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Comptroller of the Currency
Administrator of National Banks

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Office of the Comptroller of the Currency
1980
Comptroller

John G. Heimann
(Resigned May 15, 1981)

Policy Group
Senior Deputy Comptroller
Senior Advisor to the Comptroller
Senior Deputy Comptroller for Operations
Senior Deputy Comptroller for Bank Supervision
Senior Deputy Comptroller for Policy
Chief Counsel

Lewis G. Odom, Jr.
(Retired November 1980)
Charles E. Lord
H. Joe Selby
Paul M. Homan
Cantwell F. Muckenfuss III
John E. Shockey
(Resigned August 9, 1981)

Background

The Comptroller

The Office of the Comptroller of the Currency (OCC)
was established in 1863 as a bureau of the Depart
ment of the Treasury. The OCC is headed by the
Comptroller who is appointed by the President, with
the advice and consent of the Senate, for a 5-year
term.
The OCC regulates national banks by its power to:
• Approve or deny applications for new charters,
branches, capital or other changes in corporate
or banking structure;
• Examine the banks;
• Take supervisory actions against banks which
do not conform to laws and regulations or which
otherwise engage in unsound banking prac
tices, including removal of officers, negotiation
of agreements to change existing bank prac
tices and issuance of cease and desist orders;
and
• Issue rules and regulations concerning banking
practices and governing bank lending and in
vestment practices and corporate structure.
The OCC divides the United States into 14
geographical regions, with each headed by a Regional
Administrator.
The Office is funded through assessments on the
assets of national banks.

John G. Heimann became the 24th Comptroller of
the Currency on July 21, 1977.
By statute, the Comptroller serves a concurrent term
as a Director of the Federal Deposit Insurance Corpo
ration; from August 1978 until February 1979, Mr.
Heimann served as Acting Chairman. Mr. Heimann is
Chairman of the Federal Financial Institutions Examina
tion Council, and was a Director of the Federal Na
tional Mortgage Association from July 1977 until May
1980. He is Chairman of the Commercial Reinvestment
Task Force and a Director of the National Neighbor
hood Reinvestment Corporation, a principal agent of
the federal government charged with revitalizing com
munities and neighborhoods.
Before becoming Comptroller, Mr. Heimann was
Commissioner of Housing and Community Renewal for
New York State. From June 1975 to November 1976,
he was New York State's Superintendent of Banks.
A native of New York, Mr. Heimann received a B.A.
degree in economics from Syracuse University in
1950. The university awarded him its Chancellor Medal
in 1978.

NOTE: The annual report of the Comptroller of the Currency for 1980 will be issued in two parts. The first part, 1980
Report of Operations, is scheduled for release in spring 1981 and the second part, 1980 Annual Report, is sched
uled for release in summer 1981. The first part contains a summary of Office activities for 1980 and some summary
materials on the national banking system. The second part contains merger decisions, enforcement actions,
speeches and testimony and national banking system summary statistics for 1980.

1980
Annual Report
Office of the
Comptroller of the Currency

Contents
Title of Section

Page

Condition of the National Banking System
Merger Decisions
Enforcement Actions
Selected Addresses and Congressional Testimony
Statistical Tables

1
5
99
143
231

Condition of the National Banking System
The year 1980 was a period of both high and very
volatile interest rates. The average monthly rate on fed
eral funds, an important source of short-term financing
for commercial banks, ranged from a low of 9.0 per
cent to a high of 18.9 percent. That is in contrast to
1979 when that average rate varied less than 400
basis points. Similarly, the prime, a benchmark rate for
lending to large corporate customers, rose rapidly
from 15.25 percent at the start of the year to a then un
precedented peak of 20 percent shortly after the Fed
eral Reserve Board instituted an emergency credit re
straint program on March 14. The prime rate then fell
even more rapidly than it had risen, dropping to 11
percent in July, only to rise again to a new record of
21.5 percent by year-end. During 1979, the prime rate
was unchanged for more than 5 months before climb
ing 400 basis points to the year's high of 15.75 percent
in November.
Despite the extreme volatility of interest rates and
the general economic downturn in the spring, national
banks generally operated profitably, and net income
for the system increased nearly 6 percent over 1979.
That increase in net income, however, was well below
the corresponding increase in total assets and sharply
below the 17.4 percent increase in net income enjoyed
in 1979.
Successful commercial bank operations are more
difficult in a period of rapidly rising interest rates be
cause an increasing portion of banks' liabilities are rel
atively short-term and interest sensitive funds. Al
though in the past smaller banks, with their greater
reliance on demand and savings deposits, have been
relatively insulated from changes in the cost of funds,
that situation is also changing. Greater consumer
awareness of interest rates and particularly the rapid
expansion of money market certificates led smaller
banks to rely increasingly on purchased funds. To
compensate for the increasing variability in their costs
of funds, commercial banks continued the trend to
ward greater reliance on variable-rate or shorter term
loans and toward reduced reliance on long-term secu
rities.
Total assets of the national banking system, both for
eign and domestic, totaled $1,095 billion at year-end
1980, an increase of $99 billion, or 9.9 percent, over
the total for the previous year. That was the slowest
rate of change in total assets since 1975 when assets
increased only 6.9 percent.
Reacting to rising interest rates followed by the
credit constraint program initiated in the spring, loan
growth failed to keep pace with total assets, increas
ing 8.6 percent, or $48 billion, over the 12-month per
iod. That loan growth was still disproportionately con
centrated in foreign offices, with domestic office loans
increasing only 6.3 percent. However, the long-term
trend of more rapid growth in total foreign office assets
was virtually stalled in 1980. Total assets at domestic
offices, including the substantial net amount of $19 bil
lion due from foreign branches and subsidiaries, in

creased 9.9 percent. Foreign office (including Edge
Act subsidiaries in the United States) assets, exclud
ing amounts due to the head office, increased over 10
percent to $236 billion, nearly 21 percent of the na
tional banking system's assets.
Although total loan growth was modest, residential
real estate lending held up well considering the histori
cally high interest rates prevailing during the period.
Total holdings of residential real estate mortgages at
domestic offices of national banks increased 7.9 per
cent to $85 billion. In part, that increase resulted from
the innovative use of both short-term and variable-rate
mortgages by national banks.
For the first time in several years, national banks ac
tually increased the proportion of securities in their as
set portfolios. Their total holdings increased nearly $20
billion, a rise of 12.7 percent over the preceding De
cember. However, the trend to shorter maturities con
tinued. At year-end 1980, 28 percent of domestic of
fice holdings of $80 billion in U.S. Treasury and
agency securities had maturities of 1 year or less,
compared to 25 percent at year-end 1979.
The effects of rising interest rates and changes in
the competitive situation of commercial banking were
most readily seen on the liability side of the balance
sheet. Although the 9.6 percent increase of $57 billion
in domestic office deposits exceeded the growth rate
in foreign office deposits for the first time in a number
of years, a higher proportion of those domestic office
deposits were paying a market rate of interest. Money
market certificates of deposit, available in denomina
tions of $10,000, increased 67 percent to $93 billion.
Similarly, large negotiable certificates of deposits in
creased $32 billion to $141 billion. However, the rate of
growth in foreign office deposits dropped sharply from
previous years'. Those deposits increased only 8.2
percent in 1980, to $206 billion, compared to a nearly
22 percent increase of $34 billion during 1979. Other
sources of purchased funds (federal funds transac
tions, liabilities for borrowed money and Treasury de
mand notes) continued to increase more rapidly than
total liabilities, increasing $12 billion or nearly 12 per
cent in 1980.
For the first time since 1976, equity capital in
creased at a faster rate than total assets, interrupting
the long-term decline in the equity-to-capital ratio for
the national banking system. As national banks contin
ued to retain more than 60 percent of their net income,
total equity capital increased $5.6 billion to nearly $60
billion. Total equity capital was equal to 5.5 percent of
total assets at year-end 1980, up marginally from the
preceding year.
Net income of national banks operating at year-end
1980 was $7.7 billion, a modest increase of 5.8 per
cent over 1979. That increase was less than asset or
equity capital growth so that both the return on assets
and the return on equity declined slightly. It was also in
marked contrast to the preceding 2 years which saw
very rapid increases in net income. Indeed, 1978's in1

Table 1
1\3

Assets, liabilities and capital accounts of national banks, 1979 and 1980
(Dollar amounts in millions)
December 31, 1979
4,448 banks
Consolidated
foreign and
domestic
Assets
Cash and due from depository institutions
U.S. Treasury securities
Obligations of other U.S. government agencies and corporations
Obligations of states and political subdivisions
All other securities

Domestic
offices

December 31, 1980
4,425 banks
Consolidated
foreign and
domestic

Change 1979-1980
Fully consolidated

Domestic
offices

$114,831
51,237
28,765
78,455
9,368
167,825

Amount

Percent

8.4

$15,899
7,091
4,023
7,929
617

16.0
16.3
11.1
4.1

19,660

12.7

$188,554

$106,731

44,281
24,751
71,268
15,095
155,395

44,126
24,702
70,796
9,485

$204,453
51,372
28,774
79,197
15,712

149,109

175,055

36,119
442,986
5,296
437,690

7.7

600,417
6,023
594,394

39,030
471,018
5,850
465,168

2,807

552,858
5,461
547,397

47,559
562
46,997

8.6
10.3
8.6

8,074

6,780

9,575

7,910

1,501

18.6

13,756
1,312
45,346
996,281

12,923
1,193
41,711

15,538
1,314
55,539

792,256

1,095,123

14,493
1,190
59,123
869,570

1782
2
10,193
98,842

13.0
.2
22.5
9.9

185,858
369,729
1,794
41,945
44,453
8,066
651,845
237,652
414,193

185,858
369,729
1,794
41,945
44,453
8,066

-1,343
52,075
-108
-1,539
7,185
605

-.7
16.4
-5.7
-3.5
19.3
8.1

594,970
234,937
360,033

187,201
317,654
1,902
43,484
37,268
7,461
594,970
234,937
360,033

651,845
237,652
414,193

56,875
2,715
54,160

9.6
1.2
15.0

190,302
785,272

0
594,970

205,847

857,692

651,845

15,545
72,420

8.2
9.2

79,310
Federal funds purchased and securities sold under agreements to repurchase. . . .
7,687
Interest-bearing demand notes issued to U.S. Treasury
17,719
Other liabilities for borrowed money. .
1,277
Mortgage indebtedness and liability for capitalized leases
47,434
All other liabilities
938,699
Total liabilities

79,152
7,687
9,439
1,234
42,444

91,357
5,958
19,607
1,367
55,581

12,047
-1,729
1,888
90
8,147

15.2
-22.5
10.7
7.0
17.2

734,926

1,031,561

91,230
5,958
9,236
1,354
46,648
806,271

92,862

9.9

3,285

3,034

3,691

3,428

406

12.4

31
11,403
17,846
25,017

34
11,939
18,991
28,907

3
536
1,145
3,890

9.7
4.7
6.4
15.5

54,296

59,871

5,575

10.3

996,281

792,256

1,095,123

869,570

98,842

9.9

Total securities
Federal funds sold and securities purchased under agreements to resell
Total loans (excluding unearned income)
Allowance for possible loan losses
Net loans
Lease financing receivables
Bank premises, furniture and fixtures, and other assets representing bank
premises
Real estate owned other than bank premises
All other assets
Total assets
Liabilities
Demand deposits of individuals, partnerships and corporations
Time and savings deposits of individuals, partnerships and corporations
Deposits of U.S. government
Deposits of states and political subdivisions
All other deposits
Certified and officers' checks
Total deposits in domestic offices
Demand deposits
Time and savings deposits
Total deposits in foreign offices
Total deposits

Subordinated notes and debentures . . .
Equity Capital
Preferred stock
Common stock
Surplus
Undivided profits and reserve for contingencies and other capital reserves
Total equity capital

Total liabilities, subordinated notes and debentures and equity capital

36,447

187,201
317,654
1,902
43,484
37,268
7,461

39,254

crease of 20 percent was the greatest increase of the
decade and was nearly matched by 1979's increase of
more than 17 percent. The modest growth in net in
come during 1980 resulted from the continued rapid
growth in interest expense. That expense equaled 65
percent of total operating income in 1980, up from 60
percent the year before, and was an effect of both the
high levels of interest rates prevailing for much of the
year and the shift in liability structure at national banks.
Interest and fees on loans totaled $77.5 billion in
1980 and accounted for 67 percent of total operating
income. That was an increase of more than 25 percent
over 1979, with total loans outstanding increasing only
8.6 percent. That disparity reflects the ability of na
tional banks to adjust the return on their loan portfolios
fairly quickly. For example, large national banks carry
more than 60 percent of their nonresidential loan port
folios on an adjustable rate basis, and nearly 58 per
cent of their $365 billion in nonresidential loans had a
maturity of 1 year or less.
The fastest rising and second most important com
ponent of operating income, interest on balances with
depository institutions, jumped 53.4 percent to $10.6
billion. That resulted from both the relatively large in
crease in those balances and the fact that most are
either short-term or adjustable to changes in market in
terest rates. Despite the total rise in operating income
of 27.7 percent, the impact of rising rates on interest
expenses led to an even higher rate of increase in op
erating expenses.
Interest on deposits, which accounted for more than
52 percent of total operating expenses, increased
$16.4 billion, nearly 38 percent, over 1979. Interest on
deposits in foreign offices continued as the most rap
idly rising component, jumping $7.5 billion, a 44.6 per
cent increase. However, the interesting change was
the increasing responsiveness of interest on other de
posits, largely savings accounts and small time de

posits, to changes in interest rates. The rapid expan
sion of $10,000 money market certificates issued at
current interest rates made that expense item far more
variable.
The surge in the federal funds rate between January
and April and again at year-end resulted in an in
crease of 36.7 percent, to $11.6 billion, in the expense
of federal funds transactions. In addition to rapid in
creases in interest expense, all noninterest expense
categories increased more rapidly than the growth in
national bank assets. The effect was a 30.5 percent in
crease in total operating expenses, which reached
$104 billion.
Income before taxes and securities transactions to
taled $10.8 billion, an increase of 6.1 percent. After
applicable taxes of $2.8 billion, income before securi
ties transactions was 7.8 percent ahead of the 1979
figure. However, securities losses, which national
banks have experienced since 1978, continued to in
crease rapidly to $319 million after taxes, nearly dou
ble the net losses incurred in 1979. Those increased
losses, combined with a very small gain from extraor
dinary items, left national banks with $7.7 billion in net
income.
Net loan losses, which increased slightly in 1979 for
the first time since their recessionary peak in 1975,
continued to rise in 1980. Both rising interest rates and
the sharp downturn in the economy in the second
quarter put some borrowers in difficulty. However,
through increased provisions, national banks actually
increased their allowance for loan losses by 10 per
cent after net losses of $2.2 billion.
Despite severe interest rate fluctuations, a sharp
downturn in the economy and increasing competition
from nondepository institutions, particularly money
market funds, national banks generally were able to
continue to expand and enjoy profitable operations.

Table 2
Income and expenses of national banks, 1979 and 1980
(Dollar amounts in millions)
7979
4,448 banks
Amount

1980
4,425 banks

Percent
distribution

Operating income:
$61,801.9
Interest and fees on loans
6,931.2
Interest on balances with depository institutions
Income on federal funds sold and securities purchased under agreements
3,551.2
to resell
Interest on U.S. Treasury securities and on obligations of other U.S. govern
ment agencies and corporations
5,367.2
Interest on obligations of states and political subdivisions in the United
3,748.2
States
754.9
Income from all other securities (including dividends on stock)
730.5
Income from lease financing
1,345.0
Income from fiduciary activities
1,316.1
Service charges on deposit accounts
2,453.0
Other service charges, commissions and fees
1,887.0
Other operating income
89,886.1
Total operating income

Amount

Change, 1979-1980

Percent
distribution

Amount

68.8
7.7

$77,492.6
10,634.5

67.5
9.3

$15,690.7
3,703.3

4.0

4,818.9

4.2

1,267.7

6.0

6,639.2

5.8

1,272.0

4.2
.8
.8
1.5
1.5
2.7
2.1
100.0

4,423.3
879.6
899.2
1,569.1
1,671.6
2,976.2
2,813.0
114,817.1

3.9
.8
.8
1.4
1.5
2.6
2.5
100.0

675.1
124.7
168.7
224.1
355.5
523.2
926.0
24,931.0

12,403.7
10,723.5
16,903.5
15,737.0

15.6
13.5
21.2
19.7

14,190.4
14,979.1
24,436.2
20,360.2

13.6
14.4
23.5
19.6

1,786.7
4,255.6
7,532.7
4,623.2

8,498.4

10.7

11,614.9

11.2

3,116.5

Operating expenses:
Salaries and employee benefits
Interest on time certificates of $100,000 or more (issued by domestic offices)
Interest on deposits in foreign offices
Interest on other deposits
Expense of federal funds purchased and securities sold under agreements
to repurchase
Interest on demand notes issued to the U.S. Treasury and on other bor
rowed money
Interest on subordinated notes and debentures
Occupancy expense of bank premises, net, and furniture and equipment ex
pense
Provision for possible loan losses
Other operations expenses
Total operating expenses

2,014.7
265.4

2.5
.3

2,762.1
296.3

2.7
.3

747.4
30.9

3,571.3
2,251.7
7,356.2
79,725.5

4.5
2.8
9.2
100.0

4,218.8
2,703.5
8,470.5
104,032.0

4.1
2.6
8.1
100.0

647.5
451.8
1,114.3
24,306.5

Income before income taxes and securities gains or losses
Applicable income taxes
Income before securities gains or losses
Securities gains (losses), gross
Applicable income taxes
Securities gains (losses), net

10,160.6
2,753.7
7,406.8
-349.4
-163.2
-186.2

10,785.1
2,802.8
7,982.3
-538.7
-220.0
-318.6

624.5
49.1
575.5
-189.3
-56.8
-132.4

Income before extraordinary items
Extraordinary items, net
Net income

7,220.7
26.0
7,246.7

7,663.7
2.1
7,665.8

443.0
-23.9
419.1

Cash dividends declared on common stock
Cash dividends declared on preferred stock
Total cash dividends declared

2,648.2
1.5
2,649.7
756.6
2,296.5
1,539.9

2,948.9
2.5
2,951.4

300.7
1.0
301.7

801.0
3,004.9
2,203.9
Percent
52.1
12.8
12.4
13.4
90.6

44.4
708.4
664.0

Recoveries credited to allowance for possible loan losses
Losses charged to allowance for possible loan losses
Net loan losses
Ratio to total operating income:
Interest on deposits
Other interest expense
Salaries and employee benefits
Other noninterest expense . . .
Total operating expenses
Ratio of net income to:
Total assets (end of period)
Total equity capital (end of period)

Percent
48.2
12.0
13.8
14.7
88.7
0.73
13.35

0.70
12.80

Merger Decisions
/. Mergers consummated, involving two or more operating banks
Jan. 1, 1980:
First American National Bank of St. Cloud, St. Cloud,
Minn.
First State Bank of Rice, Rice, Minn.
Merger . .
Jan. 2, 1980:
First National Bank of Florida, Tampa, Fla.
The First National Bank in Plant City, Plant City, Fla.
The Broadway National Bank of Tampa, Tampa, Fla.
Merger
Jan. 2, 1980:
Heritage Bank National Association, Cherry Hill, N.J.
Coastal State Bank, Ocean City, N.J.
Purchase
Jan. 25, 1980:
The First National Exchange Bank of Virginia, Roanoke,
Va.
Eagle Rock Bank, Inc., Eagle Rock, Va.
Merger
Jan. 31, 1980:
The Citizens National Bank and Trust Company, Wellsville, N.Y.
The State Bank of Belmont, Belmont, N.Y.
Merger . .
. . .
Feb. 1, 1980:
Ellis National Bank of Tampa, Tampa, Fla.
Ellis National Bank of Davis Islands, unincorporated
Hillsborough County, Fla.
Ellis National Bank of West Hillsborough, unincorporated
Hillsborough County, Fla.
Ellis National Bank of North Tampa, unincorporated
Hillsborough County, Fla.
Merger . . . . . .
Feb. 16, 1980;
Baybank First Easthampton, National Association, Easthampton, Mass.
Mohawk Bank and Trust Company, Greenfield, Mass.
Purchase
Feb. 29, 1980:
BancOhio National Bank, Columbus, Ohio
The Citizens Bank of Shelby, Shelby, Ohio
Merger
Mar. 10, 1980:
National Bank of North America, New York, N.Y.
Sixteen Branches of Bankers Trust Company, New York,
N.Y.
Purchase . . .
Mar. 12, 1980:
First National Bank of Mansfield, Plymouth, Ohio
Buckeye State Bank, Galion, Ohio
Merger
Mar. 21, 1980:
First National Bank of New Jersey, Totowa, N.J.
South Amboy Trust Company, South Amboy, N.J.
Purchase
Mar. 21, 1980:
Society National Bank of Cleveland, Cleveland, Ohio
First National Bank of Clermont County, Bethel, Ohio
Merger

Page

Page
Mar. 24, 1980:
Pacific National Bank of Washington, Seattle, Wash.
American Commercial Bank, Spokane, Wash.
Purchase
21
Mar. 29, 1980:
The Huntington National Bank, Columbus, Ohio
The Farmers and Merchants Bank, Milford Center, Ohio
Merger
22
Mar. 30, 1980:
Security Pacific National Bank, Los Angeles, Calif.
Inyo-Mono National Bank, Bishop, Calif.
Merger . .
23
Apr. 1, 1980:
The Commonwealth National Bank, Harrisburg, Pa.
The First National Bank of Shippensburg, Shippensburg,
Pa.
24
Merger . . . .
Apr. 1, 1980:
The Pierre National Bank, Pierre, S. Dak.
The Badlands State Bank, Kadoka, S. Dak.
Vivian State Bank, Vivian, S. Dak.
Purchase
25
Apr. 21, 1980:
La Salle National Bank, Chicago, III.
Hartford Plaza Bank, Chicago, III.
Merger
25
Apr. 30, 1980:
Second National Bank of Greenville, Greenville, Ohio
Fort Recovery Banking Company, Fort Recovery, Ohio
Merger
26
May 1, 1980:
Branch County Bank, Coldwater, Mich.
Hickory National Bank of Michigan, Fawn River, Mich.
Consolidation
27
May 27, 1980:
Republic National Bank of New York, N.Y.
Twelve Branches of Bankers Trust Company, New York,
N.Y.
Purchase
28
May 30, 1980:
The First National Bank of Ashland, Ashland, Ohio
Polk State Bank, Polk, Ohio
29
Merger
June 23, 1980:
First National Bank of New Jersey, Totowa, N.J.
Commonwealth Bank of Metuchen, Metuchen, N.J.
Purchase
30
June 27, 1980:
First National State Bank—Edison, South Plainfield, N.J.
Three Branches of Franklin State Bank, Somerset, N.J.
Purchase
31
June 27, 1980:
Key Bank of Southeastern New York, N.A., Chester, N.Y.
The Valley National Bank, Wallkill, N.Y., Walden, N.Y.
Merger
31
June 30, 1980:
First National Bank in Bellaire, Bellaire, Ohio
The Union Savings Bank of Bellaire, Bellaire, Ohio
32
Consolidation

July 1, 1980:
Page
Barnett Bank of Port Charlotte, N.A., Port Charlotte, Fla.
Barnett Bank of Sarasota, N.A., Sarasota, Fla.
Merger . .
33
July 1, 1980:
The First National Bank and Trust Company of Hamilton,
Hamilton, Ohio
First National Bank of Middletown, Monroe, Ohio
34
Consolidation
July 21, 1980:
Rainier National Bank, Seattle, Wash.
Bank of Everett, Everett, Wash.
35
Merger
Aug. 1, 1980:
Stuart National Bank, Stuart, Fla.
Port Salerno National Bank, Port Salerno, Fla.
Florida National Bank of Martin County, Stuart, Fla.
36
Merger
....
Aug. 7, 1980:
Peoples National Bank of Washington, Seattle, Wash.
Columbia Bank, N.A., Kennewick, Wash.
37
Purchase
Aug. 15, 1980:
The First Jersey National Bank, Jersey City, N.J.
Home State Bank, Teaneck, N.J.
38
Merger
Sept. 8, 1980:
First National Bank Northwest Ohio, Bryan, Ohio
Tiffin Valley National Bank, Archbold, Ohio
38
Merger
Sept. 13, 1980:
Metro Bank of Huntington, Inc., Huntington, W. Va.
Heritage National Bank, Huntington, W. Va.
39
Purchase
Sept. 19, 1980:
First Eastern Bank, National Association, Wilkes-Barre,
Pa.
South Side National Bank, Catawissa, Pa.
North Scranton Bank and Trust Company, Scranton,
Pa.
Merger
40
Sept. 19, 1980.
Society National Bank of Cleveland, Cleveland, Ohio
First National Bank of Harrison, Harrison, Ohio
Merger
41
Oct. 14, 1980:
Michigan National Bank—Sterling, Sterling Heights,
Mich.
Sterling Heights Office of Michigan National Bank of De
troit, Detroit, Mich.
Purchase
42
Oct. 24, 1980:
Sun Bank of Wilton Manors, National Association, Wilton
Manors, Fla.
Sun Bank of Lauderdale Beach, Lauderdale-by-the-Sea,
Fla.
Sun Bank of Broward County, Tamarac, Fla.
Merger
43
Oct. 31, 1980.
First & Merchants National Bank, Richmond, Va.
J
The Bank of Chatham, Chatham, Va.
Merger
43
Oct. 31, 1980:
First National Bank of Atlanta, Atlanta, Ga.
Cobb County Bank, Powder Springs, Ga.
Merger
44
Oct. 31, 1980:
Florida First National Bank of Jacksonville, Jacksonville,
Fla.
Florida First National Bank at Fernandina Beach, Fernandina Beach, Fla.
Merger
.45
Oct. 31, 1980:
Florida National Bank of Miami, Miami, Fla.
Florida Bank at Fort Lauderdale, Fort Lauderdale, Fla.
Merger
46

Oct. 31, 1980:
Watseka First National Bank, Watseka, III.
Iroquois County Trust Company, Watseka, III.
Merger
Nov. 1, 1980:
Amoskeag National Bank & Trust Co., Manchester, N.H.
Amherst Bank & Trust Company, Amherst, N.H.
Merger
Nov. 14, 1980:
Sun First National Bank of Orlando, Orlando, Fla.
Sun Bank of Osceola County, St. Cloud, Fla.
Sun Bank of Seminole, National Association, Fern Park,
Fla.
Merger
Nov. 21, 1980:
First Security Bank of Utah, National Association, Ogden,
Utah
First Security Bank of Logan, National Association, Lo
gan, Utah
Merger . .
Dec. 1, 1980:
Ellis National Bank of Volusia County, DeBary, Fla.
Ellis Bank of Seminole .County, Altamonte Springs, Fla.
Merger . . . .
Dec. 5, 1980:
The Huntington National Bank, Columbus, Ohio
The First National Bank of Burton, Burton, Ohio
Merger
Dec. 8, 1980:
The Citizens and Southern National Bank of South Caro
lina, Charleston, S.C.
Colonial State Bank, Inc., Marion, S.C.
Purchase . .
Dec. 13, 1980:
The Springfield Bank, Springfield, Ohio
The Xenia National Bank, Xenia, Ohio
Merger
Dec. 15, 1980:
First Bristol County National Bank, Taunton, Mass.
The National Bank of Wareham, Wareham, Mass.
Merger . . .
Dec. 22, 1980:
Flint Office of Michigan National Bank, Lansing, Mich.
Michigan National Bank—Mid Michigan, Burton, Mich.
Purchase
Dec. 26, 1980:
National Bank of Defiance, Defiance, Ohio
National Bank of Paulding, Paulding, Ohio
Merger
Dec. 31, 1980:
The Citizens and Southern National Bank, Savannah, Ga.
The Citizens and Southern Emory Bank, Decatur, Ga.
The Citizens and Southern Bank of Fulton County, East
Point, Ga.
The Citizens and Southern DeKalb Bank, Avondale Es
tates, Ga.
C & S Interim National Bank, Savannah, Ga.
Merger
Dec. 31, 1980:
First National Bank of South Jersey, Egg Harbor Town
ship, N.J.
First National State Bank of Central Jersey, Trenton, N.J.
Merger
Dec. 31, 1980:
Gulfstream First Bank and Trust, N.A., Boca Raton, Fla.
Gulfstream Bank of Boynton Beach, National Associa
tion, Boynton Beach, Fla.
Gulfstream American Bank and Trust, N.A., Fort Lauder
dale, Fla.
Merger

Page
46

. 47

//. Mergers consummated, involving a single operating bank
Page
Feb. 1, 1980:
Southwest National Bank, San Antonio, Tex.
Wurzbach Road National Bank, San Antonio, Tex.
Merger . .
66
Feb. 4, 1980:
First National Bank of McMinnville, McMinnville, Oreg.
The First National Interim Bank of McMinnville, McMinn
ville, Oreg.
Merger
66
Feb. 6, 1980:
Hardin National Bank, Kenton, Ohio
F.B.G. National Bank of Kenton, Kenton, Ohio
Merger
67
Feb. 25, 1980:
The Mountain National Bank of Clifton Forge, Clifton
Forge, Va.
Colonial American National Bank—Clifton Forge, Clifton
Forge, Va.
Merger . . .
Mar. 1, 1980:
Atlantic National Bank, Atlantic City, N.J.
Midlantic National Bank/Atlantic, Atlantic City, N.J.
Merger
68
Mar. 17, 1980:
Pittsfield National Bank, Pittsfield, Mass.
Old Colony Bank of Berkshire County, National Associa
tion
Merger . . .
69
Mar. 20, 1980:
Busey First National Bank, Urbana, III.
Urbana National Bank, Urbana, III.
Merger
70
Mar. 31, 1980:
First National Bank in Sioux City, Sioux City, Iowa
First National Interim Bank, Sioux City, Iowa
Merger . . . .
70
Apr. 30, 1980:
Bank of New Hampshire, National Association, Manches
ter, N.H.
New Hampshire Bank, National Association, Manchester,
N.H.
Merger . .
71
June 2, 1980:
The Pomeroy National Bank, Pomeroy, Ohio
Bank One of Pomeroy, N.A., Pomeroy, Ohio
Merger . .
72
June 4, 1980:
The Marine National Bank of Wildwood, Wildwood, N.J.
Horizon Marine National Bank, Wildwood, N.J.
Merger . . .
72
June 6, 1980:
Gateway National Bank of Beaumont, Beaumont, Tex.
New Gateway National Bank of Beaumont, Beaumont,
Tex.
Merger
73
June 30, 1980:
Bank of Idaho, N.A., Boise, Idaho
New Bank of Idaho, N.A., Boise, Idaho
Consolidation
74
June 30, 1980:
The Conrad National Bank of Kalispell, Kalispell, Mont.
New Conrad National Bank of Kalispell, Kalispell, Mont.
Consolidation
74
June 30, 1980:
First National Bank, Fort Collins, Colo.
New First National Bank, Fort Collins, Colo.
Consolidation . .
75
June 30, 1980:
First National Bank of Arizona, Phoenix, Ariz.
New First National Bank of Arizona, Phoenix, Ariz.
75
Consolidation .
June 30, 1980:
First National Bank of Casper, Casper, Wyo.
New First National Bank of Casper, Casper, Wyo.
76
Consolidation

June 30, 1980:
First National Bank of Oregon, Portland, Oreg.
New First National Bank of Oregon, Portland, Oreg.
Consolidation
June 30, 1980:
Santa Fe National Bank, Santa Fe, N.M.
New Santa Fe National Bank, Santa Fe, N.M.
Consolidation
July 1, 1980:
First National Bank of Toledo, Toledo, Ohio
Toledo National Bank, Toledo, Ohio
Merger
July 7, 1980:
Garden State National Bank, Paramus, N.J.
New Garden State National Bank, Paramus, N.J.
Consolidation
July 8, 1980:
Summit National Bank, Fort Worth, Tex.
West Freeway National Bank, Fort Worth, Tex,
Merger
July 31, 1980:
Peninsula National Bank, Cedarhurst, N.Y.
516 Central Avenue National Bank, Cedarhurst, N.Y.
Merger
Sept. 18, 1980:
Bank of Indiana, National Association, Gary, Ind.
Indiana Interim National Bank, Gary, Ind.
Merger
Sept. 18, 1980:
County National Bank of Orange, Orange, Tex.
County Bank, National Association, Orange, Tex.
Consolidation
Sept. 29, 1980:
First National Bank of South Central Michigan, Quincy,
Mich.
SCM National Bank, Quincy, Mich.
Consolidation
Sept. 30, 1980:
American National Bank, Omaha, Nebr.
ANB Bank, N.A., Omaha, Nebr.
Merger
Sept. 30, 1980:
First National Bank of Woodstock, Woodstock, III.
FNW National Bank, Woodstock, III.
Merger
Oct. 1, 1980:
Bank One of Fairborn, N.A., Fairborn, Ohio
The First National Bank of Fairborn, Fairborn, Ohio
Consolidation
Oct. 1, 1980:
The First National Bank of Madisonville, Madisonville,
Tex.
New First National Bank, Madisonville, Tex.
Merger
Oct. 1, 1980:
Liberty National Bank and Trust Company of Louisville,
Louisville, Ky.
Liberty Bank of Louisville, National Association, Louis
ville, Ky.
Merger
Oct. 20, 1980:
O'Hare International Bank, National Association, Chi
cago, III.
O'Hare National Bank, Chicago, III.
Merger

Page
77

Oct. 21, 1980:
The Commercial National Bank of Little Rock, Little Rock,
Ark.
Commercial National Bank of Little Rock, Little Rock, Ark.
Merger

Nov. 3, 1980:
The First National Bank of Columbus, Columbus, Ga.
New Columbus National Bank, Columbus, Ga.
Consolidation

Nov. 7, 1980.
The Citizens National Bank and Trust Company, Wellsville. NY.
Key Bank of Western New York, N.A., Wellsville. NY.
Merger .
Nov. 17, 1980:
The City National Bank and Trust Company of Salem, Sa
lem, N.J.
Second City National Bank and Trust Company of Salem,
Salem, N.J.
Merger
Nov. 21, 1980:
First National Bank and Trust Company of Racine, Ra
cine, Wis.
1st Bank and Trust Company of Racine, N.A., Racine,
Wis.
Merger . .
Nov. 28, 1980:
The National Bank of Northern New York, Watertown,
NY.
Key Bank of Northern New York, N.A., Watertown, NY.
Merger .
Dec. 5, 1980:
Harbor National Bank of Boston, Boston, Mass.
New Harbor National Bank, Boston, Mass.
Merger . .
Dec. 11, 1980:
NorthPark National Bank of Dallas, Dallas, Tex.
National Bank of NorthPark, Dallas, Tex.
Merger
Dec. 11, 1980:
Security National Bank, Lynn, Mass.
Security Bank, N.A., Lynn, Mass.
Consolidation.
Dec. 15, 1980:
The City National Bank of Fort Smith, Fort Smith, Ark.
Third National Bank of Fort Smith, Fort Smith, Ark.
Merger .

Page

Dec 19, 1980:
Page
The First National Bank of Des Plaines, Des Plaines, III.
Prairie Lee National Bank, Des Plaines, III.
Merger . .
94
Dec 29, 1980:
National Bank of Commerce of Birmingham, Birming-.
ham, Ala.
Commerce Bank, N.A., Birmingham, Ala.
Merger . .
94
Dec 31, 1980:
The First National Bank of Decatur, Decatur, III.
Third National Bank of Decatur, Decatur, III.
Merger
95
Dec 31, 1980:
First National Bank of McDonough, McDonough, Ga.
First National Interim Bank of McDonough, McDonough,
Ga.
Merger . .
95
Dec. 31, 1980:
The Laredo National Bank, Laredo, Tex.
New Laredo National Bank, Laredo, Tex.
Merger .
95
Dec. 31, 1980:
Security National Bank, Houston, Tex.
Allied Bank-West Loop, N.A., Houston, Tex.
Merger . .
97
Dec. 31, 1980:
The Talladega National Bank, Talladega, Ala.
First Alabama Bank of Talladega County, N.A., Ala.
Merger . .
97
Dec. 31. 1980:
West Side National Bank of San Angelo, San Angelo,
Tex.
New West Side National Bank of San Angelo, San
Angelo, Tex.
Merger
98

/. Mergers consummated, involving two or more operating banks.
FIRST AMERICAN NATIONAL BANK OF ST. CLOUD,
St. Cloud, Minn., and First State Bank of Rice, Rice, Minn.
Banking offices
Names of banks and type of transaction

Total
assets

First State Bank of Rice, Rice, Minn., with
and the First American National Bank of St. Cloud, St. Cloud, Minn. (11818), which had
merged January 1, 1980, under charter (11818) and title of "The First American National Bank of
St. Cloud." The merged bank at date of merger had

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application to
merge First State Bank of Rice, Rice, Minn. (State
Bank), into the First American National Bank of St.
Cloud, St. Cloud, Minn. (First). The application was ac
cepted for filing on April 5, 1979, and is based on a
written agreement executed by the proponents on Jan
uary 31, 1979.
State Bank operates from a single office approxi
mately 15 miles from St. Cloud. It reported total de
posits of $2.8 million on December 31, 1978.
First also operates from a single office in St. Cloud
and reported'total deposits of $87.5 million on Decem
ber 31, 1978. It is a subsidiary of the Otto Bremer
Foundation, a registered bank holding company that is
the state's third largest banking organization with 2.8
percent of the commercial bank deposits.
The applicants contend that First competes in a
banking market which is approximated by the St.
Cloud SMSA. First, the only subsidiary of the Otto Bre
mer Foundation operating within this market, is the
largest of 24 banking organizations with 19 percent of
the market's commercial bank deposits.* Consumma
tion of the merger would increase its share of market
deposits by less than 1 percent.
The Federal Reserve System has delineated a more
limited definition of the relevant banking market, ap
proximated by the eastern half of Stearns County, the
western half of Sherburne County and all of Benton
County. Within this market, First is the largest of 19
banking organizations with 21 percent of commercial
bank deposits. Consummation of the proposal would
increase its share of this market's deposits by less
than 1 percent.

* Market data are as of December 31, 1977, unless otherwise
indicated. Market totals do not include deposits of Granite
City National Bank, St. Cloud, which opened in 1978 or de
posits of a branch of Santiago State Bank which are not re
ported separately.

2,733,000
116,480,000
119,059,000

In
operation

To be
operated

1
2
3

Because of its size, State Bank serves only its small
community and nearby rural areas. State Bank's mar
ket is entirely included in either the Federal Reserve or
the SMSA definition of First's banking market. First re
ports that it has extended 13 direct loans totaling $1.4
million in this area (2.6 percent of its total loans), and it
also undoubtedly receives some deposits from the
area. Consummation of the proposal would eliminate
some existing competition but because of the large
number of commercial banks competing in the market,
including the state's two largest banking organizations,
and the small market share of State Bank, the effect on
competition would not be adverse.
First could not now establish a branch (detached fa
cility) in Rice due to the head office protection provi
sions of Minnesota banking law. Since detached facili
ties are not protected, consummation of the merger
would open the community to branching by other com
mercial banks.
First's financial and managerial resources are satis
factory, and its future prospects are favorable. State
Bank's financial and managerial resources are limited.
Its future prospects are uncertain due to substantial
operating problems and its small size.
First will provide additional banking services to the
present customers of State Bank if the merger is con
summated. These services include automated tellers
and data processing, larger loans and additional lend
ing expertise. The continuing bank will also be a single
source of banking services that is convenient to both
home and work for those customers who commute
from Rice to St. Cloud. Consummation of the merger
will result in increased convenience and satisfaction of
additional needs for the consumer of banking services
in Rice.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that
First's record of helping to meet the credit needs of its
entire community, including low and moderate income
communities, is less than satisfactory.
9

This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with the merger.
November 21, 1979.

SUMMARY OF REPORT BY ATTORNEY GENERAL
We have reviewed this proposed transaction and con
clude that it would not have any adverse effect upon
competition.

FIRST NATIONAL BANK OF FLORIDA,
Tampa, Fla., and The First National Bank in Plant City, Plant City, Fla., and The Broadway National Bank of Tampa,
Tampa, Fla.
Banking offices
Names of banks and type of transaction

Total
assets

The First National Bank in Plant City (14793), Plant City, Fla., with
and The Broadway National Bank of Tampa (14388), Tampa, Fla., with
and First National Bank of Florida (3497), Tampa, Fla., which had
merged January 2, 1980, under the charter and title of the latter (3497). The merged bank at date
of merger had

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application to
merge The First National Bank in Plant City, Plant City,
Fla., and The Broadway National Bank of Tampa,
Tampa, Florida (Merging Banks), into and under the
charter of First National Bank of Florida, Tampa, Fla.
(Tampa Bank). The application was filed on July 12,
1979, and is based on a written agreement executed
by the applicant banks on June 12, 1979.
The proponent banks are wholly owned, with the ex
ception of directors' qualifying shares, and controlled
by First Florida Banks, Inc., Tampa, Fla., a registered
bank holding company. Consummation of this corpo
rate reorganization would have no effect on competi
tion. A review of the financial and managerial re
sources and future prospects of the existing and
proposed institutions, and the convenience and needs
of the community to be served has disclosed no rea

In
To be
operation operated

$ 43,073,000
51,348,000
660,624,000
755,045,000

son why this application should not be approved (see
12 USC 1842(c)(21)).
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
banks' records of helping to meet the credit needs of
their entire communities, including low and moderate
income neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with the merger.
October 22, 1979.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The merging banks are all wholly owned subsidiaries
of the same bank holding company. As such, their pro
posed merger is essentially a corporate reorganization
and would have no effect on competition.

HERITAGE BANK NATIONAL ASSOCIATION,
Cherry Hill, N.J., and Coastal State Bank, Ocean City, N.J.
Banking offices
Names of banks and type of transaction

Total
assets

Coastal State Bank, Ocean City, N.J., with
was purchased January 2, 1980, by Heritage Bank National Association, Cherry Hill, N.J. (1209),
which had
After the purchase was effected, the receiving bank had

COMPTROLLER'S DECISION
This is the Comptroller's decision on the application of
Heritage Bank National Association, Cherry Hill, N.J.
(Heritage), to purchase the assets and assume the lia
bilities of Coastal State Bank, Ocean City, N.J.
(Coastal). This application was filed on August 13,
1979, and is based upon an agreement executed by
the proponents on August 6, 1979. As of June 30,
1979, Heritage had total deposits of $648.9 million,

In
To be
operation operated

$ 63,170,000

743,861,000
799,213,000

46
51

and Coastal's total deposits were $55.5 million. Heri
tage is a wholly owned subsidiary of Heritage Bancorporation, Cherry Hill, N.J. (Bancorporation), a regis
tered bank holding company. Bancorporation is the
fifth largest commercial banking organization in New
Jersey and controls approximately 3.9 percent of total
domestic deposits in the state.
The relevant geographic market for Coastal is the
eastern portion of Atlantic and Cape May counties

along the southeastern coast of New Jersey where the
bank's five offices are located. Within this market,
there are 11 commercial banking organizations that
operate a total of 63 offices and had total market de
posits of $887 million on June 30, 1978. The three larg
est banks in the market operate 38 offices and collec
tively hold approximately 66.6 percent or $591 million
of total market commercial bank deposits. Coastal
ranks as the fifth largest bank in the market with 6.4
percent of total market deposits. Since Bancorporation
has no banking offices in the market, it would merely
succeed to Coastal's share in this market. The closest
banking offices of the proponents are some 25 miles
apart. These offices are separated by a number of
communities, and there are offices of other commer
cial banking organizations conveniently available to
the public. Therefore, approval of this acquisition
would not eliminate any meaningful degree of existing
competition.
New Jersey state banking statutes allow statewide
de novo branch expansion by commercial banks.
Thus, the proponent banking organizations could
branch into the areas served by the other. Coastal has
shown no desire to expand outside its market area,
and it is unlikely that the bank would expand de novo
into any area currently served by Bancorporation. The
likelihood that Bancorporation would enter Coastal's
market de novo appears remote since a previous
branch it opened in this market proved to be un
successful and was closed in 1972. Consequently, the
overall competitive effects of this acquisition would not
substantially lessen competition in any relevant market
or violate the standards found in 12 USC 1828(c)(5).
The financial and managerial resources of both Heri
tage and Coastal are satisfactory. The future pros
pects of the two banks, independently and in combi
nation, appear favorable (12 USC 1828(c)(5)).
After consummation of this transaction, the addi
tional capabilities of Heritage, in conjunction with its
corporate parent, will be made available to the present

customers of Coastal in such areas as international
banking, full trust services, equipment leasing and a
substantially larger legal lending limit. These are posi
tive considerations on the issue of convenience and
needs.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
bank's record of helping to meet the credit needs of its
entire community, including low and moderate income
neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with the proposed transaction.
November 21, 1979.

SUMMARY OF REPORT BY ATTORNEY GENERAL
Heritage Bancorporation does not have offices in
either Atlantic County or Cape May County, where
Bank operates its five offices. The closest offices of the
two institutions are approximately 25 miles apart. Al
though Heritage Bancorporation does operate two of
fices in the "Hammonton market" (as defined by the
Philadelphia Federal Reserve Bank), it operates none
in the adjacent "Atlantic City market" where Bank's two
Atlantic County offices are located. Hence, the merger
would not eliminate any significant existing competition
between the institutions.
New Jersey law permits de novo branching through
out the state, and Atlantic and Cape May counties are
attractive areas for expansion. However, in view of
Bank's market share in those counties (2 percent and
10.9 percent) and Heritage Bancorporation's unsuc
cessful experience in branching in Pleasantville, N.J.,
it does not appear that the merger will have a signifi
cantly adverse effect on potential competition.
We conclude that the merger would not have signifi
cant adverse effects upon competition.
*

JIA,
THE FIRST NATIONAL EXCHANGE BANK OF VIRGINIA,
Roanoke, Va., and Eagle Rock Bank, Inc., Eagle Rock, Va.
Banking offices
Names of banks and type of transaction

Total
assets

Eagle Rock Bank, Inc., Eagle Rock, Va., with
and The First National Exchange Bank of Virginia, Roanoke, Va. (2737),
had
37), which
wf
merged January 25, 1980, under the charter and title of latter bank (2737).
2737). The merged bank at
date of merger had

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application to
merge Eagle Rock Bank, Inc., Eagle Rock, Va. (Bank),
into and under the charter of The First National Ex
change Bank of Virginia, Roanoke, Va. (Exchange).
This application was filed on July 18, 1979, and rests
on an agreement signed by the proponents on June

3,851,000
1,090,470,000
1,094,350,000

In
operation

To be
operated

1
35
36

19, 1979. As of March 31, 1979, Bank and Exchange
had total deposits of $4.3 million and $866.1 million,
respectively. Exchange serves as the lead bank for its
parent corporation, Dominion Bankshares Corporation
(Dominion), a registered bank holding company.
Dominion is the fourth largest banking organization in
Virginia and controls 8.7 percent of total domestic de
posits in the state.

As a result of this merger, Exchange will continue to
provide the banking public in the Eagle Rock area with
continued and uninterrupted convenient banking serv
ices. Additionally, Exchange will provide new and ex
panded banking services that are beyond the abilities
and resources of Bank to provide. These services in
clude trust services, FHA and VA loans, bank credit
cards, equipment leasing (through an affiliate com
pany) and investment services. These are positive
considerations on the issue of convenience and
needs.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that Ex
change's record of helping to meet the credit needs of
its entire community, including low and moderate in
come neighborhoods, is less than satisfactory.
This is the prior written approval required for the ap
plicants to proceed with the proposed merger.
December 14, 1979.

The relevant geographic market is the Botetourt
County portion of the Roanoke SMSA. Roanoke is
about 34 miles from Eagle Rock, which is in the rural
northern part of Botetourt County. The closest office of
Exchange to Bank is its Hollins headquarters office, 26
miles from Bank's sole office. Although Roanoke and
Eagle Rock are connected by a main highway, they
are separated by rugged terrain, and there are inter
vening communities. If the proposed merger is con
summated, Exchange will continue to rank as the larg
est commercial bank in the Roanoke SMSA, and it
would increase its share of the deposits in the SMSA
by a modest 0.5 percent to a total of 42.6 percent. The
Comptroller finds that the proposed merger would
eliminate only a negligible amount of existing competi
tion between Bank and Exchange, and the overall
competitive effects of this proposal are not likely to
substantially lessen competition or otherwise be a vio
lation of antitrust standards found in the Bank Merger
Act.
The financial and managerial resources of Exchange
are satisfactory. The financial and managerial re
sources of Bank are unsatisfactory, and the future
prospects of the institution due to its distressed finan
cial condition are extremely limited. The future pros
pects of Exchange and the combined bank are favor
able.
*

SUMMARY OF REPORT BY ATTORNEY GENERAL
We have reviewed this proposed transaction and con
clude that it would not have an adverse effect upon
competition.
*

THE CITIZENS NATIONAL BANK AND TRUST COMPANY,
Wellsville, N.Y., and The State Bank of Belmont, Belmont, N.Y.
Banking offices
Names of banks and type of transaction

Total
assets

The Citizens National Bank and Trust Company, Wellsville, N.Y. (4988), with
and The State Bank of Belmont, Belmont, N.Y., which had
merged January 31, 1980, under the charter and title of "The Citizens National Bank and Trust
Company." The merged bank at date of merger had

COMPTROLLER'S DECISION
This is the Comptroller's decision on the application to
merge The State Bank of Belmont, Belmont, N.Y. (Bel
mont Bank), into and under the charter of The Citizens
National Bank and Trust Company, Wellsville, N.Y.
(CNB). The application was accepted for filing on Oc
tober 15, 1979, and is based on a written agreement
executed by the proponents on May 24, 1979.
CNB is a national bank that had total deposits of
$96.9 million as of June 30, 1979. It operates a main
office and five branch offices in Allegany County and
.one additional branch office in Cattaraugus County.
Belmont Bank, a state-chartered bank, had total de
posits of $3 million as of June 30, 1979. It presently
operates a single banking office in Belmont, the county
seat of Allegany County. Belmont Bank does not ac
cept any interest-bearing deposits.
Belmont is in central Allegany County in Amity Town
ship. Because of its small size, Belmont Bank serves
only the village of Belmont and its immediate environs.
In fact, the applicants maintain that a substantial por-

$112,347,000
3,224,000
115,570,000

In
operation

To be
operated

1
7
8

tion of the bank's demand deposits come from the
principals of the bank, Belmont (population approxi
mately 1,100) and from Allegany County. Belmont
Bank states that it carries out virtually all of its business
in Belmont and Amity Township. This geographic area
is approximated by a circle around Belmont with a ra
dius of about 3 miles. Consequently, the relevant geo
graphic market for analysis of this proposal is a 3-mile
radius around Belmont. Within this market, Belmont is
the only commercial bank. There are only three com
mercial banks in Allegany County. The largest is First
Trust Union Bank of Wellsville, a subsidiary of Security
New York State Corporation, a billion dollar banking or
ganization headquartered in Rochester. CNB is the
second largest, and Belmont is the smallest. The bank
ing office nearest to Belmont Village is First Union's
Friendship branch, approximately 6 miles away. First
Union has another branch 8 miles from Belmont, and
CNB's closest branch is in Wellsville, 9 miles away.
Because of Belmont Bank's small size, lack of inter
est-bearing deposits and low loan limit (approximately
$50,000), citizens of Belmont must travel to other

banking offices for the services not offered in their vil
lage. Consequently, other banks do have business
within Belmont Bank's geographic market area. This is
business that Belmont Bank is unwilling or unable to
serve. It can be hardly considered business won by
the vigors of competition but, rather, is business by
default. In the case of applicant CNB, it obtains
$370,000, or less than 2 percent of its total demand
deposits, from Belmont's market and has extended
loans totaling $1.4 million, or less than 2 percent of its
total loans in this market. The amount held by First Union
is not known. In light of the foregoing and the additional
fact that Belmont Bank offers its customers little more
than convenience, which is, itself, a product not of com
petition but of New York's home office protection law, the
Comptroller finds that consummation of this proposal
would eliminate minimal competition between appli
cants.
On the other hand, consummation of this merger will
be in the best interest of Belmont and the surrounding
area. Home office protection will be eliminated, making
Belmont available for branching if that possibility be
comes economically feasible. Interest-bearing ac
counts will be available without a lengthy commute.
Trust services and credit cards will be available for the
first time. The Comptroller finds that the adverse ef

fects, if any, due to a loss of competition between Beimont Bank and CNB, are greatly outweighed by the
convenience and needs factors which would result
from the merger, including increased competitive op
portunities for other banks in Belmont.
The financial and managerial resources of both
banks are satisfactory. The future prospects of Bel
mont Bank are limited due to its small size. The future
prospects of the combined bank are good.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
bank's record of helping to meet the credit needs of its
entire community, including low and moderate income
neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with this merger.
December 31, 1979.

SUMMARY OF REPORT BY ATTORNEY GENERAL
We have reviewed this proposed transaction and con
clude that it would not have an adverse effect upon
competition.

ELLIS NATIONAL BANK OF TAMPA,
Tampa, Fla., and Ellis National Bank of Davis Islands, unincorporated Hillsborough County, Fla., and Ellis National
Bank of West Hillsborough, unincorporated Hillsborough County, Fla., and Ellis National Bank of North Tampa, unincorporated Hillsborough County, Fla.
Banking offices
Names of banks and type of transaction

Total
assets

Ellis National Bank of Tampa, Tampa, Fla. (14932), with
and Ellis National Bank of Davis Islands, unincorporated Hillsborough County, Fla. (16459) with . . . .
and Ellis National Bank of West Hillsborough, unincorporated Hillsborough County, Fla. (16438) with
and Ellis National Bank of North Tampa, unincorporated Hillsborough County, Fla., which had
merged February 1, 1980, under the charter and title of "Ellis National Bank of Tampa." The
merged bank at date of merger had

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application to
merge Ellis National Bank of Davis Islands, unincorpo
rated Hillsborough County, Fla., Ellis National Bank of
West Hillsborough, unincorporated Hillsborough
County, Fla., Ellis National Bank of North Tampa, unin
corporated Hillsborough County, Fla., and Ellis Na
tional Bank of Tampa, Tampa, Fla. This application
was accepted for filing on May 1, 1979, and is based
on a written agreement executed by the applicants on
March 15, 1979.
All four banks are subsidiaries of Ellis Banking Cor
poration, Bradenton, Fla. Ellis Banking Corporation is
motivated to consolidate its operations in Hillsborough
County by a recent change in Florida banking law
which permits county-wide branching. Consummation
of the merger will have no effect on competition in any
market in which the holding company competes.

$30,262,000
4,820,101
4,827,000
4,038,159
43,883,369

In
To be
operation operated
1
1
1
1

The financial and managerial resources and the fu
ture prospects of all four banks are satisfactory. The
future prospects for the continuing bank are favorable.
Consummation of the merger will result in a more effi
cient corporate structure that will allow the continuing
bank to more efficiently serve the banking needs of its
community. This should result in increased conven
ience and greater satisfaction of community financial
needs.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibility revealed no evidence that the ap
plicants' records of helping to meet the credit needs of
their entire communities, including low and moderate
income neighborhoods, is less than satisfactory.
This is the prior written approval required by the
Bank Merger Act, 12 USC 1828(c), for the applicants
to proceed with the merger.
November 30, 1979.
13

SUMMARY OF REPORT BY ATTORNEY GENERAL
The merging banks are all wholly owned subsidiaries

of the same bank holding company. As such, their pro
posed merger is essentially a corporate reorganization
and would have no effect on competition.

BAYBANK FIRST EASTHAMPTON, NATIONAL ASSOCIATION,
Easthampton, Mass., and Mohawk Bank and Trust Company, Greenfield, Mass.
Banking offices
Names of banks and type of transaction

Total
assets

Mohawk Bank and Trust Company, Greenfield, Mass., with
was purchased February 16, 1980, by Baybank First Easthampton, National Association,
Easthampton, Mass. (428), which had
After the purchase was effected, the receiving bank had

COMPTROLLER'S DECISION
On February 16, 1980, application was made to OCC
for prior written approval for Baybank First Easthamp
ton, National Association, Easthampton, Mass. (As
suming Bank), to purchase certain of the assets and
assume certain of the liabilities of Mohawk Bank and
Trust Company, Greenfield, Franklin County, Mass.
(Mohawk).
Mohawk was a state bank operating a single office
with deposits of approximately $5 million. On February
16, 1980, Mohawk was declared insolvent, and the
Federal Deposit Insurance Corporation (FDIC) was ap
pointed as receiver. The present application is based
on an agreement, which is incorporated herein by ref
erence, by which the FDIC, as receiver, has agreed to
sell certain of Mohawk's assets to Assuming Bank, and
Assuming Bank has agreed to assume certain of the
former liabilities of Mohawk. For the reasons stated
hereafter, Assuming Bank's application is approved,
and the purchase and assumption transaction may be
consummated immediately.
Under the Bank Merger Act, 12 USC 1828(c), the
Comptroller cannot approve a purchase and assump
tion transaction which would have certain anticompeti
tive effects unless these anticompetitive effects are
found to be clearly outweighed in the public interest by
the probable effect of the transaction in meeting the
convenience and needs of the community to be
served. Also, the Comptroller is directed to consider
the financial and managerial resources and future
prospects of the existing and proposed institution,
and, in addition, the convenience and needs of the
community to be served. When necessary, however, to
prevent the evils associated with the failure of a bank,
the Comptroller can dispense with the standards appli
cable to usual acquisition transactions and need not

In
operation

To be
operated

$ 5,483,500
14,811,500
20,295,000

consider reports on the competitive consequences of
the transaction ordinarily solicited from the Department
of Justice and other banking agencies. In such cir
cumstances, the Comptroller is authorized to act im
mediately to approve an acquisition and to authorize
the immediate consummation of the transaction.
The proposed transaction will prevent disruption of
banking services to the community and potential
losses to a number of uninsured depositors. Assuming
Bank has the financial and managerial resources to
absorb Mohawk and to enhance the banking services
available in the Greenfield banking market.
The Comptroller thus finds that the proposed trans
action will not result in a monopoly, be in furtherance
of any combination or conspiracy to monopolize or at
tempt to monopolize the business of banking in any
part of the United States, and that the anticompetitive
effects of the proposed transaction, if any, are clearly
outweighed in the public interest by the probable ef
fect of the proposed transaction in meeting the con
venience and needs of the community to be served.
For these reasons, Assuming Bank's application to as
sume the liabilities and purchase certain assets of Mo
hawk as set forth in the agreement executed with the
FDIC as receiver is approved. The Comptroller further
finds that the failure of Mohawk requires immediate
action, as contemplated by the Bank Merger Act, to
prevent disruption of banking services to the commu
nity. The Comptroller thus waives publication of notice,
dispenses with the solicitation of competitive reports
from other agencies, and authorizes the transaction to
be consummated immediately.
February 16, 1980.
Due to the emergency nature of the situation, no Attor
ney General's report was requested.

BANCOHIO NATIONAL BANK,
Columbus, Ohio, and The Citizens Bank of Shelby, Shelby, Ohio
Banking offices
Names of banks and type of transaction

Total
assets

The Citizens Bank of Shelby, Shelby, Ohio, with
and BancOhio National Bank, Columbus, Ohio (5065), which had
merged February 29, 1980, under charter and title of the latter bank (5065). The merged bank at
date of merger had

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application to
merge The Citizens Bank of Shelby, Shelby, Ohio
(Bank), into and under the charter of BancOhio Na
tional Bank, Columbus, Ohio (BONB). This application
was accepted by this Office on October 17, 1979, and
is based on an agreement signed by the participants
on September 11, 1979.
Bank operates two full-service offices and one drivein facility in Shelby. It operates no offices outside
Shelby. It reported total deposits of $24 million on June
30, 1979.
BONB operates over 200 offices in approximately 40
counties in Ohio. It reported total deposits of $3.5 bil
lion on June 30, 1979, and ranks as the second largest
banking organization in Ohio with approximately 9.2
percent of the total commercial bank deposits.
Bank is in northwestern Richland County. Because
of its small size, it competes only in Shelby and its im
mediate environs. It obtains 85 percent of its deposits
and extends virtually all of its loans within a 3-mile ra
dius of the city. Therefore, the relevant geographic
market for analysis of the competitive effects of this
proposal is a 3-mile radius around Shelby.
Bank is the smaller of two commercial banks operat
ing in this market with approximately 42 percent of the
market's commercial bank deposits. BONB operates
no offices in this market or Richland County and re
ports that it has extended no loans and obtained only
a nominal $60,000 in deposits from the market area.
The closest offices of the two banks are approximately
40 miles apart.
BONB does operate offices in adjacent Knox County
and under Ohio branching law could establish
branches in Shelby. The city has a stable population of
less than 10,000 and is already served by two com
mercial banks operating six offices. Additional finan
cial services are provided by a savings and loan asso
ciation and four credit unions. There have been no
new entrants into the Shelby or Richland County bank
ing markets in the last 4 years. It is unlikely that BONB

$ 27,019,000
4,730,831,000
4,753,000,000

In
operation

To be
operated

3
222
225

would choose to establish a de novo office in Shelby in
the foreseeable future.
There is no significant existing competition between
the two banks, and it is unlikely that any significant
competition between the two banks will develop in the
near future. Therefore, consummation of the merger
would have no significant effect on competition. Addi
tionally, BONB's share of commercial bank deposits in
Ohio would be increased by a modest 0.06 percent,
and the merger would not adversely affect a concen
tration of banking services in Ohio.
The financial and managerial resources of BONB
are satisfactory. The financial and managerial re
sources of Bank, although limited, are generally satis
factory. The future prospects of Bank are also limited
in view of its relatively small size. The future prospects
of the resultant bank are good.
The Shelby banking community should benefit from
the expanded and additional banking services that
BONB will offer. These services include a significantly
larger legal lending limit, accounts receivable financ
ing, leasing, agricultural leasing, real estate construc
tion loans and trust services. These are positive con
siderations on the issue of convenience and needs.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that
BONB's record of helping to meet the credit needs of
its entire community, including low and moderate in
come neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with the proposed merger.
BONB is also authorized to operate all former offices
and facilities of Bank and branches and facilities of
BONB.
January 7, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
We have reviewed this proposed transaction and con
clude that it would not have an adverse effect upon
competition.

NATIONAL BANK OF NORTH AMERICA,
New York, N.Y., and Sixteen Branches of Bankers Trust Company, New York, N.Y.
Banking offices
Total
assets

Names of banks and type of transaction

Sixteen Branches of Bankers Trust Company, New York, N.Y., with..
were purchased March 10, 1980, by National Bank of North America,
had
After the purchase was effected, the receiving bank had

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application
filed by National Bank of North America, New York
(P.O. Jamaica), N.Y. (NBNA), to purchase the assets
and assume the liabilities of 16 branches of Bankers
Trust Company, New York, N.Y. (Bankers). This appli
cation was accepted on October 24, 1979, and is
based on an agreement executed by the proponents
on July 31, 1979.
NBNA had total domestic deposits of approximately
$3.7 billion on June 30, 1979, and operated its main
office and 136 branches in New York City, Long Island
and Westchester County. NBNA is a subsidiary of Na
tional Westminster Bank, Ltd., London, England.
Bankers is a subsidiary of Bankers Trust New York
Corporation, New York, N.Y., a registered bank hold
ing company with total deposits of $18.4 billion.
The relevant market in which to evaluate the com
petitive consequences of the proposed acquisition is
the metropolitan New York City banking market com
prised of the New York City SMSA and the NassauSuffolk SMSA. There are 106 domestic commercial
banks operating 2,125 offices and holding $122 billion
in deposits within this market. NBNA proposes to ac
quire 10 branches in Westchester County, three in
Bronx County, two on Staten Island (Richmond
County), and one in New York City. These 16 branches
have total deposits of approximately $177 million.
Within the New York City banking market, NBNA
ranks as the 10th largest bank controlling 2 percent of
the market's total commercial bank deposits, and
Bankers ranks as the 6th largest bank with almost 8
percent of the total market deposits. Approval of this
application would not alter either Bankers' or NBNA's

$ 177,301,000

4,477,000,000
4,643,301,000

138

York, N.Y. (7703), which

154

relative ranking in the market and would add only 0.10
percent of total market deposits to that presently con
trolled by NBNA. Consummation of this proposal
would not eliminate any meaningful existing competi
tion between Bankers and NBNA and would have little
impact on the concentration of banking resources
within the market.
There is little potential for additional competition de
veloping between the proponents within the foresee
able future since Bankers has publicly announced in
tention to sell its retail banking offices.
The financial and managerial resources of both
NBNA and Bankers are generally satisfactory, and the
future prospects of both banks appear good. NBNA's
operation of Bankers' 16 branches will provide the bank
ing public with a continued and uninterrupted conve
nient source of banking services. This is a positive factor
on convenience and needs considerations and lends
considerable weight toward approval of the application.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that
NBNA's record of helping to meet the credit needs of
its entire community, including low and moderate in
come neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with this proposed transfer of bank
deposits and assets. NBNA is also authorized to oper
ate Bankers' 16 offices as branches of NBNA.
January 11, 1980.

The Attorney General's report was not received.
*

In
To be
operation operated

FIRST NATIONAL BANK OF MANSFIELD,
Plymouth, Ohio, and Buckeye State Bank, Galion, Ohio
Banking offices
Total
assets

Names of banks and type of transaction

Buckeye State Bank, Galion, Ohio, with
and First National Bank of Mansfield, Plymouth, Ohio (2577), which had
merged March 12, 1980, under the charter of the latter (2577) and title "First Buckeye Bank, N.A.'
The merged bank at date of merger had

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application to
merge the Buckeye State Bank, Galion, Ohio (Buckeye
Bank), into the First National Bank of Mansfield, Plym
outh, Ohio (FNB), with the surviving institution assum
ing the title of "First Buckeye Bank, N.A." This applica
tion was filed on September 19, 1979, and is based on
an amended agreement executed by the proponents
on September 12, 1979. The merger application incor
porates an application for change of name to be effec
tive on consummation of the merger. As of June 30,
1979, FNB had total deposits of $198.3 million, and
Buckeye Bank had total deposits of $120.9 million.
FNB operates 19 offices, and all but one are in Rich
land County. Its primary office and six branches are in
Mansfield, the major city of Richland County. Using
ZIP code analysis, FNB determined that 75 percent of
its deposits originate in the Mansfield, Lexington, On
tario and Crestline ZIP codes. A similar analysis of
Buckeye Bank's deposits shows 86 percent originating
in the southeast corner of Crawford County, which is
the Galion ZIP code. Buckeye Bank's head office and
two branches are in this geographic area. The deposit
data, standing alone, would tend to indicate that the
banks operate in separate geographic markets. Com
muting patterns and economic interchange data sup
port this conclusion and have led Rand McNally to
place Galion and Mansfield in separate Rand McNally
areas. Further, Galion banks charge lower mortgage
interest rates and maintain shorter banking hours than
the Mansfield banks. This data caused the Federal Re
serve Bank of Cleveland to conclude that the propo
nents serve separate, adjacent banking markets. The
Comptroller agrees with this conclusion.
Since applicants do not compete in the Galion mar
ket, this merger would merely replace Buckeye Bank
with FNB in that market. As such, it is a market exten
sion merger for FNB. FNB could legally enter this mar

$ 24,205,000
238,028,000

In
operation

To be
operated

*3
on

262,233,000

°3

ket by a de novo branch, however, the Federal Re
serve Bank of Cleveland found the probability of this to
be fairly small, citing Gallon's slow population growth*
and the lack of excess profits in existent Galion
banks.t
The financial and managerial resources of FNB are
satisfactory. The financial and managerial resources of
Buckeye Bank are uncertain. It has had a below peer
rate of return for the last 3 years and now faces, as its
sole competitor in Galion, the third largest holding
company in Ohio.$ The future prospects of the com
bined bank are good. The combined bank will be
much better equipped to compete with the First Na
tional Bank of Galion. It will offer services such as trust
and electronic banking, not now offered by Buckeye
Bank. The needs and convenience of customers in
Galion will be better served by two strong competitors
than by one strong and one weak competitor.
The review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that
FNB's record of helping to meet the credit needs of its
entire community, including low and moderate income
neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with this merger. The proposed
name change is approved conditioned upon consum
mation of the merger.
February 11, 1980.
The Attorney General's report was not received.
* Population grew from 18,244 in 1960 to 18,525 in 1970.
f The Federal Reserve Bank reports return on assets as be
tween 2 and 29 percent below banks of similar size in Ohio
in the period of June 1975 to 1978.
$ The only other bank in Galion, the First National Bank of
Galion, was recently acquired by National City Corporation.

FIRST NATIONAL BANK OF NEW JERSEY,
Totowa, N.J., and South Amboy Trust Company, South Amboy, N.J.
Banking offices
Names of banks and type of transaction

Total
assets

South Amboy Trust Company, South Amboy, N.J., with
was purchased March 21, 1980, by First National Bank of New Jersey, Totowa, N.J. (329), which
had
After the purchase was effected, the receiving bank had

COMPTROLLER'S DECISION

$ 23,439,000

743,879,000
763,792,000

To be
operated

with total deposits of less than $50 million, available for
acquisition by outside organizations.
The financial and managerial resources of both First
and Amboy are satisfactory. The future prospects of
the two banks, independently and in combination, are
favorable.
After consummation of this transaction, the addi
tional capabilities of First will be available to the
present customers of Amboy. Additional services to be
made available include statement savings, long-term
savings certificates, overdraft checking, credit cards,
trust services and a substantially large legal lending
limit. These are positive considerations on the issue of
convenience and needs.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that
First's record of helping to meet the credit needs of its
entire community, including low and moderate income
neighborhoods, is less than satisfactory.
This is the prior written approval required for the ap
plicants to proceed with the proposed purchase and
assumption.
February 20, 1980.

This is the Comptroller's decision on the application of
First National Bank of New Jersey, Totowa, N.J. (First),
to purchase the assets and assume the liabilities of
South Amboy Trust Company, South Amboy, N.J. (Am
boy). This application was accepted for filing on No
vember 2, 1979, and is based on a written agreement
executed by the proponents on September 10, 1979.
First had total deposits of $659 million on June 30,
1979. It operates 25 branches in Passaic, Bergen and
Morris counties. Amboy, a unit bank in Middlesex
County, had total deposits of $20 million on June 30,
1979.
The relevant geographic market is South Amboy and
neighboring Sayreville. There are four commercial
banks serving this market. The two largest banks con
trol, respectively, 54 percent and 24 percent of the
market's deposits. Amboy, the third largest, holds 18
percent of the deposits. First does not have any
branches in the market and would merely succeed to
Amboy's share of the market. The closest offices of the
two banks are approximately 40 miles apart, and there
are two heavily populated counties with numerous
banking alternatives separating the distinct markets
served by the two banks. There is no significant com
petition between First and Amboy. The market is heav
ily banked and would not present a likely target for de
novo entry by First. Even after this merger, there would
be 12 independent commercial banks, including five
*

In
operation

SUMMARY OF REPORT BY ATTORNEY GENERAL
We have reviewed this proposed transaction and con
clude that it would not have a significantly adverse ef
fect upon competition.
*

SOCIETY NATIONAL BANK OF CLEVELAND,
Cleveland, Ohio, and First National Bank of Clermont County, Bethel, Ohio
Banking offices
Names of banks and type of transaction

Total
assets

Society National Bank of Cleveland (14761), Cleveland, Ohio, with
and First National Bank of Clermont County (5627), Bethel, Ohio, which had
merged March 21, 1980, under charter of the former (14761) and title of "Society National Bank."
The merged bank at date of merger had

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application to
merge First National Bank of Clermont County, Bethel,
Ohio (First), into Society National Bank of Cleveland,
Cleveland, Ohio (Society). This application was filed
on July 12, 1979, and is based on an agreement exe
cuted between the applicants on May 10, 1979. As of

$1,644,175,000
29,779,000
1,673,954,000

In
operation

To be
operated

42
1
43

April 30, 1979, First had total deposits of $26.5 million,
and Society had total deposits of $1.2 billion. Society
is a subsidiary of Society Corporation, Cleveland.
On February 7, 1979, the Federal Reserve Bank of
Cleveland, acting pursuant to authority delegated by
the Federal Reserve Board, approved an application
for Society Corporation, Cleveland, to acquire the suc
cessor by merger to First. On March 14, 1979, OCC

approved an application to merge First into First Bank
of Clermont County, N.A., a bank being organized by
Society Corporation. Effective at the close of business
on April 13, 1979, the merger was consummated, and
First became a wholly owned commercial banking
subsidiary of Society Corporation.
Since both First and Society are subsidiaries of the
same bank holding company, this application is
merely a corporate reorganization whereby Society
Corporation is realigning and consolidating a portion
of its banking interests throughout the state. As such, it
presents no competitive issues under the Bank Merger
Act, 12 USC 1828(c). Additionally, a review of the fi
nancial and managerial resources and future pros
pects of the existing and proposed institutions and
convenience and needs of the community to be
served has disclosed no information why this applica
tion should not be approved (12 USC 1828(c)(5)).
Finally, OCC considered this application in light of
the Community Reinvestment Act (CRA) (12 USC
2091). CRA requires that OCC assess the Applicants'
records of helping to meet the credit needs of their en
tire communities, including low and moderate income
neighborhoods, consistent with their safe and sound
operations, and to take their records into account in
evaluating this application (12 USC 2903). This review
included a thorough consideration of protests filed by
the Union-Miles Community Coalition and the Buck
eye-Woodland Congress (collectively, Protestants), in
formation presented at a public hearing and informa
tion available to this Office as part of its supervisory
responsibilities.* Based on this review and on positive
indications from Society that promised future improve
ments will be achieved, approval of this merger appli
cation was found to be in the public interest, and the
application was approved on February 8, 1980.
Community Reinvestment Act Supplement
This supplement discusses in detail the Comptroller's
assessment of Society National Bank's (Society) rec
ord under the Community Reinvestment Act (CRA).
Particular coverage is given to the CBCT branch appli
cations approval with general discussion of the merger
decision.
In deciding the applications, the OCC is required to
* In addition to this merger, Society filed five applications to
establish customer-bank communications terminal (CBCT)
branches in Fisher-Fazio Food Stores in Mentor-on-the-Lake,
Mentor, Painesville Twp., Wicklifte and Willowick, Ohio, dur
ing the period this merger was pending. Protestants filed ob
jections to these branch applications and requested a public
hearing which was held October 20, 1979. Because Protes
tants' objections dealt with Society's CRA performance, pro
cessing of the merger application was conducted simultane
ously with CBCT branch applications. During this
processing, Society and Protestants had considerable dia
logue and were able to reach a mutually agreeable under
standing. The OCC considers this joint effort a positive ex
ample of how a bank can work effectively with its community
and has attached a special CRA supplement to this decision
which addresses CRA aspects of Protestants' objections
against CBCT branch applications in particular and this mer
ger in general.

evaluate Society's record in helping to meet the credit
needs of its community (12 USC 2903). A regular con
sumer examination starting February 20, 1979, re
vealed no serious problems with Society's perform
ance under the CRA at that time. Subsequently, CRA
protests to Society's CBCT applications were filed with
the OCC on July 26 and 31, 1979, by the Union-Miles
Community Coalition (UMCC) and the BuckeyeWoodland Congress (BWC), collectively, "Protes
tants, " t A public hearing under the provisions of 12
CFR 5 was held on October 20, 1979. The basic is
sues raised by the Protestants at the hearing centered
on faulty communications by Society with elements of
its community and on allegations of discriminatory
lending practices.
Society contended that its obligations and therefore
principal efforts are aimed at meeting the credit needs
of its entire community and, that in so doing, it is possi
ble or even probable that certain neighborhoods or
geographical areas within the community may be
served less than other areas.
The Protestants, on the other hand, contended that
the bank cannot serve its "entire community" without
serving each individual neighborhood, including the
neighborhood which they represent. The contention
was not that applications for credit had been denied
for discriminatory reasons but rather that very few ap
plications had been submitted from the neighborhoods
in question because of a perception by their residents
that Society did not or would not serve these areas.
The issue, therefore, became the extent to which Soci
ety has an obligation to promote the filing of more
credit applications.
A second matter of emphasis by the Protestants was
Society's practice of having concentrated heavily on
indirect dealer paper in minority neighborhoods in
meeting home improvement credit needs, while mak
ing direct home improvement loans in other areas.
The evaluation of Society's record of performance,
for purposes of this opinion, will focus on the following
assessment factors contained in the regulations which
implement the CRA.
The first factor focuses on activities conducted by
the bank to ascertain the credit needs of its commu
nity. Society's efforts in this regard consist primarily of
membership in community and professional organiza
tions. These efforts have not included significant con
tact with citizen organizations concerned with neigh
borhood disinvestment or with the credit needs of low
and moderate income areas, such as those repre
sented by the neighborhood groups which pursued
this issue at the hearing. Society has undertaken ef
forts to strengthen this area of performance, including
the appointment of a community affairs director who
appears to be knowledgeable of and acceptable to
the community.
The second assessment factor concerns the bank's
marketing and special credit-related programs to
t An application was accepted by OCC on July 12, 1979, to
merge First National Bank of Clermont County into and under
the charter of Society National Bank of Cleveland. This appli
cation was also reviewed under the CRA.
19

make members of the community aware of its credit
services. The lack of an effective marketing program to
inform the community of the credit services offered by
Society was exhibited throughout the hearing and was
one of the focal points of the complaint by the Protes
tants. Society has agreed to undertake measures to
strengthen its marketing program. It will, for example,
carry a specific form of advertisement on a monthly
basis in specified general-distribution newspapers.
Reprints of those advertisements will be furnished to
UMCC for its newsletter, with Society providing finan
cial assistance to UMCC for the reprints. Society has
also agreed to make real estate brokers and devel
opers aware of its willingness to extend creditworthy
loans for worthwhile projects.
A third relevant assessment factor deals with prac
tices intended to discourage applications for types of
credit set forth in the bank's CRA statement. While
there is no evidence of any intent by Society to dis
courage applications, it does appear that Society's
past emphasis on indirect dealer-originated home im
provement loans may unwittingly have had the effect
of discouraging applications for direct credit. Subse
quently, Society has agreed to (a) provide a clear in
dication on the indirect loan credit application form
that the individual has an option to apply for a direct
loan, (b) better advise would-be indirect loan cus
tomers of Society's willingness to help resolve disputes
with the contractors and (c) consult with UMCC as to
complaints against specific contractors.
A fourth factor is the geographic distribution of the
bank's credit extensions, credit applications and credit
denials. The assessment factors require a comparison
of the bank's performance in low and moderate in
come areas to its activities in its entire community. The
geographical distribution of Society's credit extensions
was criticized by the Protestants. A majority of
Society's real estate mortgage lending has been in the
suburban areas of its entire community, with a smaller
volume in the older, central city areas. The uneven
geographic distribution of Society's loans appears to
result from the combination of the community percep
tions of the bank as described above, with patterns re
sulting from branch locations and uneven levels of ec
onomic activity among the areas in question.
The assessment factors require an analysis of any
evidence of prohibited discriminatory or other illegal
credit practices. In this case, there is no evidence of
prohibited or other illegal credit practices. However,
Society's past indirect home improvement lending
practices are perceived by the community to be dis
criminatory. The bank has agreed to advertise and so
licit direct home improvement loans in the Union-Miles
area.
A sixth area of assessment focuses on the bank's
origination of residential mortgage loans, rehabilitation
loans, home improvement loans and small business
loans. The Protestants' challenge is based primarily on
Society's residential lending activities, and the Protes
tants, Society and the OCC have accordingly concen
trated on residential mortgage loans and home im
provement loans. The assessment factors emphasize
the importance of extending housing-related credit.
20

Data for all institutional lenders in Cuyahoga County in
1977 generally indicates that Society has as good a
record in Cleveland as any other lender. In the UnionMiles area, Society's volume of housing-related loans
is low in comparison to other lenders. Society has
granted fewer residential mortgage and direct home
improvement loans in the Union-Miles area than it has
in other parts of its total community, notably the subur
ban areas. Society has no branch office within the Un
ion-Miles area and has received a very limited number
of applications for such loans from that area. There is
no evidence, however, of direct discouragement of the
filing of such applications or of unreasonable adverse
decisions on applications filed.
This same assessment factor also includes "the pur
chase of such loans originated in its community." Soci
ety has historically relied on purchased loans (indirect,
dealer-originated paper) for the financing of home im
provements. However, the Protestants have raised
concerns regarding the effects which the use of this fi
nancing mechanism has had on the community's per
ception of Society.
Society has responded positively to these concerns
by agreeing to advertise and solicit direct home im
provement loans and to notify each indirect home im
provement loan customer that the completion certifi
cate should not be signed until the contracted work
has been done according to the terms of the contract.
These activities are viewed as positive factors in evalu
ating these applications.
Finally, the assessment reviewed the bank's ability
to meet various community credit needs based on its
financial condition and size, legal impediments, local
economic conditions and other factors. The OCC has
determined that Society's condition is excellent, and
within constraints imposed by the overall condition of
the economy on the volume of loanable funds, the
bank is well-equipped to meet the credit needs of its
community.
The OCC has examined the submissions of the Prot
estants and Society regarding the issues raised by the
Protestants. It has also taken into consideration contin
ued meetings since the hearing between Society and
the UMCC which resulted in an understanding in prin
ciple on all remaining points of contention on Decem
ber 18, 1979. On January 7, 1980, Society and UMCC
finalized this understanding to the satisfaction of both
parties.
The OCC believes that Society has responded to the
concerns of the Protestants very positively, as evi
denced by the bank's decision to enter into an agree
ment with them and by other recent actions and com
mitments which the bank has made. This
responsiveness has been taken into consideration
and, along with the bank's past record of performance,
was the basis for the OCC's action approving the mer
ger and branch application on February 8, 1980. The
OCC believes that the improved community access to
bank credit which has resulted and will result from the
hearing must be continued to be effective. The contin
uance in good faith of all promised actions will be
monitored through the examination process.
Society has reassessed its indirect home improve-

ment loan policies and practices and has agreed to
better conform this program to the needs of the com
munity and, at the same time, make would-be borro
wers aware of their access to direct bank credit. Fa
vorable consideration of requests for the specific types
of credit raised by the protesting community groups
have been agreed to by Society, although without spe
cific dollar floors or limits. Society has agreed to do a
better job of advertising and communicating its credit
services. However, the bank cannot guarantee that in
dividuals will submit loan applications. Society agrees
to show its willingness to realtors and developers to
extend creditworthy loans for worthwhile projects.
The OCC feels that the changes and improved ac
cess to bank credit which have been and will be
brought about by the hearing and the understanding
reached by both Society and the Protestants, must be
continued to be effective.
*

On February 8, 1980, the merger and branch appli
cations were approved with the understanding to Soci
ety and to the Protestants that the continuance in good
faith of all promised actions will be monitored through
the examination process.
March 21, 1980.

SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
Society National Bank of Cleveland would become a
subsidiary of Society Corporation, a bank holding
company. The instant merger, however, would merely
combine an existing bank with a nonoperating institu
tion; as such, and without regard to the acquisition of
the surviving bank by Society Corporation, it would
have no effect on competition.
*

PACIFIC NATIONAL BANK OF WASHINGTON,
Seattle, Wash., and American Commercial Bank, Spokane, Wash.
Banking offices
Names of banks and type of transaction

Total
assets

American Commercial Bank, Spokane, Wash., with
was purchased March 24, 1980, by Pacific National Bank of Washington, Seattle, Wash. (3417),
which had
After the purchase was effected, the receiving bank had

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application of
Pacific National Bank of Washington, Seattle, Wash.
(PNB), to purchase the assets and assume the liabili
ties of American Commercial Bank, Spokane, Wash.
(Bank). This application was accepted by this Office
on October 2, 1979, and is based on an agreement
signed by the participants on August 28-29, 1979. As
of June 30, 1979, PNB and Bank had total commercial
bank deposits of $1.3 billion and $47.8 million, respec
tively. PNB is the third largest commercial bank in
Washington and is a subsidiary of Western Bancorporation, Los Angeles, Calif., a registered multibank
holding company.
The relevant geographic market for consideration in
this proposal is Spokane County. There are 10 com
mercial banks that operate 69 offices and have total
commercial bank deposits of $1.1 billion in the market.
PNB ranks as the sixth largest commercial bank in the
market and controls 3.4 percent of the market's total
commercial bank deposits. Bank is the seventh largest
bank in its market and controls 3.2 percent of the total
commercial bank deposits. The resultant bank would
rank as the fourth largest bank in the market. The par
ticipants' closest offices are 6 miles apart. Only three
of PNB's 72 banking offices are in Spokane County.
Bank operates six of its seven offices in Spokane
County and one branch in Pend Oreille County.
The market is dominated by Old National Bank with
total market deposits of $278.7 million and 22 offices;

54,228,000
1,717,120,000
1,764,169,000

In
To be
operation operated
7
73
80

Seattle-First National Bank, total market deposits of
$397.8 million; and Washington Trust Bank, total mar
ket deposits of $163.8 million. These three banks con
trol in excess of 81 percent of the market's total com
mercial bank deposits, and the resultant bank would
rank a distant fourth with approximately 6.6 percent.
Approval of this application would not substantially les
sen competition in the market because of the relatively
small market share held by each proponent, the fact
that only one of PNB's offices is in Spokane (the other
two branches are in Longview, Wash.) and the fact
that both PNB and Bank experience direct competition
in the market from both the largest commercial banks
and largest mutual savings banks in the state and from
other financial institutions.
The financial and managerial resources of both PNB
and Bank are satisfactory. The future prospects of
PNB are good. The future prospects of Bank are
somewhat limited in view of its relatively small size and
the fact that it experiences direct competition from
substantially larger competitors. The future prospects
of the resultant bank are good, and the resultant bank
should invigorate the competitive atmosphere of the
Spokane market by being a more meaningful banking
alternative.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that
PNB's record of helping to meet the credit needs of
the entire community, including low and moderate in
come neighborhoods, is less than satisfactory.

This is the prior written approval required by the
Bank Merger Act, 12 USC 1828(c), for the participants
to proceed with the proposal.
February 21, 1980.

SUMMARY OF REPORT BY ATTORNEY GENERAL
We have reviewed this proposed transaction and con
clude that it would not have a substantial competitive
impact.

THE HUNTINGTON NATIONAL BANK,
Columbus, Ohio, and The Farmers and Merchants Bank, Milford Center, Ohio
Banking offices
Names of banks and type of transaction

Total
assets

The Huntington National Bank, Columbus, Ohio (7745), with
and The Farmers and Merchants Bank, Milford Center, Ohio (368), which had
merged March 29, 1980, under charter and title of "The Huntington National Bank." The merged
bank at date of merger had

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application to
merge The Farmers and Merchants Bank, Milford Cen
ter, Ohio (F&M), into and under the charter of The Hun
tington National Bank, Columbus, Ohio (Huntington).
This application was filed on December 7, 1979, and is
based on an agreement executed by the proponents
on February 13, 1979.
As of September 30, 1979, F&M had total deposits
of $13 million and operated two banking offices.
On June 29, 1979, this Office granted preliminary
approval to organize Huntington. The new bank char
ter was organized by principals of Huntington's corpo
rate parent, Huntington Bancshares Incorporated, Co
lumbus, Ohio (Bancshares), a registered bank holding
company, to facilitate a corporate reorganization of
Bancshares. On November 27, 1979, this Office
granted approval for Bancshares to merge 15 of its
banking subsidiaries into Huntington. The resultant
bank has total deposits of almost $2 billion.
F&M is headquartered in Milford Center and has one
branch approximately 7 miles northeast of its main of
fice in Marysville, the county seat of Union County. It is
the smallest of three banks in Union County, Ohio, the
relevant geographic market area for analysis of com
petitive issues in this application. It obtains virtually all
of its deposits from Union County and controls approx
imately 19 percent of this market's commercial bank
deposits. Huntington obtains approximately $1.8 mil
lion in deposits from the F&M's market area.
The largest competitor in Union County is BancOhio
National Bank with 47 percent of the market's de
posits. It has two branches in Marysville with total de
posits of $31.3 million. BancOhio is the second largest
commercial banking organization in Ohio. The second
largest bank in the market, The Richmond Banking
Company, has total deposits of $22.5 million, repre
senting 33.7 percent of the market's total deposits.

$2,463,535,000
15,342,000
2,508,403,000

In
operation

To be
operated

105
2
107

Consummation of this merger would not eliminate a
significant amount of existing competition between the
applicants. Consummation of the merger would result
in the substitution of Huntington for the smallest bank
in the market.
Huntington is headquartered in Franklin County,
which is adjacent to Union County. Under Ohio
branching laws, the two banks could branch into each
other's markets. The likelihood of F&M branching into
Huntington's market within the foreseeable future is re
mote, given its relatively small size. Likewise, it does
not appear likely that Huntington would choose to en
ter Union County on a de novo basis since there are
already three banks with six offices serving the
county's 25,000 residents.
The financial and managerial resources of both
banks are satisfactory. The future prospects of the two
banks, both separately and merged, are good.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that
Huntington's record of helping to meet the credit
needs of its entire community, including low and mod
erate income neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with the proposed merger.
February 11, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
Farmers and Merchants Bank would become a subsid
iary of Huntington Bancshares Incorporated, a bank
holding company. The instant merger, however, would
merely combine an existing bank with a nonoperating
institution; as such, and without regard to the acquisi
tion of the surviving bank by Huntington Bancshares
Incorporated, it would have no effect on competition.

SECURITY PACIFIC NATIONAL BANK,
Los Angeles, Calif., and Inyo-Mono National Bank, Bishop, Calif.
Banking offices
Names of banks and type of transaction

Total
assets

Inyo-Mono National Bank, Bishop, Calif. (15398), with
and Security Pacific National Bank, Los Angeles, Calif. (2491), which had
merged March 30, 1980, under charter and title of the latter (2491). The merged bank at date of
merger had

COMPTROLLER'S DECISION

23,600,445,000

To be
operated

1
602
603

present, its ability to attract highly qualified and com
petent management and its ability to provide a myriad
of financial and banking resources is limited. Accord
ingly, Bank's future prospects are considered limited
in view of its relatively small size and the fact that it ex
periences direct competition from the largest commer
cial bank in California. The future prospects of the re
sultant bank are good.
As a result of this merger, Security will provide new
and expanded banking services to the present bank
ing customers of Bank. Among these services are
bank credit cards, overdraft checking, a variety of per
sonal asset management services (including trust
services), estate planning and investment advice.
Also, the banking community should benefit from the
stimulated competitive environment which should de
velop in the Inyo-Mono market with the introduction of
Security into the area. These are positive consider
ations on the issue of convenience and needs and
lend additional weight toward approval of the applica
tion.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities, revealed no evidence that the
applicants' records of helping to meet the credit needs
of the entire community, including low and moderate
income neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with the merger. Additionally, Security
is also authorized to operate, as branches of Security, all
former offices of Bank.
January 14, 1980.

This is the Comptroller's decision on an application to
merge Inyo-Mono National Bank, Bishop, Calif.
(Bank), into and under the charter of Security Pacific
National Bank, Los Angeles, Calif. (Security). This ap
plication was accepted on November 8,1979, and is
based on an agreement signed by the participants on
October 15, 1979. On June 30, 1979, Security had to
tal commercial bank deposits of $16.2 billion, and
Bank's total deposits were $21.6 million.
The relevant geographic market for analysis of this
proposed merger is Inyo and Mono counties, Calif.
This market, which lies along the California-Nevada
border, has a mountainous terrain and is geographi
cally isolated and sparsely populated. There are two
banks in this market, Bank of America, NT. & S.A. (B
of A) and Bank. B of A and Bank operate a total of 11
banking offices in the market. B of A is by far the larger
of the two banks in the market and has total market de
posits of $72.1 million, which represents over 77 per
cent of the market's total commercial bank deposits.
Bank is a distant second and controls about 23 per
cent of the market's deposits. There is no existing
competition between Security and Bank because they
compete in separate markets and the nearest offices
of the two banks are separated by 75 miles of desert.
Consequently, approval would have no adverse effect
on existing competition.
With prior regulatory approval, Security could enter
the Inyo-Mono market de novo by establishing a
branch. However, this market is not considered attrac
tive for de novo entry, and there is no recorded evi
dence that any of the banking needs of this market are
going unmet. Additionally, there is no reason to believe
that Security would enter the market absent this pro
posal.
The financial and managerial resources of Security
are satisfactory. Although the financial and managerial
resources of Bank are generally satisfactory at

$
28,129,000
23,573,033,000

In
operation

SUMMARY OF REPORT BY ATTORNEY GENERAL
We have reviewed this proposed transaction and con
clude that it would not have a substantial competitive
impact.
*

THE COMMONWEALTH NATIONAL BANK
Harrisburg, Pa., and The First National Bank of Shippensburg, Shippensburg, Pa.
Banking offices
Names of banks and type of transaction

Total
assets

The First National Bank of Shippensburg, Shippensburg, Pa. (834), with
and The Commonwealth National Bank, Harrisburg, Pa. (580), which had
merged April 1, 1980, under the charter and title of the latter bank (580). The merged bank at date
of merger had

COMPTROLLER'S DECISION
This is the Comptroller's decision on the application to
merge The First National Bank of Shippensburg, Ship
pensburg, Pa. (Shippensburg Bank), into and under
the charter of The Commonwealth National Bank, Har
risburg, Pa. (Commonwealth National). The application
was accepted for filing on September 20, 1979, and is
based on a written agreement executed by the propo
nents on March 14, 1979.
Commonwealth National is a national bank that had
total deposits of $796.2 million as of June 30, 1979. It
operates 43 banking offices: 14 in Lancaster County,
nine in Dauphin County, eight in Cumberland County,
10 in York County and one in both Lebanon and Perry
counties.
Shippensburg Bank had total deposits of $44.4 mil
lion on June 30, 1979. It operates a main office and
one branch office in Cumberland County and two ad
ditional branch offices in Franklin County.
Shippensburg is on the western edge of Cum
berland County and is divided into two parts by the
Cumberland-Franklin County line. The Shippensburg
Bank originates approximately 85 percent of its total
deposits and extends a majority of its loans within five
townships in western Cumberland County and three
townships in eastern Franklin County. Therefore, the
relevant geographic market for analysis of the compet
itive effects of the proposed merger consists of these
townships in the two counties of the Shippensburg
area.
Shippensburg Bank is the largest of the four com
mercial banks operating in this market with 44 percent
of the market's commercial bank deposits. Common
wealth National has no banking offices in this market
and would merely succeed to Shippensburg Bank's
share of the market. The closest banking offices of the
two banks are some 20 miles apart. The area between
these offices is sparsely populated, rural and predomi
nantly agricultural. Therefore, there is no significant ex
isting competition between Commonwealth National
and Shippensburg Bank.

48,712,000
1,035,853,000

In
To be
operation operated
4
48

1,085,206,000

Applicable state banking statutes permit branching
by a commercial bank within its home office county
and all counties immediately contiguous. As a result,
Commonwealth National could only branch into a part
of Shippensburg Bank's market, western Cumberland
County, and cannot legally establish branches in
Franklin County. The likelihood that Commonwealth
National would expand into western Cumberland
County de novo is remote since this area is predomi
nantly agricultural with a relatively slow economic
growth rate and low population density.
The financial and managerial resources of both
Commonwealth National and Shippensburg Bank are
satisfactory. The future prospects of the two banks, in
dependently and in combination, appear favorable.
After consummation of this transaction, the addi
tional capabilities of Commonwealth National will be
made available to the present customers of Shippens
burg Bank in such areas as full trust services, bank
credit cards, additional expertise in agricultural lend
ing, statement savings accounts and a substantially
larger legal lending limit. These are positive consider
ations on the issue of convenience and needs.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
banks' records of helping to meet the credit needs of
their entire communities, including low and moderate
income neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with this merger. Because Pennsyl
vania law would not permit Commonwealth to operate
offices in Franklin County, this approval is conditioned
on either the relocation or disposal of Shippensburg
Bank's two banking offices in Franklin County.
January 25, 1980.
The Attorney General's report was not received.

THE PIERRE NATIONAL BANK,
Pierre, S. Dak., and The Badlands State Bank, Kadoka, S. Dak., and Vivian State Bank, Vivian, S. Dak.
Banking offices
Total
assets

Names of banks and type of transaction

The Badlands State Bank, Kadoka, S. Dak., with
and Vivian State Bank, Vivian, S. Dak., with
were purchased April 1, 1980, by The Pierre National Bank (4104), Pierre, S. Dak., which had
After the purchase was effected, the receiving bank had

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application of
The Pierre National Bank, Pierre, S. Dak. (PNB), to pur
chase the assets and assume the liabilities of The
Badlands State Bank, Kadoka, S. Dak. (Kadoka), and
Vivian State Bank, Vivian, S. Dak. (Vivian). This appli
cation was filed on November 30, 1979, and is based
on an agreement executed by the proponents on Oc
tober 9, 1979.
On June 30, 1979, the participants had total de
posits as follows: PNB, $44.1 million; Kadoka, $8.2 mil
lion; and Vivian, $3.7 million. PNB is a subsidiary of a
one-bank holding company, South Dakota Bancshares, Inc.
The three banks operate in separate and distinct
markets. Vivian is 35 miles from Pierre and 70 miles
from Kadoka. Kadoka is approximately 100 miles from
Pierre. PNB's market includes Hughes and Stanley
counties where it is the largest of five commercial
banks with approximately 42 percent of the market's
total commercial bank deposits. Vivian's market area is
Lyman County with no other commercial bank located
in that area. Kadoka Bank is headquartered in Jackson
County where it operates two offices and is one of
three commercial banks serving the Jackson County
banking market.
Because of the distance separating the three banks,
there appears to be only negligible existing competi
tion among the proponents. Additionally, all three
banks are under common ownership and control, and

In
To be
operation operated

$ 9,073,000
4,028,000
49,667,000
62,364,000

there is little possibility for increased competition
among the proponents within the foreseeable future.
This application is essentially a corporate reorganiza
tion. The resultant bank would rank as the 13th largest
in South Dakota and would control less than 2 percent
of the state's total commercial bank deposits.
The financial and managerial resources of all three
banks are satisfactory. The future prospects of Vivian
and Kadoka are limited due to their small size. The fu
ture prospects of the resultant bank are far more favor
able, as it will |pe better able to meet the banking
needs of the communities now served by Kadoka and
Vivian.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that
PNB's record of helping to meet the credit needs of its
entire community, including low and moderate income
neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with this proposal. PNB is authorized
to operate all former offices of Vivian and Kadoka Bank
as branches of PNB.
February 28, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
We have reviewed this proposed transaction and con
clude that it would not have an adverse effect on com
petition.

LA SALLE NATIONAL BANK,
Chicago, III., and Hartford Plaza Bank, Chicago,
Banking offices
Names of banks and type of transaction

Total
assets

In
operation

To be
operated

La Salle National Bank, Chicago, III. (13146), with
$1,051,407,000
and Hartford Plaza Bank, Chicago, III., which had
35,335,000
merged April 21, 1980, under charter and title of the former bank (13146). The merged bank at date
of merger had
1,081,781,000

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application to
merge Hartford Plaza Bank, Chicago, III. (Hartford),
into La Salle National Bank, Chicago (La Salle), and
under the charter of La Salle National Bank, Chicago.
This application was filed with this Office on February
1, 1980, and is based on an agreement executed by

the participants on January 4, 1980. As of December
31, 1979, La Salle had $781 million and Hartford had
$34 million in commercial bank deposits.*
* La Salle National Bank was recently acquired by Algemene
Bank Nederland N.V., a bank headquartered in the Nether
lands.
25

competition with the largest Chicago banks. La Salle's
present detached facility at Jackson Boulevard serves
9,500 customers and holds 12 percent of La Salle's to
tal retail accounts. If La Salle is unable to move to a
comparable location, it will be even less able to com
pete with the very large Chicago banks. In sum, the
convenience and needs of Cook County residents will
be better served by approval of this merger.
The financial and managerial resources of La Salle
and Hartford are satisfactory. The future prospects of
Hartford are restricted due to its small size in relation
to the relatively large banks found in the central busi
ness district. The future prospects of La Salle will be
enhanced by avoiding the loss of its present detached
facility.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that La
Salle's record of helping to meet the credit needs of its
entire community, including low and moderate income
neighborhoods, is less than satisfactory.
This decision is the required prior written approval of
the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with the proposed merger.
March 14, 1980.

