compcurr_1976

[j§7Comptroller of the CurrencyAdministrator of National Banks

I*

1 »l% * .»•

Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Annual Report 1976Comptroller of the Currency

The Administrator of National Banks

John G. HeimannComptroller of the Currency


Letter of Transmittal

Treasury Department,Office of the Comptroller of the Currency,

Washington, D.C., October 17, 1977

Sirs: Pursuant to the provisions of Section 333 of the United States Re-vised Statutes, I am pleased to submit the 1975 Annual Report of the Comp-troller of the Currency.

Respectfully,John G. Heimann,

Comptroller of the Currency.The President of the SenateThe Speaker of the House of Representatives


ContentsTitle of Section Page

I. Condition of the National Banking System 1II. Income and Expenses of National Banks 3

III. Structural Changes in the National Banking System 5IV. Bank Examinations and Related Activities 13V. Law Department 15

VI. Fiduciary Activities of National Banks 19VII. International Banking and Finance 21

VIII. Administration 23IX. Consumer Affairs 25X. Other Activities 29

XI. Financial Operations of the Office of the Comptroller of the Currency 31

Appendices

A. Merger Decisions, 1976 37B. Statistical Tables 121C. Addresses and Selected Congressional Testimony 187D. Selected Rulings 263

Index 291


Statistical TablesTable No. Title Page

1 Assets, liabilities and capital accounts, domestic offices of national banks, December 31, 1976 . . . 22 Income and expenses of national banks, December 31, 1976 43 National banks and banking offices, by states, December 31, 1976 64 Applications for national bank charters and charters issued, by states, calendar 1976 75 Applications for national bank charters pursuant to corporate reorganizations and charters issued, by

states, calendar 1976 86 Applications for conversion to national bank charter and charters issued, by states, calendar 1976 97 Branches of national banks, by states, calendar 1976 108 De novo branch applications of national banks, by states, calendar 1976 119 De novo branches of national banks opened for business, by community size and by size of bank,

calendar 1976 1210 Mergers, calendar 1976 1211 Examinations of overseas branches, subsidiaries and EDP centers of national banks, 1972 - 1976 . 2212 Office of the Comptroller of the Currency: balance sheet 3213 Office of the Comptroller of the Currency: statements of revenue, expenses and Comptroller's equity 3314 Office of the Comptroller of the Currency: statement of changes in financial position 34

VI


I. Condition of the National Banking SystemThe operations of national banks reflected the steady

recovery the U.S. economy experienced during 1976.Loans were well over $300 billion. This figure is not di-rectly comparable to 1975's because of changes in thebalance sheet reporting. Deposit growth reflected therecovery; total deposits grew by 4.8 percent, 1 percentmore than the 1975 rate of 3.8 percent. IPC demand de-posits grew 2.5 percent while IPC time and savings de-posits increased 9.1 percent, reflecting the somewhatimproved state of the economy. Total time and savingsdeposits relative to total deposits continued to increase,to reach 59.9 percent in 1976. The 1972 figure was 52.0percent.

Total book assets grew more than 5.4 percent in 1976.The actual growth was closer to 7.3 percent if provision ismade for the new exclusion of loan reserves and un-earned income in 1976. That is significant because itshows a reversal of the previous trend of declining assetgrowth. The four previous increases were 3.6 (1975), 9.2(1974), 12.6 (1973) and 15.5 (1972) percent.

National banks' securities holdings (including those

held in trading accounts) increased by $10,527 million.Holdings of U.S. Treasury securities for investment pur-poses increased more than 17 percent over year-end1975. State and local government holdings alsoincreased slightly. The total increase in securities hold-ings was 8.4 percent, about half the 17.2 percentincrease from 1974 to 1975.

Reserves for possible loan losses reached over$3,589 million. That figure is equivalent to 1.2 percent oftotal loans. Total loans represented 52 percent of totalassets.

Total equity capital of national banks was $41,325 mil-lion. Capital notes and debentures increased $436 mil-lion, showing the continued weak position of bank stockin the open market. Total equity capital to assets was 7.1percent, while equity capital to risk assets, that is totalassets less cash, U.S. Treasuries, and securities of otherU.S. government agencies, was 9.4 percent. Thoseratios are not exactly comparable to those for earlieryears because of the reporting changes.


Table 1

Assets, liabilities and capital accounts, domestic offices of national banks, December 31, 1976(Dollar amounts in thousands)

AmountPercent

distribution

4,737 national banks

Assets

Cash and due from banks

Total, investment securitiesU.S. Treasury securitiesObligations of other U.S. government agencies and corporationsObligations of states and political subdivisionsOther bonds, notes and debentures

Federal Reserve stock and corporate stock

Trading account securities

Total securities

Federal funds sold and securities purchased under agreements to resellTotal loans (excluding unearned income)

Reserve for possible loan lossesLoans, net of reserve

Direct lease financingBank premises, furniture and fixtures and other assets representing bank premisesReal estate owned other than bank premisesInvestments in unconsolidated subsidiaries and associated companiesCustomers' liability to this bank on acceptances outstandingOther assets

Total assets

Liabilities

Demand deposits of individuals, partnerships and corporationsTime and savings deposits of individuals, partnerships and corporationsDeposits of U.S. governmentDeposits of states and political subdivisionsDeposits of foreign governments and official institutionsDeposits of commercial banksCertified and officers' checks

Total deposits

Demand depositsTime and savings deposits

Federal funds purchased and securities sold under agreements to repurchaseLiabilities for borrowed money ;Mortgage indebtednessAcceptances executed by or for account of this bank and outstandingOther liabilities

Total liabilities

Subordinated notes and debentures

Equity Capital

Preferred stockCommon stockSurplusUndivided profitsReserve for contingencies and other capital reserves

Total equity capital

Total liabilities, subordinated notes and debentures and equity capital

NOTE: Data may not add to totals because of rounding. Dashes indicate amounts less than 0.005 percent.

$ 76,078,031

129,990,49452,612,83617,005,88057,384,3632,987,415

967,3044,973,779

135,931,577

30,140,010303,436,774

3,589,367299,847,407

3,808,3819,879,9531,722,9841,777,3885,086,708

19,076,586

583,349,025

147,018,169242,873,535

2,126,65338,088,3065,917,740

27,332,9876,051,345

469,408,735

188,175,050281,233,685

51,678,9412,741,434

406,1125,140,6759,921,683

539,297,580

2,726,628

18,7549,106,275

15,853,73815,271,8331,074,217

41,324,817

583,349,025

13.04

22.289.022.919.84

.51

.17

.85

23.30

5.1752.02

.6251.40

.651.69.30.31.87

3.27

100.00

25.2041.63

.376.531.014.691.04

80.47

32.2648.21

8.86.47.07.88

1.70

92.45

.47

1.562.722.62

.18

7.08

100.00


II. Income and Expenses of National BanksTotal income and expenses of the National Banking

System reflected the steady recovery in the U.S. econ-omy during 1976. Total income rose 23.4 percent, a re-versal of the previous year's decline. Total expenses alsoincreased, by 25.2 percent. National banks' net incomeincreased $332.1 million, or 7.8 percent. That rate was2.5 percent more than the 5.3 percent increase achieved1974 to 1975. Applicable income taxes on operatingincome rose to $1,436.8 million, 34.5 percent more thanthe previous year. The rate of return on assets was 0.79,slightly more than 1975's 0.77.

Interest and fees on loans increased $5,555.4 millionto $31,031.0 million, showing an increase of 21.8 per-cent. Income from federal funds sold or securitiespurchased under agreements to resell decreased to$1,383.6 million. Loan-related income fell to 64.6 percentof total operating income, continuing the pattern of pre-vious years. Total revenue from securities holdings(including stock) as a proportion of total revenue de-clined slightly to 16.2 percent from 1975's 17.0 percentfigure.

Holdings of U.S. Treasury securities for investmentpurposes increased $7,802 million. That produced anincrease in interest earned on such securities of $786.5

million, or 32.7 percent. The interest earned on U.S.Treasuries was $1,964.1 million more than the earningson Federal funds sold and securities purchased to resell.That reinforces the reversal of the previous trend. Prior to1975, interest earned on U.S. Treasuries had been lessthat the earnings from Federal funds sold and securitiespurchased under agreements to resell. Revenues fromobligations of states and political subdivisions totalled$2,801.1 million, a small increase over the 1975 figure.

The expense items involving interest paymentsincreased by 37.5 percent. Interest on deposits, thelargest expense item, increased to $20,885.8 million, anincrease for the year of 37 percent. Salaries and em-ployee benefits increased 18.6 percent, more than dou-ble the previous year's increase. Provisions for loanlosses increased by $26.1 million, or 1.2 percent. Thatsmall increase in the provision for loan losses was impor-tant in making 1976 a profit year.

Cash dividends paid totaled $1,821.1 million, almostthe same amount paid in 1976. In 1975, the dividendpay-out ratio declined to 39.7 percent. The previous twoyears' dividend pay-out ratios were 42.8 (1975) and 41.3(1974) percent.


Table 2

Income and expenses of National banks, December 31, 1976(Dollar amounts in thousands)

AmountPercent

distribution

4,737 national banks

Operating income:Interest and fees on loansInterest on balances with banksIncome on Federal funds sold and securities purchased under agreements to resell in domestic

offices

Income on securities:

U.S. Treasury securitiesObligations of other U.S. government agencies and corporationsObligations of states and political subdivisionsOther bonds, notes and debentures

Dividends on stockIncome from direct lease financingIncome from fiduciary activitiesService charges on deposit accounts in domestic offices .,Other service charges, commissions, and feesOther income

Total operating income

Operating expenses:Salaries and employee benefitsInterest on time certificates of deposit of $100,000 or more issued by domestic officesInterest on deposits in foreign officesInterest on other depositsExpense of Federal funds purchased and securities sold under agreements to repurchase in

domestic officesInterest on borrowed moneyInterest on subordinated notes and debenturesOccupancy expense of bank premises, net

Furniture and equipment expenseProvision for possible loan losses (or actual net loan losses)Other expenses

Total operating expenses

Income before income taxes and securities gains or lossesApplicable income taxes (domestic and foreign)Income before securities gains or losses

Securities gains (losses), grossApplicable income taxes (domestic and foreign)Securities gains (losses), net

Income before extraordinary itemsExtraordinary items, net of tax effect

Net income

Cash dividends declared:On common stock . . . .On preferred stock. . . .

Total cash dividends declared

Ratio to income before income taxes and securities gains or losses:Applicable income taxesNet securities gainsExtraordinary charges or credits

Ratio to total operating income:Salaries and wagesInterest on deposits*All other operating expensesTotal operating expensesNet income

$31,031,0462,946,656

1,229,182

7,696,571

3,193,2741,210,1492,801,076

492,072

62,149408,438

1,029,203911,467

1,441,4841,265,214

48,021,410

8,575,5224,327,8915,962,140

10,595,809

2,268,120454,745179,190

1,548,3121,015,4892,250,4274,925,748

42,103,393

5,918,0171,436,7554,481,262

168,493-72,596

95,8974,577,159

13,891

4,591,050

1,820,0001,088

1,821,088

64.616.14

2.56

16.03

6.652.525.831.03

.13

.852.141.903.002.64

100.00

20.3710.2814.1625.17

5.391.08.42

3.682.415.34

11.70

100.00

24.281.62.24

17.8643.4926.3387.689.56

* Includes expenses on all deposits.

NOTE: Data may not add to totals because of rounding. Includes all banks operating as national banks at year-end and full year data forthose state banks converting during the year.


Structural Changes in the National BankingSystem

The National Banking System consisted of 4,737banks as of year-end 1976. Of that number, 2,643 wereunit banks and 2,094 operated 16,640 domesticbranches. The total number of banking offices of nationalbanks in the U.S. was 21,377, an increase of 364 for theyear. During the year the number of branches increased2.3 percent and the number of banking offices increased1.7 percent. Both of those rates are less than the previ-ous year's growth rates. The three large unit bankingstates, Texas, Illinois and Florida, continued to lead intotal number of banks; at year-end 1976, there were 596,425 and 306 banks in those states, respectively. Califor-nia remained the state with the largest number of bank-ing offices, with 2,766, up from 2,704 at year-end 1975.New York and Pennsylvania continue to rank second andthird with 1,643 and 1,606 offices, respectively. NewYork experienced a decrease of 138 offices, 117 ofwhich were branch offices. That shows the effect of thechange in that state's branching law which became ef-fective in 1976.

During 1976, 536 cte novo branches entered the Na-tional Banking System. Mergers and conversions added

235 branches, while subtracting 394. The vast majority ofthe new branches (ate novo) were in cities with popula-tions of less than 100,000 persons. The percentage ofnew branches in cities of that size was 69 percent in1975, and increased to 75 percent in 1976. Banks withtotal resources of less than $100 million established 238,or 44 percent of the ate novo branches. The large banks,those with over $1 billion in total resources, opened 142branches, or about 26 percent of all new branches.California led all states with 77 new branches, followedby Michigan and Pennsylvania with 42 and 38, respec-tively.

Again, in 1976, the number of charters issued wasbelow the previous year's. There were 65 national bankschartered in 1976 compared to 76 in 1975 and 92 in1974. Only 34 applications were approved in 1976,compared to 72 the previous year. Texas led the states incharters issued with 19, followed by Florida with 8. Addi-tionally, 14 banks were chartered for the purpose of ef-fecting corporate reorganizations and 9 state-charteredbanks converted to national bank status.


Table 3

National banks and banking offices, by states, December 31, 1976

National banks

Total UnitWith

branches

Numberof

branches

Numberof

officesAll national banks50 states

AlabamaAlaskaArizonaArkansasCaliforniaColoradoConnecticutDelawareDistrict of Columbia . . . .Florida

Georgia ..Hawaii . . .IdahoIllinoisIndiana ..IowaKansas ..Kentucky .Louisiana.Maine

MarylandMassachusetts ..MichiganMinnesotaMississippiMissouriMontanaNebraskaNevadaNew Hampshire .

New JerseyNew MexicoNew YorkNorth Carolina ..North Dakota . . .OhioOklahomaOregonPennsylvania . . .Rhode Island . . .

South CarolinaSouth Dakota .Tennessee . . .TexasUtahVermontVirginiaWashington . . .West Virginia .Wisconsin . . . .Wyoming

Puerto RicoFDIC National Bank

4,737 2,643 2,0944,735

9763735813223515

306

6426

425120100169825417

41751222033811556120443

1043812928432191957

2375

1932745961314

1082110313046

11

2,64135111613107323

239

1701

315335212125111

9191815

614984110

9834721501411830

61810

59184143778746

11

2,09462525745252031267

4725

110874848574316

3366103223354736333

9530952122169546

1545

1314645510941826430

00

16,64016,640

30073

307172

2,70825

2624

12866

318111671104838570

228254117

36550679228220697527889

1,012115

1,51478823

1,01854310

1,369115

299803535994767955626840

00

21,37721,375

39779

310245

2,7661572859

143372

38213173535603185239310308134

4065819142312581846317282132

1,116153

1,64381666

1,237249317

1,606120

3181124276011126178757712921446

11

District of Columbia - all* 16 13 129 145

* Includes national and non-national banks in the District of Columbia, all of which are supervised by the Comptroller of the Currency.


Table 4

Applications for national bank charters* and charters issued, by states, calendar 1976

Received^ Approved Disapproved WithdrawnPending

December 31,1976

Chartered

Total 145 34 36 69

AlabamaAlaskaArizonaArkansasCaliforniaColoradoConnecticutDelawareDistrict of ColumbiaFlorida

Georgia .Hawaii . . .IdahoIllinois . . .Indiana ..Iowa . . . .Kansas . .KentuckyLouisianaMaine . . .

MarylandMassachusetts .MichiganMinnesotaMississippiMissouriMontanaNebraskaNevadaNew Hampshire

New JerseyNew Mexico....New YorkNorth Carolina ..North Dakota . . .OhioOklahomaOregonPennsylvania . . .Rhode Island . . .

South CarolinaSouth Dakota..TennesseeTexasUtahVermontVirginiaWashington . . .West Virginia ..WisconsinWyoming

Virgin IslandsPuerto Rico ..

300365111

28

2109500130

0041200000

2360134010

301

262001752

01

0001020003

0003300000

0011000000

1020122000

00151001220

00

200030000

12

0004100110

0000000000

0020001010

00021000311

00

0000000002

0001000010

0000000000

1000000000

10000000000

00

100233111

11

2101100010

0030210000

0320011000

200

190000221

01

65

300020000

0006100210

0023041000

0211031000

001

191010020

00

* Excludes conversions and corporate reorganizations.t Includes 73 applications pending as of December 31, 1975.


Table 5

Applications for national bank charters pursuant to corporate reorganizations and charters issued, by states, calendar1976

Received* Approved Disapproved WithdrawnPending

December 31,1976

Chartered

Total 24 22 1 14


Georgia .Hawaii...Idaho.. . .Illinois . . .Indiana ..Iowa . . . .Kansas ..KentuckyLouisianaMaine . . .


New Jersey . . . .New MexicoNew YorkNorth Carolina ..North Dakota . . .OhioOklahomaOregonPennsylvania . . .Rhode Island . . .

South CarolinaSouth Dakota..TennesseeTexasUtahVermontVirginiaWashington . . .West Virginia ..WisconsinWyoming

Virgin IslandsPuerto Rico ..

0000000000

3003100000

1350000000

0010010000

00140010000

00

0000000000

3003000000

1350000000

0010010000

00040010000

00

0000000000

0000000000

0000000000

0000000000

00000000000

00

0000000000

0000100000

0000000000

0000000000

00000000000

00

0000000000

0000000000

0000000000

0000000000

00100000000

00

0000100010

0002000000

0120000000

0010020000

00030010000

00

* Includes 2 applications pending as of December 31, 1975.


