For immediate release

The Federal Reserve Board today announced its approval of the application by Sulphur Springs Bancshares, Inc., Sulphur Springs, Texas, and Sulphur Springs Delaware Financial Corporation, Dover, Delaware, to acquire First National Bank, Sulphur Springs, Texas. Attached is the Board's Order relating to this action.

Sulphur Springs Bancshares, Inc. Sulphur Springs, Texas Sulphur Springs Delaware Financial Corporation Dover, Delaware Order Approving the Acquisition of a Bank

Sulphur Springs Bancshares, Inc. and Sulphur Springs Delaware Financial Corporation (collectively "Sulphur Springs"), bank holding companies within the meaning of the Bank Holding Company Act ("BHC Act"), have requested approval by the Board under section 3 of the BHC Act (12 U.S.C. § 1842) to acquire First National Bank, Sulphur Springs, Texas.1 Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 63,476 (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 section 3 of the BHC Act. Sulphur Springs is the 158th largest commercial banking organization in Texas, controlling approximately $107.7 million in deposits, representing less than 1 percent of total deposits in commercial banking organizations in the state ("state deposits").2 First National Bank is the 534th largest commercial banking organization in Texas, controlling approximately $26.2 million in deposits, representing less than 1 percent of state deposits. On consummation of the proposal, Sulphur Springs would be the 130th largest commercial banking organization in Texas, controlling approximately $133.9 million in deposits in the state, representing less than 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.3 Sulphur Springs and First National Bank compete directly in the Hopkins County, Texas, banking market ("Hopkins County banking market").4 City National Bank is the second largest of six depository institutions in the market, controlling deposits of $86.8 million, representing 26.1 percent of total deposits in depository institutions in the market ("market deposits").5 First National Bank is the fifth largest depository institution in the market, controlling deposits of $26.2 million, representing 7.9 percent of market deposits. On consummation of the proposal, City National Bank would remain the second largest competitor in the market, controlling deposits of $113 million, representing 34 percent of market deposits. The Herfindahl-Hirschman Index ("HHI") for the market would increase by 411 points to 3150.6 Although consummation of the proposal would eliminate some existing competition in a highly concentrated market, certain factors mitigate the potential anticompetitive effects. The Board has considered as a significant factor First National Bank's financial condition and its ability to function as a viable competitor in the market. First National Bank recently has suffered financial and managerial difficulties that have prevented it from being an effective competitor. During the past three years, for example, the deposits of First National Bank have declined, and First National Bank's parent bank holding company filed for bankruptcy in 1997. The Board has considered the fact that First National Bank was offered for sale to numerous potential purchasers, and that only Sulphur Springs and one other party submitted bids. The major creditor of First National Bank's holding company has approved this bid. The acquisition is expected to result in significant public benefits by providing additional financial and managerial resources to the operations of First National Bank. The Board also has considered that on consummation of the proposal, the Hopkins County banking market would continue to be served by four banks and a savings association, including City National Bank. All but one of the competitors remaining in the market would control more than 8 percent of market deposits, and the largest banking competitor would control 41.2 percent of market deposits. The Department of Justice has conducted a detailed review of the proposal and has advised the Board that consummation of the proposal would not likely have a significantly adverse effect on competition in any relevant banking market. As noted above, the OCC has reviewed and approved the proposed merger of City National Bank and First National Bank under the Bank Merger Act. The Federal Deposit Insurance Corporation has not objected to consummation of the proposal. After carefully reviewing all the facts of record, and for the reasons discussed in this order, the Board concludes that consummation of the proposal would not likely result in any significantly adverse effects on competition or on the concentration of resources in the Hopkins County banking market or in any other relevant banking market. Accordingly, based on all of 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 community to be served, and certain other supervisory factors. The Board has carefully considered the financial and managerial resources and future prospects of Sulphur Springs, City National Bank and First National Bank; the structure of the proposed transactions; the resources of the combined organization; and other supervisory factors, in light of all the facts of record. As part of this consideration, the Board has reviewed relevant reports of examination and other supervisory information prepared by the Federal Reserve Bank of Dallas and other federal financial supervisory agencies. City National Bank would be well capitalized after its merger with First National Bank. In addition, Sulphur Springs would be able to provide additional managerial and financial resources and has sufficient managerial and financial resources to address the condition of First National Bank. Based on these and other facts of record, the Board concludes that considerations relating to the financial and managerial resources and future prospects of Sulphur Springs and its respective subsidiaries and the other supervisory factors that the Board must consider under section 3 of the BHC Act weigh in favor of approval of the proposal. The Board also has carefully considered the effects of the proposed acquisition on the convenience and needs of the community to be served in light of all the facts of record. City National Bank and First National Bank have satisfactory records of performance under the Community Reinvestment Act (12 U.S.C. § 2901 et seq.) ("CRA"). The record of this application indicates, moreover, that this transaction would provide a substantial public benefit by preventing further deterioration of the financial condition of First National Bank. Based on all the facts of record, including the performance records of City National Bank and First National Bank under the CRA, the Board concludes that convenience and needs considerations are consistent with approval of the proposal. Conclusion 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. Approval of the application is specifically conditioned on compliance by Sulphur Springs and City National Bank with all the commitments made in connection with the proposal and with the conditions stated or referred to in this order. For purposes of this transaction, the commitments and conditions referred to in this order shall be 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 before the fifteenth calendar day after 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 Dallas, acting pursuant to delegated authority.

By order of the Board of Governors,7 effective December 16, 1998. (signed) Robert deV. Frierson Robert deV. Frierson Associate Secretary of the Board

Footnotes 1 Sulphur Springs proposes to merge First National Bank with and into its subsidiary bank, City National Bank of Sulphur Springs. The Office of the Comptroller of the Currency ("OCC") has approved the proposed merger under section 18(c) of the Federal Deposit Insurance Act (12 U.S.C. § 1828 (c)) (the "Bank Merger Act"). 2 State deposit data are as of June 30, 1997, and market data are as of June 30, 1998. 3 12 U.S.C. § 1842(c). 4 The Hopkins County, banking market comprises Hopkins County, Texas. 5 In this context, depository institutions include commercial banks, savings banks and savings associations. Market share data are based on calculations that include the deposits of thrift institutions 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 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). 6 Under Department of Justice Merger Guidelines, 49 Federal Register 26,823 (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 Justice Department has stated that the higher than normal HHI thresholds for screening bank mergers for anticompetitive effects implicitly recognize the competitive effects of limited-purpose lenders and other nondepository financial institutions. 7 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Kelley, Meyer, Ferguson and Gramlich.

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1998 Orders on banking applications