BOK Financial Corporation ("BOK Financial"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), and BOKF Merger Corporation Number Seven ("Merger Corporation") have requested the Board's approval under section 3 of the BHC Act (12 U.S.C. §1842) to acquire First Bancshares of Muskogee, Inc. ("First Bancshares"), and its wholly owned subsidiary, First National Bank and Trust Company of Muskogee ("First National"), both of Muskogee, Oklahoma.¹ BOK Financial and Merger Corporation also have 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 First of Muskogee Insurance Corporation, Muskogee, Oklahoma ("First Insurance"), and thereby engage in credit-related insurance agency activities pursuant to section 225.28(b)(11)(i) of the Board's Regulation Y (12 C.F.R. 225.28(b)(11)(i)).

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (64 Federal Register 1804 (1999)). 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(c)(8) of the BHC Act.

BOK Financial, with total consolidated assets of $6.8 billion, operates banks in Oklahoma, Arkansas, New Mexico, and Texas, and engages through nonbanking subsidiaries in permissible leasing and securities-related activities. BOK Financial is the largest depository institution in Oklahoma, controlling deposits of $3.5 billion, representing approximately 10.5 percent of total deposits in insured depository institutions in the state ("state deposits").² First Bancshares is the 23d largest depository organization in Oklahoma, controlling deposits of $218 million, representing less than 1 percent of state deposits. On consummation of the proposal, BOK Financial would remain the largest banking organization in Oklahoma, controlling deposits of $3.7 billion, representing approximately 11.2 percent of state deposits.

Competitive Considerations
Section 3 of the BHC Act prohibits the Board from approving a proposal that would result in a monopoly in any relevant banking market. That section also prohibits the Board from approving a proposal that may substantially lessen competition in any relevant banking market, unless 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

In order to determine the effect of a particular transaction on competition, it is necessary to designate the area of effective competition between the parties, which the courts have held is decided by reference to the relevant "line of commerce" or product market and a geographic market. The Board and the courts have consistently recognized that the appropriate product market for analyzing the competitive effects of bank mergers and acquisitions is the cluster of products (various kinds of credit) and services (such as checking accounts and trust administration) offered by banking institutions.⁴ Consistent with this precedent, and on the basis of the facts of record in this case, the Board concludes that the cluster of banking products and services represents the appropriate line of commerce for analyzing the competitive effects of this proposal.

Once the relevant line of commerce or product market has been defined, the appropriate geographic market in which competition for the supply and demand of the line of commerce occurs must be defined. In defining the relevant geographic market, the Board consistently has sought to identify the area in which the cluster of products and services is provided by the competing institutions and in which purchasers of the products and services seek to obtain these products and services.⁵ The Supreme Court has indicated that this is the area in which the effect of an acquisition will be direct and immediate.⁶ In applying these standards to bank acquisition proposals, the Board and the Court consistently have held that the geographic market for the cluster of services is local in nature.⁷

The Muskogee Banking Market
BOK and First Financial operate in Muskogee, Oklahoma. In determining the geographic market to be applied in this case, the Board notes that the city of Muskogee is significantly larger than any other community in the surrounding area, and provides substantially more employment opportunities, professional and commercial services, and retail outlets than the surrounding communities.⁸

Commuting between the surrounding communities and Muskogee appears to be extensive. Divided four-lane highways connect Muskogee with the towns of Tahlequah, Wagoner, and Checotah, and traffic counts indicate that a substantial majority of the daily trips on these roads are between the four communities.⁹ Within a 10-mile radius of Muskogee, approximately 2,400 businesses employ almost 28,000 workers, which exceeds the available workforce of 21,500 in that area. A survey of the 17 largest employers in the Muskogee area, which employ 7,267 workers, found that 30 percent of their workers lived outside Muskogee and the nearby community of Ft. Gibson.¹⁰ In addition, the Oklahoma Department of Commerce divides the state of Oklahoma into 23 labor markets. The department includes Muskogee in the Muskogee-Tahlequah labor market, which comprises all of Muskogee County, all of Cherokee County (including Tahlequah), the eastern half of Wagoner County (including Wagoner), the northern half of McIntosh County (including Checotah), and Adair County.¹¹

Muskogee also offers a broad range of goods and services that are unavailable in the surrounding communities and that attract residents to Muskogee. Muskogee has a 336-bed hospital staffed by more than 200 physicians, a Veterans Adminstration hospital, 160 businesses in the health services industry, and an enclosed mall that features three major national department store anchors and several other national retail chains. Data from the mall's anchor stores indicate that only 40 percent of their sales are derived from Muskogee residents, and that the majority of the their business is from residents of the surrounding communities.¹² A survey conducted by the Federal Reserve Bank of Kansas City ("Reserve Bank") revealed that 55 percent of respondents in Tahlequah traveled to Muskogee at least once a month, including 13 percent who reported that they traveled to Muskogee at least once a week. In Wagoner, 70 percent of respondents indicated that they traveled to Muskogee at least once a month, including 32 percent who traveled to Muskogee at least once a week.

Newspaper circulation statistics also indicate that there is extensive economic interaction between Muskogee and Tahlequah. Approximately 22 percent of Tahlequah households receive the daily Muskogee newspaper, which features stories about events in Tahlequah and advertisements by Tahlequah businesses.¹³ In addition, both the daily and the weekly newspaper in Tahlequah regularly carry news stories about events in Muskogee and advertisements by Muskogee businesses.¹⁴ All four radio stations in Muskogee advertise in the Tahlequah newspaper and carry advertisements for Tahlequah businesses. The local telephone book for the "Muskogee-Tahlequah Region" combines listings for businesses in those two communities, Wagoner, Checotah, and other small towns in the area.