La Salle and Hartford are in the central business dis
trict of Chicago in an area commonly called "the loop."
The portion of the loop in which these banks are lo
cated is a focal point for transportation to and from
downtown Chicago. Consequently, both banks serve
large numbers of commuters from Cook County and
the Chicago SMSA. In fact, ZIP code analysis shows
that 79 percent of the total deposits for La Salle and 89
percent of Hartford's are generated from Cook County.
Although the banks are in direct competition in Cook
County, both are small when compared to large Chi
cago banks. For example, La Salle holds only 1.63
percent of Cook County commercial bank deposits
and Hartford holds only 0.08 percent. The Comptroller
finds that the merger of these banks will not substan
tially lessen competition in Cook County or any rele
vant market in which they compete.
Illinois permits banks to operate no more than two
extended facilities in addition to their main offices. La
Salle operates one such facility at 335 West Jackson
Boulevard in Chicago in a building which will be de
molished in the immediate future. To maintain its com
petitive position in the central business district of Chi
cago, La Salle must move to a location which offers
commuters nearly equal convenience. Hartford Plaza's
location and physical plant meet this need. When
merged with La Salle, Hartford will offer its customers
a wide range of services not now available. Among
these services are trust, data processing and auto
matic savings to checking account transfers. The com
bined bank will be better equipped to offer aggressive
*

SUMMARY OF REPORT BY ATTORNEY GENERAL
We have reviewed this proposed transaction and con
clude that it would not have a significantly adverse ef
fect upon competition.
*

SECOND NATIONAL BANK OF GREENVILLE,
Greenville, Ohio, and Fort Recovery Banking Company, Fort Recovery, Ohio
Banking offices
Names of banks and type of transaction

Total
assets

Fort Recovery Banking Company, Fort Recovery, Ohio, with
and Second National Bank of Greenville, Greenville, Ohio (2992), which had
merged April 30, 1980, under charter of the latter and title of "Second National Bank." The merged
bank at date of merger had

COMPTROLLER'S DECISION
This is the Comptroller's decision on the application to
merge the Fort Recovery Banking Company, Fort Re
covery, Ohio (Fort Recovery Bank), into the Second
National Bank of Greenville, Greenville, Ohio (Green
ville Bank). The application was accepted for filing on
December 19, 1979, and is based on a written agree
ment executed by the proponents on November 28,
1979.
Greenville Bank operates six offices in Darke
County, Ohio, with four in Greenville. Darke County is
in the western portion of Ohio along the Indiana bor
der. As of June 30, 1979, Greenville Bank held $49.4
million in deposits.
Fort Recovery Bank has one office in Fort Recovery
which is in Mercer County north of Darke County and
also coterminous with the Indiana border. As of June
30, 1979, Fort Recovery Bank had deposits of $15.2
26

$16,848,000
58,094,000
76,345,000

In
operation

To be
operated

1
6
7

million, representing 5.9 percent of Mercer County de
posits.
Fort Recovery and Greenville are 24 miles apart and
connected by a two-lane road. The distance between
these cities, the banks' small size and their rural loca
tion indicate that the banks serve different markets.
According to data submitted in the application, cus
tomer loan and deposit overlap within Fort Recovery
Bank's and Greenville Bank's primary service areas is
minimal.* The Federal Reserve Bank of Cleveland con
curred with the applicants' analysis and found that
they do not compete to any significant degree. We
agree with this finding.
Although Greenville Bank could branch into Mercer
County, the present ratio of banking offices to popula* In fact, Greenville Bank shows only deposit customers to
taling $69,000 in Fort Recovery Bank's primary service area.

tion does not make this likely. In any case, Fort Recov
ery Bank's small share of this market makes this mer
ger a foothold entry for Greenville Bank and serves to
strengthen competition in this market.
The financial and managerial resources of both
banks are satisfactory. The future prospects of Fort
Recovery Bank are limited due to its small size. The fu
ture prospects of the combined bank are good.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
Greenville Bank's record of helping to meet the credit

needs of its entire community, including low and mod
erate income neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with this merger.
March 27, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
We have reviewed this proposed transaction and con
clude that it would not have an adverse effect upon
competition.

BRANCH COUNTY BANK,
Coldwater, Mich., and Hickory National Bank of Michigan, Fawn River, Mich.
Banking offices
Names of banks and type of transaction

Total
assets

Hickory National Bank of Michigan, Fawn River, Mich. (9497), with
and Branch County Bank, Coldwater, Mich., which had
consolidated May 1, 1980, under charter of Hickory National Bank of Michigan and under title of
"Branch County Bank, N.A." with headquarters in Coldwater. The consolidated bank at date of
consolidation had

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application to
consolidate Hickory National Bank of Michigan, Fawn
River (P.O. Sturgis), Mich. (Hickory), and Branch
County Bank, Coldwater, Mich. (Branch), under the
charter of Hickory National Bank of Michigan and the
title of "Branch County Bank, N.A.," with headquarters
in Coldwater. This application was filed on September
7, 1979, and is based on an agreement signed by the
participants on April 9, 1979, and amended July 20
and 30, 1979.
Hickory was organized in 1909 with the title of "First
National Bank of Burr Oak." In 1976, its head office
was relocated from Burr Oak to Fawn River, adjacent
to Sturgis, Mich. It retained the Burr Oak office as a
branch and operates a second branch in Nottawa,
Mich. On September 30, 1979, Hickory had total de
posits of approximately $15 million.
Branch's main office is in Coldwater. Three operat
ing branch offices and one approved, but unopened,
office are also in that community. It has another branch
in the village of Reading, approximately 15 miles east
of Coldwater. On September 30, 1979, Branch had to
tal deposits of approximately $55 million.
Hickory obtains virtually all of its deposits from the
eastern half of St. Joseph County and a small portion
of southwestern Branch County near its Burr Oak of
fice. This area is the relevant market for analysis of the
competitive effects of this proposed consolidation.
Hickory is the smallest of three banks headquar
tered in its market. These three banks operate a total
of 10 offices. Additionally, four banks headquartered
outside of the market each operate a single branch
within the market. All 14 banking offices had a total of
$141 million in deposits on June 30, 1979. The two
largest banks in the market had, in the aggregate, 64

In
To be
operation operated

$15,805,000
62,793,000
78,598,000

percent, and Hickory was the third largest with approx
imately 11 percent of these deposits. Branch has no
offices in this market.
The closest offices of the two banks are 18 miles
apart, and Branch competes in Hickory's market only
in the vicinity of the small village of Bronson in western
Branch County. Branch has approximately $1.5 million,
and Hickory has approximately $1.7 million in deposits
from this area. The applicants have estimated that six
banks have in total approximately $18 million in de
posits originating from the vicinity of Bronson. Con
summation of this proposal would eliminate only a
nominal amount of competition in the Bronson area,
and overall consolidation of the two banks would not
have a substantially adverse effect on competition in
Hickory's market.
Michigan banking law permits branching into adja
cent counties within 25 miles of a bank's head office
except that a bank may not branch into incorporated
cities, towns or villages in which a bank or branch is
already in operation. Branch could, therefore, legally
establish branches inside the perimeter of Hickory's
market. It has the resources to expand de novo into
this market. However, it is unlikely that competitors in
St. Joseph County would expect Branch to signifi
cantly expand its operations there or that Branch
would, in fact, expand its operations in view of the
home office protection provisions of the Michigan
Banking Code and the rural nature of the areas into
which it could legally branch.
Branch's financial and managerial resources are
satisfactory, and its future prospects are favorable.
Hickory's extremely limited financial and managerial
resources severely restrict its ability to meet the ex
panding needs of its customers. Its future prospects
are limited, but the future prospects of the resulting
bank are favorable.
27

The consolidation offers an opportunity to improve
service for residents of Hickory's market area. The re
sultant bank will possess sufficient resources and
management expertise to serve the convenience and
needs of the communities in which it will operate.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
applicants' records of helping to meet the credit needs
of their entire communities, including low and moder
ate income neighborhoods, is less than satisfactory.
This merger may not be consummated until a

$32,943 liability of certain directors to Hickory National
Bank of Michigan is repaid.
This decision is the required prior written approval of
the Bank Merger Act, 12 USC 1828(c), in order for the
applicants to proceed with the merger.
April 1, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
We have reviewed this proposed transaction and con
clude that it would not have an adverse effect on com
petition.

REPUBLIC NATIONAL BANK OF NEW YORK,
New York, N.Y., Twelve Branches of Bankers Trust Company, New York, N.Y.
Banking offices
Total
assets

Names of banks and type of transaction

Twelve Branches of Bankers Trust Company, New York, N.Y., with
were purchased May 27, 1980, by Republic National Bank of New York, New York, N.Y. (15569),
which had
After the purchase was effected, the receiving bank h a d . . .

COMPTROLLER'S DECISION
This is the Comptroller's decision on ttfe application of
Republic National Bank of New York, New York, N.Y.
(Republic), to purchase the assets and assume certain
liabilities of 12 branches of Bankers Trust Company,
New York, N.Y. (BTC). The application was accepted
for filing on February 5, 1980, and is based on a writ
ten agreement executed by the proponents on Sep
tember 30, 1979.
Republic is a national bank that had total deposits of
$2.6 billion as of June 30, 1979. It is headquartered in
New York City and operates 19 offices in the metropol
itan area. BTC is a state-chartered banking subsidiary
of Bankers Trust New York Corporation. BTC held
$18.3 billion in deposits on June 30, 1979, and was the
eighth largest commercial bank in the United States
and the sixth largest in New York State. Recently, BTC
has decided to divest itself of much of its retail bank
ing business and to concentrate its resources on cor
porate banking, trusts, money market and securities
business. Therefore, BTC has reached agreement with
five banks to purchase 80 of its 103 branches. Repub
lic has agreed to purchase 12 of these branches with
assets valued at $150.5 million. Of the 12 branches to
be purchased, 10 are in Manhattan, one in Brooklyn
and one in the Bronx.
The New York City metropolitan area extends over
the city, its immediate environs and portions of New
Jersey and Connecticut. Within this area, goods, serv
ices and population flow freely and frequently. It is an
identifiable economic unit and for these reasons, the
Federal Reserve Bank of New York has defined it to be
a relevant banking market. This Office feels this is an
appropriate market for analysis of this transaction. In

$ 150,728,000
3,679,275,000
3,821,403,000

In
operation

To be
operated

1°
90

this market, 195 commercial banks operate 2,340
banking offices. Republic ranks 13th with 1.17 percent
of the total deposits. BTC ranks sixth with 6.83 percent
of deposits. Approval of this transaction would not
change Republic's rank and would raise its share of
market deposits nominally. The impact on competition
would be inconsequential. Viewing this transaction
from the more narrow New York State portion of this
market does not change this conclusion. In the more
narrow market, the purchase and assumption will only
raise Republic's share of deposits from 1.22 to 1.33
percent. Consequently, this Office finds the proposal
does not violate the competitive provisions of the Bank
Merger Act.
The financial and managerial resources of Republic
and BTC are satisfactory. The future prospects of Re
public, with the addition of the 12 branches proposed
for purchase, are good.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that
Republic's record of helping to meet the credit needs
of its entire community, including low and moderate in
come neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with this merger.
March 28, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
We have reviewed this proposed transaction and con
clude that it would not have an adverse effect upon
competition.

THE FIRST NATIONAL BANK OF, ASHLAND,
Ashland, Ohio, and Polk State, Polk, Ohio
Banking offices
Names of banks and type of transaction

Total
assets

The First National Bank of Ashland, Ashland, Ohio (183), with
and Polk State Bank, Polk, Ohio, which had
merged May 30, 1980, under charter and title of the former bank (183), The merged bank at date of
merger had

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application to
merge Polk State Bank, Polk, Ohio (PSB), into and un
der the charter of The First National Bank of Ashland,
Ashland, Ohio (First). The application was filed on No
vember 29, 1979, and is based on an agreement exe
cuted by the proponents dated October 1, 1979.
PSB is one of the 10 smallest banks in Ohio. It held
only $4.4 million in deposits as of December 31, 1978.
PSB's sole office is in Polk which had a 1976 popula
tion of 504 and is located in the northeast section of
Ashland County, Ohio.
First is headquartered in Ashland City, the county
seat of Ashland County. As of December 31, 1978,
First held $53 million in deposits. First is a subsidiary
of National City Corporation, a $2.9 billion deposit
holding company. First's four branches are in central
and southern Ashland County. It controls 39 percent of
the commercial bank deposits in the county and is the
county's largest commercial bank.
A commercial bank's geographical market is the
area within which its customers can practically turn for
the services it offers (United States v. Philadelphia
Bank, 374 U.S. 321, 1962 at 359). Banks frequently
rely on ZIP code analysis of customer accounts to de
termine their geographic markets. ZIP codes are
usually small enough geographic units to give suffi
ciently precise gradients of market share. They are
also easily processed by EDP equipment, making
them an inexpensive and quick guide to market deline
ation. However, in this application, ZIP codes are not
useful. The ZIP code data submitted by the applicants
does not permit the relevant market to be defined with
comfortable certainty.
Applicant's data shows both banks with significant
deposits in ZIP code 44805. Ashland and 40 percent
of the land area of the county is in ZIP code 44805
which extends to within 1 mile of Polk. And yet, Polk
and Ashland are 8 miles apart. PSB's limited hours,
small number of services, low lending limit and low
growth all indicate an extremely local orientation. The
deposits it holds in ZIP code 44805 are most likely on
the very fringe of the ZIP code closest to the village of
Polk. A county or ZIP code 44805 market would clearly
be inappropriate, as Polk is simply too small to com
pete over such a wide area.
First's closest branch is about 6 miles from Polk on
the outskirts of Ashland. A branch office usually serves
an area of about 3 to 5 miles in radius, with the excep
tion of highly urbanized locations where a branch's

$71,100,000
5,097,000
76,197,000

In
operation

To be
operated

5
1
6

service area is considerably smaller, sometimes even
a few blocks.
PSB can only serve very small loan needs due to its
$25,000 legal lending limit. Consequently, it does not
compete at all for loans over $25,000. Because of its
limited services, it can only attract deposit customers
who prize the convenience of PSB's location over
First's closest branch. Since First offers these cus
tomers more of every banking service, except conven
ience, and they have not shifted, it follows that, absent
a branch in Polk, First cannot really compete for Polk's
core deposit customers. The area of competitive over
lap, if any, between these banks would be in the rural
area midway between Polk and First's closest branch.
The ascertainable facts concerning the applicants,
combined with the experience of this Office, leads to
the conclusion that the actual direct competition be
tween them is probably quite small. Consequently, the
loss of this competition through merger would not be
substantial and does not violate the Bank Merger Act.
Assuming, arguendo, that this merger would sub
stantially lessen competition, then it should not be ap
proved unless this Office finds that the anticompetitive
effects of the proposed transaction are clearly out
weighed in the public interest by the probable effect of
the transaction in meeting the convenience and needs
of the community to be served (12 USC 1828(c)(5)(B)).
The citizens of Polk are now served by a bank which
offers little more than a checking account. PSB does
not use modern electronic data processing; checks
are cleared and posted manually. In recent years, de
posits have grown very slowly. The bank's chief oper
ating officer is preparing for retirement after 36 years
of service. PSB's current lending limit is $25,000, an
amount which cannot meet modern mortgage or agri
cultural equipment needs. PSB does not offer credit
cards. Certificates of deposit over $100,000 are not
accepted. Advantages of computerized banking are
not available. All these services, and more, will be
available if this merger is approved.
Polk is so small that construction of a new branch
bank is not cost feasible. There is barely enough busi
ness to keep PSB operating and certainly not enough
to justify a new entry. Growth prospects are minimal.
The banking needs of Polk's citizens will be much bet
ter served by a branch of a large bank where the cost
of providing services can be distributed throughout the
system. Consequently, the OCC finds that this merger
meets the convenience and needs test of the Bank
Merger Act assuming, but not finding, that the merger
has substantial anticompetitive effects.

First's record of helping to meet the credit needs of its
entire community, including low and moderate income
neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with this' merger.
April 23, 1980.

The financial and managerial prospects of First are
favorable. The financial and managerial prospects of
PSB are unclear due to its small size, isolated location
and impending management turnover. The financial
and managerial prospects of the combined bank are
good.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that

The Attorney General's report was not received.

FIRST NATIONAL BANK OF NEW JERSEY,
Totowa, N.J., and Commonwealth Bank of Metuchen, Metuchen, N.J.
Banking offices
Names of banks and type of transaction

Total
assets

Commonwealth Bank of Metuchen, Metuchen, N.J., with
was purchased June 23, 1980, by First National Bank of New Jersey, Totowa, N.J. (329), which had
After the purchase was effected, the receiving bank had

COMPTROLLER'S DECISION

SUMMARY OF REPORT BY ATTORNEY GENERAL
We have reviewed this proposed transaction and con
clude that it would not have a significantly adverse ef
fect upon competition.

To be
operated

conclusion. For example, in the market selected by the
FDIC, a 10-mile radius around Metuchen, consumma
tion of this proposal would raise FNB's market share
from 2.5 to 7 percent of deposits. In the market, as de
fined by the Federal Reserve Bank of New York, the in
crease would be from 1.9 to 5.4 percent.
The financial and managerial resources of both
banks are satisfactory. The future prospects of the
combined bank are good.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that
FNB's record of helping to meet the credit needs of its
entire community, including low and moderate income
neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with this purchase and assumption.
May 23, 1980.

This application was accepted for filing on March 7,
1980, and is based on an agreement executed by the
proponents on November 13, 1979.
First National Bank of New Jersey, Totowa, N.J.
(FNB), is a national bank which held $657.3 million in
deposits as of December 31, 1979. FNB operates 26
offices including 20 in Passaic, four in Bergen and one
each in Morris and Middlesex counties.
Commonwealth Bank of Metuchen, Metuchen, N.J.
(CBM), is a state-chartered bank which held $39 mil
lion in deposits as of December 31, 1979. It operates
two offices in the borough of Metuchen.
Metuchen is in northern Middlesex County, N.J.
CBM's market is Metuchen and its immediate environs,
an area wherein its customers can conveniently reach
CBM's offices for banking services. FNB's nearest of
fice is in Perth Amboy, 7 miles southeast of Metuchen.
There are numerous offices of large statewide banks in
the intervening area. Although the Federal Deposit In
surance Corporation (FDIC) and the Federal Reserve
Bank of New York defined different markets for CBM,
both found a lack of market concentration and a mini
mal impact on competition. This Office agrees with that

$ 43,189,000
730,985,000
768,191,000

In
operation

FIRST NATIONAL STATE BANK—EDISON,
South Plainfield, N.J., and Three Branches of Franklin State Bank, Somerset, N.J.
Banking offices
Names of banks and type of transaction

Total
assets

Three Branches of Franklin State Bank, Somerset, N.J., with
were purchased June 27, 1980, by First National State Bank—Edison, South Plainfield, N.J.
(15845), which had
After the purchase was effected, the receiving bank had

COMPTROLLER'S DECISION

$ 16,485,000

244,870,000
263,355,000

To be
operated

case is a Bancorporation office within the same town
ship or borough as the Purchased Branches and, in all
cases, there are intervening offices of competing
banks. In light of the foregoing, this Office finds that
there is virtually no direct competition, and this pur
chase and assumption would not substantially lessen
competition.
This purchase and assumption will enhance the
needs and convenience of the customers of the Pur
chased Branches. Edison Bank will pay the maximum
rate on savings accounts which is not now offered to
Franklin customers. Edison Bank has available,
through Bancorporation, a large and sophisticated
trust department. International banking services will
also be available.
The financial and managerial resources of Edison
Bank and the Purchased Branches are both satisfac
tory. The future prospects of the combined entity are
good.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that Edi
son Bank's record of helping to meet the credit needs
of its entire community, including low and moderate in
come neighborhoods, is less than satisfactory.
This decision.is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with this merger.
April 21, 1980.

This is the Comptroller's decision on the application of
the First National State Bank—Edison, South Plainfield,
N.J. (Edison Bank), to purchase the assets and as
sume certain liabilities of three branches of Franklin
State Bank, Somerset, N.J. (Purchased Branches and
Franklin Bank, respectively). The application was ac
cepted for filing on February 5, 1980, and is based on
a written agreement executed by the proponents on
November 20, 1979.
Edison Bank is a subsidiary of First National State
Bancorporation (Bancorporation). As of June 29, 1979,
it had $204.4 million in deposits. Edison Bank has 21
offices, 10 in Middlesex County, four in Monmouth
County and seven in Ocean County.
Franklin is a state-chartered bank which had as of
June 29, 1979, $371 million in deposits. Franklin is sell
ing the Purchased Branches to enhance its capital po
sition to sustain present and future growth. As of June
29, 1979, the Purchased Branches held total deposits
of $19.8 million. Two branches are in Ocean and Free
hold in Monmouth County; one is in East Windsor in
Mercer County.
Although Bancorporation is present in Monmouth
and Mercer counties, its share of county-wide deposits
in both is small: 2.4 percent in Monmouth and 6 per
cent in Mercer. Franklin Bank's Monmouth County
branches would add 0.8 percent to Bancorporation's
total in the county. In Mercer County, Franklin's East
Windsor branch would add only 0.3 percent to
Bancorporation's total. Bancorporation's nearest office
to any of the Purchased Branches is 8.5 miles. In no
*

In
operation

The Attorney General's report was not received.
*

KEY BANK OF SOUTHEASTERN NEW YORK, N.A.,
Chester, N.Y., and The Valley National Bank, Wallkill, N.Y., Walden, N.Y.
Banking offices
Names of banks and type of transaction

Total
assets

Key Bank of Southeastern New York, N.A., Chester, N.Y. (1349), with
and The Valley National Bank, Wallkil, N.Y., Walden, N.Y., (10155), which had
merged June 27, 1980, under charter and title of the former bank (1349). The merged bank at date
of merger had

COMPTROLLER'S DECISION
The application was filed on February 5, 1980, and is
based on an agreement signed by the participants on
November 13, 1979.

$ 79,028,000
40,466,000
119,495,000

In
operation

To be
operated

1
13
14

Key Bank of Southeastern New York, N.A., Chester,
N.Y., is a subsidiary of Key Banks, Inc., Albany, N.Y.
(Key Banks). Key Banks controls six subsidiary banks
that operated 130 offices in eastern and central New
York at year-end 1978. On June 30, 1979, its banking

subsidiaries had total deposits of approximately $1.6
billion. Based on deposit size, it is the 15th largest
commercial banking organization in the state with ap
proximately 1 percent of the commercial bank de
posits. Consummation of this proposal would not have
a material effect on the concentration of banking re
sources in New York.
On December 31, 1979, The Valley National Bank,
Wallkill, N.Y., Walden, N.Y. (Valley), had total deposits
of approximately $36 million. It operates three offices
in northern Orange County and two offices in the
southern portion of Ulster County.
Because of its small size and the location of its of
fices, Valley is an effective competitor only in southern
Ulster County in the vicinity of Wallkill and Madura and
in northern Orange County in the vicinity of Walden,
Scotts Corners and Chrenamen Valley. The application
states that within this market seven commercial banks
operate a total of 22 offices. Valley is the fifth largest
with 12 percent of the deposits. The four largest com
mercial banks have 59 percent of the deposits.
In aggregate, the 22 commercial banking offices in
the market served by Valley had $279 million in de
posits on June 30, 1978. Key Banks has no offices in
this market, and it obtains only $8 million in deposits
from the market. Key Banks' closest office is over 6

miles from any office of Valley. There are offices of
competing institutions conveniently located in the inter
vening area. Consummation of this proposal is unlikely
to have a significant effect on competition in the por
tions of Ulster and Orange counties presently served
by Valley.
The financial and managerial resources of the two
banks, both separately and merged, are satisfactory. If
the merger is consummated, the larger resources of
Key Banks will be conveniently available to satisfy ad
ditional banking needs of the communities served by
Valley.
A review of the record of this application and other
information available to this Office as part of its regula
tory responsibility revealed no evidence that the appli
cants' records of helping to meet the credit needs of
their entire communities, including low and moderate
income neighborhoods, is less than satisfactory.
The application is approved. This decision is the
prior written approval required by the Bank Merger
Act, 12 USC 1828(c), for the applicants to proceed
with the proposed merger.
May 20, 1980.
The Attorney General's report was not received.

FIRST NATIONAL BANK IN BELLAIRE,
Bellaire, Ohio, and The Union Savings Bank of Bellaire, Bellaire, Ohio
Banking offices
Names of banks and type of transaction

Total
assets

First National Bank in Bellaire, Bellaire, Ohio (13914), with
and The Union Savings Bank of Bellaire, Bellaire, Ohio, which had
consolidated June 30, 1980, under the charter of the former bank (13914) and with the title
"First-Union Bank, N.A." The consolidated bank at date of consolidation had

COMPTROLLER'S DECISION
This is the decision of the Comptroller on an applica
tion to consolidate The Union Savings Bank of Bellaire,
Bellaire, Ohio (Union), and the First National Bank in
Bellaire, Bellaire (First). This application was filed on
September 14, 1979, and is based on an agreement
signed by the participants on August 8, 1979.
On June 30, 1979, Union had total deposits of $12
million, and First had total deposits of $16 million. Un
ion operates one office in Bellaire and one office in
Shadyside, Ohio. First operates two offices in Bellaire.
Bellaire is in Belmont County which is included in the
Wheeling, W. Va., SMSA. Bellaire is adjacent to Wheel
ing, although the two cities are separated by the Ohio
River. The area exhibits many characteristics of a uni
fied metropolitan area with substantial numbers of
people commuting between the Ohio and West Vir
ginia portions of the SMSA for shopping, employment
and transaction of business.
The applicants contend that the SMSA is the rele
vant market to determine the competitive effects of the
32

In
operation

To be
operated

$18,269,000
14,752,000
32,840,000

proposal. The Wheeling SMSA includes Marshall
County and Ohio County in West Virginia and Belmont
County in Ohio. Within this three-county area, First is
the 14th largest, and Union is the 17th largest of 23
commercial banks. The consolidated bank would rank
as the 12th largest with approximately 4 percent of the
market's commercial bank deposits.
Both the Federal Reserve System and the Federal
Deposit Insurance Corporation have defined markets
that are smaller than the market defined by the appli
cants. Both agencies, however, included portions of
the West Virginia counties of the SMSA. Because of
the small size of the two banks and the large number
of banks competing in the markets selected neither
agency concluded that consummation of the proposal
would have a substantially adverse effect on competi
tion.
Although the applicants have presented substantial
evidence in support of their contention that the rele
vant market should include the entire SMSA, the Ohio
and West Virginia portions of the SMSA are separated
by the Ohio River. Because of this and the small size

of the two banks, a market definition that includes the
West Virginia portion of the SMSA may be too large to
accurately assess the probable effects of the proposal
on competition. Therefore, in considering this applica
tion, the banking structure in Belmont County was also
analyzed.
The applicants are the sixth and eighth largest of 11
commercial banks in Belmont County. The consoli
dated bank would rank as the fifth largest with 10 per
cent of the county's commercial bank deposits. The
four largest banks have from 13 to 23 percent of the
county's commercial bank deposits. In aggregate,
these four control 69 percent. Even if the relevant mar
ket includes only Belmont County, the consolidated
bank's nominal increase in its market share is unlikely
to have a significant effect on banking competition.
Any apparent anticompetitive effects of the proposal
are mitigated by the affiliated relationship that now ex
ists between the two banks. Shareholders owning a
majority of the shares of First also own a majority of the
shares of Union. While the banks do not have common
directors or management, it is unlikely that any vig
orous competition now exists between them or will de
velop.
Although limited by their small size, the financial and
managerial resources of both banks are generally sat
isfactory. Their future prospects are generally favor
able, although the future prospects of the combined
bank are considerably better than the prospects of ei
ther bank individually.
The consolidated bank will have a larger legal lend
ing limit and will be able to satisfy additional credit
needs of its community. Additionally, economies of
scale will enable the bank to offer additional and im
proved services to its community. These positive con
siderations on the issue of convenience and needs are
consistent with approval of the application.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that
First's record of helping to meet the credit needs of its
entire community, including low and moderate income
neighborhoods, is less than satisfactory.

The application is approved. This decision is the
prior written approval required by the Bank Merger
Act, 12 USC 1828(c), for the banks to proceed with the
proposed consolidation. The consolidated bank is au
thorized to operate all offices of the applicant banks.
April 25, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
Belmont County (1977 population of 83,200) is located
in southeast Ohio directly across the Ohio River from
Wheeling, W. Va., (1977 population 43,200). While there
is a toll bridge across the Ohio River at Bellaire, the
principal free bridge into downtown Wheeling is at
Bridgeport, 3.5 miles north of Bellaire. The county's
two main population centers appear to be (1) a string
of towns along the Ohio River and (2) the area around
St. Clairsville and to the west. The two largest river
towns in Ohio, Martins Ferry (1977 population 10,222)
and Bellaire (1977 population 8,726), have lost 5 and
9.6 percent of their population, respectively, since
1970.
Applicant and Bank are direct competitors; both
have offices at the corner of 32nd and Belmont Streets
in downtown Bellaire. It is thus apparent that the pro
posed merger will eliminate substantial existing com
petition between Applicant and Bank. The area within
which it is appropriate to measure the competitive ef
fects of the proposed merger appears to be eastern
Belmont County, Ohio, including St. Clairsville, Powha
tan Point and Martins Ferry, plus western Ohio County,
W. Va. Fifteen banking organizations operate offices in
this area. Banking is relatively unconcentrated there;
the top four banks hold approximately 52 percent of
the area's deposits. Applicant holds approximately 3.1
percent and Bank holds approximately 1.9 percent of
the total deposits held by the banking offices in the
area, the 10th and 13th largest shares. If the proposed
merger is consummated the resulting bank would hold
approximately 5 percent of the area's deposit, the
ninth largest share.
We conclude the proposed transaction will have an
adverse effect on competition.

BARNETT BANK OF PORT CHARLOTTE, N.A.,
Port Charlotte, Fla., and Barnett Bank of Sarasota, N.A., Sarasota, Fla.
Banking offices
Names of banks and type of transaction

Total
assets

Barnett Bank of Port Charlotte, N.A., Port Charlotte, Fla. (15923), with
and Barnett Bank of Sarasota, N.A., Sarasota, Fla. (16206), which had
merged July 1, 1980, under charter and title of the latter. The merged bank at date of merger had

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application to
merge Barnett Bank of Port Charlotte, N.A., Port Char
lotte, Fla., into Barnett Bank of Sarasota, N.A., Sara
sota, Fla., under the charter and title of the latter. The

In
operation

To be
operated

$39,362,000
19,265,000
60,046,000

application was filed on March 21, 1980, and is based
on an agreement executed by the applicant banks on
February 20, 1980.
With the exception of directors' qualifying shares,
the two banks are wholly owned and controlled by
Barnett Banks of Florida Incorporated, a registered
33

bank holding company. This proposed merger is a
corporate reorganization which would have no effect
on competition. A review of the financial and manage
rial resources and future prospect of the existing and
proposed institutions and the convenience and needs
of the community to be served has disclosed no rea
son why this application should not be approved.
The record of this application and other information
available to this Office as a result of its regulatory re
sponsibilities reveals no evidence that the banks' rec
ords of helping to meet the credit needs of their entire
communities, including low and moderate income
neighborhoods, is less than satisfactory.

This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with the merger.
The merger may not be consummated prior to July
1, 1980.
May 20, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The merging banks are both wholly owned subsidi
aries of the same bank holding company. As such,
their proposed merger is essentially a corporate reor
ganization and would have no effect on competition.

THE FIRST NATIONAL BANK AND TRUST COMPANY OF HAMILTON,
Hamilton, Ohio, and First National Bank of Middletown, Monroe, Ohio
Banking offices
Names of banks and type of transaction

Total
assets

The First National Bank and Trust Company of Hamilton, Hamilton, Ohio (56), with
and First National Bank of Middletown, Monroe, Ohio (14565), which had
consolidated July 1, 1980, under the charter of the former (56) and title "First National Bank of
Southwestern Ohio." The consolidated bank at date of consolidation had

On March 27, 1980, the OCC approved this applica
tion. As of June 30, 1979, First National Bank of Middletown, Monroe, Ohio (Middletown Bank), had total
deposits of $116.6 million. As of March 31, 1979, The
First National Bank and Trust Company of Hamilton,
Hamilton, Ohio (Hamilton Bank), had total deposits of
$153.9 million. The banks are in Butler County and are
approximately 13 miles apart.
Applicants submitted extensive statistical sampling
which indicate that the banks' primary service areas
(the areas where the banks drew 80 percent of their
loans and deposits) did not substantially overlap geo
graphically. The data submitted show that Hamilton
Bank draws only 1.5 percent of its loan accounts, .95
percent of its dollars lent, .89 percent of its deposits
and 1.06 percent of its deposit dollars from the primary
service area of Middletown Bank. Middletown Bank
draws only 2.87 percent of its loan accounts, 1.3 per
cent of its dollars lent, 1.78 of its depositors and 1.43
of its deposit dollars from the primary service area of
Hamilton Bank.
The banks are different Federal Reserve banking
markets and each is in different Rand McNally metro-

To be
operated

12
7

373,840,000

politan areas. Hamilton and Middletown each have
newspapers with no cross-circulation. Butler County is
between the Cincinnati and Dayton urban areas. Ham
ilton is generally included in the greater Cincinnati ur
ban area, while Middletown is just outside the greater
Dayton urban area. Each bank is oriented towards the
nearest urban area rather than to Butler County as a
whole.
Recent changes in Ohio banking law open Butler
County for the first time to entry by Cincinnati and Day
ton banks. Applicants submitted evidence that this
type of entry is imminent. Although the two banks
could branch into each other's trade area, the loss of
that possibility is not deemed significant in light of the
number and size of potential new entrants into Butler
County from Cincinnati and Dayton. In sum, the Comp
troller finds that the facts summarized above do not in
dicate a violation of the Bank Merger Act. The OCC
finds the financial and managerial resources and fu
ture prospects of both banks to be satisfactory and
that each bank's record of meeting the credit needs of
its respective community, including low and moderate
income neighborhoods, is satisfactory.

COMPTROLLER'S DECISION

$220,784,000
153,056,000

In
operation

The Attorney General's report was not received.
*

RAINIER NATIONAL BANK,
Seattle, Wash., and Bank of Everett, Everett, Wash.
Banking offices
Names of banks and type of transaction

Total
assets

Bank of Everett, Everett, Wash., with
and Rainier National Bank, Seattle, Wash. (4375), which had
merged July 21, 1980, under charter and title of the latter (4375). The merged bank at date of
merger had

COMPTROLLER'S DECISION
This application was accepted for filing on February 1,
1980, and is based on an agreement executed by the
proponent banks on October 18, 1979. As of June 30,
1979, Rainier National Bank, Seattle, Wash. (Rainier),
held $3.2 billion in deposits, and the Bank of Everett,
Everett, Wash. (B of E), held $107 million in deposits.
B of E has 10 offices, all in Snohomish County. Sno
homish County is rectangular in shape with a length of
approximately 66 miles, east to west, and a width of 27
miles. The bulk of the population is concentrated in Ev
erett and the southwest portion of the county which is
an extension of the northern suburbs of Seattle. The re
mainder of the county has thinly populated areas with
a number of small towns and large areas of wilderness
and mountains which are virtually uninhabited.
The relevant geographic markets in which the com
petitive effects of this merger must be measured are
the markets in which B of E, the bank to be acquired,
operates. B of E's 10 offices operate in several non
contiguous markets. Four small B of E offices operate
in Granite Falls, Monroe, Marysville and Snohomish.
The deposits held by B of E offices in these four towns
constitute 31.5 percent of its total deposits. Each of
these towns is a self-contained banking market.
Rainier does not have an office in any of these towns.
Accordingly, consummation of this merger would not
affect any actual competition therein.*
B of E has five offices in the Everett metropolitan
area which constitutes a separate relevant geographic
market.t Rainier has established no branch offices in
that area and, assuming it had the intention to do so,
would be prevented from doing so by Washington's re
strictive branching law. The applicants' ZIP code data
show that 80 percent of the deposits held by B of E's
five offices in Everett are derived from the Everett met-

* It should be noted that the branch banking law of Washing
ton, RCW 30. 40. 020., restricts de novo branching to the city
and the unincorporated area of the county in which a bank's
main office is located. The only permissible manner in which
a branch can be established outside a bank's home county
is by acquiring an existing bank or the branch of an existing
bank operating in an incorporated city or town in a county
outside of its home county.
t The metropolitan area of Everett consists of the city and
narrow strips of residential area just outside the city limits.
Everett is an old, established city with an industrial and com
mercial base separate and distinct from that of Seattle. B of
E's deposits in this market constitute 62.5 percent of its total
deposits.

$ 119,124,000
4,635,806,000
4,752,942,000

In
To be
operation operated
10
124
134

ropolitan area. These deposits totaled approximately
$47 million and constituted approximately 21,000 ac
counts. Although Rainier has deposit customers in the
Everett metropolitan area, the amount is insignificant,
and its ability to compete there is severely circum
scribed by its inability to establish ofe novo branch of
fices under state law.J
Both Rainier and B of E have offices in the portion of
southwest Snohomish County which is an extension of
the Seattle metropolitan area. B of E's one office there
holds 6 percent of the bank's total deposits, approxi
mately $6 million. Data submitted by applicants show
that the penetration of this office does not extend be
yond 11/2 miles in a southerly direction towards Seattle.
Rainier's two offices in this portion of Snohomish
County are 6 miles south of the B of E office. A sub
stantial number of banking offices lie between those of
Rainier and B of E, and there would appear to be mini
mal competition between Rainier's and B of E's offices
in this market.
This Office finds that all of these data tend to sup
port the applicants' claim that B of E and Rainier are
not in significant direct competition in any relevant
market.§
The lack of significant actual competition between B
of E and Rainier may be due, in part, to the state's re
strictive branching law. Moreover, since Rainier is
headquartered in King County, state law further pre
vents it from being considered a perceived or actual
potential entrant into the Everett metropolitan area.
Consequently, this merger will have no effect on po
tential competition in the markets in which B of E now
operates. The financial and managerial resources of B
of E and Rainier are satisfactory, and their future pros
pects are favorable.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities, revealed no evidence that
Rainier's record of helping to meet the credit needs of
its entire community, including low and moderate in
come neighborhoods, is less than satisfactory.
$ Rainier's deposit data are based on the census tracts,
while B of E's are based on ZIP codes. Rainier's data show
966 accounts totaling $1.9 million in the Everett metropolitan
area.
§ Rainier does maintain an office in the ferry terminal at Mukilteo, population 1,423, located on Puget Sound west of Ev
erett. The small deposit accounts held by both Rainier and B
of E in this town and the geographic barriers to commutation
between Mukilteo and Everett, make this competitive overlap
inconsequential to the overall transaction.

This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with the proposed merger.
June 19, 1980.

the fifth largest, control 12.4 percent and 5.6 percent
of those deposits. If the merger is consummated, Ap
plicant would be the third largest bank in Snohomish
County, controlling 18 percent of the county's de
posits. Concentration among the four largest banks in
the county in terms of local deposits would increase
from 80.1 percent to 85.6 percent.
We note that because of their proximity to Seattle, in
King County, it may be appropriate to exclude the
communities in the southwestern corner of Snohomish
County from the area within which the primary impact
of the proposed merger would be felt. Applicant's of
fice in Mukilteo is its only office in Snohomish County
outside of its southwestern corner. That office holds
approximately $11 million in deposits, which repre
sents 1.7 percent of the total deposits held in bank of
fices located in the portion of Snohomish County ex
clusive of its southwestern corner. Bank's offices in
that area hold deposits of approximately $100 million,
which represents 15 percent of the area's deposits.
Washington law prevents Applicant from establish
ing de novo branches in the city of Everett, the major
population center in Snohomish County. There are six
banks operating a total of 17 offices in the city of Ever
ett. Bank controls 16 percent, the third largest share,
of the deposits held in these offices; the largest and
second largest share of deposits held in bank offices
in Everett are 39.5 percent and 31.4 percent. While it
would be preferable from a competitive standpoint for
Applicant to enter Everett by acquiring a smaller share
of deposits, there is some question whether that is a
reasonably feasible alternative to the present proposal.
We conclude that the proposed merger would have
adverse competitive effects.

SUMMARY OF REPORT BY ATTORNEY GENERAL
Snohomish County (1970 population 265,236) is lo
cated on Puget Sound immediately north of King
County, in which Seattle is located. Everett (1970 pop
ulation 53,622), the principal city in Snohomish County,
has a diversified and growing economic base which is
primarily industrial. Outside of Everett, Snohomish
County is sparsely populated; most of the county is
mountainous forest land, although the southwestern
portion of the county appears to be a growing residen
tial area.
Applicant operates two offices in Snohomish County.
Its Mukilteo office, located just beyond the city limits of
Everett, is only 4 miles from Bank's closest office, and
Applicant's office in Edmonds, in the southwestern
portion of the county, is only 6 miles from Bank's office
in Lynnwood. It therefore appears that the proposed
transaction would eliminate some existing competition
between Applicant and Bank.
The area within which it appears appropriate to
assess the competitive effects of the proposed merger
is approximated by Snohomish County. There are 12
banks operating a total of 58 offices in Snohomish
County. The largest share of the county's deposits is
held by Seattle-First National Bank, the state's largest
banking organization, which controls approximately 37
percent of the county's deposits. Bank, the third larg
est bank in terms of county deposits, and Applicant,
*

STUART NATIONAL BANK,
Stuart, Fla., and Port Salerno National Bank, Port Salerno, Fla., and Florida National Bank of Martin County, Stuart,
Fla.
Banking offices
Names of banks and type of transaction

Total
assets

Stuart National Bank, Stuart, Fla. (15991), with
and Port Salerno National Bank, Port Salerno, Fla. (16160), with
and Florida National Bank of Martin County, Stuart, Fla. (Organizing), which had
merged August 1, 1980, under the charter and title of "Florida National Bank of Martin County"
(15991). The merged bank at date of merger had

COMPTROLLER'S DECISION
This is the Comptroller's decision on the application to
merge Stuart National Bank, Stuart, Fla. (Stuart), and
Port Salerno National Bank, Port Salerno, Fla. (Port Sa
lerno), into Florida National Bank of Martin County (Or
ganizing), Stuart, Fla. (Florida National), under the
charter and title of Florida National Bank of Martin
County. This application was accepted for filing on
March 31, 1980, and is based on a written agreement
executed by the proponents on March 24, 1980.
36

In
operation

To be
operated

$109,516,000
22,735,000
12,500,000
156,986,000

Florida National is being organized by individuals
associated with Florida National Banks of Florida, Inc.
(FNBF), a registered bank holding company. The mer
ger is part of a process whereby FNBF will acquire 100
percent (less directors' qualifying shares) of Stuart and
Port Salerno. It will have no effect on competition.
The financial and managerial resources of Stuart,
Port Salerno and Florida National are satisfactory.
Their future prospects, both separately and combined,
are favorable.

After consummation of this transaction, the addi
tional capabilities of FNBF will be made available to
the present customers of Stuart and Port Salerno.
These services include expanded trust and funds
management services, revolving line of credit with
overdraft protection and automatic teller machines.
These are positive considerations on the issue of con
venience and needs.
A review of the record of this application and other
information available to this Office as a result of its reg-

ulatory responsibilities revealed no evidence that the
banks' records of helping to meet the credit needs of
their entire communities, including low and moderate
income neighborhoods, is less than satisfactory.
This is the prior written approval required in order for
the applicants to proceed with the proposed merger.
June 11, 1980.
The Attorney General's report was not received.

PEOPLES NATIONAL BANK OF WASHINGTON,
Seattle, Wash., and Columbia Bank, N.A., Kennewick, Wash.
Banking offices
Names of banks and type of transaction

Total
assets

Columbia Bank, N.A., Kennewick, Wash. (15741), with
was purchased August 7, 1980, by Peoples National Bank of Washington, Seattle, Wash. (14394),
which had
After the purchase was effected, the receiving bank had

COMPTROLLER'S DECISION
This application is based on an agreement executed
on January 17, 1980, and filed with this Office on
March 26, 1980. Peoples National Bank of Washing
ton, Seattle, Wash. (Peoples), has offices throughout
the state and held $1.2 billion in deposits as of De
cember 31, 1979. Columbia Bank, N.A., Kennewick,
Wash. (Columbia Bank), maintains offices in Kenne
wick and Richland, Benton County, in southeast Wash
ington on the south side of the Columbia River. Colum
bia Bank held $33.6 million in deposits as of
December 31, 1979.
Peoples maintains one branch in Pasco. Pasco is
across the Columbia River from Kennewick, but is in
Franklin County. Applicants argue that the Columbia
River forms a natural barrier separating Kennewick
and Richland from Pasco, which results in separate
banking markets. The Federal Reserve Bank of San
Francisco, on the other hand, defines Pasco, Kenne
wick and Richland as a single economic unit and
banking market. This area is commonly known as the
"Tri-Cities area" and forms the urban heart of the Co
lumbia River basin.
If applicant's market definition is correct, there is vir
tually no competitive overlap between Peoples and
Columbia Bank. If the Tri-Cities area is taken as the
market, Peoples ranks fifth holding 5.3 percent of mar
ket deposits, and the Columbia Bank ranks fourth with
7.8 percent of market deposits. The combined bank

In
operation

37,607,000

1,488,461,000
1,515,829,000

To be
operated

would rank fourth with 13.1 percent. Seattle First Na
tional Bank would continue as first with 40 percent and
Rainier National Bank second with 27 percent. The Of
fice finds that this result, while producing some lessen
ing of competition, would not violate the standards
found in the Bank Merger Act, 12 USC 1828(c). This is
especially true in light of Washington's restrictive
branching law which prevents Peoples from branching
into Kennewick and Richland or Columbia Bank from
branching into Pasco.
The financial and managerial resources of both pro
ponents are satisfactory, and their future prospects are
favorable.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities, revealed no evidence that the
applicants' records of helping to meet the credit needs
of their entire communities, including low and moder
ate income neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with the proposed merger.
July 7, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
We have reviewed this proposed transaction and con
clude that it would not have an adverse effect upon
competition.
*
37

THE FIRST JERSEY NATIONAL BANK,
Jersey City, N.J., and Home State Bank, Teaneck, N.J.
Banking offices
Names of banks and type of transaction

Total
assets

Home State Bank, Teaneck, N.J., with
and The First Jersey National Bank, Jersey City, N.J. (374), which had
merged August 15, 1980, under the charter and title of the latter (374). The merged bank at date of
merger had

COMPTROLLER'S DECISION
This application is based on an agreement between
the proponents executed February 1, 1980, and ac
cepted for filing on March 26, 1980. The First Jersey
National Bank, Jersey City, N.J. (First Jersey), oper
ates 27 branches in six New Jersey counties. As of
December 31, 1979, it held $617 million in deposits.
Home State Bank, Teaneck, N.J. (Home State), has
one office, which is in Teaneck in southeastern Bergen
County, N.J. As of December 31, 1979, it held $24.5
million in deposits.
Eighty-three percent of Home State's deposits are
drawn from Teaneck and surrounding municipalities in
south and central Bergen County. This is the market in
which Home State operates. First Jersey has one office
in Hasbrouck Heights, which is within this market area.
A total of 26 banks have offices in the market. Home
State ranks 19th with less than 1 percent of market de
posits. First Jersey's one office holds a minimal 0.34
percent of the market, and after consummation of the
proposed merger, First Jersey would rank 18th with
1.24 percent of market deposits. This Office finds that
consummation of this merger would have a negligible
impact on competition.

$ 26,761,000
785,046,000
810,435,000

In
To be
operation operated
1
28

The financial and managerial resources of the appli
cants are satisfactory, and their future prospects are
favorable. Home State's future prospects are en
hanced by the proposed merger due to the competi
tive environment in Bergen County, which includes the
largest New Jersey banking institutions and is im
pacted by the large New York City banking institutions.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that First
Jersey's record of helping to meet the credit needs of
its entire community, including low and moderate
neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with the proposed merger.
July 14, 1980.

SUMMARY OF REPORT BY ATTORNEY GENERAL
We have reviewed this proposed transaction and con
clude that it would not have an adverse effect on com
petition.

FIRST NATIONAL BANK NORTHWEST OHIO,
Bryan, Ohio, and Tiffin Valley National Bank, Archbold, Ohio
Banking offices
Names of banks and type of transaction

Total
assets

First National Bank Northwest Ohio, Bryan, Ohio (13899), with
and Tiffin Valley National Bank, Archbold, Ohio (15227), which had
merged September 8, 1980, under charter and title of the former (13899). The merged bank at date
of merger had

COMPTROLLER'S DECISION
This application was filed with OCC on April 22, 1980,
and is based on an agreement executed by the appli
cants on February 4, 1980. As of year-end 1979, First
National Bank Northwest Ohio, Bryan, Ohio (First), had
total deposits of $41.9 million, and Tiffin Valley National
Bank, Archbold, Ohio (Tiffin Valley Bank), had total de
posits of $26.1 million.
First is headquartered in Bryan. Bryan is in Williams
County, which forms the northwest corner of Ohio bor
dering Michigan and Indiana. First's offices are all in
38

In
To be
operation operated

$48,901,000
31,511,000
80,746,000

Williams County, with two in Bryan, one in Stryker and
an approved, but unopened, office in Edgerton.
Tiffin Valley Bank has four offices, all located in
Fulton County which is adjacent to Williams County on
its eastern border. Two of Tiffin Valley Bank's offices
are in Archbold; one is in Fayette; and one is in Pettisville. Archbold is approximately 5 miles east of Stryker
where the nearest branch of First is located. Data sub
mitted by applicants indicate that Tiffin Valley Bank's
market lies in central and western Fulton County. This
data shows that First obtains less than 1 percent of its
deposits from Archbold and the immediate environs.

The Federal Reserve Bank of Cleveland found the two
banks to be operating in separate but contiguous mar
kets. OCC concurs with this conclusion and finds no
significant direct competition between these banks. Al
though First could legally branch into Fulton County,
this is unlikely because, inter alia, Fulton County's ra
tios of population and income per banking office are
substantially below the average for counties of similar
size in Ohio.* Consequently, this Office finds no likeli
hood that First would branch into Fulton County.
The financial and managerial resources of First are
satisfactory, and its future prospects are favorable.

* See report of the Federal Reserve Bank of Cleveland to the
OCC regarding this application, p. 4.

The financial and managerial resources of Tiffin Valley
Bank are unclear due to capital, asset and liquidity
problems. The future prospects of the combined bank
are favorable.
A review of the record of this application and other
information available to OCC as a result of its regula
tory responsibilities revealed no evidence that the ap
plicants' records of helping to meet the credit needs of
their entire communities, including low and moderate
income neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with the proposed merger.
August 8, 1980.
The Attorney General's report was not received.

METRO BANK OF HUNTINGTON, INC.,
Huntington, W. Va., and Heritage National Bank, Huntington, W. Va.
Banking offices
Names of banks and type of transaction

Total
assets

Metro Bank of Huntington, Inc., Huntington, W. Va., with
was purchased September 13, 1980, by Heritage National Bank, Huntington, W. Va. (11893), which
had
After the purchase was effected, the receiving bank had

COMPTROLLER'S DECISION
On September 13, 1980, application was made to
OCC for prior written approval for Heritage National
Bank, Huntington, W. Va. (Assuming Bank), to purchase
certain of the assets and assume certain of the liabili
ties of Metro Bank of Huntington, Inc., Huntington
(Metro Bank).
On September 12, 1980, Metro Bank was a statechartered, nonmember bank, operating through one
office with deposits of approximately $22 million. At the
close of business on September 12, 1980, Metro Bank
was declared insolvent by the state's Commissioner of
Banking. It was placed in receivership, with the Fed
eral Deposit Insurance Corporation (FDIC) acting as
receiver. The present application is based on an
agreement, which is incorporated herein by reference,
by which the FDIC, as receiver, has agreed to sell cer
tain of Metro Bank's assets in consideration of the as
sumption of certain of Metro Bank's liabilities by the
Assuming Bank. For the reasons stated hereafter, the
Assuming Bank's application is approved, and the
purchase and assumption transaction may be con
summated immediately.
Under the Bank Merger Act, 12 USC 1828(c), the
Comptroller cannot approve a purchase and assump
tion transaction which would have certain anticompeti
tive effects unless it is found that these effects are
clearly outweighed in the public interest by the proba
ble effect of the transaction in meeting the conven
ience and needs of the community to be served. Addi
tionally, the Comptroller is directed to consider the

In
To be
operation operated

$23,000,000
2,000,000
25,000,000

financial and managerial resources and future pros
pects of the existing and proposed institution and also
the convenience and needs of the community to be
served. When necessary, however, to prevent the evils
attendant on the failure of a bank, the Comptroller can
dispense with the standards applicable to usual acqui
sition transactions and need not consider reports on
the competitive consequences of the transaction ordi
narily solicited from the Department of Justice and
other banking agencies. The Comptroller is authorized
in such circumstances to immediately approve an ac
quisition and to authorize the immediate consumma
tion of the transaction.
The proposed transaction will prevent disruption of
banking services to the community and potential
losses to a number of uninsured depositors. The As
suming Bank has sufficient financial and managerial
resources to absorb Metro Bank and enhance the
banking services it offers in the Huntington community.
The Comptroller thus finds that the anticompetitive
effects of the proposed transaction, if any, are clearly
outweighed in the public interest by the probable ef
fect of the proposed transaction in meeting the con
venience and needs of the community to be served.
For these reasons, the Assuming Bank's application to
purchase certain of the assets and acquire certain of
the liabilities of Metro Bank, as set forth in the agree
ment executed with the FDIC as receiver, is approved.
The Comptroller further finds that the failure of Metro
Bank requires him to act immediately, as contem
plated by the Bank Merger Act, to prevent disruption
of banking services to the community. The Comptroller
39

September 13, 1980.

thus waives publication of notice, dispenses with solic
itation of competitive reports from other agencies and
authorizes the transaction to be consummated imme
diately.
*

Due to the emergency nature of the situation, no Attor
ney General's report was requested.
*

FIRST EASTERN BANK, NATIONAL ASSOCIATION
Wilkes-Barre, Pa., and South Side National Bank, Catawissa, Pa., and North Scranton Bank and Trust Company,
Scranton, Pa.
Banking offices
Names of banks and type of transaction

Total
assets

South Side National Bank, Catawissa, Pa. (4548), with
and North Scranton Bank and Trust Company, Scranton, Pa., with
and First Eastern Bank, National Association, Wilkes-Barre, Pa. (30), which had
merged September 19, 1980, under charter and title of the latter bank (30). The merged bank at
date of merger had

COMPTROLLER'S DECISION
This application is based on agreements executed on
December 19, 1979, between First Eastern Bank, Na
tional Association, Wilkes-Barre, Pa. (First Eastern),
and the banks to be acquired, South Side National
Bank, Catawissa, Pa., and North Scranton Bank and
Trust Company, Scranton, Pa. (South Side Bank and
North Scranton Bank). It is, in reality, two proposed
mergers combined into a single application. First East
ern is headquartered in Wilkes-Barre, Luzerne County.
It operates 27 offices in the northeastern Pennsylvania
counties of Luzerne (15 offices), Columbia (six offices)
and Monroe (six offices). As of December 31, 1979, it
held total deposits of $556 million. South Side Bank
operates its main office and one branch in Catawissa
with an additional branch office 6 miles south of Cata
wissa in Numidia, Pa. As of December 31, 1979, South
Side Bank held total deposits of $24 million. North
Scranton Bank operates its main office and one
branch in the northern metropolitan area of Scranton.
As of December 31, 1979, it held total deposits of $60
million.
Catawissa has a population of about 1,500 and is in
mountainous terrain along the east side of the Susque
hanna River. Largely because of topography, South
Side Bank's market area tends to run east and south
away from the Susquehanna River.
The applicants assert there is little competition be
tween South Side Bank's offices and First Eastern's
two offices in Bloomsburg, Pa., which is across the
Susquehanna River about 6 miles northwest of Cata
wissa. The Comptroller's field examiner confirmed this
assertion by reviewing First Eastern's internally gener
ated data. The examiner found that First Eastern had
$209,533 in savings and $93,923 in checking ac
counts in South Side Bank's trade area. This is equiva
lent to 1.5 percent of South Side Bank's deposits. The
OCC finds that the elimination of this small degree of
competition would not be significant.
As noted above, the North Scranton Bank's two of
fices are in the northern metropolitan area of Scranton
which is the county seat of Lackawanna County. First
40

$ 25,454,000
70,348,000
704,270,000
789,831,000

In
To be
operation operated
3
2
28
33

Eastern's closest office to North Scranton Bank is in
Wyoming, Pa., about 15 miles southwest of Scranton in
adjacent Luzerne County. There does not appear to be
any significant degree of competition between First
Eastern and North Scranton Bank. Consequently, this
merger would not violate the standards found in the
Bank Merger Act, 12 USC 1828(c).
The financial and managerial resources of First East
ern, South Side Bank and North Scranton Bank are
satisfactory, and their future prospects are favorable.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities, revealed no evidence that the
applicants' records of helping to meet the credit needs
of their entire communities, including low and moder
ate income neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act for the applicants to proceed
with the proposed merger.
August 20, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The effect of the proposed merger between First East
ern and North Scranton will be felt primarily in Lack
awanna County. Lackawanna County is located in
northeastern Pennsylvania (Scranton is the county
seat), and its economy is based on manufacturing and
retailing.
The closest offices of the banks (First Eastern's
branch in Wyoming, Luzerne County and North
Scranton's main office in Scranton) are 15 miles apart,
and there are a number of offices of other banks in the
intervening area. It therefore appears that the pro
posed merger between First Eastern and North Scran
ton would not eliminate a significant amount of direct
competition. In addition, while First Eastern could be
permitted, under Pennsylvania law, to establish de
novo branches in Lackawanna County, it does not ap
pear that the proposed merger would eliminate a sig
nificant degree of potential competition. Banking is not
highly concentrated in Lackawanna County (the four

largest banking organizations there together hold 57
percent of local deposits), and North Scranton is the
ninth largest bank in Lackawanna County, in terms of
local deposits, holding 4.3 percent of those deposits.
The effect of the proposed merger between First
Eastern and South Side will be felt primarily in the area
approximately surrounding Bloomsburg and Catawissa (both located in Columbia County) which the
Federal Reserve Bank of Philadelphia has designated
as the Bloomsburg market area. Located in Central
Pennsylvania, the area includes Columbia and Mon
tour counties and portions of North Cumberland and
Luzerne counties.
The closest offices of the banks (First Eastern's two
offices in Bloomsburg and South Sides' two offices in
Catawissa) are approximately 5 miles apart and sepa
rated by the Susquehanna River. There are no offices
of other banks in the intervening area, but there is one
other bank in Catawissa and two other banks in

Bloomsburg. It therefore appears that the proposed
merger will eliminate a significant amount of existing
competition between First Eastern and South Side.
There are 17 banks operating 38 offices in the
Bloomsburg market; the top four banks in terms of lo
cal deposits hold approximately 45 percent of those
deposits. First Eastern holds the second largest share,
12.5 percent, and South Side holds the 10th largest
share, 4.1 percent of local deposits. If the proposed
merger is consummated, the resulting bank would
rank first in the area with about 16.6 percent of local
deposits, and concentration among the four leading
banks in this area would increase from 45.2 percent to
49.3 percent.
We conclude that the proposed merger of First East
ern and North Scranton will not adversely affect com
petition, but that the proposed merger between First
Eastern and South Side will adversely affect competi
tion.

SOCIETY NATIONAL BANK OF CLEVELAND,
Cleveland, Ohio, and First National Bank of Harrison, Harrison, Ohio
Banking offices
Names of banks and type of transaction

Total
assets

First National Bank of Harrison, Harrison, Ohio (8228), with
and Society National Bank of Cleveland, Cleveland, Ohio (14761), which had
merged September 19, 1980, under charter of latter bank (14761) and with the title "Society
National Bank." The merged bank at date of merger had

COMPTROLLER'S DECISION
This application was filed with OCC on March 25,
1980, and is based on an agreement executed by the
participants on November 15, 1979. As of December
31, 1979, First National Bank of Harrison, Harrison,
Ohio (First), had deposits of approximately $23.4 mil
lion and Society National Bank of Cleveland, Cleve
land, Ohio (Society), had deposits of approximately
$1.3 billion.
Society is the lead bank of Society Corporation. Both
the bank and the holding company are headquartered
in Cleveland. Society recently merged with The First
National Bank of Clermont County, a wholly owned
subsidiary which held six offices in Clermont County,
which is immediately to the east of Hamilton County
where Cincinnati is located. Society has recently re
ceived approval to open two new branches in Hamil
ton County. One of these branches is in downtown
Cincinnati and the other in the northeastern section of
the county.
First operates its head office and one branch in
Harrison. Harrison is in the northwest portion of Hamil
ton County about 15 miles from downtown Cincinnati.
Harrison is developing as a bedroom community to
Cincinnati. First also operates a branch in Monfort
Heights about 8 miles from Society's newly opened
downtown Cincinnati branch. However, due to First's

28,004,000
1,963,587,000
1,961,844,000

In
operation

To be
operated

3
44
47

small size and stated policy of local service and the
existence of numerous competing financial institutions
between applicants' offices, there is little or no com
petitive overlap between the two banks. Although the
Federal Reserve Bank of Cleveland found the market
to be the Cincinnati SMSA, it concluded that within this
market the applicants do not compete.* The Comptrol
ler agrees with this conclusion.
According to the Cleveland Federal Reserve Bank,
there will be six independent banks subsequent to this
merger with market shares under 2 percent available
as entry vehicles for other bank holding companies.
Consequently, application of potential competition ar
guments is inappropriate to this merger.
The financial and managerial resources of both
banks are satisfactory, and their future prospects are
favorable. First's future prospects will be especially en
hanced by the increased lending limit and ability to
make residential loans in the rapidly developing west
ern Cincinnati suburbs.
A review of the record of this application and other
information available to this Office as a result of its reg-

* The Federal Reserve Bank reported that Society's share of
this market would reach 1 percent after the proposed mer
ger, and the resulting bank would rank 15th in this market.

ulatory responsibilities revealed no evidence that the
applicants' records of helping to meet the credit needs
of their entire communities, including low and moder
ate income neighborhoods, are less than satisfactory.

This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with this merger.
July 3, 1980.

MICHIGAN NATIONAL BANK—STERLING,
Sterling Heights, Mich., and Sterling Heights Office of Michigan National Bank of Detroit, Detroit, Mich.
Banking offices
Names of banks and type of transaction

Total
assets

Sterling Heights Office of Michigan National Bank of Detroit, Detroit, Mich. (14948), with
was purchased October 14, 1980, by Michigan National Bank—Sterling, Sterling Heights, Mich.
(16707), which had
After the purchase was effected, the receiving bank had

COMPTROLLER'S DECISION
This is the Comptroller's decision on the application
of Michigan National Bank—Sterling, Sterling Heights,
Mich. (Sterling) to purchase certain assets and as
sume certain liabilities of the Sterling Heights branch
office of Michigan National Bank of Detroit, Detroit,
Mich. (Detroit). This application was accepted for filing
on April 4, 1980, and is based on an agreement exe
cuted by the proponents on March 19, 1980.
Sterling had total deposits of $17.5 million on Janu
ary 3 1 , 1980. Its four branches are all in Sterling
Heights. Detroit had total deposits of $1.3 billion on
January 31, 1980. Detroit operates 45 branches in
Wayne, Macomb and Oakland counties. Its only
branch in Sterling Heights had total deposits of $19
million on January 31, 1980.
Both Sterling and Detroit are wholly owned subsidi
aries, except for directors' qualifying shares, of Michi
gan National Corporation, a multibank holding com
pany. This application is merely a corporate
reorganization whereby Michigan National Corporation
is realigning and consolidating its banking operations
in Sterling Heights. As such, it presents no competitive
issues under the Bank Merger Act, 12 USC 1828(c).
Additionally, a review of the financial and managerial
resources and future prospects of the existing and
proposed institutions and of the convenience and

In
operation

To be
operated

$19,295,000
21,160,000
40,455,000

needs of the community to be served has disclosed no
information why this application should not be ap
proved.
A review of the record of this application and infor
mation available to this Office as a result of its regula
tory responsibilities revealed no evidence that Ster
ling's record of helping to meet the credit needs of its
entire community, including low and moderate income
neighborhoods, is less than satisfactory.
This is the prior written approval required for the ap
plicants to proceed with the proposed purchase and
assumption. However, due to the substantial increase
in assets and liabilities of Sterling after the transaction,
this approval is conditioned on Michigan National Cor
poration's injection of $350,000 of equity capital and
$350,000 of long-term debt as stated in the March 19,
1980, agreement. This approval is also expressly con
ditioned on an assumption, with no change in terms, of
the existing Sterling Heights branch office leases by
Sterling.
September 10, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The banks are both wholly owned subsidiaries of the
same bank holding company. As such, the proposed
transaction is essentially a corporate reorganization
and would have no effect on competition.

SUN BANK OF WILTON MANORS, NATIONAL ASSOCIATION,
Wilton Manors, Fla., and Sun Bank of Lauderdale Beach, Lauderdale-by-the-Sea, Fla.; and Sun Bank of Broward
County, Tamarac, Fla.
Banking offices
Names of banks and type of transaction

Total
assets

Sun Bank of Lauderdale Beach, Lauderdale-by-the-Sea, Fla., with
and Sun Bank of Broward County, Tamarac, Fla., with
and Sun Bank of Wilton Manors, National Association, Wilton Manors, Fla. (14732), which had
merged October 24, 1980, under charter of the latter and with the title "Sun Bank/Broward, National
Association." The merged bank at date of merger had

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application
to merge Sun Bank of Lauderdale Beach, Lauder
dale-by-the-Sea, Fla., and Sun Bank of Broward
County, Tamarac, Fla., into Sun Bank of Wilton Manors,
National Association, Wilton Manors, Fla., under the
charter of the latter and with the title of "Sun Bank/
Broward, National Association." The application was
filed on March 21, 1980, and is based on a written
agreement executed by the applicant banks on Febru
ary 14, 1980.
The three banks are wholly owned, with the excep
tion of directors' qualifying shares, and controlled by
Sun Banks of Florida, Inc., Orlando, Fla., a registered
bank holding company. Consummation of this corpo
rate reorganization would have no effect on competi
tion. A review of the financial and managerial re
sources and future prospects of the existing and
proposed institutions and the convenience and needs

To be
In
operation operated

$ 65,008,000
25,926,000
99,418,000
192,596,000

of the community to be served has disclosed no rea
son why this application should not be approved.
The record of this application and other information
available to this Office as a result of its regulatory re
sponsibilities, reveals no evidence that the Sun Bank
of Broward County's record of helping to meet the
credit needs of the entire community, including low
and moderate income neighborhoods, is less than sat
isfactory.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with the merger.
July 1, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The merging banks are all wholly owned subsidiaries
of the same bank holding company. As such, their pro
posed merger is essentially a corporate reorganization
and would have no effect on competition.

FIRST & MERCHANTS NATIONAL BANK,
Richmond, Va., and The Bank of Chatham, Chatham, Va.
Banking offices
Names of banks and type of transaction

Total
assets

The Bank of Chatham, Chatham, Va., with
and First & Merchants National Bank Richmond Va (1111) which had
merged October 31, 1980, under charter and title of the latter. The merged bank at date of merger
had

COMPTROLLER'S DECISION
This application was filed with OCC on July 11, 1980,
and is based on an agreement executed by the appli
cants on June 18, 1980. As of March 31, 1980, The
Bank of Chatham, Chatham, Va. (Chatham Bank), had
total deposits of $16.8 million, and First & Merchants
National Bank, Richmond, Va. (F&M), had total de
posits of $1.8 billion.
F&M is headquartered in Richmond, Va., and oper
ates 98 banking offices in 28 counties and cities in Vir
ginia. Chatham Bank maintains its sole office in Cha
tham, the county seat of Pittsylvania County, which is
in the south central portion of the state contiguous with
the border between Virginia and North Carolina.

20,828,000
2,130,169,000
2,144,879,000

In
To be
operation operated
1

102
103

Savings customers represent the largest category of
deposit accounts held in Chatham Bank. The appli
cants selected a random sample of Chatham Bank's
regular savings customers, and using this sample, de
termined that 75 percent of Chatham Bank's deposits
are derived from a circular area surrounding Chatham
with a radius of approximately 9 miles. The Comptroller
finds that this is a reasonable market delineation, typi
cal of isolated rural communities like Chatham.* Within
its market area, Chatham Bank holds $16.5 million in
deposits, or approximately 27 percent of total market
* F&M's nearest branch is in Danville, 15 miles from Chatham
and clearly outside Chatham Bank's market area.

deposits. Within this same area, F&M holds $2.88 mil
lion in deposits, or 4.7 percent of market deposits.
Chatham is also served by branches of United Virginia
Bank and Fidelity American Bank, both of which are
major banking organizations with offices throughout
the state. The Comptroller finds that the loss of the
present degree of competition between Chatham Bank
and F&M will not substantially lessen competition in
the Chatham market in violation of the Bank Merger
Act, 12 USC 1828(c). Furthermore, the replacement of
a weak and relatively ineffective bank facing competi
tion from large statewide institutions with a strong insti
tution should enhance competition.
The financial and managerial resources of the appli
cants are satisfactory, and their future prospects are
favorable, although Chatham Bank's future prospects
are hampered by its small size. The prospects of the
combined institution are good.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that
F&M's record of helping to meet the credit needs of its
entire community, including low and moderate income
neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act for the applicants to proceed
with the proposed merger.
September 29, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
Pittsylvania County, in which the independent city of

Danville is located, is situated in the southwestern por
tion of Virginia. The county's 1970 population was
58,789; Danville's 1970 population was 45,000. The
county's economy is chiefly agricultural, though Dan
ville is the center for industrial development in the
area. Applicant's closest office to Bank is its North
Danville office, 13.5 miles from Chatham; Applicant's
other five Pittsylvania County offices are located within
18.5 miles of Bank's only office in Chatham. There are
offices of other banks in Danville and Chatham and in
the intervening area between Bank's office and
Applicant's offices. The application indicates that Ap
plicant draws some business from Bank's primary
service area; it draws $2.9 million in IPC demand de
posits (3.2 percent of total deposits of Applicant's of
fices in the primary service area) and $2.7 million in
loans from that area.
Eleven banks operate 24 offices in Pittsylvania
County. Applicant is the largest, holding total deposits
in its Pittsylvania county offices of $83.4 million, and
Bank is the ninth largest, holding total deposits of
$16.5 million, 23.8 percent and 4.7 percent, respec
tively, of the deposits held in Pittsylvania County bank
offices. If the merger is consummated, the resulting in
stitution would hold 28.5 percent of the total Pittsylva
nia County deposits, and the share of those deposits
held by the three largest banking organizations in Pitt
sylvania County would increase from 60.1 percent to
64.8 percent.
We conclude that the proposed merger would have
an adverse effect on competition.

FIRST NATIONAL BANK OF ATLANTA,
Atlanta, Ga., and Cobb County Bank, Powder Springs, Ga.
Banking offices
Total
assets

Names of banks and type of transaction

Cobb County Bank, Powder Springs, Ga., with
and First National Bank of Atlanta, Atlanta, Ga. (1559), which had
merged October 31, 1980, under charter and title of the latter. The merged bank at date of merger
had

COMPTROLLER'S DECISION
This application was filed with this Office on June 18,
1980, and is based on an agreement executed by the
applicants on June 13, 1980. As of December 31,
1979, First National Bank of Atlanta, Atlanta, Ga.
(FNB), held $1.9 billion in deposits and Cobb County
Bank, Powder Springs, Ga. (CCB), held $24 million in
deposits. FNB operates 61 banking offices in Georgia
with the greatest proportion, 53, in the Atlanta metro
politan area counties of Fulton and DeKalb. CCB oper
ates all eight of its offices in Cobb County, which is ad
jacent to Fulton County and the northwest portion of
Atlanta. Cobb County is separated from Fulton County
by the Chattahoochee River.
Applicants state that CCB draws over 80 percent of
its deposits from Cobb County. For this reason, they
44

29,722,000
2,564,326,000
2,662,272,000

In
operation

To be
operated

8
62
70

assert that Cobb County is the relevant geographic
market. Considering CCB's small size and low loan
limits, as well as its deposit penetration, the OCC finds
that Cobb County approximates the market of the bank
to be acquired.* However, Cobb County's proximity to
the Atlanta metropolitan area cannot be ignored. Al
though banks headquartered in Fulton County, which
includes the downtown area of Atlanta, cannot branch
* The Atlanta Federal Reserve Bank found the market to be
the Atlanta banking market, an eight-county area. Within this
market, the Atlanta Federal Reserve Bank concluded that the
addition of CCB's 0.3 percent to FNB's 22 percent would
have only a marginal impact. Assuming this was the correct
market, the OCC concurs in the Atlanta Federal Reserve
Bank's finding and would approve the merger on competitive
grounds.

into Cobb County, their presence is felt. Commuting
patterns and advertising efforts contribute to this ef
fect. Additionally, several Cobb County banks are al
ready part of Atlanta-based holding companies.t
Applicants have addressed the issue raised by the
proximity of Atlanta banks by assuming the Cobb
County market includes deposits from the major At
lanta banks that do not have branch offices in Cobb
County. There are four banks in addition to FNB that
are large enough to affect the competitive situation. Of
these, FNB has recent figures for itself and one other.
Assuming that the other four banks have a percentage
of deposits equivalent to that found for FNB and the
other bank for which there are figures, applicants have
reconstructed the Cobb County market taking these
four additional Atlanta banks' deposit shares into the
county deposit calculations. Using these figures, this
merger would combine the fifth (FNB) and ninth (CCB)

largest banks for a combined deposit share of 12 per
cent. The OCC finds that this is not sufficient to cause
a violation of the standards found in the Bank Merger
Act, 12 USC 1828(c).
The financial and managerial resources of CCB and
FNB are generally satisfactory, and the future pros
pects of both banks appear good.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that
FNB's record of helping to meet the credit needs of its
entire community, including low and moderate income
neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act for the applicants to proceed
with the proposed merger.
September 18, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL

f Indeed, the Atlanta Federal Reserve Bank had noted that
CCB is part of a chain commonly owned and controlled and
that, even after the merger, the chain would continue as a
competitor in the Atlanta market.

We have reviewed this proposed transaction and con
clude that it would not have a significantly adverse ef
fect upon competition.

FLORIDA FIRST NATIONAL BANK OF JACKSONVILLE,
Jacksonville, Fla., and Florida First National Bank at Fernandina Beach, Fernandina Beach, Fla.
Banking offices
Names of banks and type of transaction

Total
assets

Florida First National Bank at Fernandina Beach, Fernandina Beach, Fla. (4558), with
and Florida First National Bank of Jacksonville Jacksonville Fla (8321) which had
merged October 31, 1980, under charter of the latter and with the title "Florida National Bank of
Jacksonville.'' The merged bank at date of merger had
....

COMPTROLLER'S DECISION
Florida First National Bank at Fernandina Beach,
Fernandina Beach, Fla., and Florida First National
Bank of Jacksonville, Jacksonville, Fla., are majorityowned and controlled by Florida National Banks of
Florida, Inc., Jacksonville, a registered bank holding
company. This proposed merger is a corporate reor
ganization which would have no effect on competition.
A review of the financial and managerial resources
and future prospects of the existing and proposed in
stitutions and the convenience and needs of the com
munity to be served has disclosed no reason why this
application should not be approved.
The record of this application and other information
available to this Office as a result of its regulatory re

$ 28,032,000
466,493,000
503,518,000

In
operation

To be
operated

13
15

sponsibilities reveals no evidence that the banks' rec
ords of helping to meet the credit needs of their entire
communities, including low and moderate income
neighborhoods, are less than satisfactory.
This is the prior written approval required by the
Bank Merger Act, 12 USC 1828(c), for the applicants
to proceed with the merger.
September 9, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The merging banks are both wholly owned subsidi
aries of the same bank holding company. As such,
their proposed merger is essentially a corporate reor
ganization and would have no effect on competition.

FLORIDA NATIONAL BANK OF MIAMI
Miami, Fla., and Florida Bank at Fort Lauderdale, Fort Lauderdale, Fla.
Banking offices
Names of banks and type of transaction

Total
assets

Florida Bank at Fort Lauderdale, Fort Lauderdale, Fla., with
and Florida National Bank of Miami, Miami, Fla. (13570), which had
merged October 31, 1980, under charter and title of the latter. The merged bank at date of merger
had

COMPTROLLER'S DECISION
Florida Bank at Fort Lauderdale, Fort Lauderdale, Fla:,
and Florida National Bank of Miami, Miami, Fla., are
majority-owned and controlled by Florida National
Banks of Florida, Inc., Jacksonville, Fla., a registered
bank holding company. This proposed merger is a
corporate reorganization which would have no effect
on competition.
A review of the financial and managerial resources
and future prospects of the existing and proposed in
stitutions and the convenience and needs of the com
munity to be served has disclosed no reason why this
application should not be approved.
The record of this application and other information
available to this Office as a result of its regulatory re

In
operation

To be
operated

$ 36,416,000
433,332,000
465,117,000

sponsibilities reveals no evidence that the banks' rec
ords of helping to meet the credit needs of their entire
communities, including low and moderate income
neighborhoods, is less than satisfactory.
This is the prior written approval required by the
Bank Merger Act, 12 USC 1828(c), for the applicants
to proceed with the merger.
September 25, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The merging banks are both wholly owned subsidi
aries of the same bank holding company. As such,
their proposed merger is essentially a corporate reor
ganization and would have no effect on competition.

WATSEKA FIRST NATIONAL BANK,
Watseka, III., and Iroquois County Trust Company, Watseka,
Banking offices
Names of banks and type of transaction

Total
assets

Iroquois County Trust Company, Watseka, III., with
and Watseka First National Bank, Watseka, III. (10522), which had
merged October 31, 1980, under charter and title of the latter. The merged bank at date of merger
had

COMPTROLLER'S DECISION
Iroquois County Trust Company, Watseka, III. (Trust
Company), is presently a wholly owned subsidiary of
Watseka First National Bank, Watseka (Bank). This ap
plication is a prerequisite to converting Trust Company
into a department of Bank. A merger plan of reorgani
zation is being pursued, rather than liquidation, since
there is no feasible answer under Illinois state law to
the question of who would succeed Trust Company as
executor, administrator or trustee of estates. The appli
cation presents no competitive issues under the Bank
Merger Act, 12 USC 1828(c). The financial and mana
gerial resources of Bank and its wholly owned Trust
Company are satisfactory, and the future prospects of
the combined entity are favorable.

In
operation

To be
operated

1,000
17,515,000
17,512,000

A review of the record ot this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
applicants' records of helping to meet the credit needs
of the entire community, including low and moderate
income neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with this merger.
September 17, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
We have reviewed this proposed transaction and con
clude that it is essentially a corporate reorganization
and would have no effect on competition.

AMOSKEAG NATIONAL BANK & TRUST CO.,
Manchester, N.H., and Amherst Bank & Trust Company, Amherst, N.H.
Banking offices
Names of banks and type of transaction

Total
assets

Amherst Bank & Trust Company, Amherst, N.H., with
and Amoskeag National Bank & Trust Co., Manchester, N.H. (574), which had
merged November 1, 1980, under charter and title of the latter. The merged bank at date of merger
had

In
operation

To be
operated

$ 13,392,000
88,586,000
102,486,000

COMPTROLLER'S DECISION

SUMMARY OF REPORT BY ATTORNEY GENERAL

This application was filed with this Office on April 3,
1980, and is based on an agreement executed by the
applicants on January 2, 1980. As of September 30,
1979, Amoskeag National Bank & Trust Co.
(Amoskeag), had total deposits of $54 million and
Amherst Bank & Trust Company (Amherst Bank), had
total deposits of $10.8 million.
Amoskeag's main office and four branches are in
Manchester, N.H. It operates one office in Bedford,
Goffstown and Hooksett, all of which are contiguous to
Manchester. Amherst Bank has its head office in
Amherst, N.H., and one branch in Bedford which ad
joins Amherst. Data submitted by the applicants show
that, with the exception of their offices in Bedford, they
serve separate and distinct markets approximated by
Manchester and Amherst. Both the Federal Deposit In
surance Corporation and the Federal Reserve Bank of
Boston in their competitive factor reports note that the
deposit overlap in Bedford is minimal and that its loss
would not substantially lessen competition.* The OCC
finds that the banks are in different markets except in
Bedford where the loss of competition is not signifi
cant.
The financial and managerial resources of both pro
ponents are satisfactory, and their future prospects are
favorable.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
record of Amoskeag in helping to meet the credit
needs of its entire community, including low and mod
erate income neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with the proposed merger.
July 30, 1980.

Hillsborough County (1970 population 223,941) is lo
cated in south central New Hampshire adjacent to the
Massachusetts border. Manchester, the state's largest
city (1978 population 93,257) and a major industrial
center, is located on the northern edge of the county.
Nashua, the state's second largest city (1970 popula
tion 61,800), is located on the southern edge of the
county, about 15 miles south of Manchester. Bedford,
which is contiguous to Manchester, is located on
Route 101 about 5 miles southwest of Manchester.
Amherst, about 10 miles further southwest on Route
101, is approximately 15 miles northwest of Nashua,
and there appears to be a substantial amount of com
muting from Amherst into Nashua. The population of
southern New Hampshire has grown rapidly since
1970, and its economy continues to undergo a healthy
period of expansion.
Thirteen commercial banks operate a total of 58 of
fices in Hillsborough County. In the greater Manches
ter area (which includes Manchester, Hooksett, Goffs
town and Bedford), there are eight commercial banks
which operate a total of 27 branch offices. Applicant
and Bank's Bedford offices are only 2 miles apart, and
given the not insignificant amount of business which,
according to the Application, the parties draw from
Bedford, it appears that the merger would eliminate a
substantial amount of direct competition. Banking is
highly concentrated in the greater Manchester area,
with the top three banks accounting for 78.8 percent of
the area's commercial deposits. Applicant is the third
largest, with 15.8 percent, and Bank is the smallest,
with .39 percent. While the proposed merger may have
somewhat less of an impact on competition due to
Bank's relatively small size and its weak financial his
tory, nevertheless it appears that elimination of direct
competition in such a highly concentrated market
would have an adverse effect upon existing competi
tion.
We conclude that the merger will have an adverse
effect on competition.

* Each bank holds roughly $2 million in deposits in its Bed
ford office.

SUN FIRST NATIONAL BANK OF ORLANDO,
Orlando, Fla., and Sun Bank of Osceola County, St. Cloud, Fla.: and Sun Bank of Seminole, National Association,
Fern Park, Fla.
Banking offices
Names of banks and type of transaction ,

Total
assets

Sun First National Bank of Orlando, Orlando, Fla. (14003), with
and Sun Bank of Osceola County, St. Cloud, Fla., with
and Sun Bank of Seminole, National Association, Fern Park, Fla. (16108), which had
merged November 14, 1980, under charter of the latter and with the title "Sun Bank, N.A."
Headquarters will be in Orlando. The merged bank at date of merger had

COMPTROLLER'S DECISION
Sun First National Bank of Orlando, Orlando, Fla., Sun
Bank of Osceola County, St. Cloud, Fla., and Sun Bank
of Seminole, National Association, Fern Park, Fla., are
majority-owned and controlled by Sun Banks of Flor
ida, Inc., Orlando, a registered bank holding company.
This proposed merger is a corporate reorganization
which would have no effect on competition.
A review of the financial and managerial resources
and future prospects of the existing and proposed in
stitutions and the convenience and needs of the com
munity to be served has disclosed no reason why this
application should not be approved.
The record of this application and other information
available to this Office as a result of its regulatory re

$ 943,699,000
56,587,000
89,380,000

In
To be
operation operated
16
3
3

1,064,112,000

sponsibilities reveals no evidence that the banks' rec
ords of helping to meet the credit needs of their entire
communities, including low and moderate income
neighborhoods, is less than satisfactory.
This is the prior written approval required by the
Bank Merger Act, 12 USC 1828(c), for the applicants
to proceed with the merger.
September 10, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The merging banks are all wholly owned subsidiaries
of the same bank holding company. As such, their pro
posed merger is essentially a corporate reorganization
and would have no effect on competition.

FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION,
Ogden, Utah, and First Security Bank of Logan, National Association, Logan, Utah
Banking offices
Names of banks and type of transaction

Total
assets

First Security Bank of Logan, National Association, Logan, Utah (16241), with
$
9,373,000
and First Security Bank of Utah, National Association, Ogden, Utah (2597), which had
1,672,758,000
merged November 21, 1980, under the charter and title of the latter bank (2597). The merged bank
at date of merger had
1,682,131,000

COMPTROLLER'S DECISION
First Security Bank of Logan, National Association, Lo
gan, Utah (Logan), and First Security Bank of Utah,
National Association, Ogden, Utah (Security), are both
wholly owned subsidiaries of First Security Corporation
(FSC). FSC is a multibank holding company with com
mercial bank subsidiaries in three states and is the
largest banking corporation headquartered in Utah.
Security intends to acquire all the outstanding stock
of Logan by exchanging 3.35 shares of Security stock
for each share of Logan stock. Logan was established
in 1973 by agents of FSC as a de novo unit bank to
serve the Cache County area where Security already
had four branch offices operating. It was chartered as
a de novo unit bank solely because the home office
protection provided by state law prevented branching
in Logan because of the existence there of a local unit
bank, First National Bank of Logan. State law does,
48

In
To be
operation operated
1
68

however, specifically allow the acquisition of a cfe novo
unit bank which has been in existence 5 years and the
subsequent operation of it as a branch of the acquiring
bank (Utah Code Ann. 7-3-6). Accordingly, this pro
posal is a corporate reorganization and will have no
adverse competitive effect on the performance of the
financial institution in Logan or in Cache County. On
the other hand, the establishment of Logan as a
branch of Security will allow Logan to transcend var
ious regulatory and size restrictions that limit the activi
ties and responsiveness of a small de novo bank and
will thereby enable it to offer a wider range of banking
services to the community on a more convenient basis.
In addition, the elimination of one'of the two unit
banks in Logan by this merger increases the chances
that the city may be opened to branching in the near
future. To that extent, this is a potentially procompetitive affiliation. Indeed, this merger, and the merger of
First National Bank of Logan, the second of the two

unit banks in Logan, with Zions First National Bank,
which was judicially sanctioned by the U.S. District
Court in Utah on August 14, 1980, will end "home of
fice protection" in Logan and will allow other commer
cial banks to branch into the city.
The financial and managerial resources of both
banks and the future prospects of Security are favor
able. A review of the record of this application and
other information available to this Office as a result of
its regulatory responsibilities revealed no evidence
that the banks' records of helping to meet the credit
needs of their communities, including low and moder
ate income areas, is less than satisfactory.

Accordingly, this merger application is approved in
accordance with the Bank Merger Act, 12 USC
1828(c).
October 8, 1980.

SUMMARY OF REPORT BY ATTORNEY GENERAL
The merging banks are both wholly owned subsidi
aries of the same bank holding company. As such,
their proposed merger is essentially a corporate reor
ganization and would have no effect on competition.

ELLIS NATIONAL BANK OF VOLUSIA COUNTY,
DeBary, Fla., and Ellis Bank of Seminole County, Altamonte Springs, Fla.
Banking offices
Names of banks and type of transaction

Total
assets

Ellis Bank of Seminole County, Altamonte Springs, Fla., with
and Ellis National Bank of Volusia County DeBary Fla. (15348) which had
merged December 1, 1980, under charter and title of the latter bank (15348). The merged bank at
date of merger had

COMPTROLLER'S DECISION
Ellis Bank of Seminole County, Altamonte Springs, Fla.,
and Ellis National Bank of Volusia County, DeBary,
Fla., are majority-owned and controlled by Ellis Bank
ing Corporation, Bradenton, Fla., a registered bank
holding company. This proposed merger is a corpo
rate reorganization which would have no effect on
competition.
A review of the financial and managerial resources
and future prospects of the existing and proposed in
stitutions and the convenience and needs of the com
munity to be served has disclosed no reason why this
application should not be approved.
The record of this application and other information
available to this Office as a result of its regulatory re

$ 5,671,000
21,578,301

In
operation

To be
operated

2
3

26,423,542

sponsibilities reveals no evidence that the banks' rec
ords of helping to meet the credit needs of their entire
communities, including low and moderate income
neighborhoods, is less than satisfactory.
This is the prior written approval required by the
Bank Merger Act, 12 USC 1828(c), for the applicants
to proceed with the merger.
October 6, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The merging banks are both wholly owned subsidi
aries of the same bank holding company. As such,
their proposed merger is essentially a corporate reor
ganization and would have no effect on competition.

THE HUNTINGTON NATIONAL BANK,
Columbus, Ohio, and The First National Bank of Burton, Burton, Ohio
Banking offices
Names of banks and type of transaction

Total
assets

The First National Bank of Burton, Burton, Ohio (6249), with
and The Huntington National Bank, Columbus, Ohio (7745), which had
merged December 5, 1980, under charter and title of the latter bank (7745). The merged bank at
date of merger had

COMPTROLLER'S DECISION
This application was accepted for filing on July 14,
1980, and is based on an agreement between the pro
ponent banks dated April 9, 1980. As of March 31,
1980, The First National Bank of Burton, Burton, Ohio

79,764,000
2,594,001,000
2,751,981,000

In
operation

To be
operated

6
108
114

(Burton), had total deposits of $65.3 million, and The
Huntington National Bank, Columbus, Ohio (Hunt
ington), had total deposits of $2 billion. Huntington is
the primary subsidiary of Huntington Bancshares, Inc.,
a one-bank holding company which ranks fifth largest
49

in the state with nearly 5 percent of total commercial
bank deposits.
The relevant geographic market for the purposes of
competitive analysis is Geauga County and the adja
cent village of Chagrin Falls in Cuyahoga County. As
of the application date, Burton derived more than 80
percent of its total deposits from this area. Moreover,
all of Burton's six offices and one approved, but un
opened, branch are within Geauga County. Huntington
operates 105 offices statewide, but none in Geauga
County. However, two of these offices are in an area
defined by the Board of Governors of the Federal Re
serve System as the Cleveland, Ohio, banking market,
which includes Geauga County.
There appears to exist little, if any, direct competi
tion between the proponents within the relevant geo
graphic market. Even if they are considered direct
competitors within the aforementioned Cleveland
banking market, the proposed merger would have no
significant competitive effect. A total of 32 banking or
ganizations are in this area, and the combined market
share of the proposed banks would be less than 1 per
cent. Moreover, the merger would have no meaningful
effect on the concentration of banking resources in the
state, with Huntington's share remaining less than 5
percent. Similarly, there is nothing in the application
*

which would tend to support a conclusion that the pro
posed merger would eliminate significant prospects
for future competition between the banks. This Office
therefore concludes that the proposed merger would
not violate the standards found in the Bank Merger
Act, 12 USC 1828(c).
The financial and managerial resources of Burton
and Huntington are satisfactory, and their future pros
pects, together with those of the combined bank, are
favorable.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
applicants' records of helping to meet the credit needs
of their entire communities, including low and moder
ate income neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with the proposed merger.
October 30, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
We have reviewed this proposed transaction and con
clude that it would not have a substantial competitive
impact.
*

THE CITIZENS AND SOUTHERN NATIONAL BANK OF SOUTH CAROLINA,
Charleston, S.C, and Colonial State Bank, Inc., Marion, S.C.
Banking offices
Names of banks and type of transaction

Total
assets

Colonial State Bank, Inc., Marion, S.C, with
was purchased December 8, 1980, by The Citizens and Southern National Bank of South Carolina,
Charleston, S.C. (14425), with
After the purchase was effected, the receiving bank had

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application of
The Citizens and Southern National Bank of South Car
olina, Charleston, S.C., (C & S), to purchase the assets
and assume the liabilities of Colonial State Bank, Inc.,
Marion, S.C. (Colonial). This application was accepted
for filing on August 12, 1980, and is based on an
agreement signed by the participants on July 25,
1980.
C & S is a wholly owned subsidiary of The Citizens
and Southern Corporation, a one-bank holding com
pany, and is the second largest commercial bank in
the state. At year-end 1979, C & S had assets of
$916.9 million and deposits of $751.2 million. On the
same date, Colonial was the second largest bank in its
market with assets of $21 million and deposits of $16.8
million.
The area for assessing the competitive effects of this
proposal consists of Marion and Mullins, Marion
County, S.C. Colonial operates two offices in Marion
and has received approval to open a third office in
50

In
operation

$ 20,935,000

916,938,000
934,431,000

To be
operated

Mullins. There are five banks operating in the MarionMullins market with total deposits of $63 million. C & S
operates no offices within Marion County, and its clos
est office is in Florence, S.C, some 22 miles distant.
C & S could enter Colonial's market de novo by es
tablishing a branch. However, there is no evidence on
the record that any of the banking needs of this market
are not being met, and there is no reason to believe
that C & S would enter the market absent this pro
posal. There is no existing competition between C & S
and Colonial, and approval of this proposal would not
reduce the number of competitors in the market. Con
sequently, approval would not have a significantly ad
verse effect on existing competition.
The financial and managerial resources of both C &
S and Colonial are satisfactory. The future prospects of
both banks are good, although Colonial's immediate
future expansion is somewhat limited due to the bank's
present capital structure. The future prospects of the
resultant bank are favorable, and the resultant bank
should provide a stronger and more diversified bank
ing alternative in the Marion-Mullins market.

A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that C & S's
record of helping to meet the credit needs of its entire
community, including low and moderate income neigh
borhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with this proposal. C & S is autho

rized to operate all former offices of Colonial as
branches of C & S.
November 7, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
We have reviewed this proposed transaction and con
clude that it would not have a substantial competitive
impact.

THE SPRINGFIELD BANK,
Springfield, Ohio, and The Xenia National Bank, Xenia, Ohio
Banking offices
Names of banks and type of transaction

Total
assets

The Springfield Bank, Springfield, Ohio, with
and The Xenia National Bank, Xenia, Ohio (2932), which had
merged December 13, 1980, under the charter of the latter and with the title "Society National Bank
of the Miami Valley," with headquarters in Springfield. The merged bank at date of merger had

COMPTROLLER'S DECISION
Both The Springfield Bank, Springfield, Ohio, and The
Xenia National Bank, Xenia, Ohio, are wholly owned
subsidiaries of Society Corporation, Cleveland, Ohio, a
registered bank holding company. This application
represents a corporate reorganization of two subsidi
aries of the same holding company and will result in no
direct impact on competition.
A review of the financial and managerial resources,
the future prospects of both the existing and proposed
institutions and the convenience and needs of the
community to be served has revealed no reason why
this application should not be approved.
The record of this application and other information
available to this Office as a result of its regulatory re

In
operation

To be
operated

$153,063,000
52,627,000
202,690,000

sponsibilities reveals no evidence that the banks' rec
ords of helping to meet the credit needs of their entire
communities, including low and moderate income
neighborhoods, is less than satisfactory.
This is the prior written approval required by the
Bank Merger Act, 12 USC 1828(c), for the applicants
to proceed with the merger.
November 5, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The merging banks are wholly owned subsidiaries of
the same bank holding company. As such, their pro
posed merger is essentially a corporate reorganization
and would have no effect on competition.

FIRST BRISTOL COUNTY NATIONAL BANK,
Taunton, Mass., and The National Bank of Wareham, Wareham, Mass.
Banking offices
Names of banks and type of transaction

Total
assets

The National Bank of Wareham, Wareham, Mass. (1440), with
and First Bristol County National Bank, Taunton, Mass. (2232), which had
merged December 15, 1980, under charter and title of the latter bank. The merged bank at date of
merger had

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application to
merge The National Bank of Wareham, Wareham,
Mass. (Wareham), into and under the charter of First
Bristol County National Bank, Taunton, Mass. (First
Bristol). This application was accepted on August 21,
1980, and is based on an agreement signed by the
participants on May 30, 1980. On June 30, 1980,

$ 25,316,000
157,266,000
182,928,000

In
operation

To be
operated

1
17
18

Wareham had total commercial bank deposits of $21.1
million, and First Bristol's total deposits were $131.4
million.
The relevant geographic market for analysis of this
proposal is Bristol and Plymouth counties in southeast
ern Massachusetts. Wareham is one of eight commer
cial banks in Plymouth County and controls approxi
mately 2.5 percent of the market's deposits. Wareham

operates branches in Marion and Carver. First Bristol
is the largest of 12 banks in Bristol County with a total
market share of 15.6 percent. First Bristol operates 13
offices in the county. There is no existing competition
between Wareham and First Bristol since they com
pete in separate markets; the nearest branches of the
banks are separated by a 10-mile wide, largely unde
veloped "green belt." Approval of this proposal would
not have a significantly adverse effect on existing com
petition.
First Bristol could enter Wareham's market de novo
by establishing a branch. However, that market is not
considered attractive for de novo entry, and there is no
evidence in the record that any of the banking needs
of this market are not being met. Additionally, there is
no reason to believe that First Bristol would enter the
market absent this proposal.
The financial and managerial resources of both
banks are considered satisfactory. However, the future
prospects of Wareham are limited due to its relative
position in the Plymouth County market and its unag
gressive nature. The future prospects of the combined

entity are good and will be further enhanced by the
availability of expanded banking services to Wareham's market, including money market certificates, in
dividual retirement accounts and a complete line of fi
duciary services, which are not presently offered by
Wareham.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
applicants' records of helping to meet the credit needs
of their entire communities, including low and moder
ate income neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with this merger.
November 7, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
We have reviewed this proposed transaction and con
clude that it would not have a significantly adverse ef
fect upon competition.

FLINT OFFICE OF MICHIGAN NATIONAL BANK,
Lansing, Mich., and Michigan National Bank—Mid Michigan, Burton, Mich.
Banking offices
Names of banks and type of transaction

Total
assets

Flint Office of Michigan National Bank, Lansing, Mich. (14032), with
was purchased December 22, 1980, by Michigan National Bank—Mid Michigan, Burton, Mich.
(16234), which had
After the purchase was effected, the receiving bank had

COMPTROLLER'S DECISION
Michigan National Bank—Mid Michigan, Burton, Mich.
(Mid Michigan), has made application to purchase
certain assets and assume certain liabilities of the Flint
Office of Michigan National Bank, Lansing, Mich.
(Lansing). This application was accepted for filing on
July 10, 1980, and is based on an agreement exe
cuted by the proponents on June 18, 1980.
Mid Michigan had total deposits of $77 million on
April 30, 1980. It operates 13 offices, none of which
are in Flint. Lansing had total deposits of $1.3 billion
on April 30, 1980; its one Flint office had total deposits
of $149 million on April 30, 1980.
Both Mid Michigan and Lansing are majority-owned
and controlled by Michigan National Corporation, a
registered bank holding company. This application is
merely a corporate reorganization whereby Michigan
National Corporation is realigning and consolidating its
banking operations in a common primary service area.
As such, it presents no competitive issues under the
Bank Merger Act, 12 USC 1828(c). Additionally, a re
view of the financial and managerial resources and fu
ture prospects of the existing and proposed institu
tions and of the convenience and needs of the

In
operation

$172,782,000

84,236,000
260,136,000

To be
operated

community to be served has disclosed no information
why this application should not be approved.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that Mid
Michigan's record of helping to meet the credit needs
of its entire community, including low and moderate in
come neighborhoods, is less than satisfactory.
This is the prior written approval required for the ap
plicants to proceed with the proposed purchase and
assumption. However, due to the substantial increase
in the assets and liabilities of Mid Michigan after the
transaction, this approval is conditioned upon the in
jection, by Michigan National Corporation, of $15.5 mil
lion of equity capital into Mid Michigan as indicated in
the application.
December 5, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The banks are both wholly owned subsidiaries of the
same bank holding company. As such, the proposed
transaction is essentially a corporate reorganization
and would have no effect on competition.