Table 6

Applications for conversion to national bank charter and charters issued, by states, calendar 1976

Received* Approved Rejected WithdrawnPending

December 31,1976

Chartered

Total 15 11


Georgia .Hawaii . . .IdahoIllinois . . .Indiana ..Iowa . . . .Kansas ..KentuckyLouisianaMaine . . .


New Jersey . . . .New Mexico... .New YorkNorth Carolina ..North Dakota . . .OhioOklahomaOregonPennsylvania . . .Rhode Island . . .

South CarolinaSouth Dakota. .TennesseeTexasUtahVermontVirginiaWashington . . .West Virginia ..WisconsinWyoming

0000000005

1010000000

0010000000

0101000000

00010010300

0000000004

1000000000

0010000000

0101000000

00010010100

0000000000

0000000000

0000000000

0000000000

00000000000

0000000000

0000000000

0000000000

0000000000

00000000000

0000000001

0010000000

0000000000

0000000000

00000000200

0000000004

1000000000

0010000000

0001010000

00000010000

* Includes those pending from prior years.


Table 7

Branches* of national banks, by states, calendar 1976

Branchesin

operationDecember 31,

1975

De novobranches

opened forbusinessJan. 1 to

Dec. 31,1976

Branchesacquiredthrough

merger orconversionJan. 1 to

Dec. 31, 1976

Existingbranches

discontinuedor

consolidatedJan. 1 to

Dec. 31, 1976

Branchesin

operationDecember 31,

1976

All national banks50 states


Georgia ..Hawaii . . .IdahoIllinoisIndiana ..IowaKansas ..Kentucky .Louisiana.Maine

MarylandMassachusetts ..MichiganMinnesotaMississippiMissouriMontanaNebraskaNevadaNew Hampshire .

New JerseyNew MexicoNew YorkNorth Carolina .,North Dakota . . .OhioOklahomaOregonPennsylvania . . .Rhode Island . . .

South CarolinaSouth Dakota .Tennesse . . . .TexasUtahVermontVirginiaWashington . . .West Virginia .Wisconsin . . . .Wyoming

Virgin Islands

16,26916,262

536 235 394

29066300160

2,6472525849853

318111611034698363204242128

35750474925

210655507785

963111

1,6317672197251299

1,354114

29875368

1984866151918830

536

127121177110312

5069162923121

10154241142316

2742711232311382

52104101514830

235

10011040

301

5000100101

22160100000

340181401700100

03240011433000

393

30501711030

100023020013

415151200102

120

16240300

331

40

490021110020

7%

16,64016,640

30073307172

2,708252624

12866

318111671104838570228254117

36550679228220697527889

1,012115

1,51478823

1,01854310

1,369115

299803535994767955626840

0

District of Columbia - allt 128 0 129* Does not include foreign branches. For those branches, see table B-35.t Includes national and non-national banks in the District of Columbia, all of which are supervised by the Comptroller of the Currency.X Includes 6 branches of Virgin Islands National Bank, merged into First Pennsylvania Bank, N.A., December 31, 1975. Those branches are nowoperated as "foreign branches" of the resulting bank.

10Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Table 8

De novo branch applications of national banks, by states, calendar 1976

Received* Approved Rejected AbandonedPending

December 31, 1976

Total .. 965 600 77


GeorgiaHawaiiIdahoIllinoisIndianaIowaKansasKentuckyLouisianaMaine

MarylandMassachusettsMichiganMinnesotaMississippiMissouriMontanaNebraskaNevadaNew Hampshire


South Carolina ..South Dakota . ..TennesseeTexasUtahVermontVirginiaWashingtonWest Virginia . . .WisconsinWyoming

219189

876506

170

9010503337

30203

1521111715123345

405

2616253618330

2016371

1720350

11675

634402

119

909

231725

26123

1216354943124

29418122

30414210

207331

1317210

100060002

21

0000401010

21

181000000

1050061120

00100001010

32 256

00000000010

0002210020

0441110000

1010000000

00000010100

93114182102

20

001

251001450

10541570221

912401713100

00804032030

* Includes 171 applications pending as of December 31, 1975.


Table 9

De novo branches of National banks opened for business, by community size and.by size of bank,calendar 1976

Population of cities BranchesTotal resources of banks

(millions of dollars) BranchesLess than 5,0005,000 to 24,99925,000 to 49,99950,000 to 99,999100,000 to 249,999 ..250,000 to 499,999 ..500,000 to 1,000,000Over 1,000,000

Total

.100

.170

..76

..57

..52

..31

..30

..20

Less than 10.0 : 2510.0 to 24.9 7025.0 to 49.9 8350.0 to 99.9 60100.0 to 999.9 1561,000.0 and over .142

Total 536

.536

Table 10

Mergers*, calendar 1976

Applications received, 1976:MergersConsolidationsPurchases and Assumptions

Total received

Approvals issued, 1976:MergersConsolidationsPurchases and Assumptions

Total approvals

Abandoned, 1976:MergersConsolidationsPurchases and Assumptions

Total abandoned

Consummated, 1976:MergersConsolidationsPurchases and Assumptions

Total consummated

Transactionsinvolving

two or moreoperating banks

462

29

77

391

27

67

510

6

361

25

62

Others pursuantto

corporatereorganization

1330

16

1220

14

700

7

1320

15

Total

595

29

93

513

27

81

1210

13

493

25

77

* Includes mergers, consolidations and purchases and assumptions where the resulting bank is a national bank.


IV. Bank Examinations and Related ActivitiesBy statute, all National banks are required to be

examined twice in each calendar year. However, theComptroller of the Currency, in the exercise of his discre-tion, may waive one such examination in each 2-yearperiod, or may cause such examinations to be mademore frequently, if considered necessary. The Code ofthe District of Columbia authorizes the Comptroller toexamine each non-national bank and trust company lo-cated in the District.

For the year ended December 31, 1976, the Officeexamined 5,426 banks, 11,357 branches and facilities,1,453 trust departments and 261 affiliates and sub-sidiaries and conducted 314 special examinations andvisitations. The Office received 54 applications to estab-lish new banks and processed 794 applications for denovo branches and 9 applications to convert state banksto national banking associations.

National bank examinations are designed to deter-mine the condition and performance of banks, the qualityof their operations and the capacity of management andto enforce compliance with federal laws. The Office ispresently implementing new examination policies andprocedures incorporating the recommendations of theHaskins & Sells study, the informal acceptable practicesof many examiners and current industry innovations. The

examination process has been modified to place greateremphasis on analysis and interpretation of financial dataand less on detailed verification. Also, more reliance isbeing placed on systems for internal control and thework performed by internal and external auditors. It is an-ticipated that all examiners will be using the new proce-dures by mid-1977.

As of December 31, 1976, the Office employed 2,336examiners, 2,195 commercial and 141 trust examiners.

The Office continues to use a select group of EDPexaminers in each of the 14 regions to examine bankEDP operations. Those examiners have been speciallytrained in EDP and receive continuous update training,as needed. A major achievement in EDP during the yearwas the promulgation of Minimum Standards of Informa-tion for Automated Systems. That document will contrib-ute to the improvement of information used for evalua-tions performed by this Office and by bank manage-ment.

Ninety-nine national banks with 635 foreign branchesare examined by examiners specially trained ininternational procedures and policies. Those examinersattend periodic seminars conducted by staff personneland outside international experts to update their knowl-edge on international financial affairs.

13


V. Law Department

The Law Department advises the Comptroller of theCurrency and his staff on legal matters pertaining to theadministration and interpretation of laws and regulationsgoverning the National Banking System. Attorneys in theLaw Department deal directly with the management ofnational banks, with bank attorneys and accountantsand with the staffs of other government agencies andCongressional committees. The Department also re-sponds to litigation in which the Office may becomeinterested and exercises certain direct responsibility inenforcement and securities disclosure. Some of the De-partment's major activities are described below.

LegislationDuring 1976, the Law Department was responsible forthe preparation of testimony and related materials for theComptroller of the Currency and other agency officials inconnection with Congressional hearings. Topicsincluded practices and procedures of the Office, theHouse Banking, Currency and Housing Committee'sstudy of Financial Institutions and the Nation's Economy(FINE), proposed legislation to consolidate the federalbank regulatory agencies into a single agency, and fairlending practices. Representatives of the Office alsospoke on the need to strengthen the enforcement pow-ers provided in the federal banking laws, the regulatoryprocesses of the Office particularly in connection withthe failure of Franklin National Bank, and federal en-forcement of the Truth-in-Lending Act. (See Appendix C,Addresses and Selected Congressional Testimony, pp.187-262, in this report.) Agency comments also were of-fered on a wide array of proposed legislation affectingbank regulation, ranging from freedom of informationand privacy to federal regulation of foreign banks, com-petition in banking, and anti-trust laws.

LitigationOn January 1, 1976, there were 39 cases pending inwhich the Comptroller was a defendant. During the year,17 of those cases were concluded, 11 in the Comptrol-ler's favor, five unfavorably and one by stipulation result-ing in a compromise acceptable to all parties.

The most significant cases were those involving theComptroller's Interpretive Ruling 7.7491 on customer-bank communication terminals. Despite varying rulingsby the district courts, four courts of appeals considered

the cases and all ruled against the Comptroller's positionthat CBCT's are not branches. In October, the SupremeCourt denied certiorari in two of the cases and the Comp-troller's ruling subsequently was rescinded.

Other issues litigated during the year included the va-lidity of the Comptroller's assessment proceedings,whether an office engaged in providing trust servicesconstitutes a "branch" of a national bank, and the gov-ernment's liability for alleged negligence in supervisingUnited States National Bank of San Diego and FranklinNational Bank. The Law Department also participated inlitigation brought by the Department of Justice allegingthat a transaction approved by the Comptroller leadingto the acquisition of four banks by Michigan NationalCorporation violated Section 7 of the Clayton Act. Thatlitigation was eventually settled out of court.

Securities DisclosureMajor revisions in the consolidated reports of conditionand income ("call reports") required by the federal bank-ing regulatory agencies were made during 1976. In addi-tion, Securities and Exchange Commission Guides 61and 3.were adopted as a result of the joint efforts of theSEC - Federal Banking Agencies Task Force on statis-tical disclosure by bank holding companies. Those ac-tions precipitated substantial modifications of the Comp-troller's various regulations relating to the form and con-tent of financial disclosure by national banks.

The Law Department assisted in revising 12 CFR 18,"Form and Content of Annual Reports to Shareholders,"to make the regulation substantially consistent with theinstructions for the new consolidated reports of conditionand income. As revised, the regulation provides specificexemptions, as well as a short form for complying with it.

The Department also made a comprehensive revisionof 12 CFR 16, Securities Offering Disclosure Rules. Thatregulation concerns the use of an offering circular by anational bank when it offers and sells its equity securities.The revision was adopted to require that prospectiveinvestors be provided with all material facts and informa-tion relating to the business operations and financialcondition of national banks seeking to obtain fundsthrough the public offering and sale of their securities.The disclosure guideline standards in the revised regula-tion were designed to facilitate compliance by smallerbanks and by organizing banks. For the first time, a

15


number of transactions were specifically exempted fromthe offering circular requirements.

The Law Department also implemented amendmentsto 12 CFR11, Securities Exchange Act Disclosure Rules,designed to make the regulation substantially similar toSEC rules, as mandated by law. Other changes weremade in the regulation in order to effect consistency withthe other reporting guidelines.

In connection with the Office's expanded respon-sibilities with respect to the regulation of bank municipalsecurities dealers under the Securities Acts Amend-ments of 1975, the Department coordinated with theSEC, the Municipal Securities Rulemaking Board andother interested parties in carrying out the requirementsof the Securities Exchange Act of 1934. Accountants as-signed to the Law Department also issued numerousinterpretations to bankers, public accountants and re-gional and Washington Office personnel regarding vari-ous accounting matters, including sale-and-lease backtransactions, accounting for dividends, accounting relat-ing to the establishment of charitable trusts and account-ing for accretion of discount on investment securities.

Interpretations and RegulationsDuring 1976, the Law Department responded to nearly4,000 requests for information, advice andinterpretations of statutes and regulations from membersof the Comptroller's staff, banks, attorneys, bank cus-tomers and others. In addition, many formal rulingsinvolving new policies and procedures or modificationsof existing policies and procedures were either pro-posed or issued. Some are described below.

Banking Circular No. 79. The Commodity Futures Trad-ing Commission has authorized the establishment of twofinancial instrument futures markets: the Chicago Boardof Trade's GNMA Mortgage Futures contract whichcommenced trading in October 1975, and the ChicagoMercantile Exchange's Treasury bill (T-bill) futures con-tract which commenced trading in January 1976. Manynational banks sought to purchase and sell GNMA orT-bil! futures contracts through those exchanges in orderto minimize their risk of loss resulting from interest ratefluctuations in corresponding cash markets, e.g., con-ventional mortgages, U.S. Treasury bills and certificatesof deposit. Because the Comptroller believes such activ-ity is incidental to the business of banking and permissi-ble under 12 USC 24(7), he issued Banking Circular No.79 on November 2,1976, advising all national banks thattheir participation in those markets will be approved if,among other things, they develop adequate internalaudit and control procedures and only engage in thoseactivities to substantially reduce the risk of loss resultingfrom interest rate fluctuations in appropriate cash mar-kets.Trust Banking Circular No. 4 (Revised). In the initial issueof Trust Banking Circular No. 4, December 23,1975, theOffice advised that investment of national bank trust as-sets in shares of mutual funds constituted an improperdelegation of the trust investment authority "under thecommon law" and that the Office would, therefore, per-mit such investment only if there existed specific author-ity in state statutes or decisions or in the governing

instrument, or if there existed binding mutual consentfrom all beneficiaries. That instruction was generallyinterpreted by national bank trust officers to precludeinvestment in mutual fund shares unless specific statelegislation expressly permitted investment by fiduciariesin mutual funds. General "prudent man" language inmany state statutes was thought insufficient to providethe necessary statutory authorization. Because theComptroller concluded that the Office should not at-tempt to state the common law of trusts on this questionin every state, he revised Trust Banking Circular No. 4 onSeptember 29, 1976, to permit national bank trust of-ficers, on advice of local counsel, to invest trust assets inshares of mutual funds if that investment is expressly orimplicitly authorized by state law.

Charitable Trusts. Legal arrangements and institutionalmechanisms were developed to permit national banksseeking to fulfill their charitable commitments andmaximize their tax benefits to establish 10-year charita-ble trusts under 12 USC 24(8) and 12 CFR 7.7445. Typi-cally, a national bank would transfer U.S. governmentsecurities to the trust as corpus for a 10-year and one-month period. The bank's trust department would serveas trustee and distribute all income generated by thecorpus to philanthropic organizations approved byInternal Revenue Service. Following the expiration of thetrust term, the trust would terminate and the assets wouldautomatically revert to the settlor bank. Because the trustassets would revert to the settlor bank after a fixed term,the Comptroller considered such a temporary transfer ofassets to be a contribution for the use of a foundation, nota contribution to a foundation under 12 CFR 7.7445(c);otherwise, the contribution limitations of paragraph (c)would effectively preclude the establishment of a trustthat could generate enough income to satisfy the needsof the respective charitable organizations.

12 CFR Parts 4 and 5. Parts 4 and 5 were amended onNovember 1, 1976, to clarify and consolidate the appli-cation procedures relating to the various activities sub-ject to supervision of the Comptroller and to expand thescope of the regulations to include additional activitieswithin the hearing procedures. Specifically, the amend-ments establish revised Office procedures for charters,branches, conversions, mergers, fiduciary powers,operating subsidiaries, title changes, relocations andchanges in capital structure.

Interpretive Ruling 7.6125. Section 56 of Title 12 of theUnited States Code requires that bad debts, i.e., "statut-ory bad debts," must be deducted from "net profits thenon hand" in order to compute funds available for thepayment of dividends. Confusion regarding the precisemeaning of "bad debt" became evident when certainoverdue real estate loans were so classified althoughlong-term workout schedules had been arranged thatminimized the risk of loss to the respective banks. Thataction created the possibility that some financially soundinstitutions would be precluded from declaring and pay-ing regular dividends. Accordingly, on December 14,1976, the Comptroller proposed that Interpretive Ruling7.6125 be amended to allow for greater flexibility in thetreatment of such problem credits. In that regard, the


proposed revision clarifies the meaning of "bad debts"without changing the substantive provisions of the pres-ent interpretive ruling.Interpretive Ruling 7.7479. On December 14, 1976, theComptroller proposed to amend this interpretive ruling inorder to permit a national bank to make charitable con-tributions based upon its income before taxes during thepreceding calendar half-year. The present ruling limitsthe amount contributed by a national bank to that "whichis allowed by the Internal Revenue Service as a deduc-tion from income." That proviso effectively limits charita-ble contributions to 5 percent of a national bank's taxableincome computed without regard to such items ascarrybacks for net operating losses or capital losses andcertain deductions. The limitation was originally de-signed to prevent management of closely held banksfrom contributing excessive sums to charities in whichthe bank's controlling stockholders have a personalinterest.

The Comptroller continues to believe that a limitation ofsome kind is necessary, but he does not think that the"taxable income" standard is the best method. Forexample, the present limitation unreasonably restrictsbanks that have low taxable income due to heavyinvestment in tax exempt securities from making con-tributions. That problem can be resolved by tying the 5percent limitation to income before taxes, rather thantaxable income.

