For immediate release

The Federal Reserve Board today announced its approval of the application of First State Bancshares, Inc., Farmington, Missouri, to acquire up to 10 percent of the voting shares of Perry County Financial Corporation, and thereby acquire Perry County's wholly owned savings association subsidiary, Perry County Savings Bank, FSB, a federal savings bank, both in Perryville, Missouri. Attached is the Board's Order relating to this action.

First State Bancshares, Inc. Farmington, Missouri Order Approving the Acquisition of a Savings Association

First State Bancshares, Inc., Farmington, Missouri ("First State"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), 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 CFR 225.24) to acquire up to 10 percent of the voting shares of Perry County Financial Corporation ("Perry County"), and thereby acquire Perry County's wholly owned savings association subsidiary, Perry County Savings Bank, FSB, a federal savings bank ("Perry County FSB"), both in Perryville, Missouri.1 Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (62 Federal Register 37,057 (1997)). The time for filing comments has expired, and the Board has considered the notice and all comments received in light of the factors set forth in section 4 of the BHC Act. First State is the 40th largest depository institution in Missouri, controlling deposits of $174.4 million, representing less than 1 percent of the total deposits in depository institutions in the state.2 Perry County controls one thrift in Missouri with deposits of $62.5 million. The Board previously has determined by regulation that operating a savings association is closely related to banking for purposes of section 4(c)(8) of the BHC Act.3 The Board requires savings associations acquired by bank holding companies to conform their direct and indirect activities to those permissible for bank holding companies under section 4 of the BHC Act and Regulation Y. First State has committed that it will conduct this activity in accordance with the Board's regulations. In order to approve the proposal, the Board also must determine that the performance of 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." As part of the Board's evaluation of these factors, the Board has carefully considered the competitive effects of the proposed transaction in light of all the facts of record. First State and Perry County compete directly in the Perryville banking market in Missouri.4 The Board has noted previously that the acquisition of a substantial ownership interest in a competitor or a potential competitor of the acquiring firm may alter the market behavior of both firms in such a way as to weaken or eliminate independence of action between the organizations and increase the likelihood of cooperative operations.5 If First State were considered to control Perry County, after consummation of the proposal, First State would become the second largest depository organization in the Perryville banking market controlling deposits of approximately $75.5 million, representing 16.9 percent of total deposits in depository institutions in the market.6 Market concentration as measured by the Herfindahl-Hirschman Index ("HHI"), would increase 81 points to 2219.7 Based on all the facts of record, including the number of competitors that would remain in the market and the resulting market concentration as measured by the HHI, 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 Perryville banking market or in any relevant banking market. Other Considerations As part of its evaluation of the public interest factors, the Board has carefully considered the financial and managerial resources of First State, Perry County, and their subsidiaries, and the effect the transaction would have on such resources in light of all the facts of record. These facts of record include supervisory reports of examination assessing the financial and managerial resources of the organizations, including management's record of compliance with applicable laws and regulations. Based on all the facts of record, the Board has concluded that the financial and managerial resources of the organizations involved in the proposal are consistent with approval.8 The record also indicates that consummation of the proposal would result in public benefits. There are public benefits to be derived from permitting capital markets to operate so that bank holding companies may make potentially profitable investments in nonbanking companies when those investments are consistent, as in this case, with the relevant considerations under the BHC Act, and from permitting banking organizations to allocate their resources in the manner they believe is most efficient. Based on all the facts or record, the Board has determined that the First State proposal can reasonably be expected to produce public benefits that outweigh possible adverse effects under the proper incident to banking standard of section 4(c)(8) of the BHC Act. Accordingly, the Board has determined that the balance of public interest factors it must consider under section 4(c)(8) of the BHC Act is favorable and consistent with approval. Based on the foregoing, and all the facts of record, the Board has determined that the notice should be, and hereby is, approved. The Board's approval is specifically conditioned on compliance by First State with all the commitments made in connection with this notice. The Board's determination also is subject to all the conditions in Regulation Y, including those in sections 225.7 and 225.23(g) (12 CFR 225.7 and 225.23(g)) and to the Board's authority to require such modification or termination of the activities of a holding company or any of its subsidiaries as the Board finds necessary to assure compliance with, or to prevent evasion of, the provisions and purposes of the BHC Act and the Board's regulations and order issued thereunder. For the purpose of this action, the commitments and conditions relied on by the Board in reaching its 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 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 St. Louis, acting pursuant to delegated authority.

By order of the Board of Governors,9 effective October 29, 1997. (signed) Jennifer J. Johnson Jennifer J. Johnson Deputy Secretary of the Board

Footnotes 1 First State currently owns approximately 5 percent of the voting shares of Perry County. 2 State and market data are as of June 30, 1996. In this context, depository institutions include commercial banks, savings banks, and savings associations. 3 12 C.F.R. 225.28(b)(4)(ii). 4 The Perryville, Missouri, banking market is approximated by Perry County, Missouri, plus the area surrounding the town of St. Mary in Ste. Genevieve County, Missouri. 5 First Banks, Inc., 80 Federal Reserve Bulletin 34 (1994). First State proposes to acquire up to 10 percent of Perry County's voting securities, which are registered under the Securities Exchange Act of 1934 and publicly traded. 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 788 (1990). Because the deposits of Perry County FSB would be owned by a commercial banking organization after consummation of the proposal, those deposits are included at 100 percent in the calculation of First State's pro forma market share. See Norwest Corporation, 78 Federal Reserve Bulletin 452 (1992); First Banks, Inc., 76 Federal Reserve Bulletin 669, 670 n. 9 (1990). 7 Under the revised DOJ Guidelines, 49 Federal Register 26,823 (June 29, 1984), a market in which the post-merger HHI is above 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. 8 The Board notes that First State's interest in Perry County exceeded 5 percent of the outstanding voting shares of Perry County as the result of a stock redemption, and that First State promptly requested the Board's approval to retain its interest. The Board also has carefully considered, in light of supervisory information provided by the Office of Thrift Supervision ("OTS"), Perry County FSB's primary federal supervisor, comments from Perry County contending that First State has not complied with the regulatory filing requirements of the OTS. In addition, the Board has provided Perry County's comments on First State's compliance with the federal securities laws to the Securities and Exchange Commission for consideration. The Board previously has determined that its limited jurisdiction to review applications and notices under the specific statutory factors in the BHC Act does not authorize the Board to adjudicate disputes between a commenter and an applicant that arise under statutes, like federal securities laws, that are administered and enforced by another federal agency. 9 Voting for this action: Vice Chair Rivlin and Governors Kelley, Phillips, and Meyer. Absent and not voting: Chairman Greenspan.

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1997 Orders on banking applications