For immediate release

The Federal Reserve Board today announced its approval of the application by Wachovia Corporation, Winston-Salem, North Carolina, to merge with Central Fidelity Banks, Inc. ("CFB"), and thereby acquire CFB's bank and nonbank subsidiaries. Attached is the Board's Order relating to this action.

Wachovia Corporation Winston-Salem, North Carolina Order Approving the Merger of Bank Holding Companies

Wachovia Corporation, Winston-Salem, North Carolina ("Wachovia"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 3 of the BHC Act (12 U.S.C. § 1842) to merge with Central Fidelity Banks, Inc. ("CFB"), and thereby acquire CFB's subsidiary bank, Central Fidelity National Bank ("CFB Bank"), both in Richmond, Virginia.1 Wachovia also has requested the Board's approval under section 4(c)(8) of the BHC Act (12 U.S.C. § 1843(c)(8)) and section 225.24 of the Board's Regulation Y (12 C.F.R. 225.24) to acquire CFB's nonbank subsidiary, CFB Insurance Agency, Inc., Richmond, Virginia ("Insurance Agency"), and thereby engage in credit life insurance activities pursuant to section 225.28(b)(11)(i) of Regulation Y (12 C.F.R. 225.28(b)(11)(i)). Notice of the applications, affording interested persons an opportunity to submit comments, has been published (62 Federal Register 44,130 (1997)). The time for filing comments has expired, and the Board has considered the proposals and all comments received in light of the factors set forth in sections 3 and 4 of the BHC Act. Wachovia, with total consolidated assets of $47.6 billion, is the 21st largest banking organization in the United States, controlling approximately 1.2 percent of the total banking assets of insured commercial banks in the nation ("total banking assets").2 The subsidiary banks of Wachovia operate in North Carolina, South Carolina, and Virginia. Wachovia also engages through other subsidiaries in a number of permissible nonbanking activities. CFB, with total consolidated assets of $10.6 billion, is the 58th largest banking organization in the United States, controlling less than 1 percent of total banking assets in the nation. CFB operates one subsidiary bank, which is located in Virginia, and engages through a subsidiary in permissible nonbanking activities. On consummation of the proposal, Wachovia would become the 16th largest banking organization in the United States, with consolidated assets of $58.2 billion, representing approximately 1.4 percent of the total banking assets in the United States. Wachovia is the seventh largest depository institution in Virginia, controlling $1.8 billion in deposits, representing approximately 2.5 percent of total deposits in depository institutions in Virginia.3 CFB is the third largest depository institution in Virginia, controlling approximately $8 billion in deposits, representing approximately 11.1 percent of total deposits in depository institutions in the state. On consummation of the proposal, and taking into account all proposed divestitures, Wachovia would become the second largest depository institution in Virginia, controlling $9.6 billion in deposits, representing approximately 13.2 percent of total deposits in depository institutions in Virginia. Interstate Banking Analysis Section 3(d) of the BHC Act, as amended by section 101 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, allows the Board to approve an application by a bank holding company to acquire a bank located in a state other than the home state of such bank holding company if certain conditions are met.4 For purposes of the BHC Act, the home state of Wachovia is North Carolina, and Wachovia proposes to acquire a bank located in Virginia. The conditions for an interstate acquisition under section 3(d) are met in this case.5 In view of all the facts of record, the Board is permitted to approve the proposal under section 3(d) of the BHC Act. 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. Wachovia and CFB compete directly in ten banking markets. The Board has carefully reviewed the competitive effects of the proposal in these banking markets in light of all the facts of record, including the number of competitors that would remain in the markets, the characteristics of the markets, the projected increase in the concentration of total deposits in depository institutions in the markets ("market deposits"),6 as measured by the Herfindahl-Hirschman Index ("HHI") under the Department of Justice Merger Guidelines ("DOJ Guidelines"),7 and commitments made by Wachovia to divest certain branches.8 Consummation of the proposal would be consistent with the DOJ Guidelines in seven banking markets without divestitures and in two additional banking markets with divestitures.9 Consummation of the proposal in the remaining banking market--the Charlottesville, Virginia, banking market ("Charlottesville banking market")--would exceed the DOJ guidelines with the proposed divestiture.10 The HHI would increase 277 points to 2237, and Wachovia would become the largest depository institution in the market, controlling approximately 36.8 percent of market deposits. In evaluating the