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For immediate release
April 13, 1998
The Federal Reserve Board today conditionally approved the
applications and notices of First Union Corporation, Charlotte, North Carolina, to
merge with CoreStates Financial Corp, Philadelphia, Pennsylvania, and thereby
acquire CoreStates Bank, N.A., Philadelphia, and CoreStates Bank of Delaware,
N.A., Wilmington, Delaware, and the nonbanking subsidiaries and foreign branches
of CoreStates.
The Board's approval is conditioned on the divestiture of 23 branches
in the Philadelphia banking market and 9 branches in the Lehigh Valley banking
market. First Union must also report any changes in its preliminary plans to close
branches in low- and moderate-income census tracts to the Federal Reserve System
for a period of two years.
Attached is the Board's Order relating to this action.
Attachment
-2FEDERAL RESERVE SYSTEM
First Union Corporation
Charlotte, North Carolina
Order Approving the Merger of Bank Holding Companies
First Union Corporation (“First Union”), a bank holding company
within the meaning of the Bank Holding Company Act (“BHC Act”), has requested
the Board’s approval under section 3 of the BHC Act (12 U.S.C. § 1842) to merge
with CoreStates Financial Corp (“CoreStates”) and thereby acquire CoreStates
Bank, N.A., Philadelphia, Pennsylvania (“CoreStates Bank”), and CoreStates Bank
of Delaware, N.A., Wilmington, Delaware (“CoreStates Delaware”).1/ First Union
also has requested the Board’s approval under section 4(c)(8) of the BHC Act (12
U.S.C. § 1843(c)(8)) to acquire the nonbanking subsidiaries of CoreStates and,
under section 25 of the Federal Reserve Act (12 U.S.C. § 601), to acquire
CoreStates Bank’s foreign branches. See Appendix A.2/
First Union has total consolidated assets of approximately
$157.3 billion, and is the sixth largest commercial banking organization in the
United States, controlling approximately 3.2 percent of the total banking assets of
1/
First Union also has requested approval to acquire interests currently held by
CoreStates in less than 25 percent of the voting shares of each of First Commercial
Bank of Philadelphia and United Bank, both of Philadelphia, Pennsylvania. First
Union has committed to observe certain commitments previously made by
CoreStates that are designed to assure that First Union will not exercise a
controlling influence over the management and policies of these institutions.
See CoreStates Financial Corp, 82 Federal Reserve Bulletin 430, 431 n.1 (1996).
2/
In addition, First Union has requested the Board’s approval to hold and
exercise an option to purchase up to 19.9 percent of the voting shares of CoreStates
if certain events occur. The option would expire on consummation of the proposal.
-3insured commercial banks in the United States.3/ First Union National Bank,
Charlotte, North Carolina ("FUNB"), which is a wholly owned subsidiary of First
Union, operates in North Carolina, Florida, Georgia, South Carolina, Tennessee,
Virginia, Maryland, Pennsylvania, New Jersey, New York, Connecticut, and the
District of Columbia. First Union also owns First Union Bank of Delaware,
Wilmington, Delaware ("Delaware Bank"), which operates in Delaware. First
Union also engages in a number of permissible nonbanking activities nationwide.
CoreStates has total consolidated assets of approximately $48.5 billion,
and is the 23rd largest commercial banking organization in the United States,
controlling approximately 1 percent of total nationwide banking assets. CoreStates
operates in Pennsylvania, New Jersey, and Delaware, and engages through
subsidiaries in a variety of permissible nonbanking activities. On consummation of
the proposal, and accounting for the proposed divestitures, First Union would
remain the sixth largest commercial banking organization in the United States, with
total consolidated assets of approximately $205.8 billion, representing
approximately 4.2 percent of total nationwide banking assets.
First Union is the fifth largest commercial banking organization in
Pennsylvania, controlling deposits of approximately $5.6 billion, representing
approximately 3.3 percent of all deposits held by depository institutions in the
state.4/ CoreStates is the second largest commercial banking organization in
Pennsylvania, controlling deposits of approximately $25.1 billion, representing
approximately 14.6 percent of deposits held by depository institutions in
3/
Asset and ranking data are as of December 31, 1997, and reflect First Union's
acquisition of Signet Banking Corporation, Richmond, Virginia.
4/
For this purpose, depository institutions include commercial banks, savings
banks, and savings associations.
-4Pennsylvania. On consummation of the proposal, and accounting for the proposed
divestitures, First Union would become the largest depository institution in
Pennsylvania, controlling deposits of approximately $29.7 billion, representing
approximately 17.3 percent of deposits in the state.
First Union also would control approximately 15.2 percent and
2.1 percent of state deposits in New Jersey and Delaware, respectively. State
deposit and ranking data for First Union and CoreStates in these states are described
in Appendix B.
Factors Governing Board Review of Transaction
The Board is charged with considering a number of specific factors
when reviewing the acquisition of a bank or bank holding company under the BHC
Act. These factors are the competitive effects of the proposal in the relevant
geographic markets; the financial and managerial resources and future prospects of
the companies and banks involved in the transaction; the convenience and needs of
the community to be served, including the records of performance under the
Community Reinvestment Act (12 U.S.C. § 2901 et seq.) ("CRA") of the insured
depository institutions involved in the transaction; and the availability of information
needed to determine and enforce compliance with the BHC Act.5/
In order to permit interested members of the public an opportunity to
submit comments to the Board on these factors, the Board published notice of the
proposal and provided a period for public comment. The Board extended the public
comment period to allow the public to comment on a CRA plan proposed by First
Union for the Philadelphia/New Jersey/Delaware region. In total, the public
5/
In cases involving a foreign bank, the Board also is charged with considering
whether the foreign bank is subject to comprehensive supervision or regulation on a
consolidated basis by appropriate authorities in the foreign bank's home country.
-5comment period provided interested persons approximately 57 days to submit
written comments on the proposal.6/
Because of the significant public interest in this proposal, particularly
in the Philadelphia area, the Board also held a public meeting to allow interested
persons to present direct testimony regarding the various factors that the Board is
charged with reviewing under the BHC Act.
More than 80 commenters appeared and testified at the public meeting,
and many of the commenters who testified also submitted written comments.
Testimony was presented at the meeting by representatives of community and nonprofit organizations, members of the United States Congress, small business owners,
customers of First Union and CoreStates, CoreStates employees, local and state
government officials, and other interested individuals. Through the public comment
period and the public meeting, the Board received more than 235 comments on the
proposal.
Commenters submitted information and expressed views supporting
and opposing the proposed acquisition.
Commenters in support of the proposal commended First Union for its
lending and other financial support of specific community development projects,
including its funding of affordable mortgage and home improvement loan programs
directly and through intermediaries, and its leadership in developing and funding
loan pools in several states. Commenters also commended First Union's small
business lending activities, including its participation in micro-lending programs.
Many commenters praised First Union's five-year, $13 billion community
6/
Notice of the proposal was published in the Federal Register (63 Federal
Register 4266 (1998)) and in local newspapers in accordance with the Board's Rules
of Procedure. See also Press Release dated February 25, 1998.
-6reinvestment plan for Pennsylvania, New Jersey, and Delaware ("CRA Plan").
Other commenters noted favorably First Union's commitment to maintain the current
level of charitable contributions of CoreStates and First Union in the three-state
area, and to establish a $100 million charitable foundation to support community
needs within the region. Commenters in support included customers and community
organizations from throughout the areas currently served by First Union as well as
from the Philadelphia/New Jersey/Delaware area.
Commenters opposed to the merger expressed concerns regarding the
loss of a large financial institution with headquarters in Philadelphia and the effect
the merger would have on competition, branch closings, and local civic leadership,
particularly in low- and moderate-income ("LMI") and inner city neighborhoods in
the City of Philadelphia. A number of commenters believed that a large out-of-state
banking organization like First Union would not serve their communities as well as a
local organization like CoreStates. Other commenters cited weaknesses they
perceived in the performance record of First Union under the CRA, particularly in
the communities served by CoreStates. Commenters also discussed potential
adverse effects of the proposal on individuals and on communities, including the
effects of layoffs, the potential reduction in the availability and quality of banking
services, and other concerns.
In evaluating the statutory factors under the BHC Act, the Board
carefully considered the information and views presented by all commenters. The
Board also considered all of the information presented in the application and in
supplemental filings by First Union and reports filed by the relevant companies and
publicly available information and other reports. In addition, the Board reviewed
confidential supervisory information, including examination reports regarding the
companies and depository institutions involved, and information provided by the
-7other federal banking agencies and the Department of Justice. For the reasons
discussed below, and after a careful review of all the facts of record, the Board
concludes that the statutory factors it is required to consider under the BHC Act are
consistent with approval of the proposal.
Competitive Factor
The BHC Act prohibits the Board from approving an application under
section 3 of the BHC Act if the proposal would result in a monopoly or if the effect
of the proposal may be substantially to lessen competition in any relevant market,
unless the Board finds that the anticompetitive effects of the proposal are clearly
outweighed in the public interest by the probable effect of the proposal in meeting
the convenience and needs of the community to be served.7/
The Board received a number of comments from individuals and
organizations regarding the competitive aspects of the proposal. A substantial
majority of the commenters discussing this factor believed that the acquisition would
have significantly adverse anticompetitive effects such as increased fees, reduced
customer convenience, and reduced availability and quality of banking and
nonbanking products in the banking markets where First Union and CoreStates
compete. Many commenters focused on the City of Philadelphia and argued that the
level of concentration resulting from the proposal would significantly exceed the
Department of Justice Merger Guidelines ("DOJ Guidelines") in Philadelphia.
These commenters estimated that the post-merger concentration in Philadelphia, as
measured by the Herfindahl Hirschman Index ("HHI") under the DOJ Guidelines,
would increase by 628 points to 3429, and that First Union would control more than
7/
12 U.S.C. § 1842(c)(1)(B).
-850 percent of the total deposits in depository institutions in Philadelphia.8/ Several
commenters contended that the level of increases in market share and concentration
in Philadelphia violated the Supreme Court's decision regarding another
Philadelphia-based bank merger in United States v. Philadelphia National Bank,
374 U.S. 321, 357 (1963) (“Philadelphia National”).
Product Market. In order to determine the effect of a particular
transaction on competition, it is necessary to designate the area of effective
competition between the parties. The courts have held that the area of effective
competition is decided by reference to the "line of commerce," or product market,
and a geographic market. The Board and the courts traditionally have recognized
that the appropriate product market for evaluating bank mergers and acquisitions is
the cluster of products (various kinds of credit) and services (such as checking
accounts and trust administration) offered by banking institutions.9/
8/
See 49 Federal Register 26,823 (June 29, 1984). Under the DOJ Guidelines, a
market in which the post-merger HHI is more than 1800 is considered to be highly
concentrated. The Department of Justice has informed the Board that a bank merger
or acquisition generally will not be challenged (in the absence of other factors
indicating anticompetitive effects) unless the post-merger HHI is at least 1800 and
the merger increases the HHI by more than 200 points. The Department of Justice
has stated that the higher than normal threshold for an increase in HHI when
screening bank mergers and acquisitions for anticompetitive effects implicitly
recognizes the competitive effects of limited-purpose and other nondepository
financial entities.
9/
See Chemical Banking Corporation, 82 Federal Reserve Bulletin 239 (1996)
("Chemical Order") and studies cited therein. The Supreme Court has emphasized
that it is the cluster of products and services that, as a matter of trade reality, makes
banking a distinct line of commerce. See Philadelphia National, 374 U.S. at 357.
