Legal Developments 

ORDERS ISSUED UNDER BANK HOLDING 

COMPANY ACT 

Orders Issued Under Section 3 of the Bank Holding 

Company Act 

Capital City Bank Group, Inc. 

Tallahassee, Florida 

Capital City Bank 

Tallahassee, Florida 

Order Approving the Merger of Bank Holding 

Companies, Merger of Banks, and Establishment of 

Branches 

Capital City Bank Group, Inc. (''Capital City''), a financial 

holding company within the meaning of the Bank Holding 

Company Act (''BHC Act''), has requested the Board's 

approval under section 3 of the BHC Act(footnote 1 

12U.S.C. §1842 end footnote)to merge with 

First Alachua Banking Corporation (''First Alachua''), 

with Capital City as the surviving entity, and thereby 

indirectly acquire First Alachua's wholly owned subsidiary, First National Bank of Alachua (''First National 

Bank''), both of Alachua, Florida. In addition, Capital 

City's subsidiary bank, Capital City Bank, a state member 

bank, has requested the Board's approval under section 18(c) of the Federal Deposit Insurance Act(footnote 2 

12 U.S.C. § 1828(c) end footnote)(''Bank 

Merger Act'') to merge with First National Bank, with 

Capital City Bank as the surviving entity. Capital City 

Bank has also applied under section 9 of the Federal 

Reserve Act (''FRA'') to retain and operate branches at the 

locations of First National Bank's main office and 

branches(footnote 3 12 U.S.C. § 321. These branches are 

listed in the appendix end footnote) 

Notice of the proposal, affording interested persons an 

opportunity to submit comments, has been published in the 

Federal Register (69 Federal Register 71,056 (2004)) and 

locally in accordance with the relevant statutes and the 

Board's Rules of Procedure(footnote 4 12 CFR 262.3(b) end footnote) 

As required by the BHC Act 

and the Bank Merger Act, reports on the competitive 

effects of the mergers were requested from the United 

States Attorney General and the appropriate banking agencies. The time for filing comments has expired, and the 

Board has considered the applications and all comments 

received in light of the factors set forth in section 3 of the 

BHC Act, the Bank Merger Act, and the FRA. 

Capital City, with total consolidated assets of approximately $2.4 billion, is the 28th largest insured depository 

organization in Florida, controlling deposits of approximately $1.4 billion(footnote 5 Asset data are as of December 31, 

2004, and deposit data and 

statewide ranking data are as of June 30, 2004. Ranking data are 

adjusted to reflect merger and acquisition activity through March 4, 

2005 end footnote)First Alachua, with total consolidated 

assets of approximately $231.8 million, is the 111th largest 

insured depository organization in Florida, controlling 

deposits of approximately $207 million. On consummation 

of the proposal, Capital City would become the 26th largest insured depository organization in Florida, controlling 

deposits of approximately $1.6 billion, which would represent less than 1 percent of total deposits of insured depository institutions in the state(footnote 6 In this context, the term ' 

'insured depository institutions'' 

includes insured commercial banks, savings banks, and 

savings 

associations end footnote) 

Competitive Considerations 

Section 3 of the BHC Act and the Bank Merger Act 

prohibit the Board from approving a proposal that would 

result in a monopoly or would be in furtherance of an 

attempt to monopolize the business of banking in any 

relevant banking market. The BHC Act and the Bank 

Merger Act also prohibit the Board from approving a bank 

acquisition that would substantially lessen competition in 

any relevant banking market unless the anticompetitive 

effects of the proposal are clearly outweighed in the public 

interest by the probable effect of the proposal in meeting 

the convenience and needs of the community to be served 

(footnote 7 See 12 U.S.C. § 1842(c)(1); 12 U.S.C. § 1828 

(c)(5) end footnote) 

Capital City Bank and First National Bank compete 

directly in the Gainesville and Palatka banking markets in 

Florida(fotnote 8 The Gainesville banking market is defined as 

Alachua, 

Gilchrist, 

and Levy Counties. The Palatka banking market is defined 

as Putnam 

County and the town of Hastings in St. Johns County 

end footnote) 

The Board has carefully reviewed the competitive 

effects of the proposal in these banking markets in light of 

all the facts of record, including the number of competitors 

that would remain in the markets, the relative shares of 

total deposits in depository institutions in each market 

(''market deposits'') controlled by Capital City Bank and 
First National Bank(footnote 9 Deposit and market share data are as of 

June 30, 2004, and are 

based on calculations in which the deposits of thrift institutions are 

included at 50 percent. The Board previously has indicated that thrift 

institutions have become, or have the potential to become, significant 

competitors of commercial banks. See, e.g., Midwest Financial Group, 

75 Federal Reserve Bulletin 386 (1989); National City Corporation, 

70 Federal Reserve Bulletin 743 (1984). Thus, the Board regularly has 

included thrift deposits in the market share calculation on a 50 percent 

weighted basis. See, e.g., First Hawaiian, Inc., 77 Federal Reserve 

Bulletin 52 (1991) end footnote)the concentration level of market 

deposits and the increase in this level as measured by the 

Herfindahl-Hirschman Index ("HHI") under the Department of Justice Merger Guidelines (''DOJ Guidelines'')(footnote 10 

Under the DOJ Guidelines, a market is considered moderately 

concentrated if the post-merger HHI is between 1000 and 1800, and a 

market is considered highly concentrated if the post-merger HHI is 

more than 1800. The Department of Justice (''DOJ'') has informed the 

Board that a bank merger or acquisition generally will not be challenged (in the absence of other factors indicating anticompetitive 

effects) unless the post-merger HHI is at least 1800 and the merger 

increases the HHI by more than 200 points. The DOJ has stated that 

the higher-than-normal HHI thresholds for screening bank mergers 

and acquisitions for anticompetitive effects implicitly recognize the 

competitive effects of limited-purpose and other nondepository financial entities end footnote) 

and other characteristics of the markets. 

Consummation of the proposal would be consistent with 

Board precedent and within the thresholds in the DOJ 

Guidelines in the Gainesville banking market. This banking market would remain moderately concentrated, and the 

post-merger HHI would increase 67 points, to 1,293. Fourteen competitors would remain in the banking market(footnote 11 

Capital City Bank operates the seventh largest depository institution in the market, controlling deposits of approximately $148.1 million, which represent approximately 5.5 percent of market deposits. 

First National Bank operates the fifth largest depository institution in 

the market, controlling deposits of approximately $164.3 million, 

which represents approximately 6.1 percent of market deposits. On 

consummation of the proposal, Capital City Bank would become the 

third largest depository institution in the market, controlling deposits 

of approximately $312.4 million, which represents approximately 

11.6 percent of market deposits end footnote) 

In the Palatka banking market, the HHI would slightly 

exceed DOJ Guidelines on consummation. Capital City 

Bank is the fifth largest depository institution in the market, controlling approximately $63.8 million in deposits, 

which represent approximately 13.5 percent of market 

deposits. First National Bank is the sixth largest depository 

institution with deposits of approximately $42.7 million, 

which represent approximately 9 percent of market deposits. On consummation of the merger, Capital City Bank 

would become the largest depository institution in the 

market, controlling deposits of approximately $106.5 million, which represent approximately 22.5 percent of market 

deposits. The HHI would increase 242 points, to 1,808. 

In reviewing the competitive effects of this proposal, the 

Board has considered that several factors appear to mitigate the likely effect of the proposal on competition in the 

Palatka banking market. The Palatka banking market has 

five commercial banking organizations and one thrift organization that would remain in the market after consummation. Two commercial bank competitors each would control approximately 20 percent of market deposits and local 

branch networks as large as Capital City's. 

The Board also has considered that this banking market 

has two active community credit unions in Palatka that 

offer a wide range of consumer banking products. The First 

Coast Community Credit Union controls $45.9 million in 

deposits in the Palatka banking market, and the Putnam 

County Federal Credit Union controls $22.5 million in 

deposits in the market. Almost all residents in the Palatka 

banking market are eligible for membership in each credit 

union, and both credit unions operate street-level branches 

with drive-up service lanes. The Board concludes that 

these credit unions exert a competitive influence that mitigates, in part, the potential anticompetitive effects of the 

proposal(footnote 12 The Board previously has considered the 

competitiveness of 

certain active credit unions as a mitigating factor. See F.N.B. Corporation, 90 Federal Reserve Bulletin 481 (2004); Gateway Bank & Trust 

Co., 90 Federal Reserve Bulletin 547 (2004). With deposits of these 

credit unions included at 50 percent, Capital City Bank would be the 

fifth largest of nine depository institutions in the market, with approximately 12.6 percent of market deposits, and First National Bank 

would be the sixth largest depository institution in the market, controlling approximately 8.4 percent of market deposits. On consummation 

of the proposal, Capital City Bank would be the largest depository 

institution in the market with deposits of approximately $106.5 million or approximately 21 percent of market deposits. The HHI would 

increase 211 points, to 1,598 end footnote) 

The Board concludes that the foregoing considerations, 

including the presence of two accessible credit unions, the 

number and size of competitors that would remain in the 

Palatka banking market after consummation, and other 

factors, mitigate the transaction's potential anticompetitive 

effects. The DOJ has advised the Board that consummation 

of the proposal is not likely to have a significantly adverse 

competitive effect in the Palatka banking market. The 

Board also has received no objections to the proposal from 

the other federal banking agencies. 

Based on all the facts of record, the Board concludes that 

consummation of the proposed transaction would not likely 

result in a significantly adverse effect on competition or on 

the concentration of banking resources in any relevant 

banking market and that competitive factors are consistent 

with approval. 

Financial and Managerial Resources and Supervisory 

Considerations 

In reviewing the proposal under section 3 of the BHC Act, 

the Bank Merger Act, and the FRA, the Board has carefully considered the financial and managerial resources and 

future prospects of the companies and depository institutions involved in the proposal and certain other supervisory 

factors. The Board has considered these factors in light of 

all the facts of record including, among other things, confidential reports of examination and other supervisory information received from the federal and state banking supervisors of the organizations involved, publicly reported and 

other financial information, and information provided by 

the applicants. 
Federal Reserve Bulletin • Summer 2005 

In evaluating financial factors in expansion proposals 

by banking organizations, the Board reviews the financial 

condition of the organizations involved on both a parentonly and consolidated basis, as well as the financial condition of the subsidiary banks and significant non-banking 

operations. In this evaluation, the Board considers a variety 

of areas, including capital adequacy, asset quality, and 

earnings performance. In assessing financial factors, the 

Board consistently has considered capital adequacy to be 

especially important. The Board also evaluates the financial condition of the combined organization, including its 

capital position, asset quality, and earnings prospects and 

the impact of the proposed funding of the transaction. 

Based on its review of these factors, the Board finds that 

Capital City has sufficient financial resources to effect 

the proposal. The transaction would be effected through 

a combination of cash and an exchange of shares. Capital 

City would fund the cash consideration by issuing trust 

preferred securities. Capital City and Capital City Bank are 

well capitalized and would remain so on consummation of 

the proposal. 

The Board also has evaluated the managerial resources 

of the organizations involved and of the proposed combined organization. The Board has reviewed the examination records of Capital City, First Alachua, and their subsidiary depository institutions, including assessments of 

their management, risk-management systems, and operations. In addition, the Board has considered its supervisory 

experience and that of the other relevant banking supervisory agencies with the organizations and their records of 

compliance with applicable banking law. The Board also 

has considered Capital City's plans to integrate First Alachua and First National Bank and the proposed management, including the risk-management systems, of the 

resulting organization. 

Based on all the facts of record, the Board has concluded 

that the financial and managerial resources and future 

prospects of the organizations and the other supervisory factors involved are consistent with approval of the 

proposal. 

Convenience and Needs and Other Considerations 

In acting on the proposal, the Board also must consider its 

effects on the convenience and needs of the communities to 

be served and take into account the records of the relevant 

insured depository institutions under the Community Reinvestment Act (''CRA'')(footnote 13 12 U.S.C. §2901 etseq 

end footnote)Capital City Bank received an 

overall rating of ''satisfactory'' at its most recent CRA 

performance evaluation by the Federal Reserve Bank of 

Atlanta, as of November 17, 2003. First National Bank also 

received a ''satisfactory'' rating at its most recent CRA 

performance evaluation by the Office of the Comptroller of 

the Currency, as of October 7, 2002. The Board notes that 

the proposal would provide the combined entity's customers with access to a broader array of products and services 

in expanded service areas, including access to expanded 

branch and automated teller machine networks. Based on 

all the facts of record, the Board concludes that the considerations relating to the convenience and needs of the communities to be served and the CRA performance records 

of the institutions involved are consistent with approval of 

this proposal. 

As previously noted, Capital City also has applied under 

section 9 of the FRA to establish branches at the locations 

listed in the appendix. The Board has assessed the factors 

it is required to consider when reviewing an application 

under section 9 of the FRA, including section 208.6 of the 

Board's Regulation H, which implements section 9(4) of 

the FRA, and finds those factors to be consistent with 

approval(footnote 14 12 U.S.C. § 322; 12 CFR 208.6(b) end footnote) 

Conclusion 

Based on the foregoing and all facts of record, the Board 

has determined that the applications should be, and hereby 

are, approved. In reaching its conclusion, the Board has 

considered all the facts of record in light of the factors that 

it is required to consider under the BHC Act, the Bank 

Merger Act, and the FRA. The Board's approval is specifically conditioned on compliance by Capital City with the 

conditions imposed in this order, the commitments made to 

the Board in connection with the applications, and receipt 

of all other regulatory approvals. For purposes of this 

action, the conditions and commitments are deemed to be 

conditions imposed in writing by the Board in connection 

with its findings and decision herein and, as such, may be 

enforced in proceedings under applicable law. 

The proposed transactions may not be consummated 

before the fifteenth calendar day after the effective date of 

this order, or later than three months after the effective date 

of this order, unless such period is extended for good cause 

by the Board or the Federal Reserve Bank of Atlanta, 

acting pursuant to delegated authority. 

By order of the Board of Governors, effective April 28, 

2005. 

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

ROBERT DEV. FRIERSON 

Deputy Secretary of the Board 

Appendix 

Addresses of Main Office and Branches in Florida to be 

Acquired by Capital City 

Alachua 

15000 N.W. 140th Street 
Legal Developments 

Gainesville 

4000 N. Main Street 

6360 N.W. 13th Street 

4040 N.W. 16th Boulevard 

4041 N.W. 37th Place, Suite A 

Hastings 

207 N. Main Street 

High Springs 

660 N.E. Santa Fe Boulevard 

Jonesville 

14009 W. Newberry Road 

Newberry 

24202 W. Newberry Road, Suite F 

C-B-G, Inc. 

West Liberty, Iowa 

Order Approving the Acquisition of Shares of a Bank 

Holding Company 

C-B-G, Inc. (''C-B-G''), a bank holding company within 

the meaning of the Bank Holding Company Act (''BHC 

Act''), has requested the Board's approval under section 3 

of the BHC Act(footnote 1 12 U.S.C. §1842 end footnote) to acquire 

up to 24.35 percent of the 

voting shares of Washington Bancorp (''Washington'') and 

thereby indirectly acquire an interest in Washington's subsidiary bank, Federation Bank, both of Washington, Iowa. 

Notice of the proposal, affording interested persons an 

opportunity to submit comments, has been published 

(69 Federal Register 78,028 (2004)). The time for filing 

comments has expired, and the Board has considered the 

proposal and all comments received in light of the factors 

set forth in section 3 of the BHC Act. 

C-B-G, with consolidated assets of approximately 

$189 million, is the 63rd largest depository organization 

in Iowa, controlling deposits of $160 million, which represent less than 1 percent of total deposits of insured depository institutions in Iowa (''state deposits'')(footnote 2 Asset data are 

as of December 31, 2004. Statewide deposit 

and ranking data are as of June 30, 2004. Deposit data reflect the total 

of the deposits reported by each organization's insured depository 

institutions in their Consolidated Reports of Condition and Income 

or Thrift Financial Reports. In this context, insured depository institutions include commercial banks, savings banks, and savings 

associations end footnote)Washington, with total consolidated assets of $106 million, is the 

154th largest depository organization in Iowa, controlling 

$75 million in deposits. If C-B-G were deemed to control 

Washington on consummation of the proposal, C-B-G 

would become the 43rd largest depository organization in 

Iowa, controlling approximately $235 million in deposits, 

which represents 1 percent of state deposits. 

The Board received comments from Washington and 

a local resident objecting to the proposal and expressing 

concern that the proposal would result in C-B-G controlling and potentially harming Washington.(footnote 3 Washington 

requested a private meeting with C-B-G about the 

proposal. Under the Board's Rules of Procedures, the Reserve Bank 

may arrange a private meeting between a protestant and the applicant for the purposes of clarifying and narrowing issues and resolving differences when both parties agree to such a meeting. 12 CFR 

262.25(c). The parties ultimately declined the invitation of the Federal 

Reserve Bank of Chicago to participate in a private meeting end footnote) 

The Board has 

considered carefully these comments in light of the factors 

that the Board must consider under section 3 of the BHC 

Act. 

The Board previously has stated that the acquisition of 

less than a controlling interest in a bank or bank holding 

company is not a normal acquisition for a bank holding 

company.(footnote 4 See, e.g., Brookline Bancorp, MHC, 86 Federal 

Reserve Bulletin 

52 (2000) (''Brookline''); North Fork Bancorporation, Inc., 81 Federal Reserve Bulletin 734, 735 (1995) (''North Fork''); First Piedmont 

Corp., 59 Federal Reserve Bulletin 456, 457 (1973) end footnote)However, 

the requirement in section 3(a)(3) of 

the BHC Act that the Board's approval be obtained before 

a bank holding company acquires more than 5 percent of 

the voting shares of a bank suggests that the Congress 

contemplated the acquisition by bank holding companies 

of between 5 percent and 25 percent of the voting shares of 

banks(footnote 5 12 U.S.C. § 1842(a)(3) end footnote) 

On this basis, the Board previously has approved 

the acquisition by a bank holding company of less than a 

controlling interest in a bank or bank holding company(footnote 6 

S&T Bancorp, Inc., 91 Federal Reserve Bulletin 74 (2005) 

(acquisition of up to 24.9 percent of the voting shares of a bank 

holding company); Brookline (acquisition of up to 9.9 percent of 

the voting shares of a bank holding company); GB Bancorporation, 83 Federal Reserve Bulletin 115 (1997) (acquisition of up to 

24.9 percent of the voting shares of a bank) end footnote) 

C-B-G has indicated that it does not propose to control 

or exercise a controlling influence over Washington or 

Federation Bank. C-B-G has agreed to abide by certain 

commitments previously relied on by the Board in determining that an investing bank holding company would not 

be able to exercise a controlling influence over another 

bank holding company for purposes of the BHC Act(footnote 7 

See, e.g., S&T Bancorp; Brookline; FleetBoston Financial Corp., 

86 Federal Reserve Bulletin 751, 766 (2000). The commitments are 

set forth in the appendix. Washington also has expressed concern that 

C-B-G might in the future seek relief from some of these commitments. Any such request would be evaluated by the Board in light of 

all facts and circumstances at that time end footnote)For 

example, C-B-G has committed not to exercise or attempt 

to exercise a controlling influence over the management or 

policies of Washington or any of its subsidiaries; not to 

seek or accept representation on the board of directors of 

Washington or any of its subsidiaries; and not to have any 

director, officer, employee, or agent interlocks with Washington or any of its subsidiaries. C-B-G also has committed 

not to attempt to influence the dividend policies, loan 

decisions, or operations of Washington or any of its subsidiaries. The Board notes that the BHC Act prohibits C-B-G 

from acquiring additional shares of Washington or attempt-
Federal Reserve Bulletin • Summer 2005 

ing to exercise a controlling influence over Washington 

without the Board's prior approval. 

The Board has adequate supervisory authority to monitor compliance by C-B-G with its commitments and can 

take enforcement action against C-B-G if it violates any of 

the commitments(footnote 8 See 12 U.S.C. § 1818(b)(1) end footnote) 

The Board also has authority to initiate 

a control proceeding against C-B-G if facts presented later 

indicate that C-B-G or any of its subsidiaries or affiliates in 

fact controls Washington for purposes of the BHC Act(footnote 9 

See 12 U.S.C. § 1841(a)(2)(C) end footnote) 

Based on these considerations and all other facts of record, 

the Board has concluded that C-B-G would not acquire 

control of, or have the ability to exercise a controlling 

influence over, Washington through the proposed acquisition of voting shares(footnote 10 Washington asserted that the 

proposal is inconsistent with the 

Board's source of strength doctrine. As explained above, the Board 

previously has permitted a bank holding company that meets the 

requirements of section 3 of the BHC Act to acquire shares of a bank 

or bank holding company in a transaction that does not trigger the 

Board's source of strength regulation. 

Washington also expressed concern that the proposal could subject Federation Bank to liability under the cross-guarantee provision 

of the Federal Deposit Insurance Act, 12 U.S.C. § 1815(e) (''FDI 

Act''), if a subsidiary bank of C-B-G were to fail or require assistance 

from the Federal Deposit Insurance Corporation (''FDIC''). The Board 

notes that the application of this provision of the FDI Act is a matter 

for the FDIC to decide end footnote) 

Competitive and Convenience and Needs Considerations 

Section 3 of the BHC Act prohibits the Board from approving a proposal that would result in a monopoly or would be 

in furtherance of any attempt to monopolize the business of 

banking in any relevant banking market. Section 3 also 

prohibits the Board from approving a proposal that would 

substantially lessen competition in any relevant banking 

market, unless the Board finds that the anticompetitive 

effects of the proposal clearly are outweighed in the public interest by the probable effect of the proposal in meeting the convenience and needs of the community to be 

served(footnote 11 12 U.S.C. § 1842(c)(1) end footnote) 

The Board previously has stated that one company need 

not acquire control of another company to lessen competition between them substantially(footnote 12 The Board has found 

that noncontrolling interests in directly 

competing depository institutions may raise serious questions under 

the BHC Act and has concluded that the specific facts of each case 

will determine whether the minority investment in a company would 

be anticompetitive. See, e.g., BOK Financial Corp., 81 Federal 

Reserve Bulletin 1052, 1053-54 (1995); Mansura Bancshares, Inc., 

79 Federal Reserve Bulletin 37, 38 (1993) end footnote) C-B-G and 

Washington, 

however, do not compete directly in any relevant banking market. Based on all the facts of record, the Board 

has concluded that consummation of the proposal would 

have no significant adverse effect on competition or on the 

concentration of banking resources in any relevant banking 

market and that competitive factors are consistent with 

approval of the proposal. 

In addition, considerations relating to the convenience 

and needs of the communities to be served, including 

the records of performance of the institutions involved 

under the Community Reinvestment Act (''CRA'')(footnote 13 

12 U.S.C. §2901 etseq end footnote)are 

consistent with approval. C-B-G's subsidiary banks each 

received ''satisfactory'' ratings, and Federation Bank 

received an ''outstanding'' rating, at their most recent 

evaluations for CRA performance by the FDIC(footnote 14 

The most recent CRA performance evaluations of Community 

Bank, Muscatine, Iowa, the larger of C-B-G's subsidiary banks, and 

Wilton Savings Bank, Wilton, Iowa, C-B-G's other subsidiary bank, 

were as of February 2004 and July 2003 respectively. Federation 

Bank's most recent CRA performance evaluation was as of August 

2004 end footnote) 

Financial, Managerial, and Supervisory Considerations 

Section 3 of the BHC Act requires the Board to consider 

the financial and managerial resources and future prospects 

of the companies and depository institutions involved in 

the proposal and certain other supervisory factors. The 

Board has considered carefully these factors in light of all 

the facts of record, including confidential reports of examination, other confidential supervisory information from the 

federal and state banking supervisors of the organizations 

involved, publicly reported and other financial information, 

information provided by C-B-G, and comments receivedFootnote15 

Washington also expressed concern that C-B-G could seek 

access to Washington's confidential records. The Board notes that 

Iowa law delineates the rights of shareholders to access an Iowa 

corporation's records. See Iowa Code §490.1602 end footnote) 

In evaluating financial factors in expansion proposals 

by banking organizations, the Board reviews the financial 

condition of the organizations involved on both a parentonly and consolidated basis, as well as the financial condition of the subsidiary depository institutions and significant 

nonbanking operations. In this evaluation, the Board considers a variety of areas, including capital adequacy, asset 

quality, and earnings performance. In assessing financial 

factors, the Board consistently has considered capital adequacy to be especially important. The Board also evaluates 

the financial condition of the combined organization on 

consummation, including its capital position, asset quality, 

and earnings prospects and the impact of the proposed 

funding of the transaction(footnote 16 As previously noted, 

the current proposal provides that C-B-G 

would acquire only up to 24.35 percent of Washington. Under these 

circumstances, the financial statements of C-B-G and Washington 

would not be consolidated for purposes of Federal Reserve reporting 

requirements end footnote) 

Based on its review of these factors, the Board finds that 

C-B-G has sufficient financial resources to effect the proposal. C-B-G and its subsidiary banks currently are well 

capitalized and would remain so on consummation of this 

proposal. The proposed transaction is structured as a cash 

transaction, and the consideration to be received by the 

Washington shareholders who are selling their shares to 

C-B-G would be funded from issuance of trust preferred 

securities. 
Legal Developments 

The Board also has considered the managerial resources 

of the organizations involved. The Board has reviewed 

the examination records of C-B-G, Washington, and their 

subsidiary depository institutions, including assessments of 

their management, risk-management systems, and operations. In addition, the Board has considered its supervisory 

experiences and those of the other relevant banking agencies with the organizations and their records of compliance 

with applicable banking laws. C-B-G, Washington, and 

their subsidiary depository institutions are considered well 

managed. 

