnectionwithitsfindingsanddecision hereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardortheReserveBank,actingunderdelegatedauthority. Byorderof theBoardof Governors,effectiveDecember7,2018. Votingforthisaction:ChairmanPowell,ViceChairmanClarida,ViceChairmanfor SupervisionQuarles,andGovernorsBrainardandBowman. AnnE.Misback Secretaryof theBoard AppendixA BranchestoBeEstablishedbySynovusBank 1. 1701NorthAtlanticAvenue,CocoaBeach,Florida32931 2. 2105NorthCourtenayParkway,MerrittIsland,Florida32953 3. 5599SouthUniversityDrive,Davie,Florida33328 4. 632SouthFederalHighway,FortLauderdale,Florida33301 5. 1709EastHallandaleBeachBoulevard,Hallandale,Florida33009 6. 5375WestAtlanticBoulevard,Margate,Florida33063 7. 1142WestonRoad,Weston,Florida33326 8. 2500WestonRoad,Suite300,Weston,Florida33331 9. 3100SouthMccallRoad,Englewood,Florida34224 10. 1255TamiamiTrail,PortCharlotte,Florida33953 11. 125NesbitStreet,PuntaGorda,Florida33950 12. 1400North15thStreet,Immokalee,Florida34142 13. 2400TamiamiTrailNorth,Suite100,Naples,Florida34103 14. 2325VanderbiltBeachRoad,Naples,Florida34109 15. 155NorthBridgeStreet,Labelle,Florida33935 16. 1000SouthBroadStreet,Brooksville,Florida34601 17. 130SouthWestshoreBoulevard,Tampa,Florida33609 18. 13128NorthDaleMabryHighway,Tampa,Florida33618 19. 12105WestLinebaughAvenue,Tampa,Florida33626 20. 400020thStreet,VeroBeach,Florida32960 21. 3360BonitaBeachRoad,BonitaSprings,Florida34133 22. 205DelPradoBoulevardSouth,CapeCoral,Florida33990 23. 7900SummerlinLakeDrive,FortMyers,Florida33907 24. 1261HomesteadRoad,LehighAcres,Florida33936 25. 715ColoradoAvenue,Stuart,Florida34994 26. 2020PonceDeLeonBoulevard,Suite102,CoralGables,Florida33134 notdemonstratewhythewrittencommentdoesnotpresentthecommenter’sviewsadequatelyorwhyahearing otherwisewouldbenecessaryorappropriate.Forthesereasons,andbasedonallthefactsofrecord,theBoard hasdeterminedthatapublichearingisnotrequiredorwarrantedinthiscase.Accordingly,therequestfora publichearingontheproposalisdenied.

LegalDevelopments:FourthQuarter,2018 53 27. 9128Northwest25thStreet,Doral,Florida33172 28. 8404Northwest103rdStreet,SuitesBandC,HialeahGardens,Florida33016 29. 2SouthBiscayneBoulevard,Suite110,Miami,Florida33131 30. 5900BirdRoad,Miami,Florida33155 31. 13298BiscayneBoulevard,NorthMiami,Florida33181 32. 1802NorthEastMiamiGardensDrive,NorthMiamiBeach,Florida33179 33. 11315SouthDixieHighway,Pinecrest,Florida33156 34. 130SouthParkAvenue,Apopka,Florida32703 35. 8910Conroy-WindermerRoad,Orlando,Florida32835 36. 369NorthNewYorkAvenue,WinterPark,Florida32789 37. 11431WestPalmettoParkRoad,BocaRaton,Florida33428 38. 140NorthFederalHighway,BocaRaton,Florida33432 39. 7593BoyntonBeachBoulevard,#120,BoyntonBeach,Florida33437 40. 4850WestAtlanticAvenue,DelrayBeach,Florida33445 41. 14235USHighwayOne,JunoBeach,Florida33408 42. 1314GreenviewShoresBoulevard,Wellington,Florida33414 43. 1555PalmBeachLakesBoulevard,WestPalmBeach,Florida33401 44. 8444SouthTamiamiTrail,Sarasota,Florida34231 45. 1790MainStreet,Sarasota,Florida34236 46. 2160WestStateRoad434,Longwood,Florida32779 47. 2500VirginiaAvenue,FortPierce,Florida34981 48. 1301SoutheastPortSaintLucieBoulevard,PortSaintLucie,Florida34952 49. 1120WestGranadaBoulevard,OrmondBeach,Florida32174 50. 4777ClydeMorrisBoulevard,PortOrange,Florida32129

54 FederalReserveBulletin|February2019 Order Issued Under Bank Merger Act and Federal Reserve Act Security Trust & Savings Bank Storm Lake, Iowa OrderApprovingtheAcquisitionof AssetsandAssumptionof Liabilitiesandthe Establishmentof aBranch FRBOrderNo.2018-21(October12,2018) SecurityTrust&SavingsBank(“SecurityBank”),astatememberbanksubsidiaryof StormLakeSecurityBancorporation(“SecurityBancorp”),bothof StormLake,Iowa,has requestedtheBoard’sapprovalundersection18(c)of theFederalDepositInsuranceAct (“BankMergerAct”)1topurchasesubstantiallyallof theassetsandassumesubstantially allof theliabilitiesof FirstNationalBankof Rembrandt(“FNBBank”),Rembrandt, Iowa.SecurityBankalsohasrequestedtheBoard’sapprovalundersection9of theFederal ReserveAct(“FRA”)2toestablishabranchofficeatthelocationof FNBBank’smain office.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeengiveninaccordancewiththeBankMergerActandtheBoard’sRulesof Procedure.4Thetimeforsubmittingcommentshasexpired,andnocommentswerereceived.The Boardhasconsideredtheproposalinlightof thefactorssetforthintheBankMergerAct andtheFRA.AsrequiredbytheBankMergerAct,areportonthecompetitiveeffectsof SecurityBank’sacquisitionof theassetsandassumptionof theliabilitiesof FNBBank wasrequestedfromtheUnitedStatesAttorneyGeneral,andacopyof therequesthas beenprovidedtotheOfficeof theComptrollerof theCurrency(“OCC”). SecurityBancorp,withconsolidatedassetsof approximately$201.6million,isthe2,978th largestinsureddepositoryorganizationintheUnitedStates.SecurityBancorpcontrols approximately$181.3millioninconsolidateddeposits,whichrepresentlessthan1percent of thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.5 SecurityBancorpcontrolsSecurityBank,whichoperatesonlyinIowa.SecurityBancorpis the102ndlargestinsureddepositoryorganizationinIowa,controllingdepositsof approximately$181.0million,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. FNBBank,withassetsof approximately$54.5million,isthe5,038thlargestinsured depositoryorganizationintheUnitedStates.FNBBankcontrolsapproximately $43.4millionindeposits,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.FNBBankoperatesonlyin Iowa.FNBBankisthe242ndlargestinsureddepositoryorganizationinIowa,controlling depositsof approximately$43.7million,whichrepresentlessthan1percentof thetotal depositsof insureddepositoryinstitutionsinthatstate.6 Onconsummationof theproposal,SecurityBancorpwouldbecomethe2,540thlargest insureddepositoryorganizationintheUnitedStates,withconsolidatedassetsof approxi- 1 12U.S.C.§1828(c). 2 12U.S.C.§321. 3 Thebranchwouldbelocatedat101EastMainStreet,Rembrandt,Iowa. 4 12U.S.C.§1828(c)(3);12CFR262.3(b). 5 NationwideassetanddepositdataareasofMarch31,2018,unlessotherwisenoted. 6 Statedeposit,marketshare,andrankingdataareasofJune30,2017,unlessotherwisenoted.Inthiscontext, insureddepositoryinstitutionsincludecommercialbanks,savingsassociations,andsavingsbanks.

LegalDevelopments:FourthQuarter,2018 55 mately$256.1million,whichrepresentlessthan1percentof thetotalassetsof insured depositoryorganizationsintheUnitedStates.SecurityBancorpwouldcontroltotal depositsof approximately$224.7million,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.InIowa,SecurityBancorpwouldbecomethe73rdlargestinsureddepositoryorganization,controlling depositsof approximately$224.8million,whichrepresentlessthan1percentof thetotal depositsof insureddepositoryinstitutionsinthatstate. CompetitiveConsiderations TheBankMergerActprohibitstheBoardfromapprovingaproposalthatwouldresultina monopolyorwouldbeinfurtheranceof anattempttomonopolizethebusinessof banking inanyrelevantmarket.7TheBankMergerActalsoprohibitstheBoardfromapprovinga proposalthatwouldsubstantiallylessencompetitionortendtocreateamonopolyinany bankingmarket,unlesstheanticompetitiveeffectsof theproposalareclearlyoutweighedin thepublicinterestbytheprobableeffectof theproposalinmeetingtheconvenienceand needsof thecommunitiestobeserved.8 SecurityBankandFNBBankcompetedirectlyintheBuenaVista,Iowabankingmarket (“BuenaVistamarket”).9TheBoardhasconsideredthecompetitiveeffectsof theproposal inthisbankingmarket.Inparticular,theBoardhasconsideredthenumberof competitorsthatwouldremaininthemarket;therelativeshareof totaldepositsininsureddepositoryinstitutionsinthemarket(“marketdeposits”)thatSecurityBankwouldcontrol;10 theconcentrationlevelsof marketdepositsandtheincreaseintheselevels,asmeasuredby theHerfindahl-HirschmanIndex(“HHI”)undertheU.S.Departmentof JusticeBank MergerCompetitiveReviewguidelines(“DOJBankMergerGuidelines”);11andother characteristicsof themarket. Thestructuraleffectsthatconsummationof theproposalwouldhaveintheBuenaVista marketwarrantadetailedreviewbecausetheconcentrationlevelsonconsummationwould exceedthethresholdsintheDOJBankMergerGuidelineswhenusinginitialcompetitive screeningdata. Usinginitialscreeningdata,SecurityBankisthelargestdepositoryorganizationinthe BuenaVistamarket,controllingapproximately$181millionindeposits,whichrepresent approximately22.5percentof marketdeposits.FNBBankistheseventhlargestdepository 7 12U.S.C.§1828(c)(5). 8 12U.S.C.§1828(c)(5)(B). 9 TheBuenaVistamarketisdefinedasBuenaVistaCounty,plusEureka,Eden,Delaware,Douglas,andCook townshipsinSacCounty,allinIowa. 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.See,e.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.

56 FederalReserveBulletin|February2019 organizationintheBuenaVistamarket,controllingapproximately$43.7millionin deposits,whichrepresentapproximately5.44percentof marketdeposits.Onconsummation,SecurityBankwouldremainthelargestdepositoryorganizationintheBuenaVista market,controllingapproximately$224.8millioninmarketdeposits,whichwouldrepresentapproximately28percentof marketdeposits.TheHHIinthismarketwouldincrease by261points,from1604to1865. TheBoardhasconsideredwhetherotherfactorseithermitigatethecompetitiveeffectsof theproposalorindicatethattheproposalwouldnothaveasignificantlyadverseeffecton competitionintheBuenaVistamarket.12Severalfactorsindicatethattheincreasein concentrationintheBuenaVistamarket,asmeasuredbytheaboveHHI,overstatesthe potentialcompetitiveeffectsof theproposalinthemarket. Onethriftinstitutioninthemarkethasacommercialandindustrialloanportfoliosimilar tothoseof commercialbanksintheBuenaVistamarket,13asmeasuredintermsof the ratiosof thosetypesof loanstototalloansandassets.14TheBoardhasconcludedthat depositscontrolledbythisinstitutionshouldbeweightedat100percentinthemarketsharecalculations.Inaddition,theBoardhasconsideredthecompetitiveinfluenceof one creditunionintheBuenaVistamarketthatoffersawiderangeof consumerbankingproducts,operatesstreet-levelbranches,andhasbroadmembershipcriteriathatincludealmost allof theresidentsinthemarket.15TheBoardfindsthatthesecircumstanceswarrant includingthedepositsof thiscreditunionata50percentweightinitscalculationstoestimatemarketinfluence.Thisweightingtakesintoaccountthelimitedlendingdonebythe credituniontosmallbusinessesrelativetocommercialbanks’lendinglevels. Adjustingtoreflectcompetitionfromthethriftandthecreditunion,SecurityBank’s marketsharewouldincreaseto27.6percent,andthemarketconcentrationlevelasmeasuredbytheHHIwouldincreaseby240points,fromalevelof 1498to1738asaresultof thetransaction.Themarketconcentration,aswellastheresultingmarketshare,wouldbe withintheDOJBankMergerGuidelines.Includingthethriftandthecreditunion,nine 12 Thenumberandstrengthofthefactorsnecessarytomitigatethecompetitiveeffectsofaproposaldependon thesizeoftheincreasein,andresultinglevelof,concentrationinabankingmarket.SeeNationsbankCorp.,84 FederalReserveBulletin129(1998). 13 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. 14 Thisthriftinstitutionhasaratioofcommercialandindustrialloanstoassetsof6.5percent.Thisiscomparable totheratioofsomethriftinstitutionsthattheBoardhaspreviouslyfoundtobefullcompetitorsofcommercialbanks.Id. 15 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,92 FederalReserveBulletinC183(2006).

LegalDevelopments:FourthQuarter,2018 57 otherdepositoryorganizationswouldcontinuetoservetheBuenaVistamarket,including twowithmarketsharesgreaterthan15percenteach. TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitionintheBuenaVistamarketorinanyother relevantbankingmarket.Inaddition,theappropriatebankingagencieshavebeenafforded anopportunitytocommentandhavenotobjectedtotheproposal. Basedonthefactsof record,theBoardconcludesthatconsummationof theproposal wouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheBuenaVistamarketorinanyotherrelevantbankingmarket.Accordingly, theBoarddeterminesthatcompetitiveconsiderationsareconsistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations InreviewingaproposalundertheBankMergerAct,theBoardconsidersthefinancialand managerialresourcesandthefutureprospectsof theinstitutionsinvolved.16Initsevaluationof financialfactors,theBoardreviewsinformationregardingthefinancialconditionof theorganizationsinvolved,aswellasinformationregardingthefinancialconditionof the organizations’significantnonbankingoperations.Inthisevaluation,theBoardconsidersa varietyof publicandsupervisoryinformationregardingcapitaladequacy,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.The Boardalsoconsultswithotherrelevantbanksupervisoryagencies. SecurityBankandFNBBankarebothwellcapitalized,andtheresultingbankwould remainsoonconsummationof theproposal.Theproposedtransactionisstructuredasa purchaseof assetsandassumptionof liabilities.17Theassetquality,earnings,andliquidity of bothSecurityBankandFNBBankareconsistentwithapproval,andSecurityBank appearstohaveadequateresourcestoabsorbtherelatedcostsof theproposalandto completetheintegrationof theinstitutions’operations.Inaddition,thefutureprospectsof theinstitutionsundertheproposalareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of SecurityBankafterconsummationof theproposal.TheBoardhasconsideredSecurityBank’splansforimplementingtheproposalandhasreviewedtheexaminationrecords of SecurityBankandFNBBank,includingassessmentsof theirmanagement,riskmanagementsystems,andoperations.Inaddition,theBoardhasconsideredinformation providedbySecurityBank,theBoard’ssupervisoryexperiencesandthoseof otherrelevant banksupervisoryagencieswiththeorganizations,andtheorganizations’recordsof compliancewithapplicablebanking,consumerprotection,andanti-money-launderinglaws. 16 12U.S.C.§1828(c)(5)&(11). 17 Theproposedtransactionwouldbefundedwithcashonhand.

58 FederalReserveBulletin|February2019 SecurityBancorp,SecurityBank,andFNBBankareeachconsideredtobewellmanaged. SecurityBank’sdirectorsandseniorexecutiveofficershavesubstantialknowledgeof and experienceinthebankingandfinancialservicessectors. TheBoardalsohasconsideredSecurityBank’splansforimplementingtheproposal.SecurityBankhasconductedcomprehensiveduediligenceandisdevotingsignificantfinancial andotherresourcestoaddressallaspectsof thepost-acquisitionintegrationprocessfor thisproposal.SecurityBankwouldimplementitsrisk-managementpolicies,procedures, andcontrolsatthecombinedorganization,andtheseareconsideredacceptablefroma supervisoryperspective.Inaddition,SecurityBank’smanagementhastheexperienceand resourcestooperatethecombinedorganizationinasafeandsoundmanner,andSecurity BankplanstointegrateFNBBank’sexistingmanagementandpersonnelinamannerthat augmentsSecurityBank’smanagement.18 Basedonallof thefactsof record,includingSecurityBank’ssupervisoryrecord,managerialandoperationalresources,andplansforoperatingtheresultingbankafterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandthefutureprospectsof theorganizationsinvolvedintheproposal,aswellas therecordsof effectivenessof SecurityBankandFNBBankincombattingmoneylaunderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations InactingonaproposalundertheBankMergerAct,theBoardconsiderstheeffectsof the proposalontheconvenienceandneedsof thecommunitiestobeserved.19Initsevaluation of theeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thecommunitiestheyserve,aswellasotherpotentialeffectsof theproposalon theconvenienceandneedsof thecommunitiestobeserved.Inthisevaluation,theBoard placesparticularemphasisontherecordsof therelevantdepositoryinstitutionsunderthe CommunityReinvestmentAct(“CRA”).20TheCRArequiresthefederalfinancialsupervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeinstitutions’safeand soundoperation,21andrequirestheappropriatefederalfinancialsupervisoryagencyto assessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof itsentire community,includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluating bankexpansionaryproposals.22 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideloan applicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainother characteristics.TheBoardalsoconsiderstheassessmentsof otherrelevantsupervisors,the supervisoryviewsof examiners,othersupervisoryinformation,andinformationprovided bytheapplicant.TheBoardalsomayconsidertheinstitution’sbusinessmodeland marketingandoutreachplans,theorganization’splansfollowingconsummation,andany otherinformationtheBoarddeemsrelevant. 18 Followingconsummationoftheproposedtransaction,mostFNBBankemployeeswouldbecomeemployeesof SecurityBank. 19 12U.S.C.§1828(c)(5). 20 12U.S.C.§2901etseq. 21 12U.S.C.§2901(b). 22 12U.S.C.§2903.

LegalDevelopments:FourthQuarter,2018 59 Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallof thefactsof record,includingreportsof examinationof theCRAperformanceof Security BankandFNBBank;thefairlendingandcompliancerecordsof bothbanks;thesupervisoryviewsof theFederalReserveBankof Chicago(“ReserveBank”)andotherfederal regulatoryagencies;confidentialsupervisoryinformation;andinformationprovidedby SecurityBank. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardconsiders examinationsbytheappropriatefederalsupervisorsof theCRAperformancerecordsof therelevantinstitutions,aswellasinformationandviewsprovidedbythosesupervisors.23 Inthiscase,theBoardconsideredthesupervisoryviewsof theReserveBankwithrespect toSecurityBankandtheOCCwithrespecttoFNBBank. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.24Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplyalendingtesttoevaluatetheperformance of asmallinsureddepositoryinstitutioninhelpingtomeetthecreditneedsof thecommunitiesitserves.Thelendingtestspecificallyevaluatestheinstitution’shomemortgage, smallbusiness,smallfarm,andcommunitydevelopmentlendingtodeterminewhetherthe institutionishelpingtomeetthecreditneedsof individualsandgeographiesof allincome levels.Aspartof thelendingtest,examinersreviewandanalyzeaninstitution’sdata reportedundertheHomeMortgageDisclosureAct,25inadditiontosmallbusiness,small farm,andcommunitydevelopmentloandatacollectedandreportedundertheCRAregulations,toassessaninstitution’slendingactivitieswithrespecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slendingperformanceisbasedonavariety of 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;26(4)the institution’scommunitydevelopmentlending,includingthenumberandamountsof communitydevelopmentloansandtheircomplexityandinnovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpracticestoaddressthecreditneedsof LMI individualsandgeographies. 23 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81Fed.Reg.48506,48548 (July25,2016). 24 12U.S.C.§2906. 25 12U.S.C.§2801etseq. 26 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3).

60 FederalReserveBulletin|February2019 CRAPerformanceof SecurityBank SecurityBankwasassignedanoverall“Satisfactory”ratingbytheReserveBankatitsmost recentCRAperformanceevaluation,asof June9,2014(“SecurityBankEvaluation”).27 Thebankreceiveda“Satisfactory”ratingfortheLendingTest.28 ExaminersfoundthatSecurityBankoriginatedamajorityof itsloansinsideitsAA. Examinersalsonotedthatthebank’sgeographicdistributionof loansreflectedareasonabledispersionthroughoutitsAA.Inaddition,examinersfoundthebank’sloandistributionreflectedreasonablepenetrationamongborrowersof differentincomelevelsandfarms of differentrevenuesizes.Examinersnotedthatthebank’sloan-to-depositratiowasless thanreasonableconsideringthecharacteristicsof thebank,performanceof competitors, andeconomicanddemographicconditions.ExaminersalsonotedthatneitherSecurity BanknortheReserveBankreceivedanyCRA-relatedcomplaintssinceSecurityBank’s previousCRAevaluation. CRAPerformanceof FNBBank FNBBankwasassignedanoverallCRAratingof “Outstanding”atitsmostrecentCRA performanceevaluationbytheOCC,asof March3,2015(“FNBBankEvaluation”).29The bankreceivedan“Outstanding”ratingfortheLendingTest.30 ExaminersfoundthatFNBBankoriginatedasubstantialmajorityof itsloanswithinits AA.Examinersfurtherfoundthattheborrowerdistributionof loansrepresentedanexcellentpenetrationamongfarmsof differentsizesandconsumersof differentincomelevels. Examinersnotedthatthebankhadareasonablequarterlyaverageloan-to-depositratio. ExaminersalsonotedthatnocomplaintswerereceivedbyFNBBankortheOCCduring theevaluationperiod. AdditionalSupervisoryViews Initsreviewof theproposal,theBoardconsideredthemostrecentconsumercompliance examinationandfairlendingreviewof SecurityBankbytheReserveBank.TheBoardalso consideredthemostrecentconsumercomplianceexaminationof FNBBankconductedby theOCC. TheBoardhastakenthisinformation,aswellastheCRAperformancerecordsof Security BankandFNBBank,intoaccountinevaluatingtheproposedtransaction,includingin consideringwhetherSecurityBankhastheexperienceandresourcestoeffectivelyimplementpoliciesandprogramsthatwouldassistthecombinedorganizationinhelpingtomeet thecreditneedsof allof thecommunitieswithinthefirm’sAA. 27 TheSecurityBankEvaluationwasconductedusingSmallInstitutionCRAExaminationProcedures. ExaminersreviewedhomemortgageandsmallfarmloansoriginatedfromJanuary1,2013,through December31,2013. 28 TheSecurityBankEvaluationincludedafull-scopeevaluationoffourcensustractsinsouthernBuenaVista County,Iowa. 29 TheFNBBankEvaluationwasconductedusingSmallInstitutionCRAEvaluationProcedures.Examiners reviewedagriculturalloansandconsumerloansoriginatedfromJanuary1,2012,throughDecember31,2014. 30 TheFNBBankEvaluationincludedafull-scopeevaluationofBuenaVistaCountyandClayCounty,bothin Iowa.

LegalDevelopments:FourthQuarter,2018 61 AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.SecurityBankstatesthatitdoesnotanticipate discontinuinganyproductsorservicesof FNBBank.SecurityBankrepresentsthatit offersabroaderrangeof servicesthanFNBBank,includingtrustservices,andthatSecurityBank’srobustonlinepresencewouldallowcurrentFNBBankcustomerstoaccess servicesthatarenotcurrentlyofferedbyFNBBank,includingonlinebankingandbillpay thatcanbeaccessedoutsidenormalbankinghours.SecurityBankrepresentsthatits largerbranchnetworkwouldallowcurrentFNBcustomersaccesstothreebankinglocationswithinBuenaVistaCounty,ratherthanthesinglelocationcurrentlyoperatedby FNBBank. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws,confidentialsupervisoryinformation,informationprovidedbySecurityBank,andthepotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.Basedonthatreview,theBoard concludesthattheconvenienceandneedsfactorisconsistentwithapproval. FinancialStability TheDodd-FrankWallStreetReformandConsumerProtectionAct(“Dodd-FrankAct”) amendedtheBankMergerActtorequiretheBoardtoconsider“theextenttowhicha proposedacquisition,merger,orconsolidationwouldresultingreaterrisktothestability of theUnitedStatesbankingorfinancialsystem.”31 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.32Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.33 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billioninassets,orthatresultinafirmwithlessthan$100billionintotalassets,are generallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthataproposal 31 Dodd-FrankAct§604(d)and(f),Pub.L.No.111-203,124Stat.1376,1601-02(2010),codifiedat12U.S.C. §1828(c)(5). 32 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 33 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012).

62 FederalReserveBulletin|February2019 doesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbeloweitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificant increaseininterconnectedness,complexity,cross-borderactivities,orotherriskfactors.34 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthatislessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.Both theacquirerandthetargetarepredominatelyengagedinretailandcommercialbanking activities.35Theproformaorganizationwouldhaveminimalcross-borderactivitiesand wouldnotexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.In addition,theorganizationwouldnotbeacriticalservicesproviderorsointerconnected withotherfirmsorthemarketsthatitwouldposesignificantrisktothefinancialsystemin theeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Establishmentof aBranch SecurityBankhasappliedundersection9of theFRAtoestablishandoperateabranchat thecurrentmainofficeof FNBBank.36TheBoardhasassessedthefactorsitisrequired toconsiderwhenreviewinganapplicationunderthatsection.37Specifically,theBoardhas consideredSecurityBank’sfinancialcondition,management,capital,actionsinmeeting theconvenienceandneedsof thecommunitiestobeserved,CRAperformance,andinvestmentinbankpremises.38Forthereasonsdiscussedinthisorder,theBoardfindsthose factorstobeconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheproposal shouldbe,andherebyis,approved.Inreachingitsconclusion,theBoardhasconsideredall thefactsof recordinlightof thefactorsthatitisrequiredtoconsiderundertheBank MergerActandotherapplicablestatutes.TheBoard’sapprovalisspecificallyconditioned oncompliancebySecurityBankwithalltheconditionsimposedinthisorder,including 34 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 35 SecurityBankandFNBBankofferabroadrangeofretailandcommercialbankingproductsandservices. SecurityBankhas,andasaresultoftheproposedtransactionwouldcontinuetohave,asmallmarketsharein theseproductsandservicesonanationwidebasis,andnumerouscompetitorswouldremainfortheseproductsandservices. 36 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).Uponconsummation,SecurityBank’sbranchwouldbepermissibleunderapplicablestatelaw.SeeIowaCode§524.1201. 37 12U.S.C§322;12CFR208.6. 38 Uponconsummationoftheproposal,SecurityBank’sinvestmentinbankpremiseswouldremainwithinthe legalrequirementsof12CFR208.21.

LegalDevelopments:FourthQuarter,2018 63 receiptof allrequiredregulatoryapprovals,andonthecommitmentsmadetotheBoardin connectionwiththeproposal.TheconditionsandcommitmentsaredeemedtobeconditionsimposedinwritingbytheBoardinconnectionwithitsfindingsanddecisionherein and,assuch,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardortheReserveBank,actingunderdelegatedauthority. Byorderof theBoardof Governors,effectiveOctober12,2018. Votingforthisaction:ChairmanPowell,ViceChairmanClarida,ViceChairmanfor SupervisionQuarlesandGovernorBrainard. MargaretMcCloskeyShanks DeputySecretaryof theBoard

May 2019 Vol. 105, No. 2 Legal Developments: First Quarter, 2019 Orders Issued Under Bank Holding Company Act Orders Issued Under Section 3 of the Bank Holding Company Act First Busey Corporation Champaign, Illinois OrderApprovingtheMergerof BankHoldingCompanies FRBOrderNo.2019-01(January10,2019) FirstBuseyCorporation(“FBC”),Champaign,Illinois,abankholdingcompanywithin themeaningof theBankHoldingCompanyActof 1956(“BHCAct”),1hasrequestedthe Board’sapprovalundersection3of theBHCAct2tomergewithTheBancEdCorp. (“EdCorp”),andtherebyindirectlyacquireTheBankof Edwardsville(“EdBank”),both of Edwardsville,Illinois.Followingtheproposedacquisition,EdBankwouldbemerged intoFBC’ssubsidiarybank,BuseyBank,Champaign,Illinois.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(83FederalRegister46488(September13,2018)).4Thetimeforsubmittingcommentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct. FBC,withconsolidatedassetsof approximately$7.8billion,isthe164thlargestinsured depositoryorganizationintheUnitedStates.5FBCcontrolsapproximately$6.2billionin consolidateddeposits,whichrepresentlessthan1percentof thetotalamountof deposits of insureddepositoryinstitutionsintheUnitedStates.FBCcontrolsBuseyBank,which operatesinIllinois,Missouri,Indiana,andFlorida.FBCisthe17thlargestinsureddepositoryorganizationinIllinois,controllingdepositsof approximately$5.0billion,which represent1.0percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.6 FBCisthe25thlargestinsureddepositoryorganizationinMissouri,controllingdepositsof approximately$922.3million,whichrepresent0.6percentof thetotaldepositsof insured depositoryinstitutionsinthatstate. 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 ThemergerofEdBankintoBuseyBankissubjecttoapprovalbytheFederalDepositInsuranceCorporation (“FDIC”),pursuanttosection18(c)oftheFederalDepositInsuranceAct(“BankMergerAct”).12U.S.C.§1828(c). TheFDICapprovedthebankmergeronDecember6,2018. 4 12CFR262.3(b). 5 NationalassetdataareasofJune30,2018.Nationaldeposit,ranking,andmarket-sharedataareasofJune30,2018, unlessotherwisenoted. 6 StatedepositdataareasofJune30,2018,unlessotherwisenoted.

2 FederalReserveBulletin|May2019 EdCorp,withconsolidatedassetsof approximately$1.9billion,isthe437thlargestinsured depositoryorganizationintheUnitedStates.EdCorpcontrolsapproximately$1.6billion inconsolidateddeposits,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.EdCorpcontrolsEdBank, whichoperatesinIllinoisandMissouri.EdCorpisthe31stlargestinsureddepository organizationinIllinois,controllingdepositsof approximately$1.6billion,whichrepresent 0.3percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.EdCorpis the264thlargestinsureddepositoryorganizationinMissouri,controllingdepositsof approximately$11.8million,whichrepresentlessthan0.1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. Onconsummationof theproposal,FBCwouldbecomethe150thlargestinsureddepositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $9.6billion,whichrepresentlessthan1percentof thetotalassetsof insureddepository organizationsintheUnitedStates.FBCwouldcontrolconsolidateddepositsof approximately$7.7billion,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.7InIllinois,FBCwouldbecomethe 15thlargestinsureddepositoryorganization,controllingdepositsof approximately $6.6billion,whichrepresent1.4percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.InMissouri,FBCwouldremainthe25thlargestinsureddepository organization,controllingdepositsof approximately$934.2million,whichrepresent approximately0.6percentof thetotaldepositsof insureddepositoryinstitutionsinthat state. InterstateandDepositCapAnalysis Section3(d)of theBHCActgenerallyprovidesthat,if certainconditionsaremet,the Boardmayapproveanapplicationbyabankholdingcompanytoacquirecontrolof a banklocatedinastateotherthanthehomestateof thebankholdingcompany,without regardtowhetherthetransactionisprohibitedunderstatelaw.8TheBoardmaynot approveanapplicationthatwouldpermitanout-of-statebankholdingcompanytoacquire abankinahoststateif thebankhasnotbeeninexistenceforthelesserof thestatestatutoryminimumperiodof timeorfiveyears.9Inaddition,theBoardmaynotapprovean interstateapplicationif thebankholdingcompanycontrolsor,uponconsummationof the proposedtransaction,wouldcontrolmorethan10percentof thetotaldepositsof insured depositoryinstitutionsintheUnitedStatesor,incertaincircumstances,if thebankholding company,uponconsummation,wouldcontrol30percentormoreof thetotaldepositsof insureddepositoryinstitutionsinanystateinwhichtheacquirerandtargethaveoverlappingbankingoperations.10 Forpurposesof theBHCAct,thehomestateof FBCisIllinois,andEdBankislocatedin IllinoisandMissouri.11FBCandBuseyBankarewellcapitalizedandwellmanagedunder 7 Inthiscontext,insureddepositoryinstitutionsincludecommercialbanks,savingsassociations,andsavings banks. 8 12U.S.C.§1842(d)(1)(A). 9 12U.S.C.§1842(d)(1)(B). 10 12U.S.C.§1842(d)(2)(A)and(B).Forpurposesofsection3(d)oftheBHCAct,theacquiringandtargetinstitutionshaveoverlappingbankingoperationsinanystateinwhichanybanktobeacquiredislocatedandthe acquiringbankholdingcompanycontrolsanyinsureddepositoryinstitutionorabranch.TheBoardconsiders abanktobelocatedinthestatesinwhichthebankischartered,headquartered,oroperatesabranch.See 12U.S.C.§1841(o)(4)–(7). 11 See12U.S.C.§1841(o)(4).Abankholdingcompany’shomestateisthestateinwhichthetotaldepositsofall bankingsubsidiariesofsuchcompanywerethelargestonJuly1,1966,orthedateonwhichthecompany becameabankholdingcompany,whicheverislater.

LegalDevelopments:FirstQuarter,2019 3 applicablelaw,andBuseyBankhasanoverall“Outstanding”ratingundertheCommunity ReinvestmentActof 1977(“CRA”).12Missourihasnostatutoryminimumagerequirementsthatapplytotheproposal,13andEdBankhasbeeninexistenceformorethanfive years. Onconsummationof theproposedtransaction,FBCwouldcontrollessthan1percentof thetotalamountof consolidateddepositsof insureddepositoryinstitutionsintheUnited States.Illinoisimposesa30percentlimitonthetotalamountof in-statedepositsthata singlebankingorganizationmaycontrol,14andMissouriimposesa13percentlimit.15In eachof thesestates,theonlystatesinwhichFBCandEdCorphaveoverlappingbanking operations,thecombinedbankingorganizationwouldcontrollessthanthetotalamountof in-statedepositsthatasinglebankingorganizationmaycontrol.TheBoardhasconsideredallotherrequirementsundersection3(d)of theBHCAct,includingBuseyBank’s recordof meetingtheconvenienceandneedsof thecommunitiesitserves.Accordingly,in lightof allthefactsof record,theBoardmayapprovetheproposalundersection3(d)of theBHCAct. CompetitiveConsiderations Section3of theBHCActprohibitstheBoardfromapprovingaproposalthatwouldresult inamonopolyorwouldbeinfurtheranceof anattempttomonopolizethebusinessof bankinginanyrelevantmarket.16TheBHCActalsoprohibitstheBoardfromapprovinga proposalthatwouldsubstantiallylessencompetitionortendtocreateamonopolyinany bankingmarket,unlesstheanticompetitiveeffectsof theproposalareclearlyoutweighedin thepublicinterestbytheprobableeffectof theproposalinmeetingtheconvenienceand needsof thecommunitiestobeserved.17 BuseyBankandEdBankcompetedirectlyintheSt.Louis,Missouri,bankingmarket(“St. Louismarket”).18TheBoardhasconsideredthecompetitiveeffectsof theproposalinthis bankingmarket.Inparticular,theBoardhasconsideredthenumberof competitorsthat wouldremaininthemarket;therelativeshareof totaldepositsininsureddepositoryinstitutionsinthemarket(“marketdeposits”)thatFBCwouldcontrol;19theconcentration levelsof marketdepositsandtheincreaseinthislevel,asmeasuredbytheHerfindahl- HirschmanIndex(“HHI”)undertheDepartmentof JusticeBankMergerCompetitive 12 12U.S.C.§2901etseq. 13 MissourilawprohibitstheinterstateacquisitionofaMissouribankthathasbeeninexistenceforfewerthan 5years.SeeMo.Ann.Stat.§362.077(1).Missouri’sminimumagerequirementsdonotapplytotheproposal becauseEdBankisastatebankthatisnotcharteredunderMissourilaw. 14 205Ill.Comp.Stat.5/21.3(a). 15 Mo.Ann.Stat.§362.915. 16 12U.S.C.§1842(c)(1). 17 12U.S.C.§1842(c)(1)(B). 18 TheSt.LouismarketisdefinedasthecityofSt.Louis,Missouri;Franklin,Jefferson,Lincoln,St.Charles,St. Louis,Warren,andWashingtoncounties,allofMissouri;Roark,Boeuf,Canaan,andBrushCreektownships,includingthecitiesofHermannandOwensville,allinGasconadeCounty,Missouri;Boonetownshipin CrawfordCounty,Missouri;LoutretownshipinMontgomeryCounty,Missouri;Bond,Calhoun,Clinton, Jersey,Macoupin,Madison,Monroe,andSt.Claircounties,allofIllinois;thewesternpartofRandolph County,Illinois,definedbyRoute3ontheeastandtheKaskaskiaRiveronthesouth(includingthecitiesof RedBud,Ruma,andEvansville,Illinois);WashingtonCounty,Illinois(minusAshleyandDuBoistownships); andtheentirecityofCentralia,Illinois. 19 StatedepositandmarketsharedataareasofJune30,2018,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).

4 FederalReserveBulletin|May2019 Reviewguidelines(“DOJBankMergerGuidelines”);20andothercharacteristicsof the market. Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesintheSt.Louismarket.Onconsummation of theproposal,theSt.Louismarketwouldremainunconcentratedasmeasuredbythe HHI,accordingtotheDOJBankMergerGuidelines.ThechangeinHHIwouldbesmall andnumerouscompetitorswouldremainintheSt.Louismarket.21 TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket.Inaddition,the appropriatebankingagencieshavebeenaffordedanopportunitytocommentandhavenot objectedtotheproposal. Basedonallof thefactsof record,theBoardconcludesthatconsummationof the proposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheSt.Louismarketorinanyotherrelevantbankingmarket. Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistentwith approval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCAct,theBoardconsidersthefinancial andmanagerialresourcesandthefutureprospectsof theinstitutionsinvolved.22Inits 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. 20 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. 21 FBCoperatesthe18thlargestdepositoryinstitutionintheSt.Louismarket,controllingapproximately $922.3millionindeposits,whichrepresentapproximately1.0percentofmarketdeposits.EdCorpoperatesthe 9thlargestdepositoryinstitutionintheSt.Louismarket,controllingapproximately$1.6billionindeposits, whichrepresentapproximately1.8percentofmarketdeposits.Onconsummationoftheproposedtransaction, FBCwouldbecomethe7thlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately$2.5billion,whichrepresentapproximately2.8percentofmarketdeposits.TheHHIintheSt.Louis marketwouldincreaseby3pointsto805,and131competitorswouldremaininthemarket. 22 12U.S.C.§1842(c)(2),(5),and(6).

LegalDevelopments:FirstQuarter,2019 5 FBCandBuseyBankarewellcapitalized,andthecombinedorganizationwouldremainso onconsummationof theproposal.Theproposedtransactionisabankholdingcompany mergerthatisstructuredasacashandstockpurchase,withasubsequentmergerof the subsidiarydepositoryinstitutions.23Theassetquality,earnings,andliquidityof both BuseyBankandEdBankareconsistentwithapproval,andFBCappearstohaveadequate resourcestoabsorbtherelatedcostsof theproposalandtocompletetheintegrationof the institutions’operations.Inaddition,thefutureprospectsof theinstitutionsunderthe proposalareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of FBC,EdCorp,andtheirsubsidiarydepositoryinstitutions,includingassessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition,theBoardhas consideredinformationprovidedbyFBC;theBoard’ssupervisoryexperiencesandthoseof otherrelevantbanksupervisoryagencieswiththeorganizations;theorganizations’records of compliancewithapplicablebanking,consumerprotection,andanti-money-laundering laws;andinformationprovidedbythecommenters. FBC,EdCorp,andtheirsubsidiarydepositoryinstitutionsareeachconsideredtobewell managed.FBC’sdirectorsandseniorexecutiveofficershaveknowledgeof andexperience inthebankingandfinancialservicessectors,andFBC’srisk-managementprogramappears consistentwithapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredFBC’splansforimplementingtheproposal.FBChas conductedcomprehensiveduediligenceandisdevotingsignificantfinancialandother resourcestoaddressallaspectsof thepost-acquisitionintegrationprocessforthisproposal. Ingeneral,FBCwouldimplementitsrisk-managementpolicies,procedures,andcontrols atthecombinedorganization,andtheseareconsideredacceptablefromasupervisory perspective.24Inaddition,FBC’smanagementhastheexperienceandresourcestooperate thecombinedorganizationinasafeandsoundmanner,andFBCplanstointegrateEd Corp’sexistingmanagementandpersonnelinamannerthataugmentsFBC’smanagement.25 Basedonallthefactsof record,includingFBC’ssupervisoryrecord,managerialand operationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoardconcludesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandthefutureprospectsof theorganizationsinvolvedintheproposal,aswellas therecordsof effectivenessof FBCandEdCorpincombattingmoney-launderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCAct,theBoardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.26Initsevaluation,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit 23 Toeffectthetransaction,eachshareofEdCorpcommonstockwouldbeconvertedintotherighttoreceivea cashamountandFBCcommonstock,basedonanexchangeratio.FBChasthefinancialresourcestoeffect theproposedtransaction. 24 FBCrepresentsthatitmayadoptrisk-managementpoliciesandproceduresfromEdCorp,andtheseare consideredacceptablefromasupervisoryperspective. 25 Followingconsummationoftheholdingcompanymerger,anindividualontheboardofdirectorsofEdCorp wouldjointheboardofdirectorsofFBC. 26 12U.S.C.§1842(c)(2).

6 FederalReserveBulletin|May2019 needsof thesecommunities,aswellasotherpotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved,andplacesparticularemphasisonthe recordsof therelevantdepositoryinstitutionsundertheCRA.TheCRArequiresthe federalbanksupervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeet thecreditneedsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeinstitutions’safeandsoundoperations,27andrequirestheappropriatefederalbanksupervisory agencytoassessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof its entirecommunity,includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.28 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsiderstheassessmentsof otherrelevantsupervisors,the supervisoryviewsof examiners,othersupervisoryinformation,informationprovidedby theapplicant,andpubliccommentsontheproposal.TheBoardalsomayconsiderthe acquiringinstitution’sbusinessmodelandmarketingandoutreachplans,theorganization’splansafterconsummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof Busey BankandEdBank,thefairlendingandcompliancerecordsof bothbanks,thesupervisory viewsof theFDIC,confidentialsupervisoryinformation,informationprovidedbyFBC, andthepubliccommentsontheproposal. PublicCommentsontheProposal TheBoardreceivedaletterfromacommenter,representing15communityorganizations, objectingtotheproposalonthebasisof BuseyBank’sCRArecordintheSt.Louis, Missouri,metropolitanarea(“St.Louisarea”).29ThecommentersassertedthatBusey Bankhasfailedtomaintainahighlevelof lendingandservinginLMIneighborhoods withintheSt.LouisareasinceitmergedwithPulaskiBank,NationalAssociation (“PulaskiBank”),in2016.Thecommentersexpressedconcernregardingthe totalpercentageof loansthatBuseyBankoriginatedtoLMIborrowersandcommunities withintheSt.Louisarea,asreflectedinHomeMortgageDisclosureAct(“HMDA”)data from2016and2017.ThecommentersarguedthatBuseyBank’slendingtoLMIborrowers laggedbehindpeerinstitutionsandthelendingrecordof PulaskiBank. Inaddition,thecommentersexpressedconcernregardingthepotentialeffectof the proposalonlendingtoHispanicandAfricanAmericanborrowerswithintheSt.Louis area.Specifically,thecommentersstatedthatEdBankisaleaderinlendingtoHispanic borrowersdueinparttothebank’sinnovativemortgageproductsandbilingualbranchin FairmontCity,Illinois.ThecommentersurgedBuseyBanktomaintaintheinnovative productsandservicesofferedbyEdBankinordertobetterservetheHispaniccommunity. Inaddition,thecommentersexpressedconcernregardingthetotalpercentageof loans thateachof BuseyBankandEdBankoriginatedtoAfricanAmericanborrowerswithin theSt.Louisarea,asreflectedin2016and2017HMDAdata.Thecommentersurged 27 12U.S.C.§2901(b). 28 12U.S.C.§2903. 29 FBCsubmittedacommentthatitreceivedfromacommunityorganizationinsupportoftheproposal.The organizationrepresentedthatBuseyBankhasarecordofassistingcommunitydevelopmentprogramsinthe St.Louisarea.

LegalDevelopments:FirstQuarter,2019 7 BuseyBanktoprovidecommitmentsthatdescribehowitplanstomeetthecreditneedsof AfricanAmericanborrowersandcommunities. ThecommentersalsocriticizedBuseyBank’srecordof communitydevelopmentlending, investments,andserviceswithintheSt.Louisarea.ThecommentersassertedthatEdBank isaleaderincommunitydevelopmentactivitiesandexpressedconcernthattheproposal couldnegativelyimpactcommunitiescurrentlyservedbyEdBank. Thecommentersrequestedthatapprovalof theproposalbeconditionedonBuseyBank adoptingacommunitybenefitsagreementwithcommitmentsspecifictolending,branches, services,communitydevelopmentlendingandinvestments,andcommunityengagement.30 Businessesof theInvolvedInstitutionsandResponsetothePublicComments FBCoperatesprimarilythroughBuseyBank,whichoperatesanetworkof branchesinIllinois,Missouri,Indiana,andFlorida.BuseyBankoffersavarietyof productsandservices, includingcheckingandsavingsaccounts,mortgageandbusinessloans,andassetmanagementservices. EdCorpoperatesprimarilythroughEdBank,whichoperatesanetworkof branchesin IllinoisandMissouri.EdBankoffersavarietyof productsandservices,includingchecking andsavingsaccounts,mortgageandbusinessloans,andwealthmanagementservices. FBCassertsthattheHMDAdatareferencedbythecommentersdonotfullyreflectBusey Bank’sCRArecord.Specifically,FBCarguesthattheHMDAdataareaffectedbydemographicandeconomicfactorsintheSt.LouisareathatimpacthomeownershipforLMI borrowers.Furthermore,FBCrepresentsthatBuseyBank’sentryintotheSt.Louisarea bankingmarketresultedinslightdisruptionstothebank’smortgagelending,whichFBC attributestothepost-mergerintegrationof PulaskiBankandBuseyBank’ssaleof out-offootprintmortgageoffices.FBCassertsthatBuseyBankiscurrentlybettergeographically positionedandhasstrengtheneditsoveralllendingactivityandfocusonmarketsservedby thebank. Inaddition,FBCnotesthattheHMDAdatareferencedbythecommentersdonotsuggest apatternof discriminationorthepresenceof afairlendingissueatBuseyBank.FBC assertsthatBuseyBankiscommittedtothefairandequaltreatmentof allcustomersand representsthatthebankmaintainsappropriatecontrolstoensurecompliancewithapplicablefairlendinglawsandregulations. FBCrepresentsthatBuseyBankcurrentlyoffersmortgageproductsandloanprograms withintheSt.Louisareathataredesignedtohelpmeetthecreditneedsof LMIborrowers andcommunities.FBCalsorepresentsthatBuseyBankisaleaderinmakingcommunity developmentloanswithintheSt.Louisareabasedonvolume,responsiveness,and complexity.Further,FBCassertsthatBuseyBankhasastrongrecordof community outreach,includingprovidingemployeespaidtimeoff toservetheircommunities.FBC representsthatemployeesof BuseyBankhavefocusedtheirvolunteeractivitieswithinthe St.Louisareaoneffortsthatsupportcommunityservices,affordablehousing,andtherevi- 30 TheBoardconsistentlyhasfoundthatneithertheCRAnorthefederalbankingagencies’CRAregulations requiredepositoryinstitutionstomakepledgesorenterintocommitmentsoragreementswithanyprivate party.See,e.g.,SynovusFinancialCorp.andSynovusBank,FRBOrderNo.2018-25at12n.30(December7, 2018);TriCoBancshares,FRBOrderNo.2018-13at9n.20(June6,2018);CitigroupInc.,88FederalReserve Bulletin485(2002);FifthThirdBancorp,80FederalReserveBulletin838,841(1994).Initsevaluation,the BoardreviewstheexistingCRAperformancerecordofanapplicantandtheprogramsthattheapplicanthasin placetoservethecreditneedsofitsCRAassessmentareas.

