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78-2 CONVENIENCE AND NEEDS CONSIDERATIONS: A POST-AUDIT SURVEY David R. Ailardice Q m 70 > r70 m Ln m 70 < m 00 > Z 0 -n n i n > o o Research Paper No. 78-2 Convenience and Needs Considerations: A Post-Audit Survey By David R. Allardice Department of Research Federal Reserve Bank of Chicago The views expressed herein are solely those of the author and do not necessarily represent the views of the Federal Reserve Bank of Chicago or the Federal Reserve System. The material contained is of a preliminary nature, is circulated to stimulate discussion, and is not to be quoted without permission of the author. Table of Contents I. II. Introduction . . . . . Page ........................................ .. . 1 Evolution of Convenience and Needs Considerations in Bank Holding Company Legislation........................................ 2 III. Research Methodology, Objectives andProcedures........... 8 IV. Application R e v i e w .................................................. 10 V. Analysis of "Realized11 Public Benefits.............................. 11 1. Impact on demand deposits.................. ...................13 2. Interest rates on time and savings accounts.................... 14 3. Alteration in loan rates and maturities........................ 16 4. Changes in the loan and investment portfolio.................. 17 5. Changes in physical facilities ................................ 19 6 . Changes in banking h o u r s ....................................... 20 7. New or expanded services....................................... 22 VI. Reasons for Alteration in TargetBank’s Services .................... 25 VII. Summary.............................................................. 28 VIII. Conclusions and Recommendations...................................... 30 IX. Footnotes.............................................. 35 Tables Table 1: Characteristics of Banks and Holding Companies Surveyes. . . . Table 2: Factors Responsible for Changes in Target Bank’s Services and Operations................................................. 27 Table 3: Summary of Findings................................ .. 12 29 I. Introduction Under Board of of bank the Section Governors of of the the Federal formations competitive impact, financial the community to be shall approve not country may be monopoly..." transaction the parties served. any are acquisition it to b e are required to changes or new services that company formation within Exhibit Responses detailed that the will with" has these viewed of or The planned failing purpose In m o r e to w h i c h in basic bank relating and vary to or Few ever the acquired bank by is Board to create tend of the and a proposed needs requirements, relating to proposed proposed holding are contained "no change" forms.'*' extremes of services and For as operations the m o s t being part "consistent substantially convenience deemed the to questions involving outweighed that the the the applicants cases of of application. by needs statutory application expanded the made if consider future convenience These between of application. the Y-2 new statements where result to section questions approved. approval are to the merits and effects these the to b e and in needs a floun condition. of convenience applicants is and or resulting certain likely questions issues except to on required any competition, the amended, directed in In k e e p i n g w i t h are is resources has effect as ruling anticompetitive by respond in convenience Congress the B o a r d ’s Y - l upon the the competitive considerations dering the provided approval adverse to of that acquisition discussions be Board D the lessen served. System, Act, acquisitions, "whose outweighed applicants or to finds clearly community and addition, substantially unless or Company and managerial involved In Holding Reserve company of to Bank holding prospects of 3(c) this and Exhibit terms, holding D) the study was needs have to determine considerations been objective companies (those translated of live the up to the into study the is extent items to w h i c h mentioned realized to public determine commitments made the the by benefits. extent relative to -2- convenience several and policy specific against issues and cases may of II. calling this for and of the Evolution deal planned public benefits, then of and needs slightly the latter. The considerations in b a n k holding company study, research and (4) techniques conclusions employed and considerations adverse of of Convenience to 1933 the Board activities "Banking Act of control over companies bank to the interest." "consider its the in competitive remaining development of legislation, this study, recommendations (3) derived from Board In the benefits from its acting upon permit of and nor might the such did the of probable the arise from such and Act Board in order bank upon the of call in the no for an light of was the explicit stock the of in "public to character such permit made surrounding of the Act mention was issues of holding 1933 general to regulatory directed evaluation transaction. the The granting competitive bank to v o t e Board passage ineffective required applicant, of authority the subsidiary. and However, a With 1933 effect 1933 Act statutory The the recognition no limited requests, bank...' the given decision condition had companies. any member base concerning that holding companies. of Considerations Governors Board was permits financial issuance of to affairs the Act the Needs Legislation bank directors management, the permit of of holding obtain selection directed 1933" and Company the in favor certain translate convenience even or have to re view regulate upon failed realized or general a brief the with in questions (1) Bank Holding Prior of into of these companies to h a v e adverse, in to study. in the shown a balancing determined needs of can be adverse, be Answers If h o l d i n g considerations paper discussion findings this needs already convenience a companies substantially portions (2) considerations. implications. holding convenience future needs public 3- - In until bank of every 1955, bills holding 1956." intended session law to its guide acquisitions, by were (1) character of or not of system in the The the same factors the four factors") creating (the consider are competition not many guide Board Terms such the the convenience, area concerned; or merger of the the with over Company holding company directed of the company (3) Act standards 3(c) needs and or the bank control Board was prospects; Act: or the and (5) w h e t h e r consolidation holding adequate preservation to as "banking adopted in the and needs standards express effect of problems Bank Holding these "adequate (4) extent bank the of 1933 certain Section condition of of company and sound competition of surrounding a proposed call and that their requirement that Banking factors") concern of factors") had five the of the Holding upon the w i s d o m of basically 1933. (the However, "competitive potential implementation. transaction for Act were As Company the for Governor Act that preservation Solomon— and there them around."^ the competitions" been problems "The policy, as in of Act Holding concerning the and scope established their (referred had new presents of Although of that administrative the and Banking "Bank (2) consistent interest, factors represented Board limits "convenience remarked: or the enumerated acquisition size the Specifically, history and the banking. three Robertson of beyond of provisions such the public field first of expand passed determination concerned; of broaden the Act factors financial communities involved banking, its their management; effect to in May, consolidations. the b a n k s the the be in passage further provisions, following the and welfare or the to Congress, Board mergers, companies following introduced other the consider would Congress companies. Among to of and Company standards and sound "convenience Act were of vague banking," and 1956 needs" and "public were established standards not defined. clearly interest," left to "preservation undefined and, as 4- - such, the became Act did tion was subject not that equal weight to both specify each in of the how the Board the and five factors factors was decision-making judicial of interpretation. should equal be weighed. importance process. As such, impacts could, a Furthermore, The implica and would case carry possessing y adverse if the and remaining While Merger to b e and unfavorable the Act of four Bank forth in the set and acquisitions the be substantially of ’’s o m e both and Clayton lessen of Supreme Antitrust Bank case of social and the be Acts. in ruling are not on outweighed 1963 bank the economic debits as set which on and standards Supreme mergers justifiable Bank bank mergers standards In that subsequent noncompetitive antitrust ruled or (and Court strict competition” reckoning 1956 competitive the theoretically, adverse. Act the apply National to ultimate to not Company forth tended Philadelphia were evaluated, Sherman in factors Holding 1960) considered competitive the Court nm a y grounds credits” that o may be considered further acts, beneficial concluded was that determined alike," social economic A issued and and/or study by December Board of acquisitions.