For immediate release

Federal Reserve Board today announced its approval of the proposal of FirstMerit Corporation, Akron, Ohio, to merge with Signal Corp., Wooster, Ohio, and thereby acquire Signal Corp.'s banking and nonbanking subsidiaries. Attached is the Board's Order relating to this action.

FirstMerit Corporation Akron, Ohio Order Approving the Acquisition of a Bank Holding Company

FirstMerit Corporation ("FirstMerit"), 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 Signal Corp., Wooster, Ohio ("Signal"), and its wholly owned subsidiary banks, Signal Bank, N.A., Wooster, Ohio ("Signal Bank"), and Summit Bank, N.A., Akron, Ohio ("Summit Bank").1 FirstMerit 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 the nonbanking subsidiaries of Signal, including First Federal Savings Bank of New Castle, New Castle, Pennsylvania ("First Federal").2 Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 56,033 and 60,346 (1998)). 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 sections 3 and 4 of the BHC Act. FirstMerit, with total consolidated assets of $6.2 billion, is the 80th largest commercial banking organization in the United States, controlling less than 1 percent of total banking assets of insured commercial banks in the United States ("total banking assets").3 FirstMerit operates a subsidiary bank in Ohio and engages in permissible activities through its nonbanking subsidiaries. Signal, with total consolidated assets of $1.9 billion, is the 153rd largest commercial banking organization in the United States, controlling less than 1 percent of total banking assets. Signal operates two subsidiary banks in Ohio and engages in permissible activities through its nonbanking subsidiaries. On consummation of the proposal, FirstMerit would become the 67th largest commercial banking institution in the United States, with total consolidated assets of approximately $8.1 billion, representing less than 1 percent of total banking assets. FirstMerit is the seventh largest depository institution in Ohio, controlling $5.3 billion in deposits, representing approximately 3.6 percent of total deposits in insured depository institutions in the state ("state deposits").4 Signal is the 21st largest depository institution in Ohio, controlling $733 million of deposits, representing less than 1 percent of state deposits. On consummation of the proposal, FirstMerit would remain the seventh largest insured depository institution in Ohio, controlling approximately $6 billion in deposits, representing approximately 4.1 percent of state deposits. 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 would be in furtherance of any attempt to monopolize the business of banking. The BHC Act also prohibits the Board from approving a proposed combination that would substantially lessen competition or tend to create a monopoly in any relevant banking 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.5 FirstMerit and Signal compete in the Akron, Cleveland, and Wooster, Ohio, banking markets.6 The Board has carefully reviewed the competitive effects of the proposal in each of these markets in light of all the facts of record, including the characteristics of the markets and the projected increase in the concentration of total deposits in insured depository institutions in these markets ("market deposits")7 as measured by the Herfindahl-Hirschman Index ("HHI") under the Department of Justice Merger Guidelines ("DOJ Guidelines").8 The Board also has carefully examined the number of competitors that would remain in each of the banking markets after consummation of the proposal. Consummation of the proposal would be consistent with the DOJ Guidelines and prior Board decisions in the Akron and Cleveland banking markets.9 Wooster Banking Market. FirstMerit is the fifth largest of 11 depository institutions in the Wooster banking market, controling deposits of $77.8 million, representing approximately 7.4 percent of market deposits. Signal is the largest depository institution in the Wooster banking market, controlling deposits of $266.6 million, representing approximately 25.3 percent of market deposits. After consummation of the proposal, FirstMerit would become the largest depository institution in the market, controlling approximately 32.7 percent of market deposits. The HHI would increase 374 points to 2029. Consummation of the proposal would exceed the DOJ Guidelines in the Wooster banking market. As the Board has indicated in previous cases, in a market in which the competitive effects of a proposal exceed the DOJ Guidelines, the Board will consider whether other factors tend to mitigate the competitive effects of the proposal. The number and strength of factors necessary to mitigate the competitive effects of a proposal depend on the level of market concentration and size of the increase in market concentration.10 Wayne County, most of which is in the Wooster banking market, has characteristics that make it attractive for entry when compared to the other 48 non-Metropolitan Statistical Area counties ("non-MSA counties") in Ohio.11 For example, Wayne County ranks first among Ohio's non-MSA counties in population and total personal income and is above the average of other non-MSA Ohio counties with respect to percentage increases in population and per capita income. Wayne County also ranks first among non-MSA counties in Ohio in total deposits. The attractiveness of the market appears to be confirmed by the de novo entry of one commercial bank into the market since June 1997. Ten depository institutions, including FirstMerit, would remain in the Wooster banking market after consummation of the proposal. The nine competitors of FirstMerit would include one large multistate banking organization and three regional banking organizations, each of which has a significant market share. The second, third, and fourth largest institutions in the market would have a combined share of 46 percent of market deposits. Views of Other Agencies and Conclusions. The Department of Justice has advised the Board that consummation of the proposal would not likely have a significantly adverse effect on competition in any relevant market. The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation have not objected to consummation of the proposal. After carefully reviewing all the facts of record and for the reasons discussed in this order and appendices, the Board concludes