8 FederalReserveBulletin|May2019 talizationandstabilizationof neighborhoods.Inaddition,FBCrepresentsthatBuseyBank partnerswithcommunityorganizationsintheSt.Louisareathatsupport,amongother things,LMIborrowers,affordablehousing,smallbusinesslending,andeconomicdevelopment.FBCrepresentsthatBuseyBankplanstostrengthenitsCRAprogramthroughthe proposedacquisitionbyadoptinginnovativeCRA-relatedproductsandservicescurrently offeredbyEdBank,includingtheMyCommunityHomeLoanproductandmultilingual servicesatbranchlocations. Recordsof PerformanceundertheCRA InevaluatingtheCRAperformanceof theinvolvedinstitutions,theBoardgenerally considerseachinstitution’smostrecentCRAperformanceevaluation,aswellasother informationandsupervisoryviewsfromtherelevantfederalfinancialsupervisororsupervisors,whichinthiscaseistheFDICwithrespecttobothinstitutions.31Inaddition,the Boardconsidersinformationprovidedbytheapplicantandbypubliccommenters. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.32Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalfinancialsupervisorof theinstitution’soverallrecordof lendinginits communities. Ingeneral,federalfinancialsupervisorsapplyalendingtesttoevaluatetheperformanceof largeinsureddepositoryinstitutions,suchasBuseyBankandEdBank,inhelpingtomeet thecreditneedsof thecommunitiestheyserve.Thelendingtestspecificallyevaluatesan institution’slendingtodeterminewhethertheinstitutionishelpingtomeetthecreditneeds of individualsandgeographiesof allincomelevels.Aspartof thelendingtest,examiners reviewandanalyzeaninstitution’sdatareportedunderHMDA,33inadditiontosmall business,smallfarm,andcommunitydevelopmentloandatacollectedandreportedunder theCRAregulations,toassessaninstitution’slendingactivitieswithrespecttoborrowers andgeographiesof differentincomelevels.Theinstitution’slendingperformanceisbased onavarietyof factors,including(1)thenumberandamountsof homemortgage,small business,smallfarm,andconsumerloans(asapplicable)intheinstitution’sCRAassessmentareas(“AAs”);(2)thegeographicdistributionof theinstitution’slending,including theproportionanddispersionof theinstitution’slendinginitsAAsandthenumberand amountsof loansinlow-,moderate-,middle-,andupper-incomegeographies;(3)the distributionof loansbasedonborrowercharacteristics,including,forhomemortgage loans,thenumberandamountsof loanstolow-,moderate-,middle-,andupper-income individuals;34(4)theinstitution’scommunitydevelopmentlending,includingthenumber andamountsof communitydevelopmentloansandtheircomplexityandinnovativeness; and(5)theinstitution’suseof innovativeorflexiblelendingpracticestoaddressthecredit needsof LMIindividualsandgeographies.35Largeinstitutionsalsoaresubjecttoan investmenttest,whichevaluatesthenumberandamountsof qualifiedinvestmentsthat 31 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81Fed.Reg.48506,48548 (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 See12CFR228.22(b).

LegalDevelopments:FirstQuarter,2019 9 benefittheirAAs,andaservicetest,whichevaluatesboththeavailabilityandeffectiveness of theirsystemsfordeliveringretailbankingservicesandtheextentandinnovativenessof theircommunitydevelopmentservices.36 TheBoardisconcernedwhenHMDAdatareflectdisparitiesintheratesof loanapplications,originations,anddenialsamongmembersof differentracialorethnicgroupsinlocal areas.Thesetypesof disparitiesmayindicateweaknessesintheadequacyof policiesand programsataninstitutionformeetingitsobligationstoextendcreditfairly.However,other informationcriticaltoaninstitution’screditdecisionsisnotavailablefromHMDAdata.37 Consequently,theBoardevaluatesHMDAdatadisparitiesinthecontextof otherinformationregardingthelendingrecordof theinstitution. CRAPerformanceof BuseyBank BuseyBankwasassignedanoverall“Outstanding”ratingatitsmostrecentCRAperformanceevaluationbytheFDIC,asof September30,2015(“BuseyBankEvaluation”).38 Thebankreceived“Outstanding”ratingsfortheLendingTestandServiceTest,andthe bankreceiveda“HighSatisfactory”ratingfortheInvestmentTest.39 ExaminersfoundthatBuseyBank’soveralllendinglevelsreflectedexcellentresponsiveness tothecreditneedsof itsAAsandthatBuseyBankoriginatedasubstantialmajorityof its loanswithinitsAAs.Examinersalsofoundthatthegeographicdistributionof thebank’s loansreflectedexcellentpenetrationthroughoutthebank’scombinedAAs.Further,examinersfoundthat,giventheproductlinesofferedbyBuseyBank,itsdistributionof loans toborrowersreflectedexcellentpenetrationamongretailcustomersof differentincome levelsandbusinesscustomersof differentsizes.ExaminersnotedthatBuseyBankwasa significanthomemortgageandsmallbusinesslenderthroughoutitscombinedAAs,aswell asaleaderincommunitydevelopmentlending.ExaminersalsonotedthatBuseyBank exhibitedanexcellentrecordof servingthecreditneedsof LMIindividuals,verysmall businesses,andthemosteconomicallydisadvantagedareasof itsAAs,includingthrough extensiveuseof flexiblelendingprograms. ExaminersfoundthatBuseyBankhadasignificantlevelof communitydevelopment investmentsandgrantswithinitscombinedAAsandoccasionallyusedcomplexinvestmentstosupportcommunitydevelopmentinitiatives.ExaminersalsofoundthatBusey Bankwasaleaderinprovidingcommunitydevelopmentservices,andfoundthatthe bank’sfacilitiesanddeliverysystemswerereadilyaccessibletoallportionsof thebank’s AAs.Inaddition,examinersfoundthatthebank’sservices,includingbusinesshours,did notvaryinawaythatinconveniencedcertainportionsof thebank’sAAs,particularly LMIcensustractsandindividuals. 36 See12CFR228.21etseq. 37 Otherinformationrelevanttocreditdecisionscouldincludecredithistory,debt-to-incomeratios,andloan-tovalueratios.Accordingly,whenconductingfairlendingexaminations,examinersanalyzesuchadditionalinformationbeforereachingadeterminationregardinganinstitution’scompliancewithfairlendinglaws. 38 TheBuseyBankEvaluationwasconductedusingLargeInstitutionCRAExaminationProcedures.Examiners reviewedmortgageloansreportedpursuanttoHMDAandsmallbusinessandsmallfarmloansasreported underCRAdatacollectionrequirements,fromJanuary1,2013,throughJune30,2015.Theevaluationperiod forcommunitydevelopmentloans,investments,andserviceswasAugust30,2012,throughSeptember30,2015. 39 TheBuseyBankEvaluationincludedafull-scopeevaluationofallorpartsoftheChampaign-Urbana,Illinois MetropolitanStatisticalArea(“MSA”);theBloomington-Pontiac,IllinoisCombinedStatisticalArea;the Peoria,IllinoisMSA;theIndianapolis-Carmel-Anderson,IndianaMSA;andtheCapeCoral-FortMyers, FloridaMSA.Limited-scopeevaluationswereperformedofallorpartsoftheDecatur,IllinoisMSA;the ShelbyCounty,IllinoisNon-MSA;theNorthPort-Sarasota-Bradenton,FloridaMSA;andthePuntaGorda, FloridaMSA.BuseyBankenteredtheSt.Louis,Missouri-IllinoisMultistateMSAin2016,aftertheBusey BankEvaluationwascompleted.

10 FederalReserveBulletin|May2019 FBC’sEffortssincetheBuseyBankEvaluation FBCstatesthat,sincetheBuseyBankEvaluation,BuseyBankhasmaintaineditshigh standardswithrespecttocommunityengagement.FBCnotesthatin2017,BuseyBank formedaFairandResponsibleBankingDepartmentwithinitsRiskManagementDivision thatisresponsiblefordrivingthebank’sCRAeffortswithinitsAAsandmanagingthe bank’sfairlendingprogram.FBCrepresentsthatBuseyBank’semployeeshavecontinued tosupportvariouscommunityinitiatives,withafocusonaffordablehousing,financial literacy,andeconomicdevelopment.Further,FBCrepresentsthatBuseyBankoffersa varietyof loanproductsdesignedtoassistLMIborrowersthroughfeaturessuchasdownpaymentassistance,grants,andforgivablesecondmortgages. Inaddition,FBCstatesthatBuseyBankhasstrengtheneditssmallbusinesslendingsince theBuseyBankEvaluation.Forexample,FBCrepresentsthatBuseyBankwasoneof the largestprovidersof U.S.SmallBusinessAdministrationloansintheSt.Louisareaduring 2016and2017.FBCalsorepresentsthatBuseyBankwasrecognizedbyalocalpublication in2017asoneof thebestbanksintheSt.Louisareaforprovidingservicesandresources tosmallbusinessowners. CRAPerformanceof EdBank EdBankreceivedanoverallratingof “Satisfactory”atitsmostrecentCRAperformance evaluationbytheFDIC,asof May22,2017(“EdBankEvaluation”).40Thebankreceived “HighSatisfactory”ratingsfortheLendingTestandtheServiceTest,andthebank receiveda“LowSatisfactory”ratingfortheInvestmentTest.41 ExaminersconcludedthatEdBank’slendinglevelsreflectedgoodresponsivenesstothe creditneedsof thebank’sAA.Examinersfoundthatthebankmadeasubstantialmajority of itssmallbusiness,smallfarm,andhomeloanswithinitsAA,andthegeographicdistributionof thebank’sloansreflectedgoodpenetrationthroughoutthebank’sAA.Examinersalsofoundthat,giventheproductlinesofferedbyEdBank,itsdistributionof lending byborrowerincomereflectedgoodpenetrationamongretailcustomersof differentincome levelsandbusinesscustomersandfarmsof differentsizes.ExaminersconcludedthatEd Bankhadanexcellentrecordof makinghomemortgageloanstoLMIborrowers,andthe bankwasaleaderinmakingcommunitydevelopmentloanswithinitsAA. ExaminersfoundthatEdBank’scommunitydevelopmentinvestmentsshowedadequate responsivenesstothecreditneedsof thebank’sAA.Examinersnotedthatthebankoccasionallyusedinnovativeand/orcomplexinvestmentsthatsupportedcommunitydevelopmentinitiatives.ExaminersnotedthatEdBankprovidedarelativelyhighlevelof communitydevelopmentservices,includingfinancialeducationresourcesandhomebuyerworkshops.Inaddition,examinersnotedthatthebank’sservicesdidnotvaryinawaythat inconveniencedportionsof thebank’sAA,particularlyLMIcensustractsandindividuals. Viewsof theFDIC Initsreviewof theproposal,theBoardconsultedwiththeFDICregardingBuseyBank’s andEdBank’sCRA,consumercompliance,andfairlendingrecords.TheFDICreviewed 40 TheEdBankEvaluationwasconductedusingLargeInstitutionCRAExaminationProcedures.Examiners reviewedmortgageloansreportedpursuanttoHMDA,andsmallbusinessloansreportedunderCRAdata collectionrequirements,fromJanuary1,2014,throughDecember31,2016.Theevaluationperiodforcommunitydevelopmentlending,investments,andserviceswasJuly28,2014,throughMay22,2017. 41 TheEdBankEvaluationincludedanevaluationofthebank’ssoleAA,whichconsistsofpartsoftheSt. Louis,Missouri-IllinoisMultistateMSA.

LegalDevelopments:FirstQuarter,2019 11 andapprovedtheBankMergerActapplicationrelatedtotheproposaland,indoingdo, consideredadversecommentsthatweresimilartothecommentssubmittedtotheBoardon theBHCActapplication.TheBoardhasconsideredtheresultsof themostrecent consumercomplianceexaminationsof BuseyBankandEdBankconductedbyFDIC examiners,whichincludedreviewsof thebanks’compliancemanagementprogramsand thebanks’compliancewithconsumerprotectionlawsandregulations.TheBoardhas takenthisinformation,aswellastheCRAperformancerecordsof BuseyBankandEd Bank,intoaccountinevaluatingtheproposal,includinginconsideringwhetherFBChas theexperienceandresourcestoensurethatBuseyBankwouldhelpmeetthecreditneedsof thecommunitieswithinitsAAsfollowingtheproposedtransaction. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.FBCrepresentsthat,followingconsummationof thebankmerger,thecombinedbankwouldretainthefullrangeof productsandservices currentlyofferedbyBuseyBankandEdBank.FBCrepresentsthatcustomersof EdBank wouldgainaccesstonewproductsandservices,includingBuseyBank’shealthsavings accounts,insuredcashsweepservices,andperson-to-personmobilebankingservices.In addition,FBCrepresentsthatcustomersof BuseyBankwouldbenefitbyreceivingaccess to,amongotherthings,mortgagelendingproductscurrentlyofferedbyEdBank,including theMyCommunityHomeLoanproduct,whichisspecificallydesignedtomeettheneeds of LMIborrowersandcommunities.FBCrepresentsthatcustomersof bothbankswould benefitfromalargerbranchandATMnetwork. FBCrepresentsthatBuseyBankwouldcontinuetoutilizeitscurrentproducts,programs, andprocedures,alongwiththoseadoptedfromEdBank,tomeetsitsobligationsunderthe CRA.FBCfurtherrepresentsthatitwouldworktogetherwithexistingpartnersof Busey BankandEdBank,includingcommunitygroups,inordertoachieveBuseyBank’sgoals forthebank’sCRAandfairlendingprograms. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws,supervisoryviewsof theFDIC,confidential supervisoryinformation,informationprovidedbyFBC,thepubliccommentsonthe proposal,andotherpotentialeffectsof theproposalontheconvenienceandneedsof the communitiestobeserved.Basedonthatreview,theBoardconcludesthattheconvenience andneedsfactorisconsistentwithapproval. FinancialStability Section3of theBHCActrequirestheBoardtoconsider“theextenttowhichaproposed acquisition,merger,orconsolidationwouldresultingreaterormoreconcentratedrisksto thestabilityof theUnitedStatesbankingorfinancialsystem.”42 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof 42 12U.S.C.§1842(c)(7).

12 FederalReserveBulletin|May2019 theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the resultingfirm.43Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamageonthebroadereconomy.44 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billionintotalassets,orthatresultinafirmwithlessthan$100billionintotalassets, aregenerallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthata proposaldoesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbelow eitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificantincreaseininterconnectedness,complexity,cross-borderactivities,orotherrisk factors.45 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billionintotalassetsandaproformaorganizationof lessthan$100billionintotal assets.Boththeacquirerandthetargetarepredominatelyengagedinretailandcommercial bankingactivities.46Theproformaorganizationwouldhaveminimalcross-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 compliancebyFBCwithalltheconditionsimposedinthisorder,includingreceiptof all requiredregulatoryapprovals,andonanycommitmentsmadetotheBoardinconnection 43 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 44 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 45 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 46 FBCandEdCorpbothofferarangeofretailandcommercialbankingproductsandservices.FBChas,andas aresultoftheproposalwouldcontinuetohave,asmallmarketshareintheseproductsandservicesona nationwidebasis.

LegalDevelopments:FirstQuarter,2019 13 withtheproposal.Forpurposesof thisaction,theconditionsandcommitmentsare deemedtobeconditionsimposedinwritingbytheBoardinconnectionwithitsfindings anddecisionhereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardortheFederalReserveBankof Chicago,actingunderdelegated authority. Byorderof theBoardof Governors,effectiveJanuary10,2019. Votingforthisaction:ChairmanPowell,ViceChairmanClarida,ViceChairmanfor SupervisionQuarles,andGovernorsBrainardandBowman. AnnE.Misback Secretaryof theBoard

14 FederalReserveBulletin|May2019 CenterState Bank Corporation Winter Haven, Florida OrderApprovingtheMergerof BankHoldingCompanies FRBOrderNo.2019-06(March11,2019) CenterStateBankCorporation(“CenterState”),WinterHaven,Florida,afinancialholding companywithinthemeaningof theBankHoldingCompanyActof 1956(“BHCAct”),1 hasrequestedtheBoard’sapprovalundersection3of theBHCAct2toacquireandmerge withNationalCommerceCorporation(“Commerce”)andtherebyindirectlyacquire Commerce’ssubsidiarybank,NationalBankof Commerce(“CommerceBank”),bothof Birmingham,Alabama.Followingtheproposedacquisition,CommerceBankwouldbe mergedintoCenterState’ssubsidiarybank,CenterStateBank,NationalAssociation (“CenterStateBank”),WinterHaven.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(83FederalRegister65166(December19,2018)).4Thetimeforsubmittingcommentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct. CenterState,withconsolidatedassetsof approximately$12.3billion,isthe125thlargest insureddepositoryorganizationintheUnitedStates.5CenterStatecontrolsapproximately $9.5billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.6CenterState controlsCenterStateBank,whichoperatesinFlorida,Alabama,andGeorgia.7CenterState isthe17thlargestinsureddepositoryorganizationinFlorida,controllingdepositsof approximately$8.4billion,whichrepresent1.4percentof depositsinthatstate. CenterStateisthe51stlargestinsureddepositoryorganizationinAlabama,controlling depositsof approximately$239.8million,whichrepresentlessthan1percentof depositsin thatstate.CenterStateisthe25thlargestinsureddepositoryorganizationinGeorgia, controllingdepositsof approximately$943.7million,whichrepresentlessthan1percentof depositsinthatstate. Commerce,withconsolidatedassetsof approximately$4.2billion,isthe258thlargest insureddepositoryorganizationintheUnitedStates.Commercecontrolsapproximately $3.3billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.Commerce controlsCommerceBank,whichoperatesinAlabama,Florida,andGeorgia.Commerceis the13thlargestinsureddepositoryorganizationinAlabama,controllingdepositsof approximately$1.2billion,whichrepresent1.2percentof depositsinthatstate.Commerce isthe43rdlargestinsureddepositoryorganizationinFlorida,controllingdepositsof approximately$1.4billion,whichrepresentlessthan1percentof depositsinthatstate. Commerceisthe27thlargestinsureddepositoryorganizationinGeorgia,controlling 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 ThemergerofCommerceBankintoCenterStateBankissubjecttoapprovalbytheOfficeoftheComptroller oftheCurrency(“OCC”),pursuanttosection18(c)oftheFederalDepositInsuranceAct(“BankMerger Act”).See12U.S.C.§1828(c). 4 12CFR262.3(b). 5 Unlessotherwisenoted,nationalassetdataareasofDecember31,2018,anddeposit,ranking,andmarketsharedataareasofSeptember30,2018. 6 Insureddepositoryinstitutionsincludecommercialbanks,savingsassociations,andsavingsbanks. 7 StatedepositdataareasofJune30,2018.

LegalDevelopments:FirstQuarter,2019 15 depositsof approximately$780.4million,whichrepresentlessthan1percentof depositsin thatstate. Onconsummationof theproposal,CenterStatewouldbecomethe103rdlargestinsured depositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $16.4billion,whichrepresentlessthan1percentof thetotalassetsof insureddepository organizationsintheUnitedStates.CenterStatewouldcontrolconsolidateddepositsof approximately$12.8billion,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.InAlabama,CenterState wouldbecomethe10thlargestinsureddepositoryorganization,controllingdepositsof approximately$1.4billion,whichwouldrepresentapproximately1.4percentof thetotal depositsof insureddepositoryinstitutionsinthatstate.InFlorida,CenterStatewould becomethe16thlargestinsureddepositoryorganization,controllingdepositsof approximately$9.8billion,whichwouldrepresentapproximately1.7percentof thetotaldeposits of insureddepositoryinstitutionsinthatstate.InGeorgia,CenterStatewouldbecomethe 17thlargestinsureddepositoryorganization,controllingdepositsof approximately $1.7billion,whichwouldrepresentlessthan1percentof thetotaldepositsof insured depositoryinstitutionsinthatstate. InterstateAnalysis Section3(d)of theBHCActgenerallyprovidesthat,if certainconditionsaremet,the Boardmayapproveanapplicationbyabankholdingcompanythatiswellcapitalizedand wellmanagedtoacquirecontrolof abanklocatedinastateotherthanthehomestateof thebankholdingcompanywithoutregardtowhetherthetransactionwouldbeprohibited understatelaw.8Section3(d)alsoprovidesthattheBoard(1)maynotapproveanapplicationthatwouldpermitanout-of-statebankholdingcompanytoacquireabankinahost stateif thebankhasnotbeeninexistenceforthelesserof thestatestatutoryminimum periodof timeorfiveyears;9(2)musttakeintoaccounttherecordof theapplicantbank undertheCommunityReinvestmentActof 1977(“CRA”)10andtheapplicant’srecordof compliancewithapplicablestatecommunityreinvestmentlaws;11and(3)maynotapprove anapplicationpursuanttosection3(d)if thebankholdingcompanyorresultingbank, uponconsummationof theproposedtransaction,wouldcontrolmorethan10percentof thetotaldepositsof insureddepositoryinstitutionsintheUnitedStates12or,incertain circumstances,if thebankholdingcompanyorresultingbank,uponconsummation,would control30percentormoreof thetotaldepositsof insureddepositoryinstitutionsinany stateinwhichtheacquirerandtargethaveoverlappingbankingoperations.13 Forpurposesof theBHCAct,thehomestateof CenterStateisFlorida,andCommerce BankislocatedinAlabama,Florida,andGeorgia.CenterStateiswellcapitalizedandwell managedunderapplicablelaw.Thestatutoryminimumagerequirementsof Alabamaand GeorgiahavebeenmetbecauseCommerceBankhasbeeninexistenceinAlabamaand 8 12U.S.C.§1842(d)(1)(A).Abankholdingcompany’shomestateisthestateinwhichthetotaldepositsofall bankingsubsidiariesofeachcompanywerethelargestonJuly1,1966,orthedateonwhichthecompany becameabankholdingcompany,whicheverislater.See12U.S.C.§1841(o)(4). 9 12U.S.C.§1842(d)(1)(B). 10 12U.S.C.§2901etseq. 11 12U.S.C.§1842(d)(3). 12 12U.S.C.§1842(d)(2)(A). 13 12U.S.C.§1842(d)(2)(B).Forpurposesofsection3(d)oftheBHCAct,theacquiringandtargetinstitutions haveoverlappingbankingoperationsinanystateinwhichanybanktobeacquiredislocatedandtheacquiring bankholdingcompanycontrolsanyinsureddepositoryinstitutionorabranch.TheBoardconsidersabankto belocatedinanystateinwhichthebankischartered,headquartered,oroperatesabranch.See12U.S.C. §1841(o)(4)-(7).

16 FederalReserveBulletin|May2019 Georgiaformorethanfiveyears.14CenterStateBankalsohasan“Outstanding”rating undertheCRA. Onconsummationof theproposedtransaction,CenterStatewouldcontrollessthan 1percentof thetotalamountof consolidateddepositsof insureddepositoryinstitutionsin theUnitedStates.AlabamaandGeorgiaeachimposea30percentlimitonthetotal amountof in-statedepositsthatasinglebankingorganizationmaycontrol.15Ineachstate, thecombinedorganizationwouldcontrollessthan30percentof thetotalamountof in-statedeposits.TheBoardhasconsideredallotherrequirementsundersection3(d)of the BHCAct.Accordingly,inlightof allthefactsof record,theBoarddeterminesthatitisnot prohibitedbysection3(d)fromapprovingtheproposal. CompetitiveConsiderations Section3of theBHCActprohibitstheBoardfromapprovingaproposalthatwouldresult inamonopolyorwouldbeinfurtheranceof anattempttomonopolizethebusinessof bankinginanyrelevantmarket.16TheBHCActalsoprohibitstheBoardfromapprovinga proposalthatwouldsubstantiallylessencompetitionortendtocreateamonopolyinany bankingmarket,unlesstheanticompetitiveeffectsof theproposalareclearlyoutweighedin thepublicinterestbytheprobableeffectof theproposalinmeetingtheconvenienceand needsof thecommunitiestobeserved.17 CenterStateandCommercehavesubsidiarybanksthatcompetedirectlyintenbanking marketsinAlabama,Florida,andGeorgia.TheBoardhasconsideredthecompetitive effectsof theproposalinthesebankingmarkets.Inparticular,theBoardhasconsidered therelativeshareof totaldepositsof insureddepositoryinstitutionsineachmarket (“marketdeposits”)thatCenterStatewouldcontrol;18theconcentrationlevelsof market depositsandtheincreaseintheselevelsineachmarket,asmeasuredbytheHerfindahl- HirschmanIndex(“HHI”)undertheDepartmentof JusticeBankMergerCompetitive Reviewguidelines(“DOJBankMergerGuidelines”);19thenumberof competitorsthat wouldremainineachmarket;andothercharacteristicsof eachmarket. Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesineachof thebankingmarketsinwhich CenterStateBankandCommerceBankcompete.Onconsummation,onebankingmarket wouldremainhighlyconcentrated,eightbankingmarketswouldremainmoderately concentrated,andonebankingmarketwouldremainunconcentrated,asmeasuredbythe 14 Ala.Code§5-13B-23(c)(fiveyears);Ga.Code§7-1-628.3(b)(threeyears). 15 Ala.Code§5-13B-23(b);Ga.Code§7-1-628.3(a). 16 12U.S.C.§1842(c)(1)(A). 17 12U.S.C.§1842(c)(1)(B). 18 Unlessotherwiseindicated,statedepositandmarketsharedataarebasedoncalculationsinwhichthedeposits ofthriftinstitutionsareincludedat50ercent.TheBoardpreviouslyhasindicatedthatthriftinstitutionshave become,orhavethepotentialtobecome,significantcompetitorstocommercialbanks.See,e.g.,Midwest FinancialGroup,75FederalReserveBulletin386(1989);NationalCityCorporation,70FederalReserveBulletin 743(1984).Thus,theBoardregularlyhasincludedthriftdepositsinthemarketsharecalculationona50ercent weightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserveBulletin52(1991). 19 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,2019 17 HHI,accordingtotheDOJBankMergerGuidelines.ThechangeinHHIinthesemarkets generallywouldbesmall,consistentwithBoardprecedent,andwithinthethresholdsinthe DOJBankMergerGuidelines.Inaddition,numerouscompetitorswouldremaininthese bankingmarkets.20 TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket.Inaddition,the appropriatebankingagencieshavebeenaffordedanopportunitytocommentandhavenot objectedtotheproposal. Basedonallof thefactsof record,theBoardconcludesthatconsummationof the proposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesinanyrelevantbankingmarket.Accordingly,theBoarddeterminesthat competitiveconsiderationsareconsistentwithapproval. 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. CenterState,Commerce,andtheirsubsidiarydepositoryinstitutionsarewellcapitalized, andthecombinedorganizationwouldremainsoonconsummationof theproposal.The proposedtransactionisabankholdingcompanymergerthatisstructuredasashare exchange,withasubsequentmergerof thesubsidiarydepositoryinstitutions.22Theasset quality,earnings,andliquidityof bothCenterStateBankandCommerceBankareconsistentwithapproval,andCenterStateappearstohaveadequateresourcestoabsorbthe relatedcostsof theproposalandtocompletetheintegrationof theinstitutions’operations. Inaddition,thefutureprospectsof theinstitutionsundertheproposalareconsidered consistentwithapproval. 20 Thesebankingmarketsandthecompetitiveeffectsoftheproposalinthesemarketsaredescribedinthe Appendix. 21 12U.S.C.§1842(c)(2),(5),and(6). 22 Toeffectthetransaction,eachshareofCommercecommonstockwouldbeconvertedintotherighttoreceive sharesofCenterStatecommonstock,basedonanexchangeratio.However,anyfractionalsharesof CenterStatecommonstockthatwouldresultfromthisconversionwouldbeexchangedforcash.CenterState hasthefinancialresourcestoeffecttheproposedtransaction.

18 FederalReserveBulletin|May2019 TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of CenterState,Commerce,andtheirsubsidiarydepositoryinstitutions,includingassessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition,the BoardhasconsideredinformationprovidedbyCenterState;theBoard’ssupervisoryexperiencesandthoseof otherrelevantbanksupervisoryagencieswiththeorganizations;and theorganizations’recordsof compliancewithapplicablebanking,consumerprotection, andanti-money-launderinglaws. CenterState,Commerce,andtheirsubsidiarydepositoryinstitutionsareeachconsideredto bewellmanaged.CenterState’sdirectorsandseniorexecutiveofficershaveknowledgeof andexperienceinthebankingandfinancialservicessectors,andCenterState’sriskmanagementprogramappearstobeconsistentwithapprovalof thisexpansionary proposal. TheBoardalsohasconsideredCenterState’splansforimplementingtheproposal. CenterStatehasconductedcomprehensiveduediligenceandisdevotingsignificantfinancialandotherresourcestoaddressallaspectsof thepost-acquisitionintegrationprocess forthisproposal.CenterStatewouldimplementitsrisk-managementpolicies,procedures, andcontrolsatthecombinedorganization,andtheseareconsideredacceptablefroma supervisoryperspective.Inaddition,CenterState’smanagementhastheexperienceand resourcestooperatethecombinedorganizationinasafeandsoundmanner,and CenterStateplanstointegrateCommerce’sexistingmanagementandpersonnelina mannerthataugmentsCenterState’smanagement.23 Basedonallthefactsof record,includingCenterState’ssupervisoryrecord,managerial andoperationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoarddeterminesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandthefutureprospectsof theorganizationsinvolvedintheproposal,aswellas therecordsof effectivenessof CenterStateandCommerceincombattingmoneylaunderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCAct,theBoardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.24Initsevaluation,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thecommunitiestheyserve,aswellasotherpotentialeffectsof theproposalon theconvenienceandneedsof thesecommunities,andplacesparticularemphasisonthe recordsof therelevantdepositoryinstitutionsundertheCRA.TheCRArequiresthe federalbanksupervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeet thecreditneedsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeinstitutions’safeandsoundoperations,25andrequirestheappropriatefederalbanksupervisory agencytoassessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof its 23 Followingconsummationoftheproposedtransaction,thechairmanofCommercewouldbecomethechief executiveofficerofCenterStateBank,andthepresidentandchiefexecutiveofficerofCommercewould becomethechieffinancialofficerofCenterStateandCenterStateBank.Inaddition,threedirectorsof CommercewouldbeaddedtotheboardsofdirectorsofCenterStateandCenterStateBank,andonedirector ofCommerceBankwouldbeaddedtotheboardofdirectorsofCenterStateBank. 24 12U.S.C.§1842(c)(2). 25 12U.S.C.§2901(b).

LegalDevelopments:FirstQuarter,2019 19 entirecommunity,includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.26 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsiderstheassessmentsof otherrelevantsupervisors,the supervisoryviewsof examiners,othersupervisoryinformation,informationprovidedby theapplicant,andpubliccommentsontheproposal.TheBoardalsomayconsiderthe acquiringinstitution’sbusinessmodelandmarketingandoutreachplans,theorganization’splansafterconsummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof CenterStateBankandCommerceBank,thefairlendingandcompliancerecordsof both banks,thesupervisoryviewsof theOCC,confidentialsupervisoryinformation,informationprovidedbyCenterState,andthepubliccommentsontheproposal. PublicCommentsontheProposal TheBoardreceivedcommentsontheproposalfromonecommenter.Thecommenter allegeddisparitiesinCenterStateBank’shomemortgageoriginationanddenialratesin certainmarketsforminorityapplicantscomparedtowhiteapplicantsbasedondata reportedundertheHomeMortgageDisclosureActof 1975(“HMDA”).27Referencinga specificconsumercomplaint,thecommenteralsoallegedthatCenterStateBankhasa historyof inadequatelyrespondingtocomplaintsfromcustomersacquiredthrough mergers.ThecommenterexpressedconcernthatCenterStateBankwouldclosebranches andbecomelesslocallyaccountableuponconsummationof theproposalandassertedthat theproposalwouldnotprovideapublicbenefit. Businessesof theInvolvedInstitutionsandResponsetothePublicComments Throughtheirnetworksof branches,CenterStateBankandCommerceBankofferdeposit, loan,trust,andwealthmanagementproductsandservicestoretailandcommercial customers. Inresponsetothecommenter’sallegations,CenterStateassertsthatithasalongandpositivehistoryof servingtheneeds,includinglendingneeds,of thecommunitiesinits geographicfootprint.CenterStatecontendsthatthecommenter’sselectivefocusonHMDA datafromfivemarketslackscontextaboutthebank’slendingrecordandactivitiesinthese markets.CenterStateassertsthatasignificantproportionof itsbranchesareinLMIcensus tracts,theproportionof itsmortgageoriginationsisgenerallyconsistentwiththatof its peersandthedemographicsof thecommunitiesitserves,anditsemployeesvolunteerwith organizationsthatserveminorityandLMIborrowers.Inaddition,CenterStateassertsthat CenterStateBankmademortgagelendingacentrallineof businessonlyrecentlyin2016, sothebank’soriginationsin2017werelowercomparedto2018.CenterStatealsonotes thatCenterStateBankrecentlyreceivedanoverall“Outstanding”CRArating. Inresponsetothecommenter’sallegationthatCenterStateBankhasmishandled complaintsfromcustomersacquiredthroughmergers,CenterStatenotesthatitreceived onlyalimitednumberof complaintsfromthetensof thousandsof customersacquired 26 12U.S.C.§2903. 27 12U.S.C.§2801etseq.

20 FederalReserveBulletin|May2019 throughthespecificmergerreferencedinthecomments.CenterStatestatesthatCenterState Bankhasacomprehensivesystemforservingcustomersacquiredthroughmerger, includinginformingnewcustomersof theprocessof transitioningtoCenterStateBank andprovidingcustomerservicerepresentativeswhocananswerquestionsbyphoneorin personatCenterStateBankbranches,andacomplaintmanagementprogramthattracks customercomplaints,includingthosereceivedthroughsocialmedia.CenterStateasserts thatCenterStateBankiscommittedtorespondingtocustomercomplaintsinatimelyand thoughtfulmannerandtogaininginsightintohowtoimproveinternalproceduresand training.CenterStateindicatesthatCenterStateBankhasincreasedthenumberof telephonelinesandstaff availabletohandlequestionsfromcustomersacquiredbymerger. Regardingthecommenter’sconcernthatCenterStateBankwouldclosebranchesupon consummationof theproposalandthattheproposalwouldresultinlesslocalaccountability,CenterStaterepresentsthatCenterStateBankdoesnotanticipateclosingany branchesinconnectionwiththeproposalandthatCenterStateBankfocusesontheneeds of localmarkets.Inaddition,CenterStatestatesthatoneof thebank’scorevaluesistobe drivenbylocalmarketsandthatemployeesareencouragedtomakedecisionswiththeir communities’bestinterestsatstake. Recordsof PerformanceundertheCRA InevaluatingtheCRAperformanceof theinvolvedinstitutions,theBoardgenerally considerseachinstitution’smostrecentCRAperformanceevaluation,aswellasother informationandsupervisoryviewsfromtherelevantfederalfinancialsupervisor,whichin thiscaseistheOCCwithrespecttobothinstitutions.28Inaddition,theBoardconsiders informationprovidedbytheapplicantandbypubliccommenters. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.29Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalfinancialsupervisorof theinstitution’soverallrecordof lendinginits communities. Ingeneral,federalfinancialsupervisorsapplyalendingtest(“LendingTest”),investment test(“InvestmentTest”),andservicetest(“ServiceTest”)toevaluatetheperformanceof a largeinsureddepositoryinstitution,suchasCenterStateBank,inhelpingtomeetthecredit needsof thecommunitiesitserves.TheLendingTestspecificallyevaluatesaninstitution’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 28 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81Fed.Reg.48506,48548 (July25,2016). 29 12U.S.C.§2906.

LegalDevelopments:FirstQuarter,2019 21 distributionof loansbasedonborrowercharacteristics,including,forhomemortgage loans,thenumberandamountsof loanstolow-,moderate-,middle-,andupper-income individuals;30(4)theinstitution’scommunitydevelopmentlending,includingthenumber andamountsof communitydevelopmentloansandtheircomplexityandinnovativeness; and(5)theinstitution’suseof innovativeorflexiblelendingpracticestoaddressthecredit needsof LMIindividualsandgeographies.31TheInvestmentTestapplicabletolarge institutionsevaluatesthenumberandamountsof qualifiedinvestmentsthatbenefittheir AAs,andtheServiceTestevaluatestheavailabilityandeffectivenessof theirsystemsfor deliveringretailbankingservicesandtheextentandinnovativenessof theircommunity developmentservices.32Intermediatesmallbanks,suchasCommerceBank,aresubjectto theLendingTest,aswellasacommunitydevelopmenttest(“CommunityDevelopment Test”)thatevaluatesthenumberandamountsof theircommunitydevelopmentloansand qualifiedinvestments;theextenttowhichtheyprovidecommunitydevelopmentservices; andtheirresponsivenesstocommunitydevelopmentlending,investment,andservice needs.33 TheBoardisconcernedwhenHMDAdatareflectdisparitiesintheratesof loanapplications,originations,anddenialsamongmembersof differentracialorethnicgroupsinlocal areas.Thesetypesof disparitiesmayindicateweaknessesintheadequacyof policiesand programsataninstitutionformeetingitsobligationstoextendcreditfairly.However,other informationcriticaltoaninstitution’screditdecisionsisnotavailablefromHMDAdata.34 Consequently,HMDAdatadisparitiesmustbeevaluatedinthecontextof otherinformationregardingthelendingrecordof aninstitution. CRAPerformanceof CenterStateBank CenterStateBankwasassignedanoverall“Outstanding”ratingatitsmostrecentCRA PerformanceEvaluationbytheOCC,asof May14,2018(“CenterStateBankEvaluation”).35Thebankreceived“Outstanding”ratingsfortheLendingTestandServiceTest anda“LowSatisfactory”ratingfortheInvestmentTest.36Examinersgavesignificant considerationtoCenterStateBank’sperformanceintheLakeland-WinterHavenMSA. Overall,examinersfoundthatCenterStateBank’slendingactivityreflectedgoodresponsivenesstocreditneedsinitsAAsformortgagesandsmallbusinessloans,andthatthe bank’slendingwithinitsAAswasexcellent.Examinersalsofoundthatthegeographic distributionof loansreflectedexcellentpenetrationthroughthebank’sAAsandthatthe borrowerdistributionreflectedgoodpenetrationamongretailcustomersof different incomelevelsandbusinesscustomersof differentsizes.Examinersdeterminedthat 30 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3). 31 See12CFR228.22(b). 32 See12CFR228.21etseq. 33 12CFR228.26(c). 34 Otherinformationrelevanttocreditdecisionscouldincludecredithistory,debt-to-incomeratios,andloan-tovalueratios.Accordingly,whenconductingfairlendingexaminations,examinersanalyzesuchadditionalinformationbeforereachingadeterminationregardinganinstitution’scompliancewithfairlendinglaws. 35 TheCenterStateBankEvaluationwasconductedusingLargeInstitutionCRAExaminationProcedures. ExaminersreviewedhomemortgagelendingactivityreportedunderHMDAandsmallbusinesslendingactivity reportedundertheCRAforthefullcalendaryearsof2015,2016,and2017.Theevaluationperiodforcommunitydevelopmentloans,qualifiedinvestments,andcommunitydevelopmentserviceswasfromApril6,2015, throughApril30,2018. 36 TheCenterStateBankEvaluationincludedafull-scopereviewoftheLakeland-WinterHavenMetropolitan StatisticalArea(“MSA”),theMiami-FortLauderdale-WestPalmBeachMSA,theOcalaMSA,andthe PutnamCountynon-MSA.Limited-scopeevaluationswereperformedforthebank’sotherAAs.

22 FederalReserveBulletin|May2019 CenterStateBankwasaleaderinmakingcommunitydevelopmentloansandusedinnovativeandflexiblelendingpracticestomeetthecreditneedsof itscommunities.Examiners notedthatCenterStateBankhadanadequatelevelof qualifiedinvestmentsthatexhibited goodresponsivenesstocreditandcommunityeconomicdevelopmentneeds.Inaddition, examinersfoundthatCenterStateBankprovidedexcellentretailbankingservicesandwas aleaderinprovidingcommunitydevelopmentservices. IntheOrlando-Kissimee-SanfordMSA,anareaof concerntothecommenter,examiners determinedthatCenterStateBankhadgoodperformanceformortgagelendingbyincome andgeography,goodperformanceforsmallbusinesslending,andexcellentperformancefor smallbusinesslendingbygeography.Examinersnotedthatthegeographicdistributionof homemortgageloanswasexcellentinthisMSA,andthebank’sstronglendinginthis MSAhadasignificantpositiveimpactonthebank’soverallrating. IntheMiami-FortLauderdale-WestPalmBeachMSA,anotherareaof concerntothe commenter,examinersfoundthatCenterStateBankhadanexcellentdistributionof home mortgageloans,basedonexcellenthomepurchaselendingandexcellenthomerefinance lending.AlthoughexaminersnotedthatCenterStateBank’soverallloanvolumeinthis MSAwaslow,theyfoundthepenetrationof loansinLMIgeographieswasexcellent. Examinersdeterminedthatthegeographicdistributionof smallbusinessloansinthisMSA wasexcellentandthatthedistributionof homepurchaseandhomerefinanceloanswas adequate. IntheTampa-St.Petersburg-ClearwaterMSA,anotherareacitedbythecommenter,examinersfoundthathomemortgagelendingwasgoodoverall.Examinersnotedthathome mortgagelendingbyincomeandgeographyintheMSAwasadequateandthatsmallbusinesslendingbygeographywasexcellent. IntheJacksonvilleMSA,anotherareaidentifiedbythecommenter,examinersfoundthat thevolumeof homemortgageloanswasinsufficienttoprovideanymeaningfulanalysis. However,examinersnotedthatsmallbusinesslendingbygeographyintheMSAwasexcellent.Examinersalsonotedthatlendingtosmallbusinesseswasgood,andcommunity developmentlendinginthisMSAwasstrong. IntheLakeland-WinterHavenMSA,thefinalareaidentifiedbythecommenter,examiners foundthatCenterStateBank’slendingactivityreflectedgoodresponsivenesstocredit needs.Examinersdeterminedthatthelevelof homemortgageandsmallbusinesslendingin theMSAwasgood.Examinersalsofoundthatthegeographicdistributionof homemortgageloansintheMSAwasgood.Examinersnotedthathomepurchaseandrefinance lendinginLMIgeographiesintheMSAwasgoodandthathomeimprovementlendingin LMIgeographieswasexcellent.Examinersalsofoundthatthedistributionof home mortgageloansbyborrowerintheMSAwasgood. Inallof itsAAs,examinersfoundthatCenterStateBankhadanadequatelevelof qualified communitydevelopmentinvestmentsthatexhibitedgoodresponsivenesstocreditand communityeconomicdevelopmentneeds.Examinersalsofoundthatthebankoccasionally usedcomplexinvestmentstosupportcommunitydevelopmentinitiatives.Examiners determinedthatCenterStateBank’sbrancheswereaccessibletogeographiesandindividualsof differentincomelevels.Inaddition,examinersconcludedthatacquisitionand mergeractivitybyCenterStateBankdidnotnegativelyimpactthebank’sbranchdistribution.ExaminersfoundthatCenterStateBank’shoursandservicesofferedthroughoutthe bank’sAAsdidnotvaryinawaythatinconveniencedLMIindividuals.

LegalDevelopments:FirstQuarter,2019 23 CRAPerformanceof CommerceBank CommerceBankreceivedanoverallratingof “Satisfactory”atitsmostrecentCRAPerformanceEvaluationbytheOCC,asof November16,2015(“CommerceBankEvaluation”).37Thebankreceived“Satisfactory”ratingsfortheLendingTestandtheCommunity DevelopmentTest.38 ExaminersfoundCommerceBank’slendinginitsAAstobesatisfactoryandthatthebank originatedamajorityof itsloansinsideitsAAs.ExaminersalsofoundthatCommerce Bankachievedreasonablepenetrationforlendingtoborrowersof differentincomesand reasonabledispersionforgeographicdistributionof lendingwithinitsAAs. ExaminersfoundthatCommerceBankadequatelyrespondedtocommunitydevelopment needsinitsAAsthroughacombinationof loans,investments,andservices.Examinersalso foundthatthebankhaddemonstratedacommitmenttoitscommunitybyfinancing communitydevelopmentorganizationsthatoperateinthecommunityandparticipating withvariouscommitteesandboardsthatprovideaffordablehousingorcommunityservices toLMIindividuals. Viewsof theOCC Initsreviewof theproposal,theBoardconsultedwiththeOCCregardingtheCRA, consumercompliance,andfairlendingrecordof CenterStateBank.TheBoardhasalso consideredtheresultsof themostrecentconsumercomplianceexaminationsof CenterStateBankandCommerceBankconductedbytheOCC,whichincludedreviewsof thebanks’compliancemanagementprogramsandcompliancewithconsumerprotection lawsandregulations. TheBoardhastakenthisinformation,aswellastheCRAperformancerecordsof CenterStateBankandCommerceBank,intoaccountinevaluatingtheproposal,including inconsideringwhetherCenterStatehastheexperienceandresourcestoensurethat CenterStateBankwouldhelpmeetthecreditneedsof thecommunitieswithinitsAAs followingtheproposedtransaction. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.39CenterStaterepresentsthat,followingconsummationof theproposal,CenterStateBankwouldnotdiscontinueanyproductsorservices currentlyofferedbyCenterStateBankorCommerceBank.CenterStateassertsthat existingcustomersof CommerceBankandCenterStateBankwouldbenefitfromamore extensivenetworkof branchesandATMs,andCommerceBank’sexistingcustomers wouldbenefitfromaccesstoanexpandedarrayof productsandservices,includingdeposit productsandmobilebankingservicesdesignedforpublicemployees,seniors,students,and smallbusinesses.CenterStatemaintainsthatcustomersof CommerceBankwouldbenefit fromabroaderrangeof mortgageloansofferedbyCenterStateBank,includingmortgage loansforaffordablehousing. 37 TheCommerceBankEvaluationwasconductedusingIntermediateSmallBankCRAExaminationProcedures. TheCommerceBankEvaluationreviewedresidentialmortgageloansfromJanuary1,2012,throughJune30, 2015,andcommunitydevelopmentactivitiesfromNovember15,2012,toNovember16,2015. 38 TheCommerceBankEvaluationincludedareviewofthebank’sAAsinAlabamaandFlorida,whichincluded full-scopeexaminationsoftheBirminghamMSAAAandtheHuntsvilleAA. 39 Thecommenterassertedthattheproposalwouldnotproduceabenefittothepublic.