^ competitive 1. prevent even conducted the by respect factors be decisive needs, all except and welfare to Professor appeared In interest. of the anticompetitive it m i g h t Backman passage With found 2. light of The Sherman in a Supreme and mergers, result factors Backman bank Court Clayton ” the antitrust benign certain history in the were given holding of published and amount of the and in company de Act in 1956 formations and needs, and and following:^ conditions, every decisions Company convenience B o a r d ’s establishment 61 Holding concluded "satisfactory" factor the Bank the banking, (financial to b e analyzed the connection with were a Jules between management) to public loss. in Banking in though 1962 factors the Congress, to the m a l i g n a n t to prospects, decision and and rarely decision. novo banks, only minor weight. convenience, As w i t h banking -5- factors, reason this for factor did approving or not appear denying to b e a bank either holding a decisive company or compelling formation or acqui sition. 3. factor The had been These reflecting of needs, great competitive conclusions, for the the and policy and in In fact, in the and The ations holding In balancing Reserve to competitive conclusion is n o t In accepted the Board during Act. With essential early each of that Bulletin place by needs a bank Board the the second interest analyzed a is, in "segmented" convenience, as three separate appeared competitive company 1956 years convenience, decision the on the were analyzed and under to public That holding importance" factors. case Act to published reflects the convenience and to competitive consider factors.^ "main weight" surprising for it reflected applications in strictly the decisive formative adopted factors. final the applied Board cases the most adequately respect decisive, and and the place discussed of "special not the as decisions the needs convenience analysis to Board perhaps and a number of are reveal and considerations. that company that were detailed intent previously appears aspects first is "main weight" part, of although orders the Company convenience factors. Federal Holding aspects, analyzing the most elaboration Published the B o a r d ’s Bank perspective. and welfare upon needs the however, detail. related rest as approach and welfare needs, that the in p r o p e r approach concluded of conclusion, the that administering aspects study to nonfinancial Board was eager to was the given B o a r d ’s p o l i c y keeping with sectors adopt the of the strict of antitrust evaluating standards economy. In fact, standards of the it g Bethlehem-Youngstown steel strable irrelevant benefits" lessening of as case, competition may which and of result.9 viewed no The "good motives" defense where Board's early a and "demon substantial decisions indicate -6- that its policy was bank case, in that, anticompetitive reckoning consistent with of bank elements social or standards Bank Holding defense so as to noncompetitive 3(c) of read follows: The to m o n o p o l i z e in any tion any part of tion or would effects public the of the financial companies munities Company must laws. the banks Company a may proposed and be if be Act changes the first both and in July process. of or merger 1966 conspiracy it in finds the the proposed any other manner anticompetitive outweighed Board in the convenience every prospects in in the in m e e ting served. future adopted in competi transaction to b e acquisi effect lessen the clearly of a monopoly, section whose to to or of b a n k i n g other needs" considerations, or any the and case of the needs to to w h e n to consider company of the the or com Bank Holding 1970. in Supreme the amended the bus i n e s s and were strict "convenience amended or which are of combination community and ultimate in this effect resources nsome decision-making substantially directed possessing result (2) unless the to the 1966 Court and 1970 decisions outweigh transaction must determine whether Second, of concerned, argued or under a 1966 acquisition any transaction specified Act any a monopoly, needs in Act was of States, probable These amended the to m o n o p o l i z e trade, amended served. was that and the procedures benefits the in section which would of and managerial to b e The justify and Act Holding by convenience competitive furtherance proposed interest to a p p r o v e (1) create in addition Company of application include country may to and to considered attempt restraint Furthermore, the not acquisitions Acts consolidation the tend in be this in or of to be in the United or m e r g e r section that, to banking, Bank Merger Philadelphia credits." Congress of the the basis field would be and on the shall or justified in and to under or which would be debits Bank Holding Board consolidation not formations C o u r t ’s a d h e r e n c e insure the company expressed the and factors Section as to Company would economic Dissatisfied with antitrust holding the views meet amendments have made anticompetitive a twofold it test.^ or acquisition offends question is answered the the clear aspects formation in to the that and First, Bank the thus the Board antitrust affirmative, -7- it m u s t the be determined whether grounds that the and needs "convenience and needs" be inure to obtainable lative clearer than January period of 74 w e r e tive analysis denied. due one was or Of a on the no formation where However, tive were analyzing some existing of basis these future or analyzed by somewhat more competitive Backman, issues. of found where convenience Board and state the not legis greatly that no five issues appears needs decisions factors the five were In an involved relating the to review were adverse" competi relative considerations In elimination elimination the of concentration to have slightly and acquisi effects the and competi considerations. involved involving For law. "slightly that, The issues, approved to between on and banking needs tends approved denied competitive eight 1974 issues. factors Board where and and 456 w e r e banking adverse" approved it were Bulletin 44 w e r e banking a violation general, the observations. of w h i c h of convenience in following adverse involved the must Board were 1971 Reserve denied, competition, two In important the found the competitive Federal and it w a s and to competitive by potential resources. given reviewed, were analyzing the benefits benefits procedures between of cases cases competition banking 18 Board the to simply on* Act. the "substantially outweighed 18 due to not In guide, and applications denied means. by Furthermore, these by, in were and the yield instance was present.^ of 74 combination cases, issues 1974 and justified outweighed served." that while still forth cases the 24 w e r e denied these tion to set is clearly in na t u r e , original on by nonetheless are transaction; used the emphasis 530 the to b e December public evident acted Orders and grounds, denied ing major Board 1971 cases be is to b e anticompetitive appears in effects community of less they were that of it of the must standards review indicate review the of parties through changes, modified, A the transaction anticompetitive "convenience which the the cases become adverse 8- - This ations discussion and of Board of the evolution interpretation of of the these convenience issues and leads to needs the consider general A theme of provide these the in III. is discussed of needs a become are providing studies (both in have the acquired of efforts into necessary applications services the changes or be were to w h i c h applicants factors the and benefits? planned to to w h a t extent Each these of have forth in b a n k upon holding approval or in their relating to changes acquisition data in for an this effort that applicants Then by "planned" a public needs to a in company of the has to "planned" the bank bank holding to performance of To company upon survey the provide of in approval the determination can be made benefits become "realized" have banks research changes institute numerous companies, holding those "post-audit" companies Whereas constrained determine convenience application. holding bank determine applications, developments."