Another problem created by the present ruling relatesto the difficulty of forecasting the permissible amountthat can be given to charity. Although contributions aremade throughout the calendar year, the net taxableincome may not be known until long after the year hasended. Therefore, the Comptroller has proposed au-thorizing national banks to contribute up to 5 percent of"income before income taxes and securities gains orlosses" registered during the immediately precedingcalendar half-year.Mortgage Backed Securities. In June 1976, the Comptrol-ler's Office approved a proposal by a commercial bankto sell conventional, single-family real estate loans to atrust which finances the purchase by selling mort-gage-backed bonds in denominations of $100,000 ormore to institutional investors. With the Comptroller's ap-proval, the plan was subsequently modified to eliminatethe trust and convert the security from a bond to apassthrough instrument backed by a pool of mortgages.The securities will be sold through an underwriting syn-dicate, and the proceeds will be used to make moremortgage loans.Credit Life Insurance. During 1976, the Law Departmentparticipated in several efforts to curb the payment ofcredit life insurance income to officers, directors and

controlling stockholders of national banks. The most sig-nificant effort was the publication of a proposed regula-tion declaring the practice an unsafe and unsound bank-ing practice. Earlier in the year, the Law Department filedan amicus brief in litigation brought by a minorityshareholder against a bank's directors who had divertedall the income from credit life insurance sales to a corpo-ration owned exclusively by them.

EnforcementIn 1976, the Comptroller's enforcement activities weremore intense than in any past year. Two administrativehearings were convened, testing the validity of Noticesof Charges and seeking final Orders to Cease and Desistpursuant to the Financial Institutions Supervisory Act, 12USC 1818(b) etseq. These hearings were the first involv-ing the Comptroller since passage of the Act in 1966.Both hearings resulted in judgments by an administra-tive law judge sustaining the charges.

The first hearing involved a Notice of Charges allegingsubstantial self-dealing and other "insider" abuses. Afinal Order was issued which largely circumscribed theability of insider personnel to favor their own interests.The second hearing involved excessive salaries andbonuses to officers and directors alleged to constitute anunsafe and unsound banking practice. In a judgmentsustaining the charges the administrative law judge rec-ommended a final Order limiting salaries and bonusesto amounts representing more normal industry levelswithin the bank's peer group.

The Law Department initiated 33 formal actionsagainst national banks in 1976. Although those actionscovered all areas of bank operations from capital ade-quacy to violations of consumer laws, certain subjectswere dealt with more frequently than others. Of the 33formal actions, 17 related to abusive self-dealing andself-serving transactions by senior officers, directorsand principal shareholders. Provisions for increasedcapital were made in 16 actions and the hiring of a newexecutive officer was required in 13. The implementationof new lending policies in writing was ordered in 12 ac-tions.

Directives were also issued to national banks requir-ing, among other things, that they comply with consumerprotection regulations and properly book credit lifeinsurance proceeds. Several national banks were re-quired to make reimbursement to borrowers who had re-ceived inaccurate or incomplete disclosures required bytheTruth-in-LendingAct, 15 USC 1601 etseq., and Fed-eral Reserve Regulation Z.

Civil money penalties were twice assessed against na-tional banks for failure to submit timely reports of condi-tion pursuant to 12 USC 161. Directors were required toreimburse the bank in the amount of the assessment.


VI. Fiduciary Activities of National Banks

During/1976,46 national banks applied for permissionto exercise fiduciary powers. Of them, 33 were ap-proved. At year-end, 2,008 national banks had the au-thority to exercise trust powers.

Much of the activity of the Trust Operations Divisionduring the year had to do with the implementation of therecommendations of the Haskin & Sells study. By year-end nearly all of those revisions had been completed.New trust examination procedures were devised by atask force of examiners early in the year. The procedureswere tested in a number of banks across the country dur-ing March and April by examiners who had not partici-pated in the drafting process and who were from regionsother than those from which the members of the taskforce had been drawn. In June, 70 trust examiners andassistant trust examiners attended a workshop held inWashington at which the use of the new procedures wasexplained. Examiners that attended the workshop re-turned to their regions to train other trust personnel in therevised procedures.

In October the new examination system was put intoeffect. In each region the first examination was of a largebank in which all task force members could participate tofinalize their training. A revised Handbook for NationalTrust Examiners was issued at that time. The handbookcontains all instructions necessary for trust examinersproperly to carry out their responsibilities. It also includescopies of all of the Office's rulings relating to trust ac-

tivities and copies of the revised questionnaires andchecklists utilized under the new procedures. Thus far,experience with the new examination procedures hasbeen favorable.

During the year the registration of national bank trans-fer agents with this Office was completed, currently 947national banks are registered. Discussions were heldwith the other banking agencies and the SEC with refer-ence to the formulation of proposed regulations relatingto turn-around time and safe handling of securities. In arelated activity the Office, together with the other bank-ing agencies and the SEC, proposed regulations pertain-ing to the supervision of clearing agents. That proposalwas still pending at year-end.

Another regulatory proposal published for commentduring the year related to the question of the separationof trust department investment decision makers fromother sources of non-public information regardingpublicly-traded securities which may exist in the bank.Many comments were received about that proposal. It ishoped that final regulations on this subject can be madeearly next year.

This Office also proposed an amendment to Regula-tion 9 which would limit the amount which a corporationcan borrow from a national bank trust department bymeans of a variable amount note to the bank's lendinglimit. Many comments were received with reference tothis proposal, most of which were significantly adverse.

19


VII. International Banking and Finance

The effects of economic resurgency in the UnitedStates, beginning in late 1975, extending into mid-1976,pausing slightly, and then ascending through year-end,stimulated similar direct and indirect positive economicprogress throughout the greater part of the industrializedworld. The developed nations continued to experiencevarying degrees of inflation, unemployment and under-utilization of industrial capacity. However, the degree oftheir revival from the seemingly insurmountable prob-lems of the preceding 3 years, especially those whichwere oil-related, justifies characterizing 1976 as a year ofrecovery. The stronger industrialized nations were ableto compensate satisfactorily for both the increasing con-sumption and price of oil; however, their weaker coun-terparts were forced to continue borrowing to financeoil-originated payments deficits. The non-oil producingdeveloping nations again fared poorly, tormented by un-interrupted domestic recession, depressed commodityprices and persistent oil-generated trade deficits. Thosedeficits, collectively amounting to an estimated $32 bil-lion during 1976, although reduced from $40 billion in1975, still presented tremendous financing problems toworld money markets. The stronger, semi-developed na-tions generally were able to finance their needs throughprivate bank sources, sometimes with the assistance ofpublic authorities. However, the lesser developed coun-tries were forced to rely more heavily on direct creditfrom international institutions, grants-in-aid and privatecredit guaranteed by official agencies. Nevertheless, re-schedulings and technical defaults did occur in a fewisolated instances. Total non-oil producing, lesserdeveloped nations' outstanding external debt grew to anestimated $180 billion by the end of the year. The yearended on a note of uncertainty, as internal division withinOPEC surfaced in the form of a split among the membersover oil price increases. While the relatively smallincrease by the two major producers was expected tohave little impact on the industrial nations, the fact thatthere was another increase could have substantial effecton the developing nations.

The world financial community, prompted by the pay-ments imbalances caused by the continued OPECsurpluses/non-oil developing countries deficits andconcerned by the prospects of such imbalances disturb-ing the financial markets, continued to voice the need forestablishing coordinated international payments mech-

anisms to cooperate in handling the recycling of OPECreserves. However, the world commercial banking sys-tem was again able to cope effectively with the problem.The foreign exchange markets endured periods of bothrational and irrational rate fluctuations, with several majorcurrencies suffering either deep depreciation or sub-stantial devaluation. Within the semi-floating exchangerate system, stronger currency nations came to the aid ofseveral weaker currency nations, helping to support theircurrencies during these crises.

During 1976, United States banks increased theirforeign lending by approximately $20 billion, with totaloverseas exposure now estimated at $80 billion. How-ever, the 1976 increase took the form of shorter-termcredits, a change from the medium and longer termloans of past years. Bankers reassessed their own rapidgrowth in lending overseas and, conversely, the rapidgrowth of borrowing by many countries. Several majorprivate bank credits were linked to adoption of economicstabilization programs by the borrowing countries, incooperation with official lenders. The international assetsof national banks were estimated to total over $150 billionat the end of 1976. Those assets were divided primarilyamong the national banks that operate foreign branches.Those banks are located in all 14 national bank regions.Foreign branches are now operated by about 100 na-tional banks. During 1976, the number of foreignbranches of national banks showed an overall net de-crease of 40, primarily because of the consolidation ofseveral branch systems into subsidiary banks that re-sulted from changes in host country laws. At year-end,total assets of the 635 foreign branches of national banksaggregated $135 billion, a 20 percent increase over the$112 billion at the end of 1975. National banks also con-tinued to hold investments in foreign financialinstitutions, either directly or through their Edge Act sub-sidiaries.

Supervisory responsibility for the international ac-tivities of all national banks is delegated to theInternational Operations Division of the Office of theComptroller of the Currency. Through a 6-man team ofexaminers based in London and experienced examinersselected from the 14 regions, the International Opera-tions Division conducts examinations of the internationaldivisions, foreign branches and foreign affiliates of na-tional banks. The examinations are especially tailored to

21


the organizational, geographical and reporting structureof the bank under examination and include evaluation ofthe quality of international loan and investment portfolios,analysis of foreign exchange activities and reportingprocedures, accounting and bookkeeping systems andadequacy of internal controls and audit programs. Theexaminations are coordinated by the International Op-tions Division and are conducted by examiners selectedfrom each region. At present there are approximately150 national bank examiners who regularly conductexaminations of international banking divisions withintheir home regions. During 1976, continuing the estab-lished OCC policy of performing direct on-site examina-tions of major foreign offices of national banks, 215 na-tional bank examiners travelled to 37 countries to con-duct examinations of 145 foreign branches with assetstotalling $66 billion. The assets of the remainingbranches, including $22 billion in shell branches in theCaribbean, were examined using records maintained atthe bank's head offices. Thirteen foreign electronic dataprocessing centers were also examined.

In conjunction with the OCC's program for develop-ment of comprehensive procedures for all phases ofbank examination, the International Operations Divisionproduced a series of policies and procedures specif-ically designed for examination of the international bank-ing activities of national banks. Field testing of those newprocedures began in December. Training ofinternational examiners continued to receive major em-

phasis, as a total of 93 examiners participated in quar-terly seminars on all phases of international bankingwhich were conducted by the International OperationsDivision. Five national bank examiners attended theSchool for International Banking which is sponsored bythe American Bankers Association. In addition, a bi-monthly newsletter comprised of relevant media articleswas mailed to approximately 300 examiners, as well asto the staffs of the Board of Governors, the Department ofthe Treasury and members of Congress.

The uncertain and sensitive area of direct and indirectlending by national banks to foreign governments, es-pecially those in the developing world, continued to pre-sent a supervisory issue for the OCC. The accurate anduniform assessment of the quality of such credits held inthe loan portfolios of national banks remained the task ofthe OCC Foreign Public Sector Credit Review Commit-tee, working in conjunction with the International Opera-tions Division.

During 1976, the International Operations Divisioncontinued to work closely with the staffs of Congress, theFDIC, the Board of Governors, the Bankers Associationfor Foreign Trade and foreign officials and bankers inorder to improve the quality and supervision of the Na-tional Banking System throughout the world bystrengthening both supervisory techniques and com-munications between the regulatory agencies, bankersand foreign governments.

Table 11

Examinations of overseas branches, subsidiaries, and EDP centers of national banks, 1972-1976

Year

19721973197419751976

Examinations

Branches andsubsidiaries

18492

13780

145

EDP centers

434

1513

Banks

1622232325

Countries

2428262537

Examiners

585996

153215


VIII. AdministrationThe Administration Department facilitates the work of

the Comptroller's Office by providing supporting ad-ministrative services. Established in 1975 as WashingtonOperations, it was reorganized in 1976 with the transferof the Research and Analysis and Systems and DataProcessing Divisions to the Deputy Comptroller for Eco-nomics. It is directed by the Deputy Comptroller for Ad-ministration and is comprised of three operating divi-sions — Bank Organization and Structure, Finance andAdministration and Personnel Management. Although aFinancial Accounting and Reporting unit is organization-ally a division of Administration, it is not yet operational.Its responsibilities are presently performed by otherunits.

Bank Organization and Structure DivisionThe responsibility of processing applications for char-ters, branches, conversions, operating subsidiaries, titlechanges and relocations was transferred to the regionaloffices in 1976. Concomitant with that transfer is an ex-pansion of the role of the regional offices in the decisionalprocess, particularly for branch applications. In 1975,each regional office appointed a regional director forcorporate activities to assist the regional administrator inmeeting that expanded responsibility.

During 1976, policy statements intended to providethe public and the banking industry with a better under-standing of the basis for corporate decisions were is-sued (See pp. 274-282 in this report). Additionally, allforms, instructions and internal processing procedureswere revised and will be continually scrutinized with aview toward further improvement.

Although much responsibility for processing applica-tions has been transferred to the regional offices, the BankOrganization and Structure Division in Washington willcontinue to have primary responsibility for processingmerger proposals and preparing substantive recom-mendations on mergers, new bank charters and debtcapital proposals.

Finance and Administration DivisionThis division includes two branches, Fiscal Managementand Administrative Operations, and is responsible forensuring the bureau's sound financial position, for per-forming its fiscal operations and for providing adminis-trative services, including procurement and propertymanagement.

During 1976, a budget program based on responsibil-ity accounting principles was developed and im-

plemented. Each unit prepared an expense budget forcalendar year 1977, then submitted it to a Budget Re-view Committee assembled to make recommendationsto the Comptroller. On approving the committee's pro-posed budget, the Comptroller reaffirmed the premise ofresponsibility accounting, that managers be responsiblefor expenditures under their jurisdiction.

A computer-produced monthly budget evaluation re-port designed in 1976 will be operational in 1977. It willcompare actual versus budgeted expenditures by func-tion. The system will identify areas where cost savingsmay be effected and should increase managers' aware-ness of the need to control expenses.

Development of the computer-based fiscal informa-tion system in 1976 was a major step toward providingmore knowledge of bureau spending and promoting op-timum utilization of financial and physical resources inthe future. A subsystem for property accounting willmaintain inventory on all capital expenditures, identify-ing them by acquisition date, cost, location and depre-ciated value.

The Fiscal Management Branch carried out a variety ofother activities in addition to assisting in development ofthe budget program and the fiscal information system.They are covered in "Financial Operations of the Officeof the Comptroller of the Currency" elsewhere in this re-port.

As a result of the recommendations in the Haskins &Sells study, the Administrative Operations Branch hasbeen very involved with facilities management andspace reorganization both at the Washington headquar-ters and at the 14 regional offices. Regional offices in At-lanta, Chicago, Minneapolis and San Francisco were re-located in 1976. The Boston and Portland offices also en-larged their headquarters. Two additional subregionaloffices were established.

During 1976, a Bicentennial exhibit produced by Ad-ministrative Operations on the history of banking and therole of the OCC in bank regulation was displayed inbanks throughout the country. That branch also con-tinued to provide procurement and to supply referenceassistance, printing and reproduction services to thebureau.

Personnel Management DivisionDuring 1976, the main objective of the Personnel Man-agement Division was to simultaneously operate ongo-ing programs and entirely new Human Resources pro-grams recommended by Haskins & Sells. The responsi-

23


bility for collecting information for new programs, study-ing their potential impact on operating branches andpersonnel and preparing specific program details wasgiven to several task forces made up of national bankexaminers. The Employee Relations Branch participatedin the development of new programs and in the upgrad-ing of existing ones. Manuals were prepared and distrib-uted to managers describing each of the proposedprograms. By year-end, a formal request for approval ofthe new Human Resources Division was forwarded to theSecretary of the Treasury.

Employee performance was highlighted in 1976 withthe presentation of achievement awards and seven cashawards for employee suggestions which were adopted.Twelve OCC employees were honored at this year'sTreasury ceremony. Guidelines were formulated forspecial achievement awards to be presented in 1977 toexaminers who served as regional discussion leaders inthe implementation of new bank examination proce-dures.

In Manpower Planning, efforts were concentrated onidentifying information essential in operating a long-range planning and budgeting system. Once identified,that information will be used to design a computer-baseddata system for manpower planning to coordinate theplanning and human resources functions. The programrelies upon maintenance of a comprehensive human re-sources information system (HRIS) and has as its goalthe assurance that the OCC will have the proper numberof people and skills available at all times.

A national recruitment program has been designed tohelp the OCC compete effectively with the financialcommunity for talented people. The program calls for anational director in Washington, D.C. and coordinators inthe regional offices. It includes professional recruitmenttraining for all OCC recruiters, and requires an aggres-sive college-university relations program to maintaincontacts with campus officials. An inter-regional referralsystem will provide qualified candidates with an oppor-

tunity to express geographical preferences, while ensur-ing that OCC geographic needs are satisfied. Finally, inconjunction with the manpower planning function, all re-cruitment activity will be monitored to determine the bestsources of potential employees and full compliance withEEO guidelines.

In order to carry out its mission effectively and to en-sure that all professional and technical employeesdevelop to their maximum potential, the OCC hascreated a modern, comprehensive personnel develop-ment program which recognizes that development oc-curs through an accumulation of work experience. Theprogram emphasizes, however, that such developmentcan be enhanced and accelerated through formal pro-grams of continuing education and career development.The program encompasses a systematic, planned ap-proach to provide well balanced education throughouteach employee's career. Seven education levels will becoordinated with individual experience levels to be re-sponsive to the mutual needs of the individual and the Of-fice. A personnel development task force of nationalbank examiners completed its extensive study of con-tinuing education needs and designed a program whichencompasses many different courses to meet the longrange needs of our employees.

