For immediate release

The Federal Reserve Board today announced its approval of the application by Centura Bank, Rocky Mount, North Carolina, to acquire a branch of First Union National Bank, Charlotte, North Carolina, and to establish a branch at the former location of First Union National Bank. Attached is the Board's Order relating to this action.

Centura Bank Rocky Mount, North Carolina Order Approving Acquisition and Establishment of a Branch

Centura Bank, Rocky Mount, North Carolina ("Centura"), a state member bank, has requested the Board's approval under section 18(c) of the Federal Deposit Insurance Act (12 U.S.C. § 1828(c)) (the "Bank Merger Act") to acquire a branch of First Union National Bank, Charlotte, North Carolina ("First Union"). Centura also has applied under section 9 of the Federal Reserve Act (12 U.S.C. § 321) to establish a branch at the former branch location of First Union.1 Notice of the applications, affording interested persons an opportunity to submit comments, has been given in accordance with the Bank Merger Act and the Board's Rules of Procedure (12 C.F.R. 262.3(b)). As required by the Bank Merger Act, reports on the competitive effects of the merger were requested from the United States Attorney General, the Office of the Comptroller of the Currency ("OCC"), and the Federal Deposit Insurance Corporation ("FDIC"). The time for filing comments has expired, and the Board has considered the applications and all comments received in light of the factors set forth in the Bank Merger Act and the Federal Reserve Act. Centura is a wholly owned subsidiary of Centura Banks, Inc., Rocky Mount, North Carolina, which is the sixth largest commercial banking organization in North Carolina, controlling $4.7 billion of deposits, representing 6 percent of total deposits in commercial banking organizations in the state.2 The branch of First Union to be acquired controls deposits of $22.8 million, representing less than 1 percent of deposits in the state. On consummation of the proposal, Centura Banks, Inc., would remain the sixth largest commercial banking organization in North Carolina. Competitive Considerations The Bank Merger Act provides that the Board may not approve an application if the effect of the acquisition is to create a monopoly or substantially to lessen competition in any section of the country 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.3 In evaluating the competitive factors in this case, the Board has carefully considered comments that assert that the proposal would create a monopoly for banking services by eliminating Centura's only competitor in Bakersville, North Carolina. The Board and the courts have found that the relevant banking market for analyzing the competitive effects of a proposal must reflect commercial and banking realities and should consist of the local area where local customers can practicably turn for alternatives.4 In making a determination on the geographic market in this case, the Board has considered worker commuting patterns (as indicated by census data) and other indicia of economic integration and transmission of competitive forces among depository institutions. A commenter contends that the market for evaluating the competitive effects of this proposal should be the town of Bakersville, North Carolina. Based on all the facts, and for the reasons discussed herein, the Board concludes that the relevant geographic market for evaluating the competitive effects of this proposal is the Mitchell County, North Carolina, banking market ("Mitchell County banking market"), which is the area approximated by Mitchell County and includes the town of Bakersville. Mitchell County has a population of approximately 14,400 residents and is located in the western corner of North Carolina adjacent to Tennessee. Census Bureau data for 1990 indicate that approximately 68 percent of the workers who reside in Mitchell County work in the county. The county's major employers include several large furniture manufacturers in Spruce Pine, North Carolina, that each employ more than 200 workers. Other facts of record indicate that Spruce Pine is the center for economic activity for the county. Spruce Pine, with a population of more than 2,000 residents, is the largest town in Mitchell County and is located in the southern portion of the county which contains approximately 60 percent of the county's residents. Spruce Pine has a shopping mall and a hospital. The town also has the only newspaper and radio station in the county, thereby providing the primary advertising media for Mitchell County's residents. Four insured depository institutions, including First Union, are located in Spruce Pine. Bakersville is a smaller town with a population of approximately 330 residents, located 11 miles from Spruce Pine. The town's two largest employers employ a total of 125 workers, and there is no shopping mall or hospital in Bakersville. State Highway 226 provides Bakersville's residents with convenient access to the commercial and health care facilities in Spruce Pine. In light of these, and all facts of record, the Board concludes that Mitchell County is a local area that is economically integrated by the commercial activities conducted in Spruce Pine to an extent that local customers, including residents in Bakersville, can practicably turn for alternatives in the area. Accordingly, the relevant banking market for assessing the competitive effects of the proposal is the Mitchell County banking market and not the town of Bakersville. Centura is the third largest depository institution in the banking market, controlling deposits of approximately $27 million, representing approximately 19 percent of the total deposits in depository institutions in the market ("market deposits").5 The First Union branch that Centura proposes to acquire controls deposits of $22.8 million, representing approximately 16 