Discussions by the Reserve Bank with local bankers and business and civic leaders also indicated that businesses in Tahlequah regularly seek financial services in Muskogee, and that the distance between the communities is not a significant impediment.¹⁵ Based on Reserve Bank surveys, it further appears that there is little or no difference in prices for banking products and services among Muskogee and the surrounding communities, including Tahlequah.

Based on the foregoing and all other facts of record, the Board concludes that the appropriate banking market for considering the competitive effects of this case is the cluster of banking products and services, and that the appropriate geographic market for considering the competitive effects of this proposal is the area that includes Muskogee County, Cherokee County (including Tahlequah), the eastern half of Wagoner County (including Wagoner), and the town of Checotah in McIntosh County, all in Oklahoma (the "Muskogee banking market").

In the Muskogee banking market, BOK Financial is the third largest depository institution, controlling deposits of $148 million, representing approximately 12.8 percent of all deposits held by depository institutions in the market ("market deposits").¹⁶ First Bancshares is the second largest depository institution in the market, controlling deposits of $217 million, representing approximately 18.9 percent of market deposits. On consummation of the proposal, BOK Financial would become the largest depository institution in the Muskogee banking market, controlling deposits of $365 million, representing approximately 31.7 percent of market deposits. The concentration of market deposits, as measured by the Herfindahl-Hirschman Index ("HHI"), would not exceed the threshold level set in the Department of Justice Merger Guidelines ("DOJ Guidelines").¹⁷

In reviewing the likely competitive effects of the proposal in the Muskogee banking market, the Board has considered all the facts of record. Twelve commercial banks, including BOK Financial, and two savings associations would remain in the market after consummation of the proposal, which represents a large number of competitors relative to the size of the market.¹⁸ One competing commercial bank would control more than 20 percent of market deposits, and 5 additional competing commercial banks would each control at least five percent of market deposits.

The market also appears attractive for additional entry. From 1990 to 1998, household income increased 33 percent in Muskogee County and 39.1 percent in Cherokee County, compared to an average statewide increase of 19.5 percent. Deposits also increased at a higher percentage than the statewide average Total deposits in insured depository institutions increased 20.2 percent in Muskogee County and 14.7 percent in Cherokee County, compared to an average increase of 14.6 percent statewide. Cherokee County's population increased 14.3 percent from 1990 to 1998, compared to an average statewide increase of 2.4 percent.

Thus, the market structure and other characteristics of the Muskogee banking market, including the significant number of depository institutions in the market, the market shares and resources of those institutions, and the potential for entry by additional competitors, reduce the likelihood of successful anticompetitive pricing or collusion in the market. As in other cases, the Board sought comments from the Department of Justice, the Federal Deposit Insurance Corporation ("FDIC"), and the Office of the Comptroller of the Currency ("OCC") on the competitive effects of the proposal. Neither the FDIC nor the OCC have objected to the proposal.¹⁹

Based on all the facts of record, and for the reasons discussed above, the Board concludes that consummation of the proposal would not result in a monopoly or have a significantly adverse effect on competition or on the concentration of banking resources in the Muskogee banking market or any other relevant banking market.

Financial, Managerial, and 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 community to be served, and certain supervisory factors. The Board has reviewed these factors in light of all the facts of record, including supervisory reports of examination assessing the financial and managerial resources of the organizations. Based on all the facts of record, the Board concludes that the financial and managerial resources and future prospects of BOK Financial, First Bancshares, and their respective subsidiaries are consistent with approval. Considerations related to the convenience and needs of the community and the other supervisory factors the Board must consider under section 3 of the BHC Act also are consistent with approval.

Nonbanking Activities
BOK Financial also has filed a notice under section 4(c)(8) of the BHC Act to acquire First Bancshares' nonbanking subsidiary, First Insurance, and thereby engage in credit-related insurance agency activities. The Board has determined by regulation that providing credit-related insurance is closely related to banking for purposes of the BHC Act.²⁰ BOK Financial has committed to conduct this nonbanking activity in accordance with the limitations set forth in Regulation Y and the Board's orders and interpretations governing this activity.

In order to approve a notice 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, that the proposal "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."²¹ 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 those resources. Based on all the facts of record, the Board has concluded that financial and managerial considerations are consistent with approval of the notice.

BOK currently does not provide credit-related insurance and, therefore, the proposed acquisition would not result in a loss of competition in any market. Based on all the facts of record, the Board has concluded that the proposal would not result in any significantly adverse competitive effects in any relevant market. 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.²²

The Board also concludes that the conduct of the proposed nonbanking activity within the framework established under Regulation Y is not likely to result in adverse effects, such as undue concentration of resources, decreased or unfair competition, conficts 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 BOK Financial's notice.

Conclusion
Based on the foregoing, and in light of all the facts of record, the Board has determined that the applications and notice should be, and hereby are, approved. Approval of the applications and notice is specifically conditioned on compliance by BOK Financial with all the commitments made in connection with the proposal and with the conditions stated or referred to in this order. The Board's determination on nonbanking activity also is subject to all the terms and conditions set forth in sections 225.7 and 225.25(c) (12 C.F.R. 225.7 and 25.25(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 order, the commitments and conditions referred to above 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 First National shall not be consummated before the thirtieth calendar day after the effective date of this order, and the proposal may 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 Reserve Bank, acting pursuant to delegated authority.

By order of the Board of Governors,²³ effective May 24, 1999.

(signed) Robert deV. Frierson

Robert deV. Frierson