NATIONAL BANK OF DEFIANCE,
Defiance, Ohio, and National Bank of Paulding, Paulding, Ohio
Names of banks and type of transaction

Total
assets

National Bank of Defiance, Defiance, Ohio (15512), with
and National Bank of Paulding, Paulding, Ohio (14300), which had
merged December 26, 1980, under charter of the latter and with the title "Maumee Valley National
Bank," with headquarters in Defiance. The merged bank at date of merger had
COMPTROLLER'S DECISION
An application was filed on June 24, 1980, with this Of
fice pursuant to the Bank Merger Act, 12 USC 1828(c),
by National Bank of Paulding, Paulding, Ohio (Pauld
ing Bank), for approval to merge with National Bank of
Defiance, Defiance, Ohio (Defiance Bank), under the
charter of National Bank of Paulding and with the title
"Maumee Valley National Bank." The application is
based on a written agreement executed by the banks
on May 13, 1980.
Financial Institutions Involved
Defiance, the bank to be acquired, was organized
as a national banking institution in 1965. As of Decem
ber 31, 1979, it had total deposits of $31.6 million. It
presently operates its two offices, including its main of
fice, in Defiance, Defiance County. It recently received
approval for an additional temporary branch in Defi
ance to serve its customers north of the Maumee River
until the river bridge is repaired.
Paulding, the acquiring bank, was established as a
national bank in 1934. In January 1979, it was ac
quired by Toledo Trustcorp, Inc., Toledo, Ohio
(Toledo). Paulding, a unit bank, is headquartered ap
proximately 21 miles southwest of Defiance in Pauld
ing, Paulding County, which is contiguous to Defiance
County. It held total deposits of $21.8 million as of
year-end 1979.
Toledo Trustcorp was formed in 1970 by Toledo
Trust Company. It became a multibank holding com
pany in 1974 by acquiring Northwest Ohio Bank, Bowl
ing Green. Since that time, it has acquired six addi
tional banks and presently has an application pending
before the Federal Reserve System to acquire Farmers
and Merchants State and Savings Bank, Montpelier
($9.8 million in deposits). Toledo, the 12th largest
multibank holding company in Ohio, had consolidated
deposits of $828 million, representing 2.10 percent of
the total commercial bank deposits in the state as of
December 3 1 , 1979. After the proposed merger,
Toledo would remain the 12th largest multibank hold
ing company, and its share of commercial bank de
posits in Ohio would be 2.18 percent.1
1

1n April 1980, the Board of Governors of the Federal Re
serve System denied an application by Toledo Trustcorp to
acquire Defiance Bank as a subsidiary. This denial was
based on a finding that Paulding Bank (already owned) and
Defiance Bank competed in the same market, which the
Board defined as all of Defiance County, except Hicksville;
all of Paulding County, except Carryall; Flatrock and Pleas

$35,306,000
28,232,000

Banking offices
In
To be
operation operated
2
2

68,108,000

Defiance Bank's Service Area
Defiance, the county seat with a 1977 population of
15,827, serves as a manufacturing and retail center for
Defiance County, which is primarily an agricultural
area.
Defiance Bank's service area, from which its two of
fices drew 81.1 percent of its deposits (and 95 percent
of its loans) as of May 12, 1980, is essentially confined
to Defiance and Jewell. The only other commercial
bank in the area, State Bank and Trust Company
(State Bank), is a $58.5 million deposit bank that oper
ates four of its six offices, including its main office, in
Defiance and drew approximately 88 percent of its de
posits from Defiance Bank's service area. First Federal
Savings and Loan Association ($188.9 million total de
posits) and Home Savings and Loan Association (total
deposits of $119.9 million) also compete in this area.
As of March 31, 1979, these two savings and loan as
sociations derived $139.5 million in deposits from Defi
ance Bank's service area, 65 percent more than the
$84.8 million in deposits derived by Defiance Bank
and State Bank from this area. In addition, Defiance
Bank, with 32 percent of its loans in real estate, faces
significant direct competition from these depository in
stitutions for its loan business.
By comparison, Paulding Bank derived only 3.2 per
cent ($795,000) of its total deposits (and 4 percent of
its loans) from Defiance Bank's service area which is
less than 1 percent of the combined deposits of all fi
nancial offices (commercial banks and savings and
loan associations) in this area. Moreover, nearly 70
percent of these deposits is attributable to only four
customers.2
ant in Henry County; and Monroe and Perry in Putnam
County.
2
No other subsidiary of Toledo significantly competes with
Defiance Bank in its service area. In addition to National
Bank of Paulding, Toledo Trustcorp owns two banks with of
fices within 30 mijes of Defiance—Liberty State Bank, Liberty
Center (branch office in Napoleon) and National Bank of
Fulton County, Delta (branch office in Wauseon)—and has
an application pending with the Federal Reserve Board to
acquire a third bank—Farmers and Merchants State and
Savings Bank, Montpelier. The three banks combined drew a
total of $90,000 in deposits from the service area of National
Bank of Defiance, or 0.1 percent of total deposits of the
banking offices in that area; each of the three banks derived
less than 0.6 percent of its deposits from the Defiance area.
Similarly, National Bank of Defiance drew a total of $466,000,
or 1.5 percent of its deposits, from the service areas of the
two current and proposed Toledo Trustcorp subsidiaries.
53

Paulding Bank's Service Area
Paulding County is also a rural area whose economy
is primarily dependent on agriculture. It had an esti
mated 1977 population of 20,470 while Paulding, the
county seat, numbered 2,923.
As of May 8, 1980, approximately 82.1 percent of
Paulding Bank's deposits (and 93 percent of its loans)
originated from an area centered around Paulding in
cluding Cecil, Haviland, Latty and Payne, a service
area which essentially incorporates all of Paulding
County. Sixty-six percent of these deposits came
solely from Paulding. The sole office of Union State
Bank, Payne, with $15.2 million in deposits, and the re
cently opened (September 1979) branch of State Bank
are the only other commercial banks within Paulding
Bank's service area. A branch of Home Savings and
Loan Association, with $19.8 million in deposits, is also
in this area and would appear to compete directly and
substantially with Paulding Bank for deposits and real
estate loans which make up approximately 50 percent
of Paulding Bank's loan portfolio.
Defiance Bank drew only 2.1 percent ($643,000) of
its total deposits (and 2.7 percent of its loans) from
within this service area, a figure that represents less
than 2 percent of the combined deposits of the com
mercial banks and savings and loan associations in
the area. Moreover, approximately one-half of Defi
ance Bank's deposits in Paulding Bank's service area
is attributable to 10 customers.
Banking Structure in Ohio
The banking structure in Ohio is characterized by a
number of strong, large bank holding company sys
tems, which by and large have been regional in nat
ure.3 A review of merger applications filed with this Of
fice since January 1, 1979, indicates an emerging
pattern of statewide acquisition activity whereby hold
ing companies are not only penetrating each other's
markets but small rural areas as well where there are
no holding companies present. We believe this has re
sulted in increased competition among larger banking
organizations more capable of offering a full range of
services, particularly in small towns. This proposed ac
quisition is consistent with this procompetitive trend.
These deposits amount to 0.66 percent, 0.03 percent, and
0.003 percent of total deposits, respectively, of banking of
fices in the service areas of Liberty State Bank, National
Bank of Fulton County, and Farmers and Merchants State
and Savings Bank.
3
As of year-end 1979, the 10 largest multibank holding com
panies, with deposits ranging between $1 and $3 billion,
held only 56 percent of the total commercial bank deposits in
the state (BancOhio Corporation, $3.8 billion in deposits, 9.4
percent; AmeriTrust Corp., $3.5 billion, 8.8 percent; National
City Corp., $3.1 billion, 7.8 percent; Society Corp., $2.4 bil
lion, 6 percent; BancOne Corp., $2.1 billion, 5.2 percent;
Centran Corp., $1.9 billion, 4.8 percent; Huntington Bancshares, Inc., $1.8 billion, 4.6 percent; Central Bancorporation, $1.6 billion, 4.1 percent; First National Cincinnati Corp.,
$1.3 billion, 3.3 percent; Union Commerce Corp., $1 billion,
2.6 percent). This reflects one of the lowest statewide de
posit concentration ratios.

In addition to expansion through holding company
acquisition, commercial banks have been permitted
since January 1979, with regulatory approval, to estab
lish de novo branches in counties continguous to the
county in which their main office is located and to
branch statewide by acquisition. 4 Prior to this time,
Ohio only allowed unrestricted county-wide branching.
Beginning January 1989, banks will be permitted to
establish de novo branches statewide, It should also
be noted that federally chartered savings and loan as
sociations are allowed, with regulatory approval, to
branch statewide. 5 Commencing January 1, 1981,
state-chartered savings and loan associations will ac
quire this same ability. At the present time, state asso
ciations are limited to establishment of branches within
a 100-mile radius of their main offices.
Effective January 1, 1981, savings and loan associa
tions in Ohio and nationwide, will be able to engage in
certain activities historically reserved for commercial
banks. Pursuant to the Depository Institutions Deregu
lation and Monetary Control Act, all savings and loan
associations will be able to offer NOW accounts (nego
tiable orders of withdrawal). Federally chartered sav
ings and loan associations gain new consumer lending
powers, including the ability to offer credit cards and
overdraft services and expanded real estate lending
powers essentially akin to those enjoyed by commer
cial banks. Moreover, a federally chartered savings
and loan association may offer trust services and es
tablish remote service units pursuant to regulations
prescribed by the Federal Home Loan Bank Board. In
addition, the investment powers of federally chartered
savings and loan associations are expanded to in
clude, inter alia, the ability to invest in commercial pa
per, corporate debt securities and residential^ related
government obligations.
Competitive Analysis
The threshold question in determining whether the
proposed acquisition will violate the Clayton and Bank
Merger Acts is whether Paulding Bank and Defiance
Bank engage in substantial, direct competition. The
Federal Reserve Board has argued that the banks are
in direct competition in the same market, namely, the
Defiance banking market, and that the proposed mer
ger will thereby result in a substantial lessening of
competition.6 There may be some support for the prop-

Thus far, two bank holding companies have realigned and
consolidated their banking interests throughout the state.
BancOhio Corporation has merged its 39 banking subsidi
aries into and under the charter of The Ohio National Bank of
Columbus. Similarly, Huntington BancShares Incorporated
has merged its 15 subsidiaries into the Huntington National
Bank.
5
First Federal Savings and Loan Association operates under
a federal charter.
6
As required by the Bank Merger Act, the Comptroller has
received reports on the competitive factors involved in the
proposed transaction from the Board of Governors of the
Federal Reserve System (Board), the Federal Reserve Bank
of Cleveland (Reserve Bank) acting on behalf of the Board of
Governors of the Federal Reserve System, the Federal De-

osition that there is one market which encompasses
both Defiance and Paulding Counties. The presence of
State Bank and Home Savings and Loan Association
in both Defiance and Paulding Counties may be seen
as such evidence. Accordingly, if Paulding Bank and
Defiance Bank are operating substantially in the same
single market, this affiliation, viewed from the perspec
tive of market shares, does raise troublesome antitrust
issues. However, the facts presented in the application
refute a finding that Defiance Bank and Paulding Bank
are substantial, direct competitors.
In the area from which Paulding Bank derived 82.1
percent of its deposits and 93 percent of its loans, De
fiance Bank drew only 2.1 percent of its total deposits
and 2.7 percent of its loans. Similarly, Paulding Bank
derived only 3.2 percent of its total deposits and 4 per
cent of its loans from the area that produced approxiposit Insurance Corporation (FDIC) and the Attorney General
of the United States (Department of Justice).
In its advisory report, the Reserve Bank initially determined
that "although the service areas of Applicant [Paulding] and
Bank [Defiance] do not presently overlap they operate in the
same banking market," to with "the Defiance banking market
[which] includes all of Defiance County except the Township
of Hicksville, all of Paulding County except the Township of
Carryall; the Townships of Flatrock and Pleasant in western
Henry County; and the Townships of Monroe and Perry in
northwestern Putnam County." The Reserve Bank concluded
that the merger would have an adverse effect on competition
since it "would combined [sic] the second and third largest
banking organizations and thereby increase the concentra
tion in the market." Significantly, however, the Reserve Bank,
stating that "in this case . . . thrifts should be considered as
full competitors of banks because the makeup of their [com
mercial banks] deposits and loan structure is similar to that
of thrift institutions," found that "the anticompetitive effect of
the proposed merger would be mitigated to a large extent by
the significant presence of thrift institutions in the market."
The Board submitted, as its report, a copy of its decision
on Toledo's application to acquire Defiance Bank as a sub
sidiary. In that statement, the Board, delineating the relevant
geographic market as that set forth in the Reserve Bank's re
port concluded that "consummation of this proposal would
have substantially adverse effects on competition in the rele
vant market." The Board, in its transmittal letter of August 6,
1980, noted that the recently enacted Depository Institutions
Deregulation and Monetary Control Act will enable the thrift
institutions "to compete more vigorously with commercial
banks."
The report received from the Department of Justice con
cluded that "the proposed merger would have a significantly
adverse effect on competition." Similarly, this finding was
premised on a determination that Defiance Bank and Pauld
ing Bank operate in the same banking market, adopting the
Board's delineation of that market.
The FDIC found that "the effect of the proposed transac
tion on competition would be adverse" because it "would
eliminate existing competition and the potential for increased
future competition. It would also serve to reduce the number
of banking alternatives in the local area and increase the
area's concentration of banking resources." The FDIC found
the relevant geographic market within which to analyze the
competitive effects of the merger to be the market area in
which Paulding operates, which, it determined, "consists of
nearly all of Paulding County and extends into Defiance
County to include the City of Defiance."

mately 81.1 percent of Defiance Bank's deposits and
95 percent of its loans. Thus, although some direct
competition between Paulding and Defiance Banks
does exist, it is not substantial, and its elimination does
not constitute a substantial lessening of competition in
any relevant market.
Even if we were to assume that the Defiance bank
ing market, as defined by the Federal Reserve Board,
were the relevant market, this affiliation would not
result in a substantial lessening of competition in view
of several important factors. First, the banks involved
in the proposed merger are relatively small in size and
hardly capable of dominating locally limited consumer
financial services in the market. Second, the presence
of aggressive savings and loan associations exerts a
procompetitive influence on the commercial banks
therein. Third, the introduction of Toledo Trustcorp into
the market by this merger will improve the quality of
services available to the market and directly enhance
its competitive performance. Finally, there currently ex
ists a large pool of potential entrants throughout the
state (e.g., there are 13 other multibank holding com
panies in Ohio with a total of 84 banks) which may ex
pand their activities into this market.
On the other hand, since we find that Paulding Bank
and Defiance Bank do not significantly compete within
the same geographic market, this transaction may be
viewed as a geographic market extension merger. In
that respect, it is our judgment that even assuming arguendo that Paulding Bank is a potential entrant into
Defiance County, its elimination as a potential de novo
entrant into the county will not harm the performance
or future competitive structure of this market due to the
presence of a significant number of remaining poten
tial entrants throughout the state after the merger.
Banking Factors
We find the financial and managerial resources of
Defiance Bank and Paulding Bank to be satisfactory.
The future prospects of the proponent banks, indepen
dently and in combination, are considered favorable.
As a result of this merger, Paulding Bank intends to
make available new and expanded banking services
to the present customers of Defiance Bank, including,
but not limited to, trust services, increased lending ca
pability and expertise in farm lending and investment
securities. These facts are positive considerations with
respect to the issue of convenience and needs, and
this Office is unaware of any negative factors relating
to this issue.
Community Reinvestment Act
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
banks' records of helping to meet the credit needs of
their entire communities, including low and moderate
income neighborhoods, is less than satisfactory.
We have carefully considered the application pursu
ant to the Bank Merger Act, 12 USC 1828(c), as well
as the reports received by this Office from the Depart55

ment of Justice, the Federal Reserve Board, the Fed
eral Reserve Bank of Cleveland and the FDIC. We con
clude that the proposed merger will not violate Section
7 of the Clayton Act, will be in the public interest and
will, therefore, otherwise satisfy the requirements of the
Bank Merger Act. Accordingly, the application of Na
tional Bank of Paulding to merge with National Bank of
Defiance under the charter of National Bank of Pauld
ing with the title "Maumee Valley National Bank" is ap
proved.
December 12, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
Defiance County (estimated population 37,200) is lo
cated in northwestern Ohio along the Indiana border.
Although it has experienced negligible population
growth during the 1970's, it still has the largest popula
tion among the seven counties in northwestern Ohio.
The town of Defiance (estimated population 15,800) is
the largest town in this region. The nearest cities larger
than Defiance are Lima and Toledo, more than 50
miles distant, and Fort Wayne, Ind., more than 40 miles
distant.
Paulding County (estimated population 19,400) is lo
cated immediately south of Defiance County. It has ex
perienced a 4.5 percent population growth during the
1970's. The town of Paulding (estimated population
3,000) is the principal community in the county.
Applicant's sole office in Paulding is approximately
18 miles southwest of Bank's offices in Defiance. In
addition, Liberty State Bank, another Toledo Trustcorp
subsidiary, has an office in Napoleon in Henry County,
approximately 15 miles northeast of Bank's offices in
Defiance.
There are no bank offices in the area between
Paulding and Defiance, and there is only one other
bank, State Bank and Trust Co., in each of these two
towns. According to the application, Bank draws
$643,000 in deposits and $624,000 in loans from
Applicant's service area, as defined in the application
(approximately 2.9 percent and 4.4 percent, respec
tively, of Applicant's total deposits and net loans), and
Applicant draws $795,000 in deposits and $563,000 in
loans from Bank's service area, as defined in the appli
cation (approximately 2.6 percent and 2.5 percent, re
spectively, of Bank's total deposits and net loans). It
therefore appears that the proposed merger would
eliminate a significant amount of existing competition
between Applicant and Bank.
The area within which it appears appropriate to
assess the competitive effects of the proposed merger
includes all of Defiance County, except the township of

Hicksville, all of Paulding County, except the township
of Carryall, the townships of Flatrock and Pleasant in
Henry County and the townships of Monroe and Perry
in Putnam County.* Banking is highly concentrated in
this market; the four largest of the eight banks operat
ing there control 75.8 percent of the total deposits held
in bank offices in the area. Bank is the second largest,
and Applicant is the third largest bank in the area,
controlling 19.5 percent and 12.9 percent, respec
tively, of the area's total deposits (on the basis of June
30, 1979, branch office deposit data). If the proposed
merger is consummated, Applicant would control al
most one-third of the area's bank deposits, 32.4 per
cent, the second largest share of local deposits (the
largest share, 34.5 percent, is held by State Bank and
Trust Co.), and concentration among the four largest
banks would increase from 75.8 percent to 83.5 percent.f
Under Ohio law, a bank may establish de novo
branches in the county within which its home office is
located and in counties adjacent to its home office
county. Thus, Toledo Trustcorp, through its subsidi
aries, Applicant and Liberty State Bank, may enter De
fiance County de novo. Similarly, Bank may enter
Paulding County and Henry County (in which Liberty
State Bank is located) by de novo branching. The ap
plication states (p. 38), moreover, that Defiance could
support additional branches. The proposed merger
would therefore eliminate the potential for increased
future competition between Toledo Trustcorp's subsid
iaries and Bank through de novo branching as well as
through increased promotional efforts by the parties.
We conclude that the proposed merger would have
a significantly adverse effect on competition.

* This is the market within which the Federal Reserve Board
assessed the competitive effects of Toledo Trustcorp's pro
posed acquisition of Bank in denying an earlier application
to acquire Bank.
t Applicant and its parent, Toledo Trustcorp, have urged
several other areas as markets both in this application and in
the application the Federal Reserve Board denied. Based
upon a field survey conducted by the Federal Reserve Bank
of Cleveland, the Board rejected the contention, renewed in
this application, that Defiance County and Paulding County
constitute separate markets. The board also rejected a much
broader market urged by the parties consisting of Defiance
and Paulding Counties, the western half of Henry County and
the northwestern portion of Putnam County. We note that in
this broader market Bank and Toledo Trustcorp would be the
third and fifth largest banking organizations, controlling 12.4
percent and 9.5 percent, respectively, of the area's total
bank deposits.

CITIZENS AND SOUTHERN NATIONAL BANK,
Savannah, Ga., and The Citizens and Southern Emory Bank, Decatur, Ga., and The Citizens and Southern Bank of
Fulton County, East Point, Ga., and The Citizens and Southern DeKalb Bank, Avondale Estates, Ga., and C & S Interim National Bank, Savannah, Ga.
Banking offices
Total
assets

Names of banks and type of transaction

The Citizens and Southern National Bank, Savannah, Ga. (13068), with
$3,673,476,000
and The Citizens and Southern Emory Bank, Decatur, Ga., with
264,427,000
and The Citizens and Southern Bank of Fulton County, East Point, Ga., with
154,085,000
and The Citizens and Southern DeKalb Bank, Avondale Estates, Ga., with
95,949,000
and C & S Interim National Bank, Savannah, Ga. (Organizing), which had
240,000
merged December 31, 1980, under the charter of the latter bank (13068) and title "The Citizens and
Southern National Bank." The merged bank at date of merger had
3,964,706,000

COMPTROLLER'S DECISION
Citizens and Southern Interim National Bank, Savan
nah, Ga., is being organized by Citizens and Southern
Holding Company, Atlanta, Ga., a bank holding com
pany and a wholly owned subsidiary of The Citizens
and Southern National Bank. The Citizens and South
ern Emory Bank, Decatur, Ga., The Citizens and
Southern Bank of Fulton County, East Point, Ga., and
The Citizens and Southern DeKalb Bank, Avondale Es
tates, Ga., are wholly owned subsidiaries of Citizens
and Southern Holding Company. The merger of The
Citizens and Southern National Bank, The Citizens and
Southern Emory Bank, The Citizens and Southern Bank
of Fulton County and The Citizens and Southern De
Kalb Bank into C&S Interim National Bank is part of a
process of corporate reorganization whereby the
structure of the Citizens and Southern group will be
substantially realigned, causing the resulting bank,
The Citizens and Southern National Bank, to become a
subsidiary of Citizens and Southern Holding Company.
Since this merger is a vehicle for a bank holding com
pany reorganization and merely combines four existing
commercial bank affiliates of that holding company
with a nonoperating bank, it presents no competitive
issues under the Bank Merger Act, 12 USC 1828(c),
and, consequently, will have no effect on competition.

In
To be
operation operated
86
13
6
2
0
107

A review of the financial and managerial resources
and future prospects of the existing, organizing and
proposed institutions and the convenience and needs
of the community to be served has disclosed no rea
son why this application should not be approved.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
applicants' records of helping to meet the credit needs
of their entire communities, including low and moder
ate income neighborhoods, was less than satisfactory.
The proposed merger may not be consummated un
til evidence of compliance with 12 USC 215a(2) is sub
mitted to this Office.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cants to proceed with the proposed transaction.
November 18, 1980.

SUMMARY OF REPORT BY ATTORNEY GENERAL
The merging banks are all wholly owned subsidiaries
of the same bank holding company. As such, their pro
posed merger is essentially a corporate reorganization
and would have no effect on competition.

FIRST NATIONAL BANK OF SOUTH JERSEY,
Egg Harbor Township, N.J., and First National State Bank of Central Jersey, Trenton, N.J.
Banking offices
Names of banks and type of transaction

Total
assets

First National Bank of South Jersey, Egg Harbor Township, N.J. (1326), with
and First National State Bank of Central Jersey Trenton N J (13039) which had
merged December 31, 1980, under the charter of the latter bank (13039) and title of "First National
State Bank of South Jersey." The merged bank at date of merger had ..

COMPTROLLER'S DECISION
An application was filed on February 17, 1978, with
OCC according to the Bank Merger Act, 12 USC
1828(c), by First National State Bank of Central Jersey,
Trenton, N.J. (Central), for approval to merge with First

$633,293,000
120,888,000
754,181,000

In
operation

To be
operated

45
48

National Bank of South Jersey, Egg Harbor Township,
N.J. (South), under the charter of First National State
Bank of Central Jersey and with the title "First National
State Bank of South Jersey" (FNSJ). The application,
which is based on a written agreement executed by
57

the banks on January 5, 1978, was amended on Octo
ber 11, 1978, and provides for the divestiture of certain
offices by South and by First National State Bank of
West Jersey, Burlington, N.J. (West). Central and West
are wholly owned subsidiaries of First National State
Bancorporation, Newark, N.J. (Bancorp).
Financial Institutions Involved
South, the institution to be acquired, was organized
as a national banking association in 1907 and holds 2
percent, approximately $520 million, of the state's total
commercial bank deposits. It presently operates 45 of
fices in seven counties in southern New Jersey, includ
ing 22 in Atlantic, nine in Gloucester, five in Cape May,
three each in Salem and Burlington, two in Camden
and one in Cumberland. South's relative position in
southern New Jersey has shown a marked decline in
recent years, notwithstanding its acquisition of seven
southern New Jersey banks between 1969 and 1975.
South's nonaggressive competitive stance is exempli
fied by its 40 percent loan-to-deposit ratio and the fact
that 60 percent of its earning assets are investment se
curities, both factors which result in limiting the amount
of credit available to its communities. In addition,
South pays less than 5 percent interest on regular sav
ings accounts and is the only one of the nine banks in
Atlantic County which does not offer free checking.
As a part of this transaction, South proposes to sell
two of its five offices in Atlantic City, with approxi
mately $37 million in deposits, to large institutions not
presently in that market. Their sale will reduce South's
percentage of total commercial bank deposits in the
county from 46.1 to 40.8 percent and in the city from
50.7 to 45 percent.1 In addition, South proposes to sell
two of its three offices in Burlington County, located at
Bordentown and holding approximately $18 million in
deposits, to a banking organization which is not pres
ently represented in that area.
Central, the acquiring bank, was organized as a na
tional banking association in 1927. In 1972, Security
National Bank of Trenton, Trenton, merged into Cen
tral, and the resulting bank was acquired by Bancorp.
Central is the smallest bank in the holding company,
operating four offices in the Trenton area with deposits
of approximately $84.9 million and assets of $93 mil
lion.
Although Central, a relatively small banking entity by
itself, is requesting approval to merge with South un
der Central's charter, the merger has been analyzed
as if Bancorp, the holding company which owns Cen
tral and West and will own the resulting bank (FNSJ),
were a single consolidated entity. Bancorp was incor
porated under New Jersey law on July 10, 1969. On
January 15, 1970, it acquired all of the outstanding
stock of the First National State Bank of New Jersey,
Newark, and began operations as a one-bank holding
company. On December 21, 1970, it became a multi-

bank holding company by acquiring four national
banks. It is now the largest banking organization head
quartered in the state with six member banks in the
system operating 106 offices. As of December 31,
1977, those six banks had approximately $2.1 billion in
deposits representing 8.01 percent of the total com
mercial bank deposits in the state. After the proposed
merger and divestiture, Bancorp's share of commer
cial bank deposits in the state would be 9.74 percent.
West, another Bancorp subsidiary, with $201 million
in deposits, operates in the southern portion of the
state and is relevant to the competitive analysis of the
proposed transaction. It has three offices in Atlantic
County which it acquired in November 1974. These of
fices hold deposits of approximately $20.3 million, rep
resenting 3 percent of the commercial bank deposits
in the county. Bancorp proposes to remove its pres
ence from the county prior to the merger by selling
these three West offices to two new market entrants.
West also has offices in Burlington County with ap
proximately $93.6 million in deposits, representing
10.6 percent of that county's commercial bank de
posits.
The divestiture of South's four offices and West's
three offices will reduce the geographic markets
served by each. Except for South's single $15.6 million
deposit office in the Philadelphia-Camden market area
of Burlington County, neither Bancorp or South will
have offices in the same market area within New Jer
sey.
New Jersey and the Local Markets
Since 1973, New Jersey has been one of the 16
states which permit statewide branching. It is the least
concentrated of these states and would remain so af
ter consummation of this transaction. As of December
31, 1977, the five largest banking organizations in New
Jersey controlled approximately 32 percent of the
state's commercial bank deposits. In addition to Ban
corp, United Jersey Banks had 7.71 percent of the to
tal state deposits with $1.98 billion; Midlantic Banks,
Inc., had 6.77 percent with $1.74 billion; Fidelity Union
Bancorporation had 5.72 percent with $1.47 billion;
and Heritage Bancorporation had 3.91 percent with
$1.01 billion. There are at least 11 other commercial
banking organizations with deposits in excess of $500
million which control approximately 29 percent of the
state's commercial bank deposits.2 In addition to this
low degree of deposit concentration, the competitive
banking environment in New Jersey is also affected
significantly by its physical proximity to New York and
Pennsylvania.
New Jersey is comprised of 12 counties and, ac
cording to the economic staff of the Federal Reserve
Board, 19 banking markets. Section 7 of the Clayton
Act and of the Bank Merger Act refer to "any section of
the country" as the appropriate geographic market to
measure the competitive effects of a merger. To date,

These figures assume that all deposits associated with a
divested office will remain with that office, an assumption
that is not necessarily so. At the same time, it should be rec
ognized that FNSJ will probably lose some customers as a
result of the loss of its local identification.
58

Of additional note, applicable New Jersey statutes limit the
aggregate deposits of any one banking organization to no
more than 20 percent of the total average deposits of all
commercial banks in the state.

the focus of the Supreme Court in banking cases has
been on local markets. Accordingly, this application
has been analyzed in terms of the seven counties in
which South is located and certain other arguably rele
vant markets.
Atlantic County
In Atlantic County, there are nine commercial bank
ing organizations operating 51 offices. South operates
22 of its offices there and ranks first in deposits held
with $322.2 million, representing 46.1 percent of the
county's total commercial bank deposits. West oper
ates three offices in the county and ranks 11th with
$20.3 million in deposits, representing 2.9 percent of
the county's total commercial bank deposits. The
development of banking in Atlantic County over the
last 10 years reveals a marked trend toward deconcentration. Between 1968 and 1978, the number of
competitors in the county increased from five to 10,
and at the same time, South's share of the commercial
bank deposit market declined 17 percent. Between
June 30, 1975, and June 30, 1978, Guarantee Bank
and Trust Company, the second largest bank in Atlan
tic County, increased its total deposits by at least $45
million, and Atlantic National Bank, the third largest
bank in the county, increased its total deposits by $27
million. During this same period, however, the total
market share of three leading banks in the county de
clined.
Within Atlantic County, there are two relevant submarkets. In the first, the Atlantic City market, eight
banks operate, with South having approximately 50.7
percent of the deposit market, compared to Bancorp's
(West) 2.7 percent. The largest competitor after South,
Guarantee Bank and Trust Company, has 19.1 percent
of the deposit market, and the three largest banks in
Atlantic City control some 79 percent of the total com
mercial bank deposits there. In the other submarket,
the Hammonton market, South controls approximately
48.4 percent of the total deposits with $27.5 million,
compared to 2.8 percent controlled by Bancorp
(West). The three largest banks control 72 percent of
this market.
In assessing existing market structure data in Atlan
tic County, it should be recognized that in recent years
the prospects of the county, particularly Atlantic City,
have not been bright. Once a mecca for tourists and
conventioneers, the city has fallen on hard times. How
ever, since the passage of legislation by the New Jer
sey state legislature authorizing casino gambling in the
city, the future prospects for Atlantic City and sur
rounding areas are viewed as being vastly improved.
Burlington County
Seventeen commercial banking organizations oper
ate 83 offices in Burlington County and hold $880 mil
lion in deposits. Six of those commercial banks are af
filiated with holding companies. Bancorp (West)
operates 11 offices in Burlington County and is the
second largest bank there with approximately $93.6
million in deposits, representing 10.6 percent of the
county's total commercial bank deposits.

South operates three offices in the county and ranks
11th in deposits with $33.6 million, representing 3.8
percent of the total county commercial bank deposits.
With the divestiture of two of South's three offices in
Burlington County, Bancorp's share of the county's de
posits after the merger would increase to 12.4 percent,
or $109.2 million. The merged bank, FNSJ, would rank
second in the county behind Burlington County Trust
Company which holds 20 percent of the county's de
posits.
Burlington County stretches between and includes
portions of two important submarkets: the Greater
Trenton market and the Philadelphia-Camden market.
South operates two offices in the Greater Trenton mar
ket in northwest Burlington County (Bordentown) which
are approximately 6 miles from several offices of Cen
tral in Mercer County and West in Burlington County. In
Mercer County, where Central is headquartered and
operates all of its four offices, there are 14 commercial
banks with 68 offices. Central holds $84.9 million in
deposits, representing 5.8 percent of the county's total
commercial bank deposits. Six other banks hold larger
shares of the county's deposits, the largest held by
New Jersey National Bank, Trenton, at $546 million in
deposits, representing 37 percent of the total.
In the Greater Trenton market, Bancorp's subsidi
aries hold 4.9 percent of the estimated $2.7 billion in
commercial bank deposits there, making Bancorp fifth
among the 42 banks with offices in the area. South
ranks 31st in deposits held in this market with $18 mil
lion, representing 0.6 percent of the total. The pro
posed merger would not affect Bancorp's share of the
Greater Trenton market, and Bancorp would continue
to rank fifth in the market area since South will sell its
two offices to a banking organization not presently in
the area.
In the Philadelphia-Camden market, some 51 banks
operate with $15.7 billion in deposits. West and South
each have 0.3 percent of the total commercial bank
deposits in the market, ranking them 24th and 25th, re
spectively. The merged bank (FNSJ) would rank 20th
with 0.64 percent of the total commercial bank de
posits in the market.
Cape May, Gloucester, Salem, Cumberland and
Camden Counties
Bancorp is not presently represented by offices in
any of these five southern New Jersey counties; how
ever, Central's merger with South would result in Ban
corp assuming South's market position in each county.
South operates five offices in Cape May County with
approximately $70.8 million in deposits, representing
18.4 percent of the $385.9 million in commercial bank
deposits there. Seven other banks operate 25 offices
in the county. Marine National Bank of Wildwood, Wildwood, N.J., ranks first in county deposits with 22.7 per
cent. First Peoples Bank of New Jersey, Westmount,
N.J., a $747 million deposit bank has four offices in the
county which hold $44.1 million in deposits. There are
no other holding companies currently operating in the
county.
There are 15 commercial banks operating 58 offices
in Gloucester County. National Bank and Trust Com-

pany of Gloucester County, with 13 offices, ranks first
in county deposits with $159.4 million, representing
29.6 percent of the county's total commercial bank de
posits. South has nine offices in the county and ranks
third in deposits with approximately $55.9 million, rep
resenting 10.4 percent of the county's total commercial
bank deposits. A major portion of Gloucester County
falls within the Philadelphia-Camden market area
where South holds only 0.32 percent of the market.
In Salem County, nine commercial banks operate 23
offices. South operates three offices there and ranks
third in deposits with $31.2 million, representing 15.2
percent of the county's $205.7 million in commercial
bank deposits. City National Bank and Trust Company
of Salem and Penns Grove National Bank and Trust
Company hold more with 18.3 percent and 16 percent,
respectively. First Peoples Bank of New Jersey con
trols 11.6 percent of the county's total commercial
bank deposits, and Midlantic Banks, Inc., the third
largest holding company in New Jersey, is repre
sented in Salem County by a bank holding 8.2 percent
of the commercial bank deposits there.
In the Greater Wilmington market area, which in
cludes a portion of Salem County, South has an esti
mated $29 million in deposits, representing 1.45 per
cent of the market and ranking it as the 11th largest
commercial bank there.
Ten banks operate 43 offices in Cumberland
County. South has one office there and controls the
smallest share of market deposits, ranking 10th with
$2.4 million. In addition to First Peoples Bank of New
Jersey, three other banks which are all subsidiaries of
large bank holding companies operate 24 offices in
the county. Cumberland County, with the exception of
the southern-most tip, is included in the PhiladelphiaCamden market area along with most of Gloucester
and Burlington counties.
In Camden County there are 15 commercial banks
with 91 offices. South has two offices there and holds
$4.9 million in deposits, representing 0.3 percent of
the county's total commercial bank deposits. Five
large holding companies and First Peoples Bank of
New Jersey are represented in Camden County. Each
has market shares greater than South.
Competitive Analysis
As the advisory competitive reports submitted by the
Justice Department and the other commercial bank
regulatory agencies reflect,3 the prospect of the larg3

As required by the Bank Merger Act, the Comptroller has
received reports on the competitive factors involved in the
merger transaction from the Attorney General of the United
States, the Federal Reserve Board (FRB), and the Federal
Deposit Insurance Corporation (FDIC).
The report received from the Department of Justice (Jus
tice) concludes that the proposed merger will have a "signifi
cantly adverse effect on competition." The report seems to
suggest four separate theories of law to support that conclu
sion. Justice argues first that the proposed merger would
eliminate some direct competition between Bancorp and
South; second, that the proposed merger would eliminate
potential competition in certain markets between the two;
60

est banking organization in the state acquiring the
largest bank in a certain market area (Atlantic County)
suggests troublesome questions under the antitrust
laws. Nevertheless, our judgment is that the proposed
acquisition will, in fact, not result in a lessening of com
petition but will be procompetitive and will lead to an
immediate enhancement of market performance. We
believe that this view is consistent with the realities of
competition in the marketplace and the case law which
has evolved under the Bank Merger and Clayton acts.
The Bank Merger Act requires this Office to consider
whether the effect of the proposed merger transaction
could substantially lessen competition in any section of
the country. If such anticompetitive effects are identi
fied, the transaction may be approved only if:
the anticompetitive effects of the proposed trans
action are clearly outweighed in the public interest
by the probable effect of the transaction in meet
ing the convenience and needs of the community
to be served.
The act (12 USC 1828(c)(5)) provides that in every
case the Comptroller must take into account the tradi
tional banking factors: the financial and managerial re
sources and future prospects of the existing and pro
posed institutions and the convenience and needs of
the community to be served.4 In addition, according to
third, that the level of concentration would eventually in
crease due to the entrenchment and establishment of a
dominant banking force (Bancorp) in certain market areas;
and finally, that the developing trend of concentration in the
relevant markets should prohibit this merger.
In its advisory report, the Board of Governors of the Fed
eral Reserve System concluded that the proposal would
have adverse effects on competition since it " . . . would
result in the largest banking organization in New Jersey gain
ing control of the bank which ranks first in two markets hold
ing more than one-third of the commercial bank deposits in
the Hammonton market and over one-half of the commercial
bank deposits in the Atlantic City market."
Lastly, the Board of Directors of the FDIC found that the ef
fect of the proposed merger transaction on competition
would be substantially adverse, since " . . . Bancorp and its
subsidiary banks have the managerial and financial re
sources to expand operations through de novo branching
activities or by means of less anticompetitive merger pro
posals with banks that are not dominant in their local mar
kets." FDIC also stressed that the " . . . continued trend to
ward concentration is not looked upon as being desirable,
and poses a growing threat to the competitive structure of
commercial banking in the state."
4
The requirements of 12 USC 1828(c)(5) are:
(5) The responsible agency shall not approve —
(A) any proposed merger transaction which would
result in a monopoly, or which would be in furtherance of
any combination or conspiracy to monopolize or to at
tempt to monopolize the business of banking in any part
of the United States, or,
(B) any other proposed merger transaction whose
effect in any section of the country may be substantially
to lessen competition, or to tend to create a monopoly,
or which in any other manner would be in restraint of
trade, unless it finds that the anticompetitive effects of
the proposed transaction are clearly outweighed in the

the Community Reinvestment Act regulations,5 which
were enacted pursuant to the requirements of the act,6
the Comptroller must take into account, among other
factors, a merger applicant's record of performance in
meeting the credit needs of the local communities in
which it is chartered.
In applying the Clayton and Bank Merger acts,
courts and the agencies have addressed both trans
actions involving firms competing directly in the same
geographic markets and transactions involving geo
graphic market extensions. As the facts and the advi
sory reports reflect, the proposed transaction is a hy
brid from the point of view of competitive analysis.
At the present time, there exists some direct compe
tition between certain offices of Bancorp banks (Cen
tral and West) and South. However, in light of the small
degree of direct competition in the relevant markets7
and the divestitures by Bancorp and South8 that will
result in the addition of new entrants into heretofore
concentrated markets, the elimination of current direct
competition between the two firms does not constitute
grounds for a violation of the antitrust laws 9 and,
hence, a basis for denial of the application to merge.
Indeed, we believe that the merger will not damage
the structure of competition in the relevant markets but
will, in fact, enhance the competitive performance in
those areas.
The advisory opinions, however, raise more serious
questions regarding Bancorp's extension of its geo
graphical market area through this acquisition. Ac
cordingly, in light of the insignificant amount of existing
direct competition and the divestiture of seven offices
by Bancorp and South, we have analyzed the pro
posed transaction primarily as a geographic market
extension case even though South and Bancorp are
presently competing directly to a certain extent.
public interest by the probable effect of the transaction
in meeting the convenience and needs of the commu
nity to be served.
In every case, the responsible agency shall take into con
sideration the financial and managerial resources and future
prospects of the existing and proposed institutions and the
convenience and needs of the community to be served.
5
12CFR25.8.
6
12 USC 2901 etseq.
7
See discussion earlier.
8
See discussion earlier.
9
The standard set forth by the Supreme Court defining a
"substantial lessening of competition" under Section 7 in
such circumstances is as follows:
(A) merger which produces a firm controlling an undue
percentage of the relevant market, and results in a sig
nificant increase in the concentration of firms in that
market, is so inherently likely to lessen competition sub
stantially that it must be enjoined in the absence of evi
dence clearly showing that the merger is not likely to
have such anticompetitive effects.
(See United States v. Philadelphia Nat'l Bank, 374 U.S.
at 363)
In addition, divestiture prior to merger is an acceptable
technique to avoid an antitrust violation. FTC v Atlantic Richfield Co., 549 F.2d 289, 299 (4th Cir. 1977); United States v.
Connecticut Nat'l Bank, 362 F.Supp. 268, 286; 418 U.S. 656,
659.

Although the Supreme Court suggested as early as
1963 in the Philadelphia National Bank case, supra,
that a merger's probable future, and its present effects
must be addressed in applying Section 7 of the Clay
ton Act, it did not fully examine the potential competi
tion doctrine in a banking case until United States v.
Marine Bancorporation, Inc., 418 U.S. 602 (1974). Prior
to Marine, a number of unsuccessful suits ° had been
initiated by Justice challenging bank mergers as Sec
tion 7 violations on the basis of its developing theory of
potential competition. Consequently, it was thought
that the decision in Marine would directly address and
resolve the issues presented by the potential competi
tion doctrine in the banking field. However, after Marine, the law remained unsettled.
Because of the weight which the other agencies
have attached to the potential competition theory and
because of the interest of merger applicants generally,
we believe it appropriate to review briefly the status of
the law in this difficult area.
In Marine, the court held that "geographic market
extension mergers must pass muster under the poten
tial competition doctrine." (See 418 U.S. at 627) How
ever, the court carefully distinguished two different
branches of the potential competition doctrine—the
"perceived potential entrant" or "wings effect" theory
and the "actual potential entrant" theory11—and spe-

United States v. Deposit Guaranty Nat'l Bank of Jackson,
373 F.Supp. 1230 (S.D. Miss. 1974); United States v. United
Virginia Bankshares, Inc., 347 F.Supp. 891 (E.D. Va. 1972);
United States v. First Nat'l Bancorporation, Inc., 329 F.Supp.
1003 (D. Colo. 1971), aff'd per curiam, 410 U.S. 577 (1973);
United States v. Idaho First Nat'l Bank, 315 F.Supp. 261 (D.
Idaho 1970); United States v. First Nat'l Bank of Maryland,
310 F.Supp. 157 (D. Md. 1970); United States v. First Nat'l
Bank of Jackson, 301 F.Supp. 1161 (S.D. Miss. 1969);
United States v. Crocker-Anglo Nat'l Bank, 277 F.Supp. 133
(N.D. Ca. 1967).
The difficulty associated with this doctrine is reflected in
the statement of a Justice Department attorney, who later be
came Assistant Attorney General of the Antitrust Division,
which succinctly summarized the Justice Department's the
ory and its incidence of success:
Accordingly, the Department of Justice has filed several
recent cases to enjoin state-wide leaders from acquiring
banks with leading local market positions.
*
*
*
*
*
These cases have generally rested on the theory that
the acquiring bank would be eliminated as a potential
entrant into the market of the acquired bank and that the
acquired bank's leading local market position would be
entrenched by the merger.
*
*
*
*
*
. . . So far, however, the Department of Justice has not
yet secured a victory on this theory in the banking field.
Not to say we won't but the issues are close and diffi
cult.
(See United States v. Deposit Guaranty Nat'l Bank of
Jackson, 373 F.Supp. at 1233-34)
11
Justice Powell described these two facets of Justice's ar
gument as follows:
The United States bases its case exclusively on the po
tential-competition doctrine under Section 7 of the

cifically limited its holding to the first. Relying on
United States v. Falstaff Brewing Corp., 410 U.S. 526
(1973), the court said of the "perceived potential en
trant" theory: " . . . the principal focus of the doctrine is
on the likely effects of the premerger position of the
acquiring firm on the fringe of the target market. . . ."12
(See 418 U.S. at 624) While making abundantly clear
that "(T)he elimination of . . . present procompetitive
effects may render a merger unlawful under Section 7"
(See 418 U.S. at 625), the court indicated that its deci
sion did not go beyond the application of the "per
ceived potential entrant" or "wings effect" theory. (See
418 U.S. at 639) In so doing, the court expressly re
served judgment as to the vitality of the "actual poten
tial entrant theory" under the potential competition
doctrine.13
Thus, in analyzing this transaction as a geographic
market extension, we are bound to find a violation of
Section 7 of the Clayton Act and of the Bank Merger
Act only if the case runs afoul of the "perceived poten
tial entrant" theory. We believe it would be inappro
priate to consider denial of a merger based on a the
ory of illegality (i.e., the "actual potential entrant"

Clayton Act. It contends that if the merger is prohibited,
the acquiring bank would find an alternate and more
competitive means for entering the Spokane area and
that the acquired bank would ultimately develop by in
ternal expansion or mergers with smaller banks into an
actual competitor of the acquiring bank and other large
banks in sections of the state cutside Spokane. The gov
ernment further submits that the merger would terminate
the alleged procompetitive influence that the acquiring
bank presently exerts over Spokane banks due to the
potential for its entry into that market.
(See 418 U.S. at 605)
12
In further explanation of the "perceived potential entrant"
theory, the court stated:
(T)he court has interpreted Section 7 as encompassing
what is commonly known as the "wings effect"—the
probability that the acquiring firm prompted premerger
procompetitive effects within the target market by being
perceived by the existing firms in that market as likely to
enter de novo. Falstaff, supra, at 531-537. The elimina
tion of such present procompetitive effects may render a
merger unlawful under Section 7.
(See 418 U.S. at 625)
13
The court stated:
The court has not previously resolved whether the po
tential-competition doctrine proscribes a market exten
sion merger solely on the ground that such a merger
eliminates the prospect for long-term deconcentration of
an oligopolistic market that in theory might result if the
acquiring firm were forbidden to enter except through a
de novo undertaking or through the acquisition of a
small existing entrant (a so-called foothold or toehold
acquisition).
(See 418 U.S. at 625)
And further:
Indeed, since the preconditions for that theory are not
present, we do not reach it, and therefore we express no
view on the appropriate resolution of the question re
served in Falstaff. We reiterate that this case concerns
an industry in which new entry is extensively regulated
by the state and federal governments.
(See 418 U.S. at 639)
62

theory) whose validity is in doubt. Nevertheless, al
though our perception of the future competitive effects
of this transaction departs from those enunciated by
the other agencies in their advisory reports, we believe
that it may be appropriate to examine this merger
within the framework of the "actual potential entrant"
theory as well a^ the "perceived potential entrant" the
ory.
In Marine, the court identified three criteria neces
sary for finding illegality under the Clayton Act using
the "wings effect" theory of potential competition:
The court has recognized that a market extension
merger may be unlawful if the target market is
substantially concentrated, if the acquiring firm
has the characteristics, capacities and economic
incentives to render it a perceived potential de
novo entrant, and if the acquiring firm's premerger
presence on the fringe of the target market in fact
tempered oligopolistic behavior on the part of ex
isting participants in that market.
(See 418 U.S. at 624)
Since Bancorp is presently in the principal market
areas under consideration, application of the "wings
effect" test to a case such as this, notwithstanding the
impending divestiture, is not precise. The basic notion
underpinning the "wings effect" theory is that the per
formance of the market in question is adversely af
fected as a result of the removal of the tempering ef
fect of a perceived potential entrant on a market
which, but for its influence, would be characterized by
oligopolistic behavior. Thus, in applying this concept
to the facts at hand, the merger might appropriately be
denied only if it could be shown that the loss of any
premerger procompetitive effects which Bancorp ex
erted on the market because of the possible expan
sion of its existing presence would substantially dam
age the performance of these markets.
Although Bancorp's potential for expansion in the
relevant markets, particularly Atlantic City, may exert a
procompetitive force, important factors indicate that
the elimination of the potential for aggressive cfe novo
expansion by Bancorp will not result in damage to the
performance of the market. These include the pres
ence of other leading banks about to enter the market;
the competitive impact of out-of-state banks; the role
of thrift and other financial institutions in New Jersey;
the apparent decline of South as a dominant banking
force in the market; and the continual decrease of the
level of concentration in the Atlantic County market.15
The substitution of Bancorp for South coupled with
the entry of new competing banks after the divestitures
14

Clearly, the Atlantic County market presents the more
challenging issues, if not the only ones, with respect to po
tential competition. Accordingly, the applicability and signifi
cance of the doctrine will be primarily discussed with re
spect to the facts and markets found in Atlantic County. Any
potential competition questions which might arise in other
relevant markets will be adequately addressed by that dis
cussion.
15
Supra.

will, in our opinion, lead to substantially better perform
ance in the Atlantic County market. The merged entity
intends to offer more competitive pricing practices,
better interest rates and additional community credit
facilities. In addition, the possible alienation of portions
of South's customer base because of the insertion of a
new, unfamiliar franking entity should encourage exist
ing banks in the area to vie for these customers and
stimulate increased competition. Assuming that the
"wings effect" test could be extended to cover the
facts at hand, we cannot find that the elimination of the
threat of Bancorp's expansion in the relevant markets
would violate the Clayton or Bank Merger Acts.
As indicated, the Supreme Court in Falstaff and Marine expressly reserved decision as to whether the po
tential competition doctrine proscribes a market exten
sion merger solely on the ground that it eliminates the
prospect for long-term deconcentration of an oligopo
listic market that might result if the acquiring firm were
compelled to enter de novo or through the acquisition
of a small existing entrant.16 Responding to Justice's
assertions in Marine, the court stated:
Two essential preconditions must exist before it
is possible to resolve whether the Government's
theory, if proved, establishes a violation of Section
7. It must be determined: (i) that . . . (the bank)
has available feasible means for entering the . . .
market other than by acquiring . . . (the target
bank); and (ii) that those means offer a substan
tial likelihood of ultimately producing deconcentra
tion of that market or other significant procompetitive effects. The parties are in sharp disagreement
over the existence of each of these preconditions
in this case. . . . The controversy turns on what
methods of entry are realistically possible and on
the likely effect of various methods on the charac
teristics of the . . . commercial banking market.
(See 418 U.S. at 633)
In the case before us, the first of these preconditions
may be met, assuming there are no substantial legal or
regulatory barriers to Bancorp's further expansion. We
should note, however, that for practical business and
regulatory reasons Bancorp could not be expected to
compete in the relevant markets on the scale contem
plated by this merger in the near future, if ever. In ad
dition, although it can be argued that expansion of
Bancorp's existing operations or the de novo entry of
other institutions would be procompetitive and would
ultimately lead to deconcentration (thereby conceiv
ably satisfying the second precondition), these as
sumptions are highly speculative and cannot form the
basis for a finding of illegality.
In contrast, we know that the proposed transaction
involves the acquisition of a bank which holds a signifi
cant share of its market and demonstrates noncompet
itive pricing policies and practices. We also know that
the divestiture of seven offices by the applicants will
lead to the introduction of several new banks into the
markets and will provide immediate and tangible cornSupra, footnote 13.

petitive benefits there. Moreover, the existence of a
number of other potential entrants and the reality of
competition in the Atlantic City area posed by savings
banks, other financial institutions and New York and
Philadelphia banks assures that, once created, vig
orous competition in Atlantic County will remain via
ble. 17
A different conclusion might well be appropriate if
Bancorp were dominant in New Jersey, if there were a
paucity of other strong potential entrants or if South
were itself a strong and viable competitor in the mar
ket. However, these factors which would suggest harm
to the future competitive structure in Atlantic County
are not present.
For the same reasons, we find Justice's other two ar
guments involving the future competitive structure in
the relevant markets without merit. Justice argued that
the acquisition of South by Bancorp would entrench
Bancorp in a dominant position which would deter
other potential entrants from a de novo or foothold en
try in the market and that the merger would hasten an
illegal trend of concentration in the state or in the geo
graphic markets under consideration. The vital com
petitive structure in New Jersey provides a ready re
sponse. The number of New Jersey banks ready,
willing and able to compete vigorously with Bancorp
assures that it will not entrench itself in a dominant po
sition in Atlantic County or elsewhere and that current
levels of competition will be enhanced after this mer
ger. This is reinforced by the attractiveness of the At
lantic City market resulting from the revitalization that
legalized gambling is likely to engender, a fact re
cently underscored by the proposed acquisition of At
lantic National Bank by Midlantic Bank, Inc. It is further
insured by the divestitures in this transaction which will
bring still other new competitors into the markets and
the fact that many markets in the state, including those
relevant to this analysis, will undergo substantial deconcentration as statewide branching systems evolve
in New Jersey. Finally, we cannot ignore the significant
long-term effect of New York and Philadelphia banks
on the structure of banking in New Jersey and the
competitive viability of New Jersey-based banks at
present and in the future.
Banking Factors
Since we find that this proposed merger will not sub
stantially lessen competition and is, therefore, not a vi
olation of Section 7, the defense of convenience and
17
Although one might describe an even more desirable sce
nario of transactions, the Bank Merger Act and the Clayton
Act do not contemplate regulatory or judicial speculation to
divine and shape the optimal banking structure in a given
market. Such a standard, in our judgment, would be almost
impossible to administer. The Clayton Act deals with reason
able probabilities, not ephemeral possibilities. Moreover, we
believe that a requirement that every transaction be optimal
in terms of future competition is inconsistent with the thrust of
the antitrust laws whose object is to prevent substantial anti
competitive behavior. The transaction before us is procom
petitive and will lead to immediate tangible enhancement of
the structure and performance of the markets in question.
Therefore, it is not illegal and should not be disapproved.

needs is not necessary. However, such an analysis is
still required since in every bank merger case, the
Comptroller must "take into consideration the financial
and managerial resources and future prospects of the
existing and proposed institutions, and the conven
ience and needs of the community to be served." (See
12 USC 1828(c)(5)).
For the following reasons, we conclude that the pro
posed merger will better serve the convenience and
needs of the communities involved and, therefore, will
be in the public interest.
First, as we have indicated, the divestitures will intro
duce new banking entrants into the primary markets
under consideration which will immediately increase
the public's banking alternatives in those areas and, at
the same time, be of sufficient size and character to ef
fectively compete with the merged bank and other pro
minent banking forces in those markets.
Second, South's conservative operating philosophy
will be replaced by a more competitive and aggressive
style which should benefit the banking public. In this
respect, FNSJ intends to significantly increase the
loan-to-deposit ratio from the current 40-percent level
that South has maintained and, thus, make an addi
tional $100 million in credit available immediately for
commercial and consumer lending in the market
areas. It also intends to offer free checking and higher
interest yields on savings accounts. Naturally, it will be
able to offer greater amounts of credit through partici
pation agreements with its affiliates, as well as a signif
icant number of additional banking services and de
partments: international, leasing and equipment
financing, commercial finance, cash management,
lock box rental, government banking, payments serv
ices, home improvement lending, coin and currency
operations, methods and systems data processing,
money market operations and investment securities. In
addition, Bancorp and FNSJ are committed to the es
tablishment of the First National State Bancorporation
Community Development Corporation which will take
an active role in community affairs and provide credit
and counseling services to small businessmen, con
sumers and homeowners.
Third and last, the presence of FNSJ in the primary
market areas in question will substantially enhance the
overall atmosphere of financial competition that cur
rently exists between commercial banks, credit unions,
savings and loan associations and other financial serv
ice corporations.18 Because of this level of increased
competitive activity between commercial banks and
other financial institutions, the proposed merger will
clearly have a positive competitive effect in the rele
vant market areas.

In Atlantic County in 1976, there were 10 commercial
banks having $578 million in deposits. At the same time,
there were five thrift institutions with $428 million in deposits.
Two of those commercial banks had over $100 million in de
posits, as did two of the thrift institutions. In addition, there
was significant competition presented by the presence of 15
credit unions, two insurance premium finance companies
and 10 small loan companies.
64

Similarly, the southern New Jersey area constitutes
but a part of the developing east coast banking corri
dor that stretches between the prominent banking
markets of New York and Philadelphia. Within that con
text, the proposed merger will help provide New Jer
sey with a banking force which can effectively com
pete with the powerful New York and Philadelphia
banks for larger commercial and industrial customers
and will, therefore, increase competition in that east
coast corridor, while at the same time directly enhanc
ing and enlarging the banking services which should
be made available in southern New Jersey.
We have considered the financial and managerial
resources of Bancorp, its subsidiary banks and South
and find these to be satisfactory. The future prospects
of the proponent banks, independently and in combi
nation, are considered favorable.
Community Reinvestment Act
This application was filed for consideration prior to
the November 6, 1978, effective date of the
Comptroller's Community Reinvestment Act regula
tions now codified in 12 CFR 25. However, consistent
with the spirit of the Community Reinvestment Act
(Public Law 95-128), a review of the record of this ap
plication and other information available to this Office
as a result of its regulatory responsibilities revealed no
evidence that the banks' records of helping to meet
the credit needs of their entire communities, including
low and moderate income neighborhoods, is less than
satisfactory.
We have carefully considered the application pursu
ant to the Bank Merger Act, 12 USC 1828(c), in light of
the issues raised in the reports received by the Comp
troller from Justice, FRB and FDIC. We conclude that
the proposed merger will not violate Section 7 of
the Clayton Act, will be in trie public interest and will,
therefore, otherwise satisfy the requirements of the
Bank Merger Act. Accordingly, the application of First
National State Bank of Central Jersey to merge with
First National Bank of South Jersey under the charter
of First National State Bank of Central Jersey with the
title "First National State Bank of South Jersey" is ap
proved.
As we have indicated, the application before us con
templates divestiture of certain offices. Since we have
reviewed the proposed transaction in this context, we
will consider the facts and conditions of the application
complete and complied with, and thus approval valid,
on the execution by Bancorp (West) and South of
good faith binding contracts (subject to the appropri
ate regulatory approvals required by law) for the dives
titure of the offices specified in the application to non
affiliated banking institutions or organizations not
previously operating or represented in the market
areas. Disapproval of any of the specific divestiture
contracts by an appropriate regulatory body will not vi
tiate the parties' responsibilities and duties to contract
for divestiture and seek to consummate the transaction
as submitted.
May 8, 1979.

SUMMARY OF REPORT BY ATTORNEY GENERAL
The staff has carefully reviewed the supplemental in
formation provided by Applicant and has reexamined
the competitive factors involved in the proposed ac-

quisition in light of such information. We nevertheless
continue to adhere to the views and the conclusion ex
pressed in our letter of April 19, 1978, regarding the
effects of this merger on competition in various New
Jersey banking markets.

GULFSTREAM FIRST BANK AND TRUST, N.A.,
each, National Association, Boynton Beach, Fla., and GulfBoca Raton, Fla., and Gulfstream Bank of Boynton Beach,
stream American Bank and Trust, N.A., Fort Lauderdale, Fla.
Banking offices
Names of banks and type of transaction

Total
assets

Gulfstream Bank of Boynton Beach, National Association, Boynton Beach,
each, IFla. (16224), with
and Gulfstream American Bank and Trust, N.A., Fort Lauderdale, Fla.i. (147<
(14741), with
whicf had
and Gulfstream First Bank and Trust, N.A., Boca Raton, Fla. (15421),, which
ind title
merged December 31, 1980, under the charter of the latter (15421) and
title "Gulfstream Bank,
N.A." The merged bank at date of merger had

COMPTROLLER'S DECISION
Gulfstream Bank of Boynton Beach, National Associa
tion, Boynton Beach, Fla., Gulfstream American Bank
and Trust, N.A., Fort Lauderdale, Fla., and Gulfstream
First Bank and Trust, N.A., Boca Raton, Fla., are
majority-owned and controlled by Gulfstream Banks,
Inc., Boca Raton, a registered bank holding company.
This proposed merger is a corporate reorganization
which would have no effect on competition.
A review of the financial and managerial resources
and future prospects of the existing and proposed in
stitutions and the convenience and needs of the com
munity to be served has disclosed no reason why this
application should not be approved.
The record of this application and other information

$ 45,961,000
183,088,000
302,303,000
574,441,000

In
operation

To be
operated

2
6
6
14

available to this Office as a result of its regulatory re
sponsibilities reveals no evidence that the banks1 rec
ords of helping to meet the credit needs of their entire
communities, including low and moderate income
neighborhoods, is less than satisfactory.
This is the prior written approval required by the
Bank Merger Act, 12 USC 1828(c), for the applicants
to proceed with the merger.
November 24, 1980
SUMMARY OF REPORT BY ATTORNEY GENERAL
The merging banks are all wholly owned subsidiaries
of the same bank holding company. As such, their pro
posed merger is essentially a corporate reorganization
and would have no effect on competition.

II. Mergers consummated, involving a single operating bank
SOUTHWEST NATIONAL BANK,
San Antonio, Tex., and Wurzbach Road National Bank, San Antonio, Tex.
Banking offices
Names of banks and type of transaction

Total
assets

Wurzbach Road National Bank (Organizing), San Antonio, Tex. (16209), with
and Southwest National Bank, San Antonio, Tex. (16209), which had
merged February 1, 1980, under the charter of the former (16209) and title of "Southwest National
Bank." The merged bank at date of merger had

COMPTROLLER'S DECISION

240,000
24,563,000

In
operation

To be
operated

0
1

25,473,000

more effectively serve the convenience and needs of
its community.
A review of the records of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
applicant's record of helping to meet the credit needs
of its entire community, including low and moderate in
come neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cant to proceed with this proposed merger.
December 17, 1979.

This is the Comptroller's decision on an application to
merge Southwest National Bank, San Antonio, Tex.
(Southwest), into and under the charter of Wurzbach
Road National Bank, San Antonio (Road Bank). This
application is a part of a process whereby Republic of
Texas Corporation, Dallas, Tex. (Republic), a regis
tered multibank holding company, is acquiring 100
percent (less directors' qualifying shares) of South
west. Road Bank has been organized by Republic
solely to facilitate the acquisition of Southwest.
On November 16, 1979, the Federal Reserve Board
approved Republic's application under the Bank Hold
ing Company Act, 12 USC 1841, et seq., to acquire
100 percent (less directors' qualifying shares) of the
successor institution by merger to Southwest. This
merger merely combines a nonoperating bank with an
existing bank and has no effect on competition.
The financial and managerial resources of both en
tities are satisfactory. Their future prospects, both sep
arately and consolidated, are favorable. After the mer
ger, Southwest will draw on the financial and
managerial resources of Republic. This will permit it to

SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
Southwest National Bank would become a subsidiary
of Republic of Texas Corporation, a bank holding com
pany. The instant merger, however, would merely com
bine an existing bank with a nonoperating institution;
as such, and without regard to the acquisition of the
surviving bank by Republic of Texas Corporation, it
would have no effect on competition.
*

FIRST NATIONAL BANK OF McMINNVILLE,
McMinnville, Oreg., and The First National Interim Bank of McMinnville, McMinnville, Oreg.
Banking offices
Names of banks and type of transaction

Total
assets

First National Bank of McMinnville, McMinnville, Oreg. (3399), with
$34,271,000
and The First National Interim Bank of McMinnville (Organizing), McMinnville, Oreg. (3399), which had
120,000
merged February 4, 1980, under charter of latter bank (3399) and title of "The First National Bank
of McMinnville." The merged bank at date of merger had
-33,416,000

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application to
merge First National Bank of McMinnville, McMinnville,
Oreg. (FNB), into and under the charter of The First
National Interim Bank of McMinnville, McMinnville,
Oreg. (Interim Bank). This application is one part of a
process whereby Pacwest Bancorp, a proposed bank
holding company, will acquire 100 percent (less direc66

In
operation

To be
operated

1
0
1

tors' qualifying shares) of FNB. As a part of this
process, Pacwest Bancorp sponsored a charter appli
cation for a new national bank which was given prelim
inary approval by this Office on August 22, 1979. This
merger is therefore a vehicle for a bank holding com
pany acquisition and merely combines a corporate
shell with an existing bank. As such, it presents no
competitive issues under the Bank Merger Act, 12
USC 1828(c).

November 30, 1979.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
First National Bank of McMinnville would become a
subsidiary of Pacwest Bancorp, a bank holding com
pany. The instant merger, however, would merely com
bine an existing bank with a nonoperating institution;
as such, and without regard to the acquisition of the
surviving bank by Pacwest Bancorp, it would have no
effect on competition.

HARDIN NATIONAL BANK,
Kenton, Ohio, and F.B.G. National Bank of Kenton, Kenton, Ohio
Banking offices
Names of banks and type of transaction

Total
assets

Hardin National Bank, Kenton, Ohio (3505), with
and F.B.G. National Bank of Kenton (Organizing), Kenton, Ohio (3505), which had
merged February 6, 1980, under the charter of the latter bank (3505) and title "Bank One of
Kenton, N.A." The merged bank at date of merger had

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application to
merge Hardin National Bank, Kenton, Ohio (Hardin),
into and under the charter of F.B.G. National Bank of
Kenton (Organizing), Kenton, Ohio (F.B.G.). This mer
ger application is one part of a process whereby Banc
One Corporation (formerly first BancGroup of Ohio,
Inc.), Columbus, Ohio (Corp.), a registered multibank
holding company, will acquire 100 percent (less direc
tors' qualifying shares) of the successor institution by
merger to Hardin. F.B.G. has been organized by prin
cipals of Banc One Corp. solely to facilitate the acqui
sition of Hardin by Corp.
On June 30, 1979, Hardin had total commercial
bank deposits of $21.7 million. F.B.G. was given pre
liminary approval to organize by this Office on October
22, 1979, and, to date, has engaged in no revenue
producing activities. This merger merely combines a
nonoperating corporate shell with an existing bank and
would not adversely affect competition.
The financial and managerial resources of both pro
ponents are satisfactory. Their future prospects, both
separately and combined, are favorable. After the mer
ger, Hardin will draw on the financial and managerial

In
operation

To be
operated

$24,757,000
470,000
25,356,000

resources of Banc One Corp. and will more effectively
serve the convenience and needs of its banking com
munity.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities, revealed no evidence that the
applicant's record of helping to meet the credit needs
of the entire community, including low and moderate
income neighborhoods, is less than satisfactory.
This is the prior written approval required by the
Bank Merger Act, 12 USC 1828(c), for the proponent
to proceed with this merger.
January 7, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
Hardin National Bank would become a subsidiary of
Banc One Corporation, a bank holding company. The
instant merger, however, would merely combine an ex
isting bank with a nonoperating institution; as such,
and without regard to the acquisition of the surviving
bank by Banc One Corporation, it would have no effect
on competition.

THE MOUNTAIN NATIONAL BANK OF CLIFTON FORGE,
Clifton Forge, Va., and Colonial American National Bank—Clifton Forge, Clifton Forge, Va.
Banking offices
Names of banks and type of transaction

Total
assets

The Mountain National Bank of Clifton Forge, Clifton Forge, Va. (14180), with
and Colonial American National Bank—Clifton Forge (Organizing), Clifton Forge, Va. (14180), which
had
merged February 25, 1980, under charter of the latter bank (14180) and title of the former. The
merged bank at date of merger had

COMPTROLLER'S DECISION

$18,629,000

50,000

18,691,000

To be
operated

This is the Comptroller's decision on an application to
merge The Mountain National Bank of Clifton Forge,
Clifton Forge, Va. (Merging Bank), into and under the
charter of Colonial American National Bank—Clifton
Forge (Organizing), Clifton Forge (Charter Bank), and
with the title of "The Mountain National Bank of Clifton
Forge." This application was filed on December 13,
1979, and is based on an agreement executed by the
proponents on December 11, 1979. The proposal is
part of a process whereby Colonial American Bankshares Corporation, a registered bank holding com
pany, will acquire 100 percent of the outstanding
shares (less directors' qualifying shares) of the suc
cessor institution. This merger merely combines a nonoperating bank with an existing commercial bank and
has no effect on competition.
The financial and managerial resources of both pro
ponents are satisfactory. The future prospects of the
resulting bank are favorable. After the merger, Merg
ing Bank will draw on the financial and managerial re
sources of its corporate parent. This will permit it to
*

In
operation

SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
Mountain National Bank of Clifton Forge would be
come a subsidiary of Colonial American Bankshares
Corporation, a bank holding company. The instant
merger, however, would merely combine an existing
bank with a nonoperating institution; as suchr, and with
out regard to the acquisition of the surviving bank by
Colonial American Bankshares Corporation, it would
have no effect on competition.
*

ATLANTIC NATIONAL BANK,
Atlantic City, N.J., and Midlantic National Bank/Atlantic, Atlantic City, N.J.
Banking offices
Names of banks and type of transaction

Total
assets'

Atlantic National Bank, Atlantic City, N.J. (15781), with
and Midlantic National Bank/Atlantic (Organizing), Atlantic City, N.J. (15781), which had
merged March 1, 1980, under charter of the latter bank (15781) and title "Atlantic National Bank."
The merged bank at date of merger had

COMPTROLLER'S DECISION
This is the Comptroller's decision on the application to
merge Atlantic National Bank, Atlantic City, N.J. (ANB),
into and under the charter of Midlantic National Bank/
Atlantic, Atlantic City (Interim Bank). This application is
one part of a process whereby Midlantic Banks Inc.,
West Orange, N.J., a registered bank holding com
pany, will acquire 100 percent (less directors' qualify
ing shares) of ANB. As a part of this process, Midlantic
Banks, Inc., sponsored a charter application for a new
national bank which was given preliminary approval by
68

$101,308,937
127,225
101,436,000

In
operation

To be
operated

7
0
7

this Office on October 29, 1979. To date, Interim Bank
has no operating history.
This merger is a vehicle for a bank holding company
acquisition and merely combines a corporate shell
with an existing bank. As such, it presents no competi
tive issues under the Bank Merger Act, 12 USC
1828(c). A review of the financial and managerial re
sources and future prospects of the existing and pro
posed institutions and the convenience and needs of
the community to be served has disclosed no reason
why this application should not be approved.

A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities, revealed no evidence that the
bank's record of helping to meet the credit needs of
the entire community, including low and moderate in
come neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act for the applicant to proceed
with the merger. This approval is conditioned on the
approval by the Federal Reserve Board of an applica
tion filed under the Bank Holding Company Act, 12
USC 1841, et seq., for Midlantic Banks Inc. to acquire
the successor institution by merger to ANB. This mer
ger may not be consummated prior to the expiration of

the 13th day after the approval of the bank holding
company application.
January 7, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
Atlantic National Bank would become a subsidiary of
Midlantic Banks, Inc., a bank holding company. The
instant merger, however, would merely combine an ex
isting bank with a nonoperating institution; as such,
and without regard to the acquisition of the surviving
bank by Midlantic Banks, Inc., it would have no effect
on competition.

PITTSFIELD NATIONAL BANK,
Pittsfield, Mass., and Old Colony Bank of Berkshire County, National Association, Pittsfield, Mass.
Banking offices
Names of banks and type of transaction

Total
assets

Pittsfield National Bank, Pittsfield, Mass. (1260), with
and Old Colony Bank of Berkshire County, National Association (Organizing), Pittsfield, Mass.
(1260), which had
merged March 17, 1980, under charter and title of the latter bank (1260). The merged bank at date
of merger had

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application to
merge Pittsfield National Bank, Pittsfield, Mass. (Pitts
field), into and under the charter of Old Colony Bank of
Berkshire County, National Association (Organizing),
Pittsfield (New Bank). This application is one part of a
process whereby First National Boston Corporation,
Boston, Mass. (Boston Corp), a registered multibank
holding company, will acquire 100 percent (less direc
tors' qualifying shares) of Pittsfield. As a part of this
process, Boston Corp sponsored an application for a
new national bank charter for New Bank which was
given preliminary approval by this Office on August 9,
1979. To date, New Bank has engaged in no revenue
producing activities. This merger is a vehicle for a
bank holding company acquisition and merely com
bines a corporate shell with an existing bank. As such,
it presents no competitive issues under the Bank Mer
ger Act, 12 USC 1828(c).
The financial and managerial resources of both pro
ponents are satisfactory, and their future prospects,
both separately and combined, are favorable. After the
merger, Pittsfield will draw on the financial and mana
gerial resources of Boston Corp. This will permit it to

In
operation

To be
operated

$21,477,000
247,000
21,724,000

more efficiently serve the convenience and needs of
its community.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
applicant's record of helping to meet the credit needs
of its entire community, including low and moderate in
come neighborhoods, is less than satisfactory.
This decision is the prior written approval necessary
for the applicant to proceed with the merger and is
conditioned on the approval of the acquisition of the
successor by merger to Pittsfield by the Federal Re
serve Board.
February 13, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
Pittsfield National Bank would become a subsidiary of
First National Boston Corporation, a bank holding com
pany. The instant merger, however, would merely com
bine an existing bank with a nonoperating institution;
as such, and without regard to the acquisition of the
surviving bank by First National Boston Corporation, it
would have no effect on competition.

BUSEY FIRST NATIONAL BANK,
Urbana, III., and Urbaha National Bank, Urbana, III.
Banking offices
Names of banks and type of transaction

Total
assets

Busey First National Bank, Urbana, III. (14521), with
and Urbana National Bank (Organizing), Urbana, III. (14521), which had
merged March 20, 1980, under charter of the latter (14521) and title of "Busey First National Bank."
The merged bank at date of merger had

COMPTROLLER'S DECISION

3
0

135,746,000

bank. As such, it presents no competitive issues under
the Bank Merger Act, 12 USC 1828(c).
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
bank's record of helping to meet the credit needs of its
entire community, including low and moderate income
neighborhoods, is less than satisfactory.
This is the required prior written approval necessary
for the applicant to proceed with the merger.
February 19, 1980.

This is the Comptroller's decision on an application to
merge Busey First National Bank, Urbana, III. (Ur
bana), into and under the charter of Urbana National
Bank (Organizing), Urbana (New Bank). This applica
tion is one part of a process whereby First Busey Cor
poration, Urbana (First Busey), will acquire 100 per
cent (less directors' qualifying shares) of Urbana. As
part of this process, First Busey sponsored an applica
tion for a new national bank charter for New Bank
which was preliminarily approved by this Office on
January 23, 1979. To date, New Bank has no operat
ing history.
On September 17, 1979, the Federal Reserve Board
approved First Busey's application under the Bank
Holding Company Act, 12 USC 1841, et seq., for for
mation of a bank holding company through acquisition
of 100 percent (less directors' shares) of the succes
sor by merger to Urbana. This merger is therefore a
vehicle for a bank holding company formation and
merely combines a corporate shell with an existing
*

$135,367,000
250,000

In
To be
operation operated

SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
Busey First National Bank would become a subsidiary
of First Busey Corporation, a bank holding company.
The instant merger, however, would merely combine
an existing bank with a nonoperating institution; as
such, and without regard to the acquisition of the sur
viving bank by First Busey Corporation, it would have
no effect on competition.
*

FIRST NATIONAL BANK IN SIOUX CITY,
Sioux City, Iowa, and First National Interim Bank, Sioux City, Iowa
Banking offices
Names of banks and type of transaction

Total
assets

First National Bank in Sioux City, Sioux City, Iowa (13538), with
and First National Interim Bank (Organizing), Sioux City, Iowa (13538), which had
merged March 31, 1980, under charter of the latter (13538) and title of the former. The merged
bank at date of merger had

COMPTROLLER'S DECISION
This is the Comptroller's decision on the application to
merge First National Bank in Sioux City, Sioux City,
Iowa, into First National Interim Bank (Organizing),
Sioux City, under the charter of First National Interim
Bank and with the title of "First National Bank in Sioux
City."
First National Interim Bank is being organized by
Banks of Iowa, Inc., Cedar Rapids, Iowa, a bank hold
ing company. This application is part of a process
whereby the holding company will acquire 100 percent
of the voting shares (less directors' qualifying shares)
of First National Bank in Sioux City. The merger would
70

$153,017,000
240,000
153,282,000

In
To be
operation operated
3
0
3

combine a nonoperating bank with an existing com
mercial bank and would have no effect on competition.
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. Consummation of the proposal will result in
a more efficient corporate organization, promoting the
convenience and needs of the community.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory activities revealed no evidence that the
applicant's record of helping to meet the credit needs
of its entire community was less than satisfactory.
This is the prior written approval required by the

Bank Merger Act, 12 USC 1828(c), for the applicant to
proceed with the merger.
February 27, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which

First National Bank in Sioux City would become a sub
sidiary of Bank of Iowa, Inc., a bank holding company.
The instant merger, however, would merely combine
an existing bank with a nonoperating institution; as
such, and without regard to the acquisition of the sur
viving bank by Banks of Iowa, Inc., it would have no ef
fect on competition.

BANK OF NEW HAMPSHIRE, NATIONAL ASSOCIATION,
Manchester, N.H., and New Hampshire Bank, National Association, Manchester, N.H.
Banking offices
Names of banks and type of transaction

Total
assets

Bank of New Hampshire, National Association, Manchester, N.H. (1059), with
and New Hampshire Bank, National Association (Organizing), Manchester, N.H. (1059), which had. .
merged April 30, 1980, under charter of the latter bank (1059) and title of the former. The merged
bank at date of merger had

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application to
merge Bank of New Hampshire, National Association,
Manchester, N.H. (Merging Bank), into and under the
charter of New Hampshire Bank, National Association
(Organizing), Manchester (Charter Bank). This appli
cation was filed on December 17, 1979, and is based
on an agreement executed on November 28, 1979.
The proposal is part of a process whereby Bank of
New Hampshire Corporation will become a bank hold
ing company by acquiring 100 percent of the out
standing shares (less directors' qualifying shares) of
the successor. This merger merely combines a nonop
erating bank with an existing commercial bank and will
have no effect on competition.
The financial and managerial resources of both en
tities are satisfactory, and their future prospects ap
pear favorable. After the merger, Merging Bank will
draw on the financial and managerial resources of its
corporate parent, Bank of New Hampshire Corpora
tion. This will permit the bank to more effectively serve
the convenience and needs of its community.

$254,274,000
240,000
254,274,000

In
operation

To be
operated

ift
ID

n
u
ifi

A review of the record of this application and other
information available to this Office as a result of its reg
ulatory authority revealed no evidence that the
applicant's record of helping to meet the credit needs
of the entire community, including low and moderate
income neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cant to proceed with the proposed merger.
March 25, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
Bank of New Hampshire, National Association, would
become a subsidiary of Bank of New Hampshire Cor
poration, a bank holding company. The instant merger,
however, would merely combine an existing bank with
a nonoperating institution; as such, and without regard
to the acquisition of the surviving bank by Bank of New
Hampshire Corporation, it would have no effect on
competition.

THE POMEROY NATIONAL BANK,
Pomeroy, Ohio, and Bank One of Pomeroy, N.A., Pomeroy, Ohio
Banking offices
Names of banks and type of transaction

Total
assets

Bank One of Pomeroy, N.A. (Organizing), Pomeroy, Ohio (1980), with
and The Pomeroy National Bank, Pomeroy, Ohio (1980), which had
merged June 2, 1980, under charter and title of the former bank (1980). The merged bank at date
of merger had

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application to
merge The Pomeroy National Bank, Pomeroy, Ohio
(Pomeroy), into and under the charter of Bank One of
Pomeroy, N.A. (Organizing), Pomeroy (Bank One).
This application was filed with this Office on March 25,
1980, and is baged on an agreement executed by the
participants on February 15, 1980.
Bank One is being organized by individuals associ
ated with Banc One Corporation, a registered bank
holding company. The merger of Pomeroy into Bank
One is one part of a process whereby Banc One Cor
poration will acquire 100 percent (less directors' quali
fying shares) of Pomeroy. This merger is a vehicle for a
bank holding company acquisition and merely com
bines a corporate shell with an existing bank. As such,
it presents no competitive issues under the Bank
Merging Act, 12 USC 1828(c).
The financial and managerial resources of both pro
ponents are satisfactory, and their future prospects,
both separately and combined, are favorable. After the
merger, Pomeroy will draw on the financial and mana
gerial resources of its corporate parent, permitting it to

120,000
33,299,000

In
To be
operation operated
0
3

33,419,000

more effectively serve the convenience and needs of
its community. A review of the record of this applica
tion and other information available to this Office as a
result of its regulatory responsibilities revealed no evi
dence that the applicant's record of helping to meet
the credit needs of the entire community, including low
and moderate income neighborhoods, is less than sat
isfactory.
This decision is the prior written approval required
by the Bank Merger Act for the applicant to proceed
with the proposed merger.
May 2, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
Pomeroy National Bank would become a subsidiary of
Banc One Corporation, a bank holding company. The
instant merger, however, would merely combine an ex
isting bank with a nonoperating institution; as such,
and without regard to the acquisition of the surviving
bank by Banc One Corporation, it would have no effect
on competition.

THE MARINE NATIONAL BANK OF WILDWOOD,
Wildwood, N.J., and Horizon Marine National Bank, Wildwood, N.J.
Banking offices
Names of banks and type of transaction

Total
assets

Horizon Marine National Bank (Organizing), Wildwood, N.J. (6278), with
and The Marine National Bank of Wildwood, Wildwood, N.J. (6278), which had
merged June 4, 1980, under charter of the former (6278) and title of the latter. The merged bank at
date of merger had

60,000
106,640,000

In
To be
operation operated
0
5

106,700,000

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application to
merge The Marine National Bank of Wildwood, Wildwood, N.J., into Horizon Marine National Bank (Orga
nizing), Wildwood, under the charter of Horizon Marine
National Bank and with the title of "The Marine National
Bank of Wildwood," Wildwood.
Horizon Marine National Bank (interim bank) is being
organized by Horizon Bancorp, Morristown, N.J., a
registered bank holding company. This application is
part of a process whereby the holding company will
acquire 100 percent (except directors' qualifying
72

shares) of the voting stock of The Marine National
Bank of Wildwood. The merger would combine a nonoperating bank with an existing commercial bank and
would have no effect on competition.
The financial and managerial resources of both
banks and the future prospects of the resulting bank
are favorable. Consummation of the proposal will result
in a more efficient corporate organization which will
promote the convenience and needs of the commu
nity.
A review of the record of the application and other

information available to this Office as a result of its reg
ulatory authority revealed no evidence that the
applicant's record of helping to meet the credit needs
of its entire community, including low or moderate in
come areas, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act, 12 USC 1828(c), for the appli
cant to proceed with the merger.
May 5, 1980.

SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
Marine National Bank of Wildwood would become a
subsidiary of Horizon Bancorp, a bank holding com
pany. The instant merger, however, would merely com
bine an existing bank with a nonoperating institution;
as such, and without regard to the acquisition of the
surviving bank by Horizon Bancorp, it would have no
effect on competition.

GATEWAY NATIONAL BANK OF BEAUMONT,
Beaumont, Tex., and New Gateway National Bank of Beaumont, Beaumont, Tex.
Banking offices
Names of banks and type of transaction

Total
assets

New Gateway National Bank of Beaumont (Organizing), Beaumont, Tex. (14871), with
and Gateway National Bank of Beaumont Beaumont Tex (14871) which had
merged June 6, 1980, under charter of the former (14871) and with the title "Gateway National
Bank of Beaumont." The merged bank at date of merger h a d . . . .
...

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application to
merge Gateway National Bank, Beaumont, Tex. (Gate
way), into New Gateway National Bank of Beaumont
(Organizing), Beaumont, under the charter of New
Gateway National Bank of Beaumont and with the title
of "New Gateway National Bank of Beaumont." This
application was filed with this Office on January 23,
1980, and is based on an agreement executed by the
participants on December 3, 1979. As of December
31, 1978, Gateway had total commercial bank de
posits of $25.4 million.
This application is one part of a process whereby
First City Bancorporation of Texas, Inc., a registered
bank holding company, will acquire 100 percent (less
directors' qualifying shares) of Gateway. As part of this
process, First City Bancorporation of Texas, Inc.,
sponsored a charter application for a new national
bank which was given preliminary approval by this Of
fice on October 1, 1979. This merger is therefore a ve
hicle for a bank holding company acquisition and
merely combines a corporate shell with an existing
bank. As such, it presents no competitive issues under
the Bank Merger Act, 12 USC 1828(c).
The financial and managerial resources of both pro
ponents are satisfactory, and their future prospects,

300,000
32,740,000

32,985,000

In
To be
operation operated
n
1
1

both separately and combined, are favorable. After the
merger, Gateway will draw on the financial and mana
gerial resources of its corporate parent. This will permit
it to more effectively serve the convenience and needs
of its community. A review of the record of this applica
tion and other information available to this Office as a
result of its regulatory responsibilities revealed no evi
dence that the applicant's record of helping to meet
the credit needs of the entire community, including low
and moderate income neighborhoods, is less than sat
isfactory.
This decision is the required prior written approval
required by the Bank Merger Act for the applicant to
proceed with the proposed merger.
April 9, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
Gateway National Bank of Beaumont would become a
subsidiary of First City Bancorporation of Texas, Inc., a
bank holding company. The instant merger, however,
would merely combine an existing bank with a nonop
erating institution; as such, and without regard to the
acquisition of the surviving bank by First City Bancor
poration of Texas, Inc., it would have no effect on com
petition.

BANK OF IDAHO, N.A.,
Boise, Idaho, and New Bank of Idaho, N.A., Boise, Idaho
Banking offices
Names of banks and type of transaction

Total
assets

Bank of Idaho, N.A., Boise, Idaho (16237), with
and New Bank of Idaho, N.A. (Organizing), Boise, Idaho (16237), which had
consolidated June 30, 1980, under charter and title of the former bank (16237). The consolidated
bank at date of consolidation had

COMPTROLLER'S DECISION
New Bank of Idaho, N.A., Boise, Idaho, is being orga
nized by Western Bancorporation, Los Angeles, Calif.,
a bank holding company. The consolidation of Bank of
Idaho, N.A., Boise, with New Bank of Idaho, N.A., is
part of a process whereby Western Bancorporation will
acquire 100 percent (less directors' qualifying shares)
of Bank of Idaho, N.A. The consolidation is a vehicle
for a bank holding company acquisition and combines
a nonoperating bank with an existing commercial
bank. As such, it presents no competitive issues under
the Bank Merger Act, 12 USC 1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the consolidation, the resulting bank
will draw on the financial and managerial resources of
its corporate parent. This will permit it to more effec
tively serve the convenience and needs of its commu
nity.

$540,283,000
240,000

In
To be
operation operated
38
0
38

540,527,000

A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that
applicant's record of helping to meet the credit needs
of its entire community was less than satisfactory.
This is the prior written approval required by the
Bank Merger Act for the applicant to proceed with the
proposed merger.
May 28, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed consolidations are parts of plans
through which the existing banks will become subsidi
aries of Western Bancorporation, a bank holding com
pany. Each of these transactions, however, will merely
combine existing banks with nonoperating institutions;
as such, and without regard to the acquisition of the
surviving banks by Western Bancorporation, they
would have no effect on competition.

THE CONRAD NATIONAL BANK OF KALISPELL,
Kalispell, Mont., and New Conrad National Bank of Kalispell, Kalispell, Mont.
Banking offices
Names of banks and type of transaction

Total
assets

The Conrad National Bank of Kalispell, Kalispell, Mont. (4803), with
and New Conrad National Bank of Kalispell (Organizing), Kalispell, Mont. (4803), which had
consolidated June 30, 1980, under the charter and title of the former bank (4803). The consolidated
bank at date of consolidation had

COMPTROLLER'S DECISION
New Conrad National Bank of Kalispell, Kalispell,
Mont., is being organized by Western Bancorporation,
Los Angeles, Calif., a bank holding company. The con
solidation of The Conrad National Bank of Kalispell,
Kalispell, with New Conrad National Bank of Kalispell
is part of a process whereby Western Bancorporation
will acquire 100 percent (less directors' qualifying
shares) of The Conrad National Bank of Kalispell. The
consolidation is a vehicle for a bank holding company
acquisition and combines a nonoperating bank with an
existing commercial bank. As such, it presents no
competitive issues under the Bank Merger Act, 12
USC 1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the consolidation, the resulting bank
74

$85,996,000
120,000
86,118,000

In
To be
operation operated
o

n
2

will draw on the financial and managerial resources of
its corporate parent. This will permit it to more effec
tively serve the convenience and needs of its commu
nity.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that
applicant's record of helping to meet the credit needs
of its entire community was less than satisfactory.
This is the prior written approval required by the
Bank Merger Act for the applicant to proceed with the
proposed merger.
May 28, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed consolidations are parts of plans
through which the existing banks will become subsidi-

aries of Western Bancorporation, a bank holding com
pany. Each of these transactions, however, will merely
combine existing banks with nonoperating institutions;

as such, and without regard to the acquisition of the
surviving banks by Western Bancorporation, they
would have no effect on competition.

FIRST NATIONAL BANK,
Fort Collins, Colo., and New First National Bank, Fort Collins, Colo.
Banking offices
Total
assets

Names of banks and type of transaction

First National Bank, Fort Collins, Colo. (14146), with
and New First National Bank, Fort Collins (Organizing), Fort Collins, Colo. (14146), which had
consolidated June 30, 1980, under the charter and title of the former bank (14146). The
consolidated bank at date of consolidation had

$192,068,000
240,000

In
To be
operation operated
o

n
u

192,312,000

COMPTROLLER'S DECISION
New First National Bank, Fort Collins, Colo., is being
organized by Western Bancorporation, Los Angeles,
Calif., a bank holding company. The consolidation of
First National Bank, Fort Collins, with New First Na
tional Bank is part of a process whereby Western Bancorporation will acquire 100 percent (less directors'
qualifying shares) of First National Bank. The consoli
dation is a vehicle for a bank holding company acqui
sition and combines a nonoperating bank with an ex
isting commercial bank. As such, it presents no
competitive issues under the Bank Merger Act, 12
USC 1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the consolidation, the resulting bank
will draw on the financial and managerial resources of
its corporate parent. This will permit it to more effec
tively serve the convenience and needs of its commu
nity.

A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that ap
plicant's record of helping to meet the credit needs of
its entire community was less than satisfactory.
This is the prior written approval required by the
Bank Merger Act for the applicant to proceed with the
proposed merger.
May 28, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed consolidations are parts of plans
through which the existing banks will become subsidi
aries of Western Bancorporation, a bank holding com
pany. Each of these transactions, however, will merely
combine existing banks with nonoperating institutions;
as such, and without regard to the acquisition of the
surviving banks by Western Bancorporation, they
would have no effect on competition.

FIRST NATIONAL BANK OF ARIZONA,
Phoenix, Ariz., and New First National Bank of Arizona, Phoenix, Ariz.
Names of banks and type of transaction

Banking offices
Total
assets

First National Bank of Arizona, Phoenix, Ariz. (3728), with
$3,288,031,000
and New First National Bank of Arizona (Organizing), Phoenix, Ariz. (3728), which had
240,000
consolidated June 30, 1980, under the charter and title of the former bank (3728). The consolidated
bank at date of consolidation had
3,288,275,000

COMPTROLLER'S DECISION
New First National Bank of Arizona, Phoenix, Ariz., is
being organized by Western Bancorporation, Los
Angeles, Calif., a bank holding company. The consoli
dation of First National Bank of Arizona, Phoenix, with
New First National Bank of Arizona is part of a process

In
To be
operation operated

142
0
142

whereby Western Bancorporation will acquire 100 per
cent (less directors' qualifying shares) of First National
Bank of Arizona. The consolidation is a vehicle for a
bank holding company acquisition and combines a
nonoperating bank with an existing commercial bank.
As such, it presents no competitive issues under the
Bank Merger Act, 12 USC 1828(c).
75

The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the consolidation, the resulting bank
will draw on the financial and managerial resources of
its corporate parent. This will permit it to more effec
tively serve the convenience and needs of its commu
nity.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that
applicant's record of helping to meet the credit needs
of its entire community was less than satisfactory.
This is the prior written approval required by the

Bank Merger Act for the applicant to proceed with the
proposed merger.
May 28, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed consolidations are parts of plans
through which the existing banks will become subsidi
aries of Western Bancorporation, a bank holding com
pany. Each of these transactions, however, will merely
combine existing banks with nonoperating institutions;
as such, and without regard to the acquisition of the
surviving banks by Western Bancorporation, they
would have no effect on competition.

FIRST NATIONAL BANK OF CASPER,
Casper, Wyo., and New First National Bank of Casper, Casper, Wyo.
Banking offices
Names of banks and type of transaction

Total
assets

First National Bank of Casper, Casper, Wyo. (6850), with
and New First National Bank of Casper (Organizing) Casper Wyo (6850) which had
consolidated June 30, 1980, under the charter and title of the former bank (6850). The consolidated
bank at date of consolidation had

COMPTROLLER'S DECISION
New First National Bank of Casper, Casper, Wyo., is
being organized by Western Bancorporation, Los
Angeles, Calif., a bank holding company. The consoli
dation of First National Bank of Casper, Casper, with
New First National Bank of Casper is part of a process
whereby Western Bancorporation will acquire 100 per
cent (less directors' qualifying shares) of First National
Bank of Casper. The consolidation is a vehicle for a
bank holding company acquisition and combines a
nonoperating bank with an existing commercial bank.
As such, it presents no competitive issues under the
Bank Merger Act, 12 USC 1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the consolidation, the resulting bank
will draw on the financial and managerial resources of
its corporate parent. This will permit it to more effec
tively serve the convenience and needs of its commu
nity.

$256,224,000
120,000
256,346,000

In
operation

To be
operated

0
1

FIRST NATIONAL BANK OF OREGON,
Portland, Oreg., and New First National Bank of Oregon, Portland, Oreg.
Banking offices
Names of banks and type of transaction

Total
assets

First National Bank of Oregon, Portland, Oreg. (1553), with
and New First National Bank of Oregon (Organizing), Portland, Oreg. (1553), which had
consolidated June 30, 1980, under the charter and title of the former bank (1553). The consolidated
bank at date of consolidation had

COMPTROLLER'S DECISION
New First National Bank of Oregon, Portland, Oreg., is
being organized by Western Bancorporation, Los
Angeles, Calif., a bank holding company. The consoli
dation of First National Bank of Oregon, Portland, with
New First National Bank of Oregon is part of a process
whereby Western Bancorporation will acquire 100 per
cent (less directors' qualifying shares) of First National
Bank of Oregon. The consolidation is a vehicle for a
bank holding company acquisition and combines a
nonoperating bank with an existing commercial bank.
As such, it presents no competitive issues under the
Bank Merger Act, 12 USC 1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the consolidation, the resulting bank
will draw on the financial and managerial resources of
its corporate parent. This will permit it to more effec
tively serve the convenience and needs of its commu
nity.

$4,663,501,000
240,000

In
operation

To be
operated

156
0

4,663,745,000

156

SANTA FE NATIONAL BANK,
Santa Fe, N.M., and New Santa Fe National Bank, Santa Fe, N.M.
Banking offices
Names of banks and type of transaction

Total
assets

Santa Fe National Bank, Santa Fe, N.M. (14543), with
and New Santa Fe National Bank (Organizing), Santa Fe, N.M. (14543), which had
consolidated June 30, 1980, under the charter and title of the former bank (14543). The
consolidated bank at date of consolidation had

COMPTROLLER'S DECISION
New Santa Fe National Bank, Santa Fe, N.M., is being
organized by Western Bancorporation, Los Angeles,
Calif., a bank holding company. The consolidation of
Santa Fe National Bank, Santa Fe, with New Santa Fe
National Bank is part of a process whereby Western
Bancorporation will acquire 100 percent (less direc
tors' qualifying shares) of Santa Fe National Bank. The
consolidation is a vehicle for a bank holding company
acquisition and combines a nonoperating bank with an
existing commercial bank. As such, it presents no
competitive issues under the Bank Merger Act, 12
USC 1828(c).

In
operation

To be
operated

$90,473,000
120,000
90,595,000

The financial and managerial resources of both
banks and the future prospects of the resulting bank
are favorable. After the consolidation, the resulting
bank will draw on the financial and managerial re
sources of its corporate parent. This will permit it to
more effectively serve the convenience and needs of
its community.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that
applicant's record of helping to meet the credit needs
of its entire community was less than satisfactory.
This is the prior written approval required by the

Bank Merger Act for the applicant to proceed with the
proposed merger.
May 28, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed consolidations are parts of plans

through which the existing banks will become subsidi
aries of Western Bancorporation, a bank holding com
pany. Each of these transactions, however, will merely
combine existing banks with nonoperating institutions;
as such, and without- regard to the acquisition of the
surviving banks by Western Bancorporation, they
would have no effect on competition.

FIRST NATIONAL BANK OF TOLEDO,
Toledo, Ohio, and Toledo National Bank, Toledo, Ohio
Banking offices
Names of banks and type of transaction

Total
assets

First National Bank of Toledo, Toledo, Ohio (14586), with
and Toledo National Bank (Organizing), Toledo, Ohio (14586), which had
merged July 1, 1980, under charter of the latter (14586) and with the title "First National Bank of
Toledo." The merged bank at date of merger had

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application to
merge First National Bank of Toledo, Toledo, Ohio
(First), into Toledo National Bank (Organizing), Toledo
(Toledo), under the charter of Toledo National Bank
and with the title of "First National Bank of Toledo."
This application was filed on March 10, 1980, and is
based on an agreement executed by the participants
on February 27, 1980.
Toledo is being organized by individuals associated
with First Ohio Bancshares, Inc., a proposed bank
holding company. The merger of First into Toledo is
part of a process whereby First Ohio Bancshares, Inc.,
will acquire 100 percent (less directors' qualifying
shares) of First. The merger is a vehicle for a bank
holding company acquisition and merely combines a
corporate shell with an existing bank. As such, it
presents no competitive issues under the Bank Merger
Act, 12 USC 1828(c).
The financial and managerial resources of both pro
ponents are satisfactory, and their future prospects,
both separately and combined, are favorable. After the
merger, First will draw on the financial and managerial

$495,564,000
240,000
496,734,000

In
To be
operation operated
26
0
26

resources of its corporate parent. This will permit it to
more effectively serve the convenience and needs of
the community.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities, revealed no evidence that
First's record of helping to meet the credit needs of its
entire community, including low and moderate income
neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act for the applicant to proceed
with the proposed merger.
May 13, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
First National Bank of Toledo would become a subsidi
ary of First Ohio Bancshares, Inc., a bank holding
company. The instant merger, however, would merely
combine an existing bank with a nonoperating institu
tion; as such, and without regard to the acquisition of
the surviving bank by First Ohio Bancshares, Inc., it
would have no effect on competition.

GARDEN STATE NATIONAL BANK,
Paramus, N.J., and New Garden State National Bank, Paramus, N.J.
Banking offices
Total
assets

Names of banks and type of transaction

Garden State National Bank, Paramus, N.J. (15570), with
and New Garden State National Bank (Organizing), Paramus, N.J. (15570), which had
consolidated July 7, 1980, under the charter (15570) and title of the former bank (15570). The
consolidated bank at date of consolidation had

COMPTROLLER'S DECISION
This is the Comptroller's decision on the application to
consolidate Garden State National Bank, Paramus,
N.J. (Garden State), and New Garden State National
Bank, Paramus (Interim Bank), under the charter of
and with the title of "Garden State National Bank." This
application is one part of a process whereby Fidelity
Union Bancorporation, Newark, N.J., a registered bank
holding company, will acquire 100 percent (less direc
tors' qualifying shares) of Garden State. As a part of
this process, Interim Bank is being organized by rep
resentatives of the holding company. This consolida
tion is a vehicle for a bank holding company acquisi
tion and merely combines a corporate shell with an
existing bank. As such, it presents no competitive is
sues under the Bank Merger Act, 12 USC 1828(c).
A review of the record of this application and other
information available to this Office as a result of its reg

$838,491,000
125,000
856,603,000

In
To be
operation operated
36
0
36

ulatory responsibilities revealed no evidence that the
bank's record of helping to meet the credit needs of
the entire community, including low and moderate in
come neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act for the applicant to proceed
with the consolidation.
June 5, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed consolidation is part of a plan through
which Garden State National Bank would become a
subsidiary of Fidelity Union Bancorporation, a bank
holding company. The instant transaction, however,
would merely combine an existing bank with a nonoperating institution; as such, and without regard to the
acquisition of the surviving bank by Fidelity Union Bancorporation, it would have no effect on competition.

SUMMIT NATIONAL BANK,
Fort Worth, Tex., and West Freeway National Bank, Fort Worth, Tex.
Banking offices

Names of banks and type of transaction

Total
assets

Summit National Bank, Fort Worth, Tex. (16422), with
and West Freeway National Bank (Organizing), Fort Worth, Tex. (16422), which had
merged July 8, 1980, under charter (16422) of the latter and with the title "Summit National Bank."
The merged bank at date of merger had

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application to
merge Summit National Bank, Fort Worth, Tex. (Sum
mit), into and under the charter of West Freeway Na
tional Bank, Fort Worth, Tex. (Freeway). This applica
tion was filed with this Office on October 17, 1979, and
is based on an agreement executed by the partici
pants on September 14, 1979. As of June 30, 1979,
Summit had total commercial bank deposits of $31.7
million.
This application is one part of a process whereby
Summit Bancshares, Inc., a proposed bank holding
company, will acquire 100 percent (less directors'
qualifying shares) of Summit. As a part of this process,
Summit Bancshares, Inc., sponsored a charter appli

In
To be
operation operated

$43,759,000
240,000
44,971,000

cation for a new national bank which was given prelim
inary approval by this Office on August 20, 1979. This
merger is therefore a vehicle for a bank holding com
pany acquisition and merely combines a corporate
shell with an existing bank. As such, it presents no
competitive issues under the Bank Merger Act, 12
USC 1828(c).
The financial and managerial resources of both pro
ponents are satisfactory, and their future prospects,
both separately and combined, are favorable. After the
merger, Summit will draw on the financial and mana
gerial resources of its corporate parent. This will permit
it to more efficiently serve the convenience and needs
of its community.
A review of the record of this application and other
79

SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
Summit National Bank would become a subsidiary of
Summit Bancshares, Inc., a bank holding company.
The instant merger, however, would merely combine
an existing bank with a nonoperating institution; as
such, and without regard to the acquisition of the sur
viving bank by Summit Bancshares, Inc., it would have
no effect on competition.