competitive effects of the proposal in the Charlottesville banking market, the Board has considered that, following consummation of the proposal, seven competitors, in addition to Wachovia, would remain in the market, including a large bank holding company competitor with a substantial share of market deposits. In addition, the proposed transaction would not decrease the number of competitors in the Charlottesville banking market because Wachovia would divest nine branches to an out-of-market competitor. The Board also has considered that the Charlottesville banking market is attractive for entry. The Charlottesville Metropolitan Statistical Area ("MSA"), for example, which closely approximates the Charlottesville banking market, substantially exceeds all MSAs in the southeastern United States with respect to median household income, per capita income, and percentage of households with income over $50,000. In addition, two commercial banks recently announced plans to enter the banking market de novo. The Board sought comments from the office of the United States Attorney General ("Attorney General") and the Office of the Comptroller of the Currency ("OCC") on the competitive effects of the proposal. The Attorney General has advised the Board that, in light of the proposed divestitures, it does not object to consummation of the proposal. The OCC also has not objected to consummation of the proposal. Based on all the facts of record, including the proposed divestitures, 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 the Charlottesville banking market or 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 communities 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 Wachovia, CFB, and their respective subsidiaries are consistent with approval, as are the other supervisory factors that 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 proposal.11 Wachovia also has filed notice, under section 4(c)(8) of the BHC Act to acquire Insurance Agency and thereby engage in credit life insurance activities. The Board has determined by regulation that credit life insurance activities are closely related to banking, and Wachovia has committed to conduct these activities in accordance with Regulation Y.12 In order to approve the proposal, the Board also must determine that the proposed activities are a proper incident to banking, that is, that the proposed transaction "can reasonably be expected to produce benefits to the public . . . that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices."13 As part of the Board's evaluation of these factors, the Board considers the financial and managerial resources of the notificant and its subsidiaries, including any company to be acquired, and the effect the transaction would have on such resources.14 For the reasons noted above, and based on all the facts of record, the Board has concluded that financial and managerial considerations are consistent with approval of the proposal. The Board also has considered the competitive effects of the proposed acquisition of Insurance Agency. Wachovia operates a nonbanking subsidiary that engages in credit life insurance activities. This subsidiary, however, does not compete with Insurance Agency in any relevant market. As a result, the Board has concluded that the proposal would not result in a significantly adverse effect on competition in any relevant market. In addition, the Board expects that the acquisition would provide added convenience to CFB's customers and the public. Accordingly, based on all the facts of record, the Board has determined that the balance of public benefits that the Board must consider under the proper incident to banking standard of section 4(c)(8) of the BHC Act is favorable and consistent with approval of the proposal. Conclusion Based on the foregoing and all the other facts of record, the Board has determined that the application and notice should be, and hereby are, approved. The Board's approval is specifically conditioned on compliance by Wachovia with all the commitments made in connection with the proposal, including the divestiture commitments discussed in this order. The Board's determination on the nonbanking activities also is subject to all the terms and conditions set forth in Regulation Y, including those in sections 225.7 and 225.25(c) of Regulation Y (12 C.F.R. 225.7 and 225.25(c)), and to the Board's authority to require such modification or termination of the activities of a bank holding company or any of its subsidiaries as the Board finds necessary to ensure compliance with, and to prevent evasion of, the provisions of the BHC Act and the Board's regulations and orders issued thereunder. The commitments and conditions 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 CFB Bank shall not be consummated before the fifteenth calendar day following the effective date of this order, and the proposal shall not be consummated later than three months after the effective date of this order, unless such period is extended for good cause by the Board or by the Federal Reserve Bank of Richmond, acting pursuant to delegated authority.

