Legal Developments: Third Quarter, 2006 

ORDERS ISSUED UNDER BAN K 

HOLDIN G COMPAN Y ACT 

ORDERS ISSUED UNDER SECTION 3 OF 

THE BANK HOLDING COMPANY ACT 

Federation Nationale du Credit Agricole 

Paris, France 

SAS Rue La Boetie 

Paris, France 

Order Approving the Formation of Ban k 

Holding Companie s and Acquisition of a 

Bank 

Federation Nationale du Credit Agricole ("FNCA") and 

SAS Rue La Boetie ("Boetie") (together "Applicants") 

have requested the Board's approval under section 3 of the 

Bank Holding Company Act ("BHC Act'')(footnote 1 12 U.S.C 

.§1842 end footnote)to become 

bank holding companies and thereby retain control indirectly of Espirito Santo Bank ("ES Bank''), Miami, 

Florida, through their subsidiary, Credit Agricole S.A. 

("Credit Agricole''), Paris, France, a foreign bank that is a 

bank holding company within the meaning of the BHC 

Act(footnote 2 Credit Agricole controls indirectly more than 

25 percent of the 

voting shares of Banco Espirito Santo, S.A., Lisbon, Portugal end footnote) 

Applicants filed to become bank holding companies in 

compliance with commitments made by Boetie in connection with a temporary exemption from certain filing requirements of the BHC Act granted under section 4(c)(9) of the 

BHC Act in 2003(footnote 3 12 U.S.C. § 1843(c)(9). Section 

4(c)(9) of the BHC Act provides 

that the Board may grant to foreign companies exemptions from the 

provisions of section 4 of the act, provided such exemptions are not 

substantially at variance with the purposes of the BHC Act and are in 

the public interest end footnote)The Board granted that exemption in 

conjunction with Credit Agricole's proposed acquisition of 

Credit Lyonnais ("Credit Lyonnais''), another French bank 

also in Paris, to allow Boetie and Credit Agricole to acquire 

Credit Lyonnais's U.S. non-banking subsidiaries subject to 

the condition that Boetie seek approval from the Board 

under section 3 of the BHC Act to become a bank holding 

company. FNCA, an unincorporated association that became Boetie's parent, later joined Boetie's application. 

Approximately 40 regional cooperative banks ("Regional Banks'') directly owned more than 90 percent of the 

shares of Credit Agricole before the formation of Boetie 

and the subsequent acquisition of Credit Lyonnais. Boetie 

was formed in connection with Credit Agricole's public 

offering of shares undertaken, in part, to facilitate its 

acquisitions(footnot 4 Credit Agricole was formerly known as 

Caisse Nationale de 

Credit Agricole end footnote)In connection with the share issuance by 

Credit Agricole, the Regional Banks sought to consolidate 

their ownership interest in Credit Agricole and transferred 

their shares to Boetie(footnote 5 Credit Agricole supports, 

coordinates, and supervises the operations of the Regional Banks and approximately 2600 local cooperative 

banks, which operate a retail branch network in France. FNCA, 

Boetie, Credit Agricole, and the regional and local cooperative banks 

together comprise the Credit Agricole end footnote) Group. Boetie and FNCA 

engage in no activities in the United States except through Credit 

AgricoleBoetie, which currently holds 

approximately 55 percent of Credit Agricole's voting 

shares, votes the shares of Credit Agricole in order to 

maintain the Regional Banks' control of Credit Agricole. 

FNCA acts as a consultative and representative body for the 

Regional Banks. 

FNCA, Boetie, Credit Agricole, and Calyon, S.A. ("Calyon'')(footnote 6 Calyon is the successor to 

Credit Agricole Indosuez, S.A., Paris, 

France end footnote)Paris, a wholly owned French bank subsidiary of 

Credit Agricole (jointly, "FHC electors''), have also filed 

elections to become and be treated as financial holding 

companies pursuant to section 4(k) and (l) of the BHC Act 

and section 225.82 and 225.91 of the Board's Regulation Y(footnote 7 See 12 U.S.C. §§1843(k) and (l); 

12 CFR 225.82 and 225.91. 

FHC electors have provided all the information required under Regulation Y. Based on all the facts ofrecord, the Board has determined that 

these elections to become and be treated as financial holding companies are effective as of the date of this order. ES Bank and applicable 

foreign banks are well capitalized and well managed in accordance 

with the applicable provisions of Regulation Y. See 12 CFR 225.90 

and 225.2 end footnote) 

Notice of the proposal, affording interested persons an 

opportunity to submit comments, has been published in the 

Federal Register (68 Federal Register 34,608). 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. 
C168 Federal Reserve Bulletin • 2006 

Credit Agricole, with total consolidated assets of approximately $913 billion, is the largest bank in France(footnote 8 

French asset and ranking data are as of December 31, 2004, and 

these data are based on the exchange rate then in effect. Domestic 

assets are as of June 30, 2006, and deposit data and rankings are as of 

June 30, 2005 end footnote)Credit 

Agricole conducts banking and non banking operations in 

the United States indirectly through Calyon and Credit 

Lyonnais, a wholly owned subsidiary of Credit Agricole. 

Calyon operates branches in New York, Chicago, and Los 

Angeles and representative offices in Houston and Dallas. 

Credit Lyonnais operates a representative office in New York 

and an agency in Miami. ES Bank, the U.S. subsidiary bank 

of Banco Espirito Santo, S.A., is an indirect subsidiary of 

Credit Agricole(footnote 9 Credit Agricole also is deemed to 

control indirectly Banca Intesa 

S.p.A., Milan, Italy, which operates a branch in New York end footnote) 

Banco Espirito Santo, S.A. also operates 

a branch in New York. Calyon engages through subsidiaries 

in the United States in a broad range of permissible 

non-banking activities, including securities and futures trading, leasing, financing, brokerage, and financial consulting 

activities(footnote 10 Calyon Securities, Inc., New York, New York, 

a U.S. subsidiary 

of Calyon, engages in certain securities underwriting and dealing 

activities that are permissible for a bank holding company that has 

financial-holding-company status. Boetie and Credit Agricole have 

engaged in these activities indirectly under the temporary authority of 

section 4(c)(9) of the BHC Act described above end footnote) 

ES Bank has total assets of approximately $409 million 

and has one office in Miami. ES Bank is the 87th largest 

insured depository organization in Florida, controlling 

deposits of approximately $301 million, which represent 

less than 1 percent of the total amount of deposits of 

insured depository institutions in the state(footnote 11 

In this context, depository institutions include commercial 

banks, savings banks, and savings associations 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 carefully considered these factors in light of all the 

facts of record, including confidential supervisory and 

examination information from the various U.S. banking 

supervisors of the institutions involved, publicly reported 

and other financial information, and information provided 

by Applicants and public comment on the proposal. The 

Board also has consulted with the Commission Bancaire, 

which has primary responsibility for the supervision and 

regulation of French banks, including Credit Agricole. 

In evaluating the financial factors in proposals involving 

new bank holding companies, the Board reviews the financial condition of the applicants and the target depository 

institutions. 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. 

The Board has carefully considered the financial factors 

of this proposal. France's risk-based capital standards are 

consistent with those established by the Basel Capital 

Accord ('' Accord''). The capital ratios of Credit Agricole 

and Applicants' foreign subsidiary banks with U.S. banking 

operations would continue to exceed the minimum levels 

that would be required under the Accord and are considered 

equivalent to the capital levels that would be required of a 

U.S. banking organization. In this regard, Applicants' 

subsidiary banks with U.S. banking operations are well 

capitalized. The Board also has considered the financial 

resources of Applicants and other organizations involved in 

the proposal. Based on its review of these factors, the 

Board finds that the financial factors of the proposal are 

consistent with approval. 

The Board also has considered the managerial resources 

of the organizations involved and the combined organization(footnote 12 A commenter asserted that Boetie violated the BHC Act by 

acquiring the voting shares of Credit Agricole before submitting the 

proposal to the Board for approval. In addition, the commenter 

complained that Boetie and Credit Agricole violated the BHC Act 

through the acquisition of all the shares of Credit Lyonnais in 2003 

without the Board's prior approval for the acquisition of Credit 

Lyonnais's non-banking operations. The commenter asserted that the 

Board lacked authority to waive the BHC Act's application filing 

requirements with respect to such transactions and inappropriately 

shielded such transactions from comment. As noted above, Boetie and 

Credit Agricole have operated the U.S. subsidiaries under the temporary authority granted by the Board under section 4(c)(9) of the BHC 

Act, which does not provide for public notice end footnote) 

The Board has reviewed the examination records of 

ES Bank and the U.S. banking operations of the organizations involved in the proposal, 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 supervisory agencies with ES Bank and the U.S. banking 

operations of organizations involved in the proposal and 

their records of compliance with applicable banking law, 

including compliance with anti-money-laundering laws 

(footnote 13 A commenter cited various news and congressional reports from 

2003 through 2005 regarding allegations that ES Bank concealed 

assets and money laundering in connection with accounts held for the 

benefit of certain international individuals, including former Chilean 

President Augusto Pinochet. According to those reports, ES Bank's 

relationship with the Pinochet family ended in January 2000. As noted 

above, the Board has considered the assessments of the Federal 

Deposit Insurance Corporation (''FDIC''), ES Bank's primary federal 

supervisor, of the bank's compliance with anti-money-laundering laws 

in confidential reports of examination end footnote) 

Furthermore, the Board has consulted with the Commission 

Bancaire about Applicants and about the managerial resources of Credit Agricole, including its compliance with 

applicable laws and regulations(footnote 14 Three commenter's 

expressed concern about Credit Agricole's 

managerial record in light of past enforcement matters, including an 

enforcement action concerning alleged false representations by Credit 

Lyonnais in connection with its investment in Executive Life, a failed 

California insurer. The Board notes that there is no evidence or 

allegation that Credit Agricole was involved in any manner in the 

matters that resulted in the issuance of the enforcement action against 

Credit Lyonnais. Moreover, this conduct occurred before Credit 

Lyonnais became a subsidiary of Credit Agricole in 2003. In January 

2004, Credit Agricole and Credit Lyonnais agreed to a consent order that called and Commission were comply Civil and Credit Board. Inthe Association subsidiary mented compliance which the applicable addition, TokyoCmmission provided thewas met.Money forCredit Agricole, Board;a with jointly Global the The lawsStock in witha against theBancaire Penalty, JapanAgricole for organization commenter Board Order andissued Creditconsent Bancaire closeEnhanced Exchange regulatory in Creditregulations hasIssued December 2003. tocooperation byoperates. Lyonnais, order. ensure considered cited the about toAgricole Compliance and requirements Credit upon enhance Board news Seeend the thatAsCredit 18, theConsent, between Agricole Japanese Orderfootnote) noted, Indosuez's and 2003,the reports Credit Commission itsCredi Agricole's Program termshe global in to the between January theAgricole's various Commission about subsequently CeaseScurities t Agricol Board of securities Board cmpliance thedesigned compliance fines Bancaire, and Credit 8,jurisdictions consent consulted and 2004,actions e Dealers Desist animposed brokerage Bancaire theimple- Lyonnais tod programs among orderand ensure withto and with byn the that 
Legal Developments: Third Quarter, 2006 C199 

Applicants' subsidiary banks with U.S. banking operations 

are considered to be well managed(footnote 15 See 12 CFR 225.90(c) 

end footnote)Based on all the facts 

of record, the Board has concluded that considerations 

relating to the managerial resources(footnote 16 

A commenter alleged Credit Agricole and Credit Lyonnais are 

signatories to international human rights and environmental agreements and that the organizations have exhibited a lack of environmental and human rights standards. The Board notes that such matters are 

not within the limited statutory factors the Board may consider when 

reviewing an application under the BHC Act. See Western Bancshares, 

Inc. v. Board of Governors, 480 F.2d 749 (10th Cir. 1973) end footnote) 

and future prospects 

of the organizations involved in the proposal are consistent 

with approval. 

Section 3 of the BHC Act also provides that the Board 

may not approve an application involving a foreign bank 

unless the bank is subject to comprehensive supervision or 

regulation on a consolidated basis by the appropriate 

authorities in the bank's home country(footnote 17 

See 12 U.S.C. § 1842(c)(3)(B). As provided in Regulation Y, the 

Board determines whether a foreign bank is subject to consolidated 

home country supervision under the standards set forth in Regulation K. See 12 CFR 225.13(a)(4). Regulation K provides that a foreign 

bank will be considered subject to comprehensive supervision or 

regulation on a consolidated basis if the Board determines that the 

bank is supervised or regulated in such a manner that its home country 

supervisor receives sufficient information on the worldwide operations 

of the bank, including its relationship with any affiliates, to assess the 

bank's overall financial condition and its compliance with laws and 

regulations. See 12 CFR 211.24(c)(1) end footnote)As noted, the 

Commission Bancaire is the primary supervisor of French 

banks, including Credit Agricole. The Board has previously 

determined in orders approving applications(footnote 18 

See Caisse Nationale de Credit Agricole, 86 Federal Reserve 

Bulletin 412 (2000); Credit Agricole Indosuez, 83 Federal Reserve 

Bulletin 1025 (1997); Caisse Nationale de Credit Agricole, 81 Federal 

Reserve Bulletin 1055 (1995) end footnote)filed under 

the International Banking Act and the BHC Act involving 

Credit Agricole, that Credit Agricole is subject to comprehensive supervision on a consolidated basis by its home 

country supervisor(footnote 19 

The Board has previously determined that Banco Espirito Santo, 

S.A. and Banca Intesa S.p.A. are subject to comprehensive supervision 

on a consolidated basis. See E.S. Control Holding S.A. et al., 86 Federal Reserve Bulletin 418 (2000); Banca Intesa S.p.A., 86 Federal 

Reserve Bulletin 433 (2000). Calyon has also been determined to be 

subject to comprehensive supervision on a consolidated basis. See 

Calyon, S.A., 92 Federal Reserve Bulletin C197 (2006). Credit 

Lyonnais has not previously been determined to be subject to comprehensive supervision on a consolidated basis. Credit Lyonnais is 

supervised by the Commission Bancaire on substantially the same 

terms and conditions as Credit Agricole, Calyon, and other French 

banks previously reviewed by the Board. See, e.g., BNP Paribas, 

91 Federal Reserve Bulletin 51 (2005); Societe Generale, 87 Federal 

Reserve Bulletin 353 (2001). Therefore, the Board has concluded that 

Credit Lyonnais is subject to comprehensive supervision on a consolidated basis by its home country supervisor end footnote)Based on all the 

facts of record, the 

Board has concluded that Credit Agricole continues to be 

subject to comprehensive supervision on a consolidated 

basis by its home country supervisor(footnote 20 Boetie and 

FNCA are considered to be part of the Credit 

Agricole Group. Therefore, the Commission Bancaire has access to 

the financial statements of Boetie and FNCA and may monitor 

relationships between those entities and Credit Agricole. end footnote) 

In addition, section 3 of the BHC Act requires the Board 

to determine that an applicant has provided adequate 

assurances that it will make available to the Board such 

information on its operations and activities and those of its 

affiliates that the Board deems appropriate to determine and 

enforce compliance with the BHC Act(footnote 21 

See 12 U.S.C. § 1842(c)(3)(a) end footnote)The Board has 

reviewed the restrictions on disclosure in the relevant 

jurisdictions in which Applicants operate and have communicated with relevant government authorities concerning 

access to information. 

In addition, Applicants have committed that, to the 

extent not prohibited by applicable law, each will make 

available to the Board such information on the operations 

of its affiliates that the Board deems necessary to determine 

and enforce compliance with the BHC Act and other 

applicable federal law. Applicants also have committed to 

cooperate with the Board to obtain any waivers or exemptions that may be necessary to enable their affiliates to 

make any such information available to the Board. In light 

of these commitments, the Board has concluded that Applicants have provided adequate assurances of access to any 

appropriate information the Board may request. For these 

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

concluded that the supervisory factors it is required to 

consider under section 3(c)(3) of the BHC Act are consistent with approval. 

COMPETITIVE 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 an attempt to monopolize the 

business of banking in any relevant banking market. In 

addition, section 3 of the BHC Act prohibits the Board 

from approving a proposed bank acquisition that would 
C168 Federal Reserve Bulletin • 2006 

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 22 12 U.S.C. § 1842(c)(1) end footnote) 

The applications result from a reorganization of shareholder interests in Credit Agricole, which 

had no effect, adverse or otherwise, on competition in the 

marketplace. Based on all the facts of record, the Board 

concludes that the proposal would not have a significantly 

adverse effect on competition or on the concentration of 

banking resources in any relevant banking market and that 

competitive considerations are consistent with approval. 

CONVENIENCE AND NEEDS CONSIDERATIONS 

In acting on a proposal under section 3 of the BHC Act, the 

Board also must consider the effects of a proposal 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 23 12 U.S.C. §2901 et seq end footnote) 

The CRA requires the federal financial 

supervisory agencies to encourage insured depository 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 a relevant 

depository institution' s record of meeting the credit needs 

of its entire community, including low- and moderateincome (''LMI'') neighborhoods, in evaluating bank expansionary proposals(footnote 24 12 U.S.C. §2903 end footnote) 

The Board has considered carefully all the facts of 

record, including reports of examination of the CRA performance records of ES Bank, data reported by ES Bank under 

the Home Mortgage Disclosure Act (''HMDA''), 

(footnote 25 12 U.S.C. §2801 et seq end footnote)other 

information provided by Applicants, confidential supervisory information, and public comment received on the 

proposal. A commenter criticized ES Bank' s responsiveness to the credit needs of LMI borrowers and communities. The commenter also expressed concern, based on 2001 

and 2002 HMDA data, about the lack of home mortgage 

applications by African Americans to ES Bank. 

A. CRA Performance Evaluation 

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 26 See Interagency Questions and Answers 

Regarding Community 

Reinvestment, 66 Federal Register 36,620 and 36,640 (2001) end footnote) 

ES Bank received a ''satisfactory'' rating at its most 

recent CRA performance evaluation from the FDIC, as of 

September 26, 2003 ("2003 Evaluation'')(footnote 27 

A commenter criticized ES Bank's record of small business 

lending and home mortgage lending to LMI borrowers and in LMI 

communities. Examiners evaluate the record of community development of ES Bank and other wholesale banks through review of 

community development loans, qualified investments, or community 

development services. See 12 CFR 345.25(a) end footnote)Applicants 

have no plans to alter the CRA program of ES Bank. 

ES Bank, the only subsidiary of Applicants that is 

subject to the CRA, is a wholesale bank for CRA evaluation purposes. Examiners noted in the 2003 Evaluation that 

as a wholesale bank, ES Bank does not have the business 

infrastructure to directly serve the credit and banking 

service needs of typical retail customers, including LMI 

individuals and small businesses, and that the bank must 

satisfy its CRA obligations through community development activities. 

In the 2003 Evaluation, examiners characterized ES 

Bank' s community development lending as satisfactory 

overall. Examiners stated that during the evaluation period,(footnote 28 The evaluation period was August 29, 2000, 

through September 26, 2003 end footnot)ES Bank exhibited a good record of 

community 

development lending and had been responsive in meeting 

the needs of its assessment area, including financing 

projects for affordable housing, revitalization, and social 

services to low-income people. During the evaluation 

period, ES Bank originated seven community development 

loans totaling $5.1 million. Examiners described bank 

officers as proactive in identifying qualifying loans in a 

highly competitive environment for community development loans and noted that the officers had taken a leadership role in some loans. Examiners noted that ES Bank 

demonstrated flexibility during the evaluation period by 

helping to initiate a loan consortium to finance low-income 

housing acquisitions and construction in its assessment 

area. 

ES Bank has represented that it continues to respond to 

the needs of its assessment area through community development lending activities since the 2003 Evaluation. From 

January 2004 through May 2006, ES Bank originated more 

than $10.1 million in community development loans in its 

assessment area. As an example, ES Bank represented that 

the bank approved a $4.5 million loan in 2006 to finance an 

apartment building in an LMI census tract, which will be 

converted into condominiums and sold at substantially 

lower prices than new construction units. 

Examiners characterized ES Bank's performance under 

the investment test in its assessment area as satisfactory. 

During the evaluation period, ES Bank made qualified 

investments and donations totaling more than $2.6 million. Examiners noted that ES Bank' s investment and 

donation activities demonstrated a good effort by the bank 

to serve the needs of its assessment area, particularly in 
Legal Developments: Third Quarter, 2006 C199 

light of very strong competition for qualified investments 

in the assessment area. ES Bank represented that it has 

made more than $1 million in qualified investments since 

the 2003 Evaluation. 

In the 2003 Evaluation, examiners noted that ES Bank 

had provided community development services that were 

generally responsive in supporting community development needs. During the evaluation period, bank officers 

provided financial services education to a local school and 

technical assistance to nine nonprofit organizations. ES 

Bank has continued to provide community development 

services in its assessment area since the 2003 Evaluation. 

B. HMDA Data and Fair Lending Record 

The Board has carefully considered the lending records and 

HMDA data of ES Bank in light of the public comments 

received on the proposal. A commenter expressed concern, 

based on 2001 and 2002 HMDA data, that ES Bank lacked 

home mortgage applications by African-American borrowers. The Board has reviewed the HMDA data from 2001 

through 2005 that were reported by ES Bank in the Miami, 

Florida Metropolitan Statistical Area, which comprises the 

bank's assessment area. 

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

or pricing among members of different racial or ethnic 

groups in certain local areas, they provide an insufficient 

basis by themselves on which to conclude whether or not 

ES Bank is excluding any racial or ethnic group or 

imposing higher credit costs on those groups on a prohibited basis. The Board recognizes that HMDA data alone, 

even with the recent addition of pricing information, provide only limited information about the 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. In addition, credit 

history problems, excessive debt levels relative to income, and high 

loan amounts relative to the value of the real estate collateral (reasons 

most frequently cited for a credit denial or higher credit cost) 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 engaged in illegal lending 

discrimination. 

The Board is nevertheless 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. Because of the 

limitations of HMDA data, the Board has considered these 

data carefully and has taken into account other information, 

including examination reports that provide on-site evaluations of compliance by ES Bank with fair lending laws. In 

the fair lending review conducted by the FDIC in conjunction with the bank's CRA evaluation in 2003, examiners 

noted no substantive violations of provisions of applicable 

fair lending laws. The Board also consulted with the FDIC 

about the concerns expressed by commenters(footnote 30 

A commenter questioned the veracity of ES Bank's reporting of 

no denials of home mortgage applications in 2001 and 2002 and 

generally alleged that the bank pre screened its home mortgage applications. Specifically, the commenter contended that ES Bank violated 

HMDA by not accurately reporting its home mortgage applications 

and violated the Equal Credit Opportunity Act (''ECOA'') (15 U.S.C. 

§ 1691 et seq.) by not providing adverse action notices when required. 

ES Bank has represented that it reported no denials because it is a 

wholesale bank engaged primarily in international private banking and 

that its residential mortgages are generally extended as an accommodation to private banking customers where a mortgage loan approval 

would be expected. The commenter also questioned ES Bank's 

characterization of loans generated by brokers as accommodation 

loans. Applicants represented that ES Bank began using two licensed 

mortgage brokers in 2001 in an effort to increase its loan portfolio 

during a period when internal referrals had slowed. Applicants also 

represented that ES Bank's brokers referred a small number of 

mortgage loans to the bank in 2005. The Board has consulted with the 

FDIC, the primary federal supervisor of ES Bank, about the bank's 

record of compliance with HMDA and ECOA in connection with this 

matter end footnote) 

The record also indicates that ES Bank has taken steps 

designed to ensure compliance with fair lending and other 

consumer protection laws. Applicants represented that ES 

Bank has implemented fair lending policies, procedures, 

and training programs, including annual compliance training for all consumer lending department personnel on the 

prevention of illegal pre screening and on discouragement 

or exclusion of credit applicants. Formal lending policies 

address significant criteria for loan approvals by the bank' s 

senior management or loan committee. Applicants also 

represented that ES Bank's fair lending policies and procedures are designed to ensure that loan officers price loans 

uniformly and avoid illegal discrimination and that current 

and proposed lending activities and customer complaints 

are reviewed. In addition, Applicants represented that ES 

Bank provides for an independent review of the lending 

activities of the bank to ensure all lending practices are in 

full compliance with all laws, regulations, and internal 

policies and procedures. Applicants further stated that an 

independent consulting firm audits these efforts annually 

and that those results are provided to the Internal Audit 

Committee of the Board of Directors and the bank's 

Compliance Department and Legal Department. Applicants 

do not plan to implement significant changes to ES Bank' s 

compliance policies and programs. 

The Board also has considered the HMDA data in light 

of other information, including ES Bank's CRA community development activities and the overall performance 

records of ES Bank under the CRA. These established 

efforts demonstrate that the institution is active in helping 

to meet the credit needs of its entire community. 

C. Conclusion on Convenience and Needs and 

CRA Records 

The Board has carefully considered all the facts of record, 

including reports of examination of the CRA records of the 
C168 Federal Reserve Bulletin • 2006 

institutions involved, information provided by Applicants, 

comments received on the proposal, 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 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 proposal should 

be, and hereby is, approved(footnote 31 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 or meeting 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 

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 had ample opportunity to submit comments on the proposal and, in fact, 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 or why a hearing or meeting otherwise would be 

necessary or appropriate. 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 request for a 

public hearing or meeting on the proposal is denied. end footnote) 

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 32 

A commenter also requested that the Board extend the comment 

period. 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. 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 Applicants with the 

conditions in this order and all the commitments made to 

the Board in connection with the 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. 

By order of the Board of Governors, effective September 8, 2006. 

Voting for this action: Chairman Bernanke, Vice Chairman Kohn, 

and Governors Warsh, Kroszner, and Mishkin. Absent and not voting: 

Governor Bies. 

ROBERT DEV. FRIERSON 

Deputy Secretary of the Board 

First National Bank Group, Inc. 

Edinburg, Texas 

Order Approving the Acquisition of Shares 

of a Bank Holding Company 

First National Bank Group, Inc. (''First National''), 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 

9.9 percent of the voting shares of South side Bancshares, 

Incorporated (''Southside''), Tyler, Texas, and thereby 

acquire an indirect interest in South side Delaware Financial 

Corporation, Dover, Delaware, and South side's subsidiary 

bank, South side Bank, also of Tyler(footnote 2 

First National currently owns 4.91 percent of South side's voting 

shares and proposes to acquire the additional voting shares through 

purchases on the open market end footnote) 

Notice of the proposal, affording interested persons an 

opportunity to submit comments, has been published in the 

Federal Register (71 Federal Register 28,865 (2006)). 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. 