that consummation of the proposal would not likely result in a significantly adverse effect on competition or on the concentration of banking resources in any of the three banking markets in which FirstMerit and Signal both compete or in any other relevant banking market. Accordingly, based on all the facts of record, the Board has determined that competitive factors are consistent with approval of the proposal. Other Factors Under the BHC Act The BHC Act also requires the Board, in acting on an application, to consider the financial and managerial resources and future prospects of the companies and banks involved in a proposal, the convenience and needs of the communities to be served, and certain other supervisory factors. A. Financial, Managerial, and Other Supervisory Factors The Board has carefully considered the financial and managerial resources and future prospects of FirstMerit, Signal, and their respective subsidiary banks and other supervisory factors in light of all the facts of record. As part of its consideration, the Board has reviewed relevant reports of examination and other supervisory information prepared by the Reserve Banks and other federal agencies. The Board notes that the bank holding companies and their subsidiary banks currently are well capitalized and are expected to remain so after consummation of the proposal. The Board also has considered other aspects of the financial condition and resources of the two organizations, the structure of the proposed transaction, and the managerial resources of each of the entities and the combined organization. Based on these and other facts of record, the Board concludes that considerations relating to the financial and managerial resources and future prospects of FirstMerit, Signal, and their respective subsidiaries are consistent with approval of the proposal, as are the other supervisory factors that the Board must consider under section 3 of the BHC Act. B. Convenience and Needs Considerations The Board has carefully considered the effect of the proposed acquisition on the convenience and needs of the communities to be served in light of all the facts of record. All the subsidiary depository institutions of FirstMerit and Signal received "outstanding" or "satisfactory" ratings from their appropriate federal supervisors at the most recent examinations of their performance under the Community Reinvestment Act ("CRA").12 Based on all the facts of record, including the CRA performance records of the subsidiary banks of FirstMerit and Signal, the Board concludes that convenience and needs considerations are consistent with approval of the proposal. Nonbanking Activities FirstMerit also has filed a notice, under section 4(c)(8) of the BHC Act to acquire the nonbanking subsidiaries of Signal, including First Federal, and thereby engage in extending credit and servicing loans, activities related to extending credit, operating a savings association, financial and investment advisory activities, and securities brokerage activities. The Board has determined by regulation that each of these activities is closely related to banking for purposes of section 4(c)(8) of the BHC Act.13 FirstMerit has stated that, following consummation of the proposal, it will conduct these activities in accordance with the limitations set forth in Regulation Y and the Board's orders and interpretations governing each of these activities. In order to approve a proposal under section 4(c)(8) of the BHC Act, the Board also must determine that the proposed activities are a proper incident to banking, that is, the proposal must "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."14 As part of its evaluation of these factors, the Board considers the financial condition and managerial resources of the notificant and its subsidiaries, including the companies to be acquired, and the effect of the proposed transaction on these resources.15 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. The Board also has considered the competitive effects of the proposed acquisition by FirstMerit of the nonbanking subsidiaries of Signal. The Board notes that the markets in which the nonbanking subsidiaries of FirstMerit and Signal both compete are national and regional, and numerous competitors would remain in each of those markets. Based on all the facts of record, the Board concludes that it is unlikely that significantly adverse competitive effects would result from the nonbanking acquisitions proposed in this transaction. FirstMerit has indicated that after consummation of the merger proposal, it would be able to provide a greater range of products and services more efficiently through an enhanced delivery system to the current and future customers of FirstMerit and Signal. In addition, as the Board has previously noted, there are public benefits to be derived from permitting capital markets to operate so that bank holding companies can make potentially profitable investments in nonbanking companies and from permitting banking organizations to allocate their resources in the manner they consider to be most efficient when such investments and actions are consistent, as in this case, with the relevant considerations under the BHC Act.16 The Board concludes that the conduct of the proposed activities within the framework of Regulation Y and prior Board precedent is not likely to result in adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices, that would outweigh the public benefits of the proposal, such as increased customer convenience and gains in efficiency. 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 FirstMerit's notice. Conclusion Based on the foregoing, and in light of all the facts of record, the Board has determined that the application and notice should be, and hereby are, approved. Approval of the application and notice is specifically conditioned on compliance by FirstMerit with all the commitments made in connection with the proposal. 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) (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 thereunder. For purposes of this transaction, the commitments and conditions referred to above are 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 Signal's subsidiary banks shall not be consummated before the fifteenth calendar day after 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 Cleveland, acting pursuant to delegated authority.