Accord United States v. Connecticut National Bank,
418 U.S. 656 (1974); United States v. Phillipsburg National Bank, 399 U.S. 350
(1969).
-9Geographic Market. Once the relevant product market has been
defined, it is necessary to identify the appropriate geographic market in which
competition for the supply of, and demand for, this line of commerce occurs. In
defining the relevant geographic market in the case of bank acquisitions, the Board
and the courts consistently have held that the geographic market for the cluster of
banking services is local in nature.10/ The geographic scope of the local market is
defined by the area in which competition between depository institutions can
reasonably be expected to have a direct effect on the price and supply of the cluster
of banking products and services.11/
In determining the relevant geographic market, the Board reviews a
number of factors that identify the geographic area over which competitive forces
act to affect the pricing and availability of banking products and services. These
include data regarding worker commuting patterns, as indicated by census data;
population density; degree of economic integration; the availability and geographic
reach of various modes of advertising; the presence of shopping, employment,
health care, and other necessities; the availability of transportation systems and
routes; branch banking patterns; deposit and loan activity; and other similar factors
that indicate the geographic scope of competition.12/
10/
See Chemical Order at 241; see also Sunwest Financial Services, Inc., 73
Federal Reserve Bulletin 463 (1987); Pikeville National Corporation, 71 Federal
Reserve Bulletin 240 (1985); Wyoming Bancorporation, 68 Federal Reserve
Bulletin 313 (1982), aff'd. 729 F.2d 687 (10th Cir. 1984).
See also Connecticut National, 418 U.S. at 667-68.
11/
Philadelphia National, 374 U.S. at 359, quoting Tampa Electric Co. v.
Nashville Coal Co., 365 U.S. 320, 327 (1961).
12/
See Crestar Bank, 81 Federal Reserve Bulletin 200, 201 n.5 (1995);
Pennbancorp, 69 Federal Reserve Bulletin 548 (1983); St. Joseph Valley Bank, 68
(continued...)
- 10 First Union and CoreStates operate and compete in several areas in
Pennsylvania, New Jersey, and Delaware. As noted above, several commenters
questioned the appropriate definition of the banking market for the Philadelphia
area. The definition of the appropriate market was not contested in the other
markets in which First Union and CoreStates compete. The Board has, therefore,
paid special attention to defining the relevant geographic banking market in the
Philadelphia area.
12/
(...continued)
Federal Reserve Bulletin 673 (1982); U.S. Bancorp, 67 Federal Reserve Bulletin 60,
61 n.2 (1981).
- 11 A. Relevant Geographic Banking Market for the Philadelphia Area
Philadelphia is the fifth largest city in the United States, with a
population of approximately 1.5 million people.13/ Philadelphia serves as a hub for
financial, commercial, health, recreational, and other services throughout the
metropolitan area that surrounds the city. There is substantial and continuous
economic development and integration between the City of Philadelphia and the
surrounding nine counties, in particular Bucks, Chester, Delaware, and Montgomery
Counties in Pennsylvania; and Burlington, Camden, Gloucester, and Salem Counties
and the southwestern portion of Mercer County, in New Jersey. Commuting data
for 1990 from the U.S. Bureau of the Census indicate that the City of Philadelphia is
one of the largest net importers of labor in eastern Pennsylvania and southern and
central New Jersey.14/ Approximately 33 percent of Philadelphia's work force
resides outside the city. More than 10 percent of the residents in the Pennsylvania
counties of Bucks, Delaware, and Montgomery commute to jobs in the City of
Philadelphia.15/ In addition, approximately 16 percent of the residents in Camden
County, New Jersey, commute to Philadelphia, and 14 percent and 20 percent of the
13/
Population data are from the 1990 decennial census by the U.S. Bureau of the
Census.
14/
A county is a net importer of labor when its payroll employment (the number
of workers employed in the county regardless of where they live) exceeds its
resident employment (the number of workers who live in the county regardless of
where they work) by at least 10 percent.
15/
Approximately 11 percent of Bucks County's residents, approximately 23
percent of Delaware County's residents, and approximately 16 percent of
Montgomery County's residents commute to Philadelphia. In addition,
approximately 13 percent of Chester County's residents commute to Montgomery
County, which is contiguous to Philadelphia.
- 12 residents in the New Jersey counties of Burlington and Gloucester, respectively,
commute to Camden County.16/
The four counties closest to Philadelphia -- Camden County in New
Jersey and Bucks, Delaware, and Montgomery Counties in Pennsylvania -- have
direct and substantial links to the city. The Southeastern Pennsylvania
Transportation Authority ("SEPTA") operates nine regional rail lines to central
Philadelphia and three light rail lines to its terminal at 69th Street, where they
connect with the subway-elevated line to the rest of the city. These lines operate in
Bucks, Delaware, Chester, and Montgomery Counties in Pennsylvania, and Mercer
County in New Jersey.17/ Eight major highways, including three interstate highways,
and ten secondary roads provide access from Burlington, Camden, and Gloucester
Counties in New Jersey to the Pennsylvania counties in the Philadelphia banking
16/
Commuting data for Salem County, New Jersey, show that it is also part of a
multi-county market. Overall, 40 percent of Salem County's residents work outside
the county and commute to other counties in the following percentages: Gloucester
County, New Jersey (10.4 percent); Philadelphia Primary Metropolitan Statistical
Area (an area smaller than the Philadelphia MSA) (7.3 percent); New Castle
County, Delaware (10.6 percent); Cumberland County, New Jersey (8.8 percent);
and other areas (approximately 3 percent). Since 17.7 percent of Salem County's
residents commute to jobs within the Philadelphia banking market, Salem County
has been included within its delineation.
17/
The New Jersey Transit agency operates trains between Philadelphia and
Atlantic City, New Jersey, that have a number of stations in Camden and Burlington
Counties, New Jersey, and operates at least 20 bus lines between central
Philadelphia and locations in Burlington, Camden, and Gloucester Counties. These
bus lines also connect directly with nine stations in Camden County that serve the
Delaware River Port Authority's high-speed rail system between central Philadelphia
and Lindenwold in Camden County, New Jersey ("PATCO"). PATCO runs every
5-8 minutes during rush hour and every
10-15 minutes at other times and averages approximately 39,000 riders daily.
- 13 market. Ten bridges cross the Delaware River, which separates Philadelphia from
New Jersey, and more than 350,000 vehicles use these bridges daily.
Newspapers and other media serve an area that includes these
Pennsylvania and New Jersey counties. Philadelphia's principal newspaper, The
Philadelphia Inquirer, is the largest newspaper in the area and has a significant
circulation in the New Jersey counties of Burlington, Camden, and Gloucester.18/
Philadelphia television and radio stations also are predominant in the Pennsylvania
counties and these New Jersey counties. In addition, Philadelphia provides area
residents with a number of financial, transportation, cultural, educational, medical,
retail, and recreational services that are not available in the outlying counties.
A number of commercial banks and thrift institutions in Philadelphia
also have substantial presences in New Jersey. For example, a number of
depository institutions in the Philadelphia banking market, including the six largest
depository institutions in the market, maintain branches in New Jersey and
Pennsylvania. First Union and CoreStates, moreover, each use a single system for
pricing products and services in Pennsylvania and New Jersey, and office hours for
each organization's subsidiary banks are almost identical throughout this region.
Lending data filed under the Home Mortgage Disclosure Act
(12 U.S.C. § 2801 et seq.) ("HMDA") and small business lending data submitted
under the CRA regulations of the federal supervisory agencies indicate that
depository institutions compete throughout Philadelphia and the surrounding nine
counties. In particular, these data show that banks originate loans throughout the
area.
18/
Circulation data for The Philadelphia Inquirer indicate that the penetration
level in these New Jersey counties is approximately 75 percent of the penetration
level for the newspaper in Philadelphia County.
- 14 The area that includes the City of Philadelphia and the surrounding nine
counties closely approximates the area designated as a Ranally Metropolitan Area
("RMA"). An RMA is a privately defined compact geographic area with relatively
high population density that is linked by commuting, retail, and wholesale trade
patterns.19/ The banking market also closely approximates the area designated as the
Philadelphia Metropolitan Statistical Area ("MSA") by the Office of Management
and Budget.20/ MSA designations are made on the basis of an area's population and
include surrounding counties with strong economic and social ties to a central
county.
Several commenters argued that the Philadelphia metropolitan area
consists of smaller banking markets that are relevant in considering the competitive
effects of the transaction, such as the City of Philadelphia or certain neighborhoods
within the city. Commenters supported these market definitions by arguing that
these smaller areas are where the vast majority of local residents can practicably and
conveniently turn for banking alternatives.
The Board believes that the suggested market definitions are too
narrow and do not adequately reflect the degree to which competition among
banking institutions is transmitted throughout the broader Philadelphia area.21/ As
19/
The RMA differs from the Philadelphia banking market adopted by the Board
in that the RMA excludes some outlying areas in Gloucester, Burlington, and Salem
Counties, New Jersey, and some outlying areas in Bucks, Montgomery, and Chester
Counties, Pennsylvania, and includes part of Monmouth County and more of Mercer
County, New Jersey, and part of New Castle County, Delaware.
20/
The Philadelphia MSA differs from the Philadelphia banking market adopted
by the Board in that the Philadelphia MSA excludes all of Mercer County, New
Jersey.
21/
Other commenters argued that the Board is bound in this case by the
(continued...)
- 15 explained above, there are significant commuting, advertising, overlap of banking
activities and offices, economic integration, and other factors that transmit
competition within the multi-county Philadelphia area. These data indicate that,
although an individual customer may not have easy access to all bank competitors in
the market, the flow of a significant number of customers, of economic activity, and
of information regarding the price and availability of banking products and services
in the banking market is an effective check on the price and supply of the cluster of
banking products and services throughout the broader Philadelphia banking market.
Accordingly, based on all the facts of record, and for the reasons discussed above,
the Board believes that the relevant banking market for considering the competitive
effects of the proposal in the Philadelphia area is comprised of Philadelphia, Bucks,
21/
(...continued)
definition of the Philadelphia banking market set out by the Supreme Court in 1963
in its opinion analyzing the merger of Philadelphia National Bank and Girard Trust
Corn Exchange Bank. See Philadelphia National, 374 U.S. at 357-62. In
Philadelphia National, the Supreme Court determined that the appropriate market
for analyzing the competitive effects of that merger was the area defined by the City
of Philadelphia (which comprises Philadelphia County) and Bucks, Montgomery,
and Delaware Counties in Pennsylvania.
The Court has consistently recognized that competitive analysis must
reflect the competitive and economic realities of the marketplace. See United States
v. Marine Bancorporation, 418 U.S. 602, 630-31 (1974); Brown Shoe Co. v. United
States, 370 U.S. 294, 322 n.38 (1962). The Board believes that current data, which
reflect significant developments in population density, commuting patterns,
transportation systems, advertising and media coverage, and other commercial and
economic activity, in addition to significant broadening of the branching and other
powers of banks and thrifts in the 35 years since the Court considered Philadelphia
National, support a broader geographic market today, and are consistent with the
legal framework established by the Court for defining the relevant geographic
market.
- 16 Chester, Delaware, and Montgomery Counties in Pennsylvania; and Burlington,
Camden, Gloucester, and Salem Counties and the southwestern portion of Mercer
County, in New Jersey.
