Order Approving the Acquisition of a Savings Association

Federal Reserve Bulletin, April, 1999

The Banc Corporation ("TBC"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 4(c)(8) of the BHC Act (12 U.S.C. [sections] 1843(c)(8)) and section 225.24 of the Board's Regulation Y (12 C.F.R. 225.24)) to merge with Emerald Coast Bancshares, Inc. and thereby acquire its wholly owned savings association, Emerald Coast Bank, both of Panama City Beach, Florida ("Emerald") after that institution's conversion from a state-chartered savings bank to a federally chartered savings association.(1)

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 68,768 (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 4 of the BHC Act.

TBC currently operates one subsidiary bank in Alabama, with total consolidated assets of $104 million. TBC is the 73rd largest commercial banking organization in Alabama, controlling approximately $93 million in deposits, representing less than 1 percent of total deposits in commercial banking organizations in the state ("state deposits").(2) Emerald is the 173rd largest depository institution in Florida, controlling $31 million in deposits, representing less than 1 percent of state deposits.(3) TCB and Emerald do not compete in any relevant banking markets.

The Board previously has determined by regulation that the operation of a savings association by a bank holding company is closely related to banking for purposes of section 4(c)(8) of the BHC Act.(4) In making this determination, the Board requires that savings associations acquired by bank holding companies conform their direct and indirect activities to those permissible for bank holding companies under section 4 of the BHC Act. TBC has committed to conform all of Emerald's activities to those permissible under section 4(c)(8) of the BHC Act and Regulation Y.

In order to approve the proposal, the Board 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, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices."(5) In assessing the balance of public benefits and adverse effects of this proposal, the Board has considered comments submitted by the Director of Banking of the Florida Department of Banking and Finance ("Director"). The Director expressed concern that TBC's proposal to convert Emerald to a savings association and acquire it pursuant to section 4 of the BHC Act was designed to evade Florida's interstate banking statute, which requires a Florida bank to be in existence and continuously operating for more than three years before it can be acquired by an out-of-state holding company.(6)

The Board has reviewed the Director's comments in light of the factors that the Board must consider under section 4 of the BHC Act. The Board concludes that a violation of law is a factor it must consider in determining whether a proposal under section 4(c)(8) would produce net public benefits. In this case, however, the Board does not believe that the acquisition of Emerald as a savings association would result in a violation of law. Unlike section 3 of the BHC Act, section 4 does not apply a minimum age limitation on the ability of out-of-state bank holding companies to acquire savings associations.(7) In addition, once Emerald has converted to a savings association, the minimum operating requirement that applies to the acquisition of banks under Florida state law does not apply. Moreover, TBC has stated that it plans to acquire and operate Emerald as a savings association, and that it has no plans to convert Emerald back to a bank. TBC may not operate Emerald as a bank without prior Board approval under section 3 of the BHC Act and without meeting the requirements of section 3(d) of the Act. TBC has committed that it will maintain Emerald as a savings association until August 31, 1999.

The Board also has considered the financial and managerial resources of TBC, its subsidiaries, and Emerald and the effect the transaction would have on such resources in light of all the facts of record.(8) The Board has reviewed, among other things, confidential reports of examination and other supervisory information received from the appropriate supervisory authorities for the organizations. Based on all the facts of record, the Board concludes that the financial and managerial resources of the organizations involved in this proposal are consistent with approval.

The record indicates that consummation of the proposal would produce benefits for consumers. TBC states that the proposed acquisition of Emerald would allow TBC to offer a wider range of deposit accounts and loan products and would result in improved automated services available to Emerald customers. In addition, the Board has recognized that there are public benefits to be derived from permitting capital markets to operate so that banking organizations may make potentially profitable investments in nonbanking companies and allocate their resources in the manner they believe to be most efficient when such investments are consistent, as in this case, with the relevant considerations under the BHC Act.(9) The Board believes that the conduct of the proposed activities within the framework established in Regulation Y is not likely to result in significantly adverse effects, such as an undue concentration or resources, decreased or unfair competition, conflicts of interests, or unsound banking practices that would outweigh the public benefits of the proposal, such as increased consumer convenience. Accordingly, the Board has determined that the balance of factors considered under the proper incident to banking standards of section 4(c)(8) of the BHC Act is consistent with approval.