Federal Reserve Bulletin, 2020-01

January 2020 Vol. 106, No. 1 Boardof Governorsof theFederalReserveSystem www.federalreserve.gov Legal Developments: Third Quarter, 2019 Orders Issued Under Bank Holding Company Act Orders Issued Under Section 3 of the Bank Holding Company Act Chemical Financial Corporation Detroit, Michigan OrderApprovingtheAcquisitionof aBankHoldingCompany FRBOrderNo.2019-11(July16,2019) ChemicalFinancialCorporation(“Chemical”),Detroit,Michigan,afinancialholding companywithinthemeaningof theBankHoldingCompanyActof 1956(“BHCAct”),1 hasrequestedtheBoard’sapprovalundersection3of theBHCAct2toacquireTCF FinancialCorporation(“TCF”),Wayzata,Minnesota,andtherebyindirectlyacquireTCF NationalBank(“TCFBank”),SiouxFalls,SouthDakota.3Followingtheproposed acquisition,Chemical’ssubsidiarystatememberbank,ChemicalBank,Detroit,Michigan, wouldbemergedwithandintoTCFBank,withTCFBankasthesurvivingentity.4 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(84FederalRegister10826(March22,2019)).5Thetimeforsubmitting commentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct. Chemical,withconsolidatedassetsof approximately$21.5billion,isthe86thlargest depositoryorganizationintheUnitedStates.Chemicalcontrolsapproximately$15.6billion inconsolidateddeposits,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.6Chemicalcontrols ChemicalBank,whichoperatesinMichigan,Ohio,andIndiana.ChemicalBankisthe seventhlargestdepositoryinstitutioninMichigan,controllingdepositsof approximately $13.1billion,whichrepresent6.0percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.7 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 TheresultantinstitutionwouldberenamedTCFFinancialCorporationuponconsummationofthetransaction. 4 ThemergerofChemicalBankintoTCFBankissubjecttoapprovalbytheOfficeoftheComptrolleroftheCurrency (“OCC”),pursuanttosection18(c)oftheFederalDepositInsuranceAct(“BankMergerAct”).12U.S.C.§1828(c). TheOCCapprovedthebankmergeronJune20,2019. 5 Seealso12CFR262.3(b). 6 Nationalassetdataandnationaldeposit,ranking,andmarket-sharedataareasofDecember31,2018,unlessotherwisenoted.Inthiscontext,insureddepositoryinstitutionsincludecommercialbanks,savingsassociations,andsavings banks. 7 StatedepositdataareasofJune30,2018,unlessotherwisenoted.

2 FederalReserveBulletin|January2020 TCF,withconsolidatedassetsof approximately$23.7billion,isthe80thlargestdepository organizationintheUnitedStates.TCFcontrolsapproximately$19.0billioninconsolidated deposits,whichrepresentlessthan1percentof thetotalamountof depositsof insured depositoryinstitutionsintheUnitedStates.TCFcontrolsTCFBank,whichoperatesin Illinois,Minnesota,Michigan,Colorado,Wisconsin,SouthDakota,andArizona.TCF Bankisthe10thlargestdepositoryinstitutioninMichigan,controllingdepositsof approximately$3.2billion,whichrepresent1.5percentof thetotaldepositsof insured depositoryinstitutionsinthatstate. Onconsummationof thisproposal,Chemicalwouldbecomethe51stlargestinsured depositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $45.2billion,whichrepresentlessthan1percentof thetotalassetsof insureddepository institutionsintheUnitedStates.Chemicalwouldcontrolapproximately$34.6billionin consolidateddeposits,whichrepresentlessthan1percentof thetotalamountof deposits of insureddepositoryinstitutionsintheUnitedStates.InMichigan,Chemicalwould becomethesixthlargestinsureddepositoryorganization,controllingdepositsof approximately$16.3billion,whichrepresent7.5percentof thetotaldepositsof insureddepository institutionsinthatstate. InterstateAnalysis Section3(d)of theBHCActgenerallyprovidesthat,if certainconditionsaremet,the Boardmayapproveanapplicationbyabankholdingcompanythatiswellcapitalizedand wellmanagedtoacquirecontrolof abanklocatedinastateotherthanthehomestateof thebankholdingcompanywithoutregardtowhetherthetransactionisprohibitedunder statelaw.8TheBoard(1)maynotapproveanapplicationthatwouldpermitanout-of-state bankholdingcompanyorbanktoacquireabankinahoststateif thetargetbankhasnot beeninexistenceforthelesserof thestatestatutoryminimumperiodof timeorfiveyears;9 (2)musttakeintoaccounttherecordof theapplicantbankundertheCommunityReinvestmentActof 1977(“CRA”)10andtheapplicant’srecordof compliancewithapplicable statecommunityreinvestmentlaws;11and(3)maynotapproveaninterstateapplicationif thebankholdingcompanyorresultingbank,uponconsummationof theproposedtransaction,wouldcontrolmorethan10percentof thetotaldepositsof insureddepository institutionsintheUnitedStates12or,incertaincircumstances,if thebankholding companyorresultingbank,uponconsummation,wouldcontrol30percentormoreof the totaldepositsof insureddepositoryinstitutionsinanystateinwhichtheacquirerand targethaveoverlappingbankingoperations.13 Forpurposesof theBHCAct,thehomestateof ChemicalisMichigan.TCFislocatedin Arizona,Colorado,Illinois,Michigan,Minnesota,SouthDakotaandWisconsin.Chemical iswellcapitalizedandwellmanagedunderapplicablelaw,andChemicalBankhasasatis- 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.§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.TheBoardconsidersabank locatedinanystateinwhichthebankischartered,headquartered,oroperatesabranch.See12U.S.C. §1841(o)(4)-(7).

LegalDevelopments:ThirdQuarter,2019 3 factoryCRAratingandisincompliancewithapplicablestatecommunityreinvestment laws.Inaddition,TCFBankhasbeeninexistenceformorethanfiveyears. Onconsummationof theproposedtransaction,Chemicalwouldcontrollessthan1percent of thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.In addition,Chemicalwouldcontrolapproximately$16.3billionof thetotalamountof depositsof insureddepositoryinstitutionsinMichigan,theonlystateinwhichChemical andTCFhaveoverlappingbankingoperations.Michiganhasnolimitonthetotalamount of in-statedepositsthatasinglebankingorganizationmaycontrol,andChemical’spercentage of depositswouldnotexceed30percentof thetotalamountof in-statedeposits.14The Boardhasconsideredallotherrequirementsundersection3(d)of theBHCAct.Accordingly,inlightof allthefactsof record,theBoarddeterminesthatitisnotprohibitedby section3(d)of theBHCActfromapprovingtheproposal. CompetitiveConsiderations Section3of theBHCActprohibitstheBoardfromapprovingaproposalthatwouldresult inamonopolyorwouldbeinfurtheranceof anattempttomonopolizethebusinessof bankinginanyrelevantmarket.15TheBHCActalsoprohibitstheBoardfromapprovinga proposalthatwouldsubstantiallylessencompetitionortendtocreateamonopolyinany bankingmarket,unlesstheanticompetitiveeffectsof theproposalareclearlyoutweighedin thepublicinterestbytheprobableeffectof theproposalinmeetingtheconvenienceand needsof thecommunitiestobeserved.16 ChemicalandTCFhavesubsidiarybanksthatcompetedirectlyintheDetroit,Michigan, bankingmarket(“Detroitmarket”).17TheBoardhasconsideredthecompetitiveeffectsof theproposalinthisbankingmarket.Inparticular,theBoardhasconsideredtherelative shareof totaldepositsininsureddepositoryinstitutionsinthemarket(“marketdeposits”) thatChemicalwouldcontrol;18theconcentrationlevelof marketdepositsandthe increaseinthislevel,asmeasuredbytheHerfindahl-HirschmanIndex(“HHI”)underthe Departmentof JusticeBankMergerCompetitiveReviewguidelines(“DOJBankMerger Guidelines”);19thenumberof competitorsthatwouldremaininthemarket;andother characteristicsof themarket. 14 Mich.Comp.Laws§487.11104(8)(2019). 15 12U.S.C.§1842(c)(1)(A). 16 12U.S.C.§1842(c)(1)(B). 17 TheDetroitmarketisdefinedasOakland;Macomb;Wayne;Lapeer;Genesee;Washtenaw;St.Clair; Livingston;Lenawee;Shiawassee;Monroe(exceptWhiteford,Bedford,andErietownships);andSanilac (exceptGreenleaf,Austin,Argyle,Moore,Minden,Wheatland,Delaware,andForestertownships)counties,all inMichigan. 18 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). 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.

4 FederalReserveBulletin|January2020 Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesintheDetroitmarket.Onconsummation of theproposal,theDetroitmarketwouldremainmoderatelyconcentrated,asmeasured bytheHHI,accordingtotheDOJBankMergerGuidelines.ThechangeinHHIinthis bankingmarketwouldbesmall,andnumerouscompetitorswouldremaininthisbanking market.20 TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket.Inaddition,the appropriatebankingagencieshavebeenaffordedanopportunitytocommentandhavenot objectedtotheproposal. Basedonallof thefactsof record,theBoardconcludesthatconsummationof the proposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheDetroitmarketorinanyotherrelevantbankingmarket.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCAct,theBoardconsidersthefinancial andmanagerialresourcesandfutureprospectsof theinstitutionsinvolved,aswellasthe effectivenessof theinstitutionsincombattingmoneylaundering.21Initsevaluationof the financialfactor,theBoardreviewsinformationregardingthefinancialconditionof the organizationsinvolvedonbothparent-onlyandconsolidatedbases,aswellasinformation regardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.Inthisevaluation,theBoardconsidersa varietyof informationregardingcapitaladequacy,assetquality,liquidity,andearnings performance,aswellasthepubliccommentsontheproposal.TheBoardevaluatesthe financialconditionof thecombinedorganization,includingitscapitalposition,asset quality,liquidity,earningsprospects,andtheimpactof theproposedfundingof thetransaction.TheBoardalsoconsiderstheabilityof theorganizationtoabsorbthecostsof the proposalandtocompleteeffectivelytheproposedintegrationof theoperationsof theinstitutions.Inassessingfinancialfactors,theBoardconsiderscapitaladequacytobeespecially important.TheBoardconsidersthefutureprospectsof theorganizationsinvolvedinthe proposalinlightof theirfinancialandmanagerialresourcesandtheproposedbusinessplan. Chemical,TCF,andtheirsubsidiarydepositoryinstitutionsarewellcapitalized,andthe combinedorganizationwouldremainsoonconsummationof theproposal.Theproposed transactionisabankholdingcompanymergerthatisstructuredprimarilyasashare exchange,withasubsequentmergerof thesubsidiarydepositoryinstitutions.22Theasset quality,earnings,andliquidityof bothChemicalBankandTCFBankareconsistentwith 20 ChemicaloperatestheninthlargestdepositoryinstitutionintheDetroitmarket,controllingdepositsof approximately$3.5billion,whichrepresentapproximately2.4percentofmarketdeposits.TCFoperatesthe 10thlargestdepositoryinstitutioninthatmarket,controllingdepositsofapproximately$3.2billion,which representapproximately2.2percentofmarketdeposits.Onconsummationoftheproposal,Chemicalwould becometheseventhlargestdepositoryorganizationinthemarket,controllingdepositsofapproximately $6.7billion,whichrepresentapproximately4.6percentofmarketdeposits.TheHHIfortheDetroitmarket wouldincreaseby11pointsto1449,and52competitorswouldremaininthemarket. 21 12U.S.C.§§1842(c)(2),(5),and(6). 22 Toeffectthetransaction,eachshareofTCFcommonstockwouldbeconvertedintoarighttoreceivesharesof Chemicalcommonstock,basedonanexchangeratio.AnyfractionalsharesofChemicalcommonstockthat wouldresultfromthisconversionwouldbeexchangedforcash.Inaddition,eachshareofTCFpreferredstock wouldbeconvertedintotherighttoreceiveoneshareofanewlycreatedseriesofChemicalpreferredstock. Chemicalhasthefinancialresourcestoeffecttheproposedtransaction.

LegalDevelopments:ThirdQuarter,2019 5 approval,andChemicalappearstohaveadequateresourcestoabsorbthecostsof the proposalandtocompletetheintegrationof theinstitutions’operations.Inaddition,the futureprospectsof theinstitutionsundertheproposalareconsideredconsistentwith approval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of Chemical,TCF,andtheirsubsidiarydepositoryinstitutions,includingassessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition,theBoardhas consideredinformationprovidedbyChemical;theBoard’ssupervisoryexperiencesand thoseof otherrelevantbanksupervisoryagencieswiththeorganizations;theorganizations’recordsof compliancewithapplicablebanking,consumerprotection,andantimoney-launderinglaws;andinformationprovidedbythecommenters. Chemical,TCF,andtheirsubsidiarydepositoryinstitutionsareeachconsideredtobewell managed.Chemical’sandTCF’sdirectorsandseniorexecutiveofficershaveknowledgeof andexperienceinthebankingandfinancialservicesectors,andChemical’sriskmanagementprogramappearsconsistentwithapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredChemical’splansforimplementingtheproposal.Chemical andTCFhaveconductedcomprehensiveduediligenceandaredevotingsignificant financialandotherresourcestoaddressallaspectsof thepost-acquisitionintegration processforthisproposal.Ingeneral,Chemicalwouldimplementrisk-managementpolicies, procedures,andcontrolsatthecombinedorganization.Inaddition,managementof ChemicalandTCFhavetheexperienceandresourcestooperatethecombinedorganizationinasafeandsoundmanner,andChemicalplanstointegrateTCF’sexistingmanagementandpersonnelinamannerthataugmentsChemical’smanagement.23 Basedonallof thefactsof record,includingChemical’ssupervisoryrecord,managerial andoperationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoarddeterminesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandfutureprospectsof theorganizationsinvolvedintheproposal,aswellasthe recordsof effectivenessof ChemicalandTCFincombattingmoney-launderingactivities, areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCAct,theBoardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.24Initsevaluation,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thecommunitiestheyserve,aswellasotherpotentialeffectsof theproposalon theconvenienceandneedsof thesecommunities,andplacesparticularemphasisonthe recordsof therelevantdepositoryinstitutionsundertheCRA.TheCRArequiresthe federalfinancialsupervisoryagenciestoencourageinsureddepositoryinstitutionstohelp meetthecreditneedsof thelocalcommunitiesinwhichtheyoperate,consistentwiththe institutions’safeandsoundoperations,25andrequirestheappropriatefederalfinancial supervisoryagencytoassessadepositoryinstitution’srecordof helpingtomeetthecredit 23 Followingconsummationoftheholdingcompanymerger,theboardofdirectorsoftheresultingholding companywouldbecomposedof16directors,witheightdirectorsdesignatedbyeachofChemicalandTCF. Thechairman,president,andchiefexecutiveofficerofTCFwouldbecomethechiefexecutiveofficerofthe survivingholdingcompanyandbank. 24 12U.S.C.§1842(c)(2). 25 12U.S.C.§2901(b).

6 FederalReserveBulletin|January2020 needsof itsentirecommunity,includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.26 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 Chemical BankandTCFBank;thefairlendingandcompliancerecordsof bothbanks;thesupervisoryviewsof theFederalReserveBankof Chicago(“ReserveBank”),theOCC,andthe ConsumerFinancialProtectionBureau(“CFPB”);confidentialsupervisoryinformation; informationprovidedbyChemical;andthepubliccommentsontheproposal. PublicCommentsontheProposal TheBoardreceivedseveralcommentsinsupportof,andthreeadversecommentson,the proposal.Ingeneral,thecommentersinsupportof theproposalbelievedthatChemical andTCFhaveademonstratedrecordof providingvaluableservicestotheircommunities. Of thecommentersthatopposedtheproposal,onecommenterallegeddisparitiesin ChemicalBank’shomemortgageoriginationanddenialratesintheDetroit–Warren– Dearborn,MichiganMetropolitanStatisticalArea(“DetroitMSA”)forminorityapplicantscomparedtowhiteapplicants,basedondatareportedundertheHomeMortgage DisclosureActof 1975(“HMDA”)for2017.27 Twocommentersrequestedthattheapplicationincludeaforward-lookingcommunity benefitsplandetailinghowChemicalwouldaddressCRA-relatedconcernsidentifiedby thecommenters.28Oneof thesecommentersexpressedconcernsaboutthesmallbusiness lendingrecordof TCFBankandaccesstoTCFBank’sbranchesinLMIandmajorityminorityareasinMilwaukeeCounty,Wisconsin(“Milwaukee”).29Thiscommenteralso expressedconcernsaboutthefeeschargedbyTCFBank,specificallyallegingthatthefees chargedtocustomersinMilwaukeeoncheckingandsavingsaccountswerehighandunjustified.Inaddition,thiscommenterexpressedconcernsthatTCFBankdoesnotoriginate homeloans—whichthecommenterdefinestoincludehomepurchase,homerepair,and 26 12U.S.C.§2903. 27 12U.S.C.§2901etseq.ThecommenteralsonotedanongoingprivatesecuritieslawsuitagainstTCFrelatedto themerger.Shareholderlitigationisamatterofgeneralcorporatelawtobeadjudicatedbycourtsofcompetent jurisdiction.SeeWesternBancshares,Inc.v.BoardofGovernors,480F.2d749(10thCir.1973). 28 TheBoardconsistentlyhasfoundthatneithertheCRAnorthefederalbankingagencies’CRAregulations requiredepositoryinstitutionstomakepledgesorenterintocommitmentsoragreementswithanyprivate party.See,e.g.,FifthThirdBancorp,FRBOrder2019-05at12n.30(March6,2019);FirstBuseyCorporation, FRBOrder2019-01at11n.30(January10,2019);HarborOneMutualBancshares,FRBOrderNo.2018-18at 10n.26(September12,2018);TriCoBancshares,FRBOrderNo.2018-13at9n.20(June6,2018);Howard Bancorp,Inc.,FRBOrderNo.2018-05at9n.21(February12,2018);HuntingtonBancsharesInc.,FRBOrder No.2016-13at32n.50(July29,2016);CITGroup,Inc.,FRBOrderNo.2015-20at24n.54(July19,2015); CitigroupInc.,88FederalReserveBulletin485(2002);FifthThirdBancorp,80FederalReserveBulletin838,841 (1994).Initsevaluation,theBoardreviewstheexistingCRAperformancerecordofanapplicantandthe programsthattheapplicanthasinplacetoservethecreditneedsofitsCRAassessmentareas(“AAs”). 29 ThiscommenterfocusedonTCFBank’sactivitiesinMilwaukee,notingthatChemicalBankdoesnothavea presenceinWisconsin.

LegalDevelopments:ThirdQuarter,2019 7 refinanceloans—tominorityborrowersinthesameproportionsastheyarerepresentedin Milwaukee’spopulation.30 Anothercommentercriticizedbothbanks’recordsof lendingtosmallbusinessesinseveral AAsandallegedthatthecombinedbankwouldhavealownumberof branchesin majority-minorityareas.ThiscommenterexpressedconcernsaboutChemicalBank’s recordof homepurchaselendingintheDetroit–Dearborn–Livonia,MichiganMetropolitanDivision(“DetroitMD”)andtheCleveland–Elyria,OhioMSA(“Cleveland MSA”),basedonHMDAdatareportedfortheyears2015through2017.Thecommenter alsoraisedconcernsaboutTCFBank’srecordof communitydevelopmentloansand investments. Businessesof theInvolvedInstitutionsandResponsetothePublicComments ChemicalBankoperatesthroughanetworkof brancheslocatedprimarilyinMichigan, NortheastOhio,andNorthernIndianaandofferscommercial,retail,andfiduciary bankingservices,aswellasinsurance,investment,andwealthmanagementservices.These productsandservicesincludeawiderangeof depositproducts,suchascheckingand savingsaccounts,commercialandconsumerloans,andcommercialandresidentialreal estatelending. TCFBankprovidescommercialandretailbankingservicesonanationwidebasis, includingcheckingandsavingsaccounts;creditanddebitcards;checkcashingandremittanceservices;andresidentialmortgage,consumer,andsmallbusinesslending.Additionally,TCFBankprovideswholesalebankingandenterpriseservices,suchascommercial banking,leasing,andfinancing,andcorporatetreasuryfunctions. Inresponsetothecommenter’sallegationsthatChemicalBankdisproportionatelydenied homepurchaseloanstoAfricanAmericanapplicantsascomparedtowhiteapplicantsin theDetroitMSA,ChemicalrepresentsthatthedatafromthatMSAdemonstratethat ChemicalBankapprovedandoriginatedconventionalhomepurchaseloanapplicationsat similarratesregardlessof anapplicant’srace.ChemicalalsorepresentsthatChemical Bank’sdenialratesforapplicantsweresimilarto,orlessthan,peerinstitutionsinthecity of DetroitandtheDetroitMSA,includinginmajority-minoritytractsinthoseareas. Inresponsetoallegationsaboutthehomepurchaselendingrecordof ChemicalBank, Chemicalnotesthatduringthebank’smostrecentCRAperformanceexamination,examinersdeterminedthatChemicalBankhadanadequatedistributionof HMDA-reportable loansbasedonthebank’slendinginLMIcensustractsandthatChemicalBank’sHMDAreportablehomepurchaselendingperformanceexceededthatof aggregatelendersina numberof respectsinareasreferencedbythecommenter.Inaddition,Chemicalrepresents thatChemicalBankmonitorslendingbyracialcompositionof thecensustractsinhigh minorityareasof thebank’sAAstoidentifylendingpatternsandcreatefairlendinginitiatives,asneeded,andensurethebankremainsfocusedonincreasinglendingtominority borrowersandinminoritytractsthroughincreasedCRAactivities,branchdistribution, andadesignatedFairLendingMarketingPlan.Chemicalalsorepresentsthatthecombined organizationintendstomergethefairlendingprogramof TCFBankandChemicalBank andadoptthebestpracticesfromeachbank’sprocesses,policies,andprocedures. 30 ThecommenteralsoencouragedChemicaltocollaboratewithlocalcommunityorganizationsinMilwaukeeto improvebankingservices.ThiscommenterprovidedalistofsuggestionstoincreaselendingactivitytoLMI individualsandneighborhoodsandminorityindividualsandneighborhoodsinMilwaukee.

8 FederalReserveBulletin|January2020 Inresponsetocommenters’allegationsaboutChemicalBank’sandTCFBank’ssmallbusinesslendingrecords,Chemicalnotesthatthebanks’mostrecentCRAperformanceevaluationsfoundthatChemicalBankexhibitedagoodrecordof servingthecreditneedsof verysmallbusinessesandTCFBankexhibitedagooddistributionof smallbusinessloans. Inaddition,ChemicalstatesthatTCFBank’sgeographicdistributionof smallbusiness loanswasfoundtobeexcellentinthestateof Wisconsin,whichincludesMilwaukee,an areaof concernforacommenter,andChemicalhighlightsadditionalsmallbusiness lendingsincethebank’smostrecentCRAperformanceevaluation.Chemicalalsostates thatitiscommittedtosmallbusinesslending,anditexpectsthatthecombinedorganization’ssmallbusinesslendingperformancewillreflectthestrongrecordof bothbanks. Additionally,Chemicalcitescommunityservice,outreachevents,andminority-specific advertisementcampaignsasevidenceof effortstoincreaseminoritylending. Inresponsetoacommenter’sallegationsaboutTCFBank’slevelof communitydevelopmentlendingandinvestment,ChemicalnotesthatTCFBankreceivedanoverall“High Satisfactory”CRAratingfortheInvestmentTestinthebank’smostrecentCRAperformanceevaluationandcitestoexaminers’conclusionsaboutTCFBank’scommunitydevelopmentlendingactivities.ChemicalrepresentsthatTCFBankhasinvestedinanumberof localcommunitypartnershipsandmaintainsanactivedialoguewithcommunityorganizations,usinginputtheyprovidetoenhancethebank’sCRAprogramandproductsand servicestargetedtotheneedsof LMIindividualsandgeographies. Inresponsetoacommenter’sallegationsaboutTCFBank’sfees,Chemicalrepresentsthat itdoesnotexpectanymaterialdiscontinuationsinproductsorservicesormaterial increasesincustomerfeesresultingfromtheproposedtransaction.Chemicalnotesthat TCFBankresolvescustomerconcernsinwaysthatmeetcustomers’needsandstatesthat thecombinedorganizationwouldimplementanintegratedcomplaintmanagementsystem. Withrespecttobranchingconcerns,Chemicalassertsthateachbankroutinelyevaluates theCRAandfairlendingimpactsof theirbranchnetworks,andthatthecombinedbank wouldcontinuethispractice. Recordsof PerformanceundertheCRA InevaluatingtheCRAperformanceof theinvolvedinstitutions,theBoardgenerally considerseachinstitution’smostrecentCRAevaluation,aswellasotherinformationand supervisoryviewsfromtherelevantfederalfinancialsupervisors,whichinthiscasearethe ReserveBankforChemicalBankandtheOCCforTCFBank.31Inaddition,theBoard considersinformationprovidedbytheapplicantandbypubliccommenters. 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,suchasChemicalBankandTCFBank,inhelpingto meetthecreditneedsof thecommunitiestheyserve.TheLendingTestspecificallyevaluates 31 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48506, 48548(July25,2016). 32 12U.S.C.§2906.

LegalDevelopments:ThirdQuarter,2019 9 theinstitution’shomemortgage,smallbusiness,smallfarm,andcommunitydevelopment lendingtodeterminewhethertheinstitutionishelpingtomeetthecreditneedsof individualsandgeographiesof allincomelevels.Aspartof theLendingTest,examinersreview andanalyzeaninstitution’sdatareportedunderHMDA,inadditiontosmallbusiness, smallfarm,andcommunitydevelopmentloandatacollectedandreportedunderCRA regulations,toassessaninstitution’slendingactivitieswithrespecttoborrowersandgeographiesof differentincomelevels.Aninstitution’slendingperformanceisbasedona varietyof factors,including(1)thenumberandamountsof homemortgage,smallbusiness,smallfarm,andconsumerloans(asapplicable)intheinstitution’sAAs;(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;33(4)theinstitution’s communitydevelopmentlending,includingthenumberandamountsof communitydevelopmentloansandtheircomplexityandinnovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpracticestoaddressthecreditneedsof LMIindividualsand geographies.TheInvestmentTestapplicabletolargeinstitutionsevaluatesthenumberand amountsof qualifiedinvestmentsthatbenefittheirAAs,andtheServiceTestevaluates theavailabilityandeffectivenessof theirsystemsfordeliveringretailbankingservicesand theextentandinnovativenessof theircommunitydevelopmentservices.34 TheBoardisconcernedwhenHMDAdatareflectdisparitiesintheratesof loanapplications,originations,anddenialsamongmembersof differentracialorethnicgroupsinlocal areas.Thesetypesof disparitiesmayindicateweaknessesintheadequacyof policiesand programsataninstitutionformeetingitsobligationstoextendcreditfairly.However,other informationcriticaltoaninstitution’screditdecisionsisnotavailablefromHMDAdata.35 Consequently,HMDAdatadisparitiesmustbeevaluatedinthecontextof otherinformationregardingthelendingrecordof theinstitution. CRAPerformanceof ChemicalBank ChemicalBankwasassignedanoverall“Satisfactory”ratingatitsmostrecentCRA performanceevaluationbytheReserveBank,asof September18,2017(“ChemicalBank Evaluation”).36Thebankreceived“HighSatisfactory”ratingsfortheLendingTestandthe InvestmentTestanda“LowSatisfactory”ratingfortheServiceTest.37 33 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3). 34 12CFR228.21etseq. 35 Otherinformationrelevanttocreditdecisionscouldincludecredithistory,debt-to-incomeratios,andloan-tovalueratios.Accordingly,whenconductingfairlendingexaminations,examinersanalyzesuchadditionalinformationbeforereachingadeterminationregardinganinstitution’scompliancewithfairlendinglaws. 36 TheChemicalBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.ForAAsthat wereunchangedfromthepriorevaluation,examinersreviewedhomemortgagelendingactivityunderHMDA andsmallbusinessloansoriginatedfrom2015through2016.Theevaluationperiodforcommunitydevelopmentloans,investments,andserviceswasOctober27,2015,throughSeptember18,2017,forAAsthatwere unchangedfromthepriorevaluation.ExaminersevaluatednewAAsassociatedwiththeacquisitionofTalmer Bancorp.,Inc.,for2016forCRAandHMDA-reportabledata.ForthenewAAs,theevaluationperiodfor communitydevelopmentactivitieswasJanuary1,2016,throughSeptember18,2017. 37 TheChemicalBankEvaluationincludedfull-scopeevaluationsoftheSouthBend-Mishawaka,Indiana– MichiganMulti-StateMSA;theElkhart–Goshen,IndianaMSA;theAnnArbor,MichiganMSA;theBattle Creek,MichiganMSA;theDetroitMD;theFlint,MichiganMSA;theGrandRapids–Wyoming,Michigan MSA;theMidland,MichiganMSA;theSouthBend–Mishawaka,Indiana–MichiganMSA;theWarren–Troy–

10 FederalReserveBulletin|January2020 ExaminersfoundthatChemicalBankoriginatedasubstantialmajorityof itsloansinside itsAAsandthatthebank’soveralllendingactivityreflectedgoodresponsivenesstothe creditneedsof itscommunities.Inaddition,examinersfoundthebank’sdistributionof productlinesbyincomelevelof theborrowertobeadequateandthebank’sdistributionof loanstobusinesseswithdifferentrevenuesizestobeexcellent.Examinersnotedthatthe bankhadagoodrecordof servingthecreditneedsof verysmallbusinessesand low-incomeindividualsandareas.Inaddition,examinersnotedthatthebankusesinnovativeandflexiblelendingpracticesinservingthecreditneedsof itsAAs. InMichigan,ChemicalBank’sperformanceundertheLendingTestwasrated“HighSatisfactory.”IntheDetroitMD,anareaof concernforacommenter,examinersfoundexcellentloanpenetrationandadequatepenetrationamongborrowersof differentincome levels.38Inaddition,examinersnotedChemicalBank’shighlevelof communitydevelopmentloansandgoodrecordof servingthecreditneedsof verysmallbusinessesandof low-incomeindividualsandareasintheDetroitMD.Moreover,examinersfoundthat ChemicalBankoutperformedpeerinstitutionsinmakinghomepurchaseloansinLMI censustractsintheDetroitMD. InOhio,ChemicalBank’sperformanceundertheLendingTestwasrated“HighSatisfactory.”IntheClevelandMSA,anareaof concerntoacommenter,examinersfoundthatthe bank’srateof lendingexceededaggregatelendersinpenetrationof LMIcensustractswith respecttohomepurchaseloansin2016. ExaminersfoundthatChemicalBankmadeasignificantlevelof qualifiedcommunity developmentinvestmentsandgrantsandexhibitedexcellentresponsivenesstocreditand communitydevelopmentneedsinitsAAs.Inaddition,examinersnotedthatthebank’s recentuseof federaltaxcreditsforaffordablehousinginitiativeswasinnovative. Examinersfoundthatthebank’sretaildeliverysystemswerereasonablyaccessibletoall geographiesandindividualsof differentincomelevels.Examinersalsofoundthatthe bank’sservicesdidnotvaryinawaythatinconveniencedgeographiesorindividuals, particularlyLMIgeographiesandindividuals.Inaddition,examinersnotedthatthebank providedahighlevelof communitydevelopmentservicesthroughoutitsAAs. Chemical’sEffortssincetheChemicalBankEvaluation Chemicalstatesthat,sincetheChemicalBankEvaluation,ChemicalBankhascontinuedto originateasubstantialnumberof mortgageandconsumerloanstoLMIborrowersandhas madesignificantcommunityinvestments.Chemicalrepresentsthatthebankhasoriginated asignificantnumberof smallbusinessandfarmloans,includinginLMIcensustracts acrossthebank’sAAs.ChemicalalsorepresentsthatChemicalBankhasoriginateda significantnumberof communitydevelopmentloans. IntheDetroitMD,anareaof concernforcommenters,ChemicalassertsthatChemical Bankhasoriginatedasignificantnumberof mortgageloanstoLMIindividualsandfamiliesandwithinLMIneighborhoodssincetheChemicalBankEvaluation.ChemicalrepresentsthatithasoriginatedsmallbusinessloanstosmallbusinessesandwithinLMI communitiesintheDetroitMD.Inaddition,ChemicalstatesthatChemicalBankjoineda FarmingtonHills,MichiganMSA;theNorthMichigan,Non-MSA;theClevelandMSA;andthe Youngstown–Warren–BoardmanOhio–PennsylvaniaMSA.Limited-scopeevaluationswereconductedinthe bank’sremainingAAs. 38 AtthetimeoftheChemicalBankEvaluation,theDetroitMDwasanewAAforChemicalBank,withthe bankhavingenteredthatmarketin2016withitsacquisitionofTalmerBancorp,Inc.Seesupranote36.

LegalDevelopments:ThirdQuarter,2019 11 homemortgageprogramdedicatedtohelpinghomebuyerspurchaseandrehabilitatehomes intheCityof Detroit. IntheClevelandMSA,ChemicalcontendsthatChemicalBankhasoriginatedasignificant amountandnumberof smallbusinessloanstosmallbusinessesandwithinLMIcommunitiessincetheChemicalBankEvaluation.Inaddition,ChemicalrepresentsthatChemical BankhasmadeadditionalmortgageloanstoLMIindividualsandinvestedinandlentto variouscommunitydevelopmentinitiativesintheClevelandMSA. CRAPerformanceof TCFBank TCFBankwasassignedanoverall“Outstanding”ratingatitsmostrecentCRAperformanceevaluationbytheOCC,asof December31,2016(“TCFBankEvaluation”).39The bankreceivedan“Outstanding”ratingfortheLendingTestand“HighSatisfactory” ratingsfortheInvestmentTestandServiceTest.40 Examinersfoundthatthebank’soveralllendingactivitywasgoodandthatthebank’s communitydevelopmentlendingactivitiesreflectedgoodresponsivenesstothecreditneeds of thebank’sAAs.Examinersnotedthatthebank’sloanprogramreflectedexcellent geographicandborrowerincomedistributionandfoundthatthebankmadeuseof innovativeandflexiblelendinginitiatives,includinghardshipmodifications,inservingcredit needs.Examinersalsofoundthat,overall,thebank’scommunitydevelopmentlendinghad apositiveimpactonthebank’sperformanceontheLendingTest,andthattheseactivities wereresponsivetothecreditneedsof thebank’sAAs. InWisconsin,TCFBank’soveralllendingperformancewasrated“Outstanding,”andits overalllendingperformanceintheMilwaukeeAA,anareaof concernforacommenter, wasfoundtobeexcellent,withexcellentgeographicandborrowerincomedistributionsfor homemortgageloans.However,examinersfoundthatthebank’svolumeof loanstosmall businesseswaspoorcomparedtopeerinstitutions. ExaminersfoundthatTCFBankhadanoverallgoodlevelof qualifiedinvestmentsand thattheinvestmentswereresponsivetocommunityneeds.Inaddition,examinersfound thatthebank’sbrancheswereaccessibletoessentiallyallportionsof thebank’sAAsand thattherewerenosignificantdifferencesbetweenbranchhours,whichoverallwerefound tobegood.ExaminersnotedthatTCFBankprovidedadequatelevelsof communitydevelopmentservicesandthatthebankofferedavarietyof servicestargetedtounbankedand underbankedcustomersthroughoutitsAAs. 39 TheTCFBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Examiners revieweddatafortheLendingTestfromJanuary1,2012,throughDecember31,2016(excepttheChampaign– UrbanaMSA,whereexaminersrevieweddatafromJanuary1,2012,throughDecember31,2015).Forthe InvestmentandServiceTestsandcommunitydevelopmentloans,examinersrevieweddatafromJanuary1, 2012,throughAugust6,2017(excepttheChampaign–UrbanaMSA,whereexaminersrevieweddatafrom January1,2012,throughDecember31,2015).FortheChicago–Naperville–ElginIllinois–Indiana–Wisconsin MultistateMetropolitanArea(“ChicagoAA”)andMinneapolis–St.Paul–Bloomington,MinnesotaMSA (“MinneapolisAA”),examinersconductedseparateanalysesof2015and2016dataduetochangesresulting fromthe2014OfficeofManagementandBudgetgeographicboundaryrevisions. AspartoftheTCFBankEvaluation,examinerscitedevidenceoftwoviolationsoftheServicememberCivil ReliefAct(“SCRA”)butindicatedthatTCFBankhadappropriatelyremediedthesituationandimprovedits SCRApolicies,procedures,andcontrols.Accordingly,examinersdidnotlowertheCRAperformanceofTCF Bankasaresultofthisfinding. 40 TheTCFBankEvaluationincludedfull-scopeevaluationsoftheChicagoAA;theMinneapolisAA;the St.Cloud,MinnesotaMSA;theDetroitMSA;theColoradoSprings,ColoradoMSA;theDenver–Aurora– Lakewood,ColoradoMSA;theMilwaukee–Waukesha–WestAllis,WisconsinMSA(“MilwaukeeAA”);the Phoenix–Mesa–Scottsdale,ArizonaMSA;theSiouxFalls,SouthDakotaMSA;andtheChampaign–Urbana, IllinoisMSA.Limited-scopeevaluationswereperformedinthebank’sremainingAAs.

12 FederalReserveBulletin|January2020 TCF’sEffortssincetheTCFBankEvaluation Chemicalstatesthat,sincetheTCFBankEvaluation,TCFBankhasaugmentedits communitydevelopmentinitiativesbycentralizingcommunitydevelopmentactivitiesand appointingnewmanagement.Thebankhasestablishedandmetenhancedcommunity developmentlendinggoalsandincreasedphilanthropicgrantsandinvestmentsthroughout itsAAs.ChemicalalsorepresentsthatTCFBankhascontinuedtoparticipateinand operatevariousfinancialliteracyinitiativesandhasincreaseditssmallbusinesslending efforts,includinginareasof interesttothecommenters. AdditionalSupervisoryViews Initsreviewof theproposal,theBoardreviewedtheconsumercomplianceandfairlending recordsof ChemicalBankandconsultedwiththeOCCregardingtheCRA,consumer compliance,andfairlendingrecordsof TCFBank.TheOCCreviewedandapprovedthe BankMergerActapplicationrelatedtotheproposaland,indoingso,consideredtimely adversecommentsthatweresubmittedtotheBoardontheBHCActapplication.The Boardhasconsideredtheresultsof themostrecentconsumercomplianceexaminationsof ChemicalBankandTCFBank,whichincludedareviewof thebanks’compliancemanagementprogramsandcompliancewithconsumerprotectionlawsandregulations,and consideredChemicalBank’ssupervisoryrecordwiththeCFPB. TheBoardhastakentheforegoingconsultationsandexaminationsintoaccountinevaluatingtheproposal,includinginconsideringwhetherChemicalhastheexperienceand resourcestoensurethatTCFBankwouldhelpmeetthecreditneedsof thecommunitiesto beservedfollowingconsummationof theproposedtransaction. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.Chemicalrepresentsthat,followingtheproposed transaction,thecombinedbankwouldretainthefullrangeof productsandservices currentlyofferedbyChemicalBankandTCFBank.Chemicalnotesthatcustomersof TCFBankwouldgainaccesstoenhancedproductsandservices,including,amongothers, ChemicalBank’staxcreditlendingservicesandsmallbusinessandagriculturallending programs.Inaddition,Chemicalrepresentsthatcustomersof ChemicalBankwould benefitbyreceivingaccessto,amongotherproductsandservices,TCFBank’snationwide homeequitylinesof creditandcommercialfinancelending,retailbanking,andcreditcard agencyservices.Chemicalrepresentsthatcustomersof bothbankswouldbenefitfroma largerbranchandATMnetworkandgreatercapitalresources. Chemicalrepresentsthatthecombinedbankwouldcontinuetoutilizethecurrentproducts, programs,andproceduresof TCFBank,inadditiontothoseadoptedfromChemical Bank,tomeetthebank’sobligationsundertheCRA.Chemicalfurtherrepresentsthatit wouldworkwithexistingpartnersof ChemicalBankandTCFBank,includingcommunity groups,toachievethecombinedbank’sCRAandfairlendinggoals. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtheCRArecordsof therelevant depositoryinstitutions;theinstitutions’recordsof compliancewithfairlendingandother consumerprotectionlaws;supervisoryviewsof theReserveBank,OCC,andCFPB;confidentialsupervisoryinformation;informationprovidedbyChemical;thepubliccomments ontheproposal;andotherpotentialeffectsof theproposalontheconvenienceandneeds

LegalDevelopments:ThirdQuarter,2019 13 of thecommunitiestobeserved.Basedonthatreview,theBoarddeterminesthatthe convenienceandneedsfactorisconsistentwithapproval. 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 toinflictmaterialdamagetothebroadereconomy.43 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billionintotalassets,orthatresultinafirmwithlessthan$100billionintotalassets, aregenerallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthata proposaldoesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbelow eitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificantincreaseininterconnectedness,complexity,cross-borderactivities,orotherrisk factors.44 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesaproformaorganization of lessthan$100billionintotalassets.Boththeacquirerandthetargetarepredominately engagedinretailandcommercialbankingactivities.45Theproformaorganizationwould haveminimalcross-borderactivitiesandwouldnotexhibitanorganizationalstructure, complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.Inaddition,theorganizationwouldnotbea criticalservicesproviderorsointerconnectedwithotherfirmsorthemarketsthatitwould poseasignificantrisktothefinancialsystemintheeventof financialdistress. 41 12U.S.C.§1842(c)(7). 42 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 43 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder 2012-2(February14,2012). 44 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 45 ChemicalandTCFbothofferarangeofretailandcommercialbankingproductsandservices.Chemicalhas, andasaresultoftheproposalwouldcontinuetohave,asmallmarketshareintheseproductsandservicesona nationwidebasis.

14 FederalReserveBulletin|January2020 Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheproposal shouldbe,andherebyis,approved.46Inreachingitsconclusion,theBoardhasconsideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunderthe BHCActandotherapplicablestatutes.TheBoard’sapprovalisspecificallyconditionedon compliancebyChemicalwithalltheconditionsimposedinthisorder,includingreceiptof allrequiredregulatoryapprovals,andonanycommitmentsmadetotheBoardinconnectionwiththeproposal.Forpurposesof thisaction,theconditionsandcommitmentsare deemedtobeconditionsimposedinwritingbytheBoardinconnectionwithitsfindings anddecisionhereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethe15thcalendardayaftertheeffectivedate of thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedforgood causebytheBoardortheReserveBank,actingunderdelegatedauthority. Byorderof theBoardof Governors,effectiveJuly16,2019. Votingforthisaction:ChairPowell,ViceChairClarida,ViceChairforSupervision Quarles,andGovernorsBrainardandBowman. MargaretMcCloskeyShanks DeputySecretaryof theBoard 46 AcommenterrequestedthattheBoardholdapublichearingontheproposal.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,submittedawrittencomment thattheBoardhasconsideredinactingontheproposal.Thecommenter’srequestdoesnotidentifydisputed issuesoffactthatarematerialtotheBoard’sdecisionandthatwouldbeclarifiedbyapublichearing.Inaddition,therequestdoesnotdemonstratewhywrittencommentsdonotpresentthecommenter’sviewsadequately orwhyahearingotherwisewouldbenecessaryorappropriate.Forthesereasons,andbasedonallthefactsof record,theBoardhasdeterminedthatapublichearingisnotrequiredorwarrantedinthiscase.Accordingly, therequestforapublichearingontheproposalisdenied.

LegalDevelopments:ThirdQuarter,2019 15 Hancock Whitney Corporation Gulfport, Mississippi OrderApprovingtheAcquisitionof aBankHoldingCompany FRBOrderNo.2019-12(September5,2019) HancockWhitneyCorporation(“HancockWhitney”),Gulfport,Mississippi,abank holdingcompanywithinthemeaningof theBankHoldingCompanyActof 1956(“BHC Act”),1hasrequestedtheBoard’sapprovalundersection3of theBHCAct2tomergewith MidSouthBancorp,Inc.(“MidSouth”)andtherebyindirectlyacquireMidSouth’snational banksubsidiary,MidSouthBank,NationalAssociation(“MidSouthBank”),bothof Lafayette,Louisiana.Followingtheproposedacquisition,MidSouthBankwouldbe mergedintoHancockWhitney’sstatenonmemberbanksubsidiary,HancockWhitney Bank,Gulfport,Mississippi.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(84FederalRegister27,117(June11,2019)).4Thetimeforsubmitting commentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct. HancockWhitney,withconsolidatedassetsof approximately$28.8billion,isthe 69thlargestinsureddepositoryorganizationintheUnitedStates.HancockWhitney controlsapproximately$23.4billioninconsolidateddeposits,whichrepresentapproximately0.2percentof thetotalamountof depositsof insureddepositoryinstitutionsinthe UnitedStates.5HancockWhitneycontrolsHancockWhitneyBank,whichoperatesin Alabama,Florida,Louisiana,Mississippi,andTexas.HancockWhitneyisthe3rdlargest insureddepositoryorganizationinLouisiana,controllingdepositsof approximately $13.0billion,whichrepresent12.5percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.HancockWhitneyisthe93rdlargestinsureddepositoryorganization inTexas,controllingdepositsof $697.9million,whichrepresentlessthan1percentof the totaldepositsof insureddepositoryinstitutionsinthatstate.6 MidSouth,withconsolidatedassetsof approximately$1.7billion,isthe471stlargest insureddepositoryorganizationintheUnitedStates.MidSouthcontrolsapproximately $1.5billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsintheUnitedStates.MidSouth controlsMidSouthBank,whichoperatesinLouisianaandTexas.MidSouthisthe13th largestinsureddepositoryorganizationinLouisiana,controllingdepositsof approximately $1.3billion,whichrepresent1.3percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.MidSouthisthe212thlargestinsureddepositoryorganizationinTexas, controllingdepositsof approximately$240.4million,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 ThemergerofMidSouthBankintoHancockWhitneyBankissubjecttoapprovalbytheFederalDeposit InsuranceCorporation(“FDIC”),pursuanttosection18(c)oftheFederalDepositInsuranceAct.12U.S.C. §1828(c). 4 12CFR262.3(b). 5 NationalassetdataareasofJune30,2019,andnationaldeposit,ranking,andmarket-sharedataareasof March31,2019,unlessotherwisenoted.Inthiscontext,insureddepositoryinstitutionsincludecommercial banks,savingsassociations,andsavingsbanks. 6 StatedepositdataareasofJune30,2018.

16 FederalReserveBulletin|January2020 Onconsummationof theproposal,HancockWhitneywouldbecomethe68thlargest insureddepositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately$30.4billion,whichrepresentlessthan1percentof thetotalassetsof insured depositoryorganizationsintheUnitedStates.HancockWhitneywouldcontroltotal consolidateddepositsof approximately$24.9billion,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.In Louisiana,HancockWhitneywouldremainthe3rdlargestinsureddepositoryorganization,controllingdepositsof approximately$14.3billion,whichrepresent13.8percentof thetotaldepositsof insureddepositoryinstitutionsinthestate.InTexas,Hancock Whitneywouldbecomethe76thlargestinsureddepositoryorganization,controlling depositsof approximately$938.4million,whichrepresentlessthan1percentof total depositsof 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 Forpurposesof theBHCAct,thehomestateof HancockWhitneyisMississippi,and MidSouthBankislocatedinLouisianaandTexas.HancockWhitneyiswellcapitalized andwellmanagedunderapplicablelaw.MidSouthBankhasbeeninexistenceformore thanfiveyears,andHancockWhitneyBankhasa“Satisfactory”ratingundertheCRA. Onconsummationof theproposedtransaction,HancockWhitneywouldcontrollessthan 1percentof thetotalamountof consolidateddepositsininsureddepositoryinstitutions intheUnitedStates.Louisianadoesnotimposealimitonthetotalamountof in-state depositsthatasinglebankingorganizationmaycontrol,andHancock Whitney’spercentageof depositswouldnotexceed30percentof thetotalamountof 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.See12U.S.C. §1841(o)(4)-(7).

LegalDevelopments:ThirdQuarter,2019 17 in-statedeposits.Texasimposesa20percentlimitonthetotalamountof in-statedeposits thatasinglebankingorganizationmaycontrol.13InTexas,thecombinedorganization wouldcontrollessthan20percentof thetotalamountof in-statedeposits.TheBoardhas consideredallotherrequirementsundersection3(d)of theBHCAct.Accordingly,in lightof allthefactsof record,theBoarddeterminesthatitisnotprohibitedby section3(d)fromapprovingtheproposal. CompetitiveConsiderations Section3of theBHCActprohibitstheBoardfromapprovingaproposalthatwouldresult inamonopolyorwouldbeinfurtheranceof anattempttomonopolizethebusinessof bankinginanyrelevantmarket.14TheBHCActalsoprohibitstheBoardfromapprovinga proposalthatwouldsubstantiallylessencompetitionortendtocreateamonopolyinany bankingmarket,unlesstheanticompetitiveeffectsof theproposalareclearlyoutweighedin thepublicinterestbytheprobableeffectof theproposalinmeetingtheconvenienceand needsof thecommunitiestobeserved.15 HancockWhitneyBankandMidSouthBankcompetedirectlyintheBatonRougeArea, Louisiana,bankingmarket(“BatonRougemarket”);theHouma/ThibodauxArea,Louisiana,bankingmarket(“Houma/Thibodauxmarket”);theLafayetteArea,Louisiana, bankingmarket(“Lafayettemarket”);theLakeCharlesArea,Louisiana,bankingmarket (“LakeCharlesmarket”);theMorganCityArea,Louisiana,bankingmarket(“Morgan Citymarket”);theBeaumont-PortArthur,Texas,bankingmarket(“Beaumont-Port Arthurmarket”);andtheHouston,Texas,bankingmarket(“Houstonmarket”).16The Boardhasconsideredthecompetitiveeffectsof theproposalinthesebankingmarkets.In particular,theBoardhasconsideredtherelativeshareof totaldepositsininsureddepositoryinstitutionsineachmarket(“marketdeposits”)thatHancockWhitneywould control;17theconcentrationlevelof marketdepositsandtheincreaseinthislevel,asmeasuredbytheHerfindahl-HirschmanIndex(“HHI”)undertheDepartmentof JusticeBank MergerCompetitiveReviewguidelines(“DOJBankMergerGuidelines”);18thenumberof competitorsthatwouldremainineachmarket;andothercharacteristicsof eachmarket. 13 Tex.Fin.CodeAnn.§203.004(a). 14 12U.S.C.§1842(c)(1)(A). 15 12U.S.C.§1842(c)(1)(B). 16 TheBatonRougemarketisdefinedasAscension,Assumption(northernhalf),EastBatonRouge,Iberville, Livingston,SaintJames,andWestBatonRougeparishes.TheHouma/Thibodauxmarketisdefinedas LafourcheandTerrebonneparishes.TheLafayettemarketisdefinedasAcadia,Iberia,Lafayette,Saint Landry,SaintMartin,andVermilionparishes.TheLakeCharlesmarketisdefinedasBeauregard,Calcasieu, andCameronparishes.TheMorganCitymarketisdefinedasAssumption(southernhalf)andSaintMary parishes.TheBeaumont-PortArthurmarketisdefinedasHardin,Jefferson,andOrangecounties.The HoustonmarketisdefinedasAustin,Brazoria,Chambers,FortBend,Galveston,Harris,Liberty,Montgomery,SanJacinto,andWallercounties. 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,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDepartmentofJustice(“DOJ”)hasinformedtheBoardthata bankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicating anticompetitiveeffects)unlessthepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymore than200points.AlthoughtheDOJandtheFederalTradeCommissionissuedrevisedHorizontalMerger Guidelinesin2010,theDOJhasconfirmedthatitsBankMergerGuidelines,whichwereissuedin1995,were notmodified.SeePressRelease,DepartmentofJustice(August19,2010),availableatwww.justice.gov/opa/pr/ 2010/August/10-at-938.html.

18 FederalReserveBulletin|January2020 Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesintheBatonRougemarket,theHouma/ Thibodauxmarket,theLafayettemarket,theLakeCharlesmarket,theMorganCity market,theBeaumont-PortArthurmarket,andtheHoustonmarket.Onconsummationof theproposal,theBatonRougemarketwouldremainhighlyconcentratedasmeasuredby theHHI,accordingtotheDOJBankMergerGuidelines;however,thechangeinHHI wouldbesmallandnumerouscompetitorswouldremaininthemarket.19Similarly,the Houstonmarket20andtheMorganCitymarket21wouldremainhighlyconcentratedas measuredbytheHHI,accordingtotheDOJBankMergerGuidelines,andseveral competitorswouldremaininthemarket.TherewouldbenochangeintheHHIinthe Houstonmarket,andthechangeintheHHIintheMorganCitymarketwouldbelessthan 200points.TheHouma/Thibodaux,Lafayette,LakeCharles,andBeaumont-PortArthur marketswouldremainmoderatelyconcentratedasmeasuredbytheHHI,accordingtothe DOJBankMergerGuidelines.ThechangeintheHHIintheHouma/Thibodauxmarket wouldbesmall,andnumerouscompetitorswouldremaininthemarket.22Thechangein theHHIintheLafayettemarketwouldbelessthan100points,and37competitorswould remaininthemarket.23ThechangeintheHHIintheLakeCharlesmarketwouldbeless than50points,and17competitorswouldremaininthemarket.24TheHHIinthe 19 HancockWhitneyoperatesthe3rdlargestdepositoryinstitutionintheBatonRougemarket,controlling approximately$2.7billionindeposits,whichrepresent14.0percentofmarketdeposits.MidSouthoperatesthe 18thlargestdepositoryinstitutioninthesamemarket,controllingdepositsofapproximately$71.6million, whichrepresentlessthan1percentofmarketdeposits.Onconsummationoftheproposedtransaction, HancockWhitneywouldremainthe3rdlargestdepositoryorganizationinthemarket,controllingdepositsof approximately$2.8billion,whichrepresentapproximately14.4percentofmarketdeposits.TheHHIforthe BatonRougemarketwouldincreaseby10pointsto1968,and33competitorswouldremaininthemarket. 20 HancockWhitneyoperatesthe26thlargestdepositoryinstitutionintheHoustonmarket,controllingapproximately$697.9millionindeposits,whichrepresentlessthan1percentofmarketdeposits.MidSouthoperates the77thlargestdepositoryinstitutioninthesamemarket,controllingdepositsofapproximately$36.7million, whichrepresentlessthan1percentofmarketdeposits.Onconsummationoftheproposedtransaction, HancockWhitneywouldremainthe26thlargestdepositoryorganizationinthemarket,controllingdepositsof approximately$734.7million,whichrepresentlessthan1percentofmarketdeposits.TheHHIfortheHouston marketwouldremainunchangedat2148points,and90competitorswouldremaininthemarket. 21 HancockWhitneyoperatesthelargestdepositoryinstitutionintheMorganCitymarket,controllingapproximately$278.9millionindeposits,whichrepresent27.8percentofmarketdeposits.MidSouthoperatesthe8th largestdepositoryinstitutioninthesamemarket,controllingdepositsofapproximately$34.7million,which representapproximately3.5percentofmarketdeposits.Onconsummationoftheproposedtransaction, HancockWhitneywouldremainthelargestdepositoryorganizationinthemarket,controllingdepositsof approximately$313.7million,whichrepresentapproximately31.3percentofmarketdeposits.TheHHIforthe MorganCitymarketwouldincreaseby192pointsto2011points,andsevencompetitorswouldremaininthe market. 22 HancockWhitneyoperatesthe3rdlargestdepositoryinstitutionintheHouma/Thibodauxmarket,controlling approximately$517.4millionindeposits,whichrepresent11.9percentofmarketdeposits.MidSouthoperates the14thlargestdepositoryinstitutioninthesamemarket,controllingdepositsofapproximately$16.5million, whichrepresentlessthan1percentofmarketdeposits.Onconsummationoftheproposedtransaction, HancockWhitneywouldremainthe3rdlargestdepositoryorganizationinthemarket,controllingdepositsof approximately$533.8million,whichrepresentapproximately12.2percentofmarketdeposits.TheHHIforthe Houma/Thibodauxmarketwouldincreaseslightlyby9pointsto1258points,and14competitorswould remaininthemarket. 23 HancockWhitneyoperatesthe5thlargestdepositoryinstitutionintheLafayettemarket,controllingapproximately$795.5millionindeposits,whichrepresent6.2percentofmarketdeposits.MidSouthoperatesthe4th largestdepositoryinstitutioninthesamemarket,controllingdepositsofapproximately$815.2million,which representapproximately6.4percentofmarketdeposits.Onconsummationoftheproposedtransaction, HancockWhitneywouldbecomethe3rdlargestdepositoryorganizationinthemarket,controllingdepositsof approximately$1.6billion,whichrepresentapproximately12.6percentofmarketdeposits.TheHHIforthe Lafayettemarketwouldincreaseslightlyby79pointsto1136points. 24 HancockWhitneyoperatesthe4thlargestdepositoryinstitutionintheLakeCharlesmarket,controlling approximately$459.6millionindeposits,whichrepresent11.6percentofmarketdeposits.MidSouthoperates the10thlargestdepositoryinstitutioninthesamemarket,controllingdepositsofapproximately$79.0million, whichrepresentapproximately2.0percentofmarketdeposits.Onconsummationoftheproposedtransaction,HancockWhitneywouldremainthe4thlargestdepositoryorganizationinthemarket,controlling depositsofapproximately$538.6million,whichrepresentapproximately13.6percentofmarketdeposits.The HHIfortheLakeCharlesmarketwouldincreaseslightlyby47pointsto1344points.

LegalDevelopments:ThirdQuarter,2019 19 Beaumont-PortArthurmarketwouldremainunchanged,and18competitorswould remaininthemarket.25 TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket.Inaddition,the appropriatebankingagencieshavebeenaffordedanopportunitytocommentandhavenot objectedtotheproposal. Basedonallof thefactsof record,theBoarddeterminesthatconsummationof the proposalwouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheBatonRouge,Houma/Thibodaux,Lafayette,LakeCharles, MorganCity,Beaumont-PortArthur,andHoustonmarketsorinanyotherrelevant bankingmarket.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsare consistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCAct,theBoardconsidersthefinancial andmanagerialresourcesandthefutureprospectsof theinstitutionsinvolved,aswellas theeffectivenessof theinstitutionsincombattingmoneylaundering.26Initsevaluationof financialfactors,theBoardreviewsinformationregardingthefinancialconditionof the organizationsinvolvedonbothparent-onlyandconsolidatedbases,aswellasinformation regardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.Inthisevaluation,theBoardconsidersa varietyof informationregardingcapitaladequacy,assetquality,liquidity,andearnings performance,aswellaspubliccommentsontheproposal.TheBoardevaluatesthefinancialconditionof thecombinedorganization,includingitscapitalposition,assetquality, liquidity,earningsprospects,andtheimpactof theproposedfundingof thetransaction. TheBoardalsoconsiderstheabilityof theorganizationtoabsorbthecostsof theproposal andtocompleteeffectivelytheproposedintegrationof theoperationsof theinstitutions. Inassessingfinancialfactors,theBoardconsiderscapitaladequacytobeespeciallyimportant.TheBoardconsidersthefutureprospectsof theorganizationsinvolvedinthe proposalinlightof theirfinancialandmanagerialresourcesandtheproposedbusinessplan. HancockWhitney,MidSouth,andtheirsubsidiarydepositoryinstitutionsarewellcapitalized,andthecombinedorganizationwouldremainsoonconsummationof theproposal. Theproposedtransactionisabankholdingcompanymergerthatisstructuredprimarilyas astockexchange,withasubsequentmergerof thesubsidiarydepositoryinstitutions.27The assetquality,earnings,andliquidityof HancockWhitneyareconsistentwithapproval,and HancockWhitneyappearstohaveadequateresourcestoabsorbtherelatedcostsof the proposalandtocompletetheintegrationof theinstitutions’operations.Inaddition,the futureprospectsof theinstitutionsundertheproposalareconsideredconsistentwith approval. 25 HancockWhitneyisnotcurrentlyreportingdepositsintheBeaumont-PortArthurmarket.Thecompany maintainsonebranchinthemarket,butitdoesnotappeartohaveatraditionalretailstorefrontpresence. MidSouthoperatesthe10thlargestdepositoryinstitutioninthismarket,controllingapproximately $92.3millionindeposits,whichrepresent1.8percentofmarketdeposits.Onconsummationoftheproposal, HancockWhitneywouldbecomethe10thlargestdepositoryinstitutioninthemarket,controlling$92.3million indeposits,whichrepresent1.8percentofmarketdeposits. 26 12U.S.C.§1842(c)(2),(5),and(6). 27 Toeffectthetransaction,eachshareofMidSouthcommonstockwouldbeconvertedintoarighttoreceive sharesofHancockWhitneycommonstock,basedonanexchangeratio.

20 FederalReserveBulletin|January2020 TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of HancockWhitney,MidSouth,andtheirsubsidiarydepositoryinstitutions,including assessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition, theBoardhasconsideredinformationprovidedbyHancockWhitney;theBoard’ssupervisoryexperiencesandthoseof otherrelevantbanksupervisoryagencieswiththeorganizations;theorganizations’recordsof compliancewithapplicablebanking,consumer protection,andanti-money-launderinglaws;andinformationprovidedbythecommenters. HancockWhitneyanditssubsidiarydepositoryinstitutionareconsideredtobewell managed.HancockWhitneyhasarecordof successfullyintegratingorganizationsintoits operationsandrisk-managementsystemsafteracquisitions.HancockWhitney’sdirectorsandseniorexecutiveofficershaveknowledgeof andexperienceinthebankingand financialservicessectors,andHancockWhitney’srisk-managementprogramappears consistentwithapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredHancockWhitney’splansforimplementingtheproposal. HancockWhitneyhasconductedcomprehensiveduediligenceandisdevotingsignificant financialandotherresourcestoaddressallaspectsof thepost-acquisitionintegration processforthisproposal.HancockWhitneywouldimplementitsrisk-managementpolicies, procedures,andcontrolsatthecombinedorganization,andtheseareconsideredacceptablefromasupervisoryperspective.Inaddition,HancockWhitney’smanagementhasthe experienceandresourcestooperatethecombinedorganizationinasafeandsound manner. Basedonallof thefactsof record,includingHancockWhitney’ssupervisoryrecord, managerialandoperationalresources,andplansforoperatingthecombinedinstitution afterconsummation,theBoarddeterminesthatconsiderationsrelatingtothefinancialand managerialresourcesandthefutureprospectsof theorganizationsinvolvedinthe proposal,aswellastherecordof effectivenessof HancockWhitneyincombattingmoneylaunderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCAct,theBoardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.28Initsevaluation,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thecommunitiestheyserve,aswellasotherpotentialeffectsof theproposalon theconvenienceandneedsof thesecommunities,andplacesparticularemphasisonthe recordsof therelevantdepositoryinstitutionsundertheCRA.TheCRArequiresthe federalfinancialsupervisoryagenciestoencourageinsureddepositoryinstitutionstohelp meetthecreditneedsof thelocalcommunitiesinwhichtheyoperate,consistentwiththe institutions’safeandsoundoperation,29andrequirestheappropriatefederalfinancial supervisoryagencytoassessadepositoryinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.30 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideappli- 28 12U.S.C.§1842(c)(2). 29 12U.S.C.§2901(b). 30 12U.S.C.§2903.

LegalDevelopments:ThirdQuarter,2019 21 cantswithequalaccesstocredit,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 Hancock WhitneyBankandMidSouthBank;thefairlendingandcompliancerecordsof both banks;thesupervisoryviewsof theFDIC,theOfficeof theComptrollerof theCurrency (“OCC”),andtheConsumerFinancialProtectionBureau(“CFPB”);confidentialsupervisoryinformation;informationprovidedbyHancockWhitney;andthepubliccomments receivedontheproposal. PublicCommentsontheProposal TheBoardreceivedtwopubliccommentsontheproposal.Onecommenterobjectedtothe proposalonthebasisof allegeddisparitiesinthenumberof homemortgageloansmadeby HancockWhitneyBankto,andintherateof denialsforhomemortgageapplications from,AfricanAmericansandHispanicsascomparedtowhitesinNewOrleans,basedon 2017datathatHancockWhitneyreportedundertheHomeMortgageDisclosureActof 1975(“HMDA”).31AnothercommenterexpressedconcernswithHancockWhitney’s homemortgagelendinginNewOrleans,EastBatonRouge,Gulfport,andHouston.The commenteralsoexpressedconcernswithHancockWhitney’ssmallbusinesslendingin Houston.Thiscommenterfurthersuggestedthatapprovalof HancockWhitney’sapplicationshouldbeconditioneduponanexpandedactionplan,oracommunitybenefits agreement,thatwouldaddressshortcomingsinHancockWhitneyBank’sCRA performance.32 Businessesof theInvolvedInstitutionsandResponsetothePublicComments Throughitsnetworkof branchesinAlabama,Florida,Louisiana,Mississippi,andTexas, HancockWhitneyBankoffersavarietyof productsandservices,includingtraditionaland onlinebanking,commercialandsmallbusinessbanking,energybanking,privatebanking, trustandinvestmentservices,certaininsuranceservices,mortgageservices,andconsumer financing.MidSouthBank,throughitsbranchesinLouisianaandTexas,focusesprimarily oncommercialandconsumerloansanddepositservicestosmall-andmiddle-market businesses. Inresponsetothepubliccomments,HancockWhitneyassertsthatapprovalof the proposedtransactioniswarrantedbasedonHancockWhitneyBank’sCRAperformance. HancockWhitneynotesthatthebankreceivedanoverall“Satisfactory”ratingonits mostrecentCRAperformanceevaluationandsatisfactoryratingsineachstatewithcities 31 12U.S.C.§2801etseq. 32 TheBoardconsistentlyhasfoundthatneithertheCRAnorthefederalbankingagencies’CRAregulations requiredepositoryinstitutionstomakepledgesorenterintocommitmentsoragreementswithanyprivate party.See,e.g.,FifthThirdBancorp,FRBOrder2019-05at12n.30(March6,2019);FirstBuseyCorporation, FRBOrder2019-01at11n.30(January10,2019);HarborOneMutualBancshares,FRBOrderNo.2018-18at 10n.26(September12,2018);TriCoBancshares,FRBOrderNo.2018-13at9n.20(June6,2018);Howard Bancorp,Inc.,FRBOrderNo.2018-05at9n.21(February12,2018);HuntingtonBancsharesInc.,FRBOrder No.2016-13at32n.50(July29,2016);CITGroup,Inc.,FRBOrderNo.2015-20at24n.54(July19,2015); CitigroupInc.,88FederalReserveBulletin485(2002);FifthThirdBancorp,80FederalReserveBulletin838,841 (1994).Initsevaluation,theBoardreviewstheexistingCRAperformancerecordofanapplicantandthe programsthattheapplicanthasinplacetoservethecreditneedsofitsCRAassessmentareas(“AAs”).

22 FederalReserveBulletin|January2020 onwhichthecommentersfocused.HancockWhitneyalsoemphasizesthat,accordingto themostrecentCRAperformanceevaluation,examinersdidnotidentifyanyevidenceof discriminatoryorotherillegalcreditpracticesthatwere,asawhole,inconsistentwith helpingtomeetcommunitycreditneeds.Moreover,HancockWhitneyrepresentsthat HancockWhitneyBankhasformedacommunityadvisorycouncilwithrepresentatives fromhousingandsmallbusinessnon-profitorganizationstoprovideinputandfeedback oncommunityneeds. Recordsof PerformanceundertheCRA InevaluatingtheCRAperformanceof theinvolvedinstitutions,theBoardgenerally considerseachinstitution’smostrecentCRAevaluation,aswellasotherinformationand thesupervisoryviewsof relevantfederalsupervisors,whichinthiscasearetheFDICwith respecttoHancockWhitneyBankandtheOCCwithrespecttoMidSouthBank.33In addition,theBoardconsidersinformationprovidedbytheapplicantandbypublic commenters. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.34Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplyalendingtest(“LendingTest”),investment test(“InvestmentTest”),andservicetest(“ServiceTest”)toevaluatetheperformanceof largeinsureddepositoryinstitutions,suchasHancockWhitneyBankandMidSouthBank, inhelpingtomeetthecreditneedsof thecommunitiestheyserve.TheLendingTest specificallyevaluatesaninstitution’slendingtodeterminewhethertheinstitutionishelping tomeetthecreditneedsof individualsandgeographiesof allincomelevels.Aspartof the LendingTest,examinersreviewandanalyzeaninstitution’sdatareportedunderthe HMDA,inadditiontosmallbusiness,smallfarm,andcommunitydevelopmentloandata collectedandreportedundertheCRAregulations,toassessaninstitution’slending activitieswithrespecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slendingperformanceisbasedonavarietyof factors,including(1)thenumberand amountsof homemortgage,smallbusiness,smallfarm,andconsumerloans(asapplicable) intheinstitution’sCRAAAs;(2)thegeographicdistributionof theinstitution’slending, includingtheproportionanddispersionof theinstitution’slendinginitsAAsandthe numberandamountsof loansinlow-,moderate-,middle-,andupper-incomegeographies; (3)thedistributionof loansbasedonborrowercharacteristics,including,forhomemortgageloans,thenumberandamountsof loanstolow-,moderate-,middle-,andupperincomeindividuals;35(4)theinstitution’scommunitydevelopmentlending,includingthe numberandamountsof communitydevelopmentloansandtheircomplexityand innovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpracticesto addressthecreditneedsof LMIindividualsandgeographies.36TheInvestmentTestevaluatesthenumberandamountsof qualifiedinvestmentsthatbenefittheinstitution’sAAs, 33 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48,506, 48,548(July25,2016). 34 12U.S.C.§2906. 35 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3). 36 See12CFR228.22(b).