^ past "planned" conducting approval, by study, not was applications. measures and project to w h i c h forth convenience upon research is w h e t h e r quantifiable of Procedures extent benefits set and instant answered reviewed policies set novo) upon empirical implemented actual concerning benefits. Bank within area application. extent public de the public statistically the as conducted and have public Objectives, survey, services been needs realized of "post-audit" to and what turn. objective question absence the become "realized" basic To wit, convenience considerations, The of of changes primary means have the project. Research Methodology, The and the w a y planned issues by research holding the Seventh company Federal applications Reserve submitted, District approved, between January and 1, consummated 1971, and -9- December 31, 1976, were reviewed benefits. The review process Wisconsin— the states within multibank holding acquisitions one-bank holding acquiring eral panies, bank company These examination necessary information was for its where adequate. In received a needs they of factors, statements. A cations in services company applications One of advantage strained cedure between by is that the the the two method also are commitments secondary creates types of of minor One problems of bank that or that and allow primarily number and modified in part, banks and personal of questionnaire the elaborate, to the to of company was extent holding the company to the the sev com obtaining (copy time the attached required was not surveyed convenience of its to m o d i f i filing to w h i c h of from interviews with aware respondent disadvantage respect to relating currently the via written company pertaining by holding question(s) holding information the or to holding with Michigan, limited to m i n i m i z e each is a timely means Applicants procedure responses. and application on previous format. however, instituted response discuss limited public reviewed. encouraged each planned District review was a mail obtaining to Reserve structured employed. requested questionnaire use their of Iowa, reports direct was that of either wholly questionnaire, insuring states directories, ,,y e s ,,- ,fn o n of the services bank were the also annual the of the were the m o s t portion was this it include nature Federal obtained, through to secondary prior be that a thus complied with can felt the to the companies; to b a n k i n g Respondents addition copy holding questionnaire completion. responses, and decided The Seventh reports, It w a s A). limited Furthermore, sources bankers. as A p p e n d i x identify applications pertaining holding sources. the by multibank company Information was companies. made to holding they have applications. is not secondary lack of con pro uniformity -10- IV. Application Review In of the all, a total survey: companies were sition 42 of An 18 the application relate to changes fications to the charges nine (or "no applications (o r 62 in rates paid other lending terms. the applicants The general review companies1 replies and It w a s or contacted 1 in with Iowa. in the These respect to that these refute this that of Exhibit charges on demand portfolio. that they time course holding the acqui paid on impression. Of 29 (or and and applications to 50 on proposed be "no and are replies and that being to 69 change" prior the that to few and "no in physical modi re change" stated and that seven they would deposits. indicated that the in physical percent, in either receiving substantial proposed by there of Thirtyacquisition or facilities respectively, of the these of areas. holding modifications bank questionnaires in raise maximum maturities, changes percent accounts, accounts, savings loans, questions applications to m a k e indicated the and Y-2 six changes percent) savings time rates 69 These terms, 42 in information with deposit the made the Y- l D.) loan planned percent) impression the of in applications were D changes there would factors Exhibit hours, interest the general deposits, reviewed 42 in statements savings 16.7 hours, needs and on respect and copy accounts; paid (or in With believed time rates the produced needs a indicated in b a n k i n g of on deposit change" stated for investment raising) "no confirm and following forth service rates of B the set banking reviewed produce panies. in percent) modifications and demand change" and of percent) on convenience questions changes would convenience six loan consider 93 were questionnaire yielded (See A p p e n d i x applications (or w o u l d companies in Wis c o n s i n , the "planned" modification service 42 12 complete the interest 26 the to first viewed, be 42 forms. facilities, would of expected in holding banks. above-mentioned to 31 b a n k in Michigan, asked analysis respect of holding would com either in -11V. Analysis of ,tReali2ed,l Public Benefits Utilizing in b a n k to holding actual total 24 44 bank the banks Michigan of companies the million to terms the of and these seven application average two in public the these With 44 within 44 the detailed analysis applications Table two 1 as 1976, December applications involving Iowa 31, the an average Iowa holding size respectively. are questions set forth asked in of The the a detailed and Exhibit D all of In the M i c h i g a n Wisconsin banks breakdown the terms banks also surveyed was of the of Dis holding company were findings below the submitted companies. involving a 14 b a n k h o l d i n g for of of Reserve applications, holding of by relative operations, were Federal submitted (See of and Seventh were exception a provided information services involved multibank applications forms. for These (information collecting b a n k ’s of M i c h i g a n . million, specific secondary of selected benefits. Eleven applications $14.0 were the size, and methods applications state and acquired located analyzed In W i s c o n s i n relative made $29.1 million. and analyzed. Y-2 the applications surveyed was $18.7 in of analyzed.) deposits, applications) companies majority located (questionnaires) applications realized holding The companies of company usable versus trict. primary modifications of planned by the the survey discussion the is B o a r d ’s Y - l in and -12- Table Characteristics 1. of Banks and 1 Holding Companies Surveyed Location. Number of Number banks State holding of companies Iowa in 2 SMSA not in 0 SMSA 31 Michigan in not in 12 SMSA 11 Wisconsin in 5 SMSA not in 6 SMSA 44 Total Bank 3. 14 19 SMSA size, deposits as of State Mean 26 December 31, 1976 (million $). Largest Smallest Iowa 14.0 14.6 13.3 Michigan 29.1 175.6 2.7 Wisconsin 18.7 33.4 8.8 Holding company State size, deposits Mean as of December 31, Largest 1976 (million Smallest Iowa Michigan 501.8 501.8 501.8 987.4 4,801.7 22.5 Wisconsin 526.7 2,356.7 10.2 $), -13- 1. Impact on demand deposits - Question 1 Exhibit made in the benefits are should question of of asks target lowered cost D or new generally service ceteris types fall of into indicate charges paribus, accounts two (e.g., the m i n i m u m b a l a n c e required for or types of tailored accounts for Twenty-five their "no accounts had checking that instances the offer some the target determine of that persons bank. 65 the In years bank would indicated whether deposit or to this affecting charges of charges Responses (2) types Public service directly service (or the cost adopt offer age) any or of or changes the lowering in statements percent) bank types the either the or quan ac of demand or indicated there would reviewed full had be deposit applications limited checking; six applicants overdraft checking; and in analyze changes were provide or would mail the four situation necessary. itemized the (e.g., free they would services, 56.8 target they would not that of eight of that or changes of surveyed they would over b a n k ’s be customers). either indicated demand post-audit plied with mined target (1) that w i l l accounts. available. special acquisition to target made changes To and, a lesser statements, statements to customers service. The deposit the applicants packages a new respect the of deposit checking") (e.g., of nature demand lowering "free classes upon if are applications that applicants approval, extent, by 44 indicated for indicated upon the made with provided applicants free of applications change" provided certain on the categories: accounts counts as b a n k ’s to deposit tity in applicant result, if demand the the planned services. not to revealed have that changes Eight of complied— the 32 out affecting audited to v a r y i n g of the either 44 applicants the applications degrees— with cost or (7 3 p e r c e n t ) quantity (1 8 p e r c e n t ) the changes of were set com demand deter forth in -14- the application. making "no In change" four in out demand of these deposit eight costs cases or the applicants had planned However, the post-audit services. on i revealed that varying degrees ments or cient funds. the by raising checking of they had In costs in raising the cost the other or had survey had not that cases was due rising their plans. four to h a v e of the provided 44 example, required, due to cases one Another approval the the which analyzed and it pressure, applicant an to had the had had of planned expanded as them applicants proprosed to m a k e service on making selection by of the the in were in "no lower time holding these carry out determined their appli change" charges "no require either of to on change," checking to insuffi compliance for been the and to Responses proposed lower accounts with planned services absence (9 p e r c e n t ) that had impossible above what applicant accounts changes. the deposit minimum balance against expanded for made demand increasing proposed reason of applicants provide instituted cost processed cases to over competitive accounts. to costs services For subsequent four the charges, checks the maj o r cations. mercial for instituted reveal In raised service intended companies to effect was com but account services. 2. Interest The ceteris be time savings accounts of the banking public paribus, by an in two of Exhibit made in the Twenty-four alteration (type) on segment Question will rates of out in of D the 44 the that rates offered by paid the on paid on of paid on 2 net time applicants b a n k ’s r a t e s applications Question composed rates requests target either accounts increase - savers and time and (54.5 time savings target bank. savings benefit, deposits. indicate whether surveyed and will Eight savings percent) any changes deposits. envisioned accounts applicants or the no quantity indicated -15- that they would eight stated Christinas The "no that Club not savings were savings in to h a v e posed. Both and applicants perceived these have of demand) expanded six reason indicated Six of the the alteration in regulation be providing introduction deposit reviewed and of a had new the to the savings or time than Q). over of applicant survey, deposit In and range none had that the of above proposed of the accounts to since no the (32 p e r c e n t ) rates paid instances of were on time community acquired in b a n k fs that by where time of of have determined The discussed were change of of acquisition. Four had major as an found involved certificates the according lowered to a modification banks variety and (no institute interest been the In n o n e accounts, c h a n g e . 