PENINSULA NATIONAL BANK,
Cedarhurst, N.Y., and 516 Central Avenue National Bank, Cedarhurst, N.Y.
Banking offices
Names of banks and type of transaction

Total
assets

Peninsula National Bank, Cedarhurst, N.Y. (11854), with
and 516 Central Avenue National Bank (Organizing), Cedarhurst, N.Y. (11854), which had
merged July 31, 1980, under charter of the latter (11854) and title of the former. The merged bank
at date of merger had

COMPTROLLER'S DECISION
The 516 Central Avenue National Bank, Cedarhurst,
N.Y., is being organized by United Bank Corporation
of New York, Albany, N.Y., a bank holding company.
The merger of Peninsula National Bank, Cedarhurst,
into 516 Central Avenue National Bank is part of a
process whereby United Bank Corporation of New
York will acquire 100 percent (less directors' qualifying
shares) of Peninsula National Bank. The merger is a
vehicle for a bank holding company acquisition and
combines a nonoperating bank with an existing com
mercial bank. As such, it presents no competitive is
sues under the Bank Merger Act, 12 USC 1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the merger, the resulting bank will
draw on the financial and managerial resources of its
corporate parent. This will permit it to more effectively
serve the convenience and needs of its entire commu
nity.

$114,757,366
120,000

In
operation

To be
operated

11
0

114,877,000

A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that ap
plicant's record of helping to meet the credit needs of
its entire community was less than satisfactory.
This is the prior written approval required by the
Bank Merger Act for the applicant to proceed with the
proposed merger.
June 30, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
Peninsula National Bank would become a subsidiary of
United Bank Corporation of New York, a bank holding
company. The instant merger, however, would merely
combine an existing bank with a nonoperating institu
tion; as such, and without regard to the acquisition of
the surviving bank by United Bank Corporation of New
York, it would have no effect on competition.

BANK OF INDIANA, NATIONAL ASSOCIATION,
Gary, Ind., and Indiana Interim National Bank, Gary, Ind.
Banking offices
Total
assets

Names of banks and type of transaction

Bank of Indiana, National Association, Gary, Ind. (15455), with
and Indiana Interim National Bank (Organizing), Gary, Ind. (15455), which had
merged September 18, 1980, under charter of the latter (15455) and with the title of the former
bank. The merged bank at date of merger had

COMPTROLLER'S DECISION
This application is essentially a corporate reorganiza
tion whereby Money Management Corporation, hold
ing company for Bank of Indiana, National Association,
Gary, Ind., will acquire 100 percent of Bank of Indiana,
80

$270,199,000
240,000
264,955,000

In
operation

To be
operated

n
13

National Association. It was filed with this Office on
April 16, 1980, and is based on an agreement exe
cuted by the participants on March 27, 1980. As part
of the reorganization, Money Management Corporation
sponsored a charter application for a new national

bank which received preliminary approval from this Of
fice on October 20, 1978. This merger completes the
process of reorganization and presents no competi
tive, financial or managerial issues under the Bank
Merger Act, 12 USC 1828(c).
A similar application was disapproved on November
2, 1979, because this Office concluded the bank's rec
ord of performance under the Community Reinvest
ment Act (CRA), 12 USC 2901 etseq., was unsatisfac
tory. The Office has prepared, as a supplement to this
decision, an opinion which addresses the CRA as
pects of this application and describes the conditions
under which it is now being approved. The supple
ment is an intrinsic part of this decision which is the
prior written permission required by the Bank Merger
Act for the applicant to proceed with the transaction.
Community Reinvestment Act Supplement
This supplement discusses the OCC's assessment of
Bank of Indiana, National Association's (bank) record
of performance under the Community Reinvestment
Act (CRA). The CRA requires that the OCC evaluate a
bank's record of meeting the credit needs of its com
munity and consider that record when deciding certain
applications for structural change.
The bank has applied for permission to reorganize
its corporate structure. The current application was
protested by the Gary Human Relations Commission,
which indicated that, while they had seen improvement
in the bank's consumer services, they had no evi
dence that there had been or would be improvement
in the commercial loan area.
A similar application was disapproved on November
2, 1979, because OCC concluded the bank's record of
performance under the factors contained in the CRA
regulation (12 CFR 25) was unsatisfactory. OCC exam
inations of the bank revealed a lack of lending within
neighborhoods in Gary, little evidence of meaningful
communication with members of the community re
garding banking services and no marketing or special
credit-related programs to inform Gary residents of the
types of credit available at the bank.
At the time of the original denial, OCC noted that the
bank had recently taken steps to improve its perform
ance. However, OCC concluded that the recent
actions taken by the bank were not sufficient to war
rant approval of the application. The bank was, how
ever, encouraged to follow through on its recent and
proposed actions in response to CRA and to review
other areas where improvements could be made. The
bank was advised that the results of subsequent ex
aminations would determine when approval of future
applications would be warranted.
The OCC recently completed another examination of
the bank to determine its compliance with consumer
laws and regulations and to evaluate its record of per
formance in meeting community credit needs. This
supplement discusses the bank's CRA record and is
based primarily on the results of the recent examina
tion.
For a bank to serve effectively the needs of a com
munity, it must know what those needs are. For this
reason, part of the CRA assessment of all banks is a

review of their efforts to ascertain community credit
needs. The bank has undertaken a number of activities
to determine the credit needs of its community. Since
May 1979, the bank has been meeting with community
and civic leaders to discuss credit needs and de
scribe available bank services. In addition, the bank
hired an outside firm to survey a sample of 3,000 Gary
area households. As a result of the survey, the bank is
considering implementation of alternative branch
banking hours. In December 1979, the bank estab
lished regional advisory boards of local community
residents for each of its branches. The regional advi
sory boards will assist bank management in its efforts
fo ascertain community credit needs. Moreover, the
bank plans to establish a citizens advisory group to
provide feedback to and from the community regard
ing consumer complaints.
The bank has also undertaken marketing efforts to
increase its lending activities in Gary. These efforts
have included minority newspaper advertising, bill
boards and direct mail solicitations. Additionally, in
January 1980, the bank held the first of a planned se
ries of seminars and workshops for proprietors of small
businesses in Gary. These forums are designed to
provide technical expertise in marketing, advertising,
accounting and financial planning for small business
proprietors.
The CRA evaluation process also considers the geo
graphic distribution of the bank's credit extensions,
credit applications, credit denials and evidence of pro
hibited discriminatory or other illegal credit practices.
The recent evaluation of the bank's lending practices
revealed no evidence of discrimination. The previous
loan policies and procedures which had discriminatory
effects had been corrected prior to denial of the pre
vious application, and the bank is now developing in
ternal audit and control procedures to assure compli
ance with the Equal Credit Opportunity Act. The
previous evaluation had disclosed a significant dispar
ity between credit extensions made in Gary and its
suburbs. As noted earlier, the bank has made efforts
to increase its loan penetration in Gary. While it is too
early to make a complete evaluation of the results of
these efforts, loan volume at the bank's downtown of
fices exceeded the bank's original projections at the
time of our recent evaluation.
The CRA assessment also reviews bank participa
tion in community development projects. The bank has
committed $10 million in credit for revitalization of
downtown Gary in connection with a federal urban
development action grant project undertaken by the
city with private sector support. This commitment is
subject to completion of three construction projects
now underway or planned.
The bank has also committed to lend funds to reha
bilitate 21 homes in a Gary neighborhood located in a
low and moderate income census tract. Management
has expressed interest in working with other neighbor
hood groups to develop similar programs.
Another aspect of CRA performance is extension of
housing-related credit. Due to loan portfolio factors
and recent economic conditions, the bank is not ex
tending 1-4 family real estate loans. Management

plans, instead, to emphasize consumer and commer
cial lending, including small business credit. Mean
while, all applicants for 1-4 family mortgages are be
ing referred to Calumet Securities, a mortgage
banking corporation. The OCC believes that the mora
torium on single family mortgage lending is a reason
able management decision. However, management
must be careful to apply this policy to all types of mort
gage applicants and fulfill the plan to increase small
business and consumer loan volume in its community.
Management's intention to accomplish these objec
tives is evidenced by a mail solicitation of installment
loan applicants from Gary for debt consolidation loans
and small business forums which may result in estab
lishing small business lending relationships. In addi
tion, an SBA loan committee has been recently estab
lished to assist in a budgeted $2 million increase in
SBA-guaranteed loans.
At the time of our previous assessment, the bank's
investment security portfolio contained only $300,000
in city issues, and no bids had been placed on Gary
tax anticipation warrants. Since then, the bank has
purchased nearly $10 million in securities of local mu
nicipalities and placed a competitive bid on a $7.75
million city issue.
In a letter dated May 13, 1980, the Gary Human Re
lations Commission expressed opposition to approval
of the application. The letter stated:
While the Commission has been able to see con
siderable improvement in the bank's consumer
services, there is no evidence that there has or will
be improvement in the commercial loan area.
The OCC has reviewed the protest and determined
that the bank has made a good faith effort to improve
its commercial and installment lending performance in
Gary. This effort, because of the time frame involved
and general economic conditions, may not have yet
resulted in significant expansion in the bank's Garyoriginated loan portfolio. This Office believes that close
monitoring of the bank's continued efforts in the com
mercial and installment loan areas, which is one of the
stipulations of this decision, will ensure continued pro
gress.
In summary, our assessment revealed that the bank
has made substantial efforts to ascertain the credit
needs of its community. Further, while the results of
these efforts have not yet been fully realized, progress
had been made in helping to meet local credit needs.
Overall, the bank has been responsive to the sugges
tions of the examiner and to the comments contained

in the Comptroller's opinion explaining the decision to
deny the bank's previous application. We believe that
the bank's response must be considered favorably un
der CRA, even though its actions may not yet have re
sulted in substantial expansion of actual lending in
Gary. The bank has responded positively to the CRA
since the denial of the original application in Novem
ber 1979, and the OCC believes the bank's record of
performance and good faith efforts have been suffic
ient to warrant conditional approval of the merger ap
plication.
This decision is made with the understanding that
additional and continued progress is expected and
necessary for approval of future applications from the
bank. The board of directors and management are in
structed to develop and submit an affirmative CRA
plan acceptable to the OCC prior to the planned reor
ganization. Specific areas to be addressed in the plan
include, but are not limited to:
• Continue efforts to market the availability of
commercial and installment loans to Gary resi
dents and to review the bank's SBA lending
policy;
• Develop a reporting system showing home
mortgage applicants referred to Calumet Secu
rities, and when the bank lifts its current mora
torium on 1-4 family mortgages, an affirmative
program to market these loans to areas which
were adversely affected by the bank's previous
loan policies and procedures for housingrelated credit;
• Continue affirmative marketing efforts, espe
cially those that encourage dialogue between
the bank and segments of its community, in
cluding local government and organizations
which are representative of the diverse Gary
community;
• Continue efforts to use the Gary Regional Advi
sory Boards to help ascertain community credit
needs and follow through with plans to estab
lish the citizens advisory group to provide feed
back to and from the community; and
• Complete planned written operating and control
procedures to ensure compliance with the Equal
Credit Opportunity Act.
The OCC will closely monitor the bank's progress in
carrying out the affirmative CRA plan through quarterly
reports and future examinations.
August 18, 1980.
No Attorney General's report was received.

COUNTY NATIONAL BANK OF ORANGE,
Orange, Tex., and County Bank, National Association, Orange, Tex.
Banking offices
Names of banks and type of transaction

Total
assets

County National Bank of Orange, Orange, Tex. (14884), with
and County Bank, National Association (Organizing), Orange, Tex. (14884), which had
consolidated September 18, 1980, under charter and title of the former bank (14884). The
consolidated bank at date of consolidation had

To be
operated

1
0

44,969,934

COMPTROLLER'S DECISION
County Bank, National Association, Orange, Tex., is
being organized by Southwest Bancshares, Inc.,
Houston, Tex., a bank holding company. The consoli
dation of County National Bank of Orange, Orange,
and County Bank, National Association, is part of a
process whereby Southwest Bancshares, Inc., will ac
quire 100 percent (less directors' qualifying shares) of
County National Bank of Orange. The consolidation is
a vehicle for a bank holding company acquisition and
combines a nonoperating bank with an existing com
mercial bank. As such, it presents no competitive is
sues under the Bank Merger Act, 12 USC 1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the consolidation, the resulting bank
will draw on the financial and managerial resources of
its corporate parent. This will permit it to more effec
tively serve the convenience and needs of its commu
nity.
*

$44,848,110
121,824

In
operation

SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed consolidation is part of a plan through
which County National Bank of Orange would become
a subsidiary of Southwest Bancshares, Inc., a bank
holding company. The instant transaction, however,
would merely combine an existing bank with a nonop
erating institution; as such, and without regard to the
acquisition of the surviving bank by Southwest Banc
shares, Inc., it would have no effect on competition.
*

FIRST NATIONAL BANK OF SOUTH CENTRAL MICHIGAN,
Quincy, Mich., and SCM National Bank, Quincy, Mich.
Banking offices
Names of banks and type of transaction

Total
assets

SCM National Bank (Organizing), Quincy, Mich. (2550), with
and First National Bank of South Central Michigan, Quincy, Mich. (2550), which had
consolidated September 29, 1980, under charter and title of the latter bank (2550). The
consolidated bank at date of consolidation had

COMPTROLLER'S DECISION
SCM National Bank, Quincy, Mich., is being organized
by First American Bank Corporation, Kalamazoo,
Mich., a bank holding company. The consolidation of
First National Bank of South Central Michigan, Quincy,
with SCM National Bank is part of a process whereby
First American Bank Corporation will acquire 100 per
cent (less directors' qualifying shares) of The First Na
tional Bank of South Central Michigan. The consolida
tion is a vehicle for a bank holding company
acquisition and combines a nonoperating bank with an
existing commercial bank. As such, it presents no
competitive issues under the Bank Merger Act, 12
USC 1828(c).

$ 870,000
51,558,000
53,726,000

In
operation

To be
operated

0
4
4

The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the consolidation, the resulting bank
will draw on the financial and managerial resources of
its corporate parent. This will permit it to more effec
tively serve the convenience and needs of its commu
nity.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
applicant's record of helping to meet the credit needs
of the entire community, including low and moderate
income neighborhoods, is less than satisfactory.
This decision is the prior written approval required
83

by the Bank Merger Act for the applicant to proceed
with the proposed consolidation.
August 29, 1980.

SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which

First National Bank of South Central Michigan would
become a subsidiary of First American Bank Corpora
tion, a bank holding company. The instant merger,
however, would merely combine an existing bank with
a nonoperating institution; as such, and without regard
to the acquisition of the surviving bank by First Ameri
can Bank Corporation, it would have no effect on com
petition.

AMERICAN NATIONAL BANK,
Omaha, Nebr., and ANB Bank, N.A., Omaha, Nebr.
Banking offices
Names of banks and type of transaction

Total
assets

American National Bank, Omaha, Nebr. (15435), with
and ANB Bank, N.A. (Organizing), Omaha, Nebr. (15435), which had
merged September 30, 1980, under charter of the latter (15435) and title of the former. The merged
bank at date of merger had

COMPTROLLER'S DECISION
ANB Bank, N.A., Omaha, Nebr., is being organized by
American National Corporation, Omaha, a proposed
bank holding company. The merger of American Na
tional Bank, Omaha, into ANB Bank, N.A., is part of a
process whereby American National Corporation will
acquire 100 percent (less directors' qualifying shares)
of American National Bank. The merger is a vehicle for
a bank holding company acquisition and combines a
nonoperating bank with an existing commercial bank.
As such, it presents no competitive issues under the
Bank Merger Act, 12 USC 1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the merger, the resulting bank will
draw on the financial and managerial resources of ts
corporate parent. This will permit it to more effectively
serve the convenience and needs of its community.
A review of the record of this application and other

In
To be
operation operated

$69,825,000
240,000
69,825,000

information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
applicant's record of helping to meet the credit needs
of the entire community, including low and moderate
income neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act for the applicant to proceed
with the proposed merger.
August 18, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
American National Bank would become a subsidiary of
American National Corporation, a bank holding com
pany. The instant merger, however, would merely com
bine an existing bank with a nonoperating institution;
as such, and without regard to the acquisition of the
surviving bank by American National Corporation, it
would have no effect on competition.

FIRST NATIONAL BANK OF WOODSTOCK,
Woodstock, III., and FNW National Bank, Woodstock,
Banking offices
Names of banks and type of transaction

Total
assets

First National Bank of Woodstock, Woodstock, III. (14137), with
and FNW National Bank (Organizing), Woodstock, III., which had
merged September 30, 1980, under charter of the latter (14137) and title "First National Bank of
Woodstock." The merged bank at date of merger had

COMPTROLLER'S DECISION
FNW National Bank, Woodstock, III., is being orga
nized by First Woodstock Corp., Woodstock, a pro
posed bank holding company. The merger of First Na
tional Bank of Woodstock, Woodstock, into FNW
84

In
To be
operation operated

$61,647,0,00
120,000
72,680,000

National Bank is part of a process whereby First
Woodstock Corp. will acquire 100 percent (less direc
tors' qualifying shares) of First National Bank of Wood
stock. The merger is a vehicle for a bank holding com
pany acquisition and combines a nonoperating bank

with an existing commercial bank. As such, it presents
no competitive issues under the Bank Merger Act, 12
USC 1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the merger, the resulting bank will
draw on the financial and managerial resources of its
corporate parent. This will permit it to more effectively
serve the convenience and needs of its community.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
applicant's record of helping to meet the credit needs
of the entire community, including low and moderate
income neighborhoods, is less than satisfactory.

This decision is the prior written approval required
by the Bank Merger Act for the applicant to proceed
with the proposed merger.
August 28, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
First National Bank of Woodstock would become a
subsidiary of First Woodstock Corp., a bank holding
company. The instant merger, however, would merely
combine an existing bank with a nonoperating institu
tion; as such, and without regard to the acquisition of
the surviving bank by First Woodstock Corp., it would
have no effect on competition.

BANK ONE OF FAIRBORN, N.A.,
Fairborn, Ohio, and The First National Bank of Fairborn, Fairborn, Ohio
Banking offices
Names of banks and type of transaction

Total
assets

Bank One of Fairborn, N.A. (Organizing), Fairborn, Ohio (9675), with
and The First National Bank of Fairborn, Fairborn, Ohio (9675), which had
consolidated October 1, 1980, under charter of the latter bank (9675) and title of the former. The
consolidated bank at date of consolidation had

COMPTROLLER'S DECISION
Bank One of Fairborn, N.A., Fairborn, Ohio, is being
organized by BancOne Corporation, Columbus, Ohio,
a bank holding company. The consolidation of The
First National Bank of Fairborn, Fairborn, with Bank One
of Fairborn, N.A., is part of a process whereby BancOne Corporation will acquire 100 percent (less direc
tors' qualifying shares) of The First National Bank of
Fairborn. The consolidation is a vehicle for a bank
holding company acquisition and combines a nonop
erating bank with an existing commercial bank. As
such, it presents no competitive issues under the Bank
Merger Act, 12 USC 1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the consolidation, the resulting bank
will draw on the financial and managerial resources of
the corporate parent. This will permit it to more effec
tively serve the convenience and needs of its commu
nity.

In
operation

To be
operated

$45,371,000
120,000
47,249,000

A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
applicant's record of helping to meet the credit needs
of the entire community, including low and moderate
income neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act for the applicant to proceed
with the proposed consolidation.
August 18, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed consolidation is part of a plan through
which First National Bank of Fairborn would become a
subsidiary of BancOne Corporation, a bank holding
company. The instant transaction, however, would
merely combine an existing bank with a nonoperating
institution; as such, and without regard to the acquisi
tion of the surviving bank by BancOne Corporation, it
would have no effect on competition.

THE FIRST NATIONAL BANK OF MADISONVILLE,
MadisonvJlle, Tex., and New First National Bank, Madisonville, Tex.
Banking offices
Names of banks and type of transaction

Total
assets

The First National Bank of Madisonville, Madisonville, Tex. (6356), with
and New First National Bank (Organizing), Madisonville, Tex. (6356), which had
merged October 1, 1980, under charter of the latter (6356) and title of the former. The merged bank
at date of merger had

COMPTROLLER'S DECISION
New First National Bank, Madisonville, Tex., is being
organized by First City Bancorporation of Texas, Inc.,
Houston, Tex., a bank holding company. The merger
of The First National Bank of Madisonville, Madison
ville, into New First National Bank is part of a process
whereby First City Bancorporation of Texas, Inc., will
acquire 100 percent (less directors' qualifying shares)
of The First National Bank of Madisonville. The merger
is a vehicle for a bank holding company acquisition
and combines a nonoperating bank with an existing
commercial bank. As such, it presents no competitive
issues under the Bank Merger Act, 12 USC 1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the merger, the resulting bank will
draw on the financial and managerial resources of its
corporate parent. This will permit it to more effectively
serve the convenience and needs of its community.
A review of the record of this application and other

In
To be
operation operated

$41,388,000
60,000
43,734,000

information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
applicant's record of helping to meet the credit needs
of the entire community, including low and moderate
income neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act for the applicant to proceed
with the proposed merger.
August 28, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
First National Bank of Madisonville would become a
subsidiary of First City Bancorporation of Texas, Inc., a
bank holding company. The instant merger, however,
would merely combine an existing bank with a nonop
erating institution; as such, and without regard to the
acquisition of the surviving bank by First City Bancor
poration of Texas, Inc., it would have no effect on com
petition.

LIBERTY NATIONAL BANK AND TRUST COMPANY OF LOUISVILLE,
Louisville, Ky., and Liberty Bank of Louisville, National Association, Louisville, Ky.
Banking offices
Names of banks and type of transaction

Total
assets

Liberty National Bank and Trust Company of Louisville, Louisville, Ky. (14320), with
and Liberty Bank of Louisville, National Association (Organizing), Louisville, Ky. (14320), which had .
merged October 1, 1980, under charter of the latter (14320) and title of the former. The merged
bank at date of merger had

$931,916,000
252,000
932,161,000

In
To be
operation operated
IR

n
^R

COMPTROLLER'S DECISION
Liberty Bank of Louisville, National Association, Louis
ville, Ky., is being organized by Liberty National Ban
corp, Inc., Louisville, a proposed bank holding com
pany. The merger of Liberty National Bank and Trust
Company of Louisville, Louisville, into Liberty Bank of
Louisville, National Association, is part of a process
whereby Liberty National Bancorp, Inc., will acquire
100 percent (less directors' qualifying shares) of Lib
erty National Bank and Trust Company of Louisville.
This merger is a vehicle for a bank holding company
acquisition and merely combines a nonoperating bank
with an existing commercial bank. As such, it presents
no competitive issues under the Bank Merger Act, 12
USC 1828(c).
86

The financial and managerial resources of both pro
ponents are satisfactory, and their future prospects,
both separately and combined, are favorable. After the
merger, Liberty National Bank of Louisville will draw on
the financial and managerial resources of its corporate
parent. This will permit it to more efficiently serve the
convenience and needs of its community.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
applicant's record of helping to meet the credit needs
of the entire community, including low and moderate
income neighborhoods, is less than satisfactory.
This decision is the required prior written approval of

Liberty National Bank and Trust Company of Louisville
would become a subsidiary of Liberty National Ban
corp, Inc., a bank holding company. The instant mer
ger, however, would merely combine an existing bank
with a nonoperating institution; as such, and without
regard to the acquisition of the surviving bank by Lib
erty National Bancorp, Inc., it would have no effect on
competition.

the Bank Merger Act for the applicant to proceed with
the proposed merger.
August 18, 1980.

SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
*

O'HARE INTERNATIONAL BANK, NATIONAL ASSOCIATION,
Chicago, III., and O'Hare National Bank, Chicago, III.
Banking offices
Names of banks and type of transaction.

Total
assets

O'Hare International Bank, National Association, Chicago, III. (14888), with
and O'Hare National Bank (Organizing), Chicago, III. (14888), which had
merged October 20, 1980, under charter of the latter (14888) and title of the former. The merged
bank at date of merger had

COMPTROLLER'S DECISION

2
0

153,541,000

O'Hare National Bank, Chicago, III., is being organized
by O'Hare Banc Corp., Chicago, a proposed bank
holding company. The merger of O'Hare International
Bank, National Association, Chicago, into O'Hare Na
tional Bank, is part of a process whereby O'Hare Banc
Corp. will acquire 100 percent (less directors' qualify
ing shares) of O'Hare International Bank, National As
sociation. The merger is a vehicle for a bank holding
company acquisition and combines a nonoperating
bank with an existing commercial bank. As such, it
presents no competitive issues under the Bank Merger
Act, 12 USC 1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the merger, the resulting bank will
draw on the financial and managerial resources of its
corporate parent. This will permit it to more effectively
serve the convenience and needs of its community.
A review of the record of this application and other
*

$156,261,000
240,000

In
To be
operation operated

SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
O'Hare International Bank, N.A., would become a sub
sidiary of O'Hare Banc Corp., a bank holding com
pany. The instant merger, however, would merely com
bine an existing bank with a nonoperating institution;
as such, and without regard to the acquisition of the
surviving bank by O'Hare Banc Corp., it would have no
effect on competition.
*

THE COMMERCIAL NATIONAL BANK OF LITTLE ROCK,
Little Rock, Ark., and Commercial National Bank of Little Rock, Little Rock, Ark.
Banking offices
Names of banks and type of transaction

Total
assets

The Commercial National Bank of Little Rock, Little Rock, Ark. (14000), with
and Commercial National Bank of Little Rock (Organizing), Little Rock, Ark. (14000), which had
merged October 21, 1980, under the charter and title of the latter bank (14000). The merged bank
at date of merger had

COMPTROLLER'S DECISION
Commercial National Bank of Little Rock, Little Rock,
Ark., is being organized by Commercial Bankstock,
Inc., Little Rock, a bank holding company. The merger
of The Commercial National Bank of Little Rock, Little

$363,729,000
240,000
363,729,000

In
To be
operation operated
13
0
13

Rock, into Commercial National Bank of Little Rock is
part of a process whereby Commercial Bankstock,
Inc., will acquire 100 percent (less directors' qualifying
shares) of The Commercial National Bank of Little
Rock. The merger is a vehicle for a bank holding com87

This is the prior written approval required by the
Bank Merger Act for the applicant to proceed with the
proposed merger.
September 9, 1980.

pany acquisition and combines a nonoperating bank
with an existing commercial bank. As such, it presents
no competitive issues under the Bank Merger Act, 12
USC 1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the merger, the resulting bank will be
in a position to draw on the financial and managerial
resources of its new corporate parent. This will permit
it to more effectively serve the convenience and needs
of its community.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that Com
mercial National Bank of Little Rock's record of helping
to meet the credit needs of its entire community was
less than satisfactory.

SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
The Commercial National Bank of Little Rock would
become a subsidiary of Commercial Bankstock, Inc., a
bank holding company. The instant merger, however,
would merely combine an existing bank with a nonop
erating institution; as such, and without regard to the
acquisition of the surviving bank by Commercial Bankstock, Inc., it would have no effect on competition.

THE FIRST NATIONAL BANK OF COLUMBUS,
Columbus, Ga., and New Columbus National Bank, Columbus, Ga.
Banking offices
Names of banks and type of transaction

Total
assets

The First National Bank of Columbus, Columbus, Ga. (2338), with
and New Columbus National Bank (Organizing), Columbus, Ga. (2338), which had
consolidated November 3, 1980, under charter and title of the former bank (2338). The consolidated
bank at date of consolidation had

COMPTROLLER'S DECISION

202,470,000

To be
operated

11
0
11

A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
applicant's record of helping to meet the credit needs
of its entire community was less than satisfactory.
This is the prior written approval required by the
Bank Merger Act for the applicant to proceed with the
proposed merger.
October 3, 1980.

New Columbus National Bank, Columbus, Ga., is be
ing organized by First South Bancorp, Columbus, Ga.,
a bank holding company. The consolidation of The
First National Bank of Columbus, Columbus, with New
Columbus National Bank is a part of a process
whereby First South Bancorp will acquire 100 percent
(less directors' qualifying shares) of The First National
Bank of Columbus. The consolidation is a vehicle for a
bank holding company acquisition and combines a
nonoperating bank with an existing commercial bank.
As such, it presents no competitive issues under the
Bank Merger Act, 12 USC 1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the consolidation, the resulting bank
will draw on the financial and managerial resources of
its corporate parent. This will permit it to more effec
tively serve the convenience and needs of its commu
nity.
*

$190,592,000
252,000

In
operation

SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed consolidation is part of a plan through
which First National Bank of Columbus would become
a subsidiary of First South Bankcorp, a bank holding
company. The instant transaction, however, would
merely combine an existing bank with a nonoperating
institution; as such, and without regard to the acquisi
tion of the surviving bank by First South Bancorp, it
would have no effect on competition.
*

THE CITIZENS NATIONAL BANK AND TRUST COMPANY,
Wellsville, N.Y., and Key Bank of Western New York N.A., Wellsville, N.Y.
Banking offices
Names of banks and type of transaction

Total
assets

The Citizens National Bank and Trust Company, Wellsville, N.Y. (4988), with
and Key Bank of Western New York N.A. (Organizing), Wellsville, N.Y. (4998), which had
merged November 7, 1980, under charter and title of the latter (4988). The merged bank at date of
merger had

COMPTROLLER'S DECISION
Key Bank of Western New York N.A., Wellsville, N.Y., is
being organized by Key Banks Inc., Albany, N.Y., a
bank holding company. The merger of The Citizens
National Bank and Trust Company, Wellsville, into Key
Bank of Western New York N.A. is part of a process
whereby Key Banks Inc., will acquire 100 percent (less
directors' qualifying shares) of The Citizens National
Bank and Trust Company. The merger is a vehicle for
a bank holding company acquisition and combines a
nonoperating bank with an existing commercial bank.
As such, it presents no competitive issues under the
Bank Merger Act, 12 USC 1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the merger, the resulting bank will
draw on the financial and managerial resources of its
corporate parent. This will permit it to more effectively
serve the convenience and needs of its community.

In
operation

To be
operated

$123,174,424
60,000
123,176,224

A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
applicant's record of helping to meet the credit needs
of its entire community was less than satisfactory.
This is the prior written approval required by the
Bank Merger Act for the applicant to proceed with the
proposed merger.
October 6, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
Citizens National Bank and Trust Company would be
come a subsidiary of Key Banks Inc., a bank holding
company. The instant merger, however, would merely
combine an existing bank with a nonoperating institu
tion; as such, and without regard to the acquisition of
the surviving bank by Key Banks Inc., it would have no
effect on competition.

THE CITY NATIONAL BANK AND TRUST COMPANY OF SALEM,
Salem, N.J., and Second City National Bank and Trust Company of Salem, Salem, N.J.
Banking offices
Total
assets

Names of banks and type of transaction

The City National Bank and Trust Company of Salem, Salem, N.J. (3922), with
and Second City National Bank and Trust Company of Salem (Organizing), Salem, N.J. (3922),
which had
merged November 17, 1980, under charter of the latter (3922) and title of the former. The merged
bank at date of merger had

COMPTROLLER'S DECISION
Second City National Bank and Trust Company of Sa
lem, Salem, N.J., is being organized by Heritage Bancorporation, Cherry Hill, N.J., a bank holding com
pany. The merger of The City National Bank and Trust
Company of Salem, Salem, into Second City National
Bank and Trust Company of Salem is part of a process
whereby Heritage Bancorporation will acquire 100 per
cent (less directors' qualifying shares) of The City Na
tional Bank and Trust Company of Salem. The merger
is a vehicle for a bank holding company acquisition
and combines a nonoperating bank with an existing

In
operation

$43,296,000

120,000

43,416,000

To be
operated

commercial bank. As such, it presents no competitive
issues under the Bank Merger Act, 12 USC 1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the merger, the resulting bank will
draw on the financial and managerial resources of its
corporate parent. This will permit it to more effectively
serve the convenience and needs of its community.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
applicant's record of helping to meet the credit needs
of its entire community was less than satisfactory.
89

This is the prior written approval required by the
Bank Merger Act for the applicant to proceed with the
proposed merger.
October 17, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which

City National Bank and Trust Company of Salem would
become a subsidiary of Heritage Bancorporation, a
bank holding company. The instant merger, however,
would merely combine an existing bank with a nonoperating institution; as such, and without regard to the
acquisition of the surviving bank by Heritage Bancor
poration, it would have no effect on competition.

FIRST NATIONAL BANK AND TRUST COMPANY OF RACINE,
Racine, Wis., and 1st Bank and Trust Company of Racine, N.A., Racine, Wis.
Banking offices
Names of banks and type of transaction

Total
assets

First National Bank and Trust Company of Racine, Racine, Wis. (457), with
and 1st Bank and Trust Company of Racine, N.A. (Organizing), Racine, Wis. (457), which had
merged November 21, 1980, under charter of the latter bank (457) and title of former. The merged
bank at date of merger had

COMPTROLLER'S DECISION
This is the Comptroller's decision on an application to
merge First National Bank and Trust Company of Ra
cine, Racine, Wis. (Merging Bank), into and under the
charter of 1st Bank and Trust Company of Racine, N.A.
(Organizing), Racine (Charter Bank). This application
was filed on December 7, 1979, and is based on an
agreement executed by the proponents on November
27, 1979. The proposal is part of a process whereby
The Marine Corporation, Milwaukee, Wis., a registered
bank holding company, will acquire 100 percent (less
directors' qualifying shares) of the successor institu
tion. Charter Bank is being organized by The Marine
Corporation solely to facilitate the acquisition of Merg
ing Bank. The merger would combine a nonoperating
bank with an existing commercial bank and have no
effect on competition.
The financial and managerial resources of both
banks are satisfactory, and their future prospects ap
pear favorable. After the merger, Merging Bank will
more effectively serve the convenience and needs of
its community by drawing on the financial and mana
gerial resources of its corporate parent.

In
To be
operation operated

$139,236,000
240,000
139,476,000

SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
First National Bank and Trust Company of Racine
would become a subsidiary of Marine Corporation, a
bank holding company. The instant merger, however,
would merely combine an existing bank with a nonop
erating institution; as such, and without regard to the
acquisition of the surviving bank by Marine Corpora
tion, it would have no effect on competition.

THE NATIONAL BANK OF NORTHERN NEW YORK,
Watertown, N.Y., and Key Bank of Northern New York N.A., Watertown, N.Y.
Banking offices
Names of banks and type of transaction

Total
assets

The National Bank of Northern New York, Watertown, N.Y. (2657), which had
and Key Bank of Northern New York N.A. (Organizing), Watertown, N.Y. (2657), which had
merged November 28, 1980, under charter and title of latter bank (2657). The merged bank at date
of merger had

COMPTROLLER'S DECISION
Key Bank of Northern New York N.A., Watertown, N.Y.,
is being organized by Key Banks Inc., Albany, N.Y., a
bank holding company. The merger of The National
Bank of Northern New York, Watertown, into Key Bank
of Northern New York N.A. is a part of a process
whereby Key Banks Inc., will acquire 100 percent (less
directors' qualifying shares) of The National Bank of
Northern New York. The merger is a vehicle for a bank
holding company acquisition and combines a nonoperating bank with an existing commercial bank. As
such, it presents no competitive issues under the Bank
Merger Act, 12 USC 1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the merger, the resulting bank will
draw on the financial and managerial resources of its
corporate parent. This will permit it to more effectively
serve the convenience and needs of its community.

$255,154,000
120,000

In
To be
operation operated
16
0

255,157,000

A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
applicant's record of helping to meet the credit needs
of its entire community was less than satisfactory.
This is the prior written approval required by the
Bank Merger Act for the applicant to proceed with the
proposed merger.
October 6, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
National Bank of Northern New York would become a
subsidiary of Key Banks Inc., a bank holding com
pany. The instant merger, however, would merely com
bine an existing bank with a nonoperating institution;
as such, and without regard to the acquisition of the
surviving bank by Key Banks Inc., it would have no ef
fect on competition.

HARBOR NATIONAL BANK OF BOSTON,
Boston, Mass., and New Harbor National Bank, Boston, Mass.
Names of banks and type of transaction

Total
assets

Harbor National Bank of Boston, Boston, Mass. (15483), with
and New Harbor National Bank (Organizing), Boston, Mass. (15483), which had
merged December 5, 1980, under charter of the latter (15483), and with the title "Harbor National
Bank of Boston." The merged bank at date of merger had

COMPTROLLER'S DECISION
New Harbor National Bank, Boston, Mass., is being or
ganized by Patriot Bancorporation, Boston, a pro
posed bank holding company. The merger of Harbor
National Bank of Boston into New Harbor National
Bank is part of a process whereby Patriot Bancorpora
tion will acquire 100 percent (less directors' qualifying
shares) of Harbor National Bank of Boston. The merger
is a vehicle for a bank holding company acquisition
and combines a nonoperating bank with an existing
commercial bank. As such, it presents no competitive
issues under the Bank Merger Act, 12 USC 1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are

$19,216,000
240,000

Banking offices
In
To be
operation operated
3
0

19,216,000

favorable. After the merger, the resulting bank will
draw on the financial and managerial resources of its
corporate parent. This will permit it to more effectively
serve the convenience and needs of its community.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that ap
plicant's record of helping to meet the credit needs of
the entire community, including low and moderate in
come neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act for the applicant to proceed
with the proposed merger.
August 21, 1980.
91

SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
Harbor National Bank of Boston would become a sub
sidiary of Patriot Bancorporation, a bank holding com

pany. The instant merger, however, would merely com
bine an existing bank with a nonoperating institution;
as such, and without regard to the acquisition of the
surviving bank by Patriot, Bancorporation, it would
have no effect on competition.

NORTHPARK NATIONAL BANK OF DALLAS,
Dallas, Tex., and National Bank of NorthPark, Dallas, Tex.
Banking offices
Names of banks and type of transaction

Total
assets

NorthPark National Bank of Dallas, Dallas, Tex. (15529), with
and National Bank of NorthPark (Organizing), Dallas, Tex. (15529), which had
merged December 11, 1980, under charter of the latter (15529) and title of "NorthPark National
Bank of Dallas." The merged bank at date of merger had

COMPTROLLER'S DECISION
National Bank of NorthPark, Dallas, Tex., is being or
ganized by NorthPark National Corporation, Dallas, a
bank holding company. The merger of NorthPark Na
tional Bank of Dallas, Dallas, into National Bank of
NorthPark is part of a process whereby NorthPark Na
tional Corporation will acquire 100 percent (less direc
tors' qualifying shares) of NorthPark National Bank of
Dallas. The merger is a vehicle for a bank holding
company acquisition and combines a nonoperating
bank with an existing commercial bank. As such, it
presents no competitive issues under the Bank Merger
Act, 12 USC 1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the merger, the resulting bank will
draw on the financial and managerial resources of its
corporate parent. This will permit it to more effectively
serve the convenience and needs of its community.

$199,948,000
240,000

In
To be
operation operated
-j

n
1

199,774,000

A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
applicant's record of helping to meet the credit needs
of its entire community was less than satisfactory.
This is the prior written approval required by the
Bank Merger Act for the applicants to proceed with the
proposed merger.
October 31, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
NorthPark National Bank of Dallas would become a
subsidiary of NorthPark National Corporation, a bank
holding company. The instant merger, however, would
merely combine an existing bank with a nonoperating
institution; as such, and without regard to the acquisi
tion of the surviving bank by NorthPark National Cor
poration, it would have no effect on competition.

SECURITY NATIONAL BANK,
Lynn, Mass., and Security Bank, N.A., Lynn, Mass.
Banking offices
Names of banks and type of transaction

Total
assets

Security Bank, N.A., Lynn, Mass. (Organizing), with
and Security National Bank, Lynn, Mass. (7452), which had
consolidated December 11, 1980, under charter and title of the latter bank (7452). The consolidated
bank at date of consolidation had

COMPTROLLER'S DECISION
Security Bank, N.A., Boston, Mass., is being organized
by Security Bancorp, Inc., Boston, a proposed bank
holding company. The consolidation of Security Na
tional Bank, Lynn, Mass., and Security Bank, N.A., is
part of a process whereby Security Bancorp, Inc., will
acquire 100 percent (less directors' qualifying shares)
of Security National Bank. The consolidation is a vehi
92

250,000
108,002,000
108,752,000

In
To be
operation operated
0
11
11

cle for a bank holding company acquisition and com
bines a nonoperating bank with an existing commer
cial bank. As such, it presents no competitive issues
under the Bank Merger Act, 12 USC 1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the consolidation, the resulting bank
will draw on the financial and managerial resources of

may not be consummated prior to the expiration of the
30th day after the approval of the bank holding com
pany application.
August 21, 1980.

its corporate parent. This will permit it to more effec
tively serve the convenience and needs of its commu
nity.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
applicant's record of helping to meet the credit needs
of its entire community, including low and moderate
income neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act for the applicants to proceed
with the proposed consolidation. This approval is con
ditioned on the approval by the Federal Reserve Board
of an application filed under 12 USC 1841, et sec?., for
Security Bancorp, Inc., to acquire the successor insti
tution by merger to Security Bank, N.A. This merger
*

SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed consolidation is part of a plan through
which Security National Bank would become a subsidi
ary of Security Bancorp, Inc., a bank holding com
pany. The instant transaction, however, would merely
combine an existing bank with a nonoperating institu
tion; as such, and without regard to the acquisition of
the surviving bank by Security Bancorp, Inc., it would
have no effect on competition.
*

THE CITY NATIONAL BANK OF FORT SMITH,
Fort Smith, Ark., and Third National Bank of Fort Smith, Forth Smith, Ark.
Banking offices
Total
assets

Names of banks and type of transaction

The City National Bank of Fort Smith, Fort Smith, Ark. (10609), with
and Third National Bank of Fort Smith (Organizing), Fort Smith, Ark. (10609), which had
merged December 15, 1980, under charter of the latter (10609) and title of the former. The merged
bank at date of merger had

COMPTROLLER'S DECISION
Third National Bank of Fort Smith, Fort Smith, Ark., is
being organized by First City Corp., Fort Smith, a bank
holding company. The merger of The City National
Bank of Fort Smith, Fort Smith, into Third National Bank
of Fort Smith is part of a process whereby First City
Corp. will acquire 100 percent (less directors' qualify
ing shares) of The City National Bank of Fort Smith.
The merger is a vehicle for a bank holding company
acquisition and combines a nonoperating bank with an
existing commercial bank. As such, it presents no
competitive issues under the Bank Merger Act, 12
USC 1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the merger, the resulting bank will
draw on the financial and managerial resources of its
corporate parent. This will permit it to more effectively
serve the convenience and needs of its community.
A review of the record of this application and other

In
operation

To be
operated

$157,350,000
240,000
156,122,000

information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
applicant's record of helping to meet the credit needs
of the entire community, including low and moderate
income neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act for the applicant to proceed
with the proposed merger.
November 13, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
City National Bank of Fort Smith would become a sub
sidiary of First City Corp., a bank holding company.
The instant merger, however, would merely combine
an existing bank with a nonoperating institution; as
such, and without regard to the acquisition of the sur
viving bank by First City Corp., it would have no effect
on competition.

THE FIRST NATIONAL BANK OF DES PLAINES,
Des Plaines, III., and Prairie Lee National Bank, Des Plaines, III.
Banking offices
Names of banks and type of transaction

Total
assets

The First National Bank of Des Plaines, Des Plaines, III. (10319), with
and Prairie Lee National Bank (Organizing), Des Plaines, III. (10319), which had
merged December 19, 1980, under charter of the latter (10319) and title of the former. The merged
bank at date of merger had

COMPTROLLER'S DECISION

2
0

245,330,000

Prairie Lee National Bank, Des Plaines, III., is being or
ganized by First Des Plaines Corporation, Des Plaines,
a bank holding company. The merger of The First Na
tional Bank of Des Plaines, Des Plaines, into Prairie
Lee National Bank is part of a process whereby First
Des Plaines Corporation will acquire 100 percent (less
directors' qualifying shares) of The First National Bank
of Des Plaines. The merger is a vehicle for a bank
holding company acquisition and will combine a nonoperating bank with an existing commercial bank. As
such, it presents no competitive issues under the Bank
Merger Act, 12 USC 1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the merger, the resulting bank will
draw on the financial and managerial resources of its
corporate parent. This will permit it to more effectively
serve the convenience and needs of its community.
A review of the record of this application and other
*

$245,083,000
247,000

In
To be
operation operated

SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
First National Bank of Des Plaines would become a
subsidiary of First Des Plaines Corporation, a bank
holding company. The instant merger, however, would
merely combine an existing bank with a nonoperating
institution; as such, and without regard to the acquisi
tion of the surviving bank by First Des Plaines Corpora
tion, it would have no effect on competition.
*

NATIONAL BANK OF COMMERCE OF BIRMINGHAM,
Birmingham, Ala., and Commerce Bank, N.A., Birmingham, Ala.
Banking offices
Names of banks and type of transaction

Total
assets

National Bank of Commerce of Birmingham, Birmingham, Ala. (15303), with
and Commerce Bank, N.A., Birmingham (Organizing), Birmingham, Ala. (15303), which had
merged December 29, 1980, under the charter of the latter (15303) and title of the former. The
merged bank at date of merger had

COMPTROLLER'S DECISION
Commerce Bank, N.A., Birmingham, Ala., is being or
ganized by National Commerce Corporation, Birming
ham, a bank holding company. The merger of National
Bank of Commerce of Birmingham, Birmingham, into
Commerce Bank, N.A., is part of a process whereby
National Commerce Corporation will acquire 100 per
cent (less directors' qualifying shares) of National
Bank of Commerce of Birmingham. The merger is a
vehicle for a bank holding company acquisition and
combines a nonoperating bank with an existing com
mercial bank. As such, it presents no competitive is
sues under the Bank Merger Act, 12 USC 1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the merger, the resulting bank will
94

$48,070,000
240,000
55,696,000

In
To be
operation operated
4
0
4

draw on the financial and managerial resources of its
corporate parent. This will permit it to more effectively
serve the convenience and needs of its community.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
applicant's record of helping to meet the credit needs
of the entire community, including low and moderate
income neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act for the applicant to proceed
with the proposed merger.
November 24, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which

National Bank of Commerce of Birmingham would be
come a subsidiary of National Commerce Corporation,
a bank holding company. The instant merger, how
ever, would merely combine an existing bank with a
*

nonoperating institution; as such, and without regard
to the acquisition of the surviving bank by National
Commerce Corporation, it would have no effect on
competition.
*

THE FIRST NATIONAL BANK OF DECATUR,
Decatur, III., and Third National Bank of Decatur, Decatur, III.
Banking offices
Names of banks and type of transaction

Total
assets

The First National Bank of Decatur, Decatur, III. (4920), with
and Third National Bank of Decatur (Organizing), Decatur, III. (4920), which had
merged December 31, 1980, under the charter of the latter bank (4920) and title "The First National
Bank of Decatur." The merged bank at date of merger had

$191,061,000
240,000

In
operation

To be
operated

3
0

190,978,000

COMPTROLLER'S DECISION
Third National Bank of Decatur, Decatur, III., is being
organized by First Decatur Bancshares, Inc., Decatur,
a bank holding company. The merger of The First Na
tional Bank of Decatur, Decatur, into Third National
Bank of Decatur is part of a process whereby First De
catur Bancshares, Inc., will acquire 100 percent (less
directors' qualifying shares) of The First National Bank
of Decatur. The merger is a vehicle for a bank holding
company acquisition and combines a nonoperating
bank with an existing commercial bank. As such, it
presents no competitive issues under the Bank Merger
Act, 12 USC 1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the merger, the resulting bank will
draw on the financial and managerial resources of its
corporate parent. This will permit it to more effectively
serve the convenience and needs of its community.
A review of the record of this application and other

information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
applicant's record of helping to meet the credit needs
of the entire community, including low and moderate
income neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act for the applicant to proceed
with the proposed merger.
December 1, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
First National Bank of Decatur would become a sub
sidiary of First Decatur Bancshares, Inc., a bank hold
ing company. The instant merger, however, would
merely combine an existing bank with a nonoperating
institution; as such, and without regard to the acquisi
tion of the surviving bank by First Decatur Bancshares,
Inc., it would have no effect on competition.

FIRST NATIONAL BANK OF McDONOUGH,
McDonough, Ga., and First National Interim Bank of McDonough, McDonough, Ga.
Banking offices
Names of banks and type of transaction

Total
assets

First National Bank of McDonough, McDonough, Ga. (7969), with
and First National Interim Bank of McDonough (Organizing), McDonough, Ga. (7969), which had . . .
merged December 31, 1980, under the charter of the latter (7969) and title of the former. The
merged bank at date of merger had

COMPTROLLER'S DECISION
First National Interim Bank of McDonough, McDonough, Ga., is being organized by Trust Company of
Georgia, Atlanta, Ga., a bank holding company. The
merger of First National Bank of McDonough, McDo
nough, into First National Interim Bank of McDonough
is part of a process whereby Trust Company of Geor

In
operation

To be
operated

$39,665,000
250,000
39,665,000

gia will acquire 100 percent (less directors' qualifying
shares) of First National Bank of McDonough. The mer
ger is a vehicle for a bank holding company acquisi
tion and combines a nonoperating bank with an exist
ing commercial bank. As such, it presents no
competitive issues under the Bank Merger Act, 12
USC 1828(c).
95

Bank Merger Act for the applicant to proceed with the
proposed merger.
November 19, 1980.

The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the merger, the resulting bank will
draw on the financial and managerial resources of its
corporate parent. This will permit it to more effectively
serve the convenience and needs of its community.
A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
applicant's record of helping to meet the credit needs
of its community, including low and moderate income
neighborhoods, is less than satisfactory.
This is the prior written approval required by the

SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
First National Bank of McDonough would become a
subsidiary of Trust Company of Georgia, a bank hold
ing company. The instant merger, however, would
merely combine an existing bank with a nonoperating
institution; as such, and without regard to the acquisi
tion of the surviving bank by Trust Company of Geor
gia, it would have no effect on competition.

THE LAREDO NATIONAL BANK,
Laredo, Tex., and New Laredo National Bank, Laredo, Tex.
Banking offices
Names of banks and type of transaction

Total
assets

The Laredo National Bank, Laredo, Tex. (5001), with
and New Laredo National Bank (Organizing), Laredo, Tex. (5001), which had
merged December 31, 1980, under charter of the latter (5001) and title of the former. The merged
bank at date of merger had

$433,728,000
240,000

In
To be
operation operated
1
0

433,728,000

COMPTROLLER'S DECISION
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
applicant's record of helping to meet the credit needs
of its community, including low and moderate income
neighborhoods, is less than satisfactory.
This is the prior written approval required by the
Bank Merger Act for the applicant to proceed with the
proposed merger.
November 24, 1980.

New Laredo National Bank, Laredo, Tex., is being or
ganized by Laredo National Bancshares, Inc., Laredo,
a bank holding company. The merger of The Laredo
National Bank, Laredo, into New Laredo National Bank
is part of a process whereby Laredo National Banc
shares, Inc., will acquire 100 percent (less directors'
qualifying shares) of The Laredo National Bank. The
merger is a vehicle for a bank holding company acqui
sition and combines a nonoperating bank with an ex
isting commercial bank. As such, it presents no com
petitive issues under the Bank Merger Act, 12 USC
1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the merger, the resulting bank will
draw on the financial and managerial resources of its
corporate parent. This will permit it to more effectively
serve the convenience and needs of its community.
A review of the record of this application and other
*

SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
Laredo National Bank would become a subsidiary of
Laredo National Bancshares, Inc., a bank holding
company. The instant merger, however, would merely
combine an existing bank with a nonoperating institu
tion; as such, and without regard to the acquisition of
the surviving bank by Laredo National Bancshares,
Inc., it would have no effect on competition.
*

SECURITY NATIONAL BANK,
Houston, Tex., and Allied Bank—West Loop, N.A., Houston, Tex.
Banking offices
Names of banks and type of transaction

Total
assets

Security National Bank, Houston, Tex. (16440), with
and Allied Bank—West Loop, N.A. (Organizing), Houston, Tex. (16440), which had
merged December 31, 1980, under the charter and the title of latter bank (16440). The merged
bank at date of merger had

COMPTROLLER'S DECISION
Allied Bank—West Loop, N.A., Houston, Tex., is being
organized by Allied Bancshares, Inc., Houston, a bank
holding company. The merger of Security National
Bank, Houston, into Allied Bank—West Loop, N.A., is
part of a process whereby Allied Bancshares, Inc., will
acquire 100 percent (less directors' qualifying shares)
of Security National Bank. The merger is a vehicle for a
bank holding company acquisition and combines a
nonoperating bank with an existing commercial bank.
As such, it presents no competitive issues under the
Bank Merger Act, 12 USC 1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the merger, the resulting bank will
draw on the financial and managerial resources of its
corporate parent. This will permit it to more effectively
serve the convenience and needs of its community.
A review of the record of this application and other

In
To be
operation operated

$62,217,000
2,000,000
64,217,000

information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
applicant's record of helping to meet the credit needs
of the entire community, including low and moderate
income neighborhoods, is less than satisfactory.
This decision is the prior written approval required
by the Bank Merger Act for the applicant to proceed
with the proposed merger.
November 13, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
Security National Bank would become a subsidiary of
Allied Bancshares, Inc., a bank holding company. The
instant merger, however, would merely combine an ex
isting bank with a nonoperating institution; as such,
and without regard to the acquisition of the surviving
bank by Allied Bancshares, Inc., it would have no ef
fect on competition.

THE TALLADEGA NATIONAL BANK,
Talladega, Ala., and First Alabama Bank of Talladega County, N.A., Ala.
Banking offices
Names of banks and type of transaction

Total
assets

The Talladega National Bank, Talladega, Ala. (7558), with
and First Alabama Bank of Talladega County, N.A. (Organizing), Talladega, Ala. (7558), which had .
merged December 31, 1980, under charter and title of the latter (7558). The merged bank at date of
merger had

COMPTROLLER'S DECISION
First Alabama Bank of Talladega County, N.A., Talla
dega, Ala., is being organized by First Alabama Banc
shares, Inc., Montgomery, Ala., a bank holding com
pany. The merger of The Talladega National Bank,
Talladega, into First Alabama Bank of Talladega
County, N.A., is part of a process whereby First Ala
bama Bancshares, Inc., will acquire 100 percent (less
directors' qualifying shares) of The Talladega National
Bank. The merger is a vehicle for a bank holding com
pany acquisition and combines a nonoperating bank
with an existing commercial bank. As such, it presents
no competitive issues under the Bank Merger Act, 12
USC 1828(c).
The financial and managerial resources of both en

In
operation

To be
operated

$40,446,000
122,000
40,568,000

tities and the future prospects of the resulting bank are
favorable. After the merger, the resulting bank will
draw on the financial and managerial resources of its
corporate parent. This will permit it to more effectively
serve the convenience and needs of its community.
A review of the record of this application and other
information available to this Office as a result if its reg
ulatory responsibilities revealed no evidence that the
applicant's record of helping to meet the credit needs
of the entire community, including low and moderate
income neighborhoods, is less than-satisfactory.
This decision is the prior written approval required
by the Bank Merger Act for the applicant to proceed
with the proposed merger.
November 20, 1980.

SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
Talladega National Bank would become a subsidiary
of First Alabama Bancshares, Inc., a bank holding

company. The instant merger, however, would merely
combine an existing bank with a nonoperating institu
tion; as such, and without regard to the acquisition of
the surviving bank by First Alabama Bancshares, Inc.,
it would have no effect on competition.

WEST SIDE NATIONAL BANK OF SAN ANGELO,
San Angelo, Tex., and New West Side National Bank of San Angelo, San Angelo, Tex.
Banking offices
Names of banks and type of transaction

Total
assets

West Side National Bank of San Angelo, San Angelo, Tex. (14995), with
and New West Side National Bank of San Angelo (Organizing), San Angelo, Tex. (14995), which
had
merged December 31, 1980, under the charter of the latter bank (14995) and title of the former. The
merged bank at date of merger had

COMPTROLLER'S DECISION
New West Side National Bank of San Angelo, San
Angelo, Tex., is being organized by West Side Banc
shares, Inc., San Angelo, a bank holding company.
The merger of West Side National Bank of San Angelo,
San Angelo, into New West Side National Bank of San
Angelo is a part of a process whereby West Side
Bancshares, Inc., will acquire 100 percent (less direc
tors' qualifying shares) of West Side National Bank of
San Angelo. The merger is a vehicle for a bank holding
company acquisition and combines a nonoperating
bank with an existing commercial bank. As such, it
presents no competitive issues under the Bank Merger
Act, 12 USC 1828(c).
The financial and managerial resources of both en
tities and the future prospects of the resulting bank are
favorable. After the merger, the resulting bank will
draw on the financial and managerial resources of its
corporate parent. This will permit it to more effectively
serve the convenience and needs of its community.

In
To be
operation operated

$44,853,000

240,000

45,093,000

A review of the record of this application and other
information available to this Office as a result of its reg
ulatory responsibilities revealed no evidence that the
applicant's record of helping to meet the credit needs
of the community, including low and moderate income
neighborhoods, is less than satisfactory.
This is the prior written approval required by the
Bank Merger Act for the applicant to proceed with the
proposed merger.
October 27, 1980.
SUMMARY OF REPORT BY ATTORNEY GENERAL
The proposed merger is part of a plan through which
West Side National Bank of San Angelo would become
a subsidiary of West Side Bancshares, Inc., a bank
holding company. The instant merger, however, would
merely combine an existing bank with a nonoperating
institution; as such, and without regard to the acquisi
tion of the surviving bank by West Side Bancshares,
Inc., it would have no effect on competition.

Enforcement Actions
Civil M o n e y P e n a l t i e s
1. Bank with assets of less than $25 million
A specialized examination disclosed four violations
of 12 USC 84. The documentation concerning two of
the Section 84 violations indicated that the approving
bank officers and the board of directors should have
known that the cited extension of credit would violate
Section 84. The regional office recommended that civil
money penalties be assessed for these violations. The
remaining Section 84 violations were less serious in
nature as they involved standby letters of credit under
which no funds had been disbursed. Due to the less
serious nature of those violations, the regional office
recommended that they not serve as the basis of a
civil money penalty assessment. In addition, the pre
vious report of examination disclosed 10 Section 84 vi
olations. At that time the regional office instructed the
bank to adopt procedures designed to prevent the re
currence of Section 84 violations. All violations were
corrected shortly after the close of the examination.
In light of the recurring nature of the Section 84 vio
lations, the Comptroller assessed a $2,000 Civil Money
Penalty against the bank. The Comptroller agreed with
the region's recommendation to base the assessment
only on the more serious Section 84 violations.
2. Bank with assets of less than $25 million
A specialized examination of the bank disclosed
four violations of 12 USC 84 and two violations of 12
USC 375b(2). In addition, two of the three prior exami
nations disclosed Section 84 violations.
The two violations of 12 USC 375b(2) concerned ex
tensions of credit to the interests of a member of the
board of directors which did not receive prior board
approval. One of the Section 84 violations involved ex
tensions of credit to a corporation in which both a di
rector and the bank's chief executive officer (CEO)
had substantial financial interests. In addition, this
credit was classified substandard. The other Section
84 violation did not involve bank insiders.
The Comptroller considered the Section 84 violation
and the two 12 USC 375b(2) violations involving bank
insiders to be serious and to evidence a general disre
gard for the law. Therefore, the Comptroller issued the
following Civil Money Penalty assessments: (1) The
bank was assessed a $5,000 penalty; (2) The CEO
was assessed a $10,000 penalty, but based on the
CEO's financial resources the Comptroller suspended
$8,000 of this penalty; and (3) The director involved in
the insider violations was assessed a $10,000 penalty,
but based on the director's financial resources the
Comptroller suspended $8,000 of this penalty.

3. Bank with assets of $75 to $100 million
A general examination of the bank revealed viola
tions of statutes and regulations which appeared, in
certain instances, to be intentional. Four violations of
12 USC 84 were cited in the report. These violations
were continuous and principally involved the bank's
chief executive officer (CEO). One of these violations
was corrected prior to November 10, 1978 and, thus,
was not a proper basis for the assessment of civil
money penalties. The regional office recommended
that civil money penalties be assessed for the remain
ing three violations.
The bank and its CEO admitted the violations of 12
USC 84. The bank indicated that it had arranged par
ticipations of the amount in excess of its lending limit
but, in practice, would only finalize the participations if
the examiners discovered the violations.
The bank informed the OCC that these practices
would be discontinued and that the CEO would resign
and be replaced within several weeks. In total, the
bank demonstrated that it was taking swift and serious
steps to comply with the letter and spirit of the law and
to eliminate any deficient policies and procedures
cited in the report of examination.
In light of the bank's improvement and the CEO's
agreement to resign, the Comptroller assessed Civil
Money Penalties against the bank for $10,000 and
against its CEO for $2,000. Both penalties were con
sented to simultaneously with the issuance of the Or
der of Assessment.
4. Bank with assets of less than $25 million*
The accounts of a director and principal shareholder
and his related interests were overdrawn on a regular
basis over a substantial period of time. Though techni
cally overdrawn, this status was not normally reflected
on the bank's books—insufficient funds checks were
continuously carried as cash items. By failing to return
these checks in a timely manner, the bank became lia
ble for them. That practice resulted in the bank's ex
tending credit greatly in excess of its lending limit with
out any compensation. A later CPA review revealed
that the accounts averaged an overdraft balance of
$85,000 for prolonged intervals over a 5-year period.
These extensions of credit to a director and principal
shareholder were an unsafe and unsound banking
practice and constituted violations of 12 USC 84 and
375(b) and 12 CFR 215.4(a) through (d).
The Comptroller issued an Order to Cease and De
sist requiring the bank to discontinue its practice of ex
tending credit to insiders by honoring checks not cov
ered by sufficient deposit balances. The bank was
* This bank was also the subject of an administrative action
during 1980.
99

also ordered to develop and implement policies and
procedures to prevent a recurrence of those problems.
The director involved was required to reimburse the
bank for interest and other charges which should have
been collected for extensions of credit comparable to
those resulting from the bank's treatment of his insuffi
cient funds checks. Preliminary reviews indicate that
reimbursement of approximately $15,000 will be made.
A Civil Money Penalty of $10,000 was assessed
against the director whose accounts were overdrawn.
The bank's president and chairman of the board of di
rectors was assessed a penalty of $10,000. He was
dominant in the affairs of the bank and was responsi
ble for its treatment of the director's overdrafts. The
vice president and cashier, who was also a director,
was assessed a penalty of $2,500. She was aware of
the practice and took no action to stop it. Two outside
directors were not penalized. They first learned of the
situation in an audit report, and voiced strong objec
tion to it. The problem was remedied shortly thereafter.
5. Bank with assets of $25 to $50 million
After a history of generally sound operations, the
most recent examination report of the bank revealed a
significantly deteriorated condition. Specifically, the
quality of assets had declined considerably, insider
abuse was in evidence and the institution was suffer
ing from a variety of less serious operational deficien
cies. Violations of law principally involved bank in
siders and included violations of 12 USC 84, 375a and
371c and 12 CFR 2 (credit life insurance).
In order to remedy these conditions, a written Formal
Agreement pursuant to 12 USC 1818(b) was being ne
gotiated. Among other corrective measures, the
Agreement would have required certain insiders (who
were also controlling shareholders) to restore to the
bank significant amounts which they received in viola
tion of the credit life insurance regulation. While negoti
ations over the Formal Agreement were actively under
way but before the issuance of a Notice of Charges,
the bank converted to state charter.
After the conversion to state charter, the OCC pro
ceeded under its authority to assess fines for violations
occurring while the bank operated under national
charter. On this basis, the OCC assessed a Civil
Money Penalty of $5,000 against the bank for viola
tions of 12 CFR 2 and 12 USC 84, 375a and 371c. The
two insiders who had illegally received the credit life
insurance proceeds each were fined $5,000 and each
reimbursed $10,000 to the bank in wrongfully acquired
credit life insurance proceeds. (Substantial credit life
insurance proceeds had previously been reimbursed
by these individuals during settlement negotiations.) A
lesser bank officer was also fined $2,000 for violations
of 12 USC 375a and 371c. Because of that officer's
depleted financial condition, $1,000 of the assessed
penalty was suspended.
6. Bank with assets of $25 to $50 million*
The bank had made little effort to remedy previously
criticized banking practices and violations of law.
* This bank was also the subject of an administrative action
during 1980.
100

Classified assets had increased to 56 percent of gross
capital funds from 33 percent at the preceding exami
nation. The past dues stood at 9.5 percent of gross
loans. Even that excessively high percentage was un
derstated in light of the bank's program of granting
"catch up" loans to customers who were seriously de
linquent. The allowance for possible loan losses was
seriously inadequate, equalling 0.62 percent of total
loans. The board failed to adequately supervise man
agement. The chairman and vice chairman of the
board received excessive salaries. Although earnings
were above averages for the bank's peer group, li
quidity, at 9.9 percent of net deposits, was strained.
The investment portfolio, which consisted primarily of
extended issues with heavy depreciation equal to 49
percent of adjusted capital funds, provided little sup
port to overall liquidity. The bank had consistently vio
lated the provisions of 12 USC 84 even though the re
gional office had warned the board on several
occasions that the continuation of such violations
could result in the assessment of civil money penalties.
The consumer and commercial examinations also dis
closed numerous other violations of law, rule or regula
tion, including 12 USC 85, 375b and 371d; 12 CFR
7.3025; 12 CFR 202 (Regulation B); and reimbursable
violations of 12 CFR 226 (Regulation Z).
An Order to Cease and Desist required the bank to
correct each cited violation of law, rule or regulation
and to adopt procedures to prevent the recurrence of
similar violations. The bank was directed to comply
with the restitution provisions of Section 608 of the
Truth in Lending Simplication and Reform Act, 15
USC 1607, with respect to the reimbursable Regulation
Z violations cited in the consumer report. The bank
was also directed to adjust the accounts of all borrow
ers who had been charged interest in an amount ex
ceeding the maximum permissible under 12 USC 85.
The bank was also required to obtain and maintain
current and satisfactory credit information on all exten
sions of credit and to correct each collateral excep
tion. The order directed that the bank immediately in
crease its allowance for possible loan losses to an
amount equal to not less than 1 percent of loans out
standing. In addition, the bank was ordered to develop
a program to improve its liquidity position. As part of
that program, the bank was required to maintain mini
mum liquidity of 15 percent, computed according to
the Comptroller's formula. The order also required the
bank to maintain sufficient documentation to fully dis
close all of its affiliate relationships. The requirements
that the order placed on the board included (1) the de
velopment and implementation of controls prohibiting
management from restoring charge-offs to an active
status except in strict conformance with OCC guide
lines, (2) the adoption and implementation of a written
program designed to eliminate all assets from a criti
cized status, (3) the adoption of a system for identify
ing and monitoring problem loans, (4) the assessment
of the staffing needs of the bank's collection depart
ment and the correction of any identified collection de
partment staffing deficiencies, (5) the conduct of quar
terly reviews of the allowance for possible loan losses
and the establishment of a program designed to main-

tain the allowance at an adequate level, and (6) the
amendment of the bank's lending and collection poli
cies as necessary to improve the lending function. Fi
nally, the order restricted the salaries, fees, bonuses
and expenses paid by the bank to the board's chair
man and vice chairman to an amount commensurate
with the value of the services they actually performed.
As a result of the repetitive and continuous nature of
the violations of 12 USC 84, a Civil. Money Penalty of
$5,000 was assessed against the bank. The bank did
not contest the assessment and paid the penalty in
full.
7. Bank with assets of $25 to $50 million
In the course of misappropriating bank funds and
making false statements in violation of federal criminal
laws, the bank's chief executive officer, also a board
member, caused, handled and approved excessive
loans to his own related corporate interests and failed
to report to the board his extensive borrowings from
other banks. Credit was extended by this bank to three
corporations which were in fact the related interests of
the chief executive officer. Those extensions of credit
were handled by the chief executive officer and, when
aggregated with other outstanding extensions to his
related interests, exceeded the bank's legal lending
limit, thereby violating the restrictions on executive offi
cer borrowing under 12 USC 375b(1). These exten
sions of credit were not approved in advance by the
bank's board of directors, although the amount ex
ceeded $25,000, thereby violating 12 USC 375b(2).
Later, also under the auspices of the same chief exec
utive officer, the bank renewed loans to the related in
terests and failed to cause them to come into compli
ance with the lending limits and, thus, violated 12 CFR
215.6a.
When these activities came to light, the individual re
signed from the bank. He was indicted and pleaded
guilty to violations of 18 USC 656 (misappropriation)
and 18 USC 1014 (false statements). He is presently in
prison.
The OCC concluded that the bank and its directors
had taken significant actions to prevent the recurrence
of similar unlawful conduct by adopting and imple
menting corrective procedures. Additionally, the direc
tors had reimbursed the bank $7,000 of these loans
from their personal assets. No assessment was made
against them or the bank. However, due to the serious
misconduct on the part of the former chief executive
officer, he was assessed a Civil Money Penalty of
$25,000. Because of his depleted financial resources,
all but $1,000 of the penalty was suspended.

Administrative Actions
1. Bank with assets of less than $25 million
The Comptroller issued an Order to Cease and De
sist requiring the bank to discontinue its practice of ex
tending credit to insiders through honoring of checks
not covered by sufficient deposit balances. The bank
was also ordered to develop and implement policies
and procedures to prevent a recurrence of these prob
lems.

The entire summary of this action may be found at
#4 under the Civil Money Penalty heading.
2. Bank with assets of less than $25 million
Preferential treatment to insiders, violations of law
and regulation, and insider abuse by the chief execu
tive officer caused the problems. Self-dealing and con
flicts of interest were noted, and a general disregard
for the banking statutes was apparent. Classified as
sets amounted to 20 percent of gross capital, and
overdue paper exceeded 6 percent of gross loans.
Two violations of 12 USC 84, three violations of 12
USC 375a and four other violations were disclosed.
A Formal Agreement required correction of the viola
tions of law and regulation, initiation of a written policy
regarding conflicts of interest and self-dealing by in
siders, a full review of extensions of credit which ac
crued to the benefit of the chief executive officer and
reimbursement of income lost as a result of preferential
treatment. A compliance committee consisting of at
least three directors, a majority of whom are not offi
cers, was formed on the date of the Agreement. Sixtyday compliance reports were required.
3. Bank with assets of $50 to $75 million
The bank was operating under an Agreement. That
Agreement required, among other things, an adequate
asset and liability management plan, a program to im
prove the bank's earnings, no payment of dividends
without the prior written approval of the regional ad
ministrator, a plan to meet the present and future capi
tal needs of the bank, the maintenance of an adequate
allowance for possible loan losses, an adequate writ
ten investment policy, a program to improve credit files
and to eliminate assets from criticized status, an ap
praisal of the fair market rental value of one of the
bank's branches, and a justification of the salaries and
expenses paid to executive officers of the bank. The
bank complied with very few of the articles of the
Agreement. As a result, the capital of the bank deterio
rated to the point where the bank's future viability was
threatened. In addition, the bank's reliance on ratesensitive funds continued at an excessive level, its
earnings did not improve, its allowance for possible
loan losses was not maintained adequately, and the
bank continued to increase the salaries of its top offi
cers without justification. It was also discovered that
the bank's supposed leasing arrangement for its
branch was simply a method of disguising the bank's
actual investment in the branch in violation of 12 USC
371 d.
A Notice of Charges and a Temporary Order to
Cease and Desist were issued against the bank and
its top management. They refused to consent to the is
suance of a final Order to Cease and Desist. The mat
ter was litigated at an administrative hearing before an
administrative law judge. The judge's findings, based
on the hearing and the briefs submitted by both sides,
found almost all of the allegations contained in the No
tice of Charges to be supported by substantial evi
dence. He consequently adopted the Order to Cease
and Desist proposed by counsel for the Comptroller.
The Comptroller of the Currency, in his final review of
101

the case, confirmed the judge's findings and recom
mendations in all respects. The matter is currently be
ing appealed to the circuit court of appeals.
4. Bank with assets of $25 to $50 million
The bank had been a matter of supervisory concern
because of an ineffective board of directors. The bank
entered into a Formal Agreement in 1976 and, since
that time, had been in substantial compliance. How
ever, major problems were identified including high
asset classifications due to inadequate loan adminis
tration, poor earnings, insufficient capital, uncontrolled
growth, weak internal controls and internal audit pro
cedures, apparent self-dealing by the board and the
control group, and a disregard for national banking
laws and regulations.
A Formal Agreement required correction and elim
ination of existing violations of law and regulation, and
procedures to ensure that similar violations did not oc
cur in the future. The board was to submit a capital
program covering the next 5 years of operation, and
was to submit a plan for a $2 million equity capital in
jection by year-end. Further, the bank was to prepare
a detailed budget along with assumptions used in de
veloping the forecast. The board was to adopt a pro
gram to eliminate the grounds of criticism of each as
set criticized at the last examination. The bank was to
obtain and maintain satisfactory credit information and
collateral documentation. Additional credit to borrow
ers whose loans had been criticized was prohibited
unless that action would be substantially and critically
detrimental to the best interests of the bank. The bank
was not to renew or extend credit to insiders unless it
was made on substantially the same terms as those for
comparable transactions, did not involve more than
the normal risk of repayment, and was approved in ad
vance by a majority of the board. The board of direc
tors was to review and revise the bank's lending pol
icy; they were to perform a study of current
management and adopt a written management plan;
they were to conduct a review of the adequacy of the
bank's allowance for possible loan losses; they were to
adopt a liquidity, asset and liability management pol
icy; and they were to develop an audit program which
was to address the deficiencies cited at the last exami
nation. Detailed reports of all expenses claimed by di
rectors and officers were to be reported to the board
on a monthly basis for review and approval. Addition
ally, a review was to take place on the bank's practice
of payment of consulting, management and other fees.
A committee was to be formed to review the bank's
correspondent bank relationships. The board of direc
tors was to monitor and ensure compliance with the
provisions of the Agreement.
5. Bank with assets of less than $25 million
Mismanagement of the investment portfolio caused
heavy losses and culminated with the resignation of
several senior officers, including the chief executive of
ficer (CEO). One of the bank's directors, with little
banking experience, assumed the role of CEO. Under
that individual's leadership, further problems occurred,
resulting in losses and straining capital. The bank had
several violations of the statutory lending limit and 12

102

USC 375a. The bank had a high level of criticized as
sets and lacked adequate credit information on nu
merous loans. The bank was also failing to maintain its
allowance for possible loan losses at a level reflecting
the risk inherent in the bank's loan portfolio.
A Formal Agreement required the board to inject
capital and to submit a capital plan and maintain the
bank's capital at an adequate level. The board was
further required to initiate actions to improve earnings,
including developing a comprehensive budget and an
analysis of the pricing of all bank services and the cost
of funds, along with specific plans to control operating
expenses. The board was required to remedy the vio
lations of 12 USC 84 and any other violations of law,
rule or regulation, and to take action to protect its inter
ests with regard to criticized assets. The bank was
also required to refrain from extending any credit to a
borrower whose credit was criticized. The board was
directed to take all steps necessary to obtain and
maintain current and satisfactory credit information
and to refrain from granting credit without first obtain
ing adequate credit information. The board was di
rected to review the allowance for possible loan losses
at least quarterly and to augment that allowance to re
flect the bank's potential for loss. The board was fur
ther required to adopt procedures to ensure compli
ance with its written loan policy and to adopt and
implement a policy regarding liquidity and funds man
agement. The board was also required to evaluate the
performance of its chief executive officer and to report
the findings of that evaluation to the regional adminis
trator, along with its recommendations. The board was
further required to reduce concentrations of credit and
to form a compliance committee, the majority of which
would be nonofficer directors. The compliance com
mittee was charged with submitting reports to the re
gional administrator detailing the bank's compliance
with the terms of the Agreement.
6. Bank with assets of $75 to $100 million
An examination in 1979 reflected rapid loan growth,
lack of qualified management and inability of manage
ment to handle problem credits which resulted in an
excessive volume of classified assets, heavy loan
losses, inadequate capital and marginal liquidity. The
bank was placed on a monthly reporting basis so that
problems could be monitored. Additionally, a $2 mil
lion equity capital injection was requested by the OCC.
The subsequent general examination reflected dete
rioration in the overall condition of the bank. The qual
ity of the loan portfolio was becoming worse, and most
of the bank's lending deficiencies were repeated criti
cisms. Although the bank had an adequate loan pol
icy, it was not being followed by the lending officers
nor was it being enforced by management or the
board. Credit and collateral exceptions were high.
Many loans lacked well-defined repayment programs,
and liberal renewal and extension policies were being
followed. The bank did not maintain an internal prob
lem loan list. The president was servicing a credit in
which he had a financial interest. The allowance for
possible loan losses was considered inadequate
based on the bank's loan loss history, low recovery
success and excessive volume of classified assets. Al-

though no directors' loans were criticized, several of
their credits lacked well-defined repayment programs.
Net liquid assets were low in comparison to net de
posits, and liquidity was considered marginal. The in
vestment portfolio's extended maturity structure and a
shift in asset mix away from investments and toward
loans were major causes for the low liquidity. The long
maturity structure of the investment portfolio had re
sulted in a relatively large depreciation. The portfolio
was not considered an adequate reserve for second
ary liquidity. Deposits had increased rapidly and were
considered volatile. Growth in deposits came primarily
from rate-sensitive money market certificates and cer
tificates of deposit of $100,000 and more.
Although the bank had a reasonably good return on
assets, the earnings were clouded by a practice of re
newing notes without a reduction in principal or a pay
ment of interest. It was evident that rapid growth in
loans and assets had not been supported by a similar
growth in capital and, as a result, capital was consid
ered inadequate. The $2 million equity capital applica
tion was in process.
The bank's internal controls were considered medio
cre. The external audit of the bank was of limited
scope and the CPA firm had not issued an opinion on
the audit because several audit functions had been
omitted and did not cover all areas of the bank.
Management was rated as poor because of its in
ability to deal effectively with identified problem assets
and to comply with the bank's lending policies. There
was no program for management succession.
A Formal Agreement was issued to assist the bank
in returning to a safe, sound and more profitable con
dition. The Agreement required the board to perform a
study of the bank's present and future requirements
regarding management and, once the study had been
completed, to form a management plan. The board
was to ensure that the $2 million equity capital issue
was consummated and that the funds were injected
into the bank's equity accounts by year-end. The
Agreement required the board to adopt a program to
eliminate criticized assets. The bank was not to lend
money to any borrower whose loan had become criti
cized unless that loan had been collected or unless
such action would be detrimental to the best interests
of the bank. The board was required to review and re
vise the bank's loan policy, and several areas to be
considered were incorporated into the Agreement. The
bank was to obtain and maintain satisfactory credit in
formation and collateral documentation. The Agree
ment required the board to adopt a liquidity, asset and
liability policy; several areas to be addressed by the
policy were incorporated in the Agreement. The direc
tors were to review the adequacy of the bank's allow
ance for possible loan losses. A budget was to be de
veloped. Violations of law and regulation were to be
corrected, and procedures were to be adopted to en
sure that similar violations did not occur in the future. A
compliance committee was to be adopted to monitor
the Agreement.
7. Bank with assets of $25 to $50 million
The growth rate of the bank had been rapid, with as
set and loan growth exceeding capital retention. Clas

sified assets were high, 75 percent of gross capital
funds; an additional 32 percent were subject to special
mention. Loan losses were substantial and equalled
approximately twice the allowance for possible loan
losses. Providing an adequate allowance for possible
loan losses will significantly impact earnings. A capital
shortfall existed. Loans not supported by current and
satisfactory credit and collateral information and over
due loans exceeded prudent banking standards.
Loans had been renewed and extended on liberal
terms and there had been only nominal adherence to
the bank's lending policy. Violations of 12 USC 161,
282 and 371 d and 12 CFR 2, 18 and 7.3025 were
cited.
A Formal Agreement required correction of the stat
utory violations and required procedures to be
adopted to prevent future violations. The bank was re
quired to employ a qualified loan administration officer
to supervise lending. Additionally, the bank was to: (1)
formulate and submit a capital plan including provi
sions for an equity injection; (2) submit a budget; (3)
establish a loan committee to enforce the lending pol
icy; (4) implement procedures to obtain satisfactory
credit and collateral documentation; (5) establish and
maintain an adequate allowance for possible loan
losses; (6) implement a written program to eliminate all
assets from criticized status; and (7) develop a written
audit program and employ an auditor. The bank was
also required to establish a committee to ensure the
compliance of the bank with the articles of the Agree
ment.
8. Bank with assets of less than $25 million
Poor supervision by a board of directors exacer
bated the bank's problems. The board had recently
hired its fourth president in its brief history. Classified
assets had increased to 40 percent of gross capital
funds; overdue loans had reached a staggering 27
percent of gross loans. The bank's lending officer re
signed between examinations rendering loan collec
tions and lending activities nonexistent. The allowance
for possible loan losses was replenished during the
examination but remained inadequate. The bank suf
fered a net loss in 1979. The presence of an unskilled,
untrained staff placed a tremendous burden on al
ready weak internal controls and audit procedures.
A Formal Agreement was executed which directed
the board to clarify the authority of the new chief exec
utive officer (CEO); designate a qualified senior opera
tions officer; establish procedures to govern board ac
tivities; establish a committee to evaluate the
performance of the board, the new CEO and the COB;
and review the performance of all bank personnel and
develop a comprehensive personnel policy and orga
nization chart. The bank was also required to establish
written operating procedures, auditing procedures and
internal controls; formulate a program to eliminate
classified assets; establish a written lending policy;
adopt a written program to improve collection efforts;
take all necessary steps to obtain current and satisfac
tory credit information on all loans; correct collateral
exceptions; develop a broader deposit base; develop
a written investment policy; develop a procedure to
103

ensure timely review of the allowance for possible loan
losses; and submit monthly reports to the regional ad
ministrator.
9. Bank with assets of less than $25 million
Lack of proper direction from the board of directors
and management resulted in substantial deterioration
in the quality of the lending function, depletion of the
loan loss reserve, and poor funds management and
accounting procedures. Loan quality had deteriorated
primarily due to liberal lending to marginal and out-ofarea borrowers and expansion of the loan portfolio be
yond the abilities of one lending officer to supervise.
Additionally, loan documentation has been poor, re
payment terms were not established at the inception of
a loan, and collection efforts were weak. Four viola
tions of 12 USC 84 and one violation each of 12 USC
375b, 12 CFR 21, and 31 CFR 103 were cited.
A Formal Agreement between the bank and the
OCC required the directorate to formulate and imple
ment written programs to (1) remove each asset from a
criticized status; (2) provide a written loan policy to
correct the lending deficiencies set forth in the exami
nation report; (3) document quarterly reviews of the al
lowance for possible loan losses; (4) establish written
funds management guidelines; and (5) adopt a written
program designed to augment and strengthen the
bank's capital structure. The Agreement further re
quired the board of directors to take steps to obtain
and maintain current and satisfactory credit informa
tion on all loans and establish procedures to prevent
recurrence of violations of law. Subject to the approval
of the regional administrator, the directorate is to pro
vide the bank with a new senior lending officer within
90 days and employ the services of a qualified CPA
firm to audit the bank.
10. Bank with assets of less than $25 million
An examination of the bank reflected substantial de
terioration in the volume of classified assets, particu
larly in the doubtful and loss categories; numerous vio
lations of the lending limits, some of which are sizable
in amount indicating a disregard and lack of under
standing of the applicable statutes; lack of funds man
agement policy; and an unacceptable external audit.
The bank operated on a cash accounting basis and
did not have a reserve for possible loan losses. Man
agement was considered inept and the board of direc
tors did not provide satisfactory supervision. Earnings
were satisfactory, but a downward trend was antici
pated due to loan losses and the lack of a formalized
asset/liability management policy. Under existing man
agement, the future prospects were not good.
A Formal Agreement required management to (1)
correct the violations of law and implement procedures
to prevent future violations; (2) develop procedures
which were designed to eliminate all assets from a crit
icized status; (3) provide the bank with a new, capable
senior lending officer; and (4) employ a qualified CPA
firm to review accounting records and procedures and
conduct a "full scope directors' examination."
11. Bank with assets of less than $25 million
A change of ownership, resulting in a change in

104

banking philosophies from conservative to aggressive,
led to a significant increase in the bank's notecase.
Accompanying the increase was a lack of managerial
experience and size of staff sufficient to properly su
pervise the loan portfolio. Further aggravating sizable
loan growth and lack of adequate staff was the new
owner's anxiety for income. Those factors led to classi
fied assets equalling 82 percent of gross capital funds.
Accompanying problems included numerous loans not
supported by satisfactory credit information, excessive
delinquencies, high volume of out-of-territory credits,
below average earnings, and marginal capital. Viola
tions of several banking laws were noted, including 12
USC 84, and 375a and 375b, 31 USC or 31 CFR, and
12 CFR 217 and 221.
A Formal Agreement required the directorate to for
mulate and implement written programs to (1) remove
all assets from a criticized status and establish and
maintain adequate credit files, (2) implement policies
and procedures to prevent future violations of law, and
(3) strengthen and maintain an adequate capital struc
ture. The Agreement further specified that deviations
from loan policy must be reported to the board
monthly, that no dividends could be paid unless in
conformance with law and with the regional
administrator's approval, and that monthly progress re
ports must be submitted to the regional administrator
indicating corrective actions taken and the results of
those actions. Subject to the approval of the regional
administrator, the board was to employ an experi
enced senior lending officer for the bank within 90
days. A new chief executive officer will be requested if
substantial improvement in the bank's condition and
compliance with the Agreement is not evident within 6
months.
12. Bank with assets of less than $25 million
During 1979 the bank grew by 25 percent, funded
primarily by the purchase of rate-sensitive funds. The
examination disclosed an increase in criticized assets
from 33 to 88 percent of gross capital funds. The in
crease in criticized assets was attributed to aggressive
lending policies of management and depressed local
agricultural conditions. Equity growth, 10 percent in
1979, did not keep pace with the accelerated asset
growth. Equity capital to total assets was between 5.0
and 5.5 percent at year-end 1979 compared to the
peer group average of 8.71 percent. Liquidity declined
from 21 percent at the prior examination to 11 percent
with average liquidity at approximately 13 percent.
Rate-sensitive funds equalled 44 percent of total de
posits and the bank was in a net borrowed position
343 days in the preceding 12 months. Violations of 12
USC 375b, 12 CFR 7.6120, and 31 CFR 103.33 were
cited.
A Formal Agreement required the bank to (1) correct
all violations and adopt procedures to ensure viola
tions did not recur; (2) establish a committee of at least
three nonofficer directors to ensure strict compliance
with the lending policy and give prior approval on all
extensions of credit in excess of $75,000; (3) develop
a written program to improve the administration and
supervision of the loan portfolio; (4) develop a written

program to strengthen and improve funds management
and submit weekly liquidity and market rate analysis
reports; (5) prepare an analysis of the bank's present
and future capital needs and formulate a 3-year capital
plan; (6) increase equity capital by not less than
$50,000; (7) conduct quarterly reviews of the allow
ance for possible loan losses; and (8) submit monthly
reports.
13. Bank with assets of less than $25 million
The overall condition of the bank continued to deteri
orate over recent years primarily because of lax ad
ministration by the chief executive officer and ineffec
tive board supervision. The examination disclosed
criticized assets at 80 percent, compared to 56 per
cent at the prior examination. Supervision of the loan
portfolio was extremely lax with credit exceptions rep
resenting 24 percent of loans and past due loans of 12
percent. The classified assets involved a high volume
of loss and doubtful loans which resulted in an inade
quate allowance for possible loan losses. Supervision
of bank operations and internal controls were consid
ered poor. Violations of 12 USC 29, 375a and 375b
and 12 CFR 1.4, 1.8, 7.3025, 23.3, 209.3, 217.1 and
221.3(a) were cited.
A Formal Agreement required the bank to (1) correct
all violations and adopt procedures to ensure viola
tions do not recur; (2) develop a written program to im
prove administration and supervision of the bank's
loan portfolio; (3) immediately increase the allowance
for possible loan losses to 1.5 percent of total loans
and review the allowance quarterly; (4) prepare a com
prehensive written analysis of its internal operations;
(5) implement a formal, written internal loan review pro
gram; and (6) submit monthly reports.
14. Bank with assets of $50 to $75 million
A specialized examination revealed a significant
breakdown in the bank's credit administration activities
as evidenced by substantial increases in the volume of
risk assets, volume of loans not supported by current
financial data, overdue loans, and the increase of clas
sified assets from 10 to 66 percent of gross capital.
The bank had acquired investment securities in ex
cess of the limitations of 12 USC 24, and subsequently
incurred a loss on the sale of the excess. There were
two violations of 12 USC 84 and violations of 12 USC
29.
A Formal Agreement required the bank to correct all
existing violations of law and ensure that future viola
tions would be prevented. The bank was required to
review and amend its written loan policy. It was also
required to submit a plan for the disposal of the min
eral rights held in violation of 12 USC 29. Additionally,
it was required to obtain the opinion of special counsel
as to the liability of the directors for the loss on the 12
USC 24 violation. The board agreed to establish and
implement written programs to (1) augment and
strengthen the capital structure; (2) achieve and main
tain a liquidity position of not less than 20 percent, ex
cluding purchased funds; (3) restore the allowance for
possible loan losses to a final amount; and (4) elimi
nate all assets from criticized status.