Based on all the facts of record, the Board concludes that 

considerations relating to the financial and managerial 

resources and future prospects of the organizations 

involved in the proposal are consistent with approval, as 

are the other supervisory factors the Board must consider 

under the BHC Act. 

Other Considerations 

Washington has asserted that the proposal would violate an 

Iowa statute that requires a bank holding company making 

an offer to purchase, directly or indirectly, shares of an 

Iowa-chartered bank to extend the same offer to all shareholders of the bank(footnote 17 Iowa Code §524.1803 end footnote)If a 

bank is wholly owned by a bank 

holding company, as in this case, Washington argues that 

the same offer must be made to all the shareholders of the 

parent holding company. C-B-G, which made an offer only 

to some shareholders of Washington, has responded that 

the Iowa statute does not apply to the proposal because it 

is acquiring shares of a bank holding company, and not a 

bank, and that no additional shares of Federation Bank 

exist to purchase. 

The Board may not approve a proposal that is prohibited 

by a valid state law(footnote 18 Whitney National Bank in Jefferson 

Parish v. Bank of New 

Orleans and Trust Co., 379 U.S. 411 (1965) end footnote)The Board 

is not, however, the 

arbiter of disputes regarding the applicability or meaning 

of state corporate law. 

The Board has reviewed the state law in this case and the 

submissions from C-B-G and Washington regarding the 

interpretation of the Iowa statute. In addition, the Board 

has consulted with the Iowa Superintendent of Banking 

and the Iowa Attorney General's Office. 

Based on this review, it appears that the proposed acquisition of Washington shares is not prohibited under state 

law and can be consummated without violating state law. 

Under C-B-G's interpretation, the transaction would be 

permitted as structured. Even under Washington's interpretation, C-B-G would be permitted to acquire the shares at 

issue if it made a similar offer to all Washington shareholders. Accordingly, state law does not prohibit C-B-G from 

acquiring shares of Washington under either interpretation. 

The Board conditions its action in this case on C-B-G's 

compliance with applicable state law(footnote 19 See also Central 

Pacific Financial Corp., 90 Federal Reserve 

Bulletin 93 (2004); Brookline Bancorp, MHC, 86 Federal Reserve B 

ulletin 52 (2000); Security Pecos Bancshares, Inc., 85 Federal 

Reserve Bulletin 640 (1999)If C-B-G must 

offer to purchase and then acquire additional shares of 

Washington, further review and approval by the Federal 

Reserve may be required under the BHC Act at that time. 

Conclusion 

Based on the foregoing and all the facts of record, the 

Board has determined that the application should be, and 

hereby is, approved. In reaching its conclusion, the Board 

has considered all the facts of record in light of the factors 

that it is required to consider under the BHC Act and other 

applicable statutes. The Board's approval is specifically 

conditioned on compliance by C-B-G with the conditions 

imposed in this order and all the commitments made to the 

Board in connection with the application. For purposes of 

this transaction, those conditions and commitments are 

deemed to be conditions imposed in writing by the Board 

in connection with its findings and decision herein and, as 

such, may be enforced in proceedings under applicable 

law. 

The acquisition of Washington's voting shares may not 

be consummated before the fifteenth calendar day after the 

effective date of this order, or later than three months after 

the effective date of this order, unless such period is 

extended for good cause by the Board or the Federal 

Reserve Bank of Chicago, acting pursuant to delegated 

authority. 

By order of the Board of Governors, effective April 26, 

2005. 

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

ROBERT DEV. FRIERSON 

Deputy Secretary of the Board 

Appendix 

In connection with its application to acquire up to 

24.35 percent of Washington, C-B-G commits that it will 

not, directly or indirectly: 

(1) take any action that would cause Washington(footnote 1 

All references to Washington in these commitments include any 

subsidiary of Washington end footnote)to 

become a subsidiary of C-B-G; 

(2) acquire or retain shares that would cause the combined interests of C-B-G and its officers, directors, 

and affiliates to equal or exceed 25 percent of the 

outstanding voting shares of Washington; 

(3) exercise or attempt to exercise a controlling 

influence over the management or policies of 

Washington; 

(4) seek or accept representation on the board of directors of Washington; 
Federal Reserve Bulletin • Summer 2005 

(5) have or seek to have any representative serve as an 

officer, agent, or employee of Washington; 

(6) propose a director or slate of directors in opposition to a nominee or slate of nominees proposed 

by the management or board of directors of 

Washington; 

(7) solicit or participate in soliciting proxies with 

respect to any matter presented to the shareholders 

of Washington; 

(8) attempt to influence the dividend policies or practices; the loan, credit, or investment decisions 

or policies; the pricing of services; any personnel 

decisions; any operations activities, including the 

location of any offices or branches or their hours of 

operation; or any similar activities or decisions of 

Washington; 

(9) dispose or threaten to dispose of shares of Washington in any manner as a condition of specific 

action or nonaction by Washington; or 

(10) enter into any other banking or nonbanking transactions with Washington, except that C-B-G may 

establish and maintain deposit accounts with bank 

subsidiaries of Washington, provided that the 

aggregate balances of all such accounts do not 

exceed $500,000 and that the accounts are maintained on substantially the same terms as those 

prevailing for comparable accounts of persons 

unaffiliated with Washington. 

The PNC Financial Services Group, Inc. 

Pittsburgh, Pennsylvania 

Order Approving the Merger of Bank Holding 

Companies 

The PNC Financial Services Group, Inc. (''PNC''), a financial holding company within the meaning of the Bank 

Holding Company Act (''BHC Act''), has requested the 

Board's approval under section 3 of the BHC Act(footnote 1 12 U.S.C 

. §1842 end footnote)to 

acquire Riggs National Corporation (''Riggs''), Washington, D.C., and its subsidiary bank, Riggs Bank National 

Association (''Riggs Bank''), McLean, Virginia(footnote 2 

Immediately after the merger of Riggs into PNC, PNC would 

contribute all the shares of Riggs Bank to PNC Bancorp, Inc., Wilmington, Delaware, a subsidiary bank holding company of PNC. PNC's 

lead subsidiary bank, PNC Bank, National Association (''PNC 

Bank''), Pittsburgh, Pennsylvania, then would acquire substantially all 

the assets and assume substantially all the liabilities of Riggs Bank. 

This proposed transaction by PNC Bank is subject to approval by 

the Office of the Comptroller of the Currency (''OCC'') under section 18(c) of the Federal Deposit Insurance Act. 12 U.S.C. § 1828(c) 

end footnote) 

Notice of the proposal, affording interested persons an 

opportunity to submit comments, has been published 

(69 Federal Register 50,382 (2004)). The time for filing 

comments has expired, and the Board has considered the 

proposal and all comments received in light of the factors 

set forth in section 3 of the BHC Act. 

PNC, with total consolidated assets of approximately 

$80 billion, is the 20th largest depository organization in 

the United States, controlling deposits of approximately 

$52.2 billion, which represent less than 1 percent of the 

total deposits of insured depository institutions in the 

United States(footnote 3 Asset, deposit, and nationwide ranking 

data are as of December 31, 2004. Deposit data reflect the unadjusted total of the deposits 

reported by each organization's insured depository institutions in their 

Consolidated Reports of Condition and Income or Thrift Financial 

Reports. In this context, insured depository institutions include commercial banks, savings banks, and savings associations end footnote)PNC 

operates subsidiary insured depository 

institutions in Delaware, Florida, Indiana, Kentucky, New 

Jersey, Ohio, and Pennsylvania. 

Riggs, with total consolidated assets of approximately 

$6 billion, controls deposits of $3.8 billion through Riggs 

Bank, its only subsidiary depository institution. On consummation of this proposal, PNC would become the 

19th largest depository organization in the United States, 

with total consolidated assets of approximately $85.5 billion and total deposits of $56 billion, which represent less 

than 1 percent of the total amount of deposits of insured 

depository institutions in the United States. 

Interstate Analysis 

Section 3(d) of the BHC Act allows the Board to approve 

an application by a bank holding company to acquire 

control of a bank located in a state other than the home 

state of such bank holding company if certain conditions 

are met(footnote 4 A bank holding company's home state is the state 

in which the 

total deposits of all subsidiary banks of the company were 

the largest 

on the later of July 1, 1966, or the date on which the company 

became 

a bank holding company. 12 U.S.C. § 1841(o)(4)(C). 

5. For purposes of section 3(d), the Board considers a bank to be 

located in the states in which the bank is chartered or headquartered or 

operates a branch. See 12 U.S.C. §§ 1841(o)(4)-(7) and 1842(d)(1)(A) 

and (d)(2)(B) end footnote)For purposes of the BHC Act, the home 

state 

of PNC is Pennsylvania, and Riggs's subsidiary bank is 

located in Washington, D.C., Maryland, and Virginia(footnote 5 

For purposes of section 3(d), the Board considers a bank to be 

located in the states in which the bank is chartered or headquartered or 

operates a branch. See 12 U.S.C. §§ 1841(o)(4)-(7) and 

1842(d)(1)(A) 

and (d)(2)(B) end footnote) 

Based on a review of all the facts of record, including a 

review of relevant state statutes, the Board finds that all the 

conditions for an interstate acquisition enumerated in section 3(d) of the BHC Act are met in this case(footnote 6 12 U.S.C 

. §§ 1842(d)(1)(A) & (B), and (d)(2)(A) & (B). PNC is 

adequately capitalized and adequately managed, as defined by applicable law. Riggs Bank has been in existence and operated for the 

minimum period of time required by applicable law. On consummation of the proposal, PNC would control less than 10 percent of the 

total amount of deposits of insured depository institutions in the 

United States. All other requirements of section 3(d) would be met in 

this case. end footnote)Accordingly, based on all the facts of record, the Board is permitted to approve the proposal under section 3(d) of the BHC 

Act. 

Competitive Considerations 

Section 3 of the BHC Act prohibits the Board from approving a proposal that would result in a monopoly or would be 
Legal Developments 

in furtherance of any attempt to monopolize the business of 

banking in any relevant banking market. The BHC Act also 

prohibits the Board from approving a proposed bank acquisition that would substantially lessen competition in any 

relevant banking market, unless the Board finds that the 

anticompetitive effects of the proposal clearly are outweighed in the public interest by the probable effect of the 

proposal in meeting the convenience and needs of the 

community to be served(footnote 7 12 U.S.C. § 1842(c)(1) 

end footnote) 

PNC and Riggs do not compete directly in any relevant 

banking market. Accordingly, the Board concludes, based 

on all the facts of record, that consummation of the proposal would not have an adverse effect on competition or 

on the concentration of banking resources in any relevant 

banking market and that competitive factors are consistent 

with approval of the proposal. 

Financial, Managerial, and Supervisory Considerations 

Section 3 of the BHC Act requires the Board to consider 

the financial and managerial resources and future prospects 

of the companies and banks involved in the proposal and 

certain other supervisory factors. In reviewing these factors, the Board has considered, among other things, confidential reports of examination and other supervisory information received from the primary federal supervisors of 

the organizations involved in the proposal. In addition, the 

Board has consulted with the relevant supervisory agencies, including the OCC and the Federal Deposit Insurance 

Corporation (''FDIC''). The Board also has considered 

publicly available financial and other information on the 

organizations and their subsidiaries, all the information 

submitted on the financial and managerial aspects of the 

proposal by PNC, and public comment received by the 

Board about the financial and managerial resources of PNC 

and Riggs. 

In evaluating financial factors in expansion proposals by 

banking organizations, the Board reviews the financial 

condition of the organizations involved on both a parentonly and consolidated basis, as well as the financial condition of the subsidiary banks and significant nonbanking 

operations. In this evaluation, the Board considers a variety 

of areas, including capital adequacy, asset quality, and 

earnings performance. In assessing financial factors, the 

Board consistently has considered capital adequacy to be 

especially important. The Board also evaluates the effect of 

the transaction on the financial condition of the applicant 

and the target, including their capital positions, asset quality, and earnings prospects and the impact of the proposed 

funding of the transaction. 

The Board has reviewed these factors carefully in this 

case and believes that financial factors are consistent with 

approval of this application. The Board notes that PNC and 

its subsidiary depository institutions are well capitalized 

and would remain so on consummation of the proposal(footnote 

8 One commenter questioned the basis for the selection by Riggs's 

board of directors of PNC's bid from among the competing offers and 

expressed concern that certain senior management officials of Riggs 

Bank may receive excessive severance payments. The Board notes 

that the transaction may be consummated only if approved by the 

Riggs shareholders, that information concerning the selection of 

PNC's bid and the management officials' severance payments has 

been disclosed to shareholders, and that PNC would remain well 

capitalized on consummation. The Board also notes that the price or 

consideration received by shareholders is not, by itself, within the 

limited statutory factors the Board may consider when reviewing an application under of Governors, the BHC Act. 480 See F.2d Western 749 (10th Bancshares, Cir. 1973) Inc. end v. footnote) Board 

The Board also finds that PNC has sufficient financial 

resources to effect the proposal(footnote 9 The commenter expressed 

concern about PNC's disclosure in a 

recent filing with the Securities and Exchange Commission 

that it may 

have to adjust its tax treatment for certain leveraged leases, 

based on 

an Internal Revenue Service (''IRS'') audit of PNC's tax returns 

for 

the years 1998 to 2000. PNC has stated in its filing that it be 

lieves that 

its tax treatment of these leases was appropriate under federal tax law 

and that it plans to file an appeal with the IRS. The Board notes that 

the IRS and the federal courts, and not the Board, have jurisdiction to 

adjudicate compliance with federal tax laws. The Board has taken 

account of this matter, including the effect of both the current treatment and potential adjustment on the financial resources of 

PNC end footnote) 

The proposed transaction 

is structured as a partial share exchange/partial cash purchase of shares, and PNC will use existing cash resources 

to fund the cash purchase of shares. 

The Board also has considered the managerial resources 

of PNC, Riggs, and the banking institutions and nonbanking subsidiaries to be acquired, and the effect of the proposal on these resources(footnote 10 The commenter expressed concern 

about lending by PNC to 

unaffiliated payday lenders. PNC stated that neither it nor any of its 

subsidiaries currently have any banking or similar financial relationships with any payday lenders end footnote) In reviewing this proposal, the 

Board has assembled and considered a broad and detailed 

record, including substantial confidential and public 

information about PNC and Riggs. The Board has carefully 

reviewed the examination records of PNC, Riggs, and 

their subsidiaries, including assessments of their riskmanagement systems by relevant supervisors. The Board 

also reviewed confidential supervisory information on the 

policies, procedures, and practices of PNC and Riggs for 

complying with the Bank Secrecy Act (''BSA''), and other 

anti-money-laundering laws, and has consulted with the 

appropriate federal financial supervisory agencies of PNC's 

subsidiary banks and Riggs Bank about their records of 

compliance with anti-money-laundering laws. 

In assessing these matters, the Board notes that PNC is 

considered well managed overall. The Board has taken 

account of the experience and capability of PNC's senior 

management; the enterprise-wide risk-management programs used to identify, measure, and control corporate and 

business line risks; and the adequacy of the organization's 

internal controls and audit procedures as well as other 

management programs and matters. The Board also has 

considered PNC's plans for integrating Riggs into the PNC 

organization, including the experience of the management 

team PNC has named to run the banking operations to be 

acquired from Riggs(footnote 11 The commenter 

expressed concerns about PNC's managerial 

record in light of past enforcement actions against the organization, 

including enforcement actions by the Department of Justice (''DOJ''),the 

Federal Reserve Bank of Cleveland (''Reserve Bank''), and the 

OCC. The Board previously considered these enforcement actions in 

its order approving PNC's application to acquire United National 

Bancorp, Bridgewater, New Jersey (order dated November 19, 2003) 

(the ''United National Order''). As noted in the United National 

Order, PNC has developed a new ethics policy and training program, 

an enterprise-wide risk-management program, and enhanced credit 

record compliance nance Septmber findings No. OCC administration DOJ dismissed ineforcement 03-M-187 thisprocedures. terminated entered detailed with case, 2003. (2004) in the Junethe into (W.D.matters. procedures, In i deferred theirThe end Board addition, thein 2004, footnote) BoardJune Pa. respective United See hereby June prosecution with 2003. 90 internal notesthe National 2,Federal the DOJ's reaffirms enforcement U.S.2003). that DOJ's controls, agreement v. thecomplaint Reserve Order Based PNC concurrence, andFeeral and with acionsICLC adopts on Bulletin thatagainst corporate its Reserve respect Corp., review PNCthe with after 72, PNC facts to PNC and CRIM. gover- PNC's74 of these was and n.9the in
Federal Reserve Bulletin • Summer 2005 

The Board has taken into account that Riggs Bank 

pleaded guilty to a criminal violation of the BSA and paid 

a $16 million finefootnote 12 See United States of America v. Riggs 

Bank N.A., Cr. 05-35 

(RMU). The commenter objected to the size of the fine and to other 

terms of the plea agreement. The Board notes that the United States 

District Court for the District of Columbia, and not the Board, has 

jurisdiction to adjudicate the criminal complaint against Riggs Bank 

and that the court has approved the fine amount and the other terms of 

Riggs Bank's plea agreement end footnote)and that Riggs and Riggs 

Bank were 

subject to enforcement actions by the Board and the OCC, 

respectively, that included payment by Riggs Bank of a 

$25 million civil money penalty for BSA violations(footnote 

13 The Consent Orders entered into in May 2004 required Riggs 

and Riggs Bank to improve management and internal controls, in 

addition to enhancing compliance with BSA and other anti-moneylaundering requirements and requiring Riggs Bank to pay the $25 million civil money penalty. The Board and the OCC modified their 

consent orders with Riggs and Riggs Bank in January 2005 to reflect 

the progress made in fulfilling the requirements of the May 2004 

Consent Orders and to add provisions reflecting the most recent 

examinations of the institutions. The Board notes that the reviews 

required by the May 2004 Consent Orders of certain Riggs accounts to 

ensure that suspicious activity reports were properly filed have been 

completed end footnote)The 

Board continues to monitor investigations of Riggs and 

Riggs Bank by various U.S. governmental authorities and 

is consulting with the DOJ and the OCC about the ongoing 

investigations of former and current management officials 

of Riggs and its subsidiaries(footnote 14 As a matter of practice and policy, the Board has generally not 

tied consideration of an application or notice to the scheduling or 

completion of an investigation if the applicant has an overall satisfactory record of performance and the issues being reviewed can be 

resolved in the examination and supervisory process. See 62 Federal 

Register 9,290 (1997) (Preamble to the Board's Regulation Y). In this 

case, as explained above, the Board has also considered the progress 

and cooperation shown by Riggs as well as the plans and ability of the 

acquiring institution to address these matters. As the Board has 

indicated previously, it has broad supervisory authority under the 

banking laws to address matters that are found in the examination and 

supervisory process. See Citigroup Inc., 91 Federal Reserve Bulletin 

262 (2005). Moreover, many issues are more appropriately and adequately addressed in the supervisory process, where particular matters and violations of law can be identified and addressed specifically, 

rather than in the application process, which requires a weighing of 

the overall record of the companies involved. The Board further notes 

that consummation of the proposed transaction would not impede the 

ability of the Congress, the DOJ, or the appropriate federal banking 

the Federal Reserve Bank of Cleveland (''Reserve Bank''), and the 

OCC. The Board previously considered these enforcement actions in 

its order approving PNC's application to acquire United National 

Bancorp, Bridgewater, New Jersey (order dated November 19, 2003) 

(the ''United National Order''). As noted in the United National 

Order, PNC has developed a new ethics policy and training program, 

an enterprise-wide risk-management program, and enhanced credit 

administration procedures, internal controls, and corporate governance procedures. The Board notes that the Federal Reserve and the 

OCC terminated their respective enforcement actions with PNC in 

September 2003. In addition, the DOJ's complaint against PNC was 

dismissed in June 2004, with the DOJ's concurrence, after PNC's 

compliance with the deferred prosecution agreement that PNC and the 

DOJ entered into in June 2003. U.S. v. PNC ICLC Corp., CRIM. 

No. 03-M-187 (W.D. Pa. June 2, 2003). Based on its review of the 

record in this case, the Board hereby reaffirms and adopts the facts and 

findings detailed in the United National Order with respect to these 

enforcement matters. See 90 Federal Reserve Bulletin 72, 74 n.9 

(2004). 

12. See United States of America v. Riggs Bank N.A., Cr. 05-35 

(RMU). The commenter objected to the size of the fine and to other 

terms of the plea agreement. The Board notes that the United States 

District Court for the District of Columbia, and not the Board, has 

jurisdiction to adjudicate the criminal complaint against Riggs Bank 

and that the court has approved the fine amount and the other terms of 

Riggs Bank's plea agreement. 

13. The Consent Orders entered into in May 2004 required Riggs 

and Riggs Bank to improve management and internal controls, in 

addition to enhancing compliance with BSA and other anti-moneylaundering requirements and requiring Riggs Bank to pay the $25 million civil money penalty. The Board and the OCC modified their 

consent orders with Riggs and Riggs Bank in January 2005 to reflect 

the progress made in fulfilling the requirements of the May 2004 

Consent Orders and to add provisions reflecting the most recent 

examinations of the institutions. The Board notes that the reviews 

required by the May 2004 Consent Orders of certain Riggs accounts to 

ensure that suspicious activity reports were properly filed have been 

completed. 

14. As a matter of practice and policy, the Board has generally not 

tied consideration of an application or notice to the scheduling or 

completion of an investigation if the applicant has an overall satisfactory record of performance and the issues being reviewed can be 

resolved in the examination and supervisory process. See 62 Federal 

Register 9,290 (1997) (Preamble to the Board's Regulation Y). In this 

case, as explained above, the Board has also considered the progress 

and cooperation shown by Riggs as well as the plans and ability of the 

acquiring institution to address these matters. As the Board has 

indicated previously, it has broad supervisory authority under the 

banking laws to address matters that are found in the examination and 

supervisory process. See Citigroup Inc., 91 Federal Reserve Bulletin 

262 (2005). Moreover, many issues are more appropriately and adequately addressed in the supervisory process, where particular matters and violations of law can be identified and addressed specifically, 

rather than in the application process, which requires a weighing of 

the overall record of the companies involved. The Board further notes 

that consummation of the proposed transaction would not impede the 

ability of the Congress, the DOJ, or the appropriate federal banking 

agencies to gain access to the records of Riggs or otherwise to 

complete investigations of these matters end footnote) 

The Board notes that most of Riggs's supervisory issues 

arose from its international banking and foreign embassy 

banking business. In 2004, Riggs announced its intention 

to exit those lines of business, and Riggs Bank has substantially completed the sale or termination of those activities(footnote 15 Specifically, Riggs has represented that it has 

terminated all 

banking relationships with foreign embassies and is in the process 

of closing or selling its operations outside the United States. 

Riggs 

terminated the operations of Riggs International Banking 

Corporation 

(''RIBC''), Miami, Florida, the Edge Act subsidiary of Riggs 

Bank, 

during the third quarter of 2004, and RIBC surrendered its 

permit in 

December 2004 end footnote)The Board has reviewed the progress 

of Riggs, and 

has consulted with the OCC about the progress of Riggs 

Bank, in complying with the Consent Orders. In addition, 

the Board has consulted with the OCC about enhancements 

Riggs Bank has made to its programs for complying with 

the requirements of the BSA. 

The Board has also reviewed and taken account of 

proposals by PNC as the acquiring institutions to implement enhanced risk-management and BSA-compliance 

programs at Riggs after consummation of this proposal. 