First National, with total consolidated assets of $3.3 billion, is the 22nd largest depository organization in Texas, 

controlling deposits of $2.4 billion, which represent less 

than 1 percent of total deposits of insured depository 

institutions in Texas (''state deposits'')(footnote 3 

Asset data are as of March 31, 2006, and statewide deposit and 

ranking data are as of June 30, 2005 end footnote)Southside, with 

total consolidated assets of $1.8 billion, is the 36th largest 

depository organization in Texas, controlling deposits of 

$1 billion. If First National were deemed to control Southside on consummation of the proposal, First National 

would become the 14th largest depository organization in 

Texas, controlling deposits of approximately $3.4 billion, 

which would represent 1 percent of state deposits. 

The Board received a comment from South side questioning First National's stated intention to make a passive 

investment in South side and expressing concerns about the 

management of First National. The Board has considered 

carefully South side's comments in light of the factors it 

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., Brook line Bancorp, MHC, 86 

Federal Reserve Bulletin 

52 (2000) ("Brook line") (acquisition of up to 9.9 percent of the voting 

shares of a bank holding company); GB Ban corporation, 83 Federal 

Reserve Bulletin 115 (1997) (acquisition of up to 24.9 percent of the 

voting shares of a bank); Mansura Bancshares, Inc., 79 Federal 

Reserve Bulletin 37 (1993) (acquisition of 9.7 percent of the voting 

shares of a bank holding company) end footnote) 

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, however, suggests that Congress 
Legal Developments: Third Quarter, 2006 C199 

contemplated the acquisition by bank holding companies of 

between 5 percent and 25 percent of the voting shares of 

banks(footnote 5 See 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 See, e.g., Brook line; North Fork Ban corporation, Inc., 81 Federal 

Reserve Bulletin 734 (1995); First Piedmont Corp., 59 Federal 

Reserve Bulletin 456, 457 (1973) end footnote) 

First National has stated that the acquisition is intended 

as a passive investment and that it does not propose to 

control or exercise a controlling influence over South side 

or South side Bank. In support of its stated intention, First 

National 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 or bank for purposes of the BHC Act(footnote 7 

See, e.g., Emigrant Bancorp, Inc., 82 Federal Reserve Bulletin 

555 (1996); First Community Bancshares, Inc., 77 Federal Reserve 

Bulletin 50 (1991). These commitments are set forth in the appendix end footnote) 

For example, First National has committed not t

attempt to exercise a controlling influence over the management or policies of South side or any of its subsidiaries; not 

to seek or accept representation on the board of directors of 

South side or any of its subsidiaries; and not to have any 

director, officer, employee, or agent interlocks with Southside or any of its subsidiaries. First National also has 

committed not to attempt to influence the dividend policies, 

loan decisions, or operations of South side or any of its 

subsidiaries. Moreover, the BHC Act prohibits First National from acquiring additional shares of South side or 

attempting to exercise a controlling influence over Southside without the Board' s prior approval. 

The Board has adequate supervisory authority to monitor compliance by First National with the commitments and 

the ability to take enforcement action against First National 

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 First 

National if facts presented later indicate that First National 

or any of its subsidiaries or affiliates in fact controls or 

exercises a controlling influence over South side 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 First 

National would not acquire control of, or have the ability to 

exercise a controlling influence over, South side through the 

proposed acquisition of voting shares. 

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. The Board has considered 

carefully 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 primary federal supervisors of the organizations 

and institutions involved in the proposal, publicly reported 

and other financial information, information provided by 

First National, and public comment received on the proposal. 

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 information, 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, including its capital position, asset quality, earnings 

prospects, and the impact of the proposed funding of the 

transaction(footnote 10 As previously noted, the proposal provides that 

First National 

would acquire only up to 9.9 percent of South side. Under these 

circumstances, the financial statements of South side and First National 

would not be consolidated end footnote) 

Based on its review of the financial factors, the Board 

finds that First National has sufficient resources to effect the 

proposal. First National and its subsidiary bank are well 

capitalized and would remain so on consummation of this 

proposal. The proposed transaction is structured as a share 

purchase, and the consideration to be received by Southside's shareholders would be funded from First National's 

existing liquid assets. 

The Board also has considered the managerial resources 

of the organizations involved in the proposed transaction. 

The Board has reviewed the examination records of First 

National, South side, and South side Bank, 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 

supervisory agencies with the organizations and their 

records of compliance with applicable banking law, including anti-money-laundering laws. First National, South side, 

and South side Bank are considered to be well managed. 

South side expressed concerns about the management of 

First National that relate to First National's proposal in 

2004 to acquire a controlling interest in Alamo Corporation 

of Texas ('' Alamo'') (the '' Alamo Proposal'')(footnote 11 

In 2004, First National applied to the Board for prior approval to 

acquire up to 14.99 percent of the voting shares of Alamo and to 

control Alamo. See First National Bank Group, Inc., 91 Federal 

Reserve Bulletin 71 (2005). Alamo claimed that First National, in 

conjunction with its president and a First National shareholder, acted 

together to acquire more than 5 percent of Alamo's shares without the 

Board's prior approval. Id. at 72. The Board reviewed all the facts of 

record and concluded that the shares of First National and its president 

should not be aggregated with the shareholder's shares. Accordingly, 

the Board determined that First National did not violate the BHC Act 

and approved the proposal. First National did not acquire up to 

14.99 percent of Alamo's shares and subsequently divested its entire 

shareholding in Alamo In this proposal, South side alleges that the same 

shareholder 

identified by Alamo acted as a nominee purchaser for First National in 

acquiring the shares of Alamo and that the shareholder subsequently 

sold those shares to First National shortly after the Board approved the 

Alamo Proposal. First National denied South side's allegations and 

stated that there was no agreement, oral or written, between First haNational's ends allege footnote)Sout management d that in th h sid and e Alam this shareholder o Proposal, to Firs purchase t Nationa hise shares l 
Federal Reserve Bulletin • 2006 

acquired shares of Alamo in violation of the BHC Act. 

Alamo made the same allegation in its comments on the 

Alamo Proposal. In approving the Alamo Proposal, the 

Board considered this allegation in light of the record and 

found no violation of the BHC Act. In considering Southside's reiteration of this claim, the Board has reviewed the 

information provided by South side and First National and 

confidential supervisory information, and has found no new 

facts that would support modifying the Board's previous 

findings and determinations in the Alamo Proposal(footnote 12 

South side also claimed that in connection with the Alamo 

Proposal, First National purchased shares of Alamo through a tender 

offer that did not comply with applicable federal securities laws. In 

addition, South side alleged that First National made improper comments about Alamo and its management to Alamo shareholders in 

connection with the tender offer. First National commenced a tender 

offer for shares of Alamo stock on or about March 28, 2005. South side 

alleged that First National made several stock purchases before the 

March 28 tender offer, that those purchases constituted a tender offer, 

and that First National did not comply with applicable federal 

securities laws in connection with those purchases. First National 

represented that the individuals who sold their shares to First National 

before March 28, 2005, approached First National and that all those 

transactions were individually negotiated. The Securities and Exchange Commission ("SEC'') has the authority to investigate and 

adjudicate any violations of federal securities laws. The Board has 

consulted with the SEC regarding South side's allegation end footnote) 

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

that the financial and managerial resources and the future 

prospects of First National, South side, and their subsidiaries are consistent with approval of this application, as are 

the other supervisory factors the Board must consider under 

section 3 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 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 13 12 U.S.C. § 1842(c)(1) end footnote) 

First National and South side 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 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. 

CONVENIENCE AND NEEDS CONSIDERATIONS 

In acting on a proposal under section 3 of the BHC Act, the 

Board also must consider the effects of the proposal 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 14 12 U.S.C. §2901 et seq. end footnote) 

The Board has considered carefully all the 

facts of record, including evaluations of the CRA performance records of First National's and South side's subsidiary banks, other information provided by First National, 

and confidential supervisory information. First National 

Bank received an ''outstanding" rating at its most recent 

CRA evaluation by the Office of the Comptroller of the 

Currency, as of October 7, 2002. South side Bank also 

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

performance evaluation by the Federal Deposit Insurance 

Corporation, as of August 1, 2004. Based on all the facts of 

record, 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 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 First National with the 

conditions imposed in this order and the commitments 

made to the Board in connection with the application. 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 acquisition of South side' s voting shares may not be 

consummated before the 15th 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 

Dallas, acting pursuant to delegated authority. 

By order of the Board of Governors, effective September 11, 2006. 

Voting for this action: Chairman Bernanke, Vice Chairman Kohn, 

and Governors Bies, 

Warsh, Kroszner, and Mishkin. 

ROBERT DEV. FRIERSON 

Deputy Secretary of the Board 

Appendix 

In connection with its application to acquire up to 9.9 percent of South side, First National committed that it will not: 
Legal Developments: Third Quarter, 2006 C199 

(1) exercise or attempt to exercise a controlling influence 

over the management or policies of South side or any 

of its subsidiaries; 

(2) seek or accept representation on the board of directors 

of South side or any of its subsidiaries; 

(3) serve, have, or seek to have any employee or representative serve as an officer, agent, or employee of 

South side; 

(4) take any action causing South side to become a subsidiary of First National; 

(5) acquire or retain shares that would cause the combined 

interests of First National and its officers, directors, 

and affiliates to equal or exceed 25 percent of the 

outstanding shares of any class of voting securities of 

South side; 

(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 South side or any 

of its subsidiaries; 

(7) solicit or participate in soliciting proxies with respect 

to any matter presented to the shareholders of Southside; 

(8) attempt to influence the dividend policies; loan, credit, 

or investment decisions or policies of South side; the 

pricing of services; personnel decisions; operations 

activities (including the location of any offices or 

branches or hours of operation, etc.); or any similar 

activities of South side or its subsidiaries; 

(9) dispose or threaten to dispose of shares of South side 

as a condition of specific action or nonaction by 

South side; or 

(10) enter into any other banking or non banking transactions with South side or any of its subsidiaries, except 

that First National may establish and maintain deposit 

accounts with any depository institution subsidiary of 

South side, provided that the aggregate balance of all 

such accounts does 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 South side. 

Glacier Bancorp, Inc. 

Kalispell, Montana 

Order Approving the Acquisition of a Bank 

Holding Company 

Glacier Bancorp, Inc. (''Glacier''), 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 Citizens 

Development Company (''Citizens''), Billings, and its subsidiary banks: First Citizens Bank of Billings, Billings; 

First National Bank of Lewistown, Lewistown; Western 

Bank of Chinook National Association, Chinook; First 

Citizens Bank, National Association, Columbia Falls; and 

Citizens State Bank, Hamilton, all of Montana. 

Notice of the proposal, affording interested persons an 

opportunity to submit comments, has been published in the 

Federal Register (71 Federal Register 29,967 (2006)). 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. 

Glacier, with total consolidated assets of $4 billion, is 

the second largest depository organization in Montana, 

controlling deposits of $1.5 billion, which represent 11.8 percent of total deposits of insured depository institutions in 

Montana ('' state deposits'' )(footnote 2 Asset data are as of June 30, 

2006, and statewide deposit and 

ranking data are as of June 30, 2005, and are adjusted 

for subsequent 

acquisitions. In this context, insured depository 

institutions include 

commercial banks, savings banks, and savings 

associations end footnote) 

Glacier operates ten 

subsidiary-insured depository institutions in Idaho, Utah, 

Washington, Wyoming, and Montana. 

Citizens, a small bank holding company with banking 

assets of approximately $411 million, operates five 

subsidiary-insured depository institutions in Montana. Citizens is the eighth largest depository organization in the 

state, controlling deposits of approximately $349.8 million. 

On consummation of this proposal, and after accounting 

for the proposed divestiture, Glacier would remain the 

second largest depository organization in Montana, controlling deposits of approximately $1.8 billion, which represent 

approximately 14.6 percent of state deposits. 

COMPETITIVE 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 an attempt to monopolize the 

business of banking in any relevant banking market. The 

BHC 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 3 12 U.S.C. § 1842(c)(1) end footnote) 

The Board has carefully considered the competitive effects 

of the proposal in light of all the facts of record. 

A. Geographic Banking Market 

Glacier and Citizens compete directly in the Kalispell, 

Missoula, Lewistown, and Billings banking markets in 

Montana(footnote 4 These banking markets are described in 

Appendix A. 

end footnote)Glacier contends that the Lewistown banking 

market, as delineated by the Federal Reserve Bank of 

Minneapolis (''Reserve Bank''),(footnote 5 The Lewistown 

banking market is defined as Fergus and Petroleum counties in Montana. Lewistown is in Fergus County. 

end footnote) 

does not reflect the true 

nature of banking competition in Lewistown and that the 

relevant geographic market for analysis should be expanded 

to include the Great Falls banking market(footnote 6 The 

Great Falls banking market includes Teton, Cascade, Judith 

Basin, Glacier, Toole, and Pondera counties and the 

Fort Benton and 

Geraldine divisions of Chouteau County, all in 

Montana end footnote) 

Glacier bases 

its contention on the commercial interaction and ease of 
C168 Federal Reserve Bulletin • 2006 

access between the cities of Lewistown and Great Falls 

(footnote 7 Glacier argues that a substantial number 

of Lewistown residents 

travel to Great Falls to obtain consumer goods and services from large 

national retailers that are not available in Lewistown. Glacier also 

notes that Great Falls and Lewistown are included in the same 

telephone directory and that Lewistown is served by Great Falls 

television and radio stations. In addition, Glacier notes that Great Falls 

has a large airport, colleges, and medical facilities end footnote) 

In defining the relevant geographic market, the Board 

and the courts have consistently found that the relevant 

geographic market for analyzing the competitive effects of 

a proposal must reflect commercial and banking realities 

and should consist of the local area where customers can 

practicably turn for alternatives(footnote 8 

See United States v. Phillipsburg National Bank, 399 U.S. 350 

(1970); United States v. Philadelphia National Bank, 374 U.S. 321, 

357 (1970); Brown Shoe Co. v. United States, 370 U.S. 294, 336-337 

(1962). See also First York Ban Corp, 88 Federal Reserve Bulletin 

251, 251 (2002); First Union Corporation, 84 Federal Reserve 

Bulletin 489 (1998); First Union Corporation, 83 Federal Reserve 

Bulletin 1012, 1013-14 (1997); Chemical Banking Corporation, 

82 Federal Reserve Bulletin 239, 241 (1996); and Wyoming Ban-corporation, 68 Federal Reserve Bulletin 313, 314 (1982) end footnote) 

In reviewing Glacier' s 

contention, the Board has considered a number of factors to 

identify the economically integrated area that represents the 

appropriate local geographic banking market encompassing Lewistown for purposes of analyzing the proposal's 

competitive effects(footnote 9 In delineating the relevant geographic 

market in which to assess 

the competitive effects of a bank merger or acquisition, the Board 

reviews population density; worker commuting patterns; the usage and 

availability of banking products; advertising patterns of financial 

institutions; the presence of shopping, employment, and other necessities; and other indicia of economic integration and transmission of 

competitive forces among banks. See, e.g., First Security Corporation, 

86 Federal Reserve Bulletin 122 (2000); Pennbancorp, 69 Federal 

Reserve Bulletin 548 (1983) end footnote)Both Glacier and the 

Reserve Bank 

conducted surveys to ascertain whether the residents of 

Lewistown and Great Falls, the primary population centers 

in the two markets, would turn to the other for alternative 

banking services( footnote 10 

An independent market research company conducted Glacier's 

survey end footnote)The Board reviewed those surveys in 

light of all the evidence in the record, including information provided by local financial institutions, the state of 

Montana, and other publicly available information. 

The Board reviewed the geographic proximity of Lewistown and Great Falls and the commuting data between 

those cities. The data, as Glacier acknowledged in its 

application, indicate that there is little commuting between 

Great Falls and Lewistown, cities that are approximately 

100 miles apart. According to data collected by the U.S. 

Census Bureau in 2000, there is virtually no worker 

commuting between Great Falls and Lewistown. Moreover, 

the survey conducted by Glacier indicated that there is 

limited travel for shopping and other services between the 

two areas. According to its survey, although 37 percent of 

Lewistown residents surveyed travel to Great Falls at least 

once a month, only 9 percent travel to Great Falls twice a 

month or more. Additionally, the survey conducted by the 

Reserve Bank supports the conclusion that there is little 

travel between Lewistown and Great Falls. 

Relevant banking data also support the Reserve Bank's 

definition of the Lewistown banking market as the relevant 

geographic market. Of the Lewistown residents surveyed 

by Glacier, 95 percent had their primary banking relationship with a financial institution in Lewistown, and only 

4 percent used any banking services in Great Falls. The 

survey also indicated that 65 percent of respondents 

believed it would be difficult or very difficult to bank in 

Great Falls and 79 percent indicated that they would not 

take advantage of better rates on banking products in Great 

Falls. In addition, lending information that financial institutions are required to report under the Community Reinvestment Act (''CRA'')(footnote 11 12 U.S.C. §2901 et seq end footnote) 

and the Home Mortgage Disclosure 

Act(footnote 12 12 U.S.C. §2801 et seq end footnote) 

indicates that lending in Fergus County, where 

Lewistown is located, by financial institutions located 

outside the county was de minimis in comparison to 

lending by institutions with offices in the county(footnote 13 

A geographic market must represent a fair intermediate delineation, which avoids the indefensible extremes of drawing the market 

either too expansively or too narrowly based on the banking preferences of a few customers. Philadelphia National Bank, 374 U.S. at 

320-21 end footnote)Based 

on the foregoing and a careful review of all the facts of 

record, the Board reaffirms that the relevant geographic 

market within which to evaluate the competitive effects of 

this proposal is the Lewistown banking market as currently 

defined by the Reserve Bank(footnote 14 

Glacier cites a previous determination by the Board to expand 

the Great Falls banking market by including several counties north of 

Great Falls to support its contention that Lewistown should be part of 

the Great Falls banking market. Norwest Corporation, 80 Federal 

Reserve Bulletin 455 (1994). The Board has reviewed the record of 

that application and notes that greater economic integration existed 

between the communities north of Great Falls and Great Falls than, on 

this application record, exists between Lewistown and Great Falls end footnote) 

B. Competitive Effects in Banking Markets 

The Board has reviewed carefully the competitive effects 

of the proposal in the Lewistown banking market and in 

the other three banking markets where Glacier and Citizens compete directly 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 Glacier 

and Citizens,(footnote 15 Deposit and market data are as of June 30, 

2005. No thrift 

institutions operate in the Billings, Kalispell, Lewistown, or Missoula 

banking markets end footnote)the concentration level of market deposits 

and the increase in that level as measured by the 

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

(footnote 16 Under the DOJ Guidelines, a market is considered 

unconcentrated if the post-merger HHI is under 1000, moderately 

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

concentrated if the post-merger HHI exceeds 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 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 non depository financial entities end footnote) 
Legal Developments: Third Quarter, 2006 C199 

other characteristics of the markets, and commitments 

made by Glacier to divest its operations in the Lewistown 

banking market. 

Banking Market with Divestiture. In the Lewistown banking market, Glacier is the fourth largest depository organization, controlling deposits of $24 million, which represent 

12.1 percent of market deposits. Citizens' subsidiary, First 

National Bank of Lewistown, is the largest depository 

institution in the market, controlling deposits of $72.1 million, which represent 36.3 percent of market deposits. On 

consummation and without the proposed divestiture, the 

HHI in this market would increase 879 points, from 2564 to 

3443, and the pro forma market share of the combined 

entity would be 48.4 percent. 

To reduce the potential adverse effects on competition in 

the Lewistown banking market, Glacier has committed to 

divest the Lewistown branch of its subsidiary, Western 

Security Bank, to a purchaser that the Board determines to 

be competitively suitable(footnote 17 

Glacier has committed that before consummation of the proposed acquisition, it will execute an agreement for the proposed 

divestiture in the Lewistown banking market, consistent with this 

order. Glacier also has committed to complete the divestiture within 

180 days after consummation of the proposed merger. In addition, 

Glacier has committed that if it is unsuccessful in completing the 

proposed divestiture within such time period, it will transfer the unsold 

branch to an independent trustee who will be instructed to sell the 

branch to an alternate purchaser or purchasers in accordance with the 

terms of this order and without regard to price. Both the trustee and 

any alternate purchaser must be deemed acceptable by the Board. See 

BankAmerica Corporation, 78 Federal Reserve Bulletin 338 (1992); 

United New Mexico Financial Corporation, 77 Federal Reserve 

Bulletin 484 (1991). end footnote)On consummation of the proposal and after accounting for the proposed divestiture, 

Glacier would become the largest depository institution in 

the market, controlling deposits of approximately $72.1 million, which represent 36.3 percent of market deposits. The 

HHI would not increase more than 167 points to 2731, and 

such an increase would be within the DOJ Guidelines. 

In reviewing the competitive effects of the proposal in 

the Lewistown banking market, the Board also has considered carefully whether other factors mitigate the competitive effects of the proposal(footnote 18 The number and strength 

of factors necessary to mitigate the 

competitive effects of a proposal depend on the size ofthe increase in, 

and resulting level of, concentration in the market. See NationsBank 

Corporation, 84 Federal Reserve Bulletin 129 (1998) end footnote) 

On consummation of the 

proposal and the proposed divestiture to a competitively 

suitable banking organization, at least four insured depository institutions would continue to operate in the market, 

and two institutions other than Glacier would each hold 

more than 10 percent of market deposits. Furthermore, the 

proposed divestiture would reduce the resulting increase in 

Glacier' s market share by a substantial amount, approximately one-third, and would produce a new entrant or 

significantly enhance the market share of a small in market 

competitor. 

Banking Markets without Divestitures. Consummation of 

the proposal without divestitures would be consistent with 

Board precedent and within the thresholds in the DOJ 

Guidelines in the Billings, Kalispell, and Missoula banking 

markets where Glacier' s and Citizens' subsidiary banks 

also compete directly.(footnote 19 The effects of the proposal 

on the concentration of banking 

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

On consummation, all three banking markets would remain moderately concentrated, as 

measured by the HHI, and numerous competitors would 

remain in each banking market. 

C. Views of Other Agencies and Conclusion on 

Competitive Considerations 

The DOJ also has conducted a detailed review of the 

potential competitive effects of the proposal and has 

advised the Board that, in light of the proposed divestiture, 

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 the four banking markets where Glacier 

and Citizens compete directly or in any other relevant 

banking market. Accordingly, 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. The Board 

has considered these factors in light of all the facts of 

record, including confidential reports of examination, other 

supervisory information from the primary supervisors of 

the organizations involved in the proposal, publicly reported and other financial information, and information 

provided by the applicant. 

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 information, including capital adequacy, asset quality, 

and earnings performance. In assessing financial factors, 

the Board consistently has considered capital adequacy to 
Federal Reserve Bulletin • 2006 

be especially important. The Board expects banking organizations contemplating expansion to maintain strong capital levels substantially in excess of the minimum levels 

specified by the Board's Capital Adequacy Guidelines. The 

Board also evaluates the financial condition of the combined organization at consummation, including its capital 

position, asset quality, and earnings prospects, and the 

impact of the proposed funding of the transaction. 

The Board has considered carefully the financial factors 

of the proposal with respect to Glacier, Citizens, and their 

subsidiary banks. In light of all the facts of record, the 

Board has concluded that the capital levels of the relevant 

organizations are consistent with the Board's Capital 

Adequacy Guidelines. Based on its review of the record, 

the Board also believes that Glacier has sufficient financial 

resources to effect the proposal. The proposed transaction is 

structured as a share exchange and partial cash purchase 

that will be funded with the proceeds from issuances of 

common stock and trust preferred securities. 

The Board also has considered the managerial resources 

of Glacier, Citizens, and their subsidiary banks. The Board 

has reviewed the examination records of these institutions, 

including assessments of their management, riskmanagement systems, and operations. In addition, the 

Board has considered its supervisory experiences and those 

of the other relevant banking supervisory agencies with the 

organizations and their records of compliance with applicable banking law, including anti-money-laundering laws. 

The Board also has considered Glacier' s plans for implementing the proposal, including the proposed management 

after consummation. 

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

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 under the BHC Act. 

CONVENIENCE AND NEEDS CONSIDERATIONS 

In acting on a proposal under section 3 of the BHC Act, the 

Board also must consider the effects of the proposal 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 CRA. All of Glacier' s 

banks received "outstanding'' or ''satisfactory'' ratings at 

their most recent CRA performance evaluations by the 

banks' primary federal supervisors. Citizens' banks all 

received ''satisfactory'' ratings at their most recent CRA 

performance evaluations. After consummation of the proposal, Glacier plans to implement its CRA policies at 

Citizens' banks. Glacier has represented that the proposal 

will expand lending capacity and the products and services 

available to consumers where the banks operate, while 

maintaining local decision making and a community focus. 

Based on all the facts of record, 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 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. The 

Board's approval is specifically conditioned on compliance 

by Glacier with the conditions imposed in this order and the 

commitments made to the Board in connection with the 

application, including the divestiture commitment discussed above. 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 transaction may not be consummated 

before the 15th 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 Minneapolis, 

acting pursuant to delegated authority. 

By order of the Board of Governors, effective September 14, 2006. 

Voting for this action: Chairman Bernanke, Vice Chairman Kohn, 

and Governors Bies, Warsh, Kroszner, and Mishkin. 

ROBERT DEV. FRIERSON 

Deputy Secretary of the Board 

Appendix A 

MONTANA BANKING MARKETS IN WHICH 

GLACIER AND CITIZENS COMPETE DIRECTLY 

Billings 

Wheatland, Golden Valley, Musselshell, Sweet Grass, Stillwater, Yellowstone, Treasure, Carbon, and Big Horn counties. 

Kalispell 

Lincoln and Flathead counties; Big Fork-Swan River division and the northern portion of Flathead division in Lake 

County that includes the communities of Polson, Finley 

Point, Big Arm, Elmo, and Dayton. 

Lewistown 

Fergus and Petroleum counties. 

Missoula 

Missoula County; Superior and Alberton divisions in Mineral County; Helmville and the western half of the AvonElliston division in Powell County; the southern half of 

Flathead division in Sanders County; the southern portion 
Legal Developments: Third Quarter, 2006 C199 

of Flathead division in Lake County that includes the 

communities of Pablo, Ronan, Kicking Horse, Charlo, Post 

Creek, Moiese, St. Ignatius, Ravalli, and Arlee; Drummond 

division in Granite County; and Ravalli County, excluding 

the eastern portion of Sula-Edwards division. 

Appendix B 

MARKET DATA FOR MONTANA BANKING 

MARKETS 

Billings 

Glacier operates the sixth largest depository institution in 

the Billings banking market, controlling deposits of 

$193.3 million, which represent 8.3 percent of market 

deposits. Citizens operates the seventh largest depository 

institution in the market, controlling deposits of approximately $146 million, which represent 6.2 percent of market 

deposits. After consummation of the proposal, Glacier 

would become the second largest depository organization 

in the market, controlling deposits of approximately 

$339.3 million, which represent approximately 14.5 percent of market deposits. The HHI would increase 103 

points to 1454. Sixteen insured depository institutions 

would remain in the banking market. 