Technical education for examiners focuses on variousaspects of bank examination, and is tailored to the newbank supervisory procedures the OCC is implementing.Technical concepts will be presented early and morecomplex practices and policies will be approached inlater career stages. Elective courses will provide spe-cialization in such areas as international banking orexamination of computer systems. Management educa-tion will provide personnel with a thorough knowledge ofthe skills needed to meet the increasing demands facingprofessional managers. The total technical and man-agement curriculum will provide our primary staff, ap-proximately 2,500 bank examiners, with 17.4 weeks offormal education during their first 10 years with the OCC.


IX. Consumer AffairsThe Consumer Affairs Division of the Comptroller of the

Currency was created in March 1974, before it was legis-latively mandated, and became operational in Sep-tember 1974. From that time, the division has been re-sponsible for the enforcement of all consumer protectionlaws applicable to national banks. The division has equalstatus with other, long established divisions of the Comp-troller's Office and participates similarly in overall pol-icy planning. The Consumer Affairs Division conductsspecialized examinations of each national bank, on acontinuing basis, to enforce compliance with consumerlaws and regulations.

The Consumer Affairs Division performs several basicfunctions:

• Counselling the Comptroller of the Currency onall matters which affect consumers.

• Receiving consumer complaints and resolvingthem.

• Coordinating, supervising and reviewing con-sumer examinations.

• Following up on and supervising corrective ac-tion in cases of noncompliance discovered dur-ing the consumer examination.

• Monitoring, updating, and improving consumerexamination procedures.

• Compiling of new and revised laws and regula-tions and disseminating them to banks and thepublic.

• Monitoring the development of electronic fundstransfer systems.

In performing those functions, the division ensures com-pliance with consumer laws. The division's first concernis the consumer, and that commitment is best served byguaranteeing that national banks comply with consumerlaws and by informing consumers of their rights and rem-edies.

During 1976, the National Commission on ElectronicFund Transfers (NCEFT) became active. Mr. Thomas W.Taylor, Associate Deputy Comptroller and director ofthis division, represents this Office on the Commission.The Office has played a major role in supporting its ac-tivities. Many of the critical areas of concern in EFT havebeen reviewed and several recommendations havebeen made to Congress.

On April 16, 1976, the Office of the Comptroller of theCurrency issued guidelines containing policy state-ments on the development of electronic fund transfers

(EFT). Those guidelines on non-legal issues addressconsumer concerns as well as security considerationsand are based on an extensive study of existing EFTnetworks. The guidelines will be incorporated intoexamination procedures and have been well received,as evidenced by distribution of more than 16,000 copiesto banks, state supervisors, data processors, consumergroups and other interested parties. Guidelines weredeemed more appropriate than regulations becausethey do not restrict innovative developments in EFT;however, they are meant to convey our regulatory con-cern about EFT.

ComplianceThe Consumer Affairs Division's statutory obligation isadministered through the bank examination process andby the review and resolution of consumer complaints.The Comptroller has assigned a specially trained corpsof national bank examiners to conduct consumer com-pliance investigations. Over 6 percent of the field staffhas been allocated to the consumer area. Thoseexaminers are supported by regional consumer spe-cialists in each national bank region. During 1976, the di-vision conducted three 2-week schools that trained morethan 140 examiners in the new consumer examinationprocedures. A second series of three schools is sched-uled for March and April 1977, and a third series will takeplace in the fall.

The schools stress examination techniques and relyheavily on case studies to give experience in examiningfor compliance. The procedures are tailored to spotthose problems that are most likely to harm consumers.Particular emphasis is placed on evaluating policies andpractices to detect unlawful discrimination. Bank lendingpolicies are examined as are policies implementing con-sumer protection laws. Consumer examinations alsoinvolve extensive interviews with bank lending officers toassure that the bank adheres to its policy standards.

In 1976, the Consumer Affairs Division developed theComptroller's Handbook for Consumer Examinations.The handbook is divided into thirteen sections each ofwhich relates to a specific law, regulation or banking ac-tivity. Each section, where applicable, is divided into fourareas of interest.

• Introduction—which details the major provisionsof the law, regulation, or activity being discussed.This section is meant to apply the language of theregulation to various banking operations.

25


• Examination Objectives — which contains a de-scription of the goals that should be of primaryinterest to the examiner.

• Examination Procedures — which represents the"what to do" of the examination process. Theseprocedures explain the order in which the workprograms should be executed.

• Verification Procedures — which represent the"how to do it" of the examination process.

The handbook has been shared with numerous otherregulatory agencies and copies have been distributed toall examiners and all national banks.

The consumer report of examination has been devel-oped and the division prepares comprehensivechecklists and work papers to examine for bank com-pliance with consumer protection laws. The results of theexaminations indicate that the specialized examinationis both justified and effective.

The consumer report of examination consists of fivesections:

• Compliance — details the area o f 'non-compliance giving the appropriate citation;

• Internal control — summarizes deficiencies in thebank's program and recommends that certainprograms be implemented;

• Corrective action—outlines the action taken or tobe taken by the bank to correct past non-compliance and assure future compliance;

• Discriminatory policies/practices — detailsquestionable activities which may be dis-criminatory; and

• Impact of noncompliance — estimates monetaryharm suffered by consumers because of non-compliance.

The consumer examination now covers the EqualCredit Opportunity Act, Regulation B, the HomeMortgage Disclosure Act, Regulation C; the Real EstateSettlement Procedures Act, Regulation X; the Truth-in-Lending Act, Fair Credit Billing Act and Consumer Leas-ing Act, Regulation Z; the Fair Credit Reporting Act; theFair Housing Act; Regulation Q; and applicable statelaws.

When noncompliance is found during an examination,corrective action begins during the examination and theproblem may be resolved immediately. If the issue can-not be resolved during the examination, it is referred tothe regional office. In a few instances, final resolution isaccomplished by the Washington Office.

There are two primary ways of correcting non-compliance. When noncompliance has not resulted inmonetary harm to the consumer, the bank is directed toimmediately correct its procedures and forms. Whencustomers have suffered monetary harm, such asthrough a miscalculation of annual percentage rate, thebank may be directed to reimburse affected customersfor the excess amounts charged. Banks are encouragedto voluntarily reimburse the affected customers. When abank fails to adequately do so, the Office of the Comptrol-ler of the Currency is empowered to commence formalenforcement proceedings against the bank. The Officehas used cease and desist authority and has made refer-

rals to the United States Department of Justice. During1976, in connection with noncompliance with consumerlaws and regulations, six such administrative actionswere taken and several referrals were made to the UnitedStates Department of Justice.

During 1976, the division began to develop a systemto tabulate perceived violations of law. The purpose indeveloping that computer-based system is to give theOffice the ability to analyze trends in order to pinpointproblem areas that need attention and to facilitate cor-rective action.

Noncompliance may also be noted through the con-sumer complaint process. Complaints against nationalbanks cover the full spectrum of consumer banking ac-tivities. Upon receipt of complaint, the OCC contact thebank concerned by letter or, if necessary, by anexaminer's visit. Depending on what is discovered,either the bank is asked to remedy its error or the com-plainant is informed that no basis has been found for thecomplaint.

A Consumer Complaint Information System (CCIS)became operational at the 14 regional offices in January1976. The CCIS enables the division to catalog com-plaints on a nationwide basis and to determine whichbanks have a disproportionate number of complaintsfiled against them. The information available from thissystem allows the Office to identify common consumerproblems. The information is also valuable in conductingconsumer examinations.

LegislationDuring 1976, Congress enacted the Consumer LeasingAct (15 USC 1667) and amended the Equal Credit Op-portunity Act (15 USC 1691) and the Real Estate Settle-ment Procedures Act (12 USC 2601). The Federal Re-serve Board was entrusted with the responsibility forpromulgating regulations to implement the ConsumerLeasing Act (Regulation Z) and the Equal Credit Oppor-tunity Act (Regulation B). The Department of Housingand Urban Development (HUD) was entrusted with theresponsibility of promulgating regulations to implementthe Real Estate Settlement Procedures Act (RegulationX). This division participated in the regulation makingprocess by offering comments to the Board and to HUD.We also incorporated those acts and regulations into ourhandbook of consumer examination and verificationprocedures.

Also, the Home Mortgage Disclosure Act (12 USC2801), enacted in 1975, became effective June 28,1976,and is implemented by the Board's Regulation C. Wehave also included that regulation in our handbook ofconsumer examination and verification procedures.

In addition, the division has the continuing responsibil-ity for enforcing compliance with previously enactedstate and federal consumer protection laws as theyapply to national banks.

The Consumer Affairs Division maintains a legislativelog for each session of Congress. That log keeps the di-vision and other departments of the Comptroller's Officeupdated on all pending consumer legislation and, also,on all proposed and promulgated rules of the variousregulatory agencies.


LiaisonThe division maintains continuing liaison with federalregulatory agencies, state banking departments, con-sumer interest groups and industry associations to en-sure mutual assistance and an intercharge of ideasabout consumer protection in banking. The Federal Re-serve has the responsibility for promulgating severalconsumer protection regulations and this Office hasbenefited from their invitations to comment on proposedregulations and from their formal and informalinterpretations issued after the regulations have becomeeffective.

Members of the Division of Consumer Affairs of theBoard of Governors of the Federal Reserve System, theOffice of Bank Customer Affairs of the Federal DepositInsurance Corporation, and the Comptroller's ConsumerAffairs Division meet frequently to discuss mutual prob-lems and concerns. Information is exchanged concern-ing consumer complaints and examination procedures.

The assistance of the Division of Consumer Affairs of theBoard of Governors of the Federal Reserve System wasvaluable in the compilation of the Comptroller's Hand-book for Consumer Examination and this division hasprovided them with similar assistance in developing theirnew examination program.

Consultations are held with the Federal Trade Com-mission, the Federal Home Loan Bank Board, the De-partment of Housing and Urban Development and theCivil Rights Division of the Department of Justice. In De-cember 1976, this Office signed an agreement with theCivil Rights Division of the Department of Justice whichwill permit members of the Civil Rights Division, as ob-servers, to accompany national bank examiners to sev-eral national banks during an examination for com-pliance with the Fair Housing Act. The purpose of thatcooperation is so that examiners may be instructed intechniques of detecting discriminatory practices.


X. Other Activities

Operations ReviewPrior to 1976 OCC had no formal operation's review pro-gram and no individual or group had overall responsibil-ity for the review, evaluation and monitoring of the qualityof the OCC's performance of its bank supervision andregulation functions. In 1976, the importance of such aprogram was realized and a Deputy Comptroller for Op-erations Review was named. It is his responsibility todevelop and maintain the program; he reports directly tothe Comptroller of the Currency.

The first review of operating procedures was con-ducted in 1976 and covered the commercial examina-tion process. A review team of 56 members, four fromeach of the 14 regions, was selected and members wereassigned to regions other than their own. A questionnairewas utilized and each team filed a report following the re-view of selected examination working papers, reportsand correspondence files. The Washington staff pre-pared a consolidated report to the Comptroller.

Operations PlanningOperations planning is a continuous management pro-cess involving all executives, managers and supervisorsof all units of the Comptroller's Office, In 18-month over-lapping cycles starting each July 1, they plan, coordi-nate, manage and control policy and operating deci-sions to meet current and future demands on nationalbank supervision and regulation. As each cycle begins,the senior management group sets policy objectives andfunctional operating goals. The objectives and goals, to-gether with assumptions pertaining to the ever-changingeconomic, political, social and technological environ-ments in which the Office and the banking industry oper-ate, form the bases for result-oriented performancetargets and action programs set out in operational plansadopted by each functional, staff and operating unit.Those unit plans cover the upcoming year and 5 yearsbeyond. They are consolidated, under the direction ofthe Deputy Comptroller for Operations Planning, into anoperating plan covering the same time span. The DeputyComptroller is responsible for the development and ef-fective functioning of the planning process.

Throughout 1976, the Operations Planning Depart-ment conducted orientation programs for key executivesand managers in Washington and in the regions. Early inthe year, it conducted workshops for unit heads andplanning associates, during which the first broad out-

lines of the planning process evolved. By May, the de-partment had developed an operations planning guide,which was used by all units in an abridged planning cy-cle, primarily to learn the process. From experiencegained from that abridged cycle, the process and guidewere refined and modified. A full length cycle was begunin July 1976. Policy objectives and operating goals wereset and furnished to each unit and, by year-end, theplanning process was fully operational, with unit plansexpected early in 1977.

Economic Research and Operational AnalysisIn October 1976, the Research and Analysis Division,Statistical Division and Systems and Data ProcessingDivision were reorganized as the Department of Eco-nomic Research and Operational Analysis, under theadministrative direction of the Deputy Comptroller forEconomics and the Associate Deputy Comptroller forEconomic Research and Operational Analysis. Althoughthat change necessitated a few revisions in divisiontitles, the staffs and operations of the divisions remainedlargely unchanged.Economic Research and Analysis. By year-end, the au-thorized staff of the Division was eight senior economistsincluding the director and deputy director, five financialanalysts/research assistants, an editor, and three sec-retaries. In addition, the Division included regionaleconomists in each of the 14 national bank regions. Dur-ing the first full year that it was fully staffed, the divisionproduced substantial work for the agency and for theadvancement of knowledge in the field of economics.

Major research projects by the Washington staffincluded the Fair Housing Lending Pilot Project, which isbeing used to implement fair housing regulations andalso to determine the effects, if any, of "redlining." Otherprojects related to market location and chartering prac-tices, loan rates and risk, liquidity, minority banks, statu-tory lending limits and loan size, examiner manpowerplanning and a detailed examination of the effect of fi-nancial institution reform in the state of Maire. Regionaleconomists also contributed to Office research as wellas performing their regional duties. Research by re-gional economists included studies of classified assets,potential competition, international bank examination,common trust funds and bank executive compensation.In accordance with recommendations of Haskins &Sells, the regional duties of the regional economists were

29


expanded to include economic planning and relateditems.Financial Reports and Statistics. This division has pri-mary responsibility for collecting, editing and inputtingaccurate and timely bank financial data for use by the Of-fice of the Comptroller of the Currency and other bankingregulatory agencies in support of their regulatory func-tion. The data bases thus established have importantstrategic uses in administering early-warning and eco-nomic forecasting systems. Additionally, the divisionfunctions as the official custodian for financial and statis-tical reports required from national banks includingthose required under certain provisions of Title 12 of theUnited States Code and the Code of Federal Regula-tions.

During 1976, the division reviewed and edited approx-imately 88,000 financial reports received in response tothe Comptroller's quarterly calls on over 4,700 nationalbanks. The division also responded to numerous callsfrom banks seeking assistance in the preparation of thevarious call report forms and special supplements. Over1,800 Trust Department Annual Reports were receivedand edited and over 800 Common Trust Fund Surveysfrom banks and trust companies administering commontrust funds were processed.

The division is responsible for preparing various statis-tical tables and schedules for use in the Comptroller'sAnnual Report and other interagency publications andreports.

The disclosure unit of the Division of Financial Reportsand Statistics is the focal point for the release of quarterlyfinancial statements, reports on trust department secu-rity transactions and holdings, and various annual reportand proxy materials from national banks subject to thedisclosure rules of the Securities Act of 1934. That unitresponded to approximately 1,300 requests for copies ofbank reports from interested parties in both the publicand private sectors in 1976. Those requests resulted inthe production of over 196,000 pages of material.Systems and Data Processing. During 1976, the majoractivities of the Systems and Data Processing Divisionwere conducted toward fulfilling the requirements of thebureau's three major information systems:

• The Regulatory Information System;• The Fiscal Information System; and• The Administrative Information System

The National Bank Surveillance System (NBSS), amajor component of the Regulatory Information System,became fully operational during the year. Effort in thatarea has resulted in the development of an error free na-tional bank data base for each quarterly call within 45calendar days of the report due date. On-going activitiesinvolve expanding and refining the data base and pro-viding system output to bureau users and nationalbanks.

Also in the regulatory area, an automated public dis-closure system was developed and became opera-tional. Basically, the system produces those reports onnational banks that are available to the public, on re-quest. The Financial Reports and Statistics Division'spublic disclosure unit receives a large number of re-quests from the public for copies of call report docu-ments. The new automated system greatly reduces themanual burden of responding to such requests bycomputer-generating needed data in report format. Sys-tems and Data Processing also designed a new, auto-mated trust annual report processing system during1976.

The Fiscal Information System, a computerized ac-counting system software package, was thoroughlytested and selected to prepare for an early 1977 conver-sion from the current system to a new and advancedprocessing system. The system will identify the operat-ing cost of each organizational unit and comparebudgeted figures with actual expenditures throughperiodic, computer-generated financial reports. Also inthat area, the bureau's semiannual assessment returnwas redesigned as a computer-generated self mailer.

The automated Human Resources Information System(HRIS) is being developed to meet the Office's need foraccurate and up-to-date information concerning theemployee work force. That system is a major componentof the Administrative Information System. The elementsof this data base focus on formal education, job experi-ence, skills inventory and continuing education. Suchstatistics will provide a valuable management tool formanpower planning purposes, budgeting consid-erations and for monitoring progress in employee careerdevelopment. The HRIS task force, with members fromthe human resources user area and from the divisionstaff, has developed the general system design and hasidentified preliminary system requirements and man-agement reporting needs.