The Board has considered PNC's record of enhancing its 

own risk-management and BSA-compliance programs and 

its plans for implementing those programs at Riggs. These 

considerations included PNC's proposed management 

personnel and implementation of corporate-wide riskmanagement systems for compliance, including BSAcompliance programs, for the expanded PNC operations 

after consummation and PNC's record of successfully integrating acquired institutions into its existing operations. As 

previously noted, the banking operations of Riggs Bank 

will be merged into PNC Bank after consummation of the 

proposal. 

Based on all the facts of record, the Board concludes that 

considerations relating to the financial and managerial 

resources and future prospects of PNC and the depository 

institutions involved in the proposal are consistent with 

approval, as are the other supervisory factors under the 

BHC Act(footnote 16 The commenter also noted press 

reports 

about litigation against 

Riggs, including suits claiming Riggs was negligent in 

failing to alert 

authorities to suspicious financial transactions allegedly 

related to the 

September 11, 2001, terrorist attacks and criminal and 

civil claims in 

a Spanish court asserting Riggs's concealment of assets 

and money 

laundering in connection with Riggs accounts held for 

the benefit of 

former Chilean President Augusto Pinochet. The Board 

notes that the 

Spanish civil and criminal claims were dismissed after 

Riggs reached 

a settlement with the plaintiffs in the civil suit in Spain. 

As previously 

noted, the courts, and not the Board, have jurisdiction 

to adjudicate 

legal andgerial these litigation combined organization. Ieffect Convenience n actin man- claims s o factors gf matters oth and ne against thiproposa end ins this might Needs footnote) proposal Riggs. case, l o Considerations affect n th the In, th e convenienc considering the Board e Boar future has d mus prospects e considered an thetd conside financial need ofs o how the rf th e 
Legal Developments 

communities to be served and take into account the records 

of the relevant insured depository institutions under 

the Community Reinvestment Act (''CRA'')(footnote 17 12 U.S.C 

. § 1842(c)(2); 12 U.S.C. §2901 et seq end footnote)The CRA 

requires the federal financial supervisory agencies to 

encourage financial institutions to help meet the credit 

needs of local communities in which they operate, consistent with their safe and sound operation, and requires the 

appropriate federal financial supervisory agency to take 

into account an institution's record of meeting the credit 

needs of its entire community, including low- and 

moderate-income (''LMI'') neighborhoods, in evaluating 

bank expansionary proposals. 

The Board has considered carefully the convenience and 

needs factor and the CRA performance records of PNC's 

subsidiary banks and Riggs Bank in light of all the facts of 

record, including public comment received on the proposal. One commenter opposed the proposal and alleged, 

based on data reported under the Home Mortgage Disclosure Act (''HMDA'')(footnote 18 12 U.S.C. §2801 etseq end footnote) 

that PNC Bank and Riggs Bank 

engaged in disparate treatment of minority individuals in 

home mortgage lending in the banks' assessment areas. 

The commenter also expressed concern about possible 

branch closures. 

A. CRA Performance Evaluations 

As provided in the CRA, the Board has evaluated the 

convenience and needs factor in light of the evaluations by 

the appropriate federal supervisors of the CRA performance records of the relevant insured depository institutions. An institution's most recent CRA performance 

evaluation is a particularly important consideration in 

the applications process because it represents a detailed, 

on-site evaluation of the institution's overall record of 

performance under the CRA by its appropriate federal 

supervisor(footnote 19 See Interagency Questions and Answers 

Regarding Community 

Reinvestment, 66 Federal Register 36,620 and 36,639 (2001) end footnote) 

PNC Bank. PNC Bank, PNC's largest subsidiary bank 

as measured by total deposits, received an ''outstanding'' 

rating at its most recent CRA performance evaluation 

by the OCC, as of April 15, 2002 (''2002 Evaluation'')(footnote 

20 PNC Bank, Delaware, PNC's other subsidiary bank, also 

received an ''outstanding'' rating at its most recent CRA performance 

evaluation by the FDIC, as of January 21, 2003 end footnote) 

Riggs Bank received an ''outstanding'' rating at its most 

recent CRA performance evaluation by the OCC, as of 

April 7, 2003 (''2003 Evaluation''). The Board consulted 

with the OCC about the CRA performance of PNC Bank 

and Riggs Bank since their most recent CRA evaluations. 

PNC has indicated that after the merger of PNC Bank and 

Riggs Bank, PNC Bank's CRA program will be implemented at the resulting bank. 

The 2002 Evaluation was discussed in the United 

National Order(footnote 21 90 Federal Reserve Bulletin at 74—77 

end footnote)In that evaluation, PNC Bank received a 

''high satisfactory'' rating under the lending test and ''outstanding'' ratings under the investment and service tests 

(footnote 

22 The evaluation period for the lending test was January 1, 1998, 

through December 31, 2001, except for community development 

loans, which were evaluated from July 6, 1998, through 

December 31, 

2001. The evaluation period for the investment and service 

tests was 

July 6, 1998, through March 31, 2002 end footnote) 

Examiners reported that the bank had excellent lending 

activity in its major markets and good distribution of loans 

by geography and borrower income. They noted that the 

bank had developed a bank-wide lending program to assist 

LMI borrowers through expanded credit criteria, reduced 

minimum loan amounts, and closing cost assistance. Examiners further stated that the bank's record of community 

development lending for affordable housing, community 

services, and economic revitalization was strong. Examiners also reported that PNC Bank made more than $169 million of qualifying community development investments 

during the evaluation period, a level examiners characterized as excellent. In addition, they reported that the bank's 

services were readily accessible to LMI individuals and 

geographies and that the bank was a leader in providing 

community development services in its assessment areas. 

Riggs Bank. In the 2003 Evaluation, Riggs Bank 

received ''outstanding'' ratings under the lending, investment, and service tests(footnote 23 The evaluation period for the 

lending 

test was from September 1, 1999, through December 31, 2002, except for 

community 

development lending, which was evaluated from 

September 1, 1999, 

through April 7, 2003. For the investment test and the 

service test, the 

evaluation period was from September 1, 1999, through 

April 7, 2003 

end footnote)Examiners reported that the percentage of home purchase loans by Riggs Bank to LMI 

borrowers exceeded the percentage of LMI families in the 

bank's assessment area and that the bank's market share of 

home purchase loans to LMI borrowers exceeded its overall market share of home purchase loans in that area. 

Examiners stated that the bank made use of innovative and 

flexible loan products, which provide relaxed underwriting 

standards for LMI borrowers. Examiners also indicated 

that the bank had a high level of community development 

lending. 

Examiners characterized Riggs Bank's level of qualified 

investments as excellent and stated that the bank played 

a vital role in increasing the level of funds available 

for affordable mortgages in the bank's assessment area. 

In addition, examiners reported that the bank provided a 

relatively high level of community development services, 

which included participation in or sponsorship of seminars 

that provided training and assistance on home buying, 

consumer loans, debt and credit management, and building financial knowledge and relationships with financial 

institutions. 

B. HMDA Data and Fair Lending Record 

The Board has carefully considered the lending record of 

PNC in light of public comment received on the proposal. 

The commenter alleged, based on a review of 2003 HMDA 

data, that PNC Bank and Riggs Bank disproportionately 
federal Reserve Bulletin • Summer 2005 

excluded or denied African-American or Hispanic applicants for home mortgage loans in various Metropolitan 

Statistical Areas (''MSAs'')(footnote 24 Specifically, the commenter 

cited HMDA data on lending by 

PNC's subsidiary banks to African Americans or Hispanics in the 

Wilmington MSA in Delaware, Newark and Jersey City MSAs in 

New Jersey, Harrisburg and Pittsburgh MSAs in Pennsylvania, Philadelphia MSA in Pennsylvania and New Jersey, and Newburgh MSA 

in New York. The commenter cited HMDA data on Riggs Bank's 

lending to African Americans in the Washington MSA in Washington, D.C., Maryland, and Virginia end footnote)The Board reviewed the 

HMDA data for 2002 and 2003 reported by PNC Bank and 

PNC Bank, Delaware (collectively ''PNC Banks''), and 

by Riggs Bank for the states or MSAs where the banks' 

primary assessment areas were located(footnote 25 The 

Board reviewed HMDA data for the PNC Banks in Delaware, New Jersey, and Pennsylvania, and in the Newark, Philadelphia, 

and Pittsburgh MSAs end footnote) 

The HMDA data indicate that the PNC Banks' denial 

disparity ratios(footnote 26 The denial disparity ratio equals the 

denial rate of a particular 

racial category (e.g., African American) divided by the denial rate for 

whites end footnote)for African-American and Hispanic applicants for the banks' total HMDA-reportable loans in Delaware, New Jersey, and Pennsylvania, which together 

accounted for more than 77 percent of the banks' combined HMDA-reportable loans in 2003, were generally 

comparable with the ratios for the aggregate of lenders 

(''aggregate lenders'') in those areas(footnote 27 The lending 

data of the aggregate lenders represent the cumulative lending for all financial institutions that have reported HMDA 

data in a particular area. end footnote)In addition, the 

percentages of the PNC Banks' total HMDA-reportable 

loans to African Americans and Hispanics in these states in 

2003 were generally comparable with the percentages for 

the aggregate lenders. The data also indicate that the PNC 

Banks increased the percentages of their total HMDAreportable loans originated to African Americans and Hispanics in each of these states from 2002 to 2003(footnote 28 

The commenter also commented on HMDA data it derived 

from 2004 loan application registers of PNC Bank and Riggs Bank. 

The Board notes that such data are preliminary and that 2004 data for 

lenders in the aggregate are not yet available end footnote) 

The HMDA data indicate that Riggs Bank's denial disparity ratios for African-American applicants in its assessment area were higher than those ratios for the aggregate 

lenders in both years. The data indicate, however, that 

Riggs Bank significantly reduced its denial disparity ratios 

for African-American applicants and increased the number 

and percentage of its total HMDA-reportable loans to 

African Americans in 2003. 

Although the HMDA data might reflect certain disparities in the rates of loan applications, originations, and 

denials among members of different racial groups in certain local areas, these data generally do not demonstrate 

that either PNC Bank or Riggs excluded any racial group 

on a prohibited basis. The Board nevertheless is concerned 

when HMDA data for an institution indicate disparities in 

lending and believes that all banks are obligated to ensure 

that their lending practices are based on criteria that ensure 

not only safe and sound lending, but also equal access to 

credit by creditworthy applicants regardless of their race or 

income level. The Board recognizes, however, that HMDA 

data alone provide an incomplete measure of an institution's lending in its community because these data cover 

only a few categories of housing-related lending. HMDA 

data, moreover, provide only limited information about 

covered loans(footnote 29 The data, for example, do not account 

for 

the possibility that an 

institution's outreach efforts may attract a larger proportion of 

marginally qualified applicants than other institutions attract and do 

not 

provide a basis for an independent assessment of whether an 

applicant 

who was denied credit was, in fact, creditworthy. Credit history 

problems and excessive debt levels relative to income 

(reasons most 

frequently cited for a credit denial) are not available from 

HMDA 

data end footnote)HMDA data, therefore, have limitations 

that make them an inadequate basis, absent other information, for concluding that an institution has not assisted 

adequately in meeting its community's credit needs or has 

engaged in illegal lending discrimination. 

Because of the limitations of HMDA data, the Board has 

considered these data carefully in light of other information, including examination reports that provide an on-site 

evaluation of compliance by PNC and its subsidiary banks 

and Riggs Bank with fair lending laws. The Board also 

consulted with the OCC, which has responsibility for enforcing compliance with fair lending laws by PNC Bank 

and Riggs Bank, about this proposal and the compliance 

record of these banks(footnote 30 In addition, the Board 

consulted with the FDIC, the primary 

supervisor of PNC Bank, Delaware, about the bank's record 

of compliance with fair lending laws end footnote) 

The record indicates that PNC has taken steps to ensure 

compliance with fair lending laws. PNC's fair lending 

policy includes a commitment to provide full and equal 

access to credit while maintaining safe and sound credit 

standards. To implement this commitment, PNC's fair 

lending compliance program includes employee training 

and review by senior management of credit decisions, 

pricing, marketing, and fair lending-related polices and 

procedures. 

The Board has also considered the HMDA data and the 

overall performance records of the subsidiary banks of 

PNC and Riggs under the CRA. Their established efforts 

demonstrate that the banks are actively helping to meet the 

credit needs of their entire communities. 

C. Branch Closings 

PNC has indicated that it has no plans to close any 

branches of PNC Bank or Riggs Bank as a result of the 

proposed transaction(footnote 31 The commenter also 

expressed concern about possible job 

losses resulting from this proposal. The effect of a proposed acquisition on employment in a community is not among the limited factors 

the Board is authorized to consider under the BHC Act, and the 

convenience and needs factor has been interpreted consistently by the 

federal banking agencies, the courts, and the Congress to relate to the 

effect of a proposal on the availability and quality of banking services 

in the community. See, e.g., Wells Fargo & Company, 82 Federal 

Reserve Bulletin 445, 457 (1996) end footnote)The Board has considered 

Bank's branch banking policy and its record of openin PNC g
Legal Developments 

and closing branches. In the 2002 Evaluation, examiners 

concluded that PNC Bank's record of opening and closing 

branches had not adversely affected the bank's delivery of 

services in LMI areas or to LMI individuals. 

The Board also has considered the fact that federal 

banking law provides a specific mechanism for addressing 

branch closings(footnote 32 Section 42 of the Federal Deposit Insurance 

Act (12 U.S.C. 

§ 1831r-1), as implemented by the Joint Policy Statement Regarding 

Branch Closings (64 Federal Register 34,844 (1999)), requires that a 

bank provide the public with at least thirty days' notice and the 

appropriate federal supervisory agency and customers of the branch 

with at least ninety days' notice before the date of the proposed branch 

closing. The bank also is required to provide reasons and other 

supporting data for the closure, consistent with the institution's written policy for branch closings end footnote)Federal law requires an 

insured depository institution to provide notice to the public and to the 

appropriate federal supervisory agency before closing a 

branch. In addition, the Board notes that the OCC, as the 

appropriate federal supervisor of PNC Bank, will continue 

to review the bank's branch closing record in the course of 

conducting CRA performance evaluations. 

D. Conclusion on Convenience and Needs Factor 

The Board has carefully considered all the facts of record, 

including reports of examination of the CRA records of the 

institutions involved, information provided by PNC, public 

comments on the proposal, and confidential supervisory 

information. PNC has stated that the proposal would provide PNC and Riggs customers with expanded products 

and services, including access to expanded branch and 

ATM networks. Based on a review of the entire record, and 

for the reasons discussed above, the Board concludes that 

considerations relating to the convenience and needs factor, including the CRA performance records of the relevant 

depository institutions, are consistent with approval. 

Conclusion 

Based on the foregoing and all the facts of record, the 

Board has determined that the application should be, and 

hereby is, approved(footnote 33 The commenter requested that the 

Board hold a public meeting 

or hearing on the proposal. Section 3(b) of the BHC Act does not 

require the Board to hold a public hearing on an application unless the 

appropriate supervisory authority for the bank to be acquired makes a 

timely written recommendation of denial of the application. The 

Board has not received such a recommendation from the appropriate 

supervisory authority. Under its regulations, the Board also may, in its 

discretion, hold a public meeting or hearing on an application to 

acquire a bank if a meeting or hearing is necessary or appropriate to 

clarify factual issues related to the application and to provide an 

opportunity for testimony. 12 CFR 225.16(e). The Board has considered carefully the commenter's request in light of all the facts of 

record. In the Board's view, the commenter has had ample opportunity to submit its views, and in fact, commenter has submitted written 

comments that the Board has considered carefully in acting on the 

proposal. The commenter's request fails to demonstrate why written 

comments do not present its views adequately. The request also fails 

to identify disputed issues of fact that are material to the Board's decision 

that would be clarified by a public meeting or hearing. For 

these reasons, and based on all the facts of record, the Board has 

determined that a public meeting or hearing is not required or warranted in this case. Accordingly, the request for a public meeting or 

hearing on the proposal is denied. In reaching its conclusion, the Board 

has considered all the facts of record in light of the factors 

that it is required to consider under the BHC Act and other 

applicable statutes(footnote 34 The commenter also requested that 

the Board extend the comment period and delay action on the proposal. As previously noted, the 

Board has accumulated a significant record in this case, including 

reports of examination, confidential supervisory information, public 

reports and information, and public comment. In the Board's view, the 

commenter has had ample opportunity to submit its views and, in fact, 

has provided multiple written submissions that the Board has considered carefully in acting on the proposal. Moreover, the BHC Act and 

Regulation Y require the Board to act on proposals submitted under 

those provisions within certain time periods. Based on a review of all 

the facts of record, the Board has concluded that the record in this case 

is sufficient to warrant action at this time and that neither an extension 

of the comment period nor further delay in considering the proposal is 

warranted end footnote)The Board's approval is specifically 

conditioned on compliance by PNC with the conditions 

imposed in this order and the commitments made to the 

Board in connection with the application(footnote 35 The 

commenter asked that the Board's Chairman recuse 

himself from consideration 

of the application. The Board and the 

Chairman have carefully 

considered this request and concluded 

that 

recusal is not required by any law or 

warranted. 

The commenter also 

expressed concern about compliance by 

staff with the Board's ex parte 

communications policies in this case. 

The 

Board has carefully considered this concern and concludes that 

Federal Reserve System staff did 

not engage in any inappropriate 

communications 

end footnote)For purposes 

of this transaction, these conditions 

and commitments are 

deemed to be conditions imposed in 

writing by the Board 

in connection with its findings and 

decision and, as such, 

may be enforced in proceedings 

under applicable law. 

The merger with Riggs and the 

acquisition of Riggs 

Bank may not be consummated 

before the fifteenth calendar day after the effective date of 

this order or later than 

three months after the effective date 

of this order, unless 

such period is extended for good 

cause by the Board or the 

Federal Reserve Bank of Cleveland, 

acting pursuant to 

delegated authority. 

By order of the Board of Governors, 

effective April 26, 

2005. 

Voting for this action: Chairman Greenspan, 

Vice Chairman Ferguson, and Governors Gramlich, Bies, 

Olson, Bernanke, and Kohn. 

ROBERT DEV. FRIERSON 

Deputy Secretary of the Board 

Republic Bancorp, Inc. 

Munden, Kansas 

Order Approving the Formation of a Bank Holding 

Company 

Republic Bancorp, Inc. (''Republic'') has requested the 

Board's approval under section 3 of the Bank Holding 
Federal Reserve Bulletin • Summer 2005 

Company Act (''BHC Act'')( footnote 1 12 U.S.C. §1842. 

end footnote)to become a bank holding 

company and acquire 99.7 percent of the voting shares of 

National Family Bank (''NFB''), Munden, Kansas(footnoe 2 

Admiral Family Banks, Inc., Alsip, Illinois, currently owns 

99.7 percent of the voting shares of NFB, and Republic has applied to 

acquire all these shares end footnote) 

Notice of the proposal, affording interested persons an 

opportunity to comment, has been published (70 Federal 

Register 10,402 (2005)). The time for filing comments has 

expired, and the Board has considered the application and 

all comments received in light of the factors set forth in 

section 3 of the BHC Act. 

Republic is a newly organized corporation formed for 

the purpose of acquiring control of NFB. NFB, with total 

assets of approximately $15.5 million, is the 287th largest 

insured depository institution in Kansas, controlling deposits of approximately $14.8 million, which represent less 

than 1 percent of the total amount of deposits of insured 

depository institutions in the state(footnote 3 Asset data are as of 

December 31, 2004. Deposit data and state 

rankings are as of June 30, 2004. In this context, insured depository 

institutions include commercial banks, savings banks, and savings 

associations end footnote) 

Competitive Considerations 

Section 3 of the BHC Act prohibits the Board from approving a proposal that would result in a monopoly or that 

would be in furtherance of an attempt to monopolize the 

business of banking. The BHC Act also prohibits the Board 

from approving a bank acquisition that would substantially 

lessen competition in any relevant banking market, unless 

the anticompetitive effects of the proposal are clearly outweighed in the public interest by the probable effect of the 

proposal in meeting the convenience and needs of the 

community to be served(footnote 4 See 12 U.S.C. § 1842(c) 

(1) end footnote) 

This proposal represents Republic's initial entry into 

retail banking in Kansas. Based on all the facts of record, 

the Board has concluded that consummation of the proposal would not have a significantly adverse effect on 

competition or on the concentration of banking resources 

in any relevant banking market and that competitive considerations are consistent with approval. 

Financial, Managerial, and Supervisory Considerations 

Section 3 of the BHC Act requires the Board to consider 

the financial and managerial resources and future prospects 

of the companies and depository institutions involved in 

the proposal and certain other supervisory factors. The 

Board has considered these factors in light of all the facts 

of record, including information provided by Republic, 

confidential reports of examination, and other confidential 

supervisory information from the Office of the Comptroller 

of the Currency (''OCC''), the primary federal supervisor 

of NFB. 

In evaluating financial factors in proposals involving 

newly formed small bank holding companies, the Board 

reviews the financial condition of both the applicant and 

the target depository institution. The Board also evaluates 

the financial condition of the pro forma organization, 

including its capital position, asset quality, and earnings 

prospects, and the impact of the proposed funding of the 

transaction. 

Based on its review of these factors, the Board finds that 

Republic has sufficient financial resources to effect the 

proposal. NFB is well capitalized and would remain so on 

consummation of this proposal. Republic proposes to fund 

this transaction through a combination of debt and equity. 

The Board has recognized that the transfer of ownership of 

small banks often requires the use of acquisition debt(footnoe 5 

Small Bank Holding Company Policy Statement, 12 CFR 

Part 225, Appendix G. end footnote) 

It appears that Republic would have sufficient financial 

flexibility to service this debt without unduly straining the 

resources of Republic or NFB. 

The Board also has considered the managerial resources 

of the applicant, including the proposed management of the 

organization. The Board has reviewed the examination 

record of NFB, including assessments of its current 

management, risk-management systems, and operations. In 

addition, the Board has considered its supervisory experiences and those of the other relevant banking agencies with 

NFB and the management officials and principal shareholders of Republic. The Board also has considered Republic's 

plans to implement the proposal, including its proposed 

expansion of NFB's products and services and the changes 

in management at NFB after the acquisition. 

Based on all the facts of record, the Board has concluded 

that considerations relating to the financial and managerial 

resources and future prospects of Republic and NFB are 

consistent with approval, as are the other supervisory factors under the BHC Act. 

Convenience and Needs Considerations 

In acting on proposals under section 3 of the BHC Act, the 

Board is also required to consider the effects of the proposal on the convenience and needs of the communities 

to be served and to take into account the records of the 

relevant insured depository institutions under the Community Reinvestment Act (''CRA'')(footnote 6 12 U.S.C. §2901 etseq 

end footnote)The CRA requires the 

federal financial supervisory agencies to encourage financial institutions to help meet the credit needs of the local 

communities in which they operate, consistent with their 

safe and sound operation, and requires the appropriate 

federal financial supervisory agency to take into account an 

institution's record of meeting the credit needs of its entire 

community, including low- and moderate-income neighborhoods, in evaluating proposals under section 3 of the 

BHC Act. 

The Board has considered carefully the convenience and 

needs factor and the CRA performance record of NFB 
Legal Developments 

in light of all the facts of record, including public comment 

received regarding the proposal and the bank's CRA 

record. The Board received one comment from an individual suggesting that NFB was not serving the needs of its 

community, particularly its agricultural lending needs, and 

that Republic also might not serve the community's needs(footnote 

7 The commenter also questioned the identity of the proposed 

purchasers. Republic has disclosed its ownership structure, as required 

by the BHC Act, and has stated that the commenter has met with some 

of Republic's principal shareholders end footnote) 

NFB received an ''outstanding'' rating at its most recent 

CRA performance evaluation by the OCC, as of November 25, 2002 (''2002 Examination''). Examiners reported 

that the bank's record of lending to borrowers of different 

income levels and farms of different revenue amounts was 

excellent. They also noted that the bank's average loan-todeposit ratio of 70 percent was comparable to the ratio for 

its peer group. Since the examination, however, NFB's 

lending volume and average loan-to-deposit ratio has significantly declined. 

Several factors have affected NFB's overall lending 

activity in its assessment area, which is Republic County, 

Kansas, a nonmetropolitan area in north central Kansas. 

