ORDERS ISSUED UNDER BANK HOLDING COMPANY ACT.

Orders Issued Under Section 3 of the Bank Holding Company Act

First Banks, Inc. Creve Coeur, Missouri 

First Banks America, Inc. Clayton, Missouri 

Order Approving Acquisition of a Bank Holding Company

First Banks, Inc., and First Banks America, Inc. (collectively, "First Banks"), bank holding companies within the meaning of the Bank Holding Company Act ("BHC Act"), have requested the Board's approval under section 3 of the BHC Act (12 U.S.C. [sections] 1842) to acquire Redwood Bancorp ("Redwood"), and thereby indirectly acquire Redwood's subsidiary bank, Redwood Bank ("Bank"), both in San Francisco, California.

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 55,389 (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 Banks, with total consolidated assets of approximately $4.3 billion, operates subsidiary banks in Missouri, California and Texas.(1) First Banks is the 37th largest commercial banking organization in California, controlling deposits of $974.4 million, representing less than 1 percent of total deposits in commercial banking organizations in the state. Redwood is the 74th largest commercial banking organization in California, controlling deposits of $384 million, representing less than 1 percent of total deposits in commercial banking organizations in the state. On consummation of the proposal, First Banks would become the 28th largest commercial banking organization in California, controlling deposits of $1.36 billion, representing less than 1 percent of total deposits in the state.

Interstate Analysis

Section 3(d) of the BHC Act allows the Board to approve an application by a bank holding company to acquire control of a bank located in a state other than the home state of such bank holding company if certain conditions are met.(2) For purposes of the BHC Act, the home state of First Banks is Missouri, and First Banks proposes to acquire a bank in California. All conditions for an interstate acquisition enumerated in section 3(d) are met in this case.(30 In light of all the facts of record, the Board is permitted to approve this proposal under section 3(d) of the BHC Act.

Competitive Factor

Section 3 of the BHC Act prohibits the Board from approving a proposal that would result in a monopoly, or would be in furtherance of any attempt to monopolize the business of banking.(4) The BHC Act also prohibits the Board from approving a proposal that would substantially lessen competition in any relevant banking market, unless the Board finds that the anticompetitive effects of the proposal in that banking market 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.(5)

First Banks and Redwood compete directly in the San Francisco-Oakland-San Jose banking market.(6) The Board has carefully reviewed the competitive effects of the proposal in this banking market in light of all the facts of record, including the characteristics of the market and the projected increase in the concentration of total deposits in depository institutions(7) in the market ("market deposits") as measured by the Herfindahl-Hirschman Index ("HHI") under the Department of Justice Merger Guidelines ("DOJ Guidelines").(8) Consummation of the proposal would be consistent with the DOJ Guidelines and prior Board precedent in the San Francisco-Oakland-San Jose banking market.(9) The HHI would remain unchanged at 1579. The DOJ has reviewed the proposal and advised the Board that consummation of the proposal would not likely have a significantly adverse competitive effect in the San Francisco-Oakland-San Jose banking market or any other relevant market.

Based on these and all the facts of record, the Board concludes that consummation of the proposal would not result in any significantly adverse effects on competition or on the concentration of banking resources in the San Francisco-Oakland-San Jose banking market, or in any other relevant banking market, and that competitive factors are consistent with approval of the proposal.

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 communities to be served, and certain supervisory factors. The Board has reviewed carefully these factors in light of all the factors of record, including supervisory reports of examination assessing the financial and managerial resources of the organizations and confidential financial information provided by First Banks. Based on these and all the other facts of record, the Board concludes that the financial and managerial resources and future prospects of First Banks, Redwood and their subsidiary banks are consistent with approval, as are the other supervisory factors that the Board must consider under section 3 of the BHC Act.(10)

In considering the convenience and needs factor, the Board has reviewed the records of First Banks's subsidiary banks and Bank under the Community Reinvestment Act ("CRA").(11) The Board notes that First Banks does not intend to make any material changes in the products and services provided by Bank. The Board has evaluated the convenience and needs factor in light of examinations of the CRA performance records of First Banks's subsidiary banks and Bank. Each of First Banks's subsidiary banks received a rating of "satisfactory" at its most recent examination for CRA performance in 1998 from its federal supervisory agency. Bank received a rating of "satisfactory" at its most recent examination of CRA performance as of March 4, 1997, by the Federal Deposit Insurance Corporation. Based on all the facts of record, the Board concludes that convenience and needs considerations, including the CRA performance records of the relevant institutions, are consistent with approval of the proposal.