B. Competitive Analysis in the Philadelphia Banking Market
First Union is the fourth largest of 118 depository institutions in the
Philadelphia banking market, and controls deposits of approximately $5.5 billion,
representing approximately 7.9 percent of market deposits. CoreStates is the largest
depository institution in the market, and controls deposits of approximately $22
billion, representing approximately 31.5 percent of market deposits. On a combined
basis, First Union and CoreStates would control approximately 39.4 percent of
market deposits,22/ and the HHI would increase approximately 496 points to 1958,
an amount that would exceed the DOJ Guidelines in a highly concentrated market.
In order to address the potential anticompetitive effects of the proposal
in the Philadelphia banking market, First Union has committed to divest 23
branches. Fourteen of the divested branches would be located in the City of
Philadelphia, and the nine remaining branches would be located in the adjoining
22/
Market share deposit data are as of June 30, 1997. Market share data before
consummation are based on calculations in which the deposits of thrift institutions
are included at 50 percent, except as discussed in the order. The Board previously
has indicated that thrift institutions have become, or have the potential to become,
significant competitors of commercial banks. See Midwest Financial Group,
75 Federal Reserve Bulletin 386 (1989); National City Corporation, 70 Federal
Reserve Bulletin 743 (1984). Thus, the Board has regularly included thrift deposits
in the calculation of market share on a 50-percent weighted basis. See, e.g., First
Hawaiian, Inc., 77 Federal Reserve Bulletin 52 (1991).
- 17 Pennsylvania counties of Delaware and Montgomery.23/ The branches proposed to
be divested account for approximately $866.9 million in deposits, and would either
bring a new competitor into the market or enhance the competitive presence of a
current competitor.24/ In addition, three savings associations that operate in the
market are significant commercial lenders and provide a range of consumer,
mortgage, and other banking products and services. Competition from these savings
associations more closely approximates competition from commercial banks, and
the Board concludes that deposits controlled by these organizations should be
weighted at 100 percent.25/ In this light, and accounting for the proposed
23/
With respect to each market in which First Union has committed to divest
offices to mitigate the anticompetitive effects of the proposal, First Union has
committed to execute sales agreements for the proposed divestitures with a
purchaser determined by the Board to be competitively suitable prior to
consummation of the proposal, and to complete the divestitures within 180 days of
consummation. First Union also has committed that, in the event it is unsuccessful
in completing any divestiture within 180 days of consummation, it will transfer the
unsold branch(es) to an independent trustee that is acceptable to the Board and that
will be instructed to sell the branches promptly. BankAmerica Corporation, 78
Federal Reserve Bulletin 338 (1992); United New Mexico Financial Corporation, 77
Federal Reserve Bulletin 484 (1991).
24/
Deposit amounts for all divestitures by First Union are based on summary of
deposit data reported to the Federal Deposit Insurance Corporation by all market
competitors, as of June 30, 1997. Based on data reported by First Union as of April
7, 1998, the offices proposed to be divested would control approximately
$936 million of deposits.
25/
The Board previously has indicated that, when analyzing the competitive
effects of a proposal, it may consider the competitiveness of savings associations at
a level greater than 50 percent of the savings association's deposits if appropriate.
See Banknorth Group, Inc., 75 Federal Reserve Bulletin 703 (1989). In the
Philadelphia banking market, Firstrust Savings Bank, Peoples Bancorp MHC, and
Progress Financial Corp. each maintain a significantly greater percentage of their
(continued...)
- 18 divestitures, the HHI would increase by not more than 410 points to 1872, and First
Union would have a post-merger market share of approximately 38.1 percent.26/
As the Board has indicated in previous cases, in a market in which the
competitive effects of a proposal as measured by market indexes and market share
exceed the DOJ Guidelines, the Board will consider whether other factors tend to
mitigate the competitive effects of the proposal. The number and strength of factors
necessary to mitigate the competitive effects of a proposal depend on the level of
market concentration and size of the increase in market concentration.27/
In this case, the Board believes that a number of factors help mitigate
the competitive effects of the proposal in the Philadelphia banking market.28/ For
25/
(...continued)
assets in commercial loans than the national average for thrifts of 1.7 percent. The
record also indicates that these thrifts have
separate commercial lending departments with commercial lending officers, and that
the thrifts plan to continue to increase their commercial lending in the Philadelphia
banking market.
26/
Another savings association in the market, Sovereign Bancorp Inc., has
recently increased its commercial loan portfolio and commercial lending activities in
the Philadelphia banking market. Although the level of commercial lending activity
of this institution does not yet approximate the level of commercial lending activities
of banks or the savings associations noted above, it does exceed the national
average for savings associations. If deposits controlled by Sovereign were weighted
at 75 percent, the HHI would increase 404 points to 1847 and First Union would
control 37.8 percent of market deposits.
27/
See NationsBank Corporation, 84 Federal Reserve Bulletin 129 (1998); First
of Waverly Corporation, 84 Federal Reserve Bulletin 111 (1998).
28/
Several commenters argued that the Philadelphia National case precludes the
approval of a merger where the resulting bank has a post-merger market
share greater than 30 percent. The Board notes that the Court in Philadelphia
National and other cases found that "[no] particular percentage share was deemed
(continued...)
- 19 example, the Board has taken account of the significant number of competitors that
would remain in the market following this transaction and the structure and size of
other competitors. The Philadelphia banking market would have more than
50 commercial banks and 65 thrifts remaining as competitors of First Union. Five
competing bank holding companies each have more than $25 billion of total assets,
and at least an additional seven bank holding companies and at least four thrifts or
thrift holding companies each have more than $1 billion of total assets. Numerous
branches of depository institutions would remain in the banking market after
consummation.29/
28/
(...continued)
critical." 374 U.S. at 365. Instead, the proposed merger in Philadelphia National
was enjoined because "[t]here is nothing in the record of this case to rebut the
inherently anticompetitive tendency manifested by these percentages." 374 U.S. at
366. Accordingly, Philadelphia National and modern antitrust analysis confirm that
market share must be considered in light of all the facts of record, including factors
that tend to mitigate the potential anticompetitive effects of market concentration.
See United States v. Marine Bancorporation, 418 U.S. 602, 631 (1974); United
States v. Citizens & Southern Nat'l Bank, 422 U.S. 86, 120 (1975); United States v.
Baker Hughes, Inc., 908 F.2d 981 (D.C. Cir. 1990); Hospital Corp. of America v.
Federal Trade Commission, 807 F.2d 1381 (7th Cir. 1986), cert. denied, 481 U.S.
1038 (1987). This methodology has been adopted in the DOJ Guidelines and
repeatedly confirmed by the courts. See, e.g., United States v. International
Harvester Co., 564 F.2d 769 (7th Cir. 1977) (court considered the number and
power of competitors in the market, the background of growth and resources of the
companies involved, the relationship of their lines of commerce, and the physical,
economic, and legal barriers to entry); FTC v. National Tea Co., 603 F.2d 694 (8th
Cir. 1979) (court considered the weakness of the acquiring firm as a competitor, the
status of the market as "relatively competitive," and the likelihood that the acquiring
firm would fail without the merger); and Kennecott Copper Corp. v. Curtiss-Wright
Corp., 584 F.2d 1195 (2d Cir. 1978) (court considered ease of entry and
concentration trends).
29/
If market indexes were measured in terms of the number of branch
(continued...)
- 20 Two large Pennsylvania-based commercial banking organizations also
would remain as competitors. PNC Bank Corporation, the second largest
competitor in the Philadelphia banking market, is the 13th largest commercial
banking organization in the nation by total assets,30/ and would continue to control
approximately 15 percent of market deposits and operate 171 branches in the
market. Mellon Bank Corporation, the third largest competitor in the market, is the
25th largest commercial banking organization in the nation by total assets,31/ and
would continue to control approximately 12 percent of market deposits and operate
132 branches in the banking market.
The Philadelphia banking market is attractive for entry to out-of-market
competitors and has experienced significant entry recently.32/ Philadelphia is the
fourth largest metropolitan area in the country.33/ The Philadelphia banking market
exceeds the national average for total deposits per banking office and median
29/
(...continued)
offices of depository institutions, the Philadelphia banking market would be
moderately concentrated after consummation of the proposal, and the HHI would
increase 310 points to 1068. First Union would control approximately 26.7 percent
of the total number of branches in the banking market.
30/
PNC Bank Corporation has total assets of approximately $75.1 billion, as of
December 31, 1997.
31/
Mellon Bank Corporation has total assets of approximately $44.9 billion, as
of December 31, 1997.
32/
A commenter asserted that job losses and branch closings resulting from the
proposal could adversely affect the attractiveness of the market to out-of-market
competitors. These matters are discussed later in the order.
33/
Research suggests that substantially more entry takes place in large banking
markets than in small banking markets. See Amel, Dean and Liang, J. Nellie,
"Determinants of Entry and Profits in Local Banking Markets," Review of Industrial
Organization, February 12, 1997, at 59-78.
- 21 household income.34/ Data show that median household income, deposits per
banking office, population per banking office, and increases in total deposits in the
Philadelphia banking market are greater than the averages for other Pennsylvania
MSAs. Entry into the Philadelphia banking market, moreover, is not subject to
substantial legal restrictions.35/
The attractiveness of this market for entry has been demonstrated by
recent entry by new competitors. Since June 1995, five depository institutions have
entered the Philadelphia banking market de novo, and five other depository
institutions have entered the banking market by acquisition.
Based on all the facts of record, the Board concludes that the
considerations discussed above, including the proposed divestitures, the number and
strength of competitors in the market, the attractiveness of the market for entry by
out-of-market competitors, the number of recent entries into the market, and other
factors mitigate the potentially adverse competitive effects of the proposal in the
Philadelphia banking market.36/
34/
The national average for total deposits per banking office in an MSA is
$46.4 million, and the national median family income is $35,056. In the
Philadelphia banking market, total deposits per banking office average
$48.9 million, and the median family income is $35,684.
35/
New Jersey and Pennsylvania expressly permit banks from the other state to
acquire all, or any portion of the branch network of, an in-state bank. See N.J. Stat.
Ann. § 9A-133.1 (1997); Pa. Stat. Ann. tit. 7, § 1602 (1997). New Jersey and
Pennsylvania also permit unrestricted in-state branching. Section 3(d) of the BHC
Act allows the Board to approve an application by a bank holding company to
acquire a bank located in a state other than the home state of such bank holding
company. 12 U.S.C. § 1842(d).
36/
A commenter proposed that the Board establish absolute limits on bank
mergers and acquisitions. This methodology was reviewed by the Board in
(continued...)
- 22 C. Competitive Analysis of Other Relevant Banking Markets
First Union and CoreStates also compete in six other banking markets:
Metropolitan New York-New Jersey; Atlantic City, New Jersey; Vineland, New
Jersey; Lehigh Valley, Pennsylvania; Scranton/Wilkes Barre, Pennsylvania; and
Wilmington, Delaware.37/ First Union proposes to divest nine branches in the
Lehigh Valley, Pennsylvania, banking market that control approximately $223
million in deposits. Consummation of the proposal would be consistent with the
DOJ Guidelines.38/ In this light, the Board concludes that the proposed divestiture,
the number of competitors that would remain in each market, the characteristics of
each market, the projected increase in concentration in market deposits as measured
by the HHI under the DOJ Guidelines, and the resulting market shares would
mitigate the competitive effects of the proposal in these six banking markets.
D. Views of Other Agencies and Conclusion
36/
(...continued)
NationsBank Corporation, 84 Federal Reserve Bulletin 129, 131 n.13 (1998). For
the reasons discussed more fully in the NationsBank order, the Board
concluded that its current approach, which takes into account the principles
suggested by the commenter while at the same time permitting consideration of a
variety of other factors that may affect competition in a particular banking market,
provides a more complete economic analysis of the competitive effects in a local
banking market.