This area has experienced a population decline of 9 percent 

since 2000. Of the six depository institutions in the assessment area, NFB is the smallest bank in terms of deposits, 

and its deposits decreased from 2003 to 2004. Moreover, the main business in Republic County is agriculture, 

and drought conditions have had a negative impact on 

lending during the past two years. These factors have 

affected NFB's ability to make loans to its community and 

resulted in a marked decrease in lending since the 2002 

Examination. 

Republic's proposed business plan includes several 

improvements to services and products that should 

strengthen the bank's overall condition and its ability to 

serve the community's lending and other banking needs. 

The Board has consulted with the OCC about Republic's 

proposed business plan for NFB. The business plan 

includes a strategy for growth through enhanced product 

offerings and by hiring employees and management officials with agricultural lending experience and a familiarity 

with the community and its banking needs. Republic also 

proposes to update the bank's processing systems and 

introduce internet banking, ATMs, and debit and credit 

cards, as well as other banking products in the future. In 

addition, the proposed principals of Republic and its management are residents who are familiar with the community and its needs and who have banking experience(footnote 8 The 

proposed president and vice president of NFB recently 

served as management officials at a bank that received an ''outstanding'' CRA rating at its last examination end footnote) 

The Board has considered carefully all the facts of 

record, including reports of examination of the CRA performance records of the institutions involved, the business 

plan and other information provided by Republic, public 

information about the economic conditions of NFB's community, and confidential supervisory information. Based on 

a review of the entire record, and for the reasons discussed 

above, the Board concludes that considerations relating 

to the convenience and needs factor and the CRA performance records of the relevant depository institution are 

consistent with approval. 

Conclusion 

Based on the foregoing and all facts of record, the Board 

has determined that the application should be, and hereby 

is, approved. In reaching its conclusion, the Board has 

considered all the facts of record in light of the factors that 

it is required to consider under the BHC Act. The Board's 

approval is specifically conditioned on compliance by 

Republic with the condition imposed in this order and the 

commitments made to the Board in connection with the 

application. For purposes of this transaction, the condition 

and commitments are deemed to be conditions imposed 

in writing by the Board in connection with its findings 

and decision and, as such, may be enforced in proceedings 

under applicable law. 

The proposed transaction may not be consummated 

before the fifteenth calendar day after the effective date of 

this order, or later than three months after the effective date 

of this order, unless such period is extended for good cause 

by the Board or the Federal Reserve Bank of Kansas City, 

acting pursuant to delegated authority. 

By order of the Board of Governors, effective April 26, 

2005. 

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

ROBERT DEV. FRIERSON 

Deputy Secretary of the Board 

Wells Fargo & Company 

San Francisco, California 

Order Approving the Acquisition of a Bank Holding 

Company 

Wells Fargo & Company (''Wells Fargo''), a financial 

holding company within the meaning of the Bank Holding 

Company Act (''BHC Act''), has requested the Board's 

approval under section 3 of the BHC Act to acquire First 

Community Capital Corporation (''FCCC''), Houston, and 

its subsidiary banks, First Community Bank, National 

Association, Houston, and First Community Bank 

San Antonio, National Association, San Antonio, all in 

Texas(footnote 1 12 U.S.C. §1842 end footnote) 

Notice of the proposal, affording interested persons an 

opportunity to submit comments, has been published 

(69 Federal Register 60,877 (2004)). The time for filing 

comments has expired, and the Board has considered the 
Federal Reserve Bulletin • Summer 2005 

proposal and all comments received in light of the factors 

set forth in the BHC Act. 

Wells Fargo, with total consolidated assets of approximately $434.6 billion, is the fifth largest depository organization in the United States(footnote 2 Asset data are as of March 31, 

2005, and national ranking data 

are as of December 31, 2004, and reflect consolidations through that 

date end footnote)controlling deposits of approximately $267.8 billion, which represents approximately 

4.7 percent of the total amount of deposits of insured 

depository institutions in the United States(footnote 3 Deposit 

data reflect the total of the deposits reported by each 

organization's insured depository institutions in their Consolidated 

Reports of Condition and Income or Thrift Financial Reports for 

June 30, 2004. In this context, insured depository institutions include 

commercial banks, savings banks, and savings associations end footnote) 

Wells Fargo is 

the third largest depository institution in Texas, controlling 

$22.7 billion in deposits, which represents approximately 

7.3 percent of the total amount of deposits of insured 

depository institutions in the state (''state deposits''). 

Wells Fargo operates subsidiary depository institutions in 

23 states, including Texas, and engages in numerous nonbanking activities that are permissible under the BHC Act. 

FCCC, with total consolidated assets of approximately 

$604.6 million, is the 76th largest depository organization 

in Texas, controlling deposits of $446 million. FCCC operates subsidiary insured depository institutions only in 

Texas. On consummation of the proposal, Wells Fargo 

would remain the third largest depository organization in 

Texas, controlling deposits of approximately $23.2 billion, 

which represents 7.5 percent of state deposits. 

Interstate Analysis 

Section 3(d) of the BHC Act allows the Board to approve 

an application by a bank holding company to acquire 

control of a bank located in a state other than the home 

state of such bank holding company if certain conditions 

are met(footnote 4 A bank holding company's home state is the state 

in which the 

total deposits of all subsidiary banks of the company were the largest 

on July 1, 1966, or the date on which the company became a bank 

holding company, whichever is later. 12 U.S.C. § 1841(o)(4)(C) end footnote) 

For purposes of the BHC Act, the home state of 

Wells Fargo is Minnesota, and FCCC's subsidiary banks 

are located in Texas(footnote 5 For purposes of section 3(d), 

the Board considers a bank to be 

located in the states in which the bank is chartered or headquartered or 

operates a branch. See 12 U.S.C. §§ 1841(o)(4)-(7) and 1842(d)(1)(A) 

and (d)(2)(B) end footnote) 

Based on a review of all the facts of record, including a 

review of relevant state statutes, the Board finds that all the 

conditions for an interstate acquisition enumerated in section 3(d) of the BHC Act are met in this case(footnote 6 See 12 

U.S.C. §§ 1842(d)(1)(A) & (B), and (d)(2)(A) & (B). 

Wells Fargo is adequately capitalized and adequately managed, as 

defined by applicable law. FCCC's subsidiary depository institutions 

have been in existence and operated for the minimum period of time 

required by applicable law. On consummation of the proposal, Wells 

Fargo would control less than 10 percent of the total amount of deposits of 

insured depository institutions in the United States and less 

than 30 percent of the total amount of deposits of insured depository 

institutions in Texas. All other requirements pursuant to section 3(d) 

of the BHC Act also would be met on consummation of the proposal end footnote) 

Accordingly, in light of the facts of record, the Board is permitted 

to approve the proposal under section 3(d) of the BHC 

Act. 

Competitive Considerations 

Section 3 of the BHC Act prohibits the Board from approving a proposed bank acquisition that would result in a 

monopoly or would be in furtherance of any attempt to 

monopolize the business of banking in any relevant banking market. In addition, section 3 prohibits the Board from 

approving a proposed bank acquisition that would substantially lessen competition in any relevant banking market 

unless the anticompetitive effects of the proposal are 

clearly outweighed in the public interest by its probable 

effect in meeting the convenience and needs of the community to be served(footnote 7 12 U.S.C. § 1842(c)(1) end footnote) 

Wells Fargo competes directly with FCCC's subsidiary 

banks in the Brazoria, Grimes County, Houston, and 

San Antonio banking markets in Texas(footnote 8 These 

banking markets are described in Appendix A end footnote)The 

Board has 

reviewed the competitive effects of the proposal in each of 

these banking markets in light of all the facts of record. In 

particular, the Board has considered the number of competitors that would remain in the banking markets, the 

relative shares of total deposits in depository institutions in 

the markets (''market deposits'') controlled by Wells Fargo 

and FCCC(footnote 9 Deposit and market share data are as of 

June 30, 

2004, adjusted 

to reflect mergers and acquisitions through May 20, 2005, and on 

calculations in which the deposits of thrift institutions are included at 

50 percent. The Board previously has indicated that thrift institutions 

have become, or have the potential to become, significant competitors 

of commercial banks. See, e.g., Midwest Financial Group, 75 Federal 

Reserve Bulletin 386 (1989); National City Corporation, 70 Federal 

Reserve Bulletin 743 (1984). Thus, the Board regularly has included 

thrift deposits in the market share calculation on a 50 percent weighted 

basis. See, e.g., First Hawaiian, Inc., 77 Federal Reserve Bulletin 52 

(1991) end footnote)the concentration level of market deposits and 

the increase in this level as measured by the HerfindahlHirschman Index (''HHI'') under the Department of Justice 

Merger Guidelines (''DOJ Guidelines'')(footnote 10 

Under the DOJ Guidelines, 49 Federal Register 26,823 (1984), 

a market is considered unconcentrated if the post-merger HHI is less 

than 1000, moderately concentrated if the post-merger HHI is between 

1000 and 1800, and highly concentrated if the post-merger HHI is 

more than 1800. The Department of Justice has informed the Board 

that a bank merger or acquisition generally will not be challenged 

(in the absence of other factors indicating anticompetitive effects) 

unless the post-merger HHI is at least 1800 and the merger increases 

the HHI by more than 200 points. The Department of Justice has 

stated that the higher than normal HHI thresholds for screening bank 

mergers for anticompetitive effects implicitly recognize the competitive effects of limited-purpose lenders and other nondepository financial institutions end footnote)and other characteristics of the markets. 

Consummation of the proposal would be consistent with 

Board precedent and the DOJ Guidelines in each of these 
Legal Developments 

banking markets(footnote 11 The effects of the proposal on the 

oncentration of banking 

resources in these banking markets are described in Appendix B end footnote) 

After consummation of the proposal, 

the Brazoria and San Antonio banking markets would 

remain moderately concentrated, and the Grimes and Houston banking markets would remain highly concentrated, as 

measured by the HHI(footnote 12 Analysis of the Houston 

banking market is based on the Summary of Deposits for June 30, 2004, without the adjustments reflected 

in the Board's analysis of the Houston Market in J.P. Morgan Chase, 

90 Federal Reserve Bulletin 352, 354 (2004). If such adjustments 

were made to the deposit data for the Houston banking market, the 

market would be moderately concentrated on consummation of the 

proposal end footnote)In each of the four banking markets, the increase in market concentration would be small, 

and numerous competitors would remain. 

The Department of Justice also has conducted a detailed 

review of the anticipated competitive effects of the proposal and has advised the Board that consummation of 

the proposal would not likely have a significantly adverse 

effect on competition in any relevant banking market. In 

addition, the appropriate banking agencies have been 

afforded an opportunity to comment and have not objected 

to the proposal. 

Based on all the facts of record, the Board concludes that 

consummation of the proposal would not have a significantly adverse effect on competition or on the concentration of resources in any of the four banking markets where 

Wells Fargo and FCCC compete directly or in any other 

relevant banking market. Accordingly, based on all the 

facts of record, the Board has determined that competitive 

considerations are consistent with approval. 

Financial, Managerial, and Supervisory Considerations 

Section 3 of the BHC Act requires the Board to consider 

the financial and managerial resources and future prospects 

of the companies and depository institutions involved in 

the proposal and certain other supervisory factors. In 

reviewing these factors, the Board has considered, among 

other things, confidential reports of examination and other 

supervisory information from the primary federal and state 

supervisors of the organizations involved in the proposal. 

The Board also has considered publicly reported and other 

financial information, comments received on the proposal, 

and information provided by Wells Fargo(footnote 13 

A commenter criticized Wells Fargo's relationships with 

unaffiliated payday and car title lenders and other nontraditional 

providers of financial services. Wells Fargo represented that it has 

acted as a lender or provider of credit facilities and in other ordinary 

business relationships to unaffiliated consumer finance businesses, 

which may include payday and title lenders. Wells Fargo stated that it 

does not participate in the credit review process of such lenders and 

customarily requires the entities to represent, warrant, and covenant 

to Wells Fargo in credit agreements that such entities have and will 

comply with all applicable laws in the conduct of their business end 

footnote)In addition, 

the Board has consulted with the Office of the Comptroller 

of the Currency (''OCC''), the primary supervisor of Wells 

Fargo's lead bank, Wells Fargo Bank, N.A. (''WF Bank''), 

Sioux Falls, South Dakota (''WF Bank''), and FCCC's 

subsidiary banks. 

In evaluating financial factors in expansion proposals 

by banking organizations, the Board reviews the financial 

condition of the organizations involved on both a parentonly and consolidated basis and the financial condition 

of the subsidiary banks and significant nonbanking operations. In this evaluation, the Board considers a variety of 

areas, including capital adequacy, asset quality, and earnings performance. In assessing financial factors, the Board 

consistently has considered capital adequacy to be especially important. The Board also evaluates the financial 

condition of the combined organization on a pro forma 

basis, including its capital position, asset quality, and earnings prospects, and the impact of the proposed funding of 

the transaction. 

Based on its review of the financial factors in this case, 

the Board finds that Wells Fargo has sufficient financial 

resources to effect the proposal. Wells Fargo, FCCC, and 

their subsidiary depository institutions currently are well 

capitalized and the resulting organization and its subsidiary 

banks would remain so on consummation of the proposal. 

The proposed transaction is structured primarily as a share 

exchange. 

The Board also has considered the managerial resources 

of Wells Fargo, FCCC, and the banking subsidiaries to be 

acquired and the effect of the proposal on these resources. 

In reviewing this proposal, the Board has assembled and 

considered a broad and detailed record, including substantial confidential and public information about Wells Fargo, 

FCCC, and their subsidiaries. The Board has carefully 

reviewed assessments and examinations of the organizations' management, risk-management systems, and compliance records by, and consulted with, relevant federal and 

state supervisors(footnote 14 This included consultations 

with relevant state agencies with 

oversight authority for Wells Fargo's non-bank consumer 

\finance subsidiaries and the appropriate functional regulators of Wells 

Fargo's 

securities-related activities end footnote)In addition, the Board has 

considered 

Wells Fargo's plans for implementing the proposal, including its proposed management after consummation, and the 

company's record of successfully integrating acquired 

institutions into its existing operations. 

In evaluating the managerial resources of a banking 

organization in an expansion proposal, the Board considers 

assessments of an organization's risk management—that 

is, the ability of the organization's board of directors and 

senior management to identify, measure, monitor, and control risk across all business and corporate lines in the 

organization—to be especially important(footnote 15 See 

Revisions to Bank Holding Company Rating System, 

69 Federal Register 70,444 (2004) end footnote)As part of an 

appropriate risk-management system, the Board expects 

each banking organization, including Wells Fargo, to 

implement and operate effective, enterprise-wide compliance risk assessment and management programs and internal audit programs to identify, manage, address, and monitor the risks of the organization's activities. As part of 

compliance risk management, banking organizations operating in the United States are required to implement and 

operate effective anti-money-laundering programs. 
Federal Reserve Bulletin • Summer 2005 

In this case, the Board has considered the existing compliance risk-management systems and internal audit programs at Wells Fargo and the assessment of these systems 

and programs by the relevant federal and state supervisory 

agencies. The Board has also considered additional information provided by Wells Fargo on enhancements it has 

made and is currently making to its systems and programs 

as part of the ongoing review, development, implementation, and maintenance of effective enterprise-wide riskmanagement systems. 

Based on all the facts of record, including a review of 

the comments received, the Board concludes that considerations relating to the financial and managerial resources 

and future prospects of Wells Fargo, FCCC, and their 

respective subsidiaries are consistent with approval, as are 

the other supervisory factors under the BHC Act(footnote 16 

A commenter expressed concern about Wells Fargo's and 

WF Bank's information security systems and cited a press report 

describing three instances of theft of computers containing information relating to customers of Wells Fargo's subsidiaries. Wells Fargo 

represented that it is not aware of actual identity theft or fraudulent 

activity as a result of these incidents and that it provided potentially 

affected customers with notice of the thefts and credit bureau monitoring and identity theft insurance services. In reviewing Wells Fargo's 

application, the Board has considered the enhancements Wells Fargo 

is making to its information security systems and has consulted with 

the OCC, the primary federal supervisor of WF Bank end footnote) 

Convenience and Needs Considerations 

Section 3 of the BHC Act requires the Board to consider 

the effects of a proposal on the convenience and needs of 

the communities to be served and to take into account the 

records of the relevant insured depository institutions 

under the Community Reinvestment Act (''CRA'')(footnote 17 

12 U.S.C. § 2901 et seq end footnote)The 

CRA requires the federal financial supervisory agencies 

to encourage financial institutions to help meet the credit 

needs of the local communities in which they operate, 

consistent with their safe and sound operation, and requires 

the appropriate federal financial supervisory agency to take 

into account an institution's record of meeting the credit 

needs of its entire community, including low- and 

moderate-income (''LMI'') neighborhoods, in evaluating 

depository institutions' expansionary proposals(footnote 

18 12 U.S.C. §2903 end footnote) 

The Board has considered carefully the convenience and 

needs factor and the CRA performance records of the 

subsidiary depository institutions of Wells Fargo and 

FCCC in light of all the facts of record, including public 

comments received on the proposal. A commenter opposing the proposal asserted, based on data reported under the 

Home Mortgage Disclosure Act (''HMDA'')(footnote 19 12 

U.S.C. §2801 etseq end footnote)that Wells 

Fargo engages in discriminatory treatment of AfricanAmerican and Hispanic individuals in its home mortgage 

operations(footnote 20 A commenter included in its comment three 

individual customer complaints concerning mortgage loans from WF Bank and 

Wells Fargo Home Mortgage, Des Moines, Iowa (''WF Mortgage'') 

, a former subsidiary of WF Bank that became a division of the bank 

in May 2004. The complaints provided by the commenter have been 

forwarded to the OCC, the primary federal supervisor of WF Bank 

A. CRA Performance Evaluations 

As provided in the CRA, the Board has evaluated the 

convenience and needs factor in light of the evaluations 

by the appropriate federal supervisors of the CRA performance records of the insured depository institutions of 

both organizations. An institution's most recent CRA performance evaluation is a particularly important consideration in the applications process because it represents a 

detailed, on-site evaluation of the institution's overall 

record of performance under the CRA by its appropriate 

federal supervisor(footnote 21 

See Interagency Questions and Answers Regarding 

Community 

Reinvestment, 66 Federal Register 36,620 and 36,639 

(2001) end footnote) 

Wells Fargo Bank, N.A. (''WF Bank CA''), San Francisco, California, received an ''outstanding'' rating at its 

performance evaluation from the OCC, as of October 1, 

2001(footnote 22 In 2001, WF Bank CA was the largest 

subsidiary depository 

institution of Wells Fargo in terms of deposits and assets. In the 

performance evaluation, examiners weighted WF Bank 

CA's performance in California more heavily than its performance in 

other areas 

in its overall rating because more than 98 percent of its deposits and 

more than 87 percent of its loans were in California during the 

evaluation period. On February 20, 2004, Wells Fargo consolidated 

18 of its subsidiary depository institutions, including WF Bank CA, 

with and into WF Bank. Wells Fargo currently operates 

ten subsidiary 

depository institutions, including WF Bank end footnote) 

In addition, Wells Fargo's subsidiary depository 

institutions that were evaluated under the CRA received 

either ''outstanding'' or ''satisfactory'' ratings at their most 

recent CRA performance evaluations(footnote 23 Appendix C 

lists the most recent CRA ratings of Wells Fargo's 

subsidiary depository institutions that are subject to the 

CRA end footnote) 

FCCC's lead bank, 

First Community Bank, N.A., received a ''satisfactory'' 

rating at its most recent CRA performance evaluation by 

the OCC, as of June 18, 2004(footnote 24 

In 2004, FCCC transferred the San Antonio operations of First 

Community Bank, N.A., to the newly chartered First Community 

Bank San Antonio, N.A., which has not yet been examined under the 

CRA by the OCC end footnote)Wells Fargo has represented that it will implement its program for managing 

community reinvestment activities at FCCC's subsidiary 

depository institutions on consummation of the proposal. 

B. CRA Performance of Wells Fargo 

As noted above, WF Bank CA received an overall ''outstanding'' rating for CRA performance in the OCC's 

most recent CRA performance evaluation(footnote 25 The 

evaluation period was April 1, 1998, through September 20, 2001. At the time of the 2001 Evaluation, WF 

Bank SF had 

sixty assessment areas in nine states (Arizona, California, 

Colorado, Idaho, 

Minnesota, Nevada, Oregon, Utah, and Washington), including 

sixteen that received full-scope reviews end footnote) WF Bank CA 

received an ''outstanding'' rating under each of the lending, investment, and service tests. 

Examiners commended the excellent lending performanc haersd o goo fe differen odf Wdistributio F Ban t incom k Cn oAe levels f overal home. Themortgag l andy reporte notee loan d tha d tha s tt Wto th borrow Fe Ban bk -
Legal Developments 

CA had excellent geographic distribution of small loans to 

small businesses(footnote 26 Small businesses are businesses with gross annual revenues 

of $1 million or less. Small loans to businesses include loans with 

original amounts of $1 million or less that are either secured by 

non-farm, nonresidential properties or classified as commercial and 

industrial loans. end footnote) 

Examiners reported that WF Bank CA demonstrated a 

significant responsiveness overall to the needs of its assessment areas through community development lending. They 

found that WF Bank CA helped address a significant need 

for affordable housing in California through its community 

development lending. WF Bank CA's community development loans for affordable housing in its assessment areas 

subject to a full-scope review totaled $312 million during 

the evaluation period. 

Examiners commended WF Bank CA for its excellent 

level of qualified investments and noted that the investments were highly responsive to the needs of the bank's 

assessment areas. They reported that WF Bank CA's 

investment and grant activities helped address essential 

identified needs in the full-scope assessment areas subject 

to review, particularly with respect to financing of affordable housing. Community development investments in 

those assessment areas totaled $162.4 million during the 

evaluation period. 

Examiners reported that WF Bank CA's banking services were readily accessible to essentially all portions of 

the bank's assessment areas. They noted that WF Bank 

CA's alternative delivery systems included ATMs, banking 

by phone or mail, and Internet banking. Examiners also 

reported that Wells Fargo provided numerous community 

development services such as financial educational community seminars. 

C. HMDA Data and Fair Lending Record 

The Board has carefully considered the lending record of 

Wells Fargo in light of public comments received on the 

proposal. A commenter alleged, based on a review of 2003 

data reported pursuant to the Home Mortgage Disclosure 

Act, 12 U.S.C. 2891 et seq. (''HMDA''), that Wells Fargo 

engages in discriminatory lending by directing AfricanAmerican and Hispanic applicants in certain markets 

to Wells Fargo Financial, Inc. (''WF Financial''), 

Des Moines, Iowa, a subsidiary of Wells Fargo that is 

engaged primarily in subprime lending, rather than to 

Wells Fargo's subsidiary banks and other prime lending 

channels. The commenter further alleged, based on a 

review of 2003 HMDA data, that there are systemic disparities in Wells Fargo's lending because it disproportionately excludes or denies applications for HMDA-reportable 

loans by African-American and Hispanic applicants(footnote 

27 Specifically, the commenter's allegations are based on 2003 

HMDA data by WF Bank CA and WF Financial. The commenter 

cited Well Fargo's HMDA data for lending to African Americans and 

Hispanics in the Los Angeles and San Francisco Metropolitan Statistical 

Areas (''MSAs''), in California, and the Austin, Dallas, El Paso, 

San Antonio, and Houston MSAs, in Texas end footnote) 

The Board reviewed HMDA data reported by the lending subsidiaries of Wells Fargo in 2002 and 2003 in certain 

areas(footnote 28 The Board reviewed 2002 and 2003 HMDA data report 

ed by 

all of Wells Fargo's lending subsidiaries, including WF Financial, 

in California and Texas and in the MSAs that comprise the major 

assessment areas of WF Bank CA and Wells Fargo's depository 

institutions in those states, which are noted in footnote 27. For 

WF Financial in the Texas MSAs, the Board's review included only 

2003 HMDA data. Wells Fargo's lending subsidiaries that offered 

prime mortgage products in California and Texas in 2002 and 2003 

included WF Bank CA; Wells Fargo Bank Texas, N.A., San Antonio, 

Texas; Wells Fargo Bank Nevada, N.A., Las Vegas, Nevada; Wells 

Fargo Funding, Inc., Minneapolis, Minnesota; and WF Mortgage 

(''WF Prime Lenders''). Although some of these entities made some 

loans that could be considered subprime, these loans represented a 

small portion of their loan portfolios. In the MSAs reviewed, the 

Board compared the HMDA data reported by the WF Prime Lenders 

with the HMDA data reported by WF Financial end footnote) 

An analysis of the HMDA data does not support 

the contention that Wells Fargo disproportionately directs 

African-American and Hispanic borrowers to WF Financial or that WF Prime Lenders have disproportionately 

denied applications of African-American or Hispanic 

individuals(footnote 29 The commenter also alleged that Wells Fargo 

engaged in 

discriminatory lending based on a review of the prices of loans 

extended to African-American and Hispanic borrowers as compared 

to white borrowers in 2004. The commenter based this allegation 

on 2004 HMDA data derived from loan application registers that it 

obtained from Wells Fargo. These data are preliminary and 2004 data 

for lenders in the aggregate are not yet available. See Frequently 

Asked Questions About the New HMDA Data (March 31, 2005) 

available at (www.federalreserve.gov/boarddocs/press/bcreg/2005) 

end footnote)The 2003 HMDA data show that the 

WF Prime Lenders extended more HMDA-reportable 

loans to African-American and Hispanic borrowers than 

WF Financial in most of the MSAs reviewed. Moreover, 

the data show that the percentages of the WF Prime Lenders' total home mortgage applications that were received 

from African-American and Hispanic applicants at the 

WF Prime Lenders exceeded the percentages received at 

WF Financial in all of the markets reviewed. 