LegalDevelopments:ThirdQuarter,2019 23 andtheServiceTestevaluatestheavailabilityandeffectivenessof theinstitution’ssystems fordeliveringretailbankingservicesandtheextentandinnovativenessof theinstitution’s communitydevelopmentservices.37 TheBoardisconcernedwhenHMDAdatareflectdisparitiesintheratesof loanapplications,originations,anddenialsamongmembersof differentracialorethnicgroupsinlocal areas.Thesetypesof disparitiesmayindicateweaknessesintheadequacyof policiesand programsataninstitutionformeetingitsobligationstoextendcreditfairly.However,other informationcriticaltoaninstitution’screditdecisionsisnotavailablefromHMDAdata.38 Consequently,theBoardevaluatessuchdatadisparitiesinthecontextof otherinformation regardingthelendingrecordof aninstitution. CRAPerformanceof HancockWhitneyBank HancockWhitneyBankwasassignedanoverallratingof “Satisfactory”atitsmostrecent CRAperformanceevaluationbytheFDIC,asof October22,2018(“HancockWhitney BankEvaluation”).39Thebankreceived“HighSatisfactory”ratingsontheLendingTest andtheServiceTestandan“Outstanding”ratingontheInvestmentTest.40 ExaminersfoundthatHancockWhitneyBankexhibitedexcellentlendingactivityand madeasubstantialmajorityof itsloanswithinitsAAs.Examinersdeterminedthatthe bank’sborrowerprofilerevealedgoodpenetrationamongretailcustomersof different incomelevelsandbusinessesof differentrevenuesizes.Inaddition,examinersfoundthat thegeographicdistributionof thebank’sloansreflectedadequatepenetrationthroughout thebank’sAAs.Examinersalsofoundthatthebankestablishedarelativelyhighlevelof communitydevelopmentloans,althoughmadelimiteduseof innovativeorflexiblelending practices. ExaminersdeterminedthatHancockWhitneyBankexhibitedexcellentinvestmentactivity. Inparticular,examinersfoundthatthebank’scommunitydevelopmentactivitiesshowed excellentresponsivenessandthatthebankpartneredwithorganizationstosetupbusiness informationandtechnologytrainingcentersthatimprovefinancialliteracyforLMIindividualsandsmallbusinessowners.Examinersalsonotedthatthebankmadeoccasionaluse of complexqualifiedinvestmentsbutdidnotuseinnovativequalifiedinvestments. ExaminersfoundthatHancockWhitneyBankexhibitedanadequaterecordof providing retailbankingservices.Examinersnotedthatthebank’sbranchdistributionprovided reasonableaccessibilitytoessentiallyallportionsof thebank’sAAs,includingtoLMI individuals.Examinersmadethesamefindingwithrespecttothebank’salternative deliverysystems,notingthatthebankprovidedreasonablyaccessibleATMsandalternative deliverysystemstoLMIindividuals. HancockWhitneyBank’soverall“Satisfactory”ratingisconsistentwiththeratingsof the bank’sCRAperformanceinNewOrleans,EastBatonRouge,Gulfport,andHouston, 37 See12CFR228.21etseq. 38 Otherinformationrelevanttocreditdecisionscouldincludecredithistory,debt-to-incomeratios,andloan-tovalueratios.Accordingly,whenconductingfairlendingexaminations,examinersanalyzesuchadditionalinformationbeforereachingadeterminationregardinganinstitution’scompliancewithfairlendinglaws. 39 TheHancockWhitneyBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures. ExaminersreviewedhomemortgageloansfromJanuary1,2016,toDecember31,2017.Theyreviewedsmall businessloansandsmallfarmloansfromJanuary1,2016,toJune30,2018.Inaddition,examinersconsidered thecommunitydevelopmentloansoriginatedbyHancockWhitneyBankbetweenSeptember21,2015,and October22,2018. 40 TheHancockWhitneyBankEvaluationreviewedthebank’sactivitiesineachofits24AAsthroughout Alabama,Florida,Louisiana,Mississippi,andTexas.

24 FederalReserveBulletin|January2020 areasof concerntothecommenters.Thebankreceivedanoverall“Satisfactory”ratingin Louisiana,with“HighSatisfactory”ratingsontheLendingTestandtheServiceTestand an“Outstanding”ratingontheInvestmentTest.Examinersnotedthat,inLouisiana,the bankhadanexcellentrecordof lendingactivityandof communitydevelopmentinvestments,andprovidedarelativelyhighlevelof communitydevelopmentservices,butmade limiteduseof innovativeorflexiblelendingpractices. ExaminersfoundHancockWhitneyBank’sCRAperformanceintheBatonRougeMetropolitanStatisticalArea(“MSA”)AAtobeconsistentwiththebank’sperformanceinthe stateasawhole.Examinersdeterminedthatthedistributionof smallbusinessloansby borrowerrevenuesizewasexcellentwhilethedistributionof homemortgageloansby borrowerincomelevelreflectedadequateperformanceintheAA.Examinersalso concludedthatthegeographicdistributionof smallbusinessloansandhomemortgage loansreflectedadequateperformanceintheAA. ExaminerssimilarlyfoundHancockWhitneyBank’sCRAperformanceintheNew Orleans-MetairieMSAAAtobeconsistentwiththebank’sstatewideperformance.Examinersdeterminedthatthedistributionof smallbusinessloansbyborrowerrevenuesizewas excellentwhilethedistributionof homemortgageloansbyborrowerincomelevelreflected adequateperformanceintheAA.Examinersalsodeterminedthatthegeographicdistributionof smallbusinessloansandhomemortgageloansreflectedadequateperformancein theAA. InMississippi,HancockWhitneyBankreceivedanoverall“Satisfactory”rating,with “HighSatisfactory”ratingsontheLendingTestandtheServiceTestandan “Outstanding”ratingontheInvestmentTest.Examinersdeterminedthatthebankhadan excellentrecordof lendingactivityandanexcellentlevelof qualifiedinvestments.Examinersfoundthatthebankmadeanadequatelevelof communitydevelopmentloansand limiteduseof innovativeorflexiblelendingpractices.Examinersdeterminedthat,within theGulfport-Biloxi-PascagoulaMSAAA,thedistributionof smallbusinessloansby borrowerrevenuesizewasexcellentwhilethedistributionof homemortgageloansby borrowerincomelevelwasadequate.Examinersnotedthatthegeographicdistributionof smallbusinessloansandhomemortgageloansintheAAwasadequate. InTexas,HancockWhitneyBankreceivedanoverall“Satisfactory”rating,with“High Satisfactory”ratingsontheInvestmentTestandtheServiceTestanda“LowSatisfactory” ratingontheLendingTest.Examinersnotedthatthebankhadanadequaterecordof lendingactivity,madeasignificantlevelof qualifiedinvestments,andwasaleaderin providingcommunitydevelopmentservices,althoughmadelimiteduseof innovativeor flexiblelendingpractices.IntheHouston-TheWoodlands-SugarLandMSAAA,examinersdeterminedthatthedistributionof smallbusinessloansbyborrowerrevenuesize reflectedadequateperformancewhilethedistributionof homemortgageloansby borrowerincomelevelreflectedgoodperformance.Similarly,examinersfoundthatthe geographicdistributionof smallbusinessloansreflectedadequateperformancewhilethe distributionof homemortgageloansreflectedgoodperformance. HancockWhitneyBank’sEffortssincetheHancockWhitneyBankEvaluation HancockWhitneystatesthat,sincetheHancockWhitneyBankEvaluation,thebankhas continuedtooriginateasubstantialnumberof mortgageandconsumerloanstoLMI borrowersandhasmadesignificantcommunityinvestments.HancockWhitneyrepresents thatthebankhasoriginatedasignificantnumberof smallbusinessandfarmloans, includinginLMIcensustractsacrossthebank’sAAs.HancockWhitneyalsorepresents thatthebankhasoriginatedasignificantnumberof communitydevelopmentloans.

LegalDevelopments:ThirdQuarter,2019 25 CRAPerformanceof MidSouthBank MidSouthBankreceivedanoverallratingof “Satisfactory”atitsmostrecentCRAperformanceevaluationbytheOCC,asof February26,2018(“MidSouthBankEvaluation”).41 Thebankreceived“HighSatisfactory”ratingsfortheLendingTestandtheServiceTest anda“LowSatisfactory”ratingfortheInvestmentTest.42 ExaminersconcludedthatMidSouthBank’slendingperformancereflectedgoodresponsivenesstothecreditneedsinthebank’sAAsandthatagoodproportionof loanswere originatedinthebank’sAAs.Examinersfoundthatthegeographicdistributionof the bank’sloansinthebank’sAAswasgoodandthedistributionof loansbyborrowerincome levelwasadequate.Examinersnotedthatthebankhadanadequatelevelof qualified communitydevelopmentinvestmentsandwasresponsivetocreditandcommunity economicdevelopmentneeds.Finally,examinersfoundthebank’sdeliverysystemstobe accessibletocensustractsandindividualsof differentincomelevelsintheAAs,including inLMIareasandtoLMIindividuals. AdditionalSupervisoryViews TheBoardhasconsultedwiththeFDICregardingHancockWhitneyBank’sCRA, consumercompliance,andfairlendingrecordsandwiththeOCCregardingMidSouth Bank’sCRA,consumercompliance,andfairlendingrecords.TheFDICisconsideringthe commentsreceivedbytheBoardinconnectionwithitsreviewof thebankmergerapplicationrelatedtotheproposal.TheBoardhasconsideredtheresultsof theFDIC’smost recentconsumercomplianceexaminationof HancockWhitneyBankandtheOCC’smost recentconsumercomplianceexaminationof MidSouthBank,whichincludedreviewsof thebanks’compliancemanagementprogramsandcompliancewithconsumerprotection lawsandregulations.TheBoardalsoconsideredHancockWhitneyBank’ssupervisory recordwiththeCFPB. TheBoardhastakentheforegoingconsultationsandexaminationsintoaccountinevaluatingtheproposal,includinginconsideringwhetherHancockWhitneyhastheexperience andresourcestoensurethatthecombinedbankwouldhelpmeetthecreditneedsof the communitiestobeservedfollowingconsummationof theproposedtransaction. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.HancockWhitneyrepresentsthat,following consummationof theproposal,existingcustomersof MidSouthBankwouldbenefitfrom thetechnicalexpertiseandresourcesthatHancockWhitneyBankhasdeveloped.In addition,HancockWhitneyassertsthat,asaresultof thetransaction,MidSouthBank customerswouldhaveaccesstoabroadernetworkof branchesandloanproduction offices,aswellasenhancedonlineandmobilebankingplatformsandequipmentfinance specialists. 41 TheMidSouthBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Examiners reviewedloansfromJanuary1,2015,throughDecember31,2016,exceptforcommunitydevelopmentloans, whichwereevaluatedfortheperiodOctober6,2014,throughFebruary26,2018. 42 TheMidSouthBankEvaluationreviewedthebank’sactivitiesineachofthebank’s16AAsthroughoutLouisianaandTexas.

26 FederalReserveBulletin|January2020 ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA;theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws;supervisoryviewsof theFDIC,OCC,and CFPB;confidentialsupervisoryinformation;informationprovidedbyHancockWhitney; thepubliccommentsontheproposal;andotherpotentialeffectsof theproposalonthe convenienceandneedsof thecommunitiestobeserved.Basedonthatreview,theBoard determinesthattheconvenienceandneedsfactorisconsistentwithapproval. FinancialStability Section3of theBHCActrequirestheBoardtoconsider“theextenttowhichaproposed acquisition,merger,orconsolidationwouldresultingreaterormoreconcentratedrisksto thestabilityof 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 toinflictmaterialdamageonthebroadereconomy.45 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billionintotalassets,orthatresultinafirmwithlessthan$100billionintotalassets, aregenerallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthata proposaldoesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbelow eitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificantincreaseininterconnectedness,complexity,cross-borderactivities,orotherrisk factors.46 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billionintotalassetsandaproformaorganizationof lessthan$100billionintotal assets.Boththeacquirerandthetargetarepredominantlyengagedinretailandcommer- 43 12U.S.C.§1842(c)(7). 44 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 45 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder 2012-2(February14,2012). 46 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition.

LegalDevelopments:ThirdQuarter,2019 27 cialbankingactivities.47Theproformaorganizationwouldhaveminimalcross-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.48Inreachingitsconclusion,theBoardhasconsideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunderthe BHCActandotherapplicablestatutes.TheBoard’sapprovalisspecificallyconditionedon compliancebyHancockWhitneywithalltheconditionsimposedinthisorderandonany commitmentsmadetotheBoardinconnectionwiththeproposal.TheBoard’sapproval alsoisconditionedonreceiptbyHancockWhitneyof allrequiredregulatoryapprovals. Forpurposesof thisaction,theconditionsandcommitmentsaredeemedtobeconditions imposedinwritingbytheBoardinconnectionwithitsfindingsanddecisionhereinand,as such,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethe15thcalendardayaftertheeffectivedate of thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedforgood causebytheBoardortheFederalReserveBankof Atlanta,actingunderdelegated authority. Byorderof theBoardof Governors,effectiveSeptember5,2019. Votingforthisaction:ChairPowell,ViceChairClarida,ViceChairforSupervision Quarles,andGovernorsBrainardandBowman. AnnE.Misback Secretaryof theBoard 47 HancockWhitneyandMidSouthofferabroadarrayofretailandcommercialbankingproductsandservices. HancockWhitneyhas,andasaresultoftheproposalwouldcontinuetohave,asmallmarketshareinthese productsandservicesonanationwidebasis. 48 OnecommenterrequestedthattheBoardholdapublichearingontheproposal.Section3(b)oftheBHCAct doesnotrequirethattheBoardholdapublichearingonanyproposalunlesstheappropriatesupervisory authoritiesfortheacquiringbankorbanktobeacquiredmakeatimelywrittenrecommendationofdisapprovaloftheapplication.12U.S.C.§1842(b);12CFR225.16(e).TheBoardhasnotreceivedsucharecommendationfromtheappropriatesupervisoryauthorities.Underitsrules,theBoardalso,initsdiscretion,may holdapublichearingifappropriatetoallowinterestedpersonsanopportunitytoproviderelevanttestimony whenwrittencommentswouldnotadequatelypresenttheirviews.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.

28 FederalReserveBulletin|January2020 Order Issued Under Federal Reserve Act Vista Bank Ralls, Texas OrderApprovingtheEstablishmentof aBranch FRBOrderNo.2019-13(September10,2019) VistaBank,astatememberbanksubsidiaryof VistaBancshares,Incorporated,bothof Ralls,Texas,hasrequestedtheBoard’sapprovalundersection9of theFederalReserveAct (“FRA”)1andtheBoard’sRegulationH2toestablishabranchat5840WestNorthwest Highway,Dallas,Texas.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublishedinaccordancewiththeBoard’sRulesof Procedure.4Thetimefor submittingcommentshasexpired,andtheBoardhasconsideredtheproposalandthe commentreceivedinlightof thefactorsspecifiedintheFRA. VistaBancshares,Incorporated,withtotalassetsof $803.6million,isthe970thlargest depositoryorganizationintheUnitedStates,controllingapproximately$734.3millionin deposits,whichrepresentlessthan1percentof thetotalamountof depositsof insured depositoryinstitutionsintheUnitedStates.5VistaBankoperatesthrough13branches locatedinTexas,andthebank’smainofficeisinRalls,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 branchapplicationinlightof 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).VistaBankonlyhas branchesinTexasandispermittedtoestablishadditionalbranchesunderthelawsofTexas.SeeTex.Fin.Code Ann.§203.006.Theproposedbranchlocationcurrentlyisaloananddepositproductionoffice(“LDPO”)for VistaBank. 4 12CFR262.3(b). 5 Totalassets,nationalassetranking,andnationaldepositdataareasofMarch31,2019,andstatedepositdata areasofJune30,2018,unlessotherwisenoted.Inthiscontext,insureddepositoryinstitutionsinclude commercialbanks,savingsandloanassociations,andsavingsbanks. 6 InTexas,VistaBankisthe96thlargestdepositoryorganization,controllingapproximately$669.3millionin deposits,whichrepresentapproximately0.1percentofthetotalamountofdepositsofinsureddepositoryinstitutionsinthatstate. 7 12CFR208.6(b). 8 12U.S.C.§2901etseq. 9 12CFR208.21(a).

LegalDevelopments:ThirdQuarter,2019 29 Financial,Managerial,andOtherSupervisoryConsiderations Inconsideringthefinancialhistoryandcondition,earningsprospects,andcapital adequacyof VistaBank,theBoardhasreviewedreportsof examination,othersupervisory information,publiclyreportedandotherfinancialinformation,informationprovidedby VistaBank,andthecommentreceivedontheproposal.VistaBankiswellcapitalizedand wouldremainsouponconsummationof theproposal.Theassetquality,earnings,and liquidityof VistaBankareconsistentwithapproval,andVistaBankappearstohave adequateresourcestoabsorbthecostsof theproposal.Inaddition,futureearningsprospectsareconsideredconsistentwithapproval.TheBoardalsohasreviewedVistaBank’s proposedinvestmentinthebranchandconcludesthatthebank’sinvestmentisconsistent withregulatorylimitationsoninvestmentinbankpremises.10 InconsideringVistaBank’smanagerialresources,theBoardhasreviewedthebank’s examinationrecord,includingassessmentsof itsmanagement,risk-managementsystems, andoperations.TheBoardalsohasconsidereditssupervisoryexperienceswithVistaBank andthebank’srecordof compliancewithapplicablebanking,consumerprotection,and anti-money-launderinglaws.VistaBankisconsideredtobewellmanaged.VistaBank’s directorsandseniorexecutiveofficershavesubstantialknowledgeof andexperienceinthe bankingandfinancialservicessectors,andthebank’srisk-managementprogramappears consistentwithapproval. Basedonthisreviewandallthefactsof record,theBoarddeterminesthatVistaBank’s management,financialhistoryandcondition,capitaladequacy,andfutureearningsprospects,aswellastheeffectivenessof VistaBankincombattingmoney-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.

30 FederalReserveBulletin|January2020 institution’sbusinessmodel,marketingandoutreachplans,andplansafterconsummation, andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof Vista Bank,thefairlendingandcompliancerecordsof thebank,confidentialsupervisoryinformation,informationprovidedbyVistaBank,andthepubliccommentreceivedonthe proposal. PublicCommentontheProposal Onecommenterobjectedtotheproposal,allegingthatVistaBankdiscriminatesagainst AfricanAmericansand“redlines”AfricanAmericanneighborhoodsinHoustonand Dallas,Texas.14Specifically,thecommenterallegedthatVistaBankhasdeniedAfrican AmericanindividualsandAfricanAmerican-ownedbusinessesequalaccesstocapitaland creditbyheavilyconcentratingitsbranchesinpredominantlywhiteneighborhoodsand itsbankingservicestowhiteindividualsandwhite-ownedbusinessesinHoustonand Dallas.ThecommenteralsoallegesthatVistaBankdisfavorscertainAfricanAmerican neighborhoodsinHoustonandDallaswithrespecttoitsbranchingactivitiesandinother respects.Afterthecommentperiodended,thecommenterfiledasecondobjection, notingthattheproposedbranchwouldnotbelocatedinanAfrican-AmericanneighborhoodinDallasandgenerallyallegingthattheclaimsof discriminationraisedintheinitial commentalsoapplytoAfricanAmericanneighborhoodsandcensustractsinLubbock, Texas,andotherareasinwhichVistaBankhasbranches. Businessof theApplicantandResponsetoComment VistaBankoffersabroadrangeof retailandcommercialbankingproductstoconsumers andbusinessesthroughitsnetworkof branches.Theproductsandservicesinclude commercial,realestate,agricultural,andconsumerloans;personalcheckingandsavings accounts;businesscheckingandsavingsaccounts;onlinebanking;andtreasurymanagementservices. Inrespondingtothecommenter,VistaBanknotesthatitdoesnothaveanybranchesin Houstonoranyfull-servicebranchesinDallas.15VistaBankdeniesthecommenter’sallegationsof discriminationandassertsthatotherallegations,suchasthatthebankdenied “equalaccesstocapitalhomeequityloans”toAfricanAmericans,areclearlyfrivolous sincethebankdoesnotofferhomeequityloanstoanycustomers.VistaBankcitesitssatisfactoryCRAexaminationrecordandassertsthattheproposedbranchwoulddirectly benefitthepublicby,amongotherthings,promotingcompetitionamongfinancialservice providersintheDallasassessmentarea(“AA”).VistaBankfurtherrepresentsthataddi- 14 Redliningisthepracticeofprovidingunequalaccesstocredit,orunequaltermsofcredit,becauseoftherace, color,nationalorigin,orotherprohibitedcharacteristicsoftheresidentsoftheareainwhichacreditseeker residesorwillresideorinwhichapropertytobemortgagedislocated.SeeInteragencyFairLendingExaminationProcedures(August2009),availableathttps://www.ffiec.gov/pdf/fairlend.pdf. 15 Thecommenter’sclaimsofdiscriminationinbranchingandtheprovisionofvariousproductsandservicesin Houstonarewithoutmerit,sinceVistaBankdoesnothaveoperationsinHouston.Thecommenter’sclaimof discriminationinbranchingandtheprovisionofvariousproductsandservicesinDallasalsoareunsubstantiated,asVistaBankcurrentlydoesnothaveanyfull-servicebranchesinDallas,andthereisnoevidenceto suggestthattheplacementoftheLDPOortheofferingofproductsandservicesinDallasisdiscriminatory. Withrespecttothecommenter’sclaimsthatVistaBankdiscriminatesagainstAfricanAmericansintheprovisionofvariousproductsandservicesinLubbock,Texas,andtheotherareasinwhichVistaBankoperates, theseclaimsarenotsupportedbyanyverifiableevidenceordata.Assuch,theseallegationsareconsideredto bewhollyunsubstantiatedand,therefore,non-substantive.Accordingly,thesoleclaimbeingconsideredbythe BoardconcernstheallegationthatVistaBankdiscriminatesintheplacementofbranchesinLubbockand otherareasinwhichthebankoperatesbranches.

LegalDevelopments:ThirdQuarter,2019 31 tionalcommunityservicesandfinancialsupportwouldbeprovidedbyVistaBanktocharitiesandorganizationsthatbenefitunderservedcommunitiesintheDallasAA.Although theproposedbranchwouldnotbelocatedinamajority-minoritycensustract,VistaBank assertsthattheproductsandservicesofferedbythebranchwouldbecompetitivelypriced anddesignedtomeettheconvenienceandneedsof thepublic,includingcustomerslocated inmajority-minorityandLMIcommunitieswithintheDallasAA(suchasprovidingfree accountsthatcanbeopenedandaccessedonlinewithoutgoingtothebranch).VistaBank furtherrepresentsthattheproposedbranchwouldofferlendingproductstoindividualsof differentincomelevels,regardlessof location,includingbutnotlimitedtoautomobile loans,securedandunsecuredpersonalloans,residentialmortgageloans,andSBAloans. Recordof PerformanceundertheCRA InevaluatingtheCRAperformanceof theinvolvedinstitution,theBoardgenerally considerstheinstitution’smostrecentCRAevaluation,aswellasotherinformationand supervisoryviewsfromtherelevantfederalsupervisor,whichinthiscaseistheFederal ReserveBankof Dallas(“ReserveBank”).16Inaddition,theBoardconsidersinformation providedbytheapplicantandbypubliccommenters. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.17Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplyalendingtest(“LendingTest”)anda communitydevelopmenttest(“CommunityDevelopmentTest”)toevaluatetheperformanceof anintermediatesmallbank,suchasVistaBank,inhelpingtomeetthecredit needsof thecommunitiesitserves.TheLendingTestspecificallyevaluatestheinstitution’s lending-relatedactivitiestodeterminewhethertheinstitutionishelpingtomeetthecredit needsof individualsandgeographiesof allincomelevels.Aspartof theLendingTest, examinersreviewandanalyzeaninstitution’sdatareportedundertheHomeMortgage DisclosureAct(“HMDA”),18automatedloanreports,andotherreportsgeneratedbythe institutioninordertoassesstheinstitution’slendingactivitieswithrespecttoborrowers andgeographiesof differentincomelevels.Theinstitution’slendingperformanceisevaluatedbasedontheinstitution’s(1)loan-to-depositratioand,asappropriate,otherlendingrelatedactivities,suchasloanoriginationsforsaletothesecondarymarkets,community developmentloans,orqualifiedinvestments;(2)percentageof loansand,asappropriate, otherlending-relatedactivitieslocatedinthebank’sAAs;(3)recordof lendingtoand,as appropriate,engaginginotherlending-relatedactivitiesforborrowersof differentincome levelsandbusinessesandfarmsof differentsizes;(4)geographicdistributionof loans;and (6)recordof takingaction,if warranted,inresponsetowrittencomplaintsaboutthe institution’sperformanceinhelpingtomeetcreditneedsinthebank’sAAs.19TheCommunityDevelopmentTestevaluatesthenumberandamountsof theinstitution’scommunity developmentloansandqualifiedinvestments;theextenttowhichtheinstitutionprovides 16 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81Fed.Reg.48506,48548 (July25,2016). 17 12U.S.C.§2906. 18 12U.S.C.§2801etseq. 19 See12CFR228.26(b).

32 FederalReserveBulletin|January2020 communitydevelopmentservices;andtheinstitution’sresponsivenessthroughsuchactivitiestocommunitydevelopmentlending,investment,andserviceneeds.20 CRAPerformanceof VistaBank VistaBankwasassignedanoverall“Satisfactory”ratingatitsmostrecentCRAperformanceevaluationbytheReserveBank,asof June12,2017(“VistaBankEvaluation”).21 Thebankreceived“Satisfactory”ratingsforboththeLendingTestandtheCommunity DevelopmentTest.22 Examinersdeterminedthatthebank’sloan-to-depositratiowasreasonablegiventhe bank’ssize,financialcondition,andthecreditneedsof thebank’sAAs.Examinersfound thatamajorityof VistaBank’shomemortgageandsmallbusinessloanswereoriginatedin thebank’sAAs.ExaminersnotedthatVistaBank’sdistributionof loansbasedonincome andrevenuelevelsof borrowersreflectedareasonablepenetrationamongindividualsof differentincomelevelsandbusinessesof differentsizes.Inaddition,examinersfoundthat thebank’sgeographicdistributionof loansreflectedreasonabledispersionthroughoutthe bank’sAAs.Examinersconcludedthatthebankdidareasonablejobof meetingthesmall businessneedsof itsAAs. ExaminersfoundthatVistaBank’sperformanceundertheCommunityDevelopmentTest demonstratedadequateresponsivenesstothecommunitydevelopmentneedsof thebank’s AAs,consideringthebank’scapacity,loandemand,andavailablelendingopportunitiesin thoseareas.Examinersdeterminedthatthebankhadapplieditscommunitydevelopment resourcesstrategicallytomeetthesubstanceof communityneeds,throughqualified communitydevelopmentinvestments,loans,andservicestargetedtoLMIindividuals,as wellasrevitalizationandstabilizationefforts.Examinersnotedthatthebanktransitioned toanintermediatesmallbankonJanuary1,2017,and,priortothatdate,thebankwasnot requiredtoparticipateincommunitydevelopmentactivities. VistaBank’sEffortssincetheVistaBankEvaluation VistaBankrepresentsthat,sincetheVistaBankEvaluation,ithascontinuedtohelpmeet thecreditneedsof itsAAsbyexpandingitscapabilitiestoacceptonlinedepositaccount applicationsonthebank’swebsite,sothatcustomersthroughoutthebank’sAAsdonot havetovisitaphysicallocationtoopenchecking,savings,andtimedepositaccounts.Vista Bankrepresentsthatithasmadecommunitydevelopmentloansthatpromoteand supporteconomicdevelopmentandrevitalization,aswellasloanstoorganizations providingcommunityservicestoLMIindividualsandfamilies.Thebankassertsthatit maintainsinvestmentsinthreesmallbusinessinvestmentcompaniesandthatthebank directedthesecompaniestousethebank’sinvestmenttosupportbusinessesinthebank’s AAs.VistaBankalsoassertsthatithasinvestedinschool,city,andcountybondsthat benefitlowandmoderateincomeareasinthebank’scommunitiesinTexas.Additionally, VistaBankmaintainsthatitsteammembershavevolunteeredtoprovidefreetaxprepara- 20 See12CFR228.26(c). 21 TheVistaBankEvaluationwasconductedusingIntermediateSmallBankCRAExaminationProcedures, consistingoftheLendingandCommunityDevelopmenttestsdescribedabove.ExaminersreviewedHMDA datareportedbythebankfromJanuary1,2012,throughDecember31,2016,andasampleofsmallbusiness loansoriginatedbythebankbetweenJuly1,2016,throughDecember31,2016.Examinersalsoreviewed communitydevelopmentloans,investments,andservicesfromOctober9,2012,throughJune12,2017. However,theratingwasbasedoncommunitydevelopmentactivitiesbythebanksinceittransitionedtoan intermediatesmallbankeffectiveJanuary1,2017. 22 TheVistaBankEvaluationincludedafull-scopereviewofthebank’stwoAAs:theLubbock,TexasAA,which consistsofLubbockandCrosbycounties,partoftheLubbockMetropolitanStatisticalArea;andtheHale County,TexasAA,whichconsistsofHaleCounty,anon-metropolitanarea.

LegalDevelopments:ThirdQuarter,2019 33 tionservicestoLMIindividualsandthatthebankhasprovidedothercontributionsto benefitthecommunity,suchasafinancialeducationprogramforyouthsinLubbock,and hassponsoredculturalandeducationalinitiativesforLMIfamiliesinDallas. AdditionalSupervisoryConsiderations InadditiontotheVistaBankEvaluation,theBoardhasconsideredtheresultsof a2019 examinationof VistaBank’scompliancewiththerequirementsof theFairHousingAct, whichincludedareviewof thebank’sfairlendingriskmanagementprogram.Aredlining reviewincludedanevaluationof thebank’sfairlendingriskmanagementprocesseswith respecttothebank’smonitoring,branching,marketing,andoutreachactivities.TheBoard alsohasconsideredVistaBank’ssupervisoryrecordwiththeTexasDepartmentof Banking. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.VistaBankassertsthattheproposedbranchwould provideeconomicbenefitsandofferabroadrangeof financialservicesandproductsin theDallasmarketandenablethebanktoreachmoreconsumersandbusinesses,including thoselocatedinmajority-minorityorLMIareas.VistaBankrepresentsthatmembersof thepublicwouldbenefitfromthevolunteerservicesandcommunitysupportthatwouldbe providedbythebranchthroughVistaOutreach,theBank’scommunityoutreachprogram, toensureadequatecoverageof CRA-service-relatedactivitiesintheDallasmarketarea. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtheCRArecordof VistaBank, thebank’srecordsof compliancewithfairlendingandotherconsumerprotectionlaws, confidentialsupervisoryinformation,informationprovidedbyVistaBank,thepublic commentontheproposal,andotherpotentialeffectsof theproposalontheconvenience andneedsof thecommunitiestobeserved.Basedonthatreview,theBoarddetermines thattheconvenienceandneedsfactorisconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationshouldbe,andherebyis,approved.23TheBoard’sapprovalisspecificallyconditioned oncompliancebyVistaBankwithalltheconditionsimposedinthisorder,including receiptof allrequiredregulatoryapprovals,andonanycommitmentsmadetotheBoardin connectionwiththisproposal.Forpurposesof thisaction,theconditionsandcommit- 23 TheBoardconstruesthecommentreceivedontheproposaltoincludearequestthattheBoardholdpublic hearingsontheproposal.Underitsrules,theBoardmay,initsdiscretion,holdapublichearingifappropriate toallowinterestedpersonsanopportunitytoproviderelevanttestimonywhenwrittencommentswouldnot adequatelypresenttheirviews.12CFR262.3(e).TheBoardhasconsideredthecommenter’srequestinlightof allthefactsofrecord.NoticeoftheapplicationwaspublishedintherelevantnewspaperofgeneralcirculationonMay24,2019.ThecommentperiodendedonJune20,2019.IntheBoard’sview,thecommenterhas hadampleopportunitytosubmitcommentsontheproposaland,infact,submittedwrittencommentsthatthe Boardhasconsideredinactingontheproposal.Thecommenter’srequestdoesnotidentifydisputedissuesof factthatarematerialtotheBoard’sdecisionandthatwouldbeclarifiedbyapublichearing.Inaddition,the requestdoesnotdemonstratewhythewrittencommentdoesnotpresentthecommenter’sviewsadequatelyor whyahearingotherwisewouldbenecessaryorappropriate.Forthesereasons,andbasedonallthefactsof record,theBoardhasdeterminedthatapublichearingisnotrequiredorwarrantedinthiscase.Accordingly, therequestforapublichearingontheproposalisdenied.

34 FederalReserveBulletin|January2020 mentsaredeemedtobeconditionsimposedinwritingbytheBoardinconnectionwithits findingsanddecisionhereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Approvalof thisapplicationisalsosubjecttotheestablishmentof theproposedbranch withinoneyearof thedateof thisorder,unlesssuchperiodisextendedbytheBoardorthe ReserveBank,actingunderauthoritydelegatedbytheBoard. Byorderof theBoardof Governors,effectiveSeptember10,2019. Votingforthisaction:ChairPowell,ViceChairClarida,ViceChairforSupervision Quarles,andGovernorsBrainardandBowman. AnnE.Misback Secretaryof theBoard

February 2020 Vol. 106, No. 2 Boardof Governorsof theFederalReserveSystem www.federalreserve.gov Legal Developments: Fourth Quarter, 2019 Orders Issued Under Bank Holding Company Act Orders Issued Under Section 3 of the Bank Holding Company Act BB&T Corporation Winston-Salem, North Carolina OrderApprovingtheMergerof BankHoldingCompanies FRBOrderNo.2019-16(November19,2019) BB&TCorporation(“BB&T”),Winston-Salem,NorthCarolina,afinancialholding companywithinthemeaningof theBankHoldingCompanyActof 1956(“BHCAct”),1 hasrequestedtheBoard’sapprovalundersection3of theBHCAct2tomergewith SunTrustBanks,Inc.(“SunTrust”),Atlanta,Georgia,afinancialholdingcompany,and SunTrustBankHoldingCompany,Orlando,Florida,SunTrust’swhollyownedintermediateholdingcompany,andtherebyindirectlyacquireSunTrustBank,Atlanta,Georgia.3 Followingtheproposedacquisition,SunTrustBankwouldbemergedwithandinto BB&T’ssubsidiarystatenon-memberbank,BranchBankingandTrustCompany (“BranchBank”),Winston-Salem,NorthCarolina.4Theresultingholdingcompanywould berenamedTruistFinancialCorporation(“Truist”),andtheresultingbankwouldbe renamedTruistBank. BB&T,withconsolidatedassetsof approximately$230.9billion,isthe16thlargestinsured depositoryorganizationintheUnitedStates,controllingapproximately$166.7billionin consolidateddeposits,whichrepresentapproximately1.3percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.5BB&TcontrolsBranch Bank,whichoperatesinAlabama,Florida,Georgia,Indiana,Kentucky,Maryland, NewJersey,NorthCarolina,Ohio,Pennsylvania,SouthCarolina,Tennessee,Texas, Virginia,WestVirginia,andtheDistrictof Columbia. SunTrust,withconsolidatedassetsof approximately$222.5billion,isthe17thlargest insureddepositoryorganizationintheUnitedStates,controllingapproximately $162.5billioninconsolidateddeposits,whichrepresent1.3percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.SunTrustcontrols SunTrustBank,whichoperatesinAlabama,Arkansas,Florida,Georgia,Maryland, 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 BB&TwouldeffecttheacquisitionbymergingSunTrustwithandintoBB&T,withBB&Tasthesurvivor.Shortly thereafter,SunTrustBankHoldingCompanywouldmergewithandintoBB&T,withBB&Tasthesurvivor. 4 ThemergerofSunTrustBankintoBranchBankissubjecttotheapprovaloftheFederalDepositInsuranceCorporation(“FDIC”)pursuanttosection18(c)oftheFederalDepositInsuranceAct(“BankMergerAct”). 5 AssetanddepositdataareasofJune30,2019,unlessotherwisenotedanddonotreflectadjustmentsfor consolidation.

2 FederalReserveBulletin|February2020 Mississippi,NorthCarolina,SouthCarolina,Tennessee,Virginia,andtheDistrictof Columbia. Onconsummationof thisproposal,Truist,asthecombinedorganization,wouldbecome theeighthlargestinsureddepositoryorganizationintheUnitedStates,withconsolidated assetsof approximately$453.4billion,whichrepresent2.0percentof thetotalamountof assetsof insureddepositoryinstitutionsintheUnitedStates.Truistwouldcontrolconsolidateddepositsof approximately$330.9billion,whichrepresent2.6percentof thetotal depositsof insureddepositoryinstitutionsintheUnitedStates.6 PublicCommentsontheProposal Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(84FederalRegister9340(March14,2019)).7Thetimeforsubmitting commentshasexpired.TheBoardextendedtheinitialperiodforpubliccommentto accommodatepublicinterestinthisproposal,providinginterestedpersonsuntilMay3, 2019,atotalof morethan50days,tosubmitwrittencomments(84FederalRegister10517 (March21,2019)). Inaddition,inlightof thesignificantpublicinterestintheproposal,theBoardheldtwo publicmeetingsinCharlotte,NorthCarolina,andAtlanta,Georgia,toprovideinterested personsanopportunitytopresentoraltestimonyonthefactorsthattheBoardis requiredtoconsiderundertheBHCAct.8Approximately116individualsprovidedoral testimonyatthepublicmeetings,asubsetof whichalsosubmittedwrittencomments.In total,theBoardreceivedapproximately1050commentsfromindividualsandorganizations.Commentersincludedcommunitygroups,nonprofitorganizations,customersof the twobankingorganizations,andotherinterestedorganizationsandindividuals. Amajorityof commenterssupportedtheproposal.9Manyof thesecommenterscontended thattheproposalwouldbenefitcommunitiesandcommunityorganizationsthroughoutthe footprintsof BB&TandSunTrustthroughincreasedresourcesandservicesprovidedby thecombinedorganization.CommentersgenerallycommendedBB&TandSunTrustfor theirinvolvementintheircommunitiesanddescribedpositiveexperiencesrelatedtosmall business,communitydevelopment,andcharitablecontributionandinvestmentprograms of bothorganizations.Inaddition,commenterspraisedbothorganizationsfortheircorporatecultures,whichencourageofficersandemployeestovolunteertheirtimeandresources andtoprovideservicestocommunityorganizations.10 Asignificantnumberof commenterseitheropposedtheproposal,requestedthattheBoard approvetheproposalsubjecttocertainconditions,orotherwiseexpressedconcernsabout 6 SeeAppendixIforassetanddepositdatabystate,forstatesinwhichBranchBankandSunTrustBankboth havebankingoperations. 7 12CFR262.3(b). 8 ThepublicmeetingswereheldjointlywiththeFDIConApril25,2019,attheCharlotteBranchoftheFederal ReserveBankofRichmondandonMay3,2019,attheFederalReserveBankofAtlanta. 9 TheBoardreceivedapproximately949commentsinsupportoftheproposal.Approximately88persons providedoralcommentsinsupportoftheproposal. 10 Acommentercontendedthatmanycommenterswhosupportedtheproposalreceivedfinancialsupportfrom BB&TandSunTrust.TheBoardinvitescommentsfromallmembersofthepublicthathaveaninterestinthe application.TheBoardconsidersalltimelyandsubstantivecommentsonanapplicationwithoutregardtothe commenters’motivationforsupportingoropposingtheapplication.

LegalDevelopments:FourthQuarter,2019 3 theproposal.11Manycommentersquestionedwhethertheproposalwouldresultinpublic benefits.Commentersexpressedconcernthattheproposalwouldresultinsignificantjob lossesandbranchclosures.Commentersalsocriticizedtherecordsof performanceof both institutionsinmeetingthecreditneedsof theircommunities,particularlyminoritycommunitiesandlow-andmoderate-income(“LMI”)communities.Commentersexpressed concernsthattheproposalwouldresultinfewerservicesandlessfocusonruralcommunitiesandthatitwouldresultincustomerconfusion,particularlyamongseniorcitizens.In addition,commentersexpressedconcernthattheproposalwouldsignificantlyreduce competitionthroughoutthebankingmarketsinwhichBB&TandSunTrustoperate. CommentersalsoassertedthatthecombinedinstitutionwouldposearisktoU.S.financial stability,withtheresultinginstitutionbeing“toobigtofail.” InevaluatingthestatutoryfactorsundertheBHCAct,theBoardconsideredtheinformationandviewspresentedbyallcommenters,includinginformationpresentedatthepublic meetingsandinwrittensubmissions.TheBoardalsoconsideredallof theinformation presentedintheapplicationandsupplementalfilingsbyBB&T,variousreportsfiledbythe relevantcompanies,andpubliclyavailableinformation.Inaddition,theBoardconsulted withtherelevantfinancialsupervisoryagenciesandtheDepartmentof Justice(“DOJ”) andreviewedconfidentialsupervisoryinformation,includingexaminationreportsonthe depositoryinstitutionholdingcompaniesandthedepositoryinstitutionsinvolved.Aftera reviewof allthefactsof record,andforthereasonsdiscussedinthisorder,theBoard concludesthatthestatutoryfactorsitisrequiredtoconsiderundertheBHCActare consistentwithapprovalof theproposal. FactorsGoverningBoardReviewof theTransaction TheBHCActsetsforththefactorsthattheBoardisrequiredtoconsiderwhenreviewing themergerof bankholdingcompaniesortheacquisitionof banks.12Thesefactorsinclude thecompetitiveeffectsof theproposalintherelevantgeographicmarkets;thefinancial andmanagerialresourcesandfutureprospectsof thecompaniesandbanksinvolvedinthe proposal;theeffectivenessof theinvolvedinstitutionsincombattingmoney-laundering activities;theconvenienceandneedsof thecommunitiestobeserved,includingtherecords of performanceundertheCommunityReinvestmentActof 1977(“CRA”)13of theinsured depositoryinstitutionsinvolvedinthetransaction;andtheextenttowhichtheproposal wouldresultingreaterormoreconcentratedriskstothestabilityof theU.S.bankingor financialsystem.Forproposalsinvolvinginterstatebankacquisitionsbybankholding companies,theBoardalsomustconsidertheconcentrationof depositsasapercentageof thetotaldepositscontrolledbyinsureddepositoryinstitutionsintheUnitedStatesandin relevantindividualstates,aswellascompliancewiththeotherprovisionsof section3(d)of theBHCAct. InterstateAnalysis Section3(d)of theBHCActgenerallyprovidesthat,if certainconditionsaremet,the Boardmayapproveanapplicationbyabankholdingcompanythatiswellcapitalizedand wellmanagedtoacquirecontrolof abanklocatedinastateotherthanthehomestateof thebankholdingcompanywithoutregardtowhetherthetransactionisprohibitedunder 11 TheBoardreceivedapproximately104commentsinoppositiontotheproposal.Ofthesecomments,approximately70commentswereindividualizedwrittencomments,andapproximately34commentsweresubmittedas formletters.Approximately21personsprovidedoralcommentsinoppositiontotheproposal. 12 See12U.S.C.§1842. 13 12U.S.C.§2901etseq.

4 FederalReserveBulletin|February2020 statelaw.14TheBoard(1)maynotapproveanapplicationthatwouldpermitanout-ofstatebankholdingcompanyorbanktoacquireabankinahoststateif thetargetbank hasnotbeeninexistenceforthelesserof thestatestatutoryminimumperiodof timeor fiveyears;15(2)musttakeintoaccounttherecordof theapplicantbankundertheCRA andtheapplicant’srecordof compliancewithapplicablestatecommunityreinvestment laws;and(3)maynotapproveaninterstateapplicationif thebankholdingcompanyor resultingbank,uponconsummationof theproposedtransaction,wouldcontrolmorethan 10percentof thetotaldepositsof insureddepositoryinstitutionsintheUnitedStatesor, incertaincircumstances,if thebankholdingcompanyorresultingbank,uponconsummation,wouldcontrol30percentormoreof thetotaldepositsof insureddepositoryinstitutionsinthetargetbank’shomestateorinanystateinwhichtheacquirerandtargethave overlappingbankingoperations.16 Forpurposesof theBHCAct,thehomestateof BB&TisNorthCarolina.17SunTrust BankislocatedinAlabama,Arkansas,Florida,Georgia,Maryland,Mississippi,North Carolina,SouthCarolina,Tennessee,Virginia,andtheDistrictof Columbia.BB&Tiswell capitalizedandwellmanagedunderapplicablelaw,andBranchBankhasasatisfactory ratingundertheCRA.18Alabama,Arkansas,Georgia,Mississippi,andTennesseehave minimumagerequirementsthatapplytoBB&T’sacquisitionof SunTrust.19Florida, Maryland,NorthCarolina,SouthCarolina,Virginia,andtheDistrictof Columbiadonot haveminimumagerequirements.SunTrustBankhasbeeninexistenceformorethan fiveyears. Onconsummationof theproposedtransaction,Truist,asthecombinedorganization, wouldcontrol2.6percentof thetotalamountof consolidateddepositsininsureddepositoryinstitutionsintheUnitedStates.Alabama,Florida,Georgia,Maryland,SouthCarolina,andTennesseeeachimposea30percentlimitonthetotalamountof in-statedeposits thatasinglebankingorganizationmaycontrol.20Thecombinedorganizationwould controlapproximately3.5percentof thetotalamountof depositsof insureddepository institutionsinAlabama,11.0percentinFlorida,26.7percentinGeorgia,13.5percentin Maryland,13.1percentinSouthCarolina,and9.6percentinTennessee.21Accordingly,in lightof allthefactsof record,theBoardmayapprovetheproposalundersection3(d)of theBHCAct. 14 12U.S.C.§1842(d)(1)(A). 15 12U.S.C.§1842(d)(1)(B). 16 12U.S.C.§1842(d)(2)(A)and(B).Forpurposesofsection3(d)oftheBHCAct,theacquiringandtargetinstitutionshaveoverlappingbankingoperationsinanystateinwhichanybanktobeacquiredislocatedandthe acquiringbankholdingcompanycontrolsanyinsureddepositoryinstitutionorbranch.TheBoardconsidersa banktobelocatedinanystateinwhichthebankischartered,headquartered,oroperatesabranch.See 12U.S.C.§1841(o)(4)–(7). 17 See12U.S.C.§1841(o)(4).Abankholdingcompany’shomestateisthestateinwhichthetotaldepositsofall bankingsubsidiariesofsuchcompanywerethelargestonJuly1,1966,orthedateonwhichthecompany becameabankholdingcompany,whicheverislater.Anationalbank’shomestateisthestateinwhichthemain officeofthebankislocated. 18 OnlytwoofthejurisdictionsinwhichBB&Toperates—WestVirginiaandtheDistrictofColumbia—have statecommunityreinvestmentlaws.SeeW.Va.Code§§31A-8B-1to31-8B-5;D.C.Code§26-431.01etseq. However,thoselawsdonotappeartoapplytoBB&T. 19 SeeAla.Code§5-13B-23(5years);Ark.CodeAnn.§§23-45-102(18)(A)&23-48-505(5years);Ga.CodeAnn. §7-1-622(3years);Miss.CodeAnn.§81-8-3(5years);Tenn.CodeAnn.§§45-2-1402&1403(3years). 20 SeeAla.Code§5-13B-23(b);Fla.Stat.§658.2953;Ga.CodeAnn.§7-1-622(b)(2)(B);Md.CodeAnn.Fin. Inst.§5-905(b);S.C.CodeAnn.§34-25-240;Tenn.CodeAnn.§45-2-1404.NorthCarolina,Virginia,andthe DistrictofColumbiadonotimposelimitsonthetotalamountofdepositsaninsureddepositoryinstitution maycontrolinthosejurisdictions. 21 Acommenterallegedthattheacquisitioncouldresultinthecombinedorganizationcontrollingdepositsin excessofstatedepositlimits.Asnotedabove,thecombinedorganizationwouldnotcontrol30percentormore ofthedepositsinanystate.

LegalDevelopments:FourthQuarter,2019 5 CompetitiveConsiderations Section3of theBHCActprohibitstheBoardfromapprovingaproposalthatwouldresult inamonopolyorwouldbeinfurtheranceof anattempttomonopolizethebusinessof bankinginanyrelevantmarket.22TheBHCActalsoprohibitstheBoardfromapprovinga proposalthatwouldsubstantiallylessencompetitionortendtocreateamonopolyinany bankingmarket,unlesstheanticompetitiveeffectsof theproposalareclearlyoutweighedin thepublicinterestbytheprobableeffectof theproposalinmeetingtheconvenienceand needsof thecommunitiestobeserved.23 BB&TandSunTrusthavesubsidiarybanksthatcompetedirectlyin81bankingmarketsin Alabama,Florida,Georgia,Maryland,NorthCarolina,SouthCarolina,Tennessee, Virginia,andtheDistrictof Columbia.24TheBoardhasconsideredthecompetitiveeffects of theproposalinthesebankingmarkets.Inparticular,theBoardhasconsideredtherelativesharesof totaldepositsininsureddepositoryinstitutionsinthemarkets(“market deposits”)thatBB&Twouldcontrol;25theconcentrationlevelsof marketdepositsandthe increaseintheselevelsasmeasuredbytheHerfindahlHirschmanIndex(“HHI”)under theDOJBankMergerCompetitiveReviewguidelines(“DOJBankMergerGuidelines”);26 thenumberof competitorsthatwouldremainineachmarket;othercharacteristicsof the markets;and,asdiscussedbelow,commitmentsmadebyBB&Ttodivestbranchesin certainmarkets.27TheBoardalsohasconsideredthepubliccommentsonthecompetitive effectsof theproposal.28 22 12U.S.C.§1842(c)(1)(A). 23 12U.S.C.§1842(c)(1)(B). 24 Acommenterarguedthattheproposalwouldsubstantiallylessencompetitioninthefollowingareas:the Atlanta–SandySprings–Alpharetta,Georgia,MetropolitanStatisticalArea(“MSA”);theCharlottesville, Virginia,MSA;theDeltona–DaytonaBeach–OrmondBeach,Florida,MSA;theDurham–ChapelHill, NorthCarolina,MSA;theHomosassaSprings,Florida,MSA;theMacon–BibbCounty,Georgia,MSA;the Roanoke,Virginia,MSA;theStaunton–Waynesboro,Virginia,MSA;theVirginiaBeach–Norfolk–Newport News,Virginia–NorthCarolina,MSA;andtheWinston-Salem,NorthCarolina,MSA.TheseMSAsarenot geographicbankingmarketsandarenotconsistentwiththeBoard’sgeographicbankingmarkets.Consistent withSupremeCourtprecedent,theBoardexaminedthecompetitiveeffectsoftheproposalintherelevant geographicmarkets,definedbelow.SeeUnitedStatesv.PhillipsburgNationalBank,399U.S.350(1970);United Statesv.PhiladelphiaNationalBank,374U.S.321,357(1963).Indefiningtherelevantgeographicmarket,the Boardandcourtshaveconsistentlyfoundthattherelevantgeographicmarketforanalyzingthecompetitive effectsofaproposalmustreflectcommercialandbankingrealitiesandshouldconsistofthelocalareawhere customerscanpracticablyturnforalternatives.SeePhiladelphiaNationalBank,374U.S.at357;FirstYorkBan Corp,88FederalReserveBulletin251,251(2002);FirstUnionCorporation,84FederalReserveBulletin489, 491–92(1998). 25 DepositandmarketsharedataareasofJune30,2018,andunlessotherwisenoted,arebasedoncalculationsin whichthedepositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhasindicatedthat thriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorstocommercialbanks. See,e.g.,MidwestFinancialGroup,75FederalReserveBulletin386(1989);NationalCityCorporation, 70FederalReserveBulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsinmarketshare calculationsona50-percentweightedbasis.See,e.g.,HancockWhitneyCorporation,FRBOrderNo.2019-12at 6(September5,2019). 26 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDOJhasinformedtheBoardthatabankmergeroracquisitiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicatinganticompetitiveeffects)unless thepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymorethan200points.Althoughthe DOJandtheFederalTradeCommissionissuedrevisedHorizontalMergerGuidelinesin2010,theDOJhas confirmedthatitsBankMergerGuidelines,whichwereissuedin1995,werenotmodified.SeePressRelease, DepartmentofJustice(August19,2010),availableatwww.justice.gov/opa/pr/2010/August/10-at-938.html. 27 BB&Thasagreedtodivestapproximately$2.4billionindepositsand30branchesacrossNorthCarolina, Virginia,andGeorgia. 28 Commentersexpressedconcernthattheproposalwouldincreaseconcentrationinbankingmarketsthroughout theSoutheastandMid-Atlantic,includinginFlorida,Georgia,Maryland,NorthCarolina,andVirginia.

6 FederalReserveBulletin|February2020 BankingMarketswithinEstablishedGuidelines Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesin68bankingmarkets.Onconsummation, twobankingmarketswouldbecomehighlyconcentrated;10bankingmarketswould remainhighlyconcentrated;10bankingmarketswouldbecomemoderatelyconcentrated; 41bankingmarketswouldremainmoderatelyconcentrated;andfivebankingmarkets wouldremainunconcentrated,asmeasuredbytheHHI.ThechangeintheHHIinthese marketsgenerallywouldbesmall,consistentwithBoardprecedent,andwithinthethresholdsintheDOJBankMergerGuidelines.Inaddition,numerouscompetitorswouldremain inmostof thesebankingmarkets.29 BankingMarketsWarrantingSpecialScrutiny Thestructuraleffectsthatconsummationof theproposalwouldhaveintheNorthLake/ SumterArea,Florida,bankingmarket;theAtlanta,LumpkinCounty,MilledgevilleArea, andWayneCountybankingmarkets,allinGeorgia;theDurham–ChapelHilland Winston-Salembankingmarkets,bothinNorthCarolina;theEasternShore,Lexington, Martinsville,Richmond,andSouthBostonbankingmarkets,allinVirginia;andthe Norfolk–Portsmouth,Virginia–NorthCarolina,bankingmarketwarrantadetailedreview becausetheconcentrationlevelsonconsummationwouldexceedthethresholdsintheDOJ BankMergerGuidelinesorwouldresultinthemarketdepositshareof BB&Tequalingor exceeding35percentwhenusinginitialcompetitivescreeningdata.Insixof these markets,BB&TproposestodivestallbranchestobeacquiredfromSunTrustand,therefore,thelevelsof concentrationasmeasuredbytheHHIwouldnotmateriallyincreaseon consummationof themergerandproposeddivestitures.30 MarketswithoutDivestitures NorthLake/SumterArea,Florida,BankingMarket.BranchBankisthefifthlargestdepositoryinstitutionintheNorthLake/SumterAreabankingmarket,controllingapproximately $345.8millionindeposits,whichrepresent7.7percentof marketdeposits.31SunTrustBank isthesecondlargestdepositoryinstitutioninthemarket,controllingapproximately $650.2millionindeposits,whichrepresent14.5percentof marketdeposits.Onconsummation,BranchBankwouldbethesecondlargestdepositoryinstitutionintheNorthLake/ SumterAreabankingmarket,controllingapproximately$996.0millionindeposits,which Similarly,acommenterarguedthattheproposalwouldresultinconsolidatedmarketpoweramongonlyafew largebanks.Commenterssuggestedthatthereducedcompetitionasaresultofthemergerwouldresultinless favorableoutcomesforconsumers. Acommenteralsospecificallyallegedthattheproposalwouldresultinasubstantiallesseningofcompetitionin severalMSAsbecausetheresultingmarketsharewouldbe“presumedtolikelyincreasemarketpower”under the2010DOJandFederalTradeCommissionHorizontalMergerGuidelines.Asnotedabove,theDOJhas confirmedthatitsBankMergerGuidelineswerenotmodifiedbythe2010DOJandFederalTradeCommission HorizontalMergerGuidelines. Acommenteralsoexpressedconcernthatthecombinedorganizationwouldoccupyasignificantportionofthe nationalmortgagebankingmarket.Basedondatareportedfor2017undertheHomeMortgageDisclosureAct of1975(“HMDA”),thecombinedorganizationwouldrepresentlessthantwopercentofnationwidemortgageoriginations. 29 Thesebankingmarketsandthecompetitiveeffectsoftheproposalinthesemarketsaredescribedin AppendixII. 30 ThesixmarketsaretheLumpkinCountybankingmarket,theWayneCountybankingmarket,theEastern Shorebankingmarket,theMartinsvillebankingmarket,theSouthBostonbankingmarket,andtheWinston- Salembankingmarket. 31 TheNorthLake/SumterAreabankingmarketisdefinedasSumterCounty,andtheCensusCountyDivisions ofFruitlandPark–LadyLake,Leesburg,andLeesburgEastinLakeCounty,allofFlorida.

LegalDevelopments:FourthQuarter,2019 7 wouldrepresentapproximately21.7percentof marketdeposits.TheHHIinthismarket wouldincrease214points,from1878to2092. TheBoardhasconsideredwhetherfactorseithermitigatethecompetitiveeffectsof the proposalorindicatethattheproposalwouldnothaveasignificantlyadverseeffecton competitionintheNorthLake/SumterAreabankingmarket.32Inparticular,fourcredit unionsexertacompetitiveinfluenceintheNorthLake/SumterAreabankingmarket becauseeachinstitutionoffersawiderangeof consumerbankingproducts,operatesstreetlevelbranches,andhasbroadmembershipcriteriathatincludealmostallof theresidents intherelevantbankingmarket.33TheBoardfindsthatthedepositsof creditunionsthat exhibitthesecharacteristicsshouldbeincludedata50-percentweightincalculatingitsestimateof marketinfluence(eacha“qualifyingcreditunion”).Thisweightingtakesinto accountthelimitedlendingdonebycreditunionstosmallbusinessesrelativetocommercial banks’lendinglevels. ThisadjustmentsuggeststhattheresultingmarketconcentrationintheNorthLake/Sumter Areabankingmarketislesssignificantthanwouldappearfromtheinitialcompetitive screeningdata.Afterconsummation,andadjustingtoreflectcompetitionfromcredit unionsinthemarket,themarketconcentrationlevelintheNorthLake/SumterArea bankingmarketasmeasuredbytheHHIwouldincreaseby198points,from1736to1934, andthemarketshareof BB&Twouldincreaseto20.9percent.Seventeenotherinsured depositoryinstitutions,includingthecreditunions,wouldremaininthemarket,including oneinsureddepositoryinstitutionwithamarketshareof morethan36.0percent. Atlanta,Georgia,BankingMarket.BranchBankisthefourthlargestdepositoryinstitution intheAtlantabankingmarket,controllingapproximately$8.7billionindeposits,which represent5.1percentof marketdeposits.34SunTrustBankisthelargestdepositoryinstitutioninthemarket,controllingapproximately$47.3billionindeposits,whichrepresent 27.8percentof marketdeposits.Onconsummation,BranchBankwouldbethelargest depositoryinstitutionintheAtlantabankingmarket,controllingapproximately $56.0billionindeposits,whichwouldrepresentapproximately32.9percentof market deposits.TheHHIinthismarketwouldincrease284points,from1547to1831. TheBoardhasconsideredwhetherfactorseithermitigatethecompetitiveeffectsof the proposalorindicatethattheproposalwouldnothaveasignificantlyadverseeffecton competitionintheAtlantabankingmarket.Twothriftinstitutionsinthemarkethavea commercialandindustrialloanportfoliosimilartothoseof commercialbanksinthe Atlantabankingmarket,asmeasuredintermsof theratiosof thosetypesof loanstototal loansandassets.35Accordingly,theBoardhasconcludedthatdepositscontrolledbythese 32 Thenumberandstrengthoffactorsnecessarytomitigatethecompetitiveeffectsofaproposaldependonthe sizeoftheincreasein,andresultinglevelof,concentrationinabankingmarket.SeeNationsBankCorporation, 84FederalReserveBulletin129(1998). 33 TheBoardpreviouslyhasconsideredcompetitionfromcertainactivecreditunionswiththesefeaturesasa mitigatingfactor.See,e.g.,HuntingtonBancsharesIncorporated,FRBOrderNo.2016-13(July29,2016); BB&TCorporation,FRBOrderNo.2015-18(July7,2015);andWachoviaCorporation,92FederalReserve BulletinC183(2006). 34 TheAtlantabankingmarketisdefinedasBartow,Cherokee,Clayton,Cobb,Coweta,Dawson,DeKalb, Douglas,Fayette,Forsyth,Fulton,Gwinnett,Hall,Henry,Jasper,Newton,Paulding,Rockdale,andWalton counties;thetownsofAuburnandWinderinBarrowCounty;andLuthersvilleinMeriwetherCounty,allin Georgia. 35 Thestandardtreatmentofthriftsinthecompetitiveanalysisistogivetheirdeposits50percentweighttoreflect theirlimitedlendingtosmallbusinessesrelativetobanks’lendinglevels.TheBoardpreviouslyhasindicated, however,thatitmayconsiderthecompetitivenessofathriftinstitutionatalevelgreaterthan50percentofits depositswhenappropriateifcompetitionfromtheinstitutioncloselyapproximatescompetitionfroma commercialbank.See,e.g.,BanknorthGroup,Inc.,75FederalReserveBulletin703(1989).Where,ashere,the factsandcircumstancesofabankingmarketindicatethataparticularthriftservesasasignificantsourceof

8 FederalReserveBulletin|February2020 institutionsshouldbeweightedat100percentinthemarket-sharecalculations.Inaddition, sixqualifyingcreditunionsexertacompetitiveinfluenceintheAtlantabankingmarket. TheseadjustmentssuggestthattheresultingmarketconcentrationintheAtlantabanking marketislesssignificantthanwouldappearfromtheinitialcompetitivescreeningdata. Takingtheadjustmentsintoconsideration,themarketconcentrationlevelintheAtlanta bankingmarketasmeasuredbytheHHIwouldincreaseby270points,from1473to1743, andthemarketshareof BB&Twouldincreaseto32.1percentuponconsummation. Eighty-sevenotherinsureddepositoryinstitutions,includingthethriftsandthecredit unions,wouldremaininthemarket,includingtwoinsureddepositoryinstitutionseach withamarketshareof morethan18.0percent. MilledgevilleArea,Georgia,BankingMarket.BranchBankisthethirdlargestdepository institutionintheMilledgevilleAreabankingmarket,controllingapproximately $120.6millionindeposits,whichrepresent14.7percentof marketdeposits.36SunTrust Bankisthefourthlargestdepositoryinstitutioninthemarket,controllingapproximately $107.2millionindeposits,whichrepresent13.1percentof marketdeposits.Onconsummation,BranchBankwouldbethelargestdepositoryinstitutionintheMilledgevilleArea bankingmarket,controllingapproximately$227.9millionindeposits,whichwouldrepresentapproximately27.8percentof marketdeposits.TheHHIinthismarketwouldincrease 385points,from1686to2071. TheBoardhasconsideredwhetherfactorseithermitigatethecompetitiveeffectsof the proposalorindicatethattheproposalwouldnothaveasignificantlyadverseeffecton competitionintheMilledgevilleAreabankingmarket.Inparticular,twoqualifyingcredit unionsexertacompetitiveinfluenceintheMilledgevilleAreamarket. ThisadjustmentforthequalifyingcreditunionssuggeststhattheresultingmarketconcentrationintheMilledgevilleAreabankingmarketislesssignificantthanwouldappearfrom theinitialcompetitivescreeningdata.Afterconsummation,themarketconcentrationlevel intheMilledgevillebankingmarketasmeasuredbytheHHIwouldincreaseby324points, from1457to1781,andthemarketshareof BB&Twouldincreaseto25.5percent.Nine otherinsureddepositoryinstitutions,includingthecreditunions,wouldremaininthe market,includingtwoinsureddepositoryinstitutionseachwithamarketshareof more than21.0percent. Lexington,Virginia,BankingMarket.BranchBankisthelargestdepositoryinstitutionin theLexingtonbankingmarket,controllingapproximately$153.5millionindeposits,which represent22.8percentof marketdeposits.37SunTrustBankisthesixthlargestdepository institutioninthemarket,controllingapproximately$59.0millionindeposits,whichrepresent8.8percentof marketdeposits.Onconsummation,BranchBankwouldremainthe largestdepositoryinstitutionintheLexingtonbankingmarket,controllingapproximately $212.5millionindeposits,whichwouldrepresentapproximately31.6percentof market deposits.TheHHIinthismarketwouldincrease401points,from1478to1879. commercialloansandprovidesabroadrangeofconsumer,mortgage,andotherbankingproducts,theBoard hasconcludedthatcompetitionfromsuchathriftcloselyapproximatescompetitionfromacommercialbank andthatdepositscontrolledbytheinstitutionshouldbeweightedat100percentinmarket-sharecalculations. See,e.g.,RiverValleyBancorp,FRBOrderNo.2012-10(October17,2012);RegionsFinancialCorporation, 93FederalReserveBulletinC16(2007);andBanknorthGroup,Inc.,supra. 36 TheMilledgevilleAreabankingmarketisdefinedasBaldwinandHancockcounties;thenorthernhalfof WilkinsoncountythatincludesthetownsofGordon,Irwinton,Ivey,andMcIntyre;andtheLittleRiver CensusCountyDivisioninPutnamCounty,allinGeorgia. 37 TheLexingtonbankingmarketisdefinedastheindependentcitiesofLexingtonandBuenaVistaand RockbridgeCounty,allinVirginia.

LegalDevelopments:FourthQuarter,2019 9 TheBoardhasconsideredwhetherotherfactorseithermitigatethecompetitiveeffectsof theproposalorindicatethattheproposalwouldnothaveasignificantlyadverseeffecton competitionintheLexingtonbankingmarket.Inparticular,twoqualifyingcreditunions exertacompetitiveinfluenceinthebankingmarket. ThisadjustmentforthequalifyingcreditunionssuggeststhattheresultingmarketconcentrationintheLexingtonbankingmarketislesssignificantthanwouldappearfromthe initialcompetitivescreeningdata.Afterconsummation,andadjustingtoreflectcompetitionfromthetwocreditunionsreferencedabove,themarketconcentrationlevelinthe LexingtonbankingmarketasmeasuredbytheHHIwouldincreaseby376points,from 1395to1771,andthemarketshareof BB&Twouldincreaseto30.6percent.Eightother insureddepositoryinstitutions,includingthecreditunions,wouldremaininthemarket, includingfourinsureddepositoryinstitutionseachwithamarketshareof morethan 10.0percent. Norfolk–Portsmouth,Virginia–NorthCarolina,BankingMarket.BranchBankisthefourth largestdepositoryinstitutionintheNorfolk–Portsmouthbankingmarket,controlling approximately$2.3billionindeposits,whichrepresent12.7percentof marketdeposits.38 SunTrustBankisthethirdlargestdepositoryinstitutioninthemarket,controllingapproximately$2.8billionindeposits,whichrepresent16.0percentof marketdeposits.On consummation,BranchBankwouldbethelargestdepositoryinstitutionintheNorfolk– Portsmouthbankingmarket,controllingapproximately$5.1billionindeposits,which wouldrepresentapproximately28.7percentof marketdeposits.TheHHIinthismarket wouldincrease407points,from1667to2074. TheBoardhasconsideredwhetherfactorseithermitigatethecompetitiveeffectsof the proposalorindicatethattheproposalwouldnothaveasignificantlyadverseeffecton competitionintheNorfolk–Portsmouthbankingmarket.Inparticular,onethriftinstitutioninthemarkethasacommercialandindustrialloanportfoliosimilartothoseof commercialbanksintheNorfolk–Portsmouthbankingmarket,asmeasuredintermsof theratiosof thosetypesof loanstototalloansandassets.TheBoardhasconcludedthat depositscontrolledbythisinstitutionshouldbeweightedat100percentinthemarketsharecalculations.Inaddition,eightqualifyingcreditunionsexertacompetitiveinfluence intheNorfolk–Portsmouthbankingmarket. TheseadjustmentssuggestthattheresultingmarketconcentrationintheNorfolk– Portsmouthbankingmarketislesssignificantthanwouldappearfromtheinitialcompetitivescreeningdata.Afterconsummation,andadjustingtoreflectcompetitionfromthe eightcreditunionsandthedepositsof thethriftbeingweightedat100percentinthe market,themarketconcentrationlevelintheNorfolk–Portsmouthbankingmarketas measuredbytheHHIwouldincreaseby347points,from1435to1782,andthemarket shareof BB&Twouldincreaseto26.5percent.Twenty-fourotherinsureddepositoryinstitutions,includingthethriftandthecreditunions,wouldremaininthemarket,including twoinsureddepositoryinstitutionseachwithamarketshareof morethan20.0percent. Richmond,Virginia,BankingMarket.BranchBankisthefourthlargestdepositoryinstitutionintheRichmondbankingmarket,controllingapproximately$3.2billionindeposits, 38 TheNorfolk–PortsmouthbankingmarketisdefinedasthecitiesofChesapeake,Norfolk,Portsmouth,Suffolk, andVirginiaBeach;theCarrsvilleDistrictinIsleofWightCounty,allinVirginia;andCurrituckandGates counties,bothinNorthCarolina.