37/
These banking markets are delineated in Appendix B. Market data for the
markets after consummation of the proposal, except for the Lehigh Valley banking
market, are set forth in Appendix C.
38/
Accounting for the proposed divestitures, First Union would control
31.6 percent of market deposits and would become the largest of 37 depository
institutions in the Lehigh Valley banking market. The HHI would increase
389 points to 1383. See also the banking markets discussed in Appendix C.
- 23 The Department of Justice reviewed the proposal and advised the
Board that, in light of the proposed divestitures in the Philadelphia and Lehigh
Valley banking markets, consummation of the proposal would not likely have a
significantly adverse effect on competition in any relevant banking market. The
Office of the Comptroller of the Currency ("OCC") and the Federal Deposit
Insurance Corporation ("FDIC") also have not objected to consummation of the
proposal.
Based on all the facts of record, and for the reasons discussed above,
the Board has determined that consummation of the proposal would not be likely to
result in a significantly adverse effect on competition or on the concentration of
banking resources in the Philadelphia banking market, the six remaining banking
markets, or in any other relevant banking market.39/ Accordingly, subject to
completion of the proposed divestitures, the Board has determined that competitive
factors are consistent with approval of the proposal.
Convenience and Needs Factor
The BHC Act requires the Board to consider the convenience and
needs of the communities, in connection with its review of the acquisition of a bank.
The CRA requires that the Board take into account, as part of its review of a
39/
A number of commenters urged the Board to consider the competitive effect
of First Union's proposed acquisition of The Money Store in the Philadelphia
banking market. The Board notes that the effect on competition of First Union's
acquisition of The Money Store will be subject to review either by the Board under
the BHC Act or the OCC under its regulations, and that First Union has not sought
approval of this transaction from the Board at this time. In the event approval of the
acquisition of The Money Store is sought from the Board, the Board will analyze
that transaction in light of the combination of First Union and CoreStates in the
relevant markets.
- 24 proposal to acquire a depository institution, the record of performance of each
relevant depository institution in helping to meet the credit needs of the institution's
entire community, including LMI neighborhoods, consistent with the safe and sound
operation of the institution.40/
A. Public Comments Regarding Convenience and Needs Factor
In order to aid the Board in collecting information regarding the effect
of the proposal on the convenience and needs of affected communities and regarding
the performance records of the relevant depository institutions under the CRA, the
Board provided an extended period for public comment on the proposal and
convened a public meeting regarding the proposal in Philadelphia. As noted above,
more than 235 interested members of the public either submitted written remarks or
provided testimony at the public meeting.
Summary of Comments. More than 130 commenters supported the
proposal or commented favorably about First Union's CRA-related activities.41/
Many of these commenters commended First Union for providing small business
credit and support, sponsoring community development activities directly and
40/
41/
12 U.S.C. § 2903.
These commenters included: (1) the mayors of Philadelphia, Pennsylvania,
Charleston, South Carolina, and Atlanta, Georgia; (2) Eastern Philadelphia
Organizing Project, Philadelphia, Pennsylvania; (3) Philadelphia Association of
Community Development Corporations, Philadelphia, Pennsylvania;
(4) Pennsylvania Low Income Housing Coalition, Glenside, Pennsylvania; (5)
Community Action Committee of the Lehigh Valley, Inc., Bethlehem, Pennsylvania;
(6) Delaware County Legal Assistance Association, Inc., Chester, Pennsylvania;
(7) Mayor's Commission on Puerto Rican/Latin Affairs, Philadelphia, Pennsylvania;
(8) Save Our Waterfront, Camden, New Jersey; (9) members of the U.S. House of
Representatives and the U.S. Senate; and (10) representatives of community and
non-profit organizations in North Carolina, Florida, Georgia, Virginia, Maryland,
and Tennessee.
- 25 through intermediaries, participating in programs that provided affordable housing
and mortgage financing for LMI individuals, and providing support for non-profit
organizations. Other commenters related their favorable experiences with specific
programs or services offered by First Union. A number of commenters commended
First Union's CRA plan for Pennsylvania, New Jersey, and Delaware.
More than 100 commenters either opposed the proposal, requested that
the Board approve the merger subject to conditions suggested by the commenter, or
expressed concerns about the CRA performance record of First Union.42/ A number
of these commenters contended that First Union has an inadequate record of lending
to LMI and minority borrowers and in census tracts with predominately LMI and
minority residents, particularly in the Philadelphia MSA, the Bronx, and Delaware.
Other commenters maintained that CoreStates's record in Pennsylvania of making
housing-related loans to LMI and minority borrowers and small business loans in
LMI and minority census tracts was significantly better than First Union's record. A
number of commenters expressed concern about the effects of proposals by
First Union to close branches in Pennsylvania, New Jersey, and Delaware.
Particular concern was expressed that branch closings would reduce the availability
of banking services generally, and would have a disproportionate adverse effect on
42/
These commenters included: (1) members of the U.S. House of
Representatives and the U.S. Senate; (2) Community Legal Services, Inc.;
(3) Philadelphia branch of the NAACP; (4) Philadelphia Welfare Rights
Organization; (5) Philadelphia Legal Assistance; (6) Inner City Press/Community on
the Move, Bronx, New York; (7) Philadelphia Unemployment Project; (8) Action
Alliance of Senior Citizens of Greater Philadelphia; (9) Consumer Education &
Protection Association; (10) Delaware Community Reinvestment Action Council,
Inc., Wilmington, Delaware; and (11) state and local government officials, including
two Philadelphia councilmen, three Pennsylvania representatives, and the Treasurer
of Pennsylvania. All organizations are located in Philadelphia, Pennsylvania, unless
otherwise indicated.
- 26 LMI customers, LMI neighborhoods, and elderly individuals, particularly in the
greater Philadelphia area. Other commenters noted that First Union's
representations regarding branch closures in LMI census tracts expired after two
years.43/
Commenters also maintained that First Union's banking products and
services did not meet the needs of low-income, elderly, or other customers with
special needs in Philadelphia. Other commenters considered the basic banking
accounts offered by First Union to be inadequate, particularly for customers who
receive benefit payments from Pennsylvania by electronic benefits transfer ("EBT")
because these customers cannot qualify for First Union's direct-deposit, no-fee
banking account.44/ Some commenters claimed that First Union does not have
enough safe and accessible automated teller machines ("ATMs") in LMI and
minority census tracts. Commenters also asserted that First Union should increase
its hours of operation, improve its customer service, cash checks for non-customers
without requiring a thumbprint, and offer more banking products in LMI and
minority census tracts.
Several commenters criticized First Union's level of participation in
particular affordable housing programs and its level of charitable contributions.
Many of these commenters compared First Union's performance in community
redevelopment and charitable activities in Pennsylvania unfavorably to CoreStates's
efforts, which were characterized as exemplary. Other commenters expressed
concern that First Union would reduce or terminate financial support for specific
43/
One commenter criticized First Union as unresponsive to concerns expressed
by community groups when it closed a branch in Baltimore, Maryland.
44/
Pennsylvania makes all EBTs through direct deposit in one depository
institution that is under contract with the state.
- 27 programs currently provided by CoreStates.
Commenters also expressed concern about the economic effects that
job reductions by First Union would have on individuals and on the Philadelphia
area. Several commenters argued that First Union's job assistance programs for
most employees who would be displaced as a result of the acquisition would not
address adequately the effects of job losses and criticized the bonus packages
awarded to senior employees leaving CoreStates.
B. CRA Performance Evaluations
As provided in the CRA, the Board has evaluated the convenience and
needs factor in light of examinations of the CRA performance records of the
relevant institutions conducted by the primary federal supervisor. An institution’s
most recent CRA performance evaluation is a particularly important consideration in
the applications process because it represents a detailed on-site evaluation of the
institution's overall record of performance under the CRA by its primary federal
supervisor.45/
First Union has consolidated its subsidiary banks, except Delaware
Bank, into its lead bank, FUNB. Before the consolidation, banks representing more
than 88 percent of the total banking assets of First Union received "outstanding"
ratings from their primary federal supervisors at their most recent CRA performance
45/
The Statement of the Federal Financial Supervisory Agencies Regarding the
Community Reinvestment Act provides that a CRA examination is an important and
often controlling factor in the consideration of an institution’s CRA record and that
reports of these examinations will be given great weight in the applications process.
54 Federal Register 13,742 and 13,745 (1989).
- 28 examinations.46/ First Union National Bank of North Carolina, Charlotte, North
Carolina ("FUNB-NC"), which primarily served communities in North Carolina
before the consolidation, received an "outstanding" CRA performance rating from
the OCC, as of May 1997. First Union National Bank, Summit, New Jersey
("FUNB-Summit"), which served communities in Pennsylvania, New Jersey, and
New York before the consolidation, also received an "outstanding" CRA
performance rating from the OCC, as of May 1997.47/ In addition, Delaware Bank
received a "satisfactory" rating for CRA performance from its primary federal
supervisor, the FDIC, at its most recent CRA performance examination, as of
October 1995.
CoreStates Bank received an “outstanding” CRA performance rating
from the OCC, as of September 1997. CoreStates Delaware received a
“satisfactory” CRA performance rating from the OCC, as of August 1997.
Examiners found no evidence of prohibited discrimination or other
illegal credit practices at the subsidiary banks of First Union or CoreStates. The
examinations also concluded that the banks’ delineations of the local communities
they served were reasonable and did not arbitrarily exclude LMI communities. In
addition, the banks solicited and accepted credit applications from all segments of
their delineated communities. Examiners also determined that loans made by the
banks were reasonably distributed throughout the local communities they served,
46/
First Union's other banks were all rated "satisfactory" for CRA performance
by their primary federal supervisors. Appendix D contains the most recent CRA
performance ratings for First Union's banks.
47/
Some commenters questioned the thoroughness of the examinations and
ratings conferred on certain national bank subsidiaries of First Union. The Board
has provided these comments to the OCC for consideration.
- 29 including LMI communities, and served all members of the communities, including
LMI individuals.
First Union's presence in the Pennsylvania/New Jersey/Delaware
region is smaller than CoreStates's presence, and, after consummation of the
proposal, First Union would have a significantly expanded service community in
Pennsylvania. To meet its increased responsibilities under the CRA, First Union
indicates that it will implement the CRA-related policies and programs developed in
its home state operations and in other states it serves, and may retain some aspects
of the CRA policies and programs of CoreStates, including community development
policies that have been successful for CoreStates. Consequently, the Board has
taken into account First Union's CRA performance record in its home state and in
other states it serves as well as its performance in the region currently served by
CoreStates.
C. First Union's Lending Record Generally and in the Region
First Union offers a variety of programs through its subsidiaries that
assist LMI borrowers to obtain affordable housing. The First Union Affordable
Home Mortgage Program features reduced down payment requirements, flexible
funding of closing costs, increased debt-to-income ratios, a waiver of mortgage
insurance, and flexible underwriting criteria. The Neighborhood Development
Mortgage Program, offered to LMI borrowers purchasing homes in LMI census
tracts, features reduced down payment requirements, increased debt-to-income
ratios, and below-market interest rates. The Community Partnership Mortgage
Program, which involves home ownership counseling provided by a participating
non-profit community organization, features funding for up to 100 percent of the
purchase price, reduced closing costs, increased debt-to-income ratios, and a waiver
of mortgage insurance. The Agency Mortgage Program is available for home
- 30 buyers with limited funds for a down payment, and features financing for up to 97
percent of the value of the property, flexible funding for closing costs, a higher
permissible debt-to-income ratio, and financial counseling. Home mortgage loans
also are offered through programs sponsored by the Federal Housing Administration
("FHA") and other government-sponsored mortgage programs.