Kalispell 

Glacier operates the largest depository institution in the 

Kalispell banking market, controlling deposits of 

$370.1 million, which represent 26.7 percent of market 

deposits. Citizens operates the ninth largest depository 

institution in the market, controlling deposits of approximately $41.4 million, which represent 3 percent of market 

deposits. After consummation of the proposal, Glacier 

would remain the largest depository organization in the 

market, controlling deposits of approximately $411.5 million, which represent approximately 29.7 percent of market 

deposits. The HHI would increase 160 points to 1684. 

Fifteen insured depository institutions would remain in the 

banking market. 

Missoula 

Glacier operates the second largest depository institution in 

the Missoula banking market, controlling deposits of 

$345.1 million, which represent 17.8 percent of market 

deposits. Citizens operates the tenth largest depository 

institution in the market, controlling deposits of approximately $62.6 million, which represent 3.2 percent of market deposits. After consummation of the proposal, Glacier 

would remain the second largest depository organization in 

the market, controlling deposits of approximately 

$407.6 million, which represent approximately 21.0 percent of market deposits. The HHI would increase 115 

points to 1276. Eighteen insured depository institutions 

would remain in the banking market. 

Juniata Valley Financial Corp. 

Mifflintown, Pennsylvania 

Order Approving the Acquisition of a Bank 

Juniata Valley Financial Corp. ('' Juniata''), 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 39.2 percent of 

the outstanding voting shares of The First National Bank of 

Liverpool (''Liverpool Bank''), Liverpool, Pennsylvania 

(footnote 2 Juniata entered into an agreement to acquire 39.2 percent of the 

bank's outstanding common shares from a trust that is the single 

largest shareholder of Liverpool Bank end footnote) 

Notice of the proposal, affording interested persons an 

opportunity to submit comments, has been published 

(71 Federal Register 28,335 (2006)). 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. 

Juniata, with total consolidated assets of approximately 

$410.6 million, operates one depository institution, The 

Juniata Valley Bank ("Juniata Bank''), also in Mifflintown. 

Juniata Bank is the 77th largest insured depository institution in Pennsylvania, controlling deposits of approximately 

$341.6 million, which represent less than 1 percent of the 

total amount of deposits of insured depository institutions 

in the state (''state deposits'')(footnote 3 Asset and deposit data 

are as of June 30, 2005, and ranking data 

take into account mergers and acquisitions to July 25, 2006. In this 

context, insured depository institutions include commercial banks, 

savings banks, and savings associations. end footnote) 

Liverpool Bank is the 236th largest insured depository 

institution in Pennsylvania, controlling deposits of approximately $30 million. On consummation of the proposal, 

Juniata would become the 70th largest depository organization in Pennsylvania, controlling deposits of approximately 

$372 million, which represent less than 1 percent of state 

deposits. 

The majority of Liverpool Bank' s board of directors 

(''Commenters'') opposes the proposal and has submitted 

comments to the Board urging denial on several grounds 

(footnote 4 Three directors, one of whom represents the interest of the trust 

("Selling Director''), did not join the comment. end footnote) 

The Board previously has stated that, in evaluating acquisition proposals, it must apply the criteria in the BHC Act in 

the same manner to all proposals, regardless of whether 

they are supported or opposed by the management of the 

institutions to be acquired(footnote 5 See Cathay General Bancorp, 

92 Federal Reserve Bulletin C19 

(2006) (''Cathay''); Central Pacific Financial Corp., 90 Federal 

Reserve Bulletin 93, 94 (2004) (''Central Pacific''); North Fork 

Bancorporation, Inc., 86 Federal Reserve Bulletin 767, 768 (2000) 

(''North Fork''); The Bank of New York Company, Inc., 74 Federal 

Reserve Bulletin 257, 259 (1988) ("BONY"). end footnote)Section 3(c) of the 

BHC Act 

requires the Board to review each application in light of 

certain factors specified in the BHC Act. These factors 

require consideration of the effects of the proposal on 

competition, the financial and managerial resources and 
C168 Federal Reserve Bulletin • 2006 

future prospects of the companies and depository institutions concerned, and the convenience and needs of the 

communities to be served(footnote 6 In addition, the Board is 

required by section 3(c) of the BHC Act 

to disapprove a proposal if the Board does not have adequate 

assurances that it can obtain information on the activities or operations 

of the company and its affiliates, or in the case of a foreign bank, if 

such bank is not subject to comprehensive supervision on a consolidated basis. See 12 U.S.C. § 1842(c) end footnote) 

In considering these factors, the Board is mindful of the 

potential adverse effects that contested acquisitions might 

have on the financial and managerial resources of the 

company to be acquired and the acquiring organization. 

The Board has long held that, if the statutory criteria are 

met, withholding approval based on other factors, such as 

whether the proposal is acceptable to the management of 

the organization to be acquired, would be outside the limits 

of the Board' s discretion under the BHC Act(footnote 7 See 

Cathay; Central Pacific; FleetBoston Financial Corporation, 

86 Federal Reserve Bulletin 751, 752 (2000); North Fork; BONY end footnote) 

As explained below, the Board has carefully considered 

the statutory criteria in light of all the comments and 

information provided by Commenters and the responses 

submitted by Juniata(footnote 8 

Commenter's expressed concern that Juniata would be able to 

control Liverpool Bank after consummation of the proposal and 

requested that the Board require Juniata to enter into passivity 

commitments if the Board approves the proposal. In cases when a bank 

holding company proposes to acquire between 5 percent and 25 percent of a class of voting shares of a bank or bank holding company 

without being deemed to control such entity, the Board has relied on 

certain commitments to ensure that the investing bank holding company would be unable to exercise a controlling influence over the bank 

or bank holding company involved in the proposal. See 12 U.S.C. 

§ 1841(a)(2)(C); see also S&T Bancorp, Inc., 91 Federal Reserve 

Bulletin 74 (2005); Emigrant Bancorp, Inc., 82 Federal Reserve 

Bulletin 555 (1996). Providing such commitments is not appropriate in 

this case, however, because Juniata would own more than 25 percent 

of the voting shares of Liverpool Bank and, therefore, would be 

deemed by the BHC Act to control the bank. See 12 U.S.C. 

§ 1841(a)(2)(A) end footnote)The Board also has carefully considered all other information available, including information 

accumulated in the application process, supervisory information of the Board and other agencies, and relevant 

examination reports. In considering the statutory factors, 

particularly the effect of the proposal on the financial and 

managerial resources of Juniata, the Board has reviewed 

financial information, including the terms and cost of the 

proposal and the resources that Juniata proposes to devote 

to the transaction. 

COMPETITIVE 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 an attempt to monopolize the 

business of banking in any relevant banking market. 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 9 12 U.S.C. § 1842(c)(1) end footnote) 

Juniata Bank and Liverpool Bank compete directly in 

the Harrisburg, Pennsylvania banking market (''Harrisburg 

banking market''), which is defined as Cumberland, Dauphin, Juniata, Lebanon, and Perry counties, all in Pennsylvania. Commenter's contended that the relevant geographic 

market for reviewing this transaction should be Liverpool 

and the surrounding area that includes the portion of Perry 

County bordered by the Susquehanna River, the Juniata 

River, and Juniata County (''Proposed Market''). Commenter's 

have asserted that the Proposed Market is the 

relevant market because the area is isolated from the rest of 

the Harrisburg banking market, particularly in the absence 

of a bridge near Liverpool to cross to the Dauphin County 

side of the Susquehanna River. 

In reviewing this contention, the Board has considered 

the geographic proximity of the Harrisburg banking market' s population centers and the worker commuting data 

from the 2000 census, which indicate that more than 

60 percent of the labor force residing in Perry County 

commute to work in either Cumberland or Dauphin County. 

Residents of the Proposed Market also have highway 

access to Cumberland County and to Dauphin County over 

a bridge across the Susquehanna River(footnote 10 

The bridge is approximately 15 miles south of Liverpool end 

footnote)In addition, 

small-business lending data submitted by depository institutions in 2005 under the Community Reinvestment Act 

(''CRA'') regulations of the federal supervisory agencies 

indicate that approximately 22 percent of the total volume 

of small-business loans made to businesses in Perry County 

were made by depository institutions without a branch in 

the county but with branches elsewhere in the Harrisburg 

banking market. These and a number of other factors 

indicate that the Harrisburg banking market, which includes 

Liverpool, is the appropriate local geographic banking 

market for purposes of analyzing the competitive effects of 

this proposal. 

The Board has reviewed carefully the competitive effects 

of the proposal in the Harrisburg 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 Juniata Bank and Liverpool 

Bank,(footnote 11 Deposit and market share data are as of June 30, 2005, taking 

into account mergers and acquisitions as of July 25, 2006, and reflect 

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 
Legal Developments: Third Quarter, 2006 C199 

Merger Guidelines (''DOJ Guidelines''),(footnote 12 

Under the DOJ Guidelines, a market is considered unconcentrated if the 

post-merger HHI is under 1000, moderately concentrated 

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

concentrated if the post-merger HHI exceeds 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 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 non depository financial entities end footnote)other characteristics of the market, and public comment on the proposal 

(footnote 13 Commenter's asserted that the competitive factors the Board 

must consider should weigh against approval because consummation 

of the proposed transaction would not have a pro-competitive effect. In 

particular, Commenter's expressed concern that the acquisition would 

eliminate the possibility of de novo expansion by Juniata into the 

Liverpool community. Section 3(c)(1) of the BHC Act, the provision 

applicable to the competitive considerations in this proposal, does not 

require evidence of pro-competitive effects as a condition for approval. 

Rather, it prohibits the Board from approving a proposal that would 

result in or would further a monopoly and permits the Board to 

approve a proposal that substantially lessens competition only if such 

effects are clearly outweighed by the convenience and needs of the 

community to be served end footnote) 

Consummation of the proposal would be consistent with 

Board precedent and within the thresholds in the DOJ 

Guidelines in the Harrisburg banking market. On consummation, the Harrisburg banking market would remain 

unconcentrated, and numerous competitors would remain 

in the market(footnote 14 Juniata operates the 13th largest 

depository institution in the 

Harrisburg banking market, controlling deposits of $179.7 million, 

which represent 2 percent of market deposits. Liverpool Bank is the 

28th largest depository institution in the market, controlling deposits 

of approximately $30 million, which represent less than 1 percent of 

market deposits. After the proposed acquisition, Juniata would operate 

the 11th largest depository institution in the market, controlling 

deposits of approximately $209.7 million, which represent 2.3 percent 

of market deposits. Thirty depository institutions would remain in the 

banking market. The HHI would increase 1 point to 787 end footnote) 

The DOJ also has reviewed the competitive effects of the 

proposal and advised the Board that consummation of the 

proposal likely would not 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 the banking market in which Juniata 

and Liverpool Bank directly compete 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. The Board 

has considered these factors in light of all the facts of 

record, including confidential reports of examination, other 

supervisory information from the primary supervisors of 

the organizations involved in the proposal, publicly reported and other financial information, information provided by the applicant, and public comments received on 

the proposal(footnote 15 Commenter's expressed concern that by 

entering into an agreement to sell the shares, the Selling Director might not have properly 

discharged his fiduciary duties to shareholders of Liverpool Bank. 

Juniata represented that the trust offered to sell the shares to Liverpool 

Bank before offering the shares to Juniata but that the trust could not 

reach an agreement with the bank. In addition, Commenter's expressed 

concern that both the proposed sale price for the shares and the size of 

Juniata's proposed ownership would have a negative effect on the 

value of Liverpool Bank's shares. The Board notes that the courts have 

concluded that the limited jurisdiction to review applications under the 

BHC Act does not authorize the Board to consider matters relating 

only to corporate governance and the proper compensation of shareholders. See Western Bancshares, Inc. v. Board of Governors, 480 F.2d 

749 (10th Cir. 1973). These matters involve state and federal securities 

laws and state corporate law that may be raised before a court with the 

authority to provide shareholders with adequate relief, 

if appropriate 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 banks and significant non-banking 

operations. In this evaluation, the Board considers a variety 

of measures, 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 expects banking organizations contemplating expansion to maintain strong capital 

levels substantially in excess of the minimum levels specified by the Board's Capital Adequacy Guidelines. The 

Board also evaluates the financial condition of the combined organization at consummation, including its capital 

position, asset quality, and earnings prospects, and the 

impact of the proposed funding of the transaction. 

The Board has considered carefully the proposal under 

the financial factors. Juniata, Juniata Bank, and Liverpool 

Bank are all well capitalized and would remain so on 

consummation of the proposal(footnote 16 

Commenter's expressed concern that because the proposal would 

cause Liverpool Bank to lose its status as an ''S corporation,'' the 

proposal would have a negative impact on Liverpool Bank's capital. 

The Board notes that Liverpool Bank would remain well capitalized 

on consummation of the proposal. end footnote) Based on its 

review of the 

record, the Board also believes that Juniata has sufficient 

financial resources to effect the proposal. The proposed 

transaction initially would be funded with debt that is 

expected to be repaid by a dividend from Juniata Bank. 

The Board also has considered the managerial resources 

of Juniata, Juniata Bank, and Liverpool Bank(footnote 17 

Commenter's have requested that the Board consider Pennsylvania Business Corporation Law, which discourages contested takeovers 

of Pennsylvania corporations, in evaluating this proposal. Liverpool 

Bank has not adopted the relevant provisions of Pennsylvania law as 

part of its corporate governance practices, and those provisions of state 

law, represented therefore, Bank for that are investment itnot currently applicable purposes intends i this only to case. hold end Inthe footnote)Th addition, shares of Juniata e Liverpool Boar has d 
C168 Federal Reserve Bulletin • 2006 

has reviewed the examination records of these institutions, 

including assessments of their management, riskmanagement systems, and operations(footnote 18 Commenter's 

contended that this proposal would violate the 

Depository Institution Management Interlocks Act (12 U.S.C. §3201) 

("Interlocks Act'') because Juniata, which would be able to elect three 

directors to Liverpool Bank's board, operates a bank (Juniata Bank) in 

the same community as Liverpool Bank. Under the Interlocks Act and 

the Board's Regulation L (12 CFR 212 et seq.), the prohibition against 

interlocking management officials for banks in the same community 

does not apply to institutions that are affiliates. Juniata and Liverpool 

Bank would be affiliates under the Interlocks Act because Juniata 

would own more than 25 percent of the bank's voting shares, thereby 

making Liverpool Bank a subsidiary of Juniata. See 12 U.S.C. 

§§ 3201(3)(A) and 1841(d). Accordingly, a management official interlock between Juniata and Liverpool Bank would not be prohibited 

under the Interlocks Act end footnote)In addition, the 

Board has considered its supervisory experiences and those 

of the other relevant banking supervisory agencies with the 

organizations and their records of compliance with applicable banking law, including anti-money-laundering laws. 

Juniata, Juniata Bank, and Liverpool Bank are all considered to be well managed. 

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

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 under the BHC Act. 

CONVENIENCE AND NEEDS CONSIDERATIONS 

In acting on a proposal under section 3 of the BHC Act, the 

Board also must consider the effects of the proposal 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 CRA(footnote 19 12 U.S.C. §2901 

et seq. end footnote)The CRA requires 

the federal financial supervisory agencies to encourage 

insured depository 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 a relevant depository institution' s record of 

meeting the credit needs of its entire community, including 

low- and moderate-income (''LMI'') neighborhoods, in 

evaluating bank expansionary proposals(footnote 20 12 U.S.C. 

§2903 footnote) 

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 

depository institutions, other information provided by 

Juniata, and public comment received on the proposal 

(footnote 21 Commenter's contended that Juniata plans to acquire all of 

Liverpool Bank and expressed concern that the consequences of such 

an acquisition could include loss of services and local jobs as part of a 

cost-savings initiative. Juniata has represented that its ownership 

interest in Liverpool Bank would be for purposes of investment and has not 

indicated that it would attempt to change the services provided 

by Liverpool Bank. In addition, the Board notes that 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 and does not extend to the effect of a proposed acquisition 

on employment in a community. See, e.g., Wells Fargo & Company, 

82 Federal Reserve Bulletin 445, 457 (1996). Moreover, if Juniata 

proposes to acquire additional shares of Liverpool Bank in the future, 

Federal Reserve System approval would be required. In such a case, 

the Federal Reserve System would have to evaluate the effects of the 

proposal on the convenience and needs of the communities to be 

served at that time, as required by the BHC Act end footnote)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 

22 See Interagency Questions and Answers 

Regarding Community 

Reinvestment, 66 Federal Register 36,620 and 36,640 

(2001) end footnote) 

Juniata Bank received a ''satisfactory'' rating at its most 

recent CRA evaluation by the Federal Deposit Insurance 

Corporation, as of October 1, 2003. Liverpool Bank 

received an overall rating of ''outstanding'' at its most 

recent CRA performance evaluation by the Office of the 

Comptroller of the Currency, as of July 29, 2002. Juniata 

has represented that its purchase of shares is for investment 

purposes and currently has proposed no changes to the 

CRA programs at Liverpool Bank. 

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 all the facts of record, the 

Board has determined that the application should be, and 

hereby is, approved(footnote 23 Commenter's requested that the 

Board hold a public meeting or 

hearing 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 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 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 Commenter's' request in light of all the facts 

of record. In the Board's view, Commenter's had ample opportunity to 

submit comments on the proposal and, in fact, submitted written 

comments that the Board has considered carefully in acting on the 

proposal. Commenter's' request fails to demonstrate why written 

comments do not present their views adequately or why a hearing or 

meeting otherwise would be necessary or appropriate. 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 request for a public hearing or meeting is 

denied end footnote)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 
Legal Developments: Third Quarter, 2006 C199 

by Juniata with the conditions imposed in this order and the 

commitments made to the Board in connection with the 

application. 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 transaction may not be consummated 

before the 15th calendar day after the effective date of this 

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

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

the Board or the Federal Reserve Bank of Philadelphia, 

acting pursuant to delegated authority. 

By order of the Board of Governors, effective August 11, 

2006. 

Voting for this action: Chairman Bernanke, Vice Chairman Kohn, 

and Governors Bies, Warsh, and Kroszner. 

ROBERT DEV. FRIERSON 

Deputy Secretary of the Board 

Passumpsic Bancorp 

St. Johnsbury, Vermont 

Order Approving the Merger of Bank 

Holding Companies 

Passumpsic Bancorp (''Passumpsic''), 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 12U.S.C. § 1842 

end footnote)to merge with The 

Siwooganock Holding Company, Inc. (''Siwooganock'') 

and acquire its subsidiary bank, Siwooganock Bank ('' Siwooganock Bank''), and Siwooganock's ownership of 

10 percent of the voting shares of The Lancaster National 

Bank (''Lancaster Bank''), all of Lancaster, New Hampshire(footnote 2 Passumpsic proposes to merge Siwooganock 

Bank into Passumpsic's subsidiary bank, Passumpsic Savings Bank("Passumpsic Bank''), 

St. Johnsbury, Vermont. Passumpsic has filed applications with the 

Federal Deposit Insurance Corporation ("FDIC'') for approval under 

the Bank Merger Act (12 U.S.C. § 1828(c)) and with the bank 

commissioners of Vermont and New Hampshire for approval under 

applicable state laws end footnote) 

Notice of the proposal, affording interested persons an 

opportunity to submit comments, has been published 

(71 Federal Register 42,092 (2006)). 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. 

Passumpsic, with total banking assets of approximately 

$426 million, operates one depository institution, Passumpsic Bank, with branches in Vermont and New Hampshire. 

Passumpsic Bank is the 35th largest insured depository 

institution in New Hampshire, controlling deposits of 

approximately $20 million, which represent less than 1 percent of the total amount of deposits of insured depository 

institutions in the state (''state deposits'')(footnote 3 Asset data 

are as of June 30, 2006; statewide deposit and ranking 

data are as of June 30, 2005, and reflect merger and 

acquisition activity 

through June 30, 2006. In this context, insured depository 

institutions 

include commercial banks, savings banks, and savings 

associations end footnote) 

Siwooganock, with total banking assets of approximately $78 million, operates one depository institution, 

Siwooganock Bank, in New Hampshire. Siwooganock 

Bank is the 31st largest insured depository institution in 

New Hampshire, controlling deposits of approximately 

$64 million. On consummation of the proposed transaction, 

Passumpsic would be the 30th largest depository organization in New Hampshire, controlling $84 million in deposits, 

which represent less than 1 percent of state deposits. 

Lancaster Bank, with total assets of approximately 

$56 million, is the 32nd largest insured depository institution in New Hampshire, controlling deposits of approximately $51 million, which represent less than 1 percent of 

state deposits. If Passumpsic were deemed to control 

Lancaster on consummation of the proposal,(footnote 3 

Although 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, 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 Congress contemplated the acquisition by bank holding companies of between 5 percent and 25 percent of the voting shares of banks. 

See 12 U.S.C § 1842(a)(3). 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. See, e.g., 

Brookline Bancorp, MHC, 86 Federal Reserve Bulletin 52 (2000) 

(acquisition of up to 9.9 percent of the voting shares of a bank holding 

company) end footnote)Passumpsic 

would become the 28th largest banking organization in 

New Hampshire, controlling approximately $135 million in 

deposits, which would represent less than 1 percent of state 

deposits. 

Siwooganock's investment in Lancaster Bank has been a 

passive investment, and Siwooganock has complied with 

certain commitments previously relied on by the Board in 

determining that an investing bank holding company would 

not exercise a controlling influence over another bank 

holding company or bank for purposes of the BHC Act 

(''Passivity Commitments''). Passumpsic has stated that it 

does not propose to control or exercise a controlling 

influence over Lancaster Bank and that its indirect investment in Lancaster Bank would also be a passive investment. In this light, Passumpsic has provided the Passivity 

Commitments to the Board(footnote 5 

The commitments made by Passumpsic are set forth in the 

appendix end footnote)For example, Passumpsic has 

committed not to exercise or attempt to exercise a controlling influence over the management or policies of Lancaster Bank or any of its subsidiaries; not to seek or accept 

representation on the board of directors of Lancaster Bank 

or any of its subsidiaries; and not to have any director, 

officer, employee, or agent interlocks with Lancaster Bank 

or any of its subsidiaries. Passumpsic also has committed 

not to attempt to influence the dividend policies, loan 
C168 Federal Reserve Bulletin • 2006 

decisions, or operations of Lancaster Bank or any of its 

subsidiaries. 

Based on these considerations and all the other facts of 

record, the Board has concluded that Passumpsic would not 

acquire control of, or have the ability to exercise a controlling influence over, Lancaster Bank through the proposed 

indirect acquisition of the bank' s voting shares. The Board 

notes that the BHC Act would require Passumpsic to file an 

application and receive the Board's approval before the 

company could directly or indirectly acquire additional 

shares of Lancaster Bank or attempt to exercise a controlling influence over Lancaster Bank(footnote 6 See, e.g., 

Emigrant Bancorp, Inc., 82 Federal Reserve Bulletin 

555 (1996); First Community Bancshares, Inc., 77 Federal Reserve 

Bulletin 50 (1991) end footnote) 

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 bank 

holding company' s home state if certain conditions are 

met. For purposes of the BHC Act, the home state of 

Passumpsic is Vermont,(footnote 7 A bank holding company's home 

state is the state in which the 

total deposits of all banking subsidiaries of such company were the 

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

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

end footnote)and Siwooganock is located in 

New Hampshire(footnote 8 For purposes of section 3(d) of the 

BHC Act, the Board considers 

a bank to be located in the states in which the bank is chartered, 

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 

relevant state statutes, the Board finds that all conditions 

for an interstate acquisition enumerated in section 3(d) of 

the BHC Act are met in this case(footnote 9 See 12 U.S.C. § 

1842(d)(1)(A) and (B) and 1842(d)(2)(A) and 

(B). Passumpsic is adequately capitalized and adequately managed, as 

defined by applicable law. Neither New Hampshire nor Vermont has 

any state age laws within the meaning of 12 U.S.C. § 1842(d)(1)(B). 

On consummation ofthe proposal, Passumpsic would control less than 

10 percent of the total amount of deposits of insured depository 

institutions (''total deposits'') in the United States and less than 

30 percent of total deposits in New Hampshire. All other requirements 

of section 3(d) would be met on consummation of the proposal. end footnote) 

In light of 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 in furtherance of an attempt to monopolize the 

business of banking in any relevant banking market. 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 10 12 U.S.C. § 1842(c)(1) end footnote) 

Passumpsic Bank, Siwooganock Bank, and Lancaster 

Bank compete directly in the Littleton banking market(footnote 

11 The Littleton banking market includes the towns of Bethlehem, 

Easton, Franconia, Landaff, Lisbon, Littleton, Lyman, Monroe, and 

Sugar Hill in Grafton County, New Hampshire; the towns of Carroll, 

Dalton, Groveton, Jefferson, Lancaster, Northumberland, Stratford, 

and Whitefield in Coos County, New Hampshire; and the towns of 

Brunswick, Granby, Guildhall, Lunenburg, and Maidstone in Essex 

County, Vermont. end footnote) 

The Board has reviewed carefully the competitive effects of 

the proposal in this banking market in light of all the facts 

of record. In particular, the Board has considered 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 Passumpsic 

Bank, Siwooganock Bank, and Lancaster Bank;(footnote 12 

Deposit and market share data are as of June 30, 2005, and are 

based on calculations in which the deposits of thrift institutions are 

included at 50 percent, with one exception. 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, 387 

(1989); National City Corporation, 70 Federal Reserve Bulletin 743, 

744 (1984). 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, 55 (1991). The 

deposits of one thrift in the banking market have been included at 

100 percent because that thrift is actively engaged in commercial 

lending. The Board has previously stated that it may weigh the 

deposits of savings associations at 100 percent when competition from 

the savings association approximates that of a commercial bank. See, 

e.g., Fifth Third Bancorp, 87 Federal Reserve Bulletin 330, 334 

(2001) end footnote)the concentration level of market deposits and the increase in the 

level as measured by the Herfindahl-Hirschman Index 

(''HHI'') under the Department of Justice Merger Guidelines (''DOJ Guidelines'');(footnote 13 Under the DOJ Guidelines, a 

market is considered unconcentrated if the post-merger HHI 

is under 1000, moderately concentrated 

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

concentrated if the post-merger HHI exceeds 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 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 non-depository financial entities end footnote)other characteristics 

of the 

market; and the Passivity Commitments made by Passumpsic with respect to Lancaster Bank. 

