Order Approving the Acquisition of a Bank Holding Company

Federal Reserve Bulletin, May, 1999

C-B-G, Inc. ("C-B-G"), 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 (12U. S.C. [sections] 1842) to acquire up to 100 percent of the voting shares of Peoples National Corporation, Columbus Junction, Iowa ("Peoples"), and thereby acquire Peoples' subsidiary bank, Community Bank, Muscatine, Iowa ("Bank").(1)

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (64 Federal Register 5807 and 11,473 (1999)). The time for filing comments has expired, and the Board has considered the application and all comments received in light of the factors set forth in section 3 of the BHC Act.

C-B-G, with total consolidated assets of approximately $61.1 million, is the 174th largest commercial banking organization in Iowa, controlling deposits of approximately $46.5 million, representing less than 1 percent of total deposits in commercial banking organizations in the state ("state deposits").(2) Peoples, with total consolidated assets of approximately $93.8 million, is the 103d largest commercial banking organization in Iowa, controlling deposits of approximately $75.3 million, also representing less than 1 percent of state deposits. On consummation of the proposal, C-B-G would become the 51st largest commercial banking organization in Iowa, controlling deposits of approximately $121.8 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 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)

C-B-G and Peoples compete in the Muscatine, Iowa, banking market.(4) C-B-G is the fourth largest depository institution in the market, controlling deposits of approximately $46.5 million, representing 8.4 percent of all deposits held by depository institutions in the market ("market deposits").(5) Peoples is the fifth largest commercial banking organization in the market, controlling deposits of approximately $42.2 million, representing 7.7 percent of market deposits. On consummation of the proposal, C-B-G would become the third largest depository institution in the Muscatine banking market, controlling deposits of approximately $88.7 million, representing 16.1 percent of market deposits. The change in market concentration, as measured by the Herfindahl-Hirschman Index ("HHI"), would not exceed the threshold level set in the Department of Justice Merger Guidelines ("DOJ Guidelines").(6)

The Department of Justice has reviewed the proposal and advised the Board that consummation of the proposal would not likely have any significantly adverse competitive effects in the Muscatine banking market or any other relevant banking market. The Federal Deposit Insurance Corporation also has not objected to the proposal.

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 Muscatine 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 a proposal, the convenience and needs of the community, and certain other supervisory factors. The Board has carefully considered these factors in light of all the facts of record, including comments from a minority shareholder of Peoples ("Protestant"), who questioned whether C-B-G has sufficient financial resources to complete the proposed transaction.

C-B-G is well capitalized under the Board's Capital Adequacy Guidelines and would remain well capitalized after consummation of the proposal.(7) In addition, C-B-G appears to be able to service the debt it would incur under the proposal. The facts of record, including reports of examination by the appropriate federal banking agencies for the institutions involved, also indicate that C-B-G, Peoples and their respective subsidiary banks have long been operated by current management in a safe and sound manner and support a finding that managerial resources are satisfactory.(8)

The Board has carefully considered Protestant's comments and all other facts of record, including the response by C-B-G and the appropriate reports of examination, in light of the statutory factors specified in the BHC Act. Based on all the facts of record, the Board concludes that the financial and managerial resources and future prospects of the institutions involved are consistent with approval. Considerations relating to the convenience and needs of the community and other supervisory factors also are consistent with approval.