10 FederalReserveBulletin|February2020 whichrepresent8.5percentof marketdeposits.39SunTrustBankisthethirdlargestdepositoryinstitutioninthemarket,controllingapproximately$4.5billionindeposits,which represent12.0percentof marketdeposits.Onconsummation,BranchBankwouldbethe secondlargestdepositoryinstitutionintheRichmondbankingmarket,controlling approximately$7.7billionindeposits,whichwouldrepresentapproximately20.5percentof marketdeposits.TheHHIinthismarketwouldincrease205points,from2078to2283. TheBoardhasconsideredwhetherfactorseithermitigatethecompetitiveeffectsof the proposalorindicatethattheproposalwouldnothaveasignificantlyadverseeffecton competitionintheRichmondbankingmarket.Inparticular,onequalifyingcreditunion exertsacompetitiveinfluenceintheRichmondbankingmarket. ThisadjustmentforthequalifyingcreditunionsuggeststhattheresultingmarketconcentrationintheRichmondbankingmarketislesssignificantthanwouldappearfromthe initialcompetitivescreeningdata.Afterconsummation,andadjustingtoreflectcompetitionfromthecreditunion,themarketconcentrationlevelintheRichmondbankingmarket asmeasuredbytheHHIwouldincreaseby194points,from1963to2157,andthemarket shareof BB&Twouldincreaseto20.0percent.Twenty-nineotherinsureddepositoryinstitutions,includingthecreditunion,wouldremaininthemarket,includingoneinsured depositoryinstitutionwithamarketshareof morethan38.0percent. MarketswithDivestitures40 EasternShore,Virginia,BankingMarket.BranchBankisthefourthlargestdepository institutionintheEasternShorebankingmarket,controllingapproximately$107.1million indeposits,whichrepresent16.1percentof marketdeposits.41SunTrustBankisthethird largestdepositoryinstitutioninthemarket,controllingapproximately$125.6millionin deposits,whichrepresent19.0percentof marketdeposits.Onconsummation,BranchBank wouldbethelargestdepositoryinstitutionintheEasternShorebankingmarket,controllingapproximately$232.7millionindeposits,whichwouldrepresentapproximately 35.1percentof marketdeposits.TheHHIinthismarketwouldincrease613points,from 2663to3276. Tomitigatethepotentiallyadversecompetitiveeffectsof theproposalintheEasternShore bankingmarket,BB&ThascommittedtodivestSunTrust’sonlytwobranchesinthe 39 TheRichmondbankingmarketisdefinedastheindependentcitiesofColonialHeights,Hopewell,Petersburg, andRichmond;thecountiesofAmelia,CharlesCity,Chesterfield,Dinwiddie,Goochland,Hanover,Henrico, KingandQueen,KingWilliam,NewKent,Powhatan,andPrinceGeorge;andtheCuckoo,Jackson, Mineral,andMountainRoaddistrictsinLouisaCounty,allinVirginia. 40 Asaconditionofconsummationoftheproposedmerger,BB&Thascommittedthatitwillexecute,before consummationoftheproposedmerger,asalesagreementwithacompetitivelysuitablebankingorganization. BB&ThasprovidedasimilarcommitmenttotheDOJ.BB&Talsohascommittedtocompletethedivestiture ofbrancheswithin180daysafterconsummationoftheproposedtransaction.Inaddition,BB&Thas committedthatiftheproposeddivestitureisnotcompletedwithinthe180-dayperiod,BB&Twouldtransfer theunsoldbranchestoanindependenttrustee,whowouldbeinstructedtosellthemtoanalternatepurchaser orpurchasersinaccordancewiththetermsofthisorderandwithoutregardtoprice.Boththetrusteeandany alternatepurchasermustbedeemedacceptabletotheBoard.See,e.g.,BankAmericaCorporation,78Federal ReserveBulletin338(1992);UnitedNewMexicoFinancialCorporation,77FederalReserveBulletin484(1991). Foreachbranchtobedivested,theamountofdepositstobedivestedhasbeendeterminedthrougha householdingmethodologyapprovedbytheDOJ.Thishouseholdingmethodologyassignsparticular customerstoahouseholdandthenassignscertainhouseholdstothedivestedbranch,generallywherethe customersexecutetellertransactionsmostfrequently.Therefore,subjecttocertainlimitedexceptions,the proposeddivestituresincludealldepositsofcustomersthatarehouseholdedtothedivestedbranches,whichis intendedtominimizethechancethatthosecustomerswouldreverttothecombinedorganizationfollowingthe divestitures.Becauseofthishouseholdingmethodology,therearedeminimisincreasesintheHHIinseveral marketsdespitethedivestitureofallofSunTrustBank’sbranchesinseveralmarkets. 41 TheEasternShorebankingmarketisdefinedasAccomackandNorthamptoncounties,bothinVirginia.

LegalDevelopments:FourthQuarter,2019 11 bankingmarket,accountingforatotalof approximately$129.3millionindeposits,toa competitivelysuitableinstitution.42Otherfactorsalsomitigatethecompetitiveeffectsof theproposalintheEasternShorebankingmarket.Twoqualifyingcreditunionsexerta competitiveinfluenceintheEasternShorebankingmarket. Afteraccountingforthedivestitureof SunTrust’sonlytwobranchesinthemarketand weightingthedepositsof thecreditunionsat50percent,thecombinedorganizationwould controlapproximately12.3percentof marketdeposits,theHHIwouldincreaseby 3pointstoalevelof 2043,andsevenotherinsureddepositoryinstitutions,includingthe creditunions,wouldremaininthemarket,includingtwoinsureddepositoryinstitutions eachwithamarketshareof morethan29.0percent. Martinsville,Virginia,BankingMarket.BranchBankisthesecondlargestdepositoryinstitutionintheMartinsvillebankingmarket,controllingapproximately$336.6millionin deposits,whichrepresent22.5percentof marketdeposits.43SunTrustBankisthethird largestdepositoryinstitutioninthemarket,controllingapproximately$253.4millionin deposits,whichrepresent17.0percentof marketdeposits.Onconsummation,BranchBank wouldbecomethelargestdepositoryinstitutionintheMartinsvillebankingmarket, controllingapproximately$590.1millionindeposits,whichwouldrepresentapproximately 39.6percentof marketdeposits.TheHHIinthismarketwouldincrease767points,from 2252to3019. Tomitigatethepotentiallyadversecompetitiveeffectsof theproposalintheMartinsville bankingmarket,BB&Thascommittedtodivestallthreeof SunTrust’sbranchesinthe Martinsvillebankingmarket,accountingforatotalof approximately$255.7millionin deposits,toacompetitivelysuitableinstitution.44Otherfactorsalsomitigatethecompetitiveeffectsof theproposalintheMartinsvillebankingmarket.Twoqualifyingcredit unionsexertacompetitiveinfluenceintheMartinsvillebankingmarket. Afteraccountingforthedivestitureof allthreeof SunTrust’sbranchesintheMartinsville bankingmarketandweightingthedepositsof thecreditunionsat50percent,the combinedorganizationwouldcontrolapproximately21.7percentof marketdeposits,the HHIwoulddecreaseby2pointsfrom2127toalevelof 2125,45andtwelveotherinsured depositoryinstitutions,includingthecreditunions,wouldremaininthemarket,including oneinsureddepositoryinstitutionwithamarketshareof morethan36.0percent. SouthBoston,Virginia,BankingMarket.BranchBankisthefourthlargestdepositoryinstitutionintheSouthBostonbankingmarket,controllingapproximately$88.2millionin deposits,whichrepresent16.0percentof marketdeposits.46SunTrustBankisthefifth largestdepositoryinstitutioninthemarket,controllingapproximately$68.5millionin deposits,whichrepresent12.4percentof marketdeposits.Onconsummation,BranchBank wouldbethelargestdepositoryinstitutionintheSouthBostonbankingmarket,controllingapproximately$156.7millionindeposits,whichwouldrepresentapproximately 42 Asnotedabove,thedifferencebetweentheamountofdepositsincludedintheinitialcompetitivescreening dataandthosedepositstobedivestedisattributabletothehouseholdingmethodologyapprovedbytheDOJ. 43 TheMartinsvillebankingmarketisdefinedastheindependentcityofMartinsville;HenryCounty;andPatrick County(excludingtheDanRiverDistrict),allinVirginia. 44 Seesupranote42. 45 TheproformaHHIdecreaseintheMartinsvillebankingmarketisattributabletothehouseholdingmethodologyforassigningaccountstoparticularbranchesapprovedbytheDOJ,whichresultsinSunTrustassigning additionaldepositstoitsbranchintheMartinsvillebankingmarketthatexceedthestandardSummaryof Deposits(“SOD”)datausedtogeneratetheinitialHHIscreeningdata.Seesupranote40. 46 TheSouthBostonbankingmarketisdefinedasHalifaxCounty,Virginia.

12 FederalReserveBulletin|February2020 28.3percentof marketdeposits.TheHHIinthismarketwouldincrease395points,from 1844to2239. Tomitigatethepotentiallyadversecompetitiveeffectsof theproposalintheSouthBoston bankingmarket,BB&ThascommittedtodivestSunTrust’sonlybranchinthebanking market,accountingforatotalof approximately$67.9millionindeposits,toacompetitivelysuitableinstitution.Otherfactorsalsomitigatethecompetitiveeffectsof theproposal intheSouthBostonbankingmarket.Threequalifyingcreditunionsexertacompetitive influenceintheSouthBostonbankingmarket. Afteraccountingforthedivestitureof SunTrust’sonlybranchinthemarketandweighting thedepositsof thecreditunionsat50percent,thecombinedorganizationwouldcontrol approximately15.1percentof marketdeposits,theHHIwouldincreaseby1pointtoa levelof 1638,andeightotherinsureddepositoryinstitutions,includingthecreditunions, wouldremaininthemarket,includingfourinsureddepositoryinstitutionseachwitha marketshareof morethan17.0percent. LumpkinCounty,Georgia,BankingMarket.BranchBankisthesecondlargestdepository institutionintheLumpkinCountybankingmarket,controllingapproximately $107.2millionindeposits,whichrepresent26.9percentof marketdeposits.47SunTrust Bankisthefourthlargestdepositoryinstitutioninthemarket,controllingapproximately $56.7millionindeposits,whichrepresent14.2percentof marketdeposits.Onconsummation,BranchBankwouldbethelargestdepositoryinstitutionintheLumpkinCounty bankingmarket,controllingapproximately$164.0millionindeposits,whichwouldrepresentapproximately41.2percentof marketdeposits.TheHHIinthismarketwouldincrease 767points,from2284to3051. Tomitigatethepotentiallyadversecompetitiveeffectsof theproposalintheLumpkin Countybankingmarket,BB&ThascommittedtodivestSunTrust’sonlybranchinthe bankingmarket,accountingforatotalof approximately$63.2millionindeposits,toa competitivelysuitableinstitution.48 Afteraccountingforthedivestitureof SunTrust’sonlybranchinthemarket,thecombined organizationwouldcontrolapproximately25.3percentof marketdeposits,theHHIwould decreaseby36pointstoalevelof 2248,andfiveotherinsureddepositoryinstitutions wouldremaininthemarket,includingtwoinsureddepositoryinstitutionseachwitha marketshareof morethan15.0percent.49 WayneCounty,Georgia,BankingMarket.BranchBankisthesecondlargestdepository institutionintheWayneCountybankingmarket,controllingapproximately$47.1million indeposits,whichrepresent18.9percentof marketdeposits.50SunTrustBankisthefourth largestdepositoryinstitutioninthemarket,controllingapproximately$36.7millionin deposits,whichrepresent14.7percentof marketdeposits.Onconsummation,BranchBank wouldremainthesecondlargestdepositoryinstitutionintheWayneCountybanking market,controllingapproximately$83.8millionindeposits,whichwouldrepresent 47 TheLumpkinCountybankingmarketisdefinedasLumpkinCounty,Georgia. 48 Seesupranote42. 49 TheproformaHHIdecreaseintheLumpkinCountybankingmarketisattributabletothehouseholdingmethodologyapprovedbytheDOJ,whichresultsinSunTrustassigningadditionaldepositstoitsbranchinthe LumpkinCountybankingmarketthatexceedtheSODdatausedtogeneratetheinitialcompetitive screeningdata. 50 TheWayneCountybankingmarketisdefinedasWayneCounty,Georgia.

LegalDevelopments:FourthQuarter,2019 13 approximately33.7percentof marketdeposits.TheHHIinthismarketwouldincrease 558points,from2501to3059. Tomitigatethepotentiallyadversecompetitiveeffectsof theproposalintheWayneCounty bankingmarket,BB&ThascommittedtodivestSunTrust’sonlybranchinthebanking market,accountingforatotalof approximately$35.4millionindeposits,toacompetitivelysuitableinstitution.51Otherfactorsalsomitigatethecompetitiveeffectsof the proposalintheWayneCountybankingmarket.Twoqualifyingcreditunionsexerta competitiveinfluenceintheWayneCountybankingmarket. Afteraccountingforthedivestitureof SunTrust’sonlybranchinthemarketandweighting thedepositsof thecreditunionsat50percent,thecombinedorganizationwouldcontrol approximately17.4percentof marketdeposits,theHHIwouldincreaseby4pointstoa levelof 2057,andsixotherinsureddepositoryinstitutions,includingthecreditunions, wouldremaininthemarket,includingtwoinsureddepositoryinstitutionseachwitha marketshareof morethan15.0percent. Winston–Salem,NorthCarolina,BankingMarket.BranchBankisthelargestdepository institutionintheWinston-Salembankingmarket,controllingapproximately$24.7billion indeposits,whichrepresent80.2percentof marketdeposits.52SunTrustBankisthefourth largestdepositoryinstitutioninthemarket,controllingapproximately$627.0millionin deposits,whichrepresent2.0percentof marketdeposits.Onconsummation,BranchBank wouldremainthelargestdepositoryinstitutionintheWinston–Salembankingmarket, controllingapproximately$25.3billionindeposits,whichwouldrepresentapproximately 82.3percentof marketdeposits.TheHHIinthismarketwouldincrease327points,from 6521to6848. Tomitigatethepotentiallyadversecompetitiveeffectsof theproposalintheWinston- Salembankingmarket,BB&Thascommittedtodivestallnineof SunTrust’sbranchesin theWinston-Salembankingmarket,accountingforatotalof approximately$577.8million indeposits,toacompetitivelysuitableinstitution.53Otherfactorsalsomitigatethe competitiveeffectsof theproposalintheWinston-Salembankingmarket.Fivequalifying creditunionsexertacompetitiveinfluenceintheWinston-Salembankingmarket. Afteraccountingforthedivestitureof allnineof SunTrust’sbranchesinthemarketand weightingthedepositsof thecreditunionsat50percent,thecombinedorganizationwould controlapproximately79.7percentof marketdeposits,andtheHHIwouldincreaseby 30pointstoalevelof 6429.Inaddition,21otherinsureddepositoryinstitutions,including thecreditunions,wouldremainintheWinston-Salembankingmarket. Durham–ChapelHill,NorthCarolina,BankingMarket.BranchBankisthefifthlargest depositoryinstitutionintheDurham–ChapelHillbankingmarket,controllingapproximately$1.3billionindeposits,whichrepresent8.7percentof marketdeposits.54SunTrust Bankisthethirdlargestdepositoryinstitutioninthemarket,controllingapproximately $2.2billionindeposits,whichrepresent14.7percentof marketdeposits.Onconsummation,BranchBankwouldbethesecondlargestdepositoryinstitutionintheDurham– ChapelHillbankingmarket,controllingapproximately$3.6billionindeposits,which 51 Seesupranote42. 52 TheWinston–SalembankingmarketisdefinedasDavie,Forsyth,Stokes,andYadkincounties,allinNorth Carolina. 53 Seesupranote42. 54 TheDurham–ChapelHillbankingmarketisdefinedasChatham,Durham,Orange,andPersoncounties,allin NorthCarolina.

14 FederalReserveBulletin|February2020 wouldrepresentapproximately23.4percentof marketdeposits.TheHHIinthismarket wouldincrease255points,from2220to2475. Tomitigatethepotentiallyadversecompetitiveeffectsof theproposalintheDurham– ChapelHillbankingmarket,BB&Thascommittedtodivest11SunTrustbranches, accountingforatotalof approximately$1.1billionindeposits,toacompetitivelysuitable institution.Otherfactorsalsomitigatethecompetitiveeffectsof theproposalorindicate thattheproposalwouldnothaveasignificantlyadverseeffectoncompetitioninthe Durham–ChapelHillbankingmarket.Inparticular,onethriftinstitutioninthemarkethas acommercialandindustrialloanportfoliosimilartothoseof commercialbanksinthe Durham–ChapelHillbankingmarket,asmeasuredintermsof theratiosof thosetypesof loanstototalloansandassets.TheBoardhasconcludedthatdepositscontrolledbythis institutionshouldbeweightedat100percentinthemarket-sharecalculations.Inaddition, fourqualifyingcreditunionsexertacompetitiveinfluenceintheDurham–ChapelHill bankingmarket. Afteraccountingforthe11branchdivestituresandweightingthedepositsof thethriftat 100percentandthedepositsof thefourcreditunionsat50percent,thecombinedorganizationwouldcontrolapproximately15.7percentof marketdeposits,theHHIwould increaseby29pointstoalevelof 2162,and19otherinsureddepositoryinstitutions, includingthecreditunions,wouldremaininthemarket,includingtwoinsureddepository institutionseachwithamarketshareof morethan14.0percent. ConclusionRegardingCompetitiveEffects TheDOJconductedareviewof thepotentialcompetitiveeffectsof theproposalandhas advisedtheBoardthatconsummationof theproposalwiththeproposeddivestituresof branchesinthebankingmarkets,asdiscussedabove,wouldnotlikelyhaveasignificantly adverseeffectoncompetitioninthosemarketsorinanyotherrelevantbankingmarket.In addition,theappropriatebankingagencieshavebeenaffordedanopportunityto commentandhavenotobjectedtotheproposal. Basedonallof thefactsof record,includingtheproposeddivestitures,andforthereasons explainedabove,theBoardconcludesthatconsummationof theproposalwouldnothavea significantlyadverseeffectoncompetitionorontheconcentrationof resourcesinthe bankingmarketsinwhichBB&TandSunTrustcompetedirectlyorinanyotherrelevant bankingmarket.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsare consistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCAct,theBoardconsidersthefinancial andmanagerialresourcesandthefutureprospectsof theinstitutionsinvolved.Initsevaluationof thefinancialfactors,theBoardreviewsinformationregardingthefinancial conditionof theorganizationsinvolvedonbothparent-onlyandconsolidatedbases,as wellasinformationregardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations.Inthisevaluation,the Boardconsidersavarietyof publicandsupervisoryinformationregardingcapital adequacy,assetquality,liquidity,andearningsperformance,aswellasthepubliccomments ontheproposal.TheBoardevaluatesthefinancialconditionof thecombinedorganization,includingitscapitalposition,assetquality,liquidity,earningsprospects,andthe impactof theproposedfundingof thetransaction.TheBoardalsoconsiderstheabilityof theorganizationtoabsorbthecostsof theproposalandtocompleteeffectivelythe proposedintegrationof theoperationsof theinstitutions.Inassessingfinancialfactors,the

LegalDevelopments:FourthQuarter,2019 15 Boardconsiderscapitaladequacytobeespeciallyimportant.TheBoardconsidersthe futureprospectsof theorganizationsinvolvedintheproposalinlightof theirfinancialand managerialresourcesandtheproposedbusinessplan. BB&T,SunTrust,andtheirsubsidiarydepositoryinstitutionsareeachwellcapitalized,and thecombinedorganizationwouldremainsoonconsummationof theproposedmerger.55 Theproposedtransactionisabankholdingcompanymergerthatisstructuredasashare exchange.56Theassetquality,earnings,andliquidityof bothBranchBankandSunTrust Bankareconsistentwithapproval,andBB&TandSunTrustappeartohaveadequate resourcestoabsorbthecostsof theproposalandtocompletetheintegrationof theinstitutions’operations.Inaddition,futureprospectsareconsideredconsistentwithapproval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of BB&T,SunTrust,andtheirsubsidiarydepositoryinstitutions,includingassessments of theirmanagement,risk-managementsystems,andoperations.Inaddition,theBoard hasconsideredinformationprovidedbyBB&T,theBoard’ssupervisoryexperiencesand thoseof otherrelevantbanksupervisoryagencieswiththeorganizations,andtheorganizations’recordsof compliancewithapplicablebanking,consumerprotection,andantimoney-launderinglaws. BB&T,SunTrust,andtheirsubsidiarydepositoryinstitutionsareeachconsideredtobe wellmanaged.57Thecombinedorganization’sproposeddirectorsandseniorexecutiveofficershaveknowledgeof andexperienceinthebankingandfinancialservicessectors,and theproposedrisk-managementprogramforthecombinedorganizationappearsconsistent withapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredBB&T’splansforimplementingtheproposal.BB&Thas conductedcomprehensiveduediligenceandisdevotingsignificantfinancialandother resourcestoaddressallaspectsof thepost-integrationprocessforthisproposal.58BB&T 55 BecauseBB&TdeterminedthattheproposedacquisitionofSunTrustwouldresultinamaterialchangein BB&T’sriskprofileandcorporatestructure,BB&Tsubmittedanupdatedcapitalplan(“ResubmittedCapital Plan”)toreflecttheproposedacquisition.See12CFR225.8(e)(4)(i).InreviewingtheResubmittedCapital Plan,theFederalReserveassessedthecombinedorganization’sabilitytomaintaincapitallevelsabove minimumregulatorycapitalratios,afterundertakingallcapitalactionsincludedintheupdatedcapitalplan underbaselineandstressfulconditionsthroughoutanine-quarterplanninghorizon.Basedonthisassessment, theBoarddoesnotobjecttoBB&T’sResubmittedCapitalPlan. 56 Atthetimeoftheproposedacquisition,eachshareofSunTrustcommonstockwouldbeconvertedintoaright toreceivesharesofBB&Tcommonstockbasedonanexchangeratio.Inaddition,eachshareofcertain noncumulativeperpetualpreferredSunTruststockwouldbeconvertedintoarighttoreceivesubstantially similarnewlyissuedpreferredBB&Tstock. 57 Commentersexpressedconcernsthatthecombinedinstitutionwouldlackrobustrisk-managementpractices andpolicies,puttingindividualsatrisk,andsuggestedthatthemergercouldpresentheightenedcybersecurity andprivacyrisks.BB&Trepresentsthatithasmadeenhancementstoitsenterprise-widerisk-management programinrecentyears,includingrebuildingitscybersecurityframeworkandinvestinginnewcybersecurity technologiesandtools.BB&Tfurtherrepresentsthatthecombinedorganizationwouldincreaseitsinvestment intheTruistBank’scyberprotectionsandinformationtechnologyresiliency. SomecommentersalsoexpressedconcernsaboutmanagerialresourcesofSunTrustandBB&Tgenerally,given negativepriorexperienceswithbranch-levelstaffatbothbanks.BB&Trepresentsthatthecombinedorganizationwouldstrivetomaintainacustomer-focusedculture.Inaddition,complaintsbasedonanindividual customertransaction,suchasacomplaintrelatingtoanindividualloandenialoraloanforeclosure proceeding,generallyarenotconsideredtobesubstantivecomments(seeSRLetter97-10athttps://www .federalreserve.gov/boarddocs/srletters/1997/SR9710.HTM),and,thus,generallyarenottakeintoconsideration bytheBoardinitsevaluationofthestatutoryfactorsgoverningthetransaction. 58 AcommenterallegedthatBB&Thasnotsuccessfullyintegratedpastacquisitions,includingtheacquisitionsof SusquehannaBankandNationalPennBank.Asnotedabove,BB&Tisdevotingsufficientresourcesto addressthepost-integrationprocessofthisproposal.BB&Tfurtherrepresentsthatitwouldconductdetailed planningandmultipleintegrationtestingexercisespriortotheimplementationofanysystemsconversionsor

16 FederalReserveBulletin|February2020 representsthatthecombinedorganizationwouldselectstrongcapabilitiesandsystems fromtherespectiveexistingrisk-managementgovernance,operations,andsystemsof BB&TandSunTrusttocreateafirm-widerisk-managementprogramforthecombined organization.BothBB&T’sandSunTrust’sexistingrisk-managementpolicies,procedures, andcontrolsareconsideredacceptablefromasupervisoryperspective.Inaddition,BB&T’s andSunTrust’smanagementhavetheexperienceandresourcestooperatethecombined organizationinasafeandsoundmanner,andthecombinedorganizationwouldintegrate existingmanagementandpersonnelfrombothBB&TandSunTrust.59Similarly,BB&T representsthatanexperiencedteamof managementandotherpersonnelisoverseeingthe integrationplanningprocessacrossallbusinesslinesandsupportunitsof bothBB&Tand SunTrust. BB&Talsorepresentsthatithasallocatedadditionalstaff andresourcestosatisfytheadditionalregulatoryrequirementsthatapplytobankholdingcompanieswith$250billionor moreintotalconsolidatedassets.60Specifically,CategoryIIIstandardswouldapplytoa bankholdingcompanywithassetsof $250billionormorethatdoesnotmeetthecriteria forCategoryIorCategoryIIstandards.61CategoryIIIstandardsincludeannualsupervisorystresstests,company-runstresstestseveryotheryear,thecountercyclicalcapital buffer,asupplementaryleverageratio,aliquiditycoverageratiorequirement,andother reportingandliquidityrequirements.62 Basedonallthefactsof record,includingBB&T’sandSunTrust’ssupervisoryrecords, managerialandoperationalresources,andplansforoperatingthecombinedorganization afterconsummation,theBoarddeterminesthatconsiderationsrelatingtothefinancialand managerialresourcesandfutureprospectsof theorganizationsinvolvedintheproposal,as wellastherecordsof effectivenessof BB&TandSunTrustincombattingmoneylaunderingactivities,areconsistentwithapproval.63 otherITmigration/integrationactionsinvolvingcustomeraccounts.BB&TandSunTrustalsorepresentedthat thecombinedorganizationwouldconductextensivetrainingofbranchandcall-centerpersonneldesignedto ensurethatuponconsummationoftheproposal,thesystemsconversionwouldnotadverselyimpact customers,andthatanyquestionsfromcustomerscouldbeansweredpromptly. 59 Thecombinedorganizationwouldhaveaboardof22directors,11eachfromBB&TandSunTrust.Inaddition,the14seniorexecutiveofficersatthecombinedorganizationwouldbecomposedofsevencurrentsenior executiveofficersfromeachofBB&TandSunTrust. 60 See12CFR249&252. 61 OnOctober10,2019,theBoardadoptedfinalrulestailoringtheapplicationofprudentialstandardsto largebankingorganizationsbasedontheriskprofileofthebankingorganization(tailoringrules).See 84Fed.Reg.59032,59035(November1,2019).ThetailoringruleswillbeeffectiveDecember31,2019. 62 Tofacilitatecontinuityofrequirements,BB&Thascommittedthatthecombinedorganizationwouldremain subjecttocertainprudentialstandardsthatcurrentlyapplytoBB&TandSunTrust,aswellascertainstandards thatwouldapplytoabankholdingcompanythatwouldbesubjecttoCategoryIIIstandardsaftertheeffectivedateofthetailoringrules. 63 AcommenterallegedthattheBoardshouldnothavelifteditsconsentorderagainstBB&Tregardingantimoneylaunderingissues,suggestingthatsuchissueswerenotfullyremediated.OnJanuary25,2017,BB&T enteredintoaCeaseandDesistOrderIssuedUponConsentPursuanttotheFederalDepositInsuranceAct withtheBoardandtheNorthCarolinaOfficeoftheCommissionerofBanksrelatingtodeficienciesin BB&T’soverallprogramforBankSecrecyAct/anti-money-laundering(“BSA/AML”)compliance(the “BSA/AMLOrder”).TheBSA/AMLOrderrequiredBB&Tto,amongotherthings,takethefollowingactions: strengthenboardoversightofBB&T’sfirm-widecompliancerisk-managementprogramwithregardto compliancewithBSA/AMLrequirements;developandimplementacomprehensiveBSA/AMLplan,including aneffectiveinstitution-wideBSArisk-assessmentprogramthatclearlydefinedacceptableBSA/AMLrisks; ensurethatBSA/AMLissueswereappropriatelytracked,escalated,andreviewedbyseniormanagement;create aprocessforperiodicallyreevaluatingstaffingneededinrelationtoitscomplianceriskprofile;andidentifying proceduresforperiodictestingoftheeffectivenessofthecomplianceriskmanagementprogram. TheNorthCarolinaOfficeoftheCommissionerofBanksterminateditsparticipationintheBSA/AMLOrder onJune28,2018.OnApril18,2019,theBoardterminatedtheBSA/AMLOrderwithBB&Tinlightofthe correctiveactionstakenbyBB&TtoremediateitsBSA/AMLdeficiencies.Inparticular,BB&Ttookanumber ofcorrectiveactions,includinghiringanewleadershipteamforitsBSA/AMLcompliance;establishinga BSA/AMLoversightcommitteetoprovideoversightoftheBSA/AMLcomplianceprogram;implementingan

LegalDevelopments:FourthQuarter,2019 17 ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCAct,theBoardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.64Initsevaluation,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thesecommunities,aswellasotherpotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved,andplacesparticularemphasisonthe recordsof therelevantdepositoryinstitutionsundertheCRA.TheCRArequiresthe federalfinancialsupervisoryagenciestoencourageinsureddepositoryinstitutionstohelp meetthecreditneedsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeir safeandsoundoperation,65andrequirestheappropriatefederalfinancialsupervisory agencytoassessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof its entirecommunity,includingLMIneighborhoods.66 Inaddition,theBoardconsidersthebanks’overallcompliancerecordandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,thesupervisoryviewsof examiners,othersupervisoryinformation,informationprovidedbytheapplicant,andpubliccommentsontheproposal.TheBoardalsomayconsidertheinstitution’s businessmodel,marketingandoutreachplans,andplansafterconsummation,andany otherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof Branch BankandSunTrustBank,thefairlendingandcompliancerecordsof bothbanks,the supervisoryviewsof theFDICandtheConsumerFinancialProtectionBureau(“CFPB”), confidentialsupervisoryinformation,informationprovidedbyBB&T,andthepublic commentsontheproposal. Summaryof PublicCommentsonConvenienceandNeeds Asnotedabove,intotal,theBoardreceivedapproximately1050publiccommentsonthe proposalfromcommunitygroups,nonprofitorganizations,customersof thetwobanking organizations,andotherinterestedorganizationsandindividuals.TheBoardheldtwo publicmeetingstofacilitatereceivingcommentsontheproposalfrominterestedmembers of thepublic.Asignificantnumberof commentsweresubmitted,bothorallyandin writing,throughthisprocess. Manycommenterssupportedtheproposal.Ingeneral,thesecommentersassertedthat BB&TandSunTrustprovidevaluableservicestotheircommunities.Commenters contendedthattheproposalwouldexpandopportunitiesforcommunitygroups,LMI persons,andsmallbusinesses.ThesecommentersalsopraisedBB&TandSunTrustand theirmanagementforeachbank’scommunityoutreacheffortsandsupportforcommunity programsandinitiatives. TheBoardalsoreceivedalargenumberof commentsopposingtheproposal.Several commentersallegedthatBB&TandSunTrustwerenotmeetingthecreditneedsof enhancedBSA/AMLpolicy;developingandimplementingnewcustomerriskratingprocesses;andconducting newBSA/AMLcompliancetraining. 64 12U.S.C.§1842(c)(2). 65 12U.S.C.§2901(b). 66 12U.S.C.§2903.

18 FederalReserveBulletin|February2020 minorityandLMIcommunitiesandborrowers,particularlyinFloridaandDurham, NorthCarolina,orunbankedandunderbankedpopulations.Onecommenterallegedthat BB&Tmadeadisproportionatelylownumberof homepurchaseloanstoAfrican AmericanandLatinoborrowersintheHouston,Texas,NewYork,NewYork,and Charleston,WestVirginia,areasbasedondatareportedfor2017underHMDA. CommentersalsoallegedthatBB&TandSunTrustengagedineconomicexclusioninthe communitiesinwhichtheyoperate,includingincertainAfricanAmericanneighborhoods andcommunities.AnothercommenterobjectingtotheproposalallegedthatBB&Thas engagedinredlininginDallasandHouston,Texas.67Specifically,thecommenteralleged thatBB&TdisfavorscertainAfricanAmericanneighborhoodsinDallasandHoustonand haslimiteditslending,marketingactivities,communitydevelopmentactivities,and branchinginthoseareas. Severalcommentersexpressedconcernthatbranchclosuresorchangesincustomer accountscouldadverselyaffectcommunitiesservedbyBB&TandSunTrust,especiallyin Durham,NorthCarolina,TheVillages,Florida,andinruralcommunities,includingin WestVirginia.68Commentersalsoexpressedconcernthatanybranchclosuresoraccount changescouldhaveadisproportionatelyadverseeffectonseniorcitizens69orpersonswith disabilities.70 Manycommentersalsoexpressedconcernthattheproposedmergercouldresultinjob losses,particularlyinWinston-SalemandDurham,bothinNorthCarolina,aswellasrural areasgenerally.71Othercommenterscontendedthatthelargercombinedbankwouldbe lessconcernedwithcustomerserviceinlocalcommunities,suchasLuzerneCounty,Pennsylvania.Onecommenterexpressedconcernaboutpotentialabusesof consumersby SunTrust.72 SeveralcommentersrequestedthattheBoardconditionitsapprovalonavarietyof commitmentsbyBB&Tregardingracialequityanddiversityandinclusion;affordable 67 Redliningisthepracticeofprovidingunequalaccesstocredit,orunequaltermsofcredit,becauseoftherace, color,nationalorigin,orotherprohibitedcharacteristicsoftheresidentsoftheareainwhichacreditseeker residesorwillresideorinwhichapropertytobemortgagedislocated.SeeInteragencyFairLendingExaminationProceduresathttps://www.ffiec.gov/pdf/fairlend.pdf(August2009). 68 CommentersrepresentingorganizationslocatedinWestVirginiaexpressedaheightenedconcernregarding branchclosuresbecauseBB&TisthelargestbankinWestVirginia,andSunTrustrecentlyclosedallofits branchesinthestate. 69 Forexample,somecommentersexpressedconcernthattheproposedmergermayresultinchangesinaccounts orservicescurrentlyprovidedbySunTrustBankorBranchBankthatcouldinconvenienceorconfuse customers.Inparticular,commentersassertedthatanychangeinsign-onproceduresandotherwebsitenavigationprotocolscouldcauseconfusionforseniors.Anothercommenterexpressedconcernsthatchangesin accountnumberscouldinconveniencethosewhorelyononlinebanking. 70 Acommenterallegedthattheclosureofbranchesthatarehighlyaccessibleorclosetopublictransportation couldadverselyaffectpersonswithdisabilities. 71 BB&Trepresentsthatthecombinedorganizationwouldtakeanumberofstepstominimizejoblosses.For example,BB&Thasindicatedthatallperformingcustomer-facingemployeeswouldhaveapositionwiththe combinedorganizationuponconsummation.Additionally,BB&Thasindicatedthatanydisplacedemployees wouldreceivepriorityconsiderationforinternaljobopportunitiesandwouldbeactivelyencouragedtoapply forpositionsforwhichtheyareinterestedandqualified.Thosedisplacedemployeeswhodonotremainwith thecombinedorganizationwouldreceiveamarket-basedseverancepackageandbeofferedoutplacement servicestoassistwithexternaljobsearches.Nevertheless,thepotentialforjoblossesresultingfromamergeris outsideofthelimitedstatutoryfactorsthattheBoardisauthorizedtoconsiderwhenreviewinganapplicationornoticeundertheBHCAct.SeeWesternBancshares,Inc.v.BoardofGovernors,480F.2d749(10thCir. 1973);seealsoWellsFargo&Company,82FederalReserveBulletin445(1996);CommunityBankSystem,Inc., FRBOrderNo.2015-34(November18,2015);andKeyCorp,FRBOrderNo.2016-12(July12,2016). 72 TheBoardalsoreceivedseveralcommentsarguingthatSunTrustshouldnotprovideloansorotherfundingto privateprisons.Inaddition,theBoardreceivedacommenturgingBB&Ttoceasedoingbusinesswithand lendingmoneytofirearmandammunitionmanufacturers.Thesecommentsareoutsidethelimitedstatutory factorsthattheBoardisauthorizedtoconsiderwhenreviewinganapplicationornoticeundertheBHCAct. SeeWesternBancshares,480F.2dat752–54.

LegalDevelopments:FourthQuarter,2019 19 housingforandlendingtoLMIcommunitiesandindividuals;communitydevelopment programsinthecombinedorganization’sfootprint;financialandnonfinancialcommitmentsinWestVirginia;recruitmentfromandengagementwithHistoricallyBlackColleges andUniversities(“HBCUs”);supportof publicandtechnicalschools;programstargeted athomeretention,adultliteracy,workforcedevelopment,disabilityservices,andextending credittotheunbankedandunderbanked;aspecifiedhourlyminimumwagefor employees;aspecifiedlevelof philanthropicgivinginrelationtocorporateearnings;and robustriskassessmenttools.SeveralcommentersrequestedthattheBoardcondition approvalof theapplicationonestablishmentof andperformanceunderaCommunity BenefitsPlan.73 Businessesof theInvolvedInstitutionsandResponsetoComments BB&TandBranchBankofferfinancialproductsandservicestoindividualcustomersand businesses,primarilythroughBranchBank’sbranchnetworkinAlabama,Florida, Georgia,Indiana,Kentucky,Maryland,NewJersey,NorthCarolina,Ohio,Pennsylvania, SouthCarolina,Tennessee,Texas,Virginia,WestVirginia,andtheDistrictof Columbia. BranchBankoffersabroadrangeof bankingproductsandservicestoitscustomers, includingretailconsumerandcommercialbanking,mortgageandconsumerlending,lease financing,asset-basedlending,discountbrokerageservices,annuitiesandmutualfunds,life insurance,propertyandcasualtyinsurance,healthinsurance,loanservicingforthird-party investors,privatebankandtrustservices,paymentsprocessing,andcashmanagementand treasuryservices. SunTrustandSunTrustBankalsoofferfinancialproductsandservicestoindividual customersandbusinesses,primarilythroughSunTrustBank’sbranchnetworkinAlabama, Arkansas,Florida,Georgia,Maryland,Mississippi,NorthCarolina,SouthCarolina, Tennessee,Virginia,andtheDistrictof Columbia.SunTrustoffersabroadrangeof bankingproductsandservicestoitscustomers,includingmortgagelending,student lending,consumerlending,smallbusinesslending,commercialloanandleasefinancing, trustandwealthmanagementservices,insuranceproductsonanagencybasis,investment andmergersandacquisitionadvisoryservices,capitalmarketsandinvestmentbanking services,andtreasuryandcashmanagementservices. BB&Tdeniesthecommenters’HMDA-relatedallegationsregardingtheNewark–Jersey City,NewYork–NewJersey–Pennsylvania,MSA(“NewYorkMSA”);theCharleston, WestVirginia,MSA(“CharlestonMSA”);theDallas–FortWorth–Arlington,Texas,MSA (“DallasMSA”);andtheHouston–TheWoodlands–SugarLand,Texas,MSA(“Houston MSA”);arguingthatBranchBank’srecordof homemortgagelendingdoesnotdisproportionatelyordiscriminatorilyimpactAfricanAmericansorHispanics.BB&Trepresentsthat intheNewYorkMSA,thebankonlyhasonebranch,andthemarketdemographicsnear thebranchprovidelimitedopportunitiestoextendmortgageloanstominorityapplicants inanyoneyear.BB&TassertsthatintheCharlestonMSA,themarketdemographicssimilarlylimitBranchBank’sopportunitiestoextendmortgageloanstominorityapplicants, butnotesthatthebank’scompleteHMDAdatareflectadditionalapplicationsfrom minorityborrowersbeyondhomepurchaseapplications.BB&TnotesthatBranchBank 73 OnJuly16,2019,BB&TandSunTrustannouncedaCommunityPlan,underwhichtheyhaveindicatedthat thecombinedorganizationwouldlendorinvest$60billiontoLMIborrowersandinLMIcommunitiesovera three-yearperiod,from2020to2022.TheBoardhasconsistentlyfoundthatneithertheCRAnorthefederal bankingagencies’CRAregulationsrequiredepositoryinstitutionstomakepledgesorenterintocommitments oragreementswithanyorganization.See,e.g.,CITGroup,Inc.,FRBOrderNo.2015-20at24n.54 (July19,2015);CitigroupInc.,88FederalReserveBulletin485(2002);andFifthThirdBancorp,80Federal ReserveBulletin838,841(1994).Initsevaluation,theBoardreviewstheexistingCRAperformancerecordof anapplicantandtheprogramsthattheapplicanthasinplacetoservethecreditneedsofitsCRAAAs.

20 FederalReserveBulletin|February2020 hassignificantlyincreaseditsreceiptof homemortgageloanapplicationsfromandhome mortgageloanoriginationstominoritiesinHoustonandDallas.BB&Talsorepresentsthat thebankmaintainsarobustandcomprehensivecomplianceprogramtoensurecreditand financialproductsareavailableforallthecommunitiesitservices.Inaddition,BB&T assertsthatBranchBankoffersmanyprogramsandcommunitydevelopmentactivitiesto increaseaffordablehousingopportunitiesforLMIindividualsandmajority-minority communities. BB&TassertsthatBranchBankisactivelyinvolvedinWestVirginiaandhasmaintaineda highlevelof CRAactivityinthestate.Specifically,BB&Trepresentsthatthebankhas activelyassistedaffordablehousing,socialservices,economicdevelopmentandcommunity revitalizationandstabilizationeffortsinWestVirginiathroughitscommunitydevelopmentlendingandqualifiedinvestmentandgrantactivities.BB&Tassertsthat,inFlorida, bothBranchBankandSunTrustBankhaveincreasedtheirlendingtoandcommunity developmentactivitiesinminoritycommunities.BB&Tnotesthatbothbankshavestrong CRA,fairlending,andconsumercomplianceprogramsthroughouttheirfootprints, includinginDurham,NorthCarolina,andthebankshaveconductedoutreachinitiatives toincreasemortgageandsmallbusinesslendinginmajority-minorityandLMIcommunitiesinDurham,NorthCarolina,andelsewhere.74 BB&TrepresentsthatbothBranchBankandSunTrustBankareassistinginmeetingthe needsof theunbankedandunderbankedbyofferingafullrangeof loananddepositproducts,includingnumerousaffordablehomemortgageprograms,government-sponsored loanprogramsforhomemortgageborrowersandsmallbusinesses,affordabledepositproductsforsmallbusinessesandnonprofitorganizationsandlow-costdepositproductsfor consumers.Similarly,bothbanksrepresentthattheyprovidefreefinancialeducation resourcesforconsumersandsmallbusinesses. BB&TrepresentsthatTruistBankwouldconsideraccessibilitywhenmakingdecisionson productsandservicesandbranching,andwouldformanEnterpriseAccessibilityCenterof Excellencetoimplementphysicalanddigitalaccessibilityimprovements.BB&Tassertsthat theseeffortswouldmakeTruistBank’sproductsandservicesmoreaccessibletoall customers,includingseniorcitizensandpersonswithdisabilities.BB&Trepresentsthat TruistBankwoulddevelopwrittencommunicationsandwouldmobilizecallcentersto minimizetheeffectsof themergeroncustomers,includingseniorcitizens. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandtheCRAperformanceof aninstitution,theBoardgenerallyconsiderstheinstitution’smostrecentCRAevaluationaswellas otherinformationandsupervisoryviewsfromtherelevantfederalsupervisororsupervisors,75whichinthiscase,aretheFDICforBranchBank,theFederalReserveBankof AtlantaforSunTrustBank,andtheCFPBforbothbanks.Inaddition,theBoard considersinformationprovidedbytheapplicantandbypubliccommenters. 74 CommentersallegedthatBB&TdidnotprovidethesamelevelofleadershiptrainingtoAfricanAmericanresidentsinDurhamandstudentsatHBCUs.Thesecommenterssuggestedthatthecombinedorganizationcould addresstheallegedinequitiesbyensuringthatanyadvisorycommitteesestablishedtoadviseoncommunity needsincluderepresentativesfromAfricanAmericancommunitiesandorganizations,aswellasHBCUs. BB&TrepresentsthatitsLeadershipInstitutehaspartneredwith14HBCUstoprovideenhancedleadership trainingtomorethan730collegestudents. 75 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81Fed.Reg.48506,48548 (July25,2016).

LegalDevelopments:FourthQuarter,2019 21 TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.76Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplyalendingtest(“LendingTest”),aninvestmenttest(“InvestmentTest”),andaservicetest(“ServiceTest”)toevaluatetheperformanceof largeinsureddepositoryinstitutions,suchasBranchBankandSunTrustBank, inhelpingtomeetthecreditneedsof thecommunitiestheyserve.TheLendingTestspecificallyevaluatestheinstitution’shomemortgage,smallbusiness,smallfarm,andcommunity developmentlendingtodeterminewhethertheinstitutionishelpingtomeetthecredit needsof individualsandgeographiesof allincomelevels.Aspartof theLendingTest, examinersreviewandanalyzeaninstitution’sdatareportedunderHMDA,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;77(4)theinstitution’scommunitydevelopmentlending,includingthe numberandamountsof communitydevelopmentloansandtheircomplexityand innovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpracticesto addressthecreditneedsof LMIindividualsandgeographies.TheInvestmentTestevaluates thenumberandamountsof qualifiedinvestmentsthatbenefittheinstitution’sAAs,and theServiceTestevaluatestheavailabilityandeffectivenessof theinstitution’ssystemsfor deliveringretailbankingservicesandtheextentandinnovativenessof theinstitution’s communitydevelopmentservices.78 TheBoardisconcernedwhenHMDAdatareflectdisparitiesintheratesof loanapplications,originations,anddenialsamongmembersof differentracialorethnicgroupsinlocal areas.Thesetypesof disparitiesmayindicateweaknessesintheadequacyof policiesand programsataninstitutionformeetingitsobligationstoextendcreditfairly.However,other informationcriticaltoaninstitution’screditdecisionsisnotavailablefromHMDAdata.79 Consequently,HMDAdatadisparitiesmustbeevaluatedinthecontextof otherinformationregardingthelendingrecordof aninstitution. 76 12U.S.C.§2906. 77 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3). 78 See12CFR228.21etseq. 79 Otherdatarelevanttocreditdecisionscouldincludecredithistory,debt-to-incomeratios,andloan-to-value ratios.Accordingly,whenconductingfairlendingexaminations,examinersanalyzesuchadditionalinformation beforereachingadeterminationregardinganinstitution’scompliancewithfairlendinglaws.

22 FederalReserveBulletin|February2020 CRAPerformanceof BranchBank BranchBankwasassignedanoverall“Outstanding”ratingatitsmostrecentCRAperformanceevaluationbytheFDIC,asof January17,2017(“BranchBankEvaluation”).80 BranchBankreceiveda“HighSatisfactory”ratingfortheLendingTestand “Outstanding”ratingsfortheInvestmentTestandtheServiceTest.TheBoardhas consultedwiththeFDICregardingtheBranchBankEvaluation. LendingTest ExaminersfoundthatBranchBank’soveralllendinglevelsreflectedgoodresponsivenessto communitycreditneeds.Accordingtoexaminers,ahighpercentageof theloansmadeby BranchBankweremadeinitsAAs,andthedistributionof suchloansreflectedgood penetrationamongretailcustomersof differentincomelevelsandbusinessesof different sizes.ExaminersnotedthatBranchBankusedinnovativeandflexiblelendingpracticesin ordertoserveAAcreditneeds.ExaminersidentifiedBranchBankasaleaderinmaking communitydevelopmentloans. Areasof ConcerntoCommenters—IntheCharlestonMSA,examinersnotedthatthe bank’slendingreflectedadequateresponsivenesstoAAcreditneeds.Examinersfoundthat thegeographicdistributionof homemortgageloansreflectedadequatepenetration throughouttheAAandtheborrowerprofilereflectedagooddistribution.Examiners notedthatthebankusedflexiblelendingpracticesandmadearelativelyhighlevelof communitydevelopmentloans. IntheDallasMSA,examinersfoundthatBranchBank’slendinglevelsreflectedgood responsivenesstoAAcreditneeds.Examinersnotedthatthebank’sgeographicdistributionanddistributionof borrowersreflectedgoodpenetrationthroughouttheAA.Examinersfurthernotedthatthebankusedflexiblelendingpracticesandmadearelativelyhigh levelof communitydevelopmentloans. IntheHoustonMSA,examinersfoundthatBranchBank’slendinglevelsreflectedgood responsivenesstoAAcreditneeds.Examinersnotedthatthebank’sgeographicdistributionof homemortgageloansreflectedgoodpenetration,whilethedistributionof borrowersreflectedadequatepenetration,throughouttheAA.Inaddition,examiners notedthatthebankusedflexiblelendingpracticesandwasaleaderinmakingcommunity developmentloans. InFlorida,examinersfoundthatthebank’sgeographicdistributionof loansreflected adequatepenetrationthroughoutthebank’sAAs,andtheborrowerprofilealsoreflected anadequatedistribution.Inaddition,examinersnotedthatthebankusedflexiblelending practicesandwasaleaderinmakingcommunitydevelopmentloans. 80 TheBranchBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Examiners reviewedhomemortgagelendingdata,otherCRAdata(smallloanstobusinessesandfarms),community developmentloans,qualifiedinvestments,branchingactivities,andcommunitydevelopmentservicesfrom January1,2014,throughDecember31,2016.TheBranchBankEvaluationcoveredBranchBank’s138AAs locatedin13statesandninemultistatemetropolitanstatisticalareas(“MSAs”):Alabama;Florida;Georgia; Kentucky;Maryland;NewJersey;NorthCarolina;Pennsylvania;SouthCarolina;Tennessee;Texas;Virginia; WestVirginia;Cincinnati,Kentucky–Ohio,MSA;Charlotte–Concord–Gastonia,NorthCarolina– SouthCarolina,MSA;Columbus,Alabama–Georgia,MSA;Cumberland,Maryland–WestVirginia,MSA; Hagerstown–Martinsburg,Maryland–WestVirginia,MSA;Kingsport–Bristol–Bristol,Tennessee–Virginia, MSA;Louisville–JeffersonCounty,Indiana–Kentucky,MSA;MyrtleBeach–Conway–NorthMyrtleBeach, NorthCarolina–SouthCarolina,MSA;andWashington–Arlington–Alexandria,DistrictofColumbia– Maryland–Virginia–WestVirginia,MSA.TheBranchBankEvaluationincludedafull-scopereviewof51of theseAAs,includingallninemultistateMSAs.Alimited-scopereviewwasconductedoftheremaining87AAs.

LegalDevelopments:FourthQuarter,2019 23 IntheNewYorkMSA,examinersnotedthatBranchBank’slendingreflectedadequate responsivenesstoAAcreditneeds,andthegeographicdistributionreflectedadequate penetrationthroughouttheAA.Examinersfoundthatthebankusedinnovativeand/or flexiblelendingpracticestoservetheAA. InNorthCarolina,BranchBankreceivedanoverall“HighSatisfactory”ratingforthe LendingTest.IntheDurham–ChapelHill,NorthCarolina,MSA(“DurhamMSA”), examinersfoundthatthebank’sperformancewasconsistentwiththebank’sstatewide performance. InPennsylvania,BranchBankreceivedanoverall“HighSatisfactory”ratingforthe LendingTest.IntheScranton–WilkesBarre,Pennsylvania,MSA(“ScrantonMSA”), whichincludesLuzerneCounty,Pennsylvania,examinersfoundthatBranchBank’s lendingperformanceintheAAwasconsistentwiththebank’sstatewideperformance. InWestVirginia,examinersfoundthatthegeographicdistributionof loansreflected adequatepenetrationthroughoutthebank’sAAsandtheborrowerprofilereflectedagood distribution.Inaddition,examinersnotedthatthebankusedflexiblelendingpracticesand madearelativelyhighlevelof communitydevelopmentloans. InvestmentTest ExaminersfoundthatBranchBankhadanexcellentlevelof qualifiedcommunitydevelopmentinvestmentsandgrantsandoftenwasinaleadershippositionwithrespecttosuch investments,particularlythosethatwerenotroutinelyprovidedbyprivateinvestors.ExaminersnotedthatBranchBankexhibitedexcellentresponsivenesstocreditandcommunity economicdevelopmentneedsandmadesignificantuseof innovativeand/orcomplex investmentstosupportcommunitydevelopmentinitiatives. Areasof ConcerntoCommenters—IntheCharlestonMSA,examinersnotedthatBranch Bankprovidedasignificantlevelof qualifiedinvestmentsintheAA.Examinersfoundthat thebank’sinvestmentswereresponsivetocreditandcommunitydevelopmentneedsand wereconsideredinnovativeandcomplex. IntheDallasMSA,examinersfoundthatBranchBankprovidedasignificantlevelof qualifiedinvestmentsintheAA.Examinersnotedthattheinvestmentswereresponsiveto creditandcommunitydevelopmentneedsandwereconsideredinnovativeandcomplex. IntheHoustonMSA,examinersfoundthatBranchBankprovidedanexcellentlevelof qualifiedinvestmentsintheAA.Examinersnotedthatthebank’sinvestmentswereresponsivetocreditandcommunitydevelopmentneedsandwereconsideredinnovativeand complex. InFlorida,examinersnotedthatthebankhadanexcellentlevelof qualifiedinvestments, whichwereresponsivetocommunitydevelopmentneedsandincludedinnovativeand complexcharacteristics. IntheNewYorkMSA,examinersnotedthatBranchBankprovidedanadequatelevelof qualifiedinvestmentsintheAA,andthattheinvestmentswereresponsivetoAAcreditand communitydevelopmentneeds. InNorthCarolina,BranchBankreceivedanoverall“Outstanding”ratingfortheInvestmentTest.IntheDurhamMSA,examinersfoundthatthebank’sperformancewasconsistentwithitsoverallstatewideperformance.

24 FederalReserveBulletin|February2020 InPennsylvania,BranchBankreceivedanoverall“HighSatisfactory”ratingfortheInvestmentTest.IntheScrantonMSA,examinersfoundthatBranchBank’sperformancewas notinconsistentwiththebank’sstatewideperformanceinthiscategory. InWestVirginia,examinersnotedthatthebankhadanexcellentlevelof qualifiedinvestments,whichwereresponsivetocommunitydevelopmentneedsandincludedinnovative andcomplexcharacteristics. ServiceTest ExaminersnotedthatBranchBank’sdeliverysystemswereaccessibletoessentiallyall portionsof itsAAs.Examinersalsonotedthat,totheextentchangesweremade,Branch Bank’sopeningandclosingof branchesdidnotadverselyaffecttheaccessibilityof its deliverysystems,particularlyinLMIgeographiesortoLMIindividuals.Examinersfound thatBranchBank’sservicesweretailoredtotheconvenienceandneedsof theAAs, particularlyof LMIgeographiesandindividuals.ExaminerscharacterizedBranchBankas aleaderinprovidingcommunitydevelopmentservices.81 Areasof ConcerntoCommenters—IntheCharlestonMSA,examinersnotedthatthe bank’sdeliverysystemswerereadilyaccessibletoallportionsof theAA,andtheopening andclosingof branchesgenerallyhadnotadverselyaffectedtheaccessibilityof thebank’s deliverysystems. IntheDallasMSA,examinersfoundthatBranchBank’sdeliverysystemswerereasonably accessibletoessentiallyallportionsof theAA,andtheopeningandclosingof branches hadimprovedtheaccessibilityof thebank’sdeliverysystems.Examinersnotedthatthe bank’sservicesandbusinesshoursweretailoredtotheconvenienceandneedsof theAA, andthebankprovidedarelativelyhighlevelof communitydevelopmentservices. IntheHoustonMSA,examinersfoundthatBranchBank’sdeliverysystemswerereasonablyaccessibletoessentiallyallportionsof theAA.Examinersnotedthattheopeningand closingof brancheshadimprovedtheaccessibilityof thebank’sdeliverysystems.Examinersalsonotedthattheservicesandbusinesshoursprovidedbythebankweretailoredto theconvenienceandneedsof theAA. InFlorida,examinersfoundthatthebank’sdeliverysystemswereaccessibletoessentially allportionsof theinstitution’sAAs.ExaminersnotedthatBranchBank’sopeningand closingof branchesdidnotadverselyaffecttheaccessibilityof thebank’sdeliverysystems, particularlyinLMIgeographiesortoLMIindividuals. IntheNewYorkMSA,examinersfoundthatBranchBank’sdeliverysystemswerereasonablyaccessibletoessentiallyallportionsof theAA.Examinersnotedthattheopeningand closingof branchesgenerallyhadnotadverselyaffectedtheaccessibilityof thebank’s deliverysystems. 81 SomecommentersobjectedtotheproposalnotingthatexaminerscitedasubstantiveviolationofRegulationB, whichimplementstheEqualCreditOpportunityAct,intheBranchBankEvaluation.AccordingtotheBranch BankEvaluation,theviolationswerelimitedtooneloanproduct,andthebankimplementedchangestopolicies,procedures,trainingprograms,internalassessments,andotherpracticestopreventfuturediscriminatory orotherillegalcreditpractices.Examinersconcludedthattheviolationsdidnotwarrantadowngradeof BranchBank’sCRArating,consideringthebank’soverallCRAperformance,theextentandimpactofthe findings,andtheimmediatecorrectiveactionstakenbyBranchBank.

LegalDevelopments:FourthQuarter,2019 25 InNorthCarolina,BranchBankreceivedanoverall“Outstanding”ratingfortheService Test.IntheDurhamMSA,examinersfoundthatthebank’sperformancewasconsistent thebank’sstatewideperformance. InPennsylvania,BranchBankreceivedanoverall“HighSatisfactory”ratingforthe ServiceTest.IntheScrantonMSA,examinersfoundthatBranchBank’slendingactivities wereconsistentwiththebank’sstatewideperformance. InWestVirginia,examinersfoundthatthebank’sdeliverysystemswereaccessibletoessentiallyallportionsof theinstitution’sAAs.ExaminersnotedthatBranchBank’sopening andclosingof branchesdidnotadverselyaffecttheaccessibilityof thebank’sdelivery systems,particularlyinLMIgeographiesortoLMIindividuals. BranchBank’sEffortssincetheBranchBankEvaluation BB&Trepresentsthat,sincetheBranchBankEvaluation,BranchBankhascontinuedto providelevelsandtypesof CRAservices,investments,andactivitiesinallof itsAAsthat areconsistentwithitsoverall“Outstanding”CRAperformancerating.BB&Tcontends thatBranchBankhascontinuedtooriginateasubstantialnumberof homemortgageloans toLMIborrowersandinLMIcensustracts.BB&Tnotesthatthebankalsooriginateda numberof smallbusinessandfarmloans,includinginLMIcensustracts,andmadesignificantcommunitydevelopmentinvestmentsandloansthroughoutthebank’slocalcommunities.BB&TrepresentsthatBranchBankhascontinuedtosupportaffordablehousing throughitscommunitydevelopmentlending,investments,grantsandservicesactivities, includingthroughitsparticipationinvariousFederalHousingFinanceAgencymortgage loanprogramstargetedtowardfirst-timehomebuyersandLMIborrowers. Inaddition,BranchBankrepresentsthatithasmadeawiderangeof communitydevelopmentloanstosupportaffordablehousing,economicdevelopment,revitalizationof communities,andtheprovisionof communityservicesfortheLMIcommunity.BB&T assertsthatBranchBank’smanagementandemployeeshavecontinuedtodedicatevolunteerhourstocommunityserviceprojects,includingtocommunityorganizationsthat provideemploymentservices,financialeducation,andliteracytrainingforchildrenand families. Areasof ConcerntoCommenters—IntheDallasMSA,BB&TassertsthatBranchBank hasstrongfairlendingandconsumercompliancerisk-managementprogramsandhas undertakeneffortstoincreaseitsmortgageandsmallbusinesslendinginmajority-minority andLMIcommunities. IntheHoustonMSA,BB&TassertsthatBranchBankhasprovidedcommunitydevelopmentloansandinvestmentsfocusedonservingtheneedsof minoritycommunitiesthrough programsthatsupportaffordablehousingandminority-ownedbusinesses.BB&TrepresentsthatBranchBankhasprovidedanumberof homebuyerandfinancialliteracycourses thatbenefitedminorityindividualsandcommunities. IntheDurhamMSA,BB&TassertsthatBranchBankhasconductedanumberof individualandcommunityoutreachactivitiestoenhancelendingtominorityindividualsand communities.BB&Trepresentsthatthebank’soutreachhasincludedsupportforprograms forhomebuyereducation,financialliteracy,communityandeconomicstabilization,aswell asforotherorganizationsaddressingaffordablehousinginmajority-minoritycommunitiesintheDurhamMSA.

26 FederalReserveBulletin|February2020 InFlorida,BB&TassertsthatBranchBankhastakenanumberof stepstoincreasehome mortgagelendingtominorities.BB&TrepresentsthatBranchBankplanstoopen denovobranchesinLMIand/ormajority-minoritycensustractsinMiamiandTampa in2019. InWestVirginia,BB&Trepresentsthatthebankhasmaintainedahighlevelof home mortgagelending,smallbusinesslending,communitydevelopmentlendingandqualified investmentsorgrants.BB&TassertsthatBranchBankhasprovidedcommunitydevelopmentloans,investments,andgrantstosupportaffordablehousing,socialservices, economicdevelopment,andcommunityrevitalizationandstabilizationinthestate. CRAPerformanceof SunTrustBank SunTrustBankwasassignedanoverall“Satisfactory”ratingatitsmostrecentCRAperformanceevaluationbytheFederalReserveBankof Atlanta,asof September16,2016 (“SunTrustBankEvaluation”).82SunTrustBankreceived“HighSatisfactory”ratingsfor theLendingandInvestmenttestsanda“LowSatisfactory”ratingfortheServiceTest. LendingTest Examinersnotedthattheoverallgeographicdistributionof HMDA-reportablelending reflectedadequatepenetrationinLMIgeographies,andtheoverallgeographicdistribution of smallbusinesslendingreflectedgoodpenetrationinLMIgeographies.Examiners foundthattheoveralldistributionof HMDA-reportablelendingamongborrowersof differentincomelevelswasgood,andtheoveralldistributionof smallbusinesslending amongbusinessesof differentsizeswasadequate.ExaminersnotedthatSunTrustBank madearelativelyhighlevelof communitydevelopmentloans. Areasof ConcerntoCommenters—InFlorida,SunTrustBankreceiveda“HighSatisfactory”ratingfortheLendingTest.Examinersfoundthatthegeographicdistributionof loansreflectedgoodpenetrationthroughouttheAAs,andthedistributionof loansby borrowerincomereflectedgoodpenetrationamongcustomersof differentincomelevels andbusinessesof differentrevenuesizes.Examinersnotedthatthebankmadearelatively highlevelof communitydevelopmentloansinitsAAs.InTheVillagesMSA,examiners notedthatthebank’sLendingTestperformanceintheAAwasbelowthebank’soverall statewideperformance. InNorthCarolina,althoughSunTrustBankreceivedanoverall“HighSatisfactory”rating fortheLendingTest,intheDurhamMSA,examinersfoundthatthebank’slendingperformancewasadequate.Examinersnotedthatthebank’sgeographicdistributionof loans reflectedadequatepenetrationthroughouttheAA.ExaminersfurthernotedthatSunTrust Bank’sdistributionof borrowersreflectedgoodpenetrationamongborrowersof different incomelevelsandbusinessesof differentrevenuesizes. 82 TheSunTrustBankEvaluationwasconductedusingLargeBankCRAExaminationProcedures.Examiners reviewedHMDA-reportableandCRAsmallbusinesslendingdatafromJanuary1,2014,toDecember31, 2015,aswellascommunitydevelopmentloans,investments,andservicesfromJanuary1,2013,to December31,2015.TheSunTrustBankEvaluationcoveredSunTrustBank’s107AAslocatedinninestates andfourmultistateMSAs:Alabama;Florida;Georgia;Maryland;NorthCarolina;SouthCarolina;Tennessee; Virginia;WestVirginia;Charlotte,NorthCarolina–SouthCarolinaMSA;Chattanooga,Tennessee–Georgia MSA;Memphis,Tennessee–Mississippi–ArkansasMSA;andWashington–Arlington–Alexandria,Districtof Columbia–Maryland–Virginia–WestVirginia,MSA.TheSunTrustBankEvaluationincludedafull-scope reviewof18oftheseAAs,includingthefourmultistateMSAs.Alimited-scopereviewwasconductedinthe remaining89AAs.

LegalDevelopments:FourthQuarter,2019 27 InvestmentTest ExaminersfoundthatSunTrustBankmadeasignificantlevelof qualifiedcommunity developmentinvestmentsinresponsetoAAcommunitydevelopmentneeds.Examiners notedthatmostof SunTrustBank’sinvestmentssupportedaffordablehousing,primarily throughthepurchaseof governmentguaranteedmortgage-backedsecuritiesandinvestmentsinLow-IncomeHousingTaxCreditequityfundsthatfinancedaffordablemultifamilyrentalhousing.ExaminersidentifiedSunTrustBankasanationalleaderinutilizing theNewMarketTaxCreditProgram. Areasof ConcerntoCommenters—InFlorida,SunTrustBankreceivedanoverallratingof “HighSatisfactory”fortheInvestmentTest.Examinersfoundthatthebankprovideda significantlevelof qualifiedcommunitydevelopmentinvestmentsandgrantsthatwere responsivetoseveralidentifiedcommunitydevelopmentneedsof itsAAs.InTheVillages MSA,examinersnotedthatthebank’sinvestmentperformanceintheAAwasbelowthe bank’soverallstatewideperformance. InNorthCarolina,SunTrustBankreceivedanoverall“HighSatisfactory”ratingforthe InvestmentTest.IntheDurhamMSA,examinersfoundthatSunTrustBankmadean adequatelevelof qualifiedinvestmentsandgrantsintheAArelativetothebank’spresence andcommunitydevelopmentinvestmentopportunitiesintheAA. ServiceTest ExaminersfoundthatSunTrustBank’sretaildeliverysystemswerereasonablyaccessibleto geographiesandindividualsof differentincomelevelsinthebank’sAAs.Examinersalso foundthatSunTrustBankprovidedarelativelyhighlevelof communitydevelopment services.Examinersnotedthateightbranchclosureswerelocatedinlow-incometractsand 21wereinmoderate-incometracts,whichmayhaveadverselyaffectedtheaccessibilityof bankingservicesinsomeAAs. Areaof ConcerntoCommenters—InFlorida,SunTrustBankreceivedanoverall“Low Satisfactory”ratingfortheServiceTest.Examinersfoundthatthebank’sretailservices werereasonablyaccessibletothebank’sgeographiesandindividualsof differentincome levelsinthebank’sAAs.Examinersnotedthatthebankprovidedanadequatelevelof communitydevelopmentservicesthroughouttheAAs.InTheVillagesMSA,examiners notedthatthebank’sServiceTestperformancewasbelowthebank’soverallstatewide performance. InNorthCarolina,SunTrustBankreceivedanoverall“HighSatisfactory”ratingforthe ServiceTest.IntheDurhamMSA,examinersfoundthatSunTrustBank’sServiceTest performancewasgoodbasedontheaccessibilityof thebank’sretailservicesandleadershipinprovidingcommunitydevelopmentservices. SunTrustBank’sEffortsSincetheSunTrustBankEvaluation SunTrustrepresentsthatSunTrustBank’sCRAperformancesincethe2016evaluation generallyhasbeenconsistentwiththebank’soverall“Satisfactory”rating,andthebank’s performanceinseveralcategoriesof CRAactivityhassignificantlyimproved.SunTrust representsthatthebankhasmadeasignificantnumberof HMDAloanstoLMI borrowersandinLMIcensustracts.SunTrustfurtherrepresentsthatthebankhasmade smallbusinessloansinLMIcensustractsandcommunitydevelopmentloansandinvestmentsgearedtowardrevitalizingLMIgeographies,providingaffordablehousing,and servinglow-incomecommunities.