11 had the level, rates, were (primarily expanded banks "no to pro application. rate there law the of interest bank and (4 p e r c e n t ) types (1 4 p e r c e n t ) accounts). the institute new forecast acquired to addition cases lower planned the m o d i f i c a t i o n forecast was (e.g., passbook two anticipated the the accounts of and (e.g., comply with target had had interest Only of been payable two in reviewed in plans interest accounts, accounts reviewed there was part application of types broader sponses amount services more alteration in either the to the applications revealed (increase) failed on savings savings applicants applications involved that the 24 offered. had of acquisition. whereas the types expanded accounts interest this or either no by new certain alteration or whereas for of of instances applications given 14 on upon that some services increased, offer applicant these services. the been of only types the paid accounts) made or found where rates revealed fact, accounts the the they would post-audit change," found raise the to the of applications to the rates re paid on -16- 3. Alteration In loans rates and maturities - Question 3 Question cant's three comments of rates found on of these would on indicated dents all respect to indicated certain that and mortgage loan audit this providing had rates; changes. with of bank. as changes, such as m o r e of they that that the had been they had indicated its application however, lower not Six in response b e e n made. of rates the or outside to It companies expanded the did and survey state that (14 p e r c e n t ) terms over it and and of the were above rates ex rates). for with Most The automobile that extended determined their or change." rates lower in some Except "no of respon pressures. had they others terms, indicated it that alteration be it w o u l d in any Seventeen interest competitive interest interest terms. or m o r t g a g e that in comply with there w o uld automobile to no surveyed, change" lower Seven increased loans, indicated made to appli the holding flexible bank. rates that "no acquisition. unable loan of commercial); they had target to (e.g., upon due in they would on changes be Three the the banks Thirty-one such changes to any there would that for rates respect loans, for ask interest terms. applications loans Y-2 to m a k i n g target respect found in increase was however. either of and With that indicated that their it w a s reduction had terms, in types the acquisition changes other indicated analysis Y-l themselves of types indicated R. changes indicated three percent) upon indicated applicant proposed (39 F. terms. or institute and/or terms upon loan committed specific proposed all had However, other terms, or the other acquisition they w o uld (16 p e r c e n t ) of one, upon surveyed rates few expected (70 p e r c e n t ) certain loan any competitive"; that banks loan very surveyed "remain tended and any forms maximum maturities, factors (usually the that loans, companies Board's concerning maximum maturities, it w a s the the some to b e anticipated -17- All of these Involved interest or maturity rates some on various 4. In the of in the composition not they Most applicants investment indicated loan four of they had fact made the most and Investment surveyed quently the makes the had are made an that "no they extension in portfolio requested and detailed the some Only the to change" had of 12 of discuss to changes the in either maturity lowered dates for only in expected the a of the in While question, some more often generalized manner. acquired bank's reviewed acquisition the changes portfolio. this in upon 7 of composition 4 applications change" that Question investment alteration "no found - responses proposed to m a k e it w a s change loan or to lending one discussed or more the of a of applicants acquired loan or (27 p e r c e n t ) the (16 bank's portfolio or terms (16 p e r c e n t ) proposed bank. of of were a nature. certain the target percent) loan or dollar be found For to type(s) of lending one bank. or The involve lending, and However, none were the the a two planned able Only holding to infre seven of of non- companies Increase comply share specifics Only instances to appli specific lack of difficult. example, to of amounts changed. respect Many acquired compliance, changes. agricultural acquired at that w i l l lack implemented with expand lending) in and quantitative they would compliance, increase at are planned installment investment of changes that applications of the portfolio changes evaluation planned part expand the reviewed sumer and both. indicated (e.g., compliance anticipated portfolio. For activity of no are to m a k e planned post-audit cants or had had responded b a n k s ’ loan discuss or Upon loan that they investment target proposed portfolio, investment loans and to bank. in of specific tended that however, applicants the provided than companies loans. Question applicants terms; catagories types Changes holding con due, -18- according loan. the While planned This to applicants, these areas, they more substitution loans) makes companies it to were often effect an to not than (e.g., difficult absence able not demand to increase expanded commercial evaluate of the for particular lending loans loans the in an company activity in alternative substituted holding type for of the area. agricultural impact on "net" public benefits. Some target applicants bank, such as lending guidance quality of lack compliance) of highly loan the subjective. profitability of had not do not and company investment changes by refute conclusions are: as (1) alterations to it upon the is that the an as beyond scope the clear that in of b a n k ’s changes However, effect alterations that a quality of this this the measure study and changes holding and of the particular com investment being results made this relationship existing the b a n k ’s acquired in planned the b a n k are (or is surrogate loan supply aspects of the overall changes the from analyzing is and of of compliance and catagories the a c q u i r e d cause of the qualitative analysis in analysis, improve degree a majority acquisition. and of or assertion derived acquisition administration bank, to the upon the m a n a g e m e n t loan or post-audit to resorting different changes involving relating confirm factor loan acquired analysis acquisitions portfolio. the an b a n k ’s p o r t f o l i o s proof b a n k ’s Determination judged basic on qualitative such to m a k e conclusive holding be needs (2) to Improvements The and the proposed However, plan portfolio acquired with associated with b e e n made. panies improve portfolio. necessarily convenience certain expertise might compliance. would to and loan portfolio propose in the study between loan and are -19- 5. Changes in p h y s i c a l Applicants be made from and in the the n e w are convenient. ated ih their not In Sixteen the six cases cants had yet facility has sition), it plans for more phies, its not is the which application have not changes that the of cases involving (25 a new involving higher approval demand percent) physical facility priority. the the bank. for were facilities it determined over and the in intended to and This near the that facili forth of the in appli the after new acqui responded since the that company philoso indicated to had the holding and management respondent only company that whi l e company drive-in banking for that set One indic acquired where delayed response adequate as three months procedures Another the holding instances been banking." unwarranted it w a s had In the holding application drive-in cost facilities Another efficient found facility. and more alteration indicated (one y e a r facilities for a new alteration in facilities involved build operating of at additional such cases that benefit (36 p e r c e n t ) it w a s any that w i l l should banking change" made changes public make "no not any surveyed determined considered. of that in p h y s i c a l established parking a these The post-audit had it w a s planned facilities" indicated that of its received upon banks changes discuss companies upon they would being problems had indicated 11 that been still that construction six construction cant In yet banking indicated All to facilities However, planned five they would make acquired comply with basic drive-in the indicated to that 5 facilities. holding (14 p e r c e n t ) application. company of facilities. complied with their had banking of Question in Q u e s t i o n modernized (20 p e r c e n t ) ties. - b a n k fs p h y s i c a l applications b a n k ’s p h y s i c a l nine requested acquired and facilities in its "construct survey, the the appli "customers applicant facilities further made the future. that