Conclusion

Based on the foregoing, and in light of all the facts of record the Board has determined that the applications should be, and hereby, are approved. Approval of the applications is specifically conditioned on compliance by First Banks with all the commitments made in connection with the proposal. For purposes of this order, the commitments and conditions referred to above shall be 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 Redwood shall not be consummated before the fifteenth calendar day after the effective date of the order, or 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 Federal Reserve Bank of St. Louis acting pursuant to delegated authority.

By order of the Board of Governors, effective February 12, 1999.

Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Kelley, Meyer, Ferguson, and Gramlich.

ROBERT DEV. FRIERSON

Associate Secretary of the Board

(1.) All banking data are as of June 30, 1997.

(2.) 12 U.S.C. [sections] 1842(d). A bank holding company's home state is that state in which the operations of the bank holding company's banking subsidiaries were principally conducted on July 1, 1966, or the date on which the company became a bank holding company, whichever is later.

(3.) 12 U.S.C. [subsections] 1842(d)(1)(A) and (B) and 1842(d)(2)(A) and (B). First Banks meets the capital and managerial requirements established by applicable law. On consummation of the proposal, First Banks and its affiliates would control less than 10 percent of the total amount of deposits of insured depository institutions in the United States, and less than 30 percent of the total amount of deposits in California. See Cal. Financial Code [sections] 3753 (West 1999). All other requirements of section 3(d) of the BHC Act also would be met on consummation of the proposal.

(4.) 12 U.S.C. [sections] 1842(c)(1)(A).

(5.) 12 U.S.C. [sections] 1842(c)(1)(B).

(6.) The San Francisco-Oakland-San Jose banking market is approximated by the San Francisco-Oakland-San Jose Ranally Metropolitan Area, including the city of Pescardero.

(7.) For this purpose, depository institution includes all insured banks, savings banks, and saving associations. Market share data are based on calculations that include the deposits of thrift institutions at 50 percent. The Board previously has indicated that thrift institutions have become, or have the potential to become, significant competitors of commercial banks. See, e.g., Midwest Financial Group, 75 Federal Reserve Bulletin 386 (1989); National City Corporation, 70 Federal Reserve Bulletin 743 (1984). Thus, the Board has regularly included thrift deposits in the calculation of market share on a 50-percent weighted basis. See, e.g., First Hawaiian, Inc., 77 Federal Reserve Bulletin 52 (1991).

(8.) Under the DOJ Guidelines, 49 Federal Register 26,823 (1984), a market in which the post-merger HHI is between 1000 and 1800 is considered to be moderately concentrated. The Department of Justice ("DOJ") has informed the Board that a bank merger or acquisition generally will not be challenged (in the absence of other factors indicating anticompetitive effects) unless the post-merger HHI is at least 1800 and the merger or acquisition increases the HHI by at least 200 points. The DOJ has stated that the higher than normal HHI thresholds for screening bank mergers or acquisitions for anticompetitive effects implicitly recognize the competitive effects of limited-purpose lenders and other nondepository financial institutions.

(9.) On consummation of the proposal, First Banks would become the 31st largest depository institution in the San Francisco-Oakland-San Jose banking market, controlling deposits of $205 million, representing less than 1 percent of market deposits. The HHI would remain unchanged at 1579.

(10.) The Board has received a letter from a director of Bank requesting an indefinite suspension of the acquisition. The director states that he was placed on the board of directors of Bank as a representative of the Republic of the Philippines (the "Philippines") in accordance with a consent order issued by a United States District Court. The director requested that the processing of the application be suspended until the appropriate authorities in the Philippines have reviewed the transaction. The Board has contacted the appropriate authorities in the Philippines and has considered the director's comments in light of information provided by the Philippines government.

(11.) 12 U.S.C. [sections] 2901 et seq.