28 FederalReserveBulletin|February2020 Inaddition,SunTrustrepresentsthatSunTrustBankhasmadeasignificantnumberof contributionsandgrantstononprofitentitiesfocusedonprovidingaffordablehousing, communityservices,economicdevelopment,andrevitalizationandstabilizationtoLMI customersandcommunities.SunTrustfurtherrepresentsthatthebankhasmadesignificantstridesinprovidingservicesthroughoutitscommunitiesthroughvolunteercommunity developmentservicehoursfocusedonfinancialeducation,professionaldevelopment,and affordablehousing. Areasof ConcerntoCommenters—IntheDurhamMSA,SunTrustassertsthatSunTrust BankhasimplementedinitiativesfocusedonbenefittingLMIandminorityindividualsand communities.SunTrustrepresentsthatthebankhasincreaseditscommunitydevelopment loans,investments,andgrantstoandinminoritycommunities,withafocusonaffordable housing,economicdevelopment,revitalizationandstabilizationof distressedandunderservedcommunities,andcommunityservicestoassistLMIindividualsandcommunities. InFlorida,SunTrustassertsthatSunTrustBank’scommunitydevelopmentservicesfocus onaffordablehousing,financialeducation,professionaldevelopment,andothercommunityservicesthatbenefitLMIandminoritycommunities.SunTrustrepresentsthat SunTrustBankhasprovidedcommunitydevelopmentloansandgrantstoandqualified investmentsinprojectsororganizationsthatservedminoritycommunitiesthroughout Florida. BranchClosures Asnotedabove,manycommentersexpressedconcernthattheproposalcouldresultina significantnumberof branchconsolidationsandclosures,whichcouldnegativelyimpact LMIandruralcommunities.Thefederalbankingsupervisoryagenciesevaluateabank’s recordof openingandclosingbranches,particularlybrancheslocatedinLMIgeographies orprimarilyservingLMIindividuals,aspartof theCRAexaminationprocess.83ExaminersnotedintheBranchBankEvaluationthatBranchBank’sopeningandclosingof brancheshadnotadverselyaffectedtheaccessibilityof thebank’sdeliverysystems, particularlyinLMIgeographiesortoLMIindividuals.WithrespecttoSunTrustBank, examinersnotedthatsomebranchclosuresandconsolidationsbySunTrustBankmayhave adverselyaffectedtheaccessibilityof bankingservicesinsomeof thebank’sAAs. TheBoardalsohasconsideredthefactthatfederalbankinglawprovidesaspecificmechanismforaddressingbranchclosings,includingtheprovisionof noticetothepublicandthe appropriatefederalsupervisoryagencybeforethebranchisclosed.84BB&Trepresentsthat anybranchclosuresorconsolidationswouldbesubjecttothecombinedorganization’s frameworkforensuringthatindividualbranchclosureandconsolidationdecisionscomply withapplicablelawsandregulations.Inparticular,BB&Trepresentsthatanybranch closuresorconsolidationswouldtakeaccountof thepotentialimpacttoLMIneighborhoodsand/ormajority-minoritycensustracts,andwouldbesubjecttoathoroughCRA andfairlendinganalysis.BB&Tfurtherrepresentsthatanymerger-relatedclosuresor consolidationswouldnotoccurinanystatesinwhichBB&TandSunTrusthaveoverlappingoperationsforatleastoneyearafterconsummationof theproposal.BB&TalsorepresentsthatTruistBankwouldnotcloseanybranchesincommunitiesof 2,500orfewer 83 See,e.g.,12CFR228.24(d)(2).Inaddition,theBoardnotesthattheFDIC,astheprimaryfederalsupervisorof TruistBank,wouldcontinuetoevaluatethebank’sbranchclosuresinthecourseofconductingCRAperformanceevaluations. 84 See12U.S.C.§1831r-1.Asfederalbankinglawrequires,abankmustprovidethepublicwithatleast30days’ noticeandtheappropriatefederalsupervisoryagencywithatleast90days’noticebeforethedateofthe proposedbranchclosing.Thebankalsoisrequiredtoprovidereasonsandothersupportingdataforthe closure,consistentwiththeinstitution’swrittenpolicyforbranchclosings.

LegalDevelopments:FourthQuarter,2019 29 personsforthreeyearsfollowingconsummationof theproposal.Finally,BB&Trepresents thatTruistBankwouldseektoopenatleast15newbranchesthroughoutitsfootprintin LMIand/ormajority-minoritycensustractsthrough2022. AdditionalSupervisoryViews Inconnectionwithitsreviewof theproposal,theBoardconsultedtheFDICasthe primaryfederalsupervisorof BranchBank.TheFDICisreviewingthebankmerger underlyingthisproposaland,inactingonthebankmergerapplication,mustconsider similarstatutoryfactorsundertheBankMergerAct,includingregardingconvenienceand needs,thattheBoardmustconsiderundertheBHCAct.TheFDICreceivedthesame commentsontheBankMergerActapplicationastheBoardreceivedontheBHCAct application,andtheFDICisevaluatingthesecommentsinconnectionwithitsreviewof theBankMergerActapplication.TheBoardconsideredtheviewsof theFDICregarding BranchBank’sCRAandconsumercompliancerecords,recordof compliancewithfair lendinglawsandregulations,andpoliciesandproceduresrelatingtofairlendingandother consumerprotectionlawsandregulations.Thisincludedconsiderationof BranchBank’s lendingrecord.TheBoardalsoconsideredtheviewsof theFederalReserveBankof AtlantaregardingSunTrustBank’sCRAandconsumercompliancerecords,recordof compliancewithfairlendinglawsandregulations,andpoliciesandproceduresrelatingto fairlendingandotherconsumerprotectionlawsandregulations.Inaddition,theBoard consideredtheviewsof theCFPBregardingtheconsumercompliancerecordsof both BranchBankandSunTrustBank. TheBoardhastakentheviewsof theFDIC,FederalReserveBankof Atlanta,andCFPB, aswellasallof theinformationdiscussedabove,intoaccountinevaluatingthisproposal. TheBoardhasconsideredwhetherBB&TandSunTrusthavetheexperienceandresources toensurethatthecombinedorganizationeffectivelyimplementspoliciesandprogramsthat wouldallowthecombinedorganizationtohelpmeetthecreditneedsof thecommunities withinitsAAs.TheBoardexpectsTruisttoensurethatTruistBankcomplieswithany commitmentsorconditionsthattheFDICmayobtainorimposeinconnectionwithits actiononthebankmergerproposal. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.BB&Trepresentsthatthecombinedorganization wouldbebetterabletoleverageincreasedscaletoinvestfurtherininnovationandtechnologyforthebenefitof itscustomers.Inaddition,BB&Trepresentsthatexisting customersof bothBranchBankandSunTrustBankwouldhaveaccesstoamoreextensive branchandATMnetwork,aswellasabroaderofferingof productsandservices.BB&T alsorepresentsthatcorporatecustomersof bothBranchBankandSunTrustBankwould benefitfromTruistBank’slargerlendinglimitforindividualcorporateborrowers. OnNovember19,2019,theBoardissuedaconsentorderagainstSunTrustBankunderthe FederalDepositInsuranceAct(“ConsentOrder”)addressingconcernsthatSunTrust Bankengagedincertainunfairordeceptiveactsorpractices(“UDAP”)inviolationof section5of theFederalTradeCommissionActof 1914.85Theconductaddressedinthe ConsentOrderrelatedtomisleadingordeceptivedisclosuresorunfairpracticesconnected withthemarketingof,enrollmentin,andbillingforseveraltypesof add-onandsimilar 85 15U.S.C.§45.

30 FederalReserveBulletin|February2020 productsofferedtobusinesscustomerswithdepositaccountsorthatutilizedSunTrust creditcardanddebitcardprocessingservices. SunTrustBankterminatedthepracticesaddressedintheConsentOrderin2016and2017, andhascooperatedwiththeBoard’sinvestigation.SunTrustBankhastakenstepsonits owninitiativetoaddresstheBoard’sconcernsandtoinitiateUDAPcomplianceenhancements,includingbychangingdisclosuresrelatedtothetermsandconditionsforadd-on productsandstoppingautomaticenrollmentof accountholdersinotherproducts. Followingthereceiptof complaintsin2016,SunTrustBankissuedapproximately $3millioninfeerefundstobusinessaccountholders.Inaddition,SunTrustBank proactivelyconductedaninternalreviewin2016todetermineif otherproductspresented similarconcerns.Upontheidentificationof relatedissuesaspartof itsinternalreview, SunTrustBankinitiatedanadditional$4.25millioninfeerefundstobusiness accountholdersrelatedtootherproducts.Intotal,SunTrustBankhasindicatedthat,hasit hasrepaidapproximately$8.8millioninfeestobusinessaccountholdersaffectedbythese practicessince2016. Amongotherthings,theConsentOrderrequiresSunTrustBanktocreateaprocedurefor verifyingthattherestitutionpreviouslyprovidedbySunTrustBankhasbeenappropriate andforprovidingadditionalrestitutionif required.ThisOrderisconditionedonBB&T’s commitmenttocauseBranchBankandanysuccessorsubsidiarybanktocomplywiththe obligationsof theConsentOrder. AlthoughtheConsentOrderrequiresSunTrustBanktosubmitaplantoenhanceits UDAPcompliancerisk-managementprogram,BB&TrepresentsthattheUDAPcomplianceprogramof BranchBank,includingdetectionandmonitoringcontrols,wouldbe implementedatTruistBank.BB&Talsorepresentsthattheboardof directorsandexecutivemanagementof Truistwouldsetatoneandculturefromthetopof thecombined organizationregardingTruistBank’sUDAPcomplianceprogram. RegardingtheUDAPcomplianceprogram,BB&Trepresentsthattherolesandfunctions of BB&T’sfirst,second,andthirdlinesof defensestructurewouldbetransitionedto Truist,althoughsomeresponsibilitieswouldbereallocatedtobebetteralignedtoTruist’s reportinghierarchy.BB&TalsorepresentsthatanewlyhiredChief ComplianceOfficer (“CCO”)wouldreportdirectlytoTruist’sChief RiskOfficer(“CRO”),andBB&T’s currentCROwouldleadTruist’srisk-managementfunction.TheCCOandtheCCO’s directreport,theleaderof theFairLendingandResponsibleBankingteamatthe combinedorganization,wouldbeprimarilyresponsibleforUDAPcompliance,aswellas implementationof anenhanced,firm-widecompliancerisk-managementprogram.That programwouldincludeoversightof compliancewithalllaws,rules,regulations,regulatory guidance,andpoliciesandprocedures.BB&TalsorepresentsthattheTruistCCOwould haveresponsibilityforidentifying,assessing,controlling,measuring,monitoring,and reportingallcompliancerisksacrossthecombinedorganization.Inadditiontoreporting totheCRO,theCCOwouldreporttoappropriateexecutive-levelriskmanagement committeesandthecombinedorganization’sboard-levelriskcommittee.Finally,BB&T representsthatallTruistBankstaff wouldberequiredtotaketrainingspecifictoUDAP complianceannually. Basedonitsreviewof therecord,theBoardfindsthatBB&T’sexistingUDAPcompliance programissatisfactoryand,inlightof BB&T’srepresentations,thattheUDAPcomplianceprogramof thecombinedcompanywouldbeconsistentwithapprovalof the proposal.

LegalDevelopments:FourthQuarter,2019 31 ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA;theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws;theviewsof theFDIC,theFederalReserve Bankof Atlanta,andCFPB;confidentialsupervisoryinformation;informationprovided byBB&T;publiccommentsontheproposal;andotherpotentialeffectsof theproposalon theconvenienceandneedsof thecommunitiestobeserved.Basedonthatreview,the Boarddeterminesthattheconvenienceandneedsfactorisconsistentwithapproval.The BoardexpectsTruisttoimplementpolicies,programs,andproceduresthatarecommensuratewiththeincreasedsizeandcomplexityof theinstitution. FinancialStability Section3of theBHCActrequirestheBoardtoconsider“theextenttowhichaproposed acquisition,merger,orconsolidationwouldresultingreaterormoreconcentratedrisksto thestabilityof theUnitedStatesbankingorfinancialsystem.”86 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theU.S.bankingor financialsystem,theBoardconsidersavarietyof metricsthatcapturethesystemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactiononthesystemic footprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresulting firm,theavailabilityof substituteprovidersforanycriticalproductsandservicesofferedby theresultingfirm,theinterconnectednessof theresultingfirmwiththebankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothecomplexityof the financialsystem,andtheextentof thecross-borderactivitiesof theresultingfirm.87These categoriesarenotexhaustive,andadditionalcategoriescouldinformtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoardconsidersqualitativefactors, suchastheopaquenessandcomplexityof aninstitution’sinternalorganization,thatare indicativeof therelativedegreeof difficultyof resolvingtheresultingfirm.Afinancial institutionthatcanberesolvedinanorderlymannerislesslikelytoinflictmaterialdamage tothebroadereconomy.88 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the U.S.bankingorfinancialsystem.89TheBoardalsohasconsideredtherelativedegreeof difficultyof resolvingtheresultingfirm.TheBoardreviewedpubliclyavailabledata, commentsreceivedfromthepublic,datacompiledthroughthesupervisoryprocess,and dataobtainedthroughinformationrequeststotheinstitutionsinvolvedintheproposal,as wellasqualitativeinformation. Size.Anorganization’ssizeisoneimportantindicatorof theriskthattheorganization mayposetotheU.S.bankingorfinancialsystem.Congresshasimposedspecificsize-based 86 12U.S.C.§1842(c)(7). 87 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheU.S.financial system. 88 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 89 Forty-threecommenters(including34whosubmittedformcomments)expressedconcernsthattheproposed mergerwouldhaveadverseeffectsonU.S.financialstability.Somecommentersspecificallyallegedthatthe combinedbankwouldbeviewedas“toobigtofail,”whileothercommentersexpressedgeneralconcernsabout thepotentialforthemergerorthecombinedorganizationtohaveasignificanteffectontheeconomy.One commenterexpressedspecificconcernabouttheelevatedrisktotheSoutheastandMid-Atlanticregionsifthe combinedinstitutionweretofail.

32 FederalReserveBulletin|February2020 limitationsontheamountof depositsandliabilitiesabankingorganizationmaycontrol.90 Inaddition,section165of theDodd-FrankWallStreetReformandConsumerProtection Act(“Dodd-FrankAct”),asamendedbytheEconomicGrowth,RegulatoryRelief,and ConsumerProtectionAct(“EGRRCPA”),requirestheBoardtoapplyenhancedprudential standardstobankholdingcompanieswith$250billionormoreintotalconsolidated assets.91SizealsoisamongthefactorsthattheBoardmusttakeintoconsiderationin differentiatingamongbankingorganizationsundersection165.92 Inthiscase,theBoardhasconsideredmeasuresof thecombinedorganization’ssizerelative totheU.S.financialsystem,includingthecombinedorganization’sconsolidatedassets, consolidatedliabilities,93totalleverageexposure,andU.S.deposits.Asaresultof the proposedacquisition,thecombinedorganizationwouldbecomeeithertheeighthorninth largestU.S.financialinstitution94basedonassets,liabilities,andtotalleverageexposure with1.8,1.7,and1.8percentof theU.S.financialsystemtotal,respectively.Basedon deposits,thecombinedorganizationwouldbecomethesixthlargestU.S.financialinstitution,with2.5percentof thetotaldeposits.Thesemeasuressuggestthat,althoughthe combinedorganizationwouldbelargeonanabsolutebasis,itssharesof UnitedStates financialsystemassets,liabilities,totalleverageexposure,anddepositswouldremain modest,anditssharesof nationaldepositsandliabilitieswouldfallwellbelowthe 10percentlimitationssetbyCongress. AlthoughtheproposedtransactionwouldincreaseBB&T’soverallsizeandresultinTruist BankbecomingthesixthlargestcommercialbankintheUnitedStatesbasedonU.S. deposits,thecombinedorganization’slargersizemustbeviewedinconjunctionwithother metrics.Accordingly,theBoardhasconsideredotherfactors,bothindividuallyandin combinationwithsize,toevaluatethelikelyimpactof thistransactiononthestabilityof theU.S.bankingorfinancialsystem.95 Substitutability.TheBoardhasexaminedwhetherBB&TorSunTrustengageinanyactivitiesthatarecriticaltothefunctioningof theU.S.financialsystemandwhetherthere wouldbeadequatesubstituteprovidersthatcouldquicklyperformsuchactivitiesshould thecombinedorganizationsuddenlybeunabletodosoasaresultof severefinancial distress.TheBoardprimarilyevaluatedtherolesof BB&TandSunTrustinpayments activities,assetsundercustodyactivities,andunderwritingactivities.NeitherBB&Tnor SunTrustisamajorproviderof theseservices.Thecombinedorganizationwouldaccount forapproximately0.2percentof paymentsactivities,0.1percentof assetsundercustody, and0.8percentof underwritingactivitiesintheU.S.financialsystem.Inaddition,bilateral repurchasetransactionsbyBB&TandSunTrust,respectively,arerelativelydeminimis. 90 12U.S.C.§§1842(d)(2)(A)&1852(imposinga10percentnationwidedepositlimitanda10percentnationwide liabilitieslimitonpotentialcombinationsbybankingorganizations). 91 See12U.S.C.§5365. 92 SeeEGRRCPA§401(a)(1)(B)(i)(codifiedat12U.S.C.§5365(a)(2)(A)).TheBoardalsohaspreviouslyused sizeasasimplemeasureofabankingorganization’spotentialsystemicimpactandrisk,andhasdifferentiated thestringencyofcapitalandliquidityrequirementsbasedontotalconsolidatedassetsize. 93 TheBoardhasconsideredbothconsolidatedliabilitiesonthecombinedorganization’sproformabalancesheet andliabilitiesascomputedunderthelimitationsonconsolidatedliabilitiesinsection622oftheDodd-Frank Act.See12U.S.C.§1852. 94 Inthiscontext,aU.S.financialinstitutionincludesallinsureddepositoryinstitutions,insureddepositoryinstitutionholdingcompanies,nonbankfinancialcompaniessupervisedbytheBoardunderTitleIoftheDodd- FrankAct,andanyforeignbankorcompanytreatedasabankholdingcompany.See12U.S.C.§1852(a)(2). 95 Inaddition,theBoardalsoconsideredtheGloballySystemicImportantBanks(“GSIB”)Surchargescoreof thecombinedorganization.TheGSIBSurchargescoreisameasureofafirm’ssystemicimportance.See 80Fed.Reg.49082(August14,2015).Onconsummationoftheproposal,thecombinedorganizationwould haveaGSIBmethod1scoreof29points,wellbelowtheminimumthreshold(130basispoints)thatidentifiesa financialinstitutionasaGSIB.Inaddition,thecombinedorganization’sscoresuggeststhatTruistposesrelativelylittlesystemicrisk,withascorethatisunder10percentoftheaverageofthetopfiveinstitutions.

LegalDevelopments:FourthQuarter,2019 33 Thecombinedorganizationwouldaccountforlessthan0.2percentof totalU.S.repurchasetransactionsinboththebilateralandtripartymarketsegments. Formostof theseactivities,thecombinedorganizationwouldhaveasmallshareona nationwidebasis,andnumerouscompetitorswouldremain. Interconnectedness.TheBoardhasexamineddatatodeterminewhetherfinancialdistress experiencedbythecombinedorganizationcouldcreatefinancialinstabilitybybeingtransmittedtoanyotherinstitutionsormarketswithintheU.S.bankingorfinancialsystem. Specifically,theBoardconsideredmeasuresof interconnectednessbetweenthecombined organizationandtherestof thefinancialsystemduringfinancialdistress,suchaspotential directlossestocounterparties,assetpricedeclinesduetofiresales,andcontagioneffects. BB&TandSunTrustdonotengageinbusinessactivitiesorparticipateinmarketstoa degreethatwouldposesignificantrisktootherinstitutionsintheeventof financialdistress of thecombinedorganization.Thecombinedorganization’suseof wholesalefunding,asa shareof theU.S.financialsystemwholesalefundingusage,isapproximately0.6percent andiswellbelowitscorrespondingshareof U.S.financialsystemconsolidatedassets.The combinedorganization’ssharesof U.S.financialsystemintra-financialsystemassetsand liabilitiesalsoarelessthan1percent. Complexity.TheBoardhasconsideredtheextenttowhichthecombinedorganization wouldcontributetotheoverallcomplexityof theU.S.bankingorfinancialsystem.Inthis analysis,theBoardconsideredBB&T’sandSunTrust’sover-the-counterderivativesexposures(“OTCderivatives”),holdingsof Level3assets,96andvolumeof tradingbookand available-for-salesecurities.Thecombinedorganization’slevelof notionalOTCderivatives exposureswouldrepresentapproximately0.1percentof thetotalU.S.market.Similarly, thecombinedorganization’sLevel3assetsrepresentapproximately2.4percentof thetotal U.S.marketshare.Thisamountismitigatedfurtherbythefactthatthemajorityof these assetsconsistof mortgageservicingrights,whichgenerallycanbeseparatedeasilyfroma bankorganization’sotherassets.Finally,thecombinedtradingactivityof BB&Tand SunTrustisminor,accountingforlessthan0.1percentof tradingof equitysecuritiesand equityderivativesandof corporatebondU.S.marketsegments. TheBoardalsohasconsideredwhetherthecomplexityof thecombinedorganization’s assetsandliabilitieswouldhindertheorganization’stimelyandefficientresolutioninthe eventtheorganizationweretoexperiencefinancialdistress.BB&TandSunTrustdonot engageincomplexactivities,suchasbeingacoreclearingandsettlementorganizationfor criticalfinancialmarkets,thatmightcomplicatetheresolutionprocessbyincreasingthe complexity,costs,ortimeframesinvolvedinaresolution.Underthecircumstances, resolvingthecombinedorganizationwouldnotappeartoinvolvealevelof cost,time,or difficultysuchthatitwouldcauseasignificantincreaseinrisktothestabilityof theU.S. bankingorfinancialsystem. Cross-BorderActivity.TheBoardhasexaminedthecross-borderactivitiesof BB&Tand SunTrusttodeterminewhetherthecross-borderpresenceof thecombinedorganization wouldcreatedifficultiesincoordinatinganyresolution,whichcouldsignificantlyincrease therisktostabilityof theU.S.bankingorfinancialsystem.Atconsummation,the 96 Level3assetsaredefinedintheStatementofFinancialAccountingStandardsNo.157(“FairValueMeasurements”)asassetswhoseaccountingvaluationsarederivedfromvaluationtechniquesinwhichoneormore significantinputsorsignificantvaluedriversareunobservable.Theseassetsaredeemedcomplextoevaluate andcannotbemeasuredatfairvaluebecausethereisnotaclearmarketpriceorastandardvaluationmodel.A highershareoftheseassetscouldleadtodisorderlyresolutionofanentityincaseoffailure.

34 FederalReserveBulletin|February2020 combinedorganizationwouldengageinlimitedactivitiesoutsidetheUnitedStates.In particular,thecombinedorganizationwouldaccountforlessthan0.1percentof either totalcross-borderclaimsortotalcross-borderliabilitiesof bankingorganizationsfilingan FRY-15. FinancialStabilityFactorsinCombination.TheBoardhasassessedtheforegoingfactors individuallyandincombinationtodeterminewhetherinteractionsamongthemmightmitigateorexacerbateriskssuggestedbylookingatthemindividually.TheBoardalsohas consideredwhethertheproposedtransactionwouldprovideanystabilitybenefitsand whetherprudentialstandardsapplicabletothecombinedorganizationwouldoffsetany potentialrisks.97 Forinstance,concernsregardingthecombinedorganization’ssizewouldbegreaterif BB&TorSunTrustalsowerehighlyinterconnectedtomanydifferentsegmentsof theU.S. bankingorfinancialsystemthroughcounterpartyrelationshipsorotherchannels,orif thecombinedorganizationweretoparticipatetoalargerextentthanBB&TorSunTrust doinshort-termfundingandcapitalmarkets.TheBoard’slevelof concernalsowouldbe greaterif thestructureandactivitiesof thecombinedorganizationweresufficiently complexthat,if thecombinedorganizationweretofail,itwouldbedifficulttoresolvethe organizationwithoutcausingsignificantdisruptionstootherfinancialinstitutionsor markets. Asdiscussedabove,thecombinedorganizationwouldnotbehighlyinterconnected. Furthermore,theorganizationalstructureandoperationsof thecombinedorganization wouldbecenteredonacommercialbankingbusiness,andintheeventof distress,theresolutionprocesswouldbehandledinapredictablemannerbyrelevantauthorities.TheBoard alsohasconsideredothermeasuresthataresuggestiveof thedegreeof difficultywith whichthecombinedorganizationcouldberesolvedintheeventof afailure,suchasthe organizationalandlegalcomplexityandcross-borderactivitiesof theresultingfirm.These measuressuggestthatthecombinedorganizationwouldbesignificantlylesscomplicatedto resolvethanthelargestU.S.financialinstitutions. Inaddition,bothBB&TandSunTrustarepredominatelyengagedinretailcommercial bankingactivities.98Thecombinedorganizationwouldhaveminimalcross-borderactivities andwouldnotexhibitanorganizationalstructure,complexinterrelationships,orunique characteristicsthatwouldcomplicateresolutionof thefirmintheeventof financial distress.Inaddition,thecombinedorganizationwouldnotbeacriticalservicesprovideror sointerconnectedwithotherfirmsorthemarketsthatitwouldposesignificantrisktothe financialsystemintheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theU.S.bankingor financialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthat considerationsrelatingtofinancialstabilityareconsistentwithapproval. 97 See12U.S.C.§5365. 98 Truistwouldprimarilyofferretailconsumerandcommercialbanking,mortgageandconsumerlending,lease financing,asset-basedlending,discountbrokerageservices,annuitiesandmutualfunds,lifeinsurance,property andcasualtyinsurance,healthinsurance,loanservicingforthird-partyinvestors,privatebankandtrust services,paymentsprocessing,cashmanagementandtreasuryservices,studentlending,smallbusinesslending, trustandwealthmanagementservices,investmentandmergersandacquisitionadvisoryservices,capital markets,andinvestmentbankingservices.Ineachofitsactivities,thecombinedfirmwouldhaveasmall marketshareonanationwidebasis,andnumerouscompetitorswouldremainfortheseservices.

LegalDevelopments:FourthQuarter,2019 35 Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationshouldbe,andherebyis,approved.99Inreachingitsconclusion,theBoardhasconsideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunderthe BHCActandotherapplicablestatutes.TheBoard’sapprovalisspecificallyconditionedon compliancebyTruistwithalltheconditionsimposedinthisorder,includingreceiptof all requiredregulatoryapprovals,andonthecommitmentsandrepresentationsmadetothe Boardinconnectionwiththeapplication.Forpurposesof thisaction,theconditionsand commitmentsaredeemedtobeconditionsimposedinwritingbytheBoardinconnection withitsfindingsanddecisionhereinand,assuch,maybeenforcedinproceedingsunder applicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardortheFederalReserveBankof Richmond,actingunder delegatedauthority. Byorderof theBoardof Governors,effectiveNovember19,2019. Votingforthisaction:ChairPowell,ViceChairClarida,ViceChairforSupervision Quarles,andGovernorsBrainardandBowman. AnnE.Misback Secretaryof theBoard 99 AcommenterrequestedthattheBoardholdpublichearingsoradditionalpublicmeetingsontheproposal.The Boardhasconsideredthecommenter’srequestinlightofallthefactsofrecord.Asnotedabove,theBoard heldpublicmeetingsinCharlotte,NorthCarolina,andAtlanta,Georgia.Inaddition,theBoardextendedthe initialperiodforpubliccommenttoaccommodatepublicinterestinthisproposal,providinginterestedpersons untilMay3,2019,atotalperiodofmorethan50days,tosubmitwrittencomments.IntheBoard’sview,the commenterhashadampleopportunitytosubmitcommentsontheproposaland,infact,submittedwritten commentsthattheBoardhasconsideredinactingontheproposal.Forthesereasons,andbasedonallthefacts ofrecord,theBoardhasdeterminedthatpublichearingsoradditionalpublicmeetingsarenotrequiredor warrantedinthiscase.Accordingly,therequestforpublichearingsoradditionalpublicmeetingsonthe proposalisdenied. Inaddition,twocommentersrequestedafurtherextensionofthecommentperiodfortheproposal.Asnoted above,theBoardprovidedforanextendedcommentperiodofmorethan50days.Duringthistime,the commenterssubmitteddetailedcommentsinwritingregardingtheproposal.TheBoard’srulescontemplate thatthepubliccommentperiodwillnotbeextendedabsentacleardemonstrationofhardshiporothermeritoriousreasonforseekingadditionaltime.Thecommenters’requestforadditionaltimetocommentdoesnot identifycircumstancesthatwouldwarrantanextensionofthepubliccommentperiodforthisproposal. Accordingly,theBoardhasdeterminednottofurtherextendthecommentperiod.

36 FederalReserveBulletin|February2020 AppendixI AssetandDepositDatainStateswhereBranchBankandSunTrustBankBothOperate BranchBank SunTrustBank TruistBank Rankof Rankof Rankof State/District Insured Deposits Percentof Insured Deposits Percentof Insured Deposits Percentof Depository Controlled Total Depository Controlled Total Depository Controlled Total Institution1 (inbillions) Deposits Institution (inbillions) Deposits Institution (inbillions) Deposits byAssets byAssets byAssets Alabama 6th 3.7 3.7 56th 0.2 <1 6th 3.9 3.9 Florida 7th 18.3 3.1 3rd 50.6 8.6 3rd 68.9 11.8 Georgia 5th 12.6 5 1st 54.4 21.7 1st 66.9 26.7 Maryland 7th 10.1 7 6th 10.4 7.2 2nd 20.5 14.1 NorthCarolina 3rd 52.7 14.4 5th 8.5 2.3 2nd 61.2 16.7 SouthCarolina 3rd 8.4 9.8 7th 3 3.5 3rd 11.4 13.3 Tennessee 9th 3 1.9 3rd 13.9 9 3rd 16.9 10.9 Virginia 5th 23.5 7.3 6th 20.6 6.4 3rd 44.1 13.6 DistrictofColumbia 9th 1.2 2.3 5th 3.4 6.7 5th 4.6 9 1 Inthiscontext,insureddepositoryinstitutionsincludecommercialbanks,savingsandloanassociations,andsavingsbanks.

LegalDevelopments:FourthQuarter,2019 37 AppendixII BB&T/SunTrustBankingMarketsConsistentwithBoardPrecedentandDOJBankMergerGuidelines Remaining Amountof MarketDeposit Bank Rank ResultingHHI ChangeinHHI Numberof Deposits Shares(%) Competitors Washington,DistrictofColumbia–Maryland–Virginia–WestVirginia–Washington,DistrictofColumbia;Charles,Calvert,Frederick, Montgomery,andPrinceGeorge’scounties;District7inAnneArundelCounty;theClarksvilleandSavagedistrictsinHowardCounty,allin Maryland;Arlington,Culpeper,Fairfax,Fauquier,Loudoun,PrinceWilliam,Rappahannock,Stafford,andWarrencounties;thecitiesofAlexandria, Fairfax,FallsChurch,Manassas,andManassasPark,allofVirginia;andJeffersonCounty,WestVirginia. BB&TPre-Consummation 6 $14.0B 6.7 SunTrust 4 $19.1B 9.1 BB&TPost-Consummation 2 $33.1B 15.8 1106 121 75 BrevardCounty,Florida–BrevardCounty,Florida. BB&TPre-Consummation 6 $650.9M 7 SunTrust 3 $1.3B 14.2 BB&TPost-Consummation 1 $1.9B 21.2 1428 198 18 CitrusCounty,Florida–CitrusCounty,Florida. BB&TPre-Consummation 7 $81.0M 3.5 SunTrust 1 $631.2M 27.3 BB&TPost-Consummation 1 $712.2M 30.8 1761 192 11 DaytonBeachArea,Florida–FlaglerCounty;thetownsofAllandale,DaytonaBeach,DaytonaBeachShores,Edgewater,HollyHill,NewSmyrna Beach,OrmondBeach,Ormond-by-the-Sea,Pierson,PortOrange,andSouthDaytonainVolusiaCounty;andthetownofAstorinLakeCounty,all inFlorida. BB&TPre-Consummation 6 $386.0M 4.1 SunTrust 1 $2.6B 27.2 BB&TPost-Consummation 1 $2.9B 31.3 1679 223 19 FortMyersArea,Florida–LeeCounty(lessthetownslocatedonGasparillaIsland)andthetownofImmokaleeinCollierCounty,bothinFlorida. BB&TPre-Consummation 5 $928.4M 6 SunTrust 3 $2.1B 13.4 BB&TPost-Consummation 1 $3.0B 19.4 1074 161 30 FortPierceArea,Florida–St.LucieandMartincounties(lessthetownsofIndiantownandHobeSound),bothinFlorida. BB&TPre-Consummation 11 $286.6M 3.3 SunTrust 6 $716.1M 8.3 BB&TPost-Consummation 3 $1.0B 11.7 1131 55 16 FortWaltonBeachArea,Florida–OkaloosaandWaltoncountiesandthewesternhalfofHolmesCounty,includingthetownofPoncedeLeon, allinFlorida. BB&TPre-Consummation 18 $56.4M 1 SunTrust 10 $231.0M 4.4 BB&TPost-Consummation 9 $287.4M 5.4 813 10 27 JacksonvilleArea,Florida–Baker,Clay,Duval,andNassaucounties;thetownsofFruitCove,PonteVedra,PonteVedraBeach,Jacksonville, St.Johns,andSwitzerlandinSt.JohnsCounty,allinFlorida;andthecityofFolkstoninCharltonCounty,Georgia. BB&TPre-Consummation 8 $606.1M 1.2 SunTrust 5 $1.8B 3.7 BB&TPost-Consummation 5 $2.4B 4.9 2719 9 32 Miami–FortLauderdaleArea,Florida–BrowardandMiami-Dadecounties,bothinFlorida. BB&TPre-Consummation 9 $5.6B 3 SunTrust 7 $8.6B 4.7 BB&TPost-Consummation 5 $14.2B 7.7 834 29 76 NaplesArea,Florida–CollierCounty(minusthetownofImmokalee),Florida. BB&TPre-Consummation 16 $220.7M 1.3 SunTrust 9 $564.8M 3.3 BB&TPost-Consummation 9 $785.5M 4.6 883 9 33 (continuedonnextpage)

38 FederalReserveBulletin|February2020 AppendixII—continued BB&T/SunTrustBankingMarketsConsistentwithBoardPrecedentandDOJBankMerger Guidelines—continued Remaining Amountof MarketDeposit Bank Rank ResultingHHI ChangeinHHI Numberof Deposits Shares(%) Competitors OcalaArea,Florida–MarionCounty,Florida. BB&TPre-Consummation 11 $126.0M 2.1 SunTrust 1 $1.1B 18.2 BB&TPost-Consummation 1 $1.2B 20.3 1213 73 20 OrlandoArea,Florida–Orange,Osceola,andSeminolecounties;thewesternhalfofVolusiaCounty;andLakeCounty(minusthecityofAstor andtheCensusCountyDivisionsofFruitlandPark-LadyLake,Leesburg,andLeesburgEast),allinFlorida. BB&TPre-Consummation 5 $2.0B 3.8 SunTrust 2 $10.6B 20.7 BB&TPost-Consummation 1 $12.6B 24.5 1413 158 45 PanamaCityArea,Florida–BayandGulfcounties;andthesouthernhalfofWashingtonCounty,includingthetownsofVernonandWausau,all inFlorida. BB&TPre-Consummation 11 $75.2M 2.5 SunTrust 7 $211.8M 6.9 BB&TPost-Consummation 5 $287.0M 9.4 1140 34 17 PensacolaArea,Florida–EscambiaandSantaRosacounties,bothinFlorida. BB&TPre-Consummation 13 $108.1M 1.5 SunTrust 8 $302.1M 4.2 BB&TPost-Consummation 6 $410.2M 5.7 1394 12 18 PolkCounty,Florida–PolkCounty,Florida. BB&TPre-Consummation 7 $383.0M 5 SunTrust 3 $1.1B 14.2 BB&TPost-Consummation 2 $1.4B 19.2 1613 143 17 PuntaGordaArea,Florida–CharlotteCountyeastofCharlotteHarborandtheMyakkaRiver;andSarasotaCountyeastoftheMyakkaRiverand southofInterstate75,includingthetownofNorthPort,allinFlorida. BB&TPre-Consummation 9 $132.3M 3.8 SunTrust 3 $430.0M 12.2 BB&TPost-Consummation 3 $562.3M 16.6 1421 100 13 SaintAugustineArea,Florida–St.JohnsCounty(minusthetownsofFruitCove,PonteVedra,PonteVedraBeach,Jacksonville,St.Johns, Switzerland,andHastings),Florida. BB&TPre-Consummation 6 $118.1M 5.7 SunTrust 5 $160.4M 7.8 BB&TPost-Consummation 5 $278.5M 13.5 1544 89 12 Sarasota,Florida–ManateeCounty,SarasotaCounty(lesstheportionthatisbotheastoftheMyakkaRiverandsouthofInterstate75,which includesthetownofNorthPort);thepeninsularportionofCharlotteCounty,westoftheMyakkaRiverthatincludesthetownsofEnglewood, EnglewoodBeach,NewPointComfort,GroveCity,CapeHaze,Rotonda,RotondaWest,andPlacida;andGasparillaIsland,includingthetownof BocaGrande,inLeeCounty,allinFlorida. BB&TPre-Consummation 5 $1.2B 5.8 SunTrust 3 $2.2B 10.7 BB&TPost-Consummation 2 $3.4B 16.5 1055 123 34 TallahasseeArea,Florida–Gadsden,Jefferson,Leon,andWakullacounties,allinFlorida. BB&TPre-Consummation 7 $497.5M 6.3 SunTrust 2 $1.2B 15.1 BB&TPost-Consummation 1 $1.7B 21.4 1227 191 16 TampaBayArea,Florida–Hernando,Hillsborough,Pinellas,andPascocounties,allinFlorida. BB&TPre-Consummation 8 $2.6B 3.1 SunTrust 4 $9.9B 11.8 BB&TPost-Consummation 3 $12.5B 14.9 1267 73 53 (continuedonnextpage)

LegalDevelopments:FourthQuarter,2019 39 AppendixII—continued BB&T/SunTrustBankingMarketsConsistentwithBoardPrecedentandDOJBankMerger Guidelines—continued Remaining Amountof MarketDeposit Bank Rank ResultingHHI ChangeinHHI Numberof Deposits Shares(%) Competitors WestPalmBeachArea,Florida–PalmBeachCountyeastofLoxahatchee;andthetownsofIndiantownandHobeSoundinMartinCounty,allin Florida. BB&TPre-Consummation 8 $1.7B 3.4 SunTrust 6 $2.8B 5.4 BB&TPost-Consummation 4 $4.5B 8.8 1025 37 50 AthensArea,Georgia–Barrow(lessthecitiesofAuburnandWinder),Clarke,Jackson,Madison,Oconee,andOglethorpecounties,allinGeorgia. BB&TPre-Consummation 13 $174.1M 2.8 SunTrust 1 $1.1B 18.6 BB&TPost-Consummation 1 $1.3B 21.4 1112 106 20 BrunswickArea,Georgia–Brantley,GlynnandMcIntoshcounties,allinGeorgia. BB&TPre-Consummation 5 $201.1M 9.6 SunTrust 1 $277.5M 13.2 BB&TPost-Consummation 1 $478.6M 22.8 1186 252 13 CarrolltonArea,Georgia–CarrollandHaralsoncounties,bothinGeorgia;andthetownofRanburneinCleburneCounty,Alabama. BB&TPre-Consummation 3 $381.2M 12.7 SunTrust 6 $131.0M 4.4 BB&TPost-Consummation 2 $512.2M 17.1 2647 111 11 ColumbusArea,Georgia–Chattahoochee,Harris,andMuscogeecounties;thetownsofJunctionCity,Geneva,andBoxSpringsinTalbotCounty, allinGeorgia;RussellCounty,Alabama;andtheportionofLeeCounty,Alabama,thatiswithin12roadmilesofPhenixCity,Alabama,orColumbus, Georgia. BB&TPre-Consummation 7 $140.3M 1.7 SunTrust 2 $916.2M 10.9 BB&TPost-Consummation 2 $1.0B 12.6 4791 36 14 Dalton,Georgia–MurrayandWhitfieldcounties,bothinGeorgia. BB&TPre-Consummation 1 $484.6M 18 SunTrust 10 $25.3M 0.9 BB&TPost-Consummation 1 $509.9M 18.9 1295 33 11 DouglasArea,Georgia–AtkinsonandCoffeecounties,bothinGeorgia. BB&TPre-Consummation 10 $22.7M 2.8 SunTrust 5 $80.3M 9.9 BB&TPost-Consummation 5 $103.0M 12.7 1351 56 9 GreensboroArea,Georgia–GreeneandTaliaferrocounties;andtheEatontonandPhoenixCensusCountyDivisionsinPutnamCounty,allin Georgia. BB&TPre-Consummation 6 $50.9M 6.9 SunTrust 5 $51.5M 7 BB&TPost-Consummation 4 $101.6M 13.9 1924 97 9 LaGrangeArea,Georgia–Alabama–TroupCounty,Georgia;andChambersCounty,Alabama. BB&TPre-Consummation 8 $85.9M 5.8 SunTrust 9 $79.3M 5.4 BB&TPost-Consummation 3 $165.2M 11.2 1269 62 12 Macon,Georgia–Bibb,Crawford,Houston,Jones,Macon,Peach,andTwiggscounties;andAllentownandNicklesvilleinWilkinsonCounty,allin Georgia. BB&TPre-Consummation 4 $605.3M 11 SunTrust 2 $781.2M 14.2 BB&TPost-Consummation 2 $1.4B 25.2 1661 311 23 (continuedonnextpage)

40 FederalReserveBulletin|February2020 AppendixII—continued BB&T/SunTrustBankingMarketsConsistentwithBoardPrecedentandDOJBankMerger Guidelines—continued Remaining Amountof MarketDeposit Bank Rank ResultingHHI ChangeinHHI Numberof Deposits Shares(%) Competitors SavannahArea,Georgia–Bryan,Chatham,andEffinghamcounties;andtheMidwayCCDinLibertyCounty,allinGeorgia. BB&TPre-Consummation 6 $468.0M 6.6 SunTrust 1 $1.6B 22.6 BB&TPost-Consummation 1 $2.1B 29.3 1588 300 20 TiftCounty,Georgia–TiftCounty;andtheLenoxCCDinCookCounty,bothinGeorgia. BB&TPre-Consummation 4 $100.2M 10.4 SunTrust 5 $49.7M 5.2 BB&TPost-Consummation 4 $149.9M 15.6 2396 107 8 ValdostaArea,Georgia–Echols,Lanier,andLowndescounties;andtheAdel-SparksCCDinCookCounty,allinGeorgia. BB&TPre-Consummation 14 $45.5M 2.2 SunTrust 16 $30.2M 1.4 BB&TPost-Consummation 11 $75.7M 3.6 954 6 18 WaycrossArea,Georgia–PierceandWarecounties,bothinGeorgia. BB&TPre-Consummation 7 $54.0M 5.7 SunTrust 6 $70.7M 7.4 BB&TPost-Consummation 4 $124.7M 13.1 1904 85 7 Annapolis,Maryland–AnneArundelCounty(excludingDistrict7)andQueenAnne’sCounty,bothinMaryland. BB&TPre-Consummation 3 $1.2B 10 SunTrust 6 $824.6M 7 BB&TPost-Consummation 3 $2.0B 17 1235 140 28 Baltimore,Maryland–BaltimoreCityandBaltimore,Carroll,Harford,andHoward(excludingtheClarksvilleandSavagedistricts)counties,allin Maryland. BB&TPre-Consummation 5 $3.8B 7 SunTrust 6 $1.8B 3.2 BB&TPost-Consummation 5 $5.6B 10.3 1810 45 42 Easton,Maryland–TalbotCounty,Maryland. BB&TPre-Consummation 5 $80.3M 6.2 SunTrust 6 $61.4M 4.7 BB&TPost-Consummation 4 $141.7M 10.9 2234 58 9 Salisbury,Maryland–Delaware–WicomicoCounty,Maryland. BB&TPre-Consummation 7 $117.8M 6.5 SunTrust 10 $49.5M 2.7 BB&TPost-Consummation 7 $167.3M 9.2 1316 35 10 SaintMary’s,Maryland–SaintMary’sCounty,Maryland. BB&TPre-Consummation 5 $104.6M 7.4 SunTrust 6 $104.0M 7.3 BB&TPost-Consummation 4 $208.9M 14.7 2167 108 7 Worcester,Maryland–WorcesterCounty,Maryland. BB&TPre-Consummation 4 $185.8M 11.5 SunTrust 7 $57.6M 3.6 BB&TPost-Consummation 4 $243.4M 15.1 1658 83 11 (continuedonnextpage)

LegalDevelopments:FourthQuarter,2019 41 AppendixII—continued BB&T/SunTrustBankingMarketsConsistentwithBoardPrecedentandDOJBankMerger Guidelines—continued Remaining Amountof MarketDeposit Bank Rank ResultingHHI ChangeinHHI Numberof Deposits Shares(%) Competitors Asheville,NorthCarolina–Buncombe,Henderson,Haywood,andMadisoncounties,allinNorthCarolina. BB&TPre-Consummation 8 $551.3M 7 SunTrust 7 $642.6M 8.1 BB&TPost-Consummation 3 $1.2B 15.1 1313 113 19 Burlington,NorthCarolina–AlamanceandCaswellcounties(excludingtheDanRiver,Milton,Pelham,andYanceyvilletownships),bothinNorth Carolina. BB&TPre-Consummation 4 $245.4M 11.7 SunTrust 5 $235.8M 11.3 BB&TPost-Consummation 2 $481.2M 23 1580 265 15 Charlotte,NorthCarolina–Anson,Cabarrus,Gaston,Lincoln,Mecklenburg,andUnioncounties;thecityofMooresvilleandthetownshipsof DavidsonandCoddleCreekinIredellCounty;thetownshipsofAtwellandChinaGroveinRowanCounty;theKing’sMountaintownshipin ClevelandCounty,allinNorthCarolina;andLancasterandYorkcounties,bothinSouthCarolina. BB&TPre-Consummation 3 $6.0B 2.8 SunTrust 6 $1.8B 0.8 BB&TPost-Consummation 3 $7.8B 3.6 5885 4 41 Greensboro–HighPoint,NorthCarolina–Davidson,Guilford,Randolph,andRockinghamcounties,allinNorthCarolina. BB&TPre-Consummation 1 $3.0B 20.8 SunTrust 6 $791.0M 5.4 BB&TPost-Consummation 1 $3.8B 26.2 1478 227 21 Hickory,NorthCarolina–Alexander,Burke,Caldwell,andCatawbacounties,allinNorthCarolina. BB&TPre-Consummation 2 $1.1B 20.6 SunTrust 6 $175.2M 3.4 BB&TPost-Consummation 2 $1.2B 24 1776 140 15 Raleigh,NorthCarolina–Franklin,Granville,Johnston,Wake,andHarnett(excludingtheAndersonCreek,Barbeque,Johnsonville,andStewarts CreektownshipsinHarnettCounty)counties,allinNorthCarolina. BB&TPre-Consummation 2 $4.6B 16 SunTrust 6 $1.5B 5.1 BB&TPost-Consummation 2 $6.1B 21.1 1480 165 36 Salisbury,NorthCarolina–RowanCounty(excludingthetownshipsofAtwellandChinaGrove),inNorthCarolina. BB&TPre-Consummation 6 $55.7M 4.7 SunTrust 3 $153.2M 12.9 BB&TPost-Consummation 3 $208.9M 17.6 1904 121 11 Wilmington,NorthCarolina–NewHanover,Pender,andBrunswick(excludingtheShallotteTownshipinBrunswickCounty)counties,allinNorth Carolina. BB&TPre-Consummation 2 $1.5B 16.4 SunTrust 9 $290.8M 3.1 BB&TPost-Consummation 2 $1.8B 19.5 1780 103 21 Charleston,SouthCarolina–Berkeley,Charleston,andDorchestercounties;thesoutheasternportionofColletonCounty,locatedeastofthe SouthEdistoRiveronEdistoIsland,allinSouthCarolina. BB&TPre-Consummation 5 $916.6M 6.6 SunTrust 9 $501.2M 3.6 BB&TPost-Consummation 4 $1.4B 10.2 1205 48 34 Greenville,SouthCarolina–Anderson,Greenville,Laurens,andPickenscounties,allinSouthCarolina. BB&TPre-Consummation 3 $1.8B 10.8 SunTrust 6 $1.1B 6.4 BB&TPost-Consummation 2 $2.9B 17.2 1036 138 34 (continuedonnextpage)

42 FederalReserveBulletin|February2020 AppendixII—continued BB&T/SunTrustBankingMarketsConsistentwithBoardPrecedentandDOJBankMerger Guidelines—continued Remaining Amountof MarketDeposit Bank Rank ResultingHHI ChangeinHHI Numberof Deposits Shares(%) Competitors HiltonHeadIsland,SouthCarolina–Beaufort,Hampton,andJaspercounties,allinSouthCarolina. BB&TPre-Consummation 7 $342.5M 7.1 SunTrust 8 $321.1M 6.7 BB&TPost-Consummation 3 $663.6M 13.8 1032 96 19 OconeeCounty,SouthCarolina–OconeeCounty,SouthCarolina. BB&TPre-Consummation 6 $77.6M 7 SunTrust 8 $61.7M 5.6 BB&TPost-Consummation 4 $139.3M 12.6 1344 79 10 Spartanburg,SouthCarolina–Cherokee,Spartanburg,andUnioncounties,allinSouthCarolina;andPolkCounty,NorthCarolina. BB&TPre-Consummation 2 $739.0M 12.1 SunTrust 1 $973.3M 15.9 BB&TPost-Consummation 1 $1.7B 28 1291 383 20 Cleveland,Tennessee–BradleyCountyandthetownsofBentonandOcoeeinPolkCounty,allinTennessee. BB&TPre-Consummation 6 $169.7M 9.3 SunTrust 2 $230.1M 12.7 BB&TPost-Consummation 1 $399.8M 22 1288 236 15 Chattanooga,Tennessee–HamiltonCounty;MarionCounty(minusthetownofMonteagle),bothinTennessee;andCatoosa,Dade,andWalker counties,allinGeorgia. BB&TPre-Consummation 14 $123.2M 1.3 SunTrust 2 $1.6B 17.4 BB&TPost-Consummation 2 $1.7B 18.7 1328 45 26 JohnsonCity–BristolArea,Tennessee–Virginia–Carter,Hawkins,Sullivan,Unicoi,andWashingtoncounties,allinTennessee;theindependent cityofBristol;ScottCounty;andtheTylerandWilsoncountysubdivisionsinWashingtonCounty,allinVirginia. BB&TPre-Consummation 5 $533.5M 8.3 SunTrust 6 $450.0M 7 BB&TPost-Consummation 2 $983.5M 15.3 1129 117 30 KnoxvilleArea,Tennessee–Anderson,Blount,Knox,Loudon,Morgan,Roane,andUnioncounties;GraingerCountyexcludingDistrict5in easternGraingerCounty;JeffersonCountyexcludingDistricts3,8,and9innorthernandeasternJeffersonCounty;andDistricts6and9in westernSevierCounty,allinTennessee. BB&TPre-Consummation 5 $1.1B 7 SunTrust 2 $2.5B 15.3 BB&TPost-Consummation 1 $3.6B 22.3 1183 213 41 Nashville,Tennessee–Cheatham,Davidson,Dickson,Robertson,Rutherford,Sumner,Williamson,andWilsoncounties,allinTennessee. BB&TPre-Consummation 14 $715.3M 1.2 SunTrust 4 $6.4B 11 BB&TPost-Consummation 4 $7.1B 12.2 926 27 63 SeviervilleArea,Tennessee–CockeCounty,District8ineasternJeffersonCounty,andSevierCountyexcludingDistricts6and9inwestern SevierCounty,allinTennessee. BB&TPre-Consummation 7 $131.1M 4.8 SunTrust 10 $90.1M 3.3 BB&TPost-Consummation 5 $221.2M 8.1 1555 32 12 Blacksburg,Virginia–TheindependentcityofRadfordandFloyd,Giles,Montgomery,andPulaskicounties,allinVirginia. BB&TPre-Consummation 4 $301.6M 9.1 SunTrust 6 $212.0M 6.4 BB&TPost-Consummation 3 $513.6M 15.5 1532 117 13 (continuedonnextpage)

LegalDevelopments:FourthQuarter,2019 43 AppendixII—continued BB&T/SunTrustBankingMarketsConsistentwithBoardPrecedentandDOJBankMerger Guidelines—continued Remaining Amountof MarketDeposit Bank Rank ResultingHHI ChangeinHHI Numberof Deposits Shares(%) Competitors Charlottesville,Virginia–TheindependentcityofCharlottesville;Albemarle,Buckingham,Fluvanna,Greene,MadisonandNelsoncounties; Districts1,2,and3inOrangeCounty;andtheGreenSpring,Louisa,andPatrickHenrydistrictsinLouisaCounty,allinVirginia. BB&TPre-Consummation 3 $854.9M 14.6 SunTrust 5 $606.6M 10.4 BB&TPost-Consummation 1 $1.4B 25 1683 303 20 Fredericksburg,Virginia–TheindependentcityofFredericksburg;Caroline,KingGeorge,andSpotsylvaniacounties;Districts4and5inOrange County;andtheWashingtonDistrictinWestmorelandCounty,allinVirginia. BB&TPre-Consummation 2 $633.0M 18.1 SunTrust 7 $155.6M 4.4 BB&TPost-Consummation 2 $788.6M 22.5 1975 161 15 Harrisonburg,Virginia–WestVirginia–TheindependentcityofHarrisonburg;RockinghamandPagecounties,allinVirginia;andPendleton County,WestVirginia. BB&TPre-Consummation 1 $488.1M 16.6 SunTrust 7 $181.4M 6.2 BB&TPost-Consummation 1 $669.5M 22.8 1202 206 17 Lynchburg,Virginia–TheindependentcityofLynchburg;Amherst,Appomattox,andCampbellcounties;andtheportionofBedfordCountyeast ofRoute43(excludingtheindependentcityofBedford,VA),allinVirginia. BB&TPre-Consummation 2 $852.9M 19.1 SunTrust 4 $472.5M 10.6 BB&TPost-Consummation 1 $1.3B 29.7 1771 407 16 NewportNews–Hampton,Virginia–ThecitiesofHampton,NewportNews,Poquoson,andWilliamsburgandGloucester,IsleofWight(excluding theCarrsvilleDistrict),JamesCity,Mathews,andYorkcounties,allinVirginia.. BB&TPre-Consummation 5 $913.1M 12.4 SunTrust 1 $1.3B 17.1 BB&TPost-Consummation 1 $2.2B 29.5 1633 424 16 Roanoke,Virginia–TheindependentcitiesofBedford,Roanoke,andSalem;Botetourt,Craig,Franklin,andRoanokecounties;andtheportionof BedfordCountywestofRoute43,allinVirginia. BB&TPre-Consummation 3 $879.3M 11.3 SunTrust 2 $1.4B 18.6 BB&TPost-Consummation 1 $2.3B 29.9 1757 421 18 Staunton,Virginia–TheindependentcitiesofStauntonandWaynesboroandAugustaandHighlandcounties,allinVirginia. BB&TPre-Consummation 3 $216.8M 12.7 SunTrust 5 $116.8M 6.8 BB&TPost-Consummation 2 $333.6M 19.5 1399 172 14 Winchester,Virginia–WestVirginia–TheindependentcityofWinchester;Clarke,Frederick,andShenandoah,counties,allinVirginia;Hampshire CountyandtheDistrict1subdivisioninMorganCounty,bothinWestVirginia. BB&TPre-Consummation 1 $1.0B 26.9 SunTrust 9 $131.7M 3.5 BB&TPost-Consummation 1 $1.1B 30.4 1571 189 15 DataareasofJune30,2018.Allrankings,marketdepositshares,andHHIsarebasedonthriftdepositsweightedat50percent.Theremaining numberofcompetitorsnotedineachmarketincludesthriftinstitutions.

44 FederalReserveBulletin|February2020 First Citizens BancShares, Inc. Raleigh, North Carolina OrderApprovingtheAcquisitionof aBankHoldingCompany FRBOrderNo.2019-17(December16,2019) FirstCitizensBancShares,Inc.(“FirstCitizens”),Raleigh,NorthCarolina,afinancial holdingcompanywithinthemeaningof theBankHoldingCompanyActof 1956(“BHC Act”),1hasrequestedtheBoard’sapprovalundersection3of theBHCAct2toacquire allthevotingsharesof EntegraFinancialCorp.(“Entegra”)andtherebyindirectlyacquire Entegra’sstatenonmemberbanksubsidiary,EntegraBank,bothof Franklin,NorthCarolina.Followingtheproposedacquisition,EntegraBankwouldbemergedintoFirstCitizens’statenonmemberbanksubsidiary,First-CitizensBank&TrustCompany(“FirstCitizensBank”),Raleigh,NorthCarolina.3 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(84FederalRegister32,745(July9,2019)).4Thetimeforsubmitting commentshasexpired,andtheBoardhasconsideredtheproposalandallcomments receivedinlightof thefactorssetforthinsection3of theBHCAct. FirstCitizens,whichispartof theHoldingF&LFamilyChain,5hasconsolidatedassetsof approximately$37.8billionandisthe61stlargestinsureddepositoryorganizationinthe UnitedStates,controllingapproximately$32.7billioninconsolidateddeposits,which representlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.6FirstCitizenscontrolsFirstCitizensBank,whichoperatesin Arizona,California,Colorado,Florida,Georgia,Kansas,Maryland,Missouri,New Mexico,NorthCarolina,Oklahoma,Oregon,SouthCarolina,Tennessee,Texas,Virginia, Washington,WestVirginia,andWisconsin.FirstCitizensBankisthe19thlargestinsured depositoryinstitutioninGeorgia,controllingdepositsof approximately$1.2billion,which representlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthat state.Similarly,FirstCitizensBankisthefourthlargestinsureddepositoryinstitutionin NorthCarolina,controllingdepositsof approximately$15.8billion,whichrepresent 4.3percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.7FirstCitizensBankalsoisthefourthlargestinsureddepositoryinstitutioninSouthCarolina, controllingdepositsof approximately$7.5billion,whichrepresent8.9percentof thetotal depositsof insureddepositoryinstitutionsinthatstate. Entegra,withconsolidatedassetsof approximately$1.7billion,isthe495thlargestinsured depositoryorganizationintheUnitedStates,controllingapproximately$1.3billionin consolidateddeposits,whichrepresentlessthan1percentof thetotalamountof deposits of insureddepositoryinstitutionsintheUnitedStates.EntegraBankoperatesinGeorgia, NorthCarolina,andSouthCarolina.EntegraBankisthe55thlargestinsureddepository institutioninGeorgia,controllingdepositsof approximately$307.2million,whichrepre- 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 ThemergerofEntegraBankintoFirstCitizensBankissubjecttoapprovalbytheFederalDepositInsurance Corporation(“FDIC”),pursuanttosection18(c)oftheFederalDepositInsuranceAct.12U.S.C.§1828(c). 4 12CFR262.3(b). 5 InadditiontoFirstCitizens,theHoldingF&LFamilyChaincontrolstwootherbankholdingcompanies, SouthernBancShares(N.C.),Inc.,MountOlive,andFidelityBancShares(N.C.),Inc.,Fuquay-Varina,bothof NorthCarolina. 6 AssetdataareasofJune30,2019,anddepositdataareasofJune30,2018,unlessotherwisenoted. 7 Inthiscontext,insureddepositoryinstitutionsincludecommercialbanks,savingsandloanassociations,and savingsbanks.

LegalDevelopments:FourthQuarter,2019 45 sentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. EntegraBankisthe25thlargestinsureddepositoryinstitutioninNorthCarolina, controllingdepositsof approximately$829.9million,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.EntegraBankalsoisthe 54thlargestinsureddepositoryinstitutioninSouthCarolina,controllingdepositsof approximately$87.2million,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. Onconsummationof theproposal,FirstCitizenswouldbecomethe60thlargestinsured depositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $39.3billion,whichrepresentlessthan1percentof thetotalassetsof insureddepository organizationsintheUnitedStates.FirstCitizenswouldcontroltotalconsolidateddeposits of approximately$34.0billion,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.InGeorgia,FirstCitizens wouldremainthe19thlargestinsureddepositoryorganization,controllingdepositsof approximately$1.5billion,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthestate.InNorthCarolina,FirstCitizenswouldremain thefourthlargestinsureddepositoryorganization,controllingdepositsof approximately $16.6billion,whichrepresent4.6percentof thetotaldepositsof insureddepositoryinstitutionsinthestate.InSouthCarolina,FirstCitizenswouldremainthefourthlargest insureddepositoryorganization,controllingdepositsof approximately$7.6billion,which represent9.0percentof thetotaldepositsof insureddepositoryinstitutionsinthestate. 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 theapplicantunder theCommunityReinvestmentActof 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 8 12U.S.C.§1842(d)(1)(A). 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 belocatedinthestatesinwhichthebankischarteredorheadquarteredoroperatesabranch.See12U.S.C. §1841(o)(4)-(7).

46 FederalReserveBulletin|February2020 Forpurposesof theBHCAct,thehomestateof FirstCitizensisNorthCarolina.14 EntegraislocatedinGeorgia,NorthCarolina,andSouthCarolina.FirstCitizensiswell capitalizedandwellmanagedunderapplicablelawandhasasatisfactoryratingunderthe CRA.GeorgiahasanagerequirementthatappliestoFirstCitizens’acquisitionof Entegra.15SouthCarolinadoesnothaveaminimumagerequirement.EntegraBankhas beeninexistenceformorethanfiveyears. Onconsummationof theproposedtransaction,FirstCitizenswouldcontrollessthan 1percentof thetotalamountof consolidateddepositsininsureddepositoryinstitutionsin theUnitedStates.SouthCarolinaandGeorgiaeachimposea30percentlimitonthetotal amountof in-statedepositsthatasinglebankingorganizationmaycontrol.16FirstCitizens wouldcontrollessthan1percentof thetotaldepositsof insureddepositoryinstitutionsin Georgiaand9.0percentof thetotaldepositsof insureddepositoryinstitutionsinSouth Carolina. TheBoardhasconsideredallotherrequirementsundersection3(d)of theBHCAct. Accordingly,inlightof allthefactsof record,theBoarddeterminesthatitisnotprohibitedbysection3(d)fromapprovingtheproposal. CompetitiveConsiderations Section3of theBHCActprohibitstheBoardfromapprovingaproposalthatwouldresult inamonopolyorwouldbeinfurtheranceof anattempttomonopolizethebusinessof bankinginanyrelevantmarket.17TheBHCActalsoprohibitstheBoardfromapprovinga proposalthatwouldsubstantiallylessencompetitionortendtocreateamonopolyinany bankingmarket,unlesstheanticompetitiveeffectsof theproposalareclearlyoutweighedin thepublicinterestbytheprobableeffectof theproposalinmeetingtheconvenienceand needsof thecommunitiestobeserved.18 FirstCitizensandEntegrahavesubsidiarybanksthatcompetedirectlyineightbanking marketsinGeorgia,NorthCarolina,andSouthCarolina.TheBoardhasconsideredthe competitiveeffectsof theproposalinthesebankingmarkets.Inparticular,theBoardhas consideredtherelativeshareof totaldepositsininsureddepositoryinstitutionsineach market(“marketdeposits”)thatFirstCitizenswouldcontrol;19theconcentrationlevelof marketdepositsandtheincreaseinthislevel,asmeasuredbytheHerfindahl-Hirschman Index(“HHI”)undertheDepartmentof JusticeBankMergerCompetitiveReviewguidelines(“DOJBankMergerGuidelines”);20thenumberof competitorsthatwouldremainin eachmarket;andothercharacteristicsof eachmarket. 14 See12U.S.C.§1841(o)(4).Abankholdingcompany’shomestateisthestateinwhichthetotaldepositsofall bankingsubsidiariesofeachcompanywerethelargestonJuly1,1966,orthedateonwhichthecompany becameabankholdingcompany,whicheverislater. 15 Ga.CodeAnn.§7-1-628.8(3years). 16 Ga.CodeAnn.§7-1-622(b)andS.C.CodeAnn.§34-25-50.NorthCarolinadoesnotimposealimitonthe totalamountofdepositsaninsureddepositoryinstitutionmaycontrol. 17 12U.S.C.§1842(c)(1)(A). 18 12U.S.C.§1842(c)(1)(B). 19 LocaldepositandmarketsharedataareasofJune30,2018,andarebasedoncalculationsinwhichthe depositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhasindicatedthatthriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorstocommercialbanks.See,e.g., MidwestFinancialGroup,75FederalReserveBulletin386(1989);andNationalCityCorporation,70Federal ReserveBulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsinthemarketsharecalculationona50-percentweightedbasis.See,e.g.,FirstHawaiian,Inc.,77FederalReserveBulletin52(1991). 20 UndertheDOJBankMergerGuidelines,amarketisconsideredunconcentratedifthepost-mergerHHIis under1000,moderatelyconcentratedifthepost-mergerHHIisbetween1000and1800,andhighlyconcentratedifthepost-mergerHHIexceeds1800.TheDOJhasinformedtheBoardthatabankmergeroracquisi-

LegalDevelopments:FourthQuarter,2019 47 BankingMarketswithinEstablishedGuidelines Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesinfourbankingmarkets.Onconsummation,twobankingmarketswouldremainmoderatelyconcentrated,andtwobanking marketswouldremainunconcentrated,asmeasuredbytheHHI.ThechangeintheHHIin thesemarketswouldbesmall,consistentwithBoardprecedent,andwithinthethresholds intheDOJBankMergerGuidelines.Inaddition,numerouscompetitorswouldremainin mostof thesebankingmarkets.21 BankingMarketsWarrantingSpecialScrutiny Thestructuraleffectsthatconsummationof theproposalwouldhaveintheCherokee, TransylvaniaCounty,Jackson,andMaconCountybankingmarkets,allinNorthCarolina, warrantadetailedreviewbecausetheconcentrationlevelsonconsummationwouldexceed thethresholdsintheDOJBankMergerGuidelinesandwouldresultinthemarketdeposit shareof FirstCitizens,itsaffiliates,andEntegraBankequalingorexceeding35percent whenusinginitialcompetitivescreeningdata. MarketswithoutDivestitures Cherokee,NorthCarolina,BankingMarket.FirstCitizensBankisthesecondlargest depositoryinstitutionintheCherokeebankingmarket,controllingapproximately $133.1millionindeposits,whichrepresent21.1percentof marketdeposits.22EntegraBank isthefourthlargestdepositoryinstitutioninthemarket,controllingapproximately $59.7millionindeposits,whichrepresent9.5percentof marketdeposits.Onconsummationof theproposal,FirstCitizensBankwouldremainthesecondlargestdepositoryinstitutionintheCherokeebankingmarket,controllingapproximately$192.8millionin deposits,whichwouldrepresentapproximately30.6percentof marketdeposits.TheHHI inthismarketwouldincrease400points,from2369to2769. TheBoardhasconsideredwhetherotherfactorseithermitigatethecompetitiveeffectsof theproposalorindicatethattheproposalwouldnothaveasignificantlyadverseeffecton competitionintheCherokeebankingmarket.Inparticular,theBoardhasconsideredthat themarkethasalargeandactivecreditunionthatoffersafullrangeof retailbanking products.NorthCarolina’sStateEmployee’sCreditUnion(“SECU”)isthesecondlargest creditunionintheUnitedStates,andapproximately21percentof marketresidentsinthe Cherokeebankingmarketaremembersof theSECU.Inaddition,theSECUoperates street-levelbranchesthatareeasilyaccessibletoresidentsinthemarket.SECUcontrols approximately$166millionindepositsintheCherokeebankingmarket.TheBoard concludesthatthiscreditunionexertsacompetitiveinfluencethatmitigates,inpart,the potentialanticompetitiveeffectsof theproposal.Inaddition,anothercreditunioninthe Cherokeebankingmarket,whichoffersawiderangeof consumerbankingproducts,operatesstreet-levelbranches,andhasbroadmembershipcriteriathatincludealmostallof the tiongenerallywouldnotbechallenged(intheabsenceofotherfactorsindicatinganticompetitiveeffects)unless thepost-mergerHHIisatleast1800andthemergerincreasestheHHIbymorethan200points.Althoughthe DOJandtheFederalTradeCommissionissuedrevisedHorizontalMergerGuidelinesin2010,theDOJhas confirmedthatitsBankMergerGuidelines,whichwereissuedin1995,werenotmodified.SeePressRelease, DepartmentofJustice(August19,2010),www.justice.gov/opa/pr/2010/August/10-at-938.html. 21 Thesebankingmarketsandthecompetitiveeffectsoftheproposalinthesemarketsaredescribedinthe Appendix. 22 TheCherokeebankingmarketisdefinedasCherokeeandClaycounties,bothinNorthCarolina.