By order of the Board of Governors,15 effective October 20, 1997. (signed) Jennifer J. Johnson Jennifer J. Johnson Deputy Secretary of the Board

Appendix A. Banking markets in which consummation of the proposal would not exceed the DOJ Guidelines: (1) Fredericksburg Banking Market: The Fredericksburg banking market is approximated by Caroline, King George, Spotsylvania, and Stafford Counties, and the City of Fredericksburg, all in Virginia, except for the portions of these counties that are included in the Washington DC-MD-VA RMA. After consummation of the proposal, Wachovia would control 11.5 percent of market deposits and would become the fifth largest depository institution in the market. The HHI would increase by 63 points to 1280. (2) Harrisonburg Banking Market: The Harrisonburg banking market is approximated by Rockingham County and the City of Harrisonburg, both in Virginia. After consummation of the proposal, Wachovia would control 10.4 percent of market deposits and would become the fifth largest depository institution in the market. The HHI would increase by 37 points to 1391. (3) Newport News/Hampton Banking Market: The Newport News/Hampton banking market is approximated by the Newport News-Hampton, Virginia RMA plus the remainder of James City County. After consummation of the proposal, Wachovia would control 15.8 percent of market deposits and would become the third largest depository institution in the market. The HHI would increase by 39 points to 1414. (4) Norfolk/Portsmouth Banking Market: The Norfolk/Portsmouth banking market is approximately by the Norfolk-Portsmouth, Virginia RMA plus Currituck County, North Carolina. After consummation of the proposal, Wachovia would control 18.6 percent of market deposits and would become the largest depository institution in the market. The HHI would increase by 47 points to 1070. (5) Richmond/Petersburg Banking Market: The Richmond/Petersburg banking market is approximated by the Richmond-Petersburg, Virginia RMA, the remainder of Chesterfield, Dinwiddie, Goochland, Hanover, Henrico, Powhatan, and Prince George Counties, and Charles City, King William, and New Kent Counties, all in Virginia. After consummation of the proposal, Wachovia would control 16.5 percent of market deposits and would become the third largest depository institution in the market. The HHI would increase by 78 points to 1469. (6) Washington, D.C. Market: The Washington, D.C. banking market is approximated by the Washington DC-MD-VA RMA and the remainder of Loudon County, Virginia. After consummation of the proposal, Wachovia would control 3 percent of market deposits and would become the eighth largest depository institution in the market. The HHI would increase by 1 point to 1038. (7) Winchester Banking Market: The Winchester banking market is approximated by Clark and Frederick Counties, the City of Winchester, and the town of Strasburg, all in Virginia, and Hampshire County, West Virginia. After consummation of the proposal, Wachovia would control 12.1 percent of market deposits and would become the third largest depository institution in the market. The HHI would increase by 61 points to 1718. B. Banking markets in which consummation of the proposal would not exceed the DOJ Guidelines with divestitures: (1) Culpeper Banking Market: The Culpeper banking market is approximated by Culpeper County, Virginia. After divestiture of one branch and consummation of the proposal, Wachovia would control 44.6 percent of market deposits and would become the largest depository institution in the market. The HHI would increase 135 points to 3772. (2) Farmville Banking Market: The Farmville banking market is approximated by Cumberland and Prince Edward Counties and the City of Farmville, all in Virginia. After divestiture of one branch and consummation of the proposal, Wachovia would control 26.2 percent of market deposits and would become the largest depository institution in the market. The HHI would not increase.

Footnotes 1 Wachovia also has requested the Board's approval to exercise an option to purchase up to 19.9 percent of the voting shares of CFB. The option would terminate on consummation of the proposal. 2 Asset data are as of June 30, 1997. State and market data are as of June 30, 1996, adjusted to reflect Wachovia's acquisition of Jefferson Bancshares, Inc., Charlottesville, Virginia. 3 In this context, depository institutions include commercial banks, savings banks, and savings associations. 4 Pub. L. No. 103-328, 108 Stat. 2338 (1994). A bank holding company's home state is the state in which the operations of the bank holding company's banking subsidiaries were principally conducted on July 1, 1966, or the date on which the company became a bank holding company, whichever is later. 5 See 12 U.S.C. §§ 1842(d)(1)(A) and (B) and 1842(d)(2)(A) and (B). Wachovia is adequately capitalized and adequately managed. In addition, on consummation of the proposal, Wachovia would control less than 10 percent of the total amount of deposits of insured depository institutions in the United States and less than 30 percent of the total amount of deposits of insured depository institutions in Virginia. CFB Bank also has been in existence and continuously operated for at least the minimum period required under Virginia law. All other requirements of section 3(d) of the BHC Act also would be met on consummation of the proposal. 6 Market share data before consummation 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 WM Bancorp, 76 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). 7 Under the 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 Justice Department 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 Justice Department has stated that the higher than normal threshold for an increase in the HHI when screening bank mergers and acquisitions for anticompetitive effects implicitly recognizes the competitive effects of limited-purpose lenders and other non-depository financial entities. 8 In each market in which Wachovia has committed to divest offices to mitigate the anticompetitive effects of the proposal, Wachovia has committed to execute sales agreements with a competitively suitable purchaser prior to consummation of the acquisition of CFB and to complete the divestitures within 180 days of consummation of the acquisition. Wachovia also has committed that, in the event it is unsuccessful in completing any divestiture within 180 days of consummation of the proposal, Wachovia will transfer the unsold branch(es) to an independent trustee that is acceptable to the Board and that will be instructed to sell the branches promptly. BankAmerica Corporation, 78 Federal Reserve Bulletin 338 (1992); United New Mexico Financial Corporation, 77 Federal Reserve Bulletin 484 (1991). Wachovia has further committed that, prior to consummation, it will submit to the Board an executed trust agreement acceptable to the Board stating the terms of these divestitures. 9 These banking markets are discussed in the Appendix. 10 The Charlottesville banking market is approximated by the Charlottesville Ranally Metropolitan Area ("RMA"), the remainder of Albemarle County, plus Fluvanna, Greene, and Nelson Counties, all in Virginia. 11 The Board received a comment from the Piedmont Housing Alliance stating that the proposal would broaden the financial services and assets available to the region. 12 See 12 C.F.R. 225.28(b)(11)(i). 13 See 12 U.S.C. § 1843(c)(8). 14 See 12 C.F.R. 225.26. 15 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Kelley, Phillips, and Meyer.

Return to top

1997 Orders on banking applications