24 FederalReserveBulletin|May2019 CenterStaterepresentsthat,followingconsummationof theproposal,CenterStateBank wouldmaintainahighlevelof communitydevelopmentlending,investment,services,and otherCRAactivitiesthroughoutthecombinedorganization’sserviceareas.CenterState alsorepresentsthatthecombinedbankwouldcontinuetoexpanditsmortgageandsmall businesslendingtoandcommunitydevelopment,investment,andserviceactivitiesfor LMIandminorityborrowersandcommunities.CenterStateassertsthatCenterStateBank iscommittedtoworkingcloselywithcommunityleaders,smallbusinessowners,members of nonprofitorganizations,andresidentsinitsAAstoprovideinformationabouttheCRA servicesitoffersandtoassessthecommunitydevelopmentneedsinitsAAs.CenterState maintainsthatCenterStateBank’sstaff wouldcontinuetoprovidefinancialexpertiseto non-profitorganizationsandoperatefinancialliteracyworkshopsforLMIcustomers. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws,supervisoryviewsof theOCC,confidential supervisoryinformation,informationprovidedbyCenterState,thepubliccommentsonthe proposal,andotherpotentialeffectsof theproposalontheconvenienceandneedsof the communitiestobeserved.Basedonthatreview,theBoarddeterminesthattheconvenience andneedsfactorisconsistentwithapproval. FinancialStability Section3of theBHCActrequirestheBoardtoconsider“theextenttowhichaproposed acquisition,merger,orconsolidationwouldresultingreaterormoreconcentratedrisksto thestabilityof 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 toinflictmaterialdamageonthebroadereconomy.42 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billionintotalassets,orthatresultinafirmwithlessthan$100billionintotalassets, aregenerallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthata proposaldoesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbelow eitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignifi- 40 12U.S.C.§1842(c)(7). 41 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 42 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012).

LegalDevelopments:FirstQuarter,2019 25 cantincreaseininterconnectedness,complexity,cross-borderactivities,orotherrisk factors.43 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billionintotalassetsandaproformaorganizationof lessthan$100billionintotal assets.Boththeacquirerandthetargetarepredominatelyengagedinretailandcommercial bankingactivities.44Theproformaorganizationwouldhaveminimalcross-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.45Inreachingitsconclusion,theBoardhasconsideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunderthe BHCActandotherapplicablestatutes.TheBoard’sapprovalisspecificallyconditionedon compliancebyCenterStatewithalltheconditionsimposedinthisorder,includingreceipt of allrequiredregulatoryapprovals,andonanycommitmentsmadetotheBoardin connectionwiththeproposal.Forpurposesof thisaction,theconditionsandcommitmentsaredeemedtobeconditionsimposedinwritingbytheBoardinconnectionwithits findingsanddecisionhereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethe15thcalendardayaftertheeffectivedate of thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedforgood 43 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 44 Asnoted,throughtheirsubsidiarybanks,CenterStateandCommercebothofferarangeofretailandcommercialbankingproductsandservices.CenterStatehas,andasaresultoftheproposalwouldcontinuetohave,a smallmarketshareintheseproductsandservicesonanationwidebasis. 45 ThecommenterrequestedthattheBoardholdapublichearingontheproposal.Section3(b)oftheBHCAct doesnotrequirethattheBoardholdapublichearingonanyproposalunlesstheappropriatesupervisory authoritiesfortheacquiringbankorthebanktobeacquiredmakeatimelywrittenrecommendationofdisapprovaloftheproposal.12U.S.C.§1842(b);12CFR225.16(e).TheBoardhasnotreceivedsucharecommendationfromtheappropriatesupervisoryauthoritiesinconnectionwiththisapplication.Underitsrules,theBoard also,initsdiscretion,mayholdapublichearingifappropriatetoallowinterestedpersonsanopportunityto providerelevanttestimonywhenwrittencommentswouldnotadequatelypresenttheirviews.TheBoardhas consideredthecommenter’srequestinlightofallofthefactsofrecord.IntheBoard’sview,thecommenter hashadampleopportunitytosubmitcommentsontheproposaland,infact,submittedwrittencommentsthat theBoardhasconsideredinactingontheproposal.Thecommenter’srequestdoesnotidentifydisputedissues offactthatarematerialtotheBoard’sdecisionandthatwouldbeclarifiedbyapublichearing.Inaddition,the requestdoesnotdemonstratewhywrittencommentsdonotpresentthecommenter’sviewsadequatelyorwhy ahearingotherwisewouldbenecessaryorappropriate.Forthesereasons,andbasedonallthefactsof record,theBoardhasdeterminedthatapublichearingisnotrequiredorwarrantedinthiscase.Accordingly, therequestforapublichearingontheproposalisdenied.

26 FederalReserveBulletin|May2019 causebytheBoardortheFederalReserveBankof Atlanta,actingunderdelegated authority. Byorderof theBoardof Governors,effectiveMarch11,2019. Votingforthisaction:ChairPowell,ViceChairClarida,ViceChairforSupervision Quarles,andGovernorsBrainardandBowman. MargaretMcCloskeyShanks Secretaryof theBoard Appendix CenterStateandCommercebankingmarketsconsistentwithboardprecedentandDOJBankMerger Guidelines(dataasofJune30,2018) Remaining Amountof Marketdeposit Bank Rank ResultingHHI ChangeinHHI numberof deposits shares(%) competitors Auburn/Opelika,Alabama–LeeCounty,Alabama(lesstheportionthatiswithin12roadmilesofPhenixCity,AlabamaorColumbus,Georgia). CenterStatePre-Consummation 5 $171.3M 6.16 Commerce 11 $111.5M 4.01 CenterStatePost-Consummation 3 $282.8M 10.17 1220 49 17 DaytonaBeachArea,Florida–FlaglerCounty;thetownsofAllandale,DaytonaBeach,DaytonaBeachShores,Edgewater,HollyHill,NewSmyrna Beach,OrmondBeach,Ormond-by-the-Sea,Pierson,PortOrange,andSouthDaytonaofVolusiaCounty;thetownofAstorofLakeCounty,allin Florida. CenterStatePre-Consummation 12 $198.1M 2.09 Commerce 15 $123.8M 1.31 CenterStatePost-Consummation 8 $322.0M 3.4 1456 5 20 IndianRiverCounty,Florida CenterStatePre-Consummation 12 $114.8M 2.53 Commerce 11 $130.6M 2.89 CenterStatePost-Consummation 9 $245.4M 5.42 1063 15 16 JacksonvilleArea,Florida–Baker,Clay,Duval,andNassaucounties;thetownsofFruitCove,PonteVedra,PonteVedraBeach,Jacksonville,St. Johns,andSwitzerlandinSt.JohnsCounty,allinFlorida;thecityofFolkstoninCharltonCounty,Georgia. CenterStatePre-Consummation 15 $189.5M 0.38 Commerce 13 $344.6M 0.7 CenterStatePost-Consummation 10 $534.2M 1.08 2707 1 34 NorthLake/SumterArea,Florida–SumterandLakecounties(lessthetownsofAstor,Clermont,andGroveland),bothofFlorida. CenterStatePre-Consummation 13 $93.4M 1.48 Commerce 15 $72.4M 1.14 CenterStatePost-Consummation 10 $165.8M 2.62 1313 3 17 SaintAugustineArea,Florida–St.JohnsCounty(lessthetownsofFruitCove,PonteVedra,PonteVedraBeach,Jacksonville,St.Johns, Switzerland,andHastings),Florida. CenterStatePre-Consummation 4 $235.3M 11.4 Commerce 10 $95.7M 4.64 CenterStatePost-Consummation 3 $331.1M 16.03 1274 105 13 OrlandoArea,Florida–Orange,Osceola,Seminole,andthewesternhalfofVolusiacounties;thetownsofClermontandGrovelandinLake County,allinFlorida. CenterStatePre-Consummation 14 $757.7M 1.53 Commerce 20 $271.8M 0.55 CenterStatePost-Consummation 11 $1,029.5M 2.08 1285 2 43 (continuedonnextpage)

LegalDevelopments:FirstQuarter,2019 27 Appendix—continued CenterStateandCommercebankingmarketsconsistentwithboardprecedentandDOJBankMerger Guidelines(dataasofJune30,2018)—continued Remaining Amountof Marketdeposit Bank Rank ResultingHHI ChangeinHHI numberof deposits shares(%) competitors SarasotaArea,Florida–Manatee,Sarasota(lesstheportionthatisbotheastoftheMyakkaRiverandsouthofInterstate75,whichincludesthe townsofNorthPort),thepeninsularportionofCharlottewestoftheMyakkaRiver(includingthetownsofEnglewood,EnglewoodBeach,New PointComfort,GroveCity,CapeHaze,Rotonda,RotondaWest,andPlacida);GasparillaIsland(includingthetownofBocaGrande)inLeeCounty,all inFlorida. CenterStatePre-Consummation 13 $482.7M 2.31 Commerce 21 $204.5M 0.98 CenterStatePost-Consummation 8 $687.2M 3.29 932 5 35 TampaBayArea,Florida–Hernando,Hillsborough,Pinellas,andPascocounties,allinFlorida. CenterStatePre-Consummation 15 $854.8M 1.02 Commerce 34 $146.7M 0.17 CenterStatePost-Consummation 15 $1,001.5M 1.19 1194 0 54 Atlanta,Georgia–Bartow,Cherokee,Clayton,Cobb,Coweta,Dawson,DeKalb,Douglas,Fayette,Forsyth,Fulton,Gwinnett,Henry,Newton, Paulding,Rockdale,Walton,andHall(lessthetownofClermont)counties;thetownsofAuburnandWinderinBarrowCountyandLuthersvillein MeriwetherCounty,allinGeorgia. CenterStatePre-Consummation 23 $597.5M 0.35 Commerce 21 $780.4M 0.46 CenterStatePost-Consummation 16 $1,377.9M 0.81 1546 0 82

28 FederalReserveBulletin|May2019 Order Issued Under Federal Reserve Act Regions Bank Birmingham, Alabama OrderApprovingtheEstablishmentof Branches FRBOrderNo.2019-03(February5,2019) RegionsBank,astatememberbanksubsidiaryof RegionsFinancialCorporation,bothof Birmingham,Alabama,hasrequestedtheBoard’sapprovalundersection9of theFederal ReserveAct(“FRA”)1andtheBoard’sRegulationH2toestablishbranchesinGeorgia,Illinois,Missouri,Tennessee,andTexas,assetforthinAppendixA.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublishedinaccordancewiththeBoard’sRulesof Procedure.4Thetimefor submittingcommentshasexpired,andtheBoardhasconsideredtheproposalandthe commentsreceivedinlightof thefactorsspecifiedintheFRA. RegionsFinancialCorporation,withtotalassetsof $124.8billion,isthe33rdlargest depositoryorganizationintheUnitedStates,controllingapproximately$93.5billionin deposits,whichrepresentlessthan1percentof thetotalamountof depositsof insured depositoryinstitutionsintheUnitedStates.5RegionsBankoperatesin15statesthrough 1,477branches,andthebank’smainofficeisinBirmingham,Alabama.6 Undersection208.6of theBoard’sRegulationH,7whichimplementssection9of the FRA,thefactorsthattheBoardmustconsiderinactingonbranchapplicationsinclude (1)thefinancialhistoryandconditionof theapplyingbankandthegeneralcharacterof its 1 12U.S.C.§321. 2 12CFRpart208. 3 Undersection9oftheFRA,statememberbanksmayestablishandoperatebranchesonthesametermsand conditionsasareapplicabletotheestablishmentofbranchesbynationalbanks.See12U.S.C.§321.Anational bankmayestablishandoperateanewbranchwithinastateinwhichitissituated,ifsuchestablishmentand operationisauthorizedunderapplicablestatelaw.12U.S.C.§36(c)(2).RegionsBankhasbranchesinGeorgia, Illinois,Missouri,Tennessee,andTexasandispermittedtoestablishadditionalbranchesundereachstate’s laws.SeeGa.CodeAnn.§7-1-628.6;205Ill.Comp.Stat.5/21.4;Tenn.CodeAnn.§§45-2-614and45-2-1412; Mo.Rev.Stat.§362.107;andTex.Fin.CodeAnn.§203.006. 4 12CFR262.3(b). 5 Totalassets,nationalassetranking,andnationaldepositdataareasofSeptember30,2018,andstatedeposit dataareasofJune30,2018,unlessotherwisenoted.Inthiscontext,insureddepositoryinstitutionsinclude commercialbanks,savingsandloanassociations,andsavingsbanks. 6 RegionsBankhasoperationsinAlabama,Arkansas,Florida,Georgia,Illinois,Indiana,Iowa,Kentucky,Louisiana,Mississippi,Missouri,NorthCarolina,SouthCarolina,Tennessee,andTexas. InGeorgia,RegionsBankisthesixthlargestdepositoryorganization,with121branches,controllingapproximately$6.8billionindeposits,whichrepresentapproximately2.7percentofthetotalamountofdepositsin thatstate. InIllinois,RegionsBankisthe25thlargestdepositoryorganization,with49branches,controllingapproximately$2.2billionindeposits,whichrepresentapproximately0.5percentofthetotalamountofdepositsin thatstate. InMissouri,RegionsBankistheninthlargestdepositoryorganization,with61branches,controllingapproximately$2.5billionindeposits,whichrepresentapproximately1.5percentofthetotalamountofdepositsin thatstate. InTennessee,RegionsBankisthesecondlargestdepositoryorganization,with221branches,controlling approximately$18.7billionindeposits,whichrepresentapproximately12.1percentofthetotalamountof depositsinthatstate. InTexas,RegionsBankisthe24thlargestdepositoryorganization,with78branches,controllingapproximately $3.6billionindeposits,whichrepresentapproximately0.4percentofthetotalamountofdepositsofinsured depositoryinstitutionsinthatstate. 7 12CFR208.6(b).

LegalDevelopments:FirstQuarter,2019 29 management;(2)theadequacyof thebank’scapitalanditsfutureearningsprospects; (3)theconvenienceandneedsof thecommunitytobeservedbythebranch;(4)inthecase of brancheswithdeposit-takingcapability,thebank’sperformanceundertheCommunity ReinvestmentAct(“CRA”);8and(5)whetherthebank’sinvestmentinbankpremisesin establishingthebranchsatisfiescertaincriteria.9TheBoardhasconsideredthebranch applicationsinlightof thesefactorsandthepubliccommentreceivedontheproposal. Financial,Managerial,andOtherSupervisoryConsiderations Inconsideringthefinancialhistoryandcondition,earningsprospects,andcapital adequacyof RegionsBank,theBoardhasreviewedreportsof examination,othersupervisoryinformation,publiclyreportedandotherfinancialinformation,informationprovided byRegionsBank,andthecommentreceivedontheproposal.RegionsBankiswellcapitalizedandwouldremainsouponconsummationof theproposal.Theassetquality,earnings,andliquidityof RegionsBankareconsistentwithapproval,andRegionsBank appearstohaveadequateresourcestoabsorbthecostsof theproposal. Inaddition,futureearningsprospectsareconsideredconsistentwithapproval.TheBoard alsohasreviewedRegionsBank’sproposedinvestmentinthebranchesandconcludes thatthebank’sinvestmentisconsistentwithregulatorylimitationsoninvestmentinbank premises.10 InconsideringRegionsBank’smanagerialresources,theBoardhasreviewedthebank’s examinationrecord,includingassessmentsof itsmanagement,risk-managementsystems, andoperations.TheBoardalsohasconsidereditssupervisoryexperienceswithRegions Bankandthebank’srecordof compliancewithapplicablebankinglaws,including consumerprotectionandanti-money-launderinglaws.RegionsBankisconsideredtobe wellmanaged.RegionsBank’sdirectorsandseniorexecutiveofficershavesubstantial knowledgeof andexperienceinthebankingandfinancialservicessectors,andthebank’s risk-managementprogramappearsconsistentwithapproval. Basedonthisreviewandallthefactsof record,theBoardconcludesthatRegionsBank’s management,financialhistoryandcondition,capitaladequacy,andfutureearningsprospects,aswellastheeffectivenessof RegionsBankincombattingmoney-launderingactivities,areconsistentwithapprovalof theproposal. ConvenienceandNeedsConsiderations Inconsideringtheeffectsof theproposalontheconvenienceandneedsof thecommunities tobeserved,theBoardconsiderswhethertherelevantinstitutionishelpingtomeetthe creditneedsof thecommunitiesitserves,aswellasotherpotentialeffectsof theproposal ontheconvenienceandneedsof thecommunitiestobeserved.11Initsevaluation,the Boardplacesparticularemphasisontherecordof therelevantdepositoryinstitutionunder theCRA.TheCRArequiresthefederalfinancialsupervisoryagenciestoencourage insureddepositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesin whichtheyoperate,consistentwiththeirsafeandsoundoperation,12andrequiresthe appropriatefederalfinancialsupervisoryagencytoassessadepositoryinstitution’srecord 8 12U.S.C.§2901etseq. 9 12CFR208.21(a). 10 12CFR208.21(a). 11 12CFR208.6(b)(3). 12 12U.S.C.§2901(b).

30 FederalReserveBulletin|May2019 of helpingtomeetthecreditneedsof itsentirecommunity,includinglow-andmoderateincome(“LMI”)neighborhoods,inevaluatingbankbranchingproposals.13 Inaddition,theBoardconsidersthebank’soverallcompliancerecordandrecentfair 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 Regions Bank,thefairlendingandcompliancerecordsof thebank,confidentialsupervisoryinformation,informationprovidedbyRegionsBank,andthepubliccommentreceivedonthe proposal. PublicCommentontheProposal Onecommenterobjectedtotheproposal,allegingthatRegionsBankdiscriminatesagainst AfricanAmericansand“redlines”AfricanAmericanneighborhoodsintheHoustonand Dallasareas,bothinTexas.14Specifically,thecommenterallegedthatRegionsBankhas deniedAfricanAmericanindividualsandAfricanAmerican-ownedbusinessesequalaccess tocapitalandcreditbyheavilyconcentratingitsoutreachandbankingactivitiesin predominantlywhiteneighborhoodsandtowhiteindividualsandwhite-ownedbusinesses inHoustonandDallas.ThecommenteralsoallegesthatRegionsBankdisfavorscertain AfricanAmericanneighborhoodsinHoustonand/orDallaswithrespecttoitslending, marketing,branching,andcommunitydevelopmentactivitiesandinotherrespects. Businessof theApplicantandResponsetoComment RegionsBankoffersabroadrangeof retailandcommercialbankingproductsto consumersandbusinessesthroughitsnetworkof branches.Theproductsandservices includecommercial,residential,agricultural,andconsumerloans,personalcheckingand savingsaccounts,businesscheckingandsavingsaccounts,moneymarketaccounts,cash managementproductsandservices,foreignexchangeservices,creditcards,merchant services,andwealthmanagementservices. Inresponsetothecommenter’sallegations,RegionsBankassertsthatitiscommittedto makingfinancialproductsandservicesavailabletoallprospectiveandexistingcustomers onafairandresponsiblebasisandstatesthatresponsiblelendingprinciplesarebuiltinto RegionsBank’scorporatevalues.RegionsBanknotesthatithasestablishedloanandcredit policiesandprocedurestoassureconsistent,fair,andaccurateprocesses.RegionsBank representsthatitoffersallproductstoallapplicantswithoutregardtoanyprohibitedbasis, anditiscommittedtothefairandequaltreatmentof allapplicantsandborrowers.Regions Bankfurtherrepresentsthatitengagesindiversemarketingandoutreachcampaignsto achievelendingtominoritygroups. 13 12U.S.C.§2903. 14 Redliningisthepracticeofprovidingunequalaccesstocredit,orunequaltermsofcredit,becauseoftherace, color,nationalorigin,orotherprohibitedcharacteristicsoftheresidentsoftheareainwhichacreditseeker residesorwillresideorinwhichapropertytobemortgagedislocated.SeeInteragencyFairLendingExaminationProcedures(August2009),availableathttps//www.ffiec.gov/pdf/fairlend.pdf.

LegalDevelopments:FirstQuarter,2019 31 Recordof PerformanceundertheCRA InevaluatingtheCRAperformanceof theinvolvedinstitution,theBoardgenerally considerstheinstitution’smostrecentCRAevaluation,aswellasotherinformationand supervisoryviewsfromtherelevantfederalsupervisor,whichinthiscaseistheFederal ReserveBankof Atlanta(“ReserveBank”).15Inaddition,theBoardconsidersinformation providedbytheapplicantandbypubliccommenters. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.16Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplylending,investment,andserviceteststo evaluatetheperformanceof alargeinsureddepositoryinstitution,suchasRegionsBank, inhelpingtomeetthecreditneedsof thecommunitiesitserves.Thelendingtestspecifically evaluatesaninstitution’slendingtodeterminewhethertheinstitutionishelpingtomeetthe creditneedsof individualsandgeographiesof allincomelevels.Aspartof thelendingtest, examinersreviewandanalyzeaninstitution’sdatareportedundertheHomeMortgage DisclosureAct(“HMDA”),17inadditiontosmallbusiness,smallfarm,andcommunity developmentloandatacollectedandreportedundertheCRAregulations,toassessan institution’slendingactivitieswithrespecttoborrowersandgeographiesof different incomelevels.Theinstitution’slendingperformanceisbasedonavarietyof factors, including(1)thenumberandamountsof homemortgage,smallbusiness,smallfarm,and consumerloans(asapplicable)intheinstitution’sCRAassessmentareas(“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;18(4)theinstitution’s communitydevelopmentlending,includingthenumberandamountsof communitydevelopmentloansandtheircomplexityandinnovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpracticestoaddressthecreditneedsof LMIindividualsand geographies.19Largeinstitutionsalsoaresubjecttoaninvestmenttest,whichevaluatesthe numberandamountsof qualifiedinvestmentsthatbenefittheirAAs,andaservicetest, whichevaluatestheavailabilityandeffectivenessof theirsystemsfordeliveringretail bankingservicesandtheextentandinnovativenessof theircommunitydevelopment services.20 15 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48506, 48548(July25,2016). 16 12U.S.C.§2906. 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 See12CFR228.22(b). 20 See12CFR228.21etseq.

32 FederalReserveBulletin|May2019 CRAPerformanceof RegionsBank RegionsBankwasassignedanoverall“Satisfactory”ratingatitsmostrecentCRAperformanceevaluationbytheReserveBank,asof April1,2016(“RegionsBankEvaluation”).21Thebankreceiveda“HighSatisfactory”ratingforeachof theLendingTest, InvestmentTest,andServiceTest.22 ExaminersfoundthatRegionsBank’soveralllendingactivitywasresponsivetothecredit needsinallof itsassessmentareas,andtherewerenoconspicuousgapsinlendingactivity byincomecategory.Examinersnotedthatthebankoriginatedasubstantialmajorityof its loansinsideitsAAs.Examinersfoundthatthedistributionof thebank’sloanstoretail customersof differentincomelevelsandbusinesscustomersof differentsizeswasgood andthatthebank’soverallgeographicdistributionof HMDAandsmallbusinessloans reflectedgoodpenetrationthroughoutLMIareas.Examinersalsofoundthatthebank madeanadequatelevelof communitydevelopmentloans,themajorityof whichwerefor affordablehousingandcommunityservices,andthatthebankwasresponsivetothe communitydevelopmentneedsthroughoutitsAAs. ExaminersratedRegionsBank’sperformanceinTexasundertheLendingTestas“Low Satisfactory.”Examinersfoundthatthedistributionof thebank’sborrowersreflectedgood penetrationamongindividualsof differentincomelevelsandbusinessesof differentsizes andthatthegeographicdistributionof thebank’sloansreflectedadequatepenetration throughoutTexas.Further,examinersfoundthatthebankmadeanadequatelevelof communitydevelopmentloansinTexasandwasresponsivetocommunitydevelopment andcreditneeds.InHouston,anareaof concernforthecommenter,examinersconcluded thatthebank’slendingperformancewasadequateandnotedthatthebankmadean adequatelevelof communitydevelopmentloans.Examinersfoundthatthebank’slending performanceinDallas,anotherareaof concernforthecommenter,exceededthebank’s state-widelendingperformance. Examinersfoundthat,overall,RegionsBankmadeasignificantlevelof qualifiedcommunitydevelopmentinvestmentsinresponsetocommunitydevelopmentneeds.Examiners madeasimilarfindingwithrespecttothebank’sinvestmentperformanceinTexas,which examinersratedas“HighSatisfactory.”Examinersnotedthatthemajorityof investments inTexaswereconcentratedintheAustinorHoustonAAsandthatthebank’sinvestment performancewasgoodintheHoustonAA.Inaddition,examinersfoundthatthebank’s performanceintheDallasAAexceededthebank’sstate-wideinvestmentperformancein Texas,duetothebank’sstrongmixof contributionsandinvestmentsthatwereresponsive tolocalcommunitydevelopmentandcreditneeds. ExaminersfoundthatRegionsBank’sretaildeliverysystemswerereasonablyaccessibleto geographiesandindividualsof differentincomelevelswithinthebank’sAAs.Examiners notedthatthebank’sopeningandclosingof branchesgenerallydidnotadverselyaffect theaccessibilityof bankingservicestoLMIgeographiesand/orindividuals.Examiners foundthatbankingservicesandbusinesshoursdidnotvaryinawaythatinconvenienced anyportionof thebank’sAAs,includingLMIgeographiesandindividuals.Moreover, examinersfoundthatthebankprovidedahighlevelof communitydevelopmentservices thatbenefitedallof itsAAs,includingTexas. 21 TheRegionsBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Examiners reviewedHMDAandsmallbusinesslendingactivitiesreportedbythebankfromJanuary1,2014,through December31,2015.Theevaluationperiodforcommunitydevelopmentlending,investments,andserviceswas July1,2014,throughMarch31,2016. 22 RegionsBank’sAAsaresetforthinAppendixB.

LegalDevelopments:FirstQuarter,2019 33 ExaminersratedRegionsBank’sserviceperformanceinTexasas“HighSatisfactory.”In theHoustonAA,examinersconcludedthat,althoughthebank’sbranchdistributionwas weakinLMIgeographies,therehadbeennochangeintheaccessibilityof retailservicesfor LMIgeographiesand/orindividuals,andmanybrancheshadextendedhours,including brancheslocatedinLMIgeographies.Examinersalsofoundthatthebank’sdelivery servicesandhoursof operationdidnotvaryinawaythatinconveniencedLMIgeographiesorindividuals.Inaddition,examinersfoundthatthebankprovidedarelativelyhigh levelof communitydevelopmentservicesintheHoustonAA.Examinersalsoconcluded that,intheDallasAA,thebank’sserviceperformancewasconsistentwiththebank’sstatewideserviceperformance. RegionsBank’sEffortssincetheRegionsBankEvaluation RegionsBankrepresentsthat,sincetheRegionsBankEvaluation,ithascontinuedtooffer severallendinganddepositproductsthatbenefitLMIindividualsandcommunitiesand smallbusinesses.AccordingtoRegionsBank,suchproductsincludeaRegionsBusiness Lineof Credit;its“RegionsNOWBanking”suiteof services,whichisdesignedfor unbankedandunderbankedcustomerswhopreferapay-as-you-goapproachtomanaging theirfinances;andits“SavingsAccountSecuredLoans”andlinesof creditthatallow borrowerstousetheirsavingsaccountsascollateral.RegionsBankalsorepresentsthatit offersaffordablemortgageproductsforLMIborrowers,includingsomeproductsthat requirelittletonodownpaymentand/ordonotrequiremortgageinsurance,thuslowering monthlypayments. RegionsBankrepresentsthatithascontinuedtoservethebankingneedsinitsAAs, includingHoustonandDallas,throughcommunitydevelopmentlending,investments,and servicessincetheRegionsBankEvaluation.Thebankcontendsthatithasmadeanumber of communitydevelopmentloans,includingintheHoustonandDallasmarkets.Regions Bankrepresentsthatithasmadeanumberof communitydevelopmentinvestmentsthat supportorganizationsfocusedonLMIandminorityindividualsandcommunities, includingagranttoanorganizationthatprovidesessentialservicestoLMIindividualsand familiesinHouston.RegionsBankcontendsthatitengagesinmarketingandoutreach, includingtargetedradioandadvertisingcampaigns,toachievelendingpenetrationinLMI andminoritycensustracts,includingthosetractsintheHoustonandDallasAAs.In addition,RegionsBankrepresentsthatbankemployeeshaveactivelyparticipatedina varietyof volunteeractivitiesinitsAAs,includingeventsthattargetprimarilyLMIand minorityindividualsandsmallbusinessowners,suchasaneventofferingassistanceto minoritysmallbusinessownersinHouston. AdditionalSupervisoryConsiderations InadditiontotheRegionsBankEvaluation,theBoardhasconsideredtheresultsof a2015 targetexaminationof RegionsBank’sFairHousingAct(“FHA”)fairlendingprogram. TheBoardhasalsoconsideredthepreliminaryfindingsof amorerecentFHAexamination,whichincludedaredliningreviewof anumberof markets,includingtheHoustonand DallasAAs.Theredliningreviewincludedanevaluationof thebank’slending,marketing andoutreach,assessmentarea,andbranchingwithinthesemarkets.Inaddition,theBoard hasconsideredRegionsBank’ssupervisoryrecordwiththeConsumerFinancialProtectionBureau. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.RegionsBankassertsthattheproposedbranches

34 FederalReserveBulletin|May2019 wouldprovideeconomicandemploymentbenefitsandabroadrangeof financialservices tothemarketstheyserve.Thebankrepresentsthattheproposedbrancheswouldutilize enhancedtechnologiesandprovideexpandedservicesandconveniencetocustomersof the bank. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtheCRArecordof Regions Bank,thebank’srecordsof compliancewithfairlendingandotherconsumerprotection laws,confidentialsupervisoryinformation,informationprovidedbyRegionsBank,the publiccommentontheproposal,andotherpotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.Basedonthatreview,theBoard concludesthattheconvenienceandneedsfactorisconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationsshouldbe,andherebyare,approved.23TheBoard’sapprovalisspecificallyconditionedoncompliancebyRegionsBankwithalltheconditionsimposedinthisorder, includingreceiptof allrequiredregulatoryapprovals,andonanycommitmentsmadeto theBoardinconnectionwiththisproposal.Forpurposesof thisaction,theconditionsand commitmentsaredeemedtobeconditionsimposedinwritingbytheBoardinconnection withitsfindingsanddecisionhereinand,assuch,maybeenforcedinproceedingsunder applicablelaw. Approvalof theseapplicationsisalsosubjecttotheestablishmentof theproposed brancheswithinoneyearof thedateof thisorder,unlesssuchperiodisextendedbythe BoardortheReserveBank,actingunderauthoritydelegatedbytheBoard. Byorderof theBoardof Governors,effectiveFebruary5,2019. Votingforthisaction:ChairmanPowell,ViceChairmanClarida,ViceChairmanfor SupervisionQuarles,andGovernorsBrainardandBowman. AnnE.Misback Secretaryof theBoard 23 TheBoardconstruesthecommentreceivedontheproposaltoincludearequestthattheBoardholdpublic hearingsontheproposal.Underitsrules,theBoardmay,initsdiscretion,holdapublichearingifappropriate toallowinterestedpersonsanopportunitytoproviderelevanttestimonywhenwrittencommentswouldnot adequatelypresenttheirviews.12CFR262.3(e).TheBoardhasconsideredthecommenter’srequestinlightof allthefactsofrecord.Noticeoftheproposalwaspublishedintherelevantnewspapersofgeneralcirculation onSeptember28,2018.ThecommentperiodoneachapplicationendedonOctober13,2018.IntheBoard’s view,thecommenterhashadampleopportunitytosubmitcommentsontheproposaland,infact,submitteda writtencommentthattheBoardhasconsideredinactingontheproposal.Thecommenter’srequestdoesnot identifydisputedissuesoffactthatarematerialtotheBoard’sdecisionandthatwouldbeclarifiedbyapublic hearing.Inaddition,therequestdoesnotdemonstratewhythewrittencommentdoesnotpresentthe commenter’sviewsadequatelyorwhyahearingotherwisewouldbenecessaryorappropriate.Forthese reasons,andbasedonallthefactsofrecord,theBoardhasdeterminedthatapublichearingisnotrequiredor warrantedinthiscase.Accordingly,therequestforapublichearingontheproposalisdenied.

LegalDevelopments:FirstQuarter,2019 35 AppendixA BranchestobeEstablishedbyRegionsBank GeorgiaBranches SandyPlainsBranch ShallowfordRoad,JustEastof SandyPlainsRoad Marietta,Georgia30062 SuwaneeBranch Intersectionof McGinnisFerryRoadandPeachtreeIndustrialBoulevard Suwanee,Georgia30024 VillageShoppesatWindermereBranch NorthwestCornerof Intersectionof OldAtlantaRoadandMathisAirportParkway Suwanee,Georgia30024 IllinoisBranch CarbondaleBranch NortheastCornerof Intersectionof WestMainStreetandNorthOaklandAvenue Carbondale,Illinois62901 MissouriBranch LemayBranch LemayFerryRoad,JustEastof BuckleyRoad Affton,Missouri63125 TennesseeBranch ArlingtonBranch SoutheastCornerof Intersectionof AirlineRoadandMiltonWilsonBoulevard Arlington,Tennessee38002 TexasBranch LongviewMainBranch WestMarshallAvenue,JustEastof IntersectionwithSouthSpur63 Longview,Texas75601 AppendixB TheRegionsBankEvaluationincludedafull-scopereviewof thebank’sAAswithinthe following:Birmingham,Alabama,MetropolitanStatisticalArea(“MSA”);Montgomery, Alabama,MSA;LittleRock,Arkansas,MSA;Miami,Florida,MSA;Tampa,Florida, MSA;Atlanta,Georgia,MSA;Carbondale-Marion,Illinois,MSA;Indianapolis,Indiana, MSA;Waterloo,Iowa,MSA;SouthwestKentucky,Kentucky;BatonRouge,Louisiana, MSA;NewOrleans,Louisiana,MSA;Jackson,Mississippi,MSA;NorthernMississippi, Mississippi;Springfield,Missouri,MSA;Charlotte,NorthCarolina,MSA;Charleston, SouthCarolina,MSA;Nashville,Tennessee,MSA;Austin,Texas,MSA;Houston,Texas, MSA;andAugusta-Chattanooga-Columbus-Kingsport-Memphis-St.Louis-Texarkana,MSA.

36 FederalReserveBulletin|May2019 Alimited-scopereviewwasconductedinthebank’sAAswithinthefollowing:Anniston, Alabama,MSA;Auburn,Alabama,MSA;Coffee-Covington-Escambia,Alabama; Daphne,Alabama,MSA;Decatur,Alabama,MSA;Dothan,Alabama,MSA;Fayette County,Alabama;Florence,Alabama,MSA;Gadsden,Alabama,MSA;Huntsville, Alabama,MSA;Mobile,Alabama,MSA;NorthernAlabama;SouthernAlabama; Tallapoosa-Talladega,Alabama;Tuscaloosa,Alabama,MSA;Fayetteville,Arkansas, MSA;FortSmith,Arkansas,MSA;HotSprings,Arkansas,MSA;Jonesboro,Arkansas, MSA;NortheastArkansas;NorthwestArkansas;SouthernArkansas;UnionCounty, Arkansas;Daytona,Florida,MSA;FortLauderdale,Florida,MSA;FortMyer,Florida, MSA;FortWalton,Florida,MSA;Gainesville,Florida,MSA;HomosassaSprings, Florida,MSA;Jacksonville,Florida,MSA;Lakeland,Florida,MSA;Naples,Florida, MSA;NorthernFlorida;Ocala,Florida,MSA;Okeechobee,Florida;Orlando,Florida, MSA;PalmBay,Florida,MSA;PanamaCity,Florida,MSA;Pensacola,Florida,MSA; PuntaGorda,Florida,MSA;Sarasota,Florida,MSA;Tallahassee,Florida,MSA;The Villages,Florida,MSA;WestPalmBeach,Florida,MSA;Albany,Georgia,MSA;Athens, Georgia,MSA;Dalton,Georgia,MSA;ElbertandWilkescounties,Georgia;Gainesville, Georgia,MSA;Jefferson-Jenkins,Georgia;Morgan-Elbert-Wilkes,Georgia;Northeast Georgia;NorthwestGeorgia;Rome,Georgia,MSA;Savannah,Georgia,MSA;Southwest Georgia;Valdosta,Georgia,MSA;Bloomington,Illinois,MSA;CentralIllinois;Champaign,Illinois,MSA;Decatur,Illinois,MSA;Livingston,Illinois,MSA;Peoria,Illinois, MSA;SoutheastIllinois;SouthernIllinois;Springfield,Illinois,MSA;Bloomington, Indiana,MSA;Clinton-Grant,Indiana;Evansville,Indiana,MSA;Knox-Lawrence, Indiana;Kokomo,Indiana,MSA;Lafayette,Indiana,MSA;Louisville,Indiana,MSA; TerreHaute,Indiana,MSA;CedarRapids,Iowa,MSA;DesMoines,Iowa,MSA;Fayette, Iowa;IowaCity,Iowa,MSA;Simpson,Kentucky;Alexandria,Louisiana,MSA; Hammond,Louisiana,MSA;Houma,Louisiana,MSA;Lafayette,Louisiana,MSA; Monroe,Louisiana,MSA;Morehouse,Louisiana;NorthwestLouisiana;Shreveport,Louisiana,MSA;SouthernLouisiana;Adams-Wilkinson,Mississippi;CentralMississippi; Gulfport,Mississippi,MSA;Hattiesburg,Mississippi,MSA;NorthwestMississippi; SouthernMississippi;Warren,Mississippi;CapeGirardeau,Missouri,MSA;Central Missouri;Columbia,Missouri,MSA;JeffersonCity,Missouri,MSA;LawrenceCounty, Missouri;SoutheastMissouri;St.Genevieve-Perry,Missouri;TaneyCounty,Missouri; MaconCounty,NorthCarolina;Raleigh,NorthCarolina,MSA;Columbia,SouthCarolina,MSA;Greenville,SouthCarolina,MSA;HamptonCounty,SouthCarolina;Hilton HeadIsland-Bluffton-Beaufort,SouthCarolina,MSA;McCormick-Barnwell,SouthCarolina;Spartanburg,SouthCarolina,MSA;Clarksville,Tennessee,MSA;Cleveland, Tennessee,MSA;EasternTennessee;Jackson,Tennessee,MSA;JohnsonCity,Tennessee, MSA;Knoxville,Tennessee,MSA;MiddleTennessee;Morristown,Tennessee,MSA; WesternTennessee;Cass,Texas;Dallas,Texas,MSA;FortWorth,Texas,MSA;Longview, Texas,MSA;Nacogdoches-Angelina-Anderson,Texas;andTyler,Texas,MSA.

LegalDevelopments:FirstQuarter,2019 37 Order Issued Under Home Owners’ Loan Act WSFS Financial Corporation Wilmington, Delaware OrderApprovingtheAcquisitionandMergerof SavingsandLoanHoldingCompanies FRBOrderNo.2019-04(February27,2019) WSFSFinancialCorporation(“WSFS”),Wilmington,Delaware,asavingsandloan holdingcompany(“SLHC”),hasrequestedtheBoard’sapprovalundersection10(e)of theHomeOwners’LoanAct,asamended(“HOLA”),1toacquireBeneficialBancorp,Inc. (“Beneficial”),andtherebyindirectlyacquireBeneficialBank,bothof Philadelphia, Pennsylvania,followingtheconversionsof BeneficialBankfromaPennsylvaniastate savingsbanktoafederalsavingsassociationandBeneficialfromabankholdingcompany toanSLHC.2Immediatelyfollowingtheconversions,Beneficialwouldmergewithandinto WSFS,andBeneficialBankwouldmergewithandintoWSFS’ssubsidiaryfederal savingsassociation,WilmingtonSavingsFundSociety,FSB(“WSFSBank”),Wilmington, Delaware.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(83FederalRegister55365(November5,2018)).4Thetimeforsubmittingcommentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection10(e)of HOLA.5 WSFS,withconsolidatedassetsof approximately$7.2billion,6isthe177thlargestinsured depositoryorganizationintheUnitedStates,controllingapproximately$5.7billionin consolidateddeposits,whichrepresentlessthan1percentof thetotalamountof deposits of insureddepositoryinstitutionsintheUnitedStates.7WSFScontrolsWSFSBank,which operatesinDelawareandPennsylvania.WSFSBankisthe33rdlargestinsureddepository institutioninPennsylvania,withapproximately$1.2billionindeposits,whichrepresentless than1percentof thetotalamountof depositsof insureddepositoryinstitutionsinthat state. Beneficial,withconsolidatedassetsof approximately$5.9billion,isthe198thlargest insureddepositoryorganizationintheUnitedStates,controllingapproximately$4.3billion indeposits,whichrepresentlessthan1percentof thetotalamountof depositsof insured depositoryinstitutionsintheUnitedStates.BeneficialcontrolsBeneficialBank,which operatesinPennsylvaniaandNewJersey.BeneficialBankisthe22ndlargestinsured depositoryinstitutioninPennsylvania,withapproximately$2.9billionindeposits,which representlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsinthatstate. 1 12U.S.C.§1467a(e). 2 TheFederalReserveBankofPhiladelphia(“ReserveBank”),actingunderdelegatedauthority,hasapproved anapplicationbyBeneficialundersection10(e)ofHOLAtobecomeanSLHCupontheconversionofBeneficialBanktoafederalsavingsassociation,andtheOfficeoftheComptrolleroftheCurrency(“OCC”)has approvedanapplicationundersection5ofHOLA(12U.S.C.§1464)byBeneficialBanktoconverttoafederal savingsassociation. 3 TheOCChasapprovedanapplicationundersection18(c)oftheFederalDepositInsuranceAct(“FDIAct”) (12U.S.C.§1828(c))byWSFSBanktomergewithBeneficialBank,withWSFSBanksurviving. 4 12CFR238.14(c)(2). 5 12U.S.C.§1467a(e)(2);seealso12CFR238.15. 6 NationalassetanddepositdataareasofSeptember30,2018. 7 StateandmarketdepositdataandallrankingdataareasofJune30,2018.

38 FederalReserveBulletin|May2019 Onconsummationof theproposal,WSFSwouldbecomethe118thlargestinsureddepositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $13.0billion.WSFSwouldcontroldepositsof approximately$10billion,whichrepresent lessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsinthe UnitedStates.InPennsylvania,WSFSwouldbecomethe19thlargestinsureddepository organization,controllingdepositsof approximately$4.1billion,whichrepresentapproximately1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. DepositCapandInterstateAnalysis Section10(e)(2)(E)of HOLAgenerallyprovidesthattheBoardmaynotapproveanapplicationbyanSLHCtoacquireaninsureddepositoryinstitutioninastateotherthanthe SLHC’shomestateif theSLHCcontrols,oruponconsummationwouldcontrol,more than10percentof thetotalamountof depositsof insureddepositoryinstitutionsinthe UnitedStates.8 Forpurposesof HOLA,BeneficialBank’shomestateisPennsylvania,andWSFS’shome stateisDelaware.Uponconsummationof theproposal,WSFSwouldcontrollessthan 1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnited States.Accordingly,inlightof allthefactsof record,theBoarddeterminesthatitisnot requiredtodenytheproposalundersection10(e)(2)(E)of HOLA. Inaddition,section10(e)(3)of HOLAprohibitstheBoardfromapprovingaproposalthat wouldresultintheformationof amultipleSLHCthatcontrolssavingsassociationsin morethanonestate.9Becausethemergerof BeneficialBankwithandintoWSFSBank wouldoccursimultaneouslywiththemergerof BeneficialwithandintoWSFS,WSFS wouldnotcontrolmorethanonesavingsassociationasaresultof theproposedtransactionand,therefore,theproposalwouldnotresultintheformationof amultipleSLHC. Accordingly,inlightof allthefactsof record,theBoarddeterminesthatitisnotrequired todenytheproposalundersection10(e)(3)of HOLA. CompetitiveConsiderations Section10(e)(2)of HOLAprohibitstheBoardfromapprovingaproposalthatwouldresult inamonopolyorthatwouldbeinfurtheranceof anycombinationorconspiracyto monopolize,ortoattempttomonopolize,thesavingsandloanbusinessinanypartof the UnitedStates.10HOLAalsoprohibitstheBoardfromapprovingaproposalif theproposal wouldsubstantiallylessencompetition,tendtocreateamonopoly,orinanyothermanner restraintradeinanysectionof thecountry,unlesstheanticompetitiveeffectsof the proposalareclearlyoutweighedinthepublicinterestbytheprobableeffectof theproposal inmeetingtheconvenienceandneedsof thecommunitytobeserved.11 8 12U.S.C.§1467a(e)(2)(E).Afederalsavingsassociation’shomestateisthestateinwhichitshomeofficeis located.12U.S.C.§1467a(e)(7)(B)(iii).AnSLHC’shomestateisthestateinwhichthetotaldepositsofall insureddepositoryinstitutionsubsidiariesofsuchcompanywerethegreatestonthedateonwhichthe companybecameanSLHC.12U.S.C.§1467a(e)(7)(B)(iv). 9 12U.S.C.§1467a(e)(3).AmultipleSLHCisanSLHCthatdirectlyorindirectlycontrolstwoormoresavings associations.12U.S.C.§1467a(a)(1)(E). 10 12U.S.C.§1467a(e)(2)(A);seealso12CFR238.15(a)(1). 11 12U.S.C.§1467a(e)(2)(B);seealso12CFR238.15(a)(2).