First Union originates approximately $400 million of affordable home
purchase mortgage loans annually. Its portfolio of these loans increased from
13,839 loans in 1995, totalling $685 million, to 23,926 loans in 1996, totalling
$1.5 billion. First Union also offers special home improvement loans to LMI
borrowers, which feature repayment periods of up to 15 years and an annual
2 percent interest rebate for timely payments. As of November 1997, more than
4,600 loans, totalling $33.2 million, were outstanding under this program.
First Union has sponsored grant applications under the Federal Home
Loan Bank of Atlanta's Affordable Housing Program for 49 projects that have
resulted in $17.6 million of subsidies for affordable housing for LMI individuals and
households, making First Union the second largest program participant in the nation.
Through its Capital Markets Affordable Housing Unit, First Union has invested
more than $500 million in housing projects providing low income housing tax
credits, and has been senior manager for more than $100 million of bonds issued to
finance multi-family housing developments. During 1996 and 1997, First Union
provided more than $800 million in financing to approximately 700 for-profit and
non-profit affordable housing developments.
First Union has established a Small Business Banking Division
("SBBD") to respond to loan requests by small business owners within 24 hours of
the request. First Union's SBBD originated $643 million in small business loans in
- 31 1995 and $1.1 billion in small business loans in 1996. Overall, First Union
originated a total of approximately $4.7 billion in small business loans during 1996.
First Union has committed more than $4.5 million to fund more than 21 micro-loan
pools for business loans up to $25,000 that are administered by local community
development corporations. First Union invested approximately $5.8 million during
1995 and 1996 in minority-owned banks, credit unions, community development
financial institutions, and community development corporations.
As discussed below, First Union has developed and implemented a
number of specific programs at individual First Union banks. Although First Union
has recently merged these banks into a single bank, it has retained the programs
discussed below in addition to others tailored to the needs of specific communities.
CRA Performance in Home State. As noted, First Union's lead
subsidiary bank in North Carolina, FUNB-NC, received an "outstanding" rating for
its CRA performance record. Examiners commended the bank for effectively
determining credit needs in North Carolina and for responding to those needs in a
constructive manner. The 1997 examination found that the CRA was an integral
part of the planning and philosophy of the bank's board of directors and that the
board and senior management, at the bank and the holding company level, were
actively involved in the bank's CRA program. The bank's lending patterns showed a
reasonable distribution of loans throughout all its communities, including LMI
neighborhoods.
FUNB-NC offered a wide range of products and services to meet the
identified credit needs of its communities. The bank determined that affordable
housing loans were the primary credit need in its delineated community, and
originated affordable home mortgage purchase loans through several programs,
including the First Union Affordable Home Mortgage Program, the Neighborhood
- 32 Development Mortgage Program, and the Community Partnership Mortgage
Program, to meet this need. From October 1995 to October 1996, the bank
originated 16 percent of all its mortgage loans, totalling $102 million, to borrowers
in LMI census tracts. FUNB-NC also participated in government-sponsored
affordable housing programs. From January 1995 through October 1996, the bank
made loans totalling $52.6 million through programs sponsored by the FHA, the
Veterans Administration ("VA"), and the Federal National Mortgage
Administration.
In addition, FUNB-NC engaged in small business lending, including
loans to businesses in LMI census tracts. As of October 1996, FUNB-NC had
originated 18 percent of its small business loans, totalling $42 million, in LMI
census tracts. From January 1995 through October 1996, the bank also made
approximately $7 million in loans through programs sponsored by the Small
Business Administration ("SBA").
Community development activities during the period covered by the
1997 examination totalled 78 projects, supporting affordable housing efforts, small
business loan pools, and economic rehabilitation programs for depressed urban
areas, that generated approximately $31 million in loans. These activities included a
$2.6 million loan to the East Carolina Community Development Corporation to
construct a 44-unit apartment complex for the elderly in Morehead, North Carolina;
and a $5 million commitment to the Charlotte-Mecklenburg Housing Partnership for
development of affordable housing for LMI households in the City of Charlotte and
throughout Mecklenburg County.
CRA Record of FUNB-Summit. Examiners found that FUNB-Summit
showed a high level of responsiveness to the credit needs of communities in
Pennsylvania, New Jersey, and New York, and had introduced several new credit
- 33 products since the prior CRA performance examination to help address the credit
needs of LMI individuals and neighborhoods. For example, FUNB-Summit
introduced First Union's affordable home purchase mortgage loan programs and
originated 263 loans under these programs in 1996, totalling $20 million. First
Union also retained the bank's Coalition Mortgage Program, which featured a
below-market interest rate, reduced fees, no points, increased debt-to-income ratios,
and flexible underwriting terms. FUNB-Summit made 748 loans under the program
in 1996, totalling approximately $77 million.48/ Examiners favorably commented
that a majority of the loans in Pennsylvania were originated in concentrated LMI
areas, notably in the Philadelphia MSA.49/ FUNB-Summit also increased its
emphasis on lending under FHA and VA affordable housing programs. FHA loan
originations increased 39 percent from 1995 to 1996, and VA loan originations
increased from 20 loans to 90 loans during this period.50/
The 1997 CRA performance examination indicated that HMDA data
for 1995 showed that, in the Philadelphia MSA, FUNB-Summit was the fifth largest
originator of residential mortgage loans made in LMI census tracts and the fourth
48/
The bank made 204 loans under this program in Pennsylvania, totalling
approximately $9.5 million, and 400 loans under this program in New Jersey,
totalling approximately $44.8 million.
49/
The bank also was a participating lender in other programs designed to assist
LMI borrowers in obtaining home purchase and home improvement financing,
including the New Jersey Citizens Action Home Improvement Loan Plan, Trenton
Mortgage Plan, Lehigh Valley Mortgage Loan Pool, and Philadelphia Home
Improvement Loan program.
50/
FHA loans in Pennsylvania increased from 18 loans, totalling $1.5 million in
1995, to 35 loans, totalling $3.1 million in 1996. In New Jersey, FHA loans
increased from 28 loans, totalling $3 million in 1995, to 38 loans, totalling $4.2
million in 1996.
- 34 largest originator to LMI borrowers. These data also showed that the bank was the
largest originator of residential mortgage loans made in LMI census tracts and to
LMI borrowers in New Jersey. The 1997 examination noted that FUNB-Summit
significantly reduced its overall housing-related lending from 1995 to 1996, but
HMDA data indicate that it did not reduce the percentage of housing-related loans it
made to LMI and minority borrowers and to borrowers in LMI and minority census
tracts. Instead, such loans increased or remained constant as a percentage of all
housing-related loans the bank made in a large majority of the areas served by the
bank.51/ Overall, the percentage of the bank's total loan originations in LMI census
tracts nearly doubled, from 9 percent to 17 percent.
The 1997 examination also commended the bank's substantial increase
in small business lending from $3 million in 1995 to $85 million in 1996. In
addition, loans made by FUNB-Summit under programs sponsored by the SBA
doubled from $4 million in 1995 to $8 million in 1996.52/
The Board also has reviewed FUNB-Summit's lending record in New
York, particularly in the Bronx.53/ In 1996, the bank made 144 Coalition Mortgage
51/
The percentage of loan originations to African Americans increased from 3.9
percent to 7.2 percent in the Pennsylvania assessment area, from 5.3 percent to 11.1
percent in the Philadelphia MSA, and from 3.3 percent to 8.4 percent in New
Jersey. The percentage of loan originations to Hispanics in these areas also
increased.
52/
In 1996, SBA loans by FUNB-Summit totalled $1.6 million in Pennsylvania
and $5.3 million in New Jersey.
53/
The bank's delineated community in New York includes the entire counties of
Westchester, Rockland, Putnam, Orange, Dutchess, and Ulster and 155 census
tracts in Bronx County, New York.
- 35 Program loans in New York, totalling approximately $22.3 million.54/ Examiners
considered FUNB-Summit's lending penetration to be strong in all census tract
income levels, and commented that a majority of the loans were originated in
concentrated LMI areas, notably the Bronx. FUNB-Summit also participated as a
limited partner in three projects designed to provide affordable housing in the Bronx
during the period covered by the 1997 examination.55/
The 1997 CRA performance examination of FUNB-Summit noted that
FUNB-Summit was responsive to community economic development needs, and
that its participation in community development projects was significant. During
1996, FUNB-Summit, through its subsidiary community development corporation
("CDC"), funded 22 projects and an additional 20 loans from loan pools within its
delineated communities, for a total of $13.6 million in loan commitments. The bank
and the CDC together made more than $50 million in qualifying community
development loans.56/ These loans were made to projects to provide affordable
housing and to support small business development, redevelopment of LMI areas,
community non-profit organizations, and businesses owned by minorities or women.
CRA Record of Delaware Bank. Delaware Bank has total assets of
$114 million, representing less than 1 percent of First Union's total banking assets,
54/
HMDA data for 1995 reviewed in the 1997 examination showed that, in New
York, FUNB-Summit was the tenth largest originator of residential mortgage loans
in LMI census tracts and the fifth largest originator to LMI borrowers.
55/
These projects were designed to provide housing for LMI or elderly residents
in the Bronx. First Union committed construction financing and equity investments
qualifying for tax credits totalling approximately $20.5 million for the three projects.
56/
First Union's community development lending from January 1995 to February
1997 was allocated approximately as follows: New Jersey --$25.8 million,
Philadelphia MSA -- $13 million, Northeastern Pennsylvania --$8.9 million, and
New York -- $3.2 million.
- 36 and operates primarily as a small commercial lender. The most recent publicly
available CRA performance examination found that the bank participated in a local
community investment corporation and made several loans to private developers to
acquire and rehabilitate government-subsidized rental housing for low-income
households, and that the bank’s housing-related loans demonstrated a reasonable
distribution throughout the community it serves. The Board also has reviewed
information regarding the bank's CRA-related activities since this examination,
including its community development activities, and supervisory information from
the FDIC.
HMDA Data. The Board also has considered First Union’s lending
record in light of comments regarding the HMDA data of its subsidiaries. The data
generally show that First Union provided a significant volume of housing-related
credit to minority borrowers and to borrowers in LMI areas. For example, FUNBSummit originated nearly 23,000 residential housing-related loans in 1996, totalling
approximately $1.1 billion, and was the largest originator of home mortgage
refinance loans and home improvement loans in its delineated community.57/
The data also reflect certain disparities in the rates of loan originations
and denials among members of different racial groups and persons at different
57/
One commenter contended that First Union's HMDA data are questionable
and must be closely scrutinized because of alleged HMDA reporting violations by
First Union Home Equity Bank, N.A., Charlotte, North Carolina ("FUHEB").
FUHEB accounts for less than 1 percent of the banking assets of First Union. First
Union has begun a systematic evaluation of FUHEB's HMDA reporting and
committed to the OCC, the bank's primary federal supervisor, to take prompt action
to address any deficiencies. The OCC will monitor FUHEB's compliance through
its supervisory process. See Decision of the OCC approving First Union's merger
with Signet Bank, Richmond, Virginia (Corporate Decision No. 97-96, at 14 n.21,
dated November 9, 1997).