percent of market deposits. On consummation of the proposal, Centura would become the second largest depository institution in the Mitchell County banking market, controlling deposits of approximately $49.8 million, representing approximately 35 percent of market deposits. Centura proposes to purchase a branch of First Union, the largest competitor in the market, which controls approximately 52 percent of market deposits. On consummation, First Union's share of market deposits would decrease to approximately 35.4 percent. Because First Union's share of market deposits would be substantially reduced and would be acquired by a smaller competitor in the market, concentration in the market, as measured by the Herfindahl-Hirschman Index ("HHI"), would decrease approximately 522 points to 3027.6 In analyzing the competitive effects of the proposal in this market, the Board also has considered that the number of competitors in the Mitchell County banking market would not change because First Union would remain as one of the county's four competing depository institutions. First Union and another large bank holding company competitor would each control at least 20 percent of market deposits. The Department of Justice also has reviewed the proposal and advised the Board that consummation of the proposal would not likely have any significantly adverse competitive effects in these banking markets or any relevant banking market.7 Based on the characteristics of the market, which will maintain the same number of competitors, the size of the market competitors, and all other facts of record, the Board concludes that consummation of this proposal would not have a significantly adverse effect on competition or on the concentration of banking resources in the Mitchell County banking market or any other relevant banking market.8 Convenience and Needs Considerations The Board has carefully reviewed the convenience and needs factor in the Bank Merger Act, which includes a review of the records of the relevant depository institutions under the Community Reinvestment Act (12 U.S.C. § 2901 et seq.)("CRA"), in light of all the facts and comments. Commenters maintain that Centura generally does not assist in meeting the credit needs of its communities and, in particular, is not responsive to the credit needs of small businesses. As provided in the CRA, the Board has evaluated this factor in light of examinations by the primary federal supervisor of the CRA performance record of the relevant institution. An institutions's most recent CRA performance evaluation is a particularly important consideration in the applications process because it represents a detailed on-site evaluation of the institution's overall record of performance under the CRA by its primary federal supervisor.9 Centura received a "satisfactory" rating under the Community Reinvestment Act from the Federal Reserve Bank of Richmond at its most recent performance examination, as of April 1996 ("1996 Examination"). The 1996 Examination found that Centura offered a wide range of services and products to help in meeting the credit needs of all its communities, including residential mortgages, residential construction, home improvement, small business, commercial, consumer, agricultural, and community development loans. There was no evidence of prohibited discrimination or other illegal practices at Centura. Examiners considered the products and services offered by Centura to be responsive to the significant credit needs in all its communities, including LMI neighborhoods. The 1996 Examination also concluded that lending data demonstrated a reasonable penetration of various loan products into all segments of Centura's delineated communities. In addition, Centura was considered to be a leader in making Small Business Administration ("SBA") loans in North Carolina. In 1995, Centura made 90 SBA loans, totalling $13 million.10 The Board has carefully considered all the facts of record, including the comments received, the CRA performance record of Centura, and relevant reports of examination and other supervisory information.11 Based on a review of the entire record and for the facts discussed above, the Board concludes that convenience and needs considerations, including the CRA record of performance of Centura are consistent with approval of this proposal. Other Considerations The Board has carefully considered the financial and managerial resources and future prospects of Centura and First Union in light of all the facts of record. The facts of record include supervisory reports of examination assessing the financial and managerial resources of the organizations and financial information provided by Centura. The Board notes that Centura is in satisfactory financial condition and would remain so after consummation of the proposal. In addition, reports of examination assessing the managerial resources of Centura indicate this factor is consistent with approval. Based on all the facts of record, the Board concludes that considerations related to the financial and managerial resources and future prospects of the institutions involved are consistent with approval as are the factors required to be considered under the Federal Reserve Act. Conclusion Based on the foregoing and all the facts of record, the Board has determined that this application should be, and hereby is, approved.12 The Board's approval of the proposal is specifically conditioned on compliance by Centura with all the commitments made in connection with this application. For purposes of this action, the commitments and conditions relied on in reaching this decision are both conditions imposed in writing by the Board and, as such, may be enforced in proceedings under applicable law. The proposed acquisition 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 by the Federal Reserve Bank of Richmond, acting pursuant to delegated authority.