the applicants had made above the planned modifications. -20- In nine that out "no or noted that had that cations question planning holding 6. in six of tion. should the target would the to m a k e Five be the bank's given to 30 to be in to 1975. can be However, From the the expected to It to m a j o r adequately to m a k e If to this modi after are acqui not investment such conveyed be appli major years capital facili should whose companies acquired banks. being the post-audit responses four holding applications new banking companies three respect their facilities. holding about in constructed existing that their is n o t and long-range in their bank that such of 6 applicants target increased change" hours Question the hours bank's hours the bank of operation, (68 p e r c e n t ) they would expand (12 p e r c e n t ) operation; however, expansion after reviewed indicated any bank's the the the hours of indicate The acquiring of the specific they target on any In general, acquired were open holding applicants company surveyed hours of commitment indicated that acquired. the of operation. to opera expand consideration bank was part either application target bank's no intention to operation. or both. Nine made of to b e where hours. target requested if an the are in banking applicants decrease to Exhibit D instances indicated of - convenient "no applications company respect be made or more percent) in appears it either companies forecasting with in banking hours review disclosed (20 also facilities. involved prior indicated applications.6 benefits planned of facilities conducted, that w i l l longer or holding programs with In Question for had remodeling during It had in physical companies physical sooner. is b e i n g applicants applications that long-range Changes public holding approved their company changes the be made these appears to remodeling of been if n o t engaging cases would these all it fications 11 conducted major had sition, the change" revealed ties of the None acquiring of -21- Up on post-audit complied as with planned). change in the applicants the planned "no audit their planned alteration in banking It noteworthy the at stance being primary b a n k 1s h o u r s of operation. only In the open three cases by applicant had to that changes firms made not that no by that of the planned the hours as m u c h as indicated in target the hours during which were operation the ma i n decreased planned of but by not or (2) for hours may a may have have drive-in open. per instituted, On week. the the target planned the In the the to post opera banking one in target machines for no above b a n k fs at teller surveyed and additional hours change" made had However, bank (ATMs). extension of service. that banking 38 extended been one a net but instance convenience three and the it the b a n k ’s cases needs of either reduced reduced case the indicated percent operating basis In all each they hours slightly office applicants In however, operating In the hours. approximately expand over office(s). operation; is, to in "no had (18 p e r c e n t ) applicant determined application. hours bank was £.5 That their b a n k ’s o p e r a t i n g it cases providing that made hours the branch added of the automated alteration hours eight expanded or b y the was intended In had (75 p e r c e n t ) (59 p e r c e n t ) operating companies in percent) they had 24-hour interest operating the of (or operation. indicated b e e n made. that of or m o r e holding in operation hours stated one applicants hours instances Saturday company expand not these at change extended hours had or (6.8 their had on installation customer planned of the applicants expanded companies either bank have b a n k fs h o u r s eight comply with such each holding given was to target these the reason hours to of the m a i n via of 26 determined responding expanded failed that either operating in 33 that alteration. by the In is were revealed hours The that change" ting hours were determined acquired the make it w a s the (1) hours but appears in that number total where it of hours longer considerations, -22- expressed in the approval order, slight weight toward approval were one the the cited as acquisition. cial 7. or expanded Question seven indicate which the many a the result, the applicants For example, to Question It should an list what also be appears specific issues if is there be question by of the may noted new in to b e demand, little The six new or they remaining often than to be hours approval issues in the as or of finan the deposit response survey three D. impression As that provided. in response might be termed Frequently, an applicant will for regard these that, instituted (6.8 p e r c e n t ) no on new indicated to services they and service average, holding acquisition. responded that the the upon two. a services, specifying when to b e applicants listed Question reveal institute approval Exhibit be to to demand to upon program possible without given of reality will same applicants frequently sections employ what or the introduced leaves savings services only 43 banking from asks applicants question. is forms will that need this planned lent issue. in p r e v i o u s a new any improved stating The found this of surveyed, application. expanded, attention applications that competitive applicants is arise and 7 services results were provided to there cases services most as m a n y to cited have responding were application or mention Furthermore, which application more consistent with significant it w a s an also that a Y-2 were of may of w h e t h e r mention the that provide be and either reading and instituted. companies Of a the Y-l applicant seven - Generally, to "shotgun” approach will Question of first three services services intend benefits these to b e application. to services, same of the found considered acquisition. of of public In n o n e considerations New of of were to upon this approval intended to -23- institute a great review were new deal of or of the Thirty services variation planned proposed expanded expanded new in about 30 service which was out of 44 (o r 68 in the or improved different to b e either upgrade acquired bank. second most computer services. services would the acquiring more services, the 11 accounts loan establishing is in-plant much service will acquired via cost most surveyed novo trust new applications or mentioned lending provide of Other and what any specific local by what The demand amount the lead lead computer bank with one or of the audit and included services, survey assis assistance, and provided the to w h e n the of agricultural branch to of finance, and information it w i l l that result banks financing for the introducing a consumer exists upon service was and marketing reference services. expanded mentioned services, municipal programs. lacking services expanded finance as or at commercial advertising new implementation acquired leasing, financing. the limits the services that indicated applicants expanding A services through discussed trust indicated Fifteen 14 that to b e frequently mentioned acquisition was de appears proposed. reveals or assistance, or services subsidiary banking implemented, There a purchasing, banking frequently will the be management upon reviewed introduction central of proposed The provide applicant-sponsored services the the or they would international personnal applications that areas. another. kinds services system(s), receivable management, services, tance, of either 10 m e n t i o n e d stated introduction the card or frequently mentioned company. credit 7 discussed and portfolio in bank programs, affiliation, payroll provided holding national training be and applications they would of type provided percent) Ninteen one number approval The of in aforementioned service, cost aid and reductions how at bank. Given the generalized nature of these responses, one finds, as expected, a substantial amount of deviation between the planned and the realized changes in -24- this area. Thirty-two out of the 44 companies surveyed (73 percent) were shown to have deviated from what they had originally stated in their applications. Of the 32, 26 were not able to comply completely with either one or more of their proposed changes. Seven of the surveyed holding companies were determined to be providing more services than indicated in their applications. Of the seven that exceeded their planning expectations, two had stated in their applications that they were going to provide no new services; however, upon review they indicated some new services were being provided. One of the holding companies had intro duced credit card services, had implemented IRA programs, and had established corporate savings accounts. The other holding company introduced IRA programs and viewed gold sales as a new service. With respect to the 26 holding companies that were not able to fulfill all of their commitments, the following were found to be the areas of noncompliance. Six of the holding companies indicated that they had either not established or had not significantly expanded the trust services at the acquired bank. This means that out of the 30 holding companies that had proposed to establish or expand trust services, 20 percent' of them have been unable to or have decided not to expand or establish the service as planned. One of the respondent’s replies to the questionnaire is typical of other responses. In Exhibit