XI. Financial Operations of the Office of theComptroller of the Currency

Total revenue of the Office of the Comptroller of theCurrency for 1976 was $82.8 million, an increase of 40.6percent over 1975, compared to a 3.7 percent increasein the previous year. Assessment receipts, which ac-count for 92 percent of total revenue, amounted to $76.1million, an increase of $24.4 million due principally to anincrease in rates. Revenue from trust examinations to-taled $2,527,000, a decrease of $186,000. Revenuefrom applications for new branches and mergers andconsolidations increased by $152,000 and $83,000, re-spectively. New bank charter fees declined $9,000.Interest on investments decreased $450,000, a declineof 15 percent, to a total of $2,547,000. The other revenuecategories remained at substantially the same levels asin 1975.

Total expenses amounted to $80.4 million, comparedto $68.6 million for 1975, an increase of $11.8 million.That represents a 17.1 percent increase in 1976, com-pared to the 23.6 percent increase for 1974 to 1975.

Salaries, personnel benefits and travel expensesamounted to $66.3 million, or 82.5 percent of total ex-penses for the year. Those three expenses amounted to$59.2 million in 1975. Salary increases were caused by afull year under the government-wide general payincrease of 5 percent, effective October 1975, andanother general pay increase of 4.8 percent effectiveOctober 1976, and an increase in our examining staffand support personnel. Travel expenses totaled $12.1million, a rise of $1.6 million over 1975. That increase was

caused by higher per diem and mileage allowances, aswell as by the increase in the examining staff. The higherper diem and mileage allowances were in line withincreases authorized for employees of all federal agen-cies.

The remaining expenses totaled $14.0 million, anincrease of $4.2 million over the previous year. The mostsignificant increases occurred in data processing, con-sultants and education. The greater data processingand consulting costs result from implementation of theprocedures study recommendations and the continua-tion of programs implemented in 1975. The increase ineducation results from the greater emphasis on that areaand from training examiners in the new examinationtechniques adopted as a result of the procedures study.Although the costs related to the procedures study havebeen substantial, for the most part they represent non-recurring costs and the results achieved have been wellworth the cost in terms of more effective bank supervi-sion by the Comptroller of the Currency.

The equity account is in reality a reserve for con-tingencies. The financial operations of 1976 haveincreased that reserve by the $2.5 million excess of rev-enue over expenses to $26.5 million at year-end. Thatrepresents a 3.7-month reserve for operating expenses,based on the level of expenses over the last threemonths of 1976. The equity account has been adminis-tratively restricted in the amount of $2,330,000, as ex-plained in Note 3 to the financial statements.

31


Table 12

COMPTROLLER OF THE CURRENCYBALANCE SHEETS

ASSETSCurrent assets:

CashObligations of U.S. government, at amortized cost (approximates market value) (Note 1)Accrued interest on investmentsAccounts receivableTravel advancesPrepaid expenses and other assets

Total current assets

Long-term obligations of U.S. government, at amortized cost (approximates market value) (Note 1).

Fixed assets and leasehold improvements, at cost (Note 1):Furniture and fixturesOffice machinery and equipmentLeasehold improvements

Less accumulated depreciation and amortization

Total assets

LIABILITIES AND COMPTROLLER'S EQUITY

Current liabilities:Accounts payable and accrued expensesTaxes and other payroll deductionsAccrued travel and salaries

Total current liabilities

Long-term liabilities:Accgmulated annual leaveClosed Receivership Funds (Note 2) .

Total liabilities

Comptroller's equity:Administratively restricted (Note 2)Unrestricted

Total liabilities and Comptroller's equity

December 311976

$ 167,87615,619,372

410,908506,308589,041317,227

17,610,732

13,426,442

2,719,323934,731

4,394,285

8,048,3391,517,084

6,531,255

$37,568,429

$ 2,065,099193,881

2,759,575

5,018,555

3,377,3542,705,297

11,101,206

2,330,00024,137,223

26,467,223

$37,568,429

1975

$ 603,2666,001,948

470,838341,737580,857225,378

8,224,024

19,091,952

2,446,058803,942

3,913,197

7,163,1971,063,666

6,099,531

$33,415,507

$ 1,062,306211,744

2,118,915

3,392,965

3,301,4202,704,743

9,399,128

2,160,00021,856,379

24,016,379

$33,415,507

See notes at end of tables.


Table 13

COMPTROLLER OF THE CURRENCYSTATEMENTS OF REVENUE, EXPENSES AND COMPTROLLER'S EQUITY

Year ended December 31

1976 1975Revenue (Note 1):

Semiannual assessments $76,128,296 $51,753,849Examinations and investigations 3,828,929 3,860,808Investment income 2,546,640 2,997,207Examination reports sold 219,977 223,945Other 85,682 62,117

82,809,524 58,897,926

Expenses:Salaries 49,305,710 44,073,615Retirement and other employee benefits (Note 3) 4,898,077 4,204,230Per diem 7,972,002 7,220,781Travel 4,152,614 3,289,408Rent and maintenance (Note 3) 2,977,690 2,613,596Communications 1,219,463 '859,509Moving and shipping 1,095,522 640,901Employee education and training 1,700,485 1,152,363Data processing 1,690,655 '378,940Printing, reproduction and subscriptions 993,668 707,601Office machine repairs and rentals 425,457 321 ^684Depreciation and amortization 498J20 386J28Supplies 431,249 310,715Consulting services 2,525,685 1,926,987Conferences 162,144 190,586Remodeling 49,407 117,389Other 260,132 187,645

80,358,680 68,582,078

Excess (deficiency) of revenue over expenses 2,450,844 (9,684,152)Comptroller's equity at beginning of year 24,016,379 33,700,531

Comptroller's equity at end of year $26,467,223 $24,016,379

See notes at end of tables.


Table 14

COMPTROLLER OF THE CURRENCYSTATEMENTS OF CHANGES IN FINANCIAL POSITION

Year Ended December 31

Financial resources were provided by:Excess (deficiency) of revenue over expensesCharges and (credits) not affecting working capital in the period:

Additions to accumulated annual leaveDepreciation and amortizationAmortization of premium and accretion of discount on long-term U.S. government obli-

gations, netNet loss on sale of fixed assets

Working capital provided by (used for) operations for the periodLong-term U.S. government obligations transferred to current assetsProceeds from sale of fixed assetsNet closed receivership fund receipts (disbursements)

Total

Financial resources were used for:Purchase of leasehold improvementsPurchase of fixed assetsPayment of accrued leave

Total

Increase (decrease) in working capital

Analysis of Changes in Working Capital

Increase (decrease) in current assets:CashObligations of U.S. governmentAccrued interestAccounts receivableTravel advancesPrepaid expenses and other assets

(Increase) decrease in current liabilities:Accounts payable and other accrualsTaxes and other payroll deductionsAccrued travel and salaries

Increase (decrease) in working capital

1976

$2,450,844

391,114498,720

(16,872)207

3,324,0135,682,382

8,448554

9,015,397

481,088458,011315,180

1,254,279

$7,761,118

$ (435,390)9,617,424

(59,930)164,571

8,18491,849

9,386,708

(1,002,793)17,863

(640,660)

(1,625,590)

$7,761,118

1975

$(9,684,152)

629,131386,128

(21,010)2,338

(8,687,565)7,998,719

2,525(2,189)

(688,510)

1,257,9491,017,895

244,871

2,520,715

$(3,209,225)

$ 482,029(2,968,698)

(228,521)89,49443,97226,826

(2,554,898)

(138,448)(33,094)

(482,785)

(654,327)

$(3,209,225)

See notes on next page.


Notes to Financial StatementsDecember 31, 1976 and 1975

Note 1—Organization and Accounting PoliciesThe Comptroller of the Currency (Comptroller's Office) was created

by an Act of Congress for the purpose of establishing and regulating aNational Banking System. The National Currency Act of 1863, rewrittenand re-enacted as The National Banking Act of 1864, created theComptroller's Office, provided for its supervisory functions and thechartering of banks. The revenue of the Comptroller's Office is derivedprincipally from assessments and fees paid by the national banks andinterest on investments in U.S. government obligations. Assessmentspaid by national banks are not construed to be government funds. Nofunds derived from taxes or federal appropriations are allocated to orused by the Comptroller's Office in any of its operations. The Comptrol-ler's Office is exempt from federal income taxes.

The accounts of the Comptroller's Office are maintained on the ac-crual basis. Furniture, fixtures, office machinery and equipment aredepreciated on the straight-line basis principally over estimated usefullives of 10 years. Leasehold improvements are amortized over theterms of the related leases (including renewal options) or the estimateduseful lives, whichever is shorter. Premiums and discounts oninvestments in U.S. government obligations are amortized or accretedratably over the terms of the obligations. U.S. government obligationshaving a maturity date more than 12 months from the date of the finan-cial statements are classified as long-term investments.

Note 2—Closed Receivership FundsPrior to the assumption of closed national bank receivership func-

tions by the Federal Deposit Insurance Corporation in 1936, the Comp-troller of the Currency appointed individual receivers for all closed na-tional banks. After settling the affairs of the closed banks and issuingfinal distributions to the creditors of the banks (principally depositors),the receivers transferred to the custody of the Comptroller's Office allremaining funds which represented distributions which were undeliv-erable or had not been presented for payment. Closed ReceivershipFunds in the accompanying balance sheets represent the potentialclaims for such funds by the original creditors of the receiverships.Since inception of the receivership function, unclaimed funds havebeen invested in U.S. government securities. The income frominvestments has been applied as an offset to expenses incurred by theComptroller's Office in performing this function and accordingly hasbeen recorded as revenue in the statements of revenue, expenses andComptroller's equity. Through December 31, 1976, income has ex-ceeded direct expenses by approximately $2,330,000 (including$170,000 and $160,000 in 1976 and 1975, respectively), which excessamount is included in the Comptroller's equity. An analysis of allocableindirect expenses has not been made.

In its reexamination of the legal status of Closed ReceivershipFunds and related excess income earned thereon, the Comptroller's

legal staff has been unable to locate any definitive statutory or case lawwhich specifies the ultimate disposition of such funds. In the absenceof legal precedent, the legal staff is unable to currently give a definitiveopinion as to the appropriate disposition of either the unclaimed re-ceivership funds or the excess income from investment of such funds.The Comptroller is in the process of seeking legislative resolution ofthese matters.

Pending a resolution of the legal uncertainties and legislative actionsurrounding these funds, the Comptroller's Office has included a liabil-ity for Closed Receivership Funds in its balance sheets and recognizedincome from investment of such funds as revenue in its statements ofrevenue, expenses and Comptroller's equity. In recognition of theseuncertainties, the Comptroller has administratively restricted a portionof the Comptroller's equity in an amount that approximates the excessincome earned from investment of Closed Receivership Funds sincecustody of the funds commenced.

Note 3—Commitment and ContingenciesRegional and sub-regional offices lease office space under

agreements which expire at varying dates through 1990. Minimumrental commitments under 100 leases in effect at December 31, 1976aggregate approximately $1,365,000 for 1977 and varying lesseramounts each year thereafter, to approximately $938,000 for 1981,$3,005,000 for the period 1982-1986, and $499,000 for the period1987-1990. In addition, the Comptroller's Office occupies office spacein Washington, D.C., under a lease agreement which provided for aninitial 5-year term with five consecutive 5-year renewal options. TheComptroller's Office has exercised two of its options through 1989.Rent is at an annual rate of $1,660,000. Certain of the leases providethat annual rentals may be adjusted to provide for increases in taxesand other related expenses.

The Comptroller's Office contributes to the Civil Service retirementplan for the benefit of all its eligible employees. Contributions aggre-gated $3,381,600 and $3,000,900 in 1976 and 1975, respectively. Theplan is participatory, with 7 percent of salary being contributed by eachparty.

The accompanying balance sheets include a liability for annualleave, accumulated within specified limits, which if not taken by em-ployees prior to retirement is paid at that date.

Various banks in the District of Columbia have deposited securitieswith the Comptroller's Office as collateral for those banks entering intoand administering trust activities. These securities, having a par orstated value of $12,593,000 are not assets of the Comptroller's Officeand accordingly are not included in the accompanying financial state-ments.

The Comptroller's Office is a defendant, together with other banksupervisory agencies and other persons, in litigation generally relatedto the closing of certain national banks. In the opinion of the Comptrol-ler's legal staff, the Comptroller's Office will'be able to defend success-fully against these complaints and no liability is expected to resulttherefrom.

OPINION OF INDEPENDENT ACCOUNTANT

To the Comptroller of the CurrencyIn our opinion, the accompanying balance sheets, the related statements of revenue, expenses and Comptroller's

equity and of changes in financial position present fairly the financial position of the Comptroller of the Currency atDecember 31,1976 and 1975, and the results of its operations and the changes in its financial position for the years thenended, in conformity with generally accepted accounting principles consistently applied. Our examinations of thesestatements were made in accordance with generally accepted auditing standards and accordingly included such testsof the accounting records and such other auditing procedures as we considered necessary in the circumstances,including confirmation of securities owned at December 31,1976 and 1975, by correspondence with the custodians.

Price Waterhouse & Co.Washington, D.C.April 29, 1977.


APPENDIX A

Merger Decisions, 1976


Merger* Decisions, 1976/. Mergers consummated, involving two or more operating banks

Jan. 2, 1976: PageCitibank (Western), National Association, Buffalo, N.Y.Citibank (Eastern), National Association, Castleton-on-

Hudson, N.Y.Citibank (Central), National Association, Oriskany Falls,

N.Y.Citibank (Mid-Western), National Association, Honeoye

Falls, N.Y.Merger 43

Jan. 2, 1976:First National City Bank, New York City, N.Y.Citibank (Suffolk), National Association, Islip, N.Y.Citibank (Mid-Hudson), National Association, Woodbury,

N.Y.Merger 43

Jan. 2, 1976:National City Bank, Cleveland, OhioThe Bank of Cleveland, Cleveland, OhioMerger 44

Jan. 10, 1976:First National State Bank of New Jersey, Newark, N.J.The Bank of Bloomfield, Bloomfield, N.J.Purchase 45

Jan. 15, 1976:Southeast First National Bank of Sarasota, Sarasota, Fla.Palmer First National Bank and Trust Company of Sarasota,

Sarasota, Fla.Purchase 46

Jan. 31, 1976:Bank of Virginia N.A., Vinton, Va.Bank of Virginia—Danville, Danville, Va.Merger .. 48

Jan. 31, 1976:Bank of Virginia N.A., Vinton, Va.Bank of Virginia—Lynchburg, Lynchburg, Va.Merger 48

Feb. 3, 1976:Old Colony Bank of Hampden County, N.A., Holyoke,

Mass.Heritage Bank and Trust Company, Westfield, Mass.Merger 49

Feb. 6, 1976:First National State Bank/Mechanics, Burlington Township,

N.J.Somerset Hills & County National Bank, Basking Ridge,

N.J.Merger 50

Feb. 16, 1976:First Tennessee National Bank, Chattanooga, Tenn.The Hamilton National Bank of Chattanooga, Chattanooga,

Tenn.Purchase 50

Feb. 17, 1976:United National Bank, Rapid City, S. Dak.Union Bank & Trust, Sioux Falls, S. Dak.Consolidation 51

Mar. 1, 1976:South Loop National Bank, Houston, Tex.South Texas Bank, Houston, Tex.Purchase 52

Mar. 5, 1976:Old National Bank of Washington, Spokane, Wash.Bank of the West, Bellevue, Wash.Purchase 53

Mar. 5, 1976: PageThe Farmers National Bank of Annapolis, Annapolis, Md.The Millington Bank of Maryland, Millington, Md.Merger 54

Mar. 9, 1976:The First National Bank of Huntsville, Huntsville, Ark.The Valley Bank, Hindsville, Ark.Purchase 55

Mar. 15, 1976:United National Bank, Castlewood, S. Dak.First State Bank, Lake Norden, S. Dak.Merger 56

Mar. 15, 1976:Virginia National Bank, Norfolk, Va.North American Bank and Trust, Leesburg, Va.Merger 57

Mar. 17, 1976:Peoples Bank of Mississippi, National Association, Union,

Miss.Clinton National Bank, Clinton, Miss.Merger .. 58

Mar. 20, 1976:Puget Sound National Bank, Tacoma, Wash.Continental Bank, Burien, Wash.Purchase 59

Mar. 26, 1976:The Edison Bank, National Association, South Plainfield,

N.J.First National State Bank of the Jersey Coast, Spring Lake,

N.J.Merger 60

Mar. 31, 1976:Euclid National Bank, Euclid, OhioThe Continental Bank, Cleveland, OhioPurchase 61

Mar. 31, 1976:The First National Bank of Allentown, Allentown, Pa.The Kutztown National Bank, Kutztown, Pa.Merger 62

Apr. 1, 1976:The New Farmers National Bank of Glasgow, Glasgow, Ky.Hiseville Deposit Bank, Hiseville, Ky.Merger 63

Apr. 10, 1976:Greenville National Bank, Greenville, OhioThe Citizens Bank Company, Ansonia, OhioPurchase 64

Apr. 19, 1976:Landmark Bank of Pompano Beach, N.A., Pompano

Beach, Fla.The Security State Bank of Pompano Beach, Pompano

Beach, Fla.Purchase 65

Apr. 30, 1976:The First National Bank of Greenville, Greenville, Ala.The Citizens Bank of Georgiana, Georgiana, Ala.Merger 66

May 1, 1976:The Huntington National Bank of Columbus, Columbus,

OhioThe Pickerington Bank, Pickerington, OhioMerger 67

May 3, 1976:The First National Bank of Stone Harbor, Stone Harbor, N.J.Independent National Bank, Willingboro, N.J.Merger 68

39


May 21, 1976: PageThe Chase Manhattan Bank (National Association), New

York, N.Y.Chase Manhattan Bank of Long Island (National Associa-

tion), Melville, N.Y.Chase Manhattan Bank of the Mid-Hudson (National Asso-

ciation), Saugerties, N.Y.Chase Manhattan Bank of Central New York (National As-

sociation), Syracuse, N.Y.Chase Manhattan Bank of Eastern New York (National As-

sociation), Albany, N.Y.Chase Manhattan Bank of the Southern Tier (National As-

sociation), Binghamton, N.Y.Chase Manhattan Bank of Greater Rochester (National As-

sociation), Caledonia, N.Y.Chase Manhattan Bank of Western New York (National As-

sociation), Buffalo, N.Y.Chase Manhattan Bank of Northern New York (National As-

sociation), Canton, N.Y.Merger 70

June 1, 1976:The Citizens National Bank in Gastonia, Gastonia, N.C.Union Trust Company of Shelby, Shelby, N.C.Merger 71

June 8, 1976:First City Bank—Northeast, N.A., Houston, Tex.Northeast Bank of Houston, Houston, Tex.Purchase 72

June 11, 1976:Valley National Bank, Passaic, N.J.Bank of Wayne, National Association, Wayne, N.J.Merger 73

June 15, 1976:New Jersey Bank (National Association), Clifton, N.J.First State Bank of Hudson County, Jersey City, N.J.Purchase 74

June 18, 1976:First Bank National Association, Cleveland, OhioCommunity National Bank of Warrensville Heights, War-

rensville Heights, OhioPurchase 75

June 28, 1976:Wells Fargo Bank, National Association, San Francisco,

Calif.The Topanga Plaza Branch of City National Bank, Beverly

Hills, Calif.Purchase 76

June 30, 1976:First National Bank of Springfield, Springfield, Vt.The Merchants National Bank of St. Johnsbury, St.