- 37 income levels.58/ The Board is concerned when the record of an institution indicates
such disparities in lending, and believes that all banks are obligated to ensure that
their lending practices are based on criteria that ensure not only safe and sound
lending but also equal access to credit by creditworthy applicants regardless of their
race or income level. The Board recognizes, however, that HMDA data alone
provide an incomplete measure of an institution’s lending in its community because
these data cover only a few categories of housing-related lending. HMDA data,
moreover, provide only limited information about the covered loans.59/ HMDA data,
therefore, have limitations that make them an inadequate basis, absent other
information, for concluding that an institution has not adequately assisted in meeting
its communities’ credit needs or has engaged in illegal lending discrimination.
Because of the limitations of HMDA data, the Board has considered those data
carefully in light of other information.
As noted, OCC examiners found no evidence of prohibited
discrimination or other illegal credit practices at First Union's banks. Examiners
reviewed the banks' policies and procedures for complying with fair lending laws
and regulations, conducted comparative file analyses for racial and gender
discrimination, and did not find any violations. The Board also has considered the
58/
Commenters alleged that the dollar amount of First Union’s HMDA-related
lending in eastern Philadelphia is inadequate when compared to its share of market
deposits in the area.
59/
The data, for example, do not account for the possibility that an institution’s
outreach efforts may attract a larger proportion of marginally qualified applicants
than other institutions attract and do not provide a basis for an independent
assessment of whether an applicant who was denied credit was, in fact,
creditworthy. Credit history problems and excessive debt levels relative to income
(reasons most frequently cited for a credit denial) are not available from HMDA
data.
- 38 HMDA data in light of First Union's lending record, which shows that First Union's
banks assist significantly in helping to meet the credit needs of their local
communities, including LMI neighborhoods.60/
CRA Plan. In connection with the proposal, First Union has
announced a five-year, $13 billion CRA Plan for Pennsylvania, New Jersey and
Delaware.61/ This program reflects an increase of 5 to 10 percent above the lending
currently done by First Union and CoreStates on a combined basis in these same
60/
Several commenters contended that the lending activities of First Union's
nonbanking subsidiaries and First Union's proposed purchase of The Money Store
raise fair lending law issues. They alleged that The Money Store has a history of
abusive lending practices and maintained that First Union would "steer" customers
illegally to The Money Store, where they would be charged higher interest rates on
loans. The Board notes that primary authority for enforcement of the fair lending
laws for nonbanking companies is conferred by statute on the Federal Trade
Commission and the Department of Housing and Urban Development. First Union's
subsidiary banks -- which account for a substantial majority of First Union's total
assets and total revenues -- have satisfactory records of compliance with fair lending
laws. In addition, commenters' contentions against First Union's nonbanking
subsidiaries rely in large measure on HMDA data that, as noted above, are
inadequate to show illegal discrimination. Commenters also presented no facts to
show that customers would be illegally "steered" by First Union to The Money
Store. The acquisition of The Money Store, moreover, is subject to review by a
federal banking agency under a proceeding that is separate from this application,
and issues related to the acquisition of The Money Store will be reviewed at that
time.
61/
The major elements of the CRA Plan include: (1) $875 million in mortgage
loans for LMI communities;
(2) $10 billion in small business/small farm
loans; and (3) $750 million in community development loans. First Union also
pledges to continue CoreStates's corporate contributions, which total approximately
$17 million annually, for five years. In addition, First Union intends to fund a $100
million charitable foundation to serve Pennsylvania, New Jersey, and Delaware that
would focus on community revitalization. First Union estimates that the foundation
would begin operations by mid-year 1998.
- 39 communities. Implementation of the CRA plan would have significant public
benefits in the Pennsylvania/New Jersey/Delaware region, including in particular in
LMI areas.
Private CRA Agreements.
First Union has entered into a number of agreements with various
community organizations, including organizations representing specific
Pennsylvania and New Jersey communities served by the CoreStates and First
Union banks. The Board recognizes that communications by depository institutions
with community groups provide a valuable method of assessing and determining
how an institution can best address the credit needs of the community. Neither the
CRA nor the agencies' CRA regulations, however, require depository institutions to
enter into agreements with any organization. The Board, therefore, has viewed such
agreements and their enforceability as private contractual matters between the
parties and has focused on the existing record of performance by the applicant and
the programs that the applicant has in place to serve the credit needs of its
communities.
Several commenters have criticized provisions in these agreements that
they believe severely restrict the ability of community organizations and their
members to protest applications by First Union. The Board believes it is important
that the federal and state banking agencies have access to complete information
regarding the performance records of depository institutions and the credit needs of
the community. Although some community organizations have argued that no
restriction should be allowed on their ability to comment to the agencies, other
community organizations believe that an organization has a valuable right to
negotiate with a depository institution regarding the organization's support of a
depository institution that provides funding to the community.
- 40 First Union has responded that it does not view its agreements as
limiting the ability of any party to comment in any way to the federal banking
agencies, in the application process or otherwise, regarding a proposal involving the
acquisition of a bank or branch in the party's home state.62/ First Union also
represents that, even outside the party's home state, the agreements do not limit a
party's ability to comment to a federal banking agency in the examination process,
as part of a CRA evaluation, or in any other context outside the application process.
In addition, the agreements do not restrict the ability of an organization to include
comments at any time and in any manner in First Union's public CRA file, or to
comment at any time on the credit or banking needs of any community, or to protest
any application by First Union if First Union is not in substantial compliance with
the agreement. Moreover, First Union represents that no agreement restricts the
ability of any party at any time, including in any application, to criticize First
Union's failure to abide by its agreement.
In light of the above, the Board does not believe that it should
interfere with these agreements. The Board is not a party to agreements between a
depository institution and any organization and believes these agreements are
private matters between the parties.63/ The Board also notes that First Union
62/
First Union has submitted portions of an agreement with a Pennsylvania
community organization as representative of the provision governing protests by
organizations with an agreement with First Union. First Union has stated that any
agreement it has made is governed by the representations discussed above.
63/
One commenter alleged that First Union attempted to intimidate a community
organization into refraining from providing adverse information to the Board by
threatening to reduce the bank's support of the group's fund-raising efforts and, more
generally, the bank's lending in the community. First Union denies that it did or
would threaten retaliation against a community, and the community organization in
(continued...)
- 41 continues to have a responsibility to help serve the credit needs of its entire
community, including LMI neighborhoods, with or without private CRA
agreements.
Comments Regarding Job Losses. A number of commenters expressed
substantial concern about the effect of the proposal on CoreStates employees and on
employment in the areas currently served by CoreStates.64/ First Union has
indicated that it will take a number of steps to minimize any adverse effects of the
proposal on employment or the economy.65/ First Union proposes to minimize the
63/
(...continued)
question has indicated that it has reached an agreement with First Union that would
result in an increase in First Union's lending in the area. The Board notes that First
Union's record of assisting in
serving the credit needs of the community is subject to regular examination under
the CRA and that diminished or discontinued CRA-related activities in a community
will be carefully scrutinized in evaluating an institution's record of CRA
performance without regard to the status of privately-negotiated CRA agreements.
64/
Several commenters expressed concern that First Union would conduct its
layoffs in a discriminatory manner. These commenters noted First Union's recent
settlement of a lawsuit in the District of Columbia that alleged employment
discrimination in layoffs after an acquisition by First Union. The settlement does
not support this allegation. There was no finding or admission of wrongdoing on the
part of First Union in connection with the settlement. In addition, the Equal
Employment Opportunity Commission has jurisdiction to determine whether
companies are in compliance with equal employment opportunity statutes under the
regulations of the Department of Labor. See 41 C.F.R. 60-1.7(a) and 60-1.40.
65/
The effect of a proposed acquisition on employment in a community is not
among the factors included in the BHC Act, and the convenience and needs factor
has been interpreted consistently by the federal banking agencies, the courts, and
Congress to relate to the effect of a proposal on the availability and quality of
banking services in the community. See Wells Fargo & Company, 82 Federal
Reserve Bulletin 445, 457 (1996).
- 42 number of jobs lost in the greater Philadelphia area by adding approximately 3000
new jobs in the area and by reducing jobs through attrition. First Union projects
that, after accounting for new jobs and attrition, approximately 1330 employees will
be displaced as a result of the proposal. First Union also intends to provide at least
$39 million for a job training and assistance program in order to reduce the impact
of the proposal on affected employees, including providing outplacement services
for unemployed CoreStates employees for a period of one year and making First
Union's $16 million fund for job retraining available to CoreStates employees for up
to two and one-half years after their notice of termination.
D. Branch Closings
First Union and CoreStates together operate 378 branches in the
Philadelphia banking market, including 64 branches in LMI census tracts. First
Union has preliminarily identified 74 branches that may be consolidated into a
nearby branch or closed, and approximately 23 branches, including five branches in
LMI areas, that would be divested to address the competitive effects of the proposal
in the Philadelphia banking market. First Union has committed that it will not, for at
least two years and with two exceptions, close any branch in an LMI census tract or
a census tract with a 40 percent or higher minority population in Pennsylvania, New
Jersey, or Delaware unless another First Union or CoreStates branch that would
remain open is within one-third of a mile from the closed branch.66/ On this basis,
First Union projects that it will close no more than eight branches in LMI census
tracts in the Philadelphia banking market. After consummation of the proposal,
taking into account the divestiture of branches to mitigate competitive effects and
66/
The two exceptions are not in Philadelphia County. The Board has
considered additional confidential information provided by First Union regarding
these exceptions.
- 43 branches that are under consideration for consolidation or closure, First Union
would continue to operate a total of approximately 281 branches in the market,
including 51 branches in LMI areas. This network of branches would be the most
extensive in the Philadelphia banking market, including LMI areas in that market.
Before First Union closes a branch, it requires its CRA coordinator for
the state in which the branch is located to arrange for meetings with community
organizations to discuss the proposed closing and provides these organizations a
period of not less than 30 days in which to respond. All responses are documented
by the CRA coordinator and, along with reports reviewing the other factors
considered, are presented to the state branch closing coordinator for a
recommendation. If the recommendation is closure, it must be approved by the
bank's senior management, including the board of directors. After a final decision is
made, contacts with community organizations are continued to assist in addressing
concerns about the closing. The branch closing policies of all First Union's banks
have been reviewed by the OCC and the FDIC in connection with their most recent
CRA performance examinations and found to be satisfactory.
Several commenters complained that FU-Summit had a poor record of
closing branches, particularly in LMI areas in New Jersey and Philadelphia. In the
1997 CRA performance examination, OCC examiners reviewed FU-Summit's
record of closing branches, including a review of sample branch closing files, and
concluded that the branch closings were reasonable. Examiners also concluded that
the bank's branch network following the closings provided reasonable access to the
services of the bank to all segments of the delineated community. The examiners
noted that, after the branch closings, a majority of the bank's branches served LMI
census tracts. Many branches offered extended weekday operating hours and were
- 44 open on Saturdays. OCC examiners also found the bank's branch closing policy to
be comprehensive and consistent with regulatory guidelines.
In addition to these factors, the Board has considered that federal
banking law provides a specific mechanism for addressing branch closings. Federal
law requires an insured depository institution to provide notice to the public and to
the appropriate regulatory agency at least 30 days before closing any branch. The
requirement applies any time a branch is closed, whether in connection with an
acquisition or at any time after completion of an acquisition. This requirement for
public notice cannot be limited by any commitment to the Board or to any
community organization. The law does not authorize federal regulators to prevent
the closing of any branch.67/
The Board expects that First Union will apply its branch closing
policies in determining whether to close branches in connection with the proposal.
First Union's record of closing branches as a result of this proposal will be subject to
review by the OCC in connection with its next CRA performance evaluation, and to
review by the Board in connection with future applications to establish a deposit
facility. First Union must submit in writing to the Federal Reserve Bank of
Richmond any changes to its preliminary plans for closing branches in LMI census
tracts prior to modifying these plans during the two years after consummation of the
proposal.