D the applicant had stated that upon approval of the application "the following services would become immediately available to Bank or Bank’s customers," and among the list of proposed new services was "a full range of trust services." Convenience and needs considerations were found by the Board to be "consistent with and lend some slight weight toward approval." The only service explicitly cited in the Board’s Order as a new service to the public was trust services. In response to our questionnaire, the applicant stated that it does not provide trust services -25- as planned on a regular basis and that the means of providing these services on a regular basis is still being considered, but no determination has been made. The major problem cited by the respondent was that the acquired bank was over 100 miles from the main office of applicant’s lead bank, and, furthermore, there was ’’little or no public interest in trust services” in the area. This statement illustrates one of the major reasons cited by holding companies for the lack of compliance— little or no public demand for the proposed service. Another area where applicants have yet to provide the planned service is in the area of accounts receivable financing, payroll accounting, and billing services. Seven of the applicants specifically mentioned introducing this ser vice, and upon audit it was found that four were not providing the service. While six applicants had planned to introduce in-plant banking, only two in dicated that they were actively providing this service. In at least one instance each of the following services was found not to be currently provided by the applicants as planned: certain computer services, training programs, expanded lending limit (the acquired bank was awash in liquidity due to the lack of loan demand), international services, municipal financing, check credit program, expansion of mortgage lending, and a program designed to attract industry to the community of the acquired bank. VI. Reasons for Alteration in Target Bank’s Services In conjunction with the survey, the holding companies were asked to specify those factors which, in their view, were most responsible for bringing about changes in the target bank’s services and operations. The survey listed nine possible reasons for changes in the target bank’s services. The list included: (1) the holding company’s philosophy, (2) the acquired bank’s philosophy, (3) -26- competitive pressures from banks either inside or outside the local community, (4) competitive pressure from nonbank financial institutions either inside or outside the local community, (5) changes in government regulation, (6) customer interest, and (7) technological changes in banking. From the list provided the holding companies were requested to rank in order of importance (i.e., 1st, 2nd, 3rd, etc.) those factors that they felt were most responsible for bringing about service and operational changes at the acquired bank. Of the holding companies responding to his question, the consensus was that the holding company's phi losophy and policies were the primary factors responsible for changes in con venience and needs factors at the acquired bank. The second most important factor cited was customer interest in these services. The third and fourth most important factors, respectively, were considered to be competitive pressures from commercial banks located within the local community and the acquired bank's philosophy and policies. According to the respondents, the least important factor influencing changes in services and operations at acquired banks was competitive pressure from nonbank financial institutions located outside the local community. Interestingly, technological changes in banking (e.g,. auto matic teller machines) were not viewed by the responding holding companies as a highly significant factor promoting changes in the target bank's services and operations. The following table summarizes the holding company responses to the question concerning those factors responsible for changes made in the services and operations of acquired banks. / -27- Table 2 Factors Responsible for Changes in Target Bank is Services and Operations Factor cited Holding company philosophy Number of holding companies ranking the factor as most important (ranked 1st) Number of times holding companies cited the factor as being influential 10 18 Customer interest 3 15 Local commercial bank competition 4 12 Acquired bank’s philosophy 1 12 Local nonbank competition 2 7 Commercial bank com petition from out side the community 1 7 Nonbank competition from outside the community 0 3 Changes in government regulation 0 5 Technological changes in banking 0 4 Other factors mentioned 0 0 -28- VII• Summary Table 3 summarizes the findings of the survey. As discussed previously and as shown in Table 3, the holding companies surveyed tended to deviate to a large degree between planned and realized changes in convenience and needs factors. In all of the areas analyzed, the percentage of holding companies that actually had "no change" in services is less than the percentage of holding companies planning to make "no change" in the target bank’s services. The results of the survey seem to indicate that we can expect, as the holding companies have stated, new services (per Question number 7) to be introduced at the acquired bank. In only two percent of the cases surveyed was there no change with respect to new services. However, the survey also revealed that there is less than perfect correlation between the new services mentioned in the application and the services ultimately instituted. We have also found that the holding companies surveyed were less inclined to alter the hours of operation at the acquired bank and are also not too inclined to make any changes affecting the service charges on demand deposit accounts. On the other hand, it was found that the holding companies surveyed had the greatest problem in complying with commitments made concerning changes in service charges on demand deposit accounts, changes in the composition of the loan and investment portfolio, and lowering interest rates on loans and terms related to these loans. Clearly, these are three areas that should be given closer and more detailed attention by applicants. The study revealed the holding companies are likely to make improvements in the physical facilities of the acquired bank; if the hours of operation are changed, they tend to be longer rather than shorter; and interest rates paid on time deposits can be expected to be higher rather than lower (assuming that interest rate ceilings so permit). Table 3 Summary of Findings ________ Planned Changes______ Some alteration "No change" mentioned (percent) (percent) Actual changes______________________ More services Less services "No change" than planned than planned (percent) (percent) (percent) Demand deposits 57 43 45 9 18 Time & savings deposits 54 46 32 14 4 Loan rates & maturities 70 30 39 14 16 Portfolio alteration 27 73 16 N/A 16 Physical facilities 36 64 20 25 14 Banking hours 68 32 59 18 6.8 7 93 2 14 New/expanded services N/A = Not applicable due to nature of question or type of response. N/A -30- VIII. Conclusions and Recommendations What conclusions and recommendations can be drawn from the instant survey? Before addressing this question, a few points must be emphasized. First, the findings set forth herein are based on what is considered to be a representa tive, though limited sample. It involved only bank holding companies located in the Seventh Federal Reserve District and only companies in the states of Iowa, Michigan, and Wisconsin. There is no reason to believe that the same study methodology employed in other states and districts would yield similar findings. Furthermore, not all of the holding companies surveyed responded. This leaves open the question as to whether or not the survey is biased in that only those holding companies that have complied to the greatest extent with their planned changes in convenience and needs considerations were the ones that responded to the survey. The survey tends to reveal that on an aggregate basis holding companies appear to have committed themselves to making very few changes in the services and operations of acquired banks. As such it would appear difficult, on the basis of the findings reported herein, to defend a position that bank holding companies per se are a driving force, in and of themselves, towards the intro duction of new and expanded banking services. It should be noted that on an aggregate basis data such as this may be misleading. In the first place a response of "no change" may merely indicate that the banks being acquired by holding companies are banks that in the past have been adequately meeting the convenience and needs of their communities. That is, bank holding companies may be acquiring banks that have already been offering free or low-cost checking and longer hours relative to their competitors, and banks that have recently built new banking offices and pay maximum Regulation Q rates. Another possible ex planation may be that the holding companies are not familiar enough with all -31- phases and aspects of the acquired bank’s operations and competitive environment to be able to commit themselves to any major changes in the bank’s operations prior to acquisition. Another possible explanation, and somewhat related to the first, is that the prevalence of the ffno