Johnsbury, Vt.Merger 77

June 30, 1976:Beach Haven National Bank and Trust Company, Beach

Haven, N.J.The Bank of New Jersey, N.A., Moorestown, N.J.Merger 78

July 1, 1976:The National Bank of Georgia, Atlanta, Ga.Mercantile National Bank, Atlanta, Ga.Purchase 79

July 12, 1976:The Planters National Bank and Trust Company, Rocky

Mount, N.C.Hanover Bank, Wilmington, N.C.Merger 80

July 20, 1976:The Oneida National and Trust Company of Central New

York, Utica, N.Y.The Red Creek National Bank, Red Creek, N.Y.Purchase 8 1

Aug. 24, 1976: PageSeattle—First National Bank, Seattle, Wash.First National Bank in Port Angeles, Port Angeles, Wash.The First American National Bank of Port Townsend, Port

Townsend, Wash.Bank of Sequim, Sequim, Wash.Forks State Bank, Forks, Wash.Purchase 82

Aug. 31, 1976:The First New Haven National Bank, New Haven, Conn.The North Haven National Bank, North Haven, Conn.Merger 86

Sept. 15, 1976:United States National Bank in Johnstown, Johnstown, Pa.The First National Bank of Coalport, Coalport, Pa.Merger 88

Sept. 20, 1976:First National Bank, Carbondale, Pennsylvania, Carbon-

dale, Pa.The First National Bank of Dickson City, Dickson City, Pa.Merger 89

Sept. 30, 1976:Fl National Bank, Ironton, OhioThe First National Bank of Ironton, Ironton, OhioPurchase 90

Sept. 30, 1976:FT National Bank, Troy, OhioThe First National Bank & Trust Company, Troy, OhioPurchase 91

Oct. 1, 1976:Canal National Bank, Portland, Me.Central National Bank, Waterville, Me.Merger 91

Oct. 1, 1976:The Citizens National Bank of Evansville, Evansville, Ind.The Lamasco Bank, Evansville, Ind.Merger 92

Oct. 8, 1976:The National Bank of Georgia, Atlanta, Ga.The Hamilton Bank and Trust, Atlanta, Ga.Purchase 94

Oct. 18, 1976:New Jersey Bank (National Association), Clifton, N.J.Plaza National Bank, Secaucus, N.J.Merger 95

Nov. 1, 1976:The Cumberland National Bank of Bridgeton, Bridgeton,

N.J.United Jersey Bank/City National, Vineland, N.J.Merger 95

Nov. 12, 1976:Virginia National Bank, Norfolk, Va.Fairfax County National Bank, Seven Corners, Va.Merger 96

Nov. 19, 1976:The Oneida National Bank and Trust Company of Central

New York, Utica, N.Y.Ogdensburg Trust Company, Ogdensburg, N.Y.Merger 98

Nov. 29, 1976:First National Bank of Rio Grande City, Rio Grande City,

Tex.First State Bank & Trust Company, Rio Grande City, Tex.Purchase 99

Dec. 1, 1976:American National Bank, Hamden, Conn.Laurel Bank and Trust Company, Meriden, Conn.Merger 100

Dec. 1, 1976:The First National Bank and Trust Company of Western

Maryland, Cumberland, Md.The First National Bank of Mount Savage, Mount Savage,

Md.Merger 101


Dec. 17, 1976: PageNew Jersey National Bank, Trenton, NJ.First State Bank, Toms River, N.J.Purchase 102

Dec. 28, 1976:Citizens First National Bank of New Jersey, Ridgewood,

N.J.The State Bank of North Jersey, Pine Brook, N.J.Purchase 103

Dec. 31, 1976:First National Bank of Jackson, Jackson, Miss.Columbia Bank, Columbia, Miss.Merger 104

Dec. 31, 1976: PageFirst Peoples National Bank of New Jersey, Haddon Town-

ship (P.O. Westmont), N.J.The Provident Bank of New Jersey, Willingboro, N.J.Purchase 105

Dec. 31, 1976:Midlantic National Bank, Newark, N.J.Midlantic National Bank/West, Morristown, N.J.Merger 107

Dec. 31, 1976:Union Chelsea National Bank, New York, N.Y.Chelsea National Bank, New York, N.Y.Purchase 108

//. Mergers consummated, involving a single operating bank

Jan. 5, 1976: PageGateway National Bank of Fort Worth, Fort Worth, Tex.Circle National Bank of Fort Worth, Fort Worth, Tex.Merger 109

Mar. 11, 1976:Commercial National Bank, Cassopolis, Mich.C National Bank, Cassopolis, Mich.Merger 110

Mar. 31, 1976:American Security and Trust Company, National Associa-

tion, Washington, D.C.American Security and Trust Company, Washington, D.C.Merger 111

Apr. 16, 1976:The First National Bank of New Braunfels, New Braunfels,

Tex.New Braunfels Commerce Bank National Association, New

Braunfels, Tex.Merger 111

Apr. 29, 1976:The Geuga County National Bank of Chardon, Chardon,

OhioThe G.C. National Bank, Chardon, OhioMerger 112

June 16, 1976:The First National Bank of San Jose, San Jose, Calif.F.N. National Bank, San Jose, Calif.Merger 113

July 1, 1976:The First National Bank of Troutville, Troutville, Va.Troutville Bank, N.A., Troutville, Va.Merger 113

Aug. 16, 1976: PageThe First National Bank of Elyria, Elyria, OhioFNB National Bank, Elyria, OhioConsolidation 114

Oct. 1, 1976:The First National Bank of Henderson, Henderson, Tex.South Main & Richardson National Bank, Henderson, Tex.Merger 115

Dec. 3, 1976:The National Bank of Ludington, Ludington, Mich.NBL National Bank, Ludington, Mich.Consolidation 115

Dec. 31, 1976:Alamo Heights National Bank, Alamo Heights, Tex.Heights Bank, National Association, Alamo Heights, Tex.Merger H 6

Dec. 31, 1976:First National Bank of Freeport, Freeport, III.First Freeport Bank, National Association, Freeport, III.Merger 117

Dec. 31, 1976:The Chester National Bank, Chester, N.Y.Chester Bank, N.A., Chester, N.Y.

. Merger 117Dec. 31, 1976:

The Illinois National Bank of Springfield, Springfield, III.INB National Bank, Springfield, III.Merger 118

Dec. 31, 1976:Williamstown National Bank, Williamstown, Mass.Williamstown Bank (National Association), Williamstown,

Mass.Merger 118

///. Mergers approved but abandoned, no litigation

Jan. 14, 1976:Southeast First National Bank of Sarasota, Sarasota, Fla.Palmer First National Bank and Trust Company of Sarasota,

Sarasota, Fla.Merger ..

Page July 20, 1976: PageThe First National Bank of Maryland, Baltimore, Md.The Citizens National Bank of Havre de Grace, Havre de

Grace, Md.119 Merger 119


/. Mergers consummated, involving two or more operating banks.

CITIBANK (WESTERN), NATIONAL ASSOCIATION,Buffalo, N.Y., and Citibank (Eastern), National Association, Castleton-on-Hudson, N.Y., and Citibank (Central), Na-tional Association, Oriskany Falls, N.Y., and Citibank (Mid-Western), National Association, Honeoye Falls, N.Y.

Name of bank and type of transaction Total assets

Citibank (Eastern), National Association, Castleton-on-Hudson, N.Y. (5816), with $ 36,362,000and Citibank (Central), National Association, Oriskany Falls, N.Y. (16089), with 34,903,000and Citibank (Mid-Western), National Association, Honeoye Falls, N.Y. (15976), with 41,321,000and Citibank (Western), National Association, Buffalo, N.Y. (10258), which had 46,650,000merged Jan. 2, 1976, under charter of the latter bank (10258), and title "Citibank (NewYork State), National Association." The merged bank at date of merger had 159,236,000

Banking

Inoperation

95

1012

offices

To beoperated

36

COMPTROLLER'S DECISION

On October 21, 1975, Citibank (Eastern), National As-sociation, Castleton-on-Hudson, N.Y.; Citibank (Cen-tral), National Association, Oriskany Falls, N.Y.;Citibank (Mid-Western), National Association, HoneoyeFalls, N.Y.; and Citibank (Western), National Associa-tion, Buffalo, N.Y., applied to the Comptroller of theCurrency for permission to merge under the charter ofthe latter and with the title "Citibank (New York State),National Association."

The proposed merger represents a corporate reor-ganization which would merely combine four existing

subsidiary banks of Citicorp into a single institution thatwill continue under the ownership of Citicorp. The re-sulting bank will continue to operate all existing officesof the charter and merging banks.

Applying the statutory criteria, it is concluded thatthe proposed merger is mereiy part of an internal cor-porate reorganization which will not adversely affectcompetition in New York State. This application is,therefore, approved.

December 1, 1975.

Note: No Attorney General's report was received.

FIRST NATIONAL CITY BANK,New York City, N.Y., and Citibank (Suffolk), National Association, Islip, N.Y., and Citibank (Mid-Hudson), NationalAssociation, Woodbury, N.Y.

Name of bank and type of transaction Total assets

Citibank (Suffolk), National Association, Islip, N.Y. (15917), with $ 47,012,000and Citibank (Mid-Hudson), National Association, Woodbury, N.Y. (P. O. Central Val-ley) (9990), with 33,101,000and First National City Bank, New York, N.Y. (1461), which had 26,732,196,000merged Jan. 2, 1976, under charter and title of the latter bank (1461). The merged bankat date of merger had 28,812,309,000

Banking

Inoperation

5

10251

offices

To beoperated

266


On October 21, 1975, Citibank (Suffolk), National As-sociation, Islip, N.Y.; Citibank (Mid-Hudson), NationalAssociation, Woodbury, N.Y.; and First National CityBank, New York, N.Y., applied to the Comptroller of theCurrency for permission to merge under the charterand title of the latter.

The proposed merger represents a corporate reor-ganization which would merely combine three existingsubsidiary banks of Citicorp into a single institution that

will continue under the ownership of Citicorp. The re-sulting bank will continue to operate all existing officesof the charter and merging banks.

Applying the statutory criteria, it is concluded thatthe proposed transaction is merely part of a corporatereorganization which will not adversely affect competi-tion. This application is, therefore, approved.

December 1, 1975.

Note: No Attorney General's report was received.

43


NATIONAL CITY BANK,Cleveland, Ohio, and The Bank of Cleveland, Cleveland, Ohio

Name of bank and type of transaction Total assetsBanking offices

In To beoperation operated

The Bank of Cleveland, Cleveland, Ohio, with $ 30,546,000and National City Bank, Cleveland, Ohio (786), which had 2,569,103,000merged Jan. 2, 1976, under charter and title of the latter bank (786). The merged bank atdate of merger had 2,592,844,000

247

49


On September 2, 1975, The Bank of Cleveland, Cleve-land, Ohio, and National City Bank, Cleveland, Ohio,applied to the Comptroller of the Currency for permis-sion to merge under the charter and with the title of Na-tional City Bank.

National City Bank, the charter bank, was estab-lished in 1845 and currently has assets of $2.7 billionand IPC deposits of $1.3 billion. National City Bank isthe lead bank for the state's third largest multi-bankholding company, National City Corporation. Althoughthe charter bank is headquartered in Cleveland, itsservice area includes all of Cuyahoga County where itoperates 45 branches. Cuyahoga County, with an esti-mated population of 1.7 million persons, is highlyindustrialized and is an important commercial, trans-portation and service center.

National City Bank is the second largest bank in itsservice alrea where direct competition is provided bynumerous banks located in Cleveland, including TheCleveland Trust Company, with deposits of $2.9 billion,a member of CleveTrust Corporation; The Capital Na-tional Bank, with deposits of $117.4 million, a memberof BancOhio Corporation; Central National Bank ofCleveland, with deposits of $1.4 billion, a member ofCentran Corporation; Society National Bank of Cleve-land, with deposits of $1 billion, a member of SocietyCorporation; and Union Commerce Bank, with de-posits of $1.2 billion, a member of Union CommerceCorporation.

The Bank of Cleveland, the merging bank, was es-tablished in 1913 and now has assets of $28.8 millionand IPC deposits of $24.5 million. The merging bankhas one branch office in addition to its main office andis the 12th largest of the 13 banks in CuyahogaCounty. The service area of the merging bank consistsof several ethnic neighborhoods located in centralCuyahoga County. The Bank of Cleveland is a retail-oriented bank whose operations are entirely local innature. The merging bank, which has few businesscustomers, relies primarily upon small personal check-

ing and savings accounts for its deposits, and thuscompetes with nearby savings and loan associationsand credit unions. There is minimal competition be-tween the charter bank and The Bank of Clevelandbecause of the different nature of their banking opera-tions. The charter bank has one small branch officewithin the service area of the merging bank. However,there are numerous banking alternatives in the merg-ing bank's service area because each of the largebanks which compete with the charter bank has abranch office within the area.

Consummation of the proposed transaction will notsignificantly increase National City Bank's position rela-tive to other banks in its service area. The resultingbank will remain the second largest in the county. Theproposed transaction should benefit the customers ofthe merging bank because the resulting bank will offerover 40 banking services not presently available at themerging bank. The charter bank plans to reduce feesfor many of the services now offered by merging bank.The charter bank will benefit from the proposed trans-action by gaining an office in Garfield Heights, a sub-urb with considerable commercial market potential.

Applying the statutory criteria, it is concluded thatthe proposed merger will only slightly lessen competi-tion in the relevant market and this application is,therefore, approved.

November 26, 1975.

SUMMARY OF REPORT BY ATTORNEY GENERAL

Bank's main office in Cleveland is located about sixblocks from Applicant's nearest branch. All 46 of Ap-plicant's offices and both of Bank's offices are locatedin Cuyahoga County. Applicant is the second largestof 13 banks with offices in Cuyahoga County, whileBank ranks 11th.

We conclude that the proposed transaction wouldeliminate some existing competition between the par-ties and slightly increase concentration in commercialbanking in Cuyahoga County.


FIRST NATIONAL STATE BANK OF NEW JERSEY,Newark, N.J., and The Bank of Bloomfield, Bloomfield, N.J.

Name of bank and type of transaction Total assets*Banking offices


The Bank of Bloomfield, Bloomfield, N.J., with $32,501,959was purchased Jan. 10, 1976, by First National State Bank of New Jersey, Newark, N.J.(1452), which had 1,358,706,000After the purchase was effected, the receiving bank had 1,173,201,000

3

3235


On January 10, 1976, application was made to theComptroller of the Currency for prior written approvalfor First National State Bank of New Jersey, Newark,N.J. ("Assuming Bank") to purchase certain of the as-sets and assume certain of the liabilities of The Bank ofBloomfield, Bloomfield, N.J. ("Bloomfield").

As of the close of business on January 10, 1976,Bloomfield was a state bank with three offices and oneapproved but unopened office, all located in Bloom-field, N.J. As of January 7, 1976, Bloomfield had de-posits of $26 million. On January 10, 1976, the FederalDeposit Insurance Corporation ("FDIC") was ap-pointed as receiver of Bloomfield. The present applica-tion is based upon an agreement, which isincorporated herein by reference, by which the FDICas receiver has agreed to sell certain Bloomfield as-sets and liabilities to the Assuming Bank. For thereasons stated hereafter, the Assuming Bank's appli-cation is approved, and the purchase and assumptiontransaction may be consummated immediately.

Bloomfield was organized in 1963 and, as of January7, 1976, had total assets of approximately $31.5 mil-lion.