In addition, the origination rates(footnote 30 The origination rate 

equals the total number of loans originated 

to applicants of a particular racial category divided by the total 

number of applications received from members of that racial category 

end footnote) for the WF Prime 

Lenders' total HMDA-reportable loans to AfricanAmerican and Hispanic borrowers was comparable to or 

exceeded the rates for the aggregate of lenders (''aggregate 

lenders'') in most of the markets reviewed(footnote 31 The lending 

data of the aggregate lenders represent the cumulative lending for all financial institutions that have reported data in a 

particular area end footnote)The HMDA 

data indicate that the percentages of the WF Prime Lenders' total HMDA-reportable loans to African Americans 

and Hispanics increased or remained constant from 2002 to 

2003 in most of the markets reviewed. The percentages of 

the WF Prime Lenders' total HMDA-reportable loan originations in minority census tracts also increased during this 

time period in all the markets reviewed. 

Moreover, a review of the 2003 HMDA data indicates 

that the WF Prime Lenders' denial disparity ratios for 
Federal Reserve Bulletin • Summer 2005 

African-American and Hispanic applicants for the banks' 

total HMDA-reportable loans in the markets reviewed were 

generally comparable with the ratios for the aggregate 

lenders in those areas(footnote 32 The denial disparity ratio equals 

the denial rate for a particular 

racial category (e.g., African American) divided by the denial rate for 

whites end footnote)In addition, WF Prime Lenders' 

denial disparity ratios for African-American and Hispanic 

applicants decreased from 2002 to 2003 in most of the 

markets reviewed. 

Although the HMDA data may reflect certain disparities in the rates of loan applications, originations, and 

denials among members of different racial groups in certain local areas, the HMDA data do not demonstrate that 

the WF Prime Lenders are excluding any racial group on 

a prohibited basis. The Board, nevertheless, is concerned 

when the record of an institution indicates disparities in 

lending and believes that all banks are obligated to ensure 

that their lending practices are based on criteria that ensure 

not only safe and sound lending, but also equal access 

to credit by creditworthy applicants regardless of race or 

income level. The Board recognizes, however, that HMDA 

data alone, even with the recent addition of pricing information, provide an incomplete measure of an institution's 

lending in its community because these data cover only a 

few categories of housing-related lending and provide only 

limited information about covered loans(footnote 33 The data, for 

example, do not account for the possibility that an 

institution's outreach efforts may attract a larger proportion of marginally qualified applicants than other institutions attract and do not 

provide a basis for an independent assessment of whether an applicant 

who was denied credit was, in fact, creditworthy. Credit history 

problems and excessive debt levels relative to income (reasons most 

frequently cited for a credit denial) are not available from HMDA 

data end footnote)HMDA data, 

therefore, have limitations that make them an inadequate 

basis, absent other information, for concluding that an 

institution has not assisted adequately in meeting its community credit needs or has engaged in illegal lending 

discrimination. Moreover, HMDA data indicating that one 

affiliate is lending to minorities or LMI individuals more 

than another affiliate do not, without more information, 

indicate that either affiliate has engaged in illegal discriminatory lending activities. 

Because of the limitations of HMDA data, the Board 

has considered these data carefully in light of other information, including examination reports that provide on-site 

evaluations of compliance with fair lending laws by 

the subsidiary depository and lending institutions of 

Wells Fargo and FCCC. Examiners noted no substantive 

violations of applicable fair lending laws in the examinations of the depository institutions controlled by Wells 

Fargo or FCCC. Moreover, the Board has consulted with 

the OCC about the consumer compliance records of the 

WF Prime Lenders and with relevant state supervisors 

about the consumer compliance records of WFFI. 

The record also indicates that Wells Fargo has taken 

various measures to help ensure compliance with fair lending laws and other consumer protection laws at all its 

lending subsidiaries, including WF Financial(footnote 34 

A commenter criticized the customer service and complaint 

procedures of a Wells Fargo subsidiary engaged in subprime lending 

in Puerto Rico and urged the Board, without specific allegations, to 

closely scrutinize the subprime lending operations of Wells Fargo in 

general. Wells Fargo originates subprime mortgage loans through 

WF Financial and Island Finance, and numerous joint ventures originate subprime loans that are underwritten and processed through 

WF Mortgage's unit, Wells Fargo Mortgage Resource. WF Financial 

and Island Finance are nonbanking subsidiaries of Wells Fargo. As the 

Board has previously noted, subprime lending is a permissible activity 

that provides needed credit to consumers who have difficulty meeting 

conventional underwriting criteria. The Board, however, continues to 

expect all bank holding companies and their affiliates to conduct their 

subprime lending operations without any abusive lending practices. 

See, e.g. Royal Bank of Canada, 88 Federal Reserve Bulletin 385, 388 

n. 18 (2002) end footnote)Wells 

Fargo represented that it has implemented corporate-wide 

policies and procedures to help ensure compliance with all 

fair lending and other consumer protection laws and regulations. These policies and procedures apply to all of Wells 

Fargo's prime and subprime lending subsidiaries. Wells 

Fargo's corporate Fair Lending Policy requires each business unit to adopt and implement fair lending policies and 

procedures, including control standards related to marketing, pricing, and referrals. Wells Fargo's Compliance Risk 

Management Group guides, maintains, and monitors compliance of business units with fair lending and consumer 

protection laws. Wells Fargo's Law Department provides 

oversight and guidance on the fair lending policies and on 

the business unit compliance programs. Furthermore, Wells 

Fargo's Corporate Fair Lending Steering Committee, 

which includes senior management representatives from its 

bank and non-bank subsidiaries, meets regularly to identify 

and provide guidance on fair lending practices throughout 

the company. 

Wells Fargo represented that each of its lending operations has developed, implemented, and maintained compliance programs for fair lending and other consumer protection laws. These fair lending compliance programs 

include components such as pricing limits, programs for 

second review of initially declined applications, analysis 

of decision and pricing data, and comparative file analysis. 

All lending operations are required to include compliance 

training in employee training programs. Wells Fargo's 

internal audit unit conducts audits for compliance with fair 

lending and consumer law that involve an independent 

evaluation of results through data analysis or comparative 

file review. 

The Board also has considered the HMDA data in light 

of other information, including the CRA performance 

records of the subsidiary depository institutions of Wells 

Fargo and FCCC. These records demonstrate that Wells 

Fargo and FCCC are active in helping to meet the credit 

needs of their entire communities. 

Conclusion on Convenience and Needs Considerations 

The Board has carefully considered all the facts of record, 

including reports of examination of the CRA records of the 
Legal Developments 

institutions involved, information provided by Wells Fargo 

and FCCC, comments on the proposal(footnote 35 

A commenter expressed concern that the length of the Board's 

review of the proposal negatively affected the customers, stockholders, and employees of FCCC end footnote)confidential 

supervisory information, and Well Fargo's plans to implement its CRA-related policies, procedures, and programs at 

FCCC's subsidiary banks. The Board notes that the proposal would expand the availability and array of banking 

products and services to the customers of Wells Fargo and 

FCCC, including access to expanded branch and ATM 

networks and internet banking services. Based on a review 

of the entire record, and for the reasons discussed above, 

the Board concludes that considerations relating to the 

convenience and needs factor and the CRA performance 

records of the relevant depository institutions are consistent with approval. 

Conclusion 

Based on the foregoing and in light of all the facts of 

record, the Board has determined that the application 

should be, and hereby is, approved. In reaching this conclusion, the Board has considered all the facts of record in 

light of the factors it is required to consider under the BHC 

Act and other applicable statutes(footnote 36 A commenter 

requested that the Board hold a public hearing or 

meeting on the proposal. Section 3 of the BHC Act does not require 

the Board to hold a public hearing on an application unless the 

appropriate supervisory authority for any of the banks to be acquired 

makes a timely written recommendation of denial of the application. 

The Board has not received such a recommendation from any supervisory authority. Under its rules, the Board also may, in its discretion, 

hold a public meeting or hearing on an application to acquire a bank 

if a meeting or hearing is necessary or appropriate to clarify factual 

issues related to the application and to provide an opportunity for 

testimony. 12 CFR 225.16(e). The Board has considered carefully the 

commenter's requests in light of all the facts of record. In the Board's 

view, the public has had ample opportunity to submit comments on 

the proposal and, in fact, the commenter has submitted written comments that the Board has considered carefully in acting on the proposal. The commenter's requests fail to demonstrate why its written 

comments do not present its views adequately or why a meeting or 

hearing otherwise would be necessary or appropriate. The requests 

also fail to identify disputed issues of fact that are material to the 

Board's decision that would be clarified by a public hearing or 

meeting. For these reasons, and based on all the facts of record, the 

Board has determined that a public hearing or meeting is not required 

or warranted in this case. Accordingly, the requests for a public 

hearing or meeting on the proposal are denied end footnote)The Board's 

approval 

is specifically conditioned on compliance by Wells Fargo 

with the conditions in this order and all the commitments 

made to the Board in connection with this proposal. For 

purposes of this action, the commitments and conditions 

are deemed to be conditions imposed in writing by the 

Board in connection with its findings and decision and, as 

such, may be enforced in proceedings under applicable 

law. 

The proposal shall not be consummated before the 

fifteenth calendar day after the effective date of this order, 

or later than three months after the effective date of this 

order, unless such period is extended for good cause by the 

Board or by the Federal Reserve Bank of San Francisco, 

acting pursuant to delegated authority. 

By order of the Board of Governors, effective June 23, 

2005. 

Voting for this action: Chairman Greenspan, Vice Chairman Ferguson, and Governors Gramlich, Bies, and Olson. Absent and not 

voting: Governor Kohn. 

JENNIFER J. JOHNSON 

Secretary of the Board 

Appendix A 

Texas Banking Markets Where Wells Fargo and FCCC 

Subsidiary Depository Institutions Compete Directly 

Brazoria 

Brazoria County, excluding the cities of Alvin and Pearland and the surrounding unincorporated area in the Houston Ranally Metropolitan Area (''RMA''). 

Grimes County 

Grimes County. 

Houston 

Houston RMA, including the portion of Montgomery 

County not included in the Houston RMA. 

San Antonio 

Bexar, Comal, Guadalupe, Kendall, and Wilson counties. 

Appendix B 

Market Data for Banking Markets 

Moderately Concentrated Banking Markets 

Brazoria 

Wells Fargo operates the fifth largest depository institution in the market, controlling deposits of approximately 

$68.2 million, which represent approximately 8.3 percent 

of market deposits. FCCC operates the 12th largest depository institution in the market, controlling deposits of 

approximately $12.4 million, which represent approximately 1.5 percent of market deposits. After the proposed 

merger, Wells Fargo would operate the fifth largest depository institution in the market, controlling deposits of 

approximately $80.6 million, which represent approximately 9.8 percent of market deposits. Fifteen depository 

institutions would remain in the banking market. The HHI 

would increase 25 points, to 1,279. 
Federal Reserve Bulletin • Summer 2005 

San Antonio 

Wells Fargo operates the fourth largest depository institution in the market, controlling deposits of approximately 

$1.4 billion, which represent approximately 6.8 percent of 

market deposits. FCCC operates the 42nd largest depository institution in the market, controlling deposits of 

approximately $13.4 million, which represent less than 

1 percent of market deposits. After the proposed merger, 

Wells Fargo would remain the fourth largest depository 

institution in the market, controlling deposits of approximately $1.4 billion, which represent approximately 6.8 percent of market deposits. Fifty-one depository institutions 

would remain in the banking market. The HHI would 

increase 1 point, to 1,574. 

Highly Concentrated Banking Markets 

Grimes 

Wells Fargo operates the fourth largest depository institution in the market, controlling deposits of approximately 

$23.4 million, which represent approximately 10.2 percent 

of market deposits. FCCC operates the sixth largest depository institution in the market, controlling deposits of 

approximately $4.9 million, which represent approximately 

2.1 percent of market deposits. After the proposed merger, 

Wells Fargo would remain the fourth largest depository 

institution in the market, controlling deposits of approximately $28.3 million, which represent approximately 

12.4 percent of market deposits. Five depository institutions would remain in the banking market. The HHI would 

increase 44 points, to 2,408. 

Houston 

Wells Fargo operates the third largest depository institution 

in the market, controlling deposits of approximately 

$6.1 billion, which represent approximately 8.1 percent of 

market deposits. FCCC operates the 23rd largest depository institution in the market, controlling deposits of 

approximately $415.3 million, which represent less than 

1 percent of market deposits. After the proposed merger, 

Wells Fargo would remain the third largest depository 

institution in the market, controlling deposits of approximately $6.5 billion, which represent approximately 8.7 percent of market deposits. Ninety depository institutions 

would remain in the banking market. The HHI would 

increase 9 points, to 1,912. 

Appendix C 

CRA Performance Evaluations of Wells Fargo 

Heading row column 1 Subsidiary Bank 

column 2 CRA Rating column 3 Date 

column 4 Supervisor end heading row 

Subsidiary Bank1. Wells Fargo Bank, 

N.A.,San Francisco, California 

(now Sioux Falls, South Dakota) 

Rating:Outstanding Date:October 2001 

Supervisor:OCC 

Subsidiary Bank2. Wells Fargo Bank Northwest, 

N.A.,Ogden, Utah Rating:Outstanding 

Date:May 1999 Supervisor:OCC 

Subsidiary Bank3. Wells Fargo HSBC Trade Bank, 

N.A.,San Francisco, California Rating:Satisfactory 

Date:August 2000 Supervisor:OCC 

Subsidiary Bank4. 

Wells Fargo Financial National Bank, 

Las Vegas, Nevada bRating:Outstanding 

Date:March 2003 Supervisor:OCC 

Subsidiary Bank5. 

Wells Fargo Financial Bank Sioux Falls, 

South Dakota, Rating:Outstanding 

Date:March 2005 Supervisor:FDIC 

ORDERS ISSUED UNDER BANK MERGER ACT 

The Citizens Bank 

Batesville, Arkansas 

Order Approving the Acquisition and Establishment of a 

Branch 

The Citizens Bank (''Citizens Bank'')(footnote 1 Citizens 

Bank is a wholly owned subsidiary of Citizens Bancshares of Batesville, Inc., also of Batesville, which is a bank holding 

company within the meaning of the Bank Holding Company Act, 

12 U.S.C. §1842 end footnote)a state member 

bank, has requested the Board's approval under section 

18(c) of the Federal Deposit Insurance Act (the ''Bank 

Merger Act'')(footnote 2 12 U.S.C. § 1828(c) end footnote)to 

purchase the assets and assume the 

liabilities of the Cave City branch (''Branch'') of First 

National Bank and Trust Company (''First National 

Bank''), Mountain Home, Arkansas(footnote 3 The branch's 

address is 201 South Main Street, Cave City, 

Arkansas end footnote)Citizens Bank also 

has requested the Board's approval to operate Branch as 

a branch of Citizens Bank pursuant to section 9 of the 

Federal Reserve Act (''FRA'')(footnote 4 12 U.S.C. §321 

end footnote) 

Notice of the proposal, affording interested persons an 

opportunity to submit comments, has been given in accor-
Legal Developments 

dance with the Bank Merger Act and the Board's Rules 

of Procedure(footnote 5 12 CFR 262.3(b) As required by the 

Bank Merger Act, reports 

on the competitive effects of the merger were requested 

from the United States Attorney General and relevant 

banking agencies. The time for filing comments has 

expired, and the Board has considered the applications and 

all the facts of record in light of the factors set forth in the 

Bank Merger Act and section 9 of the FRA. 

Citizens Bank, with total consolidated assets of approximately $418.6 million, is the 24th largest insured depository institution in Arkansas, controlling deposits of 

approximately $301.9 million(footnote 6 In this context, depository 

institutions include commercial banks, 

savings banks, and savings associations. Deposit and ranking data are 

as of June 30, 2004. Ranking data are adjusted to reflect merger and 

acquisition activity through May 6, 2005. end footnote)Branch controls 

deposits 

of approximately $7 million. On consummation of the 

proposal, Citizens Bank would become the 23rd largest 

insured depository institution in Arkansas, controlling 

deposits of $308.9 million, which represent less than 1 percent of total deposits of insured depository institutions in 

the state. 

Competitive Considerations 

The Bank Merger Act prohibits the Board from approving 

an application if the proposal would result in a monopoly 

or would be in furtherance of any attempt to monopolize 

the business of banking in any relevant banking market(footnote 

7 12 U.S.C. § 1828(c)(5)(A) end footnote) 

The Bank Merger Act also prohibits the Board from 

approving a proposal that would substantially lessen competition in any relevant banking market unless the anticompetitive effects of the proposal are clearly outweighed in 

the public interest by the probable effect of the proposal in 

meeting the convenience and needs of the community to be 

served(footnote 8 12 U.S.C. § 1828(c)(5)(B) end footnote) 

Citizens Bank and First National Bank compete directly 

in the Batesville banking market in Arkansas(footnote 9 The 

Batesville banking market is defined as Independence 

County and Sharp County south of the Strawberry River end footnote) 

The Board 

has carefully reviewed the competitive effects of the proposal in this banking market in light of all the facts of 

record, including the number of competitors that would 

remain in the market, the relative shares of total deposits in 

depository institutions in the market (''market deposits'') 

controlled by Citizens Bank and First National Bank(footnote 

10 Deposit and market share data are as of June 30, 2004 end footnote)the 

concentration level of market deposits and the increase in 

this level as measured by the Herfindahl-Hirschman Index 

(''HHI'') under the Department of Justice Merger Guidelines (''DOJ Guidelines'')(footnote 11 Under the DOJ Guidelines, 

a market is considered highly 

concentrated if the post-merger HHI is more than 1800. The Department of Justice (''DOJ'') has informed the Board that a bank merger 

or acquisition generally will not be challenged (in the absence of other 

factors indicating anticompetitive effects) unless the post-merger 

HHI is at least 1800 and the merger increases the HHI by more 

than 200 points. The DOJ has stated that the higher than normal HHI 

thresholds for screening bank mergers and acquisitions for anticompetitive effects implicitly recognize the competitive effects of limitedpurpose and other non-depository financial entities end footnote)and 

other characteristics of 

the market. 

Although the Batesville banking market would remain 

highly concentrated on consummation of the proposal, the 

increase in the post-merger HHI would be consistent with 

DOJ Guidelines and Board precedent. Citizens Bank is 

the largest depository institution in the market, controlling 

approximately $291.5 million in deposits, which represents approximately 45.6 percent of market deposits(footnote 12 

Citizens Bank increased its market share by opening seven 

de novo branches over a 23-year period end footnote) 

First National is the smallest depository institution in the 

market, with deposits of approximately $7 million, which 

represent approximately 1.1 percent of market deposits. 

On consummation of the proposal, Citizens Bank would 

remain the largest depository institution in the market, 

controlling deposits of approximately $298.5 million, and 

its market share would increase by a small percentage to 

46.7 percent of market deposits. The HHI would increase 

100 points, to 3,145, which is consistent with DOJ 

Guidelines. 

The Board also has considered other factors that indicate 

the proposal is not likely to have a significant effect on 

competition in the Batesville banking market. Six commercial banking organizations would remain in the market 

after consummation, including two competitors each with 

more than 10 percent of deposits in the market. In addition, 

the second largest competitor increased its market share 

from 14.2 percent to 27.6 percent between 1999 and 2004, 

while Citizens Bank's market share decreased four percentage points during the same period. 

In addition, several factors indicate that the Batesville 

banking market is attractive for entry. One of the existing 

competitors entered the market de novo in February 2005 

and another commercial banking organization recently 

received approval to open a de novo branch in the market. 

Moreover, Independence County, the main county in the 

market, experienced above-average population and deposit 

growth rates relative to the average rates for nonmetropolitan counties in Arkansas between 1996 and 2003, and its 

per capita income exceeded the averages for nonmetropolitan counties during this period. 

The DOJ has reviewed the proposal and advised the 

Board that consummation of the proposal is not likely to 

have a significantly adverse competitive effect in the Batesville banking market. The other federal banking agencies 

have been afforded an opportunity to comment and have 

not objected to the proposal. 

Based on all the facts of record, the Board concludes that 

consummation of the proposed transaction would not likely 

result in a significantly adverse effect on competition or on 

the concentration of banking resources in the Batesville 

banking market or in any other relevant banking market 

and that competitive factors are consistent with approval. 
Federal Reserve Bulletin • Summer 2005 

Financial and Managerial Considerations 

In reviewing the proposal under the Bank Merger Act and 

section 9 of the FRA, the Board has carefully considered 

the financial and managerial resources and future prospects of the companies and depository institutions involved 

in the proposal and certain other supervisory factors. The 

Board has considered these factors in light of all the facts 

of record including, among other things, confidential 

reports of examination and other supervisory information 

received from the federal and state banking supervisors of 

Citizens Bank and First National Bank, publicly reported 

and other financial information, and information provided 

by Citizens Bank. 

In evaluating financial factors in expansion proposals by 

depository institutions, the Board reviews the financial 

condition of the institutions involved. In this evaluation, 

the Board considers a variety of areas, including capital 

adequacy, asset quality, and earnings performance. In 

assessing financial factors, the Board consistently has considered capital adequacy to be especially important. The 

Board also evaluates the financial condition of the applicant on a pro forma basis, including its capital position, 

asset quality, and earnings prospects and the impact of the 

proposed funding of the transaction. 

Based on its review of these factors, the Board finds that 

Citizens Bank is well capitalized and would remain so on 

consummation of the proposal. The Board also finds that 

Citizens Bank has sufficient financial resources to effect 

the proposal. The proposed transaction would be funded 

with cash on hand at Citizens Bank. 

The Board also has considered the managerial resources 

of the institutions involved, including the resources of 

Citizens Bank on a pro forma basis. The Board has 

reviewed the examination records of Citizens Bank and 

First National Bank, including assessments of their management, risk management systems, and operations. In 

addition, the Board has considered its supervisory experience and that of the other relevant banking supervisory 

agencies with the institutions and their records of compliance with applicable banking law. The Board also has 

considered Citizens Bank's plans to integrate Branch and 

its proposed management and to implement Citizen Bank's 

risk-management systems at Branch. 

Based on all the facts of record, the Board has concluded 

that the financial and managerial resources and future 

prospects of the institutions and the other supervisory factors involved are consistent with approval of the 

proposal. 

Convenience and Needs 

In acting on the proposal, the Board also must consider its 

effects on the convenience and needs of the communities to 

be served and take into account the records of the relevant 

insured depository institutions under the Community Reinvestment Act (''CRA'')(footnote 13 12 U.S.C. § 2901 et seq. 

end footnote) Citizens Bank received a ''satisfactory'' rating at its most recent CRA performance evaluation by the Federal Reserve Bank of St. Louis, as of 

November 12, 2003. First National Bank received an ''outstanding'' rating at its most recent CRA performance 

evaluation by the Office of the Comptroller of the Currency, as of November 4, 2002. The Board notes that the 

proposal would provide Branch's customers with access to 

a broader array of products and services in expanded 

service areas, including access to larger branch and ATM 

networks. 

Based on all the facts of record, the Board concludes that 

the considerations relating to the convenience and needs of 

the communities to be served and the CRA performance 

records of the institutions involved are consistent with 

approval of this proposal. 