48 FederalReserveBulletin|February2020 residentsintherelevantbankingmarket,exertsacompetitiveinfluenceinthemarket.23 TheBoardfindsthatthedepositsof thesecreditunionsshouldbeincludedata50-percent weightincalculatingtheirestimatedmarketinfluence.Thisweightingtakesintoaccount thelimitedlendingdonebycreditunionstosmallbusinessesrelativetocommercialbanks’ lendinglevels. Afterweightingthedepositsof thecreditunionsat50percent,thecombinedorganization wouldcontrolapproximately26.7percentof marketdeposits,andtheHHIwould increaseby304pointstoalevelof 2237.InadditiontoFirstCitizensBank,sixother depositoryinstitutions,includingthecreditunions,competeintheCherokeemarket, includingonecompetitorwithmorethan35percentof marketdeposits.Thepresenceof thesemarketcompetitorssuggeststhatFirstCitizensBankwouldhavelimitedability unilaterallytoofferlessattractivetermstoconsumers,andthesedepositoryinstitutions wouldbeabletoexertcompetitivepressureonFirstCitizensBankintheCherokee bankingmarket. TransylvaniaCounty,NorthCarolina,BankingMarket.FirstCitizensBankisthelargest depositoryinstitutionintheTransylvaniaCountybankingmarket,controllingapproximately$138.4millionindeposits,whichrepresent26.2percentof marketdeposits.24 EntegraBankisthefourthlargestdepositoryinstitutioninthemarket,controllingapproximately$59.6millionindeposits,whichrepresent11.3percentof marketdeposits.On consummationof theproposal,FirstCitizensBankwouldremainthelargestdepository institutionintheTransylvaniaCountybankingmarket,controllingapproximately $198.0millionindeposits,whichwouldrepresentapproximately37.4percentof market deposits.TheHHIinthismarketwouldincrease589points,from1812to2401. TheBoardhasconsideredwhetherotherfactorseithermitigatethecompetitiveeffectsof theproposalorindicatethattheproposalwouldnothaveasignificantlyadverseeffecton competitionintheTransylvaniaCountybankingmarket.Inparticular,theBoardhas consideredthattheSECUisalargeandactivecreditunioninthemarketthatoffersafull rangeof retailbankingproducts.Approximately12percentof marketresidentsinthe TransylvaniaCountybankingmarketaremembersof theSECU.Inaddition,theSECU operatesstreet-levelbranchesthatareeasilyaccessibletoresidentsinthemarket.SECU controlsapproximately$121millionindepositsintheTransylvaniaCountybanking market.TheBoardconcludesthatthiscreditunionexertsacompetitiveinfluencethatmitigates,inpart,thepotentialanticompetitiveeffectsof theproposal.Inaddition,threeother creditunionsintheTransylvaniaCountybankingmarket,whichofferawiderangeof consumerbankingproducts,operatestreet-levelbranches,andhavebroadmembership criteriathatincludealmostallof theresidentsintherelevantbankingmarket,exerta competitiveinfluenceinthemarket.TheBoardfindsthatthedepositsof thesecredit unionsshouldbeincludedata50-percentweightincalculatingtheirestimatedmarket influence. Afterweightingthedepositsof thecreditunionsat50percent,thecombinedorganization wouldcontrolapproximately30.2percentof marketdeposits,andtheHHIwould increaseby385pointstoalevelof 1692.InadditiontoFirstCitizensBank,nineother depositoryinstitutions,includingthecreditunions,wouldcompeteintheTransylvania 23 TheBoardpreviouslyhasconsideredcompetitionfromcertainactivecreditunionswiththesefeaturesasa mitigatingfactor.See,e.g.,HuntingtonBancsharesIncorporated,FRBOrderNo.2016-13(July29,2016); BB&TCorporation,FRBOrderNo.2015-18(July7,2015);andWachoviaCorporation,92FederalReserve BulletinC183(2006). 24 TheTransylvaniaCountybankingmarketisdefinedasTransylvaniaCounty,NorthCarolina.

LegalDevelopments:FourthQuarter,2019 49 Countybankingmarket,includingtwocompetitorswithmorethan16percentof marketdeposits. MarketswithDivestitures Jackson,NorthCarolina,BankingMarket.FirstCitizensBankisthelargestdepository institutionintheJacksonbankingmarket,controllingapproximately$419.3millionin deposits,whichrepresent41.3percentof marketdeposits.25EntegraBankisthefourth largestdepositoryinstitutioninthemarket,controllingapproximately$120.0millionin deposits,whichrepresent11.8percentof marketdeposits.Onconsummationof the proposal,FirstCitizensBankwouldremainthelargestdepositoryinstitutioninthe Jacksonbankingmarket,controllingapproximately$539.4millionindeposits,which wouldrepresentapproximately53.1percentof marketdeposits.TheHHIinthismarket wouldincrease978points,from2929to3907. Tomitigatethepotentiallyadversecompetitiveeffectsof theproposalintheJackson bankingmarket,FirstCitizenshascommittedtodivestonebranch,accountingforatotal of approximately$63.6millionindeposits,toacompetitivelysuitableinstitution.26Other factorsalsomitigatethecompetitiveeffectsof theproposalorindicatethattheproposal wouldnothaveasignificantlyadverseeffectoncompetitionintheJacksonbanking market.Inparticular,theBoardhasconsideredthattheSECUisalargeandactivecredit unioninthemarketthatoffersafullrangeof retailbankingproducts.Approximately 28percentof marketresidentsintheJacksonbankingmarketaremembersof theSECU. Inaddition,theSECUoperatesstreet-levelbranchesthatareeasilyaccessibletoresidents inthemarket.SECUcontrolsapproximately$386millionindepositsintheJackson bankingmarket.TheBoardconcludesthatthiscreditunionexertsacompetitiveinfluence thatmitigates,inpart,thepotentialanticompetitiveeffectsof theproposal.Inaddition, anothercreditunionintheJacksonbankingmarket,whichoffersawiderangeof consumerbankingproducts,operatesstreet-levelbranches,andhasbroadmembership criteriathatincludealmostallof theresidentsintherelevantbankingmarket,exertsa competitiveinfluenceinthemarket.TheBoardfindsthatthedepositsof thesecredit unionsshouldbeincludedata50-percentweightincalculatingtheirestimatedmarket influence. FirstCitizensalsoarguesthatcertainof itsdepositsintheJacksonbankingmarketdistort themeasureof thecompetitiveeffectsof theproposalinthemarketbecausethedeposits cannotbeusedforlending.Inconductingitscompetitiveanalysisinpreviouscases,the Boardgenerallyhasnotadjusteditsmarketsharecalculationstoexcludecategoriesof depositsbecausealldepositsaretypicallyavailabletosupportlendingandotherbanking activitiesatanylocation,andthedepositsmaintainedinaspecificmarketrepresenta firm’sabilitytocompeteinthatmarket.TheBoard,however,hasadjustedmarketdeposits toexcludespecifictypesof out-of-marketdepositsheldbyanacquirerinraresituations whenevidencesupportsafindingthattheout-of-marketdepositsaresubjecttolegalor otherrestrictionsthatconstrainanorganization’sabilitytousethosedepositstosupport 25 TheJacksonbankingmarketisdefinedasJackson,Swain,andGrahamcounties,allinNorthCarolina. 26 Asaconditionofconsummationoftheproposedmerger,FirstCitizenshascommittedthatitwillexecute, beforeconsummationoftheproposedmerger,asalesagreementwithacompetitivelysuitablebankingorganization.FirstCitizenshasprovidedasimilarcommitmenttotheDOJ.FirstCitizensalsohascommittedto completethedivestiturewithin180daysafterconsummationoftheproposedtransaction.Inaddition,First Citizenshascommittedthatiftheproposeddivestitureisnotcompletedwithinthe180-dayperiod,FirstCitizenswouldtransfertheunsoldbranchestoanindependenttrustee,whowouldbeinstructedtosellthemtoan alternatepurchaserorpurchasersinaccordancewiththetermsofthisorderandwithoutregardtoprice. BoththetrusteeandanyalternatepurchasermustbedeemedacceptabletotheBoard.See,e.g.,BankAmerica Corporation,78FederalReserveBulletin338(1992);UnitedNewMexicoFinancialCorporation,77Federal ReserveBulletin484(1991).

50 FederalReserveBulletin|February2020 itsgeneralbankingactivitiesandthattherearedataavailabletomakecomparableadjustmentstothemarketsharesof otherparticipants,if appropriate.27Inthiscase,FirstCitizenshassometribaldepositsinthemarketthataresubjecttolegalorotherrestrictionson theorganization’sabilitytolendonsuchdeposits.28 Aftermakingtheseadjustments,accountingforthedivestitureof thebranch,and weightingthedepositsof creditunionsat50percent,thecombinedorganizationwould controlapproximately26.8percentof marketdeposits,andtheHHIwouldincreaseby 166pointstoalevelof 2170.InadditiontoFirstCitizensBank,sixotherdepositoryinstitutions,includingthecreditunions,wouldcompeteintheJacksonmarket,includingone competitorwithmorethan30percentof marketdeposits. MaconCounty,NorthCarolina,BankingMarket.FirstCitizensBankisthethirdlargest depositoryinstitutionintheMaconCountybankingmarket,controllingapproximately $102.1millionindeposits,whichrepresent8.4percentof marketdeposits.29EntegraBank isthesecondlargestdepositoryinstitutioninthemarket,controllingapproximately $334.5millionindeposits,whichrepresent27.5percentof marketdeposits.Onconsummationof theproposal,FirstCitizensBankwouldbecomethesecondlargestdepository institutionintheMaconCountybankingmarket,controllingapproximately$436.6million indeposits,whichwouldrepresentapproximately35.8percentof marketdeposits.The HHIinthismarketwouldincrease460points,from3110to3570. Tomitigatethepotentiallyadversecompetitiveeffectsof theproposalintheMacon Countybankingmarket,FirstCitizenshascommittedtodivesttwobranches,accounting foratotalof approximately$115.7millionindeposits,toacompetitivelysuitableinstitution.Otherfactorsalsomitigatethecompetitiveeffectsof theproposalorindicatethatthe proposalwouldnothaveasignificantlyadverseeffectoncompetitionintheMaconCounty bankingmarket.Inparticular,theBoardhasconsideredthattheSECUisalargeand activecreditunioninthemarketthatoffersafullrangeof retailbankingproducts. Approximately21percentof marketresidentsintheMaconCountybankingmarketare membersof theSECU.Inaddition,theSECUoperatesstreet-levelbranchesthatareeasily accessibletoresidentsinthemarket.SECUcontrolsapproximately$133millionindeposits intheMaconCountybankingmarket.TheBoardconcludesthatthiscreditunionexertsa competitiveinfluencethatmitigates,inpart,thepotentialanticompetitiveeffectsof the proposal.TheBoardfindsthatthedepositsof thiscreditunionshouldbeincludedata 50-percentweightincalculatingitsestimatedmarketinfluence. Afteraccountingforthedivestitureof thetwobranchesandweightingthedepositsof the creditunionat50percent,thecombinedorganizationwouldcontrolapproximately 26.1percentof marketdeposits,andtheHHIwoulddecreaseby39pointstoalevelof 3021.30InadditiontoFirstCitizensBank,twootherdepositoryinstitutions,includingthe SECU,wouldcompeteintheMaconCountymarket,bothwithmorethan18percentof marketdeposits. 27 SeeCentralBancompany,Inc.,FRBOrderNo.2017-03,5–6(February8,2017);HuntingtonBancsharesIncorporated,FRBOrderNo.2016-13,12–15(July29,2016).Inthiscase,noothercompetitorinthemarkethasa branchofsuchasizethatcomparableadjustmentsareappropriate. 28 N.C.Gen.Stat.§53C-6-3. 29 TheMaconCountybankingmarketisdefinedasMaconCounty,NorthCarolina. 30 TheHHIdecreaseintheMaconCountybankingmarketisattributabletothedivestitureofthedepositsatthe twoEntegraBankbranchesinthemarket,whichexceedtheamountofdepositsheldbyFirstCitizensinthe MaconCountybankingmarket.

LegalDevelopments:FourthQuarter,2019 51 ConclusionRegardingCompetitiveEffects TheDOJconductedareviewof thepotentialcompetitiveeffectsof theproposalandhas advisedtheBoardthatconsummationof theproposalwiththeproposeddivestituresof branchesinthebankingmarkets,asdiscussedabove,wouldnotlikelyhaveasignificantly adverseeffectoncompetitioninthosemarketsorinanyotherrelevantbankingmarket.In addition,theappropriatebankingagencieshavebeenaffordedanopportunityto commentandhavenotobjectedtotheproposal. Basedonallof thefactsof record,includingtheproposeddivestitures,andforthereasons explainedabove,theBoardconcludesthatconsummationof theproposalwouldnothavea significantlyadverseeffectoncompetitionorontheconcentrationof resourcesinthe bankingmarketsinwhichFirstCitizensandEntegracompetedirectlyorinanyother relevantbankingmarket.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCAct,theBoardconsidersthefinancial andmanagerialresourcesandthefutureprospectsof theinstitutionsinvolved,aswellas theeffectivenessof theinstitutionsincombattingmoneylaundering.31Initsevaluationof financialfactors,theBoardreviewsinformationregardingthefinancialconditionof the organizationsinvolvedonbothparent-onlyandconsolidatedbases,aswellasinformation regardingthefinancialconditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significantnonbankingoperations,if applicable.Inthisevaluation,theBoard considersavarietyof informationregardingcapitaladequacy,assetquality,liquidity,and earningsperformance.TheBoardevaluatesthefinancialconditionof thecombinedorganization,includingitscapitalposition,assetquality,liquidity,earningsprospects,andthe impactof theproposedfundingof thetransaction.TheBoardalsoconsiderstheabilityof theorganizationtoabsorbthecostsof theproposalandtocompleteeffectivelythe proposedintegrationof theoperationsof theinstitutions.Inassessingfinancialfactors,the Boardconsiderscapitaladequacytobeespeciallyimportant.TheBoardconsidersthe futureprospectsof theorganizationsinvolvedintheproposalinlightof theirfinancialand managerialresourcesandtheproposedbusinessplan. FirstCitizens,Entegra,andtheirsubsidiarydepositoryinstitutionsarewellcapitalized, andthecombinedorganizationwouldremainsoonconsummationof theproposal.The proposedtransactionisabankholdingcompanymergerthatisstructuredasacashand shareexchange.32Theassetquality,earnings,andliquidityof FirstCitizensareconsistent withapproval,andFirstCitizensappearstohaveadequateresourcestoabsorbthe relatedcostsof theproposalandtocompletetheintegrationof theinstitutions’operations. Inaddition,thefutureprospectsof theinstitutionsundertheproposalareconsidered consistentwithapproval. 31 12U.S.C.§1842(c)(2),(5),and(6). 32 Toeffectthemerger,FirstCitizensBankformedawhollyownedsubsidiary,FCMergerSubsidiaryVII,Inc. (“MergerSub”),forthesolepurposeoffacilitatingthetransaction.MergerSubwouldmergewithEntegra, withEntegraasthesurvivingentity.Asaresult,FirstCitizensBankwouldbecomeabankholdingcompany foramomentintimebeforeEntegraBankismergedwithandintoFirstCitizensBank. AttheeffectivetimeofthemergerofMergerSubwithEntegra,eachshareofEntegracommonstockwouldbe convertedintoarighttoreceivecash.Immediatelythereafter,EntegrawouldmergewithFirstCitizens,with FirstCitizensasthesurvivingentity.EntegraBankwouldthenmergewithandintoFirstCitizensBank,with FirstCitizensBankasthesurvivingentity.FirstCitizenshasthefinancialresourcestoeffecttheproposed transaction.

52 FederalReserveBulletin|February2020 TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of FirstCitizens,Entegra,andtheirsubsidiarydepositoryinstitutions,includingassessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition,the BoardhasconsideredinformationprovidedbyFirstCitizens;theBoard’ssupervisory experiencesandthoseof otherrelevantbanksupervisoryagencieswiththeorganizations; andtheorganizations’recordsof compliancewithapplicablebanking,consumerprotection,andanti-money-launderinglaws. FirstCitizens,Entegra,andtheirsubsidiarydepositoryinstitutionsareeachconsideredto bewellmanaged.FirstCitizenshasarecordof successfullyintegratingorganizationsinto itsoperationsandrisk-managementsystemsafteracquisitions.FirstCitizens’directorsand seniorexecutiveofficershaveknowledgeof andexperienceinthebankingandfinancial servicessectors,andFirstCitizens’risk-managementprogramappearstobeconsistent withapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredFirstCitizens’plansforimplementingtheproposal.First Citizenshasconductedcomprehensiveduediligenceandisdevotingsignificantfinancial andotherresourcestoaddressallaspectsof thepost-acquisitionintegrationprocessfor thisproposal.FirstCitizenswouldimplementitsrisk-managementpolicies,procedures, andcontrolsatthecombinedorganization,andtheseareconsideredacceptablefroma supervisoryperspective.Inaddition,FirstCitizens’managementhastheexperienceand resourcestooperatethecombinedorganizationinasafeandsoundmanner. Basedonallof thefactsof record,includingFirstCitizens’supervisoryrecord,managerial andoperationalresources,andplansforoperatingthecombinedinstitutionafterconsummation,theBoarddeterminesthatconsiderationsrelatingtothefinancialandmanagerial resourcesandthefutureprospectsof theorganizationsinvolvedintheproposal,aswellas therecordof effectivenessof FirstCitizensandEntegraincombattingmoney-laundering activities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCAct,theBoardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.33Initsevaluation,theBoardconsiderswhethertherelevantinstitutionsarehelpingtomeetthecredit needsof thecommunitiestheyserve,aswellasotherpotentialeffectsof theproposalon theconvenienceandneedsof thesecommunities,andplacesparticularemphasisonthe recordsof therelevantdepositoryinstitutionsundertheCRA.TheCRArequiresthe federalfinancialsupervisoryagenciestoencourageinsureddepositoryinstitutionstohelp meetthecreditneedsof thelocalcommunitiesinwhichtheyoperate,consistentwiththe institutions’safeandsoundoperation,34andrequirestheappropriatefederalfinancial supervisoryagencytoassessadepositoryinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.35 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharac- 33 12U.S.C.§1842(c)(2). 34 12U.S.C.§2901(b). 35 12U.S.C.§2903.

LegalDevelopments:FourthQuarter,2019 53 teristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,thesupervisoryviewsof examiners,othersupervisoryinformation,andinformationprovidedbythe applicant.TheBoardalsomayconsidertheinstitution’sbusinessmodelandmarketingand outreachplans,theorganization’splansafterconsummation,andanyotherinformation theBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof FirstCitizensBankandEntegraBank;theconsumercompliance,includingfairlending,recordsof bothbanks;thesupervisoryviewsof theFDIC;confidentialsupervisoryinformation; andinformationprovidedbyFirstCitizens. Recordsof PerformanceundertheCRA InevaluatingtheconvenienceandneedsfactorandCRAperformance,theBoardevaluates aninstitution’sperformancerecordinlightof examinationsbytheappropriatefederal supervisorsof theCRAperformancerecordsof therelevantinstitutions,aswellasinformationandviewsprovidedbytheappropriatefederalsupervisors.Inthiscase,theBoard consideredthesupervisoryviewsof andinformationprovidedbytheFDIC.36 TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.37Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplyalendingtest(“LendingTest”),investment test(“InvestmentTest”),andservicetest(“ServiceTest”)toevaluatetheperformanceof largeinsureddepositoryinstitutions,suchasFirstCitizensBank,inhelpingtomeetthe creditneedsof thecommunitiestheyserve.TheLendingTestspecificallyevaluatesaninstitution’slendingtodeterminewhethertheinstitutionishelpingtomeetthecreditneedsof individualsandgeographiesof allincomelevels.Aspartof theLendingTest,examiners reviewandanalyzeaninstitution’sdatareportedundertheHomeMortgageDisclosure Actof 1975,38inadditiontosmallbusiness,smallfarm,andcommunitydevelopmentloan datacollectedandreportedundertheCRAregulations,toassessaninstitution’slending activitieswithrespecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slendingperformanceisbasedonavarietyof 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;39(4)theinstitution’scommunitydevelopment lending,includingthenumberandamountsof communitydevelopmentloansandtheir 36 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81FederalRegister48,506, 48,548(July25,2016). 37 12U.S.C.§2906. 38 12U.S.C.§2801etseq. 39 Examinersalsoconsiderthenumberandamountsofsmallbusinessandsmallfarmloanstobusinessesand farmswithgrossannualrevenuesof$1millionorless,smallbusinessandsmallfarmloansbyloanamountat origination,andconsumerloans,ifapplicable,tolow-,moderate-,middle-,andupper-incomeindividuals.See, e.g.,12CFR228.22(b)(3).

54 FederalReserveBulletin|February2020 complexityandinnovativeness;and(5)theinstitution’suseof innovativeorflexiblelending practicestoaddressthecreditneedsof LMIindividualsandgeographies.40TheInvestmentTestevaluatesthenumberandamountsof qualifiedinvestmentsthatbenefittheinstitution’sAAs,andtheServiceTestevaluatestheavailabilityandeffectivenessof theinstitution’ssystemsfordeliveringretailbankingservicesandtheextentandinnovativenessof the institution’scommunitydevelopmentservices.41 Toevaluatetheperformanceof anintermediatesmallbank,suchasEntegraBank,federal financialsupervisorsapplytheLendingTestandacommunitydevelopmenttest(“CommunityDevelopmentTest”).TheCommunityDevelopmentTestevaluatesthenumberand amountsof aninstitution’scommunitydevelopmentloansandqualifiedinvestments;the extenttowhichtheinstitutionprovidescommunitydevelopmentservices;andtheinstitution’sresponsivenesstocommunitydevelopmentlending,investment,andserviceneeds.42 CRAPerformanceof FirstCitizensBank FirstCitizensBankwasassignedanoverall“Satisfactory”ratingatitsmostrecentCRA performanceevaluationbytheFDIC,asof June6,2016(“FirstCitizensBankEvaluation”).43FirstCitizensBankreceiveda“HighSatisfactory”ratingforeachof theLending, Investment,andServiceTests. ExaminersfoundthatFirstCitizensBank’slendinglevelsreflectedgoodresponsivenessto communitycreditneeds.Examinersnotedthatthebank’sgeographicdistributionof loansreflectedgoodpenetrationthroughoutthebank’sAAs.Examinersfoundthatthe bank’slendingtoborrowersreflectedagooddistributionamongbusinessesof different sizes,aswellasagooddistributionamongretailcustomersof differentincomes.Examiners notedthatthebankusedflexiblelendingpracticesinordertoserveAAcreditneeds.In addition,examinersfoundthatthebankoriginatedarelativelyhighlevelof community developmentloans. ExaminersfoundthatFirstCitizensBankhadasignificantlevelof qualifiedcommunity developmentinvestmentsanddonations.Examinersnotedthatthebankexhibitedgood responsivenesstocreditandcommunityeconomicdevelopmentneeds.Examinersalso notedthatthebankoccasionallyusedinnovativeandcomplexinvestmentstosupport communitydevelopmentinitiatives. ExaminersfoundthatFirstCitizensBank’sdeliverysystemswereaccessibletoessentially allof thebank’sAAs.Examinersnotedthattheservicesandbusinesshoursofferedby FirstCitizensBankdidnotvaryinawaythatinconveniencedcustomersinitsAAs, particularlyLMIgeographiesorindividuals.Examinersalsonotedthatthebankprovided 40 See12CFR228.22(b). 41 See12CFR228.21etseq. 42 12CFR228.26(c). 43 TheFirstCitizensBankEvaluationwasconductedusingLargeInstitutionCRAExaminationProcedures. Examinersreviewedhomemortgagelendingdata,otherCRAdata(smallloanstobusinessesandfarms), communitydevelopmentloans,communitydevelopmentinvestmentsandservices,anddeliverysystemsforthe bank’sproductsandservicesfromMay28,2013,throughJune6,2016.TheFirstCitizensBankEvaluation coveredFirstCitizensBank’s74AAslocatedin16statesandfivemultistatemetropolitanstatisticalareas (“MSAs”):Arizona;California;Colorado;Florida;Georgia;Maryland;NewMexico;NorthCarolina; Oklahoma;Oregon;SouthCarolina;Tennessee;Texas;Virginia;Washington;WestVirginia;Augusta– RichmondCounty,Georgia–SouthCarolina,MSA;Charlotte–Concord–Gastonia,NorthCarolina– SouthCarolina,MSA;KansasCity,Missouri–Kansas,MSA;MyrtleBeach–Conway–NorthMyrtleBeach, SouthCarolina–NorthCarolina,MSA;Washington–Arlington–Alexandria,DistrictofColumbia–Virginia– Maryland–WestVirginia,MSA.TheFirstCitizensBankEvaluationincludedafull-scopereviewof43ofthese AAs,includingallfivemultistateMSAs.Alimited-scopereviewwasconductedintheremaining21AAs.

LegalDevelopments:FourthQuarter,2019 55 arelativelyhighlevelof communitydevelopmentservices:thosethatbenefitedorganizationsthroughoutitsAAs,includingorganizationsfocusedoneconomicdevelopmentand revitalization;affordablehousing;smallbusinessdevelopment;financialeducation;services forat-riskyouth;andbasichumanneedsforLMIindividualsandareas. CRAPerformanceof EntegraBank EntegraBankwasassignedanoverall“Satisfactory”ratingatitsmostrecentCRAperformanceevaluationbytheFDIC,asof January9,2017(“EntegraBankEvaluation”).44 EntegraBankreceived“Satisfactory”ratingsforboththeLendingTestandtheCommunityDevelopmentTest. ExaminersfoundthatEntegraBank’sloan-to-depositratiowasreasonablegiventhe bank’ssizeandfinancialconditionaswellasthecreditneedsof itsAAs.Examinersnoted thatthebankmadeamajorityof itssmallbusinessloans,andasubstantialmajorityof itshomemortgageloans,initsAAs.Examinersfoundthatthegeographicdistributionof theloansreflectedanexcellentdispersionthroughouttheAAsandthatthedistributionof borrowersreflectedareasonablepenetrationof loansamongbusinessesof differentsizes andretailcustomersof differentincomelevels. ExaminersfoundthatEntegraBankdemonstratedadequateresponsivenesstothecommunitydevelopmentneedsof itsAAsthroughcommunitydevelopmentloans,qualifiedinvestments,andcommunitydevelopmentservices.Inparticular,examinersnotedthatthelevels of communitydevelopmentloansandqualifiedinvestmentswerehigherthanthosefrom thepreviousevaluationperiod.Examinersobservedthatthebank’sboardmembers,officers,andemployeeswereinvolvedwithvariouscharitablegroupsandorganizations throughouttheAAs. AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.FirstCitizensrepresentsthat,followingconsummationof theproposal,existingcustomersof EntegraBankwouldhaveaccesstoabroader networkof branchesandATMs.Inaddition,FirstCitizensrepresentsthatcustomersof EntegraBankwouldhaveaccesstoadditionalservices,includingpersonal,smallbusiness, andcommercialpropertyandcasualtyinsurance;internationalbanking;treasury services;wealthmanagement;leasingservices;andmerchantservices. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws,confidentialsupervisoryinformation,informationprovidedbyFirstCitizens,andotherpotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.Basedonthatreview,theBoarddeterminesthattheconvenienceandneedsfactorisconsistentwithapproval. 44 TheEntegraBankEvaluationwasconductedusingtheInteragencyIntermediateSmallInstitutionCRA ExaminationProcedures.Examinersreviewedhomemortgagelendingdata,otherCRAdata(smallloansto businessesandfarms),andqualifiedinvestmentsfromMarch3,2014,throughJanuary9,2017.TheEntegra BankEvaluationcoveredfourAAsinNorthCarolinaandSouthCarolina,andincludedfull-scopereviewsof theAsheville,NorthCarolina,MSA;Greenville–Anderson–Mauldin,SouthCarolina,MSA;andthe Non-MSAareaofNorthCarolina,includingCherokee,Jackson,Macon,Polk,andTransylvaniacounties. Alimited-scopereviewwasconductedintheSpartanburg,SouthCarolina,MSA.

56 FederalReserveBulletin|February2020 FinancialStability Section3of theBHCActrequirestheBoardtoconsider“theextenttowhichaproposed acquisition,merger,orconsolidationwouldresultingreaterormoreconcentratedrisksto thestabilityof theUnitedStatesbankingorfinancialsystem.”45 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.46Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamageonthebroadereconomy.47 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billionintotalassets,orthatresultinafirmwithlessthan$100billionintotalassets, aregenerallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthata proposaldoesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbelow eitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificantincreaseininterconnectedness,complexity,cross-borderactivities,orotherrisk factors.48 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billionintotalassetsandaproformaorganizationof lessthan$100billionintotal assets.Boththeacquirerandthetargetarepredominantlyengagedinretailandcommercialbankingactivities.49Theproformaorganizationwouldnothavecross-borderactivities andwouldnotexhibitanorganizationalstructure,complexinterrelationships,orunique characteristicsthatwouldcomplicateresolutionof thefirmintheeventof financial distress.Inaddition,theorganizationwouldnotbeacriticalservicesproviderorsointerconnectedwithotherfirmsorthemarketsthatitwouldposeasignificantrisktothefinancialsystemintheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates 45 12U.S.C.§1842(c)(7). 46 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 47 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder 2012-2(February14,2012). 48 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017–08at25–26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 49 FirstCitizensandEntegrabothofferabroadarrayofretailandcommercialbankingproductsandservices. FirstCitizenshas,andasaresultoftheproposalwouldcontinuetohave,asmallmarketshareintheseproductsandservicesonanationwidebasis.

LegalDevelopments:FourthQuarter,2019 57 bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationshouldbe,andherebyis,approved.Inreachingitsconclusion,theBoardhasconsideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunderthe BHCActandotherapplicablestatutes.TheBoard’sapprovalisspecificallyconditionedon compliancebyFirstCitizenswithalltheconditionsimposedinthisorder,including receiptof allrequiredregulatoryapprovals,andonthecommitmentsmadetotheBoardin connectionwiththeapplication.Forpurposesof thisaction,theconditionsandcommitmentsaredeemedtobeconditionsimposedinwritingbytheBoardinconnectionwithits findingsanddecisionhereinand,assuch,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardortheFederalReserveBankof Richmond,actingunder delegatedauthority. Byorderof theBoardof Governors,effectiveDecember16,2019. Votingforthisaction:ChairPowell,ViceChairClarida,ViceChairforSupervision Quarles,andGovernorsBrainardandBowman. AnnE.Misback Secretaryof theBoard

58 FederalReserveBulletin|February2020 Appendix FirstCitizens/EntegraBankingMarketsConsistentwithBoardPrecedentandDOJBankMerger Guidelines Remaining Amountof MarketDeposit Bank Rank ResultingHHI ChangeinHHI Numberof Deposits Shares(%) Competitors Atlanta,Georgia–Bartow,Cherokee,Clayton,Cobb,Coweta,Dawson,DeKalb,Douglas,Fayette,Forsyth,Fulton,Gwinnett,Hall,Henry,Jasper, Newton,Paulding,Rockdale,andWaltoncounties;thetownsofAuburnandWinderinBarrowCounty;andLuthersvilleinMeriwetherCounty,allin Georgia. FirstCitizensPre-Consummation 21 $750.7M 0.4 Entegra 43 $143.1M 0.1 FirstCitizensPost-Consummation 20 $893.9M 0.5 1547 0 85 Asheville,NorthCarolina–Buncombe,Henderson,Haywood,andMadisoncounties,allinNorthCarolina. FirstCitizensPre-Consummation 2 $1.5B 19.2 Entegra 11 $170.6M 2.2 FirstCitizensPost-Consummation 1 $1.7B 21.4 1283 83 19 Greenville,SouthCarolina–Anderson,Greenville,Laurens,andPickenscounties,allinSouthCarolina. FirstCitizensPre-Consummation 7 $915.0M 5.4 Entegra 26 $44.9M 0.3 FirstCitizensPost-Consummation 7 $959.9M 5.7 901 3 34 Spartanburg,SouthCarolina–NorthCarolina–Cherokee,Spartanburg,andUnioncounties,allinSouthCarolina;andPolkCounty,inNorth Carolina. FirstCitizensPre-Consummation 3 $709.3M 11.6 Entegra 15 $127.6M 2.1 FirstCitizensPost-Consummation 2 $836.9M 13.7 956 48 21 DataareasofJune30,2019.Allrankings,marketdepositshares,andHHIsarebasedonthriftdepositsweightedat50percent.Theremaining numberofcompetitorsnotedineachmarketincludesthriftinstitutions.

LegalDevelopments:FourthQuarter,2019 59 Orders Issued Under Section 3 of the Bank Holding Company Act, the Bank Merger Act, and the Federal Reserve Act Magnolia Banking Corporation Magnolia, Arkansas Farmers Bank & Trust Company Magnolia, Arkansas OrderApprovingtheMergerof BankHoldingCompanies,theMergerof Banks,andthe Establishmentof aBranch FRBOrderNo.2019-15(October11,2019) MagnoliaBankingCorporation(“Magnolia”),Magnolia,Arkansas,abankholding companywithinthemeaningof theBankHoldingCompanyActof 1956(“BHCAct”),1 hasrequestedtheBoard’sapprovalundersection3of theBHCAct2tomergewith PrescottBancshares,Inc.(“Prescott”),andtherebyindirectlyacquirePrescott’ssubsidiary bank,Bankof Prescott,bothof Prescott,Arkansas.FarmersBank&TrustCompany (“FarmersBank”),Magnolia,Arkansas,thestatememberbanksubsidiaryof Magnolia, hasrequestedtheBoard’sapprovalundersection18(c)of theFederalDepositInsurance Act(“BankMergerAct”)3tomergewithBankof Prescott,astatenon-memberbank,with FarmersBankasthesurvivingentity.Inaddition,FarmersBankhasappliedunder section9of theFederalReserveAct(“FRA”)toestablishandoperateabranchatthemain officeof Bankof Prescott.4 Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(84FederalRegister30715(June27,2019)).5Thetimeforsubmitting commentshasexpired,andnocommentswerereceived.TheBoardhasconsideredthe proposalinlightof thefactorssetforthinsection3of theBHCAct,theBankMergerAct, andtheFRA.AsrequiredbytheBankMergerAct,areportonthecompetitiveeffectsof theproposalwasrequestedfromtheUnitedStatesAttorneyGeneral,andacopyof the requesthasbeenprovidedtotheFederalDepositInsuranceCorporation(“FDIC”). Magnolia,withconsolidatedassetsof approximately$1.6billion,isthe508thlargest insureddepositoryorganizationintheUnitedStates,controllingdepositsof approximately $907.2million,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutions6intheUnitedStates.7MagnoliacontrolsFarmersBank, whichhasofficesinArkansasandTexas.FarmersBankisthe14thlargestinsureddepositoryinstitutioninArkansas,withapproximately$907.2millionindeposits,whichrepresent 1.4percentof thetotalamountof depositsof insureddepositoryinstitutionsinthatstate.8 Prescott,withconsolidatedassetsof approximately$67.0million,isthe4631thlargest insureddepositoryinstitutionintheUnitedStates,controllingdepositsof approximately 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 12U.S.C.§1828(c). 4 12U.S.C.§321.Thebranchwouldbelocatedat103East2ndStreetSouth,Prescott,Arkansas. 5 12U.S.C.§1828(c)(3);12CFR262.3(b). 6 Inthiscontext,insureddepositoryinstitutionsincludecommercialbanks,savingsbanks,andsavings associations. 7 NationalassetdataareasofJune30,2019.Nationaldeposit,ranking,andmarket-sharedataareasof June30,2018,unlessotherwisenoted. 8 StatedepositdataareasofJune30,2018,unlessotherwisenoted.

60 FederalReserveBulletin|February2020 $58.6million,whichrepresentlessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsintheUnitedStates.PrescottcontrolsBankof Prescott, whichhasofficesonlyinArkansas.Prescottisthe99thlargestinsureddepositoryorganizationinArkansas,withapproximately$58.6millionindeposits,whichrepresentlessthan 1percentof thetotalamountof depositsof insureddepositoryinstitutionsinthatstate. Onconsummationof theproposal,Magnoliawouldremainthe508thlargestinsured depositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $1.7billion.Magnoliawouldcontrolapproximately$965.8millionindeposits,representing lessthan1percentof thetotalamountof depositsof insureddepositoryinstitutionsinthe UnitedStates.FarmersBankwouldremainthe14thlargestinsureddepositoryinstitution inArkansas,controllingdepositsof approximately$965.8million,whichrepresent approximately1.5percentof thetotaldepositsof insureddepositoryinstitutionsin thatstate. CompetitiveConsiderations Section3of theBHCActandtheBankMergerActprohibittheBoardfromapprovinga proposalthatwouldresultinamonopolyorwouldbeinfurtheranceof anattemptto monopolizethebusinessof bankinginanyrelevantmarket.9Section3of theBHCAct andtheBankMergerActalsoprohibittheBoardfromapprovingaproposalthatwould substantiallylessencompetitionortendtocreateamonopolyinanybankingmarket, unlesstheanticompetitiveeffectsof theproposalareclearlyoutweighedinthepublic interestbytheprobableeffectof theproposalinmeetingtheconvenienceandneedsof the communitiestobeserved.10 FarmersBankandBankof PrescottcompetedirectlyintheHope,Arkansas,banking market(“Hopemarket”).11TheBoardhasconsideredthecompetitiveeffectsof the proposalinthisbankingmarketinlightof allthefactsof record.Inparticular,theBoard hasconsideredtherelativeshareof totaldepositsof insureddepositoryinstitutionsinthe market(“marketdeposits”)thatFarmersBankwouldcontrol;12theconcentrationlevelsof marketdepositsandtheincreaseintheselevels,asmeasuredbytheHerfindahl- HirschmanIndex(“HHI”)undertheDepartmentof JusticeBankMergerCompetitive Reviewguidelines(“DOJBankMergerGuidelines”);13thenumberof competitorsthat wouldremaininthemarket;andothercharacteristicsof themarket. Thecompetitiveeffectsof theproposalintheHopemarketwouldexceedthethresholdsin theDOJBankMergerGuidelineswhenusinginitialcompetitivescreeningdata.Farmers BankisthelargestcompetitorintheHopemarket,controllingapproximately 9 12U.S.C.§1842(c)(1);12U.S.C.§1828(c)(5)(A). 10 12U.S.C.§1842(c)(1)(B);12U.S.C.§1828(c)(5)(B). 11 TheHopemarketisdefinedasHempsteadCounty(minusMineCreektownship)andNevadaCounty,bothin Arkansas. 12 LocaldepositandmarketsharedataareasofJune30,2018,andarebasedoncalculationsinwhichthe depositsofcommerciallyactivethriftinstitutionsareincludedat100percentandthedepositsofotherthrift institutionsareincludedat50percent. 13 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:FourthQuarter,2019 61 $117.6millionindeposits,whichrepresentapproximately28.9percentof marketdeposits. Bankof PrescottisthethirdlargestdepositoryinstitutionintheHopemarket,controllingapproximately$58.6millionindeposits,whichrepresentapproximately14.2percentof marketdeposits.Onconsummationof theproposal,FarmersBankwouldremainthe largestdepositoryinstitutionintheHopemarket,controllingapproximately$176.2million indeposits,whichwouldrepresentapproximately42.6percentof marketdeposits.The HHIinthemarketwouldincreaseby804points,from1839to2643. TheBoardhasconsideredwhetherfactorseithermitigatethecompetitiveeffectsof the proposalorindicatethattheproposalwouldnothaveasignificantlyadverseeffecton competitionintheHopemarket.14Factorsindicatethattheincreaseinconcentrationinthe Hopemarket,asmeasuredbytheHHIandmarketshare,overstatesthepotentialcompetitiveeffectsof theproposalinthemarket.Inparticular,onecreditunionexertsacompetitiveinfluenceintheHopemarket.Theinstitutionoffersawiderangeof consumerbanking products,operatesstreet-levelbranches,andhasbroadmembershipcriteriathatinclude almostallof theresidentsinthemarket.15TheBoardfindsthatthesecircumstances warrantincludingthedepositsof thecreditunionata50percentweightinitscalculation toestimatemarketinfluence.Thisweightingtakesintoaccountthelimitedlendingdoneby thiscredituniontosmallbusinessesrelativetocommercialbanks’lendinglevels.After weightingthedepositsof thecreditunionat50percent,FarmersBank,uponconsummation,wouldcontrolapproximately41.1percentof marketdeposits,andthemarketconcentrationlevelintheHopemarketmeasuredbytheHHIwouldincreaseby762pointsto 2512. Althoughconsummationof thisproposalwouldeliminateoneexistingcompetitor,the Hopemarketwouldcontinuetobeservedbysevendepositoryinstitutions,includingthe creditunionnotedabove.ExcludingFarmersBank,thesecompetitorswouldincludea depositoryinstitutionwithmorethan20percentof marketdepositsandtwodepository institutionseachwithmorethan10percentof marketdeposits.Thepresenceof these viablecompetitorssuggeststhatFarmersBankwouldhavelimitedabilitytoofferless attractivetermstoconsumersunilaterally,andthesecompetitorswouldbeabletoexert competitivepressureonFarmersBankintheHopemarket.Furthermore,thebranchlocationsandcommutingpatternsof consumerswithinthemarketsuggestthatFarmersBank andBankof Prescottdonotcompeteascloselywitheachotherastheydowithother competitors.Thesecircumstancessuggestthattheanalysisof marketconcentrationoverstatesthelikelyeffectsof theproposaloncompetition. TheDOJalsohasconductedareviewof thepotentialcompetitiveeffectsof theproposal andhasadvisedtheBoardthatconsummationof theproposalwouldnotlikelyhavea significantlyadverseeffectoncompetitioninanyrelevantbankingmarket,includingthe Hopemarket.Inaddition,theappropriatebankingagencieshavebeenaffordedanopportunitytocommentandhavenotobjectedtotheproposal. Basedonthefactsof record,theBoardconcludesthatconsummationof theproposal wouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesintheHopemarketorinanyotherrelevantbankingmarket.Accordingly,the Boarddeterminesthatcompetitiveconsiderationsareconsistentwithapproval. 14 Thenumberandstrengthoffactorsnecessarytomitigatethecompetitiveeffectsofaproposaldependonthe sizeoftheincreasein,andresultinglevelof,concentrationinabankingmarket.SeeNationsBankCorporation, 84FederalReserveBulletin129(1998). 15 TheBoardpreviouslyhasconsideredcompetitionfromcertainactivecreditunionswiththesefeaturesasa mitigatingfactor.See,e.g.,CentralBancompany,Inc.,FRBOrderNo.2017-03(February8,2017);KeyCorp, FRBOrderNo.2016-12(July12,2016);PassumpsicBancorp,92FederalReserveBulletinC175(2006);and WachoviaCorporation,92FederalReserveBulletinC183(2006).

62 FederalReserveBulletin|February2020 Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingproposalsundersection3of theBHCActandtheBankMergerAct,the Boardconsidersthefinancialandmanagerialresourcesandthefutureprospectsof the institutionsinvolved.16Initsevaluationof financialfactors,theBoardreviewsinformation regardingthefinancialconditionof theorganizationsinvolved,aswellasinformation regardingthefinancialconditionof theorganizations’significantnonbankingoperations, if applicable.Inthisevaluation,theBoardconsidersavarietyof informationregarding capitaladequacy,assetquality,liquidity,andearningsperformance.TheBoardevaluates thefinancialconditionof thecombinedorganization,includingitscapitalposition,asset quality,liquidity,earningsprospects,andtheimpactof theproposedfundingof thetransaction.TheBoardalsoconsiderstheabilityof theorganizationtoabsorbthecostsof the proposalandtocompleteeffectivelytheproposedintegrationof theoperationsof theinstitutions.Inassessingfinancialfactors,theBoardconsiderscapitaladequacytobeespecially important.TheBoardconsidersthefutureprospectsof theorganizationsinvolvedinthe proposalinlightof theirfinancialandmanagerialresourcesandtheproposed businessplan. Magnolia,Prescott,andtheirsubsidiarydepositoryinstitutionsarewellcapitalized,and thecombinedorganizationwouldremainsoonconsummationof theproposal.The proposedtransactionisabankholdingcompanymergerthatisstructuredasacash exchange,withasubsequentmergerof thesubsidiarydepositoryinstitutions.17Theasset quality,earnings,andliquidityof MagnoliaandFarmersBankareconsistentwith approval,andMagnoliaappearstohaveadequateresourcestoabsorbtherelatedcostsof theproposalandtocompletetheintegrationof theinstitutions’operations.Inaddition, thefutureprospectsof theinstitutionsundertheproposalareconsideredconsistentwith approval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of Magnolia,Prescott,andtheirsubsidiarydepositoryinstitutions,includingassessmentsof theirmanagement,risk-managementsystems,andoperations.Inaddition,the BoardhasconsideredinformationprovidedbyMagnoliaandFarmersBank;theBoard’s supervisoryexperiencesandthoseof otherrelevantbanksupervisoryagencieswiththe organizations;andtheorganizations’recordsof compliancewithapplicablebanking, consumerprotection,andanti-money-launderinglaws. MagnoliaandFarmersBankareconsideredtobewellmanaged.Thedirectorsandsenior executiveofficersof Magnoliahavesubstantialknowledgeof andexperienceinthe bankingandfinancialservicessectors,andMagnolia’srisk-managementprogramappears consistentwithapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredMagnolia’splansforimplementingtheproposal.Magnolia hasconductedcomprehensiveduediligenceandisdevotingfinancialandotherresourcesto addressallaspectsof thepost-acquisitionintegrationprocessforthisproposal.Magnolia wouldimplementitsrisk-managementpolicies,procedures,andcontrolsatthecombined organization,andtheseareconsideredacceptablefromasupervisoryperspective.Inaddi- 16 12U.S.C.§1842(c)(2),(5),and(6);12U.S.C.§1828(c)(5). 17 Magnoliawouldformawhollyownedsubsidiary,PBIAcquisition,Inc.(“MergerSub”),inordertofacilitate thetransaction.MergerSubwouldbemergedintoPrescott,withPrescottasthesurvivingentity,afterwhich PrescottwouldbemergedintoMagnolia,withMagnoliaasthesurvivingentity.Aspartoftheproposedtransaction,eachshareofPrescottcommonstockwouldbeconvertedintoarighttoreceivecash.Magnoliahasthe financialresourcestoeffectthetransaction.

LegalDevelopments:FourthQuarter,2019 63 tion,Magnolia’smanagementhastheexperienceandresourcestoensurethatthe combinedorganizationoperatesinasafeandsoundmanner.Magnoliawouldretainthe existingmanagementof Prescott. Basedonallof thefactsof record,includingthesupervisoryrecordsof Magnoliaand FarmersBank,theirmanagerialandoperationalresources,andtheirplansforoperating thecombinedorganizationafterconsummation,theBoardconcludesthatconsiderations relatingtothefinancialandmanagerialresourcesandthefutureprospectsof theorganizationsinvolvedintheproposal,aswellastherecordsof effectivenessof Magnoliaand Prescottincombattingmoney-launderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonproposalsundersection3of theBHCActandtheBankMergerAct,the Boardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.18Initsevaluation,theBoardconsiderswhethertherelevantinstitutions arehelpingtomeetthecreditneedsof thesecommunities,aswellasotherpotentialeffects of theproposalontheconvenienceandneedsof thecommunitiestobeserved,andplaces particularemphasisontherecordsof therelevantdepositoryinstitutionsunderthe CommunityReinvestmentAct(“CRA”).19TheCRArequiresthefederalfinancialsupervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesinwhichtheyoperate,consistentwiththeinstitutions’safeand soundoperation,20andrequirestheappropriatefederalfinancialsupervisoryagencyto assessadepositoryinstitution’srecordof helpingtomeetthecreditneedsof itsentire community,includinglow-andmoderate-income(“LMI”)neighborhoods,inevaluating bankexpansionaryproposals.21 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 Farmers BankandBankof Prescott;theconsumercompliance,includingfairlending,recordsof bothbanks;confidentialsupervisoryinformation;andinformationprovidedbyMagnolia andFarmersBank. Recordsof PerformanceundertheCRA InevaluatingtheCRAperformanceof theinstitutionsinvolved,theBoardgenerally considerseachinstitution’smostrecentCRAperformanceevaluation,aswellasother informationandsupervisoryviews,fromtherelevantfederalfinancialsupervisororsupervisors,whichinthiscasearetheFederalReserveBankof St.Louis(“ReserveBank”) 18 12U.S.C.§1842(c)(2);12U.S.C.§1828(c)(5). 19 12U.S.C.§2901etseq. 20 12U.S.C.§2901(b). 21 12U.S.C.§2903.

64 FederalReserveBulletin|February2020 withrespecttoFarmersBankandtheFDICwithrespecttoBankof Prescott.TheBoard alsoconsidersinformationprovidedbytheapplicant.22 TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.23Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalfinancialsupervisorof theinstitution’soverallrecordof lendinginits communities. Ingeneral,federalfinancialsupervisorsapplyalendingtest(“LendingTest”),anda communitydevelopmenttest(“CommunityDevelopmentTest”)toevaluatetheperformanceof anintermediatesmallinsureddepositoryinstitution,suchasFarmersBank,in helpingtomeetthecreditneedsof thecommunitiesitserves.TheLendingTestspecifically evaluatestheinstitution’shomemortgage,smallbusiness,smallfarm,andcommunity developmentlendingtodeterminewhethertheinstitutionishelpingtomeetthecredit needsof individualsandgeographiesof allincomelevels.Aspartof theLendingTest, examinersreviewandanalyzeaninstitution’sdatareportedundertheHomeMortgage DisclosureAct,24inadditiontosmallbusiness,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;25(4)theinstitution’scommunitydevelopmentlending,includingthenumberandamountsof communitydevelopmentloans andtheircomplexityandinnovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpracticestoaddressthecreditneedsof LMIindividualsandgeographies.26 TheCommunityDevelopmentTestevaluatesthenumberandamountsof theinstitution’s communitydevelopmentloansandqualifiedinvestments;theextenttowhichtheinstitutionprovidescommunitydevelopmentservices;andtheinstitution’sresponsivenessto communitydevelopmentlending,investment,andserviceneeds.27Smallinstitutions,such asBankof Prescott,aresubjectonlytotheLendingTest. CRAPerformanceof FarmersBank FarmersBankwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheReserveBank,asof January23,2017(“FarmersEvalua- 22 SeeInteragencyQuestionsandAnswersRegardingCommunityReinvestment,81Fed.Reg.48506,48548 (July25,2016). 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 See12CFR228.26(c).

LegalDevelopments:FourthQuarter,2019 65 tion”).28FarmersBankreceiveda“Satisfactory”ratingforeachof theLendingTestand theCommunityDevelopmentTest.29 ExaminersfoundFarmersBank’sloan-to-depositratiowasmorethanreasonablegiventhe bank’ssize,financialcondition,andthecreditneedsof thebank’sAAs.Examinersnoted thatthebankextendedamajorityof itsloanswithinitsAAs.Examinersfoundthatthe distributionof thebank’slendingreflectedreasonablepenetrationamongindividualsof differentincomelevelsandbusinessesof differentsizes.Inaddition,examinersfoundthat, overall,thebank’sgeographicdistributionof loanswasreasonablethroughoutthebank’s AAs.ExaminersnotednoCRA-relatedcomplaintshadbeenfiledagainstFarmersBank sinceitspreviousCRAevaluation. ExaminersfoundthatFarmersBank’soverallcommunitydevelopmentperformance demonstratedadequateresponsivenesstothecommunitydevelopmentneedsof itsAAs, consideringthebank’scapacityandtheavailabilityof opportunitiesfordevelopmentinthe bank’sAAs. CRAPerformanceof Bankof Prescott Bankof Prescottwasassignedanoverallratingof “Satisfactory”atitsmostrecentCRA performanceevaluationbytheFDIC,asof April2,2018(“PrescottEvaluation”).30The bankreceiveda“Satisfactory”ratingfortheLendingTest.31 ExaminersfoundthatBankof Prescottexhibitedareasonablerecordregardingitsloan-todepositratio.Examinersfoundthatthebankoriginatedamajorityof itsloanswithinits AAandnotedthatthebank’soverallgeographicdistributionof loanswasreasonable. Examinersalsonotedthatthebank’srecordregardingitsborrowerprofileloandistributionwasreasonable. AdditionalSupervisoryViews Initsreviewof theproposal,theBoardconsultedwiththeReserveBankregardingthe CRAandconsumercompliance,includingfairlending,recordsof FarmersBankand consideredtheFDIC’smostrecentCRAandconsumercomplianceevaluationsof Bankof Prescott.TheBoardhastakentheconsultationswiththeReserveBankandtheinformationdiscussedaboveintoaccountinevaluatingtheproposal,includinginconsidering whetherFarmersBankhastheexperienceandresourcestoensurethatthecombinedbank wouldhelpmeetthecreditneedsof thecommunitieswithinitsAAsfollowingconsummationof theproposedtransaction. 28 TheFarmersEvaluationwasconductedusingIntermediateSmallInstitutionCRAExaminationProcedures. Examinersassessedtheloan-to-depositratiofortheperiodDecember31,2013,throughSeptember30,2016, andreviewedAAconcentration,loandistributionbyborrowerprofile,andthegeographicdistributionofloans fromJanuary1,2015,throughDecember31,2015.Examinersreviewedcommunitydevelopmentactivities fromDecember3,2013,throughJanuary23,2017. 29 TheFarmersEvaluationincludedfull-scopeevaluationsoftheTexarkanaMultistateMetropolitanStatistical Area(“MSA”)AA;theColumbia-Hempstead-Lafayette-Ouachitacounties,ArkansasAA;theHotSpring County,ArkansasAA;theSalineCounty,ArkansasAA;andtheCollinCounty,TexasAA. 30 ThePrescottEvaluationwasconductedusingSmallInstitutionCRAExaminationProcedures.Examiners reviewedarandomsampleofsmallbusinessloansfor2017andloan-to-depositdatafromJune30,2012,to December31,2017. 31 ThePrescottEvaluationincludedafull-scopeevaluationofthebank’ssoleAA,aNon-MSAAA,consistingof allofClarkCountyandcontiguouscensustractsinHempsteadCountyandNevadaCounty,allinArkansas.

66 FederalReserveBulletin|February2020 AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.Magnoliarepresentsthatitdoesnotanticipate makingsignificantchangesinordiscontinuinganyexistingproductsorservicesof either FarmersBankorBankof Prescottfollowingconsummationof thebankmerger.Magnolia alsorepresentsthatcustomersof Bankof Prescottwouldgainaccesstoalargerarrayof productsandservicesandanexpandedbranchnetwork. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewith consumerprotectionlaws,confidentialsupervisoryinformation,informationprovidedby MagnoliaandFarmersBank,andotherpotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.Basedonitsreview,theBoarddeterminesthattheconvenienceandneedsfactorisconsistentwithapproval. FinancialStability TheBHCActandtheBankMergerActrequiretheBoardtoconsidertheriskof the proposal“tothestabilityof theUnitedStatesbankingorfinancialsystem.”32 Toassessthelikelyeffectof aproposedtransactiononthestabilityof theUnitedStates bankingorfinancialsystem,theBoardconsidersavarietyof metricsthatcapturethe systemic“footprint”of theresultingfirmandtheincrementaleffectof thetransactionon thesystemicfootprintof theacquiringfirm.Thesemetricsincludemeasuresof thesizeof theresultingfirm,theavailabilityof substituteprovidersforanycriticalproductsand servicesofferedbytheresultingfirm,theinterconnectednessof theresultingfirmwiththe bankingorfinancialsystem,theextenttowhichtheresultingfirmcontributestothe complexityof thefinancialsystem,andtheextentof thecross-borderactivitiesof the resultingfirm.33Thesecategoriesarenotexhaustive,andadditionalcategoriescould informtheBoard’sdecision.Inadditiontothesequantitativemeasures,theBoard considersqualitativefactors,suchastheopaquenessandcomplexityof aninstitution’s internalorganization,thatareindicativeof therelativedegreeof difficultyof resolvingthe resultingfirm.Afinancialinstitutionthatcanberesolvedinanorderlymannerislesslikely toinflictmaterialdamageonthebroadereconomy.34 TheBoard’sexperiencehasshownthatproposalsinvolvinganacquisitionof lessthan $10billionintotalassets,orthatresultinafirmwithlessthan$100billionintotalassets, aregenerallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthata proposaldoesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbelow eitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificantincreaseininterconnectedness,complexity,cross-borderactivities,orother riskfactors.35 32 12U.S.C.§1842(c)(7);12U.S.C.§1828(c)(5). 33 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 34 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder No.2012-2(February14,2012). 35 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017-08at25-26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition.

LegalDevelopments:FourthQuarter,2019 67 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalinvolvesatargetthathaslessthan $10billionintotalassetsandaproformaorganizationof lessthan$100billionintotal assets.Theproformaorganizationwouldhaveminimalcross-borderactivitiesandwould notexhibitanorganizationalstructure,complexinterrelationships,oruniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financialdistress.36In addition,theorganizationwouldnotbeacriticalservicesproviderorsointerconnected withotherfirmsorthemarketsthatitwouldposeasignificantrisktothefinancialsystem intheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Establishmentof Branches FarmersBankhasappliedundersection9of theFRAtoestablishandoperateabranchat thelocationof thecurrentmainofficeBankof Prescott.37TheBoardhasassessedthe factorsitisrequiredtoconsiderwhenreviewinganapplicationunderthatsection.Specifically,theBoardhasconsideredFarmersBank’sfinancialcondition,management,capital, actionsinmeetingtheconvenienceandneedsof thecommunitiestobeserved,CRA performance,andinvestmentinbankpremises.38Forthereasonsdiscussedinthisorder, theBoardfindsthosefactorstobeconsistentwithapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheapplicationsshouldbe,andherebyare,approved.Inreachingitsconclusion,theBoardhas consideredallthefactsof recordinlightof thefactorsthatitisrequiredtoconsiderunder theBHCAct,theBankMergerAct,theFRA,andotherapplicablestatutes.TheBoard’s approvalisspecificallyconditionedoncompliancebyMagnoliaandFarmersBankwithall of theconditionsimposedinthisorder,includingreceiptof allrequiredregulatory approvals,andonthecommitmentsmadetotheBoardinconnectionwiththeproposal. Forpurposesof thisaction,theconditionsandcommitmentsaredeemedtobeconditions imposedinwritingbytheBoardinconnectionwithitsfindingsanddecisionhereinand,as such,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardortheReserveBank,actingunderdelegatedauthority. 36 FarmersBankandBankofPrescottarepredominatelyengagedinretailandcommercialbankingactivities. FarmersBankhas,andasaresultoftheproposalwouldcontinuetohave,asmallmarketshareintheseproductsandservicesonanationwidebasis. 37 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, FarmersBank’snewbranchwouldbepermissibleunderapplicablestatelaw.SeeArk.CodeAnn.§23-48-702. 38 12U.S.C.§322;12CFR208.6.Uponconsummationoftheproposedtransaction,FarmersBank’sinvestment inbankpremiseswouldremainwithinthelegalrequirementsof12CFR208.21.

68 FederalReserveBulletin|February2020 Byorderof theBoardof Governors,effectiveOctober11,2019. Votingforthisaction:ChairPowell,ViceChairClarida,ViceChairforSupervision Quarles,andGovernorsBrainardandBowman. AnnE.Misback Secretaryof theBoard

LegalDevelopments:FourthQuarter,2019 69 Order Issued Under International Banking Act Absa Bank Limited Johannesburg, South Africa OrderApprovingtheEstablishmentof aRepresentativeOffice FRBOrderNo.2019-14(October1,2019) AbsaBankLimited(“AbsaBank”),Johannesburg,SouthAfrica,aforeignbankwithinthe meaningof theInternationalBankingActof 1978(“IBA”),hasappliedunder section10(a)of theIBA1toestablisharepresentativeofficeinNewYork,NewYork(the “NewYorkRepresentativeOffice”).TheIBAprovidesthataforeignbankmustobtainthe approvalof theBoardtoestablisharepresentativeofficeintheUnitedStates. Noticeof theapplication,affordinginterestedpersonsanopportunitytocomment,has beenpublishedinanewspaperof generalcirculationinNewYork,NewYork(NewYork DailyNews,May17,2019).Thetimeforsubmittingcommentshasexpired,andtheBoard hasconsideredallcommentsreceived. AbsaBank,withtotalassetsof approximately$81.8billion,isthethirdlargestbankin SouthAfricabyassetsize.2AbsaBankprovidesretail,business,corporateandinvestment banking,andwealthmanagementproductsandservices.Thebankalsohassubsidiaries thatengageinvariousactivities,includinginformationtechnology,automotivefleet management,andpropertydevelopmentandinvesting.Foreignoperationsof thebank includerepresentativeofficeslocatedinNigeriaandNamibia. AbsaBankisawholly-ownedsubsidiaryof AbsaGroupLimited(“AGL”–consolidated assetsof $97.5billion),Johannesburg,SouthAfrica,adiversifiedfinancialservices provider.InadditiontoAbsaBank,AGLhasamajoritystakeinbankslocatedinnine Africancountriesandhassubsidiariesthatengageininsurance,propertymanagement,and assetmanagementactivities.AGLoperatesabrokerdealersubsidiaryinLondon,England, andisintheprocessof establishingaU.S.brokerdealersubsidiary,AbsaSecuritiesU.S. Inc.,NewYork,NewYork,thatwouldengageintradingdebtandequitysecurities. AGL’slargestshareholderisBarclaysBankPLC(“Barclays”),London,England,which controlledAGLuntil2018andcurrentlyownsapproximately14.9percentof AGL’svoting shares.Thesecondlargestshareholder,with7.1percentof AGL’svotingshares,isSouth Africa’sPublicInvestmentCorporation,Pretoria,SouthAfrica.Theremainingsharesof AGLarewidelyheld. TheNewYorkRepresentativeOfficewouldactasaliaisonwithU.S.clientsandprospectiveclientsof AbsaBank.TheNewYorkRepresentativeOfficealsowouldmarketand solicitnewbusinessforbankingproductsandservicesprovidedbyAbsaBank,perform back-officefunctions,andassemblecreditinformation.3 1 12U.S.C.§3107(a). 2 AssetdataisasofJune30,2019.RankingdataisasofDecember31,2018. 3 Arepresentativeofficemayengageinrepresentationalandadministrativefunctionsinconnectionwiththe bankingactivitiesofaforeignbank,includingsolicitingnewbusinessfortheforeignbank,conducting research,actingasaliaisonbetweentheforeignbank’sheadofficeandcustomersintheUnitedStates, performingpreliminaryandservicingstepsinconnectionwithlendingandperformingback-officefunctions.A representativeofficemaynotcontractforanydepositordeposit-likeliability,lendmoney,orengageinany otherbankingactivity.12CFR211.24(d)(1).

70 FederalReserveBulletin|February2020 UndertheIBAandRegulationK,inactingonanapplicationbyaforeignbanktoestablisharepresentativeoffice,theBoardmustconsiderwhether(1)theforeignbankhas furnishedtotheBoardtheinformationitneedstoassesstheapplicationadequately,(2)the foreignbankandanyforeignbankparentengagedirectlyinthebusinessof banking outsidetheUnitedStates,and(3)theforeignbankandanyforeignbankparentaresubject tocomprehensivesupervisiononaconsolidatedbasisbytheirhomecountrysupervisor.4 TheBoardalsoconsidersadditionalstandardssetforthintheIBAandRegulationK.5 Inthecaseof anapplicationtoestablisharepresentativeoffice,theBoardhasbyrule determinedthatthesupervisionstandardmaybemetif theBoarddeterminesthatthe applicantbankissubjecttoasupervisoryframeworkthatisconsistentwiththeactivitiesof theproposedoffice,takingintoaccountthenatureof suchactivitiesandtheoperating recordof theapplicantbank.6Thisisalesserstandardthanthecomprehensive,consolidatedsupervisionstandardapplicabletoapplicationstoestablishbranchoragencyoffices of aforeignbank.TheBoardconsidersthelesserstandardsufficientforapprovalof representativeofficeapplicationsbecauserepresentativeofficesmaynotengageinbanking activities.Thisapplicationhasbeenconsideredunderthelesserstandard. Inconnectionwiththisapplication,AbsaBankhasprovidedcertaincommitmentsthat limittheactivitiesof theNewYorkRepresentativeOffice.Inparticular,AbsaBankhas committedthattheNewYorkRepresentativeOfficewouldnotsolicitdeposits,makecredit decisionsoranyotherdecisionsthatbindAbsaBank(exceptforlocaladministrative matters),orengageinactivitiesrelatedtosecuritiestrading,foreignexchange,ormoney transmission.TheNewYorkRepresentativeOfficewouldengageonlyintheactivities describedinitsapplicationtotheBoard. Asnotedabove,AbsaBankengagesdirectlyinthebusinessof bankingoutsidetheUnited States.AbsaBankhasprovidedtheBoardwiththeinformationnecessarytoassessthe application,throughsubmissionsthataddresstherelevantissues.Withrespecttosupervisionbyhomecountryauthorities,theBoardhasconsideredthatAbsaBankissupervised bythePrudentialAuthority(“PA”),whichoperatesundertheSouthAfricanReserveBank (“SARB”),andtheFinancialSectorConductAuthority(“FSCA”).7 4 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.12CFR211.24(c)(1). 5 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). 6 See12CFR211.24(d)(2). 7 TheBoardfoundthatAbsaBankwassubjecttoalevelofsupervisionconsistentwithapprovaloftheestablishmentofarepresentativeofficeinJuly1997,whichwasalsothelasttimetheBoardconsideredthesupervisory regimeinSouthAfrica.BoardOrder.See83Fed.Res.Bull.788(July30,1997).FollowingBarclays’acquisition ofAbsaBankin2005,Barclaysclosedthisrepresentativeoffice.

LegalDevelopments:FourthQuarter,2019 71 TheSouthAfricanfinancialregulatoryregimehasbeenmateriallyenhancedinrecent years,culminatinginlegislationestablishinga“twinpeaks”modelof supervisionin2017 and2018.ThePAisresponsibleforregulatingbanksandfinancialinstitutions,whilethe SARBisthecentralbankof theRepublicof SouthAfricaandseekstoachieveprice stabilityandfinancialstability.TheFSCAisastand-alonemarketconductregulatorand workstowardsefficiencyandintegrityof financialmarketsandconsumerprotection. Implementationof thetwinpeaksregulatorymodelisongoing,andAbsaBankhasindicatedthatitexpectstheSouthAfricangovernmenttoenactadditionallegislationrelatedto conglomeratesupervisionandfinancialinstitutionconductandresolution. ThePAandtheSARBapplyarisk-basedsupervisoryapproach.ThePAand/ortheSARB supervisebankingorganizationsthroughacombinationof off-sitemonitoringandon-site examinationsthatfocusoncompliancewithapplicablelawsandregulations,includingantimoney-launderingrules,corporategovernance,audit,internalcontrols,riskmanagement, andfinancialcondition,includingassetquality,capital,liquidity,andprofitability.ThePA and/ortheSARBconductoff-sitemonitoringof AbsaBankandAGLthroughthereview of asetof periodicreportsonthebank’sconsolidatedoperations,includingitsbranches, subsidiaries,andaffiliates,bothdomesticandforeign.AbsaBankisrequiredtoprovide annualauditedfinancialstatementstotheSARB. Basedonallthefactsof record,includingthecommitmentsprovidedbyAbsaBank limitingtheactivitiesof theNewYorkRepresentativeOffice,ithasbeendeterminedthat AbsaBankissubjecttoasupervisoryframeworkthatisconsistentwiththecurrentand proposedactivitiesof theNewYorkRepresentativeOffice,takingintoaccountthenature of suchactivities. ThefollowingadditionalstandardssetforthintheIBAandRegulationKhavealsobeen considered:(1)whetherthebankhasprocedurestocombatmoneylaundering,whether thereisalegalregimeinplaceinthehomecountrytoaddressmoneylaundering,and whetherthehomecountryisparticipatinginmultilateraleffortstocombatmoneylaundering;(2)thefinancialandmanagerialresourcesof thebank;(3)whethertheappropriate supervisorsinthehomecountrymayshareinformationonthebank’soperationswiththe Board;and(4)whetherthebank’shomecountrysupervisorhasconsentedtotheestablishmentof theoffice.8 SouthAfricaisamemberof theFinancialActionTaskForce(“FATF”)regionalorganization,andAbsaBankhasindicatedthatFATFrecommendationshavebeenimplemented throughthepromulgationandimplementationof theFinancialIntelligenceCentreAct, 2001(“FICAct”).TheFICActrequiresthePAand/orSARBtoensurethatbankshave adequatecontrolsinplacetocombatactsof moneylaunderingthefinancingof terrorism. Accordingly,thePAand/orSARBinspectsbanks,includingAbsaBank,onaroutineand non-routinebasistoassesswhethertheyhaveappropriatemeasuresinplace,includingantimoneylaundering(AML)andsanctionspolicies,anAMLtrainingprogram,andclient identificationandverificationrequirements,asrequiredbytheFICAct.AbsaBankhas policiesandprocedurestocomplywiththeselawsandregulations,whicharemonitoredby governmententitiesresponsibleforAMLcompliance. AbsaBankappearstohavetheexperienceandcapacitytosupporttheNewYorkRepresentativeOffice.AbsaBankhasseveralrepresentativeofficesinAfricaandhaspreviously operatedarepresentativeofficeintheUnitedStates.Inaddition,AbsaBankhasestablishedcontrolsandproceduresfortheNewYorkRepresentativeOfficetoensurecompli- 8 See12U.S.C.§3105(d)(3)–(4);12CFR211.24(c)(2).