Under the Bank Merger Act, 12 USC 1828(c), theComptroller cannot approve a purchase and assump-tion transaction which would have certain proscribedanticompetitive effects unless he finds those anticom-petitive effects to be clearly outweighed in the publicinterest by the probable effect of the transaction inmeeting the convenience and needs of the communityto be served. Additionally, the Comptroller is directedto consider the financial and managerial resourcesand future prospects of the existing and proposedinstitution and the convenience and needs of thecommunity to be served. When necessary, however, toprevent the disruptions attendant upon the failure of a

* Asset figures are as of call dates immediately before and aftertransaction.

bank, the Comptroller can dispense with the uniformstandards applicable to usual acquisition transactionsand need not consider reports on the competitive con-sequences of the transaction ordinarily solicited fromthe Department of Justice and the other bankingagencies. He is authorized in such circumstances toact immediately in his sole discretion, to approve anacquisition and to authorize the immediate consumma-tion of the transaction.

This proposed acquisition will prevent a disruption tothe community and potential losses to depositors. TheAssuming Bank has financial and managerial re-sources sufficient to purchase Bloomfield. Thus, theapproval of this transaction will help to avert a loss ofpublic confidence in the banking system, and may ac-tually improve the services offered to the banking pub-lic.

The Comptroller thus finds that the proposed trans-action will not result in a monopoly, be in furtherance ofany combination or conspiracy to monopolize or at-tempt to monopolize the business of banking in anypart of the United States and that the anticompetitiveeffects of the proposed transaction, if any, are clearlyoutweighed in the public interest by the probable ef-fect of the proposed transaction in meeting the con-venience and needs of the community to be served.For these reasons, the Assuming Bank's application toassume certain liabilities and purchase certain assetsof Bloomfield as set forth in the agreement executedwith the FDIC as receiver, is approved. The Comptrol-ler further finds that the failure of Bloomfield requiresimmediate action, as contemplated by the BankMerger Act, to prevent disruption of banking servicesto the community; the Comptroller thus waives publica-tion of notice, dispenses with the solicitation of com-petitive reports from other agencies and authorizes thetransaction to be consummated immediately.

January 10, 1976.

Due to the emergency nature of the situation, no Attor-ney General's report was requested.


SOUTHEAST FIRST NATIONAL BANK OF SARASOTA,Sarasota, Fla., and Palmer First National Bank and Trust Company of Sarasota, Sarasota, Fla.



Palmer First National Bank and Trust Company of Sarasota, Sarasota, Fla. (13352), with $135,870,600was purchased Jan. 15, 1976, by Southeast First National Bank of Sarasota, Sarasota, Fla.,(16531), which had 5,000,000After the purchase was effected, the receiving bank had 117,320,100


On January 13, 1976, application was made to theComptroller of the Currency to grant prior written ap-proval for Southeast First National Bank of Sarasota,Sarasota, Fla. ("Assuming Bank"), to purchase assets,and to assume certain of the liabilities, of Palmer FirstNational Bank and Trust Company of Sarasota,Sarasota, Fla. ("PFNB"). The instant application restsupon an agreement, incorporated herein by referencethe same as if fully set forth, and, for the reasons setforth below, the application is hereby approved, andthe Assuming Bank is hereby authorized immediatelyto consummate the purchase and assumption transac-tion.

PFNB was initially organized as a national bank in1929, when it was granted charter number 13352. Asof October 6, 1975, PFNB ranked as the secondlargest bank in Sarasota County, Fla., with total assetsof $144 million and total deposits of $122 million. Inaddition, PFNB managed trust assets as of October1975, of approximately $356 million. The commercialbanking service area of PFNB consisted of the north-ern third of Sarasota County which contains the majorportions of the city of Sarasota, its business districtand the surrounding residential, commercial andshopping areas.

On November 30, 1971, PFNB became a subsidiaryof Palmer Bank Corporation, a newly organized bankholding company which simultaneously acquired twoadditional Florida banks. Since 1971 the holding com-pany has acquired several additional banks, four ofwhich were opened during the first quarter of 1974, aswell as non-bank subsidiaries. As of June 1975, theholding company owned eight commercial banks andthree non-bank subsidiaries. On June 30, 1975, PalmerBank Corporation ranked 22nd in size of the 31 bankholding companies in Florida. The holding companyhad consolidated assets of $262 million, 55 percent ofwhich was represented by the assets of PFNB.

As of June 1969, PFNB had 49.1 percent of total as-sets invested in securities and 37.6 percent invested inloans. Real estate loans and personal loans repre-sented 30.4 percent and 31.2 percent, respectively, ofthe loan portfolio. Classified assets as of January 30,1973, represented only 19 percent of the bank's grosscapital funds and, of that figure, a mere 0.5 percentrepresented a classification of doubtful or loss. Depre-ciation in the bond account was nominal.

Beginning in 1974, the asset quality of PFNB began

* Asset figures are as of call dates immediately before and aftertransactions.

to deteriorate and the bank experienced an increase inclassified assets, overdue loans and nonaccruingloans, many of which involved real estate constructionprojects that had been originated by Coastal MortgageCompany, a wholly-owned subsidiary of Palmer BankCorporation. Many of the real estate borrowers experi-enced financial setbacks due to inflation, cost over-runs, increased interest rates, the effects of the energycrisis and the general decline in the economy. Be-cause of those and other factors, losses were incurredas the real estate borrowers were unable to meet theirobligations to the bank. Thus, in 1973, net loancharge-offs were only $139,000. At year-end 1974, thecharge-offs had increased to $1,550,000. Subsequentexaminations during the early months of 1975 revealedthat management had been unable to reverse thattrend and the bank continued to sustain heavy loanlosses. As of October 6, 1975, classified assets were345 percent of capital; loss and doubtful assets aloneaggregated $6,668,000, representing 74 percent ofcapital; overdue loans represented 33.2 percent oftotal loans; and nonaccruing loans aggregated 22percent of total loans and 209 percent of capital.

With respect to the liability structure of PFNB, timeand savings deposits of individuals, partnerships, cor-porations and other private sector sources decreasedfrom 54 percent of total deposits in 1970 to 44 percentin 1974. Demand deposits from the same sources de-creased from 40 percent of total deposits, in 1970, to32 percent, in 1974. However, public funds depositsincreased from 6 percent of total deposits, in 1970, to24 percent in 1974. That shift in the deposit base tofunds which could be easily removed from the bank inlarge amounts placed added pressure on the bank'sliquidity and increased the difficulty of accurately pro-jecting the bank's money flow. From February 18,1975, to the examination date of October 6, 1975, thebank experienced a deposit run-off of approximately$22 million. That was coupled with a diminishing abilityto attract funds in the money market. A reliance byPFNB on the purchase of Federal funds and othermoney market borrowings to maintain liquidity and acorresponding loss of credibility with the sellers ofthose funds, caused in large part by the publication ofthe bank's annual report for 1974 and other adversepublicity, forced PFNB to borrow funds from the Fed-eral Reserve Bank of Atlanta, the lender of last resort.

Prior to the end of 1973, borrowings by the bankfrom all sources were an insignificant portion of itsliabilities, aggregating only 4.4 percent of totalliabilities. On December 31, 1974, Federal funds


purchased and securities sold subject to repurchaseagreements comprised 7.8 percent of total liabilities.By the last week of December 1975, however, borrow-ings at the Federal Reserve Bank of Atlanta hadincreased to a high of $11.5 million in order to maintainliquidity in the face of heavy deposit withdrawals. Thecontinued inability of the bank to attract deposits orraise funds in the money market further strained its li-quidity position and reflected diminished public confi-dence in its viability as a financial institution.

The severity and multiplicity of problems facingPFNB by early 1975, required the earliest feasible ad-dition of equity capital and management expertise. Theunsuccessful attempts of Palmer Banking Corporationand PFNB independently to raise additional equitycapital resulted in an effort to seek out a merger part-ner. An agreement by Southeast Banking Corporation,the largest bank holding company in Florida, to ac-quire Palmer Bank Corporation and its subsidiarieswith the assistance of a $10 million loan from the FDICwas subsequently reached. As part of that transactionthe Comptroller was first asked to approve the mergerof PFNB into a newly organized subsidiary bank ofSoutheast Acquisition Corporation. However, as a re-sult of litigation commenced or threatened against cer-tain directors of PFNB and Palmer Bank Corporationwithin the past few weeks, the parties postponed theconsummation of the transaction originally scheduledfor December 31, 1975, modified certain details of thetransaction with the permission of the Federal ReserveBoard, FDIC and the Comptroller and have now askedthe Comptroller to approve, in lieu of the proposedmerger of PFNB into a new bank, the purchase andassumption agreement negotiated between PFNB andSoutheast First National Bank of Sarasota by which thelatter would purchase assets and assume certainliabilities, including all deposit liabilities, of the former.

Under the Bank Merger Act, 12 USC 1828(c), theComptroller cannot approve a purchase and assump-tion transaction which would have certain proscribedanticompetitive effects unless he finds those anticom-petitive effects to be clearly outweighed in the publicinterest by the probable effect of the transaction inmeeting the convenience and needs of the communityto be served. Additionally, the Comptroller is directed

to consider the financial and managerial resourcesand future prospects of the existing and proposedinstitution and the convenience and needs of thecommunity to be served. When necessary, however, toprevent the evils attendant upon the failure of a bank,the Comptroller can dispense with the uniform stan-dards applicable to usual acquisition transactions andneed not consider reports on the competitive conse-quences of the transaction ordinarily solicited from theDepartment of Justice and other banking agencies. Heis authorized in such circumstances to act im-mediately, in his sole discretion, to approve an acquisi-tion and to authorize the immediate consummation ofthe transaction.

The proposed acquisition will be in accord with allpertinent provisions of the National Bank Act and willprevent an enormous disruption to the community andpotential losses to a number of uninsured depositors.The Assuming Bank will have strong financial andmanagerial resources and this acquisition will enableit—as a direct Southeast subsidiary—to enhance thebanking services offered in the Sarasota community.Thus, the approval of this transaction will help to averta loss of public confidence in the banking system andwill improve the services offered to the banking public.

The Comptroller finds that the anticompetitive effectsof the proposed transaction, if any, are clearly out-weighed in the public interest by the probable effect ofthe proposed transaction in meeting the convenienceand needs of the community to be served. For thesereasons, the Assuming Bank's application to assumecertain liabilities and purchase assets of PFNB as setforth in the agreement is approved. The Comptrollerfurther finds that the possible failure of PFNB requireshim to act immediately, as contemplated by the BankMerger Act, to prevent disruption of banking servicesto the community; and the Comptroller thus waivespublication of notice, dispenses with the solicitation ofcompetitive reports from other agencies and au-thorizes the transaction to be consummated im-mediately.

January 14, 1976.



BANK OF VIRGINIA N.A.,Vinton, Va., and Bank of Virginia - Danville, Danville, Va.



Bank of Virginia - Danville, Danville, Va., with $ 43,413,094and Bank of Virginia N.A., Vinton, Va. (16485), which had 90,436,221merged Jan. 31, 1976, under charter and title of the latter bank (16485). The merged bankat date of merger had 145,631,146*

410

14


On December 3, 1975, Bank of Virginia - Danville,Danville, Va., and Bank of Virginia N.A., Vinton, Va.,applied to the Comptroller of the Currency for permis-sion to merge under the charter and title of the latter.

The proposed merger represents a corporate reor-ganization which would merely combine two existingsubsidiary banks of Bank of Virginia Company into asingle institution that would continue under the own-ership of the holding company. The resulting bank willcontinue to operate all existing offices of the charterand merging banks.

Applying the statutory criteria, it is concluded that

* Reflects the result of this merger and that with Bank of Virginia -Lynchburg, which occurred on the same date.

the proposed merger is merely part of an internal cor-porate reorganization which will have no effect oncompetition.

Approval of this application is conditioned upon thisOffice's receipt of notice of publication by Bank of Vir-ginia - Danville, a state bank, of a shareholders' meet-ing to ratify the subject merger and, receipt of notice ofthe ratification by the shareholders.

December 30, 1975.


The merging banks are both wholly-owned sub-sidiaries of the same bank holding company. As such,their proposed merger is essentially a corporate reor-ganization and would have no effect on competition.

BANK OF VIRGINIA N.A.,Vinton, Va., and Bank of Virginia - Lynchburg, Lynchburg, Va.


Inoperation

To beoperated

Bank of Virginia - Lynchburg, Lynchburg, Va., with $ 11,781,831and Bank of Virginia N.A., Vinton, Va. (16485), which had 90,436,221merged Jan. 31, 1976, under the charter and title of the latter bank (16485). The mergedbank at date of merger had 145,631,146*

414

18


On December 3, 1975, Bank of Virginia - Lynchburg,Lynchburg, Va., and Bank of Virginia N.A., Vinton, Va.,applied to the Comptroller of the Currency for permis-sion to merge under the charter and title of the latter.

The proposed merger represents a corporate reor-ganization which would merely combine two existingsubsidiary banks of Bank of Virginia Company into asingle institution that would continue under the own-ership of the holding company. The resulting bank willcontinue to operate all existing offices of the charterand merging banks.


* Reflects the result of this merger and that with Bank of Virginia -Danville, which occurred on the same date.

the proposed merger is merely part of an internal cor-porate reorganization which will have no effect oncompetition.

Approval of this application is conditioned upon thisOffice's receipt of notice of publication by Bank of Vir-ginia - Lynchburg, a state bank, of a shareholdersmeeting to ratify the subject merger and receipt ofnotice of the ratification by the shareholders.

December 30, 1975.




OLD COLONY BANK OF HAMPDEN COUNTY, N.A.,Holyoke, Mass., and Heritage Bank and Trust Company, Westfield,

Name of bank and type of transaction

Heritage Bank and Trust Company Westfield Mass withand Old Colony Bank of Hampden County, N.A., Holyoke, Mass. (1939), which hadmerged Feb. 3, 1976, under charter and title of the latter bank (1939). The mergedat date of merger had

Mass.

bank

Total assets

$11,810,17836,273,385

47,161535

Banking

Inoperation

28

offices

To beoperated

10


On January 21, 1976, Old Colony Bank of HampdenCounty, N.A., Holyoke, Mass., applied to the Comptrol-ler of the Currency for permission to merge with Heri-tage Bank and Trust Company, Westfield, Mass.,under the charter and with the title of Old Colony Bankof Hampden County, N.A. This application has beenprocessed pursuant to the emergency provisions ofthe Bank Merger Act of 1966, contained in 12 USC1828(c).

Old Colony Bank of Hampden County, N.A., thecharter bank, was founded in 1872 and currently hasassets of $35 million and IPC deposits of $25.3 million.The charter bank is currently the fourth largest bank inHampden County and operates seven branch officesin that county, with three branches in Holyoke, threebranches in Chicopee and one branch in Springfield.The primary service area of the bank consists of theSpringfield-Chicopee-Holyoke Standard MetropolitanStatistical Area (SMSA). In November 1973, the charterbank was acquired as a wholly-owned subsidiary ofFirst National Boston Corporation, a multi-bank holdingcompany headquartered in Boston.

Heritage Bank and Trust Company, the mergingbank, was organized in 1967 and now has assets of$12.3 million and IPC deposits of $9.6 million. Themerging bank operates its main office and one branchin the city of Westfield which is the fourth largest city inHampden County, and geographically, lies in the cen-ter of that county, on the western edge of theSpringfield-Chicopee-Holyoke SMSA. The primary ser-vice area of the bank consists of the city of Westfield.In May 1974, Heritage Bank and Trust Company wasacquired, as a wholly-owned subsidiary, by HeritageBancorp, Inc.

Both the charter and merging banks compete withthe three largest banks headquartered in Springfield,which aggregately control 85 percent of the commer-cial bank deposits and operate 62 of the 82 commer-cial banking offices in Hampden County. Those threebanks are Third National Bank of Hampden County,Springfield, with deposits of $256 million; Valley Bankand Trust Company, Springfield, with deposits of $242million, a subsidiary of Baystate Corporation; andShawmut First Bank and Trust Company, Springfield,with deposits of $122 million, a member of ShawmutCorporation.

There is little, if any, competition between the charterand merging banks because each operates in a pri-mary service area which is separate and distinct fromthat from which the other derives a majority of its busi-ness. A survey of the deposits and loans taken in the

fall of 1975 by Old Colony Bank of Hampden Countyreveals that more than 80 percent of the number anddollar amounts of the personal demand deposits,commercial demand deposits and savings depositsoriginated from the three cities in which the charterbank maintains branch offices — Chicopee, Holyokeand Springfield. The same survey shows that themajority of installment, commercial and real estateloans of the charter bank came from those same cities.Similarly, the business generated by Heritage Bankand Trust Company in the primary service area of thecharter bank is minimal.

An important aspect of this transaction, promptingthe Comptroller to invoke the emergency provisions ofthe Bank Merger Act, is the present financial positionof the merging bank. The deposits of Heritage Bankand Trust Company have significantly declined in thepast 6 months. From a level of $12.5 million on June30, 1975, its deposits fell to $10.6 million (unaudited)on November 30, 1975. The bank's loan portfolio hasshown serious deterioration over the past 3 years.Charge-offs for 1975 have virtually eliminated the pre-viously established reserve for loan losses. Loansclassified substandard and doubtful during 1975 farexceed the amount available at the bank to cover ex-posure for possible losses. The merging bank is alsocarrying a substantial loss in its bond portfolio.

The instant merger will have beneficial effects onboth the banking community and the public served bythe two banks. The competitive environment ofHampden County will be strengthened because a rela-tively small, healthy bank will enter the Westfield mar-ket and will present a competitive challenge to threedominant banks which are already entrenched in thatarea. The resulting bank will offer new services and willexpand existing services in the area now served by themerging bank. Management of Old Colony Bank ofHampden County has the capacity to assume thisadded responsibility and become a vigorous com-petitor in this part of Hampden County. Of vital impor-tance, consummation of this merger will insure the con-tinued, uninterrupted performance of banking servicesto the present customers of Heritage Bank and TrustCompany, thereby maintaining the confidence of thepublic in the American banking system.