15. Bank with assets of $25 to $50 million
Classified assets were high, 80 percent of gross
capital funds, and little progress had been accom
plished in improving loans classified at the previous
examination. The heavy losses identified at the exami
nation exceeded the allowance for possible loan
losses. Loans not supported by current and satisfac
tory credit information and delinquent loans exceeded
prudent banking standards. The development of a
comprehensive lending policy, which was recom
mended at the previous examination, was finally com
pleted during the current examination. A material de
cline in earnings was the result of high loan losses,
high occupancy expenses (new premises), and a de
crease in the bank's net interest margin. The bank had
a capital shortfall. Violations of 12 USC 29, 74, 371 d
and 375a; 12 CFR 21.4(a) and 21.5(a); and 31 CFR
103.33 were cited in the commercial examination. Vio
lations of 12 CFR 202, 217 and 226; provisions of a
state consumer credit code; and OCC Banking Issu
ances were cited in the consumer affairs examination.
A Formal Agreement required correction of the stat
utory violations and required adoption of procedures
to prevent future violations. The board of directors was
required to (1) employ a loan administration officer to
supervise lending activities, (2) formulate and imple
ment a written program to eliminate all assets from crit
icized status, (3) establish procedures to assure com
pliance with the newly adopted lending policy, (4)
maintain an adequate allowance for possible loan
losses, and (5) ensure that the bank obtains current
and satisfactory information on all loans lacking such
information and refrain from granting or renewing loans
until said information has been gathered. The board
was also required to develop and submit to the re
gional administrator (1) a written capital plan which in
cluded a provision for an injection of equity capital, (2)
a comprehensive budget, and (3) written guidelines
governing liquidity and asset/liability management.
16. Bank with assets of less than $25 million
Ineffective supervision by the board of directors and
chief executive officer (CEO) caused the deterioration
in the bank's condition. Classified assets jumped from
20 percent of gross capital funds to 65 percent. Sub
stantial loan losses totalling $688,000 offset more than
one-third of the bank's capital structure. After amend
ing official reports, the fiscal loss stood at $262,000.
Capital was inadequate. Internal controls were weak
and no internal audit plan existed. Several violations of
law were noted.
A Formal Agreement was executed requiring the
board and the bank to (1) clarify the authority and re
sponsibility of the new CEO; (2) establish a program to
reduce criticized assets; (3) develop a written lending
policy and a program to improve loan administration;
(4) conduct a quarterly review of the allowance for
possible loan losses; (5) develop a written investment
policy; (6) correct internal control deficiencies and es
tablish an internal audit function; (7) monitor liquidity
on a monthly basis; (8) submit a written capital plan
and an earnings plan, including a 1980 budget; (9)
105

correct all violations of law; and (10) submit monthly
compliance reports to the regional administrator.
17. Bank with assets of $50 to $75 million
An examination of the bank's commercial and con
sumer departments revealed significant deterioration
in the bank's overall condition and disclosed possible
insider abuses by the bank's president. In addition, the
examination revealed that the president had been re
ceiving credit life insurance commissions in violation of
12 CFR 2.4. The examination also cited several other
violations of law and regulation and significant defi
ciencies in the administration of the bank's consumer
department. The overall quality of the loan portfolio
was satisfactory, but the volume of low quality loans
and the amount charged off showed an increase. The
investment portfolio reflected adequate quality and risk
diversification, but market depreciation equalled a
sizeable proportion of adjusted capital funds. Liquidity
was marginal, with net liquid assets of 14.5 percent of
net deposits. Rate-sensitive deposits comprised 39
percent of total deposits. The allowance for possible
loan losses was considered inadequate at 0.46 per
cent of total loans. Internal controls were deficient be
cause a separation of duties was not required for
many of the bank's functions. Credit information ex
ceptions were excessive at 12.5 percent of gross
loans.
A written Formal Agreement required the bank to ap
point a compliance committee. The compliance com
mittee was required to appoint independent legal
counsel and an independent certified public account
ant to investigate and issue a written report on whether
the president or any other employee, officer, or direc-.
tor of the bank had engaged in improper or abusive
transactions with the bank. The bank was required to
act upon all findings and recommendations contained
in said report within 30 days of its completion. The
committee was also required to ensure that the provi
sions of the Agreement were adhered to. The Agree
ment required the bank to correct all violations of law
and regulation and to adopt procedures to prevent re
currences of similar violations. The bank agreed to
adopt a written policy prohibiting conflicts of interest
and specifying the means by which transactions in
volving insiders and their interests were to be ap
proved and handled. The bank was to take the neces
sary steps to obtain and maintain satisfactory credit
information on all loans and to correct the imperfec
tions pertaining to the securing of collateral, and to es
tablish an internal loan review. The board was to re
view, the adequacy of the bank's allowance for
possible loan losses. The bank agreed to correct the
deficiencies in its internal controls and to implement a
written program to formulate and implement a written
funds management policy. Finally, the board agreed to
appoint an experienced and capable consumer com
pliance officer.
18. Bank with assets of $25 to $50 million
Poor loan administration, coupled with a 22 percent,
3-year average loan growth rate, resulted in a signifi
cant escalation of classified assets to equal 76 percent
of gross capital funds. Loans not supported by current

106

and satisfactory credit information, delinquent loans
and inadequate collateral files were contributing fac
tors.
The bank had traditionally waited for the examiners
to request most charge-offs. Heavy losses identified at
the examination depleted the allowance for possible
loan losses and required an additional charge to earn
ings to replenish the reserve to an adequate level. The
bank had already lost as much as it earned during
the previous year as a result of that provision expense.
Loss potential is significant due to the high volume of
doubtful loans. Also, the bank's historical recovery re
cord has not been good, with only 23 percent of the
last 4 years' losses recovered. Consequently, the bank
is now undercapitalized.
Rate-sensitive funds increased from 8 to 31 percent
of total deposits. Money market certificates of deposit
funded 76 percent of the loan growth in 1979. That is
partially offset by the relatively short-term nature of the
loan portfolio. Violations of 12 USC 29; 12 CFR 18 and
7.3025; and numerous violations of 31 CFR 103.33
were cited in the commercial examination.
A Formal Agreement required correction of the stat
utory violations and stipulated adoption of procedures
to prevent future violations. The board of directors
agreed to (1) employ a loan administration officer to
supervise lending activities, (2) formulate and imple
ment a written program to eliminate all assets from crit
icized status, (3) revise lending policy and establish
procedures to ensure compliance and improvement of
overall loan administration, (4) maintain an adequate
allowance for possible loan losses, and (5) ensure that
the bank obtains current and satisfactory information
on all loans lacking such information and refrain from
granting or renewing loans until said information has
been ascertained.
The board was also required to develop and submit
to the regional administrator (1) a written capital plan
which included a provision for an injection of equity
capital, (2) a comprehensive budget, (3) written guide
lines governing liquidity and asset/liability manage
ment, and (4) a written audit program to correct inter
nal control and audit deficiencies.
19. Bank with assets of less than $25 million
Poor supervision by a complacent board and selfserving on the part of the chief executive officer
caused the problems. Classified assets exceeded 72
percent of gross capital, the reserve for possible loan
losses was inadequate, overdue paper was approxi
mately 7 percent of gross loans, and numerous viola
tions of law and regulation were disclosed—including
four violations of 12 USC 84 and violations of 12 USC
375a. Thirty-four other violations were reported.
A Formal Agreement required correction of the viola
tions of law and regulation and reimbursement to the
bank for all lost income which resulted from violations
of law and regulation. In addition, the Agreement re
quired action to reduce criticized assets and improve
collections, revision of loan policies, regular monitoring
of the allowance for possible loan losses, employment
of an outside CPA firm to conduct an audit, adoption of
a comprehensive investment and liquidity policy, sub
mission of a written equity capital plan, correction of

internal control deficiencies, and expansion of the fivemember board for the purpose of achieving wider
community representation. A compliance committee
was formed on the date of the Agreement. Virtually all
violations were corrected and the bank had been reim
bursed for lost income at the time the Agreement was
signed. Sixty-day compliance reports are required.
20. Bank with assets of less than $25 million
A specialized examination conducted early in 1980
reflected deterioration in the bank's overall condition.
There was a high dependence upon rate-sensitive de
posits, especially public funds and individual certifi
cates of deposit of more than $100,000. There was an
increase in the doubtful and loss classifications. There
had been no action taken on capital injection. There
was noncompliance with a written Formal Agreement.
In addition, several top officers resigned, leaving the
chairman of the board in charge of bank affairs. Unfor
tunately, this person was the prime cause for the
bank's overall poor condition. Before the examination
had ended, a Notice of Charges and Temporary Order
to Cease and Desist were placed on the bank. Subse
quently, new management was hired and the chairman
of the board no longer was managing the daily affairs
of the bank.
A final Order to Cease and Desist required the
board to submit a 5-year capital plan which included
the injection of $1 million in equity capital by year-end.
If the injection was not consummated by year-end, the
board was to submit a written proposal for sale or mer
ger of the bank. The bank was to maintain an ade
quate liquidity position by collateralizing all public
funds and maintaining liquid assets of not less than 20
percent, exclusive of short-term borrowings. Because
of the bank's precarious liquidity position, the bank
could not make any loans unless the board certified
that there was adequate liquidity to support the loan.
The board was to develop contingency plans for the
payment of large certificates of deposit, including pub
lic deposits, as they matured. In developing these
plans, the board was to consider as a goal the elimina
tion of the bank's overdependence upon rate-sensitive
deposits. The board was also to consider liquid assets
and core deposits of the bank. The bank was to cor
rect and eliminate all violations of law, rule or regula
tion and to ensure that the bank suffered no losses on
any loan granted in contravention of 12 USC 84. If nec
essary, this action was to include indemnification of
the bank by the directors who approved of the credit.
The board was to regularly review the adequacy,
competency and effectiveness of bank management
and to make the improvements necessary to provide
capable management for the bank. The board was to
review the adequacy of the bank's allowance for possi
ble loan losses, and was to establish a program to
maintain an adequate allowance. The bank was to
adopt and implement a written program for the elimi
nation of all assets from criticized status, and was not
to lend any additional money to any borrower whose
loan had been criticized, unless the criticism had been
eliminated. The bank was to take the necessary steps
to obtain and maintain current and satisfactory credit

information and to correct all collateral exceptions
listed in the latest report of examination. No new loans
were to be made unless they were supported by cur
rent and satisfactory credit information and were prop
erly collateralized. The board was to review the bank's
written loan policy annually and make any necessary
modifications. The board was to develop a written au
dit program designed to correct the deficiencies in the
bank's internal control and audit procedures. A person
was to be employed or appointed to implement the au
dit program. The board was to submit complete written
reports to the regional administrator on a monthly
basis detailing the actions taken to correct the criti
cisms in the report of examination, the progress real
ized in strengthening, reducing, or eliminating each
criticized asset, the action taken by the bank to com
ply with the order, and the results of those actions.
21. Bank with assets of $25 to $50 million
The bank's criticized loan volume had increased
substantially. Delinquencies and credit exceptions
were also inordinate. Loan losses were excessive. In
ternal audit controls were unsatisfactory.
The board of directors of the bank was required,
through a written Formal Agreement, to adopt plans
addressing managerial assessment, loan portfolio and
internal audit and control. The bank further agreed to
develop plans for eliminating criticized assets, improv
ing its lending function and establishing an adequate
allowance for possible loan losses. The bank was fur
ther required to monitor liquidity and capital needs.
The bank was also required to establish and imple
ment internal audit and control functions.
22. Bank with assets of less than $25 million
A specialized examination of this bank revealed se
rious deterioration in its financial condition, as well as a
large number of violations of law. Classified assets
equalled 137 percent of gross capital; past due loans
constituted 19 percent of all loans; and 27 percent of
loans lacked satisfactory credit information. Net liquid
assets were 10 percent of net liabilities, and the bank
had inadequate capital, poor earnings, an inadequate
allowance for possible loan losses, and violations of 12
USC 84.
A Notice of Charges and a Temporary Order to
Cease and Desist were served upon the bank.
An Order to Cease and Desist, like the previous
Temporary Order, required the correction of all viola
tions of 12 USC 84 and prohibited additional exten
sions of credit in excess of the bank's lending limits.
The board was required to take necessary actions, in
cluding immediate indemnification by the responsible
directors, to ensure that the bank suffered no loss on a
specific line of credit which violated Section 84. The
bank was prohibited from extending additional credit
to any borrower whose loan was criticized and also
prohibited all extensions of credit unless the bank had
acquired current and satisfactory credit information
and had perfected its interest in any collateral. The al
lowance for possible loan losses was to be maintained
at 1.5 percent of total loans. Loan and investment poli
cies were to be adopted. The bank was required to

107

take all action necessary to recover past due loans,
and was prohibited from extending additional credit to
any borrower whose loan was past due. The bank was
ordered to reduce its dependence on rate-sensitive
funds, and maintain net liquid assets equal, at least, to
15 percent of net liabilities. The bank was prohibited
from declaring any dividends except with the written
permission of the regional administrator. The board
was required to inject $400,000 into the bank's equity
capital accounts and to provide for additional subse
quent augmentation of up to $250,000. A detailed
budget was also required. The internal control defi
ciencies were to be corrected.
23. Bank with assets of $25 to $50 million*
The bank was operating under a written Formal
Agreement when a subsequent examination revealed
significant increases in total criticized assets, loans
without adequate credit information, overdue loans,
and the number and seriousness of violations of law,
rules and regulations. Heavy loan losses resulted in a
strained capital position. In addition, the president and
chairman of the board of the bank, an attorney, was re
ceiving an excessively high salary and was billing the
bank for excessive legal fees for legal work which the
OCC alleged was unnecessary for the bank, was per
formed by someone other than the president or, in
fact, was not performed at all. Expenses for automo
biles and other perquisites were very high and, de
spite an extremely high net interest margin, the bank
was only marginally profitable. Loan losses were ex
tremely high, particularly with regard to significant vio
lations of the bank's lending limits.
A Notice of Charges was served on the bank and
accompanied a Temporary Order to Cease and De
sist. The Temporary Order addressed violations of the
lending limit, loans to criticized borrowers and insider
abuses through excessive fees and salaries. Notices
of Charges were also issued to six individual directors
seeking reimbursement for losses on lending limit vio
lations and certain other losses suffered by the bank.
Subsequently, a Notice of Intention to Remove the
president from his positions as president and chair
man of the board was issued. The parties described
above have filed answers to the charges against them
and administrative law judges have been appointed to
preside over hearings on these matters. A civil money
penalty referral was made and is under review.
24. Bank with assets of less than $25 million
The condition of the bank continued to deteriorate
after the execution of a written Formal Agreement with
the OCC. Criticized assets equalled approximately 200
percent of the bank's gross capital funds. Capital was
considered inadequate and violations of law, including
12 USC 84, were discovered. The loan policy was not
considered adequate. Internal control and audit defi
ciencies subjected the bank to potential loss.
A Notice of Charges was served on the bank alleg
ing the above unsafe and unsound banking practices
* This bank was the subject of two administrative actions in
1980.
108

and violations of law. Subsequently, the bank stipu
lated to and was served with an Order to Cease and
Desist. The order required the bank to increase its eq
uity capital accounts by not less than $1 million; cor
rect all violations of law, including 12 USC 84;
strengthen the loan portfolio and eliminate criticisms;
reevaluate the lending policy; strictly adhere to the re
quirements of a prior written Agreement; and eliminate
internal control and audit deficiencies.
The bank was also required to submit monthly writ
ten reports to the regional administrator outlining the
bank's progress in complying with the order.
25. Bank with assets of $25 to $50 million
A general examination disclosed possible violations
of the federal securities laws and unsafe and unsound
banking practices by the bank and its former presi
dent. The Comptroller therefore issued an Order of In
vestigation in order to determine the nature and extent
of any such violations and unsafe and unsound bank
ing practices. This investigation disclosed that the
former president had engaged in a course of conduct
in violation of Section 10(b) of the Securities Exchange
Act and Rule 10b-5, thereunder. It was determined
that the former president had fraudulently caused sev
eral of the bank's shareholders to sell their stock to him
for substantially less than market value. The OCC in
vestigation also determined that the bank had aided
and abetted the former president in committing the
aforementioned violations.
An examination of the bank's trust department dis
closed serious deficiencies in all operational areas of
the department. Violations of law and regulation in
cluded 12 USC 92a and 12 CFR 9.7, 9.9 and 9.12. The
12 CFR 9.12 violations concerned mortgage participa
tions sold between fiduciary accounts at unpaid princi
pal value and the practice of bank officers and em
ployees of purchasing assets from estates being
administered by the bank. The examination also deter
mined that trust accounts and investments were not
adequately reviewed or documented.
The bank stipulated and consented to the issuance
of an Order to Cease and Desist prohibiting it from vio
lating the antifraud provisions of the federal securities
laws in connection with the offer, purchase or sale of
securities issued by the bank. Additionally, the board
of directors was required to engage independent legal
counsel to investigate and issue a written report detail
ing the former president's participation in all transfers
of the bank's stock occurring since 1975 and any other
related matters pertaining to any possible impropriety
or abuse by the former president or any other officer or
director of the bank. The independent counsel was
also required to review and investigate all estates ad
ministered by the bank since 1975 for possible con
flicts of interest. The order directed the board to act
upon all findings and recommendations contained in
the independent counsel's report within 30 days of the
report's completion. All market-making activities in the
bank's stock by bank officers, directors, and em
ployees were prohibited, and the board was directed
to submit to the regional administrator, for his ap
proval, a written policy setting forth an appropriate

method for handling inquiries from persons interested
in buying or selling the bank's stock. The order also
contained provisions directing the bank to correct the
numerous and varied deficiencies in the trust depart
ment. Finally, the bank was required to discount all
mortgage participations that were sold between fiduci
ary accounts at unpaid principal value so as to reflect
interest rates in effect on the date of the transactions.
The bank was then directed to reimburse the purchas
ing fiduciary accounts for the excess purchase price
paid.
The former president stipulated and consented to
the issuance of a separate Order to Cease and Desist.
The order prohibited him from violating the antifraud
provisions of the federal securities laws in connection
with the offer, purchase or sale of securities issued by
any national bank. The former president was required
to disgorge and make restitution of all profits plus in
terest that he had made as a result of his violations of
the federal securities laws. He was also required to re
imburse the bank for all expenses that it incurred as
the result of engaging independent legal counsel to in
vestigate his transactions in the bank's stock. A sepa
rate Formal Agreement between the former president
and the OCC was also executed. That Agreement pro
hibited the former president from serving as a director,
officer or employee or participating in any manner in
the conduct of the affairs of (1)any national bank, with
out the prior written consent of the Comptroller of the
Currency; (2)any state-chartered bank which is a
member of the Federal Reserve System, without the
prior written consent of the Federal Reserve Board; or
(3)any "non-member" bank which is insured by the
Federal Deposit Insurance Corporation, without the
prior written consent of the Chairman of the Federal
Deposit Insurance Corporation.
26. Bank with assets of less than $25 million
A small trust department examination revealed nu
merous violations of law, regulation and sound fiduci
ary principles. A majority of the criticisms were recur
ring from a prior examination. The management's lack
of expertise in trust matters was compounded by the
absence of written policies and procedures to guide
the trust department personnel in performing their re
spective functions. Numerous violations of 12 CFR
9.12, involving improper investments in own bank time
deposits, were revealed. Other violations included 12
CFR 9.9, failure to audit trust activities at bank's
branch; 12 CFR 9.13, assets kept in account files not
under joint control; 12 CFR 9.8, incomplete books and
records; and 12 CFR 9.10, funds awaiting investment
or distribution not made productive within a reason
able amount of time. Additional deficiencies included:
(1) estates held open for undue periods of time, (2) ap
pointments and inventories not on file, (3) synoptic rec
ords not prepared for new accounts, (4) court ac
counts lacked biennial accountings required by state
law, (5) incomplete documentation of corporate trusts
and agencies, and (6) inadequate management of real
estate held in trust.
A Formal Agreement required correction ot all viola
tions of law, regulation and deficiencies cited in the ex

amination report. The bank was required to correct
each violation of 12 CFR 9.12 at no loss to the ac
count. In addition, the bank was required to reimburse
the account for all penalties incurred for early with
drawal of certificates of deposit where that was a nec
essary corrective measure. The bank was further re
quired to reimburse the trust accounts for profits
earned by the bank on those accounts. Profits were
computed for the years 1974 through 1978 by sub
tracting the interest paid by the bank on the involved
trust accounts from the bank's average yield on loans
for each of the years involved. For the period of Janu
ary 1979 until the correction of each violation, the bank
was required to calculate the amount of reimburse
ment by subtracting the interest paid by the bank to
the accounts involved from the average prevailing rate
of interest charged by the bank on commercial loans
as of the end of each month during the involved pe
riod. The bank was required to provide the beneficiary
of each trust account which was reimbursed with a
written explanation detailing the reasons for restitution.
The board of directors was required to perform a
study of the advisability of the continued operation of
the trust department and the bank's present and future
requirements with respect to management of the trust
department.
The board of directors was required to develop a
number of specific policies and procedures designed
to ensure compliance with 12 CFR 9. The board of di
rectors was also required to develop measures to
properly monitor and document investments made for
all trust accounts, measures to ensure proper account
administration and measures to ensure proper man
agement of real estate held in a fiduciary capacity. An
internal control and auditing program was required to
be implemented. Finally, the bank was required to col
lect all fees due from accounts.
27. Bank with assets of $50 to $75 million
The bank had been operating under a written Agree
ment. Continued weak management supervision re
sulted in asset problems. A subsequent examination
revealed that the bank's overall condition had deterio
rated and several provisions of the Agreement were
not being complied with. Insiders were extended pref
erential treatment. Criticized assets had tripled from
the previous examination. The bank also suffered from
a high volume of credit and collateral exceptions, past
due loans and a failure to adopt procedures to insure
the adequacy of the bank's allowance for possible
loan losses. Violations of 12 USC 375a, 375b and 375c
were cited. Liquidity, capital and internal controls were
inadequate. Bank expenses were excessive and
poorly documented.
The bank stipulated to the issuance of an Order to
Cease and Desist. The order required the bank to cor
rect violations of law and to adopt procedures to pre
vent their recurrence. The bank was also required to
adopt and adhere to a comprehensive loan policy and
a written plan to eliminate each criticized asset. Credit
to criticized borrowers would be restrained. Credit in
formation and collateral were to be perfected. Problem
loans were to be monitored, and the bank's allowance
109

for possible loan losses was to be maintained at an
adequate level. The bank was required to formulate
overdraft guidelines. A liquidity plan was to be formu
lated. The bank was also required to adopt a written li
quidity/funds management policy. The bank was re
quired to review its management team, a special
counsel was retained to review the bank's expenses,
and an expense policy was to be adopted and imple
mented. A capital program was required. The bank
was also compelled to adopt a business code of
ethics. Periodic reports to the regional administrator
were also required.
28. Bank with assets of $75 to $100 million
Two prior administrative actions in the form of For
mal Agreements had proven unsuccessful in improv
ing the condition of the bank. Prior problems included
fraud, inordinate asset risk, inadequate capital and
loan loss reserves, poor earnings and ineffective man
agement systems. A general examination revealed no
improvement in the overall condition of the bank. The
major problem was inadequate capital. Capital plans
submitted by majority ownership and management
were not viable solutions to the problem. Total classi
fied assets equalled 63 percent of gross capital funds.
Loans lacking satisfactory credit information repre
sented 6 percent of gross loans. Liquidity problems
were significant. Overdue loans represented 9 percent
of gross loans. Internal control and audit deficiencies,
inadequate loan review program, inadequate allow
ance for loan losses, and ineffective supervision by
management were also causes of concern. Three vio
lations of 12 USC 84 and one violation of 12 USC 371c
were cited. An examination of the bank's trust depart
ment revealed that the bank's pension trust fund was
not being administered in compliance with the Em
ployee Retirement Income Security Act.
An Order to Cease and Desist required that all viola
tions cited be corrected immediately. The board of di
rectors was to provide the bank with a new chief exec
utive officer and also to inject $2.5 million in equity
capital into the bank's capital accounts. The board of
directors was also directed to employ independent
outside counsel to review the violations of 12 USC 84
and to determine the board's liability for those viola
tions. Written programs were required to (1) improve
and sustain the bank's earnings, (2) provide adequate
capitalization, (3) remove all assets from criticized
status, (4) obtain current and satisfactory credit infor
mation on all loans so lacking, (5) maintain an ade
quate allowance for possible loan losses, (6) reduce
delinquent loans, (7) implement an internal loan review
system, and (8) improve its internal audit program. The
bank was required to amend its written loan policy to
cure the cited deficiencies. Dividends were prohibited
without the prior approval of the regional administrator.
Increases in salaries, fees, bonuses and other remu
neration paid by the bank to its directors were prohib
ited until the bank's condition and capital were re
stored to a satisfactory level. Finally, the bank was
directed to submit a written plan designed to ensure
that the bank's pension trust fund was administered in
110

compliance with the Employee Retirement Income Se
curity Act.
29. Bank with assets of $50 tp $75 million
A specialized examination disclosed that weak man
agement and ineffective board supervision had re
sulted in substantial deterioration in the bank's overall
condition. Criticized assets were excessive with classi
fied assets at 47.5 percent of gross capital funds and
other assets especially mentioned at 19.5 percent of
gross capital funds. Credit information exceptions
were also excessive, 18.5 percent of gross loans, and
past due loans were high at 6.5 percent. The bank
failed to maintain the allowance for possible loan
losses at an adequate level. Liquidity was marginal at
16.5 percent. The bank's overreliance on rate-sensitive
deposits, which accounted for 35.4 percent of total de
posits, further evidenced the bank's poor liquidity posi
tion. Capital was inadequate in view of the size and
quality of the loan portfolio. Particularly disturbing was
the fact that loans to certain directors and their inter
ests violated banking laws and regulations. Extensions
of credit to insiders and their interests represented 4.7
percent of all criticized credit extensions. In addition,
the examination indicated that certain loans to insiders
and their interests may have been made on preferen
tial terms.
A Formal Agreement required the correction of all vi
olations of law and the adoption of procedures to pre
vent the recurrence of similar violations. The board
was required to submit a 5-year capital plan to the re
gional administrator for approval. The bank was pro
hibited from declaring or paying any dividends without
the prior written approval of the regional administrator
until the capital plan had been approved and the bank
had completed its current program to raise $1 million
in equity capital. The bank agreed to adopt and imple
ment written programs designed to eliminate all criti
cized assets and improve collection efforts and effect
a reduction in the level of delinquent loans. The board
was required to formulate and implement a new written
loan policy of a safe and sound nature, and the bank
was to take all necessary steps to obtain and maintain
current and satisfactory credit information on all
present and future loans. The Agreement directed the
bank to extend credit only in conformity with all appli
cable laws and regulations, and the board was re
quired to engage an independent certified public ac
countant to investigate whether the bank had made
credit extensions to the bank's insiders on a preferen
tial basis. Written funds management and investment
policies were required to be formulated and imple
mented and the board was to regularly review the ade
quacy of the allowance for possible loan losses. Fi
nally, the Agreement required the appointment of a
compliance committee to ensure adherence with the
Agreement and to perform a management study and
to thereafter formulate and implement a written man
agement plan.
30. Bank with assets of $25 to $50 million
A special supervisory examination revealed signifi
cant deterioration in several major areas of the bank's

operations. Insider abuse resulting in violations of 12
USC 84, 371c, 375a and 375b and 12 CFR 215 were a
major concern. The asset condition of the bank had
seriously deteriorated. Total classified assets had
reached 78 percent of gross capital funds. Over 80
percent of the criticized loans were out-of-territory
credits. The bank's capital position was severely
strained. Depreciation in the bank's investment ac
counts had reached 97 percent of gross capital funds.
Liquidity was also a significant problem. Three viola
tions of 12 USC 84, five violations of 12 USC 371c and
numerous violations of 12 USC 375a and 375b and 12
CFR 215 were found.
A Temporary Order to Cease and Desist directed
the board of directors to prohibit the chairman of the
board and the president of the bank from performing
certain functions in the bank including the making of
loans, the expenditure of bank funds, the investment of
bank funds, the sale of bank assets, any borrowing on
behalf of the bank, the obligation of the bank in any
contract, initiation of personnel actions within the bank,
participation in bookkeeping functions and removal of
bank records. The bank was directed to establish a
loan committee consisting of three outside directors to
review and approve every extension of credit exceed
ing $25,000. Further violations of the statutes and reg
ulations cited were prohibited. The bank was directed
to take immediate action to complete an injection of
equity capital of not less than $1 million. The bank was
prohibited from extending credit to a number of named
insiders of the bank and their related interests. Exten
sions of credit to named criticized borrowers were also
prohibited except if deemed to be in the best interest
of the bank. Out-of-territory loans were also prohibited
in the same manner. The bank was also directed to
raise its liquidity ratio to an acceptable level by devel
oping methods to match liquid asset maturities with
those of rate-sensitive deposits and other short-term,
non-deposit liabilities. Further dividends by the bank
were prohibited without the prior approval of the re
gional administrator. Finally, the bank was prohibited
from making any payments as expenses or fees to the
chairman of the board, except directors' fees, at their
current rate.
31. Bank with assets of $75 to $100 million
The bank was operating under a Formal Agreement,
however, it was incurring persistent operating losses
and operating with inadequate capital and had an ex
cessive volume of classified assets and substantial
amounts of other real estate owned and other nonperforming assets. Supervision of the bank's loan portfolio
was deficient and classified assets amounted to 187
percent of gross capital funds. The bank failed to com
ply with the provision in the Formal Agreement which
called for an injection of $3 million in capital. The
bank's capital needs warranted an injection of $6 mil
lion.
An Order to Cease and Desist required either an in
jection of $6 million in equity capital or the sale or
merger of the bank. The order further called for the
submission of a written capital program and prevented
the bank from declaring any dividends. The order re

quired the bank to employ a senior lending officer, an
operations officer and an auditor. The bank was re
quired to improve the quality and sufficiency of its staff
in the lending and collections areas. The board was di
rected to take action to improve the bank's earnings,
including developing strategies to reduce the volume
of nonperforming assets and noninterest expenses,
and strategies to eliminate losses in certain of the
bank's divisions. The submission of budgets and ac
companying materials were required and the bank
was required to adopt and implement policies regard
ing the charges for legal services and the reimburse
ment of directors for travel and related expenses as
well as lodging and incidental expenses. Furthermore,
the bank was precluded from entering into any new
contracts with any of its directors, or directors' firms
without the approval of the regional administrator, and
was required to discontinue its practice of providing
directors with bank-owned or -leased automobiles. Ad
ditionally, payments to directors were limited for at
tendance at board and committee meetings. The bank
was required to review its payments to former directors
and to adjust them to reasonable levels and to monitor
any expenditures to firms in which directors or combi
nations of directors have a significant interest and to
refrain from any such expenditures unless specified
criteria were met. The bank was required to strengthen
its loan account and credit administration process and
continue to take action necessary to protect its interest
with regard to criticized assets. The bank was required
to obtain and maintain current and satisfactory credit
information on all loans lacking such information and to
review its allowance for possible loan losses quarterly
and maintain that allowance at an adequate level.
Management was required to correct the violations of
law, rule and regulations and institute measures to pre
vent their recurrence. The board was required to pro
vide the regional administrator with copies of its exec
utive committee minutes and board minutes and
submit monthly reports. The bank is being sold to in
vestors willing to increase the bank's capital.
32. Bank with assets of less than $25 million
The bank had been operating under a Formal
Agreement since May 1978, and had substantially
complied with its provisions. The bank also had made
substantial progress in reducing its volume of criti
cized assets and past due loans and in generating
positive earnings. There continued to exist, however,
serious deficiencies in these areas. In addition, the
bank had numerous credit and collateral exceptions;
was relying excessively on rate-sensitive funds; and
was in need of a qualified chief executive officer and
cashier. Lastly, the bank had made various preferential
extensions of credit to its insiders; had entered into an
unwarranted and excessive lease with its chairman;
and had paid its chairman for legal services which
were not properly documented or justified. Finally, the
bank was delinquent in filing its annual report to share
holders and holding its shareholders meeting.
The outstanding administrative action against the
bank was upgraded to an Order to Cease and Desist
to which the bank consented. The order requires the
111

bank to (1) obtain a formal, independent appraisal and
review of the insider leasing transaction; (2) to cease
using the chairman's law firm for legal services; (3) to
receive proper documentation and justification before
paying for legal services; (4) to obtain a new chief ex
ecutive officer and cashier; (5) to file its annual report
to shareholders (Form F-2); and (6) to implement pro
grams addressing capital, criticized assets, earnings,
liquidity and rate-sensitive funds.
33. Bank with assets of less than $25 million
The specialized examination reflected significant
credit administration deficiencies resulting in a sharp
increase in classified assets, large loan losses and
poor earnings. Criticized assets equalled 100 percent
of gross capital funds and included a large volume of
loans classified doubtful. More than half of the classi
fied assets was indirect lease obligations of an auto
mobile leasing company. Losses of approximately
$140,000 were taken by the bank and additional
losses were anticipated. The allowance for possible
loan losses was not adequate. The volume of collateral
exceptions and extensions of credit lacking adequate
supporting financial information was also excessive.
Four violations of 12 USC 84 were discovered, as were
other violations of law. Other problems included poor
earnings, continued insider abuses and internal con
trol and audit deficiencies.
A Formal Agreement required correction of the stat
utory violations and adoption of procedures to prevent
recurrence. The board was required to formulate and
implement written programs to (1) eliminate the
grounds upon which each asset was criticized; (2) en
sure collection of all loans past due, either as to princi
pal or interest; (3) formulate a safe and sound loan pol
icy; (4) establish and maintain an adequate allowance
for possible loan losses; (5) prepare an analysis of the
bank's present and future equity capital needs; (6) de
fine the duties and responsibilities of each member of
the management team; (7) formulate a safe and sound
investment policy; and (8) develop and implement an
effective internal control and audit program.
The board was also required to develop a compen
sation plan for the senior management staff commen
surate with their assigned duties and responsibilities.
The Agreement required the board to provide indemni
fication of the bank for any loss suffered on extensions
of credit granted in violation of 12 USC 84. The bank
was required to correct each violation of law, rule or
regulation and adopt procedures to prevent recur
rence of similar violations.
34. Bank with assets of $25 to $50 million
Examinations conducted of the bank's commercial
and trust departments revealed significant deteriora
tion in the bank's overall condition attributable in large
part to weak management and an inattentive board of
directors. Classified assets were high at 84.7 percent
of gross capital funds. Heavy provisions for loan
losses substantially impacted earnings and rendered
capital inadequate. The allowance for possible loan
losses was also considered to be insufficient in light of
the bank's excessive loan losses. Loans not supported
112

by current credit information amounted to 24.6 percent
of gross loans. Noninterest expenses were allowed to
remain at an extremely high level. The bank's internal
audit was not acceptable, and accounting procedures
throughout the bank have traditionally been poor. Vio
lations of law in the commercial department included
two violations of 12 USC 84, two violations of 12 USC
375a, and one violation of 12 USC 371 d. The bank's
trust department, which only administered five fiduci
ary accounts with a total market value of less than
$500,000, was operated and administered in an un
safe and unsound manner. The examination disclosed
numerous violations of 12 CFR 9 and sound fiduciary
principles. In particular, the department was not prop
erly administered and supervised by the board of di
rectors as required by 12 CFR 9.7. The administration
of fiduciary powers was assigned to an inexperienced
trust officer with little or no board supervision. Neither
a trust committee nor a trust audit committee were ap
pointed as required by the bank's bylaws. Other defi
ciencies in the department primarily concerned the
lack of internal procedures, controls and audits.
A Formal Agreement required correction of all viola
tions of law and required procedures to be adopted to
prevent future violations. The board was required to
provide the bank with a new active and capable chief
executive officer and to evaluate management's per
formance on a regular basis. The board agreed to de
velop and submit to the regional administrator for ap
proval a written capital program designed to provide
the bank with an equity capital injection of not less
than $500,000. The board also agreed to immediately
replenish the allowance for possible loan losses to a
minimum balance of $409,000. Written programs were
required to be established and implemented in order
to (1) remove all assets from criticized status, (2) main
tain an adequate allowance for possible loan losses,
(3) obtain current and satisfactory credit and collateral
information on all current and future credit extensions,
(4) adopt loan policies of a safe and sound nature, (5)
improve and sustain the earnings of the bank, and (6)
correct all internal audit and internal control deficien
cies. The bank also agreed to surrender its fiduciary
powers and to divest itself of all previously accepted
trust accounts in an expeditious manner.
35. Bank with assets of less than $25 million
A general examination of the bank disclosed a se
rious and substantial violation of 12 USC 84. The bank
extended credit for the benefit of a single corporation
in an amount that approximately doubled the bank's
legal lending limit. A significant portion of this credit
extension was classified as doubtful. Shortly after the
close of the examination the OCC became aware of
facts which indicated that the bank was planning to
extend additional funds to this corporation in further vi
olation of Section 84.
A Temporary Order to Cease and Desist prohibited
the bank from extending credit to any borrower in vio
lation of 12 USC 84. The order also required the bank
to reduce all extensions of credit in excess of the Sec
tion 84 lending limitation to conform, without loss to the
bank.

36. Bank with assets of $25 to $50 million
Liberal lending practices, a lax board, marginally
active management and a poor local economy caused
the bank's problems. Classified assets equalled 78
percent of gross capital, the allowance for possible
loan losses was inadequate, liquidity was strained and
earnings were only fair. Capital was inadequate and
several violations of law and regulation were dis
closed.
A Formal Agreement required correction of the viola
tions of law and regulation and reimbursement to the
bank for all lost income which resulted from preferen
tial rates to insiders. Strengthening of the lending func
tion by employment of a senior lending officer was re
quired. The Agreement also required action to reduce
criticized assets, improve collections, revise loan poli
cies, maintain an adequate allowance for possible loan
losses, formulate and implement written funds man
agement policies, injection of equity capital and com
pilation of a 5-year capital plan.
A compliance committee was formed on the date of
the Agreement. Sixty-day compliance reports were re
quired.
37. Bank with assets of less than $25 million
Weak executive management and the self-serving
practices of the controlling owner and chairman of the
board contributed to the bank's unfavorable condi
tions. Problems included insider transactions involving
continuous sizeable drawings against uncollected
funds and violations of laws and regulations.
In addition to the above, there were six major areas
of concern (1) significant increase in classified assets,
to 84 percent of gross capital funds; (2) equity capital
shortfall; (3) need for an asset/liability, liquidity man
agement policy due to the rate-sensitive nature of the
bond portfolio and deposit structure; (4) excessive
credit and collateral exceptions; (5) heavy volume of
delinquencies; and (6) an inadequate lending policy.
A Formal Agreement required correction of the stat
utory violations and required the adoption of proce
dures to prevent future violations. The board of direc
tors was required to (1) perform a management study,
including an assessment for retention purposes of the
capabilities of the chairman of the board and presi
dent, (2) develop a management plan based upon the
management study, (3) formulate and implement a
written program to eliminate all assets from criticized
status, (4) revise lending policies and establish proce
dures to assure compliance and improvement of over
all loan administration, and (5) ensure that the bank
obtained current and satisfactory information on all
loans lacking such information and refrained from
granting or renewing loans until said information was
obtained.
The board was also required to develop and submit
to the regional administrator (1) a written capital plan,
including a provision for an equity capital injection; (2)
written guidelines governing liquidity and asset/liability
management; and (3) a written policy addressing
drawings against uncollected funds, insufficient funds
checks and overdrawn accounts.
A number of the repetitive and flagrant insider

related law violations similar in nature were referred by
the regional office for consideration for civil money
penalties.
38. Bank with assets of $25 to $50 million
Classified assets were high, 67 percent of gross cap
ital funds. The heavy losses identified at the examina
tion exceeded the allowance for possible loan losses.
Loans not supported by current and satisfactory credit
information and delinquent loans exceeded prudent
banking standards. The development of a more com
prehensive lending policy was needed. Many of the
loans deviated from the bank's existing lending policy
and were recommended by members of the board. No
profits for 1980 were expected because of high loan
losses and poor loan pricing. The bank had inade
quate capital. A formal funds management policy was
needed. Fees paid to the chairman of the board were
excessive and not in compliance with Banking Circular
115. Three violations of 12 USC 84 and violations of 12
USC 29, 375b and 463 were cited. One violation of 12
USC 84 included several illegal advances which were
identified as loss at the examination.
A Formal Agreement required correction of the stat
utory violations and required adoption of procedures
to prevent future violations. The board was required to
(1) indemnify the bank for losses suffered on any ex
tensions of credit granted in violation of 12 USC 84, (2)
assess management quality and depth, (3) revise and
enforce the bank's lending policy, (4) formulate and
implement a written program to eliminate all assets
from criticized status, (5) maintain an adequate allow
ance for possible loan losses, and (6) ensure that the
bank obtains current and satisfactory information on all
loans lacking such information and refrain from grant
ing or renewing loans until said information has been
ascertained. The board was also required to develop
and submit to the regional administrator a written capi
tal plan which included a 1980 equity capital injection,
a comprehensive budget and written guidelines gov
erning liquidity and asset/liability management.
39. Bank with assets of less than $25 million
The bank had asset quality problems, loan losses
and weak earnings which led to a capital deficiency. A
Memorandum of Understanding, signed by the board
of directors in 1979 was not effective in reversing neg
ative trends. Management supervision was poor, with
classified assets totaling 92 percent of gross capital
funds, and a year-to-date operating loss was shown
for the first 5 months of the year because of heavy loan
losses and poor interest margins. Control of the bank
was sold subsequent to the examination. Two viola
tions of 12 USC 84 and one violation of 12 USC 61
were disclosed.
A Formal Agreement required the bank to (1) pro
vide the bank with a capable senior lending officer; (2)
establish and implement a loan review committee de
signed to remove each asset from a classified status;
(3) ensure that all possible steps are taken to obtain
current and satisfactory credit information on all exist
ing and future loans; (4) take appropriate action to re
duce and maintain the volume of past due loans more
113

in accordance with the industry average; (5) conduct
quarterly reviews of the allowance for possible loan
losses and make appropriate adjustments; (6) develop
and implement written guidelines for the coordination
and management of the bank's assets and liabilities;
(7) adopt a written program designed to maintain a
level of earnings adequate to provide capital to sup
port future growth, absorb loan losses and provide an
acceptable return to shareholders; (8) inject $100,000
in equity capital; (9) prohibit extensions of credit which
exceeded the lending limitations of the bank; and (10)
if improvement was not noted in the bank's condition,
provide the bank with a new, capable chief executive
officer.
40. Bank with assets of $25 to $50 million
The bank had a large volume of criticized assets
which resulted from poor credit administration, inade
quate policies and nonadherence to existing policies.
Classified assets equalled 54 percent of gross capital
funds and had doubled since the previous examina
tion. Included in the criticized assets and the violations
of law were extensions of credit to various insiders and
related interests. Other problems included a large vol
ume of speculative and defaulted securities, a low
level of liquidity supported by steady use of purchased
funds, low earnings, an inadequate allowance for pos
sible loan losses and poor internal controls.
A Formal Agreement required correction of the stat
utory violations and required the adoption of proce
dures to prevent future violations. The board was re
quired to formulate and implement written programs to
(1) eliminate grounds upon which assets were criti
cized, (2) remove from criticized status all loans to in
siders and related interests, (3) establish and maintain
an adequate allowance for possible loan losses, (4)
maintain an adequate level of capital, and (5) formu
late an investment policy.
The board was also required to develop a written
program governing liquidity and funds management.
The Agreement also required the board to assess the
sufficiency and quality of active management. The
bank was also required to obtain current and satisfac
tory credit information on deficient loans.
41. Bank with assets of less than $25 million
An aggressive and liberal lending philosophy and
poor loan supervision resulted in an overloaned posi
tion, a significant volume of classified assets (equal to
74 percent of gross capital funds), and an illiquid as
set structure with a disproportionate reliance on bor
rowings. The bank's liability structure was one of the
most costly in its peer group. Weak earnings and a rel
atively high dividend payout left the bank in an under
capitalized position. The bank had recently undergone
an ownership change and new management was try
ing to cope with inherited problems and had failed to
properly supervise installment lending activity. The ex
amination disclosed a delinquency rate of 26 percent
which led to the dismissal of the responsible officer.
Included among several violations of law were viola
tions of 12 USC 84 and 371c and three violations of 12
USC 375a and 375b. The consumer examination, con
114

ducted concurrently with the commercial examination,
disclosed consumer law violations.
A Formal Agreement required correction of all viola
tions of law and regulations and required procedures
to be adopted to prevent future violations. Dividend re
strictions were imposed and the bank was required to
forward a program to strengthen capital. Additionally,
the bank was required to formulate and implement pol
icies governing (1) elimination of all assets from criti
cized status, (2) collection procedures and internal
problem loan identification, (3) capital standards and
dividends, (4) transactions with affiliates, and (5) .li
quidity and asset/liability management. Actions to rem
edy deficiencies with respect to internal controls and
the internal audit function were also addressed.
42. Bank with assets of less than $25 million
The location of the bank in an economically de
pressed area and a less than effective management
team contributed to the increase in classified paper.
Such classified assets equalled 55 percent of gross
capital funds at the last examination. High levels of
loan delinquencies and credit file exceptions were also
reported. Earnings for the year will be nominal due to
the volume of loan write-offs and the low and declining
net interest margin. Capital adequacy would become a
problem unless deterioration in condition of the bank
was arrested. One violation of the bank's lending limit
and several consumer violations of law were cited in
the report.
A Formal Agreement addressed the lending prac
tices and procedures of the bank and the capacities of
the lending staff. The bank was required to formulate
and implement written programs to eliminate the
grounds of criticism of all criticized assets and im
prove the lending function. The board was also to es
tablish and maintain an adequate allowance for possi
ble loan losses and to take all necessary steps to
obtain sufficient credit information. The board was to
perform a study to identify the reasons for declining
earnings and to formulate asset/liability guidelines de
signed to improve the bank's profitability. All violations
of law were to be corrected.
43. Bank with assets of less than $25 million
Loan portfolio administration deficiencies caused an
increase in classified paper, with such paper equalling
61 percent of gross capital funds at the last examina
tion. An inordinate volume of credit file exceptions and
higher than average loan delinquencies were also re
ported. An overall reevaluation of loan policies and
procedures was recommended by the examiner.
Technical violations of law were also reported in the
commercial and consumer sections of the report. Cap
ital, liquidity and earnings were satisfactory.
A Memorandum of Understanding addressed the
need to review the bank's lending policies and related
procedures. The board was required to perform this
review and to amend the bank's loan policies as nec
essary to ensure that the lending function was oper
ated in a safe and sound manner. The board also was
to develop a written program to eliminate the grounds
of criticism for each classified asset. In addition, the
board was to develop and implement written programs

to ensure that no loans are granted without the bank
first having obtained sufficient credit and collateral
documentation. The board was also to correct each vi
olation of law and adopt procedures to prevent them in
the future.
44. Bank with assets of less than $25 million
Problems were centered around poor earnings, in
adequate capital, decreasing liquidity and a high level
of classified assets. Accounting methods did not con
form to generally accepted methods and earnings
were negatively impacted by rising interest rates and
cost of funds coupled with high occupancy expense.
Deficit earnings resulted. Loan growth along with oper
ating losses and a liberal dividend policy rendered
capital inadequate. Nine violations of 12 USC 84, as
well as five other violations of law were disclosed. Sev
eral of the excess loans were apparently the result of a
miscalculation of the lending limit due to inaccurate
accrual of income and expenses.
A Memorandum of Understanding required correc
tion of the violations of law and regulation, restrictions
on payment of dividends, and a review of the earning
capacity of the bank as well as actions to provide for
capital adequacy. In addition, actions were to be taken
to improve and strengthen liquidity, funds manage
ment, the system for identifying problem loans, and
providing for the adequacy of the allowance for possi
ble loan losses. The bank was also required to under
take an analysis of management needs and strengthen
internal and external audit functions and internal con
trols. Monthly compliance reports were required.
45. Bank with assets of $50 to $75 million
A trust examination revealed that the bank's trust de
partment had not maintained adequate documentation
of its trust accounts. General carelessness was noted.
The master Keogh plan incorporated the law of the
wrong state. Recordkeeping requirements of 12 CFR
9.9 were violated. Poor administration was resulting in
an unacceptable exposure to losses. Employee benefit
accounts were participating in collective investment
funds without proper authorization in violation of the
Employee Retirement Income Security Act.
A Memorandum of Understanding required the bank
to correct all violations of law, rule or regulation cited in
the trust report of examination. The bank was required
to institute a revised audit program to ensure adequate
review of documentation and ledger control and to
submit a new trust department policy and procedures
manual. The bank was also required to organize a
document retention and retrieval system and to estab
lish procedures to ensure compliance with the docu
mentation requirements of the Employee Retirement
Income Security Act.
46. Bank with assets of $25 to $50 million
A general examination disclosed incompetent man
agement, high concentration of credits in one
individual's related interests (74 percent of total capital
funds), violations of 12 USC 84 that apparently
stemmed from nominee borrowing, inadequate or sus
pect credit information and collateral documentation,
and payment of checks against uncollected funds

without a bank policy to govern that activity. Classified
assets equalled 90 percent of gross capital funds,
with 90 percent of the classified assets to one
individual's related interests; past due loans amounted
to approximately 6 percent of total loans; the allow
ance for possible loan losses of $100,000 was inade
quate in view of charge-offs during the examination
that amounted to $990,000; and capital was inade
quate.
During the examination the board replaced the
bank's chief executive officer with a new, qualified
chief executive officer who immediately began to work
with the board in the problem areas.
A Notice of Charges and Temporary Order to Cease
and Desist were issued against the bank addressing
the conditions that could threaten the solvency of the
bank. The board was prohibited from any further ex
tensions of credit, including renewals for the benefit of
a named individual, his family and any company in
which he occupied a position as director, officer, em
ployee, agent or trustee or owned more than 5 percent
interest. The bank was directed to take steps to cor
rect collateral and credit exceptions and to take imme
diate action to establish and maintain the allowance for
possible loan losses at an adequate level. The bank
was prohibited from declaring or paying any dividend,
except in compliance with 12 USC 56 and 60, and with
prior approval of the regional administrator. The board
was to take immediate action to correct the violations
of law, rule and regulation and to adopt procedures to
prevent them from recurring. An administrative hearing
is pending.
47. Bank with assets of less than $25 million
Results of the examination revealed that the bank
faced possible insolvency due to extremely inept man
agement of the loan portfolio. Classified assets
amounted to 185 percent of gross capital funds. Past
due loans equalled 13.7 percent of gross loans and
loans lacking proper collateral documentation
amounted to 39 percent of gross loans. Collection ef
forts were ineffective or nonexistent. One violation of
12 USC 84 and one violation of 12 CFR 2 (credit life in
surance) were cited in the examination.
A Notice of Charges, and a Temporary Order to
Cease and Desist were issued against the bank. The
board of directors was directed to provide the bank
with a new active and capable chief executive officer.
The bank was prohibited from payment of dividends,
except in accordance with 12 USC 56 and 60 and the
approval of the regional administrator. The board of di
rectors was required to inject $1 million in equity capi
tal or take action to cause a ratified agreement provid
ing for the sale or merger of the bank with specified
time limits. The board was required to establish and
maintain an allowance for possible loan losses and
correct violations of law. An administrative hearing is
pending.
48. Bank with assets of less than $25 million
The general examination reflected significant credit
administration deficiencies resulting in a large in
crease in classified assets, an illiquid position and
poor earnings. Classified assets amounted to 116 per115

cent of gross capital funds. Based on the current con
dition of the loan portfolio, the allowance for possible
loan losses was inadequate and required a substantial
loan loss provision. This provision impacted an already
low level of earnings. Many of the bank's problems
were traced to a former, inadequate officer. Since the
dismissal of the former officer, many of the bank's
problems became evident because of increased
board involvement.
A Formal Agreement required the board to take
actions and implement written programs to (1) correct
each violation of law and adopt procedures to prevent
recurrence; (2) provide the bank with a new active and
capable chief executive officer; (3) eliminate the
grounds upon which assets were criticized; (4) obtain
and maintain current and satisfactory credit informa
tion; (5) ensure collection of all loans past due, either
as to principal or interest; (6) establish and maintain an
adequate allowance for possible loan losses; (7) pre
pare an analysis of the bank's present and future capi
tal needs; and (8) achieve and maintain an acceptable
level of liquidity which does not place undue reliance
on purchased funds.
49. Bank with assets of less than $25 million
Poor lending practices coupled with a depressed
business environment had a detrimental effect on the
bank. Management and supervision were lax with many
deviations from set policies noted. Classified assets in
creased to 146 percent of gross capital funds. Past
due loans and credit and collateral documentation ex
ceptions-were at excessive levels. A provision to the
allowance for possible loan losses was necessary to
cover losses identified. The bank's capital was mar
ginal. Violations were cited involving insider transac
tions as well as violations of 12 USC 371c and 371 d,
12 CFR 1.8 and 7.4305(b), and several consumer vio
lations.
A Formal Agreement required the board to thor
oughly review (1) the effectiveness of management,
particularly in the lending area; (2) loan administration;
(3) the adequacy of the reserve for possible loan
losses; and (4) capital adequacy. Conclusions and
corrective actions were to be submitted to the regional
administrator, who had a power of veto over the pro
posed capital program. The Agreement required cor
rection of the statutory violations and required proce
dures to be adopted to prevent future violations.
The board was required to establish a program to
eliminate all criticized assets. Proper credit and collat
eral documentation was also required. A comprehen
sive budget for 1981 was also required, as were writ
ten asset/liability guidelines. The Agreement also
required a written program to eliminate internal control
deficiencies identified by the OCC and the internal au
ditor. The bank was also required to establish a com
mittee of outside directors to ensure compliance with
the articles of the Agreement.
50. Bank with assets of less than $25 million
The bank's strong growth outpaced management's
capabilities to control. Lack of quality control over the
loan portfolio resulted in classified assets totaling 67

116

percent of gross capital funds, with losses depleting
the allowance for possible loan losses and earnings.
Earnings have also been adversely affected by the
opening of a large and expensive branch. Capital had
not kept pace with the strong growth and was further
strained by the loss in earnings. The loan portfolio re
flected high delinquency, excessive documentation
exceptions, noncompliance to loan policy and inade
quate training and supervision. A significant number of
internal control exceptions were uncorrected; viola
tions were cited under 12 USC 371 d, 31 CFR 103 and
12 CFR 217.4(f); and numerous consumer violations
were identified.
A Formal Agreement required correction of the stat
utory violations and required procedures to be
adopted to prevent future violations. The board was re
quired to review the effectiveness of management and
the bank's lending functions. Conclusions and correc
tive actions were to be submitted to the regional ad
ministrator. The board was to develop a program for
the elimination of each criticized asset and to correct
the loan documentation exceptions. A thorough review
of the allowance for possible loan losses was required.
A comprehensive budget was required to be devel
oped together with a capital program that met the ap
proval of the regional administrator. The budget was to
be prepared in conjunction with the development of an
asset/liability management policy, while maintaining 20
percent liquidity. The board was to conduct a compre
hensive review of the investment account, particularly
the recent trading activity. The board was to develop
and implement an internal audit program and correct
all internal control deficiencies.
51. Bank with assets of less than $25 million
Heavy officer, employee and director turnover, an
overbanked market area, and domination by the chair
man of the board contributed to the unsatisfactory
condition of the bank. Classified assets to gross capi
tal exceeded 52 percent, overdue loans were approxi
mately 12 percent of total loans, the allowance for pos
sible loan losses was inadequate, several violations of
law and regulation were disclosed, and earnings were
poor due to inadequate funds management and poor
interest spreads.
A Formal Agreement required correction of the viola
tions of law and regulation, establishment of detailed
position descriptions for the chairman of the board and
chief executive officer, creation of plans to reduce
turnover in the bank's staff and action to reduce criti
cized assets and improve collection of delinquent
loans. In addition, the Agreement required the board
to review the bank's allowance for possible loan losses
at least quarterly, obtain and maintain satisfactory
credit information, revise the existing loan policy, for
mulate and implement a written funds management
policy, submit a 3-year capital plan, correct internal
control deficiencies, and designate duties and author
ity of the consumer compliance officer. Sixty-day com
pliance reports were required.
52. Bank with assets of less than $25 million
Classified assets increased to 63 percent of g?oss
capital funds. Loan losses exceeded the losses of

comparable banks. Loans not supported by current
and satisfactory credit information and delinquent
loans exceeded prudent banking standards. The
bank's lending staff granted loans without a thorough
credit analysis. The bank's capital was strained and
grew beyond projections contained in the submitted
capital program. Recent official reports required
amendment because of accounting errors which over
stated capital. A formal liquidity and funds manage
ment program is needed. Violations of laws, rules and
regulations were cited in the commercial consumer af
fairs examination.
A Memorandum of Understanding required correc
tion of the law violations and the adoption of proce
dures to prevent future violations. The board of direc
tors was to (1) formulate and implement a written
program to eliminate all assets from criticized status,
(2) establish procedures to ensure compliance with
the bank's lending policy, (3) ensure that the bank ob
tains current and satisfactory information on all loans
lacking such information and refrain from granting or
renewing loans until said information has been ascer
tained, (4) develop a system for identifying and moni
toring problem loans, (5) develop a program to im
prove loan collections, and (6) maintain an adequate
allowance for possible loan losses.
The board was required to submit to the regional ad
ministrator (1) an acceptable written capital program,
(2) written guidelines governing liquidity and asset/
liability management, and (3) amendments to inaccu
rate regulatory reports.
53. Bank with assets of less than $25 million
Classified assets were 58 percent of gross capital
funds. Loan losses almost depleted earnings. Loans
not supported by current and satisfactory credit infor
mation and delinquent loans exceeded prudent bank
ing standards. A majority of the bank's loans were in
noncompliance with the lending policy. The bank's
president granted and supervised most of the bank's
loans. Additional lending staff was needed. The bank
also had a capital shortfall. A formal liquidity and funds
management program was needed. Violations of 12
USC 84 and 74, and 12 CFR 1.8 were cited in the
commercial examination. Bank officials did not re
spond regarding correction of violations cited in a con
sumer affairs examination.
A Memorandum of Understanding required correc
tion of violations of law and the adoption of procedures
to prevent future violations. The board was required to
(1) assess the adequacy of and make any desired ad
ditions to the bank's lending staff, (2) formulate and
implement a written program to eliminate all assets
from criticized status, (3) establish procedures to en
sure compliance with the bank's lending policy, (4) en
sure that the bank obtains current and satisfactory in
formation on all loans lacking such information and
refrain from granting or renewing loans until said infor
mation has been ascertained, and (5) develop a sys
tem for identifying and monitoring problem loans. The
board was also to submit to the regional administrator
a written capital plan with injection, a comprehensive

budget, and written guidelines governing liquidity and
asset/liability management.
54. Bank with assets of $100 to $250 million
The bank's asset and loan growth rates had been
large, almost tripling in 3 years. Capital accounts had
not kept pace with the asset growth and were inade
quate. The investment portfolio was of adequate qual
ity but represented a small percentage of assets and
was of a long-term nature. A majority of the asset
growth had been funded by purchased liabilities. As a
result of these practices, liquidity was unsatisfactory.
In addition, the loan portfolio reflected signs of deterio
rating quality with increases in classified assets and
overdue loans. The report of examination showed sev
eral violations of law and regulations.
An Agreement required that the board formulate and
submit a 5-year capital plan, including an immediate
capital injection. The Agreement further required the
board to adopt and implement (1) a written liquidity/
funds management policy, (2) a lending policy, and (3)
an investment policy. The bank was to take the neces
sary steps to obtain and maintain satisfactory credit in
formation on all loans and to correct the imperfections
pertaining to the securing of collateral. The board was
to correct violations of law and regulation and to adopt
procedures to prevent recurrence of similar violations.
In addition, the Agreement required the board to con
duct a study of the effectiveness and depth of current
management and make adjustments where necessary.
55. Bank with assets of $500 million to $1 billion
The bank was the lead bank of a holding company.
The financial condition of the holding company closely
paralleled that of the lead bank. The problems at the
bank were identified as poor asset quality centered in
the loan account, poor earnings, capital inadequacy,
and weak management. Problems in the lending area
were caused by a disregard for sound principles and,
in many instances, good credit analysis and effective
collection procedures were lacking. The volume of
past due loans was high and illustrated the weak
nesses of the loan portfolio and the collection effec
tiveness of management. Net loan losses continued to
deplete the allowance for possible loan losses. Past
earning records were poor with a steady downward
trend. An equity capital shortfall existed, primarily due
to unsatisfactory retention of earnings caused by
heavy loan losses. The board of directors and active
management were cooperative, but the problems of
the bank appeared overwhelming for management
and they lacked the capacity to effectively solve them.
A Notice of Charges was served upon the bank, and
the board stipulated to a final Order to Cease and De
sist. The board was ordered to appoint a compliance
committee, which would monitor the order and report
on the bank's progress. The board was to initiate steps
to employ an executive management officer whose pri
mary responsibility would be in the lending area and
who would be accountable only to the board. If the re
gional administrator was not satisfied with the bank's
overall progress by year-end, the board would provide
the bank with a new chief executive officer. The bank
was to take action necessary to protect the bank's in117

terest concerning criticized assets, and to adopt a pro
gram to eliminate each asset from criticized status. No
new credit or renewals were to be made to criticized
borrowers unless in the best interest of the bank. The
reasons were to be documented. The bank was to ob
tain and maintain current and satisfactory credit infor
mation and grant no new credit without this informa
tion. The bank was to maintain the allowance for
possible loan losses at an adequate level and to re
view that adequacy on a quarterly basis. The board
was to submit a written 5-year capital plan to the re
gional administrator which would provide for a large
equity injection by year-end and, if necessary, an
equal equity injection at the end of the next year. The
bank was to pay no dividends without the prior written
approval of the regional administrator until the full eq
uity injections had been accomplished. The board was
also required to select a capital committee which
would report the bank's efforts to raise the additional
capital. The bank was to prepare a written profit plan
describing the bank's objectives and the action taken
to achieve those objectives. Projections, adjustments
and comparisons of the profit plan were to be moni
tored and reported on a periodic basis. The board was
to formulate and implement a written funds manage
ment policy. The bank was to correct all violations of
law, rule or regulation and establish procedures to pre
vent further violations.
56. Bank with assets of less than $25 million
Loan administration problems were identified; classi
fied loans increased from 21 to 73 percent of gross
capital funds, with the deterioration attributed to inade
quate supervision and failure to adhere to the lending
policy. Also of concern is an increasing volume of ratesensitive funds along with the lack of a written asset/
liability management plan. The consumer report re
flected four violations, including one repeat violation of
Regulation Z. There were two violations of 12 USC 84
on the date of examination, and a number of loans
were made in excess of the lending limit between ex
aminations.
A Formal Agreement required the bank to (1) cause
all extensions of credit which were in excess of the lim
itations provided in 12 USC 84 to be reduced to con
forming amounts, (2) amend existing policies and pro
cedures to prevent future violations of 12 USC 84, (3)
implement an effective internal control program de
signed to prevent future violations of consumer laws
and regulations, and (4) develop and implement a writ
ten program designed to remove each asset from a
criticized.status. The bank was also required to strictly
adhere to the written loan policies adopted by the
board, conduct at least quarterly reviews of the allow
ance for possible loan losses and adjust it appropri
ately, develop and implement written guidelines for co
ordination and management of the bank's assets and
liabilities, and formulate and adopt a written program
to restore and maintain earnings.
A civil money penalty referral was made concerning
repeated violations of 12 USC 84.
57. Bank with assets of $25 to $50 million
Initial results of a general examination of the bank
118

revealed deterioration of condition raising a possibility
of insolvency. Assets classified as doubtful and loss
amounted to 118 percent of gross capital funds and
total criticized assets represented approximately 213
percent of gross capital funds. The loan portfolio con
tained a heavy concentration of insider and out-ofterritory loans. There were unexplained wide fluctua
tions between financial statement dates, numerous
collateral imperfections and lack of information about
the ownership of many of the classified corporate bor
rowers and/or their affiliates. Missing, outdated or sus
pect financial information, including highly inflated as
set values, increased the difficulty of evaluating certain
loans. Numerous, unwarranted, unsecured advances,
often without an identified source of repayment, were
uncovered.
A Notice of Charges and Temporary Order to Cease
and Desist were served upon the bank. The Tempo
rary Order stopped payment of dividends except in
accordance with 12 USC 56 and 60 and with prior ap
proval of the regional administrator. The bank was pro
hibited from extending further credit to certain bor
rowers and was required to take all steps necessary to
obtain and maintain credit information and collateral
documentation for loans listed in an appendix to the
Temporary Order. Finally, the bank was prohibited
from payment of checks drawn against uncollected
deposit balances with respect to certain accounts. An
administrative hearing is pending.
58. Bank with assets of $25 to $50 million
Classified assets amounted to 85 percent of gross
capital funds, an increase from 46 percent in the pre
vious examination. Past due loans were high in all cat
egories and represented 9 percent of gross loans.
Overall administration of the loan portfolio was poor.
Earnings were below the peer group average due to
high personnel expenses and other operating ex
penses. Equity capital growth did not keep pace with
asset growth; the equity capital to total asset ratio was
7:1, low compared with other banks in its peer group.
A Memorandum of Understanding required the bank
to immediately correct all violations of law. The bank
was to perform a review of management and to ap
point a new chief executive officer within 90 days.
Management and director fees were to be evaluated
under listed criteria and a plan to prevent excessive
payment of such fees was required to be submitted to
the regional administrator who had veto power over
the plan. The bank was to develop and implement a
plan to improve loan administration which addressed
specified areas. The bank also was to develop and im
plement a revised 5-year capital plan, to be reviewed
by the regional administrator. A plan to identify, moni
tor and limit concentrations of credit, particularly in the
construction loan area, was required.
59. Bank with assets of $50 to $75 million
Serious problems were revealed in the examination
of the bank due to mismanagement in administration of
the lending function by the senior executive officers.
Violations of 12 USC 84 were uncovered indicating im
proper management and inadequate director supervi
sion. One of the loans in violation of 12 USC 84 exhib-

ited tremendous loss potential. Inadequacy of capital
was exacerbated by high dividend payments. The
bank lacked control over overdrafts, particularly to cer
tain borrowers whose loans were classified. Classified
assets amounted to 148 percent of gross capital funds
and credit data and collateral exceptions were at the
inordinately high levels of 18 and 13 percent, respec
tively. Due to the loss potential, the allowance for pos
sible loan losses was inadequate.
A Temporary Order to Cease and Desist prevented
the bank from further extensions of credit to any bor
rower cited in violation of 12 USC 84 and required the
bank to take steps to correct these violations. The
bank was ordered not to pay or declare dividends ex
cept in conformity with 12 USC 56 and 60, and with
prior written approval of the regional administrator. Es
tablishment of an overdraft policy was required as was
an analysis of the bank's allowance for possible loan
losses. The bank was prevented from extending addi
tional credit without necessary credit information and
collateral documentation. A civil money penalty referral
has been made and a hearing on the Order to Cease
and Desist has been scheduled.
60. Bank with assets of $50 to $75 million
The bank's identified problems included inadequate
supervision, poor operating procedures and poor
lending practices. These problems had led to an inor
dinate level of classified assets and delinquent loans,
deficient earnings and a marginal capital position. The
examination revealed continuation of previous prob
lems which included extensive employee turnover at
all levels and inadequate management. A change in
ownership of the bank occurred, initiating slow but
positive change in operation of the bank. New owner
ship focused attention on reducing expenses, analyz
ing the investment portfolio, correcting violations of law
and revising the budget. Although a new commercial
loan officer was hired, the bank was ill without a full
time chief executive officer.
A Formal Agreement required the board of directors
to conduct a management review and hire a new chief
executive officer within 60 days. The board was re
quired to develop and implement a profit plan to im
prove earnings and a program to strengthen equity
capital. Declaration of dividends was prohibited ex
cept in accordance with 12 USC 56 and 60 and with
approval of the regional administrator. The bank was
prohibited from rebooking loans and was directed to
correct internal control deficiencies. The board was di
rected to develop and implement an overdraft policy,
adopt a written plan for each criticized loan and review
the adequacy of the present loan policy in correcting
the deficiencies listed in the report of examination with
respect to that loan policy.
61. Bank with assets of less than $25 million
The bank's condition under current ownership re
flected asset problems, a capital shortfall and selfserving practices. Ownership promised to correct
these deficiencies. The examination reflected classi
fied assets equal to 43 percent of gross capital funds
and other assets especially mentioned equalling an
additional 25 percent. The classifications excluded

$285,000, equal to 23 percent of gross capital funds, in
insider loans that were refinanced at another institution
during the examination. A capital injection had not
been accomplished. Several violations of law were re
ported, including insider violations.
Additional deficiencies were (1) unstable earnings,
(2) an incomplete lending policy, (3) loan documenta
tion exceptions, (4) need for an investment policy, and
(5) need for a liquidity and asset/liability management
policy.
A Formal Agreement required adoption of proce
dures to prevent violations of law. The Agreement also
required (1) strict requirements regarding extensions
of credit to executive officers, directors and principal
shareholders of the bank, (2) completion of an equity
capital injection during 1980 and compliance with the
bank's capital plan, (3) submission of a comprehen
sive budget, (4) revision of the lending policy, (5) for
mulation and implementation of a written program to
eliminate all assets from criticized status, (6) mainte
nance of an adequate allowance for possible loan
losses, (7) acquisition of current and satisfactory infor
mation on all loans lacking such information and no
granting or renewing of loans until such information
has been ascertained, (8) establishment of written
guidelines governing liquidity and asset/liability man
agement, and (9) adoption of a written investment pol
icy.
A referral has been made by the region for consider
ation of civil money penalties for insider violations.
62. Bank with assets of $100 to $250 million
The bank was in deteriorating condition as a result
of a poor local economy and lax management. There
were significant increases in classified assets, which
grew from 43 to 72 percent of gross capital, substan
tial loan losses, liberal rewrite and loan extension poli
cies, high credit card charge-offs, and overline and
out-of-trust situations. Violations of law included 12
USC 29 and 84, and two violations of Regulation Z, 12
CFR 226.
A Memorandum of Understanding required the
board to perform a study of its management and cor
rect any deficiencies. The board was required to cor
rect all violations of law. The board was to submit a
written program to eliminate each asset from criticized
status, formulate an internal loan review system, main
tain an adequate allowance for possible loan losses,
reduce the level of delinquent loans, adopt a nonaccrual policy, adopt floor plan lending and credit card
lending policies, and adopt a funds management pol
icy. Loans to any borrower whose loans or other exten
sions of credit had been criticized were restricted.
63. Bank with assets of $25 to $50 million
This $1 million trust department with nine fiduciary
accounts was operating at a loss as a service to bank
customers. The examination revealed that the board
failed to supervise the administration of the trust de
partment, having delegated that function to a trust in
vestment committee which had only met once in the
last year. The bank's fiduciary activities were not being
suitably audited; there were no general ledger controls
or annual written account reviews. Real estate held in
119

trust was not being appraised. There were no written
policies or procedures.
A Formal Agreement required the board to evaluate
whether the bank should continue to operate a trust
department and to consider its profitability and the
quality and depth of its management. Policies and pro
cedures were established to bring the trust depart
ment into compliance with 12 CFR 9, particularly with
regard to the investment of fiduciary funds in accord
ance with 12 CFR 9.11. Adequate books and records
were also required in conformance with 12 CFR 9.8(a),
and periodic account reviews were required in con
formance with 12 CFR 9.7(a)(2). Proper documentation
of discretionary actions was required, as were policies
prohibiting the use of material insider information and
self-dealing transactions in conformance with 12 CFR
9.12. Real estate held in trust was required to be prop
erly administered. -Recordkeeping and confirmation of
securities transactions were also required to conform
with 12 CFR 12.
64. Bank with assets of $75 to $100 million
The bank's condition markedly deteriorated since
the last examination. Classified assets increased from
29 to 73 percent of gross capital funds and liquidity
was down to 11 percent. Earnings had declined which
contributed to a strain on capital. Management was in
effective, with employee turnover amounting to 45 per
cent in 1979.
A Memorandum of Understanding required the
board to review bank management, augmenting it
where appropriate, and to review the causes of exces
sive employee turnover. The board was required to
correct all violations of law. The board was also re
quired to review its loan supervision system, eliminate
each criticized asset, not lend additional money to a
borrower whose loan was criticized, maintain current
credit information and review the allowance for possi
ble loan losses. The board was required to raise the
level of liquidity, implement a written funds manage
ment policy, analyze the bank's capital needs and
submit a capital plan to the regional administrator.
65. Bank with assets of $250 to $500 million
The bank had engaged in heavy speculative real es
tate lending and maintained a large portfolio of low
yielding real estate loans. Heavy loan loss provisions
resulted in depressed earnings. Although the bank's li
quidity was stable and at a comfortable level, the
bank's holding company continued to draw virtually
100 percent of the bank's net income in the form of
dividends. Management's progress in working out of
the real estate situation was exceptionally slow and it
was felt that some regulatory input was needed to
move the bank toward correction.
A Memorandum of Understanding required the
board to (1) create and implement new written pro
grams and policies to eliminate criticized assets, (2)
establish an amended written loan policy, (3) handle
and dispose of other real estate owned, (4) establish
guidelines governing the loan review system, (5) iden
tify problem loans in a timely manner, and (6) create a
revised asset/liability management policy.

120

66. Bank with assets of less than $25 million
The bank's problems included an inadequate capital
structure, continued operating losses, a rate-sensitive
liability structure, and increased criticized assets. Lax
management of the loan portfolio, inadequate docu
mentation and liberal rewrites and renewals contrib
uted to the problems. Lack of earnings and recent loan
losses also had an adverse impact on the bank's capi
tal.
A Formal Agreement required the adoption of a plan
to reduce criticized assets and the implementation of a
program to improve collection efforts and increase su
pervision over the loan portfolio. Current and satisfac
tory credit information was to be obtained and main
tained for all loans. The allowance for possible loan
losses was to be monitored to ensure it is maintained
at an adequate level. A capital plan and a profitability
plan were required to be developed and implemented
in a timely fashion. All violations of commercial bank
ing laws and consumer laws were to be corrected and
procedures were to be adopted to prevent recurrence.
67. Bank with assets of less than $25 million
The bank, with a history of asset problems, was in
deteriorating condition. Classified assets increased to
127 percent of gross capital funds. Self-serving owner
ship and frequent management changes were cited as
the cause of the bank's problems. The bank had four
presidents in 3 years. The directors had violated 12
USC 375b and had received unreasonable or unjustifi
able expenses and fees. The directors interfered with
management's handling of the lending function by
committing the bank to make loans. One director's
loan had been classified as a loss. High loan losses
resulted in poor earnings and impaired capital.
A Formal Agreement required that the bank correct
violations of 12 USC 375a and 375b. An equity capital
injection was required, along with a 3-year capital
plan. The board was required to engage an indepen
dent special counsel to evaluate compensation paid to
certain directors for salaries, fees and expenses and
to determine whether restitution was warranted. The
board was required to submit a plan to ensure that fu
ture compensation paid to officers, directors or em
ployees was reasonable for services rendered and ad
equately documented. The board was required to
perform a management study and to develop a plan to
strengthen loan administration. The plan was to in
clude procedures ensuring that no director could uni
laterally commit the bank to make a loan. Loans to crit
icized borrowers were prohibited. The bank was
required to take immediate action, including legal
action, to collect the classified loan of its director. The
allowance for possible loan losses was required to be
increased immediately by $150,000. A written funds
management policy and investment policy were re
quired.
68. Bank with assets of less than $25 million
The bank was in deteriorating condition. The level of
classified assets and delinquent loans had increased.
Credit and collateral exceptions had also increased.
Loan losses were negatively impacting earnings. The

problems were, in part, caused by ineffective manage
ment and liberal lending philosophies. Some audit de
ficiencies were also disclosed.
A Memorandum of Understanding required that ex
tensions of credit in excess of the bank's lending limits
be reduced to conforming amounts. All other violations
of law were to be corrected. The board was required
to make a management study. The bank was not al
lowed to lend additional money to a borrower whose
loan had been criticized and the board was required
to formulate a plan to eliminate each asset from criti
cized status. The board was required to establish its
own monitoring program for problem loans and to take
action to protect the bank's position with respect to de
linquent loans. The board was required to obtain cur
rent and satisfactory credit information and obtain and
perfect collateral. The allowance for possible loan
losses was to be maintained at an adequate level. In
ternal control deficiencies were to be corrected.
69. Bank with assets of less than $25 million
The bank experienced a massive embezzlement by
the former chief executive officer. The total amount of
the defalcation amounted to nearly half of the bank's
capital. A pension fund was the principal account
which suffered losses. Although the bank had no trust
charter, the chief executive officer may have misrepre
sented that he was acting as fiduciary in his capacity
as a bank officer. The board allegedly was apprised of
the embezzlement as early as 1978, but did not report
it to the OCC or other authorities in violation of 12 CFR
7.5225. The board also failed to record any discussion
of the matter in the board minutes. It was possible that
the bank's bonding company would refuse to honor
part of the claim or would cancel coverage. Addition
ally, the board received excessive compensation for
expenses. Internal control deficiencies also existed.
An Order to Cease and Desist required the board to
appoint two independent directors and a third director
acceptable to the regional administrator, to comprise a
compliance committee to (1) determine the extent of
the losses resulting from the defalcation; (2) ensure
that all possible claims were filed with the bonding
company; (3) advise the bank whether any cause of
action exists against any director, officer or employee
as a result of the defalcation; (4) request any neces
sary restitution from any director, officer or employee
for any claims dishonored by the bonding company;
and (5) determine what disclosure should be made to
shareholders. The board was required to inject equity
capital in an amount requested by the regional admin
istrator to cover any losses resulting from defalcation.
The board was to adopt policies to ensure that any
known or suspected criminal activity was immediately
reported to the bonding company and the proper au
thorities. The board was required to pursue all claims
against the bonding company and to maintain fidelity
insurance coverage in an adequate amount. Minutes
of all matters reviewed, discussed and acted upon
were required to be maintained by the board. A new
chief executive officer was to be hired. Policies and
procedures for fees and expenses were required to be
instituted. The special counsel was required to review

expenses and recommend whether reimbursement
should be requested by the bank from the recipient.
Internal control deficiencies were required to be cor
rected, as were all violations of law. The bank was also
required to adopt a program for improving collection
efforts and reducing the level of delinquent loans and
to submit a written funds management policy. No fur
ther dividends were allowed without the prior approval
of the regional administrator. A budget and profit plan
were required. The board was required to either obtain
a trust charter or ensure that none of its officers act in
a fiduciary capacity with a depositor unless the board
was satisfied that the relationship was sufficiently inde
pendent of the bank.
70. Bank with assets of $50 to $75 million
The bank's problems stemmed primarily from the
rapid growth and poor loan administration and super
vision. There were violations of 12 USC 84, with the ex
cessive lines subject to criticism. Liquidity was consid
ered inadequate and there was a need for improved
asset/liability management. Earning figures Were over
stated due to inadequate provisions to the allowance
for possible loan losses and questionable loan accrual
methods. Capital growth had not kept pace with asset
growth and capital ratios were well below peer group
averages. Some directors' loans were criticized and
directors generally were uncooperative.
A Formal Agreement required the bank to reduce
loans in violation of 12 USC 84 to conforming amounts,
and the board was to insure that the bank suffered no
loss on any loan in violation of 12 USC 84. Additionally,
the bank was to correct each violation of law and
adopt procedures to prevent future violations. The
board was to submit a written capital plan to the re
gional administrator which included the completion of
an equity capital injection. The bank was to submit a
budget which included a detailed balance sheet and
income and expense items and assumptions used in
developing the forecast. The board was to perform a
study of current management and implement a written
management plan. The board was to establish and im
plement procedures to monitor and enforce adherence
to the lending policy. The board was to adopt a pro
gram to eliminate the grounds of criticism of each as
set criticized and not to extend credit to borrowers
whose loans had been criticized, unless in the best in
terest of the bank. The board was to conduct quarterly
reviews of the adequacy of the bank's allowance for
possible loan losses and make adjustments to the al
lowance which would be reflected in regulatory reports
and obtain and maintain current and satisfactory credit
information and collateral documentation on loans. The
board was to adopt a written liquidity, asset and liabil
ity management policy. The bank's liquidity was to be
maintained at a level commensurate with the bank's
needs. The board was to formulate a written policy to
define the circumstances under which depositors
would be permitted to draw against uncollected funds.
The board was to review and revise the bank's invest
ment policy and to establish procedures to monitor
and enforce adherence to that policy. The board was
to assess the appropriate amount of directorate and
121

committee fees paid by the bank. Their conclusions
and recommendations were to be reported to the full
board and the regional administrator.
71. Bank with assets of $25 to $50 million
The bank suffered from liberal lending practices and
poor collection efforts as evidenced by high classified
assets. Loan documentation was deficient and loan
portfolio delinquency was high. It was apparent that
improved loan administration was needed. Earnings
had been satisfactory but losses and charges to re
plenish the allowance for possible loan losses im
pacted current earnings. There was a capital shortfall
and a need for a capital plan. Several violations of 12
USC 84 and four other violations of laws, rules or regu
lations were cited in the report of examination.
A Memorandum of Understanding required a written
capital plan acceptable to the OCC. The bank was re
quired to correct loan documentation deficiencies. The
board was to review the allowance for possible loan
losses at least quarterly and maintain the account at a
balance which would reflect the risk inherent in the
loan portfolio. The board was to adopt a written pro
gram to improve management's collection efforts. The
board was to review and revise the existing lending
policy to include a method of monitoring and enforcing
compliance with the policy, a system to identify and
monitor problem loans and provisions for extension of
credit to insiders. The Memorandum required a written
program to eliminate grounds for criticism of each as
set criticized and to correct all violations of laws, rules
and regulations. All losses resulting from a loan ex
tended in violation of 12 USC 84 were to be docu
mented and a method of reimbursement for any losses
was to be developed. The board was to adopt a writ
ten liquidity, asset and liability management policy.
Additionally, a written internal audit program was to be
adopted and the board was to appoint a capable and
independent individual to perform such procedures.
72. Bank with assets of $100 to $250 million
The specialized examination revealed a significant
deterioration in the condition of the bank. Liquidity had
dropped to less than 6 percent because of sustained
growth in real estate credits. This concentration in real
estate amounted to nearly 300 percent of gross capital
funds. Classified assets represented 141 percent of
gross capital funds (80 percent of which were real es
tate related); delinquencies were 8 percent of gross
loans, and 11 percent of the loan portfolio was not
supported by current credit information. The allowance
for possible loan losses was inadequate. Insider
abuses had occurred, consisting of violations of 12
USC 375a and 375b, and unjustified payment of ex
penses and salary advances. Illegal political contribu
tions had been made. Extensions of credit had ex
ceeded the bank lending limit, in violation of 12 USC
84. There had also been excessive extensions of
credit to the bank's affiliate, in violation of 12 USC
371c, and violations of 12 CFR 226 (Regulation Z), and
12 CFR 7.3025. Additionally, a contract had been
awarded to a director to construct the bank's new
building without first requiring competitive bidding.
A Formal Agreement required the board to reduce
122

the Section 84 violations to conforming amounts,
cease extending credit to its officers, directors, princi
pal shareholders or their related interests in violation of
12 USC 375a and 375b, cease extending credit to af
filiates in violation of 12 USC 371c, and cease violating
Regulation Z. The board was required to obtain the re
gional administrator's approval before issuing any divi
dends, maintain adequate liquidity and adopt a funds
management policy. A management study was re
quired, as well as the employment of a new senior
lending officer. The bank was required to eliminate
each asset from criticized status and refrain from lend
ing additional money to a borrower whose loan had
been criticized. Current and satisfactory credit infor
mation was required. The board was also required to
review its policy for the purpose of reducing concen
trations of credit in real estate, formulate a new policy,
and take action to bring each concentration into com
pliance with that new policy. The board was also re
quired to engage an independent appraiser to ap
praise other real estate owned, in conformity with 12
CFR 7.3025. The board was to identify and review
problem loans and maintain the allowance for possible
loan losses at an adequate level. Delinquent loans
were to be reduced and a loan policy implemented.
Reimbursement of officer overdrafts was required,
along with the institution of a policy covering over
drafts. A capital plan and an expense policy were re
quired. The board was required to hire a special coun
sel to review expenses paid and the circumstances
under which the construction contract had been
awarded. The special counsel was to recommend res
titution where necessary. Reimbursement was required
for illegal political contributions if the recipients failed
to voluntarily repay the bank. Audit deficiencies were
to be corrected.
73. Bank with assets of $50 to $75 million
The examination revealed a deteriorating asset con
dition, with classified assets amounting to 57 percent
of gross capital funds and total criticized to 76 percent
of gross capital funds. Past due loans represented 7.5
percent of the portfolio; credit and collateral excep
tions were excessive. Liquidity was unacceptable at
11 percent. Violations of commercial and consumer
laws were noted. The administration of the trust de
partment was deficient. The bank was not administer
ing its common trust funds in compliance with 12 CFR
9.18; common trust fund units had been pledged to
the commercial department. One common trust fund, a
tax exempt bond fund, had invested more than 10 per
cent of its assets in a single private placement. That
fund had not been valued properly, and the bank had
not instituted a procedure for approval of entries or
withdrawals of units. The trust department violated 12
CFR 9.12 by purchasing bonds that the bank had con
tracted to purchase. Active officers of the bank were
acting as members of the trust audit committee in vio
lation of 12 CFR 9.9. Internal controls were weak. No
checklists or synoptic records to ensure proper admin
istration of trust accounts were maintained. Real estate
held in trust was not being appraised frequently
enough and was not adequately insured.

A Memorandum of Understanding required the bank
to cease violating the law, to correct all violations and
to implement policies and procedures to prevent future
violations, including consumer violations. The board
was required to formulate a capital plan, to implement
a written funds management policy and to maintain an
adequate liquidity position. A written plan to eliminate
each criticized asset was required. The board was re
quired to implement a problem loan identification and
monitoring procedure and to review the allowance for
possible loan losses to ensure that it is maintained at
an adequate level. A review of the bank's delinquent
loan procedures was required, as was the collection of
satisfactory credit information and collateral documen
tation. The tax exempt bond fund was to be revalued
with readjustments to each affected account. The
board was required to sell the trust department's inter
est in the issuance that the bank had contracted to
purchase at no loss to the trust accounts and was spe
cifically required to implement procedures to prevent
further self-dealing. The bank was required to release
all common trust fund units pledged as collateral for
loans. Various procedures to correct the deficiencies
in operation, administration and investment of collec
tive investment funds in conformance with Section 9.18
were required. The bank was also required to correct
deficiencies in the administration of real estate held in
a fiduciary capacity. A written trust audit program was
required, as was the elimination of active officers from
membership on the trust audit committee. A trust de
partment policy manual was required to be drafted.
74. Bank with assets of less than $25 million
An Order to Cease and Desist prohibited extensions
of credit in excess of the lending limitations of 12 USC
84. It also required the board of directors to indemnify
the bank against losses resulting from loans or other
extensions of credit made in violation of 12 USC 84.
Prior to the Order to Cease and Desist, the bank had
extended credit to a corporation in an amount that
would have exceeded the lending limitation of 12 USC
84, except that a portion of the extension was partici
pated to a correspondent bank. After the order be
came effective, the corporation and its owner filed for
bankruptcy. The correspondent bank charged the par
ticipation back to the bank. Subsequently, the board of
directors of the bank approved the charge off of the
amount of the participation as a loss. The reacquisition
by the bank of the participation was a new extension of
credit which exceeded the lending limitation of 12 USC
84 and violated the Order to Cease and Desist.
An Agreement with the board of directors of the
bank required the board to make restitution to the
bank for the amount of the participation reacquired by
the bank and charged off by the board. The Agree
ment also required the board to reimburse the bank for
all legal fees paid to the board's counsel by the bank
in connection with the matter.
75. Bank with assets of $75 to $100 million
Speculative investment practices of the bank contin
ued to hinder the bank's earnings, liquidity and bal
ance sheet flexibility. Bond depreciation was 111 per
cent of adjusted capital funds with 51 percent of the

investment portfolio maturing beyond 10 years. Criti
cized investments amounted to 38 percent of gross
capital funds. Progress by the bank in correcting this
situation was extremely slow. Criticized loans equalled
74 percent of gross capital funds. Of primary concern
was a large extension of credit to or for the benefit of a
corporation; that extension equalled 35 percent of
gross capital funds and constituted a violation of 12
USC 84. The extension of credit had been on nonaccrual and without reduction for an extended period.
The allowance for possible loan losses was also inade
quate. Due to a deterioration of the net interest mar
gins the bank's earnings had declined considerably.
Bank capital was unduly leveraged in terms of asset
growth, risk assets and inadequate levels of retention.
A Notice of Charges was filed against the bank
charging that it had violated the lending limitations of
12 USC 84. It also alleged that the bank was operating
with inadequate capital, had accumulated criticized
assets which totaled 114 percent of the bank's gross
capital funds and had failed to properly review and su
pervise the bank's loan portfolio, develop a current in
vestment policy and develop an asset/liability manage
ment policy designed to reduce the bank's reliance on
rate-sensitive liabilities to support fixed rate assets. An
administrative hearing is pending.
76. Bank with assets of $25 to $50 million
The bank's problems were centered in the loan port
folio. Total criticized assets equalled 90 percent of
gross capital funds. Net loan losses for the prior year
totaled 4 percent of average total loans. Past due
loans totaled 8 percent of total loans. Credit and collat
eral exceptions represented 23 percent of gross loans.
Other real estate owned and repossessed automobiles
represented 11 percent of gross capital funds. The
condition of the loan portfolio was a result of problems
in the executive management and lending personnel.
Although the bank had implemented detailed loan poli
cies and procedures, the executive officer of the bank
had not adequately supervised the loan portfolio to en
sure adherence to the loan policies. Supervision of the
loan portfolio and lending authority were delegated to
three officers who did not display the capability to ade
quately manage the loan portfolio. Violations of law in
cluded 12 USC 74 and 375a; 12 CFR 7.3025, 23 and
221; and 31 CFR 103.33.
A Memorandum of Understanding required meas
ures to improve the quality of management including a
study of current management and the implementation
of a written management plan. The progress of the
bank in complying with the articles of the Memoran
dum and in improving the condition of the bank were
to be reviewed by the regional administrator 4 months
after the effective date of the Memorandum and, if suf
ficient progress had not been made, the board was re
quired to obtain a new chief executive officer for the
bank. In addition, the bank was required to submit (1)
a written capital program, (2) a written program to im
prove the earnings of the bank, (3) procedures to en
sure compliance with lending policies, (4) a written
program to eliminate all assets from criticized status,
(5) a written program to improve collection efforts, (6)

123

a quarterly review of the allowance for possible loan
losses, (7) procedures to obtain satisfactory credit and
collateral documentation and (8) a plan for correction
of internal control deficiencies. A compliance commit
tee was also to be formed.
77. Bank with assets of $250 to $500 million
An examination revealed deterioration in the condi
tion of the bank. Total criticized assets amounted to 67
percent of gross capital funds. Loans not supported
by current credit information represented 13 percent of
gross loans. The loan review procedures used by the
bank were in need of revision to ensure the review
function was independent and accountable to the
board. The bank was undercapitalized and earnings
were inadequate. In view of the substandard earnings,
the depreciated investment portfolio, the high net bor
rowed position of the bank, a negative growth in de
mand deposits, and the overall volatility of the deposit
structure, liquidity was considered marginal. Violations
of law included 12 CFR 7.5225, 23.1 and 7.7000. Defi
ciencies were also noted in the trust department; the
most serious of those was the out of proof condition of
a corporate stock transfer account.
A Memorandum of Understanding directed the
board to strengthen the quality of supervision by man
agement including adjustments to staffing if neces
sary. The board was required to review the bank's writ
ten capital program and ensure that the projections
detailed in the program were being met. If the review
indicated that the projections were not being met, then
revision of the program to provide a level of equity
capital acceptable to the regional administrator was
required. Additionally, the bank was required to (1) im
plement a written program to eliminate all assets from
criticized status, (2) implement procedures to obtain
satisfactory credit and collateral documentation, (3) re
vise its funds management policy, (4) submit a
budget, and (5) correct and eliminate all violations of
law. The bank was also required to take all necessary
steps to correct the deficiencies cited in the trust re
port of examination. Finally, the bank was required to
establish a committee to ensure the bank's compli
ance with the Memorandum of Understanding.
78. Bank with assets of $25 to $50 million
The bank had previously suffered substantial loan
and operational losses which threatened its continued
existence. These problems were related to the lack of
management experience and controls. Criticized as
sets approximated 50 percent of gross capital funds,
past dues exceeded 6 percent of gross loans, and
credit information was insufficient. Management had
embarked on a growth program, with assets doubling
in approximately 1.5 years. That growth was funded
largely by rate-sensitive and volatile deposits, with ap
proximately one-third of the bank's footings supported
by a single, overnight demand deposit account. At the
same time, the bank was using those funds to provide
medium term real estate loans at fixed rates. Between
examinations, loans to deposits had grown to approxi
mately 99 percent. Increased levels of earnings came
with that growth, and the board approved a compen
sation program for the chief executive officer solely

124

tied to a specific percentage of pretaxed net income.
Additionally, the bank was cited for violations of 12
USC 84, 83 and 375b; 12 CFR 217 (Regulation Q); and
15 USC 1681.
A Formal Agreement required the board to develop
a written management plan, including a summary of
their own duties and responsibilities and written posi
tion descriptions for chief officers, which addressed
the current compensation program. The board was not
to base compensation solely upon the bank's operat
ing performance. Additionally, the Agreement required
that the board develop a comprehensive financial
plan, including a liquidity and asset/liability manage
ment program, a program to sustain the bank's earn
ings and a capital maintenance program. The board
was also required to reduce the bank's exposure in
criticized assets and not to extend any further credit to
a borrower whose loan was criticized. Each of the
items was required to be submitted to the regional ad
ministrator for his review and approval. A loan policy
was required to be developed with respect to insider
transactions, delinquent loans and credit information.
79. Bank with assets of less than $25 million
Poor asset quality, loss operations, a capital shortfall
and an inadequate funds management policy were at
tributed to poor management and inadequate director
ate supervision. The examination revealed that the
bank's overall condition had deteriorated because of
continued poor management and insufficient director
ate supervision. Classified assets increased from 62 to
126 percent and delinquent loans rose from 11 to 14
percent. Recently hired management proved to be in
adequate as shown by continued poor internal opera
tions and limited loan loss recoveries.
An Order to Cease and Desist required the bank to
(1) obtain a new chief executive officer acceptable to
the regional administrator, (2) have the board regularly
review the adequacy of bank management, (3) pro
duce and implement a written outline of senior
management's duties and responsibilities, (4) elimi
nate criticized assets, (5) take action to remove loans
to directors from criticized status, (6) strengthen its
lending policy by review and revision, (7) take action
to obtain current and satisfactory credit information on
all existing and future loans, (8) take necessary steps
to correct collateral exceptions and establish proce
dures to ensure sufficient collateralization in the future,
(9) conduct quarterly board review and adjustment of
the adequacy of the allowance for possible loan
losses, (10) provide delinquent loan percentage re
ports to the regional administrator, (11) review and re
vise the written liquidity, asset and liability manage
ment policy, (12) develop and implement a written
audit program, and (13) record all board and boardappointed committee meetings.
80. Bank with assets of less than $25 million
Ineffective board supervision and frequent senior
management turnover contributed to loan portfolio de
terioration, poor operations and violations of law. Inter
nal controls and audit procedures were weak. The
lending staff was considered inadequate. Classified
assets equalled approximately 85 percent of the

bank's gross capital funds. Loans not supported by
current and satisfactory credit information represented
approximately 25 percent of total loans and past due
loans were almost 30 percent of gross loans. Four vio
lations of 12 USC 84 were noted. The bank had failed
to conform to the requirements of a Memorandum of
Understanding previously executed.
An Order to Cease and Desist ordered the board to
correct violations of 12 USC 84 and other violations
cited. The board was further required to evaluate
present management. The bank was ordered to pro
tect the interests with regard to criticized assets, not to
lend to certain criticized borrowers and to improve and
strengthen its collection efforts. The bank's allowance
for possible loan losses was also to be increased and
maintained on a periodic basis. The bank was also re
quired to obtain current and satisfactory credit infor
mation on all loans. The board was required to elimi
nate certain internal control and audit deficiencies and
to establish a comprehensive formal written audit pro
gram and to develop a capital plan subject to the re
view and approval of the regional administrator.
81. Bank with assets of $25 to $50 million
Inadequate management, violations of law and regu
lation, increased classified assets, loans not supported
by current and satisfactory credit information, and past
due loans were the primary problems affecting this
bank. One violation of 12 USC 29, two violations of 31
CFR 103, and one violation of 12 CFR 217 were dis
closed.
A Formal Agreement required immediate correction
of all violations of law." A committee was established to
study and evaluate the bank's current management.
The bank was required to retain the services of an in
dependent appraiser. The bank was further required to
adopt and implement a written program for strengthen
ing criticized assets and to adopt written procedures
for recovery of charged off loans and delinquent loans,
as well as to develop a program to maintain current
and satisfactory credit information. The bank was also
directed to evaluate its lending policy and not to ex
tend credit without having adequate collateral. The
bank was required to increase its allowance for possi
ble loan losses and further required to develop invest
ment policies. The bank was required to review its
capital and to develop a program to maintain and
strengthen the capital structure of the bank. The bank
was prohibited from declaring dividends without the
prior written approval of the regional administrator.
82. Bank with assets of $25 to $50 million
Violations of 12 USC 84, coupled with insider abuse,
led to a severe deterioration in the condition of this
bank. Classified assets had increased, the reserve for
possible loan losses was inadequate and loans not
supported by current credit information represented
approximately one-third of the bank's loan portfolio.
Past due loans were approximately one-fourth of all
loans.
An Order to Cease and Desist ordered the bank to
immediately correct all violations of 12 USC 84 and
any other violations cited. The bank was required to
obtain independent special counsel to review the vio

lations of 12 USC 84 and 12 CFR 215 to determine
what liability the board may have had in granting such
loans and causing such violations. The bank was fur
ther required to develop a compliance committee to
develop procedures to ensure compliance with the or
der. The bank was prohibited from extending credit to
certain former bank officials and loans were not per
mitted to certain persons cited in the report of exami
nation as having indulged in insider transactions, selfdealing, and abuse. The bank was also required to
evaluate its management needs and to adhere to cer
tain lending policies. The bank was required to de
velop a plan to recover certain assets that had been
charged off. The bank was further required to develop
an investment policy in liquidity and to improve its li
quidity. The bank was required to evaluate its capital
needs. The bank was ordered to develop a plan to ob
tain and maintain satisfactory credit information and
was prohibited from extending credit to criticized bor
rowers. The bank was further required to increase and
maintain its allowance for possible loan losses. The
board of directors was required to adopt a written
code of ethics. Dividends and compensation paid to
officers were restricted.
83. Bank with assets of less than $25 million
The bank was initially required to enter into an Order
to Cease and Desist with this Office. However, in view
of improved conditions, the order was terminated and
the board entered into the Memorandum of Under
standing. The bank still needed a capital injection and
had to undertake action to improve and sustain its
earnings. The allowance for possible loan losses was
not adequate and internal controls needed to be im
proved.
A Memorandum gf Understanding required the
board to seek capital injection through the sale of
common stock and to develop plans to improve and
sustain its earnings. The bank was prohibited from
paying dividends without the prior written approval of
the regional administrator, and the board was required
to improve its funds management policies. The board
of directors was further required to review its allow
ance for possible loan losses and to obtain and main
tain current and satisfactory credit information on loans
listed in the report of examination as lacking such in
formation.
84. Bank with assets of $500 million to $1 billion
Criticized assets amounted to approximately 110
percent of the bank's gross capital funds. Past due
loans represented 12 percent of total loans. A violation
of 12 USC 371c was noted. The bank was issuing due
bills to retail customers without fully complying with 12
CFR 204.110. Payments of monies to the bank's hold
ing company were considered excessive and certain
of the bank's correspondent accounts were consid
ered inappropriate. Management was not considered
adequate. The bank was also using short term and
rate-sensitive funds to support long term and fixed rate
assets which had a subsequent adverse impact on the
bank's profitability. Capital, liquidity and funds man
agement policies were inadequate.
A Formal Agreement restricted credit to certain criti125

cized borrowers and required the board to develop a
plan to improve criticized assets. The bank was re
quired not to extend credit in violation of 12 USC 371c
and 375b and 12 CFR 215. The bank was required to
eliminate and correct all violations of laws, rules and
regulations. Dividends were restricted. The bank was
prohibited from maintaining any correspondent ac
counts for the benefit of any affiliate unless in compli
ance with law, rules and regulations. The bank was re
quired to review its management structure and to
make any necessary changes. The board was di
rected to review its asset and liability management
policies and to develop and adopt a written policy ad
dressing capital as well as covering the payment of
dividends and liquidity.
85. Bank with assets of less than $25 million
The bank was suffering from severe problems. Clas
sified assets equalled approximately 150 percent of
the bank's gross capital funds. Insider abuse had
been noted by previous management. Loans not sup
ported by current and satisfactory credit information
represented approximately 20 percent of gross loans
as did the past due loans. Management was not con
sidered adequate. Seven violations of 12 USC 84 and
two violations of 12 USC 375a were noted.
An Order to Cease and Desist required the bank to
inject equity capital into the bank and to maintain eq
uity capital equal to not less than 10.5 percent of the
bank's total assets. The bank was also ordered to re
tain the services of a new chief executive officer. The
bank was further required to correct the violations of
12 USC 84, providing indemnification for any loss suf
fered, and to correct the other violations noted in the
report of examination. The bank was required to take
immediate action to protect its interests concerning
criticized assets. The bank was restricted from lending
to certain criticized borrowers. The bank was further
required to maintain its allowance for possible loan
losses at an adequate level and was required to adopt
a written program to improve its collection efforts. The
bank was also required to improve and maintain its
level of liquidity and to improve its earnings. As re
quired by the order, the bank adopted comprehensive
written lending and investment policies. Internal con
trol deficiencies and audit deficiencies were corrected.
86. Bank with assets of less than $25 million
An examination of the bank disclosed violations of
12 USC 84, 375b and 371c; 12 CFR 1.8; and 31 CFR
103 as well as inadequate capital, classified assets, in
adequate liquidity and excessive management fees to
the bank's holding company.
A Notice of Charges was served upon the bank al
leging the above violations of law and regulation and
unsafe and unsound banking practices. An administra
tive hearing is pending.
87. Bank with assets of less than $25 million
An examination of the bank revealed that the bank
had accepted excessive deposits of volatile, ratesensitive funds through the use of retail repurchase
agreements and had failed to match the repurchase
agreements with the obligations backing the agree

126

ment. The condition of the bank was such that any fur
ther mismatching by bank management would cause
the bank to fail in a short period of time.
A Notice of Charges was served on the bank alleg
ing that unsafe and unsound banking practice and a
Temporary Order to Cease and Desist was issued
which prevented the bank from further indulging in the
repurchase agreements on a mismatched basis. An
administrative hearing is pending.
88. Bank with assets of less than $25 million
The bank's criticized assets had increased to ap
proximately 93 percent of the bank's total loans. The
bank's allowance for possible loan losses was consid
ered inadequate and the bank was in need of new ex
ecutive management.
A Memorandum of Understanding required the bank
to take prompt and continuing action to protect its as
sets which had been criticized in the report of exami
nation. Limits were made on extensions of credit to
borrowers and the bank was required to develop a
comprehensive written lending policy. The allowance
for possible loan losses was required to be adjusted
periodically by the bank, and the bank was required to
develop and implement written guidelines for coordi
nation and management of the bank's assets and lia
bilities. The bank also was required to retain a new
chief executive officer.
89. Bank with assets of less than $25 million
The bank had criticized assets amounting to approx
imately 100 percent of its gross capital funds. Its allow
ance for possible loan losses was inadequate. Loans
not supported by current and satisfactory credit infor
mation represented approximately 20 percent of total
loans. Violations of 12 USC 29 and 375a were noted.
A Memorandum of Understanding required the bank
to adopt a written program to eliminate criticized as
sets and to eliminate each violation of law, rule and
regulation. The bank was also required to submit a
capital program to the regional administrator. The
bank was directed to maintain the allowance for possi
ble loan losses at an adequate level and to take action
necessary to obtain and maintain current and satisfac
tory credit information. The bank also was required to
revise its lending policies, as well as its liquidity asset;
and liability management policies.
90. Bank with assets of less than $25 million
The bank was being operated by inadequate man
agement. Classified assets amounted to approximately
150 percent of the bank's gross capital funds. Over
due loans were approximately 15 percent of total
loans. The bank's loan loss reserve was inadequate
and capital was deficient. Three violations of the
bank's lending limit, 12 USC 84, were noted.
A Notice of Charges and a Temporary Order to
Cease and Desist were served on the bank. The No
tice of Charges alleged the above conditions as un
safe and unsound banking practices and the Tempo
rary Order required the bank to develop a capital plan
for the immediate injection of capital and/or to deposit
certain monies in the bank. An administrative hearing
is pending.