LegalDevelopments:FirstQuarter,2019 39 WSFSandBeneficialcompetedirectlyinthePhiladelphiabankingmarket(“Philadelphia market”).12TheBoardhasconsideredthecompetitiveeffectsof theproposalinthis bankingmarket.Inparticular,theBoardhasconsideredtherelativeshareof totaldeposits of insureddepositoryinstitutionsinthemarket(“marketdeposits”)thatWSFSwould control;13theconcentrationlevelof marketdepositsandtheincreaseinthatlevel,asmeasuredbytheHerfindahl-HirschmanIndex(“HHI”)undertheDepartmentof JusticeBank MergerCompetitiveReviewguidelines(“DOJBankMergerGuidelines”);14thenumberof competitorsthatwouldremaininthemarket;andothercharacteristicsof themarket. Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesinthePhiladelphiamarket.Onconsummationof theproposal,thePhiladelphiamarketwouldremainunconcentratedasmeasured bytheHHI,accordingtotheDOJBankMergerGuidelines.15 TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket,includingthe Philadelphiamarket.Inaddition,theappropriatebankingagencieshavebeenaffordedan opportunitytocommentandhavenotobjectedtotheproposal. Basedonallthefactsof record,theBoardconcludesthatconsummationof theproposal wouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesinthePhiladelphiamarketorinanyotherrelevantbankingmarket.Accordingly, theBoarddeterminesthatcompetitiveconsiderationsareconsistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations InreviewingaproposalunderHOLA,theBoardconsidersthefinancialandmanagerial resourcesandthefutureprospectsof theinstitutionsinvolved.16Initsevaluationof finan- 12 ThePhiladelphiamarketisdefinedasCamden,Cumberland,Gloucester,andSalemcounties,NewJersey; Beverly,Bordentown,andBurlingtoncities,Fieldsboro,Palmyra,andRivertonboroughs,andBordentown, Burlington,Chesterfield,Cinnaminson,Delanco,Delran,Eastampton,EdgewaterPark,Evesham,Florence, Hainesport,Lumberton,Mansfield,MapleShade,Medford,Moorestown,MountHolly,MountLaurel,Riverside,Springfield,andWillingborotownshipsinBurlingtonCounty,NewJersey;TrentoncityandHamilton townshipinMercerCounty,NewJersey;andBucks,Chester,Delaware,MontgomeryandPhiladelphiacounties,Pennsylvania. 13 Localdepositandmarketsharedataarebasedoncalculationsinwhichthedepositsofthriftinstitutionsare includedat50percent.TheBoardpreviouslyhasindicatedthatthriftinstitutionshavebecome,orhavethe potentialtobecome,significantcompetitorstocommercialbanks.See,e.g.,MidwestFinancialGroup, 75FederalReserveBulletin386(1989)andNationalCityCorporation,70FederalReserveBulletin743(1984). Thus,theBoardregularlyhasincludedthriftdepositsinthemarketsharecalculationona50percentweighted basis.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 WSFSoperatesthe19thlargestdepositoryinstitutioninthePhiladelphiamarket,controllingapproximately $1.2billionindeposits,whichrepresent0.7percentofmarketdeposits.Beneficialoperatesthe8thlargest depositoryinstitutioninthesamemarket,controllingdepositsofapproximately$4.2billion,whichrepresent approximately2.6percentofmarketdeposits.Onconsummationoftheproposedtransaction,WSFSwould becomethe6thlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately $5.4billion,whichrepresentapproximately3.3percentofmarketdeposits.TheHHIforthePhiladelphia marketwouldincreaseby4pointsto935,and91competitorswouldremaininthemarket. 16 12U.S.C.§1467a(e)(2).

40 FederalReserveBulletin|May2019 cialfactors,theBoardreviewspublicandsupervisoryinformationregardingthefinancial 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 operations.Inassessingfinancialfactors,theBoardconsiderscapitaladequacytobeespeciallyimportant.TheBoardconsidersthefutureprospectsof theorganizationsinvolvedin lightof theirfinancialandmanagerialresourcesandtheproposedbusinessplan. WSFS,Beneficial,andtheirsubsidiarydepositoryinstitutionsarewellcapitalized,andthe combinedorganizationwouldremainsoonconsummationof theproposal.Theproposed transactionisamergerof holdingcompaniesthatisstructuredasacashandshare exchangewithasimultaneousmergerof thesubsidiarydepositoryinstitutions.17Theasset quality,earnings,andliquidityof WSFS,Beneficial,andtheirsubsidiarydepositoryinstitutionsareconsistentwithapproval,andWSFSappearstohaveadequateresourcesto absorbthecostsof theproposalandtocompletetheintegrationof theinstitutions’operations.Inaddition,thefutureprospectsof theinstitutionsundertheproposalareconsidered consistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.18TheBoardhasconductedanevaluationof the competence,experience,andintegrityof theofficers,directors,andprincipalshareholders of WSFSandWSFSBank;theirrecordof compliancewithlawsandregulations;andthe recordof WSFSandWSFSBankof fulfillinganycommitmentsto,andanyconditions imposedby,theBoardinconnectionwithpriorapplications.19TheBoardhasreviewedthe examinationrecordsof WSFS,Beneficial,andtheirsubsidiarydepositoryinstitutions, includingassessmentsof theirmanagement,risk-managementsystems,andoperations.In addition,theBoardhasconsideredinformationprovidedbyWSFS;theBoard’ssupervisoryexperiencesandthoseof otherrelevantbanksupervisoryagencieswiththeorganizations;theorganizations’recordsof compliancewithapplicablebanking,consumerprotection,andanti-money-launderinglaws;andthepubliccommentontheproposal. WSFS,Beneficial,andtheirsubsidiarydepositoryinstitutionsareeachconsideredtobe wellmanaged.Thedirectorsandseniorexecutiveofficersof WSFShaveknowledgeof and experienceinthebankingsector,andWSFS’srisk-managementprogramappearsconsistentwithapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredWSFS’splansforimplementingtheproposal.WSFShas conductedcomprehensiveduediligenceandisdevotingsignificantfinancialandother resourcestoaddressthepost-acquisitionintegrationprocessforthisproposal.WSFS wouldapplyitsrisk-managementpolicies,procedures,andcontrolsatthecombinedorganization,andtheseareconsideredacceptablefromasupervisoryperspective.Inaddition, WSFS’smanagementhastheexperienceandresourcestooperatethecombinedorganiza- 17 Toeffectthemerger,alloutstandingsharesofBeneficialcommonstockwouldbeconvertedintotherightto receivecashfromWSFSandsharesofWSFScommonstock.WSFShasthefinancialresourcestoeffectthe proposedtransaction. 18 See12U.S.C.§1467a(e)(2). 19 See12U.S.C.§1467a(e)(2);12CFR238.15(b)(2).

LegalDevelopments:FirstQuarter,2019 41 tioninasafeandsoundmanner,andWSFSwouldintegrateBeneficial’sexistingmanagementandpersonnelinamannerthataugmentsWSFS’smanagement.20 Basedonallthefactsof record,includingWSFS’ssupervisoryrecord,managerialand operationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoarddeterminesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandthefutureprospectsof theorganizationsinvolvedintheproposal,aswellas therecordsof effectivenessof WSFSandBeneficialincombattingmoney-laundering activities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection10(e)of HOLA,theBoardconsiderstheeffectsof thetransactionontheconvenienceandneedsof thecommunitiestobeserved.21Inthis evaluation,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthe creditneedsof thecommunitiestheyserve,aswellasotherpotentialeffectsof theproposal ontheconvenienceandneedsof thesecommunities,andplacesparticularemphasisonthe recordsof therelevantdepositoryinstitutionsundertheCommunityReinvestmentAct (“CRA”).22TheCRArequiresthefederalfinancialsupervisoryagenciestoencourage insureddepositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesin whichtheyoperate,consistentwiththeinstitutions’safeandsoundoperation,23and requirestheappropriatefederalfinancialsupervisoryagencytoassessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof itsentirecommunity,includinglowandmoderate-income(“LMI”)neighborhoods,inevaluatingexpansionaryproposals.24 Inaddition,theBoardconsiderstheinstitutions’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsiderstheassessmentsof otherrelevantsupervisors,the supervisoryviewsof examiners,othersupervisoryinformation,informationprovidedby theapplicant,andpubliccommentsreceivedontheproposal.TheBoardalsomayconsider theacquiringinstitution’sbusinessmodelandmarketingandoutreachplans,theorganization’splansafterconsummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof WSFSBank andBeneficialBank,thefairlendingandcompliancerecordsof bothdepositoryinstitutions,thesupervisoryviewsof theOCCandFederalDepositInsuranceCorporation (“FDIC”),confidentialsupervisoryinformation,informationprovidedbyWSFS,andthe publiccommentontheproposal. 20 ThreemembersofBeneficial’sboardofdirectorswouldbeappointedtotheboardsofWSFSandWSFS Bank,andanadvisoryboardwouldbeestablishedwithmembershipthatincludescurrentdirectorsofBeneficial’sboard.Further,Beneficial’sChiefLendingOfficerwouldbecomeWSFS’sExecutiveVicePresidentand HeadofPennsylvaniaandNewJerseyCommercialLending. 21 12U.S.C.§1467a(e)(2);12CFR238.15(b)(3). 22 12U.S.C.§2901etseq. 23 12U.S.C.§2901(b). 24 12U.S.C.§2903.

42 FederalReserveBulletin|May2019 Summaryof PublicCommentonConvenienceandNeeds Acommenterobjectedtotheproposalalleging,basedondatareportedundertheHome MortgageDisclosureAct(“HMDA”)25for2017,thatWSFSBankdeniedhomepurchase mortgageloanstoAfricanAmericanandLatinoapplicantsatsignificantlyhigherrates thantowhiteapplicantsintheWilmington,Delaware-Maryland-NewJerseyMetropolitan Division(“MD”)andtheSalisbury,Maryland-DelawareMetropolitanStatisticalArea (“MSA”).Thecommenteralsoraisedconcernsregardingbranchclosuresanticipatedin connectionwiththeproposedmergers. Businessesof theInvolvedInstitutionsandResponsetothePublicComment WSFSBankoffersavarietyof depositandlendingproductsandservicestoretailand businesscustomersthroughitsbranchesinDelawareandPennsylvania.Throughits branchesinPennsylvaniaandNewJersey,BeneficialBankalsooffersavarietyof deposit andlendingproductsandservicestoretailandbusinesscustomers. WSFSassertsthatthedisparatedenialratescitedbythecommenterdonottakeinto accountlegitimateunderwritingfactors,suchascredithistoryandexistingdebtlevels. WSFSrepresentsthattheloandenialsunderlyingthedatawerebasedondeterminations thattheapplicationsdidnotsatisfyWSFSBank’sunderwritingcriteria. WSFSrepresentsitwouldcloseatotalof 25WSFSBankandBeneficialBankbranchesin connectionwiththeproposedtransaction,primarilybecauseof theproximityof those branchestootherbranchesof thecombinedbank.26WSFSrepresentsthatitwould complywiththerequirementsof section42of theFDIAct27andinteragencyguidance applicabletobranchclosures.28 Recordsof PerformanceundertheCRA InevaluatingtheCRAperformanceof involvedinstitutions,theBoardgenerallyconsiders eachinstitution’smostrecentCRAperformanceevaluation,aswellasotherinformation andsupervisoryviewsfromtherelevantfederalfinancialsupervisororsupervisors,which inthiscasearetheOCCforWSFSBankandtheFDICforBeneficialBank.29Inaddition, theBoardconsidersinformationprovidedbytheapplicantandbypubliccommenters. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.30Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalfinancialsupervisorof theinstitution’soverallrecordof lendinginits communities. 25 12U.S.C.§2801etseq. 26 Inaddition,inconnectionwiththeproposal,BeneficialBankhasenteredintoanagreementtosellfiveofits branchesthatwouldnotbewithinthecombinedbank’splannedfootprint. 27 12U.S.C.§1831r-1. 28 SeeJointPolicyStatementonBranchClosingsbyInsuredDepositoryInstitutions,https://www.federalreserve .gov/boarddocs/press/BoardActs/1999/19990707/r-1036.pdf. 29 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister.48506, 48548(July25,2016). 30 12U.S.C.§2906.

LegalDevelopments:FirstQuarter,2019 43 Ingeneral,federalfinancialsupervisorsapplyalendingtesttoevaluatetheperformanceof largeinsureddepositoryinstitutions,suchasWSFSBankandBeneficialBank,inhelping tomeetthecreditneedsof thecommunitiestheyserve.TheLendingTestspecificallyevaluatesaninstitution’slendingtodeterminewhethertheinstitutionishelpingtomeetthe creditneedsof individualsandgeographiesof allincomelevels.Aspartof theLending Test,examinersreviewandanalyzeaninstitution’sdatareportedunderHMDA,inadditiontosmallbusiness,smallfarm,andcommunitydevelopmentloandatacollectedand reportedundertheCRAregulations,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;31(4)theinstitution’scommunitydevelopmentlending, includingthenumberandamountsof communitydevelopmentloansandtheircomplexity andinnovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpractices toaddressthecreditneedsof LMIindividualsandgeographies.32Largeinstitutionsalso aresubjecttoaninvestmenttest,whichevaluatesthenumberandamountsof qualified investmentsthatbenefittheirAAs,andaservicetest,whichevaluatestheavailabilityand effectivenessof theirsystemsfordeliveringretailbankingservicesandtheextentand innovativenessof theircommunitydevelopmentservices.33 TheBoardisconcernedwhenHMDAdatareflectdisparitiesintheratesof loanapplications,originations,anddenialsamongmembersof differentracialorethnicgroupsinlocal areas.Thesetypesof disparitiesmayindicateweaknessesintheadequacyof policiesand programsataninstitutionformeetingitsobligationstoextendcreditfairly.However,other informationcriticaltoaninstitution’screditdecisionsisnotavailablefromHMDAdata.34 Consequently,theBoardevaluatesHMDAdatadisparitiesinthecontextof otherinformationregardingthelendingrecordof theinstitution. CRAPerformanceof WSFSBank WSFSBankwasassignedanoverall“Satisfactory”ratingbytheOCCatitsmostrecent CRAperformanceevaluation,asof August7,2017(the“WSFSBankEvaluation”).35 WSFSBankreceiveda“HighSatisfactory”ratingfortheLendingTest,an“Outstanding” ratingfortheInvestmentTest,anda“LowSatisfactory”ratingfortheServiceTest. 31 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3). 32 See12CFR228.22(b). 33 See12CFR228.21etseq. 34 Otherinformationrelevanttocreditdecisionscouldincludecredithistory,debt-to-incomeratios,andloan-tovalueratios.Accordingly,whenconductingfairlendingexaminations,examinersanalyzesuchadditionalinformationbeforereachingadeterminationregardinganinstitution’scompliancewithfairlendinglaws. 35 TheWSFSBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.TheLending TestevaluationperiodwasJanuary1,2014,throughDecember31,2016,exceptwithrespecttocommunity developmentloans.ForcommunitydevelopmentloansandtheInvestmentandServiceTests,theevaluation periodwasSeptember3,2014,throughAugust7,2017.Examinersconductedfull-scopereviewsofdesignated geographicareaswithinthreeAAs(“full-scopeAAs”):(i)theWilmington,Delaware-Maryland-NewJersey MD,(ii)theDover,DelawareMSA,and(iii)thePhiladelphia,PennsylvaniaMD.Inaddition,examiners conductedlimited-scopereviewsoftheChesterCounty-BucksCounty-MontgomeryCounty,Pennsylvania MSAandtheSalisbury,Maryland-DelawareMSA(“limited-scopeAAs”).

44 FederalReserveBulletin|May2019 ExaminersfoundthatWSFSBankexhibitedanoverallexcellentlevelof lendingactivityin twoof itsthreefull-scopeAAs,andanadequatelevelof lendingactivityintheremaining full-scopeAA.Examinersfoundthattheoverallgeographicdistributionof lendingactivity acrossthefull-scopeAAsrangedfromadequatetooutstandingwithrespecttohome purchase,homeimprovement,homerefinance,andsmallbusinessloans.Intwoof itsthree full-scopeAAs,examinersfoundthatthepercentageof WSFSBank’shomemortgage loansinLMIgeographiesin2014-2016wasequaltoorexceededthepercentageof aggregatepeerlendinginthesamegeographies.Intheremainingfull-scopeAA,examiners consideredthegeographicdistributionof homemortgagelendinginLMIgeographiesto beadequate-to-good.Inaddition,examinersconsideredthepercentageof WSFSBank’s smallbusinessloansinLMIgeographiestobeatleastadequateinallthreeof itsfull-scope AAs.ExaminersalsonotedthatWSFSBankmaintainedanoverallexcellentlevelof communitydevelopmentlendingacrossallthreeof itsfull-scopeAAs. ExaminersconsideredWSFSBank’sperformanceundertheInvestmentTesttobe outstandingacrossallthreeof itsfull-scopeAAsandexcellentoroutstandingacrossits limited-scopeAAs.ExaminersfoundthatWSFSBankhadanexcellentlevelof qualified investmentsthatwereresponsivetothecreditandcommunityneedsof itsAAs. ExaminersnotedthatWSFSBankmaintainedanadequatebranchdistributionsystemthat wasreasonablyaccessibletoindividualslivinginLMIgeographies.Examinersfoundthat branchopeningsandclosingsgenerallyhadnotadverselyaffectedtheaccessibilityof WSFSBank’sdeliverysystems.ExaminersconsideredhoursandservicesofferedinitsfullscopeAAstobeadequate-to-goodandnotedthatWSFSBankcomplementeditstraditionalservicedeliverymethodswithonlinebanking,whichincludedbillpay,mobile banking,automatedtellermachines,bank-by-mail,and24-hourtelephonebanking. Finally,examinersnotedthatWSFSBankmaintainedanadequatelevelof community developmentservicesacrossallthreefull-scopeAAs. WSFSBank’sEffortssincetheWSFSBankEvaluation WSFSrepresentsthatsincetheWSFSBankEvaluation,WSFSBankhasoriginatedor renewedcommunitydevelopmentloanstosupport:affordablehousingdevelopment,the revitalizationof LMIcommunitieswithredevelopmentdesignations,CommunityDevelopmentFinancialInstitutionsthatprovidecommunitydevelopmentloansinWSFSBank’s AAs,andorganizationsthatdelivercommunityservicesforLMIindividualsandcommunities.WSFSalsorepresentsthatWSFSBankhasmadeinvestmentsinLowIncomeHousing TaxCreditEquityfundsandmortgage-backedsecuritiescollateralizedbymortgagesto LMIindividualsinitsAAs.Further,WSFSrepresentsthatthebankhascontinuedits participationincommunitydevelopmentgrantprograms,includingaprogramthat supportscounselingforfirst-timehomebuyersandhomeownersfacingforeclosureandan educationalinitiativethataimstoimprovetheeducationalperformanceof low-income students.WSFSrepresentsthatthebank’semployeescontinuetoparticipateinvarious initiativesandorganizationsthatprovideservicestobenefitLMIindividualsand communities. CRAPerformanceof BeneficialBank BeneficialBankwasassignedanoverall“Outstanding”ratingbytheFDICatitsmost recentCRAperformanceevaluation,asof July31,2017(the“BeneficialBankEvalua-

LegalDevelopments:FirstQuarter,2019 45 tion”).36BeneficialBankreceiveda“HighSatisfactory”ratingfortheLendingTestand “Outstanding”ratingsfortheInvestmentandServiceTests. ExaminersfoundthatBeneficialBank’slendinglevelsreflectedagoodlevelof responsivenesstothecreditneedsof thebank’sAA.Examinersalsofoundthatthegeographicdistributionof loansreflectedadequatepenetrationthroughouttheAA,whilethedistribution of borrowersreflectedgoodpenetrationamongretailcustomersof differentincomelevels andbusinessesof differentsizes.ExaminersnotedthatBeneficialBankusedflexible lendingpracticestoservethecreditneedsof itsAAandmadearelativelyhighlevelof communitydevelopmentloans. ExaminersdeterminedthatBeneficialBankhadanexcellentlevelof communitydevelopmentinvestmentsandgrantsandnotedthatthebankexhibitedexcellentresponsivenessto creditandcommunityeconomicneeds.ExaminersobservedthatBeneficialBankoccasionallyusedinnovativeand/orcomplexinvestmentstosupportcommunitydevelopment initiatives. ExaminersfoundthatBeneficialBank’sdeliverysystemswereaccessibletoessentiallyall portionsof thebank’sAAandthatthebankwasaleaderinprovidingcommunitydevelopmentservices.ExaminersfurtherfoundthatBeneficialBank’sopeningandclosingof branchesdidnotadverselyaffecttheaccessibilityof thebank’sdeliverysystemsandthat servicesofferedbyBeneficialBankdidnotvaryinawaythatinconveniencedcertain portionsof theAA,particularlyLMIgeographiesorindividuals. Viewsof theOCCandtheFDIC Initsreviewof theproposal,theBoardconsideredsupervisoryinformationfromtheOCC andtheFDICregardingtheCRA,consumercompliance,andfairlendingrecordsof WSFSBankandBeneficialBank,respectively.TheBoardalsoconsideredtheresultsof recentconsumercomplianceexaminationsof eachbank,whichincludedreviewsof the banks’compliancewithfairlendinglaws.Inaddition,theBoardconsultedwiththeOCC, whichapprovedtheapplicationundersection18(c)of theFDIActrelatedtotheproposal, andindoingso,consideredtheconvenienceandneedsof thecommunitiesservedby WSFSBankandBeneficialBank,includingwithrespecttotheanticipatedbranchclosures, aswellastheinstitutions’recordsof performanceundertheCRA. TheBoardhastakenthisinformation,aswellastheCRAperformancerecordsof WSFS BankandBeneficialBank,intoaccountinevaluatingtheproposal,includinginconsideringwhetherWSFShastheexperienceandresourcestoensurethatWSFSBankwould helpmeetthecreditneedsof thecommunitieswithinitsAAsfollowingtheproposedtransaction. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.WSFSrepresentsthatcustomersof bothWSFS BankandBeneficialBankwouldbenefitfromaccesstoalargerbranchnetwork,thereby enhancingcustomers’accesstobranchbankingservices.WSFSfurtherrepresentsthatthe proposalwouldincreasetheaccessof WSFSBank’scustomerstoequipmentleasing 36 TheBeneficialBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.TheevaluationperiodwasMay5,2014,throughJuly31,2017.Examinersconductedafull-scopeevaluationofthebank’s soleAA,whichconsistsofeightcontiguouscountieswithinthePhiladelphia-Reading-Camden, Pennsylvania-NewJersey-Delaware-MarylandCombinedStatisticalArea.

46 FederalReserveBulletin|May2019 servicescurrentlyprovidedbyBeneficialBank,whileBeneficialBank’scustomerswould benefitfromaccesstoWSFSBank’swealthmanagementandCashConnectservices throughthecombinedbank. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof WSFSBankand BeneficialBankundertheCRA;theinstitutions’recordsof compliancewithfairlending andotherconsumerprotectionlaws;supervisoryinformationfromtheOCCandthe FDIC;confidentialsupervisoryinformation;informationprovidedbyWSFS;thepublic commentontheproposal;andotherpotentialeffectsof theproposalontheconvenience andneedsof thecommunitiestobeserved.Basedonthatreview,theBoarddetermines thattheconvenienceandneedsfactorisconsistentwithapproval. Effectof theTransactionontheSavingsAssociation,andInsuranceRisktotheDeposit InsuranceFund Inactingonaproposalundersection10(e)of HOLA,theBoardconsidersthelikelyeffect of thetransactiononthesavingsassociationandtheinsurancerisktotheDepositInsuranceFund.37Asdiscussedabove,thefinancialandmanagerialresourcesandthefuture prospectsof thecombinedorganizationareconsistentwithapproval.TheBoardhas consideredthelikelyeffectof thetransactionontheresultantdepositoryinstitutionand believesthatitisconsistentwithapproval.Inviewof thecurrentresourcesandcapitalof WSFSandBeneficial;thefutureprospectsof thecombinedorganization;thesignificant financialandotherresourcesbeingdevotedtosupporttheproposedcombinedorganization;themanagerialresourcesof WSFS,Beneficial,andtheirsubsidiarydepositoryinstitutions;andthelikelyeffectof thetransactionontheproposedcombinedorganization,the Boardbelievesthattheproposalwouldnotappearlikelytomateriallyaffecttheinsurance riskof theDepositInsuranceFund. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationshouldbe,andherebyis,approved.38Inreachingitsconclusion,theBoardhasconsideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunder HOLAandotherapplicablestatutes.TheBoard’sapprovalisspecificallyconditionedon compliancebyWSFSwithallof theconditionsimposedinthisorder,includingreceiptof allrequiredregulatoryapprovals,andonthecommitmentsmadetotheBoardinconnectionwiththeproposal.Forpurposesof thisaction,theconditionsandcommitmentsare deemedtobeconditionsimposedinwritingbytheBoardinconnectionwithitsfindings anddecisionhereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. 37 12U.S.C.§1467a(e)(2). 38 AcommenterrequestedthattheBoardholdpublichearingsormeetingsontheproposal.Underitsrules,the Boardmay,initsdiscretion,holdapublichearingifappropriatetoallowinterestedpersonsanopportunityto providerelevanttestimonywhenwrittencommentswouldnotadequatelypresenttheirviews.12CFR 238.14(e),262.3(e).TheBoardhasconsideredthecommenter’srequestinlightofallthefactsofrecord.Inthe Board’sview,thecommenterhashadampleopportunitytosubmitcommentsontheproposaland,infact, submittedawrittencommentthattheBoardhasconsideredinactingontheproposal.Thecommenter’s requestdoesnotidentifydisputedissuesoffactthatarematerialtotheBoard’sdecisionthatwouldbeclarified byapublichearing.Inaddition,therequestdoesnotdemonstratewhywrittencommentsdonotpresentthe commenter’sviewsadequatelyorwhyahearingotherwisewouldbenecessaryorappropriate.Forthese reasons,andbasedonallthefactsofrecord,theBoardhasdeterminedthatapublichearingisnotrequiredor warrantedinthiscase.Accordingly,therequestforapublichearingontheproposalisdenied.

LegalDevelopments:FirstQuarter,2019 47 Theproposalmaynotbeconsummatedlaterthanthreemonthsaftertheeffectivedateof thisorderunlesssuchperiodisextendedforgoodcausebytheBoardortheReserveBank, actingunderdelegatedauthority. Byorderof theBoardof Governors,effectiveFebruary27,2019. Votingforthisaction:ChairmanPowell,ViceChairmanClarida,ViceChairmanfor SupervisionQuarles,andGovernorsBrainardandBowman. AnnE.Misback Secretaryof theBoard

48 FederalReserveBulletin|May2019 Orders Issued Under the Bank Merger Act and Federal Reserve Act Equity Bank Andover, Kansas OrderApprovingtheAcquisitionof Assets,Assumptionof Liabilities,andtheEstablishment of Branches FRBOrderNo.2019-02(January23,2019) EquityBank,Andover,Kansas,thestatememberbanksubsidiaryof EquityBancshares, Inc.(“EquityBancshares”),Wichita,Kansas,hasrequestedtheBoard’sapprovalunder section18(c)of theFederalDepositInsuranceAct(“BankMergerAct”)1toacquire certainassetsandassumecertainliabilitiesof MidFirstBank,afederalsavingsbank subsidiaryof MidlandFinancialCo.(“MidlandFinancial”),bothof OklahomaCity, Oklahoma.2Inaddition,EquityBankhasappliedundersection9of theFederalReserve Act(“FRA”)3toestablishandoperatebranchesatthelocationsof theacquiredbranches of MidFirstBank. Undertheproposal,EquityBankwouldassumeapproximately$100millionof MidFirst Bank’s$8.3billionindeposits,aswellasacquireapproximately$7millionof MidFirst Bank’sloansandrelatedassets. Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeengiveninaccordancewiththeBankMergerActandtheBoard’sRulesof Procedure.4Thetimeforsubmittingcommentshasexpired,andnocommentswerereceived.The Boardhasconsideredtheproposalinlightof thefactorssetforthintheBankMergerAct andtheFRA.AsrequiredbytheBankMergerAct,areportonthecompetitiveeffectsof theproposalwasrequestedfromtheUnitedStatesAttorneyGeneral,andacopyof the requesthasbeenprovidedtotheFederalDepositInsuranceCorporation. EquityBancshares,withconsolidatedassetsof approximately$3.7billion,isthe268th largestinsureddepositoryorganizationintheUnitedStates,controllingdepositsof approximately$2.6billion,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutions5intheUnitedStates.6EquityBancshares controlsEquityBank,whichhasofficesinArkansas,Kansas,Missouri,andOklahoma. EquityBankisthe37thlargestinsureddepositoryinstitutioninOklahoma,withapproximately$442.2millionindeposits,whichrepresentlessthan1percentof thetotalamount of depositsof insureddepositoryinstitutionsinthatstate.7 MidlandFinancial,withconsolidatedassetsof approximately$15.4billion,isthe103rd largestinsureddepositoryorganizationintheUnitedStates,controllingdepositsof approximately$8.3billion,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.MidlandFinancialcontrols 1 12U.S.C.§1828(c). 2 Inparticular,EquityBankseekstoacquirethebranchesofMidFirstBanklocatedat1754NorthAcademy Street,Guymon,Oklahoma(“NorthAcademyBranch”);2602NorthHighway64,Guymon,Oklahoma (“NorthHighwayBranch”);and110East1stStreet,Cordell,Oklahoma. 3 12U.S.C.§321. 4 12U.S.C.§1828(c)(3);12CFR262.3(b). 5 Inthiscontext,insureddepositoryinstitutionsincludecommercialbanks,savingsbanks,andsavings associations. 6 NationwideassetanddepositdataareasofJune30,2018. 7 StatedepositdataareasofJune30,2018.

LegalDevelopments:FirstQuarter,2019 49 MidFirstBank,whichhasofficesinArizona,California,Colorado,Oklahoma,andTexas. MidFirstBankisthethirdlargestinsureddepositoryinstitutioninOklahoma,with approximately$5.2billionindeposits,whichrepresent6percentof thetotalamountof depositsof insureddepositoryinstitutionsinthatstate. Onconsummationof theproposal,EquityBancshareswouldremainthe268thlargest depositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $3.7billion.EquityBancshareswouldcontrolapproximately$2.7billionindeposits,representinglessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthe UnitedStates.EquityBancshareswouldbecomethe24thlargestinsureddepositoryorganizationinOklahoma,controllingdepositsof approximately$542.2million,whichrepresentapproximately0.6percentof thetotaldepositsof insureddepositoryinstitutionsin thatstate. InterstateandDepositCapAnalysis TheBankMergerActgenerallyprovidesthattheBoardmaynotapproveanapplicationto engageinatransactionundertheBankMergerActif thetransactioninvolvesinsured depositoryinstitutionswithdifferenthomestatesandtheapplicantcontrolsorwould controluponconsummationof theproposedtransactionmorethan10percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.8Forpurposes of theBankMergerAct,thehomestateof EquityBankisKansasandthehomestateof MidFirstBankisOklahoma.9Uponconsummationof theproposal,EquityBankwould controllessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.Accordingly,inlightof allthefactsof record,theBoardisnot requiredtodenytheproposalundertheinterstatemergerprovisionsof theBank MergerAct. CompetitiveConsiderations TheBankMergerActprohibitstheBoardfromapprovingaproposalthatwouldresultina monopolyorwouldbeinfurtheranceof anattempttomonopolizethebusinessof banking inanyrelevantmarket.10TheBankMergerActalsoprohibitstheBoardfromapprovinga proposalthatwouldsubstantiallylessencompetitionortendtocreateamonopolyinany bankingmarket,unlesstheanticompetitiveeffectsof theproposalareclearlyoutweighedin thepublicinterestbytheprobableeffectof theproposalinmeetingtheconvenienceand needsof thecommunitiestobeserved.11 EquityBankandMidFirstBankcompetedirectlyintheGuymon,Oklahoma,banking market(“Guymonmarket”),andtwoof thebranchesthatEquityBankproposesto acquirearelocatedinthatmarket.12TheBoardhasconsideredthecompetitiveeffectsof theproposalinthisbankingmarket.Inparticular,theBoardhasconsideredthenumberof competitorsthatwouldremaininthemarket;therelativeshareof totaldepositsof insureddepositoryinstitutionsinthemarket(“marketdeposits”)thatEquityBankwould 8 12U.S.C.§1828(c)(13). 9 Astatebank’shomestateisthestatebywhichthebankischartered.12U.S.C.§1828(c)(13)(C)(ii)(II).A federalsavingsassociation’shomestateisthestateinwhichthehomeofficeofthesavingsassociationis located.12U.S.C.§1828(c)(13)(C)(ii)(III). 10 12U.S.C.§1828(c)(5)(A). 11 12U.S.C.§1828(c)(5)(B). 12 TheGuymonmarketisdefinedasCimarronandTexascounties(lessthecityofTexhoma),Oklahoma,and MortonCounty,Kansas.TheNorthHighwayBranchandtheNorthAcademyBrancharelocatedinthis market.

50 FederalReserveBulletin|May2019 control;13theconcentrationlevelof marketdepositsandtheincreaseinthatlevel,asmeasuredbytheHerfindahl-HirschmanIndex(“HHI”)undertheDepartmentof JusticeBank MergerCompetitiveReviewguidelines(“DOJBankMergerGuidelines”);14andother characteristicsof theGuymonmarket. Thecompetitiveeffectsof theproposalintheGuymonmarketwarrantadetailedreview becausetheconcentrationlevelsonconsummationwouldexceedthethresholdsintheDOJ BankMergerGuidelineswhenusinginitialcompetitivescreeningdata.EquityBankisthe largestcompetitorintheGuymonmarket,controllingapproximately$133.3millionin deposits,whichrepresentapproximately22.3percentof marketdeposits.MidFirstBankis theseventhlargestdepositoryinstitutionintheGuymonmarket,controllingapproximately $32.5millioninweighteddeposits,whichrepresentapproximately5.4percentof market deposits.Onconsummationof theproposal,EquityBankwouldremainthelargestdepositoryinstitutionintheGuymonmarket,controllingapproximately$198.2millioninmarket deposits,whichwouldrepresentapproximately31.5percentof marketdeposits.TheHHI inthemarketwouldincreaseby369points,from1467to1836. TheBoardhasconsideredwhetherfactorseithermitigatethecompetitiveeffectsof the proposalorindicatethattheproposalwouldnothaveasignificantlyadverseeffecton competitionintheGuymonmarket.15Factorsindicatethattheincreaseinconcentrationin theGuymonmarket,asmeasuredbytheaboveHHIandmarketshare,overstatesthe potentialcompetitiveeffectsof theproposalinthemarket.Inparticular,afterconsummationof theproposal,sevendepositoryinstitutionswouldcompetewithEquityBankin theGuymonmarket.Theseincludeonedepositoryinstitutionwithamorethan19percent marketshareandfourdepositoryinstitutionseachwithanapproximately10percentshare of marketdeposits.Thepresenceof thesemarketcompetitorssuggeststhatEquityBank wouldhavelimitedabilityunilaterallytoofferlessattractivetermstoconsumers,andthese competitorswouldbeabletoexertcompetitivepressureonEquityBankintheGuymon market.Further,MidFirstBankengagesinlowlevelsof smallbusinesslendinginthe Guymonmarket,andanalysisof availabledatasuggeststhetransactionisunlikelytohave anadversecompetitiveimpactonsmallbusinesslendinginthemarket. TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket,includingthe Guymonmarket.Inaddition,theappropriatebankingagencieshavebeenaffordedan opportunitytocommentandhavenotobjectedtotheproposal. 13 LocaldepositandmarketsharedataareasofJune30,2018,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 Thenumberandstrengthoffactorsnecessarytomitigatethecompetitiveeffectsofaproposaldependonthe sizeoftheincreasein,andresultinglevelof,concentrationinabankingmarket.SeeNationsBankCorporation, 84FederalReserveBulletin129(1998).

LegalDevelopments:FirstQuarter,2019 51 Basedonthefactsof record,theBoardconcludesthatconsummationof theproposal wouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheGuymonmarketorinanyotherrelevantbankingmarket.Accordingly,the Boarddeterminesthatcompetitiveconsiderationsareconsistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations InreviewingaproposalundertheBankMergerAct,theBoardconsidersthefinancialand managerialresourcesandthefutureprospectsof theinstitutionsinvolved.16Initsevaluationof 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. EquityBankiswellcapitalizedandwouldremainsoonconsummationof theproposal. EquityBankappearstohaveadequatefinancialresourcestoeffecttheproposal.17The assetquality,earnings,andliquidityof EquityBankareconsistentwithapproval,and EquityBankappearstohaveadequateresourcestoabsorbthecostsof theproposalandto completetheintegrationof thedepositstobeassumedandassetstobepurchased.In addition,thefutureprospectsof EquityBankareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of EquityBankafterconsummationof theproposal.TheBoardhasreviewedtheexaminationrecordof EquityBank,includingassessmentsof itsmanagement,risk-management systems,andoperations.Inaddition,theBoardhasconsideredinformationprovidedby EquityBank;theBoard’ssupervisoryexperienceswiththeinstitution;andEquityBank’s recordof compliancewithapplicablebanking,consumerprotection,andanti-moneylaunderinglaws. EquityBankisconsideredtobewellmanaged.Thedirectorsandseniorexecutiveofficers of EquityBankhavesubstantialknowledgeof andexperienceinthebankingsector,and thebank’srisk-managementprogramappearsconsistentwithapprovalof thisexpansionaryproposal.EquityBankhasconductedcomprehensiveduediligenceandisdevoting sufficientfinancialandotherresourcestoaddressthepost-integrationprocessforthis proposal.EquityBankwouldapplyitsrisk-managementpolicies,procedures,andcontrols attheacquiredbranches,andthesepolicies,procedures,andcontrolsareconsidered acceptablefromasupervisoryperspective.Inaddition,EquityBank’smanagementhasthe experienceandresourcestoensurethatthebankoperatesinasafeandsoundmanner afterconsummationof theproposal. 16 12U.S.C.§1828(c)(5). 17 EquityBankwouldfundthetransactionwithavailablecashonhand.

52 FederalReserveBulletin|May2019 Basedonallof thefactsof record,includingEquityBank’ssupervisoryrecord,managerial andoperationalresources,andplansforoperatingthebankafterconsummation,the Boardconcludesthatconsiderationsrelatingtothefinancialandmanagerialresourcesand thefutureprospectsof theorganizationsinvolvedintheproposal,aswellastherecordsof effectivenessof EquityBankandMidFirstBankincombattingmoney-launderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations InactingonaproposalundertheBankMergerAct,theBoardconsiderstheeffectsof the proposalontheconvenienceandneedsof thecommunitiestobeserved.18Initsevaluation, theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecreditneeds of thesecommunities,aswellasotherpotentialeffectsof theproposalontheconvenience andneedsof thecommunitiestobeserved,andplacesparticularemphasisontherecords of therelevantdepositoryinstitutionsundertheCommunityReinvestmentAct(“CRA”).19 TheCRArequiresthefederalfinancialsupervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesinwhichthey operate,consistentwiththeinstitutions’safeandsoundoperation,20andrequiresthe appropriatefederalfinancialsupervisoryagencytoassessadepositoryinstitution’srecord of helpingtomeetthecreditneedsof itsentirecommunity,includinglow-and moderate-income(“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.21 Inaddition,theBoardconsidersthebanks’overallcompliancerecords,includingwith respecttofairlending.Fairlendinglawsrequirealllendinginstitutionstoprovideloan applicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainother characteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,the supervisoryviewsof examiners,othersupervisoryinformation,andinformationprovided bytheapplicant.TheBoardalsomayconsidertheinstitution’sbusinessmodel,its marketingandoutreachplans,theorganization’splansafterconsummation,andanyother informationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallof thefactsof record,includingreportsof examinationof theCRAperformanceof Equity BankandMidFirstBank;theconsumercompliance,includingfairlending,recordsof EquityBankandMidFirstBank;confidentialsupervisoryinformation;andinformation providedbyEquityBank. Recordsof PerformanceundertheCRA InevaluatingtheCRAperformanceof theinstitutionsinvolved,theBoardgenerally considerseachinstitution’smostrecentCRAperformanceevaluation,aswellasother informationandsupervisoryviews,fromtherelevantfederalfinancialsupervisororsupervisors,whichinthiscasearetheFederalReserveBankof KansasCity(“ReserveBank”) andtheOfficeof theComptrollerof theCurrency(“OCC”).22 TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit 18 12U.S.C.§1828(c)(5). 19 12U.S.C.§2901etseq. 20 12U.S.C.§2901(b). 21 12U.S.C.§2903. 22 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81Fed.Reg.48506,48548 (July25,2016).

LegalDevelopments:FirstQuarter,2019 53 needsof itsentirecommunity,includingLMIneighborhoods.23Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalfinancialsupervisorof theinstitution’soverallrecordof lendinginits communities. Ingeneral,federalfinancialsupervisorsapplylending,investment,andserviceteststo evaluatetheperformanceof largeinsureddepositoryinstitutions,suchasMidFirstBank, inhelpingtomeetthecreditneedsof thecommunitiestheyserve.Thelendingtestspecificallyevaluatesaninstitution’slendingtodeterminewhethertheinstitutionishelpingto meetthecreditneedsof individualsandgeographiesof allincomelevels.Aspartof the lendingtest,examinersreviewandanalyzeaninstitution’sdatareportedundertheHome MortgageDisclosureAct(“HMDA”),24inadditiontosmallbusiness,smallfarm,and communitydevelopmentloandatacollectedandreportedundertheCRAregulations,to assessaninstitution’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;25(4)the institution’scommunitydevelopmentlending,includingthenumberandamountsof communitydevelopmentloansandtheircomplexityandinnovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpracticestoaddressthecreditneedsof LMI individualsandgeographies.26Largeinstitutionsalsoaresubjecttoaninvestmenttest, whichevaluatesthenumberandamountsof qualifiedinvestmentsthatbenefittheirAAs, andaservicetest,whichevaluatestheavailabilityandeffectivenessof theirsystemsfor deliveringretailbankingservicesandtheextentandinnovativenessof theircommunity developmentservices.27Intermediatesmallbanks,suchasEquityBank,aresubjecttothe lendingtest,aswellasacommunitydevelopmenttestthatevaluatesthenumberand amountsof theircommunitydevelopmentloansandqualifiedinvestments,theextentto whichtheyprovidecommunitydevelopmentservices,andtheirresponsivenesstocommunitydevelopmentlending,investment,andserviceneeds.28 CRAPerformanceof EquityBank EquityBankwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheReserveBank,asof November28,2016(“EquityBank 23 12U.S.C.§2906. 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).

54 FederalReserveBulletin|May2019 Evaluation”).29EquityBankreceiveda“Satisfactory”ratingfortheLendingTestandan “Outstanding”ratingfortheCommunityDevelopmentTest.30 ExaminersfoundthatEquityBank’saveragenetloan-to-depositratioreflectedareasonableefforttoextendcreditgiventhebank’ssize,businessactivities,andfinancialcondition andthecreditneedsof thebank’sAAs.Examinersnotedthatamajorityof thebank’s loanswereoriginatedwithinthebank’sAAs.ExaminersfoundthatEquityBank’s geographicdistributionof HMDAandsmallbusinessloansreflectedreasonabledispersion throughoutthebank’sAAs.Examinersnotedthatthedistributionof thebank’slending reflectedreasonablepenetrationamongborrowersof differentincomelevelsandbusinesses of differentrevenuesizeswithinthebank’sAAs. ExaminersfoundthatEquityBank’slevelof qualifiedcommunitydevelopmentloans, investments,donations,andservicesdemonstratedanexcellentresponsivenesstotheneeds of theAAsconsideringthebank’scapacityandtheavailabilityof communitydevelopment opportunitiesintheAAs.ExaminersnotedthatEquityBank’scommunitydevelopment activitieswereexcellentintheKansasCityMissouri-KansasMultistateMSAAAandthe Wichita,KansasMSAAAandadequateintheStateof Missouri/WesternMissouriAA andtheWesternKansasMSAAA. CRAPerformanceof MidFirstBank MidFirstBankwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheOCC,asof October30,2017(“MidFirstBankEvaluation”).31Thebankreceivedan“Outstanding”ratingfortheLendingTest,a“LowSatisfactory”ratingfortheInvestmentTest,anda“HighSatisfactory”ratingfortheService Test.32 ExaminersfoundthatMidFirstBank’slendingactivitywasgood,andthebankoriginated amajorityof loansinsideitsAAs.ExaminersnotedthatMidFirstBank’soverall geographicdistributionof loanswasexcellent.Examinersalsofoundthebank’sdistributionof homemortgageloansbyincomelevelof borroweranddistributionof loansto businesseswithdifferentrevenuesizestobegood. Examinersnotedthatthebank’scommunitydevelopmentlendingwasexcellentandhelped tosupportrevitalizationandstabilizationefforts,affordablehousing,andcommunity servicestoLMIindividuals.ExaminersdeterminedthatMidFirstBank’soverallinvestmentperformancewasadequate. ExaminersnotedthatMidFirstBank’sservicedeliverysystemswereaccessibletoessentiallyallportionsof thebank’sAAs,commensuratewiththesizeandscopeof theinstitu- 29 TheEquityBankEvaluationwasconductedusingIntermediateSmallInstitutionCRAExaminationProcedures.ExaminersreviewedresidentialmortgageloansfromJanuary1,2014,throughDecember31,2015,and smallbusinessloansfromJanuary1,2015,throughDecember31,2015.ExaminersreviewedcommunitydevelopmentactivitiesfromSeptember9,2013,throughNovember28,2016. 30 TheEquityBankEvaluationincludedfull-scopeevaluationsoftheWichita,KansasMetropolitanStatistical Area(“MSA”)AA;theKansasCityMissouri-KansasMultistateMSAAA;theWesternKansasMSAAA; andtheStateofMissouri/WesternMissouriAA.Limited-scopeevaluationswereperformedintheTopeka, KansasMSAAA;theSoutheastKansasMSAAA;andtheCrawfordCounty,KansasMSAAA. 31 TheMidFirstBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Examiners reviewedresidentialmortgageandsmallbusinessloansfromJanuary1,2014,throughDecember31,2016.The evaluationperiodforcommunitydevelopmentloans,investments,andserviceswasfromJanuary1,2014, throughOctober30,2016. 32 TheMidFirstBankEvaluationincludedfull-scopeevaluationsoftheOklahomaCity,OklahomaMSAAA; Oklahomanon-MSAAA;Phoenix-Mesa-Scottsdale,ArizonaMSAAA;andDenver-Aurora-Lakewood,ColoradoMSAAA.Alimited-scopeevaluationwasperformedintheTulsa,OklahomaMSAAA.