By order of the Board of Governors,13 effective November 10, 1997. (signed) Barbara R. Lowrey Barbara R. Lowrey Associate Secretary of the Board

Footnotes 1 Centura proposes to consolidate its branch at 117 Mitchell Avenue into First Union's branch at 114 Mitchell Avenue, both in Bakersville, North Carolina. 2 State data are as of June 30, 1996, and have been updated to reflect transactions as of June 30, 1997. Deposits include Centura recent acquisition of five branches of NationsBank, N.A., Charlotte, North Carolina. 3 12 U.S.C. § 1828(c)(5). 4 See St. Joseph Valley Bank, 68 Federal Reserve Bulletin 673, 674 (1982). The key question to be considered in making this selection "is not where the parties to the merger do business or even where they compete, but where, within the area of competitive overlap, the effect of the merger on competition will be direct and immediate." United States v. Philadelphia Nat'l Bank, 374 U.S. 321, 374 (1963); United States v. Phillipsburg Nat'l Bank, 399 U.S. 350 (1969). 5 Market data are as of June 30, 1996. In this context, depository institutions include commercial banks, savings banks, and savings associations. 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); National City Corporation, 70 Federal Reserve Bulletin 743 (1984). 6 Under the revised Department of Justice Merger 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. The Justice Department has stated that the higher than normal HHI thresholds for screening bank mergers for anticompetitive effects implicitly recognize the competitive effect of limited-purpose lenders and other non-depository financial entities. 7 The OCC and the FDIC also have not objected to the proposal. 8 Several commenters criticize the proposal because no alternative banking services will be available in Bakersville. As discussed above, there is a branch of First Union and two other financial institutions in Spruce Pine which is 11 miles from Bakersville. The record indicates that residents of Mitchell County, including Bakersville's residents, are likely to travel to Spruce Pine as the county's center for commercial activity to obtain services. The Board also has considered Centura's record of assisting to meet the credit needs of its communities in light of the comments and, as discussed above, concludes that this record is satisfactory. 9 The Statement of the Federal Financial Supervisory Agencies Regarding the Community Reinvestment Act ("Agency CRA Statement") provides that a CRA examination is an important and often controlling factor in the consideration of an institutions's CRA record and that reports of these examinations will be given great weight in the applications process. See 54 Federal Register 13,742 and 13,745 (1989). 10 Some commenters also contend that Centura's fees for services are excessive. Centura provides a full range of credit products and banking services to assist in meeting the credit and banking needs of its communities, including low- and moderate-income ("LMI") communities. The Board notes that examiners favorably noted Centura's "Simple Checking," a low-cost checking account. In addition, there is no evidence in the record that the fees charged by Centura are based on any factor that would be prohibited under law. Although the Board has recognized that banks help serve the banking needs of their communities by making basic services available at nominal or no charge, the CRA does not impose any limitation on the fees or surcharges for services. 11 A commenter contends that the proposal will result in a loss of jobs. The convenience and needs factor has been consistently interpreted by the federal banking agencies, the courts, and Congress to relate to the effect of a proposal on the availability and quality of banking services in the community, and does not extend to the effect of a proposed acquisition on employment in a community. See, e.g., Wells Fargo & Company, 82 Federal Reserve Bulletin 445, 457 (1996). 12 A commenter has requested that the Board hold a hearing on the application. The Board is not required under the Bank Merger Act or the Federal Reserve Act to hold a public hearing or meeting in this case. Under the Board's rules, the Board may, in its discretion, hold a public hearing or meeting on an application to clarify factual issues related to the application and to provide an opportunity for testimony, if appropriate. The Board has carefully considered the commenter's request for a hearing in light of all the facts of record. In the Board's view, the commenter has had ample opportunity to submit his views, and has submitted two written comments that have been carefully considered by the Board in acting on this application. The commenter's request fails to demonstrate why his written presentations do not adequately present his evidence, allegations and views. After a careful review of all the facts of record, moreover, the Board has concluded that the commenter disputes the weight that should be accorded to, and the conclusions that the Board should draw from, the facts of record, but does not identify disputed issues of fact that are material to the Board's decision. For these reasons, and based on all the facts of record, the Board has determined that a public hearing or meeting is not required or warranted to clarify the factual record in the application, or otherwise warranted in this case. Accordingly, the request for a hearing on the proposal is hereby denied. 13 Voting for this action: Vice Chair Rivlin and Governors Kelley, Phillips, Meyer, Ferguson, and Gramlich. Absent and not voting: Chairman Greenspan.

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1997 Orders on banking applications