First National Bank Group, Inc. Edinburg, Texas

Federal Reserve Bulletin, Nov, 1998 by Robert Dev. Frierson

Order Approving Application to Acquire Control of a Bank

First National Bank Group, Inc. ("First National"), 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. [sections] 1842) to acquire up to 51 percent of the voting shares of Nueces National Bank, Corpus Christi, Texas ("Nueces Bank").(1)

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 37,883 (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.

First National, with total consolidated assets of approximately $310 million, owns First National Bank, Edinburg, Texas. First National is the 66th largest banking organization in Texas, controlling deposits of approximately $294 million, representing less than 1 percent of total deposits in depository institutions in the state ("state deposits").(2) Nueces Bank is the 521st largest banking organization in Texas, controlling deposits of approximately $33 million, representing less than 1 percent of state deposits. On consummation of the proposal, First National would become the 58th largest banking organization in Texas, controlling deposits of approximately $327 million, representing less than 1 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, or that may substantially lessen competition in any relevant banking market, if the anticompetitive effects of the proposal are not 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) First National and Nueces Bank compete directly in the Corpus Christi, Texas, banking market.(4) After consummation of the proposal, First National would become the 16th largest depository institution in the market, controlling deposits of approximately $34.1 million, representing 1.4 percent of total deposits in depository institutions in the market ("market deposits").(5) Concentration in the Corpus Christi banking market, as measured by the Herfindahl-Hirschman Index ("HHI"), would not increase, and the market would remain moderately concentrated.(6) In addition, 23 other competitors would remain in the banking market after consummation. Based on these and the other facts of record, the Board concludes that consummation of the proposal would not have a significantly adverse effect on competition or on the concentration of banking resources in the Corpus Christi banking market or any other relevant banking market.

Financial, Managerial, and Other Supervisory Factors

The Board also has carefully considered the financial and managerial resources and future prospects of First National, First National Bank, and Nueces Bank in light of all the facts of record, including the terms of the proposed acquisition, supervisory reports of examination assessing the financial and managerial resources of the organizations, and financial information provided by First National. Based on all the facts of record, the Board concludes that the financial and managerial resources and future prospects of First National, First National Bank, and Nueces Bank are consistent with approval, as are the other supervisory factors the Board must consider under section 3 of the BHC Act.

Convenience and Needs Considerations

The Board also has carefully considered the effect of the proposal on the convenience and needs of the communities to be served in light of all the facts of record, including comments received regarding the effect the proposal would have on the communities to be served by First National. Some commenters commended Nueces Bank for serving well the Corpus Christi community, especially Hispanic consumers, small businesses, and low-income persons. Commenters also expressed concern that an institution based outside of Corpus Christi would not be able to meet the needs of the local community and that the local identity and orientation of Nueces Bank would be lost if the transaction were to be consummated. Several of these commenters expressed further concern that the transaction would harm the local Hispanic community if Nueces Bank, Corpus Christi's only minority-owned bank, would not remain a minority-owned institution.(7)

The Board has long held that consideration of the convenience and needs factor includes a review of the records of performance of the relevant depository institutions under the Community Reinvestment Act (12 U.S.C. [sections] 2901 et seq.) ("CRA").(8) As provided in the CRA, the Board evaluates the record of performance of an institution in light of examinations by the appropriate federal supervisor of the institution's CRA performance record. An institution'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 appropriate federal supervisor.(9)