72 FederalReserveBulletin|February2020 ancewithU.S.law,aswellascontrolsandproceduresforitsworldwideoperationsgenerally.TakingintoconsiderationAbsaBank’srecordof operationsinitshomecountry,its overallfinancialresources,anditsstandingwithitshomecountrysupervisors,financial andmanagerialfactorsareconsistentwithapprovalof AbsaBank’sapplicationtoestablish theNewYorkRepresentativeOffice. AbsaBankhascommittedtomakeavailabletotheBoardsuchinformationontheoperationsof AbsaBankandanyof itsaffiliatesthattheBoarddeemsnecessarytodetermine andenforcecompliancewiththeIBA,theBankHoldingCompanyActof 1956,as amended,9andotherapplicablefederallaw.Totheextentthatprovidingsuchinformation totheBoardmaybeprohibitedbylaworotherwise,AbsaBankhascommittedtocooperatewiththeBoardtoobtainanynecessaryconsentsorwaiversthatmightberequired fromthirdpartiesforthedisclosureof suchinformation.Inaddition,subjecttocertain conditions,thePAmayshareinformationonAbsaBank’soperationswithothersupervisors,includingtheBoard.Inlightof thesecommitmentsandotherfactsof record,and subjecttotheconditiondescribedbelow,ithasbeendeterminedthatAbsaBankhas providedadequateassurancesof accesstoanynecessaryinformationthattheBoardmay request.Inaddition,thePAhasnoobjectiontotheestablishmentof theNewYorkRepresentativeOffice. WhetherAbsaBank’sproposalwouldpresentarisktothestabilityof theUnitedStates hasalsobeenconsidered.Theproposalwouldnotappeartoaffectfinancialstabilityinthe UnitedStates.Inparticular,theabsoluteandrelativesizeof AbsaBankinitshome country;thescopeof AbsaBank’sactivities,includingthetypesof activitiesitproposesto conductintheUnitedStatesandthepotentialforthoseactivitiestoincreaseortransmit financialinstability;andtheframeworkinplaceforsupervisingAbsaBankinitshome countrydonotappeartocreatesignificantrisktothefinancialstabilityof theUnited States.Basedontheseandotherfactors,financialstabilityconsiderationsinthisproposal areconsistentwithapproval. Onthebasisof allthefactsof recordandsubjecttocommitmentsmadebyAbsaBank, AbsaBank’sapplicationtoestablishtheNewYorkRepresentativeOfficeishereby approvedbytheDirectorof theDivisionof SupervisionandRegulation,withtheconcurrenceof theGeneralCounsel,pursuanttoauthoritydelegatedbytheBoard.10Should anyrestrictionsonaccesstoinformationontheoperationsoractivitiesof AbsaBankand itsaffiliatessubsequentlyinterferewiththeBoard’sabilitytoobtaininformationto determineandenforcecompliancebyAbsaBankoritsaffiliateswithapplicablefederal statutes,theBoardmayrequireterminationof anyof AbsaBank’sdirectorindirectactivitiesintheUnitedStates.Approvalof thisapplicationalsoisspecificallyconditionedon compliancebyAbsaBankwiththeconditionsimposedinthisorderandthecommitments madetotheBoardinconnectionwiththisapplication.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.

LegalDevelopments:FourthQuarter,2019 73 Byorder,approvedpursuanttoauthoritydelegatedbytheBoard,effective October1,2019. AnnE.Misback Secretaryof theBoard

July 2020 Vol. 106, No. 4 Boardof Governorsof theFederalReserveSystem www.federalreserve.gov Legal Developments: Second Quarter, 2020 Order Issued under Section 3 of the Bank Holding Company Act, the Bank Merger Act, and the Federal Reserve Act First Horizon National Corporation First Horizon Bank Memphis, Tennessee OrderApprovingtheMergerof BankHoldingCompanies,theMergerof Banks,andthe Establishmentof Branches FRBOrderNo.2020–01(June15,2020) FirstHorizonNationalCorporation(“FirstHorizon”),Memphis,Tennessee,afinancial holdingcompanywithinthemeaningof theBankHoldingCompanyActof 1956(“BHC Act”),1hasrequestedtheBoard’sapprovalundersection3of theBHCAct2tomergewith IBERIABANKCorporation(“IBERIABANKCorp”)andtherebyindirectlyacquireits subsidiarystatememberbank,IBERIABANK,bothof Lafayette,Louisiana.Inaddition, FirstHorizon’ssubsidiarystatememberbank,FirstHorizonBank,Memphis,Tennessee, hasrequestedtheBoard’sapprovaltomergewithIBERIABANK,pursuantto section18(c)of theFederalDepositInsuranceAct(“BankMergerAct”),3withFirst HorizonBankasthesurvivingentity.FirstHorizonBankalsohasappliedundersection9 of theFederalReserveAct(“FRA”)4toestablishandoperatebranchesatthelocationsof themainofficeandbranchesof IBERIABANK. Noticeof theproposal,affordinginterestedpersonsanopportunitytosubmitcomments, hasbeenpublished(84FederalRegister71939(December30,2019))inaccordancewiththe Board’sRulesof Procedure.5Thetimeforsubmittingcommentshasexpired,andthe Boardhasconsideredtheproposalandallcommentsreceivedinlightof thefactorsset forthintheBHCAct,theBankMergerAct,andtheFRA.AsrequiredbytheBank MergerAct,areportonthecompetitiveeffectsof themergerwasrequestedfromthe UnitedStatesAttorneyGeneral,andacopyof therequesthasbeenprovidedtothe FederalDepositInsuranceCorporation. FirstHorizon,withconsolidatedassetsof approximately$47.2billion,isthe54thlargest insureddepositoryorganizationintheUnitedStates,controllingapproximately $34.3billioninconsolidateddeposits,whichrepresentlessthan1percentof thetotal 1 12U.S.C.§1841etseq. 2 12U.S.C.§1842. 3 12U.S.C.§1828(c). 4 12U.S.C.§321.TheselocationsarelistedinAppendix2. 5 12CFR262.3(b).

2 FederalReserveBulletin|July2020 amountof depositsof insureddepositoryinstitutionsintheUnitedStates.6FirstHorizon controlsFirstHorizonBank,whichoperatesinFlorida,Georgia,Mississippi,NorthCarolina,SouthCarolina,Tennessee,Texas,andVirginia.FirstHorizonBankisthelargest insureddepositoryinstitutioninTennessee,controllingdepositsof approximately $24.7billion,whichrepresentapproximately15.4percentof thetotaldepositsof insured depositoryinstitutionsinthatstate.FirstHorizonBankistheeighthlargestinsured depositoryinstitutioninNorthCarolina,controllingdepositsof approximately $6.6billion,whichrepresentapproximately1.8percentof thetotaldepositsof insured depositoryinstitutionsinthatstate.FirstHorizonBankisthe34thlargestinsureddepositoryinstitutioninFlorida,controllingdepositsof approximately$2.0billion,which representlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthat state.FirstHorizonBankisthe23rdlargestinsureddepositoryinstitutioninSouth Carolina,controllingdepositsof approximately$529.8million,whichrepresentlessthan 1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.FirstHorizon Bankisthe117thlargestinsureddepositoryinstitutioninGeorgia,controllingdepositsof approximately$136.1million,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.Finally,FirstHorizonBankisthe339thlargest insureddepositoryinstitutioninTexas,controllingdepositsof approximately $113.9million,whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. IBERIABANKCorp,withconsolidatedassetsof approximately$32.2billion,isthe 67thlargestinsureddepositoryorganizationintheUnitedStates,controllingapproximately$25.0billioninconsolidateddeposits,whichrepresentlessthan1percentof the totalamountof depositsof insureddepositoryinstitutionsintheUnitedStates. IBERIABANKCorpcontrolsIBERIABANK,whichoperatesinAlabama,Arkansas, Florida,Georgia,Louisiana,NewYork,NorthCarolina,SouthCarolina,Tennessee,and Texas.IBERIABANKisthe17thlargestinsureddepositoryinstitutioninFlorida,controllingdepositsof approximately$9.5billion,whichrepresent1.6percentof thetotal depositsof insureddepositoryinstitutionsinthatstate.IBERIABANKisthe41stlargest insureddepositoryinstitutioninTexas,controllingdepositsof approximately$1.8billion, whichrepresentlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.IBERIABANKisthe23rdlargestinsureddepositoryinstitutionin Georgia,controllingdepositsof approximately$1.2billion,whichrepresentlessthan 1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate. IBERIABANKisthe68thlargestinsureddepositoryinstitutioninTennessee,controlling depositsof approximately$338.9million,whichrepresentlessthan1percentof thetotal depositsof insureddepositoryinstitutionsinthatstate.IBERIABANKisthe74thlargest insureddepositoryinstitutioninSouthCarolina,controllingdepositsof approximately $25million,whichrepresentlessthan1percentof thetotaldepositsof insureddepository institutionsinthatstate.Finally,IBERIABANKisthe77thlargestinsureddepository institutioninNorthCarolina,controllingdepositsof approximately$7.7million,which representlessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthat state. Onconsummationof thisproposal,FirstHorizonwouldbecomethe42ndlargestinsured depositoryorganizationintheUnitedStates,withconsolidatedassetsof approximately $80.3billion,whichrepresentlessthan1percentof thetotalamountof assetsof insured depositoryinstitutionsintheUnitedStates.FirstHorizonwouldcontrolconsolidated 6 ConsolidatedassetanddepositdataareasofMarch31,2020.StatedepositdataareasofJune30,2019,unless otherwisenoted,andreflectFirstHorizonBank’sacquisitionofSunTrustBankbranchesinGeorgia,North Carolina,andVirginia.Inthiscontext,insureddepositoryinstitutionsincludecommercialbanks,savings banks,andsavingsassociations.

LegalDevelopments:SecondQuarter,2020 3 depositsof approximately$59.3billion,whichrepresentlessthan1percentof thetotal depositsof insureddepositoryinstitutionsintheUnitedStates.FirstHorizonwould remainthelargestinsureddepositoryorganizationinTennessee,controllingdepositsof approximately$25.0billion,whichrepresent15.6percentof thetotalamountof deposits of insureddepositoryinstitutionsinthatstate.FirstHorizonwouldbecomethe 14thlargestinsureddepositoryorganizationinFlorida,controllingdepositsof approximately$11.5billion,whichrepresent1.9percentof thetotalamountof depositsof insured depositoryinstitutionsinthatstate.FirstHorizonwouldremaintheeighthlargestinsured depositoryorganizationinNorthCarolina,controllingdepositsof approximately $6.6billion,whichrepresent1.8percentof thetotalamountof depositsof insureddepositoryinstitutionsinthatstate.FirstHorizonwouldbecomethe41stlargestinsureddepositoryinstitutioninTexas,controllingdepositsof approximately$1.9billion,whichrepresent lessthan1percentof thetotaldepositsof insureddepositoryinstitutionsinthatstate.First Horizonwouldbecomethe20thlargestinsureddepositoryinstitutioninGeorgia,controllingdepositsof approximately$1.3billion,whichrepresentlessthan1percentof thetotal depositsof insureddepositoryinstitutionsinthatstate.Finally,FirstHorizonwould remainthe23rdlargestinsureddepositoryorganizationinSouthCarolina,controlling depositsof approximately$555.6million,whichrepresentlessthan1percentof thetotal amountof depositsof insureddepositoryinstitutionsinthatstate. InterstateandDepositCapAnalyses Section3(d)of theBHCActgenerallyprovidesthat,if certainconditionsaremet,the Boardmayapproveanapplicationbyabankholdingcompanythatiswellcapitalizedand wellmanagedtoacquirecontrolof abanklocatedinastateotherthanthehomestateof thebankholdingcompanywithoutregardtowhetherthetransactionwouldbeprohibited understatelaw.7Similarly,section44of theFederalDepositInsuranceAct(“FDIAct”) generallyprovidesthat,if certainconditionsaremet,theBoardmayapproveanapplicationbyabanktoengageinaninterstatemergertransactionwithabankthathasa differenthomestatewithoutregardtowhetherthetransactionwouldbeprohibitedunder statelaw,providedthattheresultingbankwouldbewellcapitalizedandwellmanaged.8 TheBoardmaynotapproveundereitherprovisionanapplicationthatwouldpermitan out-of-statebankholdingcompanyorout-of-statebanktoacquireabankinahoststateif thetargetbankhasnotbeeninexistenceforthelesserof thestatestatutoryminimum periodof timeorfiveyears.9Inaddition,theBoardmaynotapproveaninterstateapplicationundertheseprovisionsif thebankholdingcompanyorresultingbankcontrolsor, uponconsummationof theproposedtransaction,wouldcontrolmorethan10percentof thetotaldepositsof insureddepositoryinstitutionsintheUnitedStatesor,incertain circumstances,if thebankholdingcompanyorresultingbank,uponconsummation,would control30percentormoreof thetotaldepositsof insureddepositoryinstitutionsinany stateinwhichtheacquirerandtargethaveoverlappingbankingoperations.10Moreover, theBankMergerActincludesaprohibitiononapprovalof interstatetransactionswhere theresultinginsureddepositoryinstitution,togetherwithitsinsureddepositoryinstitution affiliates,controlsor,uponconsummationof theproposedtransaction,wouldcontrol, 7 12U.S.C.§1842(d)(1)(A). 8 12U.S.C.§1831u(a)(1). 9 12U.S.C.§1842(d)(1)(B);12U.S.C.§1831u(a)(5). 10 12U.S.C.§1842(d)(2)(A)and(B);12U.S.C.§1831u(b)(2)(A)and(B).Theacquiringandtargetorganizations haveoverlappingbankingoperationsinanystateinwhichanybanktobeacquiredislocatedandtheacquiring bankholdingcompanycontrolsanyinsureddepositoryinstitutionorabranch.Forpurposesofsection3(d)of theBHCAct,theBoardconsidersabanktobelocatedinthestatesinwhichthebankischarteredorheadquarteredoroperatesabranch.

4 FederalReserveBulletin|July2020 morethan10percentof thetotalamountof depositsof insureddepositoryinstitutionsin theUnitedStates.11 Forpurposesof theseprovisions,thehomestateof FirstHorizonisTennessee.12Thehome stateof FirstHorizonBankalsoisTennessee.13Thehomestateof IBERIABANKis Louisiana,andIBERIABANKislocatedinAlabama,Arkansas,Florida,Georgia,Louisiana,NewYork,NorthCarolina,SouthCarolina,Tennessee,andTexas.FirstHorizon, FirstHorizonBank,andIBERIABANKarewellcapitalizedandwellmanagedunder applicablelaw,andFirstHorizonBankalsowouldbewellcapitalizedandwellmanaged uponconsummationof theproposal.IBERIABANKhasbeeninexistenceformorethan fiveyears,andFirstHorizonBankhasa“Satisfactory”ratingundertheCommunityReinvestmentActof 1977(“CRA”).14 Onconsummationof theproposedtransaction,FirstHorizonwouldcontrollessthan 1percentof thetotalamountof consolidateddepositsof insureddepositoryinstitutionsin theUnitedStates.Florida,Georgia,SouthCarolina,andTennesseeeachimposea 30-percentlimit,andTexasimposesa20-percentlimit,onthetotalamountof in-state depositsthatasinglebankingorganizationmaycontrol.15Thecombinedorganization wouldcontrolapproximately1.9percentof thetotalamountof depositsof insureddepositoryinstitutionsinFlorida,lessthan1percentinGeorgia,lessthan1percentinSouth Carolina,15.6percentinTennessee,andlessthan1percentinTexas.Accordingly,inlight of allthefactsof record,theBoardmayapprovetheproposalundersection3(d)of the BHCAct,section44of theFDIAct,andtheinterstateprovisionsof theBank MergerAct. CompetitiveConsiderations Section3of theBHCActandtheBankMergerActprohibittheBoardfromapprovinga proposalthatwouldresultinamonopolyorwouldbeinfurtheranceof anattemptto monopolizethebusinessof bankinginanyrelevantmarket.16TheBHCActandtheBank MergerActalsoprohibittheBoardfromapprovingaproposalthatwouldsubstantially lessencompetitionortendtocreateamonopolyinanybankingmarket,unlessthe anticompetitiveeffectsof theproposalareclearlyoutweighedinthepublicinterestbythe probableeffectof theproposalinmeetingtheconvenienceandneedsof thecommunitiesto beserved.17 FirstHorizonandIBERIABANKCorphavesubsidiarybanksthatcompetedirectlyin 10bankingmarketsinArkansas,Florida,Mississippi,NorthCarolina,SouthCarolina, Tennessee,andTexas.TheBoardhasconsideredthecompetitiveeffectsof theproposalin thebankingmarketsinwhichFirstHorizonBankandIBERIABANKcompete.In particular,theBoardhasconsideredthenumberof competitorsthatwouldremaininthe 11 12U.S.C.§1828(c)(13). 12 12U.S.C.§1841(o)(4).Abankholdingcompany’shomestateisthestateinwhichthetotaldepositsofall bankingsubsidiariesofsuchcompanywerethelargestonJuly1,1966,orthedateonwhichthecompany becameabankholdingcompany,whicheverislater. 13 12U.S.C.§1841(o)(4);12U.S.C.§1831u(g)(4).Astatebank’shomestateisthestatebywhichthebankis chartered. 14 12U.S.C.§2901etseq.ThestatesinwhichFirstHorizonBankoperatesdonothavecommunityreinvestment laws. 15 Fla.Stat.§658.2953(5);Ga.CodeAnn.§7-1-628.3;S.C.CodeAnn.§34-25-240;Tenn.CodeAnn.§45-2-1404; Tex.Fin.Code§203.004.NorthCarolinadoesnotimposealimitonthetotalamountofdepositsaninsured depositoryinstitutionmaycontrol. 16 12U.S.C.§1842(c)(1)(A);12U.S.C.§1828(c)(5)(A). 17 12U.S.C.§1842(c)(1)(B);12U.S.C.§1828(c)(5)(B).

LegalDevelopments:SecondQuarter,2020 5 bankingmarkets;therelativesharesof totaldepositsof insureddepositoryinstitutionsin themarkets(“marketdeposits”)thatFirstHorizonwouldcontrol;18theconcentration levelsof marketdepositsandtheincreaseintheselevelsasmeasuredbythe HerfindahlHirschmanIndex(“HHI”)undertheDepartmentof JusticeBankMerger CompetitiveReviewguidelines(“DOJBankMergerGuidelines”);19andothercharacteristicsof eachmarket. BankingMarketswithinEstablishedGuidelines Consummationof theproposalwouldbeconsistentwithBoardprecedentandwithinthe thresholdsintheDOJBankMergerGuidelinesinnineof tenbankingmarkets.Of the nine,onconsummation,twobankingmarketswouldremainhighlyconcentrated,five bankingmarketswouldremainmoderatelyconcentrated,andtwobankingmarketswould remainunconcentrated,asmeasuredbytheHHI.ThechangeintheHHIinthese marketsgenerallywouldbesmall,consistentwithBoardprecedent,andwithinthethresholdsintheDOJBankMergerGuidelines.Inaddition,numerouscompetitorswouldremain inmostof thesebankingmarkets.20 BankingMarketWarrantingSpecialScrutiny Thestructuraleffectsthatconsummationof theproposalwouldhaveintheMarathon Area,Florida,bankingmarket(“Marathonbankingmarket”)warrantadetailedreview becausetheconcentrationlevelsonconsummationwouldexceedthethresholdsintheDOJ BankMergerGuidelinesandBoardprecedentwhenusinginitialcompetitivescreeningdata. FirstHorizonBankisthefourthlargestdepositoryinstitutionintheMarathonbanking market,controllingapproximately$77.7millionindeposits,whichrepresent11.6percentof marketdeposits.21IBERIABANKisthethirdlargestdepositoryinstitutioninthemarket, controllingapproximately$116.7millionindeposits,whichrepresent17.4percentof marketdeposits.Onconsummation,FirstHorizonBankwouldbecomethesecondlargest depositoryinstitutionintheMarathonbankingmarket,controllingapproximately $194.4millionindeposits,whichwouldrepresentapproximately29.1percentof market deposits.TheHHIinthismarketwouldincrease405points,from2053to2458. TheBoardhasconsideredwhetherotherfactorseithermitigatethecompetitiveeffectsof theproposalorindicatethattheproposalwouldnothaveasignificantlyadverseeffecton competitionintheMarathonbankingmarket.Inparticular,thesolecreditunioninthe 18 DepositandmarketsharedataareasofJune30,2019,andunlessotherwisenotedarebasedoncalculationsin whichthedepositsofthriftinstitutionsareincludedat50percent.TheBoardpreviouslyhasindicatedthat thriftinstitutionshavebecome,orhavethepotentialtobecome,significantcompetitorstocommercialbanks. See,e.g.,MidwestFinancialGroup,75FederalReserveBulletin386(1989);NationalCityCorporation, 70FederalReserveBulletin743(1984).Thus,theBoardregularlyhasincludedthriftdepositsinmarketshare calculationsona50-percentweightedbasis.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),www.justice.gov/opa/pr/2010/August/ 10-at-938.html. 20 Thesebankingmarketsandthecompetitiveeffectsoftheproposalinthesemarketsaredescribedin Appendix1. 21 TheMarathonArea,Florida,bankingmarketisdefinedasthetownsofMarathonandMarathonShoresin MonroeCounty,Florida.

6 FederalReserveBulletin|July2020 Marathonbankingmarketexertsacompetitiveinfluenceinthemarket.Theinstitution offersawiderangeof consumerbankingproducts,operatesastreet-levelbranch,andhas broadmembershipcriteriathatincludealmostallof theresidentsinthemarket.22After includingthiscreditunion,FirstHorizonwouldcontrolapproximately28.4percentof marketdeposits,andtheHHIwouldincreaseby386pointsto2346. TheBoardalsohasexaminedotheraspectsof thestructureof theMarathonbanking marketthatcouldmitigatethecompetitiveeffectsof theproposalorindicatethatthe proposalwouldnothaveasignificantlyadverseeffectoncompetitionintheMarathon bankingmarket.Afterconsummationof theproposal,FirstHorizonBankwouldface competitionfromfiveotherdepositoryinstitutionsinthemarket,threeof whichwould controlmorethan30percent,20percent,and9percentof marketdeposits.Competitors wouldbeabletoexertcompetitivepressureonFirstHorizonBankintheMarathon bankingmarket.Inaddition,FirstHorizonBankandIBERIABANKfocusonproviding differenttypesof bankingservicesintheMarathonbankingmarket.23 TheMarathonbankingmarkethasatypicallystrongmarketattractiveness,suggestingthat futureentryandexpansionbycompetitorsaremitigatingfactors.Onedepositoryinstitutionrecentlyenteredthemarketbyacquisition.Since2016,aggregatedepositgrowthinthe Marathonbankingmarkethasbeenmorethandoubletheaverageof comparableareas. ConclusionRegardingCompetitiveEffects TheDOJconductedareviewof thepotentialcompetitiveeffectsof theproposalandhas advisedtheBoardthatconsummationof theproposalwouldnotlikelyhaveasignificantly adverseeffectoncompetitionintheMarathonbankingmarketorinanyotherrelevant bankingmarket.Inaddition,theappropriatebankingagencieshavebeenaffordedan opportunitytocommentandhavenotobjectedtotheproposal. Basedonallthefactsof record,theBoardconcludesthatconsummationof theproposal wouldnothaveasignificantlyadverseeffectoncompetitionorontheconcentrationof resourcesinthebankingmarketsinwhichFirstHorizonandIBERIABANKCorp competedirectlyorinanyotherrelevantbankingmarket.Accordingly,theBoarddeterminesthatcompetitiveconsiderationsareconsistentwithapproval. Financial,Managerial,andOtherSupervisoryConsiderations Inreviewingaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsidersthefinancialandmanagerialresourcesandthefutureprospectsof the institutionsinvolved,theeffectivenessof theinstitutionsincombattingmoneylaundering, andanypubliccommentsontheproposal.24Initsevaluationof financialfactors,the Boardreviewsinformationregardingthefinancialconditionof theorganizationsinvolved 22 TheBoardpreviouslyhasconsideredcompetitionfromcertainactivecreditunionswiththesefeaturesasa mitigatingfactor.See,e.g.,FirstCitizensBancshares,Inc.,FRBOrderNo.2019–17(December16,2019); MagnoliaBankingCorporation,FRBOrderNo.2019–15(October11,2019);HuntingtonBancsharesIncorporated,FRBOrderNo.2016–13(July29,2016);WachoviaCorporation,92FederalReserveBulletinC183(2006). 23 Thisdifferenceinfocusisreflectedinthelackofoverlapbetweentheinstitutionsinsmallbusinesslending, withFirstHorizonengaginginrelativelylittlelendingactivity.Smallbusinessloanoriginationsindicatethatthe depositHHIoverstatesthemerger’scompetitiveeffectswithinthebroaderclusterofbankingproductsin Marathon.Analysisofavailabledatasuggeststhetransactionisunlikelytohaveanadversecompetitiveimpact onsmallbusinesslendinginthemarket;onconsummation,FirstHorizonBankwouldcontrolapproximately 3.9percentofmarketsmallbusinesslending,andthesmallbusinessloanHHIwouldincreasebylessthan 1point,to1218.Furthermore,bankswithoutbranchlocationsinthemarketsupplyapproximately42percent ofthearea’ssmallbusinessloans. 24 12U.S.C.§1842(c)(2),(5),and(6);12U.S.C.§1828(c)(5)and(11).

LegalDevelopments:SecondQuarter,2020 7 onbothparent-onlyandconsolidatedbases,aswellasinformationregardingthefinancial conditionof thesubsidiarydepositoryinstitutionsandtheorganizations’significant nonbankingoperations.Inthisevaluation,theBoardconsidersavarietyof publicand supervisoryinformationregardingcapitaladequacy,assetquality,liquidity,andearnings performance,aswellastheimpactof theproposedfundingof thetransaction.TheBoard evaluatesthefinancialconditionof thecombinedorganization,includingitscapitalposition,assetquality,liquidity,earningsprospects,andtheimpactof theproposedfundingof thetransaction.TheBoardalsoconsiderstheabilityof theorganizationtoabsorbthecosts of theproposalandtocompleteeffectivelytheproposedintegrationof theoperationsof theinstitutions.Inassessingfinancialfactors,theBoardconsiderscapitaladequacytobe especiallyimportant.TheBoardconsidersthefutureprospectsof theorganizations involvedintheproposalinlightof theirfinancialandmanagerialresourcesandthe proposedbusinessplan. FirstHorizon,IBERIABANKCorp,andtheirsubsidiarydepositoryinstitutionsarewell capitalized,andthecombinedorganizationwouldremainsoonconsummationof the proposal.Theproposedtransactionisabankholdingcompanymergerthatisstructuredas ashareexchange,withasubsequentmergerof thesubsidiarybanks.25Thecapital,asset quality,earnings,andliquidityof FirstHorizonandIBERIABANKCorpareconsistent withapproval,andFirstHorizonandIBERIABANKCorpappeartohaveadequate resourcestoabsorbtherelatedcostsof theproposalandtocompletetheintegrationof the institutions’operations.Inaddition,futureprospectsareconsideredconsistentwith approval. TheBoardalsohasconsideredthemanagerialresourcesof theorganizationsinvolvedand of theproposedcombinedorganization.TheBoardhasreviewedtheexaminationrecords of FirstHorizon,IBERIABANKCorp,andtheirsubsidiarydepositoryinstitutions, includingassessmentsof theirmanagement,risk-managementsystems,andoperations.In addition,theBoardhasconsideredinformationprovidedbyFirstHorizon;theBoard’s supervisoryexperiencesandthoseof otherrelevantbanksupervisoryagencieswiththe organizations;andtheorganizations’recordsof compliancewithapplicablebanking, consumerprotection,andanti-money-launderinglaws. FirstHorizon,IBERIABANKCorp,andtheirsubsidiarydepositoryinstitutionsare consideredtobewellmanaged.Thecombinedorganization’sproposeddirectorsandsenior executiveofficershaveknowledgeof andexperienceinthebankingandfinancialservices sectors,andtheproposedrisk-managementprogramappearsconsistentwithapprovalof thisexpansionaryproposal. TheBoardalsohasconsideredFirstHorizon’splansforimplementingtheproposal.First Horizonhasconductedcomprehensiveduediligenceandisdevotingsignificantfinancial andotherresourcestoaddressallaspectsof thepost-acquisitionintegrationprocessfor thisproposal.TheBoardalsohasconsideredFirstHorizon’splanstowithstandthepotentialimpactof near-termeconomicconditions.FirstHorizonrepresentsthatthecombined organizationwouldselectstrongcapabilitiesandsystemsfromtheexistingriskmanagementgovernance,operations,andsystemsof FirstHorizonandIBERIABANK Corptocreateafirm-widerisk-managementprogram.BothFirstHorizonand IBERIABANKCorp’sexistingrisk-managementpolicies,procedures,andcontrolsare 25 Toeffectthetransaction,eachshareofIBERIABANKCorpcommonstockwouldbeconvertedintoarightto receivesharesofFirstHorizoncommonstock,basedonanexchangeratio.Inaddition,eachshareofcertain noncumulativeperpetualpreferredIBERIABANKCorpstockwouldbeconvertedintoarighttoreceive substantiallysimilarnewlyissuednoncumulativeperpetualpreferredFirstHorizonstock.FirstHorizonhasthe financialresourcestofundthetransaction.

8 FederalReserveBulletin|July2020 consideredacceptablefromasupervisoryperspective.Inaddition,FirstHorizonand IBERIABANKCorp’smanagementhavetheexperienceandresourcestoensurethatthe combinedorganizationwouldoperateinasafeandsoundmanner,andthecombinedorganizationwouldintegrateexistingmanagementandpersonnelfromFirstHorizonand IBERIABANKCorp.26 Basedonallof thefactsof record,includingFirstHorizon’ssupervisoryrecord,managerialandoperationalresources,andplansforoperatingthecombinedinstitutionafter consummation,theBoarddeterminesthatconsiderationsrelatingtothefinancialand managerialresourcesandthefutureprospectsof theorganizationsinvolvedinthe proposal,aswellastherecordof effectivenessof FirstHorizonandIBERIABANKCorp incombattingmoney-launderingactivities,areconsistentwithapproval. ConvenienceandNeedsConsiderations Inactingonaproposalundersection3of theBHCActandtheBankMergerAct,the Boardconsiderstheeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.27Initsevaluation,theBoardconsiderswhethertherelevantinstitutions arehelpingtomeetthecreditneedsof thecommunitiestheyserve,aswellasotherpotentialeffectsof theproposalontheconvenienceandneedsof thesecommunities,andplaces particularemphasisontherecordsof therelevantdepositoryinstitutionsundertheCRA. TheCRArequiresthefederalfinancialsupervisoryagenciestoencourageinsureddepositoryinstitutionstohelpmeetthecreditneedsof thelocalcommunitiesinwhichthey operate,consistentwiththeinstitutions’safeandsoundoperation,28andrequiresthe appropriatefederalfinancialsupervisoryagencytoassessadepositoryinstitution’srecord of helpingtomeetthecreditneedsof itsentirecommunity,includinglow-and moderate-income(“LMI”)neighborhoods,inevaluatingbankexpansionaryproposals.29 Inaddition,theBoardconsidersthebanks’overallcompliancerecordsandrecentfair lendingexaminations.Fairlendinglawsrequirealllendinginstitutionstoprovideapplicantswithequalaccesstocredit,regardlessof theirrace,ethnicity,orcertainothercharacteristics.TheBoardalsoconsidersassessmentsof otherrelevantsupervisors,thesupervisoryviewsof examiners,othersupervisoryinformation,informationprovidedbytheapplicant,andanypubliccommentsontheproposal.TheBoardalsomayconsiderthe acquiringinstitution’sbusinessmodelandmarketingandoutreachplans,theorganization’splansafterconsummation,andanyotherinformationtheBoarddeemsrelevant. Inassessingtheconvenienceandneedsfactorinthiscase,theBoardhasconsideredallthe factsof record,includingreportsof examinationof theCRAperformanceof First HorizonBankandIBERIABANK;thefairlendingandcompliancerecordsof both banks;thesupervisoryviewsof theOfficeof theComptrollerof theCurrency(“OCC”) andtheFederalReserveBankof Atlanta(“ReserveBankof Atlanta”);confidentialsupervisoryinformation;informationprovidedbyFirstHorizon;andthepubliccommentson theproposal. 26 Thecombinedorganizationwouldhaveaboardof17directors,nineofwhomwouldbeappointedfromFirst Horizon’sboard,andeightofwhomwouldbeappointedfromIBERIABANKCorp’sboard.Inaddition,the setofseniorexecutiveofficersatthecombinedorganizationwouldcomprisefourcurrentseniorexecutive officersfromFirstHorizonandfourcurrentseniorexecutiveofficersfromIBERIABANKCorp. 27 12U.S.C.§1842(c)(2);12U.S.C.§1828(c)(5). 28 12U.S.C.§2901(b). 29 12U.S.C.§2903.

LegalDevelopments:SecondQuarter,2020 9 Summaryof PublicComments TheBoardreceivedcommentsfrom30commenters,allof whomexpressedsupportforthe proposal.Commentersgenerallydescribedpositiveexperiencesrelatedtothesmallbusiness,communitydevelopment,charitablecontribution,andinvestmentprogramsof First Horizon.CommentersstatedthatFirstHorizonemployeeshadvolunteeredatsomeof theseorganizations,dedicatingtheirtimeandlendingtheirexpertise.Onecommenter statedthatFirstHorizonhelpedtheorganizationopenitsfirstlocationinMemphis, Tennessee,in2014,andhelpedtheorganizationopenadditionallocationsthatprovide financialliteracyandempowermentprogramstoclients. Recordsof PerformanceundertheCRA InevaluatingtheCRAperformanceof aninstitution,theBoardgenerallyconsidersthe institution’smostrecentCRAperformanceevaluation,aswellasotherinformationand supervisoryviewsprovidedbytheappropriatefederalfinancialsupervisors.30Inaddition, theBoardconsidersinformationprovidedbytheapplicantandbythepubliccommenters. TheCRArequiresthattheappropriatefederalfinancialsupervisorforadepositoryinstitutionprepareawrittenevaluationof theinstitution’srecordof helpingtomeetthecredit needsof itsentirecommunity,includingLMIneighborhoods.31Aninstitution’smost recentCRAperformanceevaluationisaparticularlyimportantconsiderationintheapplicationsprocessbecauseitrepresentsadetailed,on-siteevaluationbytheinstitution’s primaryfederalsupervisorof theinstitution’soverallrecordof lendinginitscommunities. Ingeneral,federalfinancialsupervisorsapplyalendingtest(“LendingTest”),investment test(“InvestmentTest”),andservicetest(“ServiceTest”)toevaluatetheperformanceof largeinsureddepositoryinstitutions,suchasFirstHorizonBankandIBERIABANK,in helpingtomeetthecreditneedsof thecommunitiestheyserve.TheLendingTestspecificallyevaluatesaninstitution’slendingtodeterminewhethertheinstitutionishelpingto meetthecreditneedsof individualsandgeographiesof allincomelevels.Aspartof the LendingTest,examinersreviewandanalyzeaninstitution’sdatareportedundertheHome MortgageDisclosureActof 1975(“HMDA”),32inadditiontosmallbusiness,smallfarm, andcommunitydevelopmentloandatacollectedandreportedundertheCRAregulations, toassessaninstitution’slendingactivitieswithrespecttoborrowersandgeographiesof differentincomelevels.Theinstitution’slendingperformanceisbasedonavarietyof factors,including(1)thenumberandamountsof homemortgage,smallbusiness,small farm,andconsumerloans(asapplicable)intheinstitution’sCRAassessmentareas (“AAs”);(2)thegeographicdistributionof theinstitution’slending,includingtheproportionanddispersionof theinstitution’slendinginitsAAsandthenumberandamountsof loansinlow-,moderate-,middle-,andupper-incomegeographies;(3)thedistributionof loansbasedonborrowercharacteristics,including,forhomemortgageloans,thenumber andamountsof loanstolow-,moderate-,middle-,andupper-incomeindividuals;33(4)the institution’scommunitydevelopmentlending,includingthenumberandamountsof communitydevelopmentloansandtheircomplexityandinnovativeness;and(5)theinstitution’suseof innovativeorflexiblelendingpracticestoaddressthecreditneedsof LMI 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).

10 FederalReserveBulletin|July2020 individualsandgeographies.34TheInvestmentTestevaluatesthenumberandamountsof qualifiedinvestmentsthatbenefittheinstitution’sAAs,andtheServiceTestevaluatesthe availabilityandeffectivenessof theinstitution’ssystemsfordeliveringretailbanking servicesandtheextentandinnovativenessof theinstitution’scommunitydevelopment services.35 CRAPerformanceof FirstHorizonBank FirstHorizonBankwasassignedanoverall“Satisfactory”ratingatitsmostrecentCRA performanceevaluationbytheOCC,36asof July10,2017(“FirstHorizonBankEvaluation”).37FirstHorizonBankwasrequiredtodevelopaCRAPlanasoneof theconditions foracquiringtheTrustAtlanticBankonOctober2,2015.FirstHorizonBankreceiveda “HighSatisfactory”ratingforeachof theLending,Investment,andServiceTests.The bank’sperformanceunderitsCRAPlanwas“Satisfactory.” WithrespecttotheLendingTest,examinersfoundthatFirstHorizonBank’slendinglevels reflectedgoodresponsivenesstocommunitycreditneeds.Accordingtoexaminers,the bank’sgeographicdistributionof loansreflectedadequatepenetrationthroughoutthe bank’sAAs.ExaminersalsofoundthatFirstHorizonBank’slendingtoborrowers reflectedagooddistributionamongbusinessesof differentsizes,aswellasagooddistributionamongretailcustomersof differentincomes.ExaminersnotedthatFirstHorizon Bankoriginatedarelativelyhighlevelof communitydevelopmentloans.Examinersalso notedthatFirstHorizonBankmetorexceededthevastmajorityof itslendinggoalsinthe CRAPlan. WithrespecttotheInvestmentTest,examinersfoundthatFirstHorizonBankhada significantlevelof qualifiedcommunitydevelopmentinvestmentsandgrants.Examiners notedthatthebankexhibitedgoodresponsivenesstocommunitycreditandeconomic developmentneeds.ExaminersalsonotedthatFirstHorizonBankmetorexceededthe vastmajorityof itsinvestmentgoalsintheCRAPlan.WithrespecttotheServiceTest, examinersfoundthatFirstHorizonBank’sdeliverysystemswereaccessibletoessentially allof thebank’sAAs.ExaminersfurthernotedthatFirstHorizonBank’sopening,closing, andacquisitionof brancheshadgenerallynotadverselyaffectedtheaccessibilityof its deliverysystems,particularlyforLMIgeographiesorindividuals;similarly,theservicesand businesshoursofferedbyFirstHorizonBankdidnotvaryinawaythatinconveniencedits AAs,particularlyLMIgeographiesorindividuals.Examinersfoundthatthebank providedanadequatelevelof communitydevelopmentservicesinitsAAs.Examinersalso foundthatFirstHorizonBankdemonstratedadequateadherencetoitsservice-related goalsintheCRAPlan. 34 See12CFR228.22(b). 35 See12CFRpart228,subpartB. 36 OnOctober26,2019,FirstHorizonBankconvertedfromanationalbankintoaTennessee-charteredstate memberbank. 37 TheFirstHorizonBankEvaluationwasconductedusingLargeInstitutionCRAExaminationProcedures. OCCexaminersreviewedhome-mortgageandsmallbusinesslendingfromJanuary1,2014,through December31,2016,exceptforcommunitydevelopmentloans,whichwereevaluatedfromApril8,2014, throughDecember31,2016.ExaminersreviewedlendinginFloridaandTexasfromMarch16,2016,through December31,2016.TheevaluationperiodfortheInvestmentTestandtheServiceTestwasfromApril8,2014, throughDecember31,2016.ExaminersconsideredcommunitydevelopmentinvestmentsmadebycertainaffiliatesofFirstHorizonBank.TheFirstHorizonBankEvaluationcoveredFirstHorizonBank’s17AAs,located insixstatesandtwomultistatemetropolitanstatisticalareas(“MSAs”):Florida;NorthCarolina;SouthCarolina;Tennessee;Texas;Virginia;theChattanooga,Tennessee–Georgia–Mississippi,MSA;andtheMemphis, Tennessee–Mississippi–Arkansas,MSA.TheFirstHorizonBankEvaluationincludedafull-scopereviewof 11oftheseAAs,includingbothmultistateMSAs.Alimited-scopereviewwasconductedintheremaining sixAAs.

LegalDevelopments:SecondQuarter,2020 11 FirstHorizonBank’sEffortssincethe2017CRAEvaluation FirstHorizonrepresentsthatFirstHorizonBankcontinuestobuilduponitsCRAperformance.FirstHorizonnotesthatFirstHorizonBankhasprovidedfree,one-on-one financial-literacycoachingandworkshopsatitsbranchesinTennessee,Mississippi,North Carolina,SouthCarolina,andFlorida.Inaddition,FirstHorizonreportsthat,in2018, FirstHorizonBankannouncedthatithadadoptedafive-yearcommunitybenefitsagreement.FirstHorizonrepresentsthat,sinceadoptingthecommunitybenefitsagreement, FirstHorizonBankhasmetorexceededtheagreement’sgoalsrelatedtocommunity lendingandcommunityinvestment. CRAPerformanceof IBERIABANK IBERIABANKwasassignedanoverall“Satisfactory”ratingatitsmostrecentCRA performanceevaluationbytheReserveBankof Atlanta,asof May10,2017 (“IBERIABANKEvaluation”).38IBERIABANKreceiveda“HighSatisfactory”ratingfor eachof theLending,Investment,andServiceTests. WithrespecttotheLendingTest,examinersfoundthatIBERIABANK’soveralllending performancewasgood.Examinersnotedthattheoverallgeographicdistributionof loans throughoutthebank’sAAsandborrowerdistributionamongborrowersof different incomelevelswereadequate,whiletheoveralldistributionamongbusinessesof different sizeswasgood.Additionally,examinersfoundthatIBERIABANKoriginatedarelatively highlevelof communitydevelopmentloans. WithrespecttotheInvestmentTest,examinersfoundthatIBERIABANKmadeasignificantlevelof qualifiedcommunitydevelopmentinvestmentsinresponsetocommunity developmentneeds. WithrespecttotheServiceTest,examinersfoundthatIBERIABANK’sdeliverysystems werereasonablyaccessibletothebank’sgeographiesandindividualsof differentincome levels.Examinersfurthernotedthattheservicesandbusinesshoursofferedby IBERIABANKdidnotvaryinawaythatinconvenienceditsAAs,includingLMIgeographiesorindividuals.ExaminersalsonotedthatIBERIABANKwasaleaderinproviding communitydevelopmentservices. IBERIABANK’sEffortssincethe2017CRAEvaluation FirstHorizonrepresentsthatIBERIABANKcontinuestobuilduponitsCRAperformance.FirstHorizonnotesthat,in2017,IBERIABANKannouncedafive-yearcommunitybenefitsplanaimedatimprovinglending,investments,andservicesinLMIcommunities.FirstHorizonrepresentsthatIBERIABANKhasshownresponsivenesstocommunity developmentneeds,providedcommunitydevelopmentlending,anddemonstrateda commitmenttocommunityinvestment. 38 TheIBERIABANKEvaluationwasconductedusingLargeInstitutionCRAExaminationProcedures.Reserve BankofAtlantaexaminersreviewedhome-mortgageandsmallbusinesslendingfromJanuary1,2014, throughDecember31,2016,exceptforcommunitydevelopmentloans,whichwereevaluatedfromApril1, 2013,throughDecember31,2016.ExaminersconsideredHMDA-reportableloansmadebyanaffiliateof IBERIABANK.TheevaluationperiodfortheInvestmentTestandtheServiceTestwasfromApril1,2013, throughDecember31,2016.TheIBERIABANKEvaluationcoveredIBERIABANK’s35AAslocatedin sevenstates:Alabama,Arkansas,Florida,Georgia,Louisiana,Tennessee,andTexas.TheIBERIABANK Evaluationincludedafull-scopereviewof10oftheseAAs.Alimited-scopereviewwasconductedinthe remaining25AAs.

12 FederalReserveBulletin|July2020 AdditionalConvenienceandNeedsConsiderations TheBoardalsoconsidersotherpotentialeffectsof theproposalontheconvenienceand needsof thecommunitiestobeserved.FirstHorizonrepresentsthat,followingconsummationof theproposal,existingcustomersof IBERIABANKwouldbenefitfromFirst HorizonBank’sexperienceinprovidingfixedincomecapitalmarketsservicesandspecializedknowledgeof thehealthcareindustry.FirstHorizonalsorepresentsthatcustomers of FirstHorizonBankwouldbenefitfromIBERIABANK’scommercialfinanceexpertise andknowledgeof thesportsandentertainmentindustry.Inaddition,FirstHorizonasserts thatcustomersof bothbankswouldbenefitfromthecombined12-statebranchandATM network. FirstHorizonBankandIBERIABANKseparatelyhaveadopted,andareoperatingunder, communitydevelopmentplans.39Theplansincludegoalsrelatedtomortgageandsmall businesslending,communitydevelopmentlendingandinvestments,andincreasedaccessto financialservicesinLMIcommunities.FirstHorizonrepresentsthatbothFirstHorizon BankandIBERIABANKaremeetingorexceedingthegoalssetintheirrespectivedevelopmentplans. ConclusiononConvenienceandNeedsConsiderations TheBoardhasconsideredallthefactsof record,includingtherecordsof therelevant depositoryinstitutionsundertheCRA,theinstitutions’recordsof compliancewithfair lendingandotherconsumerprotectionlaws,confidentialsupervisoryinformation,informationprovidedbyFirstHorizon,andotherpotentialeffectsof theproposalontheconvenienceandneedsof thecommunitiestobeserved.Basedonthatreview,theBoarddeterminesthattheconvenienceandneedsfactorisconsistentwithapproval. FinancialStability Section3of theBHCActrequirestheBoardtoconsider“theextenttowhichaproposed acquisition,merger,orconsolidationwouldresultingreaterormoreconcentratedrisksto thestabilityof theUnitedStatesbankingorfinancialsystem.”40Inaddition,theBank MergerActrequirestheBoardtoconsider,ineverycase,“risktothestabilityof theUnited Statesbankingorfinancialsystem.”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 39 TheBoardconsistentlyhasfoundthatneithertheCRAnorthefederalbankingagencies’CRAregulations requiredepositoryinstitutionstomakepledgesorenterintocommitmentsoragreementswithanyorganization.See,e.g.,CITGroup,Inc.,FRBOrderNo.2015–20at24n.54(July19,2015);CitigroupInc.,88Federal ReserveBulletin485(2002);FifthThirdBancorp,80FederalReserveBulletin838,841(1994).Initsevaluation, theBoardreviewstheexistingCRAperformancerecordofanapplicantandtheprogramsthattheapplicant hasinplacetohelpservethecreditneedsofitsCRAAAs. 40 12U.S.C.§1842(c)(7). 41 12U.S.C.§1828(c)(5).

LegalDevelopments:SecondQuarter,2020 13 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, aregenerallynotlikelytoposesystemicrisks.Accordingly,theBoardpresumesthata proposaldoesnotraisematerialfinancialstabilityconcernsif theassetsinvolvedfallbelow eitherof thesesizethresholds,absentevidencethatthetransactionwouldresultinasignificantincreaseininterconnectedness,complexity,cross-borderactivities,orotherrisk factors.44 Inthiscase,theBoardhasconsideredinformationrelevanttoriskstothestabilityof the UnitedStatesbankingorfinancialsystem.Theproposalwouldresultinafirmwithless than$100billionintotalassets.Theproformaorganizationwouldnothavecross-border activitiesandwouldnotexhibitanorganizationalstructure,complexinterrelationships,or uniquecharacteristicsthatwouldcomplicateresolutionof thefirmintheeventof financial distress.Inaddition,theorganizationwouldnotbeacriticalservicesproviderorsointerconnectedwithotherfirmsorthemarketsthatitwouldposeasignificantrisktothefinancialsystemintheeventof financialdistress. Inlightof allthefactsandcircumstances,thistransactionwouldnotappeartoresultin meaningfullygreaterormoreconcentratedriskstothestabilityof theUnitedStates bankingorfinancialsystem.Basedontheseandallotherfactsof record,theBoarddeterminesthatconsiderationsrelatingtofinancialstabilityareconsistentwithapproval. Establishmentof Branches FirstHorizonBankhasappliedundersection9of theFRAtoestablishbranchesatthe currentlocationsof IBERIABANK.45TheBoardhasassessedthefactorsitisrequiredto considerwhenreviewinganapplicationunderthatsection,includingFirstHorizonBank’s financialcondition,management,capital,actionsinmeetingtheconvenienceandneedsof thecommunitiestobeserved,CRAperformance,andinvestmentinbankpremises.46For 42 ManyofthemetricsconsideredbytheBoardmeasureaninstitution’sactivitiesrelativetotheUnitedStates financialsystem. 43 Forfurtherdiscussionofthefinancialstabilitystandard,seeCapitalOneFinancialCorporation,FRBOrder 2012–02(February14,2012). 44 SeePeople’sUnitedFinancial,Inc.,FRBOrderNo.2017–08at25–26(March16,2017).Notwithstandingthis presumption,theBoardhastheauthoritytoreviewthefinancialstabilityimplicationsofanyproposal.For example,anacquisitioninvolvingaglobalsystemicallyimportantbankcouldwarrantafinancialstability reviewbytheBoard,regardlessofthesizeoftheacquisition. 45 See12U.S.C.§321.Undersection9oftheFRA,statememberbanksmayestablishandoperatebrancheson thesametermsandconditionsasareapplicabletotheestablishmentofbranchesbynationalbanks.Thus,a statememberbankresultingfromaninterstatemergertransactionmaymaintainandoperateabranchina stateotherthanthehomestateofthebankinaccordancewithsection44oftheFDIAct.See12U.S.C.§36(d). Inaddition,astatememberbankmayretainanybranchfollowingamergerthatmightbeestablishedasanew branchoftheresultingbankunderstatelaw,aswellasanybranchthat,onFebruary25,1927,wasinoperation asabranchofanybank.See12U.S.C.§§36(b)(2)and(c).Uponconsummation,allofFirstHorizonBank’s branchesinTennesseewouldbepermissibleunderapplicablestatelaw.SeeTenn.CodeAnn.§452-614. 46 12CFR208.6.Uponconsummationoftheproposedtransaction,FirstHorizonBank’sinvestmentsinbank premiseswouldremainwithinthelegalrequirementsofsection208.21(a)oftheBoard’sRegulationH, 12CFR208.21(a).

14 FederalReserveBulletin|July2020 thereasonsdiscussedinthisorder,theBoarddeterminesthatthosefactorsareconsistent withapproval. Conclusion Basedontheforegoingandallthefactsof record,theBoarddeterminesthattheproposal shouldbe,andherebyis,approved.Inreachingitsconclusion,theBoardhasconsideredall thefactsof recordinlightof thefactorsthatitisrequiredtoconsiderundertheBHCAct, theBankMergerAct,theFRA,andotherapplicablestatutes.TheBoard’sapprovalis specificallyconditionedoncompliancebyFirstHorizonandFirstHorizonBankwithall theconditionsimposedinthisorder,includingreceiptof allrequiredregulatoryapprovals, andonanycommitmentsmadetotheBoardinconnectionwiththeapplication.For purposesof thisaction,theconditionsandcommitmentsaredeemedtobeconditions imposedinwritingbytheBoardinconnectionwithitsfindingsanddecisionhereinand,as such,maybeenforcedinproceedingsunderapplicablelaw. Theproposalmaynotbeconsummatedbeforethefifteenthcalendardayaftertheeffective dateof thisorderorlaterthanthreemonthsthereafter,unlesssuchperiodisextendedfor goodcausebytheBoardortheFederalReserveBankof St.Louis,actingunderdelegated authority. Byorderof theBoardof Governors,effectiveJune15,2020. Votingforthisaction:ChairPowell,ViceChairClarida,ViceChairforSupervision Quarles,andGovernorBowman.GovernorBrainardabstained. MicheleTaylorFennell AssistantSecretaryof theBoard

LegalDevelopments:SecondQuarter,2020 15 Appendix1 FirstHorizon/IBERIABANKCorpBankingMarketsConsistentwithBoardPrecedentandDOJBank MergerGuidelines Remaining Amountof MarketDeposit Bank Rank ResultingHHI ChangeinHHI Numberof Deposits Shares(%) Competitors FortMyersArea,Florida–LeeCounty,Florida(lessthetownsonGasparillaIsland);andthetownofImmokaleeinCollierCounty,Florida. FirstHorizonPre-Consummation 10 $400.6M 2.5 IBERIABANKCorp 8 $516.8M 3.2 FirstHorizonPost-Consummation 6 $917.4M 5.8 1030 16 27 KeyWestArea,Florida–ThecitiesofKeyWest,Sugarloaf,SummerlandKey,andBigPineKeyinMonroeCounty,Florida. FirstHorizonPre-Consummation 7 $132.3M 8.6 IBERIABANKCorp 4 $168.3M 10.9 FirstHorizonPost-Consummation 2 $300.5M 19.5 2216 187 5 Miami-FortLauderdaleArea,Florida–BrowardandMiami-Dadecounties,Florida;andtheCapeSableandUpperKeystownshipsinMonroe County,Florida,whichincludesEvergladesNationalPark,thecitiesofKeyLargo,Islamorada,PlantationKey,andTavernier. FirstHorizonPre-Consummation 24 $1.0B 0.6 IBERIABANKCorp 10 $3.9B 2.1 FirstHorizonPost-Consummation 9 $5.0B 2.7 838 2 70 NaplesArea,Florida–CollierCounty,Florida(minusthetownofImmokalee). FirstHorizonPre-Consummation 17 $231.6M 1.4 IBERIABANKCorp 6 $1.1B 6.4 FirstHorizonPost-Consummation 5 $1.3B 7.8 846 18 30 SarasotaArea,Florida–ManateeCounty,Florida;SarasotaCounty,Florida(lesstheportionthatisbotheastoftheMyakkaRiverandsouthof Interstate75,whichincludesthetownofNorthPort);thepeninsularportionofCharlotteCounty,Florida,westoftheMyakkaRiver,thatincludes thetownsofEnglewood,EnglewoodBeach,NewPointComfort,GroveCity,CapeHaze,Rotonda,RotondaWest,andPlacida;andGasparillaIsland, includingthetownofBocaGrande,inLeeCounty,Florida. FirstHorizonPre-Consummation 22 $170.1M 0.8 IBERIABANKCorp 12 $504.5M 2.3 FirstHorizonPost-Consummation 9 $674.6M 3.1 1021 3 34 Greensboro-HighPoint,NorthCarolina–Davidson,Guilford,Randolph,andRockinghamcounties,allinNorthCarolina. FirstHorizonPre-Consummation 8 $520.1M 3.5 IBERIABANKCorp 21 $7.8M 0.1 FirstHorizonPost-Consummation 8 $527.8M 3.5 1450 0 21 Greenville,SouthCarolina–Anderson,Greenville,Laurens,andPickenscounties,allinSouthCarolina. FirstHorizonPre-Consummation 30 $21.9M 0.1 IBERIABANKCorp 29 $25.8M 0.2 FirstHorizonPost-Consummation 26 $47.7M 0.3 1016 0 33 Memphis,Tennessee–Fayette,Shelby,andTiptoncounties,allinTennessee;thecityofGrandJunctioninHardemanCounty,Tennessee; CrittendenCounty,Arkansas;Benton,DeSoto,Marshall,Tate,andTunicacounties,allinMississippi;thenorthernpartofCoahomaCounty, Mississippi,thatincludesthecitiesofFriarsPoint,Coahoma,Lula,andJonestown;PanolaCounty,Mississippi,northofStateRoute315and extendingeasttoSardisLake,includingthecityofSardis;andQuitmanCounty,Mississippi,northofStateRoute315,includingthecitiesofBirdie andSledge. FirstHorizonPre-Consummation 1 $10.6B 33.2 IBERIABANKCorp 18 $338.9M 1 FirstHorizonPost-Consummation 1 $11.0B 34.3 1488 71 53 Houston,Texas–Austin,Brazoria,Chambers,FortBend,Galveston,Harris,Liberty,Montgomery,SanJacinto,andWallercounties,allinTexas. FirstHorizonPre-Consummation 63 $113.9M 0.1 IBERIABANKCorp 20 $1.2B 0.5 FirstHorizonPost-Consummation 18 $1.4B 0.6 2286 0 92 DataareasofJune30,2019.Allrankings,marketdepositshares,andHHIsarebasedonthriftdepositsweightedat50percent.Theremaining numberofcompetitorsnotedineachmarketincludesthriftinstitutions.

16 FederalReserveBulletin|July2020 Appendix2 AlabamaBranchestoBeEstablished 1. 22530U.S.Highway98,Fairhope,Alabama 2. 2340WoodcrestPlace,Birmingham,Alabama 3. 2824CahabaRoad,Birmingham,Alabama 4. 2025ThirdAvenueN,Suite100,Birmingham,Alabama 5. 1301DecaturHighway,Fultondale,Alabama 6. 2765JohnHawkinsParkway,Hoover,Alabama 7. 100EuclidAvenue,MountainBrook,Alabama 8. 613MontgomeryHighway,VestaviaHills,Alabama 9. 4700WhitesburgDriveSW,Suite150,Huntsville,Alabama 10. 400MeridianStreetN,Suite108,Huntsville,Alabama 11. 53HughesRoad,Madison,Alabama 12. 64NorthRoyalStreet,Mobile,Alabama 13. 15WestI-65ServiceRoadNorth,Mobile,Alabama 14. 2695PelhamParkway,Pelham,Alabama ArkansasBranchestoBeEstablished 15. 706SouthWaltonBoulevard,Bentonville,Arkansas 16. 100South28thStreet,Rogers,Arkansas 17. 2702SouthCulberhouseStreet,SuiteU,Jonesboro,Arkansas 18. 420SouthMainStreet,Jonesboro,Arkansas 19. 1700EastHighlandDrive,Jonesboro,Arkansas 20. 200OliviaDrive,Newport,Arkansas 21. 121SouthwestThirdStreet,WalnutRidge,Arkansas 22. 5800RStreet,LittleRock,Arkansas 23. 10901NorthRodneyParhamRoad,LittleRock,Arkansas 24. 12719CantrellRoad,LittleRock,Arkansas 25. 111CenterStreet,Suite102,LittleRock,Arkansas 26. 4600JFKBoulevard,NorthLittleRock,Arkansas 27. 205RiceStreet,Pocahontas,Arkansas 28. 5111Highway5North,Bryant,Arkansas 29. 3430WedingtonDrive,Fayetteville,Arkansas 30. 2422EastRobinson,Springdale,Arkansas FloridaBranchestoBeEstablished 31. 1201SouthAndrewsAvenue,FortLauderdale,Florida 32. 450E.LasOlasBoulevard,Suite1220,FortLauderdale,Florida 33. 150SouthPineIslandRoad,Suite100,Plantation,Florida 34. 605BaldEagleDrive,MarcoIsland,Florida 35. 1905PineRidgeRoad,Naples,Florida 36. 2180ImmokaleeRoad,Naples,Florida 37. 775AirportRoadNorth,Naples,Florida 38. 428NinthStreetSouth,Naples,Florida 39. 3838TamiamiTrail,Naples,Florida 40. 5247GoldenGateParkway,Naples,Florida 41. 9132StradaPlace,Suite11105,Naples,Florida 42. 135WestBayStreet,Jacksonville,Florida 43. 201NorthFranklinStreet,Tampa,Florida 44. 4105NHimesAvenue,Tampa,Florida 45. 612S.DaleMabryHighway,Tampa,Florida 46. 812DelPradoBlvd,CapeCoral,Florida 47. 4670SummerlinRoad,FortMyers,Florida

LegalDevelopments:SecondQuarter,2020 17 48. 6651OrionDrive,FortMyers,Florida 49. 9101CollegePointeCourt,FortMyers,Florida 50. 2247FirstStreet,FortMyers,Florida 51. 7580WinklerRoad,FortMyers,Florida 52. 584414thStreet,West(U.S.41),Bradenton,Florida 53. 5310E.StateRoad64,Bradenton,Florida 54. 2815UniversityParkway,Sarasota,Florida 55. 18841Northeast29thAvenue,Aventura,Florida 56. 2109PonceDeLeonBoulevard,CoralGables,Florida 57. 1515SunsetDrive,CoralGables,Florida 58. 821West49thStreet,Hialeah,Florida 59. 260CrandonBoulevard,KeyBiscayne,Florida 60. 1111BrickellAvenue,Miami,Florida 61. 44WestFlaglerStreet,Miami,Florida 62. 3275NW87thAvenue,Miami,Florida 63. 9100SouthDadelandBoulevard,Miami,Florida 64. 102NW37thAvenue,Miami,Florida 65. 200S.BiscayneBoulevard,Suite2850,Miami,Florida 66. 1951NW7thAvenue,Miami,Florida 67. 1501AltonRoad,MiamiBeach,Florida 68. 400ArthurGodfreyRoad,Suite102,MiamiBeach,Florida 69. 5901MiamiLakesDriveEast,MiamiLakes,Florida 70. 35OceanReef Drive,Suite100,KeyLargo,Florida 71. 1075DuvalStreet,KeyWest,Florida 72. 1000KennedyDrive,KeyWest,Florida 73. 5601OverseasHighway,Marathon,Florida 74. 1420WestOrangeBlossomTrail,Apopka,Florida 75. 100EastPackwoodAvenue,Maitland,Florida 76. 600WilkinsonStreet,Suite100,Orlando,Florida 77. 60NorthCourtAvenue,FirstFloor,Orlando,Florida 78. 918S.OrangeAvenue,Orlando,Florida 79. 1901EdgewaterDrive,Orlando,Florida 80. 315E.RobinsonStreet,Orlando,Florida 81. 840DenningDrive,WinterPark,Florida 82. 1801NorthMilitaryTrail,BocaRaton,Florida 83. 900SE6thAvenue,DelrayBeach,Florida 84. 1315WIndiantownRoad,Jupiter,Florida 85. 2000PGABoulevard,NorthPalmBeach,Florida 86. 180RoyalPalmWay,PalmBeach,Florida 87. 605NOliveAvenue,WestPalmBeach,Florida 88. 1645PalmBeachLakesBoulevard,WestPalmBeach,Florida 89. 3100TampaRoad,Oldsmar,Florida 90. 777PasadenaAvenueSouth,SaintPetersburg,Florida 91. 5004thStreetNorth,SaintPetersburg,Florida 92. 250A1ANorth,PonteVedraBeach,Florida 93. 332317thStreet,Sarasota,Florida 94. 8181S.TamiamiTrail,Sarasota,Florida 95. 783SouthOrangeAvenue,Sarasota,Florida 96. 520WestHighway436,AltamonteSprings,Florida 97. 7090CountyRoad46a,LakeMary,Florida 98. 505WekivaSpringsRoad,Suite700,Longwood,Florida 99. 502NorthU.S.Highway17-92,Longwood,Florida

18 FederalReserveBulletin|July2020 GeorgiaBranchestoBeEstablished 100. 100SpringfieldDrive,Woodstock,Georgia 101. 3625CumberlandBoulevard,BuildingTwo,Atlanta,Georgia 102. 709CantonRoad,Marietta,Georgia 103. 2987ClairmontRoad,NE,Suite150,Atlanta,Georgia 104. 2221JohnsonFerryRoad,Atlanta,Georgia 105. 2555PeachtreeParkway,Cumming,Georgia 106. 2970PeachtreeRoad,NW,Suite100,Atlanta,Georgia 107. 1010MansellRoad,Suite160,Roswell,Georgia 108. 200ScientificDrive,Norcross,Georgia LouisianaBranchestoBeEstablished 109. 576NorthParkersonAvenue,Crowley,Louisiana 110. 916FifthAvenue,Kinder,Louisiana 111. 320TexasStreet,Shreveport,Louisiana 112. 6985FernLoop,Shreveport,Louisiana 113. 4440NelsonRoad,LakeCharles,Louisiana 114. 284SamHoustonJonesParkway,LakeCharles,Louisiana 115. 3001StateHighway14,LakeCharles,Louisiana 116. 2901RyanStreet,LakeCharles,Louisiana 117. 4100MaplewoodDrive,Sulphur,Louisiana 118. 4494Highway27South,Sulphur,Louisiana 119. 10323Gulf Highway,LakeCharles,Louisiana 120. 3700EssenLane,BatonRouge,Louisiana 121. 14150CourseyBoulevard,BatonRouge,Louisiana 122. 7325HighlandRoad,BatonRouge,Louisiana 123. 3555PerkinsRoad,BatonRouge,Louisiana 124. 12920AirlineHighway,BatonRouge,Louisiana 125. 171ThirdStreet,BatonRouge,Louisiana 126. 403NorthLewisStreet,NewIberia,Louisiana 127. 1120JeffersonTerraceBoulevard,NewIberia,Louisiana 128. 5120CitrusBoulevard,Harahan,Louisiana 129. 1720ManhattanBoulevard,Harvey,Louisiana 130. 285WestEsplanadeAvenue,Kenner,Louisiana 131. 1820BaratariaBoulevard,Marrero,Louisiana 132. 3801VeteransMemorialBoulevard,Metairie,Louisiana 133. 468MetairieRoad,Metairie,Louisiana 134. 2900RidgelakeDrive,Metairie,Louisiana 135. 3351NorthCausewayBoulevard,Metairie,Louisiana 136. 9300JeffersonHighway,RiverRidge,Louisiana 137. 1100E.MainStreet,Broussard,Louisiana 138. 805VeteransDrive,Carencro,Louisiana 139. 200WestCongressStreet,Lafayette,Louisiana 140. 332SettlersTrace,Lafayette,Louisiana 141. 2602JohnstonStreet,Lafayette,Louisiana 142. 463HeymannBoulevard,Lafayette,Louisiana 143. 4010WestCongressStreet,Lafayette,Louisiana 144. 200WestgateRoad,Lafayette,Louisiana 145. 2601MossStreet,Lafayette,Louisiana 146. 2000KalisteSaloomRoad,Lafayette,Louisiana 147. 2200WestPinhookRoad,Lafayette,Louisiana 148. 5121JohnstonStreet,Lafayette,Louisiana 149. 1327NorthTrentonStreet,Ruston,Louisiana 150. 400NorthViennaStreet,Ruston,Louisiana

LegalDevelopments:SecondQuarter,2020 19 151. 601PoydrasStreet,Suite100,NewOrleans,Louisiana 152. 4909PrytaniaStreet,NewOrleans,Louisiana 153. 3412SaintCharlesAvenue,NewOrleans,Louisiana 154. 6235S.ClaiborneAvenue,NewOrleans,Louisiana 155. 3120GentillyBoulevard,NewOrleans,Louisiana 156. 2401CanalStreet,NewOrleans,Louisiana 157. 1409OrethaCastleHaleyBoulevard,SuiteA,NewOrleans,Louisiana 158. 6309S.ClaiborneAvenue,NewOrleans,Louisiana 159. 301HarrisonAvenue,NewOrleans,Louisiana 160. 4011CanalStreet,NewOrleans,Louisiana 161. 8019DeSiardStreet,Monroe,Louisiana 162. 1300OliverRoad,Monroe,Louisiana 163. 610McMillanRoad,WestMonroe,Louisiana 164. 428EastLandryStreet,Opelousas,Louisiana 165. 1410ReesStreet,BreauxBridge,Louisiana 166. 1001SeventhStreet,MorganCity,Louisiana 167. 1003SoutheastBoulevard,MorganCity,Louisiana 168. 70470Highway21,Covington,Louisiana 169. 850NorthCausewayBoulevard,Mandeville,Louisiana 170. 2060GauseBoulevardEast,Slidell,Louisiana 171. 706BarrowStreet,Houma,Louisiana 172. 200EastVeteransMemorialDrive,Kaplan,Louisiana NorthCarolinaBranchtoBeEstablished 173. 1429WestoverTerrace,Suite102,Greensboro,NorthCarolina NewYorkBranchtoBeEstablished 174. 280ParkAvenue,29thFloorEast,NewYork,NewYork SouthCarolinaBranchtoBeEstablished 175. 110EastCourtStreet,Suite101,Greenville,SouthCarolina TennesseeBranchestoBeEstablished 176. 1010NGermantownParkway,Cordova,Tennessee 177. 7465PoplarAvenue,Germantown,Tennessee 178. 7860Wolf RiverBoulevard,Germantown,Tennessee 179. 4894PoplarAvenue,Memphis,Tennessee 180. 370SGroveParkRoad,Memphis,Tennessee 181. 1296UnionAvenue,Memphis,Tennessee 182. 2504PoplarAvenue,Memphis,Tennessee TexasBranchestoBeEstablished 183. 2500DallasParkway,Suite100,Plano,Texas 184. 8201PrestonRoad,Suite200,Dallas,Texas 185. 5079SweetwaterBlvd,SugarLand,Texas 186. 1601CenterStreet,DeerPark,Texas 187. 3810RichmondAvenue,Houston,Texas 188. 1000MemorialCityWay,Houston,Texas 189. 2555WestHolcombBoulevard,Houston,Texas 190. 8910WestSamHoustonParkwayNorth,Houston,Texas 191. 11GreenwayPlaza,Houston,Texas

September 2020 Vol. 106, No. 5 Boardof Governorsof theFederalReserveSystem www.federalreserve.gov Changes in U.S. Family Finances from 2016 to 2019: Evidence from the Survey of Consumer Finances Changes in U.S. Family Finances from 2016 to 2019: Evidence from the Survey of Consumer Finances NeilBhutta,JesseBricker,AndrewC.Chang,LisaJ.Dettling,SarenaGoodman,JoanneW. Hsu,KevinB.Moore,SarahReber,AliceHenriquesVolz,andRichardA.Windle,of the Board’sDivisionof ResearchandStatistics,preparedthisarticlewithassistancefromKathy Bi,JacquelineBlair,JuliaHewitt,andDaltonRuh. TheFederalReserveBoard’striennialSurveyof ConsumerFinances(SCF)collectsinformationaboutfamilyincome,networth,balancesheetcomponents,credituse,andother financialoutcomes.1The2019SCFrevealsimprovementsineconomicwell-beingamong largepartsof theincomeandwealthdistributionssincetheprevioustimethesurveywas conductedin2016,andmanygroupswithhistoricallylowerincomeandwealthsawrelativelylargegains.2 Duringthethreeyearsbetweenthebeginningof the2016and2019surveys,realgross domesticproductgrewatanannualrateof 2.5percent,andthecivilianunemploymentrate fellfrom5.0percentto3.8percent.3Thesechangesinaggregateeconomicperformance wereunevenlyreflectedintheincomeof familieswithdifferentcharacteristics.Several observationsfromtheSCFaboutrealfamilyincome,whichismeasuredfortheyearbefore thesurvey,standout: ‰ Between2016and2019,medianfamilyincomerose5percent,andmeanfamilyincome decreased3percent(figure1).Thesechangessuggestthattheincomedistribution narrowedslightlyovertheperiod,particularlyasthedecreaseinmeanincomewas mainlydrivenbyfamiliesinthetop1percentof theincomedistribution(seebox1,“The DataUsedinThisArticle”).Thesepatternsstandincontrasttothe2010–16period, duringwhichmeanincomegrowthvastlyoutpacedmedianincomegrowthandthe incomedistributionwidenedconsiderably. ‰ Between2016and2019,familiesthatwerehighwealth,hadacollegeeducation,oridentifiedasWhitenon-Hispanicexperiencedproportionallysmallerincomegrowththan othergroupsof familiesbutcontinuedtohavethehighestincome: 1 ForageneraldescriptionoftheSCFdata,seebox1,“TheDataUsedinThisArticle.”Theappendixprovidesa summaryofkeytechnicalaspectsofthesurvey. 2 Foradetaileddiscussionofthe2016surveyaswellasreferencestoearliersurveys,seeJesseBricker,LisaJ.Dettling, AliceHenriques,JoanneW.Hsu,LindsayJacobs,KevinB.Moore,SarahPack,JohnSabelhaus,JeffreyThompson, andRichardWindle(2017),“ChangesinU.S.FamilyFinancesfrom2013to2016:EvidencefromtheSurveyof ConsumerFinances,”FederalReserveBulletin,vol.103(September),https://www.federalreserve.gov/publications/files/ scf17.pdf. 3 Againstthisbackdrop,theannualrateofchangeintheconsumerpriceindexaveraged2.2percent.ChangesinaggregatestatisticsreportedherearemeasuredfromMarchtoMarchorfirstquartertofirstquarteroftherespective surveyyears,justbeforethebeginningofthefieldperiodforeachsurvey.