Passumpsic Bank is the sixth largest depository institution in the market, controlling $20 million in deposits, 

which represent 5.4 percent of market deposits. Siwooganock Bank is the second largest depository institution in the 

market, controlling $64 million in deposits, which represent 17 percent of market deposits. Lancaster Bank is the 

fifth largest depository institution in the market, controlling 

$51 million in deposits, which represent 14 percent of 

market deposits. If considered a combined organization on 

consummation of the proposal, Passumpsic, Siwooganock, 
Legal Developments: Third Quarter, 2006 

and Lancaster Bank would be the largest depository organization in the Littleton banking market, controlling 

$135 million in deposits, which would represent approximately 37 percent of market deposits. The proposal would 

exceed the DOJ Guidelines because the HHI for the 

Littleton banking market would increase 343 points to 

2509(footnote 14 If only Passumpsic Bank and Siwooganock 

Bank were considered as a combined organization, the HHI for the Littleton banking 

market would increase 191 points to 1864. Although the banking 

market would become highly concentrated, the proposal would be 

consistent with Board precedent and DOJ Guidelines in this banking 

market. Passumpsic would become the second largest depository 

organization in this market, controlling $84 million in deposits, which 

would represent 22.4 percent of market deposits end footnote) 

Consummation of the proposal would raise competitive 

issues in the Littleton banking market if Passumpsic 

acquired control of Lancaster Bank. As discussed above, 

Passumpsic does not intend to control the bank, and the 

Board has concluded that the proposal, including the 

Passivity Commitments, would not result in Passumpsic 

controlling or exercising a controlling influence over Lancaster Bank. Such a conclusion, however, does not end the 

Board' s inquiry under the competitive considerations in the 

BHC Act. The Board previously has noted that one company need not acquire control of another company to lessen 

competition between them substantially(footnote 15 

See, e.g., SunTrust Banks, Inc., 76 Federal Reserve Bulletin 542 

(1990); First State Corp., 76 Federal Reserve Bulletin 376, 379 

(1990); Sun Banks, Inc., 71 Federal Reserve Bulletin 243 (1985) 

(''Sun Banks') end footnote)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(footnote 16 See, e.g., 

BOK Financial Corp., 81 Federal Reserve Bulletin 

1052, 1053-54 (1995); Sun Banks at 244 end footnote) 

The Board has concluded, after careful analysis of the 

record, that no significant reduction in competition is likely 

to result from Passumpsic's proposed investment in Lancaster Bank. The record shows that Passumpsic intends to 

be a passive investor and that there will be no officer or 

director interlocks between Passumpsic and Lancaster 

Bank. There is no evidence that Passumpsic, by virtue of 

holding 10 percent of the voting shares of Lancaster Bank, 

would have access to confidential information that would 

enable it to engage in anticompetitive behavior with respect 

to Lancaster Bank(footnote 17 The Board recognizes that a 

significant reduction in competition 

can result from the sharing ofnonpublic financial information between 

two organizations that are not under common control. In this case, no 

such information sharing currently takes place, and there are no legal, 

contractual, or statutory provisions that would allow any access to 

financial information of Lancaster Bank beyond the information 

already available to shareholders with a less than 5 percent interest 

end footnote)Moreover, Passumpsic has committed 

not to exercise a controlling influence over Lancaster Bank 

and, therefore, may neither direct Lancaster Bank to act in 

coordination with Passumpsic nor acquire nonpublic financial information from Lancaster that would permit Passumpsic to act in a manner that reduces competition. 

The Board notes that additional factors indicate that the 

proposal is not likely to have a significantly adverse effect 

on competition in the Littleton banking market. In addition 

to Passumpsic, Siwooganock, and Lancaster Bank, five 

other bank and thrift competitors, including two competitors, each with market shares of at least 15 percent, provide 

additional sources of banking services to the market. The 

Board also notes that the market includes three community 

credit unions with broad fields of membership that include 

most of the residents in the market, offer a wide range of 

consumer banking products, and operate street-level 

branches with drive-up service lanes(footnote 18 The 

Board previously has considered competition from certain 

active credit unions as a mitigating factor. See Capital City Group, 

Inc., 91 Federal Reserve Bulletin 418 (2005); F.N.B. Corporation, 

90 Federal Reserve Bulletin 481 (2004); Gateway Bank & Trust Co., 

90 Federal Reserve Bulletin 547 (2004). If Passumpsic, Siwooganock, 

and Lancaster Bank were considered as a combined organization on 

consummation of the proposal, the HHI for the Littleton banking 

market would increase 323 points to 2366 when three of the market's 

credit unions are weighted at 50 percent. end footnote) 

The DOJ also has reviewed the proposal and has advised 

the Board that it does not believe that the acquisition would 

likely have a significantly adverse effect on competition in 

any relevant banking market. The appropriate banking 

agencies have been afforded an opportunity to comment 

and have not objected to the proposal. 

Accordingly, in light of 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 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 confidential reports of examination, other 

supervisory information from the primary supervisors of 

the organizations involved in the proposal, publicly reported and other financial information, and information 

provided by the applicant. 

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. 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. In assessing financial 

factors, the Board consistently has considered capital 

adequacy to be especially important. The Board expects 
C168 Federal Reserve Bulletin • 2006 

banking organizations contemplating expansion to maintain strong capital levels substantially in excess of the 

minimum levels specified by the Board's Capital Adequacy 

Guidelines. 

The Board has carefully considered the financial factors 

of the proposal. Passumpsic Bank is well capitalized, and 

both Passumpsic and Passumpsic Bank would be well 

capitalized on consummation of the proposal. Based on its 

review of the record, the Board also finds that Passumpsic 

has sufficient financial resources to effect the proposal and 

that the financial resources of Passumpsic and its subsidiaries would not be adversely affected by the proposal. The 

proposed transaction would be funded by a dividend from 

Passumpsic Bank. 

The Board also has considered the managerial resources 

of Passumpsic, Siwooganock, and their subsidiary banks. 

The Board has reviewed the examination records of these 

institutions, including assessments of their management, 

risk-management systems, and operations. In addition, the 

Board has considered its supervisory experiences and those 

of other relevant banking supervisory agencies with the 

organizations and their records of compliance with applicable banking law, including anti-money-laundering laws. 

Passumpsic, Siwooganock, and their subsidiary banks are 

considered to be well managed. 

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

that considerations relating to the financial and managerial 

resources and future prospects of Passumpsic and the 

institutions involved are consistent with approval, as are 

the other supervisory factors under the BHC Act. 

CONVENIENCE AND NEEDS CONSIDERATIONS 

In acting on a proposal under section 3 of the BHC Act, the 

Board also must consider the effects of the proposal 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 19 12 U.S.C. §2901 et seq.; 12 U.S.C. § 

1842(c)(2). end footnote)Passumpsic Bank and Siwooganock Bank 

received ''satisfactory'' ratings at their most recent examinations for CRA performance by the FDIC, as of September 7, 2004, and July 21, 2003, respectively. Lancaster 

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

CRA performance evaluation by the Office of the Comptroller of the Currency, as of June 13, 2001. The proposal 

would allow Passumpsic to offer a broader array of financial products and services over an expanded geographic 

area, including affordable housing programs, accounts with 

low- or no-balance requirements, no-cost electronic banking services, and electronic transfer accounts. Based on all 

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

relevant depository institutions 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 and other 

applicable statutes. The Board's approval is specifically 

conditioned on compliance by Passumpsic with the conditions imposed in this order and the commitments made to 

the Board in connection with the application. 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 transaction may not be consummated 

before the 15th 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 Boston, acting 

pursuant to delegated authority. 

By order of the Board of Governors, effective September 15, 2006. 

Voting for this action: Chairman Bernanke, Vice Chairman Kohn, 

and Governors Warsh, Kroszner, and Mishkin. Absent and not voting: 

Governor Bies. 

ROBERT DEV. FRIERSON 

Deputy Secretary of the Board 

Appendix 

Passumpsic Bancorp (''Passumpsic''), St. Johnsbury, Vermont, commits that Passumpsic will not, without the prior 

approval of the Federal Reserve, directly or indirectly: 

(1) exercise or attempt to exercise a controlling influence 

over the management or policies of The Lancaster 

National Bank (''Lancaster Bank''), Lancaster, 

New Hampshire, or any of its subsidiaries; 

(2) seek or accept representation on the board of directors 

of Lancaster Bank or any of its subsidiaries; 

(3) have or seek to have any employee or representative 

serve as an officer, agent, or employee of Lancaster 

Bank or any of its subsidiaries; 

(4) take any action that would cause Lancaster Bank or 

any of its subsidiaries to become a subsidiary of 

Passumpsic or any of Passumpsic's subsidiaries; 

(5) acquire or retain shares that would cause the combined 

interests of Passumpsic and any of Passumpsic's 

subsidiaries and their officers, directors, and affiliates 

to equal or exceed 25 percent of the outstanding 

voting shares of Lancaster Bank or any of its subsidiaries; 

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

a nominee or slate of nominees proposed by the 

management or the board of directors of Lancaster 

Bank or any of its subsidiaries; 

(7) solicit or participate in soliciting proxies with respect 

to any matter presented to the shareholders of Lancaster Bank or any of its subsidiaries; 

(8) attempt to influence the dividend policies or practices; 

the investment, loan, or credit decisions or policies; 
Legal Developments: Third Quarter, 2006 C199 

the pricing of services; personnel decisions; operations activities (including the location of any offices or 

branches or their hours of operation, etc.); or any 

similar activities or decisions of Lancaster Bank or 

any of its subsidiaries; 

(9) dispose or threaten to dispose of shares of Lancaster 

Bank or any of its subsidiaries as a condition of 

specific action or nonaction by Lancaster Bank or any 

of its subsidiaries; or 

(10) enter into any banking or non-banking transactions 

with Lancaster Bank or any of its subsidiaries, except 

that Passumpsic may establish and maintain deposit 

accounts with any depository institution subsidiary of 

Lancaster Bank, provided that the aggregate balance 

of all such accounts does 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 Lancaster Bank or 

any of its subsidiaries. 

Trustmark Corporation 

Jackson, Mississippi 

Order Approving the Merger of Bank 

Holding Companies 

Trustmark Corporation (''Trustmark''), 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 merge with Republic 

Bancshares of Texas, Inc. (''Republic'') and acquire its 

subsidiary bank, Republic National Bank (''Republic 

Bank''), both of Houston, Texas(footnote 2 Trustmark's 

lead subsidiary bank, Trustmark National Bank 

(''Trustmark Bank''), also of Jackson, has filed an application with the 

Office of the Comptroller of the Currency ('' OCC'') to merge Republic 

Bank into Trustmark Bank pursuant to the Bank Merger Act (12 U.S.C. 

§ 1828(c)) end footnote) 

Notice of the proposal, affording interested persons an 

opportunity to submit comments, has been published in 

the Federal Register (71 Federal Register 30,680 (2006)). 

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. 

Trustmark, with total consolidated assets of approximately $8.2 billion, is the 110th largest depository organization in the United States(footnote 3 Asset data are as of March 31, 

2006, and nationwide ranking data 

are as of December 31, 2005. Statewide deposit and ranking data are 

as of June 30, 2005, and reflect merger activity through May 5, 2006. 

In this context, insured depository institutions include commercial 

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

operates subsidiaryinsured depository institutions in Florida, Mississippi, 

Tennessee, and Texas. In Texas, Trustmark is the 195th 

largest depository organization, controlling deposits of 

approximately $139 million. 

Republic, with total consolidated assets of approximately $654 million, operates one subsidiary-insured -

depository institution in Texas. Republic is the 64th largest 

depository organization in the state, controlling deposits of 

approximately $541 million. 

On consummation of this proposal, Trustmark would 

become the 104th largest insured depository organization 

in the United States, with total consolidated assets of 

approximately $8.9 billion. In Texas, Trustmark would 

become the 54th largest depository organization, controlling deposits of approximately $680 million, which represent less than 1 percent of the total amount of deposits of 

insured depository institutions in the state. 

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. For purposes of the BHC Act, the home state of 

Trustmark is Mississippi,(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)and Republic is 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 (12 U.S.C. §§ 1841(o)(4)-(7), 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 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 1842(d)(2)(A)-(B). Trustmark is adequately capitalized and adequately managed, as defined by 

applicable law. Republic Bank has been in existence and operated for 

the minimum period of time required by applicable state law (five 

years). On consummation of the proposal, Trustmark 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 of section 3(d) of the BHC Act would be met 

on consummation of the proposal end footnote)In light of 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 in furtherance of an attempt to monopolize the 

business of banking in any relevant banking market. 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 7 12 U.S.C. § 1842(c)(1) end footnote) 
Federal Reserve Bulletin • 2006 

Trustmark and Republic compete directly in the Houston, Texas banking market (''Houston Market'' )(footnote 8 

The Houston Market is defined as the Houston-Sugar LandBaytown Metropolitan Statistical Area (''MSA''), which includes 

Austin, Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty, 

Montgomery, San Jacinto, and Waller counties, all in Texas. end footnote)The 

Board has reviewed carefully the competitive effects of the 

proposal in this banking market in light of all the facts of 

record. In particular, the Board has considered 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 Trustmark and 

Republic,(footnote 9 Deposit and market share data are as 

of June 30, 2005, reflect 

merger activity through May 5, 2006, 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, 387 (1989); National City Corporation, 70 Federal 

Reserve Bulletin 743, 744 (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, 55 (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, a market is considered unconcentrated if the post-merger HHI is under 1000, moderately concentrated 

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

concentrated if the post-merger HHI exceeds 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 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 non depository financial entities end footnote) and other characteristics of the market. 

Consummation of the proposal would be consistent with 

Board precedent and the DOJ Guidelines. After consummation, the Houston Market would remain highly concentrated as measured by the HHI, with no increase in 

concentration, and numerous competitors would remain in 

the market(footnote 11 In the Houston Market, Trustmark 

is the 50th largest depository 

organization, controlling deposits of $139 million, which represent 

less than 1 percent of market deposits. Republic is the 22nd largest 

depository organization in the market, controlling deposits of $541 million, which represent less than 1 percent of market deposits. On 

consummation of the proposed merger, Trustmark would become the 

20th largest depository institution in the Houston Market, controlling 

deposits of approximately $680 million, which represent less than 

1 percent of market deposits. The HHI would remain unchanged at 

2161, and 106 competitors would remain in the market end footnote) 

The DOJ also has conducted a detailed review of the 

potential 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 the Houston Market or in any other 

relevant banking market. Accordingly, 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. The Board 

has considered these factors in light of all the facts of 

record, including confidential reports of examination and 

other supervisory information received from the federal 

and state supervisors of the organizations involved, publicly reported and other financial information, information 

provided by Trustmark, and public comments received on 

the proposal. 

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. The Board considers a variety of factors in this 

evaluation, 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 at consummation, 

including its capital position, asset quality, and earnings 

prospects, and the impact of the proposed funding of the 

transaction. 

The Board has considered carefully the proposal under 

the financial factors. Trustmark, both of its subsidiary 

banks, and Republic Bank are well capitalized and would 

remain so on consummation of the proposal. Based on its 

review of these factors, the Board finds that Trustmark has 

sufficient financial resources to effect the proposal. The 

proposed transaction is structured as a partial share exchange and partial cash purchase. 

The Board also has considered the managerial resources 

of the organizations involved and the proposed combined 

organization. The Board has reviewed the examination 

records of Trustmark, Republic, and their subsidiary banks, 

including assessments of their management, riskmanagement systems, and operations. In addition, the 

Board has considered its supervisory experiences and those 

of the other relevant banking supervisory agencies with the 

organizations and their records of compliance with applicable banking law, including anti-money-laundering laws. 

Trustmark, Republic, and their subsidiary depository institutions are considered to be well managed. The Board also 

has considered Trustmark's plans for implementing the 
Legal Developments: Third Quarter, 2006 

proposal, including the proposed management after 

consummation. 

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

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 under the BHC Act. 

CONVENIENCE AND NEEDS CONSIDERATIONS 

In acting on a proposal under section 3 of the BHC Act, the 

Board also must consider the effects of the proposal 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 12 12 U.S.C. §2901 etseq.; 12 U.S.C. § 1842 

(c)(2) end footnote)The CRA requires the federal financial 

supervisory agencies to encourage insured depository 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 a relevant 

depository institution's record of meeting the credit needs 

of its entire community, including low- and moderateincome (''LMI'') neighborhoods, in evaluating bank expansionary proposals(footnote 13 12 U.S.C. §2903 end footnote) 

The Board has considered carefully all the facts of 

record, including evaluations of the CRA performance 

records of Trustmark's and Republic's subsidiary banks, 

data reported by Trustmark under the Home Mortgage 

Disclosure Act (''HMDA'')(footnote 14 12 U.S.C. § 2801 etseq. 

end footnote)other information provided 

by Trustmark, confidential supervisory information, and 

public comment received on the proposal. A commenter 

opposed the proposal and alleged, based on 2004 HMDA 

data reported by Trustmark for its Jackson, Mississippi, and 

Memphis, Tennessee assessment areas, that Trustmark 

engaged in discriminatory treatment of minority individuals in its home mortgage lending(footnote 15 The commenter 

expressed concern about Trustmark's relationships with unaffiliated pawn shops and other non traditional providers 

offinancial services. As a general matter, the activities of the consumer 

finance businesses identified by the commenter are permissible, and 

the businesses are licensed by the states where they operate when so 

required. Trustmark has stated that it makes loans to such non-traditional providers under the same terms, circumstances, and due diligence procedures as are applicable to Trustmark's other small business 

borrowers. Trustmark has represented that it does not play any role in 

the lending practices, credit review, or other business practices of these 

firms end footnote) 

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, onsite evaluation of the institution' s overall record of performance under the CRA by its appropriate federal 

supervisor(footnote 16 See Interagency Questions and Answers 

Regarding Community 

Reinvestment, 66 Federal Register 36,620 at 36,640 

(2001) end footnote) 

Trustmark Bank, Trustmark' s largest subsidiary bank as 

measured by total deposits, received a ''satisfactory'' rating 

from the OCC at its most recent CRA performance evaluation, as of November 2, 1998(footnote 17 As of March 31, 2006, 

Trustmark Bank accounted for approximately 97.5 percent of the total domestic deposits of Trustmark's two 

subsidiary banks end footnote)Trustmark's other subsidiary bank, Somerville Bank & Trust Company ('' Somerville Bank''), Somerville, Tennessee, received an 

''outstanding'' rating from the Federal Deposit Insurance 

Corporation ("FDIC'') at its most recent CRA evaluation, 

as of September 23, 2002. In addition, Republic Bank 

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

performance evaluation by the OCC, as of November 4, 

2005. Trustmark has represented that its CRA and consumer compliance programs would be implemented at the 

operations acquired from Republic after the merger of 

Trustmark Bank and Republic Bank. 

B. HMDA and Fair Lending Record 

The Board has considered carefully the lending records of 

Trustmark' s subsidiary banks in light of public comment 

about their records of lending to minorities. A commenter 

alleged, based on 2004 HMDA data, that Trustmark had 

disproportionately denied applications for HMDAreportable loans by African-American and Hispanic applicants in the Memphis, Tennessee, MSA and AfricanAmerican applicants in the Jackson, Mississippi, MSA. 

The commenter also asserted, based on 2004 HMDA 

data, that Trustmark made higher-cost loans(footnote 18 

Beginning January 1, 2004, the HMDA data required to be 

reported by lenders were expanded to include pricing information for 

loans on which the annual percentage rate exceeds the yield for U.S. 

Treasury securities of comparable maturity 3 or more percentage 

points for first-lien mortgages and 5 or more percentage points for 

second-lien mortgages (12 CFR 203.4) end footnote)in the Jackson MSA more frequently to African Americans than to 

nonminorities(footnote 19 The comments have been forwarded to 

the OCC, the primary 

federal supervisor of Trustmark Bank, for its 

consideration in the 

context of evaluating the bank for compliance with 

fair lending laws 

and regulations end footnote) 

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

or pricing among members of different racial or ethnic 

groups in certain local areas, they provide an insufficient 

basis by themselves on which to conclude whether or not 

Trustmark or its subsidiaries are excluding or imposing 

higher costs on any racial or ethnic group on a prohibited 

basis(foonote 20 The Board analyzed the 2004 and preliminary 2005 

HMDA data 

reported by Trustmark Bank in the Jackson and Memphis MSAs and in its 

statewide assessment areas in Tennessee, Florida, Louisiana, Mississippi, and Texas end footnote) 

The Board recognizes that HMDA data alone, 

even with the recent addition of pricing information, 
Federal Reserve Bulletin • 2006 

provide only limited information about the covered loans 

(footnote 21 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. In addition, credit 

history problems, excessive debt levels relative to income, and high 

loan amounts relative to the value of the real estate collateral (reasons 

most frequently cited for a credit denial or higher credit cost) 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 engaged in illegal lending 

discrimination. 

The Board is nevertheless concerned when HMDA data 

for an institution indicate disparities in lending and believes 

that all lending institutions 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. Because of 

the limitations of HMDA data, the Board has considered 

these data carefully and taken into account other information, including examination reports that provide on-site 

evaluations of compliance by Trustmark' s subsidiary banks 

with fair lending laws. 

Examiners found no substantive violations of applicable 

fair lending laws during the fair lending reviews they 

conducted in conjunction with the most recent CRA performance evaluations of Trustmark's subsidiary banks. In 

addition, the record indicates that Trustmark has taken 

steps to ensure compliance with fair lending and other 

consumer protection laws. Trustmark employs an internal 

second-review process for home loan applications that 

would otherwise be denied and analyzes its HMDA data 

periodically. Furthermore, Trustmark monitors its compliance with fair lending laws by analyzing disparities in its 

rates of lending for select products and markets and by 

conducting a more extensive internal comparative file 

review when merited. Trustmark also provides annual fair 

lending training to all its lending personnel. 

The Board also has considered the HMDA data in light 

of other information, including the CRA performance 

records of Trustmark's subsidiary banks. Based on all the 

facts of record, the Board concludes that Trustmark' s 

established efforts and record demonstrate that Trustmark is 

active in helping to meet the credit needs of all of its 

communities. 

the entire record and for the reasons discussed above, the 

Board has concluded that considerations relating to the 

convenience and needs factor and the CRA performance 

records of the relevant depository institutions are consistent 

with approval(footnote 22 The commenter requested that the 

Board hold a public hearing 

or meeting on the proposal. Section 3 ofthe 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 

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 had ample opportunity to submit comments on the proposal and, in fact, submitted written comments that the Board has 

considered carefully in acting on the proposal. The commenter's 

request fails to demonstrate why the written comments do not present 

its views adequately or why a meeting or hearing otherwise would be 

necessary or appropriate. 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 request for a 

public hearing or meeting on the proposal is denied. end footnote) 

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 

Trustmark with the conditions 

imposed in this order and the 

commitments made to the Board in 

connection with the 

application. 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 transaction may not be 

consummated 

before the 15th 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 August 3, 

2006. 

Voting for this action: Chairman Bernanke 

and Governors Bies, Kohn, Kroszner, and Warsh. Deputy Secretary ROBERT DEV of. the FRIERSO Board N 

C. Conclusion on CRA Performance Records 

The Board has considered carefully all the facts of record, 

including reports of examination of the CRA records of the 

institutions involved, information provided by Trustmark, 

comments received on the proposal, and confidential supervisory information. Trustmark has represented that the 

proposed transaction would provide Republic's customers 

with expanded products and services. Based on a review of 
Legal Developments: Third Quarter, 2006 

ORDER ISSUED UNDER SECTION 4 OF 

THE BANK HOLDING COMPANY ACT 

Wachovia Corporation 

Charlotte, North Carolina 

Order Approving Acquisition of Savings 

Associations and Other Non-banking 

Companies 

Wachovia Corporation (''Wachovia''), a financial holding 

company within the meaning of the Bank Holding Company Act (''BHC Act''), has requested the Board's approval 

under sections 4(c)(8) and 4(j) of the BHC Act(footnote 1 

12 U.S.C. §§ 1843(c)(8) and 1843(j) end footnote)and 

section 225.24 of the Board's Regulation Y(footnote 2 

12 CFR 225.24 end footnote)to acquire 

Golden West Financial Corporation (''Golden West''), Oakland, California, and its subsidiary savings associations, 

World Savings Bank, FSB (''World Savings''), Oakland, 

California, and World Savings Bank, FSB (Texas) ('' World 

Savings TX''), Houston, Texas(footnote 3 Wachovia plans to merge 

Golden West into Wachovia, with 

World Savings and World Savings-TX each becoming a subsidiary 

savings association of Wachovia. World Savings-TX is currently a 

wholly owned subsidiary of World Savings, and Wachovia has committed to revise that structure so that World Savings-TX will not be a 

subsidiary of any insured depository institution end footnote) 

In addition, Wachovia has 

requested the Board' s approval to acquire indirectly certain 

non-banking subsidiaries of Golden West and World Savings and thereby engage in credit extension, trust company, 

investment advisory, and securities brokerage activities in 

accordance with section 4(c)(8) of the BHC Act and 

section 225.28(b) of the Board's Regulation Y(footnote 4 

See Appendix A for a listing of these subsidiaries and their 

activities. Wachovia also proposes to acquire Golden West's subsidiary, World Savings Insurance Agency, Inc., San Leandro, California, 

in accordance with section 4(k) of the BHC Act (12 U.S.C. § 1843(k)) 

end footnote) 

Notice of the proposal, affording interested persons an 

opportunity to submit comments, has been published in the 

Federal Register (71 Federal Register 40,122 (2006)). The 

time for filing comments has expired, and the Board has 

considered the notice and all comments received in light of 

the factors set forth in section 4 of the BHC Act. 

Wachovia, with total consolidated assets of approximately $553.6 billion, is the third largest depository organization in the United States, controlling deposits of 

approximately $308.7 billion, which represent approximately 4.8 percent of the total amount of deposits of 

insured depository institutions in the United States(footnote 5 

Nationwide asset data are as of June 30, 2006. Nationwide 

deposit and ranking data are as of June 30, 2005, and reflect merger 

activity through August 9, 2006. In this context, insured depository 

institutions include commercial banks, savings banks, and savings 

associations. end footnote)Wachovia operates two insured subsidiary depository institutions, 

Wachovia Bank, National Association ('' Wachovia Bank''), 

Charlotte, North Carolina, and Wachovia Bank of 

Delaware, National Association (''Wachovia Bank-DE''), Wilmington, Delaware, in 16 states and the District of Columbia(footnote 6 Wachovia's subsidiary banks operate in Alabama, 

California, 

Connecticut, Delaware, Florida, Georgia, Maryland, Mississippi, 

New Jersey, New York, North Carolina, Pennsylvania, South Carolina, 

Tennessee, Texas, and Virginia. end footnote) 

Golden West, with total consolidated assets of approximately $128.8 billion, is the tenth largest depository organization in the United States, controlling deposits of 

approximately $62.6 billion, which represent approximately 1 percent of the total amount of deposits of insured 

depository institutions in the United States. Golden West 

operates World Savings and World Savings-TX in ten 

states(footnote 7 Golden West' s subsidiary savings associations operate in Arizona, California, Colorado, Florida, Illinois, Kansas, Nevada, New Jersey, New York, and Texas. end footnote) 

On consummation of this proposal, Wachovia would 

remain the third largest depository organization in the 

United States, with total consolidated assets of approximately $682.4 billion. Wachovia would control deposits of 

approximately $371 billion, which represent approximately 

5.8 percent of the total amount of deposits of insured 

depository institutions in the United States. 