Establishment of a Branch 

Citizens Bank also has applied under section 9 of the FRA 

to establish a branch at the Cave City location of First 

National Bank. The Board has assessed the factors it is 

required to consider when reviewing an application under 

section 9 of the FRA, including section 208.6 of the 

Board's Regulation H, which implements sections 9(3) and 

9(4) of the FRA, and finds those factors to be consistent 

with approval(footnote 14 12 U.S.C. §§321 and 322; 12 CFR 208.6(b) 

end foonote) 

Conclusion 

Based on the foregoing and all the facts of record, the 

Board has determined that the applications should be, and 

hereby are, approved. In reaching its conclusion, the Board 

has considered all the facts of record in light of the factors 

that it is required to consider under the Bank Merger Act 

and the FRA. The Board's approval is specifically conditioned on compliance by Citizens Bank with the conditions 

imposed in this order, commitments made to the Board in 

connection with the applications, and receipt of all other 

regulatory approvals. For purposes of this action, the conditions and commitments are deemed to be conditions 

imposed in writing by the Board in connection with its 

findings and decision herein and, as such, may be enforced 

in proceedings under applicable law. The transaction may 

not be consummated before the fifteenth calendar day after 

the effective date of this order, or later than three months 

after the effective date of this order, unless such period is 

extended for good cause by the Board or the Federal 

Reserve Bank of St. Louis, acting pursuant to delegated 

authority. 

By order of the Board of Governors, effective June 2, 

2005. 

Voting for this action: Chairman Greenspan, Vice Chairman Ferguson, and Governors Gramlich, 

Bies, Olson, Bernanke, and Kohn. 

ROBERT DEV. FRIERSON 

Deputy Secretary of the Board 
Legal Developments 

ORDERS ISSUED UNDER INTERNATIONAL 

BANKING ACT 

Aozora Bank, Ltd. 

Tokyo, Japan 

Order Approving Establishment of a Representative 

Office 

Aozora Bank, Ltd. (''Bank''), Tokyo, Japan, a foreign bank 

within the meaning of the International Banking Act 

(''IBA''), has applied under section 10(a) of the IBA 

(12 U.S.C. § 3107(a)) to establish a representative office in 

New York, New York. The Foreign Bank Supervision 

Enhancement Act of 1991, which amended the IBA, provides that a foreign bank must obtain the approval of the 

Board to establish a representative office in the United 

States. 

Notice of the application, affording interested persons an 

opportunity to submit comments, has been published in a 

newspaper of general circulation in New York, New York 

(New York Times, September 21, 2004). The time for filing comments has expired, and all comments have been 

considered. 

Bank, with total consolidated assets of approximately 

$44.5 billion(footnote 1 Unless otherwise indicated, data are as of 

March 31, 2005 end footnote)is the 46th largest bank in Japan. Bank 

provides a range of financial services to corporate and 

retail clients. Outside Japan, Bank operates three representative offices in Singapore, Seoul, and Jakarta. Bank's 

proposed New York office would be the first office in the 

United States under its current ownership(footnote 2 Bank was 

originally established in 1957 as the Nippon Fudosan 

Bank, Ltd. It was renamed the Nippon Credit Bank, Ltd. and by the 

mid-1990s operated both banking offices and nonbanking subsidiaries 

in the United States. The bank was intervened in 1998; U.S. operations 

were closed; and the government of Japan sold Bank's shares to 

private investors, who changed Bank's name to Aozora Bank, 

Ltd end foot note)A limited partnership, Cerberus NCB Acquisition, L.P. (''Acquisition''), 

Cayman Islands, holds approximately 62 percent of Bank's 

shares(footnote 3 The general partner of Acquisition, Cerberus Aozora 

GP LLC 

(''Cerberus Aozora''), is a U.S. entity controlled by three other U.S. 

entities, Cerberus Japan Investment LLC, Cerberus Series One Holdings, LLC, and Richter Investment Corporation, that hold interests 

of 49 percent, 26 percent, and 25 percent, respectively, in Cerberus 

Aozora. These companies are members of the Cerberus group, a 

U.S.-based investment group end footnote)Two other companies, Tokio 

Marine & Nichido 

Fire Insurance Co., Ltd. and ORIX Corporation, both 

in Tokyo, each hold approximately 15 percent of Bank's 

shares(footnote 4 Regional Japanese banks hold the remaining shares 

of Bank end footnote) 

The proposed representative office would market Bank's 

services to existing and potential customers in the United 

States. The proposed office would also act as a liaison with 

customers of Bank and would conduct research on loan 

participation opportunities for Bank. 

Under the IBA and Regulation K, in acting on an application by a foreign bank to establish a representative 

office, the Board must consider whether the foreign bank 

(1) engages directly in the business of banking outside of 

the United States, (2) has furnished to the Board the 

information it needs to assess the application adequately, 

and (3) is subject to comprehensive supervision on a 

consolidated basis by its home country supervisor 

(12 U.S.C. § 3107(a)(2); 12 CFR 211.24(d)(2))(footnote 5 

In assessing the supervision standard, the Board considers, among other factors, the extent to which the home country 

supervisors: 

(i) ensure that the bank has adequate procedures for monitoring 

and controlling its activities worldwide; 

(ii) obtain information on the condition of the bank and its 

subsidiaries and offices through regular examination reports, 

audit reports, or otherwise; 

(iii) obtain information on the dealings with and relationship 

between the bank and its affiliates, both foreign and 

domestic; 

(iv) receive from the bank financial reports that are consolidated 

on a worldwide basis or comparable information that permits analysis of the bank's financial condition on a worldwide consolidated basis; and 

(v) evaluate prudential standards, such as capital adequacy and 

risk asset exposure, on a worldwide basis. 

These are indicia of comprehensive, consolidated supervision. No 

single factor is essential, and other elements may inform the Board's 

determination end footnote)The Board 

also may consider additional standards set forth in the IBA 

and Regulation K (12 U.S.C. §3105(d)(3)-(4); 12 CFR 

211.24(c)(2)). The Board will consider that the supervision 

standard has been met if it determines that the applicant 

bank is subject to a supervisory framework that is consistent with the activities of the proposed representative office, 

taking into account the nature of such activities(footnote 6 

See, e.g., Jamaica National Building Society, 88 Federal Reserve 

Bulletin 59 (2002); RHEINHYP Rheinische Hypothekenbank AG, 

87 Federal Reserve Bulletin 558 (2001); see also Promstroybank of 

Russia, 82 Federal Reserve Bulletin 599 (1996); Komercni Banka, 

a.s., 82 Federal Reserve Bulletin 597 (1996); Commercial Bank Ion 

Tiriac, s.a., 82 Federal Reserve Bulletin 592 (1996) end footnote)This is 

a lesser standard than the comprehensive, consolidated 

supervision standard applicable to proposals to establish 

branch or agency offices of a foreign bank. The Board 

considers the lesser standard sufficient for approval of 

representative office applications because representative 

offices may not engage in banking activities (12 CFR 

211.24(d)(2)). This application has been considered under 

the lesser standard. 

As noted above, Bank engages directly in the business of 

banking outside the United States. Bank also has provided 

the Board with information necessary to assess the application through submissions that address the relevant issues. 

With respect to supervision by home country authorities, 

the Board previously has determined, in connection with 

applications involving other banks in Japan, that those 

banks were subject to home country supervision on a 

consolidated basis by their home country supervisor, 

Japan's Financial Services Agency (''FSA'')(footnote 7 

See, e.g., Mitsubishi Tokyo Financial Group, Inc., 87 Federal 

Reserve Bulletin 349 (2001); Mizuho Holdings, Inc., 86 Federal 

Reserve Bulletin 776 (2000); The Sanwa Bank, Limited, 86 Federal 

Reserve Bulletin 54 (2000); The Fuji Bank, Limited, 85 Federal 

Reserve Bulletin 338 (1999) end footnote)Bank is 
Federal Reserve Bulletin • Summer 2005 

supervised by the FSA on substantially the same terms and 

conditions as those other banks. As noted above, however, 

Bank is part of a larger U.S.-based financial group with a 

complex ownership structure and is controlled by entities 

in the Cayman Islands and the United States(footnote 8 

Establishment of a representative office will not cause Bank and 

its parent companies to become subject to the Bank Holding Company 

Act end footnote)Based on all 

the facts of record, it has been determined that Bank is 

subject to a supervisory framework that is consistent with 

the activities of the proposed representative office, taking 

into account the nature of such activities. 

The additional standards set forth in section 7 of the IBA 

and Regulation K (see 12 U.S.C. §3105(d)(3)-(4); 12 CFR 

211.24(c)(2)) have also been taken into account. The FSA 

has no objection to the establishment of the proposed 

representative office. 

With respect to the financial and managerial resources of 

Bank, taking into consideration Bank's record of operations in its home country, its overall financial resources, 

and its standing with its home country supervisor, financial 

and managerial factors are consistent with approval of the 

proposed representative office. Bank appears to have the 

experience and capacity to support the proposed representative office and has established controls and procedures 

for the proposed representative office to ensure compliance 

with U.S. law, as well as controls and procedures for its 

worldwide operations generally. 

Japan is a member of the Financial Action Task Force 

and subscribes to its recommendations regarding measures 

to combat money laundering and international terrorism. 

In accordance with these recommendations, Japan has 

enacted laws and created legislative and regulatory standards to deter money laundering, terrorist financing, and 

other illicit activities. Money laundering is a criminal 

offense in Japan, and credit institutions are required to 

establish internal policies, procedures, and systems for the 

detection and prevention of money laundering throughout 

their worldwide operations. Bank has policies and procedures to comply with these laws and regulations that are 

monitored by governmental entities responsible for antimoney-laundering compliance. 

With respect to access to information on Bank's operations, the restrictions on disclosure in relevant jurisdictions 

in which Bank operates have been reviewed and relevant 

government authorities have been communicated with 

regarding access to information. Bank and its parent companies have committed to make available to the Board such 

information on the operations of Bank and any of its 

affiliates that the Board deems necessary to determine and 

enforce compliance with the IBA, the Bank Holding Company Act of 1956, as amended, and other applicable federal 

law. To the extent that the provision of such information 

to the Board may be prohibited by law or otherwise, Bank 

has committed to cooperate with the Board to obtain any 

necessary consents or waivers that might be required from 

third parties for disclosure of such information. In addition, 

subject to certain conditions, the FSA may share information on Bank's operations with other supervisors, including 

the Board. In light of these commitments and other facts of 

record, and subject to the condition described below, it has 

been determined that Bank has provided adequate assurances of access to any necessary information that the 

Board may request. 

Based on the foregoing and all the facts of record, 

Bank's application to establish a representative office is 

hereby approved.(footnote 9 Approved by the Director of the Division 

of Banking Supervision and Regulation, with the concurrence of the General Counsel, 

pursuant to authority delegated by the Board end footnote)Should 

any restrictions on access to 

information on the operations or activities of Bank or its 

affiliates subsequently interfere with the Board's ability to 

obtain information to determine and enforce compliance by 

Bank or its affiliates with applicable federal statutes, the 

Board may require termination of any of Bank's direct or 

indirect activities in the United States. Approval of this 

application also is specifically conditioned on compliance 

by Bank with the conditions imposed in this order and the 

commitments made to the Board in connection with this 

application(footnote 10 The Board's authority to approve the 

establishment of the 

proposed representative office parallels the continuing 

authority of the 

State of New York to license 

offices of a foreign bank. The Board's 

approval of this application 

does not supplant the authority of the 

State of New York to license the 

proposed office of Bank in accordance with any terms or conditions 

that it may impose end footnote) 

For purposes of this action, 

these commitments and conditions are deemed 

to be conditions imposed 

by the Board in writing in 

connection with its findings and 

decision and, as such, may be 

enforced in proceedings 

under applicable law. 

By order, approved pursuant to 

authority delegated by 

the Board, effective June 29, 2005. 

ROBERT DEV. FRIERSON 

Deputy Secretary of the Board 

Banco del Estado de Chile 

Santiago, Chile 

Order Approving Establishment of a Branch 

Banco del Estado de Chile (''Bank''), Santiago, Chile, a 

foreign bank within the meaning of the International Banking Act (''IBA''), has applied under section 7(d) of the IBA 

(12 U.S.C. § 3105(d)) to establish a branch in New York, 

New York. The Foreign Bank Supervision Enhancement 

Act of 1991, which amended the IBA, provides that a 

foreign bank must obtain the approval of the Board to 

establish a branch in the United States. 

Notice of the application, affording interested persons an 

opportunity to comment, has been published in a newspaper of general circulation in New York, New York (The 

Daily News, June 30, 2004). The time for filing comments 

has expired, and all comments have been considered. 
Legal Developments 

Bank, with total assets of $15.4 billion, is the third 

largest commercial bank in Chile(footnote 1 Asset data are as of 

March 31, 2005 end footnote) and is wholly owned by 

the Chilean state. It provides a variety of banking services 

to retail and corporate customers through more than 300 

branches in Chile. It also provides through its subsidiaries 

stock brokerage, insurance brokerage, fund management, 

and financial advisory services. The proposed branch 

would be its first office outside Chile. Bank is a qualifying 

foreign banking organization under Regulation K (12 CFR 

211.23(b)). 

The proposed branch would engage in wholesale banking business focusing on trade finance and lending activities. In addition, Bank anticipates that the branch would 

conduct treasury operations, participate in loan syndicates, 

invest in fixed-income securities, and provide cash management services. 

Under the IBA and Regulation K, in acting on an application by a foreign bank to establish a branch, the Board 

must consider whether the foreign bank (1) engages 

directly in the business of banking outside of the United 

States; (2) has furnished to the Board the information 

it needs to assess the application adequately; and (3) is 

subject to comprehensive supervision on a consolidated 

basis by its home country supervisor (12 U.S.C. 

§ 3105(d)(2); 12 CFR 211.24(c)(1))(footnote 2 

In assessing this standard, the Board considers, among other 

factors, the extent to which the home country supervisors: 

(i) ensure that the bank has adequate procedures for monitoring 

and controlling its activities worldwide; 

(ii) obtain information on the condition of the bank and its 

subsidiaries and offices through regular examination reports, 

audit reports, or otherwise; 

(iii) obtain information on the dealings with and relationship 

between the bank and its affiliates, both foreign and 

domestic; 

(iv) receive from the bank financial reports that are consolidated 

on a worldwide basis or comparable information that permits analysis of the bank's financial condition on a worldwide consolidated basis; and 

(v) evaluate prudential standards, such as capital adequacy and 

risk-asset exposure, on a worldwide basis. 

These are indicia of comprehensive, consolidated supervision. No 

single factor is essential, and other elements may inform the Board's 

determination end footnote)The Board also may 

consider additional standards set forth in the IBA and 

Regulation K (12 U.S.C. §3105(d)(3)-(4); 12 CFR 

211.24(c)(2)-(3)). 

As noted above, Bank engages directly in the business of 

banking outside the United States. Bank also has provided 

the Board with information necessary to assess the application through submissions that address the relevant issues. 

With respect to supervision by home country authorities, 

the Federal Reserve previously has determined, in connection with applications involving other banks in Chile, that 

those banks were subject to home country supervision on a 

consolidated basis by their home country supervisor, the 

Superintendencia de Bancos e Instituciones Financieras 

(''SBIF'')(footnote 3 See Banco de Chile, 90 Federal Reserve 

Bulletin 550 (2004); 

Banco de Credito e Inversiones S.A., 85 Federal Reserve Bulletin 446 

(1999). See also, Banco de Chile, 80 Federal Reserve Bulletin 179 

(1994) end footnote)Bank is supervised by the SBIF on substantially the same terms and conditions as those other banks. 

Based on all the facts of record, it has been determined that 

Bank is subject to comprehensive supervision on a consolidated basis by its home country supervisor. 

The additional standards set forth in section 7 of the IBA 

and Regulation K (see 12 U.S.C. §3105(d)(3)-(4); 12 CFR 

211.24(c)(2)-(3)) have also been taken into account. The 

SBIF has no objection to the establishment of the proposed 

branch. 

Chile's risk-based capital standards are consistent with 

those established by the Basel Capital Accord (''Accord''). 

Bank's capital is in excess of the minimum levels that 

would be required by the Accord and is considered equivalent to capital that would be required of a U.S. banking 

organization. Managerial and other financial resources of 

Bank also are considered consistent with approval, and 

Bank appears to have the experience and capacity to support the proposed branch. Bank has established controls 

and procedures for the proposed branch to ensure compliance with U.S. law and for its operations in general. 

Chile is a member of GAFISUD (Financial Action Task 

Force for South America), which is an observer organization to the Financial Action Task Force. Chile has enacted 

laws and adopted regulations to deter money laundering. 

Money laundering is a criminal offense in Chile, and 

financial institutions are required to establish internal policies, procedures, and systems for the detection and prevention of money laundering throughout their worldwide 

operations. Bank has policies and procedures to comply 

with these laws and regulations. Bank's compliance with 

applicable laws and regulations is monitored by its auditors 

and the SBIF. 

With respect to access to information about Bank's 

operations, the restrictions on disclosure in relevant jurisdictions in which Bank operates have been reviewed and 

relevant government authorities have been communicated 

with regarding access to information. Bank has committed 

to make available to the Board such information on the 

operations of Bank and any of its affiliates that the Board 

deems necessary to determine and enforce compliance with 

the IBA, the Bank Holding Company Act, and other applicable federal law. To the extent that the provision of such 

information to the Board may be prohibited by law or 

otherwise, Bank has committed to cooperate with the 

Board to obtain any necessary consents or waivers that 

might be required from third parties for disclosure of such 

information. In addition, subject to certain conditions, 

SBIF may share information on Bank's operations with 

other supervisors, including the Board. In light of these 

commitments and other facts of record, and subject to the 

condition described below, it has been determined that 

Bank has provided adequate assurances of access to any 

necessary information that the Board may request. 

Based on the foregoing and all the facts of record, 

Bank's application to establish a branch is hereby 
Federal Reserve Bulletin • Summer 2005 

approved(footnote 4 Approved by the director of the 

Division of Banking Supervision and Regulation, with the concurrence of the general counsel, 

pursuant to authority delegated by the Board end footnote)Should 

any restrictions on access to information on the operations or activities of Bank and its affiliates 

subsequently interfere with the Board's ability to obtain 

information to determine and enforce compliance by Bank 

or its affiliates with applicable federal statutes, the Board 

may require termination of any of Bank's direct or indirect 

activities in the United States. Approval of this application 

also is specifically conditioned on compliance by Bank 

with the conditions imposed in this order and the commitments made to the Board in connection with this application(footnote 5 The Board's authority to approve the establishment of the 

proposed branch parallels the continuing authority of the State of New 

York to license offices of a foreign bank. The Board's approval of this 

application does not supplant the 

authority of the State of New York to 

license the proposed office of Bank in 

accordance with any terms or 

conditions that it may impose end footnote) 

For purposes of this action, these 

commitments and 

conditions are deemed to be 

conditions imposed by the 

Board in writing in connection 

with its findings and decision and, as such, may be enforced 

n proceedings under 

applicable law. 

By order, approved pursuant to 

authority delegated by 

the Board, effective June 20, 2005. 

ROBERT DEV. FRIERSON 

Deputy Secretary of the Board 

Banco Financiera Comercial Hondurena, S.A. 

Tegucigalpa, Honduras 

Order Approving Establishment of a Representative 

Office 

Banco Financiera Comercial Hondurena, S.A. (''Bank''), 

Tegucigalpa, Honduras, a foreign bank within the meaning 

of the International Banking Act (''IBA''), has applied 

under section 10(a) of the IBA (12 U.S.C. § 3107(a)) to 

establish a representative office in Miami, Florida. The 

Foreign Bank Supervision Enhancement Act of 1991, 

which amended the IBA, provides that a foreign bank must 

obtain the approval of the Board to establish a representative office in the United States. 

Notice of the application, affording interested persons an 

opportunity to submit comments, has been published in a 

newspaper of general circulation in Miami, Florida (Miami 

Daily Business Review, March 19, 2004). The time for 

filing comments has expired, and all comments received 

have been considered. 

Bank, with total consolidated assets of approximately 

$612 million(footnote 1 Unless otherwise indicated, data are as of 

December 31, 2004 end footnote)is the fourth largest commercial 

bank in 

Honduras and provides wholesale and retail banking services through a network of domestic branches(footnote 2 

Corporation del Pacifico SA de CV (''CORPASA''), a Honduran 

holding company, is Bank's largest shareholder with a 51.3 percent ownership 

interest in Bank. CORPASA in turn is owned by members 

of the Atala family end footnote)In the 

United States, Bank has licenses to operate nonbank subsidiaries in Florida, Georgia, New York, North Carolina, 

and Virginia that engage in money remittance services(footnote 

3 Bank owns its money remittance subsidiaries through Ficohsa 

Express Holding LLC, a holding company organized in Florida, 

which in turn is owned by Grupo Financiero Ficohsa Ltd, a company 

organized in the British Virgin Islands end footnote) 

The proposed representative office is intended to act as a 

liaison between Bank's head office in Honduras and its 

existing and prospective customers in Honduras and the 

United States. The office would engage in representative 

functions in connection with the activities of Bank, solicit 

new business, provide information to customers concerning their accounts, inform U.S.- and Honduran-owned businesses of business opportunities existing in Honduras, and 

receive applications for extensions of credit and other 

banking services on behalf of Bank. 

In acting on an application by a foreign bank to establish 

a representative office under the IBA and Regulation K, the 

Board must consider whether the foreign bank: (1) engages 

directly in the business of banking outside of the United 

States; (2) has furnished to the Board the information it 

needs to assess the application adequately; and (3) is 

subject to comprehensive supervision on a consolidated 

basis by its home country supervisor (12 U.S.C. 

§ 3107(a)(2); 12 CFR 211.24(d)(2))(footnote 4 In assessing the 

supervision standard, the Board considers, 

among other factors, the extent to which the home country 

supervisors: 

(i) ensure that the bank has adequate procedures for monitoring 

and controlling its activities worldwide; 

(ii) obtain information on the condition of the bank and its 

subsidiaries and offices through regular examination reports, 

audit reports, or otherwise; 

(iii) obtain information on the dealings with and relationship 

between the bank and its affiliates, both foreign and 

domestic; 

(iv) receive from the bank financial reports that are consolidated 

on a worldwide basis or comparable information that permits analysis of the bank's financial condition on a worldwide consolidated basis; and 

(v) evaluate prudential standards, such as capital adequacy and 

risk asset exposure, on a worldwide basis. 

These are indicia of comprehensive, consolidated supervision. No 

single factor is essential, and other elements may inform the Board's 

determination end footnote)The Board also may 

consider additional standards set forth in the IBA and 

Regulation K (12 U.S.C. §3105(d)(3)-(4); 12 CFR 

211.24(c)(2)). The Board will consider that the supervision 

standard has been met where it determines that the applicant bank is subject to a supervisory framework that is 

consistent with the activities of the proposed representative 

office, taking into account the nature of such activities(footnote 

5 See, e.g., Jamaica National Building Society, 88 Federal Reserve 

Bulletin 59 (2002); RHEINHYP Rheinische Hypothekenbank AG, 

87 Federal Reserve Bulletin 558 (2001); see also Promstroybank of 

Russia, 82 Federal Reserve Bulletin 599 (1996); Komercni Banka, 

a.s., 82 Federal Reserve Bulletin 597 (1996); Commercial Bank "Ion 

Tiriac,"S.A., 82 Federal Reserve Bulletin 592 (1996) end footnote) 

This is a lesser standard than the comprehensive, consoli-
Legal Developments 

dated supervision standard applicable to applications to 

establish branch or agency offices of a foreign bank. The 

Board considers the lesser standard sufficient for approval 

of representative office applications because representative 

offices may not engage in banking activities (12 CFR 

211.24(d)(2)). 

In connection with this application, Bank has provided 

certain commitments that limit the activities of the representative office. It has committed that the representative 

office would engage only in certain specified activities and 

would not make credit decisions on behalf of Bank, solicit 

deposits on behalf of Bank, or engage in activities related 

to securities trading, foreign exchange, or money transmission. Bank has also committed that the representative office 

would not solicit business for or promote the services of 

Bank's U.S. nonbank subsidiaries and would not share 

office space with those subsidiaries. 

As noted above, Bank engages directly in the business of 

banking outside the United States. Bank also has provided 

the Board with information necessary to assess the application through submissions that address the relevant issues. 

Bank has provided the following information regarding home country supervision. Bank is supervised by 

the National Commission on Banking and Insurance 

(''NCBI''). The NCBI is responsible for the regulation and 

supervision of financial institutions operating in Honduras. 

The NCBI issues and implements regulations concerning accounting requirements, asset quality, management, 

operations, capital adequacy, loan classification and loan 

loss reserve requirements. In addition, the NCBI has 

authority to order corrective measures, impose sanctions, 

and assume management of a financial institution or liquidate it. 