LegalDevelopments:FirstQuarter,2019 55 tion’soperations.ExaminersalsonotedthatMidFirstBankprovidedanexcellentlevelof communitydevelopmentservices,includingloanmodificationsforLMIborrowers. AdditionalSupervisoryViews Initsreviewof theproposal,theBoardhasconsideredtheresultsof themostrecent consumercomplianceexaminationof EquityBankconductedbyReserveBankexaminers, whichincludedareviewof thebank’sconsumercompliancerisk-managementprogram andthebank’scompliancewithconsumerprotectionlawsandregulations.TheBoardalso hasconsideredthesupervisoryrecordof MidFirstBank,includingwithrespectto consumercompliance. TheBoardhastakentheinformationdiscussedaboveintoaccountinevaluatingthe proposal,includinginconsideringwhetherEquityBankhastheexperienceandresources tohelpmeetthecreditneedsof thecommunitieswithinitsAAs. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.EquityBankstatesthatitiscommittedtoproviding productsandservicesthatbenefitthecustomersof thebranchestobeacquired.Equity Bankrepresentsthatitwouldofferawiderangeof productsandservicestothecustomers of thebranches,includingconsumerandcommercialdepositandloanproducts,free nationwideATMservices,onlinebanking,remotedepositcapabilities,andinvestment services.EquityBankfurtherrepresentsthatitwouldnotdiscontinueanyproductsor servicescurrentlyofferedbyMidFirstBankatthebranches. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewith consumerprotectionlaws,confidentialsupervisoryinformation,informationprovidedby EquityBank,andotherpotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.Basedonitsreview,theBoardconcludesthattheconvenienceandneedsfactorisconsistentwithapproval. FinancialStability TheBankMergerActrequirestheBoardtoconsidertheriskof theproposal“tothe stabilityof 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 33 12U.S.C.§1828(c)(5). 34 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem.

56 FederalReserveBulletin|May2019 informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamageonthebroadereconomy.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.Theproposalinvolvesanacquisitionof less than$10billioninassetsandaproformaorganizationof lessthan$100billioninassets. Theproformaorganizationwouldhaveminimalcross-borderactivitiesandwouldnot exhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristics thatwouldcomplicateresolutionof thefirmintheeventof financialdistress.Inaddition, theorganizationwouldnotbeacriticalservicesproviderorsointerconnectedwithother firmsorthemarketsthatitwouldposeasignificantrisktothefinancialsystemintheevent of financialdistress.37 Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Establishmentof Branches EquityBankhasappliedundersection9of theFRAtoestablishandoperatebranchesat thelocationsof theacquiredbranchesof MidFirstBank.38TheBoardhasassessedthe factorsitisrequiredtoconsiderwhenreviewinganapplicationunderthatsection.Specifically,theBoardhasconsideredEquityBank’sfinancialcondition,management,capital, actionsinmeetingtheconvenienceandneedsof thecommunitiestobeserved,CRA performance,andinvestmentinbankpremises.39Forthereasonsdiscussedinthisorder, theBoardfindsthosefactorstobeconsistentwithapproval. 35 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 36 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 37 EquityBankandMidFirstBankarepredominatelyengagedinretailandcommercialbankingactivities.Equity Bankhas,andasaresultoftheproposalwouldcontinuetohave,asmallmarketshareintheseproductsand servicesonanationwidebasis. 38 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).Uponconsummation,Equity Bank’sbrancheswouldbepermissibleunderapplicablestatelaw.See6Okl.St.Ann.§501.1. 39 12U.S.C.§322;12CFR208.6.Uponconsummationoftheproposedtransaction,EquityBank’sinvestmentin bankpremiseswouldremainwithinthelegalrequirementsof12CFR208.21.

LegalDevelopments:FirstQuarter,2019 57 Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationsshouldbe,andherebyare,approved.Inreachingitsconclusion,theBoardhas consideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunder theBankMergerAct,theFRA,andotherapplicablestatutes.TheBoard’sapprovalis specificallyconditionedoncompliancebyEquityBankwithallof theconditionsimposed inthisorder,includingreceiptof allrequiredregulatoryapprovals,andonthecommitmentsmadetotheBoardinconnectionwiththeproposal.Forpurposesof thisaction,the conditionsandcommitmentsaredeemedtobeconditionsimposedinwritingbytheBoard inconnectionwithitsfindingsanddecisionhereinand,assuch,maybeenforcedin proceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardortheReserveBank,actingunderdelegatedauthority. Byorderof theBoardof Governors,effectiveJanuary23,2019. Votingforthisaction:ChairmanPowell,ViceChairmanClarida,ViceChairmanfor SupervisionQuarles,andGovernorsBrainardandBowman. MargaretMcCloskeyShanks DeputySecretaryof theBoard

58 FederalReserveBulletin|May2019 First Interstate Bank Billings, Montana OrderApprovingtheMergerof BanksandtheEstablishmentof Branches FRBOrderNo.2019-07(March22,2019) FirstInterstateBank,thestatememberbanksubsidiaryof FirstInterstateBancSystem, Inc.(“FirstInterstate”),bothof Billings,Montana,hasrequestedtheBoard’sapproval undersection18(c)of theFederalDepositInsuranceAct(“BankMergerAct”)1tomerge withIdahoIndependentBank,Coeurd’Alene,Idaho,astatenon-memberbank,withFirst InterstateBankasthesurvivingentity.Inaddition,FirstInterstateBankhasapplied undersection9of theFederalReserveAct(“FRA”)toestablishandoperatebranchesat themainofficeandbranchesof IdahoIndependentBank.2 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeengiveninaccordancewiththeBankMergerActandtheBoard’sRulesof Procedure.3Thetimeforsubmittingcommentshasexpired,andnocommentswerereceived.The Boardhasconsideredtheproposalinlightof thefactorssetforthintheBankMergerAct andtheFRA.AsrequiredbytheBankMergerAct,areportonthecompetitiveeffectsof theproposalwasrequestedfromtheUnitedStatesAttorneyGeneral,andacopyof the requesthasbeenprovidedtotheFederalDepositInsuranceCorporation(“FDIC”). FirstInterstate,withconsolidatedassetsof approximately$13.3billion,isthe117thlargest insureddepositoryorganizationintheUnitedStates,controllingdepositsof approximately$10.8billion, whichrepresentlessthan1percentof thetotalamountof depositsof insureddepository institutions4intheUnitedStates.5FirstInterstatecontrolsFirstInterstateBank,whichhas officesinMontana,Wyoming,SouthDakota,Oregon,Washington,andIdaho.First InterstateBankisthe13thlargestinsureddepositoryinstitutioninIdaho,withapproximately$575.1millionindeposits,whichrepresent2.2percentof thetotalamountof depositsof insureddepositoryinstitutionsinthatstate.6 IdahoIndependentBank,withtotalassetsof approximately$747.2million,isthe1,002nd largestinsureddepositoryinstitutionintheUnitedStates,controllingdepositsof approximately$626.6million,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.IdahoIndependentBank hasofficesonlyinIdaho.IdahoIndependentBankisthe12thlargestinsureddepository institutioninIdaho,withapproximately$609.9millionindeposits,whichrepresent 2.4percentof thetotalamountof depositsof insureddepositoryinstitutionsinthatstate. Onconsummationof theproposal,FirstInterstatewouldbecomethe110thlargestinsured depositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $14.1billion.FirstInterstatewouldcontrolapproximately$11.5billionindeposits,representinglessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.FirstInterstateBankwouldbecomethe7thlargestinsured depositoryinstitutioninIdaho,controllingdepositsof approximately$1.2billion,which 1 12U.S.C.§1828(c). 2 12U.S.C.§321.TheselocationsarelistedinAppendixA. 3 12U.S.C.§1828(c)(3);12CFR262.3(b). 4 Inthiscontext,insureddepositoryinstitutionsincludecommercialbanks,savingsbanks,andsavings associations. 5 NationalassetdataareasofDecember31,2018.Nationaldeposit,ranking,andmarket-sharedataareasof September30,2018,unlessotherwisenoted. 6 StatedepositdataareasofJune30,2018,unlessotherwisenoted.

LegalDevelopments:FirstQuarter,2019 59 representapproximately4.6percentof thetotaldepositsof insureddepositoryinstitutions inthatstate. InterstateAnalysis Section44of theFederalDepositInsuranceAct(“FDIAct”)generallyprovidesthat,if certainconditionsaremet,theBoardmayapproveamergertransactionundertheBank MergerActbetweeninsuredbankswithdifferenthomestateswithoutregardtowhether thetransactionisprohibitedunderstatelawandprovidedtheresultingbankwouldbewell capitalizedandwellmanaged.7Undersection44,theBoard(1)maynotapproveanapplicationthatwouldpermitanout-of-statebankorout-of-statebankholdingcompanyto acquireabankinahoststateif thebankhasnotbeeninexistenceforthelesserof thestate statutoryminimumperiodof timeorfiveyears;8and(2)ingeneral,maynotapprovean interstateapplicationif theresultingbank,uponconsummationof theproposedtransaction,wouldcontrolmorethan10percentof thetotaldepositsof insureddepositoryinstitutionsintheUnitedStates9or,incertaincircumstances,if theresultingbank,upon consummation,wouldcontrol30percentormoreof thetotaldepositsof insureddepositoryinstitutionsinanystateinwhichtheacquirerandtargethaveoverlappingbanking operations.10 Forpurposesof section44of theFDIActandtheBankMergerAct,thehomestateof FirstInterstateBankisMontanaandthehomestateof IdahoIndependentBankis Idaho.11FirstInterstateBankiswellcapitalizedand,uponconsummationof thetransaction,wouldbewellcapitalizedandwellmanagedunderapplicablelaw.Therearenostatutoryminimumagerequirementsunderthelawsof Idaho,12andIdahoIndependentBank hasbeeninexistenceformorethanfiveyears. Uponconsummationof theproposal,FirstInterstateBankwouldcontrollessthan 1percentof thetotalamountof consolidateddepositsof insureddepositoryinstitutionsin theUnitedStates.Idaho,theonlystateinwhichFirstInterstateBankandIdahoIndependentBankhaveoverlappingoperations,doesnotimposealimitonthetotalamountof in-statedepositsthatasinglebankingorganizationmaycontrol,13andFirstInterstate Bankwouldcontrollessthan30percentof thetotaldepositsof bankingorganizationsin Idahoasaresultof thetransaction.TheBoardhasconsideredallotherrequirementsof section44of theFDIAct.Accordingly,inlightof allthefactsof record,theBoarddeterminesthatitisnotprohibitedbysection44of theFDIActortheBankMergerActfrom approvingtheproposal. 7 12U.S.C.§1831u(a)(1).Undersection44oftheFDIAct,astatebank’shomestateisthestateinwhichthe bankischartered.See12U.S.C.§1831u(g)(4). 8 12U.S.C.§1831u(a)(5). 9 12U.S.C.§1831u(b)(2)(A).TheBankMergerActalsoincludesaprohibitiononapprovalofinterstatemerger transactionswheretheresultingbank,uponconsummationoftheproposedtransaction,wouldcontrolmore than10percentofthetotalamountofdepositsofinsureddepositoryinstitutionsintheUnitedStates. 12U.S.C.§1828(c)(13). 10 12U.S.C.§1831u(b)(2)(B).Thestatedepositrestrictionsofsection44oftheFDIActapplytoanystatein whichboththeapplicantandtargetbankshavebranches.See12U.S.C.§1831u(b)(2)(B)(i). Undercertaincircumstancesnotpresenthere,theBoardalsomusttakeintoaccounttherecordoftheapplicantbankundertheCommunityReinvestmentActof1977(“CRA”),12U.S.C.§2901etseq.,andtheapplicant’srecordofcompliancewithapplicablestatecommunityreinvestmentlaws.12U.S.C.§1831u(b)(3). 11 Forpurposesofsection44oftheFDIActandtheBankMergerAct,astatebank’shomestateisthestatein whichthebankischartered.12U.S.C.§§1831u(g)(4)and1828(c)(13)(C)(ii). 12 SeeIdahoCodeAnn.§26-101etseq. 13 SeeIdahoCodeAnn.§26-1606(1).

60 FederalReserveBulletin|May2019 CompetitiveConsiderations TheBankMergerActprohibitstheBoardfromapprovingaproposalthatwouldresultina monopolyorwouldbeinfurtheranceof anattempttomonopolizethebusinessof banking inanyrelevantmarket.14TheBankMergerActalsoprohibitstheBoardfromapprovinga proposalthatwouldsubstantiallylessencompetitionortendtocreateamonopolyinany bankingmarket,unlesstheanticompetitiveeffectsof theproposalareclearlyoutweighedin thepublicinterestbytheprobableeffectof theproposalinmeetingtheconvenienceand needsof thecommunitiestobeserved.15 FirstInterstateBankandIdahoIndependentBankcompetedirectlyintheBoise,Idaho, bankingmarket(“Boisemarket”);theSpokane,Washington-Idaho,bankingmarket (“Spokanemarket”);andtheMountainHome,Idaho,bankingmarket(“MountainHome market”).16TheBoardhasconsideredthecompetitiveeffectsof theproposalinthese bankingmarketsinlightof allthefactsof record.17Inparticular,theBoardhasconsidered therelativeshareof totaldepositsof insureddepositoryinstitutionsineachmarket (“marketdeposits”)thatFirstInterstateBankwouldcontrol;18theconcentrationlevelsof marketdepositsandtheincreaseintheselevels,asmeasuredbytheHerfindahl-Hirschman Index(“HHI”)undertheDepartmentof JusticeBankMergerCompetitiveReviewguidelines(“DOJBankMergerGuidelines”);19andothercharacteristicsof eachmarket. BankingMarketswithinEstablishedGuidelines Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesintheBoiseandSpokanemarkets.On consummationof theproposal,theBoiseandSpokanemarketswouldremainmoderately concentrated,andnumerouscompetitorswouldremainineachmarket.20 BankingMarketWarrantingSpecialScrutiny Thecompetitiveeffectsof theproposalintheMountainHomemarketwarrantadetailed reviewbecausetheconcentrationlevelsonconsummationwouldexceedthethresholdsin 14 12U.S.C.§1828(c)(5)(A). 15 12U.S.C.§1828(c)(5)(B). 16 TheBoiseandSpokanemarketsaredefinedinAppendixB.TheMountainHomemarketisdefinedasElmore CountyandtheGrandViewcountysubdivisionofOwyheeCounty,bothofIdaho. 17 OnJanuary10,2019,theFederalReserveBankofMinneapolis(“ReserveBank”),actingunderauthority delegatedbytheBoard,approvedanapplicationbyFirstInterstateBanktomergewithCommunity1stBank, PostFalls,Idaho,withFirstInterstateBankasthesurvivingentity.TheBoardhasconsideredthepotential competitiveeffectsofthattransactionaspartofitsreviewoftheproposalbyFirstInterstateBanktomerge withIdahoIndependentBank. 18 LocaldepositandmarketsharedataareasofJune30,2018,andarebasedoncalculationsinwhichthe depositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhasindicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorstocommercialbanks.See,e.g., MidwestFinancialGroup,75FederalReserveBulletin386(1989)andNationalCityCorporation,70Federal ReserveBulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsinthemarketsharecalculationona50percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserveBulletin52(1991). 19 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. 20 ThecompetitiveeffectsoftheproposalintheBoiseandSpokanemarketsarediscussedinAppendixB.

LegalDevelopments:FirstQuarter,2019 61 theDOJBankMergerGuidelineswhenusinginitialcompetitivescreeningdata.FirstInterstateBankisthefourthlargestcompetitorintheMountainHomemarket,controlling approximately$26.6millioninweighteddeposits,whichrepresentapproximately 13.7percentof marketdeposits.IdahoIndependentBankisthefifthlargestdepository institutionintheMountainHomemarket,controllingapproximately$15.3millionin weighteddeposits,whichrepresentapproximately7.9percentof marketdeposits.On consummationof theproposal,FirstInterstateBankwouldbecomethethirdlargest depositoryinstitutionintheMountainHomemarket,controllingapproximately $41.9millioninweighteddeposits,whichwouldrepresentapproximately21.6percentof marketdeposits.TheHHIinthemarketwouldincreaseby217points,from2501to2718. TheBoardhasconsideredwhetherfactorseithermitigatethecompetitiveeffectsof the proposalorindicatethattheproposalwouldnothaveasignificantlyadverseeffecton competitionintheMountainHomemarket.21FactorsindicatethattheincreaseinconcentrationintheMountainHomemarket,asmeasuredbytheaboveHHIandmarketshare, overstatesthepotentialcompetitiveeffectsof theproposalinthemarket.Inparticular,one creditunionexertsacompetitiveinfluenceintheMountainHomemarket.Theinstitution offersawiderangeof consumerbankingproducts,operatesstreet-levelbranches,andhas broadmembershipcriteriathatincludealmostallof theresidentsinthemarket.22The Boardfindsthatthesecircumstanceswarrantincludingthedepositsof thecreditunionata 50percentweightinestimatingmarketinfluence.Thisweightingtakesintoaccountthe limitedlendingdonebythiscredituniontosmallbusinessesrelativetocommercialbanks’ lendinglevels. Afterreweightingthedepositsof thecreditunionat50percent,FirstInterstateBank, uponconsummation,wouldcontrolapproximately16percentof marketdeposits,andthe marketconcentrationlevelintheMountainHomemarketmeasuredbytheHHIwould increaseby119pointsto2163.Althoughconsummationof thisproposalwouldeliminate oneexistingcompetitor,theMountainHomemarketwouldcontinuetobeservedbyfive depositoryinstitutions,includingthecreditunionnotedabove.ExcludingFirstInterstate Bank,thesecompetitorswouldincludethreedepositoryinstitutionseachwithamorethan 20percentshareof marketdepositsandonedepositoryinstitutionwithamorethan 10percentshareof marketdeposits.Thepresenceof theseviablecompetitorssuggeststhat FirstInterstateBankwouldhavelimitedabilitytounilaterallyofferlessattractivetermsto consumers,andthesecompetitorswouldbeabletoexertcompetitivepressureonFirst InterstateBankintheMountainHomemarket. TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket,includingthe MountainHomemarket.Inaddition,theappropriatebankingagencieshavebeenafforded anopportunitytocommentandhavenotobjectedtotheproposal. 21 Thenumberandstrengthoffactorsnecessarytomitigatethecompetitiveeffectsofaproposaldependonthe sizeoftheincreasein,andresultinglevelof,concentrationinabankingmarket.SeeNationsBankCorporation, 84FederalReserveBulletin129(1998). 22 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, Inc.,93FederalReserveBulletinC65(2007);RegionsFinancialCorporation,93FederalReserveBulletinC16 (2007);PassumpsicBancorp,92FederalReserveBulletinC175(2006);andWachoviaCorporation,92Federal ReserveBulletinC183(2006).

62 FederalReserveBulletin|May2019 Basedonthefactsof record,theBoardconcludesthatconsummationof theproposal wouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheBoise,Spokane,orMountainHomemarketsorinanyotherrelevant bankingmarket.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsare consistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations InreviewingaproposalundertheBankMergerAct,theBoardconsidersthefinancialand managerialresourcesandthefutureprospectsof theinstitutionsinvolved.23Initsevaluationof financialfactors,theBoardreviewsinformationregardingthefinancialconditionof theorganizationsinvolved,aswellasinformationregardingthefinancialconditionof the organizations’significantnonbankingoperations,if applicable.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. FirstInterstateBankandIdahoIndependentBankarewellcapitalizedandtheresulting bankwouldremainsoonconsummationof theproposal.Theproposedtransaction involvesabankmerger,andFirstInterstateBankappearstohaveadequatefinancial resourcestoeffecttheproposal.24Theassetquality,earnings,andliquidityof bothFirst InterstateBankandIdahoIndependentBankareconsistentwithapproval,andFirstInterstateBankappearstohaveadequateresourcestoabsorbthecostsof theproposalandto completetheintegrationof theinstitutions’operations.Inaddition,thefutureprospectsof FirstInterstateBankareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of FirstInterstateBankafterconsummationof theproposal.TheBoardhasreviewedthe examinationrecordsof FirstInterstateBankandIdahoIndependentBank,including assessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition, theBoardhasconsideredinformationprovidedbyFirstInterstateBank;theBoard’s supervisoryexperiencesandthoseof otherrelevantbanksupervisoryagencieswiththe organizations;andtheorganizations’recordsof compliancewithapplicablebanking, consumerprotection,andanti-money-launderinglaws. FirstInterstateBankandIdahoIndependentBankareconsideredtobewellmanaged.The directorsandseniorexecutiveofficersof FirstInterstateBankhaveknowledgeof and experienceinthebankingsector,andthebank’srisk-managementprogramappearsconsistentwithapprovalof thisexpansionaryproposal.FirstInterstatehasconductedcomprehensiveduediligenceandisdevotingsufficientfinancialandotherresourcestoaddressthe post-integrationprocessforthisproposal.FirstInterstateBankwouldapplyitsriskmanagementpolicies,procedures,andcontrolsatthecombinedbank,andthesepolicies, procedures,andcontrolsareconsideredacceptablefromasupervisoryperspective.Inaddi- 23 12U.S.C.§1828(c)(5). 24 Asconsiderationforthebankmerger,shareholdersofIdahoIndependentBankwouldreceivenewlyissued sharesofFirstInterstate.NeitherFirstInterstatenorFirstInterstateBankplanstoincurdebttoconsummate themerger.

LegalDevelopments:FirstQuarter,2019 63 tion,FirstInterstateBank’smanagementhastheexperienceandresourcestooperatethe combinedbankinasafeandsoundmanner. Basedonallof thefactsof record,includingFirstInterstateBank’ssupervisoryrecord, managerialandoperationalresources,andplansforoperatingthebankafterconsummation,theBoarddeterminesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandthefutureprospectsof theorganizationsinvolvedintheproposal,aswellas therecordsof effectivenessof FirstInterstateBankandIdahoIndependentBankin combattingmoney-launderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations InactingonaproposalundertheBankMergerAct,theBoardconsiderstheeffectsof the proposalontheconvenienceandneedsof thecommunitiestobeserved.25Initsevaluation, theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecreditneeds of thesecommunities,aswellasotherpotentialeffectsof theproposalontheconvenience andneedsof thecommunitiestobeserved,andplacesparticularemphasisontherecords of therelevantdepositoryinstitutionsundertheCRA.TheCRArequiresthefederalfinancialsupervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeetthe creditneedsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeinstitutions’safeandsoundoperation,26andrequirestheappropriatefederalfinancialsupervisoryagencytoassessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof itsentirecommunity,includinglow-andmoderate-income(“LMI”)neighborhoods,in evaluatingbankexpansionaryproposals.27 Inaddition,theBoardconsidersthebanks’overallcompliancerecords,includingwith respecttofairlending.Fairlendinglawsrequirealllendinginstitutionstoprovideloan applicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainother characteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,the supervisoryviewsof examiners,othersupervisoryinformation,andinformationprovided bytheapplicant.TheBoardalsomayconsidertheinstitution’sbusinessmodeland marketingandoutreachplans,theorganization’splansafterconsummation,andanyother informationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallof thefactsof record,includingreportsof examinationof theCRAperformanceof First InterstateBankandIdahoIndependentBank;theconsumercompliance,includingfair lending,recordsof FirstInterstateBankandIdahoIndependentBank;confidentialsupervisoryinformation;andinformationprovidedbyFirstInterstateBank. Recordsof PerformanceundertheCRA InevaluatingtheCRAperformanceof theinstitutionsinvolved,theBoardgenerally considerseachinstitution’smostrecentCRAperformanceevaluation,aswellasother informationandsupervisoryviews,fromtherelevantfederalfinancialsupervisororsupervisors,whichinthiscasearetheReserveBankandtheFDIC.28 25 12U.S.C.§1828(c)(5). 26 12U.S.C.§2901(b). 27 12U.S.C.§2903. 28 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81Fed.Reg.48506,48548 (July25,2016).

64 FederalReserveBulletin|May2019 TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.29Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalfinancialsupervisorof theinstitution’soverallrecordof lendinginits communities. Ingeneral,federalfinancialsupervisorsapplyalendingtest(“LendingTest”),investment test(“InvestmentTest”),andservicetest(“ServiceTest”)toevaluatetheperformanceof largeinsureddepositoryinstitutions,suchasFirstInterstateBank,inhelpingtomeetthe creditneedsof thecommunitiestheyserve.TheLendingTestspecificallyevaluatesaninstitution’slendingtodeterminewhethertheinstitutionishelpingtomeetthecreditneedsof individualsandgeographiesof allincomelevels.Aspartof theLendingTest,examiners reviewandanalyzeaninstitution’sdatareportedundertheHomeMortgageDisclosure Act,30inadditiontosmallbusiness,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;31(4)theinstitution’scommunitydevelopment lending,includingthenumberandamountsof communitydevelopmentloansandtheir complexityandinnovativeness;and(5)theinstitution’suseof innovativeorflexiblelending practicestoaddressthecreditneedsof LMIindividualsandgeographies.32TheInvestmentTestapplicabletolargeinstitutionsevaluatesthenumberandamountsof qualified investmentsthatbenefittheirAAs,andtheServiceTestevaluatestheavailabilityandeffectivenessof theirsystemsfordeliveringretailbankingservicesandtheextentand innovativenessof theircommunitydevelopmentservices.33Intermediatesmallbanks,such asIdahoIndependentBank,aresubjecttotheLendingTest,aswellasacommunitydevelopmenttest(“CommunityDevelopmentTest”)thatevaluatesthenumberandamountsof theircommunitydevelopmentloansandqualifiedinvestments;theextenttowhichthey providecommunitydevelopmentservices;andtheirresponsivenesstocommunitydevelopmentlending,investment,andserviceneeds.34 CRAPerformanceof FirstInterstateBank FirstInterstateBankwasassignedanoverallratingof “Outstanding”atitsmostrecent CRAperformanceevaluationbytheReserveBank,asof June6,2016(“FirstInterstate 29 12U.S.C.§2906. 30 12U.S.C.§2801etseq. 31 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3). 32 See12CFR228.22(b). 33 See12CFR228.21etseq. 34 See12CFR228.26(c).

LegalDevelopments:FirstQuarter,2019 65 Evaluation”).35FirstInterstateBankreceivedan“Outstanding”ratingforeachof the LendingTest,InvestmentTest,andServiceTest.36 ExaminersfoundthatFirstInterstateBank’slendingactivitydemonstratedexcellent responsivenesstocreditneedsthroughoutthebank’sAAs.Examinersnotedthatthebank extendedasubstantialmajorityof itsloanswithinitsAAs.Examinersfoundthatthedistributionof thebank’slendingtoLMIborrowersandbusinessesandfarmsof differentsizes wasexcellent.Inaddition,examinersfoundthat,overall,thebank’sdistributionof loans wasexcellentthroughoutthebank’sAAs,includingLMIcensustractsand nonmetropolitanmiddle-incomecensustractsthatwereclassifiedasdistressedand/or underserved. ExaminersfoundthatFirstInterstateBankwasaleaderinmakingcommunitydevelopmentloansandhadanoverallexcellentlevelof qualifiedinvestmentsintheformof securitiesanddonations.ExaminersalsofoundthatFirstInterstateBankmadesignificantuse of innovativeandcomplexinvestmentswhenopportunitiesexisted.Examinersnotedthat thebank’sdeliverysystemswerereadilyaccessiblethroughoutthebank’sAAs,includingto LMIindividualsandgeographies.ExaminersalsofoundthatFirstInterstateBankwasa leaderinprovidingcommunitydevelopmentservicesthroughoutitsAAs.Examinersnoted, forexample,thatthebank’sofficersandemployeesassistednonprofitorganizationsthat supportedLMIindividuals,jobcreation,andsmallbusinesses. CRAPerformanceof IdahoIndependentBank IdahoIndependentBankwasassignedanoverallratingof “Outstanding”atitsmostrecent CRAperformanceevaluationbytheFDIC,asof March28,2016(“IdahoBankEvaluation”).37Thebankreceiveda“Satisfactory”ratingfortheLendingTestandan “Outstanding”ratingfortheCommunityDevelopmentTest.38 ExaminersfoundthatIdahoIndependentBank’sloan-to-depositratiowasreasonable, giventhebank’ssize,financialcondition,andAAcreditneeds.Examinersfoundthatthe bankmadeasubstantialmajorityof homemortgageandsmallbusinessloans,bynumber anddollarvolume,withinitscombinedAAs.Examinersnotedthatthebank’soverall geographicdistributionof loansreflectedreasonabledispersionthroughoutthebank’s combinedAAs.Examinersalsonotedthatthebank’soveralldistributionof borrowers reflectedreasonablepenetrationamongbusinessesof differentrevenuesizesandindividualsof differentincomelevelswithinthebank’scombinedAAs. 35 TheFirstInterstateEvaluationwasconductedusingLargeInstitutionCRAExaminationProcedures.Examinersreviewedresidentialmortgageloans,consumerloans,smallbusinessloans,andsmallfarmloansfrom January1,2013,throughDecember31,2015.Examinersreviewedcommunitydevelopmentactivitiesfrom January1,2013,throughDecember31,2015. 36 TheFirstInterstateEvaluationincludedfull-scopeevaluationsoftheBillings,MontanaMetropolitanStatisticalArea(“MSA”)AA;theBozeman,MontanaAA;theCasper,WyomingMSAAA;theSheridan,Wyoming AA;andtheRapidCity,SouthDakotaMSAAA.Limited-scopeevaluationswereperformedintheGreat Falls,MontanaMSAAA;theMissoula,MontanaMSAAA;theHamilton,MontanaAA;theHardin/Miles City,MontanaAA;theHelena,MontanaAA;theKalispell,MontanaAA;theAbsarokee/Columbus, MontanaAA;theCheyenne,WyomingMSAAA;theJackson,WyomingAA;theLaramie,WyomingAA;the Riverton,WyomingAA;theBelleFourche,SouthDakotaAA;theEdgemont,SouthDakotaAA;andthe SiouxFalls,SouthDakotaMSAAA. 37 TheIdahoBankEvaluationwasconductedusingIntermediateSmallInstitutionCRAExaminationProcedures.ExaminersreviewedhomemortgageloansandsmallbusinessloansfromJanuary1,2014,through December31,2015.Examinersreviewedcommunitydevelopmentloans,qualifiedinvestments,andcommunity developmentservicesfromJanuary22,2013,throughMarch28,2016. 38 TheIdahoBankEvaluationincludedafull-scopeevaluationoftheBoise-Nampa,IdahoMSAAA.LimitedscopeevaluationswereperformedintheCoeurd’AleneMSAAAandElmoreandBlainecounties,allof Idaho.

66 FederalReserveBulletin|May2019 ExaminersnotedthatIdahoIndependentBankwasanactivecommunitydevelopment lenderandmadecommunitydevelopmentinvestmentsanddonationstononprofitorganizationsacrossitsAAs,includingorganizationsthatprovidedaffordablehousing,tradebasedcareertraining,andyouthservicesforchildrenof LMIfamilies.Inaddition,examinersnotedthatIdahoIndependentBankemployeesprovidedfinancialservicestovarious communitydevelopmentorganizationsthatbenefitedthebank’scombinedAAs. AdditionalSupervisoryViews Initsreviewof theproposal,theBoardconsultedwiththeReserveBankregardingthe CRAandconsumercompliance,includingfairlending,recordsof FirstInterstateBank andconsideredtheFDIC’smostrecentCRAandconsumercomplianceevaluationsof IdahoIndependentBank.TheBoardhastakentheconsultationswiththeReserveBank andtheinformationdiscussedaboveintoaccountinevaluatingtheproposal,includingin consideringwhetherFirstInterstateBankhastheexperienceandresourcestohelpmeet thecreditneedsof thecommunitieswithinitsAAs. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.FirstInterstateBankrepresentsthatitdoesnot anticipatemakingsignificantchangesinordiscontinuinganyexistingproductsorservices of eitherFirstInterstateBankorIdahoIndependentBankfollowingconsummationof the bankmerger.FirstInterstateBankalsorepresentsthatcustomersof IdahoIndependent Bankwouldgainaccessto,amongotherbenefits,higherlendinglimits,wealthmanagementservices,amorerobustcreditcardprogram,andamorerobustdigitalbankingplatform.FirstInterstateBanknotesthatcustomersof bothbankswouldbenefitfromalarger branchandATMnetwork. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewith consumerprotectionlaws,confidentialsupervisoryinformation,informationprovidedby FirstInterstateBank,andotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.Basedonitsreview,theBoarddeterminesthatthe convenienceandneedsfactorisconsistentwithapproval. FinancialStability TheBankMergerActrequirestheBoardtoconsidertheriskof theproposal“tothe stabilityof theUnitedStatesbankingorfinancialsystem.”39 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 39 12U.S.C.§1828(c)(5).

LegalDevelopments:FirstQuarter,2019 67 resultingfirm.40Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamageonthebroadereconomy.41 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billionintotalassets,orthatresultinafirmwithlessthan$100billionintotalassets, aregenerallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthata proposaldoesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbelow eitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificantincreaseininterconnectedness,complexity,cross-borderactivities,orotherrisk factors.42 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billionintotalassetsandaproformaorganizationof lessthan$100billionintotal assets.Theproformaorganizationwouldhaveminimalcross-borderactivitiesandwould notexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.43In addition,theorganizationwouldnotbeacriticalservicesproviderorsointerconnected withotherfirmsorthemarketsthatitwouldposeasignificantrisktothefinancialsystem intheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Establishmentof Branches FirstInterstateBankhasappliedundersection9of theFRAtoestablishandoperate branchesatthelocationsof thecurrentmainofficeandbranchesof IdahoIndependent Bank.44TheBoardhasassessedthefactorsitisrequiredtoconsiderwhenreviewingan applicationunderthatsection.Specifically,theBoardhasconsideredFirstInterstate Bank’sfinancialcondition,management,capital,actionsinmeetingtheconvenienceand needsof thecommunitiestobeserved,CRAperformance,andinvestmentinbankprem- 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 FirstInterstateBankandIdahoIndependentBankarepredominatelyengagedinretailandcommercial bankingactivities.FirstInterstateBankhas,andasaresultoftheproposalwouldcontinuetohave,asmall marketshareintheseproductsandservicesonanationwidebasis. 44 See12U.S.C.§321.Undersection9oftheFRA,statememberbanksmayestablishandoperatebrancheson thesametermsandconditionsasareapplicabletotheestablishmentofbranchesbynationalbanks.Under section44oftheFDIAct,bothnationalbanksandstatememberbanksresultingfromaninterstatemerger mayretainandoperate,asamainofficeorabranch,anyofficethatanybankinvolvedinthemergerwasoperatingasamainofficeorbranchimmediatelybeforethemergertransaction.See12U.S.C.§§36(d)and 1831u(d)(1).

68 FederalReserveBulletin|May2019 ises.45Forthereasonsdiscussedinthisorder,theBoardfindsthosefactorstobeconsistent withapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationsshouldbe,andherebyare,approved.Inreachingitsconclusion,theBoardhas consideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunder theBankMergerAct,theFRA,andotherapplicablestatutes.TheBoard’sapprovalis specificallyconditionedoncompliancebyFirstInterstateBankwithallof theconditions imposedinthisorder,includingreceiptof allrequiredregulatoryapprovals,andonthe commitmentsmadetotheBoardinconnectionwiththeproposal.Forpurposesof this action,theconditionsandcommitmentsaredeemedtobeconditionsimposedinwriting bytheBoardinconnectionwithitsfindingsanddecisionhereinand,assuch,maybe enforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardortheReserveBank,actingunderdelegatedauthority. Byorderof theBoardof Governors,effectiveMarch22,2019. Votingforthisaction:ChairPowell,ViceChairClarida,ViceChairforSupervision Quarles,andGovernorsBrainardandBowman. AnnE.Misback Secretaryof theBoard AppendixA BranchestoBeEstablishedbyFirstInterstateBank 1. 401WestFrontStreet,Boise,Idaho83702 2. 317North9thStreet,Boise,Idaho83702 3. 8351WestOverlandRoad,Boise,Idaho83709 4. 113EastIdahoAvenue,Meridian,Idaho83642 5. 90SouthStarRoad,Star,Idaho83669 6. 491NorthMainStreet,Suite101,Ketchum,Idaho83340 7. 620SouthKimballAvenue,Caldwell,Idaho83605 8. 80412thAvenueSouth,Nampa,Idaho83651 9. 310AmericanLegionBoulevard,MountainHome,Idaho83647 10. 1260WestRiverstoneDrive,Coeurd’Alene,Idaho83814 11. 8882NorthGovernmentWay,HaydenLake,Idaho83835 45 12U.S.C.§322;12CFR208.6.Uponconsummationoftheproposedtransaction,FirstInterstateBank’s investmentinbankpremiseswouldremainwithinthelegalrequirementsof12CFR208.21.

LegalDevelopments:FirstQuarter,2019 69 AppendixB FirstInterstateBank/IdahoIndependentBankbankingmarketsconsistentwithBoardprecedentand DOJBankMergerGuidelines Amountof Marketdeposit Remaining Bank Rank ResultingHHI ChangeinHHI deposits shares(%) number Boise,Idaho(“Boisemarket”)–DefinedastheBoisemetropolitanareainCanyonandAdacounties,southernGemCounty,andthecitiesof MarsingandHomedaleinOwyheeCounty,allofIdaho. FirstInterstateBankPre-Consummation 5 $522.5M 4.7 IdahoIndependentBank 8 $390.8M 3.5 FirstInterstateBankPost-Consummation 4 $913.2M 8.1 1452 32 21 Spokane,Washington-Idaho(“Spokanemarket”)–DefinedastheSpokanemetropolitanareainSpokaneCounty,Washington,andthecentral westernportionofKootenaiCounty,Idaho. FirstInterstateBankPre-Consummation 9 $460.2M 4 IdahoIndependentBank 10 $185.3M 1.6 FirstInterstateBankPost-Consummation 7 $645.5M 5.6 1257 13 22 DataandrankingsareasofJune30,2018.Allrankings,marketdepositshares,andHHIsarebasedonthriftdepositsweightedat50percent. Theremainingnumberofcompetitorsnotedforeachmarketincludesthrifts,whereapplicable.

70 FederalReserveBulletin|May2019 Order Issued Under Section 3 of the Bank Holding Company Act, Bank Merger Act, and Federal Reserve Act Fifth Third Bancorp Cincinnati, Ohio Fifth Third Bank Cincinnati, Ohio OrderApprovingtheAcquisitionof aBankHoldingCompany,theMergerof Banks,andthe Establishmentof Branches FRBOrderNo.2019-05(March6,2019) FifthThirdBancorp(“FifthThird”),Cincinnati,Ohio,afinancialholdingcompanywithin themeaningof theBankHoldingCompanyActof 1956(“BHCAct”),1hasrequestedthe Board’sapprovalundersection3of theBHCAct2toacquireMBFinancial,Inc.(“MB Financial”),andtherebyindirectlyacquireMBFinancialBank,N.A.(“MBBank”),both of Chicago,Illinois. Inaddition,FifthThird’ssubsidiarystatememberbank,FifthThirdBank,Cincinnati, Ohio,hasrequestedtheBoard’sapprovalundersection18(c)of theFederalDepositInsuranceAct(“BankMergerAct”)tomergewithMBBank,withFifthThirdBankasthe survivingentity.3FifthThirdBankalsohasappliedundersection9of theFederalReserve Act(“FRA”)toestablishandoperatebranchesatthemainofficeandbranchesof MB Bank.4 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(83FederalRegister28642(June20,2018)).5Thetimeforsubmitting commentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct,theBankMergerAct, andtheFRA.AsrequiredbytheBankMergerAct,areportonthecompetitiveeffectsof themergerwasrequestedfromtheUnitedStatesAttorneyGeneral,andacopyof the requesthasbeenprovidedtotheFederalDepositInsuranceCorporation. FifthThird,withconsolidatedassetsof approximately$141.7billion,isthe26thlargest depositoryorganizationintheUnitedStates.FifthThirdcontrolsapproximately $104.7billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.6FifthThird controlsFifthThirdBank,whichoperatesinFlorida,Georgia,Illinois,Indiana,Kentucky, Michigan,NorthCarolina,Ohio,Tennessee,andWestVirginia.FifthThirdBankisthe 12thlargestdepositoryinstitutioninIllinois,controllingdepositsof approximately $10.7billion,whichrepresent2.2percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.7FifthThirdBankisthethirdlargestdepositoryinstitutioninIndiana, 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 12U.S.C.§1828(c). 4 12U.S.C.§321.TheselocationsarelistedintheAppendix. 5 12CFR262.3(b). 6 Nationalassetdataandnationaldeposit,ranking,andmarket-sharedataareasofSeptember30,2018,unless otherwisenoted.Inthiscontext,insureddepositoryinstitutionsincludecommercialbanks,savingsassociations, andsavingsbanks. 7 StatedepositdataareasofJune30,2018,unlessotherwisenoted.

LegalDevelopments:FirstQuarter,2019 71 controllingdepositsof approximately$8.8billion,whichrepresent6.7percentof thetotal depositsof insureddepositoryinstitutionsinthatstate. MBFinancial,withconsolidatedassetsof approximately$19.7billion,isthe90thlargest depositoryorganizationintheUnitedStates.MBFinancialcontrolsapproximately $14.7billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.MBFinancial controlsMBBank,whichoperatesinIllinoisandIndiana.MBBankistheninthlargest depositoryinstitutioninIllinois,controllingdepositsof approximately$15.1billion,which represent3.1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. MBBankisthe140thlargestdepositoryinstitutioninIndiana,controllingdepositsof approximately$8.3million,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. Onconsummationof thisproposal,FifthThirdwouldbecomethe21stlargestinsured depositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $161.4billion,whichrepresentlessthan1percentof thetotalassetsof insureddepository institutionsintheUnitedStates.FifthThirdwouldcontrolapproximately$119.5billionin consolidateddeposits,whichrepresentlessthan1percentof thetotalamountof deposits of insureddepositoryinstitutionsintheUnitedStates.InIllinois,FifthThirdwould becomethefourthlargestinsureddepositoryorganization,controllingdepositsof approximately$25.8billion,whichrepresent5.4percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.InIndiana,FifthThirdwouldremainthethirdlargest insureddepositoryinstitution,controllingdepositsof approximately$8.8billion,which represent6.7percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. InterstateAnalysis Section3(d)of theBHCActgenerallyprovidesthat,if certainconditionsaremet,the Boardmayapproveanapplicationbyabankholdingcompanythatiswellcapitalizedand wellmanagedtoacquirecontrolof abanklocatedinastateotherthanthehomestateof thebankholdingcompanywithoutregardtowhetherthetransactionisprohibitedunder statelaw.8Similarly,section44of theFederalDepositInsuranceAct(“FDIAct”)generally providesthat,if certainconditionsaremet,theBoardmayapproveamergertransaction undertheBankMergerActbetweeninsuredbankswithdifferenthomestateswithout regardtowhetherthetransactionisprohibitedunderstatelawandprovidedtheresulting bankwouldbewellcapitalizedandwellmanaged.9TheBoard(1)maynotapprovean applicationthatwouldpermitanout-of-statebankholdingcompanyorbanktoacquirea bankinahoststateif thetargetbankhasnotbeeninexistenceforthelesserof thestate statutoryminimumperiodof timeorfiveyears;10(2)musttakeintoaccounttherecordof theapplicantbankundertheCommunityReinvestmentActof 1977(“CRA”)11andthe applicant’srecordof compliancewithapplicablestatecommunityreinvestmentlaws;12and (3)maynotapproveaninterstateapplicationif thebankholdingcompanyorresulting bank,uponconsummationof theproposedtransaction,wouldcontrolmorethan 8 12U.S.C.§1842(d)(1)(A).Abankholdingcompany’shomestateisthestateinwhichthetotaldepositsofall bankingsubsidiariesofeachcompanywerethelargestonJuly1,1966,orthedateonwhichthecompany becameabankholdingcompany,whicheverislater.Anationalbank’shomestateisthestateinwhichthe bank’smainofficeislocated.See12U.S.C.§1841(o)(4). 9 12U.S.C.§1831u(a)(1).Undersection44oftheFDIAct,astatebank’shomestateisthestateinwhichthe bankischartered,andanationalbank’shomestateisthestateinwhichitsmainofficeislocated.See12U.S.C. §1831u(g)(4). 10 12U.S.C.§§1831u(a)(5)and1842(d)(1)(B). 11 12U.S.C.§2901etseq. 12 12U.S.C.§§1831u(b)(3)and1842(d)(3).

72 FederalReserveBulletin|May2019 10percentof thetotaldepositsof insureddepositoryinstitutionsintheUnitedStates,13or, incertaincircumstances,if thebankholdingcompanyorresultingbank,uponconsummation,wouldcontrol30percentormoreof thetotaldepositsof insureddepositoryinstitutionsinanystateinwhichtheacquirerandtargethaveoverlappingbankingoperations.14 Forpurposesof theBHCAct,thehomestateof FifthThirdisOhio,andMBBankis locatedinIllinoisandIndiana.Forpurposesof section44of theFDIAct,thehomestate of FifthThirdBankisOhio,andthehomestateof MBBankisIllinois.FifthThirdiswell capitalizedandwellmanaged,and,uponconsummationof thebankmerger,FifthThird Bankwouldcontinuetobewellcapitalizedandwellmanagedunderapplicablelaw.Fifth ThirdBankhasanoverall“Outstanding”ratingundertheCRAandisincompliancewith applicablestatecommunityreinvestmentlaws.MBBankhasbeeninexistenceformore thanfiveyearsinIllinoisandIndiana.15 Onconsummationof theproposal,FifthThirdwouldcontrollessthan1percentof the totalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.Illinois andIndiana,theonlystatesinwhichFifthThirdandMBBankhaveoverlappingbanking operations,eachimposea30percentlimitonthetotalamountof in-statedepositsthata singlebankingorganizationmaycontrol.16Ineachstate,thecombinedorganizationwould controllessthan30percentof thetotalamountof in-statedeposits.TheBoardhas consideredallotherrequirementsundersection3(d)of theBHCActandsection44of the FDIAct.Accordingly,inlightof allthefactsof record,theBoarddeterminesthatitis notprohibitedbyeitherstatutefromapprovingtheproposal. CompetitiveConsiderations Section3of theBHCActandtheBankMergerActprohibittheBoardfromapprovinga proposalthatwouldresultinamonopolyorwouldbeinfurtheranceof anattemptto monopolizethebusinessof bankinginanyrelevantmarket.17Bothstatutesalsoprohibit theBoardfromapprovingaproposalthatwouldsubstantiallylessencompetitionortendto createamonopolyinanybankingmarket,unlesstheanticompetitiveeffectsof the proposalareclearlyoutweighedinthepublicinterestbytheprobableeffectof theproposal inmeetingtheconvenienceandneedsof thecommunitytobeserved.18 FifthThirdBankandMBBankcompetedirectlyintheChicago,Illinois,bankingmarket (“Chicagomarket”)andtheGary/Hammond,Indiana,bankingmarket(“Gary/Hammond market”).19TheBoardhasconsideredthecompetitiveeffectsof theproposalinthese bankingmarkets.Inparticular,theBoardhasconsideredtherelativeshareof totaldeposits 13 12U.S.C.§§1831u(b)(2)(A)and1842(d)(2)(A). 14 12U.S.C.§§1831u(b)(2)(B)and1842(d)(2)(B).Forpurposesofsection3(d)oftheBHCAct,theacquiringand targetinstitutionshaveoverlappingbankingoperationsinanystateinwhichanybanktobeacquiredis locatedandtheacquiringbankholdingcompanycontrolsanyinsureddepositoryinstitutionorabranch.The Boardconsidersabanktobelocatedinanystateinwhichthebankischartered,headquartered,oroperates abranch.See12U.S.C.§1841(o)(4)-(7).Thestatedepositrestrictionsofsection44oftheFDIActapplyto anystateinwhichboththeapplicantandtargetbankshavebranches.See12U.S.C.§1831u(b)(2)(B)(i). 15 12U.S.C.§1842(d)(1)(B)(ii). 16 205Ill.Comp.Stat.10/3.09(2018);Ind.CodeAnn.§28-2-17-29(2018). 17 12U.S.C.§§1842(c)(1)(A)and1828(c)(5)(A). 18 12U.S.C.§§1842(c)(1)(B)and1828(c)(5)(B). 19 TheChicagomarketisdefinedasCook,DuPage,Lake,Will,Kane,McHenry,Kendall,DeKalb,Grundy,and Kankakeecounties,allinIllinois;MilksGrove,Chebanse,Papineau,Beaverville,Ashkum,Martinton,and BeavertownshipsinIroquoisCounty,Illinois;Roger,Mona,Pella,andBrentontownshipsinFordCounty,Illinois;andPleasantPrairie,Bristol,Salem,andRandalltownshipsinKenoshaCounty,Wisconsin.TheGary/ HammondmarketisdefinedasLake,Porter,LaPorte,andJaspercounties,allinIndiana;andCenter,Jackson, California(minusthecityofBassLake),Wayne,andRailroadtownshipsinStarkeCounty,Indiana.