2 FederalReserveBulletin|September2020 — Ingroupingfamiliesby Figure1.Changeinmedianandmeanfamilyincomes, wealth,familiesatthetopof 2013–19surveys thedistributionexperienced asharpdeclineinaverage Percent 15 Median income(followingparticu- Mean larlyoutsizedgainsoverthe 12 2010–16period),whereas familiesinthelowerand 9 middleportionsof thewealth distributionallsaw 6 modestgains. — Ingroupingfamiliesbythe 3 referenceperson’seducationalattainment,thosewith 0 acollegedegreeexperienced relativelylargedeclinesin -3 2013–16 2016–19 bothmedianandmean income,whereasthosewitha Note:Changesarebasedoninflation-adjusteddollars. highschooldiplomaand Source:Hereandinsubsequentfiguresandtables,FederalReserveBoard, thosewithsomecollegeexpe- SurveyofConsumerFinances. riencesawgains.More broadly,theincomegaps betweenfamilieswitha collegedegreeandthose withoutonedecreased. — Blacknon-HispanicfamiliesandWhitenon-Hispanicfamiliesexperiencedsimilar growthinmedianincome,butmeanincomefellforWhitenon-Hispanicfamiliesand roseslightlyforBlacknon-Hispanicfamilies. Theimprovementsineconomicactivityalongwithrisinghouseandcorporateequityprices combinedtosupportcontinuedincreasesinmedianandmeanfamilynetworth(wealth) between2016and2019.4ThenationalCoreLogicHomePriceIndexincreasedatanannual rateof 5.2percentbetweenearly2016andearly2019,exceedingtherateof consumer priceinflation.Thevalueof corporateequityholdings,asmeasuredbyabroadstockprice index,grewataroundan11.5percentannualratebetweenthetwosurveys,leadingto largeinflation-adjustedincreasesinequityholdings.5Thesepricetrendscontributedtothe followingchangesinthedistributionof householdnetworth: ‰ Between2016and2019,mediannetworthgrew18percent,andmeannetworthrosea modest2percent(figure2).Incontrast,the2010–16periodsawoutsizedgainsinmean networthrelativetomediannetworth,drivenbygrowthbetween2013and2016. ‰ Familiesatthetopof theincomeandwealthdistributionsexperiencedverylittle,if any, growthinmedianandmeannetworthbetween2016and2019afterexperiencinglarge gainsbetween2013and2016. ‰ Familiesnearthebottomof theincomeandwealthdistributionsgenerallycontinuedto experiencesubstantialgainsinmedianandmeannetworthbetween2016and2019. 4 ChangesinaggregatestatisticsreportedherearemeasuredfromMarchtoMarch—and,forStandard&Poor’s (S&P)500stockpriceindex,usingthemonthlyaverage—oftherespectivesurveyyears,justbeforethebeginningofthefieldperiodforeachsurvey. 5 BetweenMarch2019andMarch2020,roughlythe2019SCFfieldperiod,thenationalCoreLogicHomePrice Indexgrewanadditional4.3percentandtheS&P500stockpriceindexdecreased5.4percent.Theseprice changesemphasizetheneedtoevaluateSCFfindingsintheappropriatetimeframe.

ChangesinU.S.FamilyFinancesfrom2016to2019 3 ‰ Wealthcontinuedtoincrease Figure2.Changeinmedianandmeanfamilynetworth, amongfamilieswitheithera 2013–19surveys highschooldiplomaorsome college.However,families Percent 25 withoutahighschooldiploma, Median whichsawthelargestpropor- Mean tionalgainsinmedianandmean 20 networthbetween2013and 2016,sawthelargestdrops 15 between2016and2019. ‰ Thehomeownershiprate 10 increasedbetween2016and 2019to64.9percent,areversal of thedecliningtrendbetween 5 2004and2016.Forfamiliesthat ownahome,themediannet 0 housingvalue(thevalueof a 2013–16 2016–19 homeminushome-secureddebt) rosetoabout$120,000from Note:Changesarebasedoninflation-adjusteddollars. about$106,000in2016. ‰ Nearlytwo-thirdsof working-agefamiliesparticipatedinretirementplansin2019,down slightlyfrom2016.Participationcontinuedtobeunevenacrosstheincomedistribution. Lessthan40percentof familiesinthebottomhalf of theincomedistributionwereina retirementplan,comparedwithmorethan80percentof upper-middle-incomefamiliesandmorethan90percentof familiesinthetopdecileof income. ‰ Ownershipratesof corporateequitiesincreasedbetween2016and2019,drivenbyfamiliesinthelowerhalf of theincomedistribution.Still,lessthanone-thirdof lowerincomefamiliesin2019wereparticipatinginthestockmarket,comparedwithabout 70percentof upper-middle-incomefamiliesandmorethan90percentof familiesinthe topdecileof theincomedistribution. ‰ About13percentof familiesinthe2019SCFownedaprivatelyheldbusiness,similarto 2016.Businessownershipincreaseswithincome,andnearly40percentof familiesinthe topdecileof theincomedistributionownedabusiness. Between2016and2019,averageconsumerloaninterestratesformajortypesof debt increased:Theaverage30-year,fixed-ratemortgageinterestraterosefrom3.7percentto 4.3percent,theaveragenewvehicleloaninterestraterosefrom4.2percentto5.5percent, andtheaveragecreditcardinterestraterosefrom12.3percentto15.1percent.6Whilethe fractionof familieswithanykindof debtbasicallyheldsteadybetween2016and2019, debtbalancesamongfamilieswithdebtincreased: ‰ Overall,debtobligationsincreasedmodestlybetween2016and2019.Amongfamilies withdebt,mediandebtrose2percent,andmeandebtincreased7percent. ‰ Debtsecuredbyresidentialpropertyincreasedsubstantiallybetween2016and2019. About42percentof familiesinboth2016and2019haddebtsecuredbytheirprimary residence,andthemedianvalueof thisdebtincreased14percentto$134,800. 6 ChangesinthemortgageinterestratearemeasuredfromMarchtoMarchoftherespectivesurveyyearsusing thecontractrateon30-year,fixed-rateconventionalhomemortgagecommitmentspublishedbytheFederal HomeLoanMortgageCorporation,whilechangesinthevehicleloanandcreditcardinterestratesaremeasuredfromthefirstquartertothefirstquarteroftherespectivesurveyyearsusingtheG.19dataoncommercial bankinterestratespublishedbytheFederalReserveBoard.

4 FederalReserveBulletin|September2020 Box 1. The Data Used in This Article DatafromtheSurveyofConsumerFinances(SCF)arethebasisoftheanalysispresented inthisarticle.TheSCFisatriennialinterviewsurveyofU.S.familiessponsoredbythe BoardofGovernorsoftheFederalReserveSystemwiththecooperationoftheU.S. DepartmentoftheTreasury.Since1992,datafortheSCFhavebeencollectedbyNORC,a researchorganizationattheUniversityofChicago.Althoughthemajorityofthedataare collectedbetweenMayandDecemberofeachsurveyyear,asmallfractionofthedata collectionoccursinthefirstfourmonthsofthenextcalendaryear.Inthe2019SCF,this portionofthedatacollectionoverlappedwithearlymonthsoftheCOVID-19pandemic, withabout9percentofinterviewsconductedbetweenFebruaryandApril2020. Themajorityofstatisticsincludedinthisarticledescribethecharacteristicsof“families.” Asusedinthisarticle,theSCFdefinitionof“family”ismorecomparablewiththeU.S. CensusBureaudefinitionof“households”—whichcanincludeone-personfamilies—than withitsuseof“families.”Theappendixprovidesfulldefinitionsof“family”fortheSCFand theassociatedfamily“referenceperson,”alongwithinformationabouthowdemographic andeconomicgroupsareconstructedforthisarticle. Thesurveycollectsinformationonfamilies’totalincomebeforetaxesforthecalendaryear precedingthesurvey.However,themajorityofthedatacoverthestatusoffamiliesasof thetimeoftheinterview,includingdetailedinformationontheirbalancesheetsanduseof financialservicesaswellasontheirpensions,laborforceparticipation,anddemographiccharacteristics.Mostofthecoresurveyquestionnairehaschangedinonlyminor waysrelevanttothisarticlesince1989.However,whenthequestionnairehasbeenmodifiedatvariouspointstoenhanceandupdatethesurvey,everyeffortwasmadetoensure themaximumdegreeofcomparabilityofthedataovertime. Theneedtomeasurefinancialcharacteristicsimposesspecialrequirementsonthesample designforthesurvey.TheSCFisexpectedtoprovidereliableinformationonbothattributesthatarebroadlydistributedinthepopulation(suchashomeownership)andattributesthatarehighlyconcentratedinarelativelysmallpartofthepopulation(suchas closelyheldbusinesses).Toaddressthisrequirement,theSCFemploysasampledesign consistingoftwoparts:astandard,geographicallybasedrandomsampleandaspecial oversampleofrelativelywealthyfamilies.Weightsareusedtocombineinformationfrom thetwosamplestoconstructestimatesforthefullpopulation.Inthe2019survey, 5,783familieswereinterviewed,andinthe2016survey,6,254familieswereinterviewed. Thisarticledrawsprincipallyonthefinaldatafromthe2019and2016surveys.Toprovide alargercontext,someinformationisalsoincludedfromthefinalversionsofearlier surveys.1Differencesbetweenestimatesfromearliersurveysasreportedhereandas reportedinearlierFederalReserveBulletinarticlesareattributabletoadditionalstatistical processing,correctionofminordataerrors,revisionstothesurveyweights,conceptual changesinthedefinitionsofvariablesusedinthearticles,andadjustmentsforinflation.In thisarticle,alldollaramountsfromtheSCFareadjustedto2019dollarsusingthe “currentmethods”versionoftheconsumerpriceindexforallurbanconsumers.The appendixprovidesadditionaldetailontheadjustments. Theprincipaldetailedtables(tables1through5)describingincome,networth,andasset anddebtholdingsfocusonthepercentageofvariousgroupsthathavesuchitemsandthe medianandmeanholdingforthosethathavethem.2Generally,whenonedealswithdata thatexhibitverylargevaluesforarelativelysmallpartofthepopulation—asisthecasefor manyoftheitemsconsideredinthisarticle—estimatesofthemedianareoftenstatisticallylesssensitivetosuchoutliersthanareestimatesofthemean.Atthesametime, meansaregenerallymoreusefulforcomparingacrosspopulationsubgroups,because everymemberofthegroupcontributesequallytotheoverallaverage. Asanexampleoftheeffectofoutliersonmeanvalues,considermeanincome.Between 2016and2019,theoppositesignsofthemedianandmeanchangesinincome,together withthechangesobservedalongtheusualincomedistribution,suggestthatoutliersmay beresponsibleforthenegativechangeinmeanincome.FiguresAandBhelpexaminethis continuedonnextpage

ChangesinU.S.FamilyFinancesfrom2016to2019 5 Box 1. The Data Used in This Article—continued possibilityandillustratetheinfluenceofoutliers.FigureAgraphsthechangesinmedian incomeovereachsurveyintervalsince2001forallobservations,excludingfamiliesinthe top1percentoftheincomedistribution.Changesbetweensurveysarequitesimilar whetherornotthetop1percentoftheincomedistributionisincluded.FigureBgraphsthe changesinmeanincomeovereachsurveyintervalsince2001forallobservations, excludingfamiliesinthetop1percentoftheincomedistribution.IncontrasttofigureA, changesareoftenquitedissimilarwithandwithoutfamiliesinthetop1percent.Indeed, excludingthesefamiliesreversesthesignofthechangeinmeanincomebetween2016 and2019toa3.1percentgain.3Thispatternimpliesthattheoveralldeclineinmean incomeisdrivenbyfamiliesinthetop1percentoftheincomedistribution. FigureA.Between-surveychangesinmedianincome Percent 12 All observations Excluding families in top percent of income distribution 8 4 0 -4 -8 2001–04 2004–07 2007–10 2010–13 2013–16 2016–19 FigureB.Between-surveychangesinmeanincome Percent 16 All observations Excluding families in top percent of income distribution 12 8 4 0 -4 -8 -12 2001–04 2004–07 2007–10 2010–13 2013–16 2016–19 continuedonnextpage

6 FederalReserveBulletin|September2020 Box 1. The Data Used in This Article—continued Oneliabilityofusingthemedianasadescriptivedeviceisthatmediansarenotadditive— thatis,thesumofthemediansoftwoitemsforthesamepopulationisnotgenerally equaltothemedianofthesum(forexample,medianassetsminusmedianliabilitieswill generallynotequalmediannetworth).Incontrast,meansforacommonpopulationare additive.Inthecontextofthisarticle,whereacomparablemedianandmeanaregiven,the gainorlossofthemeanrelativetothemedianmayusuallybetakenasindicativeofthe relativechangeatthetopofthedistribution;forexample,whenthemeandecreasesmore rapidlythanthemedian,itistypicallytakentoindicatethatthevaluesintheupperpartof thedistributionfellmorethanthoseinthelowerpartofthedistribution. Toprovideameasureofthestatisticalsignificanceofthedevelopmentsdiscussedinthis article,standarderrorscausedbysamplingandimputationformissingdataaregivenfor selectedestimates.Spacelimitspreventtheinclusionofthestandarderrorsforallestimates.Althoughthestatisticalsignificanceoftheresultsgenerallyisnotaddressed,the articlehighlightsfindingsthataresignificantorareinterestinginabroadercontext.Standarderrorsforallestimatesintables1and2areavailableontheSCFwebsite. 1 AdditionalinformationaboutthesurveyisavailableontheBoard’swebsiteathttps://www.federalreserve.gov/ econresdata/scf/scfindex.htm. 2 Themedianofadistributionisdefinedasthevalueatwhichequalpartsofthepopulationconsideredhavevalues thatarelargerorsmaller. 3 Thisreversalisperhapsunsurprising,asthestandarderrorsintable1makeclearthedeclineinmeanincomeis notstatisticallysignificantatconventionallevels. ‰ Between2016and2019,thefractionof familieswithcreditcarddebtincreased.Inaddition,medianandmeanbalancesforfamilieswithcreditcarddebtincreased,to$2,700 and$6,300,respectively. ‰ About22percentof familiesowedstudentloandebtin2019,similartothefractionin 2016.Medianbalancesamongfamiliesowingsuchdebtrose10percentbetween2016 and2019,tomorethan$22,000. ‰ Amidrisingbalancesandinterestrates,mediandebtpayment-to-incomeratiosamong familieswithdebtincreasedslightlybetween2016and2019.Thefractionof families withpayment-to-incomeratiosgreaterthan40percentincreased0.4percentagepointto 7.4percent.Theseincreasesreverseddecliningtrendsobservedfrom2007through2016. Income Medianandmeaninflation-adjustedbefore-taxfamilyincomemovedmodestlyindifferent directionsbetween2016and2019(table1).7Medianincomerose5percent,from $56,000to$58,600.Meanincomedecreased3percent,from$109,300to$106,500.The decreaseinmeanincomewasmainlydrivenbyfamiliesinthetop1percentof theincome distribution(fordetails,seebox1,“TheDataUsedinThisArticle”).Altogether,these changesareconsistentwithaslightnarrowingof theincomedistributionoverthisperiod.8 7 Tomeasureincome,theinterviewersrequestinformationonthefamily’sincome,beforetaxes,forthefull calendaryearprecedingthesurvey.ThecomponentsofincomeintheSCFarethefollowing:wages,selfemploymentandbusinessincome,taxableandtax-exemptinterest,dividends,realizedcapitalgains,food stampsandotherrelatedsupportprogramsprovidedbygovernment,pensionsandwithdrawalsfromretirement accounts,SocialSecurity,alimonyandothersupportpayments,andmiscellaneoussourcesofincomeforall membersoftheprimaryeconomicunitinthehousehold. 8 AnupcomingFEDSNoteexploresrecenttrendsinthedistributionofwealthandincomeinmoredetailand canbefoundathttps://www.federalreserve.gov/econres/notes/feds-notes/default.htm.

ChangesinU.S.FamilyFinancesfrom2016to2019 7 Table1.Before-taxmedianandmeanfamilyincome,byselectedcharacteristicsoffamilies, 2016and2019surveys Thousandsof2019dollars,exceptasnoted Medianincome Meanincome Familycharacteristic Percentagechange Percentagechange 2016 2019 2016 2019 2016–19 2016–19 Allfamilies 56.0 58.6 5 109.3 106.5 -3 (.7) (1.0) (2.1) (1.7) Percentileofusualincome Lessthan20 17.2 17.7 3 18.2 18.0 -1 20–39.9 35.2 36.7 4 36.4 37.3 2 40–59.9 57.5 59.1 3 58.3 59.9 3 60–79.9 91.6 94.9 4 100.1 96.8 -3 80–89.9 144.0 150.4 4 148.3 152.9 3 90–100 267.6 283.0 6 518.6 487.6 -6 Ageofreferenceperson(years) Lessthan35 43.1 48.6 13 60.0 65.1 9 35–44 70.0 74.3 6 103.3 111.0 7 45–54 73.9 77.8 5 139.8 145.3 4 55–64 64.9 63.6 -2 150.3 130.6 -13 65–74 53.3 50.2 -6 113.4 107.8 -5 75ormore 42.6 43.1 1 82.0 74.9 -9 Educationofreferenceperson Nohighschooldiploma 28.2 30.8 9 41.3 39.6 -4 Highschooldiploma 43.1 45.8 6 60.9 63.8 5 Somecollege 50.8 51.2 1 71.7 79.0 10 Collegedegree 98.0 95.7 -2 201.8 176.5 -13 Raceorethnicityofrespondent Whitenon-Hispanic 65.1 69.0 6 131.3 122.8 -6 BlackorAfricanAmerican non-Hispanic 37.6 40.3 7 57.5 59.6 4 HispanicorLatino 40.9 40.7 -1 61.0 58.5 -4 Otherormultiplerace 53.9 55.7 3 92.5 112.0 21 Housingstatus Owner 75.7 77.4 2 142.6 136.7 -4 Renterorother 33.6 35.6 6 50.9 50.5 -1 Urbanicity Metropolitanstatisticalarea(MSA) 58.7 61.1 4 116.7 112.4 -4 Non-MSA 41.1 43.2 5 57.5 62.9 9 Percentileofnetworth Lessthan25 26.9 29.9 11 36.5 37.9 4 25–49.9 44.7 46.5 4 54.1 58.2 7 50–74.9 68.9 70.3 2 79.7 80.6 1 75–89.9 96.6 101.8 5 120.7 129.9 8 90–100 229.7 236.2 3 486.0 427.9 -12 Note:Incomeismeasuredfortheyearbeforethesurvey.Seetheappendixfordetailsonstandarderrors(showninparenthesesbelowthefirst rowofdataforthemediansandmeans).

8 FederalReserveBulletin|September2020 Theincomedistributionwidenedconsiderablyoverthe2010–16period,asasharp 18percentincreaseinmeanincomefaroutpacedamoremoderate4percentgrowthin medianincome.Further,thechangesoverthemostrecentsurveyperiodsuggestthat, despiteaninitialbouncebackinincomegrowthbetween2013and2016totherobust pre-crisisrates,theUnitedStateshasyettoreturntothegeneralpatternof sustained increasesinincomebetweensurveysthathaddatedbacktotheearly1990s.9 Somepredictablepatternsinincomelevelsacrossdemographicgroupsareobservedinthe 2019SCF,andthosepatternsarelargelyconsistentwithprevioussurveys.10Acrossage groups,incomeshowsalife-cyclepattern,risingtoapeakforfamiliesinwhichthereferencepersonisinoneof themiddleagegroupsandthendecliningforthoseinwhichthe referencepersonisolderandincreasinglylikelytoberetired.11Incomealsoshowsastrong positiveassociationwitheducation;inparticular,incomeamongfamiliesinwhichthe referencepersonhasacollegedegreetendstobesubstantiallyhigherthanforthosewith lessschooling.Meanincomeamongcollege-educatedfamiliesinthe2019SCFwasmore thantwicethatof familiesinanyothereducationgroup. AmongfamiliesinwhichthesurveyrespondentidentifiesasWhitenon-Hispanic,income issubstantiallyhigherthanforallthreeotherraceandethnicgroups—Blacknon-Hispanic, Hispanic,andotherormultipleracefamilies.12Incomeisalsoconsiderablyhigherfor homeownersandforfamilieslivinginurbanareasthanforotherfamilies.13Finally,family incomeispositivelycorrelatedwithnetworth. Changes in Income by Family Characteristics Withfewexceptions,medianincomedisplayedbroad-basedgainsbetween2016and2019 acrossdifferenttypesof families,whethergroupedbyeconomiccharacteristicssuchas usualincome,wealth,urbanicity,orhomeownerstatus,orbydemographiccharacteristics suchasage,education,orraceandethnicity.14However,withrespecttomeanincome, sometypesof familiessawgains,whilemanyotherssawlosses. Afamily’sincomeataparticulartimemaynotbeindicativeof its“usual”income.15A recentspellof unemployment,abonusfromanemployer,acapitallossorgainoninvest- 9 From2013to2016,bothmedianandmeanincomeincreasedsubstantially—9percentand14percent, respectively—retracingcombinedlossesseenoverthe2007–10and2010–13periods.Between1992and2007, meanandmedianincomegenerallyincreasedbetweensurveywaves.Meanincomeincreased,onaverage, 8.0percentbetweensurveywaves,andmedianincomeincreased,onaverage,4.2percentbetweensurveywaves. The2001–04periodistheonlyexception,whenmeanincomefellmodestly. 10 Tabulateddatafromthesurveybeyondthatpresentedinthisarticleareavailableathttps://www.federalreserve .gov/econres/scfindex.htm.Thisinformationincludessomealternativeversionsofthetablesinthisarticle, includingtablesthatmatchthestructureusedinearlierversionsofthispublication.Forthosewhowishto makefurtheralternativecalculations,thiswebsiteprovidesavarietyofdatafiles,adatavisualizationtool,and accesstoonlinetabulationsoftwarethatmaybeusedtocreatecustomizedtablesbasedonthevariables analyzedinthisarticle. 11 Toreflectchangesinsocietalnormsregardingfamilyformation,composition,andresponsibilitiesasofthe 2019survey,theterm“head”hasbeenreplacedby“referenceperson.” 12 TheappendixprovidesinformationonracialandethnicidentificationintheSCF. 13 Inthisarticle,afamilyisconsideredahomeownerifatleastonepersoninthefamilyownsatleastsomepartof thefamily’sprimaryresidence. 14 Changesintheexperiencesoffamilieswithparticularcharacteristicscanreflectshiftsinthedemographic compositionofthesurveypopulation.Theappendixprovidesinformationonevolutionsinthesurvey’sracial andethniccomposition,aswellastheeducationalcompositionandtheagecomposition,since2004and,in particular,indicatesdriftinthecompositionofthesurveypopulationawayfromfamiliesidentifyingasWhite non-Hispanictowardthoseidentifyingasoneoftheotherracialandethnicgroups(partiallyonaccountof changesinthesurveyquestion),amore-educatedsurveypopulation,andanoldersurveypopulationovertime. 15 Usualincomeismeasuredinthesurveyafteractualincomehasbeenreported,ifrespondentsindicatethey experiencedatemporarydeviationinincomefromwhattheywouldearnina“normalyear.”Overthepast

ChangesinU.S.FamilyFinancesfrom2016to2019 9 ments,orotherfactorsmaycauseincometodeviatetemporarilyfromtheusualamount. Acrossthedistributionof familiesgroupedbytheirusuallevelof income,allquintilessaw increasesinmedianincomebetween2016and2019.Whiletherewaslittlevariationacross incomegroups,familiesinthetopdecilesawthelargestproportionalgain.16However,with respecttomeanincome,severalincomegroupssawdeclines:Althoughchangesineither directionwererelativelymodestforthebottomfourquintiles,thetopdecileposteda notable6percentdecrease,consistentwithsomenarrowingof theincomedistribution between2016and2019.17 Allprimeworking-agegroups(thatis,thoseyoungerthanage55)sawincreasesinmedian andmeanincomebetween2016and2019,rangingfrom4to13percent.Theyoungest familiessawthelargestgainsinbothmedianandmeanincome—13percentand9percent, respectively.Exceptforthe75andolderagegroup,whichsawaverymodestincreasein medianincome,bothmedianandmeanincomedecreasedforallgroups55andolder,with meanincomedropping13percentforthe55to64agegroup.18Notably,thesegroupsall experiencedexceptionallylargegrowthinmeanincomebetween2010and2016. Between2016and2019,growthinmedianincomedecreasedwitheducationalattainment. Familieswithoutahighschooldiplomasawa9percentincreaseintheirmedianincome, whilefamilieswithacollegedegreesawa2percentdecrease.Growthinmeanincomeby attainmentgroupexhibitedlessconsistency,withboththemostandleasteducatedgroups experiencingdecreases.Meanincomedecreased4percentamongfamiliesthatdidnot completehighschoolanddropped13percentamongfamiliesthatcompletedcollege. Thosewithahighschooldiplomaandthosewithsomecollegesawincreasesof 5percent and10percent,respectively.Thesepatternsindicatethatthegapsinincomebetweenfamilieswithacollegedegreeandthosewithoutonedecreasedbetween2016and2019.This change,tosomeextent,reflectscompositionalchangesamongfamilieswithacollege degreeoverthisperiod,astherewasadecreaseintheshareof familiesaged45to 64—which,aspreviouslynoted,tendtohaverelativelyhighincome—andamodest increaseintheshareof familiesthatareretired.19Thatsaid,familieswithacollegedegree experiencedrelativelyrobustgrowthinmedianandmeanincomebetween2010and2016. Overthe2016–19period,medianincomerosefornearlyallfamiliesgroupedbyraceor ethnicity,withtheexceptionof Hispanicfamilies,whichexperiencedaslightdecline.20 Withrespecttomeanincome,bothHispanicandWhitenon-Hispanicfamiliessaw declines,whileBlacknon-Hispanicfamiliesandfamiliesthatidentifiedasotherormultiple racessawgains.21Indeed,despiteBlacknon-HispanicfamiliesandWhitenon-Hispanic familiesexperiencingsimilarlyrobustgrowthinmedianincome,Whitenon-Hispanicfamiliessawthelargestdropinmeanincomeof allthegroups.Thatsaid,thisdropcomeson severalsurveys,anincreasingshareoffamilieshavereportedthattheiractualincomealignedwiththeirusual income,risingfrom70percentoffamiliesinthe2010SCFto77percentoffamiliesinthe2019SCF. 16 Eachquintilerepresents20percentofthepopulation.Seetheappendixforinformationaboutdistribution groupcutoffs. 17 Meanincomeforthetopdecileofusualincomeincreased30percentoverthe2010–16period. 18 Therewerenonoticeablechangesintheshareworkingamongfamiliesinagegroupsolderthan55;instead, decreasesinvariouscomponentsofincomearedrivingthesechanges. 19 Amongfamilieswithacollegedegreein2019,34.2percentwerebetweenages45and64,downfrom 37.9percentin2016.In2019,22.2percentoffamilieswithacollegedegreewereretired,upfrom20.8percent in2016. 20 AnupcomingFEDSNotediscussesdifferencesinincomeandwealthholdingbyraceandethnicityinmore detailandcanbefoundathttps://www.federalreserve.gov/econres/notes/feds-notes/default.htm. 21 Whilethechangeinthevalueofmeanincomeforfamiliesidentifyingasotherormultipleracewasquite large—21percent—itwasnotstatisticallysignificantatconventionallevels,asthesmallsizeofthegroupmakes themeanparticularlysensitivetoextremevalues.Relativeto2016,familiesinthisgroupweremoreeducated, slightlyolder,andmorelikelytobeinthetopusualincomedecilein2019.

10 FederalReserveBulletin|September2020 theheelsof a24percentsurgeinmeanincomeamongfamiliesinthisgroupbetween2010 and2016. Reflectingthetop-linechanges,bothhomeownersaswellasrentersandothernon-owners experiencedmedianincomegrowthbutmeanincomelossesbetween2016and2019.The medianincomegapbetweenfamilieslivinginametropolitanstatisticalarea(MSA)and thoselivinginanon-MSAwidenedslightlybetween2016and2019asmedianincomegrew similarlyamongfamiliesinbothtypesof areas(andthelevelof medianincomeislowerfor thoseinnon-MSAs).However,themeanincomegapbetweenthetwogroupsshrank. Ingroupingfamiliesbypercentileof networth(asmeasuredconcurrentlyintheSCF), bothmedianandmeanincomerosealmostthroughoutthedistributionbetween2016and 2019.Theoneexceptionisthemeanincomeof familiesinthetopdecileof networth, whichdropped12percent,markingthefirstdeclineineithermedianormeanincomefor thatgroupsince2010.22Overthe2010–16period,growthinbothmedianandmeanincome amongfamiliesinthetopdecileof thewealthdistributionwasexceptionallystrong—19percent and38percent,respectively.Forfamiliesinthelowestquartileof networth,median incomejumped11percentto$29,900,andmeanincomegrew4percentto$37,900between 2016and2019.Familiesinthemiddlequartilessawgrowthinmedianandmeanincome rangingfrom1to8percentoverthisperiod. Net Worth Medianandmeaninflation-adjustednetworth—thedifferencebetweenfamilies’gross assetsandtheirliabilities—increasedbetween2016and2019(table2).Specifically,the mediannetworthof allfamiliesrose18percentto$121,700,andthemeannetworth increasedamodest2percentto$748,800.Thesepatternscontinuedgrowthseenoverthe 2013–16period,althoughthegaininmeannetworthoverthatperiodwasamuchlarger 25percent.Medianandmeannetworthoverthe2010–13periodwereeffectivelystagnant despitetherecoveryinhouseandotherassetpricesthatfollowedthelargedeclinesinthe 2007–10periodamidtheGreatRecession.23 Networthtendstorisesystematicallywithincome,ashigher-incomefamilieshavehigher levelsof saving,whichresultsinafeedbackeffectof higherincomefromtheaccumulated assets.24Inaddition,networthgenerallyincreaseswithageuntilitplateaus(ordecreases modestly)fortheoldestagegroupsastheyretire,apatternreflectingthefactthatindividualsusuallysaveforretirementthroughouttheirworkingcareerandthenspendthose savingsinretirement.Finally,networthexhibitsstrongdifferentialsacrossgroupsdefined intermsof education,racialorethnicbackground,urbanicity,andhousingstatus;these differentialsgenerallymirrorthoseforincome,butthewealthdifferencesarelarger. Changes in Net Worth by Family Characteristics Familieswithhigherlevelsof usualincomereportedgreaterlevelsof networth,but changesinnetworthvariedsubstantiallyacrosstheusualincomedistribution.Ontheone 22 ToinvestigatewhethertheCOVID-19pandemicinfluencedthefamiliesincludedinthetopdecileofnetworth andgeneratedthisdecrease,removinginterviewscompletedafterMarch1,2020—beforeanystateorWashington,D.C.,declaredastateofemergency—fromthetopdecilerevealsalargerdecreaseinmeanincome between2016and2019. 23 Betweenthe2010and2013surveys,mediannetworthincreased2percentandmeannetworthdidnotchange. Between2007and2010,mediannetworthdeclined39percentandmeannetworthdeclined15percent. 24 Foradiscussionofpatternsofsavingbyusualincome,seebox2,“SavingBehavior.”

ChangesinU.S.FamilyFinancesfrom2016to2019 11 Table2.Familymedianandmeannetworth,byselectedcharacteristicsoffamilies, 2016and2019surveys Thousandsof2019dollars,exceptasnoted Mediannetworth Meannetworth Familycharacteristic Percentagechange Percentagechange 2016 2019 2016 2019 2016–19 2016–19 Allfamilies 103.5 121.7 18 736.0 748.8 2 (2.9) (3.5) (13.6) (15.6) Percentileofusualincome Lessthan20 7.1 9.8 37 82.4 114.1 38 20–39.9 31.5 44.0 40 128.0 136.0 6 40–59.9 94.2 92.9 -1 242.2 220.5 -9 60–79.9 181.5 199.1 10 394.2 423.0 7 80–89.9 421.7 382.3 -9 851.3 850.0 0 90–100 1,732.3 1,589.3 -8 4,814.3 4,850.1 1 Ageofreferenceperson(years) Lessthan35 11.7 13.9 19 81.0 76.3 -6 35–44 63.6 91.3 44 307.0 436.2 42 45–54 132.1 168.6 28 773.7 833.2 8 55–64 199.2 212.5 7 1,241.6 1,175.9 -5 65–74 237.6 266.4 12 1,133.7 1,217.7 7 75ormore 281.6 254.8 -10 1,134.8 977.6 -14 Educationofreferenceperson Nohighschooldiploma 24.3 20.5 -16 167.1 137.8 -18 Highschooldiploma 71.3 74.0 4 265.4 305.2 15 Somecollege 70.2 88.8 26 362.2 376.4 4 Collegedegree 310.7 308.2 -1 1,607.2 1,519.9 -5 Raceorethnicityofrespondent Whitenon-Hispanic 181.9 188.2 3 993.1 983.4 -1 BlackorAfricanAmerican non-Hispanic 18.2 24.1 33 146.8 142.5 -3 HispanicorLatino 21.9 36.2 65 203.3 165.5 -19 Otherormultiplerace 68.8 74.5 8 486.8 657.2 35 Housingstatus Owner 246.2 255.0 4 1,099.9 1,102.1 0 Renterorother 5.3 6.3 18 96.8 95.6 -1 Urbanicity Metropolitanstatisticalarea(MSA) 105.3 126.0 20 799.0 806.4 1 Non-MSA 93.3 90.4 -3 293.8 324.8 11 Percentileofnetworth Lessthan25 .1 .3 131 -13.0 -13.5 -5 25–49.9 42.3 57.3 36 47.5 58.1 22 50–74.9 204.0 224.1 10 217.1 236.3 9 75–89.9 643.4 652.7 1 701.2 703.7 0 90–100 2,539.3 2,598.7 2 5,675.3 5,729.6 1 Note:Networthisthedifferencebetweenfamilies’grossassetsandtheirliabilities.Seetheappendixfordefinitionsofassetandliability categoriesusedintheSurveyofConsumerFinancesaswellasdetailsonstandarderrors(showninparenthesesbelowthefirstrowofdatafor themediansandmeans).

12 FederalReserveBulletin|September2020 hand,medianandmeannetworthrose—inmostinstances,considerably—between2016 and2019forthebottomtwoquintiles.Thoseinthelowestusualincomequintilesawa largejumpinmediannetworth(37percentto$9,800)andasimilarincreaseinmeannet worth(38percentto$114,100).Further,familiesinthefourthquintilereboundedfrom relativelymodestgainsinmedianandmeannetworthbetween2013and2016.Onthe otherhand,familiesinthethirdquintileof usualincomesawdeclinesinbothmedianand meannetworth(1percentand9percent,respectively).Thosetowardthetopof the distributionexperiencedthelargestdeclinesinmediannetworthandessentiallystable meannetworth.25 Nearlyallagegroupsexperiencedincreasesinmediannetworthbetween2016and2019, whilemeannetworthdecreasedforseveralagegroups.Withrespecttobothmedianand meannetworth,familiesaged75andolderexperiencedthelargestdeclines(10percentand 14percent,respectively),andfamiliesaged35to44experiencedthelargestincreases (44percentand42percent,respectively).26Growthinnethousingwealthcontributedto increasesamongthoseaged35to44,whilethedrawingdownof financialassetsfactored intodecreasesamongtheoldestgroup.Aswithincome,primeworking-agefamiliesgenerallyexperiencedsubstantialgainsinnetworth,withtheonlyexceptionbeingamodest declineinmeannetworthamongfamiliesyoungerthanage35. Between2016and2019,therewasconsiderablevariationintheextenttowhichmedianand meannetworthchangedbyeducationgroup,rangingfroman18percentdecreasetoa 26percentincrease.Bothmeasuresof networthcontinuedtoincreaseamongfamiliesin whichthereferencepersonhadeitherahighschooldiplomaorsomecollege.However, althoughfamilieswithoutahighschooldiplomasawthelargestgainsinbothmedianand meannetworthbetween2013and2016,theysawthelargestdropsbetween2016and2019 (16percentand18percent,respectively);nonetheless,bothmeasuresremainedabovetheir 2013levels.Amongfamilieswithacollegedegree,declinesinmedianandmeannetworth weremoremodest,leavingmediannetworthessentiallyunchangedfromits2013leveland meannetworthwellaboveits2013level.Aswithincome,thesepatternsgenerallypointto ashrinkinggapinnetworthbetweenfamilieswithandwithoutacollegedegreebetween 2016and2019,withthisgapnonethelessremainingsubstantial.27 From2016to2019,mediannetworthincreasedforalltypesof familiesgroupedbyraceor ethnicity.Further,largegainsamongBlacknon-HispanicandHispanicfamiliesseenover theprevioussurveyintervalcontinued.Non-WhiteandHispanicfamiliesexperienced largerproportionalgrowthinmediannetworththanWhitenon-Hispanicfamiliesduring the2016–19period;nonetheless,thetypicalWhitenon-Hispanicfamilystillhadmorethan doubletheamountof wealththanthetypicalfamilyinanyotherracialorethnicgroupin 2019.Withrespecttomeannetworth,onlyfamiliesidentifiedasotherormultipleracesaw 25 Thetopdecileoftheusualincomedistributionin2019includedalargershareofyoungerfamiliesthanin 2016.Further,mediannethousingwealthforthetopdecileofusualincomedeclinedbetween2016and2019. Thesetwofactorslikelycontributedtolowermedianwealthforthisgroupin2019. 26 Allinall,thechangesinnetworthbyagegroupnearlyreversedpatternsonceagainbetweenthetwoprevious surveys,asfamiliesyoungerthanage45andbetweenages65and74hadexperiencedtheonlydeclinesoverthe 2013–16period.Overthe2010–13period,medianandmeannetworthincreasedforfamiliesyoungerthan age45,decreasedforthosebetweenages45and64,increasedforthosebetweenages65and74,anddecreased fortheoldestgroup. 27 Foradiscussionoftransmissionofwealthbyparentaleducation,seebox3,“IntergenerationalTransmissionof Wealth.”

ChangesinU.S.FamilyFinancesfrom2016to2019 13 Box 2. Saving Behavior Becausesavingoutofcurrentincomeisanimportantdeterminantoffamilynetworth,the SurveyofConsumerFinancesasksrespondentswhether,overtheprecedingyear,the family’sspendingwaslessthan,morethan,oraboutequaltoitsincome.Thoughonly qualitative,theanswersareausefulindicatorofwhetherfamiliesaresaving. Thefractionoffamiliesthatreportedsavinghasincreasedoverthepastthreesurveys (figureA).Between2016and2019,theproportionofallfamiliesthatsavedincreasedfrom 55percentto59percent. FigureA.Familiesthatsavedbyusualincome,2013–19surveys Percent 100 2013 2016 2019 80 60 40 20 0 Total 0–49.9 50–89.9 90–100 Percentile of usual income Withinagivenyear,thefractionoffamiliessavingisgreaterforfamilieswithhigherusual income.In2019,forexample,thefractionoffamiliesinthetopdecileofincomethatsaved was84percent,almostdoublethe46percentofthebottomhalfoftheincomedistributionthatsaved.Between2016and2019,thefractionoffamiliesthatsavedincreased acrossallthreeincomegroups. anincrease.28Whiletwoof theremaininggroupsexperiencedrelativelymodestdecreases, meannetworthamongHispanicfamiliesdropped19percent.29 Themediannetworthof homeownersgrewmodestlybetween2016and2019,whiletheir meannetworthessentiallydidnotchange.Rentersorothernon-homeowners,whose averagelevelsof networtharefarexceededbythoseof homeowners,experiencedan 18percentjumpinmediannetworthanda1percentdeclineinmeannetworth. Between2016and2019,familieslivinginMSAsexperienceda20percentincreasein mediannetworthandaslight1percentincreaseinmeannetworth,whilefamiliesinother 28 Similartomeanincome,thechangeinthevalueofmeannetworthforfamiliesidentifyingasotherormultiple racewasquitelarge—35percent—butnotstatisticallysignificantatconventionallevels,asthesmallsizeofthe groupmakesthemeanparticularlysensitivetoextremevalues. 29 Relativeto2016,moreHispanicfamilieswereyoungerthanage35in2019.Further,thisgroupconstitutedonly about10percentoffamiliesinboth2016and2019,and,thus,medianandmeanvaluesexhibitmorevariability.

14 FederalReserveBulletin|September2020 Box 3. Intergenerational Transmission of Wealth Familiescantransmitwealthandresourcesacrossgenerationsinnumerousways.Families candirectlytransfertheirwealthtothenextgenerationintheformofabequest.Theycan alsoprovidethenextgenerationwithintervivostransfers(gifts)—forexample,providing down-paymentsupporttoenableahomepurchase.Inadditiontodirecttransfersorgifts, familiescanmakeinvestmentsintheirchildrenthatindirectlyincreasetheirwealth.For example,familiescaninvestintheirchildren’seducationalsuccess,whichcan,inturn, increasetheirchildren’sabilitytoaccumulatewealth. TheSurveyofConsumerFinances(SCF)collectsinformationaboutthehighestlevelof educationobtainedbyaparent.Becausehigherlevelsofeducationareassociatedwith higherlevelsofwealthandincome,asseenintables1and2inthemaintext,splitting familiesaccordingtotheirparents’levelofeducationisacommonwaytoexaminethe intergenerationaltransmissionofeconomicresources.1 Overall,higherlevelsofparentaleducationareassociatedwithhigherwealth(figureA).The typicalfamilywithaparentwithacollegedegreehasabout1.7timesthewealthofafamily withoutaparentwithacollegedegree.However,afamily’sowneducationisastronger predictorofitswealththantheeducationofitsparents.Further,whenfamiliesaresplit accordingtotheirownlevelofeducation,parentaleducationhasadifferentialrelationship withwealthholding.Amongfamilieswithoutacollegedegreethemselves,thereisalmost norelationshipbetweenparentaleducationandwealth.However,amongfamilieswitha collegedegree,familieswithaparentwhoalsohasacollegedegreehavehigherlevelsof wealth. FigureA.Medianwealth,byparentaleducationandowneducation Dollars 600,000 Parents do not have a college degree Parents have a college degree 500,000 400,000 300,000 200,000 100,000 0 All No college degree College degree Own education TheSCFcollectsinformationonallinheritances,trusts,andsubstantialgiftsafamilyhas received,enablinganexaminationofdirecttransfersfromonegenerationtothenext. DirecttransferscollectedintheSCFincludebothfinancialassetsandnonfinancialassets likerealestateorabusiness. Parentaleducationispositivelyassociatedwiththeprobabilitythatafamilyreceivedan inheritance,trust,orgift(tableB).Twenty-sevenpercentoffamilieswithaparentwhohas acollegedegreehavereceivedaninheritance,comparedwith22percentoffamilies withoutaparentwhohasacollegedegree.Conditionalonreceivinganinheritance,higher levelsofparentaleducationarealsoassociatedwithlargerinheritances.Amongfamilies thathavereceivedaninheritance,thetypicalvalueofallinheritancesreceivedbyfamilies withaparentwhohasacollegedegreeis$92,700,comparedwith$76,200forfamilies withoutaparentwhohasacollegedegree.2 continuedonnextpage

ChangesinU.S.FamilyFinancesfrom2016to2019 15 Box 3. Intergenerational Transmission of Wealth—continued TableB.Receiptandexpectedreceiptofinheritances,byparentaleducation Percentor2019dollars Receivedaninheritance, Conditionalmedianvalue Expectstoreceivean Conditionalmedianvalueof Parentaleducation trust,orgift ofinheritancesreceived inheritance inheritancesexpected Parentsdonothavea collegedegree 21.9% $76,200 9.5% $100,000 Parentshaveacollege degree 27.2% $92,700 23.6% $200,000 Somefamiliesmaynothavereceivedaninheritancebutexpecttoreceiveoneatalater dateif,forexample,aparentisstillliving.TheSCFcollectsinformationonexpectedinheritancesaswellasreceivedinheritances.Higherlevelsofparentaleducationarealsopositivelyassociatedwithexpectedinheritances.Familieswithaparentwhohasacollege degreearemorethantwiceaslikelytoexpectaninheritance(23.6percent)thanfamilies withoutaparentwhohasacollegedegree(9.5percent).Andconditionalonexpectingan inheritance,familieswithaparentwhohasacollegedegreeexpecttoreceivedoublethe sizeoftheinheritanceoffamilieswithoutaparentwhohasacollegedegree. 1 Parentaleducationreferstothehighestdegreeobtainedbythereferenceperson’smotherorfather. 2 Thevalueofuptothreereportedinheritancesareadjustedto2019dollarsusingtheyearofreceiptandthe consumerpriceindexforallurbanconsumers.AnyadditionalinheritancesareunadjustedbecausetheSCFonly collectstheyearofreceiptforuptothreeinheritances. areassawamodest3percentdipinmediannetworthbutan11percentincreaseinmean networth. Medianandmeannetworthroseformuchof thenetworthdistribution,withthebottom quartile’s5percentlossinmeannetworthrepresentingtheonlydecline.Forthelowest quartile,mediannetworthwas$100in2016and$300in2019,andmeannetworthwas negative$13,000in2016andnegative$13,500in2019.Thewealthportfolioof familiesinthe middleof thenetworthdistributionisdominatedbyhousing,and,assuch,changesintheir wealthbetweensurveystendtoreflecttheextenttowhichgrowthinhousepricessurpassed inflation.30Indeed,boththesecondandthirdquartilessawgrowthintheirmedianandmean networthbetween2016and2019,withthesecondquartileexperiencingparticularlylarge gainsinbothmeasures(36percentand22percent,respectively).Finally,followingoutsized increasesinbothmedianandmeannetworthbetween2010and2016,familiesnearthetop of thewealthdistributionsawverylittlechangeinnetworth;nonetheless,medianandmean networthforthatgroupwereaboutfourandeighttimesthelevelsof thenextdecile, respectively—evidencethatwealthremainsconcentratedamongthesefamilies. Assets In2019,virtuallyallfamiliesownedsometypeof asset,littlechangedfrom2016(table3). Conditionalonholdingatleastoneasset,mediantotalassetholdingsrose13percent,to about$228,000in2019.Theconditionalmeanvalueof totalassetsroseamodest2percent. Financial Assets Overall,98.7percentof familiesin2019ownedatleastonefinancialasset—whichincludes transactionaccounts,certificatesof deposit,savingsbonds,otherbonds,stocks,pooled 30 Forinstance,recessionarydeclinesinhousepricesledtoadisproportionatedecreaseinthewealthoffamiliesin themiddleofthenetworthdistribution.

16 FederalReserveBulletin|September2020 Table3.Holdingandvaluesofassets,2016and2019surveys Thousandsof2019dollars,exceptasnoted Percentholding Conditionalmedianvalue Conditionalmeanvalue Balancesheetitem Percentage Percentage 2016 2019 2016 2019 change 2016 2019 change 2016–19 2016–19 Anyasset 99.4 99.6 201.9 227.6 13 842.3 860.3 2 Typesoffinancialasset Anyfinancialasset 98.5 98.7 25.0 25.7 3 361.5 363.7 1 Transactionaccounts 98.0 98.2 4.8 5.3 11 42.8 41.7 -3 Certificatesofdeposit 6.5 7.7 21.3 25.0 18 80.5 102.0 27 Savingsbonds 8.6 7.5 1.1 .8 -25 10.1 8.5 -16 Bonds 1.2 1.1 106.4 121.0 14 820.0 653.6 -20 Stocks 13.9 15.2 26.6 25.0 -6 348.6 348.5 0 Pooledinvestmentfunds 10.0 9.0 121.2 110.0 -9 825.3 854.3 4 Retirementaccounts 52.1 50.5 63.8 65.0 2 243.5 255.2 5 Cashvaluelifeinsurance 19.4 19.0 9.0 9.0 0 39.8 41.0 3 Othermanagedassets 5.5 5.9 117.0 115.0 -2 503.8 512.2 2 Other 8.1 7.4 5.9 4.0 -32 57.1 73.8 29 Typesofnonfinancialasset Anynonfinancialasset 90.8 91.4 169.0 194.3 15 529.8 544.6 3 Vehicles 85.2 85.4 18.4 17.2 -7 27.0 26.6 -1 Primaryresidence 63.7 64.9 196.8 225.0 14 320.3 344.2 7 Otherresidentialproperty 13.8 13.1 154.9 160.0 3 381.0 400.3 5 Equityinnonresidential property 6.2 6.7 74.5 72.0 -3 505.4 377.1 -25 Businessequity 13.0 13.4 85.0 89.1 5 1,266.4 1,248.7 -1 Other 6.5 7.9 13.8 15.0 8 86.6 75.8 -13 Note:SeetheappendixfordefinitionsofassetcategoriesusedintheSurveyofConsumerFinances. investmentfunds,retirementaccounts,cashvaluelifeinsurance,andothermanaged assets—littlechangedfrom2016.31Theconditionalmedianvalueof allfinancialassetsheld byfamiliesrose3percentto$25,700in2019.Theconditionalmeanvalueincreaseda modest1percentto$363,700.Thelargedifferencebetweenmedianandmeanvalues reflectsthehighlydisproportionateshareof financialassetsheldbysomehouseholds. Transactionaccounts—whichincludechecking,savings,moneymarket,callaccounts,and prepaiddebitcards—remainedthemostcommonlyheldtypeof financialassetin2019, withanownershiprateof morethan98percent.32Theconditionalmedianvalueof transactionaccountsrose11percentbetween2016and2019,to$5,300.Themeanvalueof transactionaccountsin2019wasabout$42,000,downslightlyfrom2016. Thesecond-mostcommonlyheldtypeof financialassetcontinuedtoberetirement accounts—includingindividualretirementaccounts,Keoghaccounts,andcertain employer-sponsoredaccounts,suchas401(k),403(b),andthriftsavingsaccounts.About half of familiesownedsuchaccountsin2019.Theconditionalmedianvalueof retirement accountsincreasedamodest2percentbetween2016and2019,to$65,000,whiletheconditionalmeanvaluerose5percentto$255,200in2019.33 31 SeetheappendixfordetaileddefinitionsofSCFassetandliabilitycategories. 32 Foradiscussiononuseofonlineandin-personbankingservicesfortransactionaccounts,seebox4,“Online Banking.” 33 Formoredetails,seebox6,“RetirementPlanParticipation.”

ChangesinU.S.FamilyFinancesfrom2016to2019 17 Box 4. Online Banking TheSurveyofConsumerFinances(SCF)asksfamiliesabouttheiruseofonlinebanking.1 In2019,familiesreported,onaverage,increaseduseofonlinebanking(figureA,leftbars). FigureA.Participationinbankingactivities,2016and2019 Percent 2016 2019 80 70 60 50 40 30 20 10 0 Used online banking Written a paper check Onequestioniswhetheruseofonlinebankinghasreduceduseofphysicalfinancial services.2Fortunately,theSCFalsocollectssomeinformationonfamilies’useofphysical financialservices.Forexample,thefractionoffamiliesthatwroteapapercheckinthepast 12monthstomakeapaymentdeclinedsomewhatin2019(figureA,rightbars). Thatsaid,evenfamiliesthatusedonlinebankingcontinuedtouseatleastsomephysical financialservices,suchasvisitinglocalbankbranches(tableB).Amongfamiliesthatdid notuseonlinebanking,85percentvisitedtheirmaincheckingaccountbranchand 81percentvisitedtheirmainsavingsaccountbranch.Yet,evenamongthosefamiliesthat usedonlinebanking,79percentvisitedtheircheckingaccountbranchand67percent visitedtheirsavingsaccountbranch.3Onlinebankingappearstobeanimperfectsubstituteforatleastsomephysicalfinancialservices,includingvisitingalocalbankbranch. TableB.Visitingmaincheckingormainsavingsaccountbankbranchinthepast12months,byuseof onlinebankinginthepast12months Percent Typeofbankingactivity Visitedcheckingbranch Visitedsavingsbranch Usedonlinebanking 79 67 Didnotuseonlinebanking 85 81 1 In2016,theSCFchangedthewayitasksaboutonlinebankingtobeaseparatequestion.Before2016,online bankingwasoneoftheoptionsforhowahouseholdinteractedwithafinancialinstitution. 2 Asdiscussedinbox10,“ShoppingforFinancialServices,”morefamiliesareusingtheinternetforinformationon borrowingorinvestingservices,whichmaybecontributingtothereduceduseofphysicalfinancialservices. 3 Thesestatisticsupdatetheestimatesintable1ofElliotAnenberg,AndrewC.Chang,SerafinGrundl,KevinB. Moore,andRichardWindle(2018),“TheBranchPuzzle:WhyAreThereStillBankBranches?”FEDSNotes (Washington:BoardofGovernorsoftheFederalReserveSystem,August20),https://dx.doi.org/10.17016/2380- 7172.2206.

18 FederalReserveBulletin|September2020 Box 5. Direct and Indirect Holdings of Publicly Traded Stock Familiesmayholdstocksinpubliclytradedcompaniesdirectlyorindirectly,andinformationabouteachoftheseformsofstockholdingiscollectedseparatelyintheSurveyof ConsumerFinances.1Whendirectandindirectformsofstockholdingsarecombined,the 2019datashowaslightuptickinstockownershipsince2016.In2019,about53percentof familiesownedstocks,comparedwithnearly52percentin2016(figureA).Groupingfamiliesbytheirlocationintheusualincomedistributionrevealsthatfamiliesinthebottom halfoftheincomedistributionexhibitedanincreaseinstockownershipfrom2016to2019. Thatsaid,inanygivenyear,participationinthestockmarketamongfamiliesinthetwo higherincomegroupsstandswellabovethebottomhalf’sparticipation.In2019,about 31percentoffamiliesinthebottomhalfoftheincomedistributionheldstocks,whereas about70percentoffamiliesintheupper-middle-incomegroupheldstock,andmorethan 90percentoffamiliesinthetopdecileheldstock. FigureA.Familieswithdirectandindirectholdingsofstock,2013–19surveys Percent 100 2013 2016 2019 80 60 40 20 0 Total 0–49.9 50–89.9 90–100 Percentile of usual income Inadditiontothesedifferencesacrossincomegroupsinstockmarketparticipationrates, therearesignificantdifferencesinthevalueofstockmarketholdings,conditionalon holdingstock.In2019,theconditionalmedianvalueofstockholdingsforthebottomhalf oftheincomedistributionwasabout$10,000,comparedwith$40,000fortheuppermiddle-incomegroupandnearly$439,000forthetopincomedecile(tableB).Conditional meanvaluesaresubstantiallylargerthantheconditionalmedianvaluesandexhibitwider differencesacrossgroups. Forthetopdecileofincome,conditionalmedianandmeanvaluesofstockholdingswere higherin2019thanin2016andsubstantiallyabovelevelsobservedin2013.Incontrast, forthebottomhalfofthedistribution,conditionalmedianandmeanvalueswerelowerin 2019relativeto2013.Thatsaid,thesechangesovertimeshouldbeinterpretedwith caution,astheyareinfluencedbychangesinthecompositionoffamiliesholdingstock. Forexample,asnotedearlier,thebottomhalfoftheincomedistributionexhibitedasignificantincreaseinstockmarketparticipationsince2013,whichcouldpushmedianand meanvaluesdownovertime,asnewparticipantsarelikelytohaverelativelysmall amountsinvestedinstocks. continuedonnextpage

ChangesinU.S.FamilyFinancesfrom2016to2019 19 Box 5. Direct and Indirect Holdings of Publicly Traded Stock— continued TableB.Medianandmeanlevelsfordirectandindirectholdingsofstock,2013–19surveys Thousandsof2019dollars Surveyyear 2013 2016 2019 Conditionalmedianvalues All 39.5 42.5 40.0 Percentileofusualincome 0–49.9 11.0 11.2 9.9 50–89.9 38.2 42.5 40.0 90–100 310.9 378.6 438.5 Conditionalmeanvalues All 296.4 366.4 373.2 Percentileofusualincome 0–49.9 58.9 55.7 55.8 50–89.9 145.2 162.8 174.8 90–100 1,064.4 1,452.3 1,505.2 1 Indirectholdingsarethoseinpooledinvestmentfunds,retirementaccounts,andothermanagedassets.Indirect holdings,particularlythroughtax-deferredretirementaccounts,aremuchmorecommonthandirectholdings. Directownershipof stocksincreasedslightlybetween2016and2019,tomorethan 15percentof families.Stocksmayalsobeindirectlyheldinpooledinvestmentfundsand othermanagedassets,whichwereheldby9percentandnearly6percentof families, respectively(formoreonfamilies’stockholdings,seebox5,“DirectandIndirectHoldings of PubliclyTradedStock”).Ratesof ownershipof almostallothertypesof financial assetsarebelow10percent,theexceptionbeingcashvaluelifeinsuranceat19percent. Nonfinancial Assets Ownershipof nonfinancialassets—includingvehicles,residentialornonresidentialproperty,andbusinessequity—remainedhighin2019atabout91percent.Ownershipof primaryresidencesincreasedslightlytoalmost65percentin2019.34Reportedvaluesof primaryresidencesrosemarkedlybetween2016and2019.Theconditionalmedianvalue increased14percentto$225,000.Inadditiontoownershipof primaryresidences,about 13percentof familiesin2019reportedowningotherresidentialproperty,suchassecond homesortimeshares. Themostcommonlyheldtypeof nonfinancialassetin2019wasvehicles,whichincludes cars,vans,sportutilityvehicles(SUV),trucks,motorhomes,recreationalvehicles,motorcycles,boats,airplanes,andhelicopters.Between2016and2019,thefractionof families owningavehicleheldsteadyatabout85percent,buttheconditionalmedianvaluedeclined 7percent,toabout$17,000.35 34 Formoredetails,seebox7,“HomeownershipandNetHousingWealth.” 35 Surveyrespondentsareaskedtoprovidetheyear,make,andmodelofeachoftheircars,vans,SUVs,and trucks.ThisinformationisusedtoobtainmarketpricesfromdatacollectedbytheNationalAutomobile DealersAssociationandavarietyofothersources.Forothertypesofvehicles,therespondentisaskedto provideabestestimateofthecurrentvalue.

20 FederalReserveBulletin|September2020 Box 6. Retirement Plan Participation Participationinretirementplanscanbothincreasefamilies’networthandprovideextra retirementfinancialsecuritythroughlowertaxesonsavings,aguaranteedincomeinretirement,orboth.Inthisdiscussion,afamilyisconsideredaparticipantinaretirementplanif ithasanyofthefollowing:anindividualretirementaccount(IRA);anaccount-typejob pension(definedcontributionplan,orDC),whichincludes401(k)s;oradefined-benefit (DB)pension.Thefollowingdiscussionfocusesonworkingfamilieswithareference personaged35to64,byusualincomegroup.Thefocusisonthesefamiliesbecause, generallyspeaking,thesefamilieshavefinishedtheireducationbuthavenotretired. Acrosstheusualincomedistribution,families,onaverage,sawdecreasesinretirement planparticipationfrom2016to2019(figureA).Thesedecreasesfollowedincreasesin 2016andleftparticipationlittlechanged,onbalance,since2013. FigureA.Participationinanyretirementplan,byusualincomegroup,overtime Percent 100 2013 2016 2019 80 60 40 20 0 Total 0–49.9 50–89.9 90–100 Percentile of usual income Thedeclineinparticipationinanyretirementplanfrom2016to2019wasdrivenby declinesinIRAorDCparticipationacrossallusualincomegroups(figureB,leftbars). Thoughfamiliesinthetopdecileoftheusualincomedistributionslightlydecreasedtheir IRAorDCparticipation,thedecreaseinparticipationforthebottomtwousualincome groupswasmorepronounced,drivenbydeclinesinIRAparticipationinparticular(not shown).1 AlthoughallusualincomegroupsdecreasedIRAorDCparticipation,forfamiliesinthetop halfofthedistribution,therewasapartiallyoffsettingincreaseinDBparticipation,whilefor familiesinthebottomhalf,therewasalsoadeclineinDBparticipation(figureB,rightbars).2 Formanyfamilies,theassetsheldinIRAsandDCplans(typicallyassociatedwitheithera currentjoborapastjob)areamongthemostimportantcomponentsoftheirbalance sheetsandareasignificantdeterminantoftheirfutureretirementsecurity.Amongfamilies thathavetheseassets,theaveragecombinedIRAandDCpensionaccountbalance increasedto$269,600in2019,andthegainsoccurredthroughouttheusualincomedistribution(tableC).Forfamiliesinthebottomhalfofthedistribution,althoughparticipationin IRAorDCplansfellin2019,theaveragebalanceforparticipatingfamiliesincreased slightlyfrom2016,reaching$57,400.Theaveragebalanceforparticipatingfamiliesinthe upper-middlepartofthedistributionincreasedabout$3,700between2016and2019,to continuedonnextpage

ChangesinU.S.FamilyFinancesfrom2016to2019 21 Box 6. Retirement Plan Participation—continued $170,600.Theaveragebalanceforparticipatingfamiliesinthetop10percentofthedistributionincreasedthemost,reaching$692,800. FigureB.2016–19changesindefinedcontributionanddefined-benefitplanparticipation,by usualincome Percentage points 4 Total 3 0–49.9 2 50–89.9 90–100 1 0 -1 -2 DB -3 -4 IRA+DC Note:IRAisindividualretirementaccount,DCisdefinedcontributionplan,andDBisdefined-benefitpension. TableC.Meanretirementsavingsamongthosewithanindividualretirementaccountoran account-typejobpension,familiesages35to64,2013–19surveys 2019dollars Percentileofusualincome 2013 2016 2019 All 213,900 252,700 269,600 0–49.9 42,900 56,900 57,400 50–89.9 161,700 166,900 170,600 90–100 489,900 682,200 692,800 1 ParticipationinIRAorDCplansforthethreeusualincomegroupsfromlowesttohighestincomewere 31(29)percent,74(70)percent,and92(91)percentin2016(2019). 2 ParticipationinDBplansforthethreeusualincomegroupsfromlowesttohighestincomewere17(14)percent, 34(36)percent,and31(35)percentin2016(2019). Ownershipof businessequitywasabout13percentin2019.36Theconditionalmedian valuewasmorethan$89,000,andtheconditionalmeanvaluewasmorethan$1.2million. Thewidedifferencebetweenthemedianandmeanvaluesreflectsthesmallfractionof privatelyheldbusinesseswithveryhighvaluations.Ownershipof equityinnonresidential propertywas6.7percentin2019,andconditionalmedianandmeanvaluesof equityin nonresidentialpropertywereabout$70,000and$375,000,respectively. 36 Formoredetails,seebox8,“HoldingsofBusinessEquity.”

22 FederalReserveBulletin|September2020 Box 7. Homeownership and Net Housing Wealth Thepercentageoffamiliesthatownedtheirprimaryresidenceincreasedfrom63.7percent in2016to64.9percentin2019(figureA).The2016homeownershipratewasthelowest recordedintheSurveyofConsumerFinances(SCF)since1989,andthe2019rateremains wellbelowthepeakobservedin2004.1Acrossfamiliesgroupedbypercentileofusual income,therearelargedifferencesinhomeownershiprates,whichtendtoincreasewith usualincome.Forfamiliesinthebottomhalfoftheincomedistribution,the homeownershipratewas49.1percentin2019,whilethehomeownershiprateforthosein thetop10percentofthedistributionwas93.6percent. Between2016and2019,thehomeownershiprateroseforthebottomhalfandtop 10percentoftheincomedistribution,whiletherateessentiallydidnotchangeforthe upper-middle-incomegroup.The2016–19periodisachangeinthetrendforthebottom usualincomegroup,forwhichhomeownershiphaddeclinedineachsurveysince2007. Forthetopincomegroup,thehomeownershipratehasfluctuatedwithinarelativelynarrow range,between91.4and93.6percent,since2007. FigureA.Homeownershiprate,byusualincomegroup,1995–2019surveys Percent 100 90 80 70 60 50 40 1995 1998 2001 2004 2007 2010 2013 2016 2019 Total 0–49.9 50–89.9 90–100 Forfamiliesthatowntheirprimaryresidence,themediannethousingvalue—definedas thehome’svalueminusanydebtssecuredbythehome(thatis,outstandingmortgages, homeequityloans,andhomeequitylinesofcredit)—increasedbetween2016and2019, continuingtheriseinvaluesbetween2013and2016(tableB).2In2016,amonghomeowningfamilies,themediannethousingvaluewas$106,400.In2019,thatnumberhad risento$120,000,anincreaseof13percent. Acrossusualincomegroups,themediannethousingvalueincreasesasusualincome rises.In2019,themedianvalueofnethousingwealthamonghomeownersinthebottom halfoftheincomedistributionwas$89,000.Forthetopincomegroup,themeannet housingvaluewasalmostfourtimeslarger,at$346,000. Between2016and2019,mediannethousingvalueincreasedforhomeownersinthe bottomhalfoftheincomedistributionaswellasforupper-middle-incomehomeowners. Forthebottomincomegroup,nethousingvaluerosethemost—19percent.Thistrend, continuedonnextpage

ChangesinU.S.FamilyFinancesfrom2016to2019 23 Box 7. Homeownership and Net Housing Wealth—continued alongwiththegroup’sincreaseinhomeownershiprates,contributedtothegroup’sgrowth inwealth. Fortheupper-middle-incomegroup,themediannethousingvalueincreased9percent. Meanwhile,thetopincomegroupsawanethousingvaluedeclineof6percent.These changesstandincontrasttothepatternsin2013and2016,wherehigher-incomehouseholdsgainedmore. TableB.Mediannethousingvalueforhomeowners,2013–19surveys Thousandsof2019dollars Percentileofusualincome 2013 2016 2019 All 87.9 106.4 120.0 0–49.9 65.9 74.5 89.0 50–89.9 84.3 103.6 113.0 90–100 274.5 367.4 346.0 1 Thehomeownershipratein1989was63.9percent.Itrosetoapeakof69.1percentin2004. 2 SCFrespondentsareaskedtoreportthevalueoftheirhome.Onlyprimaryresidencesareincluded.Debtsonthe homeincludeanymortgagesorhomeequityloansagainsttheprimaryresidence. Debt, Debt Burden, and Credit Market Experiences Theshareof familiesholdinganytypeof debtheldsteadybetween2016and2019,at roughly77percent(table4).37Theconditionalmedianvalueof debtincreased2percentto nearly$65,000,andtheconditionalmeanvalueincreased7percenttomorethan$140,000. Table4.Holdingandvaluesofdebtitems,2016and2019surveys Thousandsof2019dollars,exceptasnoted Percentholding Conditionalmedianvalue Conditionalmeanvalue Typesofdebts Percentage Percentage 2016 2019 2016 2019 change 2016 2019 change 2016–19 2016–19 Anydebt 77.1 76.6 63.6 64.8 2 131.2 140.6 7 Securedbyresidentialproperty Primaryresidence 41.9 42.1 118.1 134.8 14 167.7 180.8 8 Other 5.6 4.7 106.4 122.0 15 170.8 205.9 21 Linesofcreditnotsecuredby residentialproperty 1.8 1.5 3.2 2.0 -37 59.2 40.4 -32 Installmentloans Educationloans 22.4 21.5 20.2 22.3 10 36.4 40.3 11 Vehicleloans 33.8 36.9 13.6 13.1 -4 18.3 17.6 -4 Otherinstallmentloans 11.2 10.5 3.6 3.8 5 16.4 20.6 26 Creditcardbalances 43.9 45.4 2.4 2.7 10 6.1 6.3 3 Other 5.4 5.2 5.3 5.0 -6 28.5 24.7 -13 Note:SeetheappendixfordefinitionsofliabilitycategoriesusedintheSurveyofConsumerFinances. 37 Foradiscussionoftheresourcesthatfamiliesusewhenmakingborrowingandinvestmentdecisions,see box10,“ShoppingforFinancialServices.”SeetheappendixforadetaileddefinitionofSCFliabilitycategories.