The Board previously has determined by regulation that 

the operation of a savings association by a bank holding 

company and the other non-banking activities for which 

Wachovia has requested approval are closely related to 

banking for purposes of section 4(c)(8) of the BHC Act. 

(footnote 8 12 CFR 225.28(b)(1), (2), 4(ii), (5), (6), and (7)(i). end footnote) 

The Board requires that savings associations acquired by 

bank holding companies conform their direct and indirect 

activities to those permissible for bank holding companies 

under section 4(c)(8) of the BHC Act(footnote 9 12 CFR 225.28(b) 

(4)(ii). See, e.g., Citigroup Inc., 88 Federal 

Reserve Bulletin 485, 486 (2002); The Banc Corporation, 85 Federal 

Reserve Bulletin 269, 270 (1999) end footnote)Wachovia has 

represented that Golden West already conducts its activities 

in accordance with the limitations set forth in Regulation Y 

and the Board's orders governing the conduct of these 

activities by bank holding companies. Wachovia has committed that the activities of World Savings, World SavingsTX, and the other nonbanking subsidiaries that it proposes 

to acquire will be limited to those activities that are 

permissible for bank holding companies under section 4(c)(8). 

Section 4(j)(2)(A) of the BHC Act requires the Board to 

determine that the proposed acquisition of World Savings, 

World Savings-TX, and the other non-banking subsidiaries 

'' can reasonably be expected to produce benefits to the 

public that outweigh possible adverse effects, such as 

undue concentration of resources, decreased or unfair 

competition, conflicts of interests, or unsound banking 

practices(footnote 10 See 12 U.S.C. § 1843(j)(2)(A) end footnote) 

As part of its evaluation under these public 

interest factors, the Board reviews the financial and managerial resources of the companies involved, the effect of the 

proposal on competition in the relevant markets, and the 
Federal Reserve Bulletin • 2006 

public benefits of the proposal(footnote 11 12 CFR 225.26; see, e.g. 

, BancOne Corporation, 83 Federal 

Reserve Bulletin 602 (1997) end footnote)In acting on notices to 

acquire savings associations, the Board also reviews the 

records of performance of the relevant insured depository 

institutions under the Community Reinvestment Act 

('' CRA'' )(footnote 12 12 U.S.C. § 2901 etseq. end footnote) 

The Board has considered these factors in light of all the 

facts of record, including confidential supervisory and 

examination information, publicly reported financial information, and public comments submitted on the proposal 

( footnote 13 The Board received more than 200 comments 

supporting the 

transaction and approximately ten comments expressing concern about 

various aspects of the proposal end footnote) 

The Board also has consulted with, and considered information provided by, the Office of the Comptroller of the 

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

Wachovia's subsidiary depository institutions, and the 

Office of Thrift Supervision (''OTS''), the primary federal 

supervisor of Golden West and its subsidiary savings 

associations. 

COMPETITIVE CONSIDERATIONS 

The Board has considered carefully the competitive effects 

of Wachovia's acquisition of Golden West, including the 

acquisition of World Savings and World Savings-TX, and 

of the other Golden West non-banking subsidiaries in light 

of all of the facts of record. 

A. Acquisition of Savings Associations 

Wachovia and Golden West have subsidiary depository 

institutions that compete directly in 26 banking markets in 

California, Florida, New Jersey, New York, and Texas(footnote 

14 These banking markets are described in Appendix B end footnote)The 

Board has reviewed carefully the competitive effects of the 

proposal in each of these relevant banking markets in light of 

all the facts of record, including public comment on the 

proposal. In particular, the Board has considered 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 Wachovia and 

Golden West,(footnote 15 State deposit and market share 

data are as of June 30, 2005, 

adjusted to reflect subsequent mergers and acquisitions through 

August 9, 2006, and are based on calculations in which the deposits of 

thrift institutions, including World Savings and World Savings-TX, 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, 387 (1989); National City Corporation, 70 Federal Reserve Bulletin 743, 744 (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, 55 (1991) end footnote)the concentration 

levels 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 16 

Under the DOJ Guidelines, a market is considered unconcentrated if 

the post-merger HHI is under 1000, moderately concentrated 

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

concentrated if the post-merger HHI exceeds 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 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 non depository financial entities and other characteristics of the markets. 

1. Banking Markets within Established Guidelines 

Consummation of the proposal would be consistent with 

Board precedent and within the thresholds in the DOJ 

Guidelines in 24 of the 26 banking markets(footnote 17 

The effect of the proposal on the concentration of banking 

resources in these 24 markets is described in Appendix B. One 

commenter alleged that the proposal exceeded DOJ Guidelines in 

three of the 26 banking markets, including the two markets discussed 

in the order and the West Palm Beach Area, Florida banking market. 

As described in Appendix B, the competitive impact of the proposal in 

the West Palm Beach Area market is within the DOJ Guidelines end footnote) 

Of these 24 

banking markets, 3 banking markets would remain 

unconcentrated; 20 markets would remain moderately concentrated; and 1 market would remain highly concentrated, 

without an increase in market concentration as measured by 

the HHI(footnote 18 In making these calculations, the 

Board weighted the current 

market deposits of savings associations, including World Savings and 

World Savings-TX, at 50 percent. In the post-consummation calculations, the market deposits of World Savings and World Savings-TX are 

weighted at 100 percent because they would be controlled by a 

commercial banking organization end footnote) 

Numerous competitors would remain in each of 

the 24 banking markets. 

2. Two Banking Markets Warranting Special Scrutiny 

Wachovia and Golden West compete directly in two banking markets that warrant a detailed review: Punta Gorda 

Area and Indian River County, both in Florida. In these 

markets, the concentration levels on consummation would 

exceed the DOJ Guidelines or the resulting market share 

would be significant. 

For these markets, the Board has considered whether 

other factors either mitigate the competitive effects of the 

proposal or indicate that the proposal would have a 

significantly adverse effect on competition in the market. 

The number and strength of factors necessary to mitigate 

the competitive effects of a proposal depend on the size 

of the increase and the resulting level of concentration in 

a banking market(footnote 19 See NationsBank Corporation, 

84 Federal Reserve Bulletin 129 

(1998) end footnote)The Board has identified factors that 

indicate the proposal would not have a significantly adverse impact on competition, despite the postconsummation increases in the HHIs and market shares in 

both markets. 
Legal Developments: Third Quarter, 2006 

Punta Gorda Area. In the Punta Gorda Area banking 

market,(footnote 20 The Punta Gorda Area banking market is defined 

as the portion 

of Charlotte County that is east of the harbor at the Myakka River and 

the portion of Sarasota County that is both east of the Myakka River 

and south of Interstate 75 (currently the towns of North port and Port 

Charlotte), all in Florida. end footnote)the HHI would slightly exceed 

the DOJ Guidelines on consummation. Wachovia is the largest depository 

institution in the market, controlling deposits of approximately $780.5 million, which represent 25.5 percent of 

market deposits. Golden West is the eighth largest depository institution in the market, controlling deposits of 

approximately $183.9 million, which on a 50-percent 

weighted basis represent 3 percent of market deposits. On 

consummation of the proposal, Wachovia would remain the 

largest depository organization in the market, controlling 

deposits of approximately $964.4 million, which represent 

approximately 30.6 percent of market deposits. The HHI 

would increase 222 points to 1836. 

Several factors indicate that the increase in concentration in the Punta Gorda Area banking market, as measured 

by the HHI, overstates the potential anticompetitive effect 

of the proposal in the market. After consummation of the 

proposal, 14 other depository institution competitors would 

remain in the market. In addition, the second and third 

largest bank competitors in the market would control 

approximately 21 percent and 16 percent, respectively, of 

market deposits. 

In addition, significant recent entries in the Punta Gorda 

Area banking market evidence the market' s attractiveness 

for entry. The Board notes that two depository institutions 

have entered the market de novo since June 2005(footnote 21 

The deposit data used to calculate market deposits are as of 

June 30, 2005, and accordingly do not include these institutions end footnote) 

Other factors indicate that the market remains attrac

From 2002 to 2005, the annualized percentage increase in 

total deposits in the market exceeded both the annualized 

average percentage increase in total deposits statewide and 

the average annualized percentage deposit increase for all 

Florida metropolitan areas. Furthermore, during that time 

period, the annualized percentage increase in population in 

the market exceeded that of the state and its metropolitan 

areas. 

Indian River County. In the Indian River County banking 

market,(fotnote 22 The Indian River County banking market is 

defined as Indian 

River County, Florida end footnote)the HHI would also exceed the 

DOJ Guidelines 

on consummation. Wachovia is the largest depository institution in the market, controlling deposits of approximately 

$1 billion, which represent 30.5 percent of market deposits. 

Golden West is the seventh largest depository institution in 

the market, controlling deposits of approximately 

$367.6 million, which on a 50-percent weighted basis 

represent 5.6 percent of market deposits. On consummation 

of the proposal, Wachovia would remain the largest depository organization in the market, controlling deposits of 

approximately $1.4 billion, which represent approximately 

39.4 percent of market deposits. The HHI would increase 

538 points to 2041. 

A number of factors indicate that the increase in concentration in the Indian River banking market, as measured by 

the HHI, overstates the potential anticompetitive effects in 

the market. After consummation of the proposal, 14 other 

depository institution competitors would remain in the 

market. In addition, the second and third largest bank 

competitors in the market would each control approximately 12 percent of market deposits. 

The Board also has considered the competitive influence 

of an active community credit union that offers a wide 

range of consumer banking products. The Indian River 

Federal Credit Union (''Indian River FCU'') controls 

approximately $57 million in deposits in the Indian River 

County banking market. Almost all residents in the banking 

market are eligible for membership in this credit union, 

which operates street-level branches with drive-up service 

lanes(footnote 23 The Board previously has considered the 

competitive influence 

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). If the deposits of 

the Indian River FCU are weighted at 50 percent, Wachovia would be 

the largest of 17 depository institutions in the market, with approximately 30.2 percent of market deposits, and Golden West would be the 

seventh largest depository institution in the market, controlling 

approximately 5.5 percent of market deposits. On consummation of 

the proposal, Wachovia would remain the largest depository institution 

in the market with deposits of approximately $1.4 billion or approximately 39.1 percent of market deposits. The HHI would increase 

530 points to 2009 end footnote)The Board concludes that this credit 

union exerts a 

competitive influence that mitigates, in part, the potential 

anticompetitive effects of the proposal. 

In addition, the record of significant recent entry into the 

Indian River County banking market evidences the market' s 

attractiveness for entry. In particular, the Board notes that 

two depository institutions have entered the market de novo 

since June 2005(footnote 24 For the reasons noted above, 

the deposits 

of these institutions 

have not been included in calculating market deposits. 

The Board also notes that National City Corporation (''National 

City''), Cleveland, Ohio, is seeking Board approval to acquire Harbor 

Florida Bancshares Inc. and its subsidiary thrift, Harbor Federal 

Savings Bank (''Harbor FSB''), both of Fort Pierce, Florida. This 

transaction, if approved and consummated, would significantly reduce 

any potential anticompetitive effects of the transaction in the market. 

Harbor FSB controls $352.9 million of deposits in the market, 

representing 5.3 percent of 50-percent weighted market deposits, 

making it the eighth largest depository institution in the market. If 

National City were to consummate its proposed acquisition of Harbor 

FSB before Wachovia acquires Golden West, the HHI in the market 

would increase 480 points to 1890 as a result of the Golden West 

acquisition end footnote)Other factors indicate that the Indian 

River County banking market remains attractive for entry. 

For example, from 2002 to 2005, the annualized percentage 

increase in total market deposits in the Indian River County 

banking market exceeded the annualized average percentage increase in total deposits for Florida metropolitan 

markets and the annualized percentage increase in total 

deposits nationwide and for Florida statewide during that 

time period. The market' s annualized percentage increase in 
Federal Reserve Bulletin • 2006 

population and per capita income exceeded the annualized 

percentage increase in population and the per capita income 

nationwide and for Florida statewide. 

B. Other Nonbanking Activities 

The Board also has carefully considered the competitive 

effects of Wachovia's proposed acquisition of Golden 

West's other non-banking subsidiaries in light of all the 

facts of record. Wachovia and Golden West both engage in 

credit extension, trust company, investment advisory, and 

securities brokerage activities. The markets for these activities are regional or national in scope and unconcentrated, 

and there are numerous providers of these services. Accordingly, the Board concludes that Wachovia' s acquisition of 

Golden West's other non-banking subsidiaries would not 

have a significantly adverse effect on competition in any 

relevant market. 

C. Views of Other Agencies and Conclusion on 

Competitive Considerations 

The DOJ also reviewed the probable competitive effects of 

the proposal, including the acquisition of World Savings, 

World Savings-TX, and the other non banking subsidiaries 

of Golden West and has advised the Board that consummation of the transaction would not likely have a significantly 

adverse effect on competition in any relevant banking 

market, including the Punta Gorda Area and Indian River 

County banking markets, or in any relevant market for the 

other proposed banking activities. 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 proposed transaction, including the 

acquisition of World Savings, World Savings-TX, and the 

other non banking subsidiaries of the Golden West organization, would not have a significantly adverse effect on 

competition or on the concentration of resources in the 

Punta Gorda Area or Indian River County banking markets, 

in any other relevant banking market, or in any relevant 

market for the other proposed non banking activities. Accordingly, the Board has determined that competitive considerations are consistent with approval. 

FINANCIAL, MANAGERIAL, AND OTHER 

SUPERVISORY FACTORS 

In reviewing the proposal under section 4 of the BHC Act, 

the Board has carefully considered the financial and managerial resources of Wachovia, Golden West, and their 

subsidiaries. The Board also has reviewed the effect that the 

transaction would have on those resources in light of all 

facts of record, including confidential reports of examination, other supervisory information from the primary federal and state supervisors of the organizations involved in 

the proposal, publicly reported and other financial information, information provided by Wachovia and Golden West, 

and public comments received on the proposal. 

In evaluating financial resources in expansion proposals by banking organizations, the Board reviews the financial condition of the organizations involved on both a 

parent-only and consolidated basis, as well as the financial condition of the subsidiary-insured depository institutions and the organizations' nonbanking operations. In 

this evaluation, the Board considers a variety of information, 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 at consummation, 

including its capital position, asset quality, and earnings 

prospects, and the impact of the proposed funding of the 

transaction. 

The Board has carefully considered the financial factors 

of the proposal. Wachovia, Golden West, and their subsidiary depository institutions are well capitalized and would 

remain so on consummation of the proposal(footnote 25 Several 

commenter's expressed concern about the financial 

impact of World Savings' adjustable-rate and non traditional mortgage 

lending activities on the combined organization, asserting that interest 

rate increases and other economic uncertainties would increase the 

probability of borrower default. The Board has reviewed the anticipated capital levels, financial resources, and risk-management systems 

of the combined organization and World Savings' record of managing 

its mortgage portfolio in its consideration of the financial and managerial factors of this proposal. The Board also has consulted with the 

OTS about World Savings' lending products and activities, including 

the institution' s risk-management programs end footnote)Based on its 

review of the record, the Board also finds that Wachovia 

has sufficient financial resources to effect the proposal. The 

proposed acquisition is structured as a combined cash 

purchase and share exchange. 

The Board also has considered the managerial resources 

of the organizations involved and the proposed combined 

organization. The Board has reviewed the examination 

records of Wachovia, Golden West, and their subsidiary 

depository institutions, including assessments of their management,(footnote 26 A commenter alleged that Wachovia's board 

of directors and 

management officials lacked ethnic diversity. The Board notes that the 

racial, ethnic, or gender compositions of a banking organization's 

management are not factors that the Board is permitted to consider 

under the BHC Act. See Western Bancshares, Inc. v. Board of 

Governors, 480 F.2d 749 (10th Cir. 1973) end footnote)risk-management 

systems, and operations. In 

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

agencies with the organizations and their records of compliance with applicable banking laws and with anti-moneylaundering laws(footnote 27 A commenter expressed concern about 

Wachovia's relationships 

with unaffiliated pawn shops and other non traditional providers of 

financial services. As a general matter, the activities of the consumer 

finance businesses identified by the commenter are permissible, and 

the businesses are licensed by the states in which they operate when so 

required. Wachovia stated that it makes loans to these types of 

non-traditional providers under terms, circumstances, and due-diligence 

procedures that are more stringent than those it applies to other 

borrowers end footnote)Wachovia, Golden West, and their subsidiary depository institutions are considered to be well 

managed. The Board also has considered Wachovia' s plans 
Legal Developments: Third Quarter, 2006 C199 

for implementing the proposal, including the proposed 

management after consummation. 

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

that considerations relating to the financial and managerial 

resources of the organizations involved in the proposal are 

consistent with approval under section 4 of the BHC Act. 

RECORDS OF PERFORMANCE UNDER THE CRA 

The Board reviews the records of performance under the 

CRA of the relevant insured depository institutions when 

acting on a proposed acquisition of any insured depository 

institution, including a savings association(footnote 28 12 

CFR 228.11(a)(3)(iv) end footnote)The CRA 

requires the federal financial supervisory agencies to 

encourage insured depository 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 a relevant depository institution' s 

record of meeting the credit needs of its entire community, 

including low- and moderate-income (''LMI'') neighborhoods, in evaluating bank expansionary proposals(footnote 

29 12 U.S.C. §2903 end footnote) 

In response to the Board's request for public comment 

on this proposal, several comments were submitted expressing concern about Wachovia's and Golden West's records 

of lending to LMI or minority individuals and in LMI or 

predominantly minority communities(footnote 30 Commenter's 

expressed concerns about the appropriateness of 

adjustable-rate and ''non traditional'' mortgage products currently 

offered by World Savings for certain LMI and minority borrowers. The 

commenter's stated that consumers in California may not fully understand the consequences of these mortgage products and that these 

mortgage products increase chances of default. The Board has consulted with the OTS about World Savings' mortgage products. Additionally, the Board and the other federal bank supervisors have issued 

final guidance on these mortgage products, including disclosure of 

relevant information to customers. Interagency press release, ''Federal Financial Regulatory Agencies Issue Final Guidance on 

Non traditional Mortgage Product Risks'' (September 29, 2006), 

www.federalreserve.gov/BoardDocs/Press/bcreg/2006/20060929/ 

default.htm. The Board expects Wachovia to offer its products in a 

manner consistent with this guidance and any future guidance on 

this issue end footnote)Some commenter's 

who opposed the proposal alleged that Wachovia has not 

provided adequate banking services or products to minorities and communities in California and other areas(footnote 31 

Wachovia began operations in California in March 2006, after 

its acquisition of Westcorp and its subsidiary savings association, 

Western Financial Bank, FSB, both of Irvine end footnote)These 

commenters criticized Wachovia's proposed community 

development plan for California as too small relative to the 

size of similar commitments by other financial institutions. 

The Board has considered carefully all the facts of 

record, including evaluations of the CRA performance 

records of Wachovia's and Golden West's subsidiary 

depository institutions, data reported under the Home Mortgage Disclosure Act (''HMDA'')(footnote 32 12 U.S.C. §2801 

et seq. end footnote)by the subsidiaries of 

Wachovia and Golden West that engage in home mortgage 

lending, other information provided by Wachovia and 

Golden West, confidential supervisory information, and 

public comment received on the proposal(footnote 33 

The Board received more than 200 comments supporting the 

proposed transaction. These commenter's stated that Wachovia and 

Golden West have been responsive to the needs of their communities 

through innovative mortgage products designed for LMI borrowers 

and have provided significant financial, technical, and personnel 

support for community development projects end footnote) 

A. CRA Performance Evaluations 

As provided in the CRA, the Board has reviewed the 

proposal 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 34 See Interagency 

Questions and Answers Regarding Community 

Reinvestment, 66 Federal Register 36,620 at 36,640 

(2001) end footnote) 

Wachovia Bank, Wachovia's lead subsidiary bank, received an ''outstanding'' rating from the OCC at its most 

recent CRA performance evaluation, as of June 30, 2003(footnote 

35 Wachovia's other subsidiary bank, Wachovia Bank-DE, also 

received an ''outstanding'' rating from the OCC at its most recent 

CRA evaluation, as of December 31, 2002 end footnote) 

World Savings also received an ''outstanding'' rating at its 

most recent CRA performance evaluation by the OTS, as of 

August 15, 2005(footnote 36 Golden West's other subsidiary thrift, 

World Savings-TX, also 

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

CRA evaluation by 

the OTS, as of August 15, 2005 end footnote) 

Wachovia has represented that it will generally continue 

the current CRA and consumer compliance programs of 

Wachovia's and Golden West's subsidiary depository institutions after consummation and will integrate successful 

programs and products from both organizations. 

CRA Performance of Wachovia Bank. In addition to the 

overall ''outstanding'' rating that Wachovia Bank received 

at its most recent CRA performance evaluation,(footnote 37 

The evaluation period for home mortgage, small business, and 

small farm lending was January 1, 2001, through December 31, 2002. 

Community development activities were considered through June 30, 

2003, and included community development lending from September 30, 2000, when Wachovia was doing business as First Union 

Corporation end footnote)the bank 

received separate overall ''outstanding'' or ''satisfactory'' 

ratings in all multistate metropolitan statistical areas 

(''MSAs'') and states reviewed by the OCC(footnote 38 

Full-scope evaluations were conducted in Wachovia 

Bank's 

assessment areas in the Augusta-Aiken (GA-SC), 

Charlotte-GastoniaRock Hill (NC-SC), Newburgh (NY-PA), 

Philadelphia (PA-NJ), and 

Washington (DC-MD-VA-WV) MSAs. 

Full-scope evaluations were 

also conducted in other select MSAs in 

Connecticut, Florida, Georgia, 

Maryland, New Jersey, New York, North Carolina, Pennsylvania, 

South Carolina, and Virginia. Limited-scope evaluations were conducted in other relevant MSAs in those states end footnote)The examiners reported that the bank had excellent levels of community development lending, investment, and services in most 
C168 Federal Reserve Bulletin • 2006 

full-scope assessment areas and demonstrated creativity 

and innovation in its loan products, investments, and 

services. 

Examiners rated Wachovia Bank ''outstanding'' or ''high 

satisfactory'' under the lending test in all MSAs and states 

reviewed, based on a review of the bank's housing-related 

loans reported under HMDA, small loans to businesses and 

small loans to farms, and qualified community development loans(footnote 39 "Small loans to businesses'' are 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. "Small 

loans to farms'' are farm or agricultural loans with original amounts of 

$500,000 or less that are secured by farmland or finance agricultural 

production, and other loans to farmers end footnote)Examiners stated 

that Wachovia Bank's 

lending reflected adequate responsiveness to community 

credit needs and adequate distribution among different 

geographies and income levels throughout its assessment 

areas.(footnote 40 One commenter specifically criticized Wachovia Bank's amount 

of lending to LMI individuals in Philadelphia. Examiners stated that 

Wachovia Bank's lending levels reflected adequate responsiveness to 

the credit needs of the Philadelphia MSA. During the evaluation 

period, the bank originated more than 34 percent of its total number of 

home-purchase loans in the MSA to LMI individuals. In addition, the 

bank originated $2 billion in home-mortgage loans, with 19 percent of 

the total number of those loans in the MSA's LMI geographies. The 

bank also made $2 billion in small loans to businesses in the 

Philadelphia MSA, with 12.7 percent of the total number of those 

loans to businesses in the MSA's LMI geographies. Examiners 

specifically commended Wachovia Bank's community development 

lending in the Philadelphia MSA, which totaled $154 million during 

the evaluation period. 

Wachovia also represented that in 2005, it provided more than 

$160 million in investments that supported affordable housing and city 

schools and made $6.4 million in community grants to nonprofit 

organizations in the Philadelphia MSA. The bank also originated 

$193 million in home-mortgage loans to LMI borrowers in the 

Philadelphia MSA end footnote One commenter specifically criticized Wachovia Bank's amount 

of lending to LMI individuals in Philadelphia. Examiners stated that 

Wachovia Bank's lending levels reflected adequate responsiveness to 

the credit needs of the Philadelphia MSA. During the evaluation 

period, the bank originated more than 34 percent of its total number of 

home-purchase loans in the MSA to LMI individuals. In addition, the 

bank originated $2 billion in home-mortgage loans, with 19 percent of 

the total number of those loans in the MSA's LMI geographies. The 

bank also made $2 billion in small loans to businesses in the 

Philadelphia MSA, with 12.7 percent of the total number of those 

loans to businesses in the MSA's LMI geographies. Examiners 

specifically commended Wachovia Bank's community development 

lending in the Philadelphia MSA, which totaled $154 million during 

the evaluation period. 

Wachovia also represented that in 2005, it provided more than 

$160 million in investments that supported affordable housing and city 

schools and made $6.4 million in community grants to nonprofit 

organizations in the Philadelphia MSA. The bank also originated 

$193 million in home-mortgage loans to LMI borrowers in the 

Philadelphia MSA end footnote)Examiners found that Wachovia Bank offered a 

variety of flexible mortgage loan products that addressed 

the credit needs of LMI geographies and individuals. They 

noted that Wachovia Bank enhanced its flexible mortgage 

product program by partnering with approximately 170 

not-for-profit community organizations throughout its various assessment areas to provide home buyer counseling for 

LMI loan applicants. 

Examiners generally characterized Wachovia Bank's 

distribution of small loans to businesses in each of its 

primary assessment areas as either excellent or good. In 

assessing the bank's small loans to businesses, examiners 

focused on the distribution of loans among geographies of 

differing income levels and, in particular, on loans to businesse businesse thnumbe favorabl Charlotte-Gastonia-Roc geographies Washington developmen eExaminer totar oly numbe s note f thositotalin ,,ts D an lendin n als LMde C tha d loan or $90 o . note g MSA I approximatel areas tgf Wachovi thosi s7 td millio nko tha it Hilbusinesse , wit .es Fo assessmen loan t Wachovi l MSA nah iBan r 19. example ns tha y ts $70 8 ik,o wit percen mad n businesse ta typ LMt Bank' area 9h, millio22. e th eI smal ogeographies ts os ofte fe7 communit loa examiner percen fs th l i n loan i nnn i e ha LM ntota n th tsd o t a . yoesI fl

significant positive impact on its overall rating under the 

lending test in those areas. In commending the bank's level 

of community development lending, examiners specifically 

noted that the bank's community development loans during 

its evaluation period totaled $27 million in the AugustaAiken MSA, $181 million in the Charlotte-Gastonia-Rock 

Hill MSA, and $114 million in the Washington, D.C., 

MSA. 

