Order Approving the Acquisition of a Bank Holding Company.

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.

Conclusion

Based on the foregoing, and in light of all the facts of record, the Board has determined that the application should be, and hereby is, approved. The Board's approval is specifically conditioned on compliance by C-B-G with all the commitments made in connection with the application. For the purposes of this action, the commitments and conditions relied on by the Board in reaching its decision are 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 proposed acquisition shall not be consummated before the fifteenth calendar day after the effective date of this 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 Chicago, acting pursuant to delegated authority.

By order of the Board of Governors, effective March 29, 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

Commerzbank AG Frankfurt am Main, Federal Republic of Germany

(1.) C-B-G has entered into an agreement with certain shareholders of Peoples to acquire 24.4 percent of the voting shares of Peoples, and has indicated that it intends to make a tender offer for all the remaining outstanding voting shares owned by Peoples' shareholders at the same price per share as in the agreement. C-B-G also would make a tender offer for 4.4 percent of the voting shares of Bank that are not owned by Peoples.

(2.) Asset and deposit data are as of June 30, 1997.

(3.) 12 U.S.C. [sections] 1842(c)(1).

(4.) The Muscatine banking market consists of Muscatine County, Iowa.

(5.) In this context, depository institutions include commercial banks and thrift institutions. Market share data are based on calculations in which the deposits of thrift institutions are included 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 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 shares on a 50-percent weighted basis. See, e.g., First Hawaiian, Inc., 77 Federal Reserve Bulletin 52 (1991).

(6.) See 49 Federal Register 26,823 (June 29, 1984). On consummation of the proposal, the HHI would increase by 130 points to 2560. Under the DOJ Guidelines, a market in which the post-merger HHI is above 1800 is considered to be highly concentrated. The Department of Justice 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 increases the HHI by more than 200 points. The Department of Justice has stated that the higher than normal HHI thresholds for screening bank mergers for anticompetitive effects implicitly recognize the competitive effects of limited-purpose lenders and other nondepository financial entities.

(7.) C-B-G has committed to the Board that it will seek prior approval from the Federal Reserve System before purchasing any shares of Peoples or Bank if the purchase would cause C-B-G to be less than well capitalized.

(8.) Protestant also expressed concern that the directors and officers of Peoples may not have properly discharged their fiduciary duties to shareholders of Peoples in considering the proposal and alleged that the management of Peoples had engaged in improper self-dealing activity. As noted, C-B-G stated that it intends to purchase shares from all Peoples' shareholders at the same price per share, and that there are no additional agreements or understandings to compensate the directors or officers of Peoples. The Board notes that the courts have concluded that the limited jurisdiction to review applications under the BHC Act does not authorize the Board to consider matters relating only to corporate governance and the proper compensation of shareholders. See Western Bancshares, Inc. v. Board of Governors, 480 F. 2d 749 (10th Cir. 1973). These are matters of state and federal securities law and of state corporate law and may be raised before a court with the authority to provide Protestant with adequate relief, if deemed appropriate.