91. Bank with assets of more than $1 billion
A trust examination revealed a substantial number of
violations of law, rule and regulation which were recur
ring. The bank, in an effort to relieve itself of liability for
the management of trust account assets, as a matter
of practice required that an investment advisor be ap
pointed before it would accept an account. The trust
instruments signed by the settlors delegated varying
degrees of responsibility to the investment advisor and
attempted to totally relieve the bank of liability for in
vestment decisions and account management. The
bank's failure to provide any type of supervision for
trust accounts managed by an investment advisor led
to a number of deficiencies in trust account adminis
tration and conflicts of interest. Some of the areas of
concern included the lack of organizational structure in
the trust department, the lack of supervision by the
board and the trust committees, inadequate audits,
lack of internal controls, lack of documentation in the
accounts, lack of investment policies and procedures,
and lack of policies and procedures governing ac
count administration. Those deficiencies led to prob
lems such as failure to abide by the terms of the gov
erning instrument, imprudent investments, lack of
diversification, purchase of the bank's holding com
pany stock for trust accounts in violation of law, and
numerous other violations of law and regulation.
A Formal Agreement required formation of a trust in
vestment committee, a majority of whose members
were outside directors. The committee was responsi
ble for making investment decisions, reviewing the
bank's compliance with the Agreement, reviewing an
nually each trust instrument to determine whether the
account had been administered in accordance with its
terms during the previous year and, most importantly,
reviewing each account to determine whether there
had been any past violation of the terms of the govern
ing instrument or violation of law with respect to that
account. The trust investment committee was required
to determine whether corrective action was necessary,
including restitution to the beneficiaries. The board
was required to adopt and implement written policies
and procedures designed to ensure compliance with
12 CFR 9 and sound fiduciary principles and specifi
cally designed to correct the deficiencies noted in the
trust examination. The bank was required to enforce its
procedures to ensure compliance with all rules of the
Securities and Exchange Commission relating to trans
fer agent activity. It was required to obtain court ap
proval for all investments for court supervised ac
counts. The bank was also required to obtain funding
policies for its pension plans, take measures to correct
deficiencies with respect to corporate trust activities,
and to perform customer notification in conformance
with 12 CFR 12.4. With respect to investment advisor
accounts, the bank was required to review the lan
guage of each instrument appointing an investment
advisor and limiting the bank's liability to determine
whether the instrument conformed with state law,
whether the bank was in fact insulated from liability
and, if not, to determine the actual liability and duties
the bank had. The Agreement required specific lan
guage to be included in all new trust account instru

ments the bank accepted which had the intention of
limiting the bank's liability to the extent permitted by
law. Before acting on any instruction received from an
investment advisor, the bank was required to deter
mine that the instruction conformed to the governing
instrument and that, to the bank's knowledge, that the
instruction did not breach the investment advisor's fi
duciary duty. The bank was also required to formulate
a written program describing audit procedures for the
trust department and a program for information pro
cessing which conforms to standards established by
the OCC. There was also a prohibition on the purchase
of bank holding company stock unless specifically au
thorized by the governing instrument.
92. Bank with assets of $100 to $250 million
A trust examination revealed numerous deficiencies
primarily with respect to the adoption and implementa
tion of sound policies and procedures governing the
operation of the trust department. Of primary concern
were the lack of an orderly filing system, inadequate
control of trust assets in violation of 12 CFR 9.13, insuf
ficient supervision of closely held companies, inade
quate real estate loan supervision, deficiencies in the
supervision of real estate held as assets in trust ac
counts, and the lack of adequate employee benefit
trust account management. Also of concern were vio
lations of 12 CFR 9.12, involving improper use of own
bank time deposits, and 12 CFR 12, involving lack of
the required recordkeeping and confirmation proce
dures. Other deficiencies were also noted including
large uninvested cash balances, inadequate invest
ment review material and lack of proper approval for
deposits and withdrawals in the collective investment
fund.
A Memorandum of Understanding required correc
tion of each violation of law, rule or regulation at no
loss to the accounts. The Memorandum also required
the adoption of policies and procedures designed to
ensure that all trust account documentary files were
maintained in an organized and current condition, to
ensure the prompt recording of deposited trust as
sets, to address the supervision of investments and
closely held companies, to address the proper su
pervision of real estate loans held as assets in trust ac
counts, to ensure maintenance of a program of infor
mation processing for the recording of trust account
liabilities, to ensure the maintenance of detailed min
utes of all meetings in accordance with 12 CFR 9.9
and to ensure that funds awaiting investment are su
pervised and invested in a comprehensive and timely
manner. The bank was also required to provide the
trust department with a qualified employee benefit ac
count administrator. The board was required to report
at frequent intervals the bank's progress in achieving
compliance with the terms of the Memorandum.
93. Bank with assets of less than $25 million
The bank embarked on an extensive growth pro
gram, doubling its assets in approximately 1 year. That
growth was funded by a large amount of rate-sensitive
deposits; however, the bank had maintained control of
its costs and priced each loan on a variable rate basis.
Net profits were good. The bank had lost control of the
127

level of its current outstandings and commitments
granted to customers. Liquidity had been reduced to
approximately 10 percent, with loans to deposits of ap
proximately 84 percent. During the examination, net
liquid assets were reduced to - 0 . 8 1 percent, and
loans to deposits increased to 98 percent. The bank
began an immediate program to curtail commitments
and to funnel all cash flow into liquid assets. Some
success was immediately apparent, and liquidity ratios
improved rapidly. Initially, based on the immediate im
provement in the bank's liquidity, administrative action
was waived. Upon examination of the bank approxi
mately 5 months later, it was determined that the bank
had adopted an unsafe and unsound practice regard
ing the method with which they had improved their li
quidity. In order to rapidly acquire deposits, the bank
had requested excessive compensating balances
(equalling approximately four times current outstand
ings) from three criticized borrowers. In order to ac
quire those deposits, the borrowers had entered into
agreements with funds brokers to provide the bank
with deposits and to pay the required brokers' fees.
That resulted in an effective cost of funds to each bor
rower equivalent to an annual percentage rate of 50
percent. The bank had put at risk substantial loan pro
ceeds to solve the liquidity problems rather than pru
dently redistributing assets through normal cash flow.
A Memorandum of Understanding required that the
bank search its records to determine that all such rela
tionships were fully disclosed and that the board adopt
a policy to discontinue the practice. Amendments to
the bank's asset/liability management policy regarding
the use of broker deposits and purchased funds, ag
gregate limitations, restrictions on use, individual
transaction limits, specific liquidity guidelines, and re
porting requirements to ensure the maintenance of all
policies were also required. Also included were re
quirements that the board adopt a program to improve
the level of criticized assets which equalled approxi
mately 77 percent of gross capital funds. Each of the
programs was required to be submitted to the regional
administrator for comment or approval.
94. Bank with assets of less than $25 million
The bank showed a continuing significant asset de
terioration with 52 percent classified and 52 percent
other assets especially mentioned. Credit and collat
eral exceptions and past dues were excessive. A
funds management strategy was also lacking. There
was a sizable influx of money market certificates of de
posit and a rapid deterioration in interest margins. Two
directors were replaced at the shareholders meeting
by illegal voting procedures. Several other violations
were noted. Despite continued deterioration in the
bank's condition, a substantial cash dividend was
paid. Lending officers were considered weak. Defi
ciencies were found in the internal controls and audit
procedures.
An Order to Cease and Desist required the bank to
cause all extensions of credit to conform with 12 USC
84, and required the adoption of policies and proce
dures to ensure compliance with Section 84. A new
chief executive officer was required and the regional

128

administrator was given the power of veto prior to that
appointment. The order prohibited the issuance of offi
cial checks without prior payment from the customer
and required that any such checks issued be properly
recorded and reconciled at least monthly by an indi
vidual without authority to issue such checks. Interest
earnings were not to be reflected in the books until ac
tually received. A program designed to eliminate criti
cized assets was to be promulgated and no credit in
excess of $5,000 was to be extended to any borrower
whose credit had previously been criticized unless fail
ure to do so would be detrimental to the bank and the
extension had received prior written approval of a ma
jority of the board. The bank was to submit a written
loan policy. All loans, present and future, were to be
supported by current and satisfactory credit informa
tion. The allowance for possible loan losses was to im
mediately be no less than $200,000, with the mainte
nance of an adequate level in the future monitored by
quarterly reviews by the board. A program addressing
asset and liability management was to be imple
mented as was an operating plan for capital and earn
ing needs. Dividends were not to be declared unless
in conformity with 12 USC 60 and justified by safe and
sound banking. All deficiencies in internal control and
internal audit procedures cited were to be corrected
and a CPA was to be employed to perform an audit,
which was to form the basis of a plan to be drafted to
improve internal controls and internal audit proce
dures. Blanket bond insurance was to be maintained
at an adequate level.
95. Bank with assets of $500 million to $1 billion
An examination of the bank disclosed that an exces
sive amount of criticized assets, primarily real estate
construction loans, had negatively impacted on earn
ings. An increasing imbalance between rate-sensitive
assets and liabilities had caused the bank to become
extremely vulnerable during periods of high interest
rates. The increased reliance on rate-sensitive funds
also caused a decline in liquidity. Problems at the
holding company level also contributed to the deterio
ration in the bank's condition. Bank earnings had, to a
large extent, been upstreamed to service the holding
company's debt. In addition, the bank had purchased
$20 million in low yielding, long term real estate credits
from another holding company subsidiary. As a result,
capital growth from profit retention was virtually nonex
istent.
A Memorandum of Understanding prohibited the
bank from declaring or paying dividends unless it first
received written approval of the regional administrator.
The bank was also required to establish a program to
reduce criticized assets. The board was required to (1)
draft and implement a policy prohibiting the bank from
entering into any transactions with its affiliates which
required the bank to make any payment to said affili
ates unless the bank first received written notification
of the regional administrator's intent not to disapprove
the transaction; (2) implement a policy statement gov
erning the maintenance of bank correspondent ac
counts for the benefit of affiliates; (3) adopt a policy
and procedures prohibiting the bank from engaging in

any financial futures contracts, forward placement con
tracts, or standby contracts in its commercial banking
activities except in conformance with Banking Circular
79; (4) adopt a written profit plan; and (5) conduct an
analysis of the bank's capital requirements and adopt
a written plan designed to meet future capital require
ments. Management was required to design a plan
providing for the improvement of the bank's position
with respect to the imbalance between the level of
rate-sensitive assets and liabilities.
96. Bank with assets of $100 to $250 million
The bank's overall condition deteriorated as a result
of poor lending practices coupled with a rapidly grow
ing area economy. The bank did not have a sufficient
number of trained and experienced lending officers to
administer the increasing volume and complexity of its
loan portfolio. Classified assets had doubled since the
prior examination, and equalled 115 percent of gross
capital funds. The allowance for possible loan losses,
at 0.7 percent of total loans, was inadequate. The bank
had aggressively expanded loan volume at the ex
pense of other balance sheet components. As a result,
net liquid assets equalled only 7 percent of net de
posits and the bank has been a consistent and sub
stantial borrower of funds. Those factors resulted in an
inadequate capital situation. Equity capital equalled
only 6 percent of total assets. The examination dis
closed several serious violations of 12 USC 84, one of
which resulted in a loss to the bank in excess of $1
million.
A Formal Agreement required the correction of all vi
olations of law, rule or regulation cited in the commer
cial and consumer affairs reports of examination, and
the adoption of procedures to prevent the recurrence
of similar violations. The individual board members
who approved the excessive credit extensions in viola
tion of 12 USC 84 were required to indemnify the bank
for all losses and expenses that the bank incurred as
the result of said credit extensions. The board was
also required to (1) modify the bank's management in
formation system; (2) evaluate the sufficiency and
competency of the bank's existing officer staff and
make any appropriate staffing changes; (3) submit to
the regional administrator, for his approval, a written
capital program deisgned to provide the bank with an
equity capital injection of not less than $1.35 million;
(4) conduct an analysis of the bank's future equity
capital needs; and (5) conduct quarterly reviews of the
allowance for possible loan losses and make any nec
essary adjustments. The bank was required to take im
mediate and continued action to protect its interests
with respect to all assets criticized in the report of ex
amination. The bank was also required to submit to the
regional administrator a written program designed to
achieve and maintain an acceptable level of liquidity.
The Agreement directed the board to establish an
oversight committee composed of outside directors to
monitor the bank's progress in complying with the
Agreement.
97. Bank with assets of $100 to $250 million
Examination of the bank disclosed that classified
and criticized assets had remained excessive at 58

percent of gross capital funds. Additionally, delinquent
accounts increased to 11 percent of gross loans and
collateral exceptions and loans not supported by cur
rent credit information remained well above accept
able levels. As a result, the bank incurred substantial
loan losses. Management structure was unsatisfactory,
with the president assuming responsibility for the ad
ministration of the entire loan portfolio without properly
delegating responsibility. There existed no specific
lines of authority and areas of responsibility for senior
management positions. The board did not exercise ad
equate supervision oyer the conduct of the bank's af
fairs. Violations of 12 USC 371c and 375a, 12 CFR
7.3025 and 215, and 31 CFR 103.33 were cited.
A Memorandum of Understanding required the bank
to correct all violations of law, rule or regulation, and
adopt procedures designed to prevent the recurrence
of similar violations. Compliance with the Memoran
dum was to be monitored by a compliance committee
composed of five outside directors. The Memorandum
further required the board to (1) conduct an evaluation
of current management and to formulate and imple
ment a written management plan for the correction of
identified management and staffing deficiencies, (2)
review the bank's lending and collection policies and
procedures and to amend said policies and proce
dures as deemed necessary, (3) adopt and implement
a plan designed to remove all assets from criticized
status, (4) adopt and implement a plan to improve the
bank's earnings and to maintain an adequate capital
structure, and (5) develop an asset/liability manage
ment plan.
98. Bank with assets of less than $25 million
Examination of the bank disclosed that classified as
sets had increased from 13 to 55 percent since the
prior examination. Other assets especially mentioned
amounted to an additional 16 percent of gross capital
funds. Loans not supported by current credit informa
tion were intolerably high, at 28 percent of gross loans.
The poor quality of the loan portfolio resulted in a sig
nificant increase in loan charge-offs and negatively im
pacted on the bank's capital structure. Total assets
equalled 18 times adjusted capital. The capital short
fall had been estimated at approximately $250,000.
Management complacency in the administration of the
lending function was cited as a primary cause for the
poor condition of the loan portfolio. In addition, the
board was criticized for not requiring management to
maintain an ongoing list of problem loans. The exami
nation also disclosed violations of 12 USC 84 and
375a, 12 CFR 7.3025 and 215.4, and 31 CFR 103.33.
A Memorandum of Understanding required the bank
to correct all cited violations of law and to adopt ade
quate procedures to prevent the recurrence of similar
violations. The board was required to (1) indemnify the
bank against any losses resulting from extensions of
credit made in violation of 12 USC 84; (2) implement a
written program designed to remove all assets from
criticized status; and (3) submit to the regional admin
istrator, for his approval, a written program designed
to increase equity capital by at least $250,000 and to

129

immediately implement the program upon receipt of
said approval.
99. Bank with assets of $50 to $75 million
Examination of the bank disclosed continued deteri
oration in the bank's overall condition. Ineffective su
pervision had resulted in a loosely run lending opera
tion with no organizational structure. Fundamental
lending principles were not followed. In 2 years, classi
fied loans had increased from 14 to 80 percent of
gross capital funds. Over the same period, overdue
loans and credit information exceptions had almost
doubled. Excessive loan losses resulted in negative
retained earnings for the first half of 1980. The bank's
problems were compounded by a weakening of the
bank's capital structure. Heavy asset, loan and deposit
growth had strained capital ratios to the point where
an additional equity injection was required. Capital
equalled 16 percent of total assets. Factors contribut
ing to those deficiencies included the absence of ef
fective management supervision, a weak organiza
tional structure, nonadherence to policy, absence of a
realistic internal loan review function and nonaggressive collection efforts. Violations of 12 USC 84 and
375b and 31 CFR 103.33 were cited.
An Order to Cease and Desist required the bank to
correct all existing violations of law, rule or regulation
and to adopt procedures adequate to prevent the re
currence of similar violations. The order directed the
board to (1) undertake an assessment of the suffi
ciency, quality and capability of all officers participat
ing in the bank's lending function and to make any
necessary staffing changes; (2) make such amend
ments to the bank's lending and collection policies
and procedures as deemed necessary to improve the
lending function; (3) formulate and implement an inter
nal loan review system; (4) implement a written pro
gram for eliminating all assets from criticized status;
(5) conduct quarterly reviews of the allowance for pos
sible loan losses and to make any necessary adjust
ments; (6) develop and implement written asset/liability
management guidelines; (7) submit to the regional ad
ministrator, for his approval, a written program de
signed to provide for an injection of at least $1 million
in equity capital and to implement said program upon
receipt of the regional administrator's approval; (8) de
velop a comprehensive financial plan; and (9) take all
necessary action to improve the effectiveness and ad
equacy of the bank's internal controls. The order also
directed the board to establish a compliance commit
tee, the majority of which was outside directors, to
monitor the bank's compliance with the order.
100. Bankwith assets of $100 to $250 million
The bank's overall condition continued to deteriorate
after the execution of a written Formal Agreement with
the OCC. Criticized assets had increased to 98 per
cent of gross capital funds. The allowance for possible
loan losses, which equalled 1.2 percent of total loans,
was considered inadequate in view of the unaccepta
ble level of delinquent loans, the severity of the classi
fied loans, the bank's lax collection procedures, and
the depressed local economy. Past due loans were ex

130

cessive, at 17 percent of total loans, and credit infor
mation exceptions were high, at 19 percent of gross
loans. Management was considered poor and the un
satisfactory condition of the loan portfolio was attrib
uted, in large part, to the lending practices of the
bank's president. The commercial report of examina
tion cited violations of 12 USC 371 d and 375b, 12 CFR
215 and 7.3025, and 31 CFR 103.33. The consumer
affairs report of examination also disclosed numerous
violations of law and regulation, including violations of
12 CFR 226 (Regulation Z) and 12 CFR 202 (Regula
tion B). The examination of the bank's trust department
disclosed that it was in very poor condition, with nu
merous violations of 12 CFR 9 cited.
An Order to Cease and Desist prohibited the presi
dent from participating in the supervision and adminis
tration of the bank's lending function and required the
bank to limit its loan portfolio to no more than 70 per
cent of its deposits. The bank was required to correct
all existing violations of law, rule or regulation, and to
adopt procedures to prevent the recurrence of similar
violations. The bank was also prohibited from extend
ing credit to any of its insiders, except in conformity
with the provisions of 12 CFR 215. In addition, the
bank was prohibited from declaring or paying any divi
dends in an amount exceeding 50 percent of net in
come, after taxes, without the prior written approval of
the regional administrator. The order directed the
board to (1) provide the bank with new, experienced
and capable senior lending, loan review and opera
tions officers; (2) conduct a study of the quality and
quantity of current management and implement a writ
ten management plan for the timely correction of iden
tified management and staffing deficiencies; (3) adopt
and implement a written plan for removing all assets
from criticized status; (4) adopt and implement a sys
tem for monitoring problem loans; (5) review and for
mulate a new comprehensive written loan policy; (6)
formulate and implement a policy regulating the cir
cumstances under which the bank may pay overdrafts;
(7) conduct quarterly reviews of the adequacy of the
bank's allowance for possible loan losses and to make
appropriate adjustments thereto; (8) adopt and imple
ment a funds management policy; and (9) submit a 5year capital program to the regional administrator, for
his approval. In view of the poor condition of its trust
department, the bank was prohibited from accepting
any new trust accounts. Finally, the bank was ordered
to identify all violations of Regulation Z, subject to the
reimbursement provisions of 15 USC 1607, and to
make reimbursement in accordance with those provi
sions. The board was directed to establish a compli
ance committee to monitor the bank's progress in
complying with the order.
101. Bank with assets of $100 to $250 million
Increases in both the volume and severity of classi
fied assets were disclosed by the examination. Classi
fied assets amounted to 92 percent of gross capital
funds. Management structure was poorly organized,
with no established lines of authority and responsibil
ity. Excessive reliance had been placed on the credit
judgment of the president. The bank had become too

large for the president to serve as loan officer, problem
loan collector and public relations officer. Overall de
linquency was up to 7 percent of gross loans. Loans
not supported by current credit information were unac
ceptable, at 10 percent of gross loans. The allowance
for possible loan losses, at 0.7 percent of total loans,
was considered inadequate in view of the large vol
ume of credits classified as doubtful. Although the
bank's capital ratios were above average for its peer
group and were considered adequate, the heavy po
tential loan loss on the doubtful credits threatened the
bank's earnings and capital ratings. The internal audit
program was criticized as lacking both independence
and effectiveness. Audit programs had not been up
dated and, in many cases, audit procedures were not
followed or documented. The commercial report of ex
amination disclosed two violations of 12 USC84. In ad
dition, the consumer affairs report of examination dis
closed several violations, including violations of 12
CFR 226 (Regulation Z) and 12 CFR 202 (Regulation
B). The trust report of examination cited violations of
12 CFR 12 and 9.18.
A Memorandum of Understanding required the bank
to correct all violations of 12 USC 84, and all consumer
and trust violations cited in the reports of examination.
The bank was also required to adopt procedures de
signed to prevent the recurrence of similar violations.
The Memorandum directed the board to (1) perform an
indepth study of the bank's management structure with
the aid of outside assistance, as necessary, and to
correct all identified management and staffing defi
ciencies; (2) adopt and implement a written program
for removing all assets from criticized status; (3) review
immediately the adequacy of the allowance for possi
ble loan losses and continue to do so on a quarterly
basis; (4) adopt a written program to provide for im
proved collection efforts; (5) complete and adopt the
bank's new written lending policy; (6) formulate and
implement an internal loan review system consisting of
personnel independent of the lending function; and (7)
amend and expand the bank's internal audit program.
102. Bank with assets of more than $1 billion
Examination of the trust department confirmed the
overall satisfactory condition of the department but re
vealed certain serious conditions, including violations
of the transfer agent regulations. Prior to the examina
tion, bank management discovered serious discrepan
cies in the records maintained by the bank, in its trans
fer agent function, for several issuers. Those out of
proof conditions had existed for almost a decade but
had been concealed from senior management. The
bank's prompt action in reimbursing the issuers and in
retaining an accounting firm and performing an inde
pendent review of the bank's transfer agent activities
resulted in substantial correction of all problems prior
to the execution of a Memorandum of Understanding.
Additional problems included the bank's failure to
make turnaround calculations for approximately 4
months and deficient internal procedures, controls and
audits. Physical security in the transfer agent area and
controls over unissued certificates was similarly defi
cient, as were the controls over the automated record
keeping system.

A Memorandum of Understanding required the bank
to continue to take action to correct each violation and
adopt procedures to ensure they did not recur. The
bank was directed to ensure that no individual who it
had reason to believe directed the concealment of dis
crepancies in the transfer agent function remained in
the bank, and to identify every individual it had reason
to believe participated in the concealment of the dis
crepancies. The board was required to assess the suf
ficiency of the staffing of the bank's transfer agent
function. The board was further required to cause
actions to be taken to eliminate the deficiencies in the
trust report of examination and to provide the regional
administrator with a copy of the report of the outside
auditors. The board was required to implement the
recommendations of the outside auditors or explain
why they did not.
The bank was to comply with the turnaround require
ments, improve its handling of written inquiries regard
ing its performance as a transfer agent and improve
physical security in its corporate agency areas. The
bank further was to improve controls oyer unissued
certificates and safeguards against overissuance. The
bank was to reconcile the out of proof condition, main
tain an allowance and regularly audit the transfer
agent function. The bank was also required to refrain
from acting as transfer agent for any new issuers until
it fully complied with the Memorandum of Understand
ing and obtained written authorization from the re
gional administrator.
103. Bank with assets of less than $25 million
Inadequate supervision of the lending function
coupled with the bank's rapid growth resulted in esca
lating asset problems and a declining capital base.
Loans not supported by current, satisfactory credit in
formation; delinquent loans; inadequate collateral files;
and unsatisfactory compliance with the bank's lending
policy contributed to this condition. Loan losses and
past due loans increased significantly, thereby requir
ing a charge to earnings to replenish the allowance for
possible loan losses to an adequate level. This re
sulted in a net loss for the year and an increased capi
tal shortfall. Also, excessive noncompliance with the
lending policies continued.
The bank entered into a Formal Agreement which re
quired the board to perform an evaluation of manage
ment and implement a management plan regarding
the positions, authority and responsibility of manage
ment. The board was to obtain a new chief executive
officer if the bank's condition did not improve suffi
ciently to satisfy the regional administrator before the
next examination of the bank. The board was required
to submit a revised capital plan and to refrain from de
claring any dividends without the written approval of
the regional administrator. The board was required to
implement a program to eliminate criticized assets and
to refrain from extending additional credit to any bor
rower whose credit was criticized. The board was di
rected to obtain and maintain adequate credit informa
tion and to refrain from extending credit without
obtaining adequate credit information and collateral
documentation. The board was further required to
131

adopt and implement a written program to improve
collection efforts, reduce delinquent loans, and im
prove recovery rates on charged off assets. The board
was directed to improve lending policies and proce
dures, and to review and augment the allowance for
possible loan losses on a quarterly basis. The board
was required to correct any violations of law and en
sure they did not recur. The board was required to re
vise its written policies regarding liquidity and asset
and liability management. The board was directed to
submit monthly reports to the regional administrator.
104. Bank with assets of more than $1 billion
Prior to the action, the bank reflected instability in
the ranks of senior management. Classified assets
equalled 77 percent of gross capital funds. The bank's
asset/liability management policies and operations
were deficient as was its management information sys
tem. The bank was experiencing an unsatisfactory
earnings performance and its capital was becoming
strained. Certain of the institution's overseas trust and
data processing operations were experiencing a vari
ety of problems.
A Memorandum of Understanding required the bank
to reconstitute its asset and liability management com
mittee and establish improved asset/liability policies
and funds management strategies. Further, the bank's
board of directors was required to direct that a man
agement study be performed and to implement a plan
to satisfy the bank's managerial needs. In addition, the
bank was required to develop a strategic plan ad
dressing its future needs, including capital, and to
submit the plan to the OCC for review. The Memoran
dum also required the bank to improve its manage
ment information system and specified a number of
operational areas to be covered by the system. The
Memorandum further required actions to improve as
set quality as well as operations in the trust and data
processing functions which had been subject to criti
cism.
105. Bank with assets of less than $25 million
The bank had inadequate capital, poor earnings,
heavy losses, a violation of 12 USC 29 and 84, a total
lack of improvement in the volume of classified assets,
heavy depreciation in its investment portfolio, a domi
nating chief executive officer, and a complete lack of
supervision by the board of directors.
An Order to Cease and Desist required the bank to
obtain a new chief executive officer and $500,000 in
new equity capital. The order also required a program
to improve the earnings of the bank, to restrict the pay
ment of dividends without the prior written approval of
the regional administrator, and to ensure active in
volvement and supervision by the board.
106. Bank with assets of $25 to $50 million
An Order to Cease and Desist required the bank to
correct each cited violation of law, rule or regulation
and to adopt procedures to prevent the recurrence of
similar violations. The bank was directed to comply
with the restitution provisions of Section 608 of the
Truth in Lending Simplification and Reform Act, 15
132

USC 1607, with respect to the reimbursable Regulation
Z violations cited in the consumer report.
The entire summary of this action may be found at
#6 under the Civil Money Penalty heading.
107. Bank with assets of $75 to $100 million
The quality of the bank's loan portfolio had deterio
rated. Between examinations, criticized assets jumped
from 41 to 99 percent of gross capital funds. Past due
loans, at 18 percent of gross loans, and loans not sup
ported by current credit information, at 23 percent of
gross loans, were excessive. Although the deteriora
tion in the loan portfolio was largely attributed to de
pressed local economic conditions, unsound lending
practices were also a factor. Management's philoso
phy and practices with respect to overreliance on col
lateral, inadequate emphasis on determining the
borrower's repayment capacity, a rather liberal re
newal policy, and laxness in collection procedures
also contributed to the present situation. Loan chargeoffs, at $380,000, depleted the allowance for possible
loan losses, which stood at only 0.32 percent of total
loans outstanding. The bank's capital base was
strained as a result of substantial asset growth, weak
earnings and a large cash dividend. The violations of
laws, rules and regulations resulted primarily from
management's unfamiliarity with the applicable laws
and a lack of internal controls. In addition, the con
sumer affairs report of examination disclosed violations
of law, rule and regulation, including reimbursable vio
lations of 12 CFR 226 (Regulation Z).
A Memorandum of Understanding required that the
bank take all action necessary to correct every viola
tion of law, rule or regulation cited in the commercial
and consumer affairs reports of examination, and to
establish procedures designed to prevent the recur
rence of similar violations. In particular, the bank was
required to comply with the restitution provisions of
Section 608 of the Truth in Lending Simplification and
Reform Act, 15 USC 1607, with respect to the reimburs
able Regulation Z violations. The board was required
to (1) perform a comprehensive review of the bank's
lending function and develop measures designed to
ensure that the bank's lending function was performed
in a safe and sound manner; (2) implement a written
program to remove all assets from criticized status; (3)
develop a comprehensive and detailed budget for
1981; (4) develop and implement written asset/liability
management guidelines; (5) prepare an analysis of the
bank's present and future capital needs and to, there
after, adopt and implement a written plan designed to
increase the equity capital of the bank to a specified
capital to asset ratio; and (6) cause the bank's internal
control deficiencies to be corrected. The Memoran
dum required the bank to immediately increase its al
lowance for possible loan losses to an amount not less
than $400,000. The Memorandum also restricted divi
dend declarations or payments if the bank failed to
reach certain specified capital to asset ratios.
108. Bank with assets of more than $1 billion
Although the solvency of the institution was not in
jeopardy, the bank was suffering from a range of prob
lems which made its overall condition generally unsat-

isfactory. The bank's management structure did not
provide for management succession and was inade
quately staffed at the middle management level. The
bank was cited for a deficient management information
system and criticized for lacking a meaningful strate
gic planning function. In addition, classified assets
equalled approximately 70 percent of gross capital
funds. The bank's lending policies were generally defi
cient. Finally, the bank was criticized for having inade
quate capital to support its level of operations.
A Memorandum of Understanding required the bank
to develop and implement a written management pro
gram designed to alleviate the cited deficiencies in
bank management. The bank was also required to im
prove its management information system and to ex
pand the system to include certain specified compo
nents. The bank also was to improve its system for
determining the sufficiency of its allowance for possi
ble loan losses and to improve strategic planning.
Lending policies governing all lending activities were
required to be developed, approved by the bank's
board, and implemented. The Memorandum also re
quired the bank to take measures to strengthen its
capital base, as well as its position with regard to criti
cized assets. The bank was further required to formal
ize an asset/liability management policy, a policy for
disposing of other real estate owned, and procedures
for identifying transactions with its affiliates.
109. Bank with assets of $25 to $50 million
Criticized assets as a percent of gross capital funds
increased from 27 to 40 percent on a stronger capital
base, indicating deterioration in asset quality. Earnings
had declined. Liquidity and the allowance for possible
loan losses were also declining. The volume of loans,
at 81 percent of total deposits, was beyond the ability
of management to properly supervise. The loan portfo
lio was comprised primarily of low yielding, fixed rate
assets. Loan demand was being funded by ratesensitive liabilities. The bank had been in a net bor
rowed position throughout most of 1979. The bank's
heavy reliance on borrowed funds, as well as increas
ing dependence on money market certificates, contrib
uted significantly to the decline in the bank's earnings.
The bank had been attempting to control loan growth
for several years but had been unsuccessful.
Management's inability to control loan demand, coup
led with decreasing deposits, a heavy reliance on bor
rowed funds, and an illiquid investment account, re
sulted in a declining liquidity position. Capital was not
adequate. The examination disclosed several viola
tions of 12 USC 84 and 375b, and 12 CFR 215, which
involved directors or their related interests. The bank's
deficiencies were attributed, in large part, to inade
quate board and management supervision.
A Memorandum of Understanding required the bank
to correct all existing violations of law, rule or regula
tion and to adopt adequate procedures to prevent
their recurrence. In particular, the bank was required
to seek reimbursement for any loss of fee or interest in
come sustained by the bank as a result of credit exten
sions to insiders made in violation of the provisions of
12 CFR 215. The Memorandum also required the de

velopment and implementation of a written program for
improving the bank's liquidity position and amendment
of the bank's written investment policy. The board was
required to (1) develop and adopt a written program to
improve and sustain the earnings of the bank; (2) re
view the bank's capital structure on a semiannual
basis to ensure that capital is maintained at an ade
quate level; (3) conduct quarterly reviews of the allow
ance for possible loan losses and make any necessary
adjustments; (4) review the bank's lending policies
and make all necessary amendments; and (5) provide
the bank with a new, active and capable senior lend
ing officer, unless a ratified agreement providing for
the sale or merger of the bank could be submitted to
the regional administrator within 120 days of the effec
tive date of the Memorandum. The board was also re
quired to take prompt and continuing action to protect
the bank's interest with respect to all criticized assets.
110. Bank with assets of $25 to $50 million
A Notice of Intention to Remove the president from
his positions as president and chairman of the board
was issued.
The entire summary of this action may be found at
#23 under the Administrative Actions heading.
111. Bank with assets of $50 to $75 million
Although the asset quality of the bank and its earn
ings were adequate, the bank refused to engage in
constructive capital planning with the result that the
bank was inadequately capitalized. That problem was
exacerbated by the high growth rate experienced by
the bank and projected for the future. The bank
wanted to change the location of its main office and
approval of the bank's application was conditional on
the bank's injection of an adequate amount of equity
capital. The bank ignored that written condition and re
located. The bank incurred two violations of the legal
lending limit and further violated 12 USC 29, 371 d,
375a and 30.
A Notice of Charges was issued based on the viola
tions of law, the condition imposed in writing by the
OCC in connection with the granting of the bank's ap
plication to relocate, and the bank's inadequate capi
tal. Subsequent to the administrative hearing, the ad
ministrative law judge accepted the proposed findings
and conclusions of representatives of the OCC and
made a recommended Order to Cease and Desist
which would require the bank to submit a written capi
tal program to provide for the bank's immediate and
future needs. The proposed order would require the
board of directors to obtain the regional administrator's
approval of the bank's capital program. That program
would also provide for the increase and maintenance
of the bank's equity capital to a level at least equal to 7
percent of the bank's total assets. The order would re
quire the bank to reach the 7 percent equity to asset
position within 30 days from the effective date of the
order. The order would require the board of directors
to take action to correct the violations cited in the No
tice of Charges. The Comptroller's final decision is
pending.
133

112. Bank with assets of less than $25 million
The bank lacked sound management. The chief ex
ecutive officer and his family constituted three-fifths of
the board of directors. Classified assets continued to
be a problem and the bank failed to comply with cer
tain provisions in an outstanding Agreement. New
classified loans and a continued high volume of loan
delinquencies along with inadequate credit information
and collateral documentation remained major prob
lems in the bank. Violations of law, particularly 12 USC
84, along with internal control deficiencies, deficient
earnings and inadequate capital continued to plague
the bank.
A Formal Agreement required the bank to increase
the membership of the board of directors by adding at
least two outsiders not related by blood or marriage to
directors or officers of the bank. Furthermore, the chief
executive officer's authority to perform many functions
within the bank was severely restricted as a result of
his inability to perform his duties responsibly. The
Agreement required the bank to hire a new senior
lending officer, to correct the lending limit violations,
and to take actions to ensure they did not recur. Addi
tionally, the board of directors was to indemnify the
bank for any losses resulting from the illegal exten
sions of credit. The bank was prohibited from extend
ing credit in violation of any statute and to take action
to correct all violations of law, rule or regulation and to
ensure that they did not recur. The bank was to take
continuing action to reduce its volume of criticized as
sets and to obtain and maintain current and satisfac
tory credit information. The Agreement required a writ
ten program to be implemented by the bank to
improve collections. The bank was further required to
adopt a program to augment its capital. The Agree
ment precluded the bank from paying dividends and
required the board to increase the bank's allowance
for possible loan losses and maintain the allowance at
an adequate level. The Agreement required improved
lending policies and an improved investment policy.
The bank was to correct its internal control and audit
deficiencies and adopt adequate auditing procedures
and internal controls. The board was also required to
take action to improve the bank's earnings, including
the preparation of a comprehensive budget and an
analysis of the pricing of all bank services along with
plans to control the bank's operating expenses. The
bank was to submit monthly reports monitoring its im
provement and compliance with the provisions of the
Agreement.
113. Bank with assets of $50 to $75 million
The existence of a significant number of violations of
the Currency and Foreign Transactions Reporting Act
and the regulations promulgated thereunder were dis
closed during an examination of the bank. Although
those violations had been detected by the directors'
examining committee and corrective action had been
initiated, administrative action was deemed appropri
ate.
A Memorandum of Understanding required the bank
to correct past violations of the Currency and Foreign
Transactions Reporting Act. The board was required to

134

establish a compliance committee composed of at
least three outside directors to ensure compliance with
the provisions of the Memorandum, with periodic pro
gress reports to be submitted to the regional adminis
trator. The board was further required to adopt a code
of ethics for the bank. That code was to include a pol
icy statement regarding bank involvement in large cur
rency transactions. Written programs were required to
(1) adopt a system of internal controls, (2) establish
training programs, (3) establish a records retention
program, and (4) establish internal audit programs de
signed to ensure compliance with the Currency and
Foreign Transactions Reporting Act.
114. Bank with assets of $25 to $50 million
An examination of the bank disclosed that classified
assets had increased to 58 percent (from 22 percent
in 1979) and loan losses were $300,000. Those loan
problems required a heavy loan loss provision which,
in turn, impaired earnings. The lack of a strong senior
lending officer and ineffective loan policies and proce
dures were causal factors.
A Memorandum of Understanding required a new,
qualified senior loan officer, a review of lending per
sonnel, a review of loan policies and procedures, the
maintenance of proper credit information, an internal
loan review, and a quarterly review of the allowance for
possible loan losses. Other areas covered by the
Memorandum were a profitability program, a capital
program, internal control policies, correction of viola
tions of law, and creation of an oversight committee to
monitor compliance.
115. Bank with assets of $25 to $50 million
The bank's primary problems were a direct result of
personnel turnover, ineffective chief executive officers,
and a weak board. As a result of those deficiencies,
the chief executive officer resigned during the exami
nation. As his replacement, the board appointed the
bank's number two officer as chief executive officer,
which caused further deterioration and created morale
problems among the employees of the bank. The com
placency on the part of the board was further evi
denced by heavy loan losses over the past 3 years,
high levels of criticized and classified assets, continu
ing delinquency problems, ineffective collection/
recovery procedures, poor lending practices, opera
tional inefficiencies, and poor internal organization. As
a result of those inefficiencies, the bank's net income
had been reduced dramatically over the past several
years.
A Memorandum of Understanding required the bank
to report monthly progress to the regional administra
tor. Additionally, constant monitoring on the Action
Control System was initiated. The Memorandum ad
dressed the following areas requiring specific action
on the part of the board (1) a study of management
structure and the assigned duties of the chief execu
tive officer, (2) an assessment of all managerial em
ployees, (3) adoption of written policies in all areas
necessary to improve the bank's operations, (4) reduc
tion or elimination of all criticized assets in the report of
examination, (5) improved credit collateral documenta-

tion, (6) adoption of adequate internal controls or pro
cedures to prevent future violations of law, and (7)
adoption of a program to achieve profitability.
116. Bank with assets of $25 to $50 million
In part due to a poor local economy, the bank had
experienced a significant increase in criticized and de
linquent obligations. Liquidity had been severely im
paired. Both of those factors exacerbated a marginal
capital base. Of major concern was a violation of 12
USC 84 which resulted from a sale of installment paper
subject to repurchase.
A Memorandum of Understanding required that the
12 USC 84 violation be eliminated, liquidity be restruc
tured to reduce reliance on short term borrowings, no
dividends be paid without prior approval of the re
gional administrator, and a committee of outside direc
tors be established to formulate a capital plan. Estab
lishment of a more reasonable loan to deposit ratio,
maintenance of an adequate allowance for possible
loan losses, and reduction of criticized assets and
credit data exceptions were also addressed.
117. Bank with assets of less than $25 million
For a prolonged period of time the bank experi
enced major deficiencies in the areas of loan portfolio
management and funds management. Classified as
sets were excessive and an undue reliance was
placed on outdated collateral values as opposed to
the creditworthiness of the borrower. Large numbers of
credit data and collateral exceptions were also noted.
The chief executive officer approved an excessive
overdraft to a problem credit line, resulting in a viola
tion of 12 USC 84.
A Memorandum of Understanding required that the
directors pledge and maintain a U.S. Treasury bill to
cover the potential loss on the excessive credit, that a
new chief executive officer be hired and that a detailed
and complete financial forecast be compiled. Reduc
tion of criticized assets, collateral and credit data ex
ceptions, collection procedures and internal controls
were also addressed.
118. Bank with assets of less than $25 million
An examination of the bank disclosed adverse
trends in the condition of the loan portfolio. Classified
assets had increased to 29 percent of gross capital
funds. In addition, loans not supported by current
credit information were excessive, at 9 percent of
gross loans, and overdue loans were rapidly increas
ing, at 8 percent of gross loans. Supervision and ad
ministration by both management and the board were
considered lax. The president was cited for being inat
tentive to the conduct of the bank's affairs. The invest
ment portfolio function was severely deficient. The ex
amination cited several violations of law, including 12
USC 371; 12 CFR 1.8, 1.11 and 21.5; and 31 CFR
103.33.
A Memorandum of Understanding required the bank
to correct each violation of law, rule or regulation and
to adopt adequate procedures to prevent the recur
rence of similar violations. The bank was also required
to take all steps necessary to obtain and maintain cur
rent and satisfactory credit information on all outstand

ing extensions of credit and to correct all collateral ex
ceptions. The Memorandum directed the board to (1)
conduct an indepth study of the bank's management
with the aid of outside assistance, as necessary, and
to implement a written management policy for the cor
rection of all identified staffing deficiencies; (2) take
immediate action to remove all assets from criticized
status, in particular to develop and implement a written
program to provide for improved collection efforts; (3)
conduct quarterly reviews of the bank's allowance for
possible loan losses and to ensure that allowance is
maintained at an adequate level; (4) develop or
amend, as necessary, a written investment policy
which addresses all criticisms of the investment func
tion cited in the report of examination; and (5) review
the adequacy of the bank's fidelity insurance coverage
and increase such coverage as necessary.
119. Bank with assets of $50 to $75 million
The bank's condition deteriorated. Classified assets
were excessive, at 49 percent of gross capital funds.
Additionally, in spite of the bank's ultra-liberal renewal
and extension practices, past due instalment loans ex
ceeded 19 percent of outstanding loans. Loan losses
of $500,000 were high, and it appeared that further
heavy losses would be sustained when latent prob
lems in the loan portfolio came to light. Because of
large loan loss provisions, the earnings picture was
also bleak. Poor earnings allowed loan growth to out
pace growth in equity capital and rendered capital in
adequate. Liquidity was marginal at 14 percent, super
vision and administration by management and the
board was poor, and violations of laws and regulations
were disclosed.
A Formal Agreement required correction of the stat
utory violations and required procedures to be
adopted to prevent future violations. The board was re
quired to employ a new senior lending officer, appoint
a committee to perform a management study, and im
plement a management plan. The bank was required
to eliminate all assets from criticized status, improve
collection efforts overall, and take necessary steps to
maintain current credit information on all borrowers.
The bank was required to formulate a written loan pol
icy, funds management policy, profit plan, and a
standard procedures manual. The board was required
to review the allowance for possible loan losses quar
terly and develop a 5-year capital plan, and was pro
hibited from declaring dividends without the prior ap
proval of the regional administrator. The board was to
ensure that deficiencies in the internal controls were
eliminated and that an adequate internal audit was es
tablished.
120. Bank with assets of less than $25 million
Examination of the bank revealed apparently fraudu
lent activity within the loan portfolio, along with 21 vio
lations of the statutory lending limit and excessive
classified loans (equal to 198 percent of gross capital
funds). The bank lacked adequate credit files and any
safe policy regarding overdrafts. Furthermore, inade
quate controls existed throughout the lending function
resulting in a high volume of past due loans and other
instances where notes appeared to have been altered.
135

Examination revealed insufficient liquidity and addi
tional violations of 12 USC 375a and 375b, with the
condition of the bank evidencing incompetent, if not
fraudulent, activity by the chief executive officer.
Upon discovery and while the examination contin
ued, a Notice of Charges and Temporary Order to
Cease and Desist was served upon the bank. The
Temporary Order restricted the activity of the bank's
chief executive officer, effectively suspending him from
participating in the affairs of the bank. The order pro
hibited violations of 12 USC 84, 375a, and 375b, and
prevented extension of credit to any borrower with crit
icized credit. The order also prohibited extension of
credit without adequate credit information and collat
eral documentation, and required the bank to increase
and maintain liquidity. The bank was required to re
duce its ratio of loans to deposits to a safe level and to
refuse to honor checks creating an overdraft of greater
than $250 for any customer without the prior approval
of the board.
While the Temporary Order was in effect, the chief
executive officer was not able to falsify bank records to
hide his fraudulent activity. Management confessed in
volvement in fraudulent activity to the board and the
FBI began an investigation. Continued examination of
the bank revealed that the fraud and mismanagement
was so extensive that the bank was declared insolvent
by the Comptroller, and the FDIC was appointed as re
ceiver.
The bank's chief executive officer was subsequently
convicted on the basis of his fraudulent activity and is
currently serving time in prison. The vice president of
the bank was also convicted for his role in the fraud.
121. Bank with assets of more than $1 billion
The bank was suffering from a variety of problems
which made its overall condition unsatisfactory but not
critical. The principal deficiencies centered on asset
quality (classified assets equalled 50 percent of gross
capital funds), ineffective management response to
identified problems, and inadequacies in the bank's in
ternal controls.
A Memorandum of Understanding required the bank
to take action to improve its asset quality and loan ad
ministration. The Memorandum also directed a man
agement study to identify deficiencies and propose
solutions. Further, certain improvements in internal
control and audit procedures were required by the
Memorandum.
122. Bank with assets of $25 to $50 million
The bank's ineffective management, as well as a
disappointing earnings performance and an increase
in classified assets, resulted in inadequate capital.
Criticized assets amounted to 63 percent of gross
capital funds and loan delinquencies and credit file ex
ceptions were a concern. The bank's trust department
was not adequate.
A Memorandum of Understanding required elimina
tion of management staffing deficiencies and a review
of the capital needs of the bank as well as an im
proved earnings performance plan and loan portfolio
and internal audit control plans. The board was also
136

required to establish adequate internal control func
tions, monitor liquidity, and operate its trust functions
in a safe and responsible manner.
123. Bank with assets of $25 to $50 million
Examinations of both the commercial and trust oper
ations of this bank disclosed that an Agreement
placed on the bank in 1979, designed to correct sev
eral areas of weakness, was not being complied with
satisfactorily. Major problems included weak and inef
ficient management along with inadequately super
vised lending activities and a lack of appropriate poli
cies and procedures. Further, the chief executive
officer and an executive vice president were sus
pected of improprieties resulting in personal gain. Fi
nally, the bank's trust operation had been operated in
an improper manner, which included failure to keep
proper records of trust assets, improper real estate
management, and lack of proper trust department au
diting.
An Order to Cease and Desist required, among
other things, the hiring of a new chief executive officer
and new loan officer. The bank was required to elimi
nate criticized assets, maintain adequate credit file in
formation, and review and maintain the adequacy of
the allowance for possible loan losses. The order then
required the bank not only to correct the deficiencies
in the trust department operations and have it audited,
but also to study the operations of that department to
consider the costs and the need for proper manage
ment talent. Continued operation of the department
was then to be justified in detail to the regional admin
istrator.
124. Bank with assets of less than $25 million
Supervision and administration of the bank's affairs
has been adversely affected by internal conflict among
board members. That conflict carried over to bank
management and was reflected by poor planning and
policies, particularly in the areas of liability manage
ment and lending. Those problems resulted in a large
volume of classified assets, serious earnings problems
and a volatile liability structure.
A Memorandum of Understanding was executed
which required the bank to (1) correct and eliminate
the violations of law, (2) eliminate grounds upon which
the assets were criticized, (3) obtain and maintain cur
rent and satisfactory credit information, (4) improve
collection efforts, (5) adopt written liquidity and funds
management policies, (6) develop a budget and plan
to improve earnings, (7) develop job descriptions for
senior management, and (8) designate a consumer
compliance officer.
125. Bank with assets of less than $25 million
A large volume of criticized assets resulted from lib
eral lending policies, poor credit administration and
overlending to marginal borrowers. The substantial
and increasing volume of assets classified doubtful
and loss had a serious effect on earnings because
large loan loss provisions were necessary. Classified
assets represented 56 percent of gross capital funds.
Management had not shown an ability to effectively su
pervise the lending area.

A Memorandum of Understanding was executed
which required the bank to (1) eliminate grounds upon
which the assets were criticized, (2) obtain and main
tain current and satisfactory credit information, (3) im
prove collection efforts, (4) establish and maintain an
adequate allowance for possible loan losses, (5)
amend written lending policies, (6) adopt written li
quidity and funds management policies, and (7) pre
pare an analysis of present and future capital needs.
126. Bank with assets of less than $25 million
The bank's primary problem was a large volume of
criticized assets resulting from weak credit administra
tion and compounded by a depressed agricultural
economy. Other problems included violations of law,
inadequate liquidity and internal control and audit defi
ciencies. Criticized assets represented 66 percent of
gross capital funds. Violations of law included a viola
tion of 12 USC 84; a violation of 12 USC 375b, involv
ing two executive officers and a director; and a viola
tion of the Employee Retirement Income Security Act
where funds of the profit sharing plan were invested in
loans acquired from the bank. Earnings were good
and capital adequacy had not been an issue. Major
problems of the bank have been caused by the lack of
administrative support to the president.
A Memorandum of Understanding required correc
tion of violations of law and required procedures to
prevent recurrence. The bank also was required to (1)
formulate a written program to eliminate all assets from
a criticized status, (2) ensure reasonable steps have
been taken to obtain current credit information and
collateral documentation on all loans, (3) implement a
written collection and loan administration program, (4)
review and amend the written lending policy, (5) adopt
a written investment policy and a written liquidity and
funds management report, (6) assess the sufficiency
and quality of active management, (7) correct internal
control and audit deficiencies and implement a written
program in those areas, and (8) provide sufficient in
formation to the board of directors to enable effective
supervision of the bank's affairs.
127. Bank with assets of less than $25 million
Mismanagement of the bank by the former president
and principal shareholder was disclosed during an ex
amination. Liberal lending practices resulted in heavy
loan losses and a high volume of classified loans. In
ept funds management caused dependence on out-ofarea, rate-sensitive deposits and borrowings, and re
sulted in low liquidity. All of those factors impacted
adversely on earnings and capital. A management
change and a change in ownership produced positive
results. Classified assets had been reduced to 53 per
cent of gross capital funds. Earnings were considered
good in spite of heavy loan losses. Capital and liquid
ity are also considered adequate. Present manage
ment put sound and effective policies in place.
An Order to Cease and Desist was placed on the
bank because of the problems noted at a prior exami
nation. The subsequent improvement in the bank's
condition led to termination of the order and its re
placement by a Memorandum of Understanding. The
Memorandum required the bank to (1) take immediate

action to protect its interests with regard to criticized
assets and, also, to adopt a written program to elimi
nate all criticized assets and not extend additional
credit to criticized borrowers; (2) take steps to obtain
current credit information on all loans lacking such in
formation and institute procedures to ensure current
credit information is maintained on an ongoing basis;
(3) implement a written collection and loan administra
tion program; (4) ensure fees paid to controlling owner
and his related interests conform to Banking Circular
115; (5) correct internal control deficiencies; and (6)
extend credit in conformance with the Truth in Lending
Act and Regulation Z.
128. Bank with assets of less than $25 million
Substantial deterioration in asset quality, primarily
resulting from imprudent investment policies, was dis
closed during an examination. Classified assets
equalled 42 percent of gross capital funds, with invest
ment securities representing close to half of that
amount. Violations of law, many of which were in the
investment area, were listed. A substantial and unwar
ranted volume of bond trading since the previous ex
amination was also disclosed. The brokerage firms
used by the bank for most of those transactions were
out-of-area firms with questionable reputations. Sepa
rate, independent pricings were obtained on all acqui
sitions and trades since initiation of those business re
lationships. The serious problems noted in the
investment area were the result of the president's com
plete control over the area and total lack of board
awareness and supervision. Problems in the loan area
were the result of a lack of support to the executive
vice president. Other problems of the bank included
declining liquidity, steady use of borrowings, declining
earnings, inadequate internal controls and audit cover
age, general lack of any effective policies, and overall
weak management and inadequate board supervision.
A Memorandum of Understanding required the bank
to (1) correct all violations of law and establish proce
dures to prevent recurrence; (2) take steps to protect
interests regarding criticized assets and implement a
written program for the elimination of all criticized as
sets; (3) not extend additional credit to borrowers
whose loans were not supported by adequate credit
information; (4) implement a written collection and loan
administration program to determine the allowance for
possible loan losses at least quarterly; (5) review and
amend the written lending policy; (6) develop and
adopt a written investment policy; (7) determine
whether securities trading will be engaged in; (8) de
velop a written program to achieve and maintain an
adequate liquidity position, without undue reliance on
rate-sensitive funds; (9) assess the sufficiency and
quality of active management; (10) correct internal
control and audit deficiencies and establish written op
erating procedures; and (11) provide sufficient infor
mation to the board to allow them to effectively super
vise the bank's affairs.
129. Bank with assets of $500 million to $1 billion
130.
The overall condition of the bank was unsatisfactory.
Classified assets, loan losses, delinquencies and non137

accruals had reached unacceptable levels. The poor
condition and performance of the loan portfolio re
sulted in an inadequate return on assets. Insufficient
earnings retention, coupled with liberal dividend pay
outs, resulted in a strained equity capital base. Those
deficiencies were exacerbated by the excessive and
improper involvement by certain members of the
board of directors in the day-to-day operations of the
bank and administration of the lending function. Ad
verse publicity regarding the bank's unsatisfactory
condition severely threatened the bank's access to the
professional funding sources, thereby further straining
an already marginal liquidity posture.
A Formal Agreement, which was enforceable to the
same extent and in the same manner as an effective
and outstanding Order to Cease and Desist, prohib
ited the bank from declaring or paying any dividends
without the prior written approval of the regional ad
ministrator. The bank was also prohibited from violat
ing the antifraud provisions of the federal securities
laws with respect to the purchase or sale of the bank's
securities and the filing of any proxy materials, annual,
periodic, or other reports filed with the OCC pursuant
to Sections 12, 13 or 14 of the Securities Exchange
Act. The bank was further required to amend any doc
ument previously filed with the OCC, pursuant to Sec
tion 12, 13 or 14, which contained untrue or misleading
information. The Agreement required the board to: (1)
fill all board vacancies by appointment until at least
two-thirds of the board was independent from any affil
iate of the bank; (2) appoint a nominating committee,
composed of at least five independent directors which
was required to nominate, as management candidates
for election to the board, a slate of directors, com
posed of at least two-thirds independent directors who
were acceptable to the regional administrator; (3) ap
point a compliance committee of the board responsi
ble for monitoring the bank's adherence to the Agree
ment; (4) provide the bank with a new, active and
capable chief executive officer experienced in banking
operations, lending and investment who is acceptable
to the regional administrator; (5) provide the bank with
a new, experienced and capable senior lending officer
acceptable to the regional administrator; (6) perform a
study of the bank's current senior management; (7)
develop a strategic plan identifying projections and
goals for the bank's future operations; (8) review the
bank's current lending policies and procedures and
make such amendments as necessary to ensure safe
and sound lending practices; (9) implement a written
program for elimination of all assets from criticized
status; (10) strengthen the bank's credit examination
function; (11) develop and implement written guide
lines for the coordination of the bank's assets and lia
bilities, in order to promote profitability and adequate
liquidity; (12) adopt a written comprehensive code of
ethics to be applicable to all directors, principal share
holders, officers and employees of the bank; and (13)
review the allowance for possible loan losses quarterly
and ensure that it is maintained at an adequate level.
The Agreement directed the compliance committee to
determine whether the bank should seek reimburse
ment from any person or entity, including present or

138

former officers, directors or the bank's principal share
holder, for losses sustained by the bank as the result
of certain credit extensions.
The OCC and the Federal Reserve Board entered
into a separate Formal Agreement with the bank and
its majority shareholder, a registered bank holding
company, which required the holding company to
abide by the terms of the bank's Agreement with the
OCC. The holding company was directed not to partici
pate in the bank's management, operations and poli
cies other than through its representation on the
bank's board. Finally, the holding company was re
quired to vote its shares in support of the nominating
committee's proposed slate of directors.
131. Bank with assets of less than $25 million
The lack of a solid core deposit base penalized this
bank's earnings heavily. Weak deposit generation for
several years had caused bank to fund growth with
rate-sensitive liabilities. Escalating interest rates con
tributed to significant operating losses. The balance
sheet mix would not sustain earnings in an environ
ment of volatile interest rates. In addition, the board of
directors needed strength and diversification, loan
quality was questionable, and several lawsuits had
caused much unfavorable publicity.
A Memorandum of Understanding required formula
tion of an asset/liability policy. The board was also re
quired to evaluate management. A profit plan and
budget were required because the planning process
was inadequate. Also, monthly comparisons to the
budget were required. The bank was to develop inter
nal control and audit programs. Finally, a bankwide
code of ethics, new directors and committee to over
see compliance with the Memorandum of Understand
ing were required.
132. Bank with assets of $25 to $50 million
The bank's board of directors had failed to ade
quately monitor the condition of the bank. Credit ex
ceptions were heavy, financial information was not ad
equately analyzed, loans were granted based on
personal relationships rather than repayment capacity,
and the impact of interest rates on earnings was not
recognized. Those problems resulted in high classified
assets and loan losses, a thin capital base and a his
tory of mediocre earnings.
A Memorandum of Understanding required the
board to implement responsible policies and at the
same time recognize that continued interference with
management only heightened the problems. The bank
was required to correct violations of law. Various loan
policies and procedures were requested and the bank
was instructed to develop a plan to reduce criticized
assets. An internal audit program and an external audit
were required. A capital plan was also required. Fi
nally, a profitability plan, including a budget, was re
quired.
133. Bank with assets of less than $25 million
An examination revealed serious deterioration in vir
tually every aspect of the bank's condition and was at
tributed to management and the board's emphasis on
growth and their failure to properly supervise the af-

fairs of the bank during a period of very rapid asset ex
pansion. Criticized assets equalled approximately 80
percent of gross capital funds. Past due loans were 22
percent of gross capital funds, with 30 percent of the
portfolio having credit and collateral exceptions. Viola
tions of law were also of primary concern, including 12
violations of 12 USC 84, and violations of 12 USC 375a
and 371 d, 31 CFR 103.33, and seven different viola
tions of consumer laws, rules and regulations. Weak
earnings and rapid asset growth resulted in a severely
undercapitalized position. The allowance for possible
loan losses was inadequate. A severe liquidity crisis,
with liquidity dropping as low as 4 percent, resulted in
the bank becoming heavily dependent upon federal
funds borrowings to support its liquidity requirements.
Other problems included the lack of documentation for
expenses incurred by officers and directors of the
bank, internal control and audit deficiencies and failure
to adhere to the recommendations of outside auditors,
and the lack of supervision of operations as reflected
by unlocated differences in several general ledger ac
counts.
An Order to Cease and Desist prohibited extensions
of credit in violation of 12 USC 84 and called for the
appointment of an independent special counsel to in
vestigate the previous violations. Special counsel was
directed to determine whether the bank had a cause of
action against any current or former officers and direc
tors with respect to the violations and to make recom
mendations including what action should be taken by
the bank for the protection of its shareholders. The
board of directors was directed to act upon the special
counsel's recommendation and to notify all the share
holders that a copy of the report was available for their
inspection. The bank was also prohibited from any ex
tension of credit in violation of 12 USC 375a, as well as
any other violations of law cited in the report of exami
nation. The order required the appointment of a com
pliance committee and required it to review all loans,
overdrafts or other extensions of credit to any bank in
siders for preferential treatment. The compliance com
mittee was also directed to review all time deposits,
entered into by the bank, which were subject to the in
terest penalty requirements imposed by 12 CFR
217.4(d) to determine if the interest penalty charged
by the bank on early deposit withdrawals exceeded
the amount required by 12 CFR 217.4(d). The board of
directors was required to review the committee's re
ports and to secure reimbursement to the bank of all
interests and fees which would have been paid to the
bank had all extensions of credit to the insiders been
made on non-preferential terms. The board was also
directed to secure reimbursement for each depositor
whose deposit was assessed a penalty charge in ex
cess of the amount disclosed when the deposit was
made. The board of directors was required to analyze
the bank's management needs. It was also directed to
perform an analysis of the bank's continuing capital
needs and to submit a capital plan. The board of di
rectors was required to develop a written plan for
achieving and maintaining an average daily liquidity of
not less than 20 percent, which also addresses the
matching of assets and liabilities. The board was fur

ther required to adopt and implement a program to
eliminate all assets from criticized status and to review
its written lending policy with the objective of inserting
guidelines regarding the handling of overdrafts. The
board was required to take all steps necessary to ob
tain current credit information and to perfect collateral
on all secured loans. The board was also required to
seek to reduce the level of delinquencies in its loan
portfolio and to establish formal procedures for ensur
ing the ongoing adequacy of its allowance for possible
loan losses. The bank was prohibited from reimbursing
any employee or former employee for expenses in
curred which were not reasonable and properly docu
mented. Finally, the bank was directed to eliminate all
internal control and operational deficiencies listed in
the report of examination.
134. Bank with assets of $25 to $50 million
An examination of the bank revealed assets to be in
a deteriorating condition with classified assets equal to
approximately 130 percent of gross capital funds.
One-fourth of total loans were not supported by current
credit information and 5 percent were past due. The
investment portfolio suffered 50 percent depreciation
and the bank's earnings were not satisfactory. The ex
amination also revealed 11 violations of 12 USC 84, as
well as violations of 12 USC 60 and 375a and 31 CFR
103, as well as other violations of law.
An Order to Cease and Desist required the immedi
ate correction of all violations of law cited in the report
of examination, an immediate increase in the equity
capital accounts of the bank, a new chief executive of
ficer, a program to eliminate classified assets, and a
prohibition of further loans to classified borrowers. The
bank was also required to take immediate steps to
maintain current and satisfactory credit information on
all loans lacking such information, as well as on future
loans. The bank was also required to develop a plan
eliminating past due loans. Dividends were prohibited.
The board was required to employ the services of an
independent professional auditing firm acceptable to
the regional administrator. Criticized expense reim
bursement to certain insiders was prohibited. The or
der also required the review of the allowance for possi
ble loan losses on a periodic basis as well as the
development of comprehensive written loan policies
and investment policies. The bank was required to im
mediately correct its internal control and audit defi
ciencies cited in the report of examination and to de
velop a coordinated asset and liability management
plan. The board was required to develop a compre
hensive budget. The bank was also required to correct
deficiencies in its electronic data processing depart
ment and make periodic reports to the regional admin
istrator concerning compliance with the order.
135. Bank with assets of less than $25 million
The bank suffered from inadequate capital as a
result of mismanagement by the bank's chief executive
officer. The condition of the bank had deteriorated to a
point that the bank needed a substantial injection of
capital. The bank had an unsafe level of criticized as
sets and a high level of loans which were not sup
ported by adequate credit information. Additionally,
139

the bank's allowance for possible loan losses was de
pleted. Further problems within the bank's loan func
tion included a high level of past due loans. The
bank's earnings were very poor and the bank needed
a funds management policy. The bank had two viola
tions of 12 USC 375a and a history of insider lending
violations. The bank had high levels of concentrations
of credit to insiders.
An additional problem within the bank was the chief
executive officer's violation of Rule 10(b)(5). That indi
vidual had knowledge that the bank had agreed to
merge with another institution and that, under the
terms of that agreement, the bank's stock would ap
preciate in value. He began purchasing stock from
other shareholders of the bank without disclosing his
material, inside information to the sellers. Although that
agreement to merge never materialized, the chief ex
ecutive officer had deprived the bank's shareholders
of an opportunity to sell their stock at higher prices by
his trading in the bank's stock without disclosing his
material, inside information.
The bank consented to an Order to Cease and De
sist which required the submission of a plan to sell or
merge the bank or to provide the bank with a new
chief executive officer and a capital injection, along
with a capital plan addressing the bank's future papital
needs. The order also required the bank to refrain from
declaring any dividend and to refrain from extending
credit to any borrower whose loans were criticized or
did not have adequate credit information. The board
was also required to reduce the level of criticized as
sets and obtain and maintain adequate credit informa
tion. Furthermore, the board was required to augment
the allowance for possible loan losses and review and
maintain that allowance at an adequate level. The
board was required to reduce the bank's level of past
due loans and to take action necessary to increase the
bank's earnings. Additionally, the order required the
board to implement a funds management policy and to
correct the violations of law and ensure that they did
not recur. The order further required the board to re
duce the concentration of credit to the insiders and to
submit reports to the regional administrator detailing
the bank's compliance with the order and improve
ment.
The chief executive officer of the bank stipulated to
a separate Order to Cease and Desist and also signed
a Formal Agreement with the Office of the Comptroller
of the Currency. That order required him to refrain from
violating the provisions of Rule 10(b)(5) and to make
restitution of the paper profits he would have recog
nized had the merger of the bank gone through as
planned. Through the Formal Agreement with the
OCC, the chief executive officer agreed not to partici
pate in the affairs of any national bank, FDIC-insured
bank, or bank which was a member of the Federal Re
serve System, without obtaining the prior written con
sent of the appropriate federal bank regulatory
agency.
136. Bank with assets of $25 to $50 million
Inadequate supervision by both the board and man
agement led to an escalation of classified assets, an

140

inadequate loan loss reserve, operations and recon
cilement problems, and an excessive volume of inter
nal control exceptions. The loan account was adminis
tered almost exclusively by the bank's president who
demonstrated an unwillingness to delegate responsi
bility. An inordinate volume of credits lacked adequate
supporting credit information or were subject to collat
eral or documentation exceptions and numerous ac
counting deficiencies and regulatory report errors. The
bank's budget was not effectively monitored. The bank
lacked written policies in several key areas, some of
which represented relatively new activities for the
bank, such as credit card loans, direct lease financing,
and gold transactions. The bank's auditor was bur
dened with operational duties and was inadequately
trained. The audit program was deemed inadequate.
Several violations of law existed.
A Memorandum of Understanding addressed all sig
nificant areas of concern. Included in the Memoran
dum were the requirement for a management plan; de
velopment of written policies or policy supplements,
where needed; and internal control and audit improve
ments. Management provided lengthy and compre
hensive response material to the Memorandum.
137. Bank with assets of $25 to $50 million
The bank's liberal lending philosophy and lax credit
administration practices resulted in unacceptable
levels of classified assets and past due, non-accrual,
and loans lacking current credit information. Provisions
for loan losses were determined by the bank's external
accountant on the basis of tax considerations. The al
lowance for possible loan losses was deemed inade
quate, requiring an immediate provision. Internal audit
was inadequate, and the internal auditor's indepen
dence was compromised by performance of opera
tional duties. Approximately half of the numerous viola
tions of law and regulation that had previously been
cited remained uncorrected. The board discontinued
the payment of fees to salaried officers, but granted
substantial raises to the officers. Salaries and direc
tors' fees appeared excessive, although earnings were
satisfactory. The board had taken virtually no action to
correct those weaknesses.
A Memorandum of Understanding was prepared in
cluding the following provisions (1) a written lending
policy was required, (2) actions to reduce the volume
of criticized assets were mandated, (3) quarterly anal
ysis of the loan loss reserve was to be accomplished
and recorded in writing, (4) written investment and
funds management policies were to be prepared, (5)
justification for individual officers' and directors' fees
was to be performed, (6) a written audit program was
to be developed, (7) all violations of law were to be
corrected, and (8) trust department deficiencies were
also to be corrected.
138. Bank with assets of $25 to $50 million
Ineffective leadership on the part of the bank's
former president and controlling owner resulted in a
deteriorated loan portfolio, inadequate reserve for loan
losses, poor earnings, inadequate capital, poor asset/
liability management, and poor internal controls. Ap-

parent business and travel expense abuses were un
covered by an audit. Capital was inadequate.
A Memorandum of Understanding required the
bank's management plan to be amended to include
position descriptions of key senior officers, compensa
tion ranges, and justification for the level of payments
to those officers. A new president was to be employed.
A program to improve the bank's earnings was to be
prepared and accompanied by an acceptable budget.
A capital analysis addressing related key issues was
to be developed, to include the sources and timing of
additional capital. Earlier business expenses were to
be formally reviewed, and written procedures were to
be developed to ensure proper documentation of all
future business, travel and other expenses. Monthly
progress reports concerning the bank's ongoing new
computer installation were to be provided.
139. Bank with assets of $25 to $50 million
The primary areas of concern in the bank were un
satisfactory earnings, ineffective operating and audit
policies, an unproven management team, weak asset/
liability management procedures, and high loan losses
that resulted from deficiencies in the lending area.
A Memorandum of Understanding required the
drafting of an asset/liability management policy, the
maintenance of an adequate allowance for possible
loan losses, financial budgets for 1981, the implemen
tation of audit policies, and the adoption of programs
to reduce delinquencies and improve collections. The
correction of internal control deficiencies and viola
tions of law was also required, along with the adoption
of procedures to prevent their recurrence.
140. Bank with assets of $25 to $50 million
Ineffective loan portfolio management led to an inor
dinate volume of criticized assets, an excessive delin
quency rate, and an excessive level of loans not sup
ported by adequate credit information. The bank's
growth rate placed increasing pressure on the bank's
capital base.
A Memorandum of Understanding required the for
mulation of a written program for eliminating the under
lying basis upon which each asset was criticized. All
actions necessary to strengthen the bank's loan ac
count were required to be taken. The allowance for
possible loan losses was to be maintained at an ade
quate level. A capital plan was to be developed and
each violation of law was to be corrected and its recur
rence prevented.
141. Bank with assets of less than $25 million
An examination of the bank revealed deterioration in
all important areas. Classified assets increased to ap
proximately 140 percent of gross capital funds, the
earnings for the bank had been eliminated by a much

needed increase in the allowance for possible loan
losses. The bank's capital had been strained by a
rapid loan volume growth; liquidity was not adequate;
and violations of law and regulation, including 12 USC
84 existed. Many of the problems were attributed to
the inexperience of a new management team.
A Formal Agreement required the correction of stat
utory violations and required the bank to develop pro
cedures to prevent future violations. The bank was re
quired to establish detailed procedures for the
recovery of charged off assets, and was also to imple
ment a new written loan policy. The bank was further
required to take necessary steps to obtain and main
tain- current and satisfactory credit information on all
loans and to correct all collateral exceptions. The bank
was required to develop a plan to correct criticized as
sets and was prohibited from lending additional funds
to the bank. The bank was to maintain an acceptable
level of liquidity and its allowance for possible loan
losses was to be maintained at an adequate level. The
board was required to create an audit committee to
monitor the bank's internal and external audit proce
dures. The board was required to submit a capital plan
to the regional administrator for his approval. The bank
was required also to review correspondent accounts of
certain other banks. A compliance committee was re
quired to coordinate compliance with the provisions of
the Agreement.
142. Bank with assets of $25 to $50 million
A general examination of this bank revealed a seri
ously deteriorated condition. Affected areas were
spread throughout the bank and included asset qual
ity, credit administration, an inadequate allowance for
possible loan losses, inadequate capital, illiquidity,
poor earnings, and continuing violations of law. The
problems of the bank were compounded by weak and
ineffective management and lack of supervision by the
board of directors. A sale or merger of the bank was
needed; the alternative was an injection of capital to
give the bank time to remedy its problems.
An Order to Cease and Desist required remedial
action in the various problem areas and included a
provision for obtaining a new chief executive officer.
Further, the order required the injection of $375,000 in
equity capital within a short time or, alternatively, the
sale or merger of the bank. The order also required
corrections of violations of 12 USC 84, 375a and 375b
and 12 CFR 215; a compliance policy for criticized as
sets; a lending policy; a policy for credit information
and the collection of past due loans; compliance with
a capital program and a plan for sale or merger of the
bank; a review of the allowance for possible loan
losses; development of internal controls; an investment
policy; and an analysis of liquidity.

141

Selected Addresses and Congressional
Testimony
Date and topic
Jan. 25, 1980. Statement of John G. Heimann, Comptroller of the Currency, before the Senate Committee on
Banking, Housing and Urban Affairs, Washington, D.C
Feb. 19, 1980. Statement of Jo Ann S. Barefoot, Deputy Comptroller for Customer and Community Programs,
before the Senate Committee on Banking, Housing and Urban Affairs, Washington, D.C
Feb. 20, 1980. Statement of John G. Heimann, Comptroller of the Currency, before the Subcommittee on Fi
nancial Institutions Supervision, Regulation and Insurance of the House Committee on Banking, Finance
and Urban Affairs, Washington, D.C
Feb. 22, 1980. Remarks of H. Joe Selby, Senior Deputy Comptroller for Operations, before the 40th Assembly
for Bank Directors, Palm Springs, Calif
Mar. 10, 1980. Remarks of John G. Heimann, Comptroller of the Currency (presented by Charles E. Lord, Sen
ior Advisor to the Comptroller), before The Government Research Corporation's Second Policy Forum on
American Banking, London, England
Mar. 17, 1980. Remarks of John G. Heimann, Comptroller of the Currency, before the 49th Annual Meeting of
the National Housing Conference, Washington, D.C
Mar. 26, 1980. Remarks of John G. Heimann, Comptroller of the Currency, before the Consular Law Society,
New York, N.Y
Mar. 27, 1980. Statement of Cantwell F. Muckenfuss, III, Senior Deputy Comptroller for Policy, before the Sub
committee on Commerce, Consumer and Monetary Affairs of the House Committee on Government Oper
ations, Washington, D.C
April 28, 1980. Remarks of Charles E. Lord, Senior Advisor to the Comptroller, before the National Bank Divi
sion Meeting of the 96th Annual Convention of the Texas Bankers Association, Houston, Tex
May 9, 1980. Remarks of Lewis G. Odom, Jr., Senior Deputy Comptroller, before the National Management
Conference, Society for Advancement of Management, Chicago, III
May 15, 1980. Remarks of John G. Heimann, Comptroller of the Currency, before the Association of Interna
tional Bond Dealers, New York, N.Y
May 21, 1980. Statement of John G. Heimann, Comptroller of the Currency, before the Senate Committee on
Banking, Housing and Urban Affairs, Washington, D.C
May 29, 1980. Statement of John G. Heimann, Comptroller of the Currency, before the Senate Committee on
Banking, Housing and Urban Affairs, Washington, D.C
June 6, 1980. Statement of Paul M. Homan, Senior Deputy Comptroller for Bank Supervision, and Robert B.
Serino, Director of the Enforcement and Compliance Division, before the Senate Committee on Banking,
Housing and Urban Affairs, Washington, D.C
June 25, 1980. Statement of John G. Heimann, Comptroller of the Currency, before the Subcommittee on
Commerce, Consumer and Monetary Affairs of the House Committee on Government Operations, Wash
ington, D.C
Sept. 23, 1980. Statement of Lewis G. Odom, Jr., Senior Deputy Comptroller, before the Subcommittee on
General Oversight of the House Committee on Small Business, Washington, D.C
Sept. 25, 1980. Statement of John G. Heimann, Comptroller of the Currency, before the Subcommittee on Fi
nancial Institutions Supervision, Regulation and Insurance of the House Committee on Banking, Finance
and Urban Affairs, Washington, D.C
Oct. 14, 1980. Remarks of John G. Heimann, Comptroller of the Currency, before the American Bankers Assocation, Chicago, III
Nov. 21, 1980. Statement of John G. Heimann, Comptroller of the Currency, before the Senate Committee on
Banking, Housing and Urban Affairs, Washington, D.C

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143

Statement of John G. Heimann, Comptroller of the Currency, before the Senate
Committee on Banking, Housing and Urban Affairs, Washington, D.C., January
25, 1980
It is a pleasure to appear before this committee to
discuss the 1980 budget of the Office of the Comptrol
ler of the Currency. The OCC has previously transmit
ted to the committee the 1980 budget as well as infor
mation specifically requested.
Budget Overview
Budget and OCC—The 1980 OCC budget of
$107,759,000 represents a nominal annual increase of
7.1 percent over 1979's spending. Based on the con
sensus forecast of a 9 percent increase in the GNP
price deflator in 1980, this projected nominal increase
would become a decrease in real dollars of 1.7 per
cent.
Actual expenditures in 1979 were $100,585,000, or
approximately 1.4 percent less than the $102,013,000
1979 budget presented to this committee last year.
When adjusted for inflation, the 1979 actual expendi
tures in real dollars decreased 0.4 percent from the
1978 level. This result coupled with the anticipated ab
sence of a real spending increase in the 1980 budget
reflects careful fiscal and operational management.
OCC's policy and operating objectives of the past
several years have resulted in improved operations,
streamlined organizational structure, improved super
visory effectiveness, institution of procedures to meet
new statutory responsibilities and successful recruit
ment efforts, all of which have prepared the OCC to
meet the challenges of the 1980's.
1980 Environment—The commercial banking sys
tem during the 1970's underwent substantial change
and is entering a new decade which promises even
greater change and complexity, as well as intensified
competition. Assets in the commercial banking system
were $1.64 trillion as of September 30, 1979. Of the
14,399 commercial banks in the U.S., 169 banks with
$1 billion or more in assets (slightly more than 1 per
cent of all banks) held 60 percent of total bank assets.
Commercial banks with assets between $100 million
and $1 billion numbered 1,316, or 9.1 percent of all
banks, and held 19.7 percent of total bank assets. The
12,914 banks with less than $100 million in assets,
89.7 percent of all banks, held 20.5 percent of total as
sets.
National bank assets were $967 billion, or 59 per
cent of commercial bank assets. Foreign assets of na
tional banks continued growing more rapidly than do
mestic assets and now account for more than 20
percent of national bank assets.
The 113 largest national banks, with assets of $1 bil
lion or more, accounted for 2.5 percent of all national
banks but held over $671 billion, or 69.5 percent of to
tal national bank assets and 41 percent of all commer
cial bank assets. There were 691 national banks with
assets between $100 million and $1 billion, 15.4 per
cent of national banks, which held 18.1 percent of na
tional bank assets. The 3,676 national banks with less

than $100 million in assets, representing 82 percent of
all national banks, held 12.4 percent of national bank
total assets.
As would be expected, the differences in the opera
tional complexity and the kinds of financial services of
fered by the small local community banks and the
large multinationals are enormous and have been
growing larger oyer time. The disparity in size and
complexity between the biggest and smallest banks
indicates the need for flexibility in achieving OCC's
goals, and several changes have been instituted that
recognize the differing supervisory and regulatory
needs of national banks.
For both small and large banks, the business of com
mercial banking, or more accurately the business of
providing financial services, has changed radically
during the 1970's. What, for instance, do the following
phrases have in common: NOW accounts; money mar
ket certificates; automated teller machines; MerrillLynch cash management accounts; automatic transfer
accounts; telephone bill payer accounts; bank issued
mortgage-backed bonds; credit union mortgage
powers; and money market mutual funds? None of
these existed in 1970, the beginning of the last dec
ade.
Spurred by inflation, significant advances in com
munication and data processing technology and the fi
nancial requirements of our increasingly complex and
interconnected national and international economy, fi
nancial institutions, vying for advantage in the market
place, have been breaking down the traditional bar
riers of financial services specialization. However, the
legal environment for financial services has not kept
pace with many of the changes. Indeed, the limitations
on some classes of institutions, such as deposit interest
rate ceilings, have contributed to the growing complex
ity of financial markets. Financial institutions with the
legal capacity to perform new services have taken ad
vantage of the legal restrictions on other participants.
Banks, thrift institutions and credit unions will con
tinue seeking larger shares of traditional financial serv
ices markets, and nondepository institutions will in
creasingly be competitors for deposit markets. For
example, as of December 30, 1979, money market
mutual funds stood at $45.1 billion, a growth of 314
percent over the previous year. The Merrill Lynch cash
management plan and the Sears plan to sell its
medium-term notes to its credit card holders are but
two of the 1970's innovations which presage more of
the same inventiveness in the coming decade.
OCC Management—The uncertainty created by
rapid changes within the financial services world is
compounded by the uncertainty of the general eco
nomic picture for 1980. The 1980 environment will re
quire that the OCC be prepared to anticipate problems
and to respond quickly when they occur. Considerable
improvement has been made in the agency's abilities
145

to look ahead and to handle unexpected contingen
cies.
Beginning in 1974, a major review of our operations
and effectiveness was undertaken. This review led to
considerable changes in examination procedures, per
sonnel requirements and organizational structure.
These changes, necessary to equip the OCC to carry
out its mission effectively in light of the increasing
complexity and rapid change in the financial system,
required substantial increases in expenditures. In ad
dition, 1975 and 1976 were difficult years for banks. As
the table shows, actual dollar expenses increased
23.6 percent in 1975 and 17.2 percent in 1976. Since
1976, nominal increases have been smaller, and
spending over the last 3 years has increased by a total
of only 1.1 percent, in real dollars, and actually was
negative in 1977 and 1979.

Year
1974
1975

Expenses
(000)
$ 55,505
68,582

1976
1977

80,359
83,882

Nominal
increase

Real
increase

23.6%

12.8%

17.2
4.4

11.4
-1.5

1978
92,724
10.5
1979
100,585
8.5
1980
107,759*
7.1*
Average annual increase 1974-79 12.6
Average annual increase 1974-80 11.7*

3.1
-0.4
-1.7*
4.9
3.8

*Estimated.
The process of strengthening the OCC begun in
1974 has taken several years. Substantial realization of
many of the Office's goals set forth over the last 5
years has been achieved. In addition to comprehen
sive revision of examination policy and procedures,
other improvements include an intensive personnel de
velopment program, hiring consumer and supervisory
specialists, developing new capabilities in bank super
vision (the national bank surveillance system and the
Multinational Banking Division are two examples), es
tablishing new programs to implement laws such as
the Community Reinvestment Act, streamlining old
programs such as the processing of national bank cor
porate applications and adopting an organizational
and managerial structure that allows flexible but effec
tive use of the OCC's resources.
Thus, while the problems ahead in any given budget
year are not precisely predictable, the quality of re
sources and flexibility of operation now in place at
OCC will enable us to anticipate and handle better the
actual problems encountered.
Evaluation of the performance of any organization is
a meritorious objective. One measure of performance
is how well the office anticipates and acts to prevent or
minimize problem situations. While bank failures do
and should occur in an efficient and competitive finan
cial system, it is difficult to determine to what extent
OCC examiners and examination and supervisory
techniques prevent or remedy problem situations that
might otherwise have led to failures. And, how can the
effect of devoting resources to facilitating community
146

development programs and enforcing compliance with
civil rights and consumer protection laws be mea
sured?
Because precise measurements are not possible, it
is important that there be assurance that the person
nel, programs and management are of the highest cal
iber and that there be a continual program of review to
update and upgrade to meet the challenges of the
changing world. Minimization of expenses is a worthy
goal and one we pursue diligently. However, when the
effective conduct of the OCC's mission requires, we
must have the flexibility and the willingness to devote
or reallocate the resources necessary and to incur the
attendant costs.
Before leaving the 1980 budget overview, it is impor
tant to note that the continuing withdrawal of national
banks from Federal Reserve membership makes it dif
ficult to anticipate precisely assessment revenues and
operating expenses. The Office is aware of a substan
tial number of national banks with a large volume of
assets that are seriously contemplating conversion to
state charters. Withdrawal of large national banks
could adversely affect resource allocation and plan
ning because their contribution to OCC revenues is far
greater than the cost of examining them.
Budget Specifics
Expenditures—1979 to 1980—Of the total antici
pated 1980 expenses of $107,759,000, a total of
$76,840,000, or 71.3 percent, will be spent for salaries
and benefits, $12,679,000, or 11.8 percent, will be for
travel and $2,572,000, or 2.4 percent, for the tuition
and travel costs of education and training, although
the total cost of OCC education is closer to 12 percent
of total budget as noted later. Rent and maintenance
expense is $5,939,000, or 5.5 percent, office expense
is $2,265,000, or 2.1 percent, and all other expenses
total $7,464,000, or 6.9 percent.
The principal resource of the OCC is its people. It is
not surprising, therefore, that costs pertaining directly
to human resources traditionally account for such a
large proportion of the OCC budget. Eighty-six per
cent, or a total of $92.1 million, will be spent for sala
ries, benefits, education and travel in 1980. The exam
iner corps, distributed geographically throughout the
United States, requires highly trained professionals to
supervise properly the condition of national banks;
correspondingly, the Washington office needs suffic
ient experience and management depth to oversee
and support the entire OCC operations. Our recruit
ment efforts must be directed toward selecting and re
taining the highest quality personnel. The everincreasing complexity and sophistication of the
commercial banking system require that OCC's train
ing programs be continually updated and expanded to
keep pace with the industry.
The OCC expects to maintain employment in 1980
commensurate with the number of positions allocated
by the Office of Management and Budget. Full employ
ment is necessary to maintain ongoing programs and
to institute required new programs. The 7.1 percent in
crease in salary expense provides for the attendant
costs of new employees, merit promotions, awards

and cost of living increases, including newly budgeted
Senior Executive Service (SES) awards in 1980 as
part of the government-wide SES Program expansion.
The total amount spent for education and training in
the OCC is not reflected in that line item in the budget,
since it only shows tuition and travel costs related to
education. Salaries, benefits and travel costs incurred
for the days our employees spend in education and
training is projected at approximately $12.3 million, of
which $4.4 million represents on-the-job training pro
vided to entry-level employees. And adding the cost of
course development, preparing texts and materials
and instructor charges brings the total OCC expendi
ture for educational purposes to $13 million, or 12 per
cent of the total budget.
As mentioned previously, existing training must be
expanded as the complexity of the industry changes,
and new training programs must be developed and
put on line to meet new responsibilities. Both existing
training and new programs are being addressed
through the Federal Financial Institutions Examination
Council for uniform application to all member agencies
of the council. The 1980 OCC budget includes costs of
sending our people to council-approved courses and
costs associated with using our personnel to develop
programs for the council.
Any consideration of the Office's education and
training costs must take into account the high turnover
rate among the bank examiners who compose oyer 75
percent of the total OCC employment. The effective
conduct of our supervisory mission depends on an ex
perienced, knowledgeable and well-trained examiner
force. The high examiner turnover, which was 15 per
cent in 1979, is expensive, disrupts productivity and
impedes the development of proper levels of experi
ence. There are three experience level categories of
examiners that are relevant to a discussion of turnover:
(1) entry-level examiners, (2) mid-career examiners
and (3) career examiners.
In 1976, the OCC formalized a successful national
recruitment program to recruit entry-level examiners
from colleges and universities. At this level, salaries
and benefits are competitive with the private sector.
Normal attrition in this category occurs as employees
make decisions on career and occupational opportuni
ties. The majority who leave the OCC do so in realiza
tion that they are in the wrong job.
Examiners enter a mid-career period after 4 to 5
years when required skills, knowledge and training en
able them to be fully productive and responsible em
ployees. Mid-career turnover is of significant concern
to the OCC simply because at this point the OCC is
not competitive with compensation available outside.
Minority and female examiners at mid-career are par
ticularly recruited by and employed within the banking
industry.
Examiners with 10 or more years of experience have
typically become career professionals and assumed
administrative responsibilities. At this level, examiners
are generally subject to the same ceiling as other gov
ernment professionals, and both horizontal and vertical
movement becomes less available. The OCC bridges
the federal employment sector and the professional

financial sector, and yet it exists within both environ
ments as it relates to people. The plethora of opportu
nities in the banking industry and the ability of
examiners at the federal pay ceiling to earn salaries
between 50 and 100 percent more in that industry has
resulted in an increasing attrition rate at the career
level. Historically, professionalism and loyalty to the
Office have kept many of our top career managers on
board. However, unless we can decrease the disparity
between federal government compensation and pri
vate sector executive pay, these professionals will be
lost and, once lost, difficult to replace.
The modest 1980 increase of 2 percent for em
ployee travel unrelated to education, although directly
affected by high energy costs, has been achieved
through our experiments with compressed work
schedules in the OCC field offices, conscious energy
conservation efforts, utilization of a consolidated exam
ination concept and managed travel policies.
In the last quarter of 1979, the OCC field offices be
gan experimenting with the 4/5 workweek arrangement
permitted under government-approved compressed
work schedules. Preliminary figures show reduced tra
vel and attendant costs, without sacrificing productivity
in examinations of national banks.
The new initiative in consolidated examinations pro
vides for the consumer, electronic data processing,
commercial, trust and international examiners to con
duct concurrent examinations, permitting both joint tra
vel and conservation of energy. These initiatives, along
with a more closely managed travel policy which en
courages and monitors maximum use of vehicles in of
ficial travel, produces tangible savings in travel costs.
The amount budgeted in 1980 for rent and mainte
nance represents a 19 percent increase and results
largely from the expiration of leases of the Washington
Office in 1979. Current renegotiation of the contracts
has not been completed, and the budget figure repre
sents the lessor's request, which is the highest cost
OCC could incur.
A 14.3 percent increase in other expenses will occur
as a result of the purchase and implementation of a
new word processing system. The total integrated sys
tem which pulls together word processing, data pro
cessing and management information systems is de
signed to improve our ability to allocate resources,
provide current and valid information throughout the
organization, enhance distribution of information from
OCC supervisory activities and improve processing of
a variety of workloads.
Comptroller's Equity—At year-end 1979, the OCC
equity account totaled $37 million. This gives the OCC
a 4-month reserve from which operating expenses can
be drawn. The equity account avoids disruption of
OCC operations and assures continued stability in the
supervisory and examination processes when prob
lems in the economy or in the banking system ad
versely affect OCC revenues or expenses unexpect
edly increase. A small portion of the equity fund is
administratively restricted to provide for possible legal
liabilities in conjunction with receivership funds ante
dating 1936.
The planned surplus for 1980 is $2.6 million. That

147

excess is dependent on actual expenditures as
budgeted, particularly whether full staffing can take
place, on sudden unanticipated expenditures and on
the revenues received. A reduction in total national
bank assets upon which assessments are based or in
number of national banks would have a direct and im
mediate effect on revenues.
Programs
The 1980 budget centers on expenditures neces
sary to carry on the existing programs and activities of
the Comptroller's Office. New programs have minimal
impact on expenditures but continue the pattern of im
provement in our operations and management estab
lished the past several years. The continuing develop
ment and refinement of our supervisory activities
provides much of the flexibility which will be needed to
meet the challenges of the 1980's.
Developments in Supervision—Multinational Bank
ing, which was created in late 1978 to centralize the
supervision of the 10 largest national banking organi
zations and the international operations of all national
banks, will reach full operation in 1980. Examinations
of 105 overseas offices of 29 banks are planned for
1980. For those 10 banks in the multinational region,
the traditional examination will be supplemented by a
new quarterly visitation program to provide more fre
quent and timely information than previously available.
In 1980, the division's capacity to monitor and project
bank performance will be enhanced by a data-based
program.
Special Surveillance will initiate a review program in
1980 to increase the level of information and analysis
for 99 regional banks, each with assets ranging from
$1 to 10 billion. The program is intended to contribute
to OCC's awareness of the activities and trends in re
gional banking by expanding our analysis of key finan
cial information and by onsite visits.
During 1979, the national bank surveillance system
was structured to include data on international opera
tions and introduced a new analytical tool, the bank
holding company performance report, which will assist
in evaluating bank holding companies and affiliated
bank operations. A major addition to the national bank
surveillance system will be video display units that will
be in operation by the end of the first quarter of 1980,
both in Washington and in our regions. The video dis
play capability will enhance the analysis of individual
banks and will produce tailored screens for earlier de
tection of emerging problems.
Another innovation in examination techniques will be
tested in 1980 involving examination of multibank hold
ing companies and their national bank subsidiaries.
When a multibank holding company is highly central
ized in management control and operating policies, we
believe it is possible to supervise subsidiary national
banks by examining and analyzing the information
available at the holding company level. This approach
may eliminate the need for some onsite examinations
entirely and is expected to produce other cost and effi
ciency benefits as well.
Customer and Community Programs—Significant re

148

sources have been directed toward administering the
OCC's mandates in customer protection, community
affairs and civil rights, and these efforts are producing
tangible results.
The Community Development Division was created
to encourage and facilitate commercial bank participa
tion in the development activities of a bank's local
community or neighborhood. The division serves as a
clearinghouse for information pertaining to community
reinvestment programs of various financial institutions;
it informs national banks of governmental programs in
the community development area; and it will develop
model community development programs and facili
tate communication between community groups and
banks. The facilitative approach of the division is an
appropriate adjunct to the regulatory approach taken
by the federal bank agencies to achieve the goals of
the Community Reinvestment Act.
In 1979, the division published the Program Guidebook to Help Meet Community Credit Needs which de
scribes federal, state and local government programs
in which a bank may participate directly and several
marketing programs for bank use in communicating
with customers and community groups.
In 1980, the division will be expanding its "clearing
house" activities to information on existing community
development projects which may serve as models for
other communities.
The Customer Programs Division is responsible for
policy initiation and formulation with respect to con
sumer protection and civil rights, oversight and moni
toring in these areas, regulatory reform, outreach to
public interest and banking groups, internal advocacy
of the interests which consumer and civil rights laws
seek to protect, and special education programs.
The Customer, Community and Fair Lending Exami
nations Division continued to build on the examination
approach developed in previous years. Examiner train
ing continues as a high priority with 450 examiners
trained and 165 senior level supervisory examiners
given special training on management of the con
sumer examination during 1979. The development of
specialized examination procedures has enabled us to
reduce examination time and cost.
The Office of Customer and Community Programs
plans to conduct a comprehensive review of its civil
rights and consumer examination and its enforcement
efforts during 1980.
Other Programs—The need to improve the OCC's
ability to act in a more efficient manner on applications
for bank charters, mergers and related concerns led to
reorganization and expansion of the Bank Organiza
tion and Structure Division in 1979. That division is now
better equipped not only for its traditional corporate
applications functions but also its enlarged responsi
bilities stemming from new or amended laws which
govern management interlocks, bank control changes,
international banking and community reinvestment.
By year-end 1979, the Comptroller had implemented
expedited application procedures to reduce the time
involved in processing routine branch, customer-bank
communications terminal, relocation and title change
applications. The Comptroller's Office has eliminated

unnecessary delays by delegating authority to act on
certain applications to the 14 regional administrators.
In 1980, the division will undertake a thorough review
of its policies, procedures and forms for corporate ap
plications.
The Regulations Analysis Division has contributed
significantly to an improved regulatory process at the
agency. There has been a 40 percent reduction in the
number of disclosure items required in statutory finan
cial reports for the 90 percent of national banks which
have assets under $100 million. Exemptions appropri
ate for smaller banks were made for recordkeeping
and reporting on bank securities transactions and for
dissemination of annual shareholder reports.
One of the OCC's most dramatic efforts at better,
but less burdensome, compliance regulation in 1979
involved the Office of Customer and Community Pro
grams. The new fair housing home loan data system
was developed on a computer-based analysis system
which detects possible patterns of illegal discrimina
tion. This system will be used as a tool by examiners to
focus their in-bank efforts on critical areas where prob
lems are most likely to occur in bank compliance with
the Fair Housing and Equal Credit Opportunity acts.
OCC has attempted to make this system workable with
a minimum of information from the bank, keeping new
recordkeeping requirements to a low level.
A significant achievement in interagency coopera
tion occurred during 1979 when OCC and the Federal
Deposit Insurance Corporation (FDIC) successfully
merged their processing of quarterly financial reports
from banks. Those reports, which are nearly identical,
had previously been processed using the personnel
and processing programs maintained by each
agency. Joint processing was achieved by transferring
some personnel to the FDIC and adapting their com
puterized processing programs to meet additional re
quirements of this Office. To date, processing of three
quarterly reports from the 13,400 national and state
nonmember banks have been handled jointly, and this
arrangement has reduced the total number of person
nel required to do that task.
Development of the "National Treatment Study"
which reported to Congress on foreign government
treatment of U.S. banks pursuant to the International
Banking Act of 1978 was an extensive undertaking of
OCC's Research and Economic Programs Division in

1979. The OCC received substantial assistance from
the Federal Reserve Board and the Treasury and State
departments in developing the comprehensive report.
The final report discusses the types of restraints and
restrictions facing U.S. banks operating in other coun
tries and provides individual studies of the official
treatment of U.S. and other foreign banks in 21 nations
and six groups of countries.
In conclusion, I would like to summarize some of the
activities of the Comptroller's Office discussed here
which illustrate our attempts to build a government
agency that can perform effectively in the face of many
different contingencies and one that can function well
over time:
• Continuing improvements in Multinational Bank
ing to meet the challenge of supervising the
most sophisticated multibillion dollar banks;
• A new and efficient use of the Office's special
surveillance capabilities to improve the supervi
sory oversight of banks in the $1 to 10 billion
asset range;
• Refinement of the national bank surveillance
system by adding data and video display capa
bilities for earlier detection of emerging prob
lems;
• Increasing attention to the supervision of bank
holding companies with plans to test a different
approach to examination of multibank holding
companies and their national bank subsidiaries
which promises considerable savings in exam
iner time and travel costs;
• A nonregulatory approach in the Community
Development Division to encourage private en
tities to help meet community credit needs;
• More effective monitoring at a minimum of addi
tional regulatory cost in the compliance require
ments of the fair housing home loan data sys
tem; and
• Considerable reduction in time delays involving
our corporate applications function.
Those and other creative uses of the agency's per
sonnel, operational and managerial capacities will per
mit the Comptroller's Office to carry out and actually
improve the accomplishment of our mandates without
an increase tn real spending in 1980.

Statement of Jo Ann S. Barefoot, Deputy Comptroller for Customer and
Community Programs, before the Senate Committee on Banking, Housing and
Urban Affairs, Washington, D.C., February 19, 1980
Mr. Chairman, I am pleased to appear before the
committee this morning to offer the views of the Office
of the Comptroller of the Currency on the Home Mort
gage Disclosure Act (HMDA) of 1975. We have exam
ined the benefits and available cost information con
cerning the act in the context of its goals and the
related regulatory systems for enforcing civil rights

laws and encouraging investment by banks under the
Community Reinvestment Act.
The enactment of HMDA in 1975 was a first step in a
new federal approach to urban policy. Prior to that
time, federal urban development efforts relied primarily
on direct federal grants and other forms of subsidy.
HMDA departed from that tradition by focusing on the
149

role which private financial institutions can play in re
sponding to the needs of their local communities. In
the years since its adoption, this theme has become
the cornerstone of other federal urban policy initiatives.
Increasingly, our objective has been to create a part
nership between the private sector, local government
and the residents of the community to respond to local
problems. HMDA, like the Community Reinvestment
Act (CRA) which followed it in 1977, is clearly intended
to promote this objective.
We believe that HMDA is an effective and necessary
tool in efforts to promote urban reinvestment and that
the law should be permanently extended. At the same
time, however, we recognize that HMDA, in its current
form, is far from perfect. It does not achieve its full po
tential as an information source and does not appear
to minimize the costs that it imposes on financial insti
tutions and, indirectly, on their customers. We recom
mend, therefore, a number of specific amendments at
this time and further study of ways to strengthen
HMDA and reduce its costs in the future.
In my testimony this morning, I will discuss the uses
and benefits of HMDA, explore its costs and discuss
some of the problems raised by the existing statutes,
regulations and procedures. Finally, I will make recom
mendations which we believe the committee should
consider in deciding the future of the act.
Uses and Benefits of HMDA Data
When HMDA was enacted by Congress in 1975, its
purposes were two-fold. First, the law was intended to
provide citizens and public officials with sufficient in
formation to evaluate the performance of depository in
stitutions in meeting housing credit needs. Second,
HMDA was designed to provide a foundation for the
design of public programs to improve the private in
vestment environment.
HMDA reports have been used for both purposes.
While the regulatory agencies do not collect data on
the number of people or organizations using HMDA re
ports, informal surveys conducted by national reinvest
ment groups have identified some 300 users. Since
the enactment of CRA, local citizens have used HMDA
data in about 50 instances to challenge applications
for structural changes, including branches or mergers,
by banks and savings institutions. HMDA data analysis
was an important component of most of those chal
lenges, a number of which resulted in specific rein
vestment commitments by the affected institutions. We
also know of situations where local community resi
dents or officials compiled HMDA data to help identify
basic trends and conditions in housing markets and to
develop revitalization programs involving public and
private financing. It is worth citing a few examples.
In Cleveland, a regional planning agency compiled
the data for the metropolitan area. Community groups
used the compilation in reviewing the records of indi
vidual institutions and developing revitalization pro
grams. The groups presented HMDA data at agency
hearings during the application review process, as did
the lenders in defense of their lending records. Fur
ther, the housing market problems revealed by the

150

study are now being addressed through programs co
operatively developed by the community and local
lenders.
In New Haven, Conn., the city government used
HMDA data in 1978 to develop city housing programs
and choose target areas for local programs. The data
enabled city officials to approach local lenders with
specific proposals. The city and local financial institu
tions worked together to develop home rehabilitation
and purchase loan programs.
In a Boston savings bank case, neighborhood advo
cates used HMDA data to challenge a proposed
branch. Rather than arguing for special public pro
grams, the group helped design an affirmative market
ing program through which the lender substantially in
creased its market share in the target neighborhood.
These examples illustrate the importance of the local
partnership process which I described at the outset.
HMDA data are only the starting point, however, for
such successful reinvestment activities. They give the
public and lending institutions insight into geographic
lending patterns and indicate problem areas which
need additional research and dialogue. The quality of
that dialogue and whether the problems are actually
solved depend heavily on the techniques used to sup
plement HMDA information. Organizations such as the
U.S. Conference of Mayors, the National Community
Development Association and the Center for Commu
nity Change are actively promoting the use of such
supplementary information through community rein
vestment seminars and manuals. Their publications
emphasize that to understand the local real estate
market, individual HMDA reports must be used along
with demographic and sales data, compared to other
local institutions' reports and assessed in light of indi
vidual applicant experiences and local real estate
practices.
When HMDA was enacted, use by the public and lo
cal government was the primary focus of congressio
nal interest. Since that time, however, HMDA informa
tion has become essential to the ability of the federal
financial regulatory agencies to carry out responsibili
ties under the Fair Housing and Community Reinvest
ment acts. Use of HMDA data for fair housing and
CRA assessments is now required by the Comptrol
ler's Office in every consumer examination in metropol
itan area banks. In addition, our written procedures for
handling fair housing complaints and for reviewing the
CRA applications of banks which have not had a re
cent consumer examination include HMDA data anal
ysis.
All consumer examiners are trained in using HMDA
and demographic data. Fair housing examination pro
cedures require that HMDA data be arrayed in tables,
plotted on census tract maps and analyzed in light of
census information on minority population. If the pat
terns reveal differential treatment, the examiner pur
sues the reasons for the disparity with bank manage
ment and, when necessary, with local people
knowledgeable about the housing market.
Similarly, agency CRA evaluations focus on ascer
taining an institution's commitment to serving its entire
community, including low and moderate income areas.

HMDA information is the only tool available to exam
iners, short of time-consuming and costly analyses of
individual loan files, to make CRA assessments on pat
terns of housing investment in particular neighbor
hoods. We also use HMDA reports when evaluating
bank applications for structural changes from a CRA
standpoint. The first denial of an application by the
Comptroller's Office on CRA grounds relied heavily on
agency analysis of home mortgage disclosure and de
mographic data.
In summary, the benefits of HMDA have been to
stimulate local dialogue, to create a base for local rein
vestment strategies and to provide a realtively simple
regulatory tool for monitoring CRA and Fair Housing
Act compliance.
Costs
The Comptroller's Office has no independent infor
mation on the cost of Home Mortgage Disclosure Act
data. The study recently released by the Federal De
posit Insurance Corporation (FDIC) and the Federal
Home Loan Bank Board estimates the overall average
cost to be about $1.50 per loan, with costs two or three
times higher for small volume lenders. This suggests
that the total cost for creating HMDA data is more than
$5 million per year.
Problems with HMDA Data
We have outlined our reasons for believing that
HMDA fulfills important purposes for both the general
public and the regulators. However, a number of prob
lems significantly reduce the effectiveness of HMDA
as a tool for regulators and other users alike. Most of
those problems are examined in detail in the report
prepared by the FDIC and the Federal Home Loan
Bank Board. Some of the difficulties can be readily
solved. Others cannot without a restructuring of the re
quirements of the law.

uniformly responsive to requests for mailed or photo
copied reports. In some SMSA's, people must travel
considerable distances to bank offices to obtain state
ments. That may be a significant barrier to using
HMDA data in areas with hundreds of institutions.
Completeness—HMDA information from one institu
tion or from several is most useful when it can be eval
uated in terms of local demographic data and the total
number of local residential sales. However, total sales
cannot be ascertained from one statement, or even
from a compilation of all HMDA statements, since insti
tutions covered by HMDA do not account for all mort
gage originations. It is extremely difficult, and some
times impossible, to obtain this missing information
from local property transaction records. For example,
according to the Mortgage Bankers Association, in
1978, the approximately 700 mortgage banks ac
counted for 17.4 percent of total mortgage lending,
and their market share has been increasing. Such in
stitutions are not, however, subject to HMDA reporting
requirements. The loans made by mortgage bankers
are about equally divided among FHA insured, VA
guaranteed and conventionally financed mortgages.
Analysis Costs—Even if complete and accurate
data were produced by lenders, mechanisms for ag
gregating and analyzing the data are costly and time
consuming. For example, the cost to develop and pro
duce the previously mentioned Cleveland study was
$75,000. The FDIC/Bank Board study describes a sys
tem to computerize and aggregate data for all institu
tions by census tract. It estimates, however, a year de
lay and cost of $1 million to adequately analyze the
HMDA data for 1 year. Moreover, even if the federal
agencies compiled HMDA data, additional analysis
would be required for detailed understanding of local
problems. Local resources for analysis of this type are
extremely limited.
Recommendations

Comparability—HMDA data are not now reported for
comparable time periods or in comparable formats by
different institutions. This prevents users from compar
ing or compiling the data to place the record of one in
stitution in a total context or to evaluate the complete
picture of housing investment in an area.
Accuracy—HMDA data are not always accurate
enough to be usable. Significant errors were reported
in both census tract address matching and data ag
gregation for the institutions in the three standard met
ropolitan statistical areas (SMSA's) included in the
FDIC/Bank Board study. While our examination find
ings indicate that errors have been reduced since
those data were collected in 1978, it is clear that accu
racy needs to be improved. Such improvements will
entail additional costs to the regulators and may have
to be undertaken at the expense of other examination
priorities.
Accessibility—HMDA data are not always readily ac
cessible to the public. The availability of the data has
not been widely known, and institutions have not been

I have said that HMDA data are unique and provide
important information for a number of vital missions,
but are costly to collect and somewhat cumbersome
and imprecise to use. The recommendations of the
OCC are aimed at moving incrementally toward more
useful and cost effective data products over the next
several years. The first part of our proposal is to pro
mote immediately the maximum usefulness of the data
which financial institutions currently produce. The sec
ond part is to continue evaluating the information tools
for achieving fair housing and reinvestment objectives
and to improve or replace them based on the results of
that evaluation. We will be pleased to cooperate with
the other regulatory agencies to this end through the
established mechanism of the Federal Financial Insti
tutions Examination Council.
We recommend, therefore, that HMDA be adopted
as a permanent law, subject to certain changes.
First, we support legislative and regulatory changes
to standardize report time frames and formats. Such
uniformity will improve the comparability and useful
ness of the data at minimal cost. We recommend that
151

a uniform annual reporting date be required. However,
to avoid the end of the year reporting burden on many
institutions, a date other than year-end may be appro
priate. Specific federal preemption of unnecessarily
duplicative state reporting requirements would be ap
propriate.
Second, we support several initiatives to improve
data access by the public. Specifically, we propose
the following:
• The availability of HMDA data should be ex
plained in the CRA statements now maintained
in every branch of the covered financial institu
tions. This change would require a minor revi
sion in the agencies' CRA regulations.
• A central collection point should be established
in each SMSA where HMDA statements will be
stored and copied. Local governments of cen
tral cities in SMSA's should be provided with
limited funding by the Department of Housing
and Urban Development (HUD) to operate such
centers. Perhaps HUD could commit some of
its community development block grant funds
for that purpose.
Third, the financial regulatory agencies should take
steps to improve HMDA accuracy, within the con
straints of examination priorities. This would require
clarifying some of the definitions in the act, providing
improved guidance to covered institutions on proce
dures and revising examination procedures to identify
major problems.
Fourth, we recommend that the regulatory agencies
cooperate with HUD to aggregate HMDA data for 2
years, following a brief period during which regulations
are revised and techniques for improving accuracy are
communicated to the institutions. To be more com
plete, such aggregated data should include census
tract information on FHA mortgages, together with VA
mortgage information to the extent such could be de
veloped.
While we recognize that this process entails addi
tional cost to the federal government, we believe such
data aggregation will have several major benefits.
Even after the delay required to compile statements,
the data would be in a readily usable form for hun
dreds of jurisdictions. Thus, local institutions would
have valuable information to develop reinvestment pro
grams, and federal officials could systematically use
the data in considering alternatives for urban policy.
Data aggregation would also provide a more complete
picture of the mortgage market, creating a framework
for a definitive evaluation of HMDA requirements. It
would allow us to analyze the effect of selectively elimi
nating requirements or of allowing exemptions for cer
tain institutions or entire metropolitan areas.
Fifth, we oppose any extension of HMDA require
ments to nonurban lenders. We have no evidence that
HMDA, which was specifically designed for city neigh
borhoods, would be very meaningful in rural areas. We

152

support the development of other tools which can be
used by the public sector, lenders and regulators to
assess rural community credit needs. Our office is cur
rently sponsoring, together with the Farmers Home Ad
ministration, a study to identify rural community data
sources. We believe continued research into rural
credit needs is warranted before additional reporting
requirements are imposed on thousands of small
banks.
Finally, it is essential to develop alternative reporting
methods to improve efficiency and reduce the burdens
and costs to affected institutions. Recent improve
ments in the agencies' fair housing collection systems
may point the way toward improving and integrating
fair lending data requirements. While our limited expe
rience with these new systems does not yet allow us to
recommend cost-cutting innovations, these efforts may
be the key to making HMDA more useful and less bur
densome in the future.
For example, the fair housing home loan data sys
tem which is being developed by the Comptroller's Of
fice requires that, prior to an examination, institutions
submit data from a sample of mortgage loan files se
lected by us for computer analysis. The sample is
evaluated for any patterns related to racial, ethnic or
sex discrimination, and the examiner is instructed to
follow up on any problems identified.
The system, while it requires census tract reporting,
is not now designed for geographic assessment. In
most cases, the sample selected will not be of suffic
ient size for determining geographic patterns. Further
more, unlike HMDA, this system currently lacks data
on home improvement lending. However, in the next
few years, as we experiment with this system and use
it in the examination process, we may discover signifi
cant opportunities to develop a comprehensive system
for fair lending and CRA data collection and analysis.
We recommend, therefore, that the regulatory agen
cies actively assess the potential of meshing the re
porting requirements of CRA, HMDA and the fair hous
ing regulations and creating uniform reports.
Furthermore, we believe the use of sampling and com
puter analysis techniques may be able to provide re
ports for fair lending and CRA supervisory purposes
and possibly for public purposes. The agencies
should be able to report the results of their assessment
to Congress within 3 years and to recommend needed
changes.
In conclusion, we believe that HMDA is a vital part of
a larger system to stimulate local dialogue and secure
compliance with fair housing and CRA mandates. It
complements other information used by regulatory
agencies and local planners. It contributes signifi
cantly to the processes needed for local reinvestment
activity. We recommend permanent extension of
HMDA and believe our other recommendations will
strengthen its effectiveness. At the same time, we in
tend to continue developing improved ways to assure
the revitalization of the nation's communities and
neighborhoods.