24 FederalReserveBulletin|September2020 Debt Holdings by Type About42percentof familiesin2019helddebtsecuredbyaprimaryresidence,similarto thepercentagein2016.Asobservedearlierintable3,about65percentof familiesin2019 ownedtheirprincipalresidence.Thesenumbersimplythatalmosttwo-thirdsof homeownershavehome-secureddebt,whilemorethanone-thirdof homeownersowntheir homefreeof debt. Theconditionalmedianandmeanvaluesof home-secureddebtincreasedbetween2016 and2019,closelytrackingtheriseinhomevaluesshownintable3.Theconditionalmedian valueof home-secureddebtincreased14percent,from$118,100to$134,800,andthe conditionalmeanvalueof home-secureddebtincreased8percent. Creditcarddebtcontinuedtobethemostwidelyheldtypeof debtin2019,withmorethan 45percentof familiesreportingacreditcardbalanceaftertheirlastpayment.Of those withcreditcarddebt,themedianfamilyowed$2,700in2019,up10percentfrom2016. About37percentof familiesheldvehicleloans,andnearly22percentof familieshad educationloansin2019.Conditionalmedianandmeanbalancesonvehicleloansdeclined between2016and2019,asdidvehiclevaluesshownintable3.Incontrast,conditional medianandmeanbalancesoneducationloansincreasedmuchmorebetweensurveys—to $22,300and$40,300,respectively—representingacontinuationof thelong-termtrendof risingeducationdebt.(Formoreoneducationdebt,seebox9,“EducationDebt.”) In2019,10.5percentof familiesheldotherinstallmentloans,downslightlyfrom2016. Theseloansareoftenassociatedwithpurchasesof furniture,appliances,andotherdurable goods,thoughthecategoryalsoincludesmedicaldebt. Debt Burden Theabilityof individualfamiliestoservicetheirloansisafunctionof manyfactors, includingthelevelof theirloanpaymentsandtheincomeandassetstheyhaveavailableto meetthosepayments.Inplanningtheirborrowing,familiesmakeassumptionsabouttheir futureabilitytorepaytheirloans.Problemsmayoccurwheneventsturnouttobecontrary tothoseassumptions.If economicshocksaresufficientlylargeandprevalent,abroadpattern of default,restraintinspending,andfinancialdistressinthewidereconomymightensue. TheSCFdatacanbeusedtoconstructthreemeasuresof debtburdens:leverageratios, debt-to-incomeratios,andpayment-to-incomeratios.Leverageratioscomparedebtsto assets,debt-to-incomeratioscomparedebttoincome,andpayment-to-incomeratios comparepaymentsmadeondebtrelativetoincome.Allthreeratioscanbeconstructed eitherinaggregateorasamedianfordebtors.38 Mostof theseratiosincreasedslightlybetween2016and2019,implyingfamiliesfaced somewhathigherdebtburdens,afterhavingdeclinedfrom2010to2016(table5).39 However,theseratiosremainbelowtheirlevelsjustbeforethe2007–08financialcrisis.In 2019,themedianleverageratiofordebtorswasslightlybelowits2007levelat33.9percent; mediandebt-to-incomeandpayment-to-incomeratiosfordebtorsin2019—at 95.7percentand15.3percent,respectively—werewellbelow2007levels.40 38 Theaggregateisdefinedasthetotalamountofdebtheld(orpayments)dividedbythetotalassetsheld(or income)amongallsurveyrespondents.Themedianfordebtorsisdefinedasthemedianofeachindividual family’sratioamongthosecarryingdebtonly. 39 Fordefinitionsofthecomponentsoftable5,seetheappendix. 40 Analternativeaggregateversionofpayment-to-incomeratiosisthedebtserviceratio.SeeKarenDynan,

ChangesinU.S.FamilyFinancesfrom2016to2019 25 Box 8. Holdings of Business Equity About13percentoffamiliesinthe2019SurveyofConsumerFinances(SCF)owneda privatelyheldbusiness,whichisupslightlyrelativetothepasttwosurveys(figureA).1As inpastsurveys,businessownershipincreaseswithincome,andnearly40percentoffamiliesinthetopincomedecileownabusiness. FigureA.Familieswithholdingsofbusinessequity,byusualincomegroup Percent 40 2013 2016 2019 35 30 25 20 15 10 5 0 Total 0–49.9 50–89.9 90–100 Percentile of usual income MostfamiliesthatownbusinessesintheSCFemployfewerthanfivepeople(tableB).2For thesefamilies,meanbusinessequityinthe2019SCFwasabout$450,000,whilemean businessequityforfamiliesthatownbusinesseswithfiveormoreemployeeswasabout $4.1million.Forbusinessesofeachsize,medianvaluationsweremoremodest($50,000 forsmallerand$725,000forlargerbusinesses). TableB.Assetsandincome,bysizeofbusiness Percentor2019dollars Businessowners Percentileofusualincome Allothers Lessthanfiveemployees Fiveormoreemployees Shareofbusinesses 78 22 n.a. Businessassets(mean) $ 447,400 $4,081,500 n.a. Businessassets(median) $ 50,000 $ 725,000 n.a. Networth*(mean) $1,327,500 $3,479,500 $392,100 Networth*(median) $ 308,100 $1,065,600 $ 89,000 Usualincome(mean) $ 166,700 $ 498,900 $ 82,000 Usualincome(median) $ 97,600 $ 258,600 $ 54,500 n.a.Notapplicable. *Networthexcludesthevalueofbusinesses. Business-owningfamiliesalsotendtobewealthierandhavehigherincomesthanfamilies withoutabusiness(tableB).Forexample,themeannetworthoffamilieswithouta continuedonnextpage KathleenJohnson,andKarenPence(2003),“RecentChangestoaMeasureofU.S.HouseholdDebtService,” FederalReserveBulletin,vol.89(October),pp.417–26,https://www.federalreserve.gov/pubs/bulletin/2003/ 1003lead.pdf.Adiscussionofhowthismeasurecompareswiththeonepresentedherecanbefoundinthe appendix.

26 FederalReserveBulletin|September2020 Box 8. Holdings of Business Equity—continued businesswasabout$400,000,whilethemeannetworthoffamiliesthatownbusinesses employingfewerthanfivepeopleorfiveormorepeople—excludingthevalueof businesses—wasabout$1.3millionand$3.5million,respectively.Asimilarpatternis observedformeanandmedianfamilyincome(tableB). 1 Theformsofbusinessinthiscategoryaresoleproprietorships,limitedpartnerships,othertypesofpartnerships, subchapterScorporationsandothertypesofcorporationsthatarenotpubliclytraded,limitedliabilitycompanies, andothertypesofprivatebusinesses.Ifthefamilysurveyedlivedonafarmorranchusedatleastinpartfor agriculturalbusiness,thevalueofthatpart,netofthecorrespondingshareofassociateddebts,isincludedwith otherbusinessassets.Note:Thisdefinitionexcludesthe5percentofSCFfamiliesinwhichthereferencepersonis self-employedbutdoesnotreportabusinessinterest. 2 Forfamilieswithmorethanonebusiness,weusethebusinesswiththelargeramountofemployees. Anotherimportantindicatorof potentialfinancialdistressistheproportionof families withunusuallylargedebtburdens.In2019,7.4percentof debtorshadpayment-to-income ratiosgreaterthan40percent.Thisvaluerepresentsaslightincreasefrom2016,when 7.0percentof debtorshadpayment-to-incomeratiosgreaterthan40percent.However,the levelin2019issubstantiallylowerthanthelevelobservedin2007. Credit Market Experiences TheSCFalsocollectsvariousmeasuresof respondents’recentexperienceswithcredit markets,suchasinformationoncreditapplicationsandpaymentbehavior.TheSCFasks severalquestionsthatattempttocapturewhetherfamiliesarecreditconstrained,twoof whichare(1)whetherthefamilywasturneddownforcreditoverthepast12months,and (2)whetherthefamilydecidednottoapplyforcreditduringthepast12monthsforfearof beingturneddown.41In2019,almost11percentof familiesresponded“yes”tothefirst question,andabout13percentresponded“yes”tothesecond. SCFfamilies’capacitytostaycurrentontheirfinancialobligationsimprovedbetween2016 and2019,continuingatrendsince2010(table5).Familiesthathaveanydebtatthetimeof theirinterviewareaskedwhethertheywerebehindonanyof theirloanpaymentsinthe precedingyear.In2019,12.3percentof familiesreportedbeinglateonpayments,down from13.5percentin2016and20.8percentin2007.Thepercentageof familiesthat reportedbeing60dayslateormoredeclinedfrom5.8percentin2016to4.6percentin 2019,substantiallybelowtherecentpeakof 8.1percentin2010. TheSCFasksrespondentsif theyhavetakenoutapaydayloaninthepastyear.Payday loansareunsecuredloansthataretypicallysmallandshortterm,andtheygenerallycarry interestratesfarexceedingthoseforconventionalformsof credit.In2019,about3percent of familiesreportedtakingoutapaydayloan,similarto2016. Additionalmeasuresof financialdistressarewhetherfamilieshavedeclaredbankruptcyor experiencedaforeclosure.In2019,2percentof familiesreportedhavingdeclared bankruptcyinthepastfiveyears,andabout1percentof familiesreportedhavingforeclosureproceedingsbroughtagainstpropertiestheyownedinthepastfiveyears.42 41 This12-monthtimeframediffersfromanalogousquestionsinsurveysbefore2016,whichhadaskedfamilies abouttheirexperienceswithcreditconstraintsoverthepastfiveyears.Consequently,table5reportsonlyone yearofhistoricaldataoncreditconstraintsoverthepast12months. 42 TheSCFbeganaskingaboutforeclosureexperiencesstartingwiththe2016survey.

ChangesinU.S.FamilyFinancesfrom2016to2019 27 Box 9. Education Debt Studentdebtcontinuedtobethelargestsource,indollarterms,ofnonmortgagedebt owedbyfamiliesinthe2019SurveyofConsumerFinances(SCF)(seetable4inthe maintext). Theamountofstudentdebtthatafamilyhascancorrelatenegativelyorpositivelywith economicwell-being.Ontheonehand,increasedstudentborrowingcanreflectlower socioeconomicstatusduringschoolingthatpersistsintolaterperiods.Inaddition,higher studentdebtbalancesmaycrowdoutconsumptionorinvestmentopportunities,either directlyorindirectly(viareducedaccesstocredit).Ontheotherhand,higherstudentdebt balancesmayreflectmoretimeinschoolormoreexpensiveeducation,bothofwhichare often,butnotalways,commensuratewithbetterfutureeconomicpositions.TableA comparesfamiliesacrossthedistributionofstudentdebtalongseveralkeydimensions generallyunavailableinotherdatasourcesandhelpsillustratethistension. TableA.Characteristicsoffamilieswithstudentdebt,2019 2019dollars,exceptasnoted Tercileofstudentdebt Familycharacteristics All Lowest Middle Highest Meanstudentdebt 5,900 23,900 92,600 40,300 Meanincome 95,200 87,400 98,800 93,800 Meannetworth (excludingstudentdebt) 230,700 193,800 298,600 240,800 Meanstudentloan payment-to-incomeratio 1.9% 2.9% 5.0% 3.3% Percentageoffamilies withzeropayment 28% 30% 30% 29% Percentageoffamilies makingpaymentsunder income-driven repaymentplan 27% 32% 45% 35% Percentageoffamilies thatowntheirhome 54% 55% 59% 56% Percentageoffamilies thatcompletedtheir degree 55% 63% 78% 65% Percentageoffamilies withmaster’sdegreeor higher 14% 20% 52% 28% Meanageofreference person(years) 40 39 40 40 Note:Thistableexcludesfamilieswithzeroeducationdebt.Educationlevelreferstothemaximumeducationbetweenareferencepersonand hisorherspouseorpartner.Degreecompletionreferstotheeducationalprogramthatthehousehold’sfirstreportedstudentloanfinanced. The22percentoffamilieswithstudentdebthadloweraverageincomeandnetworth (excludingstudentdebt)thanthepopulation(seetables1,2,and4inthemaintext). However,therelationshipisnotasclearcutacrossthedistributionoffamilieswithstudent debt,asbothincomeandwealthexhibitaU-shapeacrossthedistribution,withthosein themiddleofthedistribution(thataveraged$23,900ofstudentdebt)havinglowerincome andwealththanthelowestandhighestterciles(thataveraged$5,900and$92,600, respectively). Somemeasuresoffinancialhardship,though,risethroughoutthedistribution.1Thelikelihoodafamilywasmakingpaymentsunderanincome-drivenrepayment(IDR)planaswell asthelikelihoodafamilywasnotmakingstudentloanpaymentsbothincreasewith studentdebt.2Notably,45percentoffamiliesinthetopone-thirdofthedistribution reportedpayingunderanIDRplanin2019,aratemorethan10percentagepointshigher thaneitheroftheothertwogroups.Further,despitedisproportionatelymanyfamilies continuedonnextpage

28 FederalReserveBulletin|September2020 Box 9. Education Debt—continued makingzeroorreducedpayments,averagestudentloanrepaymentburdens,asmeasured bythepayment-to-incomeratio,increasealongthedistribution. Othermeasuresindicatethateconomicpositionsimprovethroughoutthedistribution. Familieswithmoredebtin2019weremorelikelytobothhavegraduatedandholdan advanceddegree,withthoseinthetopone-thirdofthedistributionmorethan 20percentagepointsmorelikelytohavecompletedtheirprogramandmorethan 35percentagepointsmorelikelytohaveatleastamaster’sdegreethanthoseinthe bottomone-third.3Additionally,thosewithmorestudentdebtweremorelikelytoown theirhomes. FigureBshowsthedistributionofstudentdebtacrossusualincomequintilesthroughits surgeoverthepastcoupleofdecades.Whilethereissomevariationinhowthedebtwas apportionedacrossquintilesovertime,thedistributionin2019closelyresembledthe distributionin2001.Inaddition,acrosssurveyperiods,studentdebthasconsistentlybeen disproportionatelyheldbyhigher-incomefamilies,whichlikelycansupporttheirloan payments.Indeed,ineachsurvey,morethanhalfofoutstandingstudentdebtbelongedto thetop40percentoftheincomedistribution,andthebottomquintileneverheldmorethan 14percentofthedebt. FigureB.Shareofeducationdebt,byquintileofusualincomeovertime Percent 35 2001 2007 2013 2019 30 25 20 15 10 5 0 Lowest Second Middle Fourth Highest 1 TableAindicatesthat35percentoffamilieswithstudentdebtweremakingapaymentunderanIDRplanin2019. IncludingfamiliesthatwereonanIDRplanbutnotmakingapaymentincreasesthisfigureto37percent.In2018, 29percentoffederalDirectLoanstudentborrowerswereonanIDRplan,ascalculatedbytheCollegeBoardusing datafromtheFederalStudentLoanPortfolio;seepage20ofhttps://research.collegeboard.org/pdf/trendsstudent-aid-2018-full-report.pdf. 2 Thatsaid,thefractionoffamilieswithstudentdebtthatheldaprivatestudentloan—whicharenotalleligiblefor IDRplansandcanhavehigherinterestratesthanfederalstudentloans—wasinverselyrelatedtotheamountof studentdebtafamilyhad(notshown). 3 TheSCFasksrespondentswithstudentloanswhethertheycompletedtheeducationalprogramthateachstudent loanfinanced,andweusetheresponsethatreferstothefirstreportedstudentloan.Elsewhereinthesurvey, respondentsareaskedabouttheireducationalattainmentandthatoftheirspouseorpartner,neitherofwhichwas necessarilyfinancedwithloans.Further,32percentoffamiliesonIDRplanshadatleastamaster’sdegree(not shown),whichishigherthan28percentofallfamilieswithstudentdebtwithamaster’sdegreeintableA.These patternsareconsistentwitharecentCongressionalBudgetOfficereportthatfoundthatindividualswhoborrowed toattendgraduateprogramshavemuchlargerloanbalances,onaverage,andaremorelikelytoenrollinIDRplans thanthosewhoborrowedonlytoattendundergraduateprograms;seehttps://www.cbo.gov/system/files/2020-02/ 55968-CBO-IDRP.pdf.

ChangesinU.S.FamilyFinancesfrom2016to2019 29 Table5.Debtburdensandcreditmarketexperiences,2007–19surveys Percent Measureofdebtburdenorinteraction 2007 2010 2013 2016 2019 withcreditmarkets Debtburden Leverageratio Aggregate 14.8 16.4 14.6 12.1 12.6 Medianfordebtors 34.8 41.3 38.6 36.4 33.9 Debt-to-incomeratio Aggregate 115.2 124.7 104.6 92.6 101.2 Medianfordebtors 111.1 118.8 107.3 95.1 95.7 Payment-to-incomeratio Aggregate 14.6 14.7 12.0 10.8 11.8 Medianfordebtors 18.7 18.1 15.9 14.7 15.3 Fractionwithpayment-to-incomeratiogreater than40percent 11.4 10.4 8.2 7.0 7.4 Creditmarketexperiences Creditconstrained Turneddownforcredit(pastyear) n.a. n.a. n.a. 10.8 10.7 Didnotapplyforcreditforfearofbeingturned down(pastyear) n.a. n.a. n.a. 14.4 12.7 Eitherturneddownforcreditorfeareddenial (pastyear) n.a. n.a. n.a. 20.8 18.4 Eitherturneddownforcreditorfeareddenial (past5years) 24.5 28.3 27.6 n.a. n.a. Lateonpayments Lateonpayments 20.8 17.3 14.9 13.5 12.3 Lateonpayments60daysormore 5.5 8.1 6.9 5.8 4.6 Tookoutapaydayloaninpastyear 2.4 3.9 4.2 3.4 2.8 Declaredbankruptcyinpast5years 3.8 3.6 4.1 3.0 2.0 Hadforeclosurestartinpast5years n.a. n.a. n.a. 2.1 1.3 Usedcreditcardsforconvenienceonly(thatis,do notcarryabalance) 56.2 63.0 64.0 57.5 56.0 Note:Seetheappendixforadescriptionofmeasuresofdebtburdenandcreditmarketexperiences. n.a.Notavailable(relevantdatanotcollected). Finally,between2016and2019,theshareof familiesthatusedacreditcardexclusivelyfor convenience(thatis,theydidnotcarryabalance)essentiallydidnotchange,remaining severalpercentagepointsbelowthe2010and2013shares.

30 FederalReserveBulletin|September2020 Box 10. Shopping for Financial Services Aspartoftheirfinanciallives,familiesmakeavarietyofdecisionstoselectloanproducts foranycredittheymayuseorinvestmentproductsforanysavingstheymayhave.Tothe extentthatfamiliesdevotemoreorlessattentiontosuchdecisions,orarebetterorworse informed,thewealthofotherwisecomparablefamiliesmaydiffersubstantiallyovertime. TheSurveyofConsumerFinances(SCF)containsaself-assessmentoffamilies’intensity ofshoppingforborrowingandinvestingservices.Since2016,theSCFhasaskedfamilies toratetheintensityofsearchingforborrowingorinvestingservices,separately,ona0to 10scale,with10beingthehighestintensity.1 Families’intensityofshoppingforborrowingorinvestingservicesremainedstableata moderatelevelfrom2016to2019(tableA).Anothersimilartrendin2019isthatfamilies withhigherusualincome,onaverage,reportedthattheysearchmoreintenselyforboth borrowingandinvestingservicesthanfamilieswithlowerusualincome.Amongfamilies thatreportedeithera9or10forborrowing(investing)searchintensity,familiesinthetop usualincomedecilewereoverrepresentedbyabout21(16)percent. TableA.Meanamountofshoppingaroundbyfamilies,byusualincomegroup,2016and2019 Index,0–10 Percentileofusual Shopforcredit,2016 Shopforcredit,2019 Shopforinvestment,2016 Shopforinvestment,2019 income All 6.5 6.5 6.0 5.9 0–49.9 5.9 5.8 5.5 5.4 50–89.9 7.1 7.1 6.4 6.3 90–100 7.3 7.4 7.0 6.8 Note:Meanintensityofshoppingforcreditorinvestmentinformationbyusualincomepercentile.Intensityofshoppingrangesfrom0to10, with10beingthehighest. TheSCFalsoasksfamilieswhatsourcesofinformationtheyusetomakedecisionsabout borrowingorinvesting(tableB).2Ingeneral,in2019,familiesreliedmostheavilyonthe internet,personalconnections,andbusinessprofessionalsforbothborrowingand investinginformation.3 TableB.Sourcesofinformationforborrowingandinvestingdecisions Percent Forcredit Forinvestments Sourceof information 2001 2010 2019 2001 2010 2019 Callingaround 36.2 26.9 20.7 19.4 15.7 13.1 Advertisements andmedia 41.8 34.2 25.0 26.8 26.1 19.5 Internet 21.8 41.7 55.5 14.8 33.0 45.2 Friends, relatives, associates 39.1 42.8 49.2 36.0 39.7 43.5 Business professionals 39.7 47.6 53.7 48.9 56.7 56.5 Doesnotborrow orinvest 10.9 14.5 10.0 9.4 11.7 8.1 Other 8.9 5.5 6.2 15.1 8.0 9.2 Theinternethasbecomeanincreasinglyimportantsourceofinformationovertime.For informationonborrowing,55percentoffamiliesreportedusingtheinternetin2019,up 14percentagepointsfrom2010andup34percentagepointssince2001.Similarly,for informationoninvesting,45percentoffamiliesreportedusingtheinternet,up 12percentagepointsfrom2010andup30percentagepointsfrom2001. continuedonnextpage

ChangesinU.S.FamilyFinancesfrom2016to2019 31 Box 10. Shopping for Financial Services—continued Familiesreportedlessrelianceonotherformsofadvertisementsandmediaforinformation onborrowingorinvesting,alsocontinuingalong-runtrendandbalancingoutincreased internetuse.Theuseoffriends,relatives,associates,andbusinessprofessionalsas sourceshastrendedupwardsince2001forbothborrowingandinvestinginformation, althoughitwasroughlystablefrom2016to2019(notshown). 1 Before2016,theSCFalsoaskedaboutshoppingforfinancialservices,thoughtheresponseoptionswereona five-pointscale,with1equaling“almostnoshopping,”3equaling“moderateshopping,”and5equaling“agreat dealofshopping.” 2 TheSCFasksfamiliestolistallsourcesofinformationfrom24options.TableBcombinessomeoftheseoptions. Advertisementsandmediaincludethesumofresponsestofouroptions:advertisements,magazines,mail,andTV orradio.Businessprofessionalscombinessevenoptions:accountant,banker,broker,financialplanner,insurance agent,lawyer,andrealestateagent.Otherconsistsofnineoptions:don’tshop,materialfromwork,past experience,personalresearch,otherinstitution,selforspouse,shoparound,storeordealer,andtelemarketer. Callingaround,internet,andfriendorrelativeareindividualoptions. 3 Onewaytomeasuretherelationshipbetweenthesourcesofinformationforborrowingversusinvestingisusing theSpearmancorrelation.TheSpearmancorrelationcomparestherank-orderofselectionsbetweentwosetsof options.Usingall24possibleresponseoptions,theSpearmancorrelationbetweensourcesofinformationfor borrowingversusinvestingin2019was0.89. Appendix: Survey Procedures and Statistical Measures The2019datausedherearederivedfromthefinalinternalversionof thesurveyinformation.Datafromthissurvey,suitablyalteredtoprotecttheprivacyof respondents,along withadditionaltabulationsof datafromthesurveysbeginningwith1989,areexpectedto beavailableinSeptember2020ontheFederalReserveBoard’swebsite.43 Aspartof thegeneralreconciliationsrequiredforthisarticle,thesurveydatawere comparedwithmanyexternalestimates.Oneparticularlyimportantcomparisonisbetween theSurveyof ConsumerFinances(SCF)andtheFederalReserve’sStatisticalReleaseZ.1, “FinancialAccountsof theUnitedStates,”forthehouseholdsector.44Thiscomparison suggeststhatwhenthedefinitionsof thevariablesinthetwosourcesareadjustedtoa commonconceptualbasis,theestimatesof totalsinthetwosystemstendtobeclose.The dataseriesintheSCFandinStatisticalReleaseZ.1usuallyshowverysimilargrowth rates.45Ingeneral,themedianvaluesforincomeandnetworthintheSCFaremost 43 Datafromthe2019SCFaswellaslinkstothedatausedinthisarticleforearlierperiodsandlinkstoworking papersdescribingstatisticalmethodologiesareavailableontheBoard’swebsiteathttps://www.federalreserve .gov/econresdata/scf/scfindex.htm.Resultsreportedinthisarticleforearliersurveysmaydifferfromtheresults reportedinearlierarticlesbecauseofadditionalstatisticalprocessing,correctionofdataerrors,revisionsto thesurveyweights,conceptualchangesinthedefinitionsofvariablesusedinthearticles,andadjustmentsfor inflation. 44 SeeBoardofGovernorsoftheFederalReserveSystem(2020),StatisticalReleaseZ.1,“FinancialAccountsof theUnitedStates”(June11),https://www.federalreserve.gov/releases/z1;andMichaelBatty,JesseBricker, JosephBriggs,ElizabethHolmquist,SusanMcIntosh,KevinMoore,EricNielsen,SarahReber,MollyShatto, KamilaSommer,TomSweeney,andAliceHenriquesVolz(2019),“IntroducingtheDistributionalFinancial AccountsoftheUnitedStates,”FinanceandEconomicsDiscussionSeries2019-017(Washington:Boardof GovernorsoftheFederalReserveSystem,March),https://dx.doi.org/10.17016/FEDS.2019.017. 45 Fordetailsonhowthesecomparisonsarestructuredandtheresultsofcomparisonsforearliersurveys,see AliceM.HenriquesandJoanneW.Hsu(2013),“AnalysisofWealthUsingMicroandMacroData:A ComparisonoftheSurveyofConsumerFinancesandFlowofFundsAccounts,”FinanceandEconomics DiscussionSeries2013-46(Washington:BoardofGovernorsoftheFederalReserveSystem,May),https:// www.federalreserve.gov/pubs/feds/2013/201346/201346pap.pdf;andLisaJ.Dettling,SebastianJ.Devlin-Foltz, JacobKrimmel,SarahJ.Pack,andJeffreyP.Thompson(2015),“ComparingMicroandMacroSourcesfor HouseholdAccountsintheUnitedStates:EvidencefromtheSurveyofConsumerFinances,”Financeand EconomicsDiscussionSeries2015-086(Washington:BoardofGovernorsoftheFederalReserveSystem, June),http://dx.doi.org/10.17016/FEDS.2015.086.

32 FederalReserveBulletin|September2020 comparablewithvaluesinotherhouseholdsurveysbecauseof thespecialdesignof the SCFsample.46 Adjustment for Inflation Inthisarticle,unlessotherwisespecified,alldollaramountsfromtheSCFareadjustedto 2019dollarsusingthe“currentmethods”versionof theconsumerpriceindex(CPI)forall urbanconsumers.Inanongoingefforttoimproveaccuracy,theU.S.Bureauof Labor StatisticshasintroducedseveralrevisionstoitsCPImethodology.Thecurrent-methods indexattemptstoextendthesechangestoearlieryearstoobtainaseriesasconsistentas possiblewithcurrentpracticesintheofficialCPI.47Toadjustassetsandliabilitiesto2019 dollarsandtoadjustfamilyincomefortheprecedingcalendaryearto2019,thefigures giveninthefollowingtablewereapplied: Adjustmentfactorforassetsanddebtsinthe Adjustmentfactorforincomeinthecalendaryear Surveyyear surveyyear beforethesurveyyear 2004 1.3557 1.3923 2007 1.2344 1.2694 2010 1.1782 1.1977 2013 1.0982 1.1144 2016 1.0636 1.0773 2019 1.0000 1.0181 Definition of “Family” in the Survey of Consumer Finances Thedefinitionof “family”usedthroughoutthisarticlediffersfromthattypicallyusedin othergovernmentstudies.IntheSCF,ahouseholdunitisdividedintoaprimaryeconomic unit(PEU)—thefamily—andeveryoneelseinthehousehold.ThePEUisintendedtobe theeconomicallydominantsinglepersonorcouple(whethermarriedorlivingtogetheras partners)andallotherpersonsinthehouseholdwhoarefinanciallyinterdependentwith thateconomicallydominantpersonorcouple. ThisreportalsodesignatesareferencepersonwithinthePEU,nottoconveyajudgment abouthowanindividualfamilyisstructuredbutasameansof organizingthedataconsistently.Forexample,theageandeducationalclassificationsascribedtofamilies throughoutthisreportdescribetheageandeducationof thereferenceperson.If acouple iseconomicallydominantinthePEU,thereferencepersonisthemaleinamixed-sex coupleortheolderpersoninasame-sexcouple.If asinglepersoniseconomicallydominant,thatpersonisdesignatedasthefamilyreferencepersoninthisreport.Notethatthe 46 FamilyincomemeasureshelphighlighttheissuesthatcanarisewhencomparingSCFmediansandmeans againstothersurveyestimates.Overthe2016–19period,estimatesofinflation-adjustedhouseholdincomefor thepreviousyearfromtheCurrentPopulationSurvey(CPS)oftheU.S.CensusBureaushowanincreasein boththemedian(6.3percent)andthemean(7.4percent).Thechangeinthemedianisslightlylargerthanthe correspondingincreaseintheSCF,whereasthechangeinthemeanisoppositesigned.Themediansfor2019 aresimilarintheSCF($58,600)andtheCPS($64,200).Typically,theSCFshowsahigherlevelofmean incomethandoestheCPS;for2019,theSCFyieldsanestimateof$106,500,whiletheCPSyieldsanestimate of$91,600.Thetwosurveysdifferintheirdefinitionsoftheunitsofobservationandinotheraspectsoftheir methodologies.MostrelevantisthefactthataCPShouseholdcancontainmorepeoplethanacorresponding SCFfamily.IftheSCFmeasureisexpandedtoincludetheincomeofhouseholdmembersnotincludedinthe SCFdefinitionofafamily,themedianrises4.6percentovertheperiod(from$60,300in2016to$63,100in 2019),whilethemeandecreasesasmaller1.9percent(from$112,700in2016to$110,600in2019).The substantialdifferenceinmeansislikelylargelytheresultofthetruncationoflargevaluesintheCPSdataabove acertainamount,whichisdonewiththeintentofminimizingthepossibilitythatparticipantsinthatsurvey mightbeidentifiable. 47 Fortechnicalinformationabouttheconstructionofthisindex,seeKennethJ.StewartandStephenB.Reed (1999),“ConsumerPriceIndexResearchSeriesUsingCurrentMethods,1978–98,”MonthlyLaborReview, vol.122(June),pp.29–38.

ChangesinU.S.FamilyFinancesfrom2016to2019 33 term“referenceperson”isanewdescriptorasof the2019survey,replacingtheoutdated “householdhead”terminologyusedinprevioussurveys. Asset and Liability Categories in the Survey of Consumer Finances Thespecificconceptsof assetandliabilitycategoriesintheSCFarenecessarilytiedtothe surveyquestionwordingandassociatedfieldinterviewerinstructions,bothof whichcanbe foundintheSCFcodebookfortheyear(s)inquestion.48Whatfollowsisageneralexpositionof theassetandliabilitycategoriesreportedinthetables. Transactionaccountsincludechecking,savings,andmoneymarketdepositaccounts; moneymarketfunds(MMF);callorcashaccountsatbrokerages;andprepaiddebitcards. Callaccountsincludethosethatholdmoneyreceivedfromthesaleof securitiesuntilthe moneyisreinvested.Thesavingsaccountcategoryincludesarelativelysmallnumberof tax-preferredaccountssuchasmedicalorhealthsavingsaccountsandCoverdellor 529educationaccounts.Prepaiddebitcards,collectedintheSCFforthefirsttimein2016, includereloadableprepaiddebitcardsandgovernmentbenefitcards. Certificatesof depositareaccountsheldforasetperiodthatmustbecashedorrenewedat thematuritydate.SavingsbondsincludeonlyU.S.governmentissues;recentseriesinclude EE,HH,andI,andolderbondsmaybeseriesEandH.Otherbondsincludeonlythose helddirectly(notpartof amanagedinvestmentaccountorbondfund)andincludecorporateandmortgage-backedbonds;federal,state,andlocalgovernmentbonds;andforeign bonds.Stocksincludepubliclytradedstocksthataredirectlyheld—thatis,corporateequitiesnotheldaspartof amanagedinvestmentaccountormutualfund. Pooledinvestmentfundsincludestockfunds,tax-freebondfunds,governmentbondfunds, otherbondfunds,andanycombinationsthereof butexcludeMMFsandindirectlyheld mutualfunds.Thesefundsincludeallothertypesof directlyheldpooledinvestments,such astraditionalopen-endandclosed-endmutualfunds,exchange-tradedfunds,realestate investmenttrusts,andhedgefunds. Retirementaccountsincludeindividualretirementaccounts,Keoghaccounts,andcertain employer-sponsoredaccounts,suchas401(k),403(b),andthriftsavingsaccountsfrom currentorpastjobs;othercurrentjobplansfromwhichloansorwithdrawalscanbemade; andaccountsfrompastjobsfromwhichthefamilyexpectstoreceivetheaccountbalance inthefuture.Thisdefinitionof employer-sponsoredplansisintendedtoconfinethe analysistoaccountsthatareportableacrossjobsandforwhichfamilieswillultimatelyhave theoptiontowithdrawthebalance.Usually,suchaccountsmaybeinvestedinvirtuallyany asset,includingstocks,bonds,pooledinvestmentfunds,options,andrealestate.Inprinciple,employer-sponsoredplansmaybeinvestedinasimilarlybroadway,but,inpractice,a person’schoicesforinvestmentaresometimeslimitedtoanarrowersetof assets.49 48 CodebooksforeachSCFwavecanbefoundathttps://www.federalreserve.gov/econresdata/scf/scfindex.htm. 49 Althoughtax-deferredretirementassetsareclearlyanimportantelementinretirementplanning,familiesmay holdavarietyofotherassetsintended,atleastinpart,tofinanceretirement.Twocommonandoftenparticularlyimportanttypesofretirementplansarenotincludedintheassetsdescribedinthissection:SocialSecurity (thefederallyfundedOld-AgeandSurvivors’Insuranceprogram(OASI))andemployer-sponsoreddefinedbenefit(DB)plans.OASIiswelldescribedelsewhere,anditcoversthegreatmajorityofthepopulation.(See SocialSecurityAdministration,“OnlineSocialSecurityHandbook:YourBasicGuidetotheSocialSecurity Programs,”Publication65-008,https://www.ssa.gov/OP_Home/handbook/handbook.html.)Theretirement incomeprovidedbyDBplansistypicallybasedonworkers’salariesandyearsofworkwithanemployer,a groupofemployers,oraunion.Unfortunately,futureincomestreamsfromOASIandDBplanscannotbe translateddirectlyintoacurrentvaluebecausevaluationdependscriticallyonassumptionsaboutfutureevents andconditions—workdecisions,earnings,inflationrates,discountrates,mortality,andsoon—andnowidely agreed-uponstandardsexistformakingtheseassumptions.

34 FederalReserveBulletin|September2020 Cashvaluelifeinsuranceisthecurrent(nonzero)valueof anylifeinsurancepolicieswitha cashvaluethatcanbewithdrawn.Thesurveymeasuresthevalueof suchpoliciesaccording totheircurrentcashvalue,nottheirdeathbenefit.Inthisarticle,thecashvalueisincluded asanassetonlywhenthecashvalueatthetimeof theinterviewwasnonzero.Thisdesignationexcludestermlifeinsurancepolicies,whichonlyprovideadeathbenefit. Othermanagedassetsincludepersonalannuitiesandtrustswithanequityinterestand managedinvestmentaccounts.Annuitiesmaybethoseinwhichthefamilyhasanequity interestintheassetorinwhichthefamilypossessesanentitlementonlytoastreamof income.Thewealthfiguresinthisarticleincludeonlytheannuitiesinwhichthefamilyhas anequityinterest.50Thetrustsormanagedinvestmentaccountsincludedinothermanaged assetsarethoseinwhichfamilieshaveanequityinterestandforwhichcomponentswere notseparatelyreported.Typically,suchaccountsarethoseinwhichtheownershipis complicatedorthemanagementisundertakenbyaprofessional.51 Otherfinancialassetsincludeoilandgasleases,futurescontracts,royalties,proceedsfrom lawsuitsorestatesinsettlement,andloansmadetoothers.Onespecificfinancialasset excludedfromthiscategoryandanyotherisemployment-relatedstockoptions.Because suchoptionsaretypicallynotpubliclytradedortheirexecutionisotherwiseconstrained, theirvalueisuncertainuntiltheexercisedate;untilthen,meaningfulvaluationwould requirecomplexassumptionsaboutthefuturebehaviorof stockprices. Vehiclesincludecars,vans,sportutilityvehicles(SUV),trucks,motorhomes,recreational vehicles,motorcycles,boats,airplanes,andhelicopters.52Primaryresidencesincludemobile homesandtheirsites,thepartsof farmsandranchesnotusedforfarmingorranching business,condominiums,cooperatives,townhouses,othersingle-familyhomes,andother permanentdwellings.Otherresidentialpropertyincludessecondhomes,timeshares,onetofour-familyrentalproperties,andothertypesof residentialproperties.Italsoincludes outstandingbalancesonloansthatthefamilymayhavemadetofinancethesaleof propertiesthefamilypreviouslyownedandthatarestillowedtothefamily. Nonresidentialrealestateincludesthefollowingtypesof propertiesunlesstheyareowned throughabusiness:commercialproperty,rentalpropertywithfiveormoreunits,farmland andranchland,undevelopedland,andallothertypesof nonresidentialrealestate.Most often,nonresidentialrealestatepropertiesarefunctionallymorelikeabusinessthanaresidentialproperty.Theymayhaveseveralowners,theyaretypicallyworthaconsiderable amount,andtheyoftencarrylargemortgages,whichappeartobepaidfromtherevenues fromtheproperty,notthefamily’sotherincome.Asinthecaseof privatelyownedbusinesses,thevalueof thepropertyinthisanalysisistakentobethenetvalue. Businessequityincludesnetworthinthefollowingformsof business:soleproprietorships, limitedpartnerships,othertypesof partnerships,Scorporationsandothertypesof corporationsthatarenotpubliclytraded,limitedliabilitycompanies,andothertypesof 50 In2019,4.7percentoffamiliesreportedhavinganytypeofannuity,andofthesefamilies,76percentreported havinganequityinterest. 51 In2019,90.2percentoffamilieswithtrustsormanagedinvestmentaccountshadanequityinterestinsuchan account.Thesurveyencouragesrespondentswhohavetrustsormanagedinvestmentaccountsheldinrelatively commoninvestmentstoreportthecomponentsseparately.Ofthe5.5percentoffamiliesthatreportedhaving anykindoftrustormanagedinvestmentaccountin2019,49.7percentreportedatleastoneofthecomponent assetsseparately.Offamiliesthatdetailedthecomponentsin2019,85.5percentreportedsometypeoffinancial asset,12.7percentreportedaprimaryresidence,16.7percentreportedotherrealestate,4.2percentreporteda business,and1.1percentreportedanothertypeofasset. 52 Offamiliesowninganytypeofvehiclein2019,99.7percenthadacar,van,SUV,motorcycle,ortruck.The remainingtypesofvehicleswereheldby12.8percentoffamilies.

ChangesinU.S.FamilyFinancesfrom2016to2019 35 privatebusinesses.If thefamilylivedonafarmorranchusedatleastinpartforagriculturalbusiness,thenthevalueof thatpart,netof thecorrespondingshareof associated debts,isincludedwithotherbusinessassets.Inthesurvey,self-employmentstatusandbusinessownershipareindependentlydetermined.53 Debtsecuredbyresidentialpropertyconsistsof first-andjunior-lienmortgagesandhome equitylinesof credit(HELOC)securedbytheprimaryresidence.Forpurposesof this article,first-andjunior-lienmortgagesconsistonlyof closed-endloans—thatis,loans typicallywithaone-timeextensionof credit,asetfrequencyof repayments,andarequired repaymentsizethatmaybefixedorvaryovertimeinaccordancewithapre-specified agreementorwithchangesinagivenmarketinterestrate.54Asatypeof open-endedcredit, HELOCstypicallyallowcreditextensionsattheborrower’sdiscretionsubjecttoaprearrangedlimitandallowrepaymentsattheborrower’sdiscretionsubjecttoaprearranged minimumsizeandfrequency. Linesof creditnotsecuredbyresidentialpropertyareanylinesof creditexceptHELOCs andborrowingoncreditcards. Theterm“installmentloan”describesclosed-endconsumerloans—thatis,loansthattypicallyhavefixedpaymentsandafixedterm.Themostcommonexamplesareeducation loans,automobileloans,andloansforfurniture,appliances,andotherdurablegoods. Otherinstallmentloansincludeallclosed-endconsumerloansthatarenotforeducationor avehicle—thatis,loansthattypicallyhavefixedpaymentsandafixedterm.Examples includeloansforfurniture,appliances,andotherdurablegoods. Creditcardbalancesconsistof balancesonbank-typecards(suchasVisa,MasterCard, andDiscoveraswellasOptimaandotherAmericanExpresscardsthatroutinelyallow holderstocarryabalance),storecardsorchargeaccounts,carecards,gasolinecompany cards,so-calledtravelandentertainmentcards(suchasAmericanExpresscardsthatdonot routinelyallowholderstocarryabalanceandDinersClub),othercreditcards,and revolvingstoreaccountsthatarenottiedtoacreditcard.Balancesexcludepurchasesmade afterpayingthemostrecentbill. The“other”debtcategorycomprisesloansoncashvaluelifeinsurancepolicies,loans againstpensionaccounts,borrowingonmarginaccounts,andamiscellaneouscategory largelycomposedof personalloansnotexplicitlycategorizedelsewhere. Finally,theSCFmeasureof liabilitiesexcludesdebtowedbyfamily-ownedbusinessesand debtowedonnonresidentialrealestate;inthisarticle,suchdebtisnettedagainstthecorrespondingassets. Measures of Debt Burden and Credit Market Experiences in the Survey of Consumer Finances TheSCFincludesseveralquestionsdesignedtocaptureinformationaboutrespondents’ debtburdensandinteractionswithcreditmarkets.Thespecificconceptsaddressedinthe SCFarenecessarilytiedtothesurveyquestionwordingandassociatedfieldinterviewer 53 Amongthe13.4percentoffamilieswithabusinessin2019,69.9percenthadareferencepersonoraspouseor partnerwhowasself-employed;amongthe14.3percentoffamiliesinwhicheitherthereferencepersonora spouseorpartnerwasself-employed,65.5percentownedabusiness. 54 Ofallfamilies,39.6percenthadafirst-lienmortgagein2019(39.4percentin2016),1.5percenthadajuniorlienmortgage(2.3percentin2016),6.9percenthadaHELOC(6.7percentin2016),and4.5percenthada HELOCwithanoutstandingbalance(4.4percentin2016).

36 FederalReserveBulletin|September2020 instructions,whichcanbefoundintheSCFcodebookfortheyear(s)inquestion.55What followsisageneralexpositionof thedebtburdenandcreditmarketexperiencemeasures reportedinthetables. Leverageratioscomparethetotalof alldebtstothetotalof allassets.Theaggregate versionof thismeasureisthesumof alldebtsforallSCFrespondents,dividedbythesum of allassetsforSCFrespondents.Themedianfordebtorsisthemedianof eachindividualfamily’sleverageratioandiscalculatedforthosewithpositivevaluesof total debtonly. Theaggregatedebt-to-incomeratioisthesumof liabilitiesforallSCFrespondents,divided bythetotalincomeforallSCFrespondents.Themedianfordebtorsisthe50thpercentile of anindividualfamily’sdebt-to-incomeratiosandiscalculatedforthosewithpositive valuesof totaldebtonly. Payment-to-incomeratiosmeasuretotaldebtpaymentsrelativetototalincome.56The aggregateversionof thismeasureisthesumof alldebtpaymentsforallSCFrespondents, dividedbytotalincomeforallSCFrespondents.Themedianfordebtorsisthe50thpercentileof anindividualfamily’spayment-to-incomeratiosandiscalculatedforthosewith positivevaluesof totaldebtonly. Theaggregatemeasureof thepayment-to-incomeratioreferencedinthisarticlecandiffer fromotherpublishedmeasuresthatareconceptuallysimilar,suchasthedebtservice ratio,forseveralreasons.57First,thedebtpaymentsincludedineachmeasurearedifferent. Theaggregate-levelmeasureincludesonlydebtsoriginatedbydepositories,finance companies,andotherfinancialinstitutions,whereasthesurveyincludes,inprinciple,debts fromallsources.Second,theaggregate-levelmeasureusesanestimateof disposable personalincomefromthenationalincomeandproductaccountsfortheperiodconcurrent withtheestimatedpaymentsasthedenominatorof theratio,whereasthesurveymeasure usestotalbefore-taxincomereportedbysurveyfamiliesfortheprecedingyear;thedifferencesinthesetwoincomemeasuresarecomplex.Third,thepaymentsintheaggregate-level measureareestimatedusingaformulathatentailsmanyassumptionsaboutminimum paymentsandthedistributionof loantermsatanygiventime;thesurveymeasureof paymentsisdirectlyaskedof thesurveyrespondentsbutmayalsoincludepaymentsof taxesandinsuranceonrealestateloans.Fourth,becausethesurveymeasuresof payments andincomearebasedontheresponsesof asampleof respondents,theymaybeaffectedby bothsamplingerrorandvarioustypesof responseerrors.Asmentionedearlierinthis article,thesurveyincomemeasuretracksthemostcomparablemeasureof incomeinthe U.S.CensusBureau’sCPS. TheSCFasksmultiplequestionsintendedtocapturewhetherfamiliesarecredit constrained,whichisbroadlydefinedashavingdifficultyaccessingcredit.58Onequestion 55 CodebooksforeachSCFwavecanbefoundathttps://www.federalreserve.gov/econresdata/scf/scfindex.htm. 56 Thedefinitionofpayment-to-incomeratiointheSCFincludesonlydebtpayments,notpaymentsonleasesor rentalpayments.Thatsaid,theSCFcollectsinformationonvehicleleasepaymentsandrentonprimaryresidences.Therefore,theSCFcanbeusedtocreateabroadermeasureofafamily’spaymentsthatincludesleases andrentalpayments.See,forexample,AndrewC.Chang,JoanneW.Hsu,SarahJ.Pack,andMichaelG. Palumbo(2018),“Where’stheMoneyGoing?TheImportanceofAccountingforRentPaymentsinMeasuring aHousehold’sFinancialObligations,”FEDSNotes(Washington:BoardofGovernorsoftheFederalReserve System,June20),https://dx.doi.org/10.17016/2380-7172.2213. 57 SeeKarenDynan,KathleenJohnson,andKarenPence(2003),“RecentChangestoaMeasureofU.S.HouseholdDebtService,”FederalReserveBulletin,vol.89(October),pp.417–26,https://www.federalreserve.gov/pubs /bulletin/2003/1003lead.pdf. 58 Before2016,thesequestionshadaskedfamiliesabouttheirexperiencesoverthepastfiveyears,ratherthan overthepastyear.

ChangesinU.S.FamilyFinancesfrom2016to2019 37 askstherespondentwhethertherespondentorthespouseorpartnerappliedforparticular typesof creditinthepastyear.Amongthosethatanswerintheaffirmative,afollow-upquestionaskstherespondentwhetheralenderdeclinedanapplicationforcreditorprovidedless creditthanwassoughtatanypointinthepastyear.Amongthosethatanswerinthenegative, afollow-upquestionprobestherationalebehindthedecisionnottoapplyforcreditinthe pastyearand,amongotherchoices,offers“youdidnotthinkyouwouldgetapproved”asa possibility.Acombinationof thesequestionsisusedtomeasureoverallcreditconstraints. Delinquencyondebtobligationsiscapturedbyaskingfamiliesthathaveanydebtatthetime of theirinterviewwhethertheyhavebeenbehindinanyof theirloanpaymentsinthe precedingyear.Thesurveyasksif respondentshavebeenbehindatallandif theyhavebeen behindinpaymentsfor60daysormore. Paydayloansaredefinedasloansthataremeanttoberepaidinfulloutof therespondent’s nextpaycheck;theyareunsecuredloansthataretypicallysmall,shortterm,andcarryaboveaverageinterestrates. Bankruptcybehavioroverthepastfiveyearsisbasedonaseriesof retrospectivequestions thataskwhethertherespondentorthepartnerorspousehaseverdeclaredbankruptcyand, if so,themostrecentyear. Foreclosureexperienceoverthepastfiveyearsisbasedonaseriesof retrospectivequestions thataskwhethertherespondentorthepartnerorspousehaseverhadaforeclosure proceedingbroughtagainstanownedpropertyand,if so,themostrecentyear. Finally,convenienceuseof creditcardsisdeterminedusingquestionsonwhetherarespondenthadpositivebalancesafterthemostrecentpaymentforbank-typecards(suchasVisa, MasterCard,andDiscoveraswellasOptimaandotherAmericanExpresscardsthatroutinely allowholderstocarryabalance),storecards,gasolinecompanycards,andothercreditcards. Percentiles of the Distributions of Income and Net Worth Throughoutthisarticle,referencesaremadetovariouspercentilegroupsof thedistributions of incomeornetworth.Foragivencharacteristic,apercentilecanbeusedtodefineafamily’srankrelativetootherfamilies.Forexample,the10thpercentileof thedistributionof usualincomeistheamountof incomereceivedbyafamilyforwhichlessthan10percentof otherfamilieshavelowerincomesand90percenthavehigherincomes.Thepercentilesof the distributionsof incomeandnetworthusedtodefinetheincomeandnetworthgroupsin tables1and2inthearticlearegiveninthefollowingtable: Surveyyear Item 2004 2007 2010 2013 2016 2019 Percentileofusualincome 20 28,400 27,700 28,800 25,600 26,900 28,400 40 48,700 47,600 47,900 44,500 46,300 47,900 60 76,600 76,200 74,300 69,300 73,900 75,300 80 123,900 121,200 119,800 114,800 118,500 127,300 90 181,000 171,400 179,700 169,800 188,400 188,400 Percentileofnetworth 25 18,000 17,500 9,800 9,600 10,800 12,400 50 126,200 148,900 91,100 89,200 103,500 121,700 75 446,300 460,200 355,500 348,400 392,500 403,800 90 1,130,600 1,123,700 1,122,300 1,034,100 1,261,800 1,220,200

38 FederalReserveBulletin|September2020 Thegroupsthatarecreatedwhenadistributionisdividedatevery10thpercentileare commonlyreferredtoasdeciles.Similarly,whenadistributionisdividedatevery20th (25th)percentile,thegroupsareknownasquintiles(quartiles).Familiesinthefirstincome decile,forexample,arethosewithincomebelowthe10thpercentile. Racial and Ethnic Identification Inthisarticle,theraceandethnicityof afamilyintheSCFareclassifiedaccordingtothe self-identificationof thatfamily’soriginalrespondenttotheSCFinterview.Forgreater comparabilitywithearlierSCFdata,thedatareportedinthisarticlegrouprespondents intofourclassificationsbasedontheirresponsestotheracialidentificationquestion:White non-Hispanic,Blacknon-Hispanic,HispanicorLatino,andotherormultiplerace.The “otherormultiplerace”classificationconsistsof respondentsidentifyingasAsian, AmericanIndian,AlaskaNative,NativeHawaiian,PacificIslander,otherrace,andall respondentsreportingmorethanoneracialidentification.59 Thequestionsunderlyingthemethodof classificationusedinthesurveywerechangedin both1998and2004.Startingin1998,SCFrespondentswereallowedtoreportmorethan oneracialidentification;insurveysbeforethen,onlyoneresponsewasrecorded.For maximumcomparabilitywithearlierdata,respondentsreportingmultipleracialidentificationswereaskedtoreporttheirstrongestracialidentificationfirst.Indatareportedinthis article,respondentsreportingmultipleracialidentificationsinthesurveysstartingwith 1998areclassifiedas“otherormultiplerace.”Inthe2019SCF,6.8percentof respondents reportedmorethanoneracialidentification,upfrom6.4percentin2016,6.1percentin 2013,5.4percentin2007,and2.3percentin2004.Thepublicreleasedatasetincludesthe racialandethnicidentificationvariables,enablingtheconstructionof alternativeclassifications. Beginningwiththe2004survey,thequestiononracialidentificationisprecededbyaquestiononwhetherrespondentsconsiderthemselvestobeHispanicorLatinoincultureor origin;previously,suchethnicidentificationwascapturedonlytotheextentthatitwas reportedasaresponsetothequestiononracialidentification.Theclassificationsinthis articleignoretheinformationonethnicidentificationavailableinthesurveyssince2004, againforgreatercomparabilitywithearlierSCFdata.Of thosewhorespondedaffirmativelytothequestiononHispanicorLatinoidentificationin2019,90.2percentalso reported“HispanicorLatino”asoneof theirracialidentifications,and82.2percent reporteditastheirprimaryracialidentification.BecausethequestiononHispanicor Latinoethnicityprecedestheoneonracialidentificationinthesurveysfrom2004through 2019,theanswertothesecondof thesetwoquestionsmayhavebeeninfluencedbythe answertothefirst.60 Thisallsaid,evolutionof theracialandethniccompositionof thesurveypopulationrepresentsimportantcontextforinterpretingstatisticsdescribingtheexperiencesof familiesby raceorethnicityovertime.Thenexttabledisplaystheshareof theSCFpopulationeach racialorethnicgrouphasrepresentedineachsurveysince2004usingcurrentsurvey classifications: 59 Articlesforyearsbeforethe2016SCFreporteddatathatclassifiedallfamiliesintotwogroups:White non-Hispanicandnon-WhiteorHispanic.ThedefinitionforWhitenon-Hispanicinthisarticleisconsistent withthatusedinearlieryears,whilethenon-WhiteorHispanicgrouphasbeensplitintothreeclassifications (Blacknon-Hispanic,HispanicorLatino,andotherormultiplerace). 60 Foracomprehensivediscussionofstandardsfordefiningraceandethnicity,seeExecutiveOfficeofthePresident,OfficeofManagementandBudget(2002),“ProvisionalGuidanceontheImplementationofthe1997 StandardsforFederalDataonRaceandEthnicity,”guidancedocument(Washington:ExecutiveOfficeofthe President,December15).

ChangesinU.S.FamilyFinancesfrom2016to2019 39 Surveyyear Raceorethnicityofrespondent 2004 2007 2010 2013 2016 2019 Whitenon-Hispanic 72.2 70.7 67.5 67.2 64.7 64.9 Blacknon-Hispanic 13.1 11.7 13.0 13.3 14.6 14.2 HispanicorLatino 9.0 8.6 9.7 9.6 10.2 9.6 Otherormultiplerace 5.8 9.0 9.9 9.9 10.5 11.3 Classifications of Educational Attainment Inthisarticle,theeducationalattainmentof afamilyreferstothehighestdegreeobtained bythehouseholdreferenceperson.Beginningwiththe2016survey,theSCFmodifiedits educationalattainmentquestiontoaligntheSCFmorecloselywithotherhousehold surveys,includingtheCensusandCPS.Forsurveysbefore2016,respondentswereaskedto listthehighestgradeof schooloryearof collegecompleted,andfollow-upquestionsasked respondentsaboutthetypeof degreeobtained.Startingwiththe2016survey,thefirst educationalattainmentquestionasksaboutthehighestdegreeobtained,andfollow-up questionsaskrespondentswhoreportahighschooldegreewhetheritwasobtainedby gettingaGeneralEducationDevelopmentcertificateorcompletinganotherequivalency program.Follow-upquestionsalsoaskrespondentswhoreportsomecollegeaboutthe numberof yearsof college.Itispossiblethischangemayhavepromptedchangesin reporting,althoughtheeducationalattainmentof SCFfamilieswassimilartoCPSfamilies inboth2013and2016.61 Similartoraceandethnicity,evolutionof theeducationalcompositionof thesurveypopulationrepresentsimportantcontextforinterpretingstatisticsdescribingtheexperiencesof familiesbyeducationalattainmentovertime.Thenexttabledisplaystheshareof theSCF populationeacheducationgrouphasrepresentedineachsurveysince2004usingcurrent surveyclassifications: Surveyyear Educationofreferenceperson 2004 2007 2010 2013 2016 2019 Nohighschooldiploma 14.4 13.5 12.0 11.0 12.7 10.7 Highschooldiploma 30.6 32.9 32.2 31.3 26.0 24.5 Somecollege 24.4 24.5 25.1 25.7 27.3 28.5 Collegedegree 30.5 29.1 30.8 32.0 34.0 36.3 Age Classifications Inthisarticle,theageof afamilyreferstotheageof thehouseholdreferenceperson. Similartoraceandethnicity,aswellaseducationalattainment,evolutionof theage compositionof thesurveypopulationrepresentsimportantcontextforinterpretingstatisticsdescribingtheexperiencesof familiesbyageovertime.Thenexttabledisplaysthe shareof theSCFpopulationeachagegrouphasrepresentedineachsurveysince2004 usingcurrentsurveyclassifications: 61 In2013,theeducationalattainmentofSCF(CPS)householdheadswasthefollowing:11.0(11.3)percenthad nohighschooldegree,31.3(27.9)percenthadahighschooldegree,25.7(29.0)percenthadsomecollege,and 32(31.8)percenthadacollegedegree.In2016,theeducationalattainmentofSCF(CPS)householdheadswas thefollowing:12.7(10.4)percenthadnohighschooldegree,26(27.2)percenthadahighschooldegree,27.3 (28.9)percenthadsomecollege,and34.0(33.5)percenthadacollegedegree.

40 FederalReserveBulletin|September2020 Surveyyear Ageofreferenceperson(years) 2004 2007 2010 2013 2016 2019 Lessthan35 22.2 21.6 21.0 20.8 20.3 20.9 35–44 20.6 19.6 18.2 17.3 16.8 16.6 45–54 20.8 20.8 21.1 19.6 18.3 17.2 55–64 15.2 16.8 17.5 18.7 19.2 18.8 65–75 10.5 10.5 11.5 12.9 14.1 15.3 75ormore 10.7 10.6 10.7 10.7 11.2 11.3 The Sampling Techniques Thesurveyisexpectedtoprovideacoresetof dataonfamilyincome,assets,andliabilities. Themajoraspectsof thesampledesignthataddressthisrequirementhavebeenlargely constantsince1989.TheSCFcombinestwotechniquesforrandomsampling.First,astandardmultistagearea-probabilitysample(ageographicallybasedrandomsample)isselected toprovidegoodcoverageof characteristics,suchashomeownership,thatarebroadly distributedinthepopulation. Second,asupplementalsampleisselectedtodisproportionatelyincludewealthyfamilies, whichholdarelativelylargeshareof suchthinlyheldassetsasnoncorporatebusinesses andtax-exemptbonds.Calledthe“listsample,”thisgroupisdrawnfromalistof statistical recordsderivedfromtaxreturns.Theserecordsareusedunderstrictrulesgoverning confidentiality,therightsof potentialrespondentstorefuseparticipationinthesurvey,and thetypesof informationthatcanbemadeavailable.PersonslistedbyForbesasbeing amongthewealthiest400peopleintheUnitedStatesareexcludedfromsampling.62 Of the5,783interviewscompletedforthe2019SCF,4,291werefromthearea-probability sample,and1,492werefromthelistsample;for2016,4,754werefromthearea-probability sample,and1,500werefromthelistsample.Thenumberof familiesrepresentedinthe surveysconsideredinthisarticleisgivenbythefollowingtable: Numberoffamiliesrepresented Year (millions) 2004 112.1 2007 116.1 2010 117.6 2013 122.5 2016 126.0 2019 128.6 Overallpopulationgrowthbetween2016and2019was1.5percent,accordingtofigures fromtheU.S.CensusBureau,downfromthe2.2percentgrowthratebetween2013and 2016.AlsoaccordingtoU.S.CensusBureauestimates,thenumberof householdsincreased 2.1percentbetween2016and2019—wellbelowtherateof householdformationbetween 2013and2016,whichwas2.9percent.Withthepopulationgrowingataslightlyslowerrate thanhouseholdformation,theaveragenumberof personsperhouseholdbarelychanged, from2.56peoplein2016to2.55in2019. 62 Formoreinformation,seeJesseBricker,AliceHenriques,andKevinMoore(2017),“UpdatestotheSampling ofWealthyFamiliesintheSurveyofConsumerFinances,”FinanceandEconomicsDiscussionSeries2017-114 (Washington:BoardofGovernorsoftheFederalReserveSystem,November),https://dx.doi.org/10.17016/ FEDS.2017.114.

ChangesinU.S.FamilyFinancesfrom2016to2019 41 The Interviews Althoughquestionshavebeenmodifiedandnewquestionsaddedovertime,thecoreof the surveyquestionnairehaschangedinonlyminorwayssince1989.Changestothequestionnairegenerallyincludeinstancesinwhichthestructurewasalteredtoaccommodate changesinfinancialbehaviors;changesintypesof financialarrangementsavailableto families,includingthosewithbusinessesthatarenotpubliclytraded;andchangesinregulationscoveringdatacollection.In2016,interviewsectionsoneducationalattainment, educationloans,paymentmethods,andfinancialinstitutionswererevised,andadditional questionsaddressingfinancialliteracyamongrespondents,parentaleducationalattainment,anddecisionsunderhypotheticalfinancialsituationshavealsobeenincluded.63For allchanges,everyefforthasbeenmadetoensurethemaximumdegreeof comparabilityof thedataovertime.Exceptwherenotedinthearticle,thedataarehighlycomparable overtime. Thegenerosityof familiesingivingtheirtimeforinterviewshasbeencrucialtotheongoing successof theSCF.Inthe2019SCF,themedianinterviewlengthwasabout100minutes. However,insomeparticularlycomplicatedcases,theamountof timeneededwassubstantiallymorethanthreehours.Theroleof theinterviewersinthiseffortisalsocritical. Withouttheirdedicationandperseverance,thesurveywouldnotbepossible. TheSCFinterviewswereconductedlargelybetweenthemonthsof MayandDecemberin eachsurveyyear,withasmallfractionof interviewsconductedinthefirstfourmonthsof thenextcalendaryear,byNORC,asocialscienceandsurveyresearchorganizationatthe Universityof Chicago.Themajorityof interviewswereobtainedinperson,althoughinterviewerswereallowedtoconducttelephoneinterviewsif thatwasmoreconvenientforthe respondent.Eachinterviewerusedaprogramrunningonalaptopcomputertoadminister thesurveyandcollectthedata. Theuseof computer-assistedpersonalinterviewinghasthegreatadvantageof enforcing systematiccollectionof dataacrossallcases.Thecomputerprogramdevelopedtocollect thedatafortheSCFwastailoredtoallowthecollectionof partialinformationintheform of rangeswheneverarespondenteitherdidnotknowordidnotwanttorevealanexact dollarfigure. Forthe2019SCF,about200area-probabilityinterviewswereconductedviaamixedmode strategyof webandin-personortelephoneinterviews.Thesecaseswereatestof thefeasibilityof offeringthewebasapotentialmodeforcompletingtheSCF.Potentialrespondentswereprovidedapersonalizedlinktoobtainaccesstothesectionsof thesurveyto completeviatheweb,withafollow-upin-personortelephoneinterviewtocompletethe remainderof theinterview.Thequestionsforthewebportionwerenearlyidenticaltothose askedintheregularin-personortelephoneinterview,asidefromformattingchangesnecessaryforthewebinstrument. Theresponserateinthearea-probabilitysampleismorethandoublethatinthelistsample. In2019,about60percentof householdsselectedforthearea-probabilitysampleactually completedinterviews,downfrom65percentin2016.Theoverallresponserateinthelist sampledidnotchangein2019ataboutone-third;inthepartof thelistsamplelikely containingthewealthiestfamilies,theresponseratewasonlyaboutone-half thatlevel. 63 Foradetailedlistofallchangestothequestionnairein2016,seehttps://www.federalreserve.gov/econres/files/ 2016_scf_changes.txt.

42 FederalReserveBulletin|September2020 Weighting Toprovideameasureof thefrequencywithwhichfamiliessimilartothesamplefamilies couldbeexpectedtobefoundinthepopulationof allfamilies,ananalysisweightis computedforeachcase,accountingforboththesystematicpropertiesof thesampledesign anddifferentialpatternsof nonresponse.TheSCFresponseratesarelowbythestandards of someothermajorgovernmentsurveys,andanalysisof thedataconfirmsthatthe tendencytorefuseparticipationishighlycorrelatedwithnetworth.However,unlikeother surveys,whichalmostcertainlyalsohavedifferentialnonresponsebywealthyhouseholds, theSCFhasthemeanstoadjustforsuchnonresponse.Amajorpartof SCFresearchis devotedtotheevaluationof nonresponseandadjustmentsfornonresponseintheanalysis weightsof thesurvey.64 Sources of Error Errorsmaybeintroducedintosurveyresultsatmanystages.Samplingerror—thevariabilityexpectedinestimatesbasedonasampleinsteadof acensus—isaparticularly importantsourceof error.Sucherrorcanbereducedbyeitherincreasingthesizeof a sampleor,asisdoneintheSCF,designingthesampletoreduceimportantsourcesof variability.Samplingerrorcanbeestimated,andforthisarticleweusereplicationmethods todoso. Replicationmethodsdrawsamples,calledreplicates,fromthesetof actualrespondentsina waythatincorporatestheimportantdimensionsof theoriginalsampledesign.IntheSCF, weightswerecomputedforallof thecasesineachof thereplicates.65Everyvalueforwhich standarderrorsarereportedinthisarticleisaweightedstatisticestimatedusingthereplicatesamples.Toestimatetheoverallstandarderror,ameasureof thevariabilityof these estimatesiscombinedwithameasureof thevariabilitybecauseof imputationfor missingdata. Othererrorsincludethosethatinterviewersmayintroducebyfailingtofollowthesurvey protocolormisunderstandingarespondent’sanswers.SCFinterviewersaregivenlengthy, project-specifictrainingandongoingcoachingtominimizesuchproblems.Respondents mayintroduceerrorbyinterpretingaquestioninasensedifferentfromthatintendedby thesurvey.FortheSCF,extensivepretestingof questionsandthoroughreviewof thedata tendtoreducethissourceof error. Nonresponse—eithercompletenonresponsetothesurveyornonresponsetoselecteditems withinthesurvey—maybeanotherimportantsourceof error.Asnotedinmoredetail previously,theSCFusesweightingtoadjustfordifferentialnonresponsetothesurvey.To addressmissinginformationonindividualquestionswithintheinterview,theSCFuses statisticalmethodstoimputemissingdata;thetechniquemakesmultipleestimatesof missingdatatoallowforanestimateof theuncertaintyattributabletothistypeof nonresponse. 64 Theweightsusedinthisarticleareadjustedfordifferentialratesofnonresponseacrossgroups.SeeArthurB. Kennickell(1999),“RevisionstotheSCFWeightingMethodology:AccountingforRace/Ethnicityand Homeownership”(Washington:BoardofGovernorsoftheFederalReserveSystem,January),https://www .federalreserve.gov/econresdata/scf/scf_workingpapers.htm. 65 SeeArthurB.Kennickell(2000),“RevisionstotheVarianceEstimationProcedurefortheSCF”(Washington: BoardofGovernorsoftheFederalReserveSystem,October),https://www.federalreserve.gov/econresdata/scf /scf_workingpapers.htm.