The NCBI supervises and regulates Bank in Honduras 

through a combination of on-site examinations and off-site 

monitoring(footnote 6 The laws governing bank supervision in Honduras 

are in need of 

strengthening. The law was amended in September 2004 to require 

banks to obtain the prior authorization of the NCBI to establish 

foreign operations and to report monthly to the NCBI on their operations. The NCBI continues to work to obtain additional legislation that 

would allow it to supervise banks on a fully consolidated basis end footnote) 

On-site examinations are conducted on an 

annual basis and cover capital adequacy, asset quality, 

profitability, administrative efficiency, liquidity, and compliance with the law. If necessary, the NCBI can also 

conduct special on-site examinations. Off-site monitoring 

of Bank is conducted by the NCBI through the review of 

required monthly and quarterly reports. An external audit 

is also part of the supervisory process and must be conducted at least annually(footnote 7 The external auditing firm must be 

approved by and registered 

with the NCBI end footnote) 

Based on all the facts of record, including the commitments provided by Bank limiting the activities of the 

proposed office, it has been determined that Bank is subject 

to a supervisory framework that is consistent with the 

activities of the proposed representative office, taking into 

account the nature of such activities. 

The additional standards set forth in section 7 of the IBA 

and Regulation K (see 12 U.S.C. §3105(d)(3)-(4); 12 CFR 

211.24(c)(2)) have also been taken into account. The NCBI 

has no objection to the establishment of the proposed 

representative office. 

With respect to the financial and managerial resources of 

Bank, taking into consideration its record of operations in 

its home country, its overall financial resources, and its 

standing with its home country supervisor, financial and 

managerial factors are consistent with approval of the 

proposed representative office. Bank appears to have the 

experience and capacity to support the proposed representative office and has established controls and procedures 

for the proposed representative office to ensure compliance 

with U.S. law. 

Although Honduras is not a member of the Financial 

Action Task Force (''FATF''), Honduras has enacted laws 

based on the general recommendations of the FATF. Additionally, Honduras is a member of the Caribbean Financial 

Action Task Force and participates in other international 

forums that address the prevention of money laundering(footnote 

8 Honduras is a member of the Organization of American States 

Inter-American Drug Abuse Control Commission Experts Group to 

Control Money Laundering. Honduras is also party to the 1988 UN 

Convention Against the Illicit Traffic of Narcotics and Psychotropic 

Substances, the UN International Convention Against Transnational 

Organized Crime and the UN International Convention for the Suppression of the Financing of Terrorism end footnote) 

Money laundering is a criminal offense in Honduras, and 

banks are required to establish internal policies and procedures for the detection and prevention of money laundering(footnote 9 In 2002, legislation was enacted to strengthen the anti-money 

laundering regime in Honduras. Among other measures, the legislation expanded the definition of money laundering, strengthened 

enforcement, and established a financial intelligence unit within the 

NCBI end footnote) Legislation and regulation require banks to adopt 

know-your-customer policies, report suspicious transactions, and maintain records. Accordingly, Bank has established anti-money-laundering policies and procedures, 

which include the implementation of know-your-customer 

policies, suspicious activity reporting procedures, and related training programs and manuals. Bank's external auditors review compliance with requirements to prevent 

money laundering. 

With respect to access to information on Bank's operations, the restrictions on disclosure in relevant jurisdictions 

in which Bank operates have been reviewed and relevant 

government authorities have been communicated with 

regarding access to information. Bank and its parent have 

committed to make available to the Board such information on the operations of Bank and any of its affiliates as 

the Board deems necessary to determine and enforce compliance with the IBA, the Bank Holding Company Act of 

1956, as amended, and other applicable federal law. To the 

extent that the provision of such information to the Board 

may be prohibited by law or otherwise, Bank and Bank's 

parent have committed to cooperate with the Board to 

obtain any necessary consents or waivers that might be 
Federal Reserve Bulletin • Summer 2005 

required from third parties for disclosure of such information. In addition, subject to certain conditions, the NCBI 

may share information on Bank's operations with other 

supervisors, including the Board. In light of these commitments and other facts of record, and subject to the condition described below, it has been determined that Bank has 

provided adequate assurances of access to any necessary 

information that the Board may request. 

Based on the foregoing and all the facts of record, and 

subject to the commitments made by Bank and its parent 

and the terms and conditions set forth in this order, Bank's 

application to establish the representative office is hereby 

approved(footnote 10 Approved by the director of the Division of 

Banking Supervision and Regulation, with the concurrence of the general counsel, pursuant to authority delegated by the Board. See 12 CFR 

265.7(d)(12) end footnote)Should any restrictions on access to 

information on the operations or activities of Bank or any of its 

affiliates subsequently interfere with the Board's ability to 

obtain information to determine and enforce compliance by 

Bank or its affiliates with applicable federal statutes, the 

Board may require or recommend termination of any of 

Bank's direct and indirect activities in the United States. 

Approval of this application also is specifically conditioned 

on compliance by Bank and its parent with the conditions 

imposed in this order and the commitments made to the 

Board in connection with this application(footnote 11 

The Board's authority to approve the establishment of the 

proposed representative office 

parallels the continuing authority of the 

State of Florida to license offices 

of a foreign bank. The Board's 

approval of this application does not 

supplant the authority of the 

State of Florida or its agent, the Florida 

Department of Financial 

Services, to license the proposed office 

of Bank in accordance with 

any terms or conditions that it may 

impose end footnote)For purposes 

of this action, these commitments 

and conditions are 

deemed to be conditions imposed 

in writing by the Board 

in connection with its finding and 

decision and, as such, 

may be enforced in proceedings 

under applicable law. 

By order, approved pursuant to 

authority delegated by 

the Board, effective April 20, 2005. 

ROBERT DEV. FRIERSON 

Deputy Secretary of the Board 

FINAL ENFORCEMENT DECISIONS ISSUED BY THE 

BOARD OF GOVERNORS 

In the Matter of 

Carl v. Thomas, Eva June Thomas, 

Stephen P. Thomas, Mary Beth Thomas, 

Marguerite Thomas, Charles Tomlinson, 

Herbert Phillips, Lloyd Phillips, R.L. Phillips, 

Stanley Phillips, Rhonda Phillips, Scott Ward, 

Angela Ward, Forrest Buckley, James C. Crowe, 

Johnny v. Jones, Harper Guinn, and Jeff Guinn, 

Current and Former Institution Affiliated Parties 

First Western Bank, 

Cooper City, Florida 

(State Member Bank) 

Docket Nos. 99-027-B-I (20)-(41), 

99-027-CMP-I (20)-(41), 99-027-E-I (20) 

Final Decision 

This is an administrative proceeding pursuant to the Federal Deposit Insurance Act (''the FDI Act'') in which the 

Office of the Comptroller of the Currency of the United 

States of America (''OCC'') seeks to prohibit Respondent 

Carl Thomas from further participation in the affairs of any 

financial institution, and to issue civil monetary penalties 

as well as cease-and-desist orders against all Respondents 

based on their conduct as institution affiliated parties of 

First Western Bank, Cooper City, Florida (the ''Bank''). 

Upon review of the administrative record, the Board 

issues this Final Decision adopting the Recommended 

Decision (''Recommended Decision'' or ''RD'') of Administrative Law Judge Arthur L. Shipe (the ''ALJ''), except as 

specifically supplemented or modified herein. The Board 

therefore orders that the attached Order of Prohibition 

issue against Respondent Carl Thomas, and that the 

attached Cease-and-Desist Order be issued against all 

Respondents. For the reasons set forth in this Final Decision, the Board has determined to withdraw its assessment 

of civil monetary penalties in this case. 

I. Procedural History 

On November 22, 2002, the Board issued a combined 

Notice of Charges and of Hearing, Notice of the Assessment of Civil Monetary Penalties and Notice of Intent to 

Prohibit (the ''Notice''). The Notice alleged that Respondents willfully and knowingly violated the Change in Bank 

Control Act (''CIBC''), 12 U.S.C. § 1817(j), its implementing regulation, and an order of the Board when they 

acquired control of the Bank through a series of coordinated purchases without obtaining the Board's prior 

approval. The Notice further alleged that such actions 

resulted in financial gains and other benefits to Respondents; involved personal dishonesty on the part of Respondent Carl Thomas; and were part of a pattern of misconduct with respect to Respondents Carl Thomas and Stephen 

Thomas. 

The Notice initially was issued against 22 individual 

Respondents. Shortly after receiving the Notice, four of the 

named Respondents settled with the Board by agreeing to 

enter into consent orders. The remaining 18 Respondents, 

who appeared and have participated pro se, filed answers to 

the Notice but did not challenge the allegations set forth in 

the Notice. 

On September 25, 2003, Enforcement Counsel for the 

Board filed a Motion for Summary Disposition, supplemented by evidence submitted on March 5, 2004. On 
Legal Developments 

July 30, 2004, the ALJ issued a Recommended Decision, 

advising that Enforcement Counsel's Motion for Summary 

Disposition be granted and recommending the imposition of an order of prohibition against Respondent Carl 

Thomas, as well as civil monetary penalties and a ceaseand-desist order against all Respondents. Following the 

filing of a so-called ''Affidavit of Proof'' by Respondents 

and a response by Board Enforcement Counsel, the matter 

was referred to the Board for final decision. 12 U.S.C. 

§1818(h)(1). 

On March 29, 2005, Enforcement Counsel filed a motion 

with the Board requesting that the Board withdraw its civil 

monetary penalty assessment and authorize Enforcement 

Counsel to arrange for the proceeds of the sale of Respondents' First Western shares, currently held in the registry of 

the United States District Court for the Northern District of 

Georgia, to be transferred to the registry of the United 

States Bankruptcy Court for the Middle District of Florida 

for ultimate distribution to the victims of fraud by Greater 

Ministries International, Inc. (''Greater Ministries''). 

II. Statutory Framework 

1. Statutory and Regulatory Requirements For Obtaining 

Control of a State Member Bank 

The CIBC and its implementing regulation, Regulation Y, 

provide that no person acting directly or indirectly or 

through or in concert with one or more persons, may 

acquire control of any state member bank unless the Board 

has been given at least sixty days prior written notice and 

has not disapproved the acquisition. 12 U.S.C. §1817(j)(1); 

12 CFR 225.41. These requirements allow the Board to 

conduct an investigation of the competence, experience, 

integrity, and financial ability of each controlling person by 

and for whom shares of a state member bank are acquired. 

12 U.S.C. § 1817(j)(2)(B)(i); 12 CFR 225.43(f). 

Regulation Y defines ''acting in concert'' to include 

knowing participation in a joint activity or parallel action 

toward a common goal of acquiring control of a state 

member bank, whether or not pursuant to an express agreement. 12 CFR 225.41(b)(2). Regulation Y creates a rebuttable presumption that an individual and the individual's 

immediate family members act in concert. 12 CFR 

225.41(d)(2). 

The CIBC Act defines ''control'' as the power, indirectly 

or directly, to direct the management or policies of a state 

member bank or to vote 25 percent or more of any class 

of voting securities of a state member bank. 12 U.S.C. 

§ 1817(j)(8)(B). Regulation Y presumes that an acquisition 

of voting securities of a state member bank constitutes an 

acquisition of control if, immediately following the transaction, the acquiring person or persons will own, control, 

or hold with power to vote 10 percent or more of any class 

of voting securities and no other person will own, control, 

or hold power to vote a greater percentage of that class of 

voting securities. 12 CFR 225.41(c)(2). 

The CIBC Act sets forth the specific information that 

must be provided in the notice to the Board. Among other 

things, the notice must contain the identity, personal history, business background, and financial condition of each 

person by whom or on whose behalf the acquisition is to 

be made; the terms and conditions of each acquisition; and 

the identity, source, and amount of funds or other consideration used or to be used in making the acquisition. 

12 U.S.C. § 1817(j)(6)(A)-(H). The CIBC Act also sets 

forth circumstances under which the Board may disapprove a proposed acquisition, including situations in which 

an acquiring person ''neglects, fails, or refuses to furnish 

[the Board] all the information required by the Board.'' 

12 U.S.C. § 1817(j)(7)(E); 12 CFR 225.43(h). 

2. 18 U.S.C. §1001 

Pursuant to 18 U.S.C. §1001, it is a violation of law to 

knowingly and willfully make any materially false, fictitious, or fraudulent statement or representation in a matter 

within the jurisdiction of a federal agency. 

III. Facts 

Beginning in 1997, Respondent Carl Thomas, with the 

primary assistance of his son, Respondent Stephen 

Thomas, initiated an effort to persuade a group of approximately 40 individuals and business entities to join them 

in acquiring shares in First Western Bank. (FF 119-10; 

21-22)(footnote 1 ''FF'' denotes the ALJ's findings of fact in the 

Recommended 

Decision end footnote)All named Respondents in this matter, 

including 

Carl and Stephen Thomas, were members of a group that 

coordinated to buy shares in First Western Bank (hereinafter referred to collectively as ''Purchasing Group'' members). (FF 110). The acquisition of shares was undertaken 

on behalf of the Greater Ministries organization, a purported religious and charitable organization with which the 

Purchasing Group members were affiliated. (FF 112; Wall 

dep. at 30). Greater Ministries desired to obtain control of a 

financial institution and secure favorable account relationships for itself and its members, a task it had been unable 

to accomplish in the previous two years. (FF 112, 5, 9). 

Greater Ministries appointed Respondent Carl Thomas as 

one of its Elders and paid him approximately $535,000 

between June 1997 and June 1998 as part of its ''Gifting 

Program,'' a program that has been found to be essentially 

a Ponzi scheme. (FF19; Hoch. Exh. Z-37)(footnote 2 

The ALJ described the ''Gifting Program'' as one in which 

Greater Ministries followers were persuaded to make ''gifts'' to the 

organization with the expectation of receiving returns as high as 

tenfold. The program was promoted by Greater Ministries with the 

biblical passage ''Give and it shall be given unto you.'' (Luke 6:38) 

Elders such as Carl Thomas were awarded a portion of the ''gifts'' 

associated with the members they brought into the organization or 

who were otherwise assigned to them end footnote) 

Respondents Carl and Stephen Thomas solicited members of the Purchasing Group to buy First Western shares 

on various occasions, including at the conclusion of Carl 
Federal Reserve Bulletin • Summer 2005 

Thomas's Bible study meetings. (Skrobot Decl. 59). They 

advocated the opportunity to purchase shares in a 

''Christian-tied bank'' that would protect Greater Ministries' privacy against the government. (Skrobot Decl. 59). 

Before solicitation by Carl and Stephen Thomas, members 

of the Purchasing Group had never heard of First Western 

Bank, or thought to invest in it. (Sellers depo p. 57; 

Skrobot Decl. 512). At least some of the Purchasing Group 

members were specifically told of Greater Ministries' ultimate goal to take control of the Bank's board of directors, 

while others were simply told it was necessary that 

multiple individuals purchase the stock so that it was 

not all in one name. (FF 513; Sellers dep. at 58, 60). The 

members of the Purchasing Group were assured that either 

Greater Ministries, Carl Thomas, or Stephen Thomas 

would provide the funds for the purchases of the shares 

or reimburse the members for such purchases. (FF 511). 

The evidence establishes that it was widely apparent to all 

Purchasing Group members that they were involved in a 

group effort to acquire shares in the Bank. (FF 512). 

Members of the Purchasing Group generally did not 

communicate with the individuals from whom they purchased First Western shares. (FF 522). Instead, Carl and 

Stephen Thomas contacted individuals who were willing 

to sell their shares to negotiate and establish the amount 

of shares that would be purchased as well as the price. 

(FF 522). Subsequently, Carl or Stephen Thomas instructed 

the Purchasing Group members to write checks for the 

determined amount. (FF 522). Carl or Stephen Thomas 

provided the Purchasing Group members with funds 

derived from Greater Ministries to pay for the acquired 

shares. (FF 522). In some cases, such payments were made 

to members of the Purchasing Group in cash. (Agee Decl; 

Nieminen Decl. 56; Salhgreen Aff. 54; Skrobot Decl. 510). 

Carl or Stephen Thomas instructed the Purchasing Group 

members to deposit the cash in amounts under $10,000 

each, so as not to raise any ''red flags.'(footnote 3 Cash deposits 

of $10,000 or more require a financial institution 

to file a Currency Transaction Report (''CTR'') with the Department 

of the Treasury, thus alerting government officials to large cash 

deposits. See 31 CFR 103.22(b) end footnote)(Nieminen 

Decl. 59; Skrobot Decl. 510). 

The Purchasing Group acquired their First Western 

shares between August 1997 and the end of February 1998, 

with the largest concentration of shares purchased in 

October 1997. (FF 5516-21; 23; 27-28; 33-34). At various 

points, the Purchasing Group's accumulation of shares 

triggered notification requirements pursuant to the CIBC 

Act and its implementing regulation. Each time, however, 

Respondents and the other members of the Purchasing 

Group failed to provide proper notification and other necessary information. 

The first of these required notification points came by 

October 16, 1997, when members of the Purchasing Group 

had acquired in excess of 10 percent of outstanding First 

Western shares. (FF523). Even after a series of correspondence from Federal Reserve staff advising of the requirements of the CIBC Act and the Board's regulations, the 

Purchasing Group members refused to supply the required 

information. (FF 524-25). Instead, in a group response 

organized by Carl and Stephen Thomas, the Purchasing 

Group members insisted that the CIBC Act and other 

regulations did not apply to them. (FF 126). The evidence 

reveals that the Purchasing Group members habitually 

deferred to Respondents Carl and Stephen Thomas to organize responses on behalf of the group. (Agee Aff. at p. 2; 

Sahlgren Aff. 111, 12; Skrobot Decl. 116). 

The second point came on or about December 2, 1997, 

when Respondent Carl Thomas and his wife, Respondent 

Eva Thomas, made a purchase of shares through a nominee 

which brought their joint ownership from about 18,814 to 

approximately 20,539 shares and elevated the Purchasing 

Group's ownership to over 25 percent. (FF1128-29)(footnote 4 

Other members of the Purchasing Group also acquired additional shares between October 16, 1997, and December 2, 1997. 

(Hoch. Add. 2) end footnote)The 

Purchasing Group members failed to file prior written 

notification with the Board before acquiring these shares 

and continued to conceal the source of funds used to 

acquire their shares. (FF 1128, 32). Further, in an apparent 

attempt to conceal that the Purchasing Group owned more 

than 25 percent, Carl Thomas maintained in a December 9, 

1997, "Draft" CIBC notice, as well as in another document he submitted to the Board on December 22, 1997, 

that he and his wife only owned 18,814 shares. (FF 129). 

The third failure to adhere to the notification requirements took place around February 2, 1998, after additional 

purchases resulted in the "immediate" Thomas family(footnote 5 

Pursuant to 12 CFR 225.41(c)(3), the ''immediate'' Thomas 

family includes Carl Thomas; his wife, Eva Thomas; his son and 

daughter-in-law, Stephen and Mary Beth Thomas; his mother, 

Marguerite Thomas; and his brother-in-law, William Barber end footnote) 

owning over 10 percent of First Western shares. (FF 133). 

The Thomas family failed to file prior written notice of the 

acquisition and failed to submit evidence rebutting the 

presumption that they were acting in concert and acquired 

control of First Western. (FF 133). Finally, prior notification also was not sought before the Purchasing Group 

made its last known purchase on February 26, 1998, which 

brought the group's ownership to over 29 percent. (FF 1 34; 

Bd. Rec. 1-39). Instead, in documents submitted on 

April 10, 1998, and August 17, 1998, Carl Thomas continued to conceal the true ownership of his family and of the 

group. In both documents, he continued to claim that he 

and his immediate family owned only 18,814 shares, when 

they actually owned at least 33,039 by that time(footnote 6Contrary 

to representations he consistently made to Federal 

Reserve staff, Carl Thomas asserted in a February 20, 2004, letter to 

the First Western Board of Directors that he held 33,039 shares of 

First Western stock. (Enforcement Counsel's March 5, 2004, Motion 

to File Supplemental Evidence.) Mr. Thomas sent the letter to First 

Western in response to proxy solicitations the Bank had mailed to 

Mr. Thomas and his family in connection with a proposed merger 

between First Western and 1st United Bank. Mr. Thomas presumably 

claimed ownership of 33,039 shares in his February 20, 2004, letter 

because he stood to benefit from the sale of the shares in the proposed 

merger end footnote)(FF 1135, 

37). In the April 10, 1998, document, he failed to disclose 

that the Purchasing Group's acquisition of shares exceeded 
Legal Developments 

25 percent. In the August 17, 1998 submission, he admitted 

that the Purchasing Group had acquired an additional 

14,212 shares, but claimed the these shares were held in 

''open title.'' (FF 135, 37). Neither the April nor August 

1998 submission revealed that Greater Ministries provided 

the funds used by Purchasing Group members to acquire 

First Western shares. (FF 135-38). 

From August 24, 1998, to December 22, 1998, Federal 

Reserve staff persisted in its attempt to obtain information 

from the Respondents and other Purchasing Group members in order to achieve compliance with the CIBC and 

other regulations. (FF 138). Despite numerous letters 

requesting additional information, including the source of 

funds used to acquire the First Western shares, the Purchasing Group failed to correct its deficiencies. (FF 138). 

Ultimately, on February 10, 1999, the Board issued an 

order mandating that each Respondent divest his or her 

shares within ninety days of the date of the order. (FF 139). 

None of the Respondents divested their respective shares 

within that time. (FF 1 40). 

In March 1999, eight Greater Ministries officials pleaded 

guilty or were convicted of fraud, money laundering, and 

conspiracy charges in connection with a ''Gifting Program'' operated by Greater Ministries, which was found 

to be a Ponzi scheme through which Greater Ministries 

defrauded thousands of United States residents. (FF 18). In 

August 1999, a United States District Court placed Greater 

Ministries into receivership after multiple states filed lawsuits against the organization for fraudulent violation of 

federal and state securities laws. (FF 1 6). 

By letter dated May 18, 1999, Federal Reserve staff 

advised Respondents that they would be subject to an 

enforcement action for their continued violations of the 

CIBC and its accompanying regulation. (FF 140; Hoch. 

Dec. Ex. Z42). The letter also informed Respondents that 

prompt action to terminate their voting control of First 

Western shares could mitigate and possibly eliminate the 

need to impose remedies, but Respondents failed to take 

such action. (Hoch. Dec. Ex. Z42 and Z43; FF 140). 

In November 2002, Board Enforcement Counsel initiated this action against Respondents, seeking an order of 

prohibition against Carl Thomas, a cease-and-desist order 

against all Respondents, and civil money penalties ranging 

from $10,000 to $250,000 against each Respondent. 

On February 27, 2004, the Board approved an application submitted by 1st United Bank, Boca Raton, Florida, to 

merge with First Western by purchasing First Western 

shares for $17 per share. In March 2004, Board Enforcement Counsel filed an asset freeze action in United States 

District Court for the Northern District of Georgia pursuant 

to 12 U.S.C. § 1818(i)(4) in order to require the payment 

into the court of the sales proceeds necessary to pay the 

civil money penalty amounts assessed in the Notice in the 

event the Board's final decision assessed penalties against 

the Respondents. Board of Governors v. Thomas, et al., 

No. 1:04-CV-0777. The District Court issued a temporary 

restraining order on April 2, 2004, and a preliminary 

injunction on April 28, 2004, ordering each Respondent 

to direct 1st United to deposit in the court registry the 

proceeds of the sale of Respondents' First Western shares 

to the extent of the civil money penalty assessed in the 

Notice, pending final resolution of this enforcement action. 

Also on April 28, 2004, the United States Bankruptcy 

Court for the Middle District of Florida ordered 1st United 

to transfer into the registry of the bankruptcy court all 

amounts due to any Respondent in excess of the civil 

money penalties already ordered to be deposited in the 

District Court in Georgia(footnote 7 See Case No. 99-13967-8B1, 

United States Bankruptcy Court, 

Middle District of Florida end footnote)Thus, pursuant to these orders, 

the Respondents have been divested of the proceeds of the 

sale of First Western shares they acquired in the course of 

the Greater Ministries scheme. 

IV. Legal Conclusions 

The Board has reviewed the record in this matter and finds 

that the ALJ properly granted Enforcement Counsel's 

Motion for Summary Disposition. The Board agrees that a 

prohibition order, civil monetary penalties and cease-anddesist order should be issued, as described in detail below. 