Statement of John G. Heimann, Comptroller of the Currency, before the
Subcommittee on Financial Institutions Supervision, Regulation and Insurance of
the House Committee on Banking, Finance and Urban Affairs, Washington, D.C.,
February 20, 1980
I am pleased to have the opportunity to present the
views of the Office of the Comptroller of the Currency
on deposit rate controls, financial institutions reform
and other issues under consideration by the commit
tee at this time. Because of the broad range of issues
which your invitation asked that we address, my testi
mony is divided into several sections. First, I will com
ment on the various proposals to eliminate deposit rate
controls (Regulation Q) and to expand thrift institution
powers, including the related sections of the Senatepassed version of H.R. 4986, as well as H.R. 6198,
H.R. 6216, and the alternative proposals in Chairman
St Germain's statement on financial reform. Second, I
will comment, and largely reiterate positions taken in
previous testimony, on the most significant sections of
the other titles of the Senate bill, including our pro
posed "housekeeping" provisions.
Financial Institutions Reform
We believe it is imperative to move forward immedi
ately with financial institutions reform. We support the
thrust of the legislative proposals under consideration
as a step in the right direction.
Beginning with the recommendations of the Com
mission on Money and Credit nearly 20 years ago, the
need for financial institutions reform has been clear.
Since that time, numerous studies have concluded that
Regulation Q should be phased out and that thrift insti
tutions should be granted broader asset and liability
powers. The OCC has on many occasions testified in
support of financial institutions reform. Yet, despite
calls for legislation to improve the competitiveness of
our depository system, deposit rate controls, including
the rate differential favoring thrifts, and restrictions on
thrift institution asset and liability powers have re
mained in place.
In the meantime, the problems prompting calls for
reform have continued to worsen. As a result, we are
confronted today with a depository institution system,
particularly the thrift institution segment, whose powers
are constrained in ways that do not enable the system
to compete effectively in financial markets, which
themselves have been evolving in response to chang
ing economic conditions. Thrift institution earnings, es
pecially in the Northeast, once again are coming under
pressure as a consequence of high interest rates and
continued concentration of thrift investments in longterm, fixed rate mortgages. Furthermore, below-market
rate ceilings have caused all depository institutions to
lose deposits. Disintermediation has been particularly
severe in smaller commercial banks and thrift institu
tions which depend primarily on consumer deposits.
For a time, deposit interest rate ceilings, imposed on
all depository institutions in 1966, protected earnings
and postponed the need to deal directly with the thrift
institutions' earnings problem through removal of limi

tations on asset powers. This solution, while buying
time, has had a number of faults:
• Deposit rate controls have been a regressive
and inequitable tax on many of our citizens.
They are not applied to all deposit instruments,
but primarily to those traditionally held by unso
phisticated and moderate- to low-income
savers who lack sufficient familiarity with finan
cial markets to take advantage of alternative in
struments or do not have enough savings to
meet the minimum denomination requirements
of open market instruments. The 5.25 percent
ceiling on passbook accounts at commercial
banks is only 1.25 percentage points higher to
day than the 4 percent ceiling rate that existed
in 1962. Over this same period, rates on 3month Treasury bills have gone from 2.78 per
cent to 13.34 percent.
• Deposit rate controls disrupt credit flows, espe
cially to the mortgage markets, during high in
terest rate periods because they result in disin
termediation as sophisticated depositors,
seeking the best return, move funds out of de
pository institutions and into Treasury securities,
money market mutual funds and other instru
ments yielding market rates of interest.
• Deposit rate controls have resulted in inefficient
competition for deposits. Rate controls have not
eliminated competition among depository insti
tutions. Rather, controls have resulted in institu
tions competing on the basis of other factors
such as premiums, free services and greater
convenience in the form of more branches and
longer hours.
These adverse consequences of deposit interest
rate ceilings make it clear that they were never a good
solution. Market-rate instruments, such as money mar
ket funds, assisted by advances in data processing
technology and high interest rates, preclude a return
to the old solution of protecting earnings by controlling
deposit rates. Deposits, once viewed as the stable
"core" of a bank's funds, are becoming increasingly
sensitive to yield. The dynamics of the marketplace are
such that a continuation of deposit rate controls will
lead to a restructuring of the financial services indus
tries, changing and diminishing the role of depository
institutions.
For example, in the last 24 months, money market
mutual fund (MMF) assets have increased from $4 to
over $53 billion. Money market mutual funds offer a
highly liquid, low-cost investment instrument paying in
vestors market rates of interest. Increasingly, bank and
thrift institution executives are reporting a loss of de
posits to those funds and to other open market instru
ments such as Treasury bills and notes. While a signifi
cant proportion of MMF assets is invested in

153

commercial bank certificates of deposit and other
bank paper, these investments tend to be concen
trated in only a few of the largest U.S. banks. Should
MMF's and other instruments attract significant
amounts of deposit funds, the liquidity and earnings of
smaller commercial banks and thrift institutions, which
do not have as much of a ready access to purchased
sources of funds as larger institutions, would be ad
versely affected.
To limit disintermediation pressures, the financial in
stitutions regulatory agencies already have been eas
ing deposit rate ceilings. The $10,000 money market
certificate of deposit (MMCD), with a floating rate ceil
ing tied to the 6-month Treasury bill rate, was autho
rized in June 1978. At the end of 1979, MMCD bal
ances at federally insured savings and loan
associations totaled $127 billion, or 27.6 percent of all
deposits at those institutions. On July 1, 1979, a 4-year
certificate with a floating rate ceiling tied to the yield on
Treasury securities of comparable maturity was autho
rized. That certificate was superseded on January 1,
1980, by a 21/2-year certificate with a floating rate ceil
ing that is closer to the yield on Treasury securities of
comparable maturity than was the ceiling on the 4-year
certificate.
To attempt to solve the problem of disintermediation
by imposing rate controls on unregulated market in
struments would interfere with the efficient functioning
of financial markets and would reduce consumer in
centives to save. Furthermore, the pressures are so
great now that new means of offering market rates
would be developed almost as quickly as old ones
were restricted. Thus, such an approach would only
ensure a decline in the role of depository institutions in
the U.S. financial system, particularly those dependent
on consumer deposits.
While inflation and market developments have
forced de facto deregulation of depository institution li
abilities, the continuing impasse in the Congress with
respect to reform and deregulation of restrictions on fi
nancial institution asset powers imperils the ability of
such institutions to function profitably. Thrifts are in
creasingly faced with a choice of either defending their
deposits by paying market rates of interest, thus ad
versely affecting earnings, or attempting to protect
their earnings by paying less than market rates and
suffering deposit withdrawals. This dilemma occurs
because thrift institutions are required to concentrate
their investments in long-term, fixed rate mortgages.
Shorter term assets and longer term assets with varia
ble rates are elements of financial reform essential to
eliminate this Hobson's choice.
Our entire financial system, as well as the mortgage
market, will be best served by strong and wellcapitalized depository intermediaries. Strengthening
the thrift industry by permitting savings and loan asso
ciations and mutual savings banks to offer a broad
range of services, coupled with the elimination of de
posit rate controls, will place these institutions in a far
better position to attract deposits. Elimination of de
posit rate ceilings, including the thrift institution differ
ential, will also substantially improve the ability of com
mercial banks to compete for deposits.

154

While expanded asset powers for thrift institutions
might decrease the proportion of thrift investments in
the mortgage market, these same powers, depending
on the impact of removing the deposit rate differential,
might increase the thrifts' share of the deposit market.
In any event, the development of a strong secondary
mortgage market, innovations in the packaging and
selling of mortgages and the existence of governmentsponsored mortgage pools have already reduced the
dependence of the mortgage market on thrift institu
tions. Increasingly, the mortgage market is becoming
more national in scope and is attracting renewed inter
est from the contractual thrifts such as pension funds
and life insurance companies.
It is urgent that we begin an orderly process of fi
nancial institutions reform. The piecemeal easing of
Regulation Q by the regulatory agencies in response
to the prospect of disintermediation must be matched
by an accompanying liberalization of thrift powers to
address the thrift earnings problem. Thrift institutions
need authority to begin the process of adapting their
services in response to the more competitive market
place.
In fact, this process of adaptation should have be
gun long ago, when market interest rates were closer
to the ceiling rates and competitive pressures from
nondepository institutions were less intense. As we
noted in our testimony before this committee last year,
it will take time for thrift institutions to implement new
asset and liability powers and to make necessary ad
justments in their portfolio and operating policies.
Those commercial banks dependent on retail deposits
will also need the opportunity to adjust the services
they offer. For these reasons, we supported a gradual
phaseout of deposit interest rate ceilings.
Events of the last year, however, cast doubt on the
feasibility of a gradual phaseout, certainly one which
would extend over a 10-year period. For example,
since last May, interest rates have risen dramatically.
The prime rate charged by commercial banks has
gone from 1 1 % percent to the current high of 15%
percent. The yield on 3-month Treasury bills has in
creased from 9.60 percent to 13.34 percent. By com
parison, over this same period, the rate on passbook
savings accounts at thrift institutions has gone from
51/4 percent to 51/2 percent.
In response to high interest rate and regulatory ad
justments in deposit rate ceilings, 1979 profit margins
at thrift institutions declined from 1978 levels and are
expected to decline sharply in 1980 if interest rates re
main at present levels.
Adding to the pressure on all depository institutions
is the increased competition from nationally based
competitors such as securities firms, large financial
services companies, mortgage bankers and large re
tailers, all of which are seeking to increase their market
share of financial services.
These developments increase the urgency for
prompt action on financial institutions reform. They
also mean that the necessary adjustment process will
be more painful. Continued delay is unlikely to ease
the transition problem and may, in fact, exacerbate it
further.

It is important to recognize that there may never be
a perfect time for implementing major changes in an
industry. Moreover, it is impossible to operate with ab
solute certainty with respect to the ultimate ramifica
tions of change. Alfred Kahn, in a 1978 speech which
reviewed his experience as Chairman of the Civil Aero
nautics Board during the deregulation of the airline in
dustry, told of his conversion from a belief in gradual
ism to advocacy of achieving total deregulation as
quickly as possible. After participating in this major de
regulation of the airline industry, Chairman Kahn
noted:
What has been genuinely illuminating to me is how
rich a comprehension I have acquired of the dis
tortion of the transition, and how thoroughly I have
as a result been converted to the conclusion that
the only way to move is fast. The way to minimize
the distortions of the transition I am now thor
oughly convinced, is to make the transition as
short as possible.
Financial Institutions Reform Agenda—A key ele
ment of financial institutions reform is elimination of all
rate controls on deposits. This will enable commercial
banks and thrifts to compete effectively for funds with
nondepository institutions. Furthermore, commercial
banks will no longer be subject to the competitive dis
advantage of the thrift rate differential.
There are three other essential components to a fi
nancial institutions reform package that should accom
pany the elimination of Regulation Q. First, thrifts
should be permitted to offer a full array of consumer
services including transaction accounts, consumer
loans, credit card services and trust services. Those
powers are necessary to make thrifts more competitive
with commercial banks once Regulation Q ceilings are
completely removed.
Second, yields on mortgage portfolios must reflect
and adjust to changing market interest rates. The high
rates of inflation since the mid-1960's and accompany
ing high interest rates have made long-term, fixed rate
lending unprofitable. If thrift institutions are to continue
to depend on relatively short-term liabilities, then their
earnings on assets must become more sensitive to
changes in market rates of interest. One way to ac
complish this objective is to permit them to offer a full
range of mortgage instruments with adequate con
sumer safeguards, including alternative mortgage in
struments such as rollover mortgages. Commercial
banks should have the same flexibility.
Action must also be taken to remove usury ceilings
to make all loans to which such ceilings apply attrac
tive and profitable investments. We testified before this
subcommittee on April 5, 1979, recommending that
state usury laws be repealed, pre-empted by federal
law or modified substantially. Congress recently
granted temporary relief from such ceilings affecting
mortgage loans and certain business and agricultural
loans until March 31, 1980. Permanent relief is needed
in those states where below market usury ceilings ex
ist. Below market usury ceilings divert lending and in
vestment activities to markets in which no controls ex
ist. Those ceilings reduce the incentive to make certain
types of loans and further distort the flow of funds by

encouraging out-of-state investments. This injures the
very people usury laws were intended to protect.
Third, thrift institutions should be permitted to diver
sify their assets to include more short-term and liquid
assets such as commercial paper, corporate debt se
curities, bankers' acceptances, consumer loans and, in
the case of mutual savings banks, commercial loans.
These additional powers will permit thrifts to shorten
the maturity of their asset portfolios as well as provide
highly liquid instruments for storing unanticipated or
temporary deposit inflows. To be truly useful, the com
mercial lending power for mutual savings banks must
be accompanied by the power to accept corporate
deposits.
Regulatory Reform Agenda for the Future—The
competition between financial intermediaries both for
consumer savings and in offering financial services will
continue to intensify in coming years. Our banking
statutes, however, continue to reflect the view, preva
lent in the 1930's, that the various financial institutions
have clearly differentiated functions, each of which
should be regulated in a compartmentalized fashion.
The commitment of the thrift industry and especially
the savings and loan industry to residential mortgage
lending, may have reflected voluntary decisions early
in their history, but governmental regulations and stat
utes now make such specialization largely involuntary.
As we have already stated, continuation of governmentally mandated specialization does not provide
thrift institutions with the flexibility required to compete
effectively in the kind of financial system that is evolv
ing. This is why financial institutions reform is neces
sary.
The process of deregulation, which would begin
through enactment of the legislation before us today,
should be viewed as one step towards an eventual to
tal freeing up of the financial system. Such a process
will undoubtedly raise significant issues and may re
quire a significant rethinking of our regulatory structure
to ensure that all financial intermediaries offering simi
lar products and services are able to compete on the
same basis and on the same terms and conditions.
This principle implies that reserve requirements, lend
ing restrictions, geographical barriers, tax treatment
and a host of other factors be applied evenhandedly to
similar institutions.
Legislative Proposals
We support the thrust of the legislative proposals
presently being considered. Because the OCC has
previously testified on many of these proposals, we
have provided only summary comments in this testi
mony.
Interest Bearing Transaction Accounts—H.R. 4986,
as passed by the Senate, provides for the nationwide
extension to all depository institutions of authority to of
fer interest-bearing transaction accounts (NOW ac
counts) to individuals and nonprofit organizations. The
bill also makes permanent the authorization of auto
matic transfer services at commercial banks, remote
service units of savings and loan associations and

155

share accounts at federal credit unions. If action is not
taken by March 31, the authority for these transaction
arrangements will expire. We support these provisions.
These services afford the public a substantial benefit.
Moreover, authorization of transactions account
powers for all thrifts is an essential component of the
powers necessary to enable thrifts to compete for de
posits in a world without the benefit of deposit rate
ceilings and the differential. We also support limiting
NOW accounts to individuals and nonprofit organiza
tions, but only as an interim step to ease the transition
for depository institutions. We believe that this restric
tion should be terminated as soon as possible and that
ultimately all depository institutions should be permit
ted to offer interest-bearing demand deposit accounts
to any kind of customer.
The Senate version of H.R. 4986 is silent on reserve
requirements for commercial banks and thrift institu
tions. Thus, existing inequities between member banks
and nonmember depository institutions are perpetu
ated. Member banks will continue to be required to
hold sterile reserves on transaction account balances.
Payment of interest on transaction balances will in
crease cost pressures on all depository institutions.
Thus, the cost to member banks of holding noneaming
reserve balances will become even less tenable than it
is now. This will exacerbate Federal Reserve member
ship attrition. We strongly believe that the public will be
better served by insuring that all institutions offering
transaction accounts be subject to the same require
ments and restrictions, including those pertaining to
reserves.
Phased Deregulation of Deposit Rate Controls—
Four separate approaches to eliminating deposit rate
controls are presently under consideration by this sub
committee.
Section 107 of H.R. 4986, as amended by the Sen
ate, provides for the total decontrol by January 1,
1990, of the maximum deposit interest rates which de
pository institutions may pay. The bill provides that,
beginning on January 1, 1982, and every year thereaf
ter through January 1, 1989, rate ceilings on all cate
gories of deposits are to be raised by the regulators at
least one-half of a percentage point. Flexibility is pro
vided in the bill for the Federal Reserve Board to has
ten or slow the rate of decontrol, if economic condi
tions warrant. The bill also provides for reducing
minimum denominations on certificates of deposit to at
least $1,000 as soon as feasible by unanimous agree
ment of the agencies. Again, if economic conditions
warrant, this action could be postponed. In addition,
the bill provides that new categories of deposits may
be created only if the rate of interest is at least equal to
rates on deposits of equivalent maturities.
H.R. 6198 provides for a more rapid phasing out of
Regulation Q through lifting ceilings on all savings and
time deposits by one-half percentage point per year
beginning July 1, 1980, and eliminating ceilings at the
end of 5 years (July 1, 1985). The bill also directs the
agencies to reduce all minimum denomination require
ments on all time deposits within 5 years after the date
of enactment. In addition, interest rate ceilings would
be removed each year on specific deposit categories

156

on the basis of maturity, beginning with ceilings on
time deposits with initial maturities of 6 years or more,
individual retirement accounts and accounts main
tained by qualified pension plans.
H.R. 6216 directs the federal financial regulatory
agencies to raise the passbook interest rate to an un
defined market rate of interest 5 years after enactment
of the legislation. The bill does not address the contin
uation of ceilings on other deposit categories.
Chairman St Germain has proposed a fourth ap
proach, which would require the Interagency Coordi
nating Committee to raise the ceiling on passbook sav
ings accounts by one-half of a percentage point as
soon as possible but no later than 1 year after enact
ment of legislation. Second, the committee, while oper
ating under Regulation Q until 1985, would be directed
to take into account market rates of interest and eco
nomic conditions and establish more equitable rate
ceilings on savings accounts. At the end of 1985, de
posit rate controls on all deposits would be removed.
The establishment of a date certain for eliminating
Regulation Q and a specific schedule for its phaseout
is of overriding importance and an essential ingredient
in the process of financial reform. Moreover, regulatory
discretion to modify the schedule where circum
stances warrant is also important.
We are in agreement with Chairman St Germain's
stated position and Congressman Barnard's sug
gested approach in H.R. 6198 that a transition period
of 10 years, as provided for in H.R. 4986, is unneces
sarily long. We support phaseout of Regulation Q
along the lines contained in H.R. 6198, which includes
a provision authorizing the Federal Reserve Board, in
consultation with the other financial regulatory agen
cies, to accelerate or slow the phaseout of deposit rate
controls if economically feasible.
Expanded Thrift Powers—H.R. 4986 would permit
federally chartered savings and loan associations to
issue credit cards and engage in credit card opera
tions, make and hold unsecured consumer loans and
invest in commercial paper, corporate debt securities
and bankers' acceptances in an amount not to exceed
20 percent of the assets of the association. H.R. 4986
and, to a lesser degree, H.R. 6198 make a number of
other changes in thrift powers and structure. These in
clude the authority for savings and loan associations to
invest in certain mutual funds, the authority to exercise
fiduciary powers, a broadening of thrift residential real
estate lending authority to match the powers of na
tional banks, the permission for a state stock savings
and loan association to obtain a federal charter if it has
never previously existed in a mutual form, and the
authority for savings and loan associations to issue
mutual capital certificates.
H.R. 4986 would also allow federally chartered mu
tual savings banks to place up to 20 percent of their
assets in loans or investments of any kind phased in
over an 8-year period, so long as 65 percent of such
loans and investments are made within the state where
the bank is located or within 50 miles of such state.
Federal mutual savings banks would also be permitted
to accept demand deposits from any source.
H.R. 6198 and H.R. 6216 do not have comparable

provisions for expanded powers for federal mutual
savings banks and do not include credit card powers
for savings and loan associations. H.R. 6198 further
sets a 10 percent of assets limitation on expanded
savings and loan association asset powers.
The OCC supports the broadening of thrift powers
as contained in H.R. 4986. The authority for federal
savings and loan associations to make consumer
loans and issue credit cards will improve their compet
itive capabilities by rounding out the range of family fi
nancial services, including transactions accounts, that
they may offer to consumers. This authority will also
improve the ability of thrifts to pay market rates on their
short-term liabilities by reducing the average maturity
of their assets. We are unaware of any reason for ex
cluding "secured" consumer lending from the new
thrift powers.
We also support providing mutual savings banks
with the additional powers contained in H.R. 4986. We
question, however, the need for including geographi
cal restrictions as part of the expanded mutual savings
bank lending authority. Such a restraint limits the free
flow of capital and may create inefficiencies with no
clear public benefit.
We support placing an initial 20 percent of assets
limitation on the new thrift lending powers. Savings
and loan associations and mutual savings banks will
need time to develop expertise in their newly acquired
loan areas. For instance, consumer lending entails
greater administrative costs relative to the size of the
loan and greater risk than mortgage lending.
However, consideration may need to be given in the
future to raising the percent of assets limitation and
perhaps further easing restrictions on thrift asset
powers. We expect thrift institutions will continue to
concentrate their lending activity in the mortgage
market—their area of expertise. However, changes in
the marketplace and in regional economic conditions
might require their having increased access to liquidity
and, at the same time, additional options to improve
their earnings flexibility.
Real Estate Mortgage Lending Authority—Among
the various provisions to expand the asset powers of
thrift institutions, H.R. 4986 and H.R. 6198 provide that
federally chartered savings and loan associations may
invest in, sell or otherwise deal in loans or investments
secured by liens on residential real estate to the same
extent and in the same manner and amounts without
limitation as national banks can pursuant to the provi
sions of Section 24 of the Federal Reserve Act, 12
USC 371. By that grant of expanded authority to fed
eral savings and loan associations, such institutions
will be able to undertake the more flexible and creative
approaches to residential real estate lending which are
now available to national banks. For example, while
most loans by federal savings and loan associations
cannot exceed an 80 percent loan-to-value ratio and a
$75,000 aggregate limit, national banks may make
loans up to 90 percent of appraised value on improved
real estate and, more significantly, without dollar limita
tions. The application of Section 24 to federal savings
and loan associations will also remove geographical

limitations, first lien requirements and certain other as
set limitations on savings and loan associations.
We believe that such authority will provide neces
sary increased lending flexibility to federal savings and
loan associations. We suggest, moreover, that such
authority be extended to federally chartered mutual
savings banks to enhance their capacity to compete
with other depository institutions.
OCC Housekeeping
During the first session of the 95th Congress, Chair
man St Germain introduced our so-called housekeep
ing proposal to amend the National Bank Act and
other federal laws principally affecting the OCC. These
provisions, which are for the most part intended to
streamline certain functions of the agency under exist
ing laws, were'included in the Financial Institutions
Regulatory Act of 1978 (H.R. 13471), which was favor
ably reported out of the House Banking Committee on
July 20, 1978. We still believe this legislation is neces
sary.
The housekeeping provisions in Title III of H.R. 4986
are, for the most part, noncontroversial and affect such
matters as the ability of the Comptroller to delegate
certain responsibilities in a manner similar to provi
sions affecting the Federal Deposit Insurance Corpora
tion (FDIC), to revoke a national bank's abused or un
used trust powers and to have greater flexibility in
scheduling bank examinations. Provision is also in
cluded in Title III for terminating the National Bank
Closed Receivership Fund. Certain sections of the
housekeeping provisions are noteworthy, however, in
cluding those affecting real estate holdings of national
banks, clarification of OCC rulemaking authority and
the recently added restrictions on the interstate estab
lishment of trust companies.
Other Real Estate Owned—Section 301 of H.R.
4986 would amend the National Bank Act to authorize
the Office when necessary to extend for up to 5 years
the period for which a national bank may hold real es
tate acquired from a debt previously contracted. This
provision is designed to provide sufficient regulatory
flexibility to deal with situations in which a national
bank is unable to dispose of such real estate during
the normal 5-year holding period at other than an un
reasonably low price which would result in a substan
tial loss to the bank. Section 301 also provides us with
authority to allow national banks to expend limited
funds for the development and improvement of such
real estate in certain extenuating circumstances.
We believe that this proposed authority is neces
sary. We understand that there is some concern, how
ever, that the proposed language of the provision, as it
is presently drafted, may only authorize development
and improvement of such real estate when an applica
tion is formally made to the Comptroller and approval
is granted. It would only allow such developments or
improvements in demonstrably extenuating circum
stances. If this provision is enacted in its present form,
we would endeavor to establish expedited review
processes to minimize any additional regulatory bur
dens on national banks. Alternatively, we are available

157

to work with the subcommittee to modify the provision
to permit greater procedural flexibility if that is desir
able.
OCC Rulemaking—Section 308 of H.R. 4986 con
cerns the rulemaking authority of the OCC. Recently,
the U.S. Court of Appeals for the District of Columbia
substantially clarified the Office's authority by deciding
that an explicit grant of substantive rulemaking author
ity exists under the Financial Institutions Supervisory
Act.
Formal rulemaking is an essential part of the admin
istrative decisionmaking process. It provides for maxi
mum public and industry participation in developing
standards. In certain cases, as noted by the Court of
Appeals, it may be infinitely preferable to case-bycase adjudication.
It is necessary, however, that the Congress enact
unambiguous legislation. In our opinion, the language
of the Senate bill is inadequate to fulfill this need. More
particularly, the added phrase "under the Financial In
stitutions Supervisory Act of 1966" may cloud certain
express grants of specific rulemaking authority under
other statutes and grossly impede our ability to coordi
nate rulemaking with the other regulatory agencies.
The statutory clarification, as originally proposed in
H.R. 2229 and H.R. 5280, would provide specific lan
guage paralleling the rulemaking authority of the FDIC.
We request, therefore, that the added language in
Section 308 be stricken and the provision as originally
proposed and accepted last year by the House Bank
ing Committee by a vote of 34 to 5 in H.R. 13471 be
restored.
That is, we ask that Section 308 be changed to
amend the National Bank Act by adding new Section
5329A to Chapter 4 of Title LXII of the Revised Statutes
to read as follows:
Except to the extent that authority to issue such
rules and regulations has been expressly and ex
clusively granted to another regulatory agency,
the Comptroller of the Currency is authorized to
prescribe rules and regulations to carry out the re
sponsibilities of the office.
Interstate Trust Companies—Section 312 was not
part of our originally proposed housekeeping bill. It
was added by the Senate to amend the National Bank
Act and the Douglas Amendment of the Bank Holding
Company Act to prohibit the chartering and acquisition
of trust companies by out-of-state holding companies.
This Office has a longstanding policy of favoring a
free and open system of competition among all pro
viders of financial services. In our opinion, the pro
posed provision is overly restrictive and essentially
anticompetitive. We therefore oppose its enactment.
The interstate establishment of trust company sub
sidiaries relates to the broader questions involving all
forms of interstate bank holding company activities
and market structure. In fact, the Administration is con
ducting a study which was undertaken at the request
of the Congress to review the entire issue of geo
graphic restrictions on bank and holding company ac
tivities. We recommend that any legislative action on

158

the issue of interstate trust operations at least await the
completion of that report.
In our opinion, it would be premature at this time to
enact a new restrictive prohibition against one form of
holding company activity without reevaluating the prin
ciples which long have been applied equally to other
types of permissible interstate activities of holding
companies.
Truth-In-Lending Simplification
Our Office has consistently and strongly supported
efforts to simplify the Truth-in-Lending Act. While the
act is an important consumer protection tool, it has
proved to be unwieldy and unnecessarily complex in
its present form. This complexity places a costly and
wasteful administrative burden on both the lending in
dustry and the regulatory agencies and, at the same
time, tends to confuse rather than assist the prospec
tive borrower. As a result, Truth-in-Lending is often
cited as an example of government overregulation,
which imposes costs without commensurate benefits.
We believe it is time to correct this imbalance of
costs and benefits by simplifying both the law and the
regulation to focus on the original extremely worthwhile
goal of disclosing key loan terms in an understandable
manner. We, therefore, strongly support the pending
simplification amendments.
We support the specific amendments in the Senate
bill which clarify the authority of the financial regulatory
agencies to provide for reimbursements to consumers
harmed by certain violations of the act. These amend
ments reflect a recognition of the problems which the
agencies encountered in their attempts last year to im
plement reimbursement guidelines through administra
tive actions. Based on those problems, we believe that
any workable reimbursement system must be flexible,
operate uniformly among the agencies, incorporate
reasonable tolerance levels for lender errors and be
limited to a realistic period of retroactivity.
Regarding this last point, we oppose proposals to
make the bill's reimbursement provisions retroactive to
January 1, 1977. The agencies used a 1974 retroactiv
ity date in last year's reimbursement program and
found that it was too rigid to be fair. We prefer the Sen
ate bill's provision, which is modeled on the agencies'
proposal as published in the Federal Register last fall.
This approach tailors the retroactivity period to the
past performance of each individual institution, based
on whether or not it responded properly to notification
by its regulatory agency that it was in violation of the
regulation. This approach to retroactivity recognizes
the complexity of the present law and regulation and
will not penalize the lending institution which has made
good faith efforts to comply with them. We recommend
that it be adopted in the final version of the Truth-inLending Simplification and Reform Act.
Proposed Moratorium on Foreign Acquisitions
We do not believe that a moratorium on foreign ac
quisitions of U.S. financial institutions, such as con
tained in Title X of the Senate bill, is justified. Such leg
islative action would be unwise and inconsistent with

the longstanding U.S. policy of free and open capital
markets. Our country has traditionally welcomed and
encouraged foreign investment in our domestic enter
prises, and foreign capital has contributed significantly
to our economic development.
Our nation's banking policies have been consistent
with this open policy toward foreign investment. In
adopting the International Bank Act of 1978, the Con
gress discarded both proposed restrictions on foreign
investment in banking and policies based on reciproc
ity in favor of the principle of national treatment. A shift
in this policy would be justified only in the face of a
clear and present threat to national interests, espe
cially in light of the potential costs to our own system of
such a shift. We find that there is no evidence that
such danger exists.
Taking into account both known consummated and
approved acquisitions, less than 1 percent of our

country's 14,367 insured commercial banks have 10
percent or more foreign ownership. Those institutions
account for less than 5 percent of our aggregate com
mercial bank assets. Those are modest levels, far from
being sufficiently threatening to risk the potential costs
of a moratorium. Moreover, we believe that an objec
tive review of the concerns raised thus far reveals that
potential problems associated with foreign owner
ship—especially ownership by foreign institutions—
can be dealt with satisfactorily within the existing
framework of laws and regulations.
At the same time, we recognize that significant pub
lic policy issues have been raised regarding foreign
ownership of U.S. financial institutions. We support,
therefore, the General Accounting Office study into
those issues initiated by Chairman St Germain and
other efforts to illuminate this complex and, at times,
troubling subject.

Remarks of H. Joe Selby, Senior Deputy Comptroller for Operations, before the
40th Assembly for Bank Directors, Palm Springs, Calif., February 22, 1980
In September 1978, I appeared before the 32nd as
sembly in Colorado Springs and spoke on the chang
ing standards of bank regulation and their effects on
the responsibilities of bank directors. I related how the
standards of bank regulation had not, in effect,
changed but rather the emphasis which regulators
place on those standards had changed and how the
increasing complexities of the industry had enlarged
the director's role in assuring the bank's soundness
and success.
Today, I will talk about the evolving responsibilities
of the bank director, and yet the fundamental responsi
bilities have changed very little. It is a fact that your le
gal responsibilities as a bank director have increased
substantially as a result of congressional actions on
social concerns. In addition, you must deal with the
fact that the bank exists in a changing marketplace
where there's no choice but to compete, and you must
be concerned with the cost and burden of regulation,
since the banking business is a heavily regulated busi
ness. Unfortunately, it is going to continue that way in
the future.
Membership on a bank's board should be consid
ered an honor, and the ability to attract or bring busi
ness to a bank may be a relative factor in the choice of
a director. However, those do not define the function of
a bank director nor describe the important responsibil
ities the person assumes in joining a bank's board of
directors. In essence, a director has a legal duty to su
pervise the business of the bank diligently and in good
faith. Shareholders, depositors and creditors have the
right to expect no less.
Throughout the last decade, an enormous amount of
press was devoted to the bank director's role. Nu
merous commentators stated that the duties and re
sponsibilities of a director had undergone profound

change. Admittedly, we witnessed, and will continue to
witness, the imposition of an increasing number of le
gal strictures on directors and their banks. We can
also expect that the dynamics of the banking system
will continue to pulsate from further innovation and de
velopment. This will also increase the demands on
bank directors. Nonetheless, it is misleading to assert
that the fundamental role of the bank director has been
appreciably altered. What has, in fact, occurred is a
transformation in perception of the mission for which a
bank exists and a groundswell of new, novel bank
services and operations. Viewed in proper perspec
tive, the climate of ever-increasing requirements may
best be viewed as attempts to establish the operating
procedures and internal controls which, when fol
lowed, will help any board of directors in meeting to
day's public and private expectations for the banking
community.
Regulators have not been misled by pronounce
ments of change in director responsibilities. Federal
regulation of the commercial banking industry is more
than 117 years old, and during that time, we have al
ways assigned tremendous import to the duties and
responsibilities of the bank director. We have held,
consistently, that a director must be a leader, impart
ing an amassed knowledge and business expertise to
attain the goal of a prosperous, safe and sound institu
tion servicing its community.
Examiners sometimes have to impress bank direc
tors with the extent of their duties and responsibilities.
Unless bank directors realize the importance of their
positions and act accordingly, they are failing to dis
charge their obligations to shareholders and deposi
tors. They are also failing to take advantage of the op
portunity to exercise a sound and beneficfal influence
on the economies of their communities. The OCC has

159

compiled what we feel to be eight major duties and re
sponsibilities of a bank director. They are:
• To select competent executive officers and to
dispense with officers who prove unable to
meet reasonable standards of executive ability
and efficiency;
• To effectively supervise the bank's affairs—the
character and degree of supervision required
involves reasonable business judgment and
confidence and sufficient time to become in
formed about the bank's affairs;
• To adopt and follow sound practices and
objectives—the directors must provide a clear
framework of objectives and policies within
which the chief executive officer must operate
and administer the bank's affairs;
• To avoid self-servicing practices—a selfserving board, whether weak or strong in other
respects, has historically worked to the bank's
detriment;
• To be informed on the bank's condition and
management policies, through usable data
which show the direction the bank is taking and
the implications of change if policies are fol
lowed;
• To maintain reasonable capitalization—a
bank's capital base supports growth while pro
tecting depositors against the uncertainties of
investing funds;
• To observe banking laws, rules and regu
lations—speaking as a regulator, this almost
goes without saying, but directors must exer
cise care to see that laws are not violated;
• To insure that the bank has a beneficial influ
ence on the economy of its community—this is
very difficult to quantify, directors have a contin
uing responsibility to provide banking services
which will be conducive to well-balanced eco
nomic growth.
What, specifically, has happened to make your cor
porate lives a jungle of seemingly tedious—and often
apparently extraneous—rules, regulations and require
ments? In part, the proliferation of new requirements
was fostered by the birth of broad-based social activ
ism which permeated the national conscience. The
year 1969 may be viewed as a watershed, the dawn
ing of this new era, for in that year Congress passed
the Truth-in-Lending Act. This act was not the omega
of congressional action in the arena of social mea
sures. On the contrary, passage of the act merely
presaged a decade of enforcement and compliance
legislation that had little to do with the fundamental
business of banking. Unfortunately, it also ignored the
need for structural reform. The litany of socially
oriented legislation includes such items as equal credit
opportunity, affirmative action, home mortgage disclo
sure, fair housing, community reinvestment, etc. Each
of those proposed to alleviate perceived social prob
lems and were well intended. The end result to the
banking community and, therefore, you, however, was
a maze of exacting strictures which, if violated, even
inadvertently, could lead to sizable adverse impact on
160

the financial posture and public image of your respec
tive corporations.
During this period of unprecedented congressional
action, banks were also confronted with a rapidity of
change under which the industry was evolving. The re
cessionary period of the early 1970's, when large
banks at home and abroad failed, placed the banking
industry prominently in the news media. Confidence
remains the key to our economic system, and confi
dence is derived from the public's collective percep
tion of the soundness and integrity of our financial
institutions—a perception based largely on the pub
lic's judgment of the individuals who manage our
banks.
Not all was bleak during this period, however. The
resiliency of the industry was manifested in the latter
half of the decade as bank performance laid to rest
fears of pervasive weakness and susceptibility. Fur
thermore, the marketplace witnessed an enormous in
flux of new services, more efficient techniques and
fresh sources of competition. Those elements aggra
vated the already heavy demands on the bank direc
tor. Competition continued to thrive and grow as bank
holding companies expanded across state borders
with increasing frequency via their subsidiaries. Nu
merous states liberalized or abolished branching re
strictions. While facilities grew, internal capabilities to
deal with expansion were enhanced by more sophisti
cated data processing systems.
Creativity and innovation were hallmarks of the
period as well. Increasingly, banks shunned traditional
asset management techniques and focused instead
on directing their financial destiny. Funding sources
were aggressively sought, and not merely by the gi
ants of the industry. Concurrently, competition for retail
business swelled. "Brick and mortar" facilities were
supplemented or replaced by automatic teller ma
chines. New services were introduced and elaborate
total customer packages were marketed. Competition
from the thrifts also forced banks into action as nego
tiable order of withdrawal accounts, automatic transfer
arrangements, etc., lured depositors away. Interindus
try competition flourished and helped boost the stam
pede to salvage the customary deposit core. Today,
we cannot pick up a newspaper or periodical without
somewhere reading of money market certificates of
deposit, money market mutual funds or such arrange
ments as payment of interest on credit card credit bal
ances. Again, directors found themselves struggling to
help their banks adequately meet the growing compe
tition and to formulate controls and reviews ensuring
maintenance of profitability, liquidity and soundness.
What many would term the apex of the directors'
plight happened later in the era. Legislative oversight
of the banking community has never suffered from
want, and the significance of accelerated change
within the industry was not lost on Congress. Certainly,
the public and government perception of the system's
stability and integrity was damaged by large bank fail
ures, fears of expanded foreign competition and own
ership and revelation of questionable self-serving
practices by highly visible former bank officials. Moti
vated by their concern and fortified by the public out-

one of the proposed acquisitions has been consum
mated. I am happy to report that the condition of the
bank has improved significantly in the year since the
acquisition was consummated.
The OCC has acted on notices within an average
time of 43 days. The average processing time for no
tices filed by U.S. citizens has been 42 days, and the
average time for notices filed by foreign persons has
been 60 days. That time difference largely results from
the additional time required to retrieve and carefully
verify information on foreign individuals. The fact that
the small sample size makes the averages misleading
should be noted. One foreign change-in-control notice
which took 94 days to process distorts the foreign
average.
The relationship of the CBCA and the Bank Holding
Company Act should be recognized. Corporate acqui
sitions subject to the prior approval provisions of the
Bank Holding Company Act are not subject to the
CBCA. Foreign Bank Holding Company Act acquisi
tions are likely to be far more significant than acquisi
tions by individuals in terms of gross economic impact.
However, if one looks at frequency of transactions,
rather than the gross assets involved, foreign individ
ual acquisitions are significant. As I noted previously,
more than half of the foreign acquisitions since 1970
have been by individuals. More importantly, they
present much thornier issues for the supervisor.
In particular, gathering information on foreign indi
viduals, especially from third parties, is not an easy
task, given the time frame within which we must oper
ate. Indeed, there may not be the same quantity or
quality of information available on individuals (foreign
or U.S. citizens) as there is on domestic and foreign
corporations. Although law and custom in many, if not
most, countries do not provide for the U.S. type of in
formation disclosure, the regulatory and reporting
framework in many countries are designed to make
available at least certain types of financial information
about a corporation. In addition, foreign bank regula
tors may have access to detailed information about in
digenous banks and bank holding companies, the
usual corporate acquirers of U.S. banks, which they
will share.
Here, it is important to remember that the CBCA per
mits the interdiction of an acquisition when the filing
party ". . . neglects, fails, or refuses to furnish the ap
propriate federal banking agency all the information
required by the appropriate federal banking agency."
(Emphasis added.)
That provision is invaluable. It places on the filing
person an affirmative duty to supply all information, ap
propriately verified, which we believe to be necessary
to complete a fair and complete review of the pro
posed transaction. Those who balk at providing neces
sary information may be disapproved.
On occasion, adverse information received in con
nection with a change-of-control notice might not be of
sufficient quality to warrant disapproval, but it may
nonetheless be appropriate to trigger further scrutiny
during the ongoing supervisory and examination
process. It may, for example, trigger special examina
tion procedures, and supervisory action may be taken
224

after the change in control, if necessary. We will, of
course, continue to hone and refine our information
gathering techniques as more experience is gained
under the law.
GAO Recommendations
Turning to the specific recommendations of the GAO
report, GAO suggests, when processing a notice of
proposed change in control, that the appropriate fed
eral bank regulator:
• Contact the foreign individual acquirer's home
country banking regulator to determine the ac
quirer's financial reputation and
• Deny those applicants who are given unfavor
able referrals from their regulator.
We endorse the GAO's first recommendation without
qualification. It is fully consistent with our present pol
icy. We have opened and maintained relationships
with other regulators, including state bank supervisors
and authorities in other countries. Our domestic and
foreign field offices serve as listening posts. Our
Multinational Banking personnel are well informed on
activities in the international arena. The usefulness of
those formal and informal lines of communication in
obtaining the kind of background information useful in
the supervisory process is readily apparent. In addi
tion, where necessary, we seek information on individ
ual proposed acquirers from other state or federal
agencies and elsewhere, although federal statutes
make the exchange of information among federal
agencies somewhat difficult. That process is important
whether foreign or U.S. citizens are seeking control of
a bank. As previously mentioned, especially where in
dividual foreign investors are concerned, neither do
mestic or foreign bank regulators may be familiar with
the proposed acquirer. In such cases, we have pur
sued and will continue to pursue all other available
sources for relevant information.
The GAO also seems to recommend interdiction
solely on the basis of an unfavorable referral received
from a home country regulator. Although it is not clear,
we presume the GAO is addressing issues which arise
under the "financial resources" standard and the
"competency, integrity and experience" standards of
the law. Polling foreign regulators to the extent that
they have and will share relevant information is useful
and necessary. If the GAO intends to suggest that a
foreign regulator should be able automatically to force
a denial through an "unfavorable referral," however,
we do not agree. While the opinions of foreign bank
regulators can, of course, be given appropriate
weight, we believe that the ultimate decision under the
statute must rest with the appropriate federal agency
after consideration of all available information.
CBCA should be viewed as an initial, large mesh
screen within our comprehensive system of bank su
pervision, examination and regulation. It does not and
was never intended to provide a perfect and certain
net, barring entry to all but the most qualified. But it
has proven a valuable supervisory tool for shielding
the banking sector from individuals with questionable

foreign controlling shareholder and, in the extreme, re
voke the bank's charter and seize its assets. Resort by
U.S. authorities to extreme measures is not anticipated
to be necessary with regard to foreign bank holding
companies, which have a major stake in maintaining a
good reputation in world markets. That consideration,
together with the reasonable expectation that such
companies will wish to safeguard their U.S. bank in
vestments, makes it highly unlikely that foreign bank
holding companies would intentionally cause damage
to a U.S. bank subsidiary.
Reports, cooperative interchange among supervi
sors and available enforcement remedies can be ex
pected to provide U.S. authorities with the necessary
means to obtain information and ensure responsible
performance most effectively when the foreign owner
of a U.S. banking organization is a foreign bank hold
ing company. In general, there is less basis for confi
dence that any combination of those approaches
would always be effective if serious problems were to
arise out of control of a U.S. bank by foreign individ
uals. However, our systems for detection of significant
misdealing and for limiting risk to the system arising
out of the difficulties of any individual institution lead us
to conclude that the potential enforcement problems
here are well within the bounds of acceptability.
Change in Bank Control Act of 1978
You have also requested our comments regarding
the Change in Bank Control Act of 1978 (CBCA), Title
VI of the Financial Institutions Regulatory and Interest
Rate Control Act of 1978. The following comments deal
principally with the application of the CBCA to foreign
investment in U.S. banks. In addition, we will address
the specific recommendations made by the GAO con
cerning the CBCA. At the outset, let me state that the
CBCA is an extremely valuable supervisory tool, espe
cially in the context of foreign acquisitions.
It should be noted that the first of a series of re
quired periodic reports on the act, together with
agency recommendations for changes, is due before
the end of March 1981. A more detailed analysis of our
experience with the act, as it applies to both domestic
and foreign acquistions, will be made at that time. We
may also, after consultation with the other regulatory
agencies, make specific recommendations for appro
priate legislative actions at that time.
The CBCA was enacted to close a gap in our super
visory scheme. Corporate acquisitions of banks have
been regulated by the Bank Holding Company Act
since 1956. Not until the enactment of the CBCA, how
ever, were acquisitions of banks by individuals subject
to similar federal scrutiny. The need for that type of
legislation was exemplified by the so called "rent-abank schemes," which were investigated by this sub
committee in 1976. Testimony offered during the hear
ings at that time indicated that in some cases banks
were being bought by persons intent on using the
bank's resources for the purpose of self-dealing. The
evidence also indicated that in many, if not most, of
those cases the federal supervisory agencies knew
very little about the new owners of the institutions.

I have personally supported some type of changein-control legislation since assuming my duties as
Comptroller in 1977. My support for a federal changein-control statute was based, in part, on my experience
as Superintendent of Banks for the State of New York,
where similar change-in-control legislation is in effect.
My tenure in New York made me aware of what a valu
able tool such legislation can be, especially in monitor
ing and screening proposed acquisitions by foreign
nationals.
However, my experience in the financial sector has
also made me sensitive to the impact that such legisla
tion can have on the individual rights of the sellers of
bank securities and the need to avoid legislation which
would unnecessarily infringe on the ability of the bank
ing system to raise capital.
Congress addressed those concerns in crafting a
statute which' strikes a balance among those compet
ing regulatory, economic and legal interests. The law
limits administrative discretion by providing for a no
tice format with strict time frames for agency action
rather than an application procedure, achieving a deli
cate equilibrium between demonstrated supervisory
needs and individual property rights.
Before turning to the GAO's recommendations, I
would like to briefly summarize our experience under
the CBCA and comment on certain concerns unique to
the gathering of information on foreign individuals and
the use of that information in our supervisory process.
OCC Experience to Date
From March 10, 1979, the effective date of the
CBCA, through August 30, 1980, the OCC received
110 notices of proposed changes in control—53 in
1979 and 57 this year. Of that number, three were
withdrawn prior to any action, three were disapproved
and 14 are pending. The OCC did not object to 90 of
the acquisitions of control.
Six proposed change-in-control notices—less than 5
percent of the total—have been filed by foreign per
sons. One such notice was withdrawn prior to any
action. Letters of intent not to disapprove the other
proposed changes in control were issued in the other
five instances. Total assets of those five banks aggre
gated $180 million as of March 31, 1980. The average
asset size of the acquired banks was approximately
$36 million.
Disapprovals of proposed changes in control have
been rare. Two of the three disapprovals issued so far,
all affecting proposed domestic acquirers, were based
on the proposed acquiring party's insufficient financial
capacity to service the debt that would be incurred.
One other proposed change in control was disap
proved because the acquiring party's record of
performance as a controlling person in another bank
was less than satisfactory.
Approximately 75 percent of the banks for which a
notice of change in control was received were not sub
jects of significant supervisory concern. The remaining
25 percent were subject to more than normal supervi
sory attention by the OCC. Three of that latter category
were targets for acquisition by foreign individuals. Only
223

plement those systems to provide reports in
accordance with U.S. generally accepted accounting
principles would impose substantial cost and reporting
burdens on them. We are not convinced that such bur
dens are justified by any supervisory necessity for the
GAAP requirement. The Y-7 report would require a de
tailed discussion of the accounting principles used in
preparing the information submitted, facilitating trans
lation and understanding of the information required
for supervisory purposes.
The OCC believes that reports, such as the pro
posed Y-7 and Y-8(f) reports, should provide an ade
quate base from which U.S. supervisors could monitor
the condition and trends of foreign banking organiza
tions on an ongoing basis. The U.S. banking agencies
could use the reports for analysis and evaluation of an
individual foreign bank or groups of banks. Finally, the
analyses and the report information about intercom
pany transactions, affiliates and insider interests would
be available to bank examiners during their inspec
tions of the U.S. subsidiary banks.
It is only realistic to anticipate that situations will
arise in which information provided by reports is inade
quate to deal with a particular supervisory question or
problem. Standardized reports cannot possibly cap
ture all the variances in law and convention which for
eign banks face. Bank financial reports may not reflect
all aspects of banks' earnings or condition. Thus, the
U.S. supervisors may have occasion to request sup
plementary information directly from the foreign bank
or to obtain it onsite with the cooperation of the bank
and its regulator. That, in fact, is how the OCC pro
ceeded with its review of the Hongkong and Shanghai
Banking Corporation when Marine Midland Bank ap
plied for a national charter.
We do not rule out the possibility that a foreign
owner of a U.S. bank might refuse to disclose neces
sary supervisory information requested by a U.S.
banking agency. That refusal in itself would justify U.S.
supervisory concern and trigger requests for coopera
tion and assistance from foreign supervisors and
closer surveillance of the U.S. subsidiary bank. While
the nature and depth of prudential bank supervision
varies among countries, foreign banking authorities
can generally provide U.S. supervisors with necessary
assistance. Furthermore, foreign supervisors share
with U.S. banking agencies a vital interest in maintain
ing confidence in the international banking system.
Any lack of cooperation by a foreign supervisor to re
solve an international supervisory concern would jeop
ardize the international integrity and reputation of all
banks under the control of that supervisor.
Supervisory Cooperation
The growing internationalization of the banking in
dustry has caused the supervisory authorities from the
leading industrialized nations to work toward better co
operation and communication. Events affecting bank
ing organizations and markets in one country can have
ripple effects elsewhere. The expansion of banking or
ganizations from the home country into other locations
necessitates working relationships and coordination
among parent company and host country supervisors.
222

Supervisory authorities have benefited from increas
ing communications, formal and informal contacts, and
efforts to coordinate their activities. The Committee on
Banking Regulations and Supervisory Practices,
formed in 1974 under the auspices of the Bank for In
ternational Settlements, is perhaps the single most im
portant forum for constructive interchange and cooper
ative efforts among supervisors of different countries.
The committee's main focus has been development of
broad principles and standards upon which bank
supervisors can agree, notwithstanding the various dif
ferences in banking laws and regulatory practices
among the countries represented. For instance, the
committee has supported international standards for
bank accounting on a more consolidated basis than
now exists in many countries.
The committee also serves as a vital clearinghouse
wherein bank supervisors compare supervisory ap
proaches, identify gaps in the regulatory coverage of
international banking, develop guidelines to demar
cate the responsibilities of host and parent authorities
and exchange information of a sensitive nature derived
from a variety of sources. The committee has been in
strumental, for example, in promoting legislation
abroad to facilitate arrangements among supervisors
for confidential exchanges of information. The Euro
pean Economic Community (EEC), in its first banking
directive, provides for exchanges of banking informa
tion among member banking authorities to strengthen
the bank supervisory process within the EEC. On that
point, we strongly support the recommendation of the
Federal Reserve Board in its "Report to the Congress
on the International Banking Act" that the IBA be
amended to provide additional specific statutory au
thority for confidential treatment of exchanges of infor
mation between foreign bank holding companies and
U.S. banking agencies and between those agencies
and their foreign counterparts
Other important initiatives have been undertaken by
bank supervisors on an international basis to foster the
study, improvement and coordination of supervisory
methods. Whenever supervisors from different coun
tries meet, whatever their immediate purpose, there is
always an invaluable side effect in cementing old con
tacts or forging new ones and further developing the
network that can be tapped, when the need arises, to
obtain information or to obtain support or assistance
in dealing with an international bank supervisory
problem.
Formal Enforcement Action
There is no question that foreign owners of a U.S.
bank could conceivably escape certain formal en
forcement remedies traditionally used by U.S. authori
ties, and, short of that result, that legal enforcement
processes would be encumbered in the international
context. Formal enforcement remedies can, of course,
be applied forcefully and unambiguously to the
foreign-owned U.S. bank, and as a practical matter,
that is a key point. To the foreign owner, the most pow
erful consideration is the potential loss of investment.
U.S. authorities can prohibit expansion, interdict divi
dend payments, render the investment useless to a

in the home country, which is critically dependent, of
course, on established contacts, communications and
cooperative attitudes.
There is no question that the most difficult supervi
sory challenge related to foreign acquisitions of U.S.
banks is the verification of the character and financial
integrity of foreign individuals who seek or have control
of U.S. banks. Those individuals often submit financial
statements showing complex overseas holdings
through family or group relationships. Foreign individ
uals generally are not subject to the ongoing supervi
sion of foreign banking authorities. Nevertheless, the
record of U.S. banks controlled by foreign individuals
has been good to date. As in the case of domestic in
dividual control, foreign individual control has been a
factor in some U.S. bank failures. Problems associated
with acquisitions by foreign individuals will be dis
cussed in the section of this testimony covering the
Change in Bank Control Act.
Unlike foreign individuals, foreign banking organiza
tions are subject to established supervisory systems
which provide the U.S. banking agencies with ade
quate measures to determine whether the foreign
banking organizations are sources of strength to the
U.S. banks they control. The Bank Holding Company
Act and the International Banking Act, as well as es
tablished communications with foreign supervisors
and the marketplace, enable U.S. bank supervisors to
verify the financial integrity of foreign banking organi
zations on a regular basis.
Required Reports
Two new reports proposed by the Federal Reserve
Board would significantly improve U.S. authorities' cur
rent information on foreign banking organizations. The
proposed reports would require foreign banking or
ganizations to file, on a periodic basis, financial and
organizational information essentially equivalent to that
required from domestic bank holding companies.
The first new report—FR Y-8(f)—covers intercom
pany transactions between foreign bank holding com
panies and all affiliates, including their U.S. bank sub
sidiaries. The report would be filed quarterly and
should provide an effective basis in most instances not
only for monitoring intercompany transactions but also,
more generally, for enabling U.S. supervisors to deter
mine whether foreign parent companies serve as a
continuing source of strength to their U.S. subsidiary
banks. The report would show the degree of interde
pendence between a foreign banking organization and
its U.S. subsidiary bank and how the U.S. bank per
forms in its global network.
The second part—FR Y-7—would represent a
dramatic expansion in the amount and detail of super
visory information to be filed annually by foreign bank
ing organizations. The Y-7 would require foreign bank
holding companies to submit consolidated balance
sheets and detailed information about earnings, capi
tal accounts and reserves. Information about share
holders, directors, officers and related companies also
would be required.
Supervisory information about shareholders, direc

tors, officers and related companies, as well as a de
tailed discussion of the accounting principles used in
preparing the Y-7, would also be provided. That would
include statements as to how majority and associated
companies are carried and valued.
The Y-7 proposal does not require foreign banking
organizations to complete the Y-7 in accordance with
U.S. generally accepted accounting practices (GAAP).
The GAO recommended that U.S. banking agencies
require foreign banks to submit reports in accordance
with GAAP. The U.S. banking agencies believe that
such a requirement is impractical and that complete
consolidation of subsidiaries could generate less
meaningful information for supervisory purposes than
that required in the Y-7. In addition, a GAAP require
ment would be contrary to laws and conventions in
some countries and would impose an undue reporting
burden on many foreign banks. In effect, the Y-7 would
request foreign bank holding companies to report es
sential bank supervisory information while accommo
dating the vast reporting systems those banks already
have in place, as well as the laws and conventions
within which those banks must operate.
Foreign bank holding companies' main line of busi
ness is banking, and fundamental bank accounting
does not vary significantly from country to country.
However, consolidation and disclosure of bank ac
counts do vary among nations. Recognizing the evolv
ing interdependence of the multinational banking sys
tem, the International Accounting Standards Com
mittee and other international groups, as well as
the world's banking supervisors, are working for har
monization of national accounting practices. Yet, every
country still imposes or encourages its own bank re
porting standards, reflecting its own concerns for
maintaining confidence and stability in its national
banking system. For instance, some governments, be
cause of their desire to have banks report steady, not
fluctuating, earnings and dividends, mandate that
banks not disclose publicly all earnings and reserves.
Another possible problem of requiring complete
consolidation of subsidiaries arises from the fact that
banking laws of many countries do not require com
plete separation of banking and commerce, and per
mit banks to have equity holdings in nonfinancial com
panies. Given the wide range of some banks'
investments, it would be difficult to capture all perti
nent information in a meaningful consolidated format,
and the result could be a confusing mix of financial
and commercial accounts, possibly misrepresenting
the principal business of the foreign bank and detract
ing from the usefulness of the reports for bank supervi
sory purposes. In fact, because of that potential for
misrepresentation, many U.S. multinational companies
do not consolidate their financial subsidiaries.
Foreign banks have established complex account
ing and reporting systems to report financial results of
their multinational operations in accordance with home
country requirements. Those systems are reviewed
and audited by accounting firms, and U.S. supervisors
can generally rely on the quality and integrity of the au
dit and accounting work done by those firms. To re
quire foreign banking organizations to modify and sup-

221

der a new policy for phasing in interstate acquisitions,
such benefits could be required of large bank acquisi
tions by domestic or foreign banks alike, even when
the antitrust implications of the proposal are not ad
verse. Domestic or foreign acquirers of large banks
would have to satisfy the public benefit standard. How
ever, the same standards would apply in either case,
and the present unfairness problem would be re
solved.
If Congress should proceed with phasing out the
Douglas Amendment, there would be an increased
number of potential purchasers for any bank desiring
or needing affiliation to enhance its competitive pros
pects or to strengthen its current position. Any selling
institution would clearly benefit from the larger number
of eligible bidders. New acquisition opportunities also
would be opened for domestic institutions. U.S. banks
would thus stand to gain as both buyers and sellers. It
seems likely that there would be strong mutual inter
ests in certain types of transactions—for example, re
gional or interregional combinations of like-sized
banks. The key point is to create new possibilities for
acquisitions or combinations that could offer benefits
to the domestic banking system and the public it
serves.
International Bank Supervisory Matters
The GAO report discusses difficulties U.S. banking
authorities may face in exercising supervisory control
over foreign owners of U.S. banks and supervising for
eign bank holding companies and direct operations of
foreign banks in this country. It is true that the dynamic
growth and increasing complexity of the interdepen
dent, multinational banking system poses challenges
to bank supervisory authorities throughout the world.
Our experience in international supervisory activities
can shed some light on the tools and techniques re
quired for adequate understanding and regulatory
control in the case of ownership by foreign banks and
individuals. The rest of this testimony summarizes our
observations on existing and proposed supervisory
measures and remaining concerns in that area, acqui
sitions by foreign individuals under the Change in
Bank Control Act and our experience to date in imple
menting the International Banking Act.
U.S. Supervisory Authority and Foreign Ownership of
U.S. Banks
The basic supervisory goals of U.S. bank regulatory
agencies are to assure the safety and soundness of in
dividual banks and the entire banking system, and to
monitor and enforce banks' compliance with all appli
cable laws, regulations and orders. Effective bank su
pervision depends on broad examination authority and
the ability to obtain accurate, timely information con
cerning operations of banks and bank holding com
panies. Foreign acquisitions have raised concerns
about the ability of U.S. authorities to obtain adequate
information on proposed foreign acquirers and to exer
cise effective supervision of foreign-controlled banks.
Foreign ownership does raise supervisory difficulties
not present with domestically owned banks. U.S. au
220

thorities cannot probe directly and unilaterally over
seas into the affairs of foreign owners of U.S. banks.
Some foreign banks use, and their governments may
even mandate, accounting and disclosure practices
quite different from those required in the United States.
Under the laws of their countries most foreign banks
are allowed to conduct a wider range of financial activ
ities than U.S. laws permit U.S. banks.
Notwithstanding those special challenges, we be
lieve that existing supervisory tools are adequate to
ensure the safety and soundness of foreign-owned
banks. Most importantly, those banks are U.S. banks,
after all, and subject to the same comprehensive su
pervision, examination and sanctions as any domestic
bank. In recent years, U.S. bank regulatory agencies
have gained significant new enforcement powers and
have developed more rigorous and flexible bank ex
amination and monitoring techniques, including
computer-based early warning systems and improved
analyses of intragroup transactions. The OCC is further
strengthened in dealing with international banking mat
ters by virtue of its substantial international bank exam
ination experience.
U.S. authorities' ability to supervise foreign-owned
banks has been enhanced by the increasing commun
ication and cooperation among bank supervisors of
many countries that have evolved since the interna
tional banking problems of 1974. Regular meetings
and other contacts and exchanges with foreign super
visors are now a common occurrence. That is impor
tant. The cooperation of bank supervisors in other
countries allows U.S. authorities to gain deeper insight
and verification when necessary to supplement infor
mation obtained from reports required from foreign
owners or applicants to acquire U.S. banks. The agen
cies are also in regular contact with the marketplace
through their examination of U.S. multinational banks.
Those examinations provide direct access to current
information on international banking developments.
Concerns
Three basic concerns have been expressed about
the effectiveness of U.S. supervisory authority with re
spect to foreign ownership of U.S. banks. Can U.S. au
thorities adequately evaluate foreign banking organi
zations and individuals seeking to acquire U.S. banks?
Will sufficient information be available in a timely man
ner and on an ongoing basis to enable effective moni
toring of developments in foreign-controlled U.S. bank
ing organizations? Are U.S. authorities' enforcement
powers adequate to ensure necessary changes in
bank policies or personnel when the controlling inter
ests are located overseas?
A valid concern about potential information prob
lems is indicated in the first two questions. U.S. author
ities do not routinely have direct access to financial
records of existing or prospective foreign owners and
must rely primarily on reports filed by them. Verification
of reported information may be difficult in some cases
and impossible in others, particularly when nondisclo
sure provisions, like privacy laws in the United States,
exist in the foreign party's home country. A major re
course in such situations is to the supervisory authority

would represent a clear and significant breach of prin
ciple and shift of U.S. policy. Although GAO now calls
for a specific time limit on a moratorium, we remain
concerned that even a short time frame could be dam
aging. Moreover, the possibility of an extended mora
torium would persist.
Another potentially serious consequence of the mor
atorium proposal is of special concern to all U.S. bank
supervisors. A moratorium would eliminate the possi
bility of foreign acquisition and strengthening of U.S.
banks that are troubled or weak but not at the point of
bankruptcy or insolvency. Such positive effects have,
of course, characterized a significant number of foreign
acquisitions to date, as the GAO report itself empha
sizes. We believe that it would be short-sighted to cut
off a potentially important source of additional capital
for our banking system.
Rationale for Constructive Change
The confinement of U.S. banking organizations' fullservice banking activity to a single state is not only
anomalous and unfair relative to foreign banks' acquisiton opportunities but also outmoded and, in our
opinion, a serious impediment to rational development
of a strong U.S. banking system that could best serve
the needs of the American public. Rather than setting
up barriers to foreign acquisitions, Congress should
begin lifting the barriers to interstate expansion of do
mestic institutions. The Congress has quite accurately
perceived the confluence of issues surrounding for
eign bank expansion and U.S. bank confinement in
this country. The IBA placed new limits on multistate
expansion by foreign institutions but also called for a
review of old limits on domestic institutions. That law
also called for revising the Edge Act expansion rules
to facilitate interstate expansion of foreign and domes
tic banks in international or trade-related activities.
We have consistently supported gradual elimination
of restrictions on bank expansion, in the interest of in
creasing competitive opportunities and in maximum
reliance on the discipline of the marketplace to bring
about the efficient production and delivery of financial
services. The advantages of such a program are clear
and need only be recapitulated briefly:
• Full-service banking expansion by U.S. banks
would supplant and to some extent replace the
less efficient alternative means now available
for establishing interstate presence, such as
loan production offices, Edge Act facilities and
nonbank affiliates—devices that have been
used in part as second-best solutions to legal
confinement.
• Domestic banks would be able to match the
multistate facilities of foreign banks, over 60 of
which have multistate banking operations which
are grandfathered under the IBA.
• Banking institutions would be better able to re
spond to the competitive challenges of nonbank providers of financial services, companies
whose innovative successes have been attribut
able, in part, to the legal restraints on banks.
• A means would be provided for orderly evolu

tion of our financial services industry in an in
creasingly competitive and complex banking
environment, subject to dynamic technological
change, uncertainty about volatile interest rates,
and inflation.
• New growth opportunities would be made avail
able to domestic institutions, which have stead
ily lost ground in the rankings of the world's
largest banks; interstate acquisitions could be
structured and regulated to foster a stronger,
more competitive domestic system.
• No longer would domestic banks seeking to en
hance their competitive ability or needing as
sistance through affiliation with a larger institu
tion be limited to foreign bank partners; new
possibilities for procompetitive domestic bank
acquisitions and combinations would be cre
ated.
The last point is nearest to the heart of the matter in
these hearings. That is where the foreign acquisition
and interstate banking issues have their major inter
section. At this juncture, we must begin to formulate
new rules to govern acquisitions of healthy banks, in
cluding large bank combinations, not merely extraordi
nary measures to provide for the rescue of failing insti
tutions. We fully support H.R. 7080, of course, but, in
the context under discussion here, that proposal must
be regarded as the minimum required legislative ad
justment to the realities of the financial marketplace to
day. Looking beyond emergency acquisitions, there
are many alternative proposals for opening up inter
state expansion opportunities for U.S. banks and bank
holding companies. At a miminum, the Congress
should devise a practical plan for phasing out the
Douglas Amendment restrictions on interstate bank
holding company acquisitions.
In devising a plan for phasing out the Douglas
Amendment, Congress may find most troublesome the
acquisitions of large and sound banks. Such transac
tions will raise concerns not addressed by traditional
banking structure and antitrust concepts. Those con
cerns are likely to be especially pressing in a transition
period for phasing out the Douglas Amendment. To
address concerns arising in the context of acquisitions
of large banks, Congress might consider fashioning a
policy that would require proponents to demonstrate
not only that the'proposal would pass muster under
traditional antitrust standards but also that there are
substantial public benefits to be derived from the
transaction.
Benefits of a specific transaction might include
some combination of factors such as the following:
strengthening of the capital position of the acquired or
resulting bank, improved management resources or
special expertise, provision of new or better services
to customers of the acquired institutions, gains in effi
ciency to be realized by the resulting combination, or
enhanced competition in markets served by the ac
quired or acquiring bank, stemming from any of the
above factors or others. However, the benefits requi
site to an approval could not be mere tokens.
Benefits such as those just discussed have been
recognized in foreign acquisitions of U.S. banks. Un219

own laws and policies that has been widely recog
nized.
GAO is correct to emphasis this unfairness to do
mestic institutions. However, to elevate this concern as
the sole basis for recommending a moratorium is an
other matter. Alternative reasons for supporting a mor
atorium were explicitly considered and, in our view,
properly rejected by GAO. GAO does not support a
moratorium on any other grounds and indeed rejects
as insufficient or unsubstantiated those concerns that
the soundness of acquired banks may be jeopardized,
that U.S. banking agencies lack adequate tools for
controlling foreign entry or activity, or that existing for
eign ownership of U.S. banking assets is perceived as
too high.
Since the fairness issue is thus isolated as GAO's ra
tionale for a limited moratorium, the question can be
squarely posed and addressed: Is this sole concern
adequate grounds for even a limited moratorium? The
GAO finds it to be "compelling." We disagree. In our
opinion, the inequity is overstated by GAO, and the
potential costs of the recommended moratorium are
not given appropriate consideration. Thus, while we
share the GAO's concern about the unfairness to U.S.
banks, we urge the Congress to reject the proposed
moratorium.
The Congress should move expeditiously to resolve
the problem of unfairness which arises under existing
law by creating new opportunities for domestic banks.
Specifically, the OCC endorses a relaxation of the
Douglas Amendment constraint on interstate bank
holding company acquisitions.
It is time to consider new public policy that ad
dresses both foreign and interstate acquisitions by re
laxing existing restrictions and creating new standards
that apply even-handedly to both types of transac
tions. Before considering a possible basis for such a
policy, we should state the concerns that lead us to
oppose the moratorium proposal as a way to solve the
unfairness problem. Our concerns are, first, that GAO
has overstated the extent of the inequity and, second,
that GAO has given insufficient weight to possible ad
verse consequences of its recommendation.
Unfairness Problem in Perspective
The fairness issue must be put in perspective. The
actual number of foreign banks able or likely to take
advantage of opportunities for large U.S. bank acquisi
tions is limited by several factors. Most importantly, the
recently enacted International Banking Act (IBA) limits
foreign banks to a single home state, in effect treating
them the same as U.S. banks once they have estab
lished an initial banking presence in the United States.
Although foreign banks may change their home state,
it seems reasonable to expect that they will continue to
concentrate U.S. banking activities in money center lo
cations where they have overwhelmingly located their
operations to date. A foreign bank already established
here is subject to the same restrictions as domestic
banks—it cannot acquire a new bank subsidiary out
side its home state and any proposed acquisition
within its home state would be subject to the same an

218

titrust scrutiny as a domestic acquisition. In that situa
tion, the unfairness question does not apply. That point
should be taken into account in evaluating the fairness
issue, particularly since such a large number of the
major foreign banks are already established here. The
latest data indicate that 41 of the top 50 non-U.S.
banks (based on December 31, 1979, ranking by de
posits, American Banker) presently have branches or
subsidiary banks in the United States. The home state
provision limits the probable scope of foreign banks'
prospective acquisition advantage.
The extent of the unfairness is limited further, pro
spectively, by the fact that a number of the largest for
eign banks cannot realistically be viewed as likely
buyers, at least at this time. This is because some are
actually rather specialized institutions with limited or
nonexistent international activities (for example, "cen
tral banks" for savings or cooperative banks in their
home countries), and others must avoid U.S.
acquisitions—and resultant bank holding company
status—to retain their present investments in U.S. se
curities affiliates. In addition, it must be recognized
that the number of large U.S. banks available for pur
chase in money center locations, where foreign bank
ing activity has been concentrated, is limited and likely
to remain so.
The unfairness problem will persist in the absence of
a moratorium—unless U.S. laws are changed—but
those considerations suggest that the actual number
of foreign acquisitions dependent on exploiting an un
fair advantage may be quite limited.
Adverse Consequences of a Moratorium
The GAO does not claim to have assessed the pos
sible consequences of a limited moratorium but stated
its belief that "resolving the policy conflicts outweighs
any potential costs." The possible consequences of a
moratorium need to be weighed carefully. Several con
siderations are extremely important. First, any morato
rium, however limited, would represent a fundamental
conflict with the general U.S. policy of nonintervention
with respect to international investment. Reimposition
of a moratorium could damage the interest of U.S.
banks abroad and possibly the interests of other U.S.
investors as well.
U.S. banks have a substantial overseas presence,
far exceeding foreign banks' aggregate assets held in
this country. As for overall investment of all multina
tional exterprises, year-end 1979 figures indicate that
"our direct investment position overseas approached
$193 billion, nearly four times the total of foreign in
vestment here."f Because the consequences of such
action are potentially quite serious, the possibility,
however remote, of foreign government retaliation
against new barriers erected by the United States,
should not be overlooked. Even a limited moratorium
tStatement of Vincent D. Travaglini of the International Trade Admin
istration, Department of Commerce, before the Subcommittee on
Consumer Protection and Finance of the Committee on Interstate
and Foreign Commerce, House of Representatives, in hearings on
H.R. 7791, "The Reciprocity in Foreign Investment Act," September
9, 1980, p. 5.

rate citizens. The record to date does not indi
cate any problems in that area.
• Whether any level of foreign ownership of U.S.
banks is "unacceptable" in some sense is a na
tional policy question involving social, political,
economic and foreign policy considerations.
There is no clear basis for identifying any par
ticular aggregate foreign share of U.S. banking
resources as a threshold level to trigger policy
concern.
Considering the evidence to date, we have con
cluded, as did the Federal Reserve Board, that no
concern about foreign acquisition of U.S. banks now
justifies reimposition of a moratorium on foreign take
overs. Our conclusion is based on examination of all
the facts that have been assembled about foreign ac
quisitions to date and the performance of foreignowned banks. The factual record does not support
fears that have been expressed or the opinion that a
mortaorium is needed because foreign acquirers may
damage the safety and soundness of U.S. banks or
because foreign ownership may jeopardize the exten
sion of credit to particular communities or industries,
diminish competition in U.S. financial markets, compli
cate or distort monetary policy, or otherwise threaten
vital national interests. In summary, the facts do not
justify imposing a moratorium on the basis of such
fears.
The possibility always exists that foreign banks may
act contrary to U.S. interests, particularly when such
banks are government-owned or sponsored. Most
countries have mixed economies and in many cases
government involvement in the banking system is sub
stantial. Government-controlled banks could be used
to promote government policy objectives that run
counter to U.S. interests. However, foreign
government-owned banks have had operations in this
country for years through branches and, to a lesser ex
tent, subsidiary banks. Their record to date does not
indicate any problems arising from conflicting national
objectives. Even in the unlikely event that a hostile for
eign government attempted to harm the U.S. economy
or financial system through a state-owned bank's
branch or subsidiary here, the government, including
U.S. regulatory authorities, has adequate tools to de
tect and stop such action. We do not believe that the
potential for such an action poses any significant risk.
The GAO report does not support the fears ex
pressed by some opponents of foreign takeovers, but
recommends a moratorium on quite different grounds.
The GAO argues that a moratorium is needed because
foreign banks are able to make acquisitions of U.S. in
stitutions that are precluded for domestic banks and
bank holding companies by U.S. law and policy, and
that the inequity is so grave that it should not be al
lowed to continue. That argument is the single most
important and controversial part of the GAO report and
the conclusion which we find most troublesome.
GAO Report
The GAO report factually recounts and describes
foreign bank expansion in the United States and as

sesses the subsequent performance of banks ac
quired by foreign interests. It includes a brief review
and appraisal of the legal and supervisory framework
affecting foreign bank expansion and operations in the
United States and a discussion of the relative competi
tive opportunities accorded to domestic and foreign
banks. The report will surely serve as a valuable re
source document for all persons interested in the na
ture, extent and control of foreign bank operations. It
should be noted that the GAO's findings generally
agree with the conclusions of the studies by the OCC
and the Federal Reserve Board. Indeed, our staff re
viewed the GAO draft report and offered numerous
technical comments, many of which were incorporated
into the final report. Others are included in our com
ment letter which is reprinted as Appendix XIII of the
report.
For the sake of an informed public consideration of
the issues, several important conclusions from GAO's
study warrant special emphasis, particularly the find
ings that foreign acquisitions have generally had posi
tive effects on the acquired banks, that existing regula
tory and supervisory mechanisms are adequate to
control foreign bank entry and activity and that the cur
rent extent of foreign control of U.S. banking assets is
not considered "too high," nor can a reasonable
threshold level triggering legitimate concern be identi
fied by objective analysis.
Our discussion today of international bank supervi
sory matters will cover the views of the OCC on several
specific GAO recommendations to the banking agen
cies. Most importantly, we oppose GAO's major policy
recommendation of a moratorium.
Opposition to a Moratorium
The GAO report recommends that
Congress enact a limited moratorium on acquisi
tion of domestic banks with total assets of $100
million [or more] by foreign banks or bank holding
companies unless such acquisitions are neces
sary to prevent bankruptcy or insolvency.
GAO recommends that the moratorium:
should continue for only as long as necessary for
the Congress to fully address [but not necessarily
resolve] the basic policy conflicts regarding inter
state banking, antitrust considerations, and for
eign acquisitions of U.S. banks.
In response to agency concerns that resolution of
those matters could easily require a long period of
time, GAO urges the Congress to "set an expiration
date for the moratorium and a specific timetable for the
actions it will take to address the policy issues."
The GAO report states clearly that the moratorium
recommendation is founded in the "basic unfairness"
resulting from foreign banks' ability, in some circum
stances, to purchase large U.S. banks that are unavail
able, in practice, for acquisition by domestic banking
organizations because of federal and state restrictions
on bank expansion and antitrust policy. That is indeed
an inequitable situation, an anomalous result of our
217

acquisitions of U.S. banks and analyze the possible ef
fects of foreign ownership.* I would like to submit
those papers for the hearing record. Along with other
bank regulatory agencies, the Comptroller's Office is
actively monitoring current developments in that area.
The Federal Reserve issued an important staff study
on June 30 summarizing its findings and observations
on the record of foreign acquisition of U.S. banks to
date and the adequacy of existing regulatory and su
pervisory tools. The extensive report prepared by the
Government Accounting Office (GAO) for this subcom
mittee is the latest addition to our growing fund of
knowledge on the subject. Rather than discussing
those studies in detail, we will simply recapitulate
some of the major findings, which have no significant
dispute.
Background
Foreign acquisitions of existing U.S. banks are
largely a phenomenon of the 1970's, particularly the
latter half of the decade. From 1970 through the first
half of 1980, there have been 96 foreign acquisitions of
U.S. banks, 39 by foreign banking institutions and 57
by individuals. The median asset size of foreignacquired banks is less than $50 million. Foreign acqui
sitions reflect primarily the long-run strategic interests
of bank acquirers and economic and political features
of the U.S. market that are attractive to foreign inves
tors. Formerly weak or failed U.S. banks are dispropor
tionately represented among foreign acquisitions. De
pressed bank stock prices and a weak dollar may also
have been factors facilitating foreign acquisitions, but
their significance is unclear. Another factor reflected in
foreign acquisition of U.S. banks is an historical trend
toward an increasing transnational banking presence.
The increasing interest on the part of foreign banks in
retail and "middle market" banking activities mirrors
U.S. banks' growing interest in such "nontraditional"
banking markets overseas.
Findings with Respect to Major Concerns
The studies to date provide evidence that should
ameliorate the concerns which have been expressed
*John E. Shockey and William B. Glidden, Foreign-Controlled U.S.
Banks: The Legal and Regulatory Environment; Diane Page and
Neal Soss, Some Evidence on Transnational Banking Structure; Wil
liam A. Longbrake, Melanie Quinn and Judith A. Walter, Foreign
Ownership of U.S. Banks: Facts and Patterns; Judith A. Walter, Foreign Acquisition of U.S. Banks: Motives and Tactical Considerations;
Thomas A. Loeffler and William A. Longbrake, Prices Paid by Foreign Interests to Acquire U.S. Banks; Judith A. Walter, Supervisory
Performance of Foreign-Controlled U.S. Banking Organizations; Blair
B. Hodgkins and Ellen S. Goldberg, Effect of Foreign Acquisition on
the Balance Sheet Structure and Earnings Performance of American
Banks; Ellen S. Goldberg, Analysis of Current Operations of ForeignOwned U.S. Banks; Ellen S. Goldberg, Comparative Cost Analysis of
Foreign-Owned U.S. Banks; Steven J. Weiss, The Competitive Balance Between Domestic and Foreign Banks in the U.S.; C. Stewart
Goddin and Steven J. Weiss, U.S. Banks' Loss of Global Standing;
Steven J. Weiss, A Critical Evaluation of Reciprocity in Foreign Bank
Acquisitions; Wm. Paul Smith and Steven J. Weiss, Potential Acquisition Partners for Large U.S. Banks: The Discriminatory Effects of Law
and Policy; Steven J. Weiss, Competitive Standards Applied to Foreign and Domestic Acquisitions of U.S. Banks

216

with regard to supervisory, community service, com
petitive and national interest implications of foreign ac
quisition and ownership of U.S. banks:
• The supervisory record of acquired banks has
been strong, generally, and many acquired in
stitutions have been strengthened by their for
eign owners.
• While foreign ownership, particularly ownership
by foreign individuals, does pose some special
challenges for U.S. supervisors, existing proce
dures are adequate and will be further strength
ened by measures currently under consideration.
• The financial performance of acquired banks
has been satisfactory; no unfavorable compari
son vis-a-vis domestically owned banks can be
made.
• The evidence does not suggest that foreign
owners reorient the activities of acquired banks
so as to neglect the needs of local communities
or to favor home country industry at the ex
pense of U.S. companies.
• Many foreign bank acquisitions have procompetitive effects through the strengthening of ac
quired banks' capital or management and the
provision of new services or specialized exper
tise, thereby enabling the acquired institution to
more effectively challenge larger rivals in com
petitive banking markets.
• The ability of foreign banks to acquire large
U.S. banks has helped maintain or enhance the
competitive position and world rank of some in
dividual acquirers but has not had a significant
impact on the overall global standing or com
petitive abilities of U.S. multinational banks.
• U.S. regulators apply statutory criteria evenhandedly to foreign and domestic acquirers,
but because of interstate banking prohibitions,
state branching and bank holding company re
strictions and antitrust laws, foreign banks are
able to acquire large U.S. banks that are fore
closed to domestic banking institutions.
• U.S. banks generally lack opportunities to ac
quire large banks overseas, although that is
largely attributable to structural characteristics
of foreign banking markets or to socio
economic policy considerations that may differ
from traditional U.S. policies.
• Shareholders of acquired banks have received
attractive terms from foreign buyers, and U.S.
bank shareholder interests are generally pro
moted by permitting foreign acquisitions, espe
cially when domestic bank acquirers are ruled
out by U.S. law or policy.
• For monetary policy purposes, the Federal Re
serve now has adequate authority over foreign
bank operations, and there is no evidence to
date that foreign or foreign-owned banks are
unresponsive to Federal Reserve policy.
• Foreign-owned banks may conceivably be sub
ject to conflicting policy objectives of their
home government versus U.S. national inter
ests, but foreign banks have good reasons to
see that their U.S. subsidiaries are good corpo-

met. We must be mindful of the legitimate concern for
the small, financially weak borrower who may fall prey
to disreputable lending practices. In those parts of the
country where credit markets are not yet reasonably
competitive, there is pressing need for minimum safe
guards to protect the rights of those most vulnerable.
We, therefore, have reservations with respect to spe
cific provisions in H.R. 7735. We believe a sweeping
elimination of consumer usury laws such as contem
plated in the bill could have an adverse effect on con
sumers in states which have established adequate le
gal safeguards. Some states have enacted small loan
acts, retail installment credit sales laws, automobile
sales finance acts or other credit codes, such as the
Uniform Consumer Credit Code. Those laws often limit
or prohibit prepayment penalties, late fees, attorney's
fees, use of the Rule of 78's or acquisition fees. To the
extent that those measures contain reasonable provi
sions to protect small borrowers, unsophisticated con
sumers or the public in general, we would be con
cerned with their blanket removal.
We also believe that serious consideration should be
given to any transitional problems that might arise as a
consequence of an immediate lifting of usury ceilings.
Individuals with large outstanding balances on openend lines of credit should not have to experience pos
sible serious difficulties in handling unanticipated in
creases in their monthly payments caused by sudden
increases in their finance charges. One approach
would be to require that the former interest rate be re
tained on the present outstanding balance.

We do not believe that excluding transaction fees
from the computation of the finance charge in connec
tion with open-end credit transaction disclosures, as
proposed in H.R. 7735, would be appropriate. In fact,
it would appear that such a proposal is inconsistent
with the purpose of the Truth-in-Lending Act. Disclo
sure of the finance charge provides consumers with a
measure for comparison shopping for credit. A finance
charge is basically a cost to the consumer conditioned
by or incidental to an extension of credit according to
the Truth-in-Lending Act and its implementing Regula
tion Z. We see no reason to exclude transaction fees
from the finance charge computation, since such fees
are obviously directly related to the cost of credit to the
consumer. We also believe that transaction fees
should be reflected in the disclosed annual percent
age rate.
The OCC supports consideration by Congress of
federal pre-emption of usury ceilings on consumer
credit. In the current environment of inflation and high
interest rates, fixed-rate usury laws are counterproduc
tive. As I have stated earlier, they tend either to restrict
the availability of credit or encourage abuses by un
regulated lenders. Recent legislation which provides
for the phasing out of interest rate ceilings on deposits
by March 1986 represents an important step towards
creating a competitive marketplace. Meaningful reform
of usury laws combined with protection of consumers
against anticompetitive practices fits logically into that
legislative pattern.

major money center locations. For years, pressure has
been building for relief from the legal restraints that ar
tificially confine the expansion of U.S. institutions' full
service banking operations to a single state. Some of
that pressure is internally generated, deriving from
rapid technological change and new initiatives of nonbank revivals. Pressure from the increasing foreign
bank expansion in this country also demonstrates that
the geographic restraints on U.S. banks have become
outmoded. Those artificial restraints impede the ra
tional development of strong domestic institutions that
can best serve the banking needs of the American
public and maintain leadership in the worldwide finan
cial arena.
Foreign Acquisitions
The Comptroller's Office has completed a series of
14 staff papers which examine the record of foreign
215

obtain credit. Instead, good risk customers may be
forced to "double-up" by acquiring costly multiple
loans to get the amount of credit they desire.
Moreover, because credit is an essential ingredient
to commerce, restrictions such as usury ceilings that
limit credit availability may tend to adversely affect em
ployment and dampen economic growth. For example,
a 1977 study by Gustely and Johnson showed that in
Tennessee, which until 1978 had a constitutional inter
est cap of 10 percent, the economy grew faster than
the national economy except when market interest
rates rose above the state usury ceilings. For instance,
between 1974 and 1976, when market rates rose
above the usury ceilings, the study found that Tennes
see's annual loss in production averaged $50 million;
the annual loss of jobs averaged 7,000; the annual
loss of retail sales averaged $80 million; and the an
nual loss of assets in financial intermediaries averaged
$1.25 billion.
Because lending practices are regulated at the state
level, variations in state usury rates distort the geo
graphic distribution of credit as well. That is apparent
from differences in business activity among various
states. Arkansas, which has a 10 percent constitutional
usury limit, is a notable example. In a 1976 study of
Texarkana by Holland and Lynch, it was noted that
there were distinct differences between the types of
firms on the Texas side of the city and those on the Ar
kansas side. There was considerably less retail trade
on the Arkansas side, despite the approximately equal
distribution of Texarkana's population between the
states. The majority of automobile dealers, appliance
stores and other businesses that rely on consumer
credit had moved to the Texas side of the city. Clearly,
inefficiency and inconvenience result from such locational patterns.
Timeliness for Change
The inescapable conclusion, we believe, was well
stated 116 years ago by the first Comptroller of the
Currency, Hugh McCulloch. McCulloch took issue with
the caprice of state usury laws in his initial report to
Congress and concluded: "Where money is abundant
it is cheap, where scarce it is dear; and no legislation
has been able to control the effect of this general law."
Congress has recognized the problems associated
with usury ceilings. With enactment of the Depository
Institutions Deregulation and Monetary Control Act of
1980, state usury ceilings on first lien mortgage loans
were pre-empted. The act also authorized for 3 years a
usury ceiling on business and agricultural loans of
$25,000 or more at the greater of the state usury ceil
ing or 5 percentage points in excess of the Federal
Reserve discount rate. However, the act permits states
to override those federal pre-emptions prior to April 1,
1983. In addition, for all other types of loans, the act
provided that all federally insured lenders may lend at
the greater of 1 percentage point in excess of the Fed
eral Reserve's discount rate or the rate permitted by
state law.
While those provisions of the act represent a step to
wards creating a more competitive, less regulated en
214

vironment, further reforms are needed. The flexible
federal usury ceiling on agricultural and business
loans is only temporary. In addition, the maximum rate
authorized the act is currently too low to provide relief
from state usury ceilings on consumer loans. The cur
rent Federal Reserve discount rate is 10 percent. Be
cause most state usury laws establish ceilings at or
above 12 percent, the provision of the act which per
mits federally insured lenders to charge a rate on con
sumer loans of 1 percentage point in excess of the dis
count rate is not effective in providing lenders relief
from usury laws.
Retention of usury ceilings is also inconsistent with
the direction Congress has moved in phasing out de
posit interest rate ceilings. With the ultimate elimination
of all deposit rate limitations, changes in the average
cost of funds to depository institutions will reflect more
closely changes in market rates of interest. If banks
and other financial institutions are to maintain their
long-term viability, they must be able to adjust interest
charges and fees to accommodate their cost of funds
and operating expenses. When market interest rates
are above usury ceilings, it is difficult for institutions to
pay market rates for deposits. Therefore, if ceilings on
consumer loans are set at unrealistically low levels,
commercial banks will find it increasingly difficult to
engage profitably in consumer lending, amid high and
volatile costs.
Finally, state usury ceilings are quickly becoming an
anachronism in a financial system which is becoming
national in scope. Legal restrictions that attempt to set
the terms and conditions for local lending are becom
ing less and less effective. Households in New York
may use bank credit cards issued by a California bank
and, therefore, be subject to the less restrictive Califor
nia usury ceilings. Similarly, lenders in a state subject
to low usury limits may increase their purchases of outof-state loans or may sell their loanable funds in unreg
ulated national markets such as the interbank federal
funds market. While some individuals and institutions
may be able to adapt to usury ceilings, the impact of
the ceilings on the availability of credit in the local
community can still be quite severe.
Recommendations
We support congressional consideration of an over
ride of state usury ceilings on consumer lending. Such
action would recognize existing market realities and
result in substantial public benefits.
While we would prefer that the problem of usury ceil
ings be resolved at the state level, we recognize that
individual state actions may not come in time to ac
commodate the increasing demands of the credit mar
ket. Moreover, it is clear that no state legislature acting
alone has the power to bring about change on a na
tional scale. Since the problem transcends political
boundaries and the states find it difficult to adopt con
sistent solutions, federal involvement to remove the
ceilings may be the best approach.
In moving toward elimination of usury limits, it is im
portant that the objective of protecting weak and un
wary borrowers from unscrupulous lenders also be

Justice can be made. If an institution is recalcitrant
and refuses to adopt corrective measures required by
the OCC, proceedings can be instituted to terminate
FDIC insurance or revoke a national bank's charter.
The vast array of regulations, reports, onsite exami
nation procedures and other supervisory tools pres
ently available should assure that MMB will be pro-

tected in its dealings with HSBC and related entities.
Supervisory initiatives being implemented specifically
in connection with bank holding companies and
multinational banking organizations should result in
stronger coordination among the three U.S. bank regu
latory agencies and increased cooperation with super
visory authorities from other countries.

Statement of Lewis G. Odom, Jr., Senior Deputy Comptroller, before the
Subcommittee on General Oversight of the House Committee on Small Business,
Washington, D.C., September 23, 1980
I appreciate the opportunity to present the views of
the Office of the Comptroller of the Currency on H.R.
7735, a bill which provides for the pre-emption of state
usury ceilings on consumer credit. This statement
does not necessarily reflect the views of the adminis
tration.
We have been concerned for some time with the im
pact of usury ceilings on the availability of credit in lo
cal markets. As we have stated on several occasions,
usury laws should be repealed, pre-empted or sub
stantially modified because they create arbitrary dis
tortions in our capital market system. In opposing
usury ceilings we have carefully weighed the costs
and potential benefits of usury laws.
Usury laws have persisted because they are widely
perceived as a means of protecting small and unso
phisticated borrowers from unscrupulous lenders by
limiting the power of lenders to charge exorbitant inter
est rates. However, in practice, usury ceilings have
either had minimal effect or have been harmful. When
market rates rise above artificially set usury ceilings,
borrowers perceived to be marginal risks generally
have been unable to obtain credit from commercial
banks or other financial institutions, and credit has
flowed from regulated markets to other markets not
subject to usury ceilings. This has occurred during
every period of high interest rates over the last 15
years.
Goals vs. Effects
Evidence collected over several years overwhelm
ingly indicates that the elimination of usury ceilings
would be in the public interest. Generally, usury laws:
• Fail to accomplish their desired objectives;
• Have an adverse effect on production and em
ployment; and
• Distort the allocation of credit among markets
and states.
Usury ceilings set below market rates of interest
have generally eliminated conventional credit sources,
particularly to high-risk or low-income borrowers. This
occurs because lenders subject to low usury ceilings
generally stop lending to high-rish borrowers when

they are unable to charge interest rates high enough to
yield a reasonable rate of return. Instead, they seek
out preferred low-risk borrowers or lend in markets not
subject to the ceilings. Thus, the intended beneficia
ries of usury ceilings, the high-risk and small bor
rowers, are those most likely to be hurt by such ceil
ings and must either go without credit or borrow from
nonconventional and unregulated lenders.
Even individuals who are considered low risks may
be unable to obtain credit if the total cost of making
small loans exceeds the rate allowable under usury
ceilings. Because of the substantial fixed costs associ
ated with originating and servicing consumer loans,
the break-even rate a lender must charge on small and
short-term consumer loans is quite high.
For example, the 1978 functional cost analysis com
piled by the Federal Reserve System estimated that for
a medium-size commercial bank, the average cost of
making and servicing a $1,000 consumer loan payable
in 12 monthly installments is $157.13. This includes
$54.24 to process the application, $45.12 to collect
and process 12 payments, $52.41 for the cost of funds
and $5.36 to cover the average expected default loss
on a loan of that type. To break even, the bank would
have to charge an annual rate of about 22 percent.
The break-even rate on smaller and shorter term
loans is even higher because loan acquisition and col
lection costs are fixed with respect to the size and ma
turity of the loan. The estimated cost of making and
servicing a 1-year $500 loan with 12 payments would
be $128.14. To break even, an interest rate of over 30
percent would have to be charged. Therefore, be
cause of the costs of originating and servicing con
sumer loans, it is not surprising that financial institu
tions in states with restrictive usury ceilings are
reluctant to make small and short-term consumer
loans.
Institutions operating in markets subject to usury re
strictions are discouraged from offering a full array of
lending services. Commercial banks may avoid mak
ing smaller, more costly consumer loans except to pre
ferred customers. When low legal-loan size limits are
combined with low ceilings on interest rates, the num
ber of loans may increase, but low-income or high-risk
customers may still find it difficult, if not impossible, to

213

agree, notwithstanding significant differences in bank
ing laws and regulatory practices among the countries
represented. For example, a 1975 concordat estab
lished agreement in a number of areas of bank super
vision. Most pertinent to the present discussion, it was
recognized that practical cooperation should be pro
moted on a reciprocal basis in three ways: (1) the di
rect transfer of information between host (branch of
subsidiary bank) and parent (bank or bank holding
company) supervisory authorities; (2) direct inspec
tions by parent authorities in the territory of the host
authority; and (3) indirect inspections by host authori
ties at the request of parent authorities. The committee
also serves as a clearinghouse wherein supervisors
identify gaps in the regulatory coverage of interna
tional banking, compare supervisory approaches, ex
change information of a sensitive nature derived from
a variety of sources and suggesting potential banking
problems, and develop further guidelines to demar
cate the responsibilities of host and parent supervi
sors.
Although Hong Kong is not represented on the
Cooke Committee, the authorities there have commit
ted to abide by the basic supervisory principles and
strategies that are established and implemented by
the G-10 countries. Since Hong Kong is a major inter
national banking market, the government has a strong
incentive to assure that the institutions operating in that
market remain reputable and financially sound.
OCC bank examination procedures (Comptroller's
Handbook for National Bank Examiners) emphasize a
probe into the management, ownership and activities
of customers new to the U.S. bank since its preceding
supervisory examination. That inquiry generally de
velops information about relationships between the
bank and its foreign bank holding company group. Ex
amination procedures also emphasize another type of
inquiry, i.e., an inquiry into whether the relationship
complies with 12 USC 371c, the statute governing affil
iate transactions. The OCC, however, can have diffi
culty tracing a transaction abroad for precise determi
nation of compliance with 12 USC 371c. The
cooperation of foreign bank supervisors may assist in
that tracing, depending on the degree to which the
disclosure laws of a particular nation permit such an
investigation. Nevertheless, when the OCC cannot be
satisfied that transactions between a U.S. bank and its
foreign affiliates are in conformity with legal require
ments, it can institute specialized supervisory enforce
ment measures to stop intragroup activities. OCC bank
examination procedures require close scrutiny of intra
group activities. (See Appendix C for detailed regular
examination procedures associated with insider and
affiliate transactions.) In addition, Sections 203, 204
and 813 of the Comptroller's Handbook for National
Bank Examiners require examination of intragroup
money market dealings and the profits/losses accruing
to a U.S. bank from such dealings.
Bank holding companies, domestic or foreign, influ
ence the activities of a subsidiary bank with other hold
ing company entities and with customers common to
the holding company and other holding company
units. The influence may be exerted through policies
212

centralized at the parent level or through holding com
pany representatives place in the subsidiary bank as
key bank officers and/or as members of the bank's
board of directors.
Intragroup and group-related transactions can be
detected through NBSS and the FR Y-8 reporting sys
tems. NBSS would detect unusual changes in a bank's
balance sheet and operations statement categories
which could represent intragroup activities. For in
stance, NBSS would reflect increases in other ex
penses (in amount and as a percent of average as
sets). NBSS also would report changes in borrowings
or interest margins which might indicate the occur
rence of transfer pricing. The proposed quarterly FR Y8(f) will assist detection because the report requires a
U.S. bank to report all intragroup transactions by vol
ume and type. Unusual activities disclosed through
either system would lead to a specialized bank exami
nation. Ordinary examination procedures are also de
signed to identify intragroup activities and concentra
tions (Appendix C). If unsafe and unsound
intercompany transactions or group-related concentra
tions are discovered, then specialized supervisory
enforcement measures can be instituted.
However, as is generally true with all areas of bank
examinations, OCC supervisory resources cannot pos
sibly audit all transactions between a large subsidiary
and its affiliates abroad and completely prevent im
proper intragroup activities. To police intragroup trans
actions, supervisory authorities must also rely on the
quality of a bank's internal policies and controls, exter
nal audits by public accountants and information from
external market intelligence, which often is accurate
and directs supervisors to potential problems. Al
though the proposed FR Y-8(f) will assist U.S. supervi
sors in monitoring intragroup activities, the area is a
warranted supervisory concern.
Sanctions—Finally, buttressing the system of U.S.
bank regulation and supervision is a comprehensive
set of legal and administrative sanctions that can be
applied against banks and bank-related individuals
and companies that commit violations of law or partici
pate in unsafe or unsound banking practices. Direc
tors and officers have a fiduciary duty to pursue poli
cies that are in the best interest of the bank. Directors
of a national bank are personally liable in damages for
willful violations of the National Bank Act. The most
general administrative remedies are provided by 12
USC 1818, which empowers the appropriate federal
banking agency to issue a cease and desist order
against a bank or any director, officer, employee,
agent or person participating in the conduct of the af
fairs of the bank that the agency finds is violating a law
or regulation or is engaging in an unsafe or unsound
practice. The order may require the bank or person to
take "affirmative action" to correct the conditions re
sulting from any such violation or practice. In addition,
the banking agency may impose civil money penalties
on a bank and bank-related individuals for violations of
various banking statutes and regulations, including the
restrictions on lending to affiliates. Removal of bank of
ficers and directors is possible in specified circum
stances, and criminal referrals to the Department of

tives with respect to foreign bank holding companies
to promote two broad goals: first, to assure that the
U.S. subsidiary bank is operated in a safe and sound
manner and, second, to assure that the parent bank
holding company is a source of strength to the U.S.
bank. Those initiatives include increasing examiner
surveillance of intercompany transactions and com
mon customer credits, soliciting the views of foreign
bank regulatory authorities with regard to foreign
banks subject to their jurisdiction, improving the qual
ity of annual financial information on foreign bank hold
ing companies, and requiring quarterly reports on
transactions between the U.S. subsidiary bank and its
foreign parent.
The Federal Reserve's Y series of reports deals di
rectly with intragroup activities. The present FR Y-8 re
quires domestic bank holding companies to file quar
terly reports on intragroup transactions. Soon the
Federal Reserve will issue final regulations covering
new reporting requirements for foreign bank holding
companies.
The first report is a revision to the Annual Report of
Foreign Bank Holding Companies (FR Y-7) which
would require foreign bank holding companies at en
try, and annually thereafter, to submit detailed supervi
sory information about their consolidated condition,
shareholders, officers and directors, and affiliates. To
ensure identification of significant affiliates, the pro
posed report requires foreign bank holding companies
to submit:

Subsidiaries (FR Y-8(f)). The Federal Reserve pro
poses that this report be filed quarterly for a 2-year
period. The report is designed to monitor intragroup
transactions and ensure U.S. supervisors that foreign
bank holding companies are serving as a source of fi
nancial strength to their U.S. bank subsidiaries. Specif
ically, the report requests data on the following intra
group activities:

• An organization chart showing the names of all
entities of which the foreign bank holding com
pany owns or controls 25 percent or more, as
well as showing the location of the entity and
the manner in which the 25 percent or more
control is exercised;
• A list of each shareholder who directly or indi
rectly owns, controls or holds, with the power to
yote, 5 percent or more of any class of out
standing shares of a foreign bank holding com
pany. Such listing is to include the name of the
shareholder and the beneficial owner of the
shares, the principal residence or office of the
shareholder and beneficial owner and the num
ber and percentage of each class of voting se
curities, or the equivalent thereof, owned, con
trolled or held with power to vote the shares.
• A list of each director and executive officer, or
equivalent, of the foreigh bank holding com
pany which shows the person's name, principal
location and country of citizenship, principal oc
cupation, if other than employment with the for
eign bank holding company, and title or posi
tion with the bank holding company and
number and percentages of each class of vot
ing securities, or the equivalent thereof, owned,
controlled or held, with power to vote, of the for
eign bank holding company and its related en
tities.