Examiners rated Wachovia Bank ''outstanding'' or ''high 

satisfactory'' under the investment test in all but one of the 

MSAs and states reviewed in the performance evaluation. 

Examiners noted, for example, that Wachovia' s total qualified investments included $46 million in North Carolina, 

$114 million in Florida, and $116 million in the Washington, D.C., MSA during the evaluation period. Examiners 

found that Low Income Housing Tax Credits (''LIHTCs'') 

were an integral part of the bank's investment program in 

most of its assessment areas. 

Examiners rated Wachovia Bank ''outstanding'' or ''high 

satisfactory'' under the service test in all MSAs and states 

reviewed. Examiners concluded that the bank' s distribution 

of branch offices and ATMs was satisfactory and easily 

accessible to geographies and individuals of different 

income levels. In addition, examiners noted several financial literacy programs that Wachovia offers customers, 

many of which were focused on LMI communities and 

individuals. 

Wachovia represented that it has maintained a high level 

of community reinvestment activity since its last CRA 

performance evaluation. For example, Wachovia stated 

that, in its assessment areas in 2005, it provided approximately $12 million in small loans to businesses, more than 

$25 billion in community development loans and investments, and training for more than 22,000 low-income 

families and individuals in money-management and computer skills. Wachovia has actively participated in the 

New Market Tax Credit (''NMTC'') and LIHTC programs, 

receiving $383 million in NMTC allocations since 2003 

and investing $3 billion in LIHTCs, as of May 2006. It also 

stated that it has made $55 million in various direct 

investments in community and economic development 

partnerships and financial institutions in 2005. 

CRA Performance of World Savings. As noted above, 

World Savings received an overall ''outstanding'' rating 

from the OTS at its last performance evaluation(footnote 41 

The evaluation period was from July 1, 2001, through December 31, 2004 end footnote)Examiners stated that World Savings had an excellent record of 

meeting the credit and deposit needs of its assessment 

areas(footnote 42 Ratings were based on full-scope evaluations 

conducted in 41 

assessment areas in California, Florida, Colorado, Texas, Arizona, 

New Jersey, Kansas, Illinois, and Nevada, and in the New YorkNorthern New Jersey-Long Island (NY-NJ-PA) MSA ("NYC MSA''), 

and on limited-scope evaluations of other assessment areas in the 

relevant states end footnote)The institution's overall CRA rating 

was primarily based on its performance in California where the 

majority of deposit operations and lending activity were 
Legal Developments: Third Quarter, 2006 C199 

conducted during the evaluation period(footnote 43 World 

Savings specializes in adjustable-rate, single-family 

residential mortgage originations, which are held in portfolio or 

securitized. Examiners based their review on World Savings' 1-4 

family residential and multi family residential loan products end footnote) 

World Savings received an overall ''outstanding'' rating 

for its lending performance, and ''outstanding'' or ''high 

satisfactory'' ratings for lending in six of nine states 

reviewed, as well as in the NYC MSA(footnote 44 World 

Savings received a ''low satisfactory'' rating for lending 

performance in Kansas, Nevada, and New Jersey, based on low levels 

of community development lending and the bank's level of loan 

originations in LMI geographies in its assessment areas end footnote) 

It originated 

approximately $99 billion in mortgage loans in its assessment areas during the evaluation period. Examiners noted 

that World Savings' lending record reflected excellent 

geographic distribution throughout its assessment areas, 

particularly in California, and good distribution among 

borrowers of different income levels. World Savings originated approximately $15 billion in mortgage loans in LMI 

geographies in its assessment areas. Examiners particularly 

commended the institution's loan distribution to LMI areas 

in California, Colorado, Illinois, and Texas. 

Examiners concluded that World Savings was a leader in 

making community development loans in California and 

Colorado. They noted that World Savings made significant 

contributions to the advancement of affordable housing 

through its direct multi family lending as well as through its 

lending to affordable housing consortia. Examiners also 

stated that World Savings made extensive use of innovative 

loan programs and flexible lending practices to serve the 

credit needs of its assessment area. In addition to offering 

special loan programs and alternative underwriting guidelines tailored to LMI applicants, World Savings provided 

approximately $25 million in interest-rate concessions and 

fee waivers to borrowers during the evaluation period. 

Under the investment test, World Savings received an 

overall ''outstanding'' rating. At year-end 2004, World 

Savings held qualifying investments totaling more then 

$400 million, primarily in mortgage-backed securities 

secured by loans to LMI borrowers. 

World Savings received an overall ''outstanding'' rating 

under the service test. Examiners found that World Savings 

provided services that were tailored to the convenience and 

needs of its assessment areas, particularly LMI geographies 

and individuals. Examiners also noted that World Savings 

was a leader in providing community development services 

in its California assessment areas. These services include 

its participation in the Federal Home Loan Bank' s Affordable Housing Program Direct Subsidy grant program and 

the provision of technical, financial, and managerial expertise to housing and other organizations that are related to 

community development. 

B. Community Development Plan 

As part of the proposed merger, Wachovia announced a 

$150 billion community development plan for California. 

Several commenter's expressed concerns about the 

community development plan, arguing that the size of the plan is 

too small relative to the size of similar commitments made 

by other financial organizations, and recommended approval only if the plan was subject to conditions suggested 

by the commenter's. Some commenter's who opposed the 

proposal also alleged that Wachovia's plan did not address 

the diversity and community reinvestment needs of California communities(footnote 45 Commenter's also alleged that Wachovia 

has not been responsive 

to California community groups and has failed to work with local 

government in addressing California's needs end footnote) 

The Board views the enforceability of pledges, initiatives, and agreements with third parties as matters outside 

the scope of the CRA(footnote 46 See, e.g., Bank of America 

Corporation, 90 Federal Reserve 

Bulletin 217, 233 (2004); Citigroup Inc., 88 Federal Reserve Bulletin 

485, 488 n.18 (2002) end footnote)As the Board previously has 

explained, an applicant must demonstrate a satisfactory 

record of performance under the CRA without reliance on 

plans or commitments for future action(footnote 47 

See Wachovia Corporation, 91 Federal Reserve Bulletin 77 

(2005); J.P. Morgan Chase & Co, 90 Federal Reserve Bulletin 352 

(2004); Bank of America Corporation, supra.; NationsBank Corporation, 84 Federal Reserve Bulletin 858 (1998) end footnote)Moreover, the 

Board has consistently found that neither the CRA nor the 

federal banking agencies' CRA regulations require depository institutions to make pledges or enter into commitments 

or agreements with any organization(footnote 48 See, e.g., 

Fleet Financial Group, Inc., 85 Federal Reserve 

Bulletin 747 (1999) end footnote) 

In this case, as in past cases, the Board instead has 

focused on the demonstrated CRA performance record of 

the applicant and the programs that the applicant has in 

place to serve the credit needs of its CRA assessment areas. 

In reviewing future applications by Wachovia under this 

factor, the Board similarly will review Wachovia' s actual 

CRA performance record and the programs it has in place 

to meet the credit needs of its communities at the time of 

such review. 

C. Conclusion on CRA Performance Records 

The Board has considered carefully all the facts of record, 

including reports of examination of the CRA records of the 

institutions involved, information provided by Wachovia, 

comments received on the proposal, and confidential supervisory information. Based on a review of the entire record 

and for the reasons discussed above, the Board has concluded that considerations relating to the CRA performance 

records of the relevant depository institutions are consistent 

with approval. 

OTHER CONSIDERATIONS 

In light of public comments received on the proposal, the 

Board has carefully considered the fair lending records and 

HMDA data of Wachovia Bank and World Savings in its 

evaluation of the public interest factors. Commenter's 

alleged, based on 2005 HMDA data, that Wachovia Bank 
C168 Federal Reserve Bulletin • 2006 

and World Savings denied the home mortgage loan applications of African-American, Hispanic, and other minority 

borrowers more frequently than those of non-minority applicants in various states. A commenter also alleged that 

Wachovia Bank and World Savings made higher-cost 

loans(footnote 49 Beginning January 1, 2004, the HMDA data required to be 

reported by lenders were expanded to include pricing information for 

loans on which the annual percentage rate exceeds the yield for U.S. 

Treasury securities of comparable maturity 3 or more percentage 

points for first-lien mortgages and 5 or more percentage points for 

second-lien mortgages (12 CFR 203.4) end footnote)more frequently to 

African-American and Hispanic 

borrowers than to non minority borrowers(footnote 50 

One commenter also alleged that World Savings directs customers to low- or no-documentation loan products as a means to exaggerate the customer's income and places the customers in loan products 

that exceed their ability to repay, which ultimately results in foreclosures. According to information provided by Wachovia and Golden 

West, World Savings requires low- or no-documentation on 90 percent 

of the loan applications it processes and uses the same underwriting 

standards for all applications. As of June 30, 2006, publicly available 

data indicate that World Savings' non-performing assets represented 

only 0.37 percent of its total assets, which compares favorably to the 

aggregate percentage of non performing assets to total assets of all 

savings institutions end footnote)The Board 

reviewed the 2004 and 2005 HMDA data reported by 

Wachovia Bank and World Savings(footnote 51 The Board reviewed the 2004 HMDA data reported by Wachovia Bank, Wachovia-DE; Wachovia Mortgage Company; and Wachovia's subsidiaries, SouthTrust Bank and SouthTrust Mortgage Company (acquired by Wachovia in January 2005), in their statewide 

assessment areas in California, Delaware, New Jersey, New York, 

North Carolina, Pennsylvania, and Texas. HMDA data reported by 

Wachovia Bank, Wachovia-DE, Wachovia Mortgage Company, and 

SouthTrust Mortgage Company in 2005 were reviewed for the same 

areas. In addition, the Board reviewed the 2004 and 2005 HMDA data 

reported by World Savings in its statewide assessment areas in 

New York and California end footnote) 

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

or pricing among members of different racial or ethnic 

groups in certain local areas, they provide an insufficient 

basis by themselves on which to conclude whether or not 

Wachovia Bank or World Savings is excluding or imposing 

higher costs on any racial or ethnic group on a prohibited 

basis. The Board recognizes that HMDA data alone, even 

with the recent addition of pricing information, provide 

only limited information about the covered loans(footnote 52 

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. In addition, credit 

history problems, excessive debt levels relative to income, and high 

loan amounts relative to the value of the real estate collateral (reasons 

most frequently cited for a credit denial or higher credit cost) 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 engaged in illegal lending discrimination. 

The Board is nevertheless concerned when HMDA data 

for an institution indicate disparities in lending and believes 

that all lending institutions 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 ethnicity. 

Because of the limitations of HMDA data, the Board has 

considered these data carefully and taken into account other 

information, including examination reports that provide 

on-site evaluations of compliance by Wachovia Bank and 

World Savings with fair lending laws. 

Examiners found no substantive violations of applicable 

fair lending laws during the fair lending reviews they 

conducted in conjunction with the most recent CRA performance evaluations of Wachovia Bank and World Savings. 

In addition, the record indicates that both institutions have 

taken steps to ensure compliance with fair lending and 

other consumer protection laws. Wachovia Bank monitors 

its compliance with fair lending laws through file reviews, 

mystery shopping programs, and call-monitoring activities. 

Wachovia Bank also employs an internal second-review 

process for home loan applications that would otherwise be 

denied and reviews its fair lending program quarterly to 

ensure effectiveness. World Savings employs similar compliance techniques, such as internal audits, file reviews, and 

statistical analyses of its lending activities. 

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

that considerations relating to the fair lending records and 

HMDA data of Wachovia and World Savings are consistent 

with approval under section 4 of the BHC Act. 

PUBLIC BENEFITS 

As part of its evaluation of the public interest factors under 

section 4 of the BHC Act, the Board has reviewed carefully 

the public benefits and possible adverse effects of the 

proposal. The record indicates that consummation of the 

proposal would result in benefits to consumers currently 

served by Golden West. Wachovia's proposed acquisition 

of Golden West would allow Wachovia to offer a wider 

array of mortgage and other banking products to the 

existing customers of Golden West, including LMI borrowers who currently have access only to the limited scope of 

World Savings' mortgage products. World Savings' customers who currently have limited ATM access will benefit 

from the combined organization' s extensive network of 

more than 5,200 ATMs. Customers will also benefit from 

Wachovia' s online banking functionalities not previously 

available to them, including bill payment, Spanish language capabilities, and online functions for loans and 

deposit accounts. Further, customers of Golden West's 

other non banking subsidiaries will benefit from the expanded range of products and services offered through 

Wachovia' s non banking subsidiaries, such as trust services, 

securities brokerage, investment banking, and assetmanagement services, as well as a broad array of lending 

and credit instruments available to individual and corporate 

customers. 

The Board has determined that the conduct of the 

proposed non banking activities within the framework of 

Regulation Y and Board precedent is not likely to result in 

adverse effects, such as undue concentration of resources, 
Legal Developments: Third Quarter, 2006 

decreased or unfair competition, conflicts of interest, or 

unsound banking practices. Based on all the facts of record, 

the Board has concluded that consummation of the proposal can reasonably be expected to produce public benefits 

that would outweigh any likely adverse effects. Accordingly, the Board has determined that the balance of the 

public benefits under section 4(j)(2) of the BHC Act is 

consistent with approval. 

CONCLUSION 

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

has determined that the notice should be, and hereby is, 

approved(footnote 53 Several commenter's requested that the 

Board hold a public 

hearing or meeting on the proposal. The Board's regulations provide 

for a hearing on a notice filed under section 4 of the BHC Act if there 

are disputed issues of material fact that cannot be resolved in some 

other manner (12 CFR 225.25(a)(2)). Under its rules, the Board also 

may, in its discretion, hold a public hearing or meeting if appropriate 

to allow interested persons an opportunity to provide relevant testimony when written comments would not adequately present their 

views. The Board has considered carefully the commenter's' requests 

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

have had ample opportunity to submit comments on the proposal and, 

in fact, submitted written comments that the Board has considered 

carefully in acting on the proposal. The commenter's' requests fail to 

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

and would be clarified by a public hearing or meeting. In addition, the 

requests fail to demonstrate why the written comments do not present 

the commenter's' views adequately or why a hearing or meeting 

otherwise would be necessary or appropriate. 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 request for a public hearing or meeting on the proposal is 

denied end footnote)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 

Wachovia with the conditions imposed in this order and the 

commitments made to the Board in connection with the 

notice. The Board' s approval of the non banking aspects of 

the proposal is also subject to all the conditions set forth in 

Regulation Y, including those in sections 225.7 and 

225.25(c),(footnore 54 12 CFR 225.7 and 225.25(c) end footnote) 

and to the Board's authority to require such 

modification or termination of the activities of Wachovia or 

any of its subsidiaries as the Board finds necessary to 

ensure compliance with, and to prevent evasion of, the 

provisions of the BHC Act and the Board's regulations and 

orders issued thereunder. 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. 

This transaction shall not be consummated later than 

three months after the effective date of this order, unless 

such period is extended for good cause by the Board or the 

Federal Reserve Bank of Richmond, acting pursuant to 

delegated authority. 

By order of the Board of Governors, effective September 29, 2006. 

Voting for this action: Chairman Bernanke, Vice Chairman Kohn, 

and Governors Bies, Warsh, Kroszner, and Mishkin. 

ROBERT DEV. FRIERSON 

Deputy Secretary of the Board 

Appendix A 

Other Non banking Subsidiaries of Golden 

West to Be Acquired under Section 4 of the 

BHC Act 

(1) World Mortgage Investors, Inc., Rockville, Maryland; 

World Mortgage Company, WLC Company, and 

GWFC, LP, all of Oakland, California; and World Loan 

Company, San Antonio, Texas; and thereby engage in 

extending credit and in activities usual in connection 

with making, acquiring, brokering, or servicing loans 

or other extensions of credit, in accordance with sections 225.28(b)(1) and (2) of Regulation Y (12 CFR 

225.28(b)(1) and (2)); 

(2) Golden West Savings Association Service Company, 

Oakland, California, and thereby engage in activities 

performed by a trust company, in accordance with 

section 225.28(b)(5) of Regulation Y (12 CFR 

225.28(b)(5)). 

(3) Atlas Advisers, Inc., San Leandro, California, and 

thereby engage in investment advisory activities, in 

accordance with section 225.28(b)(6) of Regulation Y 

(12 CFR 225.28(b)(6)); and 

(4) Atlas Securities, Inc., San Leandro, California, and 

thereby provide securities brokerage services, in accordance with section 225.28(b)(7)(i) of Regulation Y 

(12 CFR 225.28(b)(7)(i)). 
Federal Reserve Bulletin • 2006 

Appendix B 

OTHER WACHOVIA AND GOLDEN WEST BANKING MARKETS AND MARKET DATA 

Heading row column 1 Bank column 2 Rank column 3 Amount of deposits (dollars) 

column 4 Market deposit shares (percent) 

column 4 Resulting HHI column 5 Change in HHI column 6 Remaining number of competitors end heading row 

Bank:Florida Banking Markets:Beverly Hills Area—Citrus County excluding the town of Citrus Springs:Wachovia 

Pre Consummation Rank:8 Amount of deposits (dollars):61.3 mil. 

Market deposit shares (percent):3.2 Resulting HHI:1478 Change in HHI:-25 Remaining number of competitors:12 

Bank:Florida Banking Markets:Beverly Hills Area—Citrus County excluding the town of Citrus Springs:Golden West 

Rank:7 Amount of deposits (dollars):124.8 mil. Market deposit shares (percent):3.2 Resulting HHI:1478 

Change in HHI:-25 Remaining number of competitors:12 

Bank:Florida Banking Markets:Beverly Hills Area—Citrus County excluding the town of 

Citrus Springs:Wachovia Post-Consummation Rank:5 Amount of deposits (dollars):186.1 mil. 

Market deposit shares (percent):9.3 Resulting HHI:1478 Change in HHI:-25 Remaining number of competitors:12 

Bank:Florida Banking Markets:Brevard County Brevard County:Wachovia Pre Consummation 

Rank:1 Amount of deposits (dollars):1.7 bil. Market deposit shares (percent):26.6 

Resulting HHI:1559 Change in HHI:83 Remaining number of competitors:19 

Bank:Florida Banking Markets:Brevard County Brevard County:Golden West Rank:16 

Amount of deposits (dollars):138 mil. 

Market deposit shares (percent):1.1 Resulting HHI:1559 Change in HHI:83 Remaining number of competitors:19 

Bank:Florida Banking Markets:Brevard County Brevard County:Wachovia Post-Consummation 

Rank:1 Amount of deposits (dollars):1.8 bil. Market deposit shares (percent):28.5 Resulting HHI:1559 

Change in HHI:83 Remaining number of competitors:19 

Bank:Florida Banking Markets:Daytona Beach Area Flagler County; the towns of Allandale, 

Daytona Beach, Daytona Beach Shores, Edgewater, Holly Hill, New Smyrna Beach, Ormond Beach, 

Ormond-by-the-Sea, Pierson, Port Orange, and South Daytona in Volusia County; and the town of 

Astor in Lake County:Wachovia Pre Consummation Rank:1 Amount of deposits (dollars):1.8 bil. 

Market deposit shares (percent):25.5 Resulting HHI:1667 Change in HHI:68 

Remaining number of competitors:22 

Bank:Florida Banking Markets:Daytona Beach Area Flagler County; the towns of Allandale, 

Daytona Beach, Daytona Beach Shores, Edgewater, Holly Hill, New Smyrna Beach, Ormond Beach, 

Ormond-by-the-Sea, Pierson, Port Orange, and South Daytona in Volusia County; 

and the town of Astor in Lake County:Golden West Rank:13 Amount of deposits (dollars):132.4 mil. 

Market deposit shares (percent):1.0 Resulting HHI:1667 Change in HHI:68 

Remaining number of competitors:22 

Bank:Florida Banking Markets:Daytona Beach Area Flagler County; the towns of 

Allandale, Daytona Beach, Daytona Beach Shores, Edgewater, Holly Hill, 

New Smyrna Beach, Ormond Beach, Ormond-by-the-Sea, Pierson, Port Orange, 

and South Daytona in Volusia County; and the town of Astor in Lake County:Wachovia 

Post-Consummation Rank:1 Amount of deposits (dollars):1.9 bil. Market deposit shares (percent):27.1 

Resulting HHI:1667 Change in HHI:68 Remaining number of competitors:22 

Bank:Florida Banking Markets:Fort Myers Area—Lee County excluding Gasparilla 

Island, and the town of Immokalee in Collier County:Wachovia Pre Consummation 

Rank:2 Amount of deposits (dollars):1.9 bil. Market deposit shares (percent):18.1 Resulting HHI:1191 

Change in HHI:89 Remaining number of competitors:32 

Bank:Florida Banking Markets:Fort Myers Area—Lee County excluding Gasparilla Island, 

and the town of Immokalee in Collier County:Golden West Rank:15 Amount of deposits (dollars):346.9 mil. 

Market deposit shares (percent):1.7 Resulting HHI:1191 Change in HHI:89 Remaining number of competitors:32 

Bank:Florida Banking Markets:Fort Myers Area—Lee County excluding Gasparilla Island, and the 

town of Immokalee in Collier County:Wachovia Post-Consummation Rank:1 Amount of deposits (dollars):2.2 bil. 

Market deposit shares (percent):21.1 Resulting HHI:1191 Change in HHI:89 Remaining number of competitors:32 

Bank:Florida Banking Markets:Fort Pierce Area—St. Lucie County and Martin County, 

excluding the towns of Indian town and Hobe Sound:Wachovia Pre Consummation 

Rank:5 Amount of deposits (dollars):748.3 mil. Market deposit shares (percent):11.9 

Resulting HHI:1425 Change in HHI:101 Remaining number of competitors:18 

Bank:Florida Banking Markets:Fort Pierce Area—St. Lucie County and Martin County, 

excluding the towns of Indian town and Hobe Sound:Golden West Rank:8 

Amount of deposits (dollars):437.6 mil. Market deposit shares (percent):3.5 Resulting HHI:1425 

Change in HHI:101 Remaining number of competitors:18 Bank:Florida Banking Markets: 

Fort Pierce Area—St. Lucie County and Martin County, excluding the towns of Indian town 

and Hobe Sound:Wachovia Post-Consummation Rank:2 Amount of deposits (dollars):1.2 bil. 

Market deposit shares (percent):18.2 Resulting HHI:1425 Change in HHI:101 Remaining number of competitors:18 

Bank:Florida Banking Markets:Fort Walton Beach Are Okaloosa and Walton 

Counties and the town of Ponce de Leon in Holmes County:Wachovia Pre Consummation 

Rank:8 Amount of deposits (dollars):198.8 mil. Market deposit shares (percent):4.7 

Resulting HHI:999 Change in HHI:2 Remaining number of competitors:23 

Bank:Florida Banking Markets:Fort Walton Beach Are Okaloosa and Walton Counties 

and the town of Ponce de Leon in Holmes County:Golden West Rank:17 

Amount of deposits (dollars):91.4 mil. Market deposit shares (percent):1.1 

Resulting HHI:999 Change in HHI:2 Remaining number of competitors:23 

Bank:Florida Banking Markets:Fort Walton Beach Are Okaloosa and Walton 

Counties and the town of Ponce de Leon in Holmes County:Wachovia Post-Consummation Rank:5 

Amount of deposits (dollars):290.2 mil. Market deposit shares (percent):6.7 Resulting HHI:999 

Change Bank:Florida and Market Remaining Bank:Florida Rank:20 Resulting Bank:Florida Dade Rnk:2esulting Bank:Florida town Rank:3esulting Bank:Florida Rank:12 Change Bank:Florida Wachovia Resulting Dade of Counties:Wachovia deposit Amunto inImmokalee:Wachovia Amount Counties:Wachovia HHI:1048 HHI:1048 HHI:1250 HHI:1250 Post-Consummation HHI:250 number Banking Banking Banking Banking Banking Banking shares of Remaining of Remaining deposits deposits of deposits deposits Change (percent):18.9 competitors:97 Markets:Miami-Fort Markets:Miami-Fort Markets:Miami-Fort Markets:Naples Markets:Naples Markets:Naples Post-Consummation (dollars):19.6 (dollars):1.2 in number(dollars):1.6 (dollars):281.4 Pre number Pre HHI:4850 HHI:Rank:3 Consummation Consummation Resulting of of Area—Collier Area—Collier Area—Collier Amount Remaining Remaining Remaining Remaining competitors:23 bil. competitors:34 bil. Lauderdale Lauderdale Lauderdale mil.Market Market HHI:1048 of Market Rank:2 deposits number deposit deposit deposit County, County, County, Area—Broward Area—Broward Area—Broward deposit AmountChange of(dollars):1.5 shares shares competitors:97 competitors:97 competitors:34 competitors:34 excluding excluding excluding shares in of (percent):13.3 (percent):0.8 (percent):20.4 HHI:48 deposits (percent):1.5 and bil. the MarketDade town (dollars):18 ofCounties:Golden deposit Immokalee:Golden Immokalee: Resulting bil. shares HHI:1250 (percent):16.1 West West 
Legal Developments: Third Quarter, 2006 

Appendix B—Continued 

Heading row column 1 Bank column 2 Rank column 3 Amount of deposits (dollars) 

column 4 Market deposit shares (percent) column 5 Resulting HHI 

column 6 Change in HHI column 7 Remaining number of competitors end heading row 

Bank:North Lake and Sumter Area—Sumter and Lake Counties, excluding the 

census-designated place of Astor and the cities of Clermont and Groveland, all in Lake 

County:Wachovia Pre Consummation Rank:4 Amount of deposits (dollars):461.9 mil. 

Market deposit shares (percent):12.3 Resulting HHI:1408 Change in HHI:51 

Remaining number of competitors:15 

Bank:North Lake and Sumter Area Sumter and Lake Counties, excluding the census-designated 

place of Astor and the cities of Clermont and Groveland, all in Lake County:Golden West 

Rank:10 Amount of deposits (dollars):145.8 mil. Market deposit shares (percent):1.9 

Resulting HHI:1408 Change in HHI:51 Remaining number of competitors:15 

Bank:North Lake and Sumter Area Sumter and Lake Counties, excluding the census-designated 

place of Astor and the cities of Clermont and Grove land, all in Lake County:Wachovia 

Post-Consummation Rank:3 Amount of deposits (dollars):607.7 mil. 