LegalDevelopments:FirstQuarter,2019 73 ininsureddepositoryinstitutionsinthemarket(“marketdeposits”)thatFifthThirdwould control;20theconcentrationlevelof marketdepositsandtheincreaseinthislevel,as measuredbytheHerfindahl-HirschmanIndex(“HHI”)undertheDepartmentof Justice BankMergerCompetitiveReviewguidelines(“DOJBankMergerGuidelines”);21the numberof competitorsthatwouldremaininthemarket;andothercharacteristicsof the markets. Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesintheChicagoandGary/Hammond markets.Onconsummationof theproposal,theChicagomarketwouldremain unconcentratedandtheGary/Hammondmarketwouldremainmoderatelyconcentrated, asmeasuredbytheHHI,accordingtotheDOJBankMergerGuidelines.Thechangein HHIinthesemarketswouldbesmall,andnumerouscompetitorswouldremaininboth markets.22 TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket,includingthe ChicagoandGary/Hammondmarkets.Inaddition,theappropriatebankingagencieshave beenaffordedanopportunitytocommentandhavenotobjectedtotheproposal. Basedonallof thefactsof record,theBoardconcludesthatconsummationof the proposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheChicagoorGary/Hammondmarketsorinanyotherrelevant bankingmarket.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsare consistentwithapproval. 20 DepositandmarketsharedataareasofJune30,2018,andarebasedoncalculationsinwhichthedepositsof thriftinstitutionsareincludedat50percent.TheBoardpreviouslyhasindicatedthatthriftinstitutionshave become,orhavethepotentialtobecome,significantcompetitorstocommercialbanks.See,e.g.,MidwestFinancialGroup,75FederalReserveBulletin386(1989)andNationalCityCorporation,70FederalReserveBulletin 743(1984).Thus,theBoardregularlyhasincludedthriftdepositsinthemarketsharecalculationona 50percentweightedbasis.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 FifthThirdoperatesthe11thlargestdepositoryinstitutionintheChicagomarket,controllingdepositsof approximately$10.4billion,whichrepresentapproximately2.7percentofmarketdeposits.MBFinancialoperatestheeighthlargestdepositoryinstitutioninthatmarket,controllingdepositsofapproximately $15.1billion,whichrepresentapproximately3.9percentofmarketdeposits.Onconsummationoftheproposal, FifthThirdwouldbecomethefourthlargestdepositoryorganizationinthemarket,controllingdepositsof approximately$25.4billion,whichrepresentapproximately6.6percentofmarketdeposits.TheHHIforthe Chicagomarketwouldincreaseby21pointsto943,and168competitorswouldremaininthemarket. FifthThirdoperatesthefifthlargestdepositoryinstitutionintheGary/Hammondmarket,controllingdeposits ofapproximately$1.0billion,whichrepresentapproximately6.7percentofmarketdeposits.MBFinancial operatesthe27thlargestdepositoryinstitutioninthatmarket,controllingdepositsofapproximately $8.3million,whichrepresentapproximately0.1percentofmarketdeposits.Onconsummationoftheproposal, FifthThirdwouldremainthefifthlargestdepositoryorganizationinthemarket,controllingdepositsof approximately$1.0billion,whichrepresentapproximately6.7percentofmarketdeposits.TheHHIforthe Gary/Hammondmarketwouldincreaseby1pointto1043,and29competitorswouldremaininthemarket.

74 FederalReserveBulletin|May2019 Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsidersthefinancialandmanagerialresourcesandfutureprospectsof theinstitutionsinvolved,aswellastheeffectivenessof theinstitutionsincombattingmoneylaundering.23Initsevaluationof thefinancialfactor,theBoardreviewsinformationregarding thefinancialconditionof theorganizationsinvolvedonbothparent-onlyandconsolidated bases,aswellasinformationregardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.Inthisevaluation,theBoardconsidersavarietyof 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. FifthThird,MBFinancial,andtheirsubsidiarydepositoryinstitutionsarewellcapitalized, andthecombinedorganizationwouldremainsoonconsummationof theproposal.The proposedtransactionisamergerthatisstructuredasacashandshareexchange,witha subsequentmergerof thesubsidiarydepositoryinstitutions.24Theassetquality,earnings, andliquidityof FifthThirdBankandMBBankareconsistentwithapproval,andFifth Thirdappearstohaveadequateresourcestoabsorbthecostsof theproposalandto completeintegrationof theinstitutions’operations.Inaddition,futureprospectsare consideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of FifthThird,MBFinancial,andtheirsubsidiarydepositoryinstitutions,including assessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition, theBoardhasconsideredinformationprovidedbyFifthThird;theBoard’ssupervisory experiencesandthoseof otherrelevantbanksupervisoryagencieswiththeorganizations; theorganizations’recordsof compliancewithapplicablebanking,consumerprotection, andanti-money-launderinglaws;andinformationprovidedbythecommenters. FifthThird,MBFinancial,andtheirsubsidiarydepositoryinstitutionsareeachconsidered tobewellmanaged.FifthThird’sdirectorsandseniorexecutiveofficershaveknowledgeof 23 12U.S.C.§§1842(c)(2),(5),and(6),and1828(c)(5)and(11). 24 FifthThirdwouldeffecttheholdingcompanytransactionbymerginganewlyformedsubsidiaryofFifthThird (“MergerSubsidiary”)withandintoMBFinancial,withMBFinancialsurvivingthemergerasasubsidiaryof FifthThird.Atthetimeofthemerger,eachshareofMBFinancialcommonstockwouldbeconvertedintoa righttoreceive(i)1.45sharesofFifthThirdcommonstocktogetherwithcashinlieuofanyfractionalshares and(ii)$5.54incash.FifthThirdhasthefinancialresourcestofundthecashportionoftheobligation.Atthe timeofthemerger,eachshareofcommonstockoftheMergerSubsidiarywouldbeconvertedintooneshare ofMBFinancialcommonstock;theseshares,whichwouldbeownedbyFifthThird,wouldconstitutetheonly outstandingsharesofcommonstockofMBFinancialaftertheeffectivetimeofthemerger.Eachshareof MBFinancialpreferredstockwouldremainissuedandoutstanding,andFifthThirdwouldnotissueanynewly createdseriesofpreferredstocktoholdersofMBFinancialpreferredstockorconvertMBFinancialpreferred stockintoanynewlycreatedseriesofFifthThirdpreferredstock. ImmediatelyfollowingthemergerofMergerSubsidiaryandMBFinancial,MBBankwouldmergewithand intoFifthThirdBank,withFifthThirdBankasthesurvivingentity.EachshareofMBBankcommonstock wouldbeconvertedintonewlyissuedsharesofFifthThirdFinancialCorporation,Cincinnati,Ohio,amid-tier financialholdingcompanyofFifthThird.

LegalDevelopments:FirstQuarter,2019 75 andexperienceinthebankingandfinancialservicesectors,andFifthThird’sriskmanagementprogramappearsconsistentwithapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredFifthThird’splansforimplementingtheproposal.Fifth Thirdhasconductedcomprehensiveduediligenceandisdevotingsignificantfinancialand otherresourcestoaddressallaspectsof thepost-acquisitionintegrationprocessforthis proposal.FifthThirdwouldimplementitsrisk-managementpolicies,procedures,and controlsatthecombinedorganization,andtheseareconsideredacceptablefromasupervisoryperspective.Inaddition,FifthThird’smanagementhastheexperienceandresources tooperatethecombinedorganizationinasafeandsoundmanner,andFifthThirdplansto integrateMBFinancial’sexistingmanagementandpersonnelinamannerthataugments FifthThird’smanagement.25 Basedonallof thefactsof record,includingFifthThird’ssupervisoryrecord,managerial andoperationalresources,andplansforoperatingthecombinedinstitutionafter consummation,theBoarddeterminesthatconsiderationsrelatingtothefinancialand managerialresourcesandfutureprospectsof theorganizationsinvolvedintheproposal,as wellastherecordsof effectivenessof FifthThirdandMBFinancialincombatting money-launderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.26Initsevaluation,theBoardconsiderswhethertherelevantinstitutions arehelpingtomeetthecreditneedsof thesecommunities,aswellasotherpotentialeffects of theproposalontheconvenienceandneedsof thecommunitiestobeserved,andplaces particularemphasisontherecordsof therelevantdepositoryinstitutionsundertheCRA. TheCRArequiresthefederalfinancialsupervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesinwhichthey operate,consistentwiththeirsafeandsoundoperations,27andrequirestheappropriate federalfinancialsupervisoryagencytoassessadepositoryinstitution’srecordof helpingto meetthecreditneedsof itsentirecommunity,includinglow-andmoderate-income (“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.28 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideloan applicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainother characteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,the supervisoryviewsof examiners,othersupervisoryinformation,informationprovidedby theapplicant,andpubliccommentsontheproposal.TheBoardalsomayconsiderthe acquiringinstitution’sbusinessmodelandmarketingandoutreachplans,theorganization’splansafterconsummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof FifthThird BankandMBBank;thefairlendingandcompliancerecordsof bothbanks;thesupervi- 25 Onconsummation,thenumberofdirectorsonFifthThird’sboardofdirectorswouldincreasebytwo,andtwo individualscurrentlyservingontheboardofdirectorsofMBFinancialwouldjointheboardofFifthThird. CorrespondingchangeswouldbemadetotheboardofdirectorsofFifthThirdBank. 26 12U.S.C.§§1842(c)(2)and1828(c)(5). 27 12U.S.C.§2901(b). 28 12U.S.C.§2903.

76 FederalReserveBulletin|May2019 soryviewsof theFederalReserveBankof Cleveland(“ReserveBank”),theOfficeof the Comptrollerof theCurrency(“OCC”),theConsumerFinancialProtectionBureau (“CFPB”),andotherfederalregulatoryagencies;confidentialsupervisoryinformation; informationprovidedbyFifthThird;andthepubliccommentsontheproposal. PublicCommentsontheProposal TheBoardreceivedthreecommentsontheproposal.29Twocommentersobjectedtothe proposal,allegingthatFifthThirdBankdiscriminatedagainstresidentialmortgage borrowersinmajority-minorityneighborhoodsintheToledo,Ohio,MetropolitanStatisticalArea(“ToledoMSA”),basedondisparitiesinthebank’slendingactivitybetween LMIneighborhoodsthataremajority-minorityandthosethatarepredominantlywhitein theToledoMSA. OnecommenterallegedthatFifthThirdBankhasengagedinapatternof locating branchesintheToledoMSAinamannerthatisdesignedtoservethebankingandcredit needsof predominantlywhiteneighborhoods,tothedetrimentof majority-minorityneighborhoods.ThiscommenteralsoallegedthatFifthThirdBankhasfailedtoemployindividualswhoresideinthecommunitiesthebankserveswithintheToledoMSA30and assertedthatFifthThirdBankhasservedthecreditneedsof predominantlywhiteneighborhoodssignificantlybetterthanthoseof themajority-minorityneighborhoodsinthe ToledoMSA.31Inaddition,thiscommenterassertedthatFifthThirdBankfailedto adequatelymarketitscreditservicestoresidentsinmajority-minorityneighborhoods.In allegingthatFifthThirdBankhasfailedtomeetthecreditneedsof theToledoMSA,the commentercitedFifthThirdBank’s2014CRAevaluation,inwhichthebankreceiveda “NeedstoImprove”ratingfortheLendingTestintheToledoMSA,andcitedthebank’s 2016CRAevaluation,inwhichthebank’sperformancefortheLendingandInvestment testsintheToledoMSAwasfoundtobebelowthebank’soverallperformanceonthose testsinthestateof Ohio. Anothercommenterassertedthat,between2013-2017,therewerewidedisparitiesinFifth ThirdBank’sresidentialrealestateloanoriginationratesinLMIneighborhoodsbased ontheracialcompositionof theneighborhoods.Thiscommenteralsoassertedthat,since 29 OnecommenterrequestedthatapprovaloftheproposalbeconditionedonFifthThirdBankadoptinga communitybenefitsplandescribinghowitplanstomeettheconvenienceandneedsofitscommunities.The BoardconsistentlyhasfoundthatneithertheCRAnorthefederalbankingagencies’CRAregulationsrequire depositoryinstitutionstomakepledgesorenterintocommitmentsoragreementswithanyprivateparty.See, e.g.,FirstBuseyCorporation,FRBOrder2019-01at11n.30(January10,2019);HarborOneMutualBancshares, FRBOrderNo.2018-18at10n.26(September12,2018);TriCoBancshares,FRBOrderNo.2018-13at9n.20 (June6,2018);HowardBancorp,Inc.,FRBOrderNo.2018-05at9n.21(February12,2018);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. 30 ThecommenteralsoallegedthatFifthThirdBank’spracticeofhiringminorityloanofficersintheToledo MSAdoesnotadequatelyreflecttheracialcompositionofthecommunity.Abankholdingcompanyorbank’s internalemploymentpractices,however,areoutsidethescopeofthelimitedstatutoryfactorsthattheBoardis authorizedtoconsiderwhenreviewinganapplicationornoticeundertheBHCActortheBankMergerAct. Seee.g.,IBERIABANK,FRBOrder2018-06(February21,2018)at9n.22(BankMergerAct);SunTrustBank, 86Fed.Res.Bull.65(1999)at66n.7(BankMergerAct);BancOneCorporation,83Fed.Res.Bull.520(1997) at527n.34(section3oftheBHCAct). 31 Tosupportthisassertion,thecommenterprovidedinformationintendedtoshowthat:(1)loanoriginationsto minorityindividualsandminorityLMIindividualsintheToledoMSAdecreasedfrom2014-2017,and(2)a discrepancyexistsinFifthThirdBank’slendinginwhiteLMIneighborhoodscomparedwithmajorityminorityLMIneighborhoodsintheToledoMSA.

LegalDevelopments:FirstQuarter,2019 77 2003,theproportionof FifthThirdBank’sresidentialmortgageoriginationsinmajorityminorityandLMIneighborhoodsintheToledoMSAhasdecreasedsignificantly. OnecommenterassertedthatMBBankimproperlyhandledforeclosuresonassetsthatthe bankpreviouslyhadacquiredfromtheFDICthroughthefailedbankresolutionprocess.32 Businessesof theInvolvedInstitutionsandResponsetothePublicComments Throughitsnetworkof branchesintenstates,FifthThirdBankprovidescommercial, retail,andsmallbusinessbanking,aswellaswealthmanagementservicestoindividual, corporate,andmunicipalcustomers.Theseproductsandservicesincludeawiderangeof checking,savings,andmoneymarketaccounts,aswellascreditproducts,suchascommercialloansandleases,mortgageloans,installmentloans,autoloans,andcreditcards. MBBankoperatesprimarilyintheChicagometropolitanareaandoffersabroadrangeof financialservices,primarilytosmallandmiddle-marketbusinessesandindividuals.MB Bank’sprimarylinesof businessincludecommercialbanking,leasing,asset-basedlending, retailbanking,andwealthmanagement. Inresponsetothecomments,FifthThirdrepresentsthatitenteredintoacommunity benefitscommitmentin2016withtheNationalCommunityReinvestmentCoalition (“NCRC”)and145of theNCRC’smembercommunityorganizations,includingoneof thecommenters,addressingFifthThirdBank’slendingandinvestmentpractices,including intheToledoMSAandparticularlytoLMIcustomers.Inaddition,FifthThirdrepresents thatithastakenaleadershiproleinprovidingfinancialeducationandempowerment programsinallof theareasinwhichFifthThirdBankoperates. FifthThirdassertsthatFifthThirdBankhassoughttoincreaselendinginmajorityminorityandLMIneighborhoodsintheToledoMSA.FifthThirdacknowledgesthat,in 2017,thenumberof thebank’sresidentialmortgageoriginationsinmajority-minority neighborhoodsintheToledoMSAdecreasedslightly,butassertsthatthedeclinewas smallerthantheoveralldeclineinthebank’smortgageloanoriginationsthroughoutthe ToledoMSA.FifthThirdrepresentsthatFifthThirdBankprovidesanumberof non-lendingandnon-investmentservicesintheToledoMSAthroughemployee volunteering. WithrespecttoFifthThirdBank’sbranchlocationsintheToledoMSA,FifthThirdrepresentsthatthebankroutinelyevaluatesandreviewsthelocationanddistributionof its branchesandiswillingtomeetwiththecommenterstodiscussthefinancialneedsof neighborhoodsintheToledoMSA. Inresponsetoacommenter’sallegationthatFifthThirdBank’sresidentialmortgage lendinginmajority-minorityandLMIneighborhoodswaslowerthaninpredominantly whiteneighborhoodsintheToledoMSA,FifthThirdassertsthatthedatacitedbythe commentershowthatFifthThirdBankhasactuallyincreaseditsresidentialmortgage originationsinLMIandmajority-minorityneighborhoodsascomparedtopredominantly whiteneighborhoods.FifthThirdrepresentsthatFifthThirdBankhasincreasedoverall accesstomortgagecreditinmajority-minorityandLMIneighborhoodsintheToledo MSA.FifthThirdrepresentsthatthebank’screditcardissuanceinmajority-minority 32 ThecommenterassertsthattheseforeclosedassetsaresubjecttolosssharingagreementswiththeFDIC.The BoardbelievesthattheseallegationsarenotwithintheBoard’slimitedjurisdictiontoadjudicateanddonot relatetofactorsthattheBoardmayconsiderwhenreviewinganapplicationundertheBHCActortheBank MergerAct.SeeWesternBancshares,Inc.v.BoardofGovernors,480F.2d749(10thCir.1973).

78 FederalReserveBulletin|May2019 neighborhoodshassteadilyincreasedsince2013asapercentageof thebank’stotalcredit cardoriginationsintheToledoMSA,andthebankhascreatedanewpersonallineof creditproductspecificallydesignedtoaddresstheneedsof borrowersinareasinwhich householdsmaybeexperiencinglegacyeffectsof thefinancialcrisisandaresubjectto negativeequity. InresponsetothecontentionthatFifthThirdBankfailstoadequatelymarketitscredit servicesinmajority-minorityneighborhoodsintheToledoMSA,FifthThirdassertsthat theloanapplicationdatacitedbythecommenterdonotnecessarilysupportthatconclusion.FifthThirdalsorepresentsthatFifthThirdBankbegananaffirmativemarketing strategyfocusingonresidentialmortgagelendinginmajority-minorityneighborhoodsin 2018. Recordsof PerformanceundertheCRA InevaluatingtheCRAperformanceof theinvolvedinstitutions,theBoardgenerally considerseachinstitution’smostrecentCRAevaluation,aswellasotherinformationand supervisoryviewsfromtherelevantfederalfinancialsupervisors,whichinthiscasearethe ReserveBankforFifthThirdBankandtheOCCforMBBank.33Inaddition,theBoard considersinformationprovidedbytheapplicantandbypubliccommenters. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.34Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplyalendingtesttoevaluatetheperformance of alargeinsureddepositoryinstitutioninhelpingtomeetthecreditneedsof thecommunitiesitserves.TheLendingTestspecificallyevaluatestheinstitution’shomemortgage, smallbusiness,smallfarm,andcommunitydevelopmentlendingtodeterminewhetherthe institutionishelpingtomeetthecreditneedsof individualsandgeographiesof allincome levels.Aspartof theLendingTest,examinersreviewandanalyzeaninstitution’sdata reportedundertheHomeMortgageDisclosureAct(“HMDA”),35inadditiontosmall business,smallfarm,andcommunitydevelopmentloandatacollectedandreportedunder CRAregulations,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 distributionof loansbasedonborrowercharacteristics,including,forhomemortgage loans,thenumberandamountsof loanstolow-,moderate-,middle-,andupper-income 33 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48506, 48548(July25,2016). 34 12U.S.C.§2906. 35 12U.S.C.§2801etseq.

LegalDevelopments:FirstQuarter,2019 79 individuals;36(4)theinstitution’scommunitydevelopmentlending,includingthenumber andamountsof communitydevelopmentloansandtheircomplexityandinnovativeness; and(5)theinstitution’suseof innovativeorflexiblelendingpracticestoaddressthecredit needsof LMIindividualsandgeographies.Largeinstitutionsalsoaresubjecttoan investmenttestthatevaluatesthenumberandamountsof qualifiedinvestmentsthat benefittheirAAsandaservicetestthatevaluatestheavailabilityandeffectivenessof their systemsfordeliveringretailbankingservicesandtheextentandinnovativenessof their communitydevelopmentservices.37 TheBoardisconcernedwhenpubliclyreporteddatareflectdisparitiesintheratesof loan applications,originations,anddenialsamongmembersof differentracialorethnicgroups inlocalareas.Thesetypesof disparitiesmayindicateweaknessesintheadequacyof policiesandprogramsataninstitutionformeetingitsobligationstoextendcreditfairly. However,otherinformationcriticaltoaninstitution’screditdecisionsisnotavailablefrom thepubliclyreporteddata.38Consequently,theBoardevaluatessuchdatadisparitiesin thecontextof otherinformationregardingthelendingrecordof theinstitution. CRAPerformanceof FifthThirdBank FifthThirdBankwasassignedanoverall“Outstanding”ratingatitsmostrecentCRA performanceevaluationbytheReserveBank,asof November28,2016(“FifthThirdBank Evaluation”).39Thebankreceived“Outstanding”ratingsfortheLendingTestandthe InvestmentTestanda“HighSatisfactory”ratingfortheServiceTest.40 ExaminersfoundthatFifthThirdBankoriginatedasubstantialmajorityof itsloansinside itsAAsandthatthebank’soveralllendingactivityreflectedexcellentresponsivenesstothe creditneedsof itsAAs.Examinersnotedthatthebank’ssmallloanstobusinesses reflectedexcellentgeographicpenetrationthroughthebank’sAAs.Inaddition,examiners foundthebank’sdistributionof productlinesbyincomelevelof theborrowertobe excellentandthebank’sdistributionof loanstobusinesseswithdifferentrevenuesizesto begood.Examinersnotedthatthebankhadagoodrecordof servingthecreditneedsof low-incomeindividualsandareasandof verysmallbusinesses.Examinersfurthernoted 36 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3). 37 12CFR228.21etseq. 38 Otherinformationrelevanttocreditdecisionscouldincludecredithistory,debt-to-incomeratios,andloan-tovalueratios.Accordingly,whenconductingfairlendingexaminations,examinersanalyzesuchadditionalinformationbeforereachingadeterminationregardinganinstitution’scompliancewithfairlendinglaws. 39 TheFifthThirdBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Examiners reviewedHMDAandsmallbusinessloansoriginatedfromJanuary1,2014,throughJune30,2016.Theevaluationperiodforcommunitydevelopmentloans,investments,andserviceswasJanuary1,2014,throughJune30, 2016. 40 TheFifthThirdBankEvaluationincludedfull-scopeevaluationsoftheChicago-Naperville-Elgin,Illinois- Indiana-WisconsinCombinedStatisticalArea(“CSA”);Cincinnati,Ohio-Kentucky-IndianaMSA;Evansville, Indiana-KentuckyMSA;Huntington-Ashland,WestVirginia-Kentucky-OhioMSA;Louisville-Jefferson County,Kentucky-IndianaMSA;SouthBend-Elkhart-Mishawaka,Indiana,MichiganCSA;Orlando- Deltona-DaytonaBeach,FloridaCSA;Tampa-St.Petersburg-Clearwater,FloridaMSA;Atlanta-Sandy Springs-Roswell,GeorgiaMSA;SouthernIllinoisNon-MSAAA;Indianapolis-Carmel-Muncie,IndianaCSA; SouthernIndianaNon-MSAAA;Lexington-Fayette,KentuckyMSA;Detroit-Warren-AnnArborCSA; GrandRapids-Wyoming-Muskegon,MichiganCSA;St.Louis,MissouriMSA;Charlotte-Concord-Gastonia, NorthCarolinaMSA;Cleveland-Akron-Canton,OhioCSA;Columbus,OhioMSA;Pittsburgh,Pennsylvania, MSA;Nashville-Davidson-Murfreesboro-Franklin,Tennessee,MSA;andCharleston,WestVirginiaMSA. Limited-scopeevaluationswereconductedinthebank’sremainingAAs,includingtheToledoMSA,anareaof concernfortwocommenters.

80 FederalReserveBulletin|May2019 thatthebankwasaleaderinmakingcommunitydevelopmentloansandmadeextensive useof flexiblelendingpracticesinservingcreditneedsinitsAAs. InOhio,FifthThirdBank’sperformanceundertheLendingTestwasrated“Outstanding.” IntheToledoMSA,examinersfoundthatthebank’slendingperformancewasbelowFifth ThirdBank’sperformanceforthestateoverall.However,examinersfoundthelevelof communitydevelopmentloansintheToledoMSAtobegoodandnotedalowlevelof lendinggaps(i.e.,censustractsinwhichthebankhadprovidednoloans)inthe ToledoMSA. WithrespecttotheInvestmentTest,examinersfoundthatFifthThirdBank’slevelof qualifiedcommunitydevelopmentinvestmentsandgrantswasexcellent,andthebank oftenwasinaleadershiproleinprovidingcommunitydevelopmentinvestmentsandgrants. Examinersfoundthatamajorityof FifthThirdBank’squalifiedcommunitydevelopment investmentsbyamountandnumbersupportedaffordablehousing,andmanyof Fifth ThirdBank’staxcreditprojectshadeithersustainedorbeenthecatalystforneighborhood revitalizationprojects. InOhio,FifthThirdBank’sperformanceundertheInvestmentTestwasrated “Outstanding.”IntheToledoMSA,examinersfoundthebank’sinvestmentperformance tobebelowthebank’sperformanceforthestateoverall.However,examinersnotedthat investmentactivityintheToledoMSAwasgood,andtheweakerperformanceprimarily wasduetoalowerlevelof qualifiedinvestmentsandcontributionsrelativetoFifthThird Bank’soperationalpresenceintheToledoMSA. WithrespecttotheServiceTest,examinersfoundthatthebank’sretaildeliverysystems wereaccessibletoallgeographiesandindividualsof differentincomelevelsandbusinesses of differentrevenuesizeswithinthebank’sAAs.Examinersnotedthatthebank’srecordof openingandclosingbankingcentershadnotadverselyaffectedtheaccessibilityof the bank’sdeliverysystems.Examinersfoundthatthebank’sbankingservicesandhoursdid notvaryinawaythatinconveniencedanyportionof thebank’sAAs.Examinersalso foundthatthebankwasaleaderinprovidingcommunitydevelopmentservices. InOhio,FifthThirdBank’sperformanceundertheServiceTestwasrated“HighSatisfactory.”IntheToledoMSA,examinersfoundthatthebank’sserviceperformancewas consistentwithFifthThirdBank’sperformanceforthestateoverall.Examinersnotedthat retailservicesweregoodintheToledoMSAandthatthebank’sstrongerperformancein theToledoMSArelativetotwootherAAsinOhiowasprimarilyduetogreateraccessibilityof deliverysystemsinlower-incomegeographies.Examinersfoundthatthebank’s levelof qualifiedcommunitydevelopmentserviceswasexcellentintheToledoMSA. FifthThirdBank’sEffortssincetheFifthThirdBankEvaluation FifthThirdstatesthat,sincetheFifthThirdBankEvaluation,FifthThirdBankhas continuedtobuilduponitssuccessfulhistoryof communityengagementandlending undertheCRA.FifthThirdrepresentsthatthebankrecentlycreatedapositionfocusedon smallbusinesslendingandhashiredbankerstofocusonLMImarkets.Inaddition,Fifth ThirdrepresentsthatthebankpartneredwiththeNationalDevelopmentCounciltooffera certificationtocommunitydevelopmenthousingprofessionalswiththegoalof acceleratingthecapacityandproductionof affordablehousingdevelopers.FifthThirdassertsthat thebankhaslaunchedorexpandedseveralfinancialeducationprogramsforstudentsand adults.FifthThirdalsoassertsthatthebankhasmadesignificantprogressunderits2016 communitybenefitsplan,whichincludesspecificgoalsformortgagelending,smallbusinesslending,andcommunitydevelopmentlendingandinvestments.

LegalDevelopments:FirstQuarter,2019 81 CRAPerformanceof MBBank MBBankwasassignedanoverall“Outstanding”ratingatitsmostrecentCRAperformanceevaluationbytheOCC,asof January17,2017(“MBBankEvaluation”).41The bankreceived“Outstanding”ratingsfortheLendingTestandtheInvestmentTestanda “HighSatisfactory”ratingfortheServiceTest.42 ExaminersfoundthatMBBank’soveralllendingactivityreflectedexcellentresponsiveness tothecreditneedsof thebank’sAAs.Examinersnotedthatthebank’scommunitydevelopmentloanswereeffectiveinhelpingthebankaddressAAcreditneeds.IntheChicago MDMMSA,thebank’slargestAA,examinersfoundthatthegeographicpenetrationof thebank’sloansthroughouttheAAwasexcellent. Examinersfoundthatthebankhadanoverallexcellentlevelof qualifiedcommunitydevelopmentinvestmentsthatwereresponsivetoAAneeds.Examinersfoundthatbank brancheswerereasonablyaccessibletopeopleandgeographiesof differentincomelevels. IntheChicagoMDMMSA,examinersfoundthatMBBankhadinvestedinaffordable housingforandprovidedcommunityservicestoLMIindividualsandinvestedinstabilizationandrevitalizationeffortsforLMIgeographies.Examinersalsonotedthatcommunity developmentserviceswereeffectiveinaddressingandresponsivetoAAneeds. AdditionalSupervisoryViews Initsreviewof theproposal,theBoardconsultedwiththeReserveBankregardingFifth ThirdBank’sCRAandfairlendingrecordsandwiththeReserveBankandCFPB regardingthebank’sconsumercompliancerecord.TheBoardalsoconsultedwiththeOCC regardingMBBank’sCRAandfairlendingrecordsandwiththeOCCandCFPB regardingMBBank’sconsumercompliancerecord.TheBoardhasconsideredtheresults of themostrecentCRAandconsumercomplianceexaminationsof FifthThirdBankand MBBank,whichincludedareviewof thebanks’compliancerisk-managementprograms andcompliancewithconsumerprotectionlawsandregulations. TheBoardhastakentheforegoingconsultationsandexaminationsintoaccountinevaluatingtheproposal,includinginconsideringwhetherFifthThirdhastheexperienceand resourcestoensurethatFifthThirdBankhelpstomeetthecreditneedsof thecommunitiestobeservedfollowingconsummationof theproposedtransaction. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.FifthThirdrepresentsthat,asaresultof thetransaction,MBBankcustomerswouldbenefitfromFifthThirdBank’sbroaderpayments, wealthandassetmanagement,capitalmarkets,retailandcommercialbankingservices,as wellasthebank’stechnologicalcapabilitiesandabilitytomakelargercreditcommitments. Inaddition,FifthThirdBankcustomerswouldgainaccesstocertainproductsandservices offeredbyMBBank,includingsmallticketleasingandprepaidcardproducts.FifthThird 41 TheMBBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Examiners reviewedHMDAandsmallbusinessloansoriginatedbetweenJanuary1,2013,andDecember31,2015.The evaluationperiodforcommunitydevelopmentloans,investments,andserviceswasAugust13,2013,through December31,2016. 42 TheMBBankEvaluationincludedfull-scopeevaluationsoftheChicago-Naperville-ArlingtonHeightsMetropolitanDivisionMultistateMetropolitanStatisticalArea(“ChicagoMDMMSA”);theLaSalleCounty,Illinois,Non-MSAAA;andthePhiladelphia,Pennsylvania,MDAA.Limited-scopeevaluationswereperformed intheLakeCounty,Illinois-KenoshaCounty,WisconsinMDAA;theGary,IndianaMDAA;andtheElgin, IllinoisMDAA.MBBanknolongeroperatesinPennsylvania.

82 FederalReserveBulletin|May2019 Bankrepresentsthatitdoesnotexpecttodiscontinueanyproductsorservicesfollowing consummationof thetransaction.Further,FifthThirdrepresentsthatcustomersof both bankswouldhaveaccesstoanexpandednetworkof branchesandATMsasaresultof the transaction. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtheCRArecordsof therelevant depositoryinstitutionsinvolved;theinstitutions’recordsof compliancewithfairlending andotherconsumerprotectionlaws;supervisoryviewsof theReserveBank,OCCand CFPB;confidentialsupervisoryinformation;informationprovidedbyFifthThird:the publiccommentsontheproposal:andotherpotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.Basedonthatreview,theBoarddeterminesthattheconvenienceandneedsfactorisconsistentwithapproval. FinancialStability Section3of theBHCActandtheBankMergerActrequiretheBoardtoconsidera proposal’s“riskstothestabilityof theUnitedStatesbankingorfinancialsystem.”43 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.44Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamagetothebroadereconomy.45 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.FifthThirdandMBFinancialbothoffera rangeof retail,commercial,andwealthmanagementbankingproductsandservices.Fifth Thirdhas,andasaresultof theproposalwouldcontinuetohave,small-to-moderate marketsharesintheseproductsandservicesonanationwidebasis.Followingthetransaction,substituteproviderswouldbereadilyavailableforthecriticalfinancialservices providedbythecombinedorganization,andtheacquisitionwouldnotmateriallyheighten theorganization’sinterconnectednesswithotherfirmsormarketswithintheUnited Statesbankingorfinancialsystem.Theacquisitionwouldnothavemeaningfuleffectson thecross-borderactivitiesof theacquirerorleadtochangesintheinstitution’sorganizationalstructure,complexity,oruniquecharacteristicsthatwouldcomplicateitsresolution. 43 12U.S.C.§§1842(c)(7)and1828(c)(5). 44 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 45 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder 2012-2(February14,2012).

LegalDevelopments:FirstQuarter,2019 83 Inlightof allthefactsandcircumstances,thistransactionwouldnotresultinmeaningfully greaterormoreconcentratedriskstothestabilityof theUnitedStatesbankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Establishmentof Branches FifthThirdBankhasappliedundersection9of theFRAtoestablishbranchesatthe currentmainofficeandbranchesof MBBank.46TheBoardhasassessedthefactorsitis requiredtoconsiderwhenreviewinganapplicationunderthatsection,includingFifth ThirdBank’sfinancialcondition,management,capital,actionsinhelpingtomeetthe convenienceandneedsof thecommunitiestobeserved,CRAperformance,andinvestmentinbankpremises.47Forthereasonsdiscussedinthisorder,theBoarddeterminesthat thosefactorsareconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheproposal shouldbe,andherebyis,approved.Inreachingitsconclusion,theBoardhasconsideredall thefactsof recordinlightof thefactorsthatitisrequiredtoconsiderundertheBHCAct, theBankMergerAct,theFRA,andotherapplicablestatutes.TheBoard’sapprovalis specificallyconditionedoncompliancebyFifthThirdwithalltheconditionsimposedin thisorder,includingreceiptof allrequiredregulatoryapprovals,andonanycommitments madetotheBoardinconnectionwiththeproposal.Forpurposesof thisaction,theconditionsandcommitmentsaredeemedtobeconditionsimposedinwritingbytheBoardin connectionwithitsfindingsanddecisionhereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardorbytheReserveBank,actingunderdelegatedauthority. Byorderof theBoardof Governors,effectiveMarch6,2019. Votingforthisaction:ChairPowell,ViceChairClarida,ViceChairforSupervision Quarles,andGovernorBowman;GovernorBrainardabstained. MargaretMcCloskeyShanks DeputySecretaryof theBoard 46 12U.S.C.§321.Undersection9oftheFRA,statememberbanksmayestablishandoperatebranchesonthe sametermsandconditionsasareapplicabletotheestablishmentofbranchesbynationalbanks.Thus,state memberbanksmayretainanybranchfollowingamergerthat,understatelaw,maybeestablishedasanew branchoftheresultingbankorretainedasanexistingbranchoftheresultingbank.See12U.S.C.§36(b)(2)and (c).Inaddition,undersection44oftheFDIAct,astatememberbankresultingfromaninterstatemerger transactionmayretainandoperate,asamainofficeorabranch,anyofficethatanybankinvolvedinthe mergerwasoperatingasamainofficeorbranchimmediatelybeforethemergertransaction.See12U.S.C. §1831u(d).Uponconsummation,allofFifthThirdBank’sbrancheswouldbepermissibleunderapplicable statelaw.See205Ill.Comp.Stat.5/21.4(2018);Ind.CodeAnn.§28-2-13-19(2018). 47 See12U.S.C.§322;12CFR208.6.Uponconsummationoftheproposal,FifthThirdBank’sinvestmentsin bankpremiseswouldremainwithinlegalrequirementsunder12CFR208.21.

84 FederalReserveBulletin|May2019 Appendix BranchestoBeEstablishedbyFifthThirdBank IllinoisBranches 1. 388SouthMainStreet,Bartlett,Illinois60103 2. 1500RooseveltRoad,Broadview,Illinois60155 3. 5750West87thStreet,Burbank,Illinois60459 4. 925BurnhamAvenue,CalumetCity,Illinois60409 5. OneEastWackerDrive,Chicago,Illinois60601 6. 2SouthLasalleStreet,Chicago,Illinois60603 7. OneSouthWackerDrive,Chicago,Illinois60606 8. 932W.RandolphStreet,Chicago,Illinois60607 9. 800WestMadisonStreet,Chicago,Illinois60607 10. 1618W.18thStreet,Chicago,Illinois60608 11. 4644SouthBishopStreet,Chicago,Illinois60609 12. 363WestOntarioStreet,Chicago,Illinois60610 13. 33WHuron,Chicago,Illinois60610 14. 3604NorthSouthportAvenue,Chicago,Illinois60613 15. 3959NorthLincolnAvenue,Chicago,Illinois60613 16. 2401NorthHalstedStreet,Chicago,Illinois60614 17. 3030East92ndStreet,Chicago,Illinois60617 18. 3940NorthDamenAvenue,Chicago,Illinois60618 19. 2973N.MilwaukeeAve,Chicago,Illinois60618 20. 820NorthWesternAvenue,Chicago,Illinois60622 21. 936NorthWesternAvenue,Chicago,Illinois60622 22. 1554WestNorthAvenue,Chicago,Illinois60622 23. 1624WestDivisionStreet,Chicago,Illinois60622 24. 2420WestLawrenceAvenue,Chicago,Illinois60625 25. 4800NorthWesternAvenue,Chicago,Illinois60625 26. 8300WestBelmontAvenue,Chicago,Illinois60634 27. 6422WestArcherAvenue,Chicago,Illinois60638 28. 5670NorthMilwaukeeAvenue,Chicago,Illinois60646 29. 2004NorthWesternAvenue,Chicago,Illinois60647 30. 3179NorthClarkStreet,Chicago,Illinois60657 31. 5918N.Broadway,Chicago,Illinois60660 32. 600W.PlainfieldRoad,Countryside,Illinois60525 33. 550EastSibleyBoulevard,Dolton,Illinois60419 34. 14121ChicagoStreet,Dolton,Illinois60419 35. 450EastHigginsRoad,ElkGroveVillage,Illinois60007 36. 356ParkAvenue,Glencoe,Illinois60022 37. 2823BPfingstenRoad,Glenview,Illinois60026 38. 18301SouthHalsted,Glenwood,Illinois60425 39. 2345West183rdStreet,Homewood,Illinois60430 40. 401NorthLaGrangeRoad,LaGrangePark,Illinois60526 41. 1151StateStreet,Lemont,Illinois60439 42. 4010WestTouhyAve,Lincolnwood,Illinois60712 43. 6401NorthLincolnAvenue,Lincolnwood,Illinois60712 44. 9147WaukeganRoad,MortonGrove,Illinois60053 45. 6201DempsterStreet,MortonGrove,Illinois60053 46. 15EastProspectAvenue,MountProspect,Illinois60056 47. 7557OaktonSt,Niles,Illinois60714 48. 7557WestOaktonStreet,Niles,Illinois60714 49. 7222WestCermakRoad,NorthRiverside,Illinois60546

LegalDevelopments:FirstQuarter,2019 85 50. 1090WillowRoad,Northbrook,Illinois60062 51. 15533CiceroAvenue,OakForest,Illinois60452 52. 9701SouthCiceroAvenue,OakLawn,Illinois60453 53. 9101West159thStreet,OrlandHills,Illinois60477 54. 700WestEuclidAvenue,Palatine,Illinois60067 55. 7727LakeStreet,RiverForest,Illinois60305 56. 6111NorthRiverRoad,Rosemont,Illinois60018 57. 1199EastHigginsRoad,Schaumburg,Illinois60173 58. 4356OaktonStreet,Skokie,Illinois60076 59. 4400OaktonStreet,Skokie,Illinois60076 60. 4801WGolf Rd,Skokie,Illinois60077 61. 100WestHigginsRoad,SouthBarrington,Illinois60010 62. 16145SouthStateStreet,SouthHolland,Illinois60473 63. 475East162ndStreet,SouthHolland,Illinois60473 64. 18299SHarlemAve,TinleyPark,Illinois60477 65. 16039SHarlemAve,TinleyPark,Illinois60477 66. 16700SouthHarlemAvenue,TinleyPark,Illinois60477 67. 9561W.171stStreet,TinleyPark,Illinois60487 68. 125McHenryRoad,Wheeling,Illinois60090 69. 777WestArmyTrailRoad,Addison,Illinois60101 70. 2992IndianTrailRoad,Aurora,Illinois60502 71. 1230MarkStreet,Bensenville,Illinois60106 72. 485WestArmyTrailRoad,Bloomingdale,Illinois60108 73. 7000SCountyLineRoad,BurrRidge,Illinois60527 74. 8300SouthMadison,BurrRidge,Illinois60527 75. 240175thStreet,Darien,Illinois60561 76. 990NorthYorkRoad,Elmhurst,Illinois60126 77. OneYorktown,Lombard,Illinois60148 78. 1145SouthMainStreet,Lombard,Illinois60148 79. 140016thStreet,OakBrook,Illinois60523 80. 4685Winfield,Warrenville,Illinois60555 81. 212SouthWestStreet,Wheaton,Illinois60187 82. 700WestFabyan,Batavia,Illinois60510 83. 2607LincolnHighway,SaintCharles,Illinois60175 84. 581ElmPlace,Suite110,HighlandPark,Illinois60035 85. 459SouthRandRoad,LakeZurich,Illinois60047 86. 3196WestRoute60,Mundelein,Illinois60060 87. 1620NorthMilwaukeeAvenue,VernonHills,Illinois60061 88. 455SouthWeberRoad,Bolingbrook,Illinois60490 89. 1100EastExchangeAvenue,Crete,Illinois60417 90. 20825S.LagrangeRd.,Frankfort,Illinois60423 91. 13900SouthBellRoad,HomerGlen,Illinois60491 IndianaBranch 92. 1218SheffieldAvenue,Dyer,Indiana46311

August 2019 Vol. 105, No. 3 Legal Developments: Second Quarter, 2019 Orders Issued Under Bank Holding Company Act Order Issued Under Section 3 of the Bank Holding Company Act Ameris Bancorp Moultrie, Georgia OrderApprovingtheAcquisitionof aBankHoldingCompany FRBOrderNo.2019-08(June10,2019) AmerisBancorp(“Ameris”),Moultrie,Georgia,abankholdingcompanywithinthe meaningof theBankHoldingCompanyActof 1956(“BHCAct”),1hasrequestedthe Board’sapprovalundersection3of theBHCAct2tomergewithFidelitySouthernCorporation(“FSC”)andtherebyindirectlyacquireFSC’sstatenonmemberbanksubsidiary, FidelityBank,bothof Atlanta,Georgia.FidelityBankwouldbemergedintoAmeris’s statenonmemberbanksubsidiary,AmerisBank,Moultrie,Georgia.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(84FederalRegister3445(February12,2019)).4Thetimeforsubmittingcommentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct. Ameris,withconsolidatedassetsof approximately$11.7billion,isthe136thlargestinsured depositoryorganizationintheUnitedStates.Ameriscontrolsapproximately$9.6billion inconsolidateddeposits,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.5AmeriscontrolsAmeris Bank,whichoperatesinGeorgia,Florida,Alabama,andSouthCarolina.Amerisisthe 8thlargestinsureddepositoryorganizationinGeorgia,controllingdepositsof approximately$5.3billion,whichrepresent2.1percentof thetotaldepositsof insureddepository institutionsinthatstate.6Amerisisthe30thlargestinsureddepositoryorganizationin Florida,controllingdepositsof approximately$2.6billion,whichrepresent0.5percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 ThemergerofFidelityBankintoAmerisBankwasapprovedbytheFederalDepositInsuranceCorporation (“FDIC”)onMay6,2019,pursuanttosection18(c)oftheFederalDepositInsuranceAct.12U.S.C.§1828(c). 4 12CFR262.3(b). 5 NationalassetdataareasofMarch31,2019,andnationaldepositdataareasofDecember31,2018,unlessotherwise noted. 6 StatedepositdataareasofJune30,2018,unlessotherwisenoted.Inthiscontext,insureddepositoryinstitutions includecommercialbanks,savingsassociations,andsavingsbanks.