67/
Section 42 of the Federal Deposit Insurance Act (12 U.S.C. § 1831r-1), as
implemented by the Joint Policy Statement Regarding Branch Closings (58 Federal
Register 49,083 (1993)), requires that a bank provide the public with at least
30 days notice and the primary federal supervisor with at least 90 days notice before
the date of the proposed branch closing. The bank also is required to provide
reasons and other supporting data for the closure, consistent with the institution’s
written branch closing policy. First Union’s branch closing policy follows these
procedures.
- 45 E. Conclusion on Convenience and Needs Considerations
The Board recognizes that this proposal represents a major transaction
that will particularly affect communities in the Philadelphia area. Consideration of
the effects of the proposal on the convenience and needs of these communities and
other communities served by CoreStates is an important component of the Board's
review of the proposal.
Some commenters have expressed concern about specific aspects of
First Union's record in certain geographical areas and about whether First Union,
with its base in North Carolina, will be responsive to the needs of communities in
the Pennsylvania/New Jersey/Delaware area. As explained above, the information
in this case demonstrates that First Union has a strong overall record of helping to
meet the convenience and needs of communities that it serves. This record has been
demonstrated over time and through the course of several CRA performance
examinations. The record also reflects that First Union has shown a commitment to
address the credit needs of new communities into which it expands.
The Board also has considered carefully the concerns expressed by
commenters about First Union's lending record, its branch closing plans, the
availability of various banking products and services to LMI customers and
customers with special needs, and other comments.68/ The Board has weighed these
68/
As discussed above, several commenters criticized the basic banking
accounts offered by First Union and, in particular, questioned their availability to
customers who receive benefits electronically. The Board has considered the full
range of credit products and banking services provided by First Union, which
include products and services that assist in meeting the credit and banking needs of
LMI individuals, such as its two basic banking accounts. The Board also has
considered revisions proposed by First Union to make its basic banking products
more accessible to customers who receive benefits electronically from Pennsylvania.
There is no evidence in the record that the fees charged by First Union are based on
(continued...)
- 46 concerns in light of all the facts of record, including the overall CRA record of First
Union, reports of examinations for CRA performance, information provided by First
Union, and information from other commenters regarding the record of First Union
in meeting the credit and banking needs of its communities. The Board also has
considered the location of branches that First Union proposes to maintain and its
efforts to assure that its products and services are widely available throughout the
entire community it serves. In addition, the Board has taken account of the plans
announced by First Union to strengthen its record of CRA performance in the
communities served by CoreStates after consummation of the proposal. The Board
concludes, after considering all of these facts of record, that the convenience and
needs factor, including the CRA performance records of the subsidiary banks of
First Union and CoreStates, is consistent with approval.
Financial, Managerial, Supervisory, and Interstate Factors
The Board has carefully considered the financial and managerial
resources and future prospects of First Union, CoreStates, and their respective
subsidiary banks, and other supervisory factors in light of all the facts of record,
including the public comments.69/ The Board notes that the bank holding companies
68/
(...continued)
a factor that would be prohibited under law. Although the
Board has recognized that banks help serve the banking needs of their communities
by making banking services available at nominal or no charge, neither the CRA nor
the primary regulators of the banks involved in this transaction require an institution
to limit the fees charged for its services.
69/
These comments included allegations of improper conduct by officials at a
bank acquired by CoreStates, which are the subject of a pending lawsuit, and
comments regarding First Union's recent settlement of an administrative proceeding
with the State of Florida involving allegations of inadequate disclosures in the sale
of nondepository investment products and of unlicensed securities brokerage
(continued...)
- 47 and their subsidiary banks are currently well capitalized and are expected to remain
so after consummation of the proposal.
The Board also has considered other aspects of the financial condition
and resources of the two organizations, the structure of the proposal, and the
managerial resources of each of the entities and the combined organization. In
connection with the Board’s assessment of the financial and managerial resources of
First Union and CoreStates, the Board has considered its supervisory experience
with the two companies and that of other federal supervisory authorities, including
assessments of the organizations’ efforts to ensure Year 2000 readiness. The Board
also has considered the financial and other terms in the proposed merger agreement
between First Union and CoreStates. Based on these and other facts of record, the
Board concludes that considerations relating to the financial and managerial
resources and future prospects of First Union, CoreStates, and their respective
subsidiaries are consistent with approval of the proposal, as are the other
supervisory factors that the Board must consider under section 3 of the BHC Act.
Section 3(d) of the BHC Act allows the Board to approve an
application by a bank holding company to acquire a bank located in a state other
than the home state of such bank holding company if certain conditions are met. For
purposes of the BHC Act, the home state of First Union is North Carolina, and
CoreStates operates in Pennsylvania, New Jersey, and Delaware.70/ All of the
69/
(...continued)
activities. The Board has considered the comments in light
of supervisory reports of examination assessing the managerial resources of the
institutions involved and the financial resources of First Union in the event that
damages are awarded to the commenter in the individual lawsuit.
70/
A bank holding company’s home state is the state in which the operations of
(continued...)
- 48 conditions for an interstate acquisition enumerated in section 3(d) of the BHC Act
are met in this case.71/ In view of all the facts of record, the Board is legally
permitted under section 3(d) of the BHC Act to approve the acquisition.
Nonbanking Activities
First Union also has filed notice, pursuant to section 4(c)(8) of the
BHC Act, to acquire the nonbanking subsidiaries of CoreStates and thereby engage
in commercial lending, trust company functions, financial and investment advisory
services, agency transactional services (other than acting as a futures commission
merchant), investing and trading activities as a principal, underwriting and dealing
in, to a limited extent, certain bank-ineligible securities, credit-related insurance
underwriting, community development activities, and data processing activities
through an ATM and point-of-sale network. The Board previously has determined
by regulation or order that each of these activities is closely related to banking
70/
(...continued)
the bank holding company’s banking subsidiaries were principally
conducted on July 1, 1966, or the date on which the company became a bank
holding company, whichever is later. 12 U.S.C. § 1841(o)(4)(C).
71/
12 U.S.C. §§ 1842(d)(1)(A) and (B) and 1842(d)(2)(A) and (B). First Union
is adequately capitalized and adequately managed, as defined by applicable law.
Neither New Jersey nor Pennsylvania state law imposes age requirements on
interstate bank acquisitions, and CoreStates’s subsidiary bank in Delaware has been
in existence for the minimum period of time necessary to satisfy age requirements
established by applicable Delaware state law. See Del. Code Ann. tit. 5, § 795
(1997) (5 years). On consummation of the proposal, First Union and its affiliates
would control less than 10 percent of the total amount of deposits of insured
depository institutions in the United States, and less than 30 percent of the total
amount of deposits of insured depository institutions in each of Pennsylvania, New
Jersey, and Delaware.
- 49 within the meaning of section 4(c)(8) of the BHC Act.72/ First Union proposes to
conduct these activities in accordance with Regulation Y and all relevant Board
interpretations and orders.
In order to approve the proposal, the Board also must determine that
the performance of the proposed activities is a proper incident to banking, that is,
that the proposed transaction “can reasonably be expected to produce benefits to the
public . . . that outweigh possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interests, or unsound
banking practices.”73/ As part of its evaluation of these factors, the Board considers
the financial and managerial resources of the notificant, its subsidiaries, and any
company to be acquired; the effect the transaction would have on such resources;
and the management expertise, internal control and risk management systems, and
capital of the entity conducting the activity.74/ For the reasons discussed above, and
based on all the facts of record, the Board has concluded that financial and
managerial considerations are consistent with approval of these notices.
The Board also has considered carefully the competitive effects of the
proposed acquisition of CoreStates’s nonbanking subsidiaries. The Board notes that
the market for each of the nonbanking services is unconcentrated, and that there are
numerous providers of the services. Consummation of the proposal, therefore,
would have a de minimis effect on competition, and the Board has determined that
the proposal would not have a significantly adverse effect on competition in any
relevant market.
72/
See 12 C.F.R. 225.28(b)(1), (5), (6), (7), (8)(ii), (11)(i), (12), and (14);
CoreStates Financial Corporation, 83 Federal Reserve Bulletin 838 (1997).
73/
See 12 U.S.C. § 1843(c)(8).
74/
See 12 C.F.R. 225.26.
- 50 First Union has indicated that the proposal would provide added
convenience to CoreStates’s customers, to First Union’s customers, and to the
public by improving convenience and expanding services available to customers of
both institutions.75/ Additionally, there are public benefits to be derived from
permitting capital markets to operate so that bank holding companies can make
potentially profitable investments in nonbanking companies when those investments
are consistent, as in this case, with the relevant considerations under the BHC Act,
and from permitting banking organizations to allocate their resources in the manner
they consider to be most efficient. The Board also believes that the conduct of the
proposed activities within the framework established in this order, prior orders, and
Regulation Y is not likely to result in adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interests, or unsound
banking practices, that would not be outweighed by the public benefits of the
proposal, such as increased consumer convenience and gains in efficiency.
Accordingly, based on all the facts of record, the Board has determined that the
balance of public benefits that the Board must consider under the proper incident to
banking standard of section 4(c)(8) of the BHC Act is favorable and consistent with
approval of the proposal. The Board also concludes that all the factors required to
be considered under section 25 of the Federal Reserve Act and the Board’s
Regulation K are consistent with approval of the acquisition by First Union of the
foreign branches of CoreStates Bank.
75/
Several commenters questioned whether any public benefits would result
from the proposal on account of the anticipated loss of banking alternatives and
increase in fees and maintained that any public benefits would accrue only to
shareholders and senior officers of CoreStates.
- 51 -
Conclusion
Based on the foregoing and all the facts of record, the Board has
determined that the proposal should be, and hereby is, approved.76/ In reaching its
conclusion, the Board has considered all the issues raised in public comments filed
in connection with the proposal in light of the factors that the Board is required to
consider under the BHC Act and concludes that the comments do not warrant a
delay or denial of the proposal.77/
76/
Some commenters requested that formal hearing procedures be followed in
this case in order to allow commenters to question witnesses and to compel
disclosure of information. Section 3(b) of the BHC Act does not require the Board
to hold a public hearing on an application unless the appropriate supervisory
authority for the bank to be acquired makes a timely written recommendation of
denial. The Board did not receive such a recommendation in this case. Under its
rules, the Board may, in its discretion, hold a public hearing or meeting on an
application to acquire a bank if a hearing is necessary or appropriate to clarify
factual issues related to the application and to provide an opportunity for testimony,
if appropriate. 12 C.F.R. 225.16(e). The Board used its discretion in this case to
hold a public meeting and, as discussed in detail throughout this order, the public
meeting provided information to clarify factual issues and appropriately provided
individuals the opportunity to testify. Based on all the facts of record, the Board has
concluded that a formal public hearing as advocated by some commenters is not
required or warranted in this case.
77/
Commenters requested that the Board delay action on the proposal until the
Board could conduct on-site surveys to determine the proposal's effects on
competition and the convenience and needs of local communities. Some
commenters believed that the Board should not act until the specific locations of the
branches to be closed were disclosed to the public and subjected to public comment.
Other commenters requested additional time to respond to information provided to
them in the applications process or to negotiate agreements with First Union.
The requests for delay do not warrant postponement of the Board's
consideration of the case. Although the BHC Act does not require it, the Board
(continued...)