change11 response may reflect the lack of flexibility open to the banks to modify certain services and rates. With respect to rates paid on time and savings deposits, for example, applicants frequently respond ,!no change11— except as permitted by regulation. They often state or infer that the bank to be acquired is currently paying the maximum rates allowable under existing legislation and that this policy will be con tinued. Clearly, the answers to these questions require additional research before the convenience and needs issue is resolved. It is interesting to note that the post-audit revealed only two holding companies that had responses immediately available to the questions asked in the survey. Both of these holding companies conduct their own holding company ap plication internal audits on an annual basis. They have made an on-going and concerted effort to keep abreast of what commitments they had made with respect to convenience and needs factors, and they document when the changes were made or the reason(s) responsible for no change. On the whole, the responses from these holding companies were quite frank, which may reflect the fact that they were generating this information for internal use by the holding company as a tool for measuring management effectiveness. It is felt that similar internal audits would prove beneficial to other bank holding companies. The survey also revealed that changes in the types of services and opera tions, as proposed in holding company applications, can be instituted somewhat more rapidly than had been anticipated. Two of the respondents to the survey provided information with respect to banks acquired in late 1976. By February -32- of 1977 the holding companies had been able to institue a number of the proposed changes set forth in the application. For example, interest rates on certain categories of loans had been lowered, facility remodeling was under way, rates paid on saving accounts had been raised to the maximum allowable by law, simple interest loans were being extended and trust services were available via the lead bank of the holding companies. In general, the survey leads to the conclusion that planned changes and alterations that have not been instituted or established within 12 to 18 months after approval are not likely to be implemented. framework assumes no extenuating circumstances. This 12- to 18-month time Within this time period the acquiring company should be aware of those services that can be provided and those that will not be feasible due to whatever reason. There are, in general, three possible ways to react to the study findings, which may be classified as: approach. a soft line, rule of reason, or letter of the law The soft line approach takes the view that convenience and needs changes are just so much "boiler plate." When Congress directed the Board to examine the convenience and needs considerations, it did not intend much weight to be applied to this factor and, as such, it is of little or no importance whether the applicant complies with its planned changes in services and opera tions. It should be clear upon reading the Congressional hearings surrounding the Bank Holding Company Act and its amendments that Congress expected more than just "boiler plate" be provided with respect to convenience and needs factors. The rule of reason approach may be viewed as a middle-of-the-road approach. According to this approach, the Board recognizes that applicants will not be able to transform 100 percent of all planned convenience and needs factors into realized public benefits. Therefore, if the applicants are able to comply with -33- say, seven those to or they the eight are Board unable and the also recognize that more important in involve titive some out to ten those of exist, planned provide, public. the degree factors of changes, then Under a they rule and cases banking where adversity. then they substitute adequately met reason needs If n o convenience have of convenience or approach, considerations factors adverse or needs the law their the become commitment significantly considerations managerial, considerations for Board would competitive financial, and services are or of compe lesser importance. The f,h a r d third line" statement venience such, approach. made and by needs deviation Followed not approach, to its providing trative extend legal type of hours the service or an the company might adopted, with factors the v i e w respect planned should and be equivalent if additions viewed an to then An to that the m o s t reasonable In compensate is be or legal to found appropriate be lieu the for public service for the in of to h a v e example, the the affirmative breach to as con commitment. judicial required of any modifications firm is characterized that tantamount should substitute. required a applicant, comply be is as applicant changes, taken. failed to be approach, taken would commitments conclusion, the of should application logical action banking If letter applicants from all the contract. deviated or planned either provide a by adminis that or As to substitute, foregone public benefits. It appears middle-of-the-road result were the it the applicant's is not previous approach. Board failure unreasonable commitments) to It is doubtful require an applicant to to to and workable comply with expect be used that to type of as determining public divest convenience this a net solution and of lies w i t h benefits would a subsidiary needs proposals. information factor (failure in to subsequent the based on However, comply with applications. -34- The post-audit have a did tendency realized towards public applicants reveal should be of changes report on a periodic compliance with holding and made, basis and the and it to the Board planned of suggested holding convenience applications Board companies appear and changes track record as to b e informed So that applicants appropriate Reserve involving convenience and might concerning well be handled compliance with such as these would informed of changes in keep needs the or post-audit reports number considered* is substitutions on-going Annual limited future evaluated being or a converting On companies1 reports capital. Banks, not benefits* nature reporting that the be into these of the required Bank needs in of to to concerning factors. This conjunction with the commitments to applicants, the Reserve convenience and needs augment factors bank as they develop. The Reserve results this survey have of Chicago to p a y in b ank holding company applications convenience needs ments Bank of made reflect survey have also conveyed cations in not been and the only identified unable to true to future in a manner incumbent statements upon made public fully with areas respect be are should where should it their assist both within applicants convenience and to to causing statements to of be is proposed their them in reason that applicants changes involving their in the feasible. of and their state should scope. past their It is consider The applicants information, structuring and that in This evaluate portion made by informed feasible felt the Federal applications commitments. closely needs in explicitly section but comply with that will the attention needs needs, applicants, instrumental Applicants and certain prospective in closer factors. convenience been when appli also future application. -35- This survey— first represents a respect convenience to modified at step the a later Nevertheless, the understanding of translate planned towards results the its kind post-auditing and date of needs in light of extent this and the of and the Seventh bank holding statements. to w h i c h convenience in The findings future company factors applications with procedures of this post-audits bank holding needs Federal Reserve District— and other should companies into employed may be have realized studies. lead been to a better able to public benefits. -36- FOOTNOTES *The author and t o R o b y L. the author bears 1-Prior within to ^Banking L. Commercial F 5Jules The IQu.S. H i t weighed referred by of the be noted "probable community "failing firm" substantially the Bank by J.E. to Holding Steel F.R. of her typing of efforts, course, and needs questions Holding Company were found Y-2. the 1, Bank 1956, B a n k , 10 L E d Company 24-25, C o r p . et N e w York, to the p. 2d Act," 1855. 