2 FederalReserveBulletin|August2019 FSC,withconsolidatedassetsof approximately$4.8billion,isthe234thlargestinsured depositoryorganizationintheUnitedStates.FSCcontrolsapproximately$4.0billionin consolidateddeposits,whichrepresentlessthan1percentof thetotalamountof deposits of insureddepositoryinstitutionsintheUnitedStates.FSCcontrolsFidelityBank,which operatesinGeorgiaandFlorida.FSCisthe15thlargestinsureddepositoryorganizationin Georgia,controllingdepositsof approximately$3.3billion,whichrepresent1.3percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.FSCisthe54thlargest insureddepositoryorganizationinFlorida,controllingdepositsof approximately $0.8billion,whichrepresent0.1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. Onconsummationof theproposal,Ameriswouldbecomethe104thlargestinsureddepositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $16.5billion,whichrepresentlessthan1percentof thetotalassetsof insureddepository organizationsintheUnitedStates.Ameriswouldcontroltotalconsolidateddepositsof approximately$13.6billion,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.InGeorgia,Ameriswould becomethe6thlargestinsureddepositoryorganization,controllingdepositsof approximately$8.6billion,whichrepresent3.4percentof thetotaldepositsof insureddepository institutionsinthestate.InFlorida,Ameriswouldbecomethe26thlargestinsured depositoryorganization,controllingdepositsof approximately$3.5billion,whichrepresent0.6percentof totaldepositsof insureddepositoryinstitutionsinthestate. InterstateAnalysis Section3(d)of theBHCActgenerallyprovidesthat,if certainconditionsaremet,the Boardmayapproveanapplicationbyabankholdingcompanythatiswellcapitalizedand wellmanagedtoacquirecontrolof abanklocatedinastateotherthanthehomestateof thebankholdingcompanywithoutregardtowhetherthetransactionwouldbeprohibited understatelaw.7Section3(d)alsoprovidesthattheBoard(1)maynotapproveanapplicationthatwouldpermitanout-of-statebankholdingcompanytoacquireabankinahost stateif thebankhasnotbeeninexistenceforthelesserof thestatestatutoryminimum periodof timeorfiveyears;8(2)musttakeintoaccounttherecordof theapplicantunder theCommunityReinvestmentActof 1977(“CRA”)9andtheapplicant’srecordof compliancewithapplicablestatecommunityreinvestmentlaws;10and(3)maynotapprovean applicationpursuanttosection3(d)if thebankholdingcompanyorresultingbank,upon consummationof theproposedtransaction,wouldcontrolmorethan10percentof the totaldepositsof insureddepositoryinstitutionsintheUnitedStates11or,incertaincircumstances,if thebankholdingcompanyorresultingbank,uponconsummation,would control30percentormoreof thetotaldepositsof insureddepositoryinstitutionsinany stateinwhichtheacquirerandtargethaveoverlappingbankingoperations.12 7 12U.S.C.§1842(d)(1)(A).Abankholdingcompany’shomestateisthestateinwhichthetotaldepositsofall bankingsubsidiariesofeachcompanywerethelargestonJuly1,1966,orthedateonwhichthecompany becameabankholdingcompany,whicheverislater.See12U.S.C.§1841(o)(4)(C). 8 12U.S.C.§1842(d)(1)(B). 9 12U.S.C.§2901etseq. 10 12U.S.C.§1842(d)(3). 11 12U.S.C.§1842(d)(2)(A). 12 12U.S.C.§1842(d)(2)(B).Forpurposesofsection3(d)oftheBHCAct,theacquiringandtargetinstitutions haveoverlappingbankingoperationsinanystateinwhichanybanktobeacquiredislocatedandtheacquiring bankholdingcompanycontrolsanyinsureddepositoryinstitutionorabranch.TheBoardconsidersabankto belocatedinthestatesinwhichthebankischarteredorheadquarteredoroperatesabranch.See 12U.S.C.§1841(o)(4)-(7).

LegalDevelopments:SecondQuarter,2019 3 Forpurposesof theBHCAct,thehomestateof AmerisisGeorgia,andFidelityBankis locatedinFloridaandGeorgia.Amerisiswellcapitalizedandwellmanagedunderapplicablelaw.FidelityBankhasbeeninexistenceformorethanfiveyears,andAmerisBank hasa“Satisfactory”ratingundertheCRA. Onconsummationof theproposedtransaction,Ameriswouldcontrollessthan1percent of thetotalamountof consolidateddepositsininsureddepositoryinstitutionsinthe UnitedStates.Floridadoesnotimposealimitonthetotalamountof in-statedepositsthat asinglebankingorganizationmaycontrol.Georgiaimposesa30percentlimitonthetotal amountof in-statedepositsthatasinglebankingorganizationmaycontrol.13InGeorgia, thecombinedorganizationwouldcontrollessthan30percentof thetotalamountof in-statedeposits.TheBoardhasconsideredallotherrequirementsundersection3(d)of the BHCAct.Accordingly,inlightof allthefactsof record,theBoarddeterminesthatitisnot prohibitedbysection3(d)fromapprovingtheproposal. CompetitiveConsiderations Section3of theBHCActprohibitstheBoardfromapprovingaproposalthatwouldresult inamonopolyorwouldbeinfurtheranceof anattempttomonopolizethebusinessof bankinginanyrelevantmarket.14TheBHCActalsoprohibitstheBoardfromapprovinga proposalthatwouldsubstantiallylessencompetitionortendtocreateamonopolyinany bankingmarket,unlesstheanticompetitiveeffectsof theproposalareclearlyoutweighedin thepublicinterestbytheprobableeffectof theproposalinmeetingtheconvenienceand needsof thecommunitiestobeserved.15 AmerisBankandFidelityBankcompetedirectlyintheAtlantaArea,Georgia,banking market(“Atlantamarket”);theJacksonvilleArea,Florida,bankingmarket(“Jacksonville market”);theSaintAugustineArea,Florida,bankingmarket(“St.Augustinemarket”); andtheTallahasseeArea,Florida,bankingmarket(“Tallahasseemarket”).16TheBoard hasconsideredthecompetitiveeffectsof theproposalinthesebankingmarkets.In particular,theBoardhasconsideredtherelativeshareof totaldepositsininsureddepositoryinstitutionsineachmarket(“marketdeposits”)thatAmeriswouldcontrol;17the concentrationlevelof marketdepositsandtheincreaseinthislevel,asmeasuredbythe Herfindahl-HirschmanIndex(“HHI”)undertheDepartmentof JusticeBankMerger CompetitiveReviewguidelines(“DOJBankMergerGuidelines”);18thenumberof competitorsthatwouldremainineachmarket;andothercharacteristicsof eachmarket. 13 Ga.Code§7-1-628.3(a). 14 12U.S.C.§1842(c)(1)(A). 15 12U.S.C.§1842(c)(1)(B). 16 TheAtlantamarketisdefinedasBartow,Cherokee,Clayton,Cobb,Coweta,Dawson,DeKalb,Douglas, Fayette,Forsyth,Fulton,Gwinnett,Henry,Newton,Paulding,Rockdale,andWaltoncounties;HallCounty minusthetownofClermont;thetownsofAuburnandWinderinBarrowCounty;andLuthersvillein MeriwetherCounty,allinGeorgia.TheJacksonvillemarketisdefinedasBaker,Clay,Duval,andNassaucounties,Florida;thetownsofFruitCove,PonteVedra,PonteVedraBeach,Jacksonville,St.Johns,andSwitzerlandinSt.JohnsCounty,Florida;andthecityofFolkstoninCharltonCounty,Georgia.TheSt.Augustine marketisdefinedasSt.JohnsCounty,Florida(minusthetownsofFruitCover,PonteVedra,PonteVedra Beach,Jacksonville,St.Johns,Switzerland,andHastings).TheTallahasseemarketisdefinedasGadsden, Jefferson,Leon,andWakullacounties,Florida. 17 LocaldepositandmarketsharedataareasofJune30,2018,andarebasedoncalculationsinwhichthe depositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhasindicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorstocommercialbanks.See,e.g., MidwestFinancialGroup,75FederalReserveBulletin386(1989);andNationalCityCorporation,70Federal ReserveBulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsinthemarketsharecalculationona50percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserveBulletin52(1991). 18 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcen-

4 FederalReserveBulletin|August2019 Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesintheAtlanta,Jacksonville,St.Augustine, andTallahasseemarkets.Onconsummationof theproposal,theJacksonvillemarketwould remainhighlyconcentratedasmeasuredbytheHHI,accordingtotheDOJBankMerger Guidelines;however,thechangeinHHIwouldbesmallandnumerouscompetitorswould remaininthemarket.19TheAtlanta,St.Augustine,andTallahasseemarketswouldremain moderatelyconcentratedasmeasuredbytheHHI,accordingtotheDOJBankMerger Guidelines.ThechangeintheHHIintheAtlantamarketwouldbesmall,andnumerous competitorswouldremaininthemarket.20ThechangeintheHHIintheSt.Augustine marketwouldbelessthan200points,and12competitorswouldremaininthe St.Augustinemarket.21TheHHIintheTallahasseemarketwouldremainunchanged,and 17competitorswouldremaininthemarket.22 TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket.Inaddition,the appropriatebankingagencieshavebeenaffordedanopportunitytocommentandhavenot objectedtotheproposal. Basedonallof thefactsof record,theBoarddeterminesthatconsummationof the proposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheAtlanta,Jacksonville,St.Augustine,orTallahasseemarketsorin anyotherrelevantbankingmarket.Accordingly,theBoarddeterminesthatcompetitive considerationsareconsistentwithapproval. tratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableathttps://www.justice.gov/ opa/pr/2010/August/10-at-938.html. 19 Amerisoperatesthe6thlargestdepositoryinstitutionintheJacksonvillemarket,controllingapproximately $1.1billionindeposits,whichrepresent2.2percentofmarketdeposits.FSCoperatesthe14thlargestdepositoryinstitutioninthesamemarket,controllingdepositsofapproximately$318.7million,whichrepresent approximately0.6percentofmarketdeposits.Onconsummationoftheproposedtransaction,Ameriswould remainthe6thlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately$1.4billion, whichrepresentapproximately2.8percentofmarketdeposits.TheHHIfortheJacksonvillemarketwould increaseby3pointsto2709,and33competitorswouldremaininthemarket. 20 Amerisoperatesthe18thlargestdepositoryinstitutionintheAtlantamarket,controllingapproximately $1.3billionindeposits,whichrepresent0.8percentofmarketdeposits.FSCoperatesthe10thlargestdepositoryinstitutioninthesamemarket,controllingdepositsofapproximately$3.2billion,whichrepresentapproximately1.9percentofmarketdeposits.Onconsummationoftheproposedtransaction,Ameriswouldbecome the7thlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately$4.5billion,which representapproximately2.7percentofmarketdeposits.TheHHIfortheAtlantamarketwouldincreaseby 3pointsto1551,and79competitorswouldremaininthemarket. 21 Amerisoperatesthe4thlargestdepositoryinstitutionintheSt.Augustinemarket,controllingapproximately $288.2millionindeposits,whichrepresent14.0percentofmarketdeposits.FSCoperatesthe6thlargest depositoryinstitutioninthesamemarket,controllingdepositsofapproximately$133.7million,whichrepresent6.5percentofmarketdeposits.Onconsummationoftheproposal,Ameriswouldbecomethelargest depositoryinstitutioninthemarket,controllingdepositsofapproximately$421.9million,whichrepresent 20.4percentofmarketdeposits.TheHHIfortheSt.Augustinemarketwouldincreaseby181pointsto1455. 22 Amerisoperatesthe13thlargestdepositoryinstitutionintheTallahasseemarket,controllingapproximately $125.0millionindeposits,whichrepresent1.6percentofmarketdeposits.FSCoperatesthe17thlargest depositoryinstitutioninthesamemarket,controllingapproximately$11.6millionindeposits,whichrepresent 0.2percentofmarketdeposits.Onconsummationoftheproposal,Ameriswouldremainthe13thlargest depositoryinstitution,controlling$136.6millionindeposits,whichrepresent1.7percentofmarketdeposits. TheHHIfortheTallahasseemarketwouldremain1036.

LegalDevelopments:SecondQuarter,2019 5 Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCAct,theBoardconsidersthefinancial andmanagerialresourcesandthefutureprospectsof theinstitutionsinvolved.23Inits 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. Ameris,FSC,andtheirsubsidiarydepositoryinstitutionsarewellcapitalized,andthe combinedorganizationwouldremainsoonconsummationof theproposal.Theproposed transactionisabankholdingcompanymergerthatisstructuredprimarilyasastock exchange,withasubsequentmergerof thesubsidiarydepositoryinstitutions.24Theasset quality,earnings,andliquidityof bothAmerisBankandFidelityBankareconsistentwith approval,andAmerisappearstohaveadequateresourcestoabsorbtherelatedcostsof theproposalandtocompletetheintegrationof theinstitutions’operations.Inaddition, thefutureprospectsof theinstitutionsundertheproposalareconsideredconsistentwith approval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of Ameris,FSC,andtheirsubsidiarydepositoryinstitutions,includingassessmentsof their management,risk-managementsystems,andoperations.Inaddition,theBoardhas consideredinformationprovidedbyAmeris;theBoard’ssupervisoryexperiencesandthose of otherrelevantbanksupervisoryagencieswiththeorganizations;theorganizations’ recordsof compliancewithapplicablebanking,consumerprotection,andanti-moneylaunderinglaws;andinformationprovidedbythecommenter. Ameris,FSC,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 23 12U.S.C.§1842(c)(2),(5),and(6). 24 Aspartoftheproposedtransaction,eachshareofFSC’scommonstockwouldbeconvertedintotherightto receive0.8sharesofAmeriscommonstocktogetherwithcashinlieuofanyfractionalshares.Amerishasthe financialresourcestoeffecttheproposedtransaction.

6 FederalReserveBulletin|August2019 combinedorganization,andtheseareconsideredacceptablefromasupervisoryperspective.Inaddition,Ameris’smanagementhastheexperienceandresourcestooperatethe combinedorganizationinasafeandsoundmanner,andAmerisplanstointegrateFSC’s existingmanagementandpersonnelinamannerthataugmentsAmeris’smanagement.25 Basedonallof thefactsof record,includingAmeris’ssupervisoryrecord,managerialand operationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoarddeterminesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandthefutureprospectsof theorganizationsinvolvedintheproposal,aswellas therecordsof effectivenessof AmerisandFSCincombattingmoney-launderingactivities, areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCAct,theBoardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.26Initsevaluation,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thecommunitiestheyserve,aswellasotherpotentialeffectsof theproposalon theconvenienceandneedsof thesecommunities.TheBoardplacesparticularemphasison therecordsof therelevantdepositoryinstitutionsundertheCRA.TheCRArequiresthe federalfinancialsupervisoryagenciestoencourageinsureddepositoryinstitutionstohelp meetthecreditneedsof thelocalcommunitiesinwhichtheyoperate,consistentwiththe institutions’safeandsoundoperation,27andrequirestheappropriatefederalfinancial supervisoryagencytoassessadepositoryinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.28 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,thesupervisoryviewsof examiners,othersupervisoryinformation,informationprovidedbytheapplicant,andpubliccommentsontheproposal.TheBoardalsomayconsidertheinstitution’s businessmodelandmarketingandoutreachplans,theorganization’splansafter consummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof Ameris BankandFidelityBank,thefairlendingandcompliancerecordsof bothbanks,thesupervisoryviewsof theFDIC,confidentialsupervisoryinformation,informationprovidedby Ameris,andthepubliccommentreceivedontheproposal. 25 Onconsummation,thenumberofdirectorsonAmeris’sboardofdirectorswouldincreasebyfive,andfive individualscurrentlyservingontheboardofdirectorsofFSCwouldjointheboardofAmeris.Corresponding changeswouldbemadetotheboardofdirectorsofAmerisBank.Inaddition,thecurrentchairmanandchief executiveofficer(“CEO”)ofFSCwouldbecometheexecutivechairmanofAmerisandAmerisBank,andthe currentpresidentofFSCandCEOofFidelityBankwouldbecomethepresidentofAmerisandtheCEOof AmerisBank. 26 12U.S.C.§1842(c)(2). 27 12U.S.C.§2901(b). 28 12U.S.C.§2903.

LegalDevelopments:SecondQuarter,2019 7 PublicCommentontheProposal Inthiscase,acommenterobjectedtotheproposalonthebasisof allegeddisparitiesinthe numberof homemortgageloansmadebyAmerisBankto,andintherateof denialsfor homemortgageapplicationsfrom,AfricanAmericansandHispanicsascomparedto whitesinAtlanta,Georgia,basedon2017datathatAmerisreportedundertheHome MortgageDisclosureActof 1975(“HMDA”).29Thecommenteralsoalleged,basedon 2016and2017HMDAdata,disparitiesinthenumberof homeimprovementloansAmeris BankmadetoAfricanAmericansandLatinosascomparedtowhitesinJacksonville, Florida.30 Businessesof theInvolvedInstitutionsandResponsetothePublicComment Throughitsnetworkof branchesinGeorgia,Florida,Alabama,andSouthCarolina, AmerisBankoffersavarietyof productsandservices,includingrealestateloans,autosecuredandrecreational-vehicle-securedloans,andhomeequitylinesof credit.Ameris Bankalsooffersvariousdepositproductsforbothbusinessesandconsumers. FidelityBankoffersavarietyof consumerandbusinessloananddepositproducts,aswell asrelatedwealthmanagementservices,throughitsbranchesinGeorgiaandFlorida. FidelityBank’sproductsandservicesincluderealestateloans,autoloans,homeequity linesof credit,businessloans,andcheckingandsavingsaccounts. Inresponsetothecommenter’sallegations,Amerisassertsthatapprovalof theproposed transactioniswarrantedbasedonAmerisBank’sCRAperformanceevaluationand AmerisBank’sinvolvementinotherprogramstailoredtoassistLMIindividualsandfirsttimehomebuyersinpursuingormaintaininghomeownership.AmerisnotesthatHMDA datadonottakeintoconsiderationothercriticalinputs,suchasborrowercreditworthiness, collateralvalue,creditscores,andotherfactorsrelevanttocreditdecisions.Amerisalso assertsthatHMDAdatadonotreflecttherangeof AmerisBank’slendingactivitiesand effortswithinthecommunitiesitserves. Withrespecttothecommenter’sallegationsaboutAmerisBank’sdisparatehomemortgagelendingpracticesinAtlanta,Amerisarguesthatitsdistributionof mortgageloans amongAfricanAmericansandLatinosinAtlantaisgenerallycomparabletothepopulationdemographics.Amerisalsoassertsthatitisamongthetop10percentof lendersoriginatingmortgagestoAfricanAmericansinAtlanta.Inaddition,withrespecttothe commenter’sallegationsaboutAmerisBank’sdisparatehomeimprovementlendingpracticesinJacksonville,AmerisassertsthatAmerisBankdoesnotactivelymarkethome improvementloansandreceivesonlyasmallnumberof applicationsinJacksonville. 29 12U.S.C.§2801etseq.Thiscommentermadesimilarallegationsbasedon2016HMDAdata,andthoseallegationspreviouslywereconsideredbytheBoardinconnectionwithitsMay9,2018,approvalofAmeris’sapplicationtoacquireAtlanticCoastFinancialCorporationanditsJune13,2018,approvalofAmeris’sapplication toacquireHamiltonStateBancshares,Inc.SeeAmerisBancorp,FRBOrderNo.2018-12at11(May9,2018); AmerisBancorp,FRBOrderNo.2018-14at8(June13,2018). 30 ThecommenteralsoallegedthatAmerishasengagedinpredatorycollectionofoverdraftfeesandexpressed concernoverAmeris’sallegedlyconflictingstatementsregardingtheintendedlocationofitsheadquarters.The allegationregardingAmeris’soverdraftfeecollectionpracticesalsopreviouslywasconsideredbytheBoardin itsMay9,2018,approvalofAmeris’sapplicationtoacquireAtlanticCoastFinancialCorporationandits June13,2018,approvalofAmeris’sapplicationtoacquireHamiltonStateBancshares,Inc.SeeAmeris Bancorp,FRBOrderNo.2018-12at11(May9,2018);AmerisBancorp,FRBOrderNo.2018-14at8(June13, 2018).ThestatementsaboutthelocationofAmeris’sheadquartersareoutsideofthestatutoryfactorsthat theBoardisauthorizedtoconsiderwhenreviewinganapplicationornoticeundersection3oftheBHCAct. SeeWesternBancshares,Inc.v.BoardofGovernors,480F.2d749(10thCir.1973).

8 FederalReserveBulletin|August2019 Recordsof PerformanceundertheCRA InevaluatingtheCRAperformanceof theinvolvedinstitutions,theBoardgenerally considerseachinstitution’smostrecentCRAevaluation,aswellasotherinformationand thesupervisoryviewsof therelevantfederalsupervisor,whichinthiscaseistheFDICwith respecttobothinstitutions.31Inaddition,theBoardconsidersinformationprovidedbythe applicantandbypubliccommenters. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.32Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplyalendingtest(“LendingTest”),investment test(“InvestmentTest”),andservicetest(“ServiceTest”)toevaluatetheperformanceof largeinsureddepositoryinstitutions,suchasAmerisBankandFidelityBank,inhelpingto meetthecreditneedsof thecommunitiestheyserve.TheLendingTestspecificallyevaluates theinstitution’slendingtodeterminewhethertheinstitutionishelpingtomeetthecredit needsof individualsandgeographiesof allincomelevels.Aspartof theLendingTest, examinersreviewandanalyzeaninstitution’sdatareportedundertheHMDA,inaddition tosmallbusiness,smallfarm,andcommunitydevelopmentloandatacollectedand reportedundertheCRAregulations,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;33(4)theinstitution’scommunitydevelopmentlending, includingthenumberandamountsof communitydevelopmentloansandtheircomplexity andinnovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpractices toaddressthecreditneedsof LMIindividualsandgeographies.34TheInvestmentTest evaluatesthenumberandamountsof qualifiedinvestmentsthatbenefittheinstitution’s AAs,andtheServiceTestevaluatestheavailabilityandeffectivenessof theinstitution’s systemsfordeliveringretailbankingservicesandtheextentandinnovativenessof theinstitution’scommunitydevelopmentservices.35 TheBoardisconcernedwhenHMDAdatareflectdisparitiesintheratesof loanapplications,originations,anddenialsamongmembersof differentracialorethnicgroupsinlocal areas.Thesetypesof disparitiesmayindicateweaknessesintheadequacyof policiesand programsataninstitutionformeetingitsobligationstoextendcreditfairly.However,other 31 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48,506, 48,548(July25,2016). 32 12U.S.C.§2906. 33 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3). 34 See12CFR228.22(b). 35 See12CFR228.21etseq.

LegalDevelopments:SecondQuarter,2019 9 informationcriticaltoaninstitution’screditdecisionsisnotavailablefromHMDAdata.36 Consequently,theBoardevaluatessuchdatadisparitiesinthecontextof otherinformation regardingthelendingrecordof aninstitution. CRAPerformanceof AmerisBank AmerisBankwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheFDIC,asof October3,2016(“AmerisBankEvaluation”).37 Thebankreceived“HighSatisfactory”ratingsfortheLendingTestandtheServiceTest anda“LowSatisfactory”ratingfortheInvestmentTest.38 Examinersfoundthatthebank’slendinglevelsreflectedgoodresponsivenesstotheneeds of thebank’sAAsandthatthebankmadeamajorityof itsloanswithinitsAAs.Examinersdeterminedthatthebank’sborrowerprofilerevealedgoodpenetrationamongretail customersof differentincomelevelsandbusinessesof differentsizes.Examinersfurther foundthatthegeographicdistributionof thebank’sloansreflectedgoodpenetration throughoutthebank’sAAs.Examinersnotedthatthebankexhibitedagoodrecordof servingthecreditneedsof themosteconomicallydisadvantagedareasof itsAAs,LMI individuals,andverysmallbusinesses,consistentwithsafeandsoundbankingpractices. ExaminersfoundthatAmerisBankmadeahighlevelof communitydevelopmentloans andusedflexiblelendingpracticesinordertoserveitsAAs.WithrespecttotheAtlanta market,examinersfoundthatlendinglevelsreflectedgoodresponsivenesstocreditneeds andthatHMDAdatareflectedexcellentpenetrationthroughouttheAA.Withrespectto theJacksonvillemarket,examinersfoundthatlendinglevelsreflectedadequateresponsivenesstocreditneedsandthatHMDAdatareflectedgoodpenetrationthroughouttheAA. ExaminersfoundthatAmerisBankhadanadequatelevelof qualifiedcommunitydevelopmentinvestmentsanddonationsandexhibitedadequateresponsivenesstocreditand communityeconomicdevelopmentneeds.Examinersnotedthatthebankoccasionallyused innovativeorcomplexinvestmentstosupportitscommunitydevelopmentinitiatives. Examinersfoundthatthedeliverysystemsof AmerisBankwerereasonablyaccessibleto essentiallyallportionsof itsAAsandthat,totheextentchangeshadbeenmade,the bank’sopeningandclosingof branchesthroughoutitsAAshadnotadverselyaffectedthe accessibilityof itsdeliverysystems,particularlyinLMIgeographiesandtoLMIindividuals.Examinersfurtherfoundthatservicesandbusinesshoursdidnotvaryinaway thatinconveniencedcertainportionsof thebank’sAAs,particularlyLMIgeographiesand individuals,andthatthebankprovidedarelativelyhighlevelof communitydevelopment serviceswithinitsAAs. AmerisBank’sEffortssincetheAmerisBankEvaluation Amerisrepresentsthat,sincetheAmerisBankEvaluation,AmerisBankhascontinuedto meetthecreditneedsof itscommunities.Specifically,AmerisrepresentsthatAmerisBank 36 Otherinformationrelevanttocreditdecisionscouldincludecredithistory,debt-to-incomeratios,andloan-tovalueratios.Accordingly,whenconductingfairlendingexaminations,examinersanalyzesuchadditionalinformationbeforereachingadeterminationregardinganinstitution’scompliancewithfairlendinglaws. 37 TheAmerisBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Examiners reviewedresidentialmortgage,smallbusiness,andsmallfarmloansfromJanuary1,2014,throughJune30, 2016.Inaddition,examinersconsideredthecommunitydevelopmentloansoriginatedbyAmerisBankbetween January21,2014,andOctober3,2016;allqualifiedinvestmentseitherpurchasedpriortobutstilloutstanding asoftheevaluationdateorpurchasedduringtheevaluationperiod;andallcommunitydevelopmentservices performedduringtheevaluationperiod. 38 TheAmerisBankEvaluationreviewedthebank’sactivitiesineachofits22AAsthroughoutGeorgia,Florida, Alabama,andSouthCarolina.

10 FederalReserveBulletin|August2019 reportedasignificantvolumeof loanstofirst-timehomebuyersin2018.AmerisalsorepresentsthatAmerisBankparticipatesinfederalloanprogramstailoredtoassistLMIindividualsandfirst-timehomebuyers. CRAPerformanceof FidelityBank FidelityBankreceivedanoverallratingof “Satisfactory”atitsmostrecentCRAperformanceevaluationbytheFDIC,asof May27,2015(“FidelityBankEvaluation”).39The bankreceived“LowSatisfactory”ratingsfortheLendingTestandInvestmentTestanda “HighSatisfactory”ratingfortheServiceTest.40 ExaminersconcludedthatFidelityBank’slendingperformancereflectedadequateresponsivenesstothecreditneedsinthebank’sAAsbutthatasmallpercentageof theloans wereoriginatedinthebank’sAAs.Examinersfoundthatthegeographicdistributionof the bank’shomemortgageandconsumerloansreflectedapoordispersionthroughoutthe bank’sAAsbutfoundthatthegeographicdistributionof thebank’ssmallbusinessloans reflectedanadequatedispersionthroughoutthebank’sAAs.Examinersdeterminedthat thebank’sborrowerprofilerevealedpoorpenetrationamonghomemortgagecustomersof differentincomelevelsandbusinessesof differentsizesbutadequatepenetrationof consumerloansamongcertainborrowersof differentincomelevels.Examinersnotedthat thebankhadanadequatelevelof qualifiedcommunitydevelopmentinvestmentsand thatthebankshowedresponsivenesstocreditandcommunityeconomicdevelopment needs.Finally,examinersfoundthebank’sdeliverysystemstobereasonablyaccessibleto essentiallyallportionsof thebank’sAAs,includinginLMIareasandtoLMIindividuals. Viewsof theFDIC TheBoardhasconsultedwiththeFDICregardingAmerisBank’sCRA,consumercompliance,andfairlendingrecords.TheFDICreviewedthebankmergerapplicationunderlying thisproposaland,insodoing,consideredthecommentreceivedbytheBoard.TheBoard hasconsideredtheresultsof theFDIC’smostrecentconsumercomplianceexaminationof AmerisBank,whichincludedanevaluationof thebank’scompliancemanagementsystem andafairlendingreviewof thebank’sresidentiallending. TheBoardhastakenthisinformation,aswellastheCRAperformancerecordsof Ameris BankandFidelityBank,intoaccountinevaluatingtheproposal,includinginconsideringwhetherAmerishastheexperienceandresourcestoensurethatAmerisBankwould helpmeetthecreditneedsof thecommunitieswithinitsAAsfollowingtheproposed transaction. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.Amerisrepresentsthat,followingconsummationof theproposal,existingcustomersof FidelityBankwouldbenefitfromthetechnicalexpertiseandresourcesthatAmerisBankhasdeveloped.AmerisfurtherrepresentsthatAmeris 39 TheFidelityBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Examiners reviewedhomemortgage,smallbusiness,andconsumerloansfromJanuary1,2013,throughDecember31, 2014. 40 Examinersconductedfull-scopereviewsofthebank’sAAsinGeorgiaandFloridaandtheAtlantaMetropolitanStatisticalArea(“MSA”)AA,aswellasalimited-scopereviewintheJacksonvilleMSAAA.Dueto FidelityBank’slimitedactivityandtimeoperatinginthebank’sfourotherAAs,theFidelityBankEvaluation didnotincludeevaluationsoftheGeorgiaNon-MSAAA,Gainesville,FloridaMSAAA,Deltona-Daytona Beach-OrmondBeach,FloridaMSAAA,andOrlando-Kissimmee-Sanford,FloridaMSAAA.

LegalDevelopments:SecondQuarter,2019 11 Bankwouldprovideasubstantiallysimilarsuiteof retailandcommercialbankingservices andproductsasthoseprovidedbyFidelityBank.Inaddition,AmerisassertsthatAmeris BankwouldprovideFidelityBankcustomersaccesstoproductsandservicesthrougha branchnetworkandloanproductionofficesspanningamuchlargerfootprint,aswellas enhancedonlineandmobilebankingplatformsandaccesstotreasuryservices.Ameris contendsthatAmerisBankwouldstrivetomaintainastrongworkingrelationshipwith cityandcountygovernmentsintheformerFidelityBankmarketsandthatAmerisBank woulduseallavailablemedia,includingcommunitypublications,tomarketitscredit servicestotheentirecommunity.AmerisrepresentsthatAmerisBank’sboardof directors wouldcontinuetoreviewandapproveallCRAprogramsandthatlocalofficerswould routinelyanalyzedemographicdataandloanactivitytoensurethatlendingservicesare accessibletoallareasof thecommunity,includingLMIneighborhoods.Amerisindicates thatAmerisBank’sCRAandconsumercomplianceprogramsandpolicieswouldbeimplementedatthecombinedinstitution. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws,supervisoryviewsof theFDIC,confidential supervisoryinformation,informationprovidedbyAmeris,thepubliccommentonthe proposal,andotherpotentialeffectsof theproposalontheconvenienceandneedsof the communitiestobeserved.Basedonthatreview,theBoarddeterminesthattheconvenience andneedsfactorisconsistentwithapproval. FinancialStability Section3of theBHCActrequirestheBoardtoconsider“theextenttowhichaproposed acquisition,merger,orconsolidationwouldresultingreaterormoreconcentratedrisksto thestabilityof theUnitedStatesbankingorfinancialsystem.”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 toinflictmaterialdamageonthebroadereconomy.43 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billionintotalassets,orthatresultinafirmwithlessthan$100billionintotalassets, 41 12U.S.C.§1842(c)(7). 42 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 43 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder 2012-2(February14,2012).

12 FederalReserveBulletin|August2019 aregenerallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthata proposaldoesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbelow eitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificantincreaseininterconnectedness,complexity,cross-borderactivities,orotherrisk factors.44 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billionintotalassetsandaproformaorganizationof lessthan$100billionintotal assets.Boththeacquirerandthetargetarepredominantlyengagedinretailandcommercialbankingactivities.45Theproformaorganizationwouldhaveminimalcross-border activitiesandwouldnotexhibitanorganizationalstructure,complexinterrelationships,or uniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financial distress.Inaddition,theorganizationwouldnotbeacriticalservicesproviderorsointerconnectedwithotherfirmsorthemarketsthatitwouldposeasignificantrisktothefinancialsystemintheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationshouldbe,andherebyis,approved.46Inreachingitsconclusion,theBoardhasconsideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunderthe BHCActandotherapplicablestatutes.TheBoard’sapprovalisspecificallyconditionedon compliancebyAmeriswithalltheconditionsimposedinthisorder,includingreceiptof all requiredregulatoryapprovals,andonanycommitmentsmadetotheBoardinconnection withtheproposal.Forpurposesof thisaction,theconditionsandcommitmentsare 44 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 45 AmerisandFSCofferarangeofretailandcommercialbankingproductsandservices.Amerishas,andasa resultoftheproposalwouldcontinuetohave,asmallmarketshareintheseproductsandservicesonanationwidebasis. 46 ThecommenterrequestedthattheBoardholdapublichearingontheproposal.Section3(b)oftheBHCAct doesnotrequirethattheBoardholdapublichearingonanyproposalunlesstheappropriatesupervisory authoritiesfortheacquiringbankorbanktobeacquiredmakeatimelywrittenrecommendationofdisapprovaloftheapplication.12U.S.C.§1842(b);12CFR225.16(e).TheBoardhasnotreceivedsucharecommendationfromtheappropriatesupervisoryauthorities.Underitsrules,theBoardalso,initsdiscretion,mayhold apublichearingifappropriatetoallowinterestedpersonsanopportunitytoproviderelevanttestimonywhen writtencommentswouldnotadequatelypresenttheirviews.TheBoardhasconsideredthecommenter’s requestinlightofallthefactsofrecord.IntheBoard’sview,thecommenterhashadampleopportunityto submitcommentsontheproposaland,infact,submittedawrittencommentthattheBoardhasconsideredin actingontheproposal.Thecommenter’srequestdoesnotidentifydisputedissuesoffactthatarematerialto theBoard’sdecisionandthatwouldbeclarifiedbyapublichearing.Inaddition,therequestdoesnotdemonstratewhythewrittencommentdoesnotpresentthecommenter’sviewsadequatelyorwhyahearingotherwise wouldbenecessaryorappropriate.Forthesereasons,andbasedonallthefactsofrecord,theBoardhas determinedthatapublichearingisnotrequiredorwarrantedinthiscase.Accordingly,therequestforapublic hearingontheproposalisdenied. Inaddition,thecommenterrequestedanextensionofthecommentperiodfortheproposal.TheBoard’srules contemplatethatthepubliccommentperiodwillnotbeextendedabsentacleardemonstrationofhardshipor othermeritoriousreasonforseekingadditionaltime.Thecommenter’srequestforadditionaltimetocomment doesnotidentifycircumstancesthatwouldwarrantanextensionofthepubliccommentperiodforthis proposal.Accordingly,theBoarddeterminesnottoextendthecommentperiod.

LegalDevelopments:SecondQuarter,2019 13 deemedtobeconditionsimposedinwritingbytheBoardinconnectionwithitsfindings anddecisionhereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethe15thcalendardayaftertheeffectivedate of thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedforgood causebytheBoardortheFederalReserveBankof Atlanta,actingunderdelegated authority. Byorderof theBoardof Governors,effectiveJune10,2019. Votingforthisaction:ChairPowell,ViceChairClarida,ViceChairforSupervision Quarles,andGovernorsBrainardandBowman. MicheleTaylorFennell AssistantSecretaryof theBoard

14 FederalReserveBulletin|August2019 Order Issued Under Section 4 of the Bank Holding Company Act, the Bank Merger Act, and the Federal Reserve Act Texas Independent Bancshares, Inc. Texas City, Texas OrderApprovingtheAcquisitionof aSavingsandLoanHoldingCompany,theAcquisitionof aFederalSavingsBank,theMergerof DepositoryInstitutions,andtheEstablishmentof Branches FRBOrderNo.2019-10(June27,2019) TexasIndependentBancshares,Inc.(“TIB”),TexasCity,Texas,afinancialholding companywithinthemeaningof theBankHoldingCompanyActof 1956(“BHCAct”),1 hasrequestedtheBoard’sapprovalundersections4(c)(8)and4(j)of theBHCAct2to acquirePreferredBancshares,Inc.(“Preferred”),Houston,Texas,asavingsandloan holdingcompany,andtherebyindirectlyacquirePreferredBank,Houston,Texas,afederal savingsbank.Followingtheproposedacquisition,PreferredwouldbemergedintoTIB.3 Inaddition,TIB’ssubsidiarystatememberbank,TexasFirstBank,TexasCity,Texas,has requestedtheBoard’sapprovaltomergewithPreferredBank,pursuanttosection18(c)of theFederalDepositInsuranceAct(“BankMergerAct”),4withTexasFirstBankasthe survivingentity.TexasFirstBankalsohasappliedundersection9of theFederalReserve Act(“FRA”)5toestablishandoperatebranchesatthemainofficeandbranchesof PreferredBank. Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublishedintheFederalRegister(84FederalRegister11789(March28,2019)) andhasbeengiveninaccordancewiththeBankMergerActandtheBoard’sRulesof Procedure.6Thetimeforfilingcommentshasexpired,andtheBoardhasconsideredthe proposalandallcommentsreceivedinlightof thefactorssetforthintheBHCAct,the BankMergerAct,andtheFRA.AsrequiredbytheBankMergerAct,areportonthe competitiveeffectsof themergerwasrequestedfromtheUnitedStatesAttorneyGeneral, andacopyof therequesthasbeenprovidedtotheFederalDepositInsuranceCorporation. TIB,withconsolidatedassetsof approximately$1.1billion,isthe703rdlargestinsured depositoryorganizationintheUnitedStates.TIBcontrolsapproximately$966.9millionin consolidateddeposits,whichrepresentlessthan1percentof thetotalamountof deposits of insureddepositoryinstitutionsintheUnitedStates.7TIBcontrolsTexasFirstBank, whichoperatessolelyinTexas.TexasFirstBankisthe73rdlargestinsureddepositoryorganizationinTexas,controllingdepositsof approximately$948.1million,whichrepresent lessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.8 1 12U.S.C.§1841etseq. 2 12U.S.C.§§1843(c)(8)and(j). 3 TIBhasformedamergersubsidiarythatwouldmergewithPreferred,withPreferredasthesurvivingentity. PreferredwouldthenmergeintoTIB. 4 12U.S.C.§1828(c). 5 12U.S.C.§321;see12CFR208.6.TheselocationsarelistedintheAppendix. 6 12CFR262.3(b). 7 ConsolidatedassetdataareasofDecember31,2018.Nationwideassetrankinganddepositdataareasof December31,2018,unlessotherwisenoted.Inthiscontext,insureddepositoryinstitutionsincludecommercial banks,savingsbanks,andsavingsassociations. 8 StateassetrankinganddepositdataareasofJune30,2018,unlessotherwisenoted.

LegalDevelopments:SecondQuarter,2019 15 Preferred,withconsolidatedassetsof approximately$282.3million,isthe2,359thlargest insureddepositoryorganizationintheUnitedStates,controllingapproximately $237.9millionindeposits.PreferredcontrolsPreferredBank,whichoperatessolelyin Texas.PreferredBankisthe205thlargestinsureddepositoryinstitutioninTexas,controllingdepositsof approximately$251.3million,whichrepresentlessthan1percentof the totaldepositsof insureddepositoryinstitutionsinthatstate. Onconsummationof theproposal,TIBwouldbecomethe577thlargestinsureddepository organizationintheUnitedStates,withconsolidatedassetsof approximately$1.4billion, whichrepresentlessthan1percentof thetotalassetsof insureddepositoryinstitutionsin theUnitedStates.TIBwouldcontroltotaldepositsof approximately$1.2billion,which representlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.InTexas,TIBwouldbecomethe60thlargestdepositoryorganization,controllingdepositsof approximately$1.2billion,whichrepresentlessthan 1percentof thetotaldepositsof insureddepositoryinstitutions. FactorsGoverningBoardReviewof theTransaction TheBoardpreviouslyhasdeterminedbyregulationthattheoperationof asavingsassociationbyabankholdingcompanyiscloselyrelatedtobankingforpurposesof section4(c)(8) of theBHCAct.9TheBoardrequiresthatsavingsassociationsacquiredbybankholding companiesconformtheirdirectandindirectactivitiestothosepermissibleforbankholding companiesundersection4(c)(8)of theBHCAct.10TIBhascommittedthatallof the activitiesof Preferredanditssubsidiarieswouldconformtothosepermissibleunder section4of theBHCActandRegulationYorbedivested. Section4(j)(2)(A)of theBHCActrequirestheBoardtoconsiderwhethertheproposed acquisitionof PreferredBank“canreasonablybeexpectedtoproducebenefitstothe public,suchasgreaterconvenience,increasedcompetition,orgainsinefficiency,that outweighpossibleadverseeffects,suchasundueconcentrationof resources,decreasedor unfaircompetition,conflictsof interests,unsoundbankingpractices,orrisktothestability of theUnitedStatesbankingorfinancialsystem.”11Aspartof itsevaluation,theBoard reviewsthefinancialandmanagerialresourcesandthefutureprospectsof thecompanies involved,theeffectof theproposaloncompetitionintherelevantmarkets,therisktothe stabilityof theUnitedStatesbankingorfinancialsystem,andthepublicbenefitsof the proposal.12TheBoardalsoreviewstherecordsof performanceof therelevantinsured depositoryinstitutionsundertheCommunityReinvestmentAct(“CRA”).13 Inaddition,ineverycaseundertheBankMergerAct,theBoardmusttakeintoconsiderationthefinancialandmanagerialresourcesandfutureprospectsof theexistingand proposedinstitutions,thecompetitiveeffectsof theproposalintherelevantmarkets,the convenienceandneedsof thecommunitiestobeserved,theinstitutions’recordsof compliancewithanti-money-launderinglaws,andtheriskof theproposaltothestability of theUnitedStatesbankingorfinancialsystem.14 9 12CFR225.28(b)(4)(ii). 10 12CFR225.28(b)(4)(ii). 11 12U.S.C.§1843(j)(2)(A). 12 See12CFR225.26;see,e.g.,CapitalOneFinancialCorporation,FRBOrder2012-2(February14,2012);Bank ofAmericaCorporation/Countrywide,94FederalReserveBulletinC81(2008);WachoviaCorporation,92Federal ReserveBulletinC183(2006). 13 12U.S.C.§2901etseq. 14 Theproposaldoesnotraiseinterstateissuesundersection4(c)(8)oftheBHCActbecauseTexasisthehome stateofTIBandiswherePreferredBank’shomeofficeislocated.See12U.S.C.§1843(i)(8).

16 FederalReserveBulletin|August2019 CompetitiveConsiderations TheBankMergerActprohibitstheBoardfromapprovinganapplicationif theproposal wouldresultinamonopolyorwouldbeinfurtheranceof anyattempttomonopolizethe businessof banking.15TheBankMergerActalsoprohibitstheBoardfromapprovinga proposalthatwouldsubstantiallylessencompetitionortendtocreateamonopolyinany relevantmarket,unlesstheBoardfindsthattheanticompetitiveeffectsof theproposed transactionareclearlyoutweighedinthepublicinterestbytheprobableeffectsof the transactioninmeetingtheconvenienceandneedsof communitiestobeserved.16Inaddition,aspartof theBoard’sconsiderationof thefactorsundersection4(j)(2)of theBHC Act,theBoardevaluatesthecompetitiveeffectsof aproposalinlightof allof thefactsof record.17 TIBandPreferredcompetedirectlyintheHouston,Texas,bankingmarket.18TheBoard hasconsideredthecompetitiveeffectsof theproposalinthisbankingmarketinlightof the factsof record.Inparticular,theBoardhasconsideredthenumberof competitorsthat wouldremaininthemarket;therelativesharesof totaldepositsof insureddepositoryinstitutionsinthemarket(“marketdeposits”)thatTIBwouldcontrol;19theconcentration levelsof marketdepositsandtheincreaseintheselevelsasmeasuredbytheHerfindahl- HirschmanIndex(“HHI”)undertheDepartmentof JusticeBankMergerCompetitive Reviewguidelines(“DOJBankMergerGuidelines”);20andothercharacteristicsof the market. Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesintheHouston,Texas,bankingmarket.On consummationof theproposal,theHouston,Texas,bankingmarketwouldremainhighly concentrated,asmeasuredbytheHHI,accordingtotheDOJBankMergerGuidelines. TheHHIinthismarketwoulddecreaseslightly,andnumerouscompetitorswouldremain inthemarket.21 15 12U.S.C.§1828(c)(5)(A). 16 12U.S.C.§1828(c)(5)(B). 17 12U.S.C.§1843(j)(2)(A). 18 TheHouston,Texas,bankingmarketisdefinedasAustin,Brazoria,Chambers,FortBend,Galveston,Harris, Liberty,Montgomery,SanJacinto,andWallercounties,allinTexas. 19 LocaldepositandmarketsharedataareasofJune30,2018,andarebasedoncalculationsinwhichthe depositsofthriftinstitutionsareincludedat50percent. 20 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),https://www.justice.gov/opa/pr/2010/ August/10-at-938.html. 21 TIBoperatesthe24thlargestdepositoryinstitutionintheHouston,Texas,bankingmarket,controlling approximately$904.6millionindeposits,whichrepresentlessthan1percentofmarketdeposits.Forpurposes oftheHHIanalysis,Preferredoperatesthe62ndlargestdepositoryinstitutioninthesamemarketandis treatedascontrollingapproximately$125.6millionindeposits(i.e.,actualdepositsweightedat50percent), whichrepresentlessthan1percentofmarketdeposits.Onconsummationoftheproposedtransaction,TIB wouldbecomethe23rdlargestdepositoryinstitutionintheHouston,Texas,bankingmarket,controlling depositsofapproximately$1.2billion,whichrepresentlessthan1percentofmarketdeposits.TheHHIforthe Houston,Texas,bankingmarketwoulddecreaseby2pointsto2148,and91competitorswouldremaininthe market.Forpurposesofthecompetitiveanalysis,onceasavingsassociationisacquiredbyabankholding company,theBoardweightsthedepositscontrolledbythesavingsassociationat100percent,similartoa commercialbank.