- 52 The Board’s approval of the proposal is specifically conditioned on
compliance by First Union with all the commitments made in connection with the
proposal and the conditions in this order, including First Union's divestiture
commitments. The Board’s determination on the proposed nonbanking activities
also is subject to all the conditions set forth in Regulation Y, including those in
sections 225.7 and 225.25(c) (12 C.F.R. 225.7 and 225.25(c)), and to the Board’s
authority to require modification or termination of the activities of a bank holding
company or any of its subsidiaries as the Board finds necessary to assure
compliance with, or to prevent evasion of, the provisions and purposes of the BHC
Act and the Board’s regulations and orders issued thereunder. For purposes of this
77/
(...continued)
provides a public comment period of at least 30 days in every case involving a bank
acquisition in order to allow interested persons an opportunity to provide
information, analyses, and arguments regarding all aspects of the proposal,
including the CRA performance record of an applicant and other relevant
companies. In this case, the Board extended the public comment period to permit
commenters approximately 57 days in which to comment. The Board also held a
public meeting at which more than 80 commenters presented their views through
direct testimony. These commenters were granted an additional seven days after the
public meeting to submit supplemental information. In the Board's view,
commenters have had ample opportunity to submit their views, and, in fact, have
provided substantial written submissions and oral testimony that has been
considered carefully by the Board in acting on the application. The Board's Rules of
Procedure do not guarantee commenters an opportunity to continue the process of
submitting additional comments in rebuttal to an applicant's response after the close
of the period for submitting public comments. These rules permit a meaningful
opportunity for the public to comment on a proposal within the time constraints of
the BHC Act, and comments and responses in this case were submitted in
accordance with the Board's rules. For these reasons, and based on a review of all
the facts of record, the Board concludes that the record in this case is sufficient to
warrant Board consideration and action on the proposal at this time, and that further
delay of consideration of the proposal or denial of the proposal on the grounds
discussed above or on the basis of informational insufficiency is not warranted.
- 53 action, the commitments and conditions relied on in reaching this decision shall be
deemed to be conditions imposed in writing by the Board in connection with its
findings and decision, and, as such, may be enforced in proceedings under
applicable law.
The acquisition of CoreStates’s banks may not be consummated before
the fifteenth calendar day after the effective date of this order, and the proposal may
not be consummated later than three months after the effective date of this order,
unless such period is extended for good cause by the Board or the Federal Reserve
Bank of Richmond, acting pursuant to delegated authority.
By order of the Board of Governors,78/ effective April 13, 1998.
(signed)
Jennifer J. Johnson
Deputy Secretary of the Board
78/
Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and
Governors Kelley, Phillips, Meyer, Ferguson, and Gramlich.
- 54 Appendix A
A. Nonbanking Subsidiaries of CoreStates Financial Corp79/
(1) Congress Financial Corporation, New York, New York, and thereby engage
in factoring services, asset based lending, and commercial finance, pursuant to
section 225.28(b)(1) of Regulation Y (12 C.F.R. 225.28(b)(1)).
(2) Meridian Asset Management, Inc., Valley Forge, and thereby engage in nonfiduciary custodian and agency services and trust services, pursuant to
section 225.28(b)(5) of Regulation Y (12 C.F.R. 225.28(b)(5)), and, through
subsidiaries of Meridian Asset Management, Inc., investment advisory services,
pursuant to section 225.28(b)(6) of Regulation Y (12 C.F.R. 225.28(b)(6)).
(3) McGlinn Capital Management, Inc., Reading, and thereby engage in
investment advisory services, pursuant to section 225.28(b)(6) of Regulation Y
(12 C.F.R. 225.28(b)(6)).
(4) CoreStates Securities Corporation, Philadelphia, and thereby engage in
financial and investment advisory activities, securities brokerage activities, risklessprincipal transactions, providing private placement services and other transactional
services, and investing and trading activities as a principal, pursuant to sections
225.28(b)(6), (7)(i)-(iii), (7)(v), and (8)(ii) of Regulation Y (12 C.F.R. 225.28(b)(6),
(7)(i)-(iii), (7)(v), and (8)(ii)), and underwriting and dealing in, to a limited extent,
certain municipal revenue bonds, 1-4 family mortgage-related securities, consumer
receivable-related securities, and commercial paper, as previously approved by the
Board in CoreStates Financial Corporation, 83 Federal Reserve Bulletin 838 (1997).
(5) Meridian Securities, Inc., Reading, and thereby engage in securities
brokerage activities, pursuant to section 225.28(b)(7) of Regulation Y (12 C.F.R.
225.28(b)(7)).
(6) Pennco Life Insurance Company, Phoenix, Arizona, and thereby engage in
underwriting credit-related insurance for loans made by affiliates, pursuant to
section 225.28(b)(11) of Regulation Y (12 C.F.R. 225.28(b)(11)).
79/
All subsidiaries are in Pennsylvania unless otherwise indicated. Subsidiaries
also include their majority owned companies.
- 55 (7) Meridian Life Insurance Company, Reading, and thereby engage in
underwriting credit-related insurance for loans made by affiliates, pursuant to
section 225.28(b)(11) of Regulation Y (12 C.F.R. 225.28(b)(11)).
(8) Princeton Life Insurance Company, Lancaster, and thereby engage in
underwriting credit-related insurance for loans made by affiliates, pursuant to
section 225.28(b)(11) of Regulation Y (12 C.F.R. 225.28(b)(11)).
(9) CoreStates Community Development Corporation, Inc., Philadelphia, and
thereby engage in investments to promote community welfare, including acquiring,
rehabilitating, and selling real estate to provide affordable housing, pursuant to
section 225.28(b)(12) of Regulation Y (12 C.F.R. 225.28(b)(12)).
(10) Electronic Payment Services, Inc., Wilmington, Delaware, and thereby
engage in processing and transmitting banking, financial, or economic data through
the operation of a point-of-sale network and automated teller machine network,
pursuant to section 225.28(b)(14) of Regulation Y (12 C.F.R. 225.28(b)(14)).
B. Foreign Branches of CoreStates Bank, N.A.
(1) Hong Kong:
12/F Asia Pacific, Finance Tower, 3 Garden Road, Hong
Kong, Peoples Republic of China.
(2) London:
Centurion House, 24 Monument Street, London, England.
(3) Nassau:
P.O. Box 6313, Nassau, Bahamas.
(4) Taipei:
17th Floor, 44 Ching Shan, North Road, Sec. 2,
Taiwan.
(5) Tokyo:
Yamato International Building, 8F, Nihonbashi, ChuoKu,
Tokyo, Japan.
Taipei,
- 56 Appendix B
A. State Deposit and Ranking Data for New Jersey and Delaware
New Jersey
First Union is the second largest commercial banking organization in
New Jersey, controlling deposits of approximately $13.2 billion, representing 10.3
percent of all deposits held by depository institutions in the state ("state deposits").
CoreStates is the sixth largest commercial banking organization in New Jersey,
controlling deposits of approximately $6.2 billion, representing 4.9 percent of state
deposits. On consummation of the proposal, First Union would remain the second
largest commercial banking organization in the state, controlling deposits of
approximately $19.4 billion, representing 15.2 percent of state deposits in New
Jersey.
Delaware
First Union is the 29th largest commercial banking organization in
Delaware, controlling deposits of approximately $57.9 million, representing less
than 1 percent of all state deposits. CoreStates is the tenth largest commercial
banking organization in Delaware, controlling deposits of approximately
$828.8 million, representing approximately 2 percent of state deposits. On
consummation of the proposal, First Union would become the tenth largest
depository institution in the state, controlling deposits of approximately
$886.7 million, representing 2.1 percent of state deposits in Delaware.
B. Banking Markets Where First Union and CoreStates Compete
(1) Atlantic City: Atlantic and Cape May Counties in New Jersey.
(2) Lehigh Valley: Carbon, Lehigh, and Northhampton Counties in
Pennsylvania.
(3) Metropolitan New York-New Jersey: New York City, Nassau, Orange,
Putnam, Rockland, Suffolk, Sullivan, and Westchester Counties in
New York; Bergen, Essex, Hudson, Hunterdon, Middlesex,
Monmouth, Morris, Ocean, Passaic, Somerset, Sussex, Union,
Warren, and a portion of Mercer Counties in New Jersey; Pike
- 57 County in Pennsylvania; and portions of Fairfield and Litchfield
Counties in Connecticut.
(4) Philadelphia: Philadelphia, Bucks, Chester, Delaware, and Montgomery
Counties in Pennsylvania; Burlington, Camden, Gloucester, and Salem
Counties in New Jersey; and the City of Trenton and the townships of
Ewing, Hamilton, and Lawrence in Mercer County in New Jersey.
(5) Scranton/Wilkes-Barre: Columbia, Lackawanna, Luzerne, Wayne, and
Wyoming Counties and the townships of Ararat, Auburn, Brooklyn,
Clifford, Dimock, Gibson, Harford, Herrick, Lathrop, Lenox, and
Springville in Susquehanna County in Pennsylvania.
(6) Vineland: Cumberland County in New Jersey.
(7) Wilmington: New Castle County in Delaware and Cecil County in
Maryland.
- 58 Appendix C
Market data for banking markets, except Philadelphia and Lehigh Valley.
(1) Atlantic City: First Union would control 15.1 percent of market
deposits and would become the second largest of 15 depository
institutions in the market. The HHI would increase 43 points to 1667.
(2) Metropolitan New York-New Jersey: First Union would control 4.8 percent
of market deposits and would become the fifth largest of
303 depository
institutions in the market. The HHI would increase
7 points to 758.
(3) Scranton/Wilkes-Barre: First Union would control 8.2 percent of
market deposits and would become the third largest of 35 depository
institutions in the market. The HHI would increase 34 points to 996.
(4) Vineland: First Union would control 10.8 percent of market deposits
and would become the fourth largest of 13 depository institutions in the
market. The HHI would increase 42 points to 1471.
(5) Wilmington: First Union would control 10.6 percent of market
deposits and would become the third largest of 20 depository
institutions in the market. The HHI would increase 15 points to 2338.
- 59 Appendix D
Most Recent CRA Performance Ratings of Banks Before
The Consolidation of First Union National Bank
Bank
Agency
Rating
Date
First Union National Bank,
Charlotte, North Carolina
OCC
Outstanding
5/31/97
First Union National Bank,
Jacksonville, Florida
OCC
Outstanding
5/31/97
First Union National Bank,
Atlanta, Georgia
OCC
Outstanding
5/31/97
First Union National Bank,
Rockville, Maryland
OCC
Outstanding
5/31/97
First Union National Bank,
Greenville, South Carolina
OCC
Outstanding
5/31/97
First Union National Bank,
Nashville, Tennessee
OCC
Outstanding
5/31/97
First Union National Bank,
Roanoke, Virginia
OCC
Outstanding
5/31/97
First Union National Bank,
Washington, D.C.
OCC
Outstanding
5/31/97
- 60 First Union National Bank,
North Summit, New Jersey
OCC
Outstanding
5/31/97
First Union Bank of Connecticut,
Stamford, Connecticut
FDIC
Satisfactory
1/21/97
First Union Bank of Delaware,
Wilmington, Delaware
FDIC
Satisfactory
10/31/95
Signet Bank,
Richmond, Virginia
FRB
Satisfactory
1/15/96
Signet Bank, N.A.
Washington, D.C.
OCC
Satisfactory
12/21/92
First Union Home Equity Bank, N.A.,
Charlotte, North Carolina
OCC
Satisfactory
5/31/97
Boca Raton First National Bank,
Boca Raton, Florida
OCC
Satisfactory
10/26/95