A. Respondents' Affidavit of Truth 

As noted earlier, Respondents filed a so-called ''Affidavit 

of Truth'' at the point at which exceptions to the ALJ's 

recommended decision were permitted by the Board's 

regulations. 12 CFR 263.39(a). The regulation provides 

that that exceptions must ''set forth page or paragraph 

references to the specific parts of the administrative law 

judge's recommendations to which exception is taken, the 

page or paragraph references to those portions of the 

record relied upon to support each exception, and the legal 

authority relied upon to support each exception.'' 12 CFR 

263.39(c)(2). Failure of a party to file exceptions to a 

finding, conclusion, or proposed order ''is deemed a waiver 

of objection.'' 12 CFR 263.39(b)(1). 

Respondents' ''Affidavit of Truth'' fails to conform to 

any of the requirements of a valid exception. It does not 

identify the portions of the ALJ's recommendation to 

which an exception was taken or cite the portions of the 

record or legal authority in support of its position. Accordingly, the Respondents are deemed to have waived their 

right to object to any portion of the Recommended 

Decision. 

Even if Respondents' filing could be considered a valid 

exception, the Board finds that it raises no meritorious 

claim. At best, it raises only three claims related to the 

present case. The document claims that the Board ''does 

not have jurisdiction of state member bank stockholder'' 

(Aff. Truth at 16). To the contrary, such individuals qualify 

as ''institution-affiliated parties'' under the statute if they 

are controlling shareholders or are required to file a change 

in control notice, and the Board is specifically granted 

jurisdiction over them. 12 U.S.C. §§1813(q), (u)(1) and 

(2). Second, the ''Affidavit of Truth'' asserts that because 
Federal Reserve Bulletin • Summer 2005 

Greater Ministries International was a dissolved corporation as of 1996, the present case should not have been 

brought against Respondents. (Aff. Truth at 18). Greater 

Ministries' corporate existence is irrelevant to the matter, 

as this action is against these individual Respondents for 

their role in acquiring control of First Western. Third, the 

Affidavit insists that an August 24, 1998, letter from the 

Federal Reserve Bank of Atlanta evidenced that Respondents complied with all of the CIBC Act requirements. 

(Aff. Truth at 19). This simply misstates the content of 

the letter, which in fact informed Respondents that they 

needed to provide additional information concerning, 

among other things, the source of funds for their purchases 

of shares. Accordingly, even if Respondents' ''Affidavit of 

Truth'' qualified as an exception, it would be entirely 

unpersuasive. 

B. Prohibition Order 

Pursuant to the FDI Act, IAPs may be prohibited from the 

banking industry if the appropriate federal banking 

agency—here, the Board—makes three separate findings: 

(1) that the IAP engaged in identified misconduct, including a violation of law or regulation, an unsafe or unsound 

practice, or a breach of fiduciary duty; (2) that the conduct 

had a specified effect, including financial loss to the institution or gain to the respondent; and (3) that the IAP's 

conduct involved culpability of a certain degree—either 

personal dishonesty or a willful or continuing disregard 

for the safety or soundness of the institution. 12 U.S.C. 

§ 1818(e)(1)(A)-(C). 

Respondent Carl Thomas is the only individual Respondent against whom an order of prohibition was sought. 

Based on the evidence in the administrative record, his 

actions satisfy the misconduct, effect, and culpability element required for an order of prohibition. As mentioned 

previously, Carl Thomas—either as part of his immediate 

family, part of the Purchasing Group, or both—became 

subject to and failed to meet the notification requirements 

of the CIBC Act and its implementing Regulation Y at 

various points between October 1997 and February 1998. 

He also violated 18 U.S.C. §1001 by falsely understating 

the amount of shares owned by both his immediate family 

and the group in submissions he made to Federal Reserve 

staff in December 1997, April 1998, and August 1998. 

Finally, he violated the Board's February 10, 1999, order 

by refusing to divest his First Western shares. Thus, the 

misconduct element is more than sufficiently established. 

Through his maintenance of the shares he was ordered 

to divest, Carl Thomas received financial gain and other 

benefits, satisfying the effect element. Finally, Carl 

Thomas's actions also exhibited personal dishonesty. As 

with all members of the Purchasing Group, Respondent 

Carl Thomas had a legal duty to provide Federal Reserve 

staff with the specific information required by the CIBC 

Act. See 12 U.S.C. § 1817(j)(6)(A)-(H). He not only failed 

to do so on numerous occasions, even after prompting and 

several requests by Federal Reserve staff, the facts here 

demonstrate that he purposefully and willfully represented 

information he knew to be false. The Board agrees with the 

ALJ's finding that such actions were evasive and deceptive, and evidenced personal dishonesty. In sum, all elements necessary for the issuance of a prohibition order 

against Respondent Carl Thomas are present in this case. 

C. Cease and Desist Order 

An IAP also may be subject to a cease-and-desist order if 

the Board finds that the IAP is engaging or has engaged in 

an unsafe or unsound practice, or is violating or has violated a law, rule, regulation or any condition imposed in 

writing by the appropriate banking agency in connection 

with the granting of an application or other request by the 

depository institution or any written agreement entered into 

with the agency. 12 U.S.C. § 1818(b)(1). Such an order may 

require the IAP to ''cease and desist'' from the practice or 

violation and ''to take affirmative action to correct the 

conditions resulting from any such violation or practice.'' 

Id. 

Here, Enforcement Counsel sought a cease-and-desist 

order against all Respondents based on their collaborative 

actions to acquire shares in First Western. The evidence in 

this matter confirms that none of the Respondents ever 

complied with the CIBC Act or its implementing regulation in acquiring their First Western shares. In lieu of 

providing the required information, Respondents insisted 

that the CIBC Act did not apply to them, concealed that the 

Greater Ministries organization funded their purchases of 

First Western shares, and permitted Carl Thomas to make 

false representations to Federal Reserve staff on behalf of 

the group. Following the leadership of Carl Thomas, they 

also failed to divest their shares when ordered to do so. 

Based on these violations, the Board finds that entry of a 

cease-and-desist order against each of the Respondents is 

appropriate in this case. However, the Board is not adopting all terms outlined in the proposed cease-and-desist 

order originally sought by Enforcement Counsel in its 

Motion for Summary Disposition and adopted by the ALJ 

in his Recommended Decision because the acquisition of 

First Western by 1st United in 2004 has rendered many of 

those terms inapplicable. As discussed above, the Respondents' shares have been acquired by 1st United, and the 

proceeds from these sales have been transferred to the 

United States District Court for the Northern District of 

Georgia and/or the United States Bankruptcy Court for the 

Middle District of Florida, as required by the orders issued 

by both of those courts. As such, the terms Board Enforcement Counsel initially sought for a cease-and-desist order 

relating to the transfer, sale, and voting of Respondents' 

First Western shares are no longer applicable(footnote 8 Also, 

on November 8, 2004, the United States Bankruptcy Court 

for the Middle District of Florida issued an order that pertained to 

three Respondents in this case who apparently refused to turn over 

their First Western stock certificates to the bankruptcy trustee. The 

order provided that any interest these three Respondents claimed in 

First Western stock or proceeds is void. Accordingly, even if these 

Respondents continue to maintain their First Western share certificates, the documents are of no value end footnote 

)For these 
Legal Developments 

reasons, the Board finds that the following terms for a 

cease-and-desist order are appropriate at this time: 

(1) Respondents shall not serve as an officer, director, 

agent or employee of the Bank or its successor institution 

without prior written approval of the Board of Governors; 

(2) Respondents shall not knowingly acquire any additional legal, beneficial, or other interests in the Bank or its 

successor institution; and 

(3) Respondents shall not directly or indirectly engage 

or participate in any violation of the CIBC Act. 

D. Civil Monetary Penalties 

As noted above, the Notice in this matter assessed a civil 

monetary penalty against each Respondent in an amount 

roughly reflecting the particular respondent's level of 

involvement in the illegal scheme(footnote 9 The amounts 

assessed ranged from $250,000 jointly and severally against Carl Thomas and his wife Eva and $100,000 against their 

son Stephen Thomas, to $10,000 against most other respondents end footnote) 

Although the Board is 

convinced that penalties could be assessed against each 

Respondent on the basis of this record, it has determined to 

withdraw its penalty assessment for the reasons set forth 

below(footnote 10 The Board has the legal authority to ''compromise, 

modify, 

or remit'' any penalty it has previously assessed. 12 U.S.C. 

§ 1818(i)(2)(F); 12 U.S.C. § 1817(j)(16)(E); see 12 CFR 263.63(a) 

end footnote) 

The Respondents' scheme to acquire First Western was 

undertaken as part of a broader fraudulent scheme by 

Greater Ministries. As the ALJ found, Greater Ministries 

had attempted to acquire a financial institution to assist 

with the influx of cash from the Gifting Program from 

early 1996 on. The Purchasing Group was motivated to 

take part in the acquisition scheme by their religious conviction and their desire to promote Greater Ministries' 

mission. Moreover, virtually all of the funds used by Purchasing Group members to acquire First Western shares 

were provided by Greater Ministries, and were presumably 

derived from the victims of the Gifting Program. 

Greater Ministries is now in bankruptcy proceedings, 

and the court-appointed trustee has been working to marshal assets of the estate to pay the claims of those victims. 

He has obtained the cooperation of several state agencies 

that have pursued their own civil or criminal claims against 

Greater Ministries and have agreed to subordinate their 

claims to those of the estate for the benefit of the victims. 

In addition, he has obtained a Final Judgment against all 

of the Respondents declaring, among other things, that all 

First Western stock and proceeds of such stock owned by 

those individuals are ''property of the estate'' of Greater 

Ministries(footnote 11 See Final Default Judgment dated September 17, 

2004; Final 

Default Judgment dated November 4, 2004; Final Summary Judgment 

dated April 8, 2005, in O'Halloran v. 1st United Bank, et al., Adv. Pro. 

No. 04-223 (Bkr. M.D. Fl.) end footnote)Under the bankruptcy court's 

orders, all First 

Western stock or proceeds held in the registry of the 

Atlanta court is ''available for distribution by the trustee in 

accordance with the terms of the confirmed plan of liquidation or order of this Court,'' subject only to the claims of 

the Board. 

The Trustee has requested that the Board withdraw its 

civil monetary penalty against the Respondents in order to 

permit the entire proceeds of the sale of their First Western 

shares to be distributed to the victims of Greater Ministries' fraud. The Board has determined that the public 

interest favors this outcome. The trustee has assured the 

Board that none of the Respondents will receive any payment from the bankruptcy estate. It is the Board's intention 

that the proceeds currently held in the registry of the 

United States District Court for the Northern District of 

Georgia be transferred to the registry of the United States 

Bankruptcy Court for the Middle District of Florida in 

accordance with that court's orders, and Board Enforcement Counsel is directed to take any appropriate measures 

to ensure that result. 

Conclusion 

For these reasons, the Board orders the issuance of the 

attached Order of Prohibition against Respondent Carl 

Thomas, as well as the Cease and Desist Order against all 

Respondents. 

By Order of the Board of Governors, this 7th day of 

June 2005. 

Board of Governors of the 

Federal Reserve System 

JENNIFER J. JOHNSON 

Secretary of the Board 

order to Cease and Desist 

It is hereby ordered, pursuant to 12 U.S.C. § 1818(b), that 

Carl Thomas, Stephen Thomas, Eva Thomas, Mary Beth 

Thomas, Marguerite Thomas, Charles Tomlinson, Herbert 

Phillips, Lloyd Phillips, R.L. Phillips, Stanley Phillips, 

Rhonda Phillips, Scott Ward, Angela Ward, Forrest Buckley, James Crowe, Johnny V. Jones, Harper Guinn, and Jeff 

Guinn (collectively ''Respondents''): 

(1) shall not serve as an officer, director, agent, or 

employee of First Western Bank, Cooper City, Florida 

(''the Bank'') or its successor institution without prior 

written approval of the Board of Governors; 

(2) shall not knowingly acquire any additional legal, 

beneficial, or other interests in the Bank or its successor 

institution; and 

(3) shall not directly or indirectly engage or participate 

in any violation of the Change in Bank Control Act. 

Any violation of this order shall separately subject the 

Respondents to appropriate civil or criminal penalties or 

both under 12 U.S.C. § 1818(i). 
Federal Reserve Bulletin • Summer 2005 

The provisions of this order shall not bar, estop, or 

otherwise prevent the Board of Governors, or any other 

federal or state agency or department from taking any other 

action affecting each of the Respondents named above. 

By Order of the Board of Governors, this 7th day of 

June 2005. 

Board of Governors of the 

Federal Reserve System 

JENNIFER J. JOHNSON 

Secretary of the Board 

Order of Prohibition of Carl V. Thomas 

WHEREAS, pursuant to section 8(e) of the Federal Deposit 

Insurance Act, as amended, (the ''FDI Act'') (12 U.S.C. 

§ 1818(e)), the Board of Governors of the Federal Reserve 

System (''the Board'') is of the opinion, for the reasons 

set forth in the accompanying Final Decision, that a 

final Order of Prohibition should issue against CARL V. 

THOMAS, an institution-affiliated party, as defined in section 3(u) of the FDI Act (12 U.S.C §1813(u)), of First 

Western Bank, Cooper City, Florida. 

NOW, THEREFORE, IT IS HEREBY ORDERED, pursuant to section 8(e) of the FDI Act, 12 U.S.C. § 1818(e), 

that: 

1. In the absence of prior written approval by the Board, 

and by any other federal financial institution regulatory 

agency where necessary pursuant to section 8(e)(7)(B) 

of the Act (12 U.S.C. § 1818(e)(7)(B)), Thomas is hereby 

prohibited: 

(a) from participating in any manner in the conduct 

of the affairs of any institution or agency specified 

in section 8(e)(7)(A) of the FDI Act (12 U.S.C. 

§ 1818(e)(7)(A)), including, but not limited to, any insured 

depository institution, any insured depository institution 

holding company or any U.S. branch or agency of a foreign 

banking organization; 

(b) from soliciting, procuring, transferring, attempting to transfer, voting or attempting to vote any proxy, 

consent or authorization with respect to any voting rights 

in any institution described in subsection 8(e)(7)(A) of the 

FDI Act (12 U.S.C. § 1818(e)(7)(A)); 

(c) from violating any voting agreement previously 

approved by any Federal banking agency; or 

(d) from voting for a director, or from serving or 

acting as an institution-affiliated party as defined in section 3(u) of the FDI Act (12 U.S.C. §1813(u)), such 

as an officer, director, or employee in any institution 

described in section 8(e)(7)(A) of the FDI Act (12 U.S.C. 

§ 1818(e)(7)(A)). 

2. Any violation of this order shall separately subject 

Thomas to appropriate civil or criminal penalties or both 

under section 8 of the FDI Act (12 U.S.C. § 1818). 

3. This order, and each and every provision hereof, 

is and shall remain fully effective and enforceable until 

expressly stayed, modified, terminated, or suspended in 

writing by the Board. 

This order shall become effective at the expiration of 

thirty days after service is made. 

By Order of the Board of Governors, this 7th day of 

June 2005. 

Board of Governors of the 

Federal Reserve System 

JENNIFER J. JOHNSON 

Secretary of the Board 

In the Matter of a Notice to Prohibit Further Participation Against 

Donald K. McKinney, 

Former Vice President, 

American National Bank, 

Wichita Falls, Texas 

Docket No. OCC-AA-EC-04-70 

Final Decision 

This is an administrative proceeding pursuant to the Federal Deposit Insurance Act (''the FDI Act'') in which the 

Office of the Comptroller of the Currency of the United 

States of America (''OCC'') seeks to prohibit the Respondent, Donald K. McKinney (''Respondent''), from further 

participation in the affairs of any financial institution based 

on actions he took both to obtain employment and while 

employed at American National Bank, Wichita Falls, Texas 

(the ''Bank''). Under the FDI Act, the OCC may initiate 

a prohibition proceeding against a former employee of a 

national bank, but the Board must make the final determination whether to issue an order of prohibition. 

Upon review of the administrative record, the Board 

issues this Final Decision adopting the Recommended 

Decision of Administrative Law Judge Arthur L. Shipe 

(the ''ALJ''), and orders the issuance of the attached Order 

of Prohibition. 

I. Statement of the Case 

A. Statutory and Regulatory Framework 

Under the FDI Act and the Board's regulations, the ALJ 

is responsible for conducting proceedings on a notice of 

charges. 12 U.S.C. § 1818(e)(4). The ALJ issues a recommended decision that is referred to the deciding agency 

together with any exceptions to those recommendations 

filed by the parties. The Board makes the final findings 

of fact, conclusions of law, and determination whether to 
Legal Developments 

issue an order of prohibition in the case of prohibition 

orders sought by the OCC. Id.; 12 CFR 263.40. 

The FDI Act sets forth the substantive basis upon which 

a federal banking agency may issue against a bank official 

or employee an order of prohibition from further participation in banking. To issue such an order, the Board 

must make each of three findings: (1) that the respondent 

engaged in identified misconduct, including a violation 

of law or regulation, an unsafe or unsound practice, or a 

breach of fiduciary duty; (2) that the conduct had a specified effect, including financial loss to the institution or gain 

to the respondent; and (3) that the respondent's conduct 

involved either personal dishonesty or a willful or continuing disregard for the safety or soundness of the institution. 

12 U.S.C. § 1818(e)(1)(A)-(C). 

An enforcement proceeding is initiated by filing and 

serving on the respondent a notice of intent to prohibit. 

Under the OCC's and the Board's regulations, the respondent must file an answer within twenty days of service of 

the notice. 12 CFR 19.19(a) and 263.19(a). Failure to file 

an answer constitutes a waiver of the respondent's right to 

contest the allegations in the notice, and a final order may 

be entered unless good cause is shown for failure to file a 

timely answer. 12 CFR 19.19(c)(1) and 263.19(c)(1). 

B. Procedural History 

On September 27, 2004, the OCC served upon Respondent 

a Notice of Intention to Prohibit Further Participation 

and Notice of Assessment of a Civil Monetary Penalty 

(''Notice'') that sought, inter alia, an order of prohibition 

against Respondent based on his conduct in obtaining 

employment and while employed at the Bank. The Notice 

alleged that Respondent obtained his employment at the 

Bank through deceitful misrepresentations. Specifically, 

the Notice charged that Respondent submitted an application and resume in which he lied about his prior criminal 

record and represented that he had been employed by two 

companies during a period of time when he was serving a 

jail sentence. 

The Notice further asserted that after obtaining employment at the Bank, Respondent engaged in various other 

acts of misconduct. He falsified Bank records to make it 

appear that he was fulfilling an agreement to pay for the 

lease of two cars that the Bank purchased for his use. He 

sold a motorcycle the Bank had leased for his use but did 

not forward the sale proceeds to the Bank, notwithstanding 

that a balance was owed on the motorcycle. On multiple 

occasions, Respondent deposited into his own personal 

account checks made payable to the Bank, individuals 

other than himself, and two nonprofit organizations. He 

also withdrew for his own use funds from the Bank and 

from these two nonprofit organizations. Finally, Respondent abused the signatory power he had over the account of 

one of these nonprofit organizations by forging a required 

second signature for some of the withdrawals he made 

from that account. 

The Bank's total loss from Respondent's misconduct 

amounted to $129,046.45. The Respondent's mother made 

full restitution to the Bank, and accordingly, the Notice 

only sought an imposition of an order of prohibition and 

assessment of civil monetary penalties. 

The Notice directed Respondent to file an answer within 

twenty days and warned that failure to do so would constitute a waiver of his right to appear and contest the allegations. The record shows that the Respondent received 

service of the Notice. Nonetheless, Respondent failed to 

file an answer within the twenty-day period. 

On or about November 16, 2004, Enforcement Counsel 

filed a Motion for Entry of an Order of Default. The 

motion was served on Respondent in accordance with the 

OCC's rules, but he did not respond to it. Finally, on or 

about December 3, 2004, the ALJ issued an Order to Show 

Cause, which was mailed to the address at which Respondent had received the Notice. The Order for Show Cause 

was signed for on December 6, 2004, by Respondent's 

mother. The order provided Respondent 20 days from the 

receipt of the order to appear and show cause why the ALJ 

should not grant Enforcement Counsel's default motion. 

Respondent ignored the Order to Show Cause and has 

never filed an answer to the Notice. 

II. Discussion 

The OCC's Rules of Practice and Procedure set forth 

the requirements of an answer and the consequences of 

a failure to file an answer to a Notice. Under the Rules, 

failure to file a timely answer ''constitutes a waiver of 

[a respondent's] right to appear and contest the allegations 

in the notice.'' 12 CFR 19.19(c). If the ALJ finds that 

no good cause has been shown for the failure to file, the 

judge ''shall file .. . a recommended decision containing 

the findings and the relief sought in the notice.'' Id. An 

order based on a failure to file a timely answer is deemed to 

be issued by consent. Id. 

In this case, Respondent failed to file an answer despite 

notice to him of the consequences of such failure, and also 

failed to respond to the ALJ's Order to Show Cause. 

Respondent's failure to file an answer constitutes a default. 

Respondent's default requires the Board to consider the 

allegations in the Notice as uncontested. The allegations in 

the Notice, described above, meet all the criteria for entry 

of an order of prohibition under 12 U.S.C. § 1818(e). It was 

a breach of fiduciary duty for Respondent to accept 

employment by the Bank and continue working for the 

Bank after lying in his job application and resume and 

failing to disclose his prior criminal history. Further, it was 

a violation of law, breach of fiduciary duty, and an unsafe 

or unsound practice for Respondent to falsify bank records, 

forge a signature and steal funds from the bank at which he 

is employed. Respondent's actions caused gain to himself, 

as well as loss to the bank. Finally, such actions also 

exhibit personal dishonesty. Accordingly, the requirements 

for an order of prohibition have been met and the Board 

hereby issues such an order. 
Federal Reserve Bulletin • Summer 2005 

Conclusion 

For these reasons, the Board orders the issuance of the 

attached Order of Prohibition. 

By Order of the Board of Governors, this 13th day of 

May 2005. 

Board of Governors of the 

Federal Reserve System 

JENNIFER J. JOHNSON 

Secretary of the Board 

Order of Prohibition 

WHEREAS, pursuant to section 8(e) of the Federal Deposit 

Insurance Act, as amended, (the ''FDI Act'') (12 U.S.C. 

§ 1818(e)), the Board of Governors of the Federal Reserve 

System (''the Board'') is of the opinion, for the reasons 

set forth in the accompanying Final Decision, that a final 

Order of Prohibition should issue against DONALD K. 

McKINNEY (''McKINNEY''), a former employee and 

institution-affiliated party, as defined in Section 3(u) of the 

FDI Act (12 U.S.C. § 1813(u)), of American National Bank, 

Wichita Falls, Texas. 

NOW, THEREFORE, IT IS HEREBY ORDERED, pursuant to section 8(e) of the FDI Act, 12 U.S.C. § 1818(e), 

that: 

1. In the absence of prior written approval by the Board, 

and by any other federal financial institution regulatory 

agency where necessary pursuant to section 8(e)(7)(B) of 

the Act (12 U.S.C. § 1818(e)(7)(B)), McKinney is hereby 

prohibited: 

(a) from participating in any manner in the conduct 

of the affairs of any institution or agency specified 

in section 8(e)(7)(A) of the FDI Act (12 U.S.C. 

§ 1818(e)(7)(A)), including, but not limited to, any insured 

depository institution, any insured depository institution holding company, or any U.S. branch or agency of a 

foreign banking organization; 

(b) from soliciting, procuring, transferring, attempting to transfer, voting or attempting to vote any proxy, 

consent, or authorization with respect to any voting rights 

in any institution described in subsection 8(e)(7)(A) of the 

FDI Act (12 U.S.C. § 1818(e)(7)(A)); 

(c) from violating any voting agreement previously 

approved by any Federal banking agency; or 

(d) from voting for a director, or from serving or 

acting as an institution-affiliated party as defined in 

section 3(u) of the FDI Act (12 U.S.C. §1813(u)), such 

as an officer, director, or employee in any institution 

described in section 8(e)(7)(A) of the FDI Act (12 U.S.C. 

§ 1818(e)(7)(A)). 

2. Any violation of this order shall separately subject 

McKinney to appropriate civil or criminal penalties or both 

under section 8 of the FDI Act (12 U.S.C. § 1818). 

3. This order, and each and every provision hereof, is 

and shall remain fully effective and enforceable until 

expressly stayed, modified, terminated, or suspended in 

writing by the Board. 

This order shall become effective at the expiration of 

thirty days after service is made. 

By Order of the Board of Governors, this 13th day of 

May 2005. 

Board of Governors of the 

Federal Reserve System 

JENNIFER J. JOHNSON 

Secretary of the Board