Examination Procedures—OCC onsite bank exami
nation procedures and market intelligence have been
the traditional supervisory means for detecting the re
lationships of a foreign bank holding company and its
affiliates with a U.S. subsidiary national bank. Most for
eign bank holding companies are major multinational
organizations which publish annual reports disclosing
most affiliations. Any affiliate relationship not so dis
closed generally is minor but still known to the banking
community at large. The OCC has access to banking
community information through periodic bank exami
nations and contacts with U.S.-based multinational
banks and through regular communications with
bankers, other U.S. bank supervisors, foreign bank
supervisors and other U.S. and foreign government
entities.
For instance, supervisory and examination initiatives,
particularly with respect to the multinational banking
organizations, are taking place in the context of in
creasing cooperation among authorities in the devel
oped nations of the world. The most important interna
tional forum is the Committee on Banking Regulations
and Supervisory Practices, known informally as the
Cooke Committee after its incumbent chairman. Estab
lished in 1974, that committee includes representa
tives from the supervisory authorities and central
banks of the countries of the Group of Ten (G-10) plus
Switzerland and Luxembourg. It has a secretariat pro
vided by the Bank for International Settlements at
Basel (Switzerland) and meets regularly three times a
year.
The committee's main focus has been to establish
broad principles on which the supervisors could

The second report proposed by the Federal Reserve
Board is a Report of Intercompany Transactions for
Foreign Bank Holding Companies and Their U.S. Bank

• Transfer of assets, e.g., securities and loans;
• Expenses paid by a U.S. subsidiary to other
group members, e.g., interest expenses or
service fees;
• Liabilities and claims between the U.S. subsidi
ary bank and group members, e.g., deposits or
borrowings;
• U.S. bank subsidiary participation in loans origi
nated or syndicated by other bank holding
company members, including guarantees and
standby letters of credit;
• Compensating balances between the U.S. sub
sidiary and other group members;
• U.S. bank subsidiary loans or commitments
made in connection with credit extended by
third parties to other bank holding company
members; and
• Foreign exchange transactions, including infor
mation about the profitability of those transac
tions to the U.S. subsidiary bank or the affiliated
counterparty.

211

kets. In that context, it is important to note that the
OCC has established a mutually beneficial relationship
with the banking authorities in Hong Kong as a result
of the examinations of U.S. banks which OCC con
ducts semiannually in the colony.
Laws and Authorities—Agreements and assurances
aside, it is, of course, fundamental that MMB, as any
national bank, must comply with a vast array of laws
and regulations (See Appendix B.) that are specifically
designed to promote the safety and soundness of the
national banking system. For example, a national bank
in the United States can invest only in government obli
gations and in certain other types of investment securi
ties that are, by definition, marketable and nonspeculative in nature. Bank directors may periodically
declare dividends out of net profits, but only if there is
an adequate surplus fund. A national bank is restricted
in the amount of money it may borrow, in the types and
amounts of real estate loans it may make, in the
amount of credit it may extend to a single borrower
and in the type and amount of drafts and bills of ex
change it may accept.
Extensions of credit to insiders—officers, directors,
shareholders who own more than 10 percent of a class
of securities, and their related interests—are limited as
to type, cannot exceed specified individual and aggre
gate amounts, cannot be preferential in any way and
require the prior approval of a disinterested majority of
the bank's entire board of directors. The executive offi
cers and principal shareholders of a bank must file an
annual report with the board of directors concerning
any indebtedness they may have with a correspondent
bank. A bank must file annually a publicly available re
port with the appropriate federal banking agency list
ing its principal shareholders and all of its officers and
directors who are indebted, or whose related interests
are indebted, to the bank or one of its correspondents,
along with the aggregate amount of indebtedness.
Section 23A of the Federal Reserve Act (12 USC
371c) deals specifically with intercompany transac
tions and provides that a member bank cannot lend to
or make investments in any affiliated institution, includ
ing the bank's parent holding company, in excess of
10 percent of the bank's capital stock and surplus. A
20 percent lending limit is imposed on all affiliate
transactions in the aggregate. The term "affiliate" in
cludes any corporation, business trust, association or
similar organization which is controlled by the bank or
by controlling shareholders of the bank or any organi
zation which owns or controls a majority of the stock of
the bank or can elect a majority of the bank's directors.
Any extension of credit by the bank to an affiliate must
ordinarily be secured by specified collateral having a
market value in excess of such extension of credit.
Loans to individuals associated with an affiliate are
deemed to be extensions of credit to the affiliate. Any
foreign person or organization, wherever located, falls
within the coverage of those provisions. Section 2(h) of
the Bank Holding Company Act specifically states that
the application of the law:
. . . shall not be affected by the fact that the trans
action takes place wholly or partly outside the
210

United States or that a company is organized or
operates outside the United States.
The federal bank regulatory agencies have broad
examination authority to enforce compliance with those
and all other applicable laws and regulations. Under
the Federal Deposit Insurance Act, for example, the
appropriate federal banking agency, or its designated
representatives:
. . . are authorized to administer oaths and affirma
tions, and to examine and take and preserve testi
mony under oath as to any matter in respect to the
affairs or ownership of any [insured] bank or insti
tution or affiliate thereof.
The attendance of witnesses and the production of
documents "may be required from any place in any
state or in any territory or other place subject to the ju
risdiction of the United States. . . ." The National Bank
Act provides that refusal to give to the OCC "any infor
mation required" in the course of examination of any
affiliate of a national bank, including the parent holding
company, subjects the bank to forfeiture of its "rights,
privileges, and franchises. . . ." Each of the bank regu
latory agencies has authority to demand information in
the form of regular or special reports sworn to be ac
curate and complete by appropriate bank officials.
Failure to submit complete and timely reports exposes
a bank and its management to civil penalties. Submis
sion of false statements to examiners, falsification of
bank records or false reports to the regulator consti
tute a felony punishable by fine and imprisonment.
Reporting Requirements—Banking agencies in the
United States and elsewhere, including Hong Kong,
conduct two forms of examinations—remote and onsite. Remote examination traditionally has emphasized
monitoring through various reporting requirements. In
the U.S., current reporting requirements provide data
for computerized analysis of banks, with that analysis
then directing or assisting onsite examination.
The OCC and the Federal Reserve currently require,
from large banks and holding companies such as
MMB, specialized reports of condition which facilitate
remote examination of the bank and its holding com
pany. The OCC has developed and continues to
strengthen its National Bank Surveillance System
(NBSS) for all national banks and especially for U.S.
multinational banks. The OCC has also established a
Multinational Banking Department (headed by a Dep
uty Comptroller) which quarterly conducts a sophisti
cated quantitative analysis of the largest national
banks, including MMB. The OCC's requirements in
clude reports that permit sophisticated analysis of a
bank's earnings and capital formation, financial plan
ning, strategic new business planning, funding man
agement and changes in balance sheet composition
and earnings components. It should be pointed out,
however, that OCC's reporting requirements are only
likely to permit detection on a remote basis of immod
erate intragroup activities which would cause unusual
changes in a bank's earnings and balance sheet com
position.
The Federal Reserve is undertaking several initia-

analysis of foreign-owned banks' performance in the
U.S. shows that they tend to have a higher overall cost
of funds than geographically similar domestically
owned peers.
Finally, it is conceivable that foreign banks' ability to
offer services abroad (directly or through affiliates)
which U.S. institutions are unable to provide here
could attract a certain amount of business from U.S.
multinational firms at the expense of domestic banks.
That possibility is limited by the fact that U.S. banks
could respond to most substantial challenges through
their activities overseas, where they have greater free
dom to engage in nonbanking activities. There is no
evidence that U.S. banks have been seriously hurt by
foreign banks' ability to offer a broader range of serv
ices in other markets. There is certainly no stampede
of U.S. banks seeking foreign bank holding company
affiliation to reap such perceived advantages.
On the whole, there is no reason to believe that U.S.
banks are adversely affected because foreign banks
are allowed to own nonfinancial enterprises. Present
U.S. policy constitutes a reasonable adjustment to the
realities of multinational banking and the different laws
and practices prevalent in other nations. The balance
of essentially equal competitive opportunity is not dis
turbed by the exemption of foreign nonfinancial activi
ties, and the national treatment policy objective is
intact.
What consideration was given by the OCC, in its review
of the charter conversion application of Marine Midland
Bank, to the nonfinancial overseas activities of the
Hongkong organization?
The OCC's review of the charter conversion applica
tion by MMB included an inquiry into HSBC since the
Federal Reserve, on March 16, 1979, had approved,
under the Bank Holding Company Act, a proposed ac
quisition by HSBC of control of MMB's parent holding
company (MMBI).
The OCC's inquiry into HSBC's direct and indirect
affiliations found that most of those affiliations, includ
ing nonfinancial units, were insignificant to the overall
activities and financial condition of HSBC. Accord
ingly, the OCC concentrated on the activities and fi
nancial condition of the small number of material
HSBC investments to determine their quality and the
expertise with which HSBC monitored and managed
those affiliations. The objectives of OCC's inquiry into
HSBC were to determine the degree to which HSBC
might be a source of ongoing financial strength to
MMB and to determine what managerial support
HSBC might provide MMB if necessary. The OCC con
sidered HSBC's direct and indirect nonfinancial activi
ties in terms of the effect on HSBC's potential financial
and managerial support to MMB. The Federal Reserve,
in its decision of March 16, 1979, approving HSBC's
proposal to acquire control of MMBI stated, among
other things, its conclusion that HSBC would be a
source of financial and managerial strength to MMB.
While the OCC did not review the Federal Reserve de
cision, and had no authority to do so, its onsite exami
nation of HSBC produced no evidence that would ne

cessitate reconsideration of that conclusion by the
Federal Reserve. (See Appendix A for a chronology of
the OCC's process in dealing with the conversion ap
plication.)
How will present regulations, reporting requirements
and examination procedures control inappropriate
transactions between MMB and other components of
the HSBC organization?
The OCC does not anticipate inappropriate transac
tions between MMB and the HSBC group. HSBC ac
quired control of MMBI to expand its global banking
network. That acquisition involves an investment by
HSBC of $314 million. Therefore, it is reasonable to ex
pect that HSBC will not endanger its investment, repu
tation and long-term global strategy by entering into in
appropriate or abusive transactions with MMB.
The OCC does anticipate a certain amount of intragroup activity between MMB and the rest of the HSBC
group. Such activity would represent natural exten
sions of commercial business arising from the U.S.
bank's affiliation with a foreign bank holding company.
For instance, a foreign bank holding company can nor
mally be expected to redirect some of its U.S. corres
pondent business from other U.S. banks to its subsidi
ary. A foreign bank holding company also can be
expected to "market" its U.S. subsidiary bank to
group-related clients as a dollar lending source or as a
source of services not offered by other members of the
parent group, such as trust or data processing serv
ices. Intragroup transactions are also common be
tween a foreign parent's U.S. subsidiary bank and the
U.S. branch or agency of the parent. Those transac
tions may range from settlement of intragroup ac
counts to participation in loans to traditional, "institu
tional relationship" clients of the foreign bank holding
company group.
Although supervisory experience shows no patterns
of abuse in intragroup transactions between a U.S.
subsidiary bank and its foreign bank holding company
system, federal banking agencies continue to scruti
nize closely all such transactions. The supervisory
tools available for monitoring and controlling intra
group activities include supervisory arrangements,
laws and authorities, reporting systems, examination
procedures and sanctions.
Supervisory Arrangements—As the OCC stated on
January 28, 1980, in announcing its decision to ap
prove the conversion of MMB, the OCC and MMB en
tered into a supervisory agreement in which MMB
agreed to maintain procedures to segregate and iden
tify transactions with or involving affiliated entities, and
HSBC agreed to provide or give the OCC access to in
formation the OCC deems necessary to enable it ade
quately to discharge its supervisory responsibility with
respect to MMB. HSBC also gave assurances to OCC
that it will not permit any of its nonbank subsidiaries to
borrow from MMB or its affiliates. Finally, there are un
derstandings among the world's supervisory authori
ties which emphasize the need for bank supervisory
cooperation to assure the integrity of financial market
transactions and the banking institutions in those mar-

209

tion in the United States, many countries have tradi
tionally permitted and, in some cases, actively encour
aged close business relationships between banks and
nonfinancial firms. The challenge for U.S. policy has
been to accommodate such differences so that foreign
banks may compete in this country on an equitable
basis, while at the same time preserving the separa
tion of banking and commerce in our domestic
markets.
U.S. Policy Toward Foreign Banks' Nonfinancial Investments and Activities—U.S. policy has been de
signed, in essence, to insulate the U.S. market from
the combination of banking and commerce permitted
overseas and to minimize possible competitive disad
vantages to U.S. banks stemming from foreign banks'
involvement with commercial enterprises. The Bank
Holding Company Act was amended in 1966, 1970,
and again in 1978—as part of the IBA—to permit for
eign bank participation in our banking markets on a
basis consistent with those objectives.
Foreign bank holding companies' operations in the
U.S. have been subject to the separation of banking
and nonbanking activities'according to standards simi
lar to those applied to domestic institutioQs. As a con
dition of entry, the Federal Reserve Board has required
foreign bank holding companies to divest their U.S. se
curities affiliates or other nonbanking companies
whose activities are inconsistent with restrictions im
posed on domestic banking institutions.
Neither Congress or the Federal Reserve, however,
has presumed to attempt to restrict foreign banks'
overseas operations or investments so as to conform
with our domestic requirements. Instead, Congress
deliberately provided that foreign nonbanking activities
and investments of foreign banking organizations may
be exempt from the nonbanking prohibitions of U.S.
law. The Federal Reserve Board has implemented reg
ulations to carry out the congressional policy.
The wisdom of that policy is made clear by consid
ering the practical impact of the alternative approach,
namely attempting to impose the U.S. nonbanking pro
hibition on the overseas activities of foreign banks. Any
such attempt would represent an unwarranted extra
territorial extension of U.S. regulatory principles to
countries with quite different well-established stan
dards of their own. If the foreign policies permitting the
combination of banking and commerce were a matter
of grave concern and there were doubts about our
ability to insulate U.S. markets from possible adverse
effects, it would, of course, be possible to impose our
will by denying entry to foreign banking organizations
with substantial nonfinancial interests and requiring di
vestiture of such interests by foreign banking organiza
tions already operating here. Such action would, in ef
fect, amount to putting up a discriminatory screen
against foreign entry, denying most foreign banks any
opportunity to compete in our markets. Retaliation by
foreign governments would likely follow, to the clear
detriment of our own commercial interests. Most im
portantly, perhaps, we would deny ourselves the bene
fit of foreign competition, expertise and capital in our
own domestic financial markets.
We believe that the present U.S. policy poses no
208

significant threat to the separation of banking and
commerce in the United States or to the domestic
competitive position of U.S. banks. The exemption of
foreign banking organizations from U.S. nonbanking
prohibitions does represent differential treatment of
foreign concerns, but it represents a deliberate policy
choice and does not compromise the principle of na
tional treatment. Foreign banking organizations do
have some advantage because of the exemption, but
it is important to consider whether any such advantage
is significant or important in the balance of domestic
competitive opportunity.
Competitive Impact of the Exemption—The possibil
ity of adverse competitive impacts on domestic banks
in U.S. markets from foreign banks' overseas nonfinan
cial activities or investments has received very little at
tention. One reason for this is that there has been no
outpouring of complaints or charges concerning unfair
competitive practices. Nonetheless, it may be worth
considering the different ways that U.S. banks could
be affected by foreign banks' involvement with nonfi
nancial enterprises overseas.
First, if foreign nonbank companies operating in the
United States channel their banking business exclu
sively to related foreign-owned banks in this country,
U.S. banks are denied an opportunity to gain domestic
business. Present laws and regulations preclude do
mestic operations of direct commercial affiliates and
prohibit preferential credit extension to exempt nonbank companies. Even so, home-country ties may be
informal, and relationships may exist even though no
clear determination of control is warranted. While some
foreign corporations undoubtedly follow those homecountry ties, such a tendency is little different from nor
mal business practices of multinational companies
which can be expected to gravitate toward homecountry banks whether or not formal or informal rela
tionships exist. Some concentration of loans to homecountry multinational corporations has been noted by
bank examiners, particularly in the loan portfolios of
foreign-owned banks that were established de novo
and whose activities typically complement those of the
worldwide group. In the same way, U.S. banks' over
seas activity is heavily oriented to serving the needs of
U.S. multinationals. As multinational banking competi
tion intensifies, however, traditional home-country loy
alties are tending to weaken or break down.
It has also been argued that affiliated nonbank com
panies could channel funds to foreign-owned banks at
below-market rates or borrow funds at noncompetitive
rates, thereby indirectly subsidizing the foreign-owned
banks' U.S. operations. If this occurred, the foreignowned banks would have an advantage in competing
for other business not affected by such nonmarket" be
havior. That type of activity is not unknown among
multinational corporations. There is, of necessity, a
compensatory loss to the nonbank firms whose nonmarket transactions indirectly subsidize the foreignowned banks. Such activity would tend, therefore, to
be self-limiting in most circumstances. Moreover, it
would affect only a small segment of foreign bank ac
tivity in the United States. Indirect evidence suggests
that this type of cross-subsidy is not a problem: Our

ship of overseas nonfinancial enterprises by foreign
bank holding companies? (2) What consideration was
given by the OCC, in its review of MMB's charter con
version application, to the nonfinancial overseas activi
ties of the Hongkong organization? (3) How will
present regulations, reporting requirements and exam
ination procedures control inappropriate transactions
between MMB and other components of the Hongkong
organization? Our statement responds to each of those
questions, and, in addition, a comprehensive descrip
tion of the OCC's decisionmaking process relating to
the MMB conversion application, a summary of appli
cable laws and regulations and a detailed description
of regular examination procedures associated with in
sider and affiliate transactions are attached as appen
dices.*
U.S. National Treatment Policy and Foreign Banks' Involvement with Nonfinancial Enterprises
The structure of the financial sector in any nation re
flects many factors, including historical traditions,
overall size and diversity of financial markets and par
ticular government policy objectives which underlie
laws and regulations defining and, limiting the permis
sible business of banking institutions. In the United
States, the size, complexity and diversity of the econ
omy have fostered an unparalleled development of fi
nancial services. Government policy has historically
enforced the separation of banking and commerce,
.leading to the creation of a structure wherein involve
ment of banks with nonfinancial enterprises, whether
directly or through affililates, is more narrowly circum
scribed than in many other industrial countries and
wherein financial markets are highly segmented. Into
this structure, we have welcomed the entrance of for
eign competitors and have defined their permissible
activities in terms of the principle of national treatment,
which asserts that foreign banking organizations
should be able to compete in domestic markets on es
sentially equal terms vis-a-vis domestic institutions.
Foreign banking organizations operating in the
United States are permitted ownership of overseas
nonfinancial enterprises. In our opinion, that does not
violate the principle of national treatment. In a world
characterized by complex multinational banking rela
tionships and by the diverse traditions and policy inter
ests of individual nations, implementation of a national
treatment policy requires a balancing of competitive
factors rather than strict equality of regulatory require
ments. The statutory exemption for overseas nonbanking involvement of foreign banking institutions operat
ing in the United States reflects a practical response
by Congress to differences in other nations' banking
systems. There is no evidence that the exemption has
caused a competitive imbalance between foreign and
domestic banks in this country.
National Treatment in Principle and Practice—Our
government has followed a policy of openness to for
eign trade and investment throughout most of our his* The appendices are not attached to this statement because of
space limitations. They are available elsewhere.

tory. The principle of national treatment is in keeping
with the general U.S. policy of avoiding impediments
to the free flow of capital across our national borders.
The Federal Reserve Board has based its regulation of
foreign bank holding companies on the national treat
ment approach, and the Congress, in enacting the In
ternational Banking Act of 1978 (IBA), adopted na
tional treatment as the basis for federal regulation of
foreign banking operations.
The intent of our national treatment policy is to es
tablish a federal regulatory framework which is nondiscriminatory in its effects on domestic and foreign
banks operating in this country and which affords for
eign banks essential equality of competitive opportunity vis-a-vis domestic institutions in similar circum
stances, t
In practice, an equitable competitive balance be
tween foreign and domestic banks in a particular
country may not be achieved by applying identical
regulations and requirements to each. Because of in
herent differences in the structure and operations of
foreign banks, some differential regulatory treatment
may be necessary. This was clearly recognized by
Congress in its deliberations on the IBA. A House re
port noted that:
. . . the same regulatory structure of foreign and
domestic banks will not result in equal treatment
and discretion is needed to devise a regulatory
framework which is appropriate to the actual oper
ations and status of foreign banking institutions.
Several provisions of the IBA illustrate clearly the de
liberate effort by Congress to adjust regulatory require
ments to obtain a reasonable balance of competitive
opportunity for foreign and domestic banks.
The U.S. commitment to the policy of separation of
banking and commerce is clear and strong. It reflects
a policy objective that is not generally shared by other
nations of the world, including some which are the
homes of major multinational banks. Unlike the situafln the IBA, Congress rejected reciprocity as an alternative basis for
U.S. federal regulation of foreign banks. National treatment is a pref
erable approach, in our view, for several reasons: (1) Reciprocity
would conflict with the U.S. policy of neutrality with regard to interna
tional capital flows by selectively restricting investment from certain
countries; (2) Reciprocity represents a reactive rather than a positive
approach; national treatment is a flexible approach that enables the
host country to adopt a policy that best serves its interests, irrespec
tive of other governments' views; (3) In significant practical ways,
reciprocity would create an administrative nightmare, entailing de
tailed differentiation of regulation on a country-by-country basis; (4)
Experience in international relations, generally, has demonstrated
that reciprocal arrangements tend to degenerate to the lowest com
mon denominator of permitted activities, restricting options available
to all affected parties; and (5) Reciprocity is conceptually ambig
uous as a basis for policy: It can be interpreted in several different
ways and, internationally, it is implemented quite differently by var
ious nations. (For a more complete discussion, see Report to Congress on Foreign Government Treatment of U.S. Commercial Banking Organizations, Department of the Treasury, 1979, pp. 3, 20-21.)
Several states impose reciprocity requirements on foreign banks
as a means of applying pressure on other countries to open their
markets to competition by banks from that state. The U.S. govern
ment has chosen to apply pressure instead through diplomatic and
other channels (ibid., Ch. 36). In its regulation of federal branches
and agencies of foreign banks, the OCC has determined that it is not
bound by state reciprocity requirements (12 CFR 28).

207

ing law enforcement mechanisms and laws to deter
mine if conflicting statutory purposes may unjustifiably
frustrate law enforcement purposes.
Recent Amendments to 31 CFR 103
The Department of the Treasury has recently
adopted certain amendments to its regulations regard
ing financial record-keeping and reporting of currency
and foreign transactions. The amendments generally
affect banks by requiring that (1) the reports required
to be filed under the regulation be more timely, (2) the
banks retain certain reports for 5 years, (3) more com
plete identification be obtained regarding customers
whose cash transactions exceed $10,000, (4) the ex
emption for established customers maintaining a de
posit relationship be limited to retail businesses and
(5) reports be filed regarding certain presently exempt
transnational currency transactions.
With certain exemptions, a financial institution within
the United States must file a Currency Transaction Re
port, Internal Revenue Service (IRS) Form 4789, for
each deposit, withdrawal or exchange of currency or
other transaction which involves more than $10,000 in
currency. That report is required to be filed with the
IRS on or before the 45th day following the date on
which the transaction occurred. The recent amend
ment would require that such reports be filed within 15
days after the day on which the transaction occurred.
The recent amendment is to provide enhanced capa
bility to monitor and to assure compliance with the act.
The second amendment to the regulations requires
financial institutions to retain a copy of each Currency
Transaction Report for 5 years. No such retention was
previously required. Although many banks routinely re
tain copies of such reports, that requirement will en
sure that copies would be available for the use by
bank regulatory agencies that have responsibility for
examining bank compliance with the reporting require
ment.
Previously, the regulations did not require that finan
cial institutions obtain adequate information regarding
the identity of individuals whose transactions exceed
$10,000 in cash. Under the recent amendments, a fi
nancial institution must obtain and record additional

specific information regarding the name and address
of the person presenting the transaction and record
the identity, account number and social security or tax
payer identification number, if any, of the person
whose account such transaction is being effected.
Verification of aliens may be by passport or other offi
cial documentation evidencing foreign nationality or
residence. Verification of identity, in any other case,
may be by any document normally acceptable as a
means of identification when cashing checks, such as
a driver's license or credit card. In each instance, the
method of verification must be recorded on the report.
Banks previously were not required to report cur
rency transactions with established customers in
amounts which the bank may reasonably conclude do
not exceed amounts commensurate with the custom
ary conduct of the business, industry or profession of
the customer. That regulatory exemption has been lim
ited to retail establishments and certain other busi
nesses and further requires that banks maintain a list
identifying the location and character of exempt busi
nesses to be furnished to Treasury on request.
Lastly, banks were not required to report transac
tions solely with, or originated by, financial institutions
or foreign banks. The exclusion for such transactions
has been limited to domestic banks to alert the Depart
ment of the Treasury of unusal transnational move
ments of currency.
The intent of those amendments is to provide Treas
ury with increased capability to monitor and assure
compliance with the Bank Secrecy Act and to provide
additional information concerning possible illegal flows
of currency in the United States. We believe that the
recent regulatory amendments may also facilitate the
investigation of narcotics trafficking, tax evasion and
other "white collar" criminal activities; however, it
should be recognized that the Bank Secrecy Act and
its implementing regulations are limited tools for use
by law enforcement officials in pursuing criminals. Ex
panded agency cooperation and assistance to detect
unlawful conduct would better assure the eradication
of criminal elements from our society. We are prepared
to assist in such an effort to the fullest extent possible
under the existing law.

Statement of John G. Heimann, Comptroller of the Currency, before the
Subcommittee on Commerce, Consumer and Monetary Affairs of the House
Committee on Government Operations, Washington, D.C., June 25, 1980
The subcommittee has requested testimony regard
ing foreign bank takeovers of U.S. banks and the mat
ter of the recent Hongkong and Shanghai Banking
Corporation (HSBC) acquisition of Marine Midland
Bank (MMB) in particular. The subject is broad, but in
asmuch as we have been specifically asked to present

rency on three particular issues, the testimony will
focus on those specific concerns.
In connection with the HSBC acquisition of 51 per
cent of the common stock of the holding company of
MMB, three questions have been posed: (1) How does
the principle of national treatment apply to the present

of more than a sample of millions of daily cash trans
actions. Our policy, therefore, is to first assess the
bank's internal and external controls and audits with
the objective of evaluating their adequacy under the
recordkeeping procedures. It is essential that the
banks themselves have adequate internal and external
controls in place to ensure their routine compliance
with existing regulatory requirements.
The second step of our examination is to sample
transactions occurring in those bank asset and liability
accounts which are relevant to the recordkeeping and
reporting requirements. Finally, if those procedures
disclose operational inadequacies or possible illegal
conduct, we perform an indepth examination of the
problem areas and make appropriate criticisms and
referrals to the Department of the Treasury.
Since implementation of the financial recordkeeping
regulations, this Office has worked closely with repre
sentatives of the Department of the Treasury responsi
ble for enforcement of the law. On a quarterly basis,
the OCC refers all possible violations of the Bank Se
crecy Act which were discovered through the exami
nations conducted in the preceding 3 months. Appen
dix A* summarizes our reported experience for 1979
with bank violations of the act.
During the last quarter of 1979, 10 national banks in
Florida were reported to Treasury as having had one
or more possible violations of the recordkeeping and
reporting requirements. Only one of those banks, how
ever, was cited for possible violation of the currency
reporting provisions of the regulation. In that case, the
required reports were prepared before the close of the
examination.
Problems Encountered by OCC Regarding NarcoticsRelated Money or Banks Alleged to be Controlled by
Drug Traffickers
The principal problems we have experienced in this
area are, first, the inability of either the OCC or banks
themselves to identify "drug-related money" or to de
termine "control" of a particular bank by drug traffick
ers of their associates. Second, existing laws encum
ber our ability to communicate and coordinate
activities with other law enforcement agencies.
It should be recognized that commercial banks can
be used as facilities through which drug traffickers and
others can launder cash without violating the laws and
regulations governing cash transactions. The Bank Se
crecy Act and its regulations require only that banks
report certain currency transactions and maintain cer
tain records. There exists no obligation that the institu
tion inquire into the source or intended use of large
amounts of currency brought into or taken out of the
bank. Historically, in the absence of a credit relation
ship, banks have been under no such obligation to in
quire into the private financial affairs of their cus
tomers. We have no statutory authority to require such
inquiry.

* Appendix A is not included in the Annual Report because of space
limitations. The appendix is available elsewhere.

Similarly, a bank customer in a currency transaction
is under no duty to disclose the source or intended,
use of his or her money. Large deposits and with
drawals of cash—which may be typical of narcotics
trafficking activities and numerous legitimate business
activities—are not in and of themselves illegal. Illegal
ity results only if the required reports are knowingly not
made and necessary records are not maintained.
Our ability to prevent criminal elements from obtain
ing control of a bank has been recently enhanced.
Persons involved in narcotics or other unlawful activi
ties may become associated with a bank through ac
quiring an ownership interest. To prevent such, we re
quire detailed financial and biographical information
from all organizers and initial directors of any new
bank and from any individual or group prior to their ac
quiring control of an established national bank. Based
on that and additional information obtained through
our investigations, we attempt to screen the owners
and organizers of national banks. While that procedure
is somewhat effective, we recognize that such scrutiny
may not in every case uncover all of the information
necessary to properly evaluate the proposed acquirer
or official. It is therefore possible that persons bent on
illegal activity may, in fact, acquire control of or be
come employed by a national bank. When that hap
pens and sufficient probative information comes to our
attention, we will and have used the statutory power of
our Office to ensure that the bank is run in accordance
with all applicable laws, rules and regulations and in a
safe and sound manner.
In addition, when during examinations or back
ground investigations we uncover information indica
ting violations of law, we have closely assisted law en
forcement officials in their followup efforts. Our
cooperation has led to several investigations, prosecu
tions and convictions for criminal activities that had in
volved the use of financial institutions.
Although our review processes are unable to un
cover all information, we believe that those reviews
coupled with our examination activities generally dis
courage undesirable individuals from using national
banks.
Notwithstanding our successes and the need to co
operate with other agencies to inform them of discov
ered illegal transactions, our ability to freely exchange
information with other agencies has been severely re
stricted. In light of statutory proscriptions, contacts be
tween this Office and other agencies have been cur
tailed. This, unfortunately, seriously detracts from
coordinated federal efforts to attack the financial as
pects of narcotics trafficking. Coordinated financial in
vestigations are necessary to effectively address those
problems. We believe that unwarranted barriers to the
exchange of information between agencies should be
eliminated to the fullest extent possible.
In the context of drug trafficking, we believe that it is
essential for the experts in regulated industries to work
closely with prosecutors and investigatory agencies to
understand and follow winding paper trails of financial
transactions often leading through several banks and
corporate shells. We, therefore, believe it to be ex
tremely important for Congress to reexamine the exist205

Financial Integrity and Social Repsonsibility of Banks
A study recently released by the Department of the
Treasury indicates that net receipts of currency
through the Jacksonville and Miami offices of the Fed
eral Reserve increased from $921 million in 1974 to in
excess of $4 billion in 1979. Such a volume of cur
rency, whether a product of legal or illegal activities,
passing through the financial institutions in those areas
in and of itself would not create serious problems for
individual banks handling the currency inflow. The sta
bility of a particular institution is not likely to be under
mined by large inflows of currency if such funds are in
vested by the institution so as to match assets with
those potentially volatile deposits.
Although the financial threat of such funds is mini
mal, the integrity of a bank or its officers nonetheless
may be called into question because of the type of
customers with which it deals. The perceived integrity
of an institution can be compromised by forces be
yond the normal investment and operating policies of
the bank. In addition to the individual criminal liability
of bank officers, which arises when such individuals
can be proven to be knowingly aiding or abetting the
commission of specific crimes, loss of public confi
dence could occur if a bank or its officers is disclosed
to be dealing routinely with elements of the criminal
community.
The vast majority of our nation's banks are, we be
lieve, fully aware of this threat and are sensitive to pre
serving their earned reputations as responsible mem
bers of the communities. Few bankers would allow
their institutions to be used in furtherance of criminal
conduct. When such conduct is discovered, we use
the full force of our regulatory powers to ensure its cur
tailment and the removal of culpable individuals from
the conduct of the bank's business.
OCC Efforts Regarding Narcotics-Related Money in
Florida Banks.
Although, as earlier indicated, the supervisory re
sponsibilities of the bank regulatory agencies under
existing law and regulations are basically limited to
compliance monitoring activities under the Bank Se
crecy Act, we have undertaken to assist law enforce
ment investigations to the fullest extent possible. We
have undertaken, among other things, to:
• Coordinate to the extent possible with all fed
eral, state, local and international supervisory,
investigatory and prosecutorial agencies;
• Obtain information available from other agen
cies when we review any application for a new
bank charter and any change in control of the
ownership of a national bank;
• Supply expert witnesses and counsel to work
with the law enforcement community in under
standing financial transactions;
• Participate in such groups as the Interagency
Study Group on International Financial Transac
tions formed to improve coordination and coop
eration among concerned agencies and INTER
POL conferences on international fraud;
• Render assistance and coordinate with bank
204

•

•
•

•

regulatory agencies in foreign countries, includ
ing the Caribbean Island jurisdictions;
Provide training to our examiners, examiners of
other agencies and countries, and investigatory
agencies in the detection and prosecution of fi
nancial crimes;
Adopt and periodically revise examination pro
cedures applicable to determining compliance
with the Bank Secrecy Act and its regulations;
Refer violations to the appropriate agencies
and to require banks through formal and infor
mal enforcement actions to comply with all ap
plicable laws and regulations; and
To remind the chief executive officers of all na
tional banks of their responsibility to have ade
quate policies and procedures which assure total
bank compliance with the act and newly revised
regulations.

In addition to our routine monitoring activites, since
the Department of the Treasury's study of currency
flows in the Florida area, our staff has participated on
an interagency task force, which includes representa
tives from the Department of the Treasury, the Internal
Revenue Service and the Bureau of Customs, to de
velop specialized detailed procedures to assist in
tracking such funds in certain Florida institutions.
The OCC is also testing expanded examination pro
cedures, developed under the auspices of the Federal
Financial Institutions Examination Council, to identify
unusual currency flows and to ascertain bank compli
ance with the reporting requirements of the recently re
vised Treasury regulations.
OCC Examination Procedures for Monitoring Bank
Compliance with the Bank Secrecy Act.
Our responsibilities under the act and implementing
regulations of the Department of the Treasury, con
tained in 31 CFR 103, are basically limited to compli
ance monitoring activities. To carry out our responsibil
ities, the bank regulatory agencies, in cooperation with
the Department of the Treasury, devised a check list
for examiners to use in reviewing a bank's compliance
with regulations. The procedures of this Office require
that possible violations of the Bank Secrecy Act's re
porting requirements be listed in the report of exami
nation. Regional offices have been instructed to estab
lish adequate followup procedures to ensure
subsequent compliance by delinquent banks. Copies
of our examination procedures and related materials
were provided earlier to the committee. All possible vi
olations disclosed in examination reports are reported
to the Department of Treasury for disposition.
Bank compliance with the Bank Secrecy Act regula
tions is checked during our examinations, under our
established procedures. As a practical matter, how
ever, we are not physically in each bank on a contin
uous basis since onsite examinations are conducted
on a periodic basis with many months intervening. In
addition, the volume of cash transactions in 4,448 na
tional banks with over 17,000 branches throughout the
United States alone—and through many additional
overseas offices—precludes our analysis and review

any changes in the process of setting margin require
ments should be implemented only after careful study
by those thoroughly familiar with the intricacies of the
markets.
Another common control device is position limits.
During the turmoil in the silver market, such limits were
imposed by the two principal exchanges. However, as
indicated in the Commodity Futures Trading Commis
sion's report to the Senate Agricultural Committee,
those limits were not rigorously enforced. Uniform po
sition limits should be explored as a means for pre-

venting unreasonably large and speculative concen
trations.
In summary, we believe that both congressional and
regulatory action is warranted in light of the events
leading up to late March and thereafter. At the same
time we must move with care, since the futures mar
kets play an important role in the U.S. economy by
providing producers and consumers with means of
hedging against severe price fluctuations. Accord
ingly, we recommend that a comprehensive evaluation
of the issues precede legislative or regulatory action.

Statement of Paul M. Homan, Senior Deputy Comptroller for Bank Supervision,
and Robert B. Serino, Director of the Enforcement and Compliance Division,
before the Senate Committee on Banking, Housing and Urban Affairs,
Washington D.C., June 6, 1980
We are pleased to appear before this committee to
testify concerning your inquiry into the effects of unusally large cash flows, which presumably include
drug-related funds, on banks in southern Florida. The
Office of the Comptroller of the Currency is charged by
the Congress with general supervisory responsibility
over the activities of national banks. The statutory man
date of the Comptroller is to determine whether na
tional banks operate both in conformance with safe
and sound banking practices and in compliance with
the many and varied statutes affecting bank conduct,
including the Currency and Foreign Transactions Re
porting Act. That law is designed to assist law enforce
ment officials in detecting and prosecuting criminal
conduct by documenting certain fund flows which
could involve such activities.
More commonly known as the Bank Secrecy Act,
that law requires banks to obtain and preserve finan
cial information and to file certain reports which have a
high degree of usefulness in criminal, tax or regulatory
investigations and proceedings. Essentially, the act re
quires banks to record and retain the details of certain
customer financial dealings and, in some cases, to re
port information which is deemed likely by the Secre
tary of the Treasury to be useful in subsequent law en
forcement investigations and prosecutions.
The act requires, among other things, that financial
institutions maintain records of their customers' identi
ties, make microfilm copies of checks and similar in
struments and keep records of certain other items. It
specifically requires that certain foreign and domestic
financial transactions be reported to the federal gov
ernment. The implementing regulations require banks
to file reports with the Department of the Treasury of
customer transactions involving deposit, withdrawal,
exchange or other payment of currency in amounts of
$10,000 or more.
The legislative history of the act emphasizes its pur
pose to facilitate investigation of narcotics trafficking,
tax evasion and other "white collar" criminal activities.
Banks and other financial institutions have been per
ceived to be frequent intermediaries in a growing vari

ety of transactions involving movements of large sums
of money derived from both legal and illegal sources.
Since banks act as depositories or clearinghouses for
virtually all transfers of large sums of money, criminals
have presumably made use of them as part of their op
erations. Inasmuch as such criminal elements fre
quently carry on their activities in cash, they may leave
no recorded evidence of to whom money is paid or
when. Cash is essentially a fungible commodity which
leaves no audit trail. When money is withdrawn from a
bank in currency and then transported to or from the
United States by courier there remains no record of the
money leaving or entering the country. A principal pur
pose of the Bank Secrecy Act is to reduce those evi
dentiary problems by establishing a trail of records
available to government scrutiny and use in law en
forcement efforts.
The OCC shares the concern of the committee and
law enforcement officials regarding the possible use of
our nation's financial institutions by criminal elements
in the handling of funds obtained through illegal activi
ties. We are aware that the large inflows and outflows
of currency, especially in the Florida area, may be di
rectly related to illegal drug traffic. Nevertheless, the
ability of either the banks or this agency to determine
the source of such funds is severely limited. Separat
ing and identifying illegitimate currency flows from le
gitimate financial transactions involving divergent eco
nomic activities is a complex and time-consuming
process which would require an extensive coordinated
investigatory commitment of resources by a number of
agencies.
Unlike the several law enforcement agencies whose
investigatory functions under the Bank Secrecy Act are
extensive, the bank regulatory agencies have limited
responsibilities under that act. We are not empowered
to conduct criminal investigations. Essentially, the
bank regulatory agencies are charged with determin
ing whether banks retain records and report certain in
formation required under the act and regulations.
You have requested that we comment on several
enumerated issues of interest to the committee.
203

vestors to buy into the market as well, escalating the
upward trend in price and movement.
Even though silver is produced and supplied from
multiple sources, as the tables attached to this testi
mony illustrate,* regulators became concerned in late
1979 that the American exchanges might not be able
to continue supplying silver at the rate at which specu
lators were purchasing positions and equally con
cerned about the effect those speculators were having
on silver prices. It was at that point that two factors
converged and a reversal in the silver markets began
to take place.
First, during January, February and March 1980, pri
vate supplies of silver began to pour into the market.
Smelters were running at a round-the-clock pace—
thus affecting the price in the spot market and, subse
quently, at the exchanges. Second, the exchanges, af
ter consultation with the regulators, took actions in late
1979 and early January 1980 in the form of position
limits, and increased margin requirements to discour
age large concentrations of holdings by investors.
Regulatory Response
Based on information gathered by the OCC from
meetings with other regulatory agencies, from conver
sations with a variety of market participants and from
special examinations of a number of national banks,
we believe that during the rapid rise of silver prices,
principal credits to the Hunts came from commodity,
commercial and brokerage firms and international in
stitutions. At that time, most of the credit directly avail
able through the U.S. domestic banking system to the
Hunts appears to have been extended for the normal
business use of Hunt-related companies. Loans made
directly to the Hunts by banks when silver prices be
gan falling were generally protected by underlying
collateral.
In terms of assessing systemic risks, our concerns
extended to the exposure which could be indirectly
transmitted to the banking system as a result of finan
cial difficulties of brokers, commodity dealers and cer
tain commercial firms, which could have had their abil
ities to service normal business obligations to the
banking system undermined if they took large losses
arising from transactions involving the Hunt silver
trading.
The regulators have testified concerning their roles
in monitoring the accumulation of silver by the Hunts
and their efforts to determine the causes of the aberra
tions in the marketplace. As we noted at the beginning
of our testimony, a number of key questions have
arisen as a consequence of the Hunt activity in the sil
ver market. A question of particular concern to us is
whether the various regulators had sufficient informa
tion available following March 26th to make an immedi
ate determination as to exposures and risks.
The answer to this last question is no. A determina
tion, in an orderly fashion and within an expedient time
frame, of the cause and related effects of the problem
was not possible. The primary reasons were the diffi* The tables for this statement were not included because of
space constraints. The tables are available from other sources.

202

culty in obtaining information on actions by the holding
companies of the securities firms, in obtaining com
plete information on the exposure of the Hunts (partic
ularly vis-a-vis private investors and foreign institu
tions) and finally the lack of a central coordinator and
focal point for all of the information obtained by the
various agencies. While coordination has taken place
with respect to recent events, there is room for im
provement.
The OCC has conducted a basic review of its super
visory powers relating to the national banking system
and is basically satisfied that it has the tools necessary
to deal directly with the banks.
We do not have the ability, however, to obtain timely
information on the indirect exposure of the banks via
the brokerage houses. For example, from our discus
sions with the banking community, we learned that the
banks that did the lending were not aware for the most
part that the brokerage houses were lending funds to
the Hunts. A bank lending funds to a brokerage house
which is an established customer generally looks to
the brokerage firm for repayment and bases its credit
analysis on the collateral and credit worthiness of the
firm rather than on the credit worthiness of the firm's
customers. Banks lending funds to brokerage houses
to finance their silver positions did so on the basis that
those positions had been fully hedged by the firm. It is
important to note at this juncture that there is no sys
tem in place to determine on a consolidated basis to
what extent brokerage houses and their affiliates may
have extended credit to their customers to finance po
sitions in the futures market. The level of exposure,
therefore, of the brokerage firms to potential problems
in the futures market is uncertain.
The OCC does not have a primary function in com
modities regulation and therefore does not have the
professional expertise to comment on all aspects of
the commodities-related questions.
We do have questions, however, which relate to the
proposed regulation of the market. It appears that S.
2704 Which seeks to address some of these problems
we have discussed this morning is very broad in
scope. The language of the bill would seem to em
brace not only financial futures on an organized ex
change, but also the underlying cash markets them
selves and forward commitments, including foreign
exchange contracts among banks and corporate cus
tomers. We do not believe that it was the intent to re
strict foreign exchange contracts which are necessary
to facilitate trade, commerce and normal interbank
flows.
We are also concerned about the process used to
establish margin requirements on the exchanges. In
creased margin requirements, which raise the amount
of capital required to take a position, will tend to de
crease the number of participants in the commodities
market and, as a consequence, will reduce the liquid
ity in the market. Too high a margin requirement by
one exchange may also drive participants to other fu
tures exchanges both domestic and overseas. Margin
requirements should be set sufficiently high to cover
any initial losses resulting from an adverse price
change. Because of the complexity of those markets,

Statement of John G. Heimann, Comptroller of the Currency, before the Senate
Committee on Banking, Housing and Urban Affairs, Washington, D.C., May 29,
1980
I am pleased to appear here today to begin a dis
cussion concerning the events of mid-March in the fi
nancial markets and the broader policy questions re
lating to futures trading. We welcome the opportunity
to work with the Congress and the other regulators to
take steps which will improve the understanding and
increase the stability of those markets.
Many questions have been raised as a result of the
mid-March events which cannot yet be answered.
Those questions should be answered before legisla
tive and regulatory action is taken. We believe the an
swers will only be forthcoming through careful study
and through comprehensive understanding of the mar
ketplace. We therefore suggest that further study be
conducted to determine answers to these questions:
• Was the marketplace threatened by fluctuations
in silver prices?
• Did the government have accurate, timely and
sufficient information?
• Were limitations on periodic price changes ade
quate?
• Were margin requirements adequate?
• Who should set margin requirements? Should
they be standardized for all of the exchanges?
• Should limits be placed on the percentage of
an exchange's commodity stocks which may be
purchased by an individual, partnership or cor
poration? Who should set limits?
• Should regulations be set to limit the amount of
credit used to finance the acquisition or mainte
nance of positions?
• Should there be regulations governing the type
of collateral used to finance credits? Should the
underlying commodity be eligible as collateral?
• How would regulatory changes affect liquidity in
the marketplace?
• How is the existing regulatory structure affected
by tax law?,
• What would be the effect of changes in our reg
ulatory structure vis-a-vis the ability of our ex
changes to compete with the overseas ex
changes?

their purchases and sales. It should be noted that
most futures positions are eliminated before the speci
fied delivery date. The commodities are not actually
delivered, but rather an opposite contract is bought or
sold to close the position. For the hedger, the futures
contract is a temporary substitute for an actual cash
transaction.
Another participant in the market is the speculator
who does not produce, grow or process the particular
product. Instead the speculator places his capital at
risk, attempting to take advantage of price fluctuations
in the futures market. The term "speculator" has ac
quired certain notoriety. However, in this context, the
speculator assumes the hedger's risk by taking the op
posite side of the hedger's contract. The speculator
supplies the essential liquidity to the market, acting as
an intermediary between the users and producers.
A primary attraction of the futures market to the
speculator is the great profit potential, along with com
mensurate risk, as a result of the speculator's ability to
leverage capital. Limitations are placed on the trading
activities of the speculator and hedger. The trader in
the futures market, when establishing a position, is re
quired to meet a margin requirement by putting up a
security deposit or earnest money. The amount of
money advanced by the trader is not a partial payment
for the product—it might be better viewed as a perfor
mance bond that can be used to cover any initial
losses caused by adverse price movements.
Limitations may also be placed by either the broker
age firm or exchange on the positions of individual
customers and on the amount the price of a particular
contract can rise or fall on a given day. Of primary im
portance, of course, is the evaluation by the brokerage
firm of the liquidity of its customers. Finally, the Com
modity Futures Trading Commission has emergency
powers to set margins and position limits after public
hearings.
This morning I would like to look specifically at what
appears to have happened recently in the silver mar
ket and at the regulators' capabilities to respond, and
then comment briefly on S. 2704 which is before the
committee today.

Function of the Futures Markets
It is important to recognize that the futures markets
provide a means for individuals and corporations to
buy and sell contracts for future delivery of various
commodities at a fixed price. These commodities
range from agricultural products, such as pork bellies,
lumber and wheat, to financial instruments, such as
Treasury bills and foreign currencies, to metals, such
as gold, silver and copper. Producers and consumers
of the commodities who use the futures market as an
insurance policy are called hedgers. Through the fu
tures market, hedgers gain price protection, thereby
stabilizing income, reducing procurement and inven
tory costs and gaining greater flexibility in the timing of

Recent Events in the Silver Market
In late summer 1979, the federal government be
came aware that several traders in the silver market,
including the Hunts, were acquiring large amounts of
silver and silver futures. It now appears that as the
price of silver went up and the Hunts reinvested their
paper profits into greater holdings, they did not insure
that they were sufficiently liquid to cover possible in
creased margin requirements set by exchanges or
losses incurred as a result of decreases in the price.
As the price of silver began to increase, reports be
gan to circulate in the marketplace and Hi the press
that the Hunts were accumulating an extremely large
silver position. Such rumors naturally caused other in201

In the past, the FDIC has been able to avoid any sig
nificant payout in the case of a large insitirtion in
threatened condition. Our success to date may not al
ways be repeated, and further statutory changes are
necessary, in our opinion, to assure the future sound
ness of our financial system.
First, and perhaps most important, the structure of
present law severely limits the number of potential ac
quirers for very large institutions. The present Bank
Holding Company Act limits interstate acquisitions and
forces the FDIC to look for either a domestic in-state
acquisition partner or a foreign partner. Some state
laws have even precluded an acquisition by an in
state bank or holding company. Additionally, the pool
of potential domestic acquisition partners becomes
more limited with a large bank in distress. There are
several reasons for that. If a statutory merger or acqui
sition is contemplated, short of receivership and with
out any form of FDIC assistance, the takeover bank
must be large enough to absorb the risks of the failing
bank and must have, or be able to obtain, sufficient
capital and management to support a sudden expan
sion of its deposit base. Those risks are likely to in
clude significant overseas exposures the larger the
size of the problem bank, and even the nation's largest
banks may be unwilling to take on sizable foreign
risks, for example, without government support.
Moreover, FDIC assistance, short of receivership,
can only be provided in very narrow circumstances
under existing law. Thus, prior to providing assistance
to a failing bank, the FDIC must find that the continued
operation of the institution is essential to provide ade
quate banking service to its community. Second, such
open-bank FDIC assistance is only workable if the in
stitution possesses management and organizational
capabilities sufficient to assure viable long-term opera
tions. Even if FDIC financial support or indemnities are
provided in connection with a purchase and assump
tion transaction of an institution out of receivership, the
management of the takeover bank will probably also
be expected to acquire a substantial portion of the as
sets and branch offices of the failing bank. The num
ber of healthy domestic banks in a state capable of
even a government-assisted takeover of a large bank
in distress decreases rapidly as the size of the failing
bank increases.
Under existing law, of course, none of those larger
banks or their parent holding companies would be eli
gible to acquire such a problem bank unless they op
erated in the same state, even assuming the terms of
the transaction could be worked out to their satisfac
tion. Moreover, even in the same state, relative size dif
ferences between the first and second largest banks
suggest that, antitrust considerations aside, the neces
sary capital and management resources might pre
clude supervisory approval of an acquisition. This
problem is illustrated in the following table. For exam
ple, in state A the largest bank is almost twice as large
as the second largest bank. It is doubtful that the sec
ond largest bank would have the necessary resources

200

to acquire the largest, especially under the circum
stances that might surround the failure of the largest.
Ten-State Example
Nonmoney Center States
Total assets of largest bank
as a percentage of total
assets of second largest
State A
State B
State C
State D
State E
State F
State G
State H
State 1
State J

195%
226
202
532
188
300
188
169
195
345

It is also important to note that while foreign acquisi
tion partners with sufficient resources to absorb very
large failed institutions may be an option in a particular
case, the recently enacted International Banking Act
incorporates a provision restricting multistate acquisi
tions, similar to that contained in the Bank Holding
Company Act. The number of potential foreign ac
quirers is thus also dwindling under the new law. Fur
thermore, a potential foreign acquirer may be dis
suaded from a particular purchase because of the
location of the failed institution in a state of secondary
financial significance to the potential acquirer.
The existing paucity of potential acquisition partners
for very large failed banks is both undesirable and
troublesome. The potential lack of partners increases
the likelihood that the FDIC will not be able to arrange
a purchase and assumption transaction in a particular
case. Conversely, if the pool of potential purchasers is
increased, the FDIC has a much better chance to ar
range a transaction. In our opinion, a large FDIC pay
out could cause an incalculable loss of confidence in
the banking system both at home and abroad. We be
lieve it is also important to minimize ripple effects that
might occur from the loss of a major financial institu
tion.
The economic environment of 1979 was reflected in
strong performance by the banking system, particu
larly in asset quality and earnings. However, we be
lieve that an economic downturn has begun, and the
banking system will reflect this in the coming period.
As the banking system continues to grow and diver
sify and as the economic environment becomes more
complex, the need for flexible supervisory methods to
monitor and guide its development in a variety of eco
nomic circumstances grows apace. We are bending
all efforts toward improving our supervisory capacity to
assure continued health of the banking system and the
vital role it plays in our nation's financial and economic
life.

nificant discounts from book value, have made the
largest banking companies reluctant to raise new
equity from external sources.
As we have previously testified, we evaluate capital
adequacy on an institution-by-institution basis and
firmly believe that no degree of capitalization can sub
stitute for sound lending and investment policies,
sound earnings performance, experienced and com
petent management, planned growth and adequate in
ternal controls. Capital ratios are useful screening de
vices but by themselves are not a complete measure
of the adequacy of an individual bank's capital ac
counts.
We are continuing to bring regulatory pressure to
bear on individual banks to correct capital shortfalls.
Our corrective supervisory actions usually begin as a
part of the examination process. In certain instances,
where we believe that additional capital is necessary
to the safe and sound operation of a bank, we use for
mal and informal administrative actions or the corpo
rate approval process to bring about improvement.
Those techniques provide a flexible means for correct
ing capital inadequacies in the overwhelming propor
tion of national banks.
The largest national banks play a pivotal role in the
national and international financial community. Be
cause of their size and importance to the banking in
dustry and the economy, they have a unique responsi
bility to help preserve stability and confidence in the
financial system. It is of particular importance that
those institutions maintain capital positions which are
adequate to support the volume and variety of activi
ties they undertake and to assure continuing public
confidence in their operations and in the industry as a
whole.
While we believe that the present capital levels of
the largest banking companies are generally adequate
to withstand the likely pressures of the early 1980's, we
have concern about the long-term trend toward in
creased leverage in those companies. Therefore, we
have initiated, and are presently implementing, a pro
gram to assure that certain institutions either maintain
or improve current equity capital ratios, depending on
their individual circumstances.
We expect those banking companies to develop
and implement consolidated capital plans which will
maintain or improve their equity capital ratios over
time. Improved equity ratios can be achieved by var
ious means, including control of asset growth rates im
provement of earnings and earnings retention and of
ferings of equity or equity-equivalents. We recognize
that the corporate strategies developed to meet those
objectives must permit flexibility to accommodate un
anticipated pressures and events. Nevertheless, we in
tend to monitor each company's plan on an ongoing
basis and use our supervisory powers, if necessary, to
assure those objectives are met.
Improving Agency Flexibility to Manage Problem
Situations—In a system with as many financial organi
zations as ours, it is inevitable that a few institutions
will find themselves in financial distress periodically. In
the current environment of economic softening, mone
tary and credit restraint and interest rate volatility, the

financial regulatory agencies must be especially dili
gent, creative and effective at managing such situa
tions.
The financial regulators have an extensive array of
tools available for managing such situations without
impairing public confidence in the safety and sound
ness of the system as a whole. Some of those tools,
such as access to the Federal Reserve discount win
dow, the cease and desist order or the purchase and
assumption transaction, are familiar. Sometimes situa
tions arise, which recently occurred with a relatively
large bank in an Eastern urban center, that require the
application of uncommon techniques. In that case, a
unique cooperative effort between the Federal Deposit
Insurance Corporation (FDIC) and a group of privata
banks resulted in an assistance package which, if im
plemented, should ward off an unnecessary and po
tentially damaging problem for the bank, the public it
serves and the banking community.
Nonetheless, in keeping with the concerns of this
committee and the responsibility of financial regulators
in attempting to anticipate and prepare for possible
systemic shocks, we strongly recommend the enact
ment of the legislative proposal developed by the fi
nancial regulatory agencies and introduced in the Sen
ate as S. 2575. The proposal would assure the
continuous availability of adequate financial services
by permitting the interstate acquisition of very large
failed depository institutions in extraordinary circum
stances.
An extraordinary acquisition would be permitted only
in a situation involving a commercial bank in receiver
ship with assets in excess of $1.5 billion, a thrift institu
tion in receivership with assets in excess of $1 billion,
or one of the three largest such banks or thrift institu
tions in a state, and only after determination by the
Federal Financial Institutions Examination Council that
an emergency exists in a particular case and that an
intrastate sale is not feasible. The proposed legislation
also would provide the Federal Home Loan Bank
Board, the FDIC and the National Credit Union Admin
istration with greater flexibility to assist financially trou
bled banks and thrift institutions.
In our opinion, this proposal is a necessary and pru
dent safeguard to assure the continued soundness of
our financial intermediary system in these volatile
times. Under existing law, in the case of a bank failure,
the FDIC as receiver may arrange for purchase of the
assets and assumption of the liabilities, including the
deposits of the closed institution, by another institution
or make a payout from federal insurance funds to de
positors up to $100,000 per account. The Federal Sav
ings and Loan Insurance Corporation (FSLIC) has sim
ilar options in the case of a failed savings and loan
association. Under the proposed legislation, the FDIC
and FSLIC would be better able to assure the contin
ued services of the failed institution to the public while
simultaneously minimizing the attendant costs to the
funds in a case involving an extremely large commer
cial bank or thrift institution. Such added federal flexi
bility will also avoid damage to public confidence and
to national and international markets which might fol
low an FDIC payoff of a large insured bank.
199

The past year can be characterized as one of evolu
tion for the department. In addition to organizational
planning and staffing efforts, personnel played a
prominent and active role in designing, conducting
and analyzing all phases of the examination process.
At year-end, examinations had either been completed
or were in process for each of the 10 multinational
banks. Initial efforts to develop specialized examina
tion procedures concentrated on strategic planning,
treasury functions and capital formation.
A periodic visitation program is being implemented
as an extension of the examination process. That su
pervisory program emphasizes limited scope, brief du
ration and high degree of examiner flexibility. Its objec
tive is to obtain more frequent and timely information
on the financial condition, activities and plans of the
multinational banking corporations.
An historical data base is being constructed for a fi
nancial monitoring program to yield both performance
and projection monitoring capabilities. The goal is to
permit continual evaluation of the current performance
of each institution and to attain the capacity to antici
pate the financial impact of planned internal strategies
or external economic or legislative factors.
Also incorporated into the Multinational Banking
structure is the supervisory responsibility for the inter
national banking activities of all national banks. In this
regard, Multinational Banking is responsible for man
aging OCC's role in the Interagency Country Exposure
Review Committee process, which was formalized in
1979.
To gauge the magnitude and the trends developing
within the banking system regarding country risk expo
sure, the three federal bank regulatory agencies insti
tuted a semiannual country risk report in 1977 for
banks with substantial foreign operations. Using infor
mation from that report and other sources, the'Country
Risk Exposure Review Committee attempts to measure
when the level of exposure of the U.S. banking system
to a particular country warrants comment. Although,
for various reasons, the imposition of legal limits on
country exposure in relation to a bank's capital is im
practical, examination procedures used for individual
banks call for an evaluation of systems employed by
the bank to monitor and control country risk expo
sures. Banks are expected to have established coun
try risk exposure limits, based on an evaluation of the
political, social and economic climate in each country.

Regional Bank Review Program—A Regional Bank
Review Program has been started to develop an in
creased awareness of the activities and direction of
approximately 100 large regional banking companies
with aggregate assets of $275 billion. The program will
provide centralized review and analysis of the condi
tion and performance of the regional banks through a
comprehensive OCC management information system
and visitations to those banking companies. The pro
gram will encourage an ongoing dialogue between the
OCC and senior members of regional banking com
panies. The program will also bring together market,
industry and banking company information to provide

198

OCC management, in Washington and the regional of
fices, with timely input for their supervisory decisions.
Bank Holding Company Examinations—In an effort
to increase the efficiency of bank holding company in
spections and subsidiary bank examinations, the fed
eral banking agencies are implementing a recommen
dation of the Federal Financial Institutions Examination
Council to coordinate the examinations of all bank
holding companies with consolidated assets exceed
ing $10 billion and certain classes of companies re
quiring special supervisory attention. In addition, the
agencies are attempting to coordinate examinations of
all other bank holding companies and their bank sub
sidiaries where resources permit.
To reduce examination time and still provide ade
quate supervision to each national bank, the OCC is
developing a system for examining multibank holding
companies and their national bank subsidiaries. Our
goal is to examine, in cooperation with the Federal Re
serve, the parent company and the individual banks
from the holding company level using the company's
plans, policies and internal monitoring mechanisms,
including management information systems, as source
material. By using information available at the holding
company, we may reduce the frequency of onsite ex
aminations or significantly reduce the time spent at in
dividual banks.
Our ability to implement that concept may differ from
one bank holding company to another because of or
ganizational differences. What we do in a specific
case will depend on the degree to which a company is
involved in managing the subsidiary banks. Our great
est efficiencies will come when the holding company
provides policy direction, monitors the subsidiary
bank's performance, audits the reports it receives and
displays the depth of capital and managerial re
sources to support its subsidiaries.
Capital Adequacy—The nominal decline in the
equity-to-assets ratio for the national banking system
in 1979 is not a systemic problem, but rather, reflects
the significant impact which declining equity positions
in the largest banks have on the aggregate ratio. Infla
tion has contributed to a level of asset growth which
has outpaced the ability of most of the largest banks to
augment their capital accounts, either from retained
earnings or from external sources.
Increases in the proportion of earning assets, im
proved rates of return on assets and reduced loan loss
provisions have all contributed to an improving level of
bank earnings. And banks have been retaining a
larger share of those improved earnings. The 35 larg
est bank holding companies retained over 68 percent
of their earnings in 1979, as compared to 67 percent in
1978 and 64 percent in 1977. However, maintaining
the status quo of the equity-to-asset relationship re
quires that banks increase earnings at a rate which, af
ter taxes and dividends, matches the rate of inflationinduced asset growth. Earnings growth in the system's
largest banks has not been equal to that task. In addi
tion, markets have not been receptive to the equities of
depository financial institutions in recent years. As a
result, low earnings multiples, and in certain cases sig-

An important part of our enforcement effort also in
cludes our coordination and cooperation with other
agencies in investigating and prosecuting bank fraud
cases. Because of our concern for that aspect of su
pervision, we have developed a specific training
course, available to other agencies, in the nuances of
bank fraud matters. Our employees are, on a continual
basis, assisting other agencies in that area.
We indicated in our testimony last year that the Right
to Financial Privacy Act of 1978 might impede our abil
ity to work effectively with other federal agencies. After
over a year of working under its proscriptions, we be
lieve it has created additional difficulties for this Office
in coordinating with the other regulatory agencies and
with prosecutorial and investigatory agencies. Con
gress should consider amendments to the act which
will avoid unnecessarily inhibiting coordination among
federal agencies and resolve ambiguities which
threaten to interfere with the Justice Department's in
vestigation and prosecution of offenses.
Current Economic and Financial Environment
The economic and financial instability which had
been growing through 1979 reached dramatic propor
tions in the first part of 1980. Short-term and long-term
interest rates reached extraordinarily high levels, ex
emplified by the 20 percent prime rate. The long-term
bond market posted severe losses on outstanding se
curities. Substantial fluctuations in commodity markets,
particularly silver, threatened to create turmoil in the fi
nancial markets.
On March 14, the President and the Federal Reserve
announced a program of fiscal and monetary restric
tion designed to reduce inflation and reestablish an
environment conducive to orderly economic activity.
As the President noted at the time, the effort to control
inflation will not be without cost.
Recent months have given evidence of significant
softening in the economy. The pace of real gross na
tional product growth slowed from an annual rate of 2
percent in the fourth quarter of 1979 to 1.1 percent in
the first quarter of this year. Housing starts and do
mestic auto sales, which had been weakening in 1979,
declined dramatically in early 1980. Interest rates have
begun to ease with remarkable swiftness, some rates
falling as much as 1 percentage point per week. The
increase in the unemployment rate from 6.2 percent in
March to 7 percent in April lends further support to the
view that the economy has entered a period of reces
sion. If this period is like earlier periods of cyclical
downturn, the financial system will not be immune to a
certain amount of difficulty.
Adverse economic conditions impact on the banking
system through many channels. Liquidity usually suf
fers first, but modern central banking techniques have
the capacity to reduce the severity of liquidity prob
lems. The regulatory agencies have shown a willing
ness and ability to act promptly to prevent a local situ
ation from turning into a systemic liquidity crisis.
Nonetheless, as we note later in this testimony, certain
measures designed to improve regulatory flexibility to
handle severe economic disruptions are, in our judg
ment, prudent and warranted at this time.

Another feature of deteriorating economic conditions
is the reduction in the quality of assets held by deposi
tory institutions. Declines in production, income and
sales in a recession reduce the ability of some bor
rowers to continue orderly servicing of their debts. A
greater than average proportion of loans becomes
past due, goes into default or in some other way re
quires increased management attention. A recession
increases the number of personal and business
bankruptcies and thereby results in increased loan
losses. The extent of the asset quality problems that
banks will face in the next few years depends on the
breadth, severity and duration of the recession.
In addition to the concerns on the domestic front, we
see increased perceptions of risk in the international
arena arising from the near doubling in Organization of
Petroleum Exporting Companies (OPEC) oil prices in
1979 and political unrest in the Near East. The interna
tional burden of recycling is of significant magnitude,
but with perhaps less prospect than in the period after
1973-74 that real oil prices or the OPEC surpluses will
decline substantially over the next few years.
Recent legislative and regulatory and monetary pol
icy changes will also differentiate the environment of
1980 and subsequent years from that of 1979. The De
pository Institutions Deregulation and Monetary Control
Act of 1980 initiates a process of evolution toward a
more competitive environment among all depository in
stitutions. While welcoming that process, we recognize
that it will present a challenge to many institutions.
Many banks, especially smaller suburban and rural in
stitutions, will have to pay more careful attention to
pricing their services, especially with respect to new
services such as NOW accounts. Banks will also have
to adjust to new competition from thrift institutions for
consumer, commercial and trust business. Continued
erosion of cheap, stable funding from core deposits
seems likely as the phase-out of Regulation Q brings
depository institutions into greater competitive align
ment with the money markets.
The new techniques of monetary control adopted by
the Federal Reserve in October and the credit control
program adopted in March require accommodating
changes in the behavior of banks. Again, we believe
those measures will be beneficial to the banking sys
tem and the economy in the long run, but we recog
nize that they may create specific difficulties for some
banks in the short run.
Supervisory Matters
The OCC continues with specific steps to improve
the capacity to supervise the national banking system
in light of the complexity of the current economic envi
ronment.
Multinational Banking Department—The Multina
tional Banking Department was created to centralize
the supervision of those large national banks which
operate through diverse multinational structures. In
1979, the 10 largest national banks, each with an ac
tive presence domestically and in the international
marketplace, formed the nucleus of the responsibility
of the Multinational Banking Department.
197

Ratios of Average Equity Capital to Average
Assets (percent)
(Largest bank holding companies)
Year

Five largest

10 largest

35 largest

1975
1976
1977
1978
1979

3.86
4.06
4.02
3.96
3.80

4.05
4.18
4.14
4.07
3.91

4.29
4.53
4.47
4.29
4.17

The equity pattern was not uniform across all na
tional banks. The smaller banks, those with assets un
der $100 million, added to their capital positions, on
average, during 1979, showing an increase in equity
capital as a percentage of total assets from 7.83 per
cent at year-end 1978 to 8.07 percent at year-end
1979. Banks with assets over $1 billion, on the other
hand, experienced a decline from a ratio of 4.70 per
cent at year-end 1978 to 4.63 percent at year-end
1979. The 10 largest national banks increased the
amount of equity capital through retained earnings in
1979 by $1.7 billion, or 11.4 percent; yet, despite this,
the banks were unable to keep pace with asset growth
of 14.5 percent and recorded a decline in the equityto-asset ratio of .11 percentage points to a level of
4.02 percent at year-end.
Equity Capital of National Banks by Size
($ millions)
Total equity
Size class

1978

1979

Less than $100
million
$ 9,371 $ 9,703
$100 million to $1
billion
11,479 12,279
More than $1
billion
28,349 32,315
Ten largest
14,966 16,669

Equity as percent of assets
1978 1979
7.83

8.07

6.76

6.89

4.70
4.13

4.63
4.02

Banks Under Special Supervision and Bank
Failures—One of our most direct supervisory pro
grams concerns national banks characterized by the
uniform financial institutions rating system as having
"financial, operational or managerial weaknesses so
severe as to pose a serious threat to continued finan
cial viability," that is, 4- and 5-rated banks. The num
ber of such institutions decreased to 49 at year-end
1979, compared to 55 the previous year. Those 49
banks accounted for 1.1 percent of all national banks
and held 1.45 percent of the assets of all national
banks.
A significant improvement in 3-rated banks, those
which do not have a strong possibility of failure or in
solvency but still warrant some supervisory concern,
was noted in 1979. The number of those national
banks dropped from 251 in 1978 to 217 in 1979.
We view that improvement as a reflection of several
influences, including the economic climate; timely de
tection of and supervisory reaction to problems or po
196

tential problems; and implementation of effective re
medial measures by the respective banks' owners and
management.
Three small national banks failed in 1979. Each of
those failures was managed by the federal banking
authorities with minimal disruption to the communities
served by those banks. Additionally, one bank was
merged to avert failure.
The OCC believes strongly in protecting and foster
ing competition in the financial system. Protecting
competition, however, is not necessarily synonymous
with protecting individual competitors. To the extent
consistent with statutory requirements, we believe in
relatively free entry by private entrepreneurs willing to
risk their capital to form a new bank, and we believe in
relatively free exit from the system when circum
stances warrant. The disappearance of banks should
not be viewed as an index of the success or failure of
the supervisory structure as long as the banking sys
tem as a whole is not disrupted. Our supervisory pro
cedures are aimed at early detection and remedial ef
forts for individual bank problems principally to avoid
systemic disruptions.
Enforcement Activities Involving National Banks—
The principal means of eliminating problems in na
tional banks continues to be the daily supervision
given through the examination process, the report of
examination provided to the bank and the meetings
held with the bank management and the directors. In
the vast majority of cases, bank problems once identi
fied are promptly resolved. That ongoing supervisory
process accomplishes early resolution of the majority
of banking problems we encounter.
In some cases, however, more formal enforcement
procedures are required. Over the past several years,
the OCC's increasing use of the administrative reme
dies provided under the Financial Institutions Supervi
sory Act of 1966 (FISA) and strengthened by the Fi
nancial Institutions Regulatory and Interest Rate
Control Act of 1978 (FIRA) has helped resolve many
problems in national banks. At the beginning of 1978,
there were 235 actions brought pursuant to the cease
and desist powers outstanding against national banks.
In 1979, 95 additional actions were started. At yearend 1979, 218 actions remained outstanding.
We believe that our increased use of formal enforce
ment powers has acted and will continue to act as a
deterrent to bank managers and owners. We believe
that through our consistent approach to enforcement
and regular publication of summaries of enforcement
actions taken, many problems will be averted in the fu
ture.
In addition to the formal enforcement actions
brought pursuant to FISA and FIRA, the OCC in 1979
continued to develop appropriate rules, policies and
procedures for implementing the new powers given by
FIRA. Under those new powers, we conducted investi
gations into areas relating to removal of bank officials,
manipulation of bank stocks and municipal securities
dealers' activities. We also used the cease and desist
power against individuals. Civil money penalty cases
were instituted for change-in-control violations and
certain other violations of statutes and regulations.

Past Due Loans at National Banks—
December 31, 1979
($ millions)
Amount Amount Percent
outstanding past due past due
Domestic office loans
Real estate
Commercial and
industrial
Consumer
All other

$136,248

$5,598

4.1

155,768
104,367
59,013

6,296
3,551
3,170

4.0
3.4
5.4

Subtotal

455,396

18,615

4.1

Foreign office loans
Total

111,354
566,750

1,855
20,470

1.7
3.6

Liquidity—The liquidity of the national banking sys
tem was increasingly strained through 1979. Strong
credit demand in 1979 resulted in continued loan port
folio expansion. The fevered competition for deposit
dollars among both depository and nondepository in
stitutions resulted in a shift from traditional deposit in
struments. Those two factors are largely responsible
for the lower level of liquidity in the system.
The ratio of loans to deposits, a traditional measure
of liquidity, has deteriorated through the post-1974-75
recession period, rising from 65.3 percent at the end
of 1975 to 69 percent at year-end 1978 and 70.4 per;i u cu y e a i - e i i u

The larger banks are traditionally more dependent
on rate-sensitive liabilities to fund their assets. Banks
with total assets in excess of $1 billion, on average,
funded 36.6 percent of assets with rate-sensitive liabili
ties at year-end 1978, and that figure increased to 41.1
percent by year-end 1979. The smaller banks, on the
other hand, are less dependent in an absolute sense
upon rate-sensitive liabilities than the large banks but
experienced a much greater growth in such depend
ence in 1979. The ratio of rate-sensitive funds to total
assets in banks with total assets of less than $100 mil
lion almost doubled from 11.26 percent at year-end
1978 to 22.02 percent at year-end 1979. That develop
ment has significant implications for the smaller banks
which will have to practice asset and liability manage
ment with greater sophistication as they become more
dependent on rate-sensitive funds than when they
could rely more heavily on traditional core deposits.
Capital—The total equity capital of the national
banking system grew by 10.4 percent in 1979, reach
ing a level of over $54 billion by year-end. Strong earn
ings performance for the year as a whole permitted
addition to capital through retained earnings, but did
not match the pace of inflation-induced asset growth.
In consequence, the conventional equity-to-asset ratio
for the system as a whole decreased to 5.45 percent
at year-end 1979 from 5.51 percent at year-end 1978.

i ;11 » .

Equity Capital of National Banks
($ millions)

Loan-to-Deposit Ratio (percent)
Year-end

National banks

All insured
commercial banks

Year-end

Total
equity

65.3
64.6
66.3
69.0
70.4

63.4
63.2
64.7
67.4
68.4

1975
1976*
1977
1978
1979

$36,654
41,325
44,999
49,199
54,298

1975
1976
1977
1978
1979

As noted earlier, traditional sources of deposit funds
have become more volatile as a consequence of infla
tion and the greater availability of rate-sensitive instru
ments. Traditional savings deposits, for example, de
clined during 1979 from 21.3 percent of all domestic
deposits at national banks to 18.6 percent by yearend. The 6-month money market certificate, on the
other hand, increased from 2.2 percent of domestic
deposits to 9.3 percent by year-end.
Rate-Sensitive Funds NBSS Banks
(All member banks and selected
nonmember banks)
Size class
Less than $100 million
$100 million to $1 billion
More than $1 billion

Ratio of rate-sensitive funds
to total assets (percent)
1978
1979
11.26
21.23
36.55

22.02
29.27
41.13

Annual percent
increase
equity
assets
9.2
12.7
8.9
9.3
10.4

3.8
7.7
13.1
12.0
11.7

Equity as
percent
of assets
5.61
5.87
5.65
5.51
5.45

* Addition to equity for 1976 is affected by changes in
definitions.

Equity Capital of All Insured Commercial Banks
($ millions)

Year-end

Total
equity

1975
1976*
1977
1978
1979

$64,276
72,266
79,291
87,430
97,244

Annual percent
increase
equity
assets
8.8
12.4
9.7
10.3
11.2

4.7
7.9
13.3
12.6
12.2

Equity as
percent
of assets
5.87
6.11
5.92
5.80
5.75

* Addition to equity for 1976 is affected by changes in
definition.

195

the 10 national banks most active internationally, the
corresponding figures are 41.6 percent of total assets
and 88.1 percent of foreign assets. The largest 10
banks accounted for over 85 percent of the growth of
foreign office assets in 1979.
Earnings—National bank earnings for 1979 as a
whole continued the trend of improvement of the post1974-75 recession period. Return on average assets
(ROA) reached .84 percent, up from .76 percent in
1978; and return on average equity (ROE) reached
14.4 percent, up from 13.4 percent the previous year.
Income Before Securities Transactions of
National Banks
($ millions)

Year

Income

Annual
percent
increase

1975
1976
1977
1978
1979

$4,207
4,477
5,060
6,268
7,406

2.4
6.4
13.0
23.9
18.2

11.7
11.4
11.8
13.4
14.4
nf All

*« D ~ * ^ . ^ OA

Insured Commercial Banks
($ millions)

Year

Income

1975
1976
1977
1978
1979

$ 7,146
7,615
8,726
10,899
13,126

NA
6.5
14.6
24.9
20.4

Income From International Operations of
National Banks, 1978-79
($ millions)

ROA
ROE
(percept) (percent)
.68
.68
.70
.76
.84

Annual
percent
increase

$13.1 billion, representing an increase of 20.4 percent
from the 1978 figure. Return on average assets for the
commercial banking system as a whole in 1979 was .8
percent, essentially unchanged from the previous
year, while return on equity for 1979 was 14.3 percent,
up from 13.1 percent in 1978. The 20 largest bank
holding companies reported a lower average return on
assets of .64 percent than the industry as a whole but,
because of their generally higher leverage, reported a
higher return on equity of 14.8 percent.
International operations continued to provide a sig
nificant share of income for the 111 national banks with
foreign offices. International operations provided 25"
percent of their aggregate net income, down slightly
from 28 percent in 1978.

ROA
ROE
(percent) (percent)
.7
.7
.7
.8
.8

11.3
11.0
11.5
13.1
14.3

The factors which appear most responsible for over
all earnings improvement are lower loan loss provi
sions (reflecting the general strength of the economy)
and better control of overhead and other noninterest
expenses. Despite this improvement for the year as a
whole, there is evidence of a softening of earnings per
formance in the latter part of the year as the cost of
funds escalated and net interest margins narrowed,
especially at the banks which are more dependent on
purchased and other rate-sensitive liabilities to fund
their operations.
In 1979, the commercial banking system as a whole
reported income before securities transactions of

Year

Number
banks with
foreign
offices

1978
1979

104
111

Net income International
from
share of
Net
international net income
income operations (percent)
$3,421
4,211

$ 969
1,063

28
25

The very largest bank holding companies in the sys
tem show higher proportions of total assets at foreign
offices and similarly derive larger proportions of total
income from foreign operations, which accounted for
49 percent of the aggregate net income of the five
largest bank holding companies in 1979.
Asset Quality—Continuing a trend that began in
1977, the level of classified assets again declined in
1979. Total classified assets as a percentage of gross
capital funds were reduced from 38 percent in 1978 to
32 percent in 1979. Classified assets are viewed as a
lagging indicator of the health of the economy, and
this trend, therefore, reflects the improvement since
the 1974-75 recession. Banks continued to resolve the
many loan problems which were spawned before and
during the 1974-75 economic downturn, and there was
further success in reducing the volume of nonperforming assets.
Loan delinquencies edged up slightly during the
year but, at 4.1 percent of domestic outstandings and
1.7 percent of foreign office outstandings, were not yet
considered a serious problem in the aggregate. How
ever, increased loan delinquencies may serve as a
leading indicator of the current economic environment.

Past Due Loans at National Banks, 1975-79
(percentage past due)
Year-end

Real estate

Commercial

Consumer

Other

Domestic
total

Loans at
foreign offices

Total

1975
1976
1977
1978
1979

6.9
5.8
4.5
3.8
4.1

4.3
3.7
3.3
3.5
4.0

3.5
3.0
3.0
3.3
3.4

5.7
4.3
4.2
4.2
5.4

5.0
4.2
3.7
3.6
4.1

NA
NA
NA
1.6
1.7

NA
NA
NA
3.2
3.6

194

Size Distribution of National Banks
($ billions)
Assets
Size class
Less than $50 million
$50 to $100 million
$100 million to $1 billion
$1 to $10 billion
More than $10 billion

Number of banks
1979
1978
3,075
711
669
99
10

2,868
760
703
107
10

(Percent share of system assets)
1978
1979

$67.5 (6.8)
52.8 (5.3)
178.3 (17.9)
282.8 (28.4)
414.9 (41.6)

$69.9 (7.8)
49.8 (5.6)
169.9 (19.0)
240.5 (27.0)
362.2 (40.6)

Size Distribution of All Insured Commercial Banks
($ billions)
Assets
Size class
Less than $50 million
$50 to $100 million
$100 million to$1 billion
$1 to $10 billion
More than $10 billion

Number of banks
1978
1979
11,356
1,615
1,236
148
17

11,051
1,764
1,367
158
17

(Percent share of system assets)
1979
1978
213.8
112.1
301.2
345.2
535.7

(14.2)
(7.4)
(20.0)
(22.9)
(35.5)

217.4
122.0
333.7
401.9
616.4

(12.9)
(7.2)
(19.7)
(23.8)
(36.4)

Foreign Office Assets of National Banks*
($ billions)

Year

Foreign
office
assets

Annual
percent
increase

Domestic
office
assets

Annual
percent
increase

Foreign office
share of total
assets (percent)

1975
1976
1977
1978
1979

$100.3
120.9
145.4
169.9
204.0

NA
20.6
20.2
16.9
20.0

$553.4
583.3
651.4
722.3
792.3

3.6
5.4
11.7
10.9
9.7

15.3
17.2
18.2
19.1
20.5

Includes Edge Act subsidiaries in the United States.

Foreign Office Assets of All Insured Commercial Banks*
($ billions)

Year

Foreign
office
assets

Annual
percent
increase

Domestic
office
assets

Annual
percent
increase

Foreign office
share of total
assets (percent)

1975
1976
1977
1978
1979

$147.6
175.1
206.0
239.8
291.1

NA
18.6
17.1
16.9
21.4

$ 947.8
1,007.3
1,133.4
1,268.2
1,400.3

4.2
6.3
12.5
11.9
10.4

13.5
14.8
15.3
15.9
17.2

Includes Edge Act subsidiaries in the United States.

tutions are becoming increasingly aware of the prob
lems of long-term, fixed rate lending funded by
short-term liabilities. Increasingly, those lenders are
either refusing to lend long-term or insisting on loans
with floating or renegotiable rates. While that may re
duce the interest rate risk of future investments, it does
not address the problem of long-term, fixed rate loans
in existing portfolios.
The larger banks have had substantial experience at
managing assets and liabilities in a volatile, highly
competitive environment. Many thirft institutions and
smaller commercial banks need to develop greater
management expertise to deal successfully with an en
vironment where core deposits erode in favor of
interest-sensitive funding sources, and interest rates
themselves display great variability.
Moreover, as those institutions enter the 1980's, an
increasingly competitive marketplace will provide no
easy transition period for them to raise the yield on
their portfolios to better approximate market rates of in
terest. The financial marketplace continues to become
broader and more competitive within particular indus
tries, across industry lines and across geographic
boundaries. Financial service providers, some regu
lated and some unregulated, engage in a variety of ac
tivities we have traditionally associated with commer
cial banking. Savings and loan associations, credit
unions, mutual savings banks, securities firms, finance
companies, computer and data processing companies
and larger retailers are offering similar banking serv
ices and competing for the same customers as com
mercial banks.
Current economic and financial problems have been
years in the making. They became progressively more
severe through 1979, but their most startling symp
toms became visible only late in the year and, even
more dramatically, in early 1980. They set the stage for
much of what we will be discussing in future years,
without producing their most visible effects on the con
dition or performance of the banking system as of
1979.
Condition of the National Banking System in 1979
The strength of the economy in 1979 was, as ex
pected, reflected in the condition of the national bank
ing system, which continued the post-1974-75 reces
sion trend of improvement as measured by certain
traditional standards. Asset quality and earnings im
proved systemwide. Capital-to-asset relationships de
clined only nominally. However, results were not uni
formly good, since systemic liquidity declined during
the year and interest margins declined in the fourth
quarter. Within those overall patterns, results were de
cidedly different for banks in different size classes.
The following discussion of the condition of the na
tional banking system is organized around the topics
of asset growth, earnings, asset quality, liquidity and
capital. The discussion focuses on national banks, but
for the sake of completeness and comparability, much
of the statistical information is provided also for the en
tire commercial banking system. Information is also
presented in this section of the testimony on the record
192

of banks under special supervision, bank failures and
enforcement activities involving national banks in
1979.
Asset Growth—Consolidated domestic and foreign
assets of the national banking system drew by 11.7
percent in 1979 to almost $1 trillion, continuing the
trend of growth in bank assets induced by inflation. An
illustration of this is the expansion in the average size
of national banks from $138 million at year-end 1975 to
$224 million at the end of 1979.
Consolidated Assets of National Banks
($ millions)

Number
Year-end of banks

1975
1976
1977
1978
1979

4,744
4,737
4,655
4,564
4,448

Assets

Annual percent
increase
Consumer
Assets price index

$653,751
704,329
796,851
892,274
996,284

3.8
7.7
13.1
12.0
11.7

7.0
4.8
6.8
9.0
13.4

Consolidated Assets of All Insured Commercial
Banks
($ millions)
Year-end

Number
of banks

Assets

Annual percent increase

1975
1976
1977
1978
1979

14,467
14,494
14,439
14,372
14,357

$1,095,389
1,182,391
1,339,393
1,508,217
1,691,474

4.7
7.9
13.3
12.6
12.2

Asset growth, however, was not uniform across
banking organizations. In 1979, continuing recent
trends, the 10 largest banks in the system grew at a
more rapid pace (14.5 percent) than the system as a
whole (11.7 percent). This resulted in an increased
share of national bank assets accounted for by the 10
largest banks (41.6 percent in 1979 as opposed to
40.6 percent in 1978). In 1979, 117 national banks had
total assets of greater than $1 billion, up from 109 in
1978. Those banks accounted for 70 percent of all na
tional bank assets, up from 67.6 percent the previous
year.
Also continuing a recent trend was the more rapid
pace of asset growth at foreign offices of national
banks than at domestic offices. In 1979, foreign office
assets grew by 20 percent, more than twice the 9.7
percent rate of growth of domestic office assets. For
eign office assets now represent over 20 percent of to
tal assets of the national banking system.
Only 111 national banks are active internationally,
and they are not all equally active. Indeed, the five na
tional banks which are most active internationally ac
count for about one-third of all national bank assets,
but 80 percent of all national banks' foreign assets. For

Statement of John G. Heimann, Comptroller of the Currency, before the Senate
Committee on Banking, Housing and Urban Affairs, Washington, D.C., May 21,
1980
I am pleased to appear before this committee to
present the views of the Office of the Comptroller of
the Currency on the condition of the national banking
system. These annual hearings make an important
contribution to public understanding of the financial
system and its significant role in the economic life of
our nation.
The condition and performance of the financial sys
tem as a whole are intimately related to the overall ec
onomic environment. Periods of general economic
prosperity tend to be reflected in healthy results for the
financial system. Such was the case for the national
banking system in 1979.
We believe the national banking system as a whole
is in sound condition to withstand the likely pressures
of the early 1980's. However, the condition and
performance of individual banking institutions are
heavily influenced by management decisions and the
local economic environment, and will vary from one in
stitution to another.
Therefore, a supervisory matter, which we will dis
cuss in greater detail later in this testimony, concerns
the legislative proposal developed by the members of
the Federal Financial Institutions Examination Council
to provide greater regulatory flexibility in managing the
situation of the failure of a large depository institution.
The provisions of that proposal would be used only in
extraordinary circumstances when other mechanisms
could not assure uninterrupted availability of financial
services. In light of the uncertainties we face, we be
lieve the provisions of that proposal provide additional
tools which would prove beneficial to the banking sys
tem and the banking public.
This testimony begins with a brief overview of the
economic and financial environment in 1979, proceeds
to a discussion of the condition of the national banking
system in 1979 and then discusses the current eco
nomic climate and certain supervisory matters, includ
ing that legislative proposal.
The Economic and Financial Environment in 1979
In 1979, overall rates of economic growth slowed
from 1978 levels but were still unexpectedly strong.
The gross national product grew at 11.3 percent in
nominal terms and 2.3 percent in real terms.
Nineteen seventy-nine opened amid expectations of
an economic recession following the tighter monetary
policy stance undertaken by the Federal Reserve in
November 1978. The Federal Reserve initiated another
round of monetary tightening in October 1979, renew
ing expectations of an economic slowdown. The auto
mobile and housing industries did slow down, but de
spite the expectations of most forecasters, the
economy as a whole did not, although recent evidence
strongly indicates that the long-anticipated recession
is now under way.
In 1979, many of the financial stresses and strains

created by prolonged inflation manifested themselves
in more visible ways than previously. Consumer price
inflation worsened from an annual rate of under 10 per
cent in late 1978 to over 13 percent by late 1979. Inter
est rates displayed great volatility and moved sharply
upward. The Federal Reserve discount rate rose from
9.5 to 12 percent, the prime lending rate from 11.75 to
over 15.25 percent and the 6-month Treasury bill rate
from 9.5 percent to almost 12 percent.
The decidedly upward trends in inflation and interest
rates, which have been in evidence since the 1960's
continued in 1979. High interest rates significantly
raise the opportunity cost of holding funds in noninterest earning demand accounts and low-yielding
passbook and time deposits. In recent years, financial
institutions introduced and refined a series of financial
innovations to provide higher returns on funds than is
permitted from more traditional deposit instruments.
The most commented upon innovations in 1979
were in the retail area. The 6-month money market cer
tificate of deposit, bearing an interest rate linked to the
Treasury bill rate, expanded from $79 billion, or 5 per
cent of domestic deposits at commercial banks and
thrift institutions, at year-end 1978 to $271 billion, or 16
percent of domestic deposits, by the end of last year.
For the commercial banking industry, money market
certificate balances expanded from $23 billion to $103
billion during the year, accounting for 10 percent of to
tal domestic deposit funds by year-end.
The other financial innovation which attracted a
great deal of attention in 1979 is the money market
mutual fund, which represents direct competition for
deposit funds from outside the depository sector. Dur
ing the year, the number of funds rose from 61 to 76,
and total assets mushroomed from $11 to $45 billion.
The availability of those market-yielding instruments
is revolutionizing the liability structure of the smaller
and retail-oriented depository institutions. Banks and
thrift institutions can no longer depend on a stable
"core" of deposits insensitive to changes in market in
terest rates. The effect of those new instruments was a
relatively large increase in the average cost of funds at
depository institutions in 1979, but the disintermediation pressures of previous high-interest rate periods
were substantially reduced. Deposit funds were, there
fore, more readily available than in the last highinterest rate cycle, but at a much higher cost.
The result of that rapid increase in the cost of funds
was a rethinking of investment and lending practices.
By raising the cost of deposits and making them more
sensitive to changes in market interest rates through
deposit instruments such as the money market certifi
cates, high interest rates prompted institutions to be
gin pricing their loans and services more in line with
costs.
High and varying interest rates also forced financial
institutions to pay more attention to matching the matu
rities of their assets and liabilities. Most financial insti191

nancial services permitted to the host country's
institutions in the entrant's home country? Or
should it adopt a rule of national treatment—
i.e., permitting a foreign entrant to compete
equally with similarly situated financial institu
tions in the host country?
• What is the appropriate mode and instrumental
ity for disciplining an international financial insti
tution whose performance threatens the longterm stability of the marketplace?
These are but a sample of some of the thornier
questions posed by the confrontation between diverse
national supervisory systems and the reality of interna
tional financial interdependence. Indeed, not all these
problems have been satisfactorily resolved by all the
relevant governments, although rough working an
swers do exist for most of them. Meeting in Basel
(Switzerland) in 1974, central bankers from the major
industrialized countries developed a "concordat" con
cerning the responsibilities of home and host country
authorities for the lender-of-last-resort function and for
the bank examination and supervision function. The
progress in multilateral cooperation demonstrated in
the "concordat" is encouraging.
The practical key to resolving these problems for all
participating countries in the commercial banking field,
and more generally across the broad spectrum of fi
nancial institutions, is increased multilateral coopera
tion among national financial supervisors.
This does not mean that uniform restrictive regula
tions must be adopted for all types of financial institu
tions. Developments are not taking this course in the
case of commercial banking, nor, in my view, should
they. Such an approach might tend to converge on the
lowest common denominator of rigidity from each su
pervisory tradition, stifling innovation and robbing the
world economy of the creativity of free capital markets.
The more promising course of international financial
supervision is through the dissemination of complete,
accurate and timely information about the condition of
the world financial system. An environment of more
complete information supports the flexible cooperation
of national financial supervisors to solve international
financial problems.
Following the difficulties of 1974-75, the Bank for In
ternational Settlements sponsored creation of the
Committee on Banking Regulations and Supervisory
Practices, now known colloquially as the Cooke Com
mittee. This committee is composed of representatives
of the G-10 countries plus Luxembourg and Switzer
land. It meets regularly to assess the quality of govern
ment oversight of the international commercial banking
system and to foster cooperation among national
banking supervisors on matters of common concern.
A major focus of the cooperative effort to date has
been the improvement of the flow of information. A
broad consensus has been developed in support of
the view that national banking authorities should obtain
complete information from their banks on the crossborder exposure of parent, branch and subsidiary

190

banks through a consolidated balance sheet ap
proach. This approach was implemented by the
United States in 1973 and is now coming "on-stream"
in other countries.
Without minimizing the significance of these devel
opments, even greater emphasis needs to be placed
on the availability of information concerning interna
tional financial practices and activities. This will require
continued diligence in working toward internationally
accepted accounting principles. This would help per
mit more accurate audit and verification techniques in
international financial transactions. It would also help
permit ready comparability of data reported by finan
cial institutions in different countries. Comparability will
not necessarily require adoption of the same account
ing conventions in each country, but it will require that
users of financial information understand differences
among accounting systems and make appropriate ad
justments to meet their specific needs.
I would stress that although the justification for im
proved information may be more self-evident in the
case of commercial banks because of concern for the
protection of depositors, the same principles apply
with respect to other classes of financial institutions.
The maintenance of orderly international financial
markets must be a transcendent concern as the inter
national financial system becomes increasingly inter
dependent. Your own willing cooperation in providing
adequate information to permit accurate assessments
of the condition of the markets in which you are active
is in the global public interest and, therefore, in your
own enlightened self-interest.
The internationalization of the marketplace may not
be a new phenomenon—but what is new is the degree
of our interdependence.
Technology has shrunk the distances between na
tions, and commerce has given us increased incen
tives to overcome the barriers that divide us. As our fi
nancial interdependence increases, we have a greater
incentive to retain the fruits of that interdependence by
avoiding political disruptions.
Sigmund Freud and Albert Einstein wrote a series of
letters debating whether it was possible to move all of
humanity to act on behalf of the common good. Ein
stein argued that it was only through the recognition of
the commonality of man that the world will survive and
that it is in fact possible to achieve a state of common
interest. Freud contended that while it is impossible to
suppress humanity's aggressiveness, a state of peace
can be achieved through a fear of the result of failing
to work for the common good.
In my view, the internationalization of the market
place is bringing us significantly closer to the state de
scribed by Freud: a world in which nations recognize
that the benefits of peace outweigh the benefits of dis
ruption. We will never be entirely free of extremists and
political madmen, but in such a world, the fruits of act
ing responsibly—and the sanctions against acting
irresponsibly—hopefully will prove to be a strong curb
against political excesses.

large. In 1965, foreign branch assets amounted to $9
billion. At year-end 1979, foreign branch assets of U.S.
banks exceeded $250 billion. Indeed, U.S. banks' for
eign branch assets have more than tripled just in the
period since 1972.
The 1970's have also witnessed an enormous ex
pansion of foreign banks' activity in the United States
to the point where this activity constitutes a complex
and significant component of the U.S. financial system.
The Federal Reserve reports comprehensive bank
structure statistics on the presence of foreign banks in
the various states of the United States. November
1979 data indicate that 151 different banking organiza
tions from foreign jurisdictions maintain a bank pres
ence in the United States. In all, foreign-based bank
ing organizations operate 161 agencies, 125
branches, 42 subsidiary commercial banks, six "invest
ment companies and two agreement corporations in
the United States. New York is host to 160 to these of
fices, California 98 and Illinois 35.
Twelve foreign banking organizations operating in
the United States have five or more outlets. Those in
clude banking organizations from France, the Nether
lands, United Kingdom, Canada, Hong Kong, Israel
and Japan. Of the 151 foreign banking organizations
operating in the United States, 73 have a banking
presence in only one state, 39 are present in two
states, 27 are present in three states and four foreign
banks have a presence in as many as six states.
While the origins of foreign bank presence in the
United States go back to the 19th century, growth in
recent years has accounted for much of the current
position. From 1972 to 1979, the number of foreign
bank agencies almost tripled, branches quintupled
and subsidiaries almost doubled. The total number of
outlets more than tripled.
In terms of volume of banking activity, the recent ex
pansion has been even more dramatic. Measured by
assets, foreign banks' activity in the United States al
most tripled between 1972 and 1977 and more than
doubled again by 1979, reaching a level in excess of
$155 billion, about 10 percent of U.S. banking assets.
Even this summary does not present the complete
picture because it concentrates on commercial bank
ing activities. It does not cover banking-related activi
ties such as ownership of factoring and finance com
panies which foreign bank holding companies may,
and do, conduct in the United States. It also does not
cover certain operations such as securities affiliates
which foreign banks were permitted to establish before
the adoption of the International Banking Act of 1978.
The act permits pre-existing securities affiliates of for
eign commercial banks to continue in operation, al
though no new ones may be established.
If we looked at similar statistics from other locations,
notably London, we would see a similarly rich and
complex pattern of transnational banking.
The increased globalization of the financial system
reflected by the experience of commercial banks has
been enormously beneficial to the world community,
improving the efficiency of the capital markets and the
world allocation of resources. At the same time, global
economic interdependence has created new and chal

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