Overview of Activity

The Federal Reserve reviewed 635 proposals in the first half of 2016, of which 588 were approved, 42 were withdrawn, 3 were mooted, and 2 were returned (table 1). Total dispositions in the first half of 2016 declined from 654 in the first half of 2015. The composition of proposals was consistent with prior periods. The majority of proposals were merger and acquisition (M&A) proposals, FIRREA notices, branch applications, and CIBCA notices.

Table 1 illustrates that the average number of days to approve a proposal was 49 days in the first half of 2016, compared with 43 days in the first half of 2015. The median processing time was unchanged from the first half of 2015. The average number of days was slightly elevated in this period in part because of the approval of four unusually delayed transactions.²

Seven percent of total dispositions in the first half of 2016 were withdrawn. Proposals are withdrawn most often at the initiative of the applicant. However, proposals also may be withdrawn after the Federal Reserve informs the applicant that a significant issue exists that precludes an approval recommendation by staff based on staff's review of the statutory standards for approval.³ For example, the applicant or resulting banking organization's financial or managerial condition may be less than satisfactory; the Community Reinvestment Act (CRA) or consumer compliance record, including fair lending (see the section on Consumer Compliance and CRA), may be less than satisfactory or there may be other significant consumer compliance issues; or there may be significant competitive issues.⁴

Of the 42 proposals withdrawn in the first half of 2016, 20 proposals were withdrawn at the initiative of the applicant. The remainder were withdrawn after consultation with staff for technical or procedural reasons or because the proposals raised significant issues regarding the statutory factors that must be considered by the Federal Reserve. Specifically, 13 of these proposals raised financial and managerial issues as well as regulatory compliance and CRA and fair lending issues.

Applications

Mergers and Acquisitions

In the first half of 2016, 127 M&A proposals were approved, compared with 136 approved in the first half of 2015 (table 2).⁵ These types of proposals accounted for 22 percent of total approved proposals in the first half of 2016, generally in line with prior periods. In reviewing M&A proposals, the Federal Reserve considers the applicant's current and pro forma financial condition and future prospects, managerial resources, record of meeting the convenience and needs of the communities to be served (including consumer compliance record and performance under the CRA), record of compliance with the Bank Secrecy Act/anti-money-laundering requirements, public benefits, and the competitive and financial stability effects of the proposal. Other considerations may include a review of ownership changes of the resultant banking organization or policy questions.

M&A proposals generally are more complex than other proposals because they typically require review of several organizations under multiple statutory factors. As table 2 illustrates, the average and median number of days to approve an M&A proposal in the first half of 2016 were 59 and 42 days, respectively. In comparison, for the same period, the average and median number of days to approve all proposals were 49 and 30 days, respectively (table 1).

The Federal Reserve may receive adverse comments on a proposal from the public.⁶ Such proposals typically require additional time to allow the applicant the opportunity to respond to the comments and for the Federal Reserve to evaluate the comments. The majority of public comments received by the Federal Reserve are based upon the CRA and fair lending records of the applicant. Comments also may be directed at other aspects of a proposal. Proposals that receive a substantive adverse public comment are required to be acted on by the Board as opposed to the Reserve Banks.⁷

Table 3 breaks down M&A processing times for proposals that did and did not receive adverse public comments. Although M&A proposals receiving adverse public comments represent a small proportion of total M&A proposals approved by the Federal Reserve, processing times for these proposals are considerably greater than those M&A proposals not receiving such comments. In the first half of 2016, the average number of days to approve M&A proposals that did not receive adverse public comments was 54, compared with an average of 213 days for the four M&A proposals that received adverse public comments.⁸

Pre-filing Process

The Federal Reserve has established a pre-filing process to provide potential applicants with information about the procedural requirements, such as timing and the applicable forms associated with a proposal. This process also helps to identify information that may be needed in connection with issues that the Board typically considers in connection with a particular type of application or notice, such as competition or financial stability. The pre-filing process is not used to resolve or predetermine the outcome of any substantive issues. Processing delays can be avoided by using the pre-filing process. The pre-filing process is described in the Federal Reserve's Supervisory and Regulation Letter SR 12-12/CA 12-11 titled "Implementation of a New Process for Requesting Guidance from the Federal Reserve Regarding Bank and Nonbank Acquisitions and Other Proposals."

The Federal Reserve reviewed 72 pre-filings in 2014 and 69 in 2015. Fifteen pre-filings were reviewed in the first half of 2016, down significantly from 40 pre-filings reviewed in the first half of 2015 and 36 in the first half of 2014. The majority of pre-filings were related to potential M&A proposals and CIBCA notices. Pre-filings may or may not result in a formal filing.

Consumer Compliance and CRA

In evaluating M&A proposals, the Federal Reserve reviews the consumer compliance and CRA records of the acquiring and target organizations as part of its assessment of the managerial resources factor and the convenience and needs factor. An organization's strong consumer compliance and CRA records can facilitate the review process. Conversely, unaddressed consumer compliance and CRA weaknesses in an organization can cause significant delays in the review process and may pose barriers to approval. With respect to M&A proposals, an applicant should ensure that its consumer compliance program, policies, and procedures are adequate to ensure successful integration of the target and that the combined organization would maintain satisfactory consumer compliance and CRA programs following consummation.

Other Analysis

Community Banking Organizations

Table 4 provides the volume and processing times of proposals most commonly submitted by community banking organizations (CBOs) according to their asset size. Small CBOs are those under $1 billion in assets, and large CBOs are those with $1 billion to $10 billion in assets. Changes in average processing times from the prior year period were mixed for both small and large CBOs.⁹ However, the volume of filings by both small and large CBOs declined in most categories.

For further reference, please consult the following:

www.federalreserve.gov/bankinforeg/afi/afi.htm

www.federalreserve.gov/bankinforeg/semiannual-reports-banking-applications-activity.htm

www.federalreserve.gov/bankinforeg/srletters/sr1402.htm

www.federalreserve.gov/bankinforeg/srletters/sr1307.htm

www.federalreserve.gov/bankinforeg/srletters/sr1212.htm