Market deposit shares (percent):15.8 Resulting HHI:1408 Change in HHI: 

51 Remaining number of competitors:15 

Bank:Ocala Area—Marion County and the town of Citrus Springs in Citrus County:Wachovia 

Pre Consummation Rank:4 Amount of deposits (dollars):601.3 mil. Market deposit shares 

(percent):14.3 Resulting HHI:1463 Change in HHI:86 Remaining number of competitors:20 

Bank:Ocala Area—Marion County and the town of Citrus Springs in Citrus County:Golden West 

Rank:9 Amount of deposits (dollars):207 mil. Market deposit shares (percent):2.5 

Resulting HHI:1463 Change in HHI:86 Remaining number of competitors:20 

Bank:Ocala Area—Marion County and the town of Citrus Springs in Citrus County:Wachovia 

Post-Consummation Rank:2 Amount of deposits (dollars):808.3 mil. Market deposit shares 

(percent):18.8 Resulting HHI:1463 Change in HHI:86 Remaining number of competitors:20 

Bank:Sarasota Area—Manatee and Sarasota Counties, excluding that portion of Sarasota 

County that is both east of the Myakka River and south of Interstate 75 (currently 

the towns of Northport and Port Charlotte); and the peninsular portion of Charlotte 

County west of the Myakka River (currently the towns of Engle wood, Englewood Beach, 

New Point Comfort, Grove City, Cape Haze, Rotonda, Rotonda West and Placido), and 

Gasparilla Island (the town of Boca Grande) in Lee County:Wachovia Pre Consummation 

Rank:2 Amount of deposits (dollars):2.4 bil. Market deposit shares (percent):15.4 

Resulting HHI:1305 Change in HHI:123 Remaining number of competitors:43 

Bank:Sarasota Area—Manatee and Sarasota Counties, excluding that portion of Sarasota 

County that is both east of the Myakka River and south of Interstate 75 (currently 

the towns of North port and Port Charlotte); and the peninsular portion of Charlotte 

County west of the Myakka River (currently the towns of Englewood, Englewood 

Beach, New Point Comfort, Grove City, Cape Haze, Rotonda, Rotonda West and Placido), 

and Gasparilla Island (the town of Boca Grande) in Lee County:Golden West 

Rank:8 Amount of deposits (dollars):873.6 mil. Market deposit shares (percent):2.8 

Resulting HHI:1305 Change in HHI:123 Remaining number of competitors:43 

Bank:Sarasota Area—Manatee and Sarasota Counties, excluding that portion of Sarasota 

County that is both east of the Myakka River and south of Interstate 75 (currently 

the towns of Northport and Port Charlotte); and the peninsular portion of Charlotte 

County west of the Myakka River (currently the towns of Englewood, Englewood Beach, 

New Point Comfort, Grove City, Cape Haze, Rotonda, Rotonda West and Placido), 

and Gasparilla Island (the town of Boca Grande) in Lee County:Wachovia Post-Consummation 

Rank:2 Amount of deposits (dollars):3.3 bil. Market deposit shares (percent):20.5 

Resulting HHI:1305 Change in HHI:123 Remaining number of competitors:43 

Bank:Tampa Bay Area Hernando, Hillsborough, Pinellas, and Pasco Counties: 

Wachovia Pre Consummation Rank:2 Amount of deposits (dollars):7.6 bil. 

Market deposit shares (percent):18.9 Resulting HHI:1540 Change in HHI:109 

Remaining number of competitors:65 

Bank:Tampa Bay Area Hernando, Hillsborough, Pinellas, and Pasco Counties:Golden West 

Rank:7 Amount of deposits (dollars):1.7 bil. Market deposit shares (percent):2.1 

Resulting HHI:1540 Change in HHI:109 Remaining number of competitors:65 

Bank:Tampa Bay Area Hernando, Hillsborough, Pinellas, and Pasco Counties:Wachovia 

Post-Consummation Rank:2 Amount of deposits (dollars):9.3 bil. Market deposit shares 

(percent):22.7 Resulting HHI:1540 Change in HHI:109 Remaining number of competitors:65 

Bank:West Palm Beach Area—Palm Beach County east of Loxahatchee and the towns of 

Indian town and Hobe Sound in Martin County:Wachovia Pre Consummation 

Rank:1 Amount of deposits (dollars):7.4 bil. Market deposit shares (percent):26.8 

Resulting HHI:1697 Change in HHI:306 Remaining number of competitors:62 

Bank:West Palm Beach Area—Palm Beach County east of Loxahatchee and the towns of 

Indian town and Hobe Sound in Martin County:Golden West 

Rank:7 Amount of deposits (dollars):2 bil.Market deposit shares (percent):3.7 

Resulting HHI:1697 Change in HHI:306 Remaining number of competitors:62 

Bank:West Palm Beach Area—Palm Beach County east of Loxahatchee and the 

towns of Indian town and Hobe Sound in Martin County:Wachovia Post-Consummation 

Rank:1 Amount of deposits (dollars):9.5 bil. Market deposit shares (percent):32.9 

Resulting HHI:1697 Change in HHI:306 Remaining number of competitors:62 

Bank:Texas Banking Markets:Austin—The Austin MSA (Bastrop, Caldwell, Hays, Travis, 

and Williamson Counties):Wachovia Pre-Consummation Rank:41 Amount of deposits 

(dollars):23.9 Change mil. Market deposit shares (percent):0.2 Resulting HHI:1079 Bank:Texas and Market Remaining Bank:Texas and (dollars):488.7 Change Williamson Williamson deposit in HHI:-26 HHI:-26 number Banking Banking mil. shares Counties):Golden Counties):Wachovia ofRemaining Remaining Market Markets:Austin—The Markets:Austin—The (percent):1.6 competitors:62 deposit number Wst shares Resulting Post-Consummation of Rank:11 competitors:62 competitors:62 (percent):3.2 Austin HHI:1079 Amount MSA Resulting Change (Bstrop, (Bastrop, ofRank:7 deposits in HHI:1079 Amount Caldwell, Caldwell, HHI:-26 (dollars):464.8 of Hays, deposits Travis, Travis, mil. 
C194 Federal Reserve Bulletin • 2006 

Appendix B—Continued 

Heading row column 1 Bank column 2 Rank column 3 Amount of deposits(dollars) 

column 4 Market deposit shares(percent) column 5 Resulting HHI column 6 Change in HHI 

column 7 Remaining number of competitors end heading row 

Dallas—Dallas County; the southeastern quadrant of Denton County 

(including the cities of Denton and Lewisville); the southwestern 

quadrant of Collin County (including the towns of McKinney and Plano); 

Rockwall County; the communities of Forney and Terrell in Kaufman County; 

and the towns of Midlothian, Waxahachie, and Ferris in Ellis County:Wachovia 

Pre Consummation Rank:24 Amount of deposits(dollars):397.8 mil. Market deposit 

shares(percent):0.6 Resulting HHI:1398 Change in HHI:-19 Remaining number of competitors:121 

Dallas—Dallas County; the southeastern quadrant of Denton County (including the cities 

of Denton and Lewisville); the southwestern quadrant of Collin County (including the towns 

of McKinney and Plano); Rockwall County; the communities of Forney and Terrell in Kaufman 

County; and the towns of Midlothian, Waxahachie, and Ferris in Ellis County:Golden West 

Rank:19 Amount of deposits(dollars):1 bil. Market deposit shares(percent):0.8 

Resulting HHI:1398 Change in HHI:-19 Remaining number of competitors:121 

Dallas—Dallas County; the southeastern quadrant of Denton County (including the cities 

of Denton and Lewisville); the southwestern quadrant of Collin County (including the towns 

of McKinney and Plano); Rockwall County; the communities of Forney and Terrell in Kaufman 

County; and the towns of Midlothian, Waxahachie, and Ferris in Ellis County:Wachovia 

Post-Consummation Rank:6 Amount of deposits(dollars):1.4 bil. Market deposit shares(percent):2.3 

Resulting HHI:1398 Change in HHI:-19 Remaining number of competitors:121 

Fort Worth—The Fort Worth-Arlington Metropolitan Division (Tarrant, Johnson, Parker, 

and Wise Counties):Wachovia Pre Consummation Rank:16 Amount of deposits(dollars):159.7 mil. 

Market deposit shares(percent):1.1 Resulting HHI:978 Change in HHI:-7 

Remaining number of competitors:61 

Fort Worth—The Fort Worth-Arlington Metropolitan Division (Tarrant, Johnson, Parker,and Wise Counties): 

Golden West Rank:28 Amount of deposits(dollars):155.4 mil. Market deposit shares(percent):0.5 

Resulting HHI:978 Change in HHI:-7 Remaining number of competitors:61 

Fort Worth—The Fort Worth-Arlington Metropolitan Division (Tarrant, Johnson, Parker,and Wise Counties): 

Wachovia Post-Consummation Rank:8 Amount of deposits(dollars):315.1 mil. 

Market deposit shares(percent):2.1 Resulting HHI:978 Change in HHI:-7 Remaining number of competitors:61 

Houston—The Houston-Sugar Land- Baytown MSA, (Austin, Brazoria, Chambers, Fort Bend, Galveston, Harris, 

Liberty, Montgomery, San Jacinto, and Waller Counties):Wachovia Pre Consummation 

Rank:19 Amount of deposits(dollars):621.6 mil. Market deposit shares(percent):0.7 

Resulting HHI:2302 Change in HHI:-63 Remaining number of competitors:85 

Houston—The Houston-Sugar Land Baytown MSA, (Austin, Brazoria, Chambers, Fort Bend, 

Galveston, Harris, Liberty, Montgomery, San Jacinto, and Waller Counties):Golden West 

Rank:11 Amount of deposits(dollars):3 bil. Market deposit shares(percent):1.6 Resulting HHI:2302 

Change in HHI:-63 Remaining number of competitors:85 

Houston—The Houston-Sugar Land Baytown MSA, (Austin, Brazoria, Chambers, Fort Bend, 

Galveston, Harris, Liberty, Montgomery, San Jacinto, and Waller Counties):Wachovia Post-Consummation Rank:5 

Amount of deposits(dollars):3.6 bil. Market deposit shares(percent):3.9 Resulting HHI:2302 

Change in HHI:-63 Remaining number of competitors:85 

San Antonio Bexar, Comal, Guadalupe,Kendall, and Wilson Counties:Wachovia 

Pre Consummation Rank:14 Amount of deposits(dollars):149.9 mil. Market deposit shares(percent):1.0 

Resulting HHI:1358 Change in HHI:-12 Remaining number of competitors:45 

San Antonio Bexar, Comal, Guadalupe,Kendall, and Wilson Counties:Golden West 

Rank:20 Amount of deposits(dollars):166.8 mil. Market deposit shares(percent):0.6 Resulting HHI:1358 

Change in HHI:-12 Remaining number of competitors:45 

San Antonio Bexar, Comal, Guadalupe,Kendall, and Wilson Counties:Wachovia Post-Consummation 

Rank:9 Amount of deposits(dollars):316.7 mil. Market deposit shares(percent):2.1 

Resulting HHI:1358 Change in HHI:-12 Remaining number of competitors:45 California Banking Markets 

Hesperia-Apple Valley-Victorville— The Hesperia-Apple Valley-Victorville RMA; the city of Helendale, 

the community of Lucerne Valley, the town of Phelan, and the census-designated place of Wrightwood, 

all in San Bernadino County:Wachovia Pre Consummation Rank:9 Amount of deposits(dollars):66.3 mil. 

Market deposit shares(percent):3.5 Resulting HHI:1374 Change in HHI:-2 Remaining number of competitors:13 

Hesperia Apple Valley Victorville— The Hesperia-Apple Valley-Victorville RMA; the city of Helendale, 

the community of Lucerne Valley, the town of Phelan, and the census-designated place of Wright wood, 

all in San Bernadino County:Golden West Rank:7 Amount of deposits(dollars):169.8 mil. 

Market deposit shares(percent):4.5 Resulting HHI:1374 Change in HHI:-2 Remaining number of competitors:13 

Hesperia Apple Valley Victorville— The Hesperia Apple Valley Victorville RMA; the city of Helendale, 

the community of Lucerne Valley, the town of Phelan, and the census-designated place of Wrightwood, 

all in San Bernadino County:Wachovia Post-Consummation Rank:4 Amount of deposits(dollars):236.2 mil. 

Market deposit shares(percent):12.0 Resulting HHI:1374 Change in HHI:-2 Remaining number of competitors:13 

Los Angeles—The Los Angeles RMA; the town of Acton in Los Angeles County; and the censusdesignated place of Rosamond in Kern County:Wachovia Pre Consummation 

Rank:24 Amount of deposits(dollars):2 bil. Market deposit shares(percent):0.8 Resulting HHI:887 Change in HHI:-17 

Remaining number of competitors:153 

Los Angeles—The Los Angeles RMA; the town of Acton in Los Angeles County; and the censusdesignated place of Rosamond in Kern County:Golden West Rank:11 Amount of deposits(dollars):9 bil. 

Market deposit shares(percent):1.9 Resulting HHI:887 Change in HHI:-17 Remaining number of competitors:153 

Los Angeles—The Los Angeles RMA; the town of Acton in Los Angeles County; and the censusdesignated place of Rosamond in Kern County:Wachovia Post-Consummation Rank:6 Amount of deposits(dollars):11 bil. 

Market deposit shares(percent):4.4 Resulting HHI:887 Change in HHI:-17 Remaining number of competitors:153 
Legal Developments: Third Quarter, 2006 C195 

Appendix B—Continued 

NOTE: Data are as of June 30, 2005. All amounts of deposits are unweighted. All rankings, market deposit shares, and HHIs are based on 

thrift deposits, including those controlled by Golden West, weighted at 

50 percent pre-consummation, but with Golden West's deposits weighted 

at 100 percent in the post-consummation figures.Data for the Punta Gorda 

Area and Indian River County banking markets are discussed in the order. 

Heading row column 1 Bank column2 Rank column 3 Amount of deposits (dollars) 

column 4 Market deposit shares (percent) column 5 Resulting HHI column 6 Change in HHI 

column 7 Remaining number of competitors end heading row 

Bank:Riverside-San Bernadino The Riverside-San Bernadino Metropolitan Area, 

including the Riverside-San Bernadino RMA and the towns of Banning, 

Beaumont, and Nuevo in Riverside County:Wachovia Pre Consummation 

Rank:23 Amount of deposits (dollars):60.5 mil. Market deposit shares (percent): 

0.5 Resulting HHI:1556 Change in HHI:-25 Remaining number of competitors:36 

Bank:Riverside-San Bernadino The Riverside-San Bernadino Metropolitan Area, 

including the Riverside-San Bernadino RMA 

and the towns of Banning, Beaumont, and Nuevo in Riverside County: 

Golden West Rank:14 Amount of deposits (dollars): 

216.8 mil. Market deposit shares (percent):0.9 Resulting HHI: 

1556 Change in HHI:-25 Remaining number of competitors:36 

Bank:Bernadino Metropolitan Area, including the Riverside-San 

Bernadino RMA and the towns of Banning, Beaumont, and 

Nuevo in Riverside County:Wachovia Post-Consummation Rank:11 

Amount of deposits (dollars):277.3 mil. Market deposit 

shares (percent):02.4 Resulting HHI:1556 Change in HHI:-25 Remaining number of competitors:36 

Bank:San Diego—The San Diego RMA and the towns of 

Camp Pendleton and Pine Valley in San Diego County:Wachovia Pre 

Consummation Rank:19 Amount of deposits (dollars):214.5 mil. Market deposit shares (percent):0.5 

Resulting HHI:1072 Change in HHI:-28 Remaining number of competitors:66 

Bank:San Diego—The San Diego RMA and the towns of Camp Pendleton 

and Pine Valley in San Diego County:Golden West 

Rank:10 Amount of deposits (dollars):1.7 bil. Market deposit shares (percent):2.1 

Resulting HHI:1072 Change in HHI:-28 Remaining number of competitors:66 

Bank:San Diego—The San Diego RMA and the towns of Camp Pendleton 

and Pine Valley in San Diego County:Wachovia Post-Consummation 

Rank:8 Amount of deposits (dollars):1.9 bil. Market deposit shares 

(percent):4.6 Resulting HHI:1072 Change in HHI:-28 

Remaining number of competitors:66 

Bank:Banking Markets in Connecticut,New Jersey, New York, and Pennsylvania: 

Metropolitan New York-New Jersey—Bronx, Dutchess, Kings, Nassau, New York, Orange, 

Putnam, Queens, Richmond, Rockland, Suffolk, Sullivan, Ulster, and Westchester Counties, all in 

New York; Bergen, Essex, Hudson, Hunterdon, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset, 

Sussex, Union, and Warren Counties and the northern portions of Mercer County, all in New Jersey; 

Monroe and Pike County in Pennsylvania; Fairfield County and portions of Litchfield and 

New Haven Counties in Connecticut:Wachovia Pre Consummation Rank:6 Amount of deposits (dollars):32.9 bil. 

Market deposit shares (percent):4.4 Resulting HHI:1212 Change in HHI:2 Remaining number of competitors:282 

Bank:Banking Markets in Connecticut,New Jersey, New York, and Pennsylvania: Metropolitan 

New York-New Jersey—Bronx, Dutchess, Kings, Nassau, New York, Orange, Putnam, Queens, Richmond, Rockland, 

Suffolk, Sullivan, Ulster, and Westchester Counties, all in New York; Bergen, Essex, Hudson, 

Hunterdon, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset, Sussex, Union, and Warren 

Counties and the northern portions of Mercer County, all in New Jersey; Monroe and Pike 

County in Pennsylvania; Fairfield County and portions of Litchfield and 

New Haven Counties in Connecticut:Golden West Rank:39 Amount of deposits (dollars):2.8 bil. 

Market deposit shares (percent):0.2 Resulting HHI:1212 Change in HHI:2 Remaining number of competitors:282 

Bank:Banking Markets in Connecticut,New Jersey, New York, and Pennsylvania: Metropolitan New York-New 

Jersey—Bronx, Dutchess, Kings, Nassau, New York, Orange, Putnam, Queens, Richmond, Rockland, Suffolk, 

Sullivan, Ulster, and Westchester Counties, all in New York; Bergen, Essex, Hudson, Hunterdon, 

Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset, Sussex, Union, and Warren Counties 

and the northern portions of Mercer County, all in New Jersey; Monroe and Pike County in 

Pennsylvania; Fairfield County and portions of Litchfield and New Haven Counties in 

Connecticut:Wachovia Post-Consummation Rank:6 Amount of deposits (dollars):35.5 bil. 

Market deposit shares (percent):4.8 Resulting HHI:1212 

Change in HHI:2 Remaining number of competitors:282 

Bank:Banking Markets in Connecticut,New Jersey, New York, and Pennsylvania:Philadelphia and 

South Jersey—Burlington, Camden, Gloucester, and Salem Counties, all in New Jersey; 

and Bucks, Chester, Delaware, Montgomery Counties, all in Pennsylvania:Wachovia Pre Consummation Rank:1 

Amount of deposits (dollars):20.9 bil. Market deposit shares (percent):22.5 Resulting HHI:1064 

Change in HHI:5 Remaining number of competitors:120 

Bank:Banking Markets in Connecticut,New Jersey, New York, and Pennsylvania:Philadelphia and South Jersey—Burlington, 

Camden, Gloucester, and Salem Counties, all in New Jersey; and Bucks, Chester, Delaware, Montgomery Counties, 

all in Pennsylvania:Golden West Rank:82 Amount of deposits (dollars):123.2 mil. Market deposit shares (percent):0.1 

Resulting HHI:1064 Change in HHI:5 Remaining number of competitors:120 

Bank:Banking Markets in Connecticut,New Jersey, New York, and Pennsylvania:Philadelphia and South Jersey—Burlington, 

Camden, Gloucester, and Salem Counties, all in New Jersey; and Bucks, Chester, Delaware, 

Montgomery Counties, all in Pennsylvania:Wachovia Post-Consummation Rank:1 Amount of deposits (dollars):21 bil. 

Market deposit shares (percent):22.6 Resulting HHI:1064 Change in HHI:5 Remaining number of competitors:120 
C168 Federal Reserve Bulletin • 2006 

ORDER ISSUED UNDER FEDERAL 

RESERVE ACT 

Citizens First State Bank of Walnut 

Walnut, Illinois 

Order Approving Establishment of a Branch 

Citizens First State Bank of Walnut (''Citizens''), a state 

member bank, has requested the Board' s approval under 

section 9 of the Federal Reserve Act ('' Act'')(footnote 1 

12 U.S.C. § 321 etseq. end footnote) to establish a 

branch at 9226 2125 North Avenue, Manlius, Illinois. 

Notice of the proposal, affording interested persons an 

opportunity to submit comments, has been published in 

accordance with the Board' s Rules of Procedure(footnote 2 

12 CFR 262.3(b) end footnote)The time 

for filing comments has expired, and the Board has considered the notice and all comments received in light of the 

factors specified in the Act. 

Citizens is the 455th largest depository institution in 

Illinois, controlling approximately $49.8 million in deposits, which represents less than 1 percent of the total amount 

of deposits of insured depository institutions in the state(footnote 

3 Statewide ranking and deposit data are as of June 30, 2005, and 

reflect mergers as of June 8, 2006 end footnote) 

Citizens currently operates three branches in Bureau County, 

Illinois, which includes Manlius. 

Under section 9(3) of the Act,(footnote 4 12 U.S.C. §321 and 12 

CFR 208.6(b) end footnote)a state member bank 

must obtain Board approval before establishing any branch. 

Section 9(4) of the Act requires that, when acting on a 

branch application, the Board consider the financial condition of the applying bank, the general character of its 

management, and whether its corporate powers are consistent with the purposes of the Act(footnote 5 12 U.S.C. §322 end 

footnote)Under the Board's 

regulations implementing section 9(4),(footnote 6 12 CFR 208.6 

(b) end footnote)the factors that the 

Board must consider in acting on branch applications 

include: (1) the financial history and condition of the 

applying bank and the general character of its management; 

(2) the adequacy of the bank's capital and its future 

earnings prospects; (3) the convenience and needs of the 

community to be served by the branch; and (4) in the case 

of branches with deposit-taking capability, the bank's 

performance under the Community Reinvestment Act 

('' CRA'' )(footnote 7 12 U.S.C. § 2901 etseq. end footnote) 

The Board has carefully considered the application in 

light of these factors and public comment received from a 

bank holding company that competes with Citizens and 

owns the only existing branch in Manlius. The commenter 

asserted that the demographic and economic characteristics 

of the community would not support the profitable operation of another branch in the community, that the proposal 

might weaken the financial condition of one or both banks, 

and that the proposal could ultimately diminish the banking 

options available to the citizens in the community. 

In considering the financial history and condition, future 

earnings prospects, and capital adequacy of Citizens, the 

Board has reviewed reports of examination, other supervisory information, publicly reported and other financial 

information, and information provided by Citizens and the 

commenter. Citizens is well capitalized and would remain 

so on consummation of the proposal. The Board also has 

reviewed Citizens' business plan and financial projections 

for the branch, including the projections for deposits, 

income, and costs. After carefully considering all the facts 

of record, the Board has concluded that the financial history 

and condition, capital adequacy, and future earnings prospects of Citizens are consistent with approval of the 

proposal. 

In considering Citizens' managerial resources, the Board 

has reviewed the bank's examination record, including 

assessments of its management, risk-management systems, 

and operations. The Board also has considered its supervisory experiences with Citizens and the bank' s record of 

compliance with applicable banking law, including antimoney-laundering laws, and has reviewed the proposed 

management of the branch. Citizens is considered to be 

well managed. Based on this review and all the facts of 

record, the Board has concluded that the character of 

Citizens' management is consistent with approval of the 

proposal. 

The Board also has considered the convenience and 

needs of the community to be served, taking into account 

the comment received, and the bank' s performance under 

the CRA. Citizens received a ''satisfactory'' rating by the 

Federal Reserve Bank of Chicago ("Reserve Bank'') at its 

most recent CRA performance evaluation, as of April 28, 

2003(footnote 8 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. See Interagency Questions and Answers Regarding 

Community Reinvestment, 66 Federal Register 36,620 and 36,640 

(2001) end footnote)The Board generally considers the entry of a 

new 

competitor in a community to be a positive factor when 

assessing the effect of a proposal on the convenience and 

needs of the community because new entry provides additional alternatives to consumers and businesses. Citizens 

has represented that the proposed branch would provide 

residents of the Manlius area with another convenient 

source of banking services through extended service hours 

and the presence at the branch of an officer with loan 

approval authority(footnote 9 The commenter has speculated that 

consummation of this proposal could lead to one or both banks having to close its branch in 

Manlius, resulting in fewer banking services in the community. In 

reviewing this proposal, the Board has considered the comments in 

light of Citizens' plans and projections for the proposed branch, as 

well as its financial and managerial resources. The Board also has 

reviewed the deposit and demographic data for the village of Manlius 

and for Bureau County. The data indicate modest declines in 

population from 2000-2005, but they also show consistent moderate growth 

in deposits during the same time period. 

end footnote)For these reasons and based on a 

review of the entire record, the Board concludes that the 
Legal Developments: Third Quarter, 2006 C199 

convenience and needs considerations and Citizens' record 

of performance under the CRA are consistent with approval 

of the proposal. 

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

Board has determined that the application should be, and 

hereby is, approved. The Board's approval is specifically 

conditioned on Citizens' compliance with all commitments 

made to the Board in connection with the proposal. The 

commitments and conditions relied on by the Board are 

deemed to be conditions imposed in writing in connection 

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

in proceedings under applicable law. 

Approval of this application is subject to the establishment of the proposed branch within one year of the date of 

this order, unless such period is extended by the Board or the 

Reserve Bank, acting under authority delegated by the 

Board. 

By order of the Board of Governors, effective August 9, 

2006. 

Voting for this action: Chairman Bernanke, Vice Chairman Kohn, 

and Governors Bies, Warsh, and Kroszner. 

ROBERT DEV. FRIERSON 

Deputy Secretary of the Board 

ORDERS ISSUED UNDER 

INTERNATIONAL BANKING ACT 

Calyon, S.A. 

Paris, France 

Order Approving Establishment of a Branch 

Calyon, S.A. (''Bank''),(footnote 1 Calyon is the successor to 

Credit Agricole Indosuez, S.A., Paris, 

France end footnote)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 Los Angeles, California. 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. Bank previously received approval to file an 

application for approval of this branch after-the-fact(footnote 

2 In May 2004, Bank acquired certain assets and liabilities of 

Credit Lyonnais (''Credit Lyonnais''), also in Paris, including all the 

assets and liabilities of the Credit Lyonnais branch in Los Angeles. 