LegalDevelopments:SecondQuarter,2019 17 TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnothaveasignificantlyadverseeffectoncompetitioninanyrelevantbankingmarket,includingthe Houston,Texas,bankingmarket.Inaddition,theappropriatebankingagencieshavebeen affordedanopportunitytocommentandhavenotobjectedtotheproposal. Basedonallof thefactsof record,theBoardconcludesthatconsummationof the proposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheHouston,Texas,bankingmarketorinanyotherrelevantbanking market.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistent withapproval. Financial,Managerial,andOtherSupervisoryConsiderations InreviewingproposalsundertheBankMergerActandsection4of theBHCAct,the Boardconsidersthefinancialandmanagerialresourcesandthefutureprospectsof the institutionsinvolved.22Initsevaluationof 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. TIBandPreferredarebothwellcapitalized,andthecombinedentitywouldremainsoon consummationof theproposedtransaction.Theproposedtransactionisstructuredasa cashandshareexchange,withasubsequentmergerof thesubsidiarydepositoryinstitutions.23Theassetquality,earnings,andliquidityof TIBandPreferredareconsistentwith approval,andTIBappearstohaveadequateresourcestoabsorbtherelatedcostsof the proposalandtocompletetheintegrationof theinstitutions’operations.Inaddition,future prospectsof theinstitutionsundertheproposalareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of TIB,Preferred,andtheirsubsidiarydepositoryinstitutions,includingassessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition,theBoardhas consideredinformationprovidedbyTIB,theBoard’ssupervisoryexperienceswithTIBand Preferredandthoseof otherrelevantbanksupervisoryagencieswiththeorganizations, 22 12U.S.C.§§1843(j)(4);1828(c)(5)and(11). 23 Toeffecttheholdingcompanymerger,awhollyownedsubsidiaryofTIBformedtofacilitatethetransaction wouldmergewithPreferred,withPreferredasthesurvivingentity(“First-StepMerger”).Attheeffectivetime oftheFirst-StepMerger,theshareholdersofPreferredwouldreceiveacashpaymentfortheirstock.Immediatelythereafter,PreferredwouldmergewithTIB,withTIBasthesurvivingentity.PreferredBankwouldthen mergewithandintoTexasFirstBank,withTexasFirstBankasthesurvivingentity.TIBhasthefinancial resourcestoeffecttheproposedtransaction.

18 FederalReserveBulletin|August2019 andtheorganizations’recordsof compliancewithapplicablebanking,consumerprotection,andanti-money-launderinglaws,aswellasinformationprovidedbythecommenter. TIB,Preferred,andtheirsubsidiarydepositoryinstitutionsareeachconsideredtobewell managed.TIB’sexistingrisk-managementprogramanditsdirectorsandseniormanagementareconsideredtobesatisfactory.Thedirectorsandseniorexecutiveofficersof TIB havesubstantialknowledgeof andexperienceinthebankingandfinancialservicessectors. TheBoardalsohasconsideredTIB’splansforimplementingtheproposal.TIBhas conductedcomprehensiveduediligenceandisdevotingsignificantfinancialandother resourcestoaddressallaspectsof thepost-acquisitionintegrationprocessforthisproposal. TIBwouldimplementitsrisk-managementpolicies,procedures,andcontrolsatthe combinedorganization,andtheseareconsideredacceptablefromasupervisoryperspective.Inaddition,TIB’smanagementhastheexperienceandresourcestoensurethat thecombinedorganizationoperatesinasafeandsoundmanner,andTIBplanstointegratePreferred’sexistingmanagementandpersonnelinamannerthataugmentsTIB’s management.24 Basedonallthefactsof record,includingTIB’ssupervisoryrecord,managerialandoperationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,the Boarddeterminesthatconsiderationsrelatingtothefinancialandmanagerialresources andfutureprospectsof theorganizationsinvolvedintheproposal,aswellastherecordsof effectivenessof TIBandPreferredincombatingmoney-launderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations InactingonaproposalundertheBankMergerAct,theBoardmustconsidertheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.25Inaddition, aspartof weighingthepossibleadverseeffectsof atransactionagainstitspublicbenefits asrequiredbysection4(j)(2)of theBHCAct,theBoardconsiderstheeffectsof the proposalontheconvenienceandneedsof thecommunitiestobeserved.26Initsevaluation of theeffectsof theproposalontheconvenienceandneedsof thecommunitiestobe served,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thesecommunities,aswellasotherpotentialeffectsof theproposalonthe convenienceandneedsof thecommunitiestobeserved,andplacesparticularemphasison therecordsof therelevantdepositoryinstitutionsundertheCRA.TheCRArequiresthe federalfinancialsupervisoryagenciestoencourageinsureddepositoryinstitutionstohelp meetthecreditneedsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeir safeandsoundoperation,27andrequirestheappropriatefederalfinancialsupervisory agencytoassessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof its entirecommunity,includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.28 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharac- 24 Onconsummation,twoindividualscurrentlyservingasseniormanagementofficialsofPreferredandPreferred BankwouldbecomeseniormanagementofficialsofTIBandTexasFirstBank. 25 12U.S.C.§1828(c)(5)(B). 26 12U.S.C.§1843(j)(2). 27 12U.S.C.§2901(b). 28 12U.S.C.§2903.

LegalDevelopments:SecondQuarter,2019 19 teristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,thesupervisoryviewsof examiners,othersupervisoryinformation,informationprovidedbytheapplicant,andcommentsreceivedontheproposal.TheBoardalsomayconsidertheinstitution’sbusinessmodel,itsmarketingandoutreachplans,theorganization’splansafter consummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof TexasFirst BankandPreferredBank;thefairlendingandcompliancerecordsof bothbanks;the supervisoryviewsof theFederalReserveBankof Dallas(“ReserveBank”)andtheOffice of theComptrollerof theCurrency(“OCC”);confidentialsupervisoryinformation;informationprovidedbyTIB;andthepubliccommentreceivedontheproposal. PublicCommentontheProposal Onecommenterobjectedtotheproposal,allegingthatTexasFirstBankdiscriminates againstAfricanAmericansand“redlines”AfricanAmericanneighborhoodsinHouston, Texas.29Specifically,thecommenterallegedthatTexasFirstBankhasdeniedAfrican AmericanindividualsandAfricanAmerican-ownedbusinessesequalaccesstocapitaland creditbyheavilyconcentratingitsbranchesinpredominantlywhiteneighborhoodsand itsbankingservicestowhiteindividualsandwhite-ownedbusinessesinHouston.The commenteralsoallegedthatTexasFirstBankdisfavorscertainAfricanAmericanneighborhoodsinHoustonwithrespecttoitslending,marketing,andcommunitydevelopment activitiesandinotherrespects. Businessesof theInvolvedInstitutionsandResponsetoComments TexasFirstBankisaregionalbankingfranchiseheadquarteredinTexasCity,Texas.Itisa full-servicebankthatoffersawiderangeof financialservices,withafocusonloansand depositservicestosmall-andmiddle-marketcommercialbusinesses.TexasFirstBank’s lendingportfolioprimarilyconsistsof smallbusiness,commercialrealestate,commercial andindustrial,andone-to-fourfamilyresidentialrealestateloans,withalimitedresidential mortgageandconsumerloanportfolio.PreferredBank,afederalsavingsbankwithfive branchesinTexas,offersafullrangeof loansanddepositservicestoitscustomers,witha focusonresidentialrealestatelending. TIBdisputesthecommenter’sallegationsandassertsthatapprovalof theproposedtransactioniswarrantedbasedonthebanks’CRAperformanceevaluationsandTexasFirst Bank’slendingactivitiesandresponsivenesstocommunitydevelopmentneedsinHouston. TIBassertsthatTexasFirstBankhasconsistentlymettherequirementsof theCRAandis committedtocontinuingtomeetthegoalsof theCRAafterconsummationof thetransaction.TIBnotesthataspartof TexasFirstBank’sCRAperformanceevaluation,examinersfoundthatthebank’seffortstomeetthecreditneedsof LMIcommunitieswere satisfactory. 29 Redliningisthepracticeofprovidingunequalaccesstocredit,orunequaltermsofcredit,becauseoftherace, color,nationalorigin,orotherprohibitedcharacteristicsoftheresidentsoftheareainwhichacreditseeker residesorwillresideorinwhichapropertytobemortgagedislocated.SeeInteragencyFairLendingExaminationProcedures(August2009),availableathttps://www.ffiec.gov/pdf/fairlend.pdf. ThecommenteralsocriticizedTexasFirstBank’sactivitiesandoperationsinDallas,Texas,anareainwhich thebankdoesnothaveoperations.

20 FederalReserveBulletin|August2019 Recordsof PerformanceundertheCRA InevaluatingtheCRAperformanceof theinvolvedinstitutions,theBoardgenerally considerstheinstitutions’mostrecentCRAevaluation,aswellasotherinformationand supervisoryviewsfromtheappropriatefederalsupervisors,whichinthiscasearethe ReserveBankandtheOCC.30Inaddition,theBoardconsidersinformationprovidedby theapplicantandbypubliccommenters. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.31Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplyalendingtest(“LendingTest”)anda communitydevelopmenttest(“CommunityDevelopmentTest”)toevaluatetheperformanceof anintermediatesmallbank,suchasTexasFirstBank,inhelpingtomeetthe creditneedsof thecommunitiesitserves.TheLendingTestspecificallyevaluatestheinstitution’shomemortgage,smallbusiness,smallfarm,andcommunitydevelopmentlending todeterminewhethertheinstitutionishelpingtomeetthecreditneedsof individualsand geographiesof allincomelevels.Aspartof theLendingTest,examinersreviewandanalyze aninstitution’sdatareportedundertheHomeMortgageDisclosureAct(“HMDA”),32in 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 suchloans, includingtheproportionanddispersionof theinstitution’slendinginitsAAsandthe numberandamountsof loansinlow-,moderate-,middle-,andupper-incomegeographies; (3)thedistributionof suchloansbasedonborrowercharacteristics,includingthenumber andamountsof homemortgageloanstolow-,moderate-,middle-,andupper-incomeindividuals;33(4)theinstitution’scommunitydevelopmentlending,includingthenumberand amountsof communitydevelopmentloansandtheircomplexityandinnovativeness;and (5)theinstitution’suseof innovativeorflexiblelendingpracticestoaddressthecredit needsof LMIindividualsandgeographies.34TheCommunityDevelopmentTestevaluates thenumberandamountsof aninstitution’scommunitydevelopmentloansandqualified investments;theextenttowhichtheinstitutionprovidescommunitydevelopmentservices; andtheinstitution’sresponsivenesstocommunitydevelopmentlending,investment,and serviceneeds.35Smallbanks,suchasPreferredBank,aresubjecttotheLendingTestonly. 30 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81Fed.Reg.48506,48548 (July25,2016). 31 12U.S.C.§2906. 32 12U.S.C.§2801etseq. 33 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3). 34 See12CFR228.22(b). 35 12CFR228.26(c).

LegalDevelopments:SecondQuarter,2019 21 CRAPerformanceof TexasFirstBank TheReserveBankassignedTexasFirstBankanoverallratingof “Satisfactory”atitsmost recentCRAperformanceevaluation,asof July11,2016(“TexasFirstBankEvaluation”).36Thebankreceiveda“Satisfactory”ratingfortheLendingTestandan “Outstanding”ratingfortheCommunityDevelopmentTest.37 ExaminersfoundthatTexasFirstBankmadeasubstantialmajorityof itshomemortgage loansandsmallbusinessloansinitstwoAAs.Examinersdeterminedthatthebankhada reasonablepenetrationof loansamongborrowersof differentincomelevelsandthatthe distributionof HMDAloanstoLMIborrowerswasreasonable,giventhehighlevelsof competition,housingcosts,andincomeintheAAs.Examinersfoundthatthebankhada reasonablepenetrationof lendingtobusinessesof differentsizes,especiallygiventhelocal competition.Examinersfurtherfoundthatthegeographicdistributionof thebank’sloans reflectedreasonabledispersionthroughoutthebank’sAAs.Examinersnotedthatthe bank’sloan-to-depositratiowasreasonablegiventhebank’ssize,financialcondition,and thecreditneedsof itsAA.Examinersconcludedthatthebankdidareasonablejobof meetingthesmallbusinessneedsof itsAAs. ExaminersfoundthatthatTexasFirstBank’sperformanceundertheCommunityDevelopmentTestdemonstratedexcellentresponsivenesstothecommunitydevelopmentneeds of itsAAs,consideringthecapacity,loandemand,andavailablelendingopportunitiesin thoseareas. IntheTexasCityAA,anareaof concerntothecommenter,examinersfoundthatthe geographicdistributionof TexasFirstBank’sloansreflectedareasonabledistribution throughouttheAA.Examinersdeterminedthatthedistributionof TexasFirstBank’s loansamongLMIgeographiesreflectedreasonabledispersionthroughouttheTexasCity AA.Overall,examinersfoundthatthedistributionof TexasFirstBank’sborrowerswithin theTexasCityAAreflectedreasonablepenetrationamongindividualsof differentincome levelsandbusinessesof differentsizes. ExaminersdeterminedthatTexasFirstBankdemonstratedexcellentresponsivenesstothe communitydevelopmentneedsof theTexasCityAAthroughqualifiedinvestmentsand socialservicestargetedtoLMIindividualsinthecommunity.Examinersnotedthatthe bankprovidedcommunitydevelopmentservicesthroughitsbranches,40percentof which werelocatedinLMIareas. TexasFirstBank’sActivitiesSincetheTexasFirstBankEvaluation TIBrepresentsthatTexasFirstBankcontinuestobuilduponitsstrongCRAperformance. TIBrepresentsthatTexasFirstBankhasoriginatedamajorityof itshomemortgageand smallbusinessloanswithinitsAAs.TIBnotesthatthebankincreaseditsloan-to-deposit ratiotoalmost65percentasof March31,2019,withaquarterlyaverageof around 36 TheTexasFirstBankEvaluationwasconductedusingtheCRAIntermediateSmallBankExaminationProcedures.ExaminersreviewedmortgageloansreportedpursuanttoHMDAandcommercialloans,givinggreater weighttothecommerciallendingportfoliobecauseitrepresentedthelargestvolumeofthebank’slending efforts.ExaminersreviewedHMDAlendingdatareportedbytheinstitutionfortheperiodJanuary1,2013, throughDecember31,2015.ExaminersalsoreviewedasampleofcommercialloansoriginatedbyTexasFirst BankbetweenJuly1,2015,andDecember31,2015.Theevaluationperiodforcommunitydevelopmentwasthe periodsinceTexasFirstBank’spreviousCRAevaluation,datedFebruary4,2013. 37 ExaminersreviewedTexasFirstBank’stwoAAs:theTexasCityAA,whichconsistedofBrazoria,Chambers, Galveston,Harris,andLibertycounties;andfiveofninecountiescomprisingtheHouston-TheWoodlands- SugarLand,TexasMetropolitanStatisticalArea(MSA);andtheBeaumontCountyAA,whichconsistedof HardenandJeffersoncountiesandtwooffourcountiescomprisingtheBeaumont-PortArthur,TexasMSA.

22 FederalReserveBulletin|August2019 59percentsincethepreviousCRAevaluation.Moreover,TIBassertsthatTexasFirstBank hasprovidedcommunitydevelopmentinvestmentsandcommunitydevelopmentloans withinitsAAs,aswellascommunitydevelopmentloansthroughoutTexas. CRAPerformanceof PreferredBank TheOCCassignedPreferredBankanoverallratingof “Satisfactory”atitsmostrecent CRAperformanceevaluation,asof March10,2015(“PreferredBankEvaluation”).38 ExaminersfoundthatPreferredBankmaintainedareasonableloan-to-depositratio comparedwiththeratiosof similarlysituatedbanks.Examinersalsofoundthatasubstantialmajorityof PreferredBank’sloansweremadewithinthebank’ssingleAA.Examinersconsideredthedistributionof loanstoreflectreasonablepenetrationamong borrowersof differentincomelevelsandbusinessesof differentsizes.Examinersdeterminedthattheoverallgeographicdistributionof PreferredBank’sloansreflected outstandingdispersionforbusinessloansinthebank’sAAbutpoordispersioninLMI censustractsforresidentialmortgageloans.ExaminersnotedthatPreferredBankoffered linesof creditforconstructionprojectsandworkingcapitalinresponsetothecommunity’s creditneeds. AdditionalSupervisoryViews TheBoardhasconsideredtheresultsof themostrecentconsumercomplianceexamination of TexasFirstBankconductedbyReserveBankexaminers,whichincludedareviewof the bank’scomplianceriskmanagementprogramandthebank’scompliancewithconsumer protectionlawsandregulations.TheBoardalsohasconsideredtheresultsof themost recentconsumercomplianceexaminationof PreferredBankconductedbytheOCC,which includedareviewof thebank’sconsumercompliancefunction. TheBoardhastakenthisinformation,aswellastheCRAperformancerecordsof Texas FirstBankandPreferredBank,intoaccountinevaluatingtheproposedtransaction, includinginconsideringwhetherTIBhastheexperienceandresourcestoensurethatTexas FirstBankhelpstomeetthecreditneedsof thecommunitieswithinitsAAs. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.TIBrepresentsthat,followingtheproposedtransaction,thecombinedorganizationwouldcontinuetoofferarangeof depositandcredit productsandservicesthatbenefitthecommunitiesinwhichTexasFirstBankand PreferredBankeachpresentlyconductbusiness,includingcreditproductsandservicesthat helpfulfilltheneedsof LMIdemographics.Forexample,TIBrepresentsthatconsumer loanspresentlyofferedtoTexasFirstBankcustomerswouldbeexpandedtothecustomer baseof PreferredBankandthatthesingle-familyloanportfolioof PreferredBankwould beexpandedtoincludethecustomerbaseof TexasFirstBank. 38 ThePreferredBankEvaluationwasconductedusingtheCRASmallBankExaminationProcedures.Examiners reviewedlendingdatafortheperiodJanuary1,2013,throughDecember31,2014,givingmoreweighttobusinessloans,whichcomprisedthelargestvolumeofthebank’sloans.ExaminersreviewedPreferredBank’ssole AA,whichconsistedofHarris,Montgomery,andFortBendcountiesintheHouston-TheWoodlands-Sugar Land,TexasMSA.

LegalDevelopments:SecondQuarter,2019 23 ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws,supervisoryviewsof theReserveBankand theOCC,confidentialsupervisoryinformation,informationprovidedbyTIB,thepublic commentontheproposal,andthepotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.Basedonthatreview,theBoarddeterminesthat theconvenienceandneedsfactorisconsistentwithapproval. FinancialStability TheBankMergerActandsection4of theBHCActrequiretheBoardtoconsidera proposal’s“risktothestabilityof theUnitedStatesbankingorfinancialsystem.”39 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.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.Theproposalinvolvesatargetthatislessthan $10billioninassetsandaproformaorganizationof lessthan$100billioninassets.Both theacquirerandthetargetarepredominantlyengagedinavarietyof consumerand commercialbankingactivities.43Theproformaorganizationwouldhaveminimalcross- 39 12U.S.C.§§1843(j)(2)(A)and1828(c)(5). 40 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 41 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 42 SeePeoplesUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 43 TIBandPreferredprimarilyofferarangeofretailandcommercialbankingproductsandservices.TIBhas, andasaresultoftheproposedtransactionwouldcontinuetohave,asmallmarketshareintheseproductsand servicesonanationwidebasis,andnumerouscompetitorswouldremainfortheseproductsandservices.

24 FederalReserveBulletin|August2019 borderactivitiesandwouldnotexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.Inaddition,theorganizationwouldnotbeacriticalservicesprovideror sointerconnectedwithotherfirmsorthemarketsthatitwouldposeasignificantriskto thefinancialsystemintheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Weighingof PublicBenefitsof theProposal Asnotedabove,inconnectionwithaproposalundersection4of theBHCAct,theBoard isrequiredto“considerwhetherperformanceof theactivitybyabankholdingcompanyor asubsidiaryof suchcompanycanreasonablybeexpectedtoproducebenefitstothepublic, suchasgreaterconvenience,increasedcompetition,orgainsinefficiency,thatoutweigh possibleadverseeffects,suchasundueconcentrationof resources,decreasedorunfair competition,conflictsof interest,unsoundbankingpractices,orrisktothestabilityof the UnitedStatesbankingorfinancialsystem.”44Asdiscussedabove,theBoardhasconsideredthattheproposedtransactionwouldprovidegreaterservices,productofferings,and geographicscopetocustomersof PreferredBank.Inaddition,theacquisitionwould ensurecontinuityandstrengthof servicetothosecustomers. TheBoardconcludesthattheconductof theproposednonbankingactivitieswithinthe frameworkof RegulationY,Boardprecedent,andthisorder,isnotlikelytoresultin significantadverseeffects,suchasundueconcentrationof resources,decreasedorunfair competition,conflictsof interest,unsoundbankingpractices,orrisktothestabilityof the UnitedStatesbankingorfinancialsystem.Onthebasisof theentirerecord,andforthe reasonsdiscussedabove,theBoardconcludesthatthebalanceof benefitsandpotential adverseeffectsrelatedtocompetition,financialandmanagerialresources,convenienceto thepublic,financialstability,andotherfactorsweighsinfavorof approvalof thisproposal. Accordingly,theBoarddeterminesthatthebalanceof thepublicbenefitsunderthestandardof section4(j)(2)of theBHCActisconsistentwithapproval.45 Establishmentof Branches TexasFirstBankhasappliedundersection9of theFRAtoestablishbranchesatthe currentlocationsof PreferredBank.46TheBoardhasassessedthefactorsitisrequiredto considerwhenreviewinganapplicationunderthatsection,includingTexasFirstBank’s financialcondition,management,capital,actionsinmeetingtheconvenienceandneedsof thecommunitiestobeserved,CRAperformance,andinvestmentinbankpremises.47For thereasonsdiscussedinthisorder,theBoarddeterminesthatthosefactorsareconsistent withapproval. 44 12U.S.C.§1843(j)(2). 45 12U.S.C.§1843(j)(2)(A). 46 See12U.S.C.§321.Undersection9oftheFRA,statememberbanksmayestablishandoperatebrancheson thesametermsandconditionsasareapplicabletotheestablishmentofbranchesbynationalbanks.See 12U.S.C.§36(d). 47 12U.S.C.§322;12CFR208.6.Uponconsummationoftheproposedtransaction,TexasFirstBank’sinvestmentsinbankpremiseswouldremainwithinthelegalrequirementsof12CFR208.21.

LegalDevelopments:SecondQuarter,2019 25 Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheproposal shouldbe,andherebyis,approved.Inreachingitsconclusion,theBoardhasconsideredall thefactsof recordinlightof thefactorsthatitisrequiredtoconsiderundertheBHCAct, theBankMergerAct,theFRA,andotherapplicablestatutes.TheBoard’sapprovalis specificallyconditionedoncompliancebyTIBandTexasFirstBankwithalltheconditions imposedinthisorder,includingreceiptof allrequiredregulatoryapprovals,andonthe commitmentsmadetotheBoardinconnectionwiththeapplication.Forpurposesof this action,theconditionsandcommitmentsaredeemedtobeconditionsimposedinwriting bytheBoardinconnectionwithitsfindingsanddecisionhereinand,assuch,maybe enforcedinproceedingsunderapplicablelaw. Theacquisitionof PreferredandPreferredBankmayoccurimmediately.Themergerof PreferredBankandTexasFirstBankmaynotbeconsummatedbeforethe15thcalendar dayaftertheeffectivedateof thisorder,andtheacquisitionandmergermaynotbe consummatedlaterthanthreemonthsthereafter,unlesssuchperiodisextendedforgood causebytheBoardortheReserveBank,actingunderdelegatedauthority. Byorderof theBoardof Governors,effectiveJune27,2019. Votingforthisaction:ChairPowell,ViceChairClarida,ViceChairforSupervision Quarles,andGovernorsBrainardandBowman. MicheleTaylorFennell AssistantSecretaryof theBoard Appendix BranchestoBeEstablishedbyTexasFirstBank 1. 11757KatyFreeway,Suite100,Houston,Texas77079 2. 16522StuebnerAirlineRoad,Spring,Texas77379 3. 4648BeechnutStreet,Houston,Texas77096 4. 3000ResearchForestDrive,Suite190,TheWoodlands,Texas77381 5. 1192W.Dallas,SuiteA,Conroe,Texas77301

26 FederalReserveBulletin|August2019 Order Issued Under Federal Reserve Act Frost Bank San Antonio, Texas OrderApprovingtheEstablishmentof Branches FRBOrderNo.2019-09(June20,2019) FrostBank,astatememberbanksubsidiaryof Cullen/FrostBankers,Incorporated,both of SanAntonio,Texas,hasrequestedtheBoard’sapprovalundersection9of theFederal ReserveAct(“FRA”)1andtheBoard’sRegulationH2toestablishtenbranchesinTexas,as setforthinAppendixA.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublishedinaccordancewiththeBoard’sRulesof Procedure.4Thetimefor submittingcommentshasexpired,andtheBoardhasconsideredtheproposalandthe commentreceivedinlightof thefactorsspecifiedintheFRA. Cullen/FrostBankers,Incorporated,withtotalassetsof $32.4billion,isthe64thlargest depositoryorganizationintheUnitedStates,controllingapproximately$27.2billionin deposits,whichrepresentlessthan1percentof thetotalamountof depositsof insured depositoryinstitutionsintheUnitedStates.5FrostBankoperatesthrough143branches locatedinTexas,andthebank’smainofficeisinSanAntonio,Texas.6 Undersection208.6of theBoard’sRegulationH,7whichimplementssection9of the FRA,thefactorsthattheBoardmustconsiderinactingonabranchapplicationinclude (1)thefinancialhistoryandconditionof theapplyingbankandthegeneralcharacterof its management;(2)theadequacyof thebank’scapitalandthebank’sfutureearningsprospects;(3)theconvenienceandneedsof thecommunitytobeservedbythebranch;(4)in thecaseof brancheswithdeposit-takingcapability,thebank’sperformanceunderthe CommunityReinvestmentAct(“CRA”);8and(5)whetherthebank’sinvestmentinbank premisesinestablishingthebranchsatisfiescertaincriteria.9TheBoardhasconsideredthe branchapplicationsinlightof thesefactorsandthepubliccommentreceivedonthe proposal. 1 12U.S.C.§321. 2 12CFRpart208. 3 Undersection9oftheFRA,statememberbanksmayestablishandoperatebranchesonthesametermsand conditionsasareapplicabletotheestablishmentofbranchesbynationalbanks.See12U.S.C.§321.Anational bankmayestablishandoperateadenovobranchwithinastateinwhichthebankissituated,ifsuchestablishmentandoperationisauthorizedunderapplicablestatelaw.See12U.S.C.§36(c)(2).FrostBankonlyhas branchesinTexasandispermittedtoestablishadditionalbranchesunderthelawsofTexas.See Tex.Fin.CodeAnn.§203.006. 4 12CFR262.3(b). 5 Totalassets,nationalassetranking,andnationaldepositdataareasofDecember30,2018,andstatedeposit dataareasofJune30,2018,unlessotherwisenoted.Inthiscontext,insureddepositoryinstitutionsinclude commercialbanks,savingsandloanassociations,andsavingsbanks. 6 InTexas,FrostBankisthe6thlargestdepositoryorganization,controllingapproximately$26.1billionin deposits,whichrepresentapproximately3.1percentofthetotalamountofdepositsofinsureddepositoryinstitutionsinthatstate. 7 12CFR208.6(b). 8 12U.S.C.§2901etseq. 9 12CFR208.21(a).

LegalDevelopments:SecondQuarter,2019 27 Financial,Managerial,andOtherSupervisoryConsiderations Inconsideringthefinancialhistoryandcondition,earningsprospects,andcapital adequacyof FrostBank,theBoardhasreviewedreportsof examination,othersupervisory information,publiclyreportedandotherfinancialinformation,informationprovidedby FrostBank,andthecommentreceivedontheproposal.FrostBankiswellcapitalizedand wouldremainsouponconsummationof theproposal.Theassetquality,earnings,and liquidityof FrostBankareconsistentwithapproval,andFrostBankappearstohave adequateresourcestoabsorbthecostsof theproposal.Inaddition,futureearningsprospectsareconsideredconsistentwithapproval.TheBoardalsohasreviewedFrostBank’s proposedinvestmentinthebranchesandconcludesthatthebank’sinvestmentisconsistent withregulatorylimitationsoninvestmentinbankpremises.10 InconsideringFrostBank’smanagerialresources,theBoardhasreviewedthebank’s examinationrecord,includingassessmentsof itsmanagement,risk-managementsystems, andoperations.TheBoardalsohasconsidereditssupervisoryexperienceswithFrostBank andthebank’srecordof compliancewithapplicablebanking,consumerprotection,and anti-money-launderinglaws.FrostBankisconsideredtobewellmanaged.FrostBank’s directorsandseniorexecutiveofficershavesubstantialknowledgeof andexperienceinthe bankingandfinancialservicessectors,andthebank’srisk-managementprogramappears consistentwithapproval. Basedonthisreviewandallthefactsof record,theBoarddeterminesthatFrostBank’s management,financialhistoryandcondition,capitaladequacy,andfutureearningsprospects,aswellastheeffectivenessof FrostBankincombattingmoney-launderingactivities, areconsistentwithapprovalof theproposal. ConvenienceandNeedsConsiderations Inconsideringtheeffectsof theproposalontheconvenienceandneedsof thecommunities tobeserved,theBoardconsiderswhethertherelevantinstitutionishelpingtomeetthe creditneedsof thesecommunities,aswellasotherpotentialeffectsof theproposalonthe convenienceandneedsof thecommunitiestobeserved.11Initsevaluation,theBoard placesparticularemphasisontherecordof therelevantdepositoryinstitutionunderthe CRA.TheCRArequiresthefederalfinancialsupervisoryagenciestoencourageinsured depositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesinwhichthey operate,consistentwiththeirsafeandsoundoperation,12andrequirestheappropriate federalfinancialsupervisoryagencytoassessadepositoryinstitution’srecordof helpingto meetthecreditneedsof itsentirecommunity,includinglow-andmoderate-income (“LMI”)neighborhoods,inevaluatingbankbranchingproposals.13 Inaddition,theBoardconsidersthebank’soverallcompliancerecord,includingwith respecttofairlending.Fairlendinglawsrequirealllendinginstitutionstoprovideloan applicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainother characteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,the supervisoryviewsof examiners,othersupervisoryinformation,informationprovidedby theapplicant,andcommentsreceivedontheproposal.TheBoardalsomayconsiderthe 10 12CFR208.21(a). 11 12CFR208.6(b)(3). 12 12U.S.C.§2901(b). 13 12U.S.C.§2903.

28 FederalReserveBulletin|August2019 institution’sbusinessmodel,marketingandoutreachplans,andplansafterconsummation, andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof Frost Bank,thefairlendingandcompliancerecordsof thebank,confidentialsupervisoryinformation,informationprovidedbyFrostBank,andthepubliccommentreceivedonthe proposal. PublicCommentontheProposal Onecommenterobjectedtotheproposal,allegingthatFrostBankdiscriminatesagainst AfricanAmericansand“redlines”AfricanAmericanneighborhoodsinHoustonand Dallas,bothinTexas.14Specifically,thecommenterallegedthatFrostBankhasdenied AfricanAmericanindividualsandAfricanAmerican-ownedbusinessesequalaccessto capitalandcreditbyheavilyconcentratingitsbranchesinpredominantlywhiteneighborhoodsanditsbankingservicestowhiteindividualsandwhite-ownedbusinessesinHouston andDallas.ThecommenteralsoallegesthatFrostBankdisfavorscertainAfrican AmericanneighborhoodsinHoustonandDallaswithrespecttoitsbranchingactivities andinotherrespects. Businessof theApplicantandResponsetoComment FrostBankoffersabroadrangeof retailandcommercialbankingproductstoconsumers andbusinessesthroughitsnetworkof branches.Theproductsandservicesinclude commercial,residential,agricultural,andconsumerloans;personalcheckingandsavings accounts;businesscheckingandsavingsaccounts;businesscreditcardsandcorrespondent banking;andwealthmanagementservices. Inresponsetothecommenter’sallegations,FrostBankassertsthatitiscommittedto providingconsistent,long-termsupporttothecommunitiesinwhichFrostBankoperates throughtheestablishmentof abranchdistributionnetworkthatisdesignedtoservethe financialneedsof allsegmentsof eachcommunity.FrostBankrepresentsthat,priortothe decisiontoopen,relocate,orcloseabranch,thebankconsiderstheimpacttothelocal communityandtheoverallregionaldistributionnetworkinordertoensuremaintenanceor enhancementof accesstomajority-minorityneighborhoods.FrostBankfurtherasserts thatitoffersallof itsproductsandserviceswithoutregardtoanyprohibitedbasisandis committedtofairandequaltreatmentof allof itsexistingandprospectivecustomers. FrostBankrepresentsthatithassafeguardsinplacetopreventillegaldiscrimination, includingtheestablishmentof acomprehensivefairlendingprogramtoconductfair lendingriskassessmentsandfairlendingmonitoring.FrostBankfurtherrepresentsthatit engagesinacomprehensivemarketingandoutreachprogramtoservetheneedsof historicallyunderservedareas.Additionally,FrostBankassertsthatithasmadeanumber of communitydevelopmentloansinmajority-minoritycensustracts;inzipcodesidentified inthecommentasbeingunderserved“Blackneighborhoods”inDallasCounty;andin HarrisCountyinHouston,Texas. 14 Redliningisthepracticeofprovidingunequalaccesstocredit,orunequaltermsofcredit,becauseoftherace, color,nationalorigin,orotherprohibitedcharacteristicsoftheresidentsoftheareainwhichacreditseeker residesorwillresideorinwhichapropertytobemortgagedislocated.SeeInteragencyFairLendingExaminationProcedures(August2009),availableathttps://www.ffiec.gov/pdf/fairlend.pdf.

LegalDevelopments:SecondQuarter,2019 29 Recordof PerformanceundertheCRA InevaluatingtheCRAperformanceof theinvolvedinstitution,theBoardgenerally considerstheinstitution’smostrecentCRAevaluation,aswellasotherinformationand supervisoryviewsfromtherelevantfederalsupervisor,whichinthiscaseistheFederal ReserveBankof Dallas(“ReserveBank”).15Inaddition,theBoardconsidersinformation providedbytheapplicantandbypubliccommenters. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.16Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplyalendingtest(“LendingTest”),aninvestmenttest(“InvestmentTest”),andaservicetest(“ServiceTest”)toevaluatetheperformanceof alargeinsureddepositoryinstitution,suchasFrostBank,inhelpingtomeetthe creditneedsof thecommunitiesitserves.TheLendingTestspecificallyevaluatesaninstitution’slendingtodeterminewhethertheinstitutionishelpingtomeetthecreditneedsof individualsandgeographiesof allincomelevels.Aspartof theLendingTest,examiners reviewandanalyzeaninstitution’sdatareportedundertheHomeMortgageDisclosure Act(“HMDA”),17inadditiontosmallbusiness,smallfarm,andcommunitydevelopment loandatacollectedandreportedundertheCRAregulations,toassessaninstitution’s lendingactivitieswithrespecttoborrowersandgeographiesof differentincomelevels.The institution’slendingperformanceisbasedonavarietyof factors,including(1)thenumber andamountsof homemortgage,smallbusiness,smallfarm,andconsumerloans(as applicable)intheinstitution’sCRAassessmentareas(“AAs”);(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;18(4)theinstitution’scommunitydevelopmentlending,includingthenumberandamountsof communitydevelopmentloans andtheircomplexityandinnovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpracticestoaddressthecreditneedsof LMIindividualsandgeographies.19 TheInvestmentTestevaluatesthenumberandamountsof qualifiedinvestmentsthat benefittheinstitution’sAAs,andtheServiceTestevaluatestheavailabilityandeffectivenessof theinstitution’ssystemsfordeliveringretailbankingservicesandtheextentand innovativenessof theinstitution’scommunitydevelopmentservices.20 15 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48506, 48548(July25,2016). 16 12U.S.C.§2906. 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 See12CFR228.22(b). 20 See12CFR228.21etseq.

30 FederalReserveBulletin|August2019 CRAPerformanceof FrostBank FrostBankwasassignedanoverall“Satisfactory”ratingatitsmostrecentCRAperformanceevaluationbytheReserveBank,asof August13,2018(“FrostBankEvaluation”).21 Thebankreceivedan“Outstanding”ratingfortheInvestmentTest,anda“HighSatisfactory”ratingforeachof theLendingTestandtheServiceTest.22 ExaminersfoundthatFrostBank’soveralllendingactivityreflectedgoodresponsivenessto thecreditneedsinallof thebank’sAAsandthattheoverallgeographicdistributionof the bank’sloansreflectedexcellentpenetrationthroughouttheAAs.Inaddition,examiners foundthatthedistributionof thebank’shomemortgageborrowersreflectedadequate penetrationamongborrowersof differentincomelevelsandthatthebank’sdistributionof smallbusinesslendingreflectedadequatepenetrationamongbusinessesof different revenuesizes.Examinersfurtherfoundthatthebankoriginatedasubstantialmajorityof itsloansinsideitsAAs.Examinersnotedthatthebankisaleaderinmakingcommunity developmentloans;suchloansweremadeforavarietyof purposes,includingformultifamilyhousing;andthemajorityof communitydevelopmentloanswereforaffordable housingandcommunityservicestoLMIindividualsorLMIareas. InboththeHoustonandDallasAAs,thetwoareasof concernforthecommenter,examinersdeterminedthatFrostBank’slendinglevelsreflectedgoodresponsivenesstotheAAs’ creditneeds.Inaddition,examinersfoundthatthegeographicdistributionof thebank’s loansreflectedexcellentpenetrationintheHoustonAAandreflectedgoodpenetrationin theDallasAA.Examinersdeterminedthatthebank’sdistributionof loanstoborrowersof differentincomelevelsandtobusinessesof differentrevenuesizesreflectedgoodpenetrationintheHoustonAAandreflectedadequatepenetrationintheDallasAA.Examiners determinedthatFrostBank’scommunitydevelopmentlendingwasexcellentinboththe HoustonandDallasAAsandnotedthatthebankwasaleaderincommunitydevelopment lendinginbothAAs. ExaminersfoundthatFrostBank’sinvestmentsdemonstratedexcellentresponsivenessto themostpressingcreditandcommunitydevelopmentneedsthroughoutthebank’sAAs.In addition,examinersfoundthatthebankhadanexcellentlevelof qualifiedcommunity developmentinvestmentsandgrants,particularlythosetypesnotroutinelyprovidedby privateinvestors,andwasofteninaleadershippositionthroughoutallof itsAAs, includingintheHoustonandDallasAAs.Examinersnotedthatthebankhadinvestedin companiesthatmadeloanstosmallbusinessownerswithlimitedaccesstotraditionalbank credit,GinnieMaemortgage-backedsecuritiestargetedtoLMIborrowers,andgeneral obligationbondstargetedtoschooldistrictsinwhichover75percentof thestudentswere economicallydisadvantaged.InboththeHoustonandDallasAAs,examinersfoundthat thebankexhibitedexcellentresponsivenesstocreditandcommunitydevelopmentneeds throughitsinvestmentactivities,whichincludedinvestmentsinanddonationstoorganizationsinvolvedprimarilyinaffordablehousinginitiatives. 21 TheFrostBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Examiners reviewedHMDAandsmallbusinesslendingactivitiesreportedbythebankfromJanuary31,2015,through December31,2017.Theevaluationperiodforcommunitydevelopmentlending,investments,andserviceswas fromJanuary1,2015,throughDecember31,2017.Retailbranchingactivitywasreviewedfortheperiodof January1,2015,throughAugust13,2018. 22 TheFrostBankEvaluationincludedafull-scopereviewofthebank’sAAswithinthefollowingareas:Corpus Christi,Texas,MetropolitanStatisticalArea(“MSA”);Dallas-Plano-Irving,Texas,MetropolitanDivision (“DallasAA”);Houston-TheWoodlands-SugarLand,MSA(“HoustonAA”);andSanAntonio-New Braunfels,Texas,MSA.Limited-scopereviewswereconductedinFrostBank’sremainingAAswithinthe followingareas:Austin-RoundRock-SanMarcos,Texas,MSA;Brownsville-Harlingen,Texas,MSA;Fort Worth-Arlington,Texas,MetropolitanDivision;McAllen-Edinburg-Mission,Texas,MSA;Midland,Texas, MSA;andOdessa,Texas,MSA.

LegalDevelopments:SecondQuarter,2019 31 ExaminersfoundthatFrostBank’sretaildeliverysystemswerereadilyaccessibletogeographiesandindividualsof differentincomelevelswithinthebank’sAAs.Examinersfurther foundthatFrostBankprovidedarelativelyhighlevelof communitydevelopmentservices throughoutitsAAs.Examinersnotedthatthebank’srecordof openingandclosing branchesduringthereviewperiodgenerallydidnotadverselyaffecttheaccessibilityof bankingservicestoLMIgeographiesand/orindividuals.Examinersalsonotedthatthe bank’sbankingservicesandbusinesshoursdidnotvaryinawaythatinconveniencedany portionof thebank’sAAs,includingLMIgeographiesandindividuals.Moreover,examinersdeterminedthatFrostBankwasaleaderinprovidingcommunitydevelopment servicesthroughoutitsAAsandthatcommunitydevelopmentserviceswereexcellentinall tenof thebank’sAAs,includingtheHoustonandDallasAAs. FrostBank’sEffortssincetheFrostBankEvaluation FrostBankrepresentsthat,sincetheFrostBankEvaluation,ithascontinuedtohelpmeet thecreditneedsof itsAAs,includingtheneedsof LMIcommunitiesandindividuals.Frost Bankrepresentsthatithascontinuedtomakecommunitydevelopmentloansthatpromote affordablehousingandsupporteconomicdevelopmentandrevitalization,aswellasloans toorganizationsprovidingcommunityservicestoLMIindividualsandfamilies.Inaddition,thebankassertsthatithascontinuedtopurchasemortgage-backedsecuritiessecured bymortgageloansmadetoLMIborrowers,investedinschoolbondsthatfundeconomicallydisadvantagedschooldistrictsthroughoutTexas,andmadecontributionstobenefit thecommunitydirectlyineachof thebank’sAAs,includinginHoustonandDallas.The bankrepresentsthatithascontinuedtomakeavailablealow-costcheckingaccountand low-costunsecuredandsecuredhomeimprovementloansforLMIindividuals.Additionally,FrostBankassertsthatithascontinuedtoprovidefinancialeducationforyouths, adults,seniors,andsmallbusinessesandhasconductededucationaleventsforLMIhomeownersonhomeimprovement,home-improvementloanoptions,andavailablegovernment programsandservicesinitsAAs,includinginHoustonandDallas. AdditionalSupervisoryConsiderations InadditiontotheFrostBankEvaluation,theBoardhasconsideredtheresultsof a2017 examinationof FrostBank’scompliancewiththerequirementsof theFairHousingAct, whichincludedaredliningreviewof thebank’stenAAs,includingthoseinHoustonand Dallas.Thereviewincludedanevaluationof thebank’sredliningriskforeachof those marketswithrespecttothebank’sdesignationof assessmentareasandlending,branching, marketing,andoutreachactivities.Inaddition,theBoardhasconsideredFrostBank’s supervisoryrecordwiththeConsumerFinancialProtectionBureau. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.FrostBankassertsthattheproposedbranches wouldprovideeconomicbenefitsandabroadrangeof financialservicestothemarketsto beservedandenablethebanktoreachmoreconsumersandbusinesses.FrostBankfurther representsthat,becauseof thebranchexpansionactivityintheHoustonarea,FrostBank isaddingasecondCommunityDevelopmentOfficertoworkcloselywithlocalagencies andcommunityorganizationswithindesignatedcommunitiestoensureadequatecoverage of CRA-service-relatedactivitiesintheHoustonAA.

32 FederalReserveBulletin|August2019 ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtheCRArecordof FrostBank, thebank’srecordsof compliancewithfairlendingandotherconsumerprotectionlaws, confidentialsupervisoryinformation,informationprovidedbyFrostBank,thepublic commentontheproposal,andotherpotentialeffectsof theproposalontheconvenience andneedsof thecommunitiestobeserved.Basedonthatreview,theBoarddetermines thattheconvenienceandneedsfactorisconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationsshouldbe,andherebyare,approved.23TheBoard’sapprovalisspecificallyconditionedoncompliancebyFrostBankwithalltheconditionsimposedinthisorder, includingreceiptof allrequiredregulatoryapprovals,andonanycommitmentsmadeto theBoardinconnectionwiththisproposal.Forpurposesof thisaction,theconditionsand commitmentsaredeemedtobeconditionsimposedinwritingbytheBoardinconnection withitsfindingsanddecisionhereinand,assuch,maybeenforcedinproceedingsunder applicablelaw. Approvalof theseapplicationsisalsosubjecttotheestablishmentof theproposed brancheswithinoneyearof thedateof thisorder,unlesssuchperiodisextendedbythe BoardortheReserveBank,actingunderauthoritydelegatedbytheBoard. Byorderof theBoardof Governors,effectiveJune20,2019. Votingforthisaction:ChairPowell,ViceChairClarida,ViceChairforSupervision Quarles,andGovernorsBrainardandBowman. MicheleTaylorFennell AssistantSecretaryof theBoard AppendixA BranchestoBeEstablishedbyFrostBank Houston-TheWoodlands-SugarLandMSABranches: ‰ 19961USHighway59,Humble,Texas77338 ‰ SouthMasonRoadandMasonAccessRoad,Katy,Texas77450 ‰ 201SouthFM270,LeagueCity,Texas77573 ‰ 10420LouettaRoad,Suite120,Houston,Texas77070 23 TheBoardconstruesthecommentreceivedontheproposaltoincludearequestthattheBoardholdpublic hearingsontheproposal.Underitsrules,theBoardmay,initsdiscretion,holdapublichearingifappropriate toallowinterestedpersonsanopportunitytoproviderelevanttestimonywhenwrittencommentswouldnot adequatelypresenttheirviews.12CFR262.3(e).TheBoardhasconsideredthecommenter’srequestinlightof allthefactsofrecord.Noticesoftheapplicationswerepublishedintherelevantnewspapersofgeneralcirculationinaccordancewiththerequirementsofandfortheperiodsetforthin12CFR208.6(a)(3).IntheBoard’s view,thecommenterhashadampleopportunitytosubmitcommentsontheproposaland,infact,submitteda writtencommentthattheBoardhasconsideredinactingontheproposal.Thecommenter’srequestdoesnot identifydisputedissuesoffactthatarematerialtotheBoard’sdecisionandthatwouldbeclarifiedbyapublic hearing.Inaddition,therequestdoesnotdemonstratewhythewrittencommentdoesnotpresentthe commenter’sviewsadequatelyorwhyahearingotherwisewouldbenecessaryorappropriate.Forthese reasons,andbasedonallthefactsofrecord,theBoardhasdeterminedthatapublichearingisnotrequiredor warrantedinthiscase.Accordingly,therequestforapublichearingontheproposalisdenied.

LegalDevelopments:SecondQuarter,2019 33 ‰ 2200NorthFrazierStreet,Conroe,Texas77303 ‰ 3500LittleYorkRoad,SuiteB1,Houston,Texas77093 ‰ 8350LongPointRoad,HoustonTX77055 CorpusChristiMSABranches: ‰ 501SouthShorelineBoulevard,CorpusChristi,Texas78401 ‰ 7444SouthPadreIslandDrive,CorpusChristi,Texas78412 McAllen-Edinburg-MissionMSABranches: ‰ 1010NorthWestgateDrive,Weslaco,Texas78596