915, The April-June Act," at 949. Bulletin of the C.J. Devine 1963. that the effect be to and Economic B. al, Federal Bank of 1958, p. (168 F 12. Supp. 576, U.S. District 1958). standards See expressed Reserve in the US Board 30, on December adverse the convenience National 1976, needs issues. did issues a Corporation of p. the have Board the approve 141. an which were classic factors See: 1959, (1968). in meeting represents and competitive 71 competitive transaction This Bethlehem-Youngstown Bulletin, February in N a s h v i l l e , 390 served." adverse Research Rossman and Needs," and Long View of (63 F R B relating the for assistance; errors. convenience Y-l Bulletin, January doctrine where Michigan 12studies See: a acquisition by Manufacturers conducted all Lee editorial 19. substantially outweigh Southfield, to M a r y a n n e their Chronicle, November passage. involving the Sec. Third National should for F.R. B u l l e t i n NO. Reserve after v. application needs "The Bethlehem Board for revision, forms "Taking Southern District shortly Cowen 4547 Federal ^The case 1973 of 1933, Finance, y. appreciation Philadelphia National Backman, of foj.S.A. Court, G Financial 6 I b i d . , pp. ^See and of his Sandra responsibility Robertson, y. Institute sole Act and 4u . S . and the M a r c h exhibits 3j. expresses Sloan out convenience case been Order National of and the used to approving Bank of 75) . convenience Department Frank King, and of needs considerations the Federal Reserve "Multibank Holding R e v i e w , July/August 1977. have Bank of Companies: recently been Atlanta. Convenience APPENDIX Appendix A Appendix - B - Survey Exhibit Questionnaire. D f r o m F O R M F. R. Y-l. APPENDIX A Federal Reserve Bank of Chicago CONFIDENTIAL September SURVEY Please the will Federal be held respondents 1. In any answer all Reserve your be of in and Chicago confidential COMPANIES return in the and no the completed questionnaire enclosed envelope. individual answers All or to answers names of disclosed. application changes BANK HOLDING questions Bank strictly will OF 1976 (Exhibit service D— Paragraph charges on demand 1) did you deposit contemplate accounts? making Y E S _____ NO a. If your response Y E S _____ made? Specify or b. the nature indicate the in bank If response application, Y E S _____ If your change 2. In y o u r any Y E S _____ a. If YES, have the changes contemplated been the to have change (e.g., instituted for change (e.g., no free time checking) factor, costs, etc.) question there been #1 w a s any NO, since changes in approval these of service your charges? N O _____ answer (i.e., is YES, what in specify changes (Exhibit interest the were nature made D— Paragraph rates paid on of and and w h e n 2) time did and reasons they were you for contemplate savings the made) making deposits? N O _____ your made? response Y E S _____ Specify when of policy, application changes was reason(s) changes your above N O _____ the above was nature they were YES, have the changes contemplated been N O _____ of made) the or change indicate (i.e., the what changes reason(s) for no were made change. and b. If your response application Y E S _____ If In any answer is Y E S , (i.e., what your application changes loan If your If in terms? (Exhibit response above of made) response have If your In your to is application portfolio? Y E S _____ If your Specify when in response Y E S _____ the in approval these of your interest rates? nature made loans, of and and w h e n 3) did reason for they were you the made). contemplate maximum maturities, and making any YES, have the changes contemplated been change question been and any other NO, Paragraph of of and did of rates reason they were you expect loan and made and change. Y E S _____ and w h e n B A N K ’S were no approval terms? 4) for interest nature made composition changes since in loan the were what reason(s) changes specify D— the #3 w a s any changes the (i.e., indicate your on ap loans, N O _____ for the made) to m a k e any investment N O _____ above was YES, have the changes contemplated been N O _____ nature they were the (Exhibit changes made? on was YES, what significant a. since N O _____ £r there answer (i.e., the were D— Paragraph rates maximum maturities, change NO, changes N O _____ the nature plication specify Y E S _____ they were your #2 w a s any changes interest Y E S _____ Specify when been N O _____ your made? b. question there changes other a. to have of made) the or change indicate (i.e., the what changes reason(s) for no were made change. and b. If your response have position B A N K ’S If your In y o u r of answer change. If your in If the indicate your Specify a. your If in your since approval changes portfolio? nature If your Y E S _____ to of and in of your the com Y E S _____ reason NO for the 5) did Y E S _____ have the you expect to m a k e any N O _____ changes contemplated been change (i.e., constructed new for change (e.g., factor, no time building) con ______________________________________________________ been #5 any was NO , changes or since approval modifications of your ap in physical N O _____ of c h a n g e ________________________________________________ (Exhibit above D— Paragraph hours? was YES, 6) did you Y E S _____ N O _____ have changes the contemplate making contemplated been N O _____ nature the have YES, question banking of the reason(s) response plication was etc.) nature response the D— Paragraph the Y E S _____ Y E S _____ indicate of there your or Specify the facilities? reason(s) application Specify b. the have the changes made? investment specify above nature response facilities? In NO, significant N O _____ delays, plication any #4 w a s any and (Exhibit response struction b. loan physical Y E S _____ Specify or been is Y E S , application made? question there __ _______________________________________________________________________ improvements a. to application to change (e.g., for change. question there been any no #6 was NO , changes in now open Saturday, etc.) _______________________________ since approval banking of your ap hours. N O _____ the nature of and reason for the change(s). ________________ In your application (Exhibit D— Paragraph 7) did you contemplate pro viding any other new or expanded services? YES NO a. If your been response made? Specify plan, b. If the Y E S _____ and been of to you response have to the change the (e.g., reason(s) question provided is Y E S , changes factors, for #7 w a s any holding ______ Y o u r b a n k ’s _______C u s t o m e r of bringing ______ Y o u r rank c o m p a n y ’s in order and and these in your pressure from pressure from non-bank _______C h a n g e s In your were in your ap of and reason for the to b e you made feel (If m o r e importance, in have convenience been than 1st, most one 2nd, has etc.) policy. banks (e.g. in y o u r credit community. unions) financial commercial banks out-side financial your community. institutions out-side government changes regulations. in b a n k i n g . S p e c i f y ________________________________________________________________ provide be any service(s) obtained Y E S _____ response was application going of services? community. ______ T e c h n o l o g i c a l your approval expanded community. _______C o m p e t i t i v e If credit services. commercial _______C o m p e t i t i v e community? check policy. from non-bank institutions do of pressure cannot or changes: philosophy philosophy in these _______C o m p e t i t i v e you a change. since new contemplated from they no nature following about please interest or the pressure Do contemplated instituted NO, the _______C o m p e t i t i v e ______ O t h e r . changes for other specify made which responsible, your the __________________________________________________________________________ respect responsible YES, N O _____ your need was indicate have changes. With or response plication If nature etc.) your above Y E S _____ N O _____ to your another community financial that are unique institution in in that your N O _____ YES, did unserved? from you specify cite Y E S _____ what certain N O _____ those services community are. banking ____________ services that a. If your answer plication as ______ T r u s t was YES, being ______ L e a s i n g ______ C o n s u m e r _______C r e d i t finance credit your ap services services services S p e c i f y _____________________________________________________ approval of cited ______ T r u s t your are acquisition, by you as which being of the above unserved? services services ______ C o n s u m e r finance _______C o m m e r c i a l ______ C r e d i t services finance card services plans checking ______ C h e c k credit ______ O t h e r . provide or considered services _______C o m p u t e r ______ F r e e formation still services ______ L e a s i n g this in appropriate). plans _______I n t e r n a t i o n a l Please as services finance card ______ O t h e r . 11. cited many checking ______ C h e c k Since were as services ______ C o m m e r c i a l services (Check services _______C o m p u t e r b. services services _______I n t e r n a t i o n a l ______ F r e e which unserved? services S p e c i f y __________________________________________________________ 1 the following with respect to the person(s) filling out form: N a m e ( s ) : __________________________________________________________ ____________________ Position(s): ____________________________________ _______ __________ Phone Number(s): ____________________________________________________________________ APPENDIX B F O R M F. R. Y-l EXHIBIT D— Convenience Indicate by each tion the BANK and and present the Needs and extent anticipated to w h i c h of Applicant. 1. Expected changes in service 2. Expected changes in 3. Expected changes in other loan 4. Comments shall banking those needs include, but needs will need charges or interest rates paid interest rates on not demand on of be be communities and met by limited deposit time loans, the better the served forma to: accounts; savings deposits; maximum maturities, and any terms; Expected significant changes in composition of B A N K ’S loan and investment portfolio; 5. Expected improvements 6. Expected changes 7. The extent to w h i c h other The extent to w h i c h Applicant 8. panded services community. will meet in physical in b a n k i n g existing, facilities; hours; new or or expanded believes services that anticipated, the will be provision convenience and provided; of and new or ex needs of the