Bank received temporary authority to establish and operate the Los 

Angeles branch before an application was filed and acted on in 

accordance with section 211.24(a)(6) of Regulation K (12 CFR 

211.24(a)(6)). See Board letter dated April 15, 2004, to Michael 

Bradfield, Esq. With this application, Bank seeks permanent authority 

to establish and operate the branch in Los Angeles. end footnote) 

Notice of the application, affording interested persons an 

opportunity to comment, has been published in a newspaper 

of general circulation in Los Angeles (Los Angeles Times, 

November 1, 2004). The time for filing comments has 

expired, and all comments received have been considered. 

Bank is a direct subsidiary of Credit Agricole S.A. 

(''Credit Agricole''), Paris(footnote 3 Credit Agricole holds 

95.3 percent of Bank's shares end footnote)the lead bank for the Credit 

Agricole Group, which provides a wide range of banking 

and financial services to retail and corporate customers 

throughout the world and is the largest banking group in 

France with assets of approximately $913 billion(footnote 4 

Asset data are as of December 31, 2004 end footnote)SAS 

Rue La Boetie (''Boetie''), also in Paris, holds approximately 55 percent of the shares of Credit Agricole(footnote 

5 The remainder of Credit Agricole's shares are held by members 

of the public end footnote)The 

Federation Nationale du Credit Agricole ('' FNCA''), also in 

Paris, controls Boetie(footnote 6 Credit Agricole supports, coordinates, 

and supervises the operations of approximately 40 regional cooperative banks (Caisses Regionales or ''Caisses'') and approximately 2600 local cooperative banks, 

which operate a retail branch network in France. FNCA, Boetie, Credit 

Agricole, and the regional and local cooperative banks together 

comprise the Credit Agricole Group. In connection with a public 

offering of shares by Credit Agricole, the Caisses established a wholly 

owned holding company, Boetie, in 2001 and transferred their shares 

of Credit Agricole to it. Boetie holds and votes the shares of Credit 

Agricole to maintain the Caisses' control of Credit Agricole. FNCA, 

an unincorporated association, acts as a consultative and representative body for the Caisses. See also Federation Nationale du Credit 

Agricole et al, 92 Federal Reserve Bulletin C159 (2006)end footnote) 

In the United States, Credit Agricole conducts banking operations through offices of Bank; 

through another French bank subsidiary, Credit Lyonnais; 

and through Espirito Santo Bank, Miami, Florida, the U.S. 

bank subsidiary of Banco Espirito Santo, S.A., Lisbon, 

Portugal(footnote 7 Credit Agricole also is deemed to control 

Banca Intesa S.p.A, 

Milan, Italy, which operates a branch in New York end footnote) 

The Credit Agricole Group also operates a 

number of nonbank subsidiaries in the United States. Bank 

is a qualifying foreign banking organization under Regulation K (12 CFR 211.23(b)). 

Bank assumed the operations of the Los Angeles branch 

of Credit Lyonnais in connection with a corporate reorganization in which Bank also acquired Credit Lyonnais's 

branches in Chicago, Illinois, and New York, New York. 

No change in the activities of the branch occurred as a 

result of the reorganization. The branch markets Bank' s 

commercial lending products and functions primarily as a 

loan production office for the bank' s New York branch. 

Bank's home state is New York, and Bank proposes to 

continue to operate its branch in California. Under section 5(a)(2) of the IBA (12 U.S.C. §3103(a)), a foreign 

bank, with the approval of the Board and the appropriate 

state banking supervisor, may establish and operate a 

state-licensed branch outside the home state of the foreign 

bank to the extent a state bank with the same home state as 

the foreign bank could do so under section 44 of the 

Federal Deposit Insurance Act (''FDI Act'') (12 U.S.C. 

§ 1831u). Bank acquired all the assets and liabilities of the 

Credit Lyonnais branch in Los Angeles as part of its 
C168 Federal Reserve Bulletin • 2006 

assumption of the wholesale business assets and liabilities 

of Credit Lyonnais under provisions of French commercial 

law. This transaction constituted an interstate merger transaction as defined in the FDI Act. Section 44(a) of the FDI 

Act permits the approval of a merger transaction under the 

Bank Merger Act between state banks with different home 

states, provided that neither state has elected to prohibit 

interstate merger transactions pursuant to section 44(a)(2) 

of the FDI Act. New York and California both permit 

interstate merger transactions. Accordingly, the proposed 

interstate merger transaction would be permitted under 

section 44 of the FDI Act, and the Board is permitted to 

approve the establishment by Bank of the branch outside its 

home state of New York if the remaining criteria of 

section 5(a) of the IBA are met. The Board has determined 

that the additional conditions specified in section 5(a)(3) of 

the IBA are satisfied(footnote 8 Section 5(a)(3) of the 

IBA requires that certain conditions of 

section 44 of the FDI Act be met in order for the Board to approve an 

interstate banking transaction. See 12 U.S.C. §3103(a)(3)(C) (referring to sections 44(b)(1), 44(b)(3), and 44(b)(4) of the FDI Act, 

12 U.S.C. §§ 1831u(b)(1), (b)(3), and (b)(4)). The Board has determined that Bank is in compliance with state filing requirements. 

Community reinvestment considerations are also consistent with 

approval. Bank and Credit Lyonnais were both adequately capitalized 

as of the date the application was filed, and Bank would continue to be 

at least adequately capitalized and adequately managed on consummation of this proposal. The Board has determined, after consultation 

with the Secretary of the Treasury, that the financial resources of Bank 

are equivalent to those required for a domestic bank to receive 

approval for interstate branching under section 44 of the FDI Act end footnote) 

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 9 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; (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 Board previously has determined that Bank and Credit 

Agricole are subject to comprehensive supervision or regulation on a consolidated basis by their home country 

supervisor, the Commission Bancaire(footnote 10 See 

Caisse Nationale de Credit Agricole, 81 Federal Reserve 

Bulletin 1055 (1995). See also, Credit Agricole Indosuez, 83 Federal 

Reserve Bulletin 1025 (1997); Caisse Nationale de Credit Agricole, 

86 Federal Reserve Bulletin 412 (2000) end footnote)Bank and Credit 

Agricole remain supervised by the Commission Bancaire 

on substantially the same terms and conditions. Based on 

all the facts of record, it has been determined that Bank and 

Credit Agricole are subject to comprehensive supervision 

on a consolidated basis by their 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 

Commission Bancaire has no objection to the establishment 

of the proposed branch. 

France'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. 

France is a member of the Financial Action Task Force 

and subscribes to its recommendations on measures to 

combat money laundering. In accordance with those recommendations, France has enacted laws and created legislative and regulatory standards to deter money laundering. 

Money laundering is a criminal offense in France, 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 Bank's 

internal auditors and the Commission Bancaire. 

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, Boetie, and 

FNCA 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, 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, Boetie, and FNCA 

have 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, 

the Commission Bancaire may share information on Bank's 

operations with other supervisors, including the Board, 
Legal Developments: Third Quarter, 2006 C199 

subject to certain conditions. In light of these commitments 

and other facts of record, and subject to the condition 

described below, the Board has 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, the 

Board has determined that Bank's application to establish a 

branch should be, and hereby is, approved. 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 11 The Board's authority to approve the establishment of the 

proposed branch parallels the continuing authority of the state of 

Californiato license offices of a foreign bank. The Board's approval of 

this application does not supplant the authority of the state of 

California 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 of the Board 

of Governors, effective September 8, 2006. 

Voting for this action: Chairman Bernanke, Vice Chairman Kohn, 

and Governors Warsh, Kroszner, and Mishkin. Absent and not voting: 

Governor Bies. 

ROBERT DEV. FRIERSON 

Deputy Secretary of the Board 

The International Commercial Bank of 

China Co., Ltd. 

Taipei, Taiwan 

Order Approving Establishment of U.S. 

Branches 

The International Commercial Bank of China Co., Ltd. 

(''Bank''), Taipei, Taiwan, a foreign bank within the meaning of the International Banking Act (''IBA''), has applied 

under sections 5(a) and 7(d) of the IBA(footnote 1 12 U.S.C. 

§§3103(a), 3105(d) end footnote)to establish 

branches in Los Angeles and San Jose, California, and 

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 newspapers 

of general circulation in New York, New York (The 

New York Post, May 10, 2006), Los Angeles, California 

(Los Angeles Daily News, May 10, 2006), and San Jose, 

California (San Jose Mercury News, May 10, 2006). The 

time for filing comments has expired, and all comments 

received have been considered. 

Bank, with total assets of $36 billion, is the eighth 

largest commercial bank in Taiwan(footnote 2 Asset data are as of 

March 31, 2006 end footnote)Bank is wholly owned 

by Mega Financial Holding Company (''Mega''), Taipei, 

Taiwan. Mega' s largest shareholders are the national government and governmental agencies of Taiwan (controlling 

18.3 percent of shares) and Chinatrust Financial Holding 

Company, Ltd., Taipei, Taiwan (controlling 18 percent of 

shares)(footnote 3 Mega's remaining shares are widely held, 

with no shareholder or 

group of shareholders controlling more than 5 percent 

of shares end footnote) 

Bank provides a variety of banking services to 

retail and corporate customers directly and through two 

subsidiary banks and branches in 15 countries(footnote 4 

Bank's subsidiary banks are International Commercial Bank of 

Cathay, Toronto, Canada, and The International Commercial Bank of 

China Public Co., Ltd., Bangkok, Thailand. In addition to the United 

States, Bank operates branches in Australia, France, Hong Kong, 

Japan, Malaysia, the Netherlands, Panama, the Philippines, Singapore, 

and Vietnam. Bank also maintains representative offices in the United 

Kingdom and Bahrain end footnote)In the 

United States, Bank operates a limited federal branch in 

Los Angeles, California, a full-service state branch in 

Chicago, Illinois, and a state agency in New York, New York. 

Bank is a qualifying foreign banking organization under 

Regulation K(footnote 5 12 CFR 211.23(b) end footnote) 

In addition to Bank, Mega wholly owns Chiao Tung 

Bank Co., Ltd. (''CTB''), Taiwan's 14th largest bank. CTB 

operates a full-service state branch in San Jose, California, 

and a state agency in New York, New York. 

As part of a corporate reorganization of Mega, Bank and 

CTB will merge, with Bank as survivor. Bank would 

assume CTB's San Jose full-service branch and New York 

agency. In New York, Bank proposes to combine the 

operations of CTB's agency with the operations of Bank's 

existing New York agency and to upgrade the combined 

New York agency to a full-service branch. It also proposes 

to convert its Los Angeles limited branch from a federal to 

a state license and to upgrade it to a full-service branch. 

According to Bank, the full-service branches would enable 

it to better serve the needs of its customers who do business 

in the United States. The branches also would coordinate 

Bank's access to U.S. capital markets. 

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(footnote 6 12 U.S.C. 

§3105(d)(2); 12 CFR 211.24. In assessing this standard, the Board considers, among other indicia of 

comprehensive 

consolidated supervision, 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 worldwide condition comparable bankstandards, financial inform basis. on nformation a such theworldwide reports No Board's singleas capital tha thatdetermination factor consolidated are adequacy permits consolidated is essential, analysis end basis;and footnote)Th risk-asset onad (v) of a other the evaluate worldwide bank's exposure, e elements Boar prudential financial d basis al mayono ora 
C168 Federal Reserve Bulletin • 2006 

considers additional standards set forth in the IBA and 

Regulation K(footnote 7 12 U.S.C. §3105(d)(3)-(4); 12 CFR 211.24 

(c)(2)-(3) end footnote) 

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 Taiwan, that 

those banks were subject to home country supervision on a 

consolidated basis(footnote 8 See SinoPac Holdings, 88 

Federal Reserve Bulletin 307 (2002); 

Chinatrust Financial Holding Company, Ltd, 88 Federal Reserve 

Bulletin 303 (2002); E. Sun Commercial Bank Limited, 86 Federal 

Reserve Bulletin 238 (2000); Chinatrust Commercial Bank, Ltd., 

84 Federal Reserve Bulletin 1121 (1998); Land Bank of Taiwan, 

83 Federal Reserve Bulletin 336 (1997); Taiwan Business Bank, 

81 Federal Reserve Bulletin 746 (1995); Farmers Bank of China, 

81 Federal Reserve Bulletin 620 (1995). end footnote)Bank is supervised 

by the Financial 

Supervisory Commission (''FSC'') on substantially the 

same terms and conditions as those other banks(footnote 9 

The FSC, Taiwan's umbrella supervisory agency for financial 

institutions, is composed of financial regulators formerly housed in the 

Ministry of Finance, Central Bank of China, and China Deposit 

Insurance Corporation. The FSC began operations in July 2004 end footnote) 

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(footnote 10 As 

a financial holding company under Taiwanese law, Mega is 

supervised by the FSC and is subject to prudential restrictions on 

capital adequacy and transactions with affiliates. The FSC may require 

the submission of consolidated financial statements, review transactions between the financial holding company and its subsidiaries, and 

send internal or outside independent auditors to audit and inspect the 

operations and the financial records of the financial holding company 

or any of its subsidiaries. The FSC also may take measures to ensure 

the safety and soundness of the organization. end footnote) 

The Board has also taken into account the additional 

standards set forth in section 7 of the IBA and RegulationK(footnote 11 See 12 U.S.C. §3105(d)(3)-(4); 12 CFR 211.24(c)(2) 

-(3) end footnote)The FSC has no objection to Bank's establishment 

of the proposed branches. 

Taiwan's risk-based capital standards are consistent with 

those established by the Basel Capital Accord. Bank's 

capital is in excess of the minimum levels that would be 

required by the Basel Capital Accord and is considered 

equivalent to capital that would be required of a U.S. 

banking organization. Managerial and other financial resources of Bank are consistent with approval, and Bank 

appears to have the experience and capacity to support the 

proposed agency. In addition, Bank has established controls 

and procedures for the proposed offices to ensure compliance with U.S. law, as well as controls and procedures for 

its worldwide operations generally. 

Taiwan is a founding member of the Asia Pacific Group 

on Money Laundering and subscribes to its recommendations on measures to combat money laundering and international terrorism. In accordance with these recommendations, Taiwan has enacted laws and regulations to deter 

money laundering. Money laundering is a criminal offense 

in Taiwan, 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 that are 

monitored by governmental entities responsible for antimoney-laundering compliance. 

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 and Mega 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, 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 Mega have 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 light of these commitments and other facts of record, and subject to the condition 

described below, it has been determined that Bank and 

Mega have provided adequate assurances of access to any 

necessary information that the Board may request. 

Establishment of an Interstate Branch. The IBA establishes criteria that must be met before the Board can 

approve the establishment of a branch outside the foreign 

bank's home state. Bank's home state is New York. Bank 

proposes to establish by merger a full-service branch in San 

Jose, California, CTB's home state. Under section 5(a) of 

the IBA, as amended by section 104 of the Riegle-Neal 

Interstate Banking and Branching Efficiency Act of 1994 

(''Riegle-Neal Act'')(footnote 12 12 U.S.C. §3103(a). end footnote) 

a foreign bank, with the approval of 

the Board and the Office of the Comptroller of the Currency 

or the appropriate state banking supervisor, may establish 

and operate a branch in any state outside its home state to 

the extent that a bank with the same home state as the 

foreign bank could do so under section 44 of the Federal 

Deposit Insurance Act (''FDI Act''). Section 44 of the FDI 

Act permits approval of a merger transaction under the 

Bank Merger Act between banks with different home states, 

provided that neither state has elected to prohibit interstate 
Legal Developments: Third Quarter, 2006 C199 

merger transactions.(footnote 13 12 U.S.C. § 1831u end footnote) 

New York and California statutes 

both permit interstate merger transactions. All other applicable requirements have been met by the proposal(footnote 

14 Section 5(a) of the IBA requires that certain conditions of 

section 44 of the FDI Act be met in order for the Board to approve an 

interstate banking transaction. See 12 U.S.C. § 3103(a)(3)(C) (referring to sections 44(b)(1), 44(b)(3), and 44(b)(4) of the FDI Act, 

12 U.S.C. §§ 1831u(b)(1), (b)(3), and (b)(4)). The Board has determined that Bank is in compliance with state filing requirements. 

Community reinvestment considerations are also consistent with 

approval. Both Bank and CTB were adequately capitalized as of the 

date the application was filed, and, on consummation of this proposal, 

Bank would continue to be adequately capitalized and adequately 

managed. The Board has determined, after consultation with the 

Secretary of the Treasury, that the financial resources of Bank are 

equivalent to those required for a domestic bank to receive approval 

for interstate branching under section 44 of the FDI Act. end footnote) 

The Board has determined that all of the other criteria 

referred to in section 5(a)(3) of the IBA,(footnote 15 

The Riegle-Neal Act provides that a bank resulting from an 

interstate merger may, with Board approval and subject to certain 

requirements, retain and operate as a branch any office that any bank 

involved in the merger transaction was operating as a main office or 

branch immediately before the merger transaction. See 12 U.S.C. 

§ 1831u(d)(1). In this case, all the applicable statutory requirements 

are met. Therefore, Bank may retain and operate the state-licensed 

branch outside New York currently being operated by CTB, provided 

the criteria in section 5(a)(3) of the IBA have been met. 

end footnote)including the 

criteria in section 7(d) of the IBA, have been met. In view 

of all the facts of record, the Board is permitted to approve 

the establishment of an interstate branch by Bank under 

section 5(a) of the IBA. 

Section 5(a)(7) of the IBA provides that a foreign bank 

may upgrade an existing limited branch outside its home 

state to a full-service branch if the limited branch has been 

in operation since September 28, 1994, and the host state 

permits the establishment of a full-service branch(footnote 16 

12 U.S.C. §3103(a)(7). end footnote)As 

noted above, Bank's home state is New York. Bank's Los 

Angeles branch was established in 1984, and California 

law permits foreign banks to operate full-service wholesale 

branches(footnote 17 Cal. Fin. Code §§ 1701, 1750 (West 2006) end footnote) 

Accordingly, the Board has determined that 

Bank may upgrade the Los Angeles branch to a full-service 

wholesale branch, provided that the California Department 

of Financial Institutions approves the transactions. 

Upgrade of the New York Agency to a Full-Service Branch. 

Bank currently operates an agency in New York. Because 

New York is Bank' s home state, there is no federal 

restriction that would preclude the upgrading of that office 

to a full-service branch. Accordingly, the Board has determined that Bank may upgrade the New York agency to a 

full-service wholesale branch, provided that the New York 

State Banking Department approves the transactions. 

Based on the foregoing and all the facts of record, 

Bank' s application to establish the proposed branches is 

hereby 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. 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 the 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 and with the conditions in this order(footnote 18 The Board's 

authority to approve the establishment of the 

proposed branches parallels the continuing authority of California and 

New York to license offices of a foreign bank. The Board's approval of 

this application does not supplant the authority of those states to 

license the proposed offices of Bank in accordance with any terms or 

conditions that they may impose end footnote)The commitments and conditions 

referred to above are conditions 

imposed in writing by the 

Board in connection with this 

decision and may be enforced 

in proceedings under 

12 U.S.C. § 1818 against 

Bank and its affiliates. 

By order, approved pursuant 

to authority delegated by 

the Board, effective August 18, 2006. 

ROBERT DEV. FRIERSON 

Deputy Secretary of the Board 

Taiwan Cooperative Bank 

Taipei, Taiwan 

Order Approving Establishment of Branches 

Taiwan Cooperative Bank (''TCB''), Taipei, Taiwan, a 

foreign bank within the meaning of the International Banking Act (''IBA''), has applied under section 7(d) of the 

IBA(footnote 1 12 U.S.C. §3105(d). end footnote)to establish statelicensed branches in Los Angeles, 

California, and Seattle, Washington. 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. 

TCB acquired the branches in connection with its merger 

with Farmers Bank of China (''Farmers''), also in Taipei, 

on May 1, 2006(footnote 16 On April 28, 2006, the General Counsel, 

after consulting with the 

director of Banking Supervision and Regulation, 

approved under 

delegated authority TCB's request to use the after-the-fact 

application 

procedures outlined in section 211.24(a)(6) of 

Regulation K, 12 CFR 

211.24(a)(6), to establish branch offices in the 

United States after 

TCB's merger with Farmers. 

Farmers' application to establish the Los Angeles office was 

approved by the Board in 1995 as a limited branch. Farmers Bank of 

China, 81 Federal Reserve Bulletin 620 (1995). Accordingly, it is 

prohibited from accepting deposits from sources other than those 

permitted pursuant to section 5 of the IBA and section 25A of the 

Federal Reserve Act (12 U.S.C. §3103). The Seattle office was 

established in 1990 as a federally licensed branch, and its conversion 

to a state license was approved on June 3, 2006. end footnote) 

Regulation 

K defines the establishment of 

an office to include the assumption of the operations of an 

existing office through a merger with another foreign 
C168 Federal Reserve Bulletin • 2006 

bank(footnte 3 12 CFR 211.21(l)(2). end footnote) 

Accordingly, TCB, as the survivor of the merger, 

must obtain the approval of the Board to assume the 

operations of Farmers' existing U.S. offices. 

Notice of the application, affording interested persons 

an opportunity to comment, has been published in newspapers of general circulation in Los Angeles and Seattle 

(Los Angeles Times and Seattle Times, March 29, 2006). 

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 the IBA. 

TCB, with total assets of $74 billion, is the largest bank 

in Taiwan(footnote 4 Asset data are as of June 30, 2006 end footnote) 

The Taiwanese government partially privatized 

TCB in 2005 but remains the largest shareholder with 

43.17 percent of its voting securities. TCB provides a broad 

range of banking, financial, and other services primarily in 

Taiwan. TCB maintains representative offices in Hong 

Kong and Beijing and operates several non bank subsidiaries. Other than the branches that are the subject of this 

proposal, TCB does not have any operations in the United 

States. TCB would be a qualifying foreign banking organization under Regulation K(footnote 5 12 CFR 211.23(b) end footnote) 

TCB has assumed the businesses and operations of 

Farmers' U.S. branches. The Los Angeles and Seattle 

branches' primary activities are providing commercial and 

real estate lending to the Taiwanese community in the 

United States and facilitating trade transactions between 

the United States and Asia. 

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 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 or regulation on a 

consolidated basis by its home country supervisor(footnote 6 

12 U.S.C. §3105(d)(2); 12 CFR 211.24(c)(1). In assessing this 

standard, the Board considers, among other indicia of comprehensive, 

consolidated supervision, 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; (v) evaluate prudential 

standards, such as capital adequacy and risk-asset exposure, on a 

worldwide basis. No single factor is essential, and other elements may 

inform the Board's determination end footnote)The 

Board also considers additional standards set forth in the 

IBA and Regulation K(footnote 712 U.S.C. §3105(d)(3)-(4); 

12 CFR 211.24(c)(2)-(3). end footnote) 

As noted above, TCB engages directly in the business of 

banking outside of the United States. TCB 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 

Taiwan, including Farmers, that those banks were subject 

to home country supervision on a consolidated basis(footnote 

See SinoPac Holdings, 88 Federal Reserve Bulletin 307 (2002); 

Chinatrust Financial Holding Company, Ltd, 88 Federal Reserve 

Bulletin 303 (2002); E. Sun Commercial Bank Limited, 86 Federal 

Reserve Bulletin 238 (2000); Chinatrust Commercial Bank, Ltd., 

84 Federal Reserve Bulletin 1121 (1998); Land Bank of Taiwan, 

83 Federal Reserve Bulletin 336 (1997); Taiwan Business Bank, 

81 Federal Reserve Bulletin 746 (1995); Farmers Bank of China, 

81 Federal Reserve Bulletin 620 (1995) end footnote)TCB 

is supervised by the Financial Supervisory Commission 

(''FSC'') on substantially the same terms and conditions as 

the other banking organizations approved(footnote 9 The FSC, 

Taiwan's umbrella supervisory agency for financial 

institutions, is composed off inancial regulators 

formerly housed in the 

Ministry of Finance, Central Bank of China, and 

China Deposit 

Insurance Corporation. The FSC began operations in 

July 2004 end footnote) 

Based on all the 

facts of record, it has been determined that TCB is subject 

to comprehensive supervision on a consolidated basis by its 

home country supervisor. The FSC has no objection to the 

proposal. 

Taiwan's risk-based capital standards are consistent with 

those established by the Basel Capital Accord. TCB's 

capital is in excess of the minimum levels that would be 

required by the Basel Capital Accord and is considered 

equivalent to capital that would be required of a U.S. 

banking organization. Managerial and other financial resources of TCB also are considered consistent with approval, and TCB appears to have the experience and 

capacity to support the proposed branches. In addition, 

TCB has established controls and procedures for the proposed branches to ensure compliance with U.S. law and for 

its operations in general. 

Taiwan is a founding member of the Asia/Pacific Group 

on Money Laundering and subscribes to its recommendations on measures to combat money laundering. In accordance with these recommendations, Taiwan has enacted 

laws and created legislative and regulatory standards to 

deter money laundering. Money laundering is a criminal 

offense in Taiwan, and financial institutions are required to 

establish internal policies, procedures, and systems for the 

detection and prevention of money laundering throughout 

their worldwide operations. TCB 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 about TCB's 

operations, the Board has reviewed the restrictions on 

disclosure in relevant jurisdictions in which TCB operates 

and has communicated with relevant government authorities regarding access to information. TCB has committed to 

make available to the Board such information on the 

operations of TCB 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 
Legal Developments: Third Quarter, 2006 C199 

such information to the Board may be prohibited by law or 

otherwise, TCB 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 light of these commitments and other facts of 

record, and subject to the condition described below, it has 

been determined that TCB has provided adequate assurances of access to any necessary information that the Board 

may request. 

On the basis of all the facts of record, TCB's application 

to establish branches in Los Angeles and Seattle 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 end footnote) 

Should any restrictions on access to information on the operations or activities of TCB and its affiliates 

subsequently interfere with the Board' s ability to obtain 

information to determine and enforce compliance by TCB 

or its affiliates with applicable federal statutes, the Board 

may require or recommend termination of any of TCB's 

direct or indirect activities in the United States. Approval of 

this application also is specifically conditioned on compliance by TCB with the commitments made in connection 

with this application and with the conditions in this order(footnote 

11 The Board's authority to approve the establishment of the 

proposed branches parallels the continuing authority of California and 

Washington to license offices of a foreign bank. The Board's approval 

of this application does not supplant the authority of the California 

Department of Financial Institutions or Washington State Department 

of Financial Institutions to license the proposed branches of TCB in 

accordance with any terms or conditions that they may impose end footnote) 

The commitments and 

conditions referred to above 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 

12 U.S.C. § 1818 against 

TCB and its affiliates. 

By order, approved pursuant to 

authority delegated by 

the Board, effective August 15, 2006. 

ROBERT DEV. FRIERSON 

Deputy Secretary of the Board