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From Banking and Finance Law Daily, September 1, 2015

Fed approves merger of Nebraska banks with 70-year affiliation

By Lisa M. Goolik, J.D.

The Federal Reserve Board has approved the application submitted by Auburn State Bank of Auburn, Neb., to merge with its affiliated bank, The Carson National Bank of Auburn, also of Auburn, Neb. Because the banks began their affiliation in 1946, prior to the application of the Clayton Antitrust Act to bank mergers, and the lack of any previous challenge to the banks’ affiliation on competitive grounds, the Fed concluded that the merger would not have a significantly adverse effect on competition in the relevant banking market. After the approved merger, Auburn Bank plans to establish and operate a branch at the location of Carson Bank’s sole office.

Bank Merger Act. The Bank Merger Act prohibits the Fed from approving an application if the proposal would result in a monopoly or would be in furtherance of an attempt to monopolize the business of banking in any relevant market. The Act also prohibits the Fed from approving a proposal that would substantially lessen competition or tend to create a monopoly in any relevant market. However, under the Department of Justice Bank Merger Competitive Review guidelines, affiliates are treated as a single entity, and a merger of affiliated banking institutions does not result in a change to the calculation of market share or market concentration.

In reviewing past proposals involving affiliated banking organizations, the Fed generally has considered the competitive effects of a proposal at the time the banking organizations came under common control. In reviewing past proposals, the Board has also considered whether the banking organizations became affiliated prior to 1950, when the Clayton Antitrust Act was first extended to bank mergers.

No competition concerns. After considering all of the facts on record, the Fed concluded that the merger would not violate the antitrust provisions of the Bank Merger Act. Auburn Bank and Carson Bank compete in the Nemaha County, Neb., banking market. The banks are under common control of the Grant family and have been since their affiliation in 1946. Members of the Grant family have controlled more than 25 percent of the voting shares of Auburn Bank since 1946 and more than 25 percent of the voting shares of Carson Bank since 1935.

Because Auburn Bank and Carson Bank were affiliated prior to the application of the Clayton Antitrust Act to bank mergers and prior to the enactment of the Bank Merger Act and the Bank Holding Company Act, which both include antitrust provisions, the Fed concluded the original affiliation was not an attempt to evade the antitrust laws. In addition, in 1946, Auburn Bank controlled approximately $2.2 million in deposits, while Carson Bank controlled approximately $2.9 million in deposits, which the Fed noted was well below the mean size for all commercial banks in the United States at that time.

Moreover, the Fed noted that the DOJ advised the Fed that consummation of the proposal would not likely have a significantly adverse effect on competition in any relevant banking market.

Needs of the community. The Act also requires that the Fed consider the convenience and needs of the communities to be served and to take into account the records of the relevant depository institutions under the Community Reinvestment Act (CRA). Auburn Bank received an overall “satisfactory” rating by the Federal Reserve Bank of Kansas City at its most recent CRA performance evaluation, in April 2012. Examiners found also that Auburn Bank had a satisfactory record of meeting the credit needs of its assessment area, including those of low- and moderate-income families.

Heartland Bank was assigned an overall “satisfactory” rating at its most recent CRA performance evaluation by the Office of the Comptroller of the Currency in December 2013. The Fed noted also that Carson Bank’s community development activities demonstrated good responsiveness to community development needs in its assessment area.

In addition, Auburn Bank represented to the Fed that the proposal would provide customers with access to an expanded branch network and would offer additional products and services, such as Internet bill pay, mobile banking, and remote deposit capture, not currently offered to Carson Bank customers. Customers of the combined organization would also benefit from a higher legal lending limit following the merger.

Financial and managerial resources. The Fed also considered the financial and managerial resources and future prospects of the banks involved and concluded the considerations were consistent with approval. According to the Fed, Auburn Bank is well capitalized and appears to have adequate resources to absorb the costs of the proposal and to complete the integration of the banks’ operations. Auburn Bank is also considered to be well managed, and their leadership has “significant banking experience.”

Financial stability. The Fed also considers the risk to the stability of the banking or financial system. However, the Fed generally presumes that a merger that involves an acquisition of less than $2 billion in assets, or results in a firm with less than $25 billion in total consolidated assets, will not pose significant risks to the financial stability. After the merger, Auburn Bank would have less than $172 million in consolidated assets, well below the threshold.

Companies: Auburn Bank; Carson Bank

MainStory: TopStory BankHolding BankingOperations FederalReserveSystem FinancialStability MergersAcquisitions NebraskaNews

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