By order of the Board of Governors,17 effective December 7, 1998. (signed) Robert deV. Frierson Robert deV. Frierson Associate Secretary of the Board

Appendix A Nonbanking Subsidiaries of Signal and Their Activities Extending credit and servicing loans in accordance with section 225.28(b)(1) of the Board's Regulation Y (12 C.F.R. 225.28(b)(1)) through Mobile Consultants, Inc., Alliance, Ohio ("MCi"). Engaging in activities related to extending credit in accordance with section 225.28(b)(2) of Regulation Y (12 C.F.R. 225.28(b)(2)) through MCi. Conducting savings association activities in accordance with section 225.28(b)(4)(ii) of Regulation Y (12 C.F.R. 225.28(b)(4)(ii)) through First Federal Savings Bank, New Castle, Pennsylvania. Engaging in financial and investment advisory activities in accordance with section 225.28(b)(6) of Regulation Y (12 C.F.R. 225.28(b)(6)) through Summit Banc Investments Corp., Akron, Ohio ("SBI"). Engaging in securities brokerage services in accordance with section 225.28(b)(7)(i) of Regulation Y (12 C.F.R. 225.28(b)(7)(i)) through SBI. Appendix B Banking Markets in Ohio in which FirstMerit and Signal Compete Akron: The southern two-thirds of Summit County; sections of Medina County, including the townships of Sharon, Homer, Harrisville, Westfield, Guilford, and Wadsworth; Portage County, excluding the townships of Aurora, Streetsboro, Mantua, Hiram, Nelson, Shalersville, Freedom, and Windham; and small portions of Wayne and Stark Counties. Cleveland: Cuyahoga, Lake, Lorain, and Geauga Counties and the northern third of Summit County, including the townships of Sagamore Hills, Northfield Center, Twinsburg, Richfield, Boston, and Hudson Townships, and the municipalities circumscribed by those townships; all of Medina County, except the townships of Homer, Harrisville, Westfield, Guilford, Wadsworth, and Sharon; the townships of Aurora and Streetsboro in Portage County; and the city of Vermillion in Erie County. Wooster: Wayne County excluding the townships of Chippewa and Milton. Appendix C Banking Markets in which Consummation of the Proposal Would Not Exceed the DOJ Guidelines Akron: After consummation of the proposal, FirstMerit would control 31.3 percent of market deposits and would remain the largest of 21 depository institutions in the market. The HHI would increase 84 points to 1633. Cleveland: After consummation of the proposal, FirstMerit would control 6.5 percent of market deposits and would remain the third largest of 37 depository institutions in the market. The HHI would increase 2 points to 1797. Wooster: Wayne County excluding the townships of Chippewa and Milton.

Footnotes 1 FirstMerit proposes to merge Signal Bank and Summit Bank into FirstMerit's wholly owned subsidiary bank, FirstMerit Bank, N.A. ("FMB"). In addition, FirstMerit and Signal have entered into a stock purchase option that entitles FirstMerit to purchase up to 19.9 percent of Signal's capital stock if certain events occur. The option would expire on consummation of the proposal. 2 These nonbanking activities are discussed in Appendix A. FirstMerit also has requested the Board's approval to hold First Federal as a bank as part of FirstMerit's proposal to merge First Federal into FMB. 3 Asset data and national rankings based on asset size are as of June 30, 1998. 4 In this context, depository institutions include commercial banks, savings banks, and savings associations. Deposit data and state rankings are as of June 30, 1997. 5 12 U.S.C. § 1842(c)(1). 6 These banking markets are described in Appendix B. 7 Market share data are based on calculations that include the deposits of thrift institutions weighted 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, e.g., Midwest Financial Group, 75 Federal Reserve Bulletin 386 (1989); National City Corporation, 70 Federal Reserve Bulletin 743 (1984). Thus, the Board regularly has 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). 8 Under the DOJ Guidelines, 49 Federal Register 26,823 (1984), a market in which the post-merger HHI is less than 1000 is considered to be unconcentrated, and a market in which the post-merger HHI is between 1000 and 1800 is considered to be moderately concentrated. The Department of Justice ("DOJ") 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 or acquisition increases the HHI by at least 200 points. The DOJ has stated that the higher than normal HHI thresholds for screening bank mergers or acquisitions for anticompetitive effects implicitly recognize the competitive effects of limited-purpose lenders and other nondepository financial institutions. 9 Market data for these banking markets after consummation of the proposal are described in Appendix C. 10 See First Union Corporation, 84 Federal Reserve Bulletin 489 (1998); NationsBank Corporation, 84 Federal Reserve Bulletin 129 (1998). 11 As noted in Appendix B, the Wooster banking market consists of Wayne County, which is a non-MSA county, excluding two townships. Because data regarding population, income, and deposit levels are collected for each non-MSA county in Ohio rather than for each banking market, the market characteristics of Wayne County were compared with other non-MSA counties in Ohio. 12 12 U.S.C. § 2901 et seq. 13 See 12 C.F.R. 225.28(b)(1), (2), (4)(ii), (6), (7)(i). 14 12 U.S.C. § 1843(c)(8). 15 See 12 C.F.R. 225.26. 16 See, e.g., Banc One Corporation, 84 Federal Reserve Bulletin 553 (1998); First Union Corporation, 84 Federal Reserve Bulletin 489 (1998). 17 Voting for this action: Chairman Greenspan and Governors Kelley, Meyer, and Gramlich. Absent and not voting: Vice Chair Rivlin and Governor Ferguson.

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1998 Orders on banking applications