For immediate release

The Federal Reserve Board today announced its approval of the application of Exchange Bankshares Corporation of Kansas, Atchison, to acquire The Farmers and Merchants State Bank, Effingham, both in Kansas. Attached is the Board's Order relating to this action.

Exchange Bankshares Corporation of Kansas Atchison, Kansas Order Approving the Acquisition of a Bank

Exchange Bankshares Corporation of Kansas, Atchison ("Exchange"), 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 acquire The Farmers and Merchants State Bank, Effingham ("Farmers Bank"), both in Kansas. Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (62 Federal Register 16,579 (1997)). The time for filing comments has expired, and the Board has considered the proposal and all comments received in light of the factors set forth in section 3 of the BHC Act. Exchange is the 25th largest commercial banking organization in Kansas, controlling deposits of $153.8 million, representing less than 1 percent of total deposits in commercial banks in Kansas.1 Farmers Bank is the 240th largest commercial banking institution in Kansas, controlling deposits of $20.5 million, representing less than 1 percent of total deposits in commercial banks in Kansas. On consummation of the proposal, Exchange would become the 22nd largest commercial banking organization in Kansas, controlling deposits of $178.8 million, representing less than 1 percent of total deposits in commercial banks in the state. Competitive Considerations 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.2 Exchange's lead subsidiary bank, Exchange National Bank and Trust Company, Atchison, Kansas ("Atchison Bank"), and Farmers Bank compete directly in the Atchison County, Kansas, banking market.3 Atchison Bank is the largest depository institution in the banking market, controlling approximately 31.5 percent of total deposits in depository institutions in the market ("market deposits").4 Farmers Bank is the fifth largest depository institution in the market, controlling approximately 7.3 percent of market deposits. On consummation of the proposal, Atchison Bank would remain the largest depository institution in the market, controlling approximately 38.8 percent of market deposits. Concentration in the Atchison County banking market, as measured by the Herfindahl-Hirschman Index ("HHI") under the Department of Justice Merger Guidelines ("DOJ Guidelines"), would increase by 462 points to 2098.5 A number of factors indicate that the market concentration as measured by the HHI tends to overstate the competitive effects of the proposal. The Atchison County banking market is a relatively small rural banking market in the northeast corner of Kansas, and nine depository institution competitors would remain in the banking market after consummation of the proposal. Six of the competitors, not including Atchison Bank, would each have market shares of more than 5 percent, and two of them, which are subsidiary banks of large multistate bank holding companies, would each have market shares of more than 10 percent. The Board also notes that Atchison Bank engages in a substantial amount of deposit-taking from, and lending to, military personnel located outside the Atchison County banking market. As in other cases, the Board has sought comments from the United States Department of Justice ("Justice Department") and the Federal Deposit Insurance Corporation ("FDIC") on the competitive effects of the proposal. The Justice Department has advised the Board that consummation of the proposal would not be likely to have any significantly adverse competitive effects in the Atchison County banking market or in any other relevant banking markets. The FDIC did not object to consummation of the proposal or indicate it would have any significantly adverse competitive effects in the Atchison County banking market or any relevant banking market. Based on all the facts of record, and for the reasons discussed in this order, the Board concludes that consummation of the proposal would not have a significantly adverse effect on competition or on the concentration of banking resources in any relevant banking market. Other Considerations The BHC Act also requires the Board to consider the financial and managerial resources and future prospects of the companies and banks involved in the proposal, the convenience and needs of the community to be served, and certain supervisory factors. Based on all the facts of record, the Board concludes that the financial and managerial resources and the future prospects of Exchange, Farmer's Bank, and Exchange's subsidiaries are consistent with approval, as are the other supervisory factors the Board must consider under section 3 of the BHC Act. In addition, considerations relating to the convenience and needs of the communities to be served are consistent with approval of the application. Based on the foregoing, and in light of all the facts of record, the Board has determined that the application should be, and hereby is, approved. The Board's approval is specifically conditioned on Exchange's compliance with all commitments made in connection with the application. The commitments relied on by the Board in reaching this decision are deemed to be conditions imposed in writing by the Board in connection with its findings and decision, and as such may be enforced in proceedings under applicable law. The acquisition of Farmers Bank shall not be consummated before the fifteenth calendar day following the effective date of this order, or later than three months after the effective date of this order, unless such period is extended for good cause by the Board or the Federal Reserve Bank of Kansas City, acting pursuant to delegated authority.

By order of the Board of Governors,6 effective June 30, 1997. (signed) Jennifer J. Johnson Jennifer J. Johnson Deputy Secretary of the Board

Footnotes 1 State deposit data are as of June 30, 1996. 2 12 U.S.C. § 1842(c). 3 The Atchison County, Kansas, banking market is approximated by Atchison County and the towns of Everest, Horton, Nortonville, and Whiting, all in Kansas, and Rushville, Missouri. 4 Market data are as of June 30, 1996. The data for Atchison Bank have been adjusted to exclude a $4.6 million real estate tax deposit account from the Atchison County Treasurer. This account is redeposited annually in a different local bank and is no longer on deposit with Atchison bank. Market deposits include deposits at commercial banks and savings and loan institutions. Market share data are based on calculations in which the deposits of thrift institutions are included at 50 percent. The Board previously has indicated that thrift institutions have become, or have the potential to become, significant competitors of commercial banks. See 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). 5 Under the revised DOJ Guidelines, 49 Federal Register 26,823 (June 29, 1984), a market in which the post-merger HHI is more than 1800 is considered 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 HHI thresholds for screening bank mergers for anticompetitive effects implicitly recognizes the competitive effect of limited-purpose lenders and other non-depository financial entities. 6 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Kelley, Phillips, and Meyer.

Return to top

1997 Orders on banking applications