Applying the statutory criteria contained in 12 USC1828(c), the Comptroller of the Currency finds that anemergency exists because of the present condition ofHeritage Bank and Trust Company which requires ex-peditious action in order to prevent the failure of thatbank at some future date. Consistent with this finding,it is concluded that the subject merger will not ad-


versely affect competition in Hampden County. Thisapplication is, therefore, approved.

January 29, 1976.


Applicant and Bank currently operate in each other'smarket. Although it appears that the proposed mergerwould eliminate some existing competition, the effectshould be slight.

Commercial banking in Hampden County is highlyconcentrated with the three largest commercial bankscollectively accounting for an 85.6 percent share oftotal deposits in the county. It appears that the proposedacquisition will contribute slightly to the trend to-

ward increased concentration in the county, althoughthe linking of Bank to FNBC may enhance its ability tocompete with greater vigor with the three largestbanks.

Although branching is permitted in Massachusetts, itappears that prospective branching or de novo entryby Applicant in Westfield is highly problematic giventhe fact that its population of 31,000 is already servedby seven institutions.

In sum, it appears that the proposed merger willeliminate some existing competition and will slightlyincrease the concentration in commercial banking andhave a slight impact on potential competition. Overall,the proposed merger would have slightly adversecompetitive consequences.

FIRST NATIONAL STATE BANWMECHANICS,Burlington Township, N.J., and Somerset Hills &County National Bank, Basking Ridge, N.J.


Somerset Hills & County National Bank, Basking Ridge, N.J. (6960), withand First National State Bank/Mechanics, Burlington Township, N.J. (1222), which hadmerged Feb. 6, 1976, under charter of the latter bank (1222) and title "First NationalState Bank of West Jersey." The merged bank at date of merger had

Total assets

$ 83,022,242124,172,444

207,194,686

Banking

Inoperation

815

offices

To beoperated

23


On November 6, 1975, Somerset Hills & County Na-tional Bank, Basking Ridge, N.J., and First NationalState Bank/Mechanics, Burlington Township, N.J.,applied to the Comptroller of the Currency for permis-sion to merge under the charter of the latter and withthe title "First National State Bank of West Jersey."

The proposed merger represents a corporate reor-ganization which would merely combine two existingsubsidiary banks of First National State Bancorpora-tion, Newark, N.J., into a single institution that will con-tinue under the ownership of the holding company.

The resulting bank will continue to operate the existingoffices of the charter and merging banks.

Applying the statutory criteria, it is concluded thatthe proposed merger is merely part of an internal cor-porate reorganization which will not adversely affectcompetition. This application is, therefore, approved.

December 31, 1975.



FIRST TENNESSEE NATIONAL BANK,Chattanooga, Tenn., and The Hamilton National Bank of Chattanooga, Chattanooga, Tenn.



The Hamilton National Bank of Chattanooga, Chattanooga, Tenn. (7848), with $476,673,000was purchased Feb. 16, 1976, by First Tennessee National Bank, Chattanooga, Tenn. (16552),which had 16,000,000After the purchase was effected, the receiving bank had 353,904,000

25

025

Due to the emergency nature of the situation, no "Comptroller's Decision" or Attorney General's report was pre-pared.

* Asset figures are as of call dates immediately before and after transaction.

* * *


UNITED NATIONAL BANK,Rapid City, S. Dak., and Union Bank & Trust, Sioux Falls, S. Dak.


Union Bank & Trust, Sioux Falls, S. Dak., withand United National Bank, Rapid City, S. Dak. (15639), which hadconsolidated Feb. 17, 1976, under charter and title of the latter bank (15639). Theconsolidated bank at date of consolidation had

Total assets*

$33,313,00098,733,000

123,544,000

Banking

Inoperation

216

offices

To beoperated

18


On May 15, 1975, Union Bank & Trust, Sioux Falls, S.Dak., and United National Bank, Rapid City, S. Dak.,applied to the Comptroller of the Currency for permis-sion to consolidate under the charter and with the titleof the latter and with its headquarters in Sioux Falls, S.Dak.

United National Bank, the charter bank, was or-ganized in 1914 and currently operates 15 branch of-fices with assets of $80.3 million and IPC deposits of$56.2 million. An additional branch has been approvedbut is not yet in operation. The charter bank is ownedby United National Corporation, a one-bank holdingcompany. The service area of the charter bank can bebroadly defined as that part of South Dakota which lieseither adjacent to or south of Interstate Highway 90which connects Rapid City and Sioux Falls, the twolargest cities in the state. The economy of that region isdependent on agricultural pursuits, tourism and relatedservice businesses.

The charter bank operates the majority of itsbranches without competition in sparsely populated,agricultural communities. In Vermillion it competes di-rectly with a branch of National Bank of South Dakota,Sioux Falls, the largest bank in the state, which hasdeposits of $318.1 million and is a member of FirstBank System, Inc. Direct competition in Rapid City isprovided by additional branches of National Bank ofSouth Dakota and by First National Bank of the BlackHills, Rapid City, which has deposits of $174.2 millionand is a member of Northwest Bancorporation. InSioux Falls, where the charter bank has operated abranch for. less than 1 year, it again competes with Na-tional Bank of South Dakota which is headquartered inthat city, as well as with Northwestern National Bank ofSioux Falls, which has deposits of $226.4 million and isa member of Northwest Bancorporation; The First Na-tional Bank in Sioux Falls, which has deposits of $81.9million; and two other, moderately-sized, independentlyowned banks.

* Asset figures are as of call dates immediately before and after trans-action.

Union Bank & Trust, the consolidating bank, was or-ganized in 1929 and operates its main office and onebranch in Sioux Falls. It has assets of $31.1 million andIPC deposits of $24.7 million. The area served by thebank includes downtown Sioux Falls and the southwestquadrant of the city. The economy of that region isdominated by the city of Sioux Falls which is the ag-ricultural and industrial center of South Dakota. Directcompetition for the consolidating bank is provided bythe large commercial banks headquartered in the city.

Although the charter bank operates a branch inSioux Falls, there is only minimal competition betweenthat branch and the consolidating bank. The SiouxRiver divides the city roughly in half and the main of-fice and branch of the consolidating bank are locatedeast of the river while the branch of the charter bankbranch is west of the river. Practically and historicallythose .sections have been recognized as separate anddistinct service areas. The fact that the same individualowns a controlling interest in both the consolidatingbank and the holding company that owns the charterbank further minimizes competition between the twobanks.

Consummation of the proposed transaction willstimulate competition in Sioux Falls because the result-ing bank will be in a better position to compete with thelarge holding company affiliated banks that are al-ready established in the city. The consolidation willhave little effect outside the Sioux Falls area and theprincipal benefit to the other communities served bythe charter bank will be the availability of the resultingbank's larger lending limit. The charter bank alreadymaintains its executive offices in the Union Bank &Trust building in Sioux Falls and the consolidation willenable the resulting bank to establish more firmly itsidentity in the banking center of South Dakota.

Applying the statutory criteria, it is concluded thatthe proposed transaction is in the public interest andthis application is, therefore, approved.

August 15, 1975.


We have reviewed this proposed transaction and con-clude that it would not have a substantial competitiveimpact.


SOUTH LOOP NATIONAL BANK,Houston, Tex., and South Texas Bank, Houston, Tex.


South Texas Bank, Houston, Tex., withwas purchased Mar. 1, 1976, by South Loop National Bank, Houston, Tex. (16558), whichhadAfter the purchase was effected, the receiving bank had

Total assets *

$8,173,336

1,120,0005,426,000

Banking

Inoperation

1

0

offices

To beoperated

1


On March 1, 1976, application was made to the Comp-troller of the Currency by the South Loop NationalBank, Houston, Tex., for permission to purchase someof the assets and assume the liabilities of the SouthTexas Bank, Houston, Tex. Instant application restsupon an agreement incorporated herein by referencingthe same as if fully set forth, and, for the reasons setforth below, the application is hereby approved andthe assuming bank is hereby authorized immediatelyto consummate purchase and assumption transaction.

Under the Bank Merger Act, 12 USC 1828(c), theComptroller cannot approve a purchase and assump-tion transaction which would have certain proscribedanticompetitive effects unless he finds these anticom-petitive effects to be clearly outweighed in the publicinterest by the probable effect of the transaction inmeeting the convenience and needs of the communityto be served. Additionally, the Comptroller is directedto consider the financial and managerial resourcesand future prospects of the existing and proposedinstitution and the convenience and needs of thecommunity to be served. When necessary, however, toprevent the evils attendant upon the failure of a bank,the Comptroller can dispense with the uniform stan-dards applicable to usual acquisition transactions andneed not consider reports on the competitive conse-quences of the transaction ordinarily solicited from theDepartment of Justice and other banking agencies. Heis authorized in such circumstances to act im-


mediately, in his sole discretion, to approve an acquisi-tion, and to authorize the immediate consummation ofthe transaction.

The proposed acquisition will be in accord with allpertinent provisions of the National Bank Act and willprevent disruption to the community and potentiallosses to a number of uninsured depositors. Theassuming bank will have strong financial and manage-rial resources, and this acquisition will enable it to en-hance the banking services offered in the Houstoncommunity. Thus, the approval of this transaction willhelp to avert a loss of public confidence in the bankingsystem, and will improve the services offered to thebanking public.

The Comptroller finds that the anticompetitive effectsof the proposed transaction, if any, are clearly out-weighed in the public interest by the probable effect ofthe proposed transaction in meeting the convenienceand needs of the community to be served. For thosereasons, the assuming bank's application to assumecertain liabilities and purchase assets of South TexasBank as set forth in the agreement is approved. TheComptroller further finds that the failure of South TexasBank requires him to act immediately, as contemplatedby the Bank Merger Act, to prevent disruption of bank-ing services to the community; and the Comptrollerthus waives publication of notice, dispenses with thesolicitation of competitive reports from other agencies,and authorizes the transaction to be consummatedimmediately.

March 1, 1976.



OLD NATIONAL BANK OF WASHINGTON,Spokane, Wash., and Bank of the West, Bellevue, Wash.



Bank of the West, Bellevue, Wash., with $126,226,969was purchased Mar. 5, 1976, by Old National Bank of Washington, Spokane, Wash. (4668),which had 633,358,000After the purchase was effected, the receiving bank had 745,866,000

16

6076


On September 30, 1975, Old National Bank ofWashington, Spokane, Wash., applied to the Comptrol-ler of the Currency for permission to purchase the as-sets and assume the liabilities of Bank of the West,Bellevue, Wash.

Old National Bank of Washington, the purchasingbank, was organized in 1891 and, with assets of ap-proximately $564 million and IPC deposits of approxi-mately $445 million, ranks as the state's fifth largestbank in deposit size. The purchasing bank currentlyoperates 60 offices. Forty-nine of the bank's offices arelocated on the eastern side of the Cascade Mountainswhich bisect the state. The economy of the area ispredominantly agricultural and Spokane is the princi-pal urban center.

Old National Bank is a member of WashingtonBancshares, Inc., a bank holding company whose onlyother affiliate bank is First National Bank in Spokane,with deposits of $45.5 million. First National Bank inSpokane operates no branches outside SpokaneCounty in eastern Washington.

In the past several years Old National Bank has ex-panded to the western and more densely populatedarea of the state in and around Seattle. Old NationalBank's expansion has been primarily by acquisitionbecause of the state's restrictive branching laws whichonly permit de novo branching within the county inwhich the bank is headquartered or in any city or townwhich has no bank or branch.

Bank of the West, the selling bank, is a state-chartered bank organized in 1965 which presently op-erates 16 offices in western Washington. Bank of theWest has total assets of $117 million and IPC depositsof $85 million and ranks as the state's 11th largestbank in deposit size. The selling bank is headquar-tered in Bellevue, King County, Wash. Bellevue, a citywhich is separated from Seattle by Lake Washington,is a major port and manufacturing center.

Bank of the West has seven offices, acquired bymerger, in Cowlitz County which is in the southwesternportion of the state approximately 100 miles fromSeattle. The purchasing bank has no offices in CowlitzCounty and, because of the state's restrictive branch-ing laws, the purchasing bank is unable to branch denovo into Cowlitz County. As a result the presenttransaction will have little competitive impact in CowlitzCounty.

Bank of the West has nine offices located in King


County. The city of Seattle dominates King County butthe selling bank has no offices in the city itself. Old Na-tional Bank has five offices in King County, two ofwhich are located in Seattle. Four of the purchasingbank's offices are separated from the offices of theselling bank by Lake Washington. The purchasingbank's fifth branch in King County is more than 4 milesfrom any branch of the selling bank. Additionally, be-cause of the state branching laws, Bank of the Westcannot branch into Seattle proper and Old NationalBank is restricted from freely branching in KingCounty. Both banks are severely limited in their abilityto expand in this area of the state. Neither bank con-trols a significant portion of the total deposits in KingCounty which is dominated by the large Seattle-basedbanks. As a result, only a minimal amount of competi-tion between the two banks will be eliminated by theproposed transaction and the effect on competition inthe King County area will not be significant.

Competition for both banks is provided by Seattle-First National Bank, with deposits of $3.4 billion;Rainier National Bank, with deposits of $2 billion;Pacific National Bank of Washington, with deposits of$800 million; and Peoples National Bank ofWashington, with deposits of $615 million.

Consummation of the proposed transaction will re-sult in some loss of competition but the great numberof alternative banking offices throughout King Countyreduces the impact of that slight loss. The transactionwill not change Old National Bank's position relative toother banks in the state and the resultant bank will beable to compete more effectively with the largeSeattle-based banks. The resulting bank will have alarger lending limit and will be able to provideincreased services to present customers of the sellingbank, such as expanded trust services.

Applying the statutory criteria, it is concluded thatthe proposed transaction will not significantly affectcompetition and, therefore, it is approved.

February 2, 1976.


Ten of Applicant's offices, five in King County and fivein Snohomish County, are within 11 miles of four ofBank's King County offices; the closest offices areabout 4.4 road miles apart. Thus, the merger wouldeliminate some existing competition between thebanks. Neither bank, however, controls a significantportion of the total deposits in this area, which is domi-nated by two Seattle-based banks. Thus, the effect ofthe merger on competition would not be significantlyadverse.

* * * 53Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

THE FARMERS NATIONAL BANK OF ANNAPOLIS,Annapolis, Md., and The Millington Bank of Maryland, Millington, Md.



The Millington Bank of Maryland, Millington, Md., withand The Farmers National Bank of Annapolis, Annapolis, Md. (1244) which hadmerged Mar. 5, 1976, under charter of the latter bank (1244) and title "Farmers Na-tional Bank of Maryland." The merged bank at date of merger had

$ 5,398,792 176,251,752 9

81,650,543 10


On January 16, 1976, the Farmers National Bank ofAnnapolis, Annapolis, Md., applied to the Comptrollerof the Currency for permission to merge the MillingtonBank of Maryland under the charter of the Farmers Na-tional Bank of Annapolis and with the title of "FarmersNational Bank of Maryland." This application has beenprocessed pursuant to the emergency provisions ofthe Bank Merger Act of 1966, contained in 12 USC1828(c).

The Farmers National Bank of Annapolis, the charterbank, was established in 1805 and currently has as-sets of $76 million and IPC deposits of $60 million. Thecharter bank operates four offices in Annapolis andfive offices in surrounding Anne Arundel County.

The charter bank's service area encompasses al-most all of Anne Arundel County which is located onthe Chesapeake Bay in eastern Maryland. The popula-tion of the service area, which is currently about175,000, has grown rapidly because people who workin Baltimore and Washington, D.C., are establishinghomes in the area.

The charter bank is the ninth largest of 16 banks, rep-resented in Anne Arundel County. The five largestbanks in the state have offices in the county. However,in spite of the highly competitive nature of banking inthe service area, the charter bank has realized excel-lent growth over the last 10 years and ranks second inits share of total deposits in the county. Major com-petitors in the service area include Equitable TrustBank, Baltimore, with deposits of $992 million, amember of the Equitable Bancorporation; MarylandNational Bank, Baltimore, with deposits of $1.9 billion;and First National Bank of Maryland, Baltimore, withdeposits of $902 million.

The Millington Bank of Maryland, the merging bank,was established in 1908 and operates as a unit bankwith assets of $5.6 million and IPC deposits of $5 mil-lion. Millington is an agricultural community with apopulation of about 450 located in Kent County on theeastern side of the Chesapeake Bay. The service areaof the merging bank includes much of Kent Countyand part of Queen Anne County to the south, and ex-tends east into Delaware. The economy of the servicearea is dominated by agriculture. The merging bank isthe smallest of five banks serving Kent County. Two ofthe largest banking organizations in the state have of-fices in the service area, including Maryland NationalBank and an affiliate of Mercantile Bankshares Corpo-ration, the $25 million deposit Chestertown Bank ofMaryland, Chestertown.

There is little, if any, competition between the charterand merging banks because of the distance whichseparates the closest offices of each bank, approxi-mately 50 miles, and they are separated by theChesapeake Bay. The charter bank is interested in ex-panding into the Eastern Shore counties in order totake advantage of the banking opportunities presentedby the increasingly successful agriculture industry.

An important aspect of this transaction promptingthe Comptroller to expedite this merger underemergency provisions of the Bank Merger Act is thepresent financial position of the merging bank. Themerging bank has not progressed significantly sinceits organization in 1908 and, because of its size andlocation, the merging bank has not been able to attractand hold qualified management. More importantly, thebank's condition decreased substantially during thepast few weeks when it experienced a $170,000 over-draft loss charged against the capital accounts of$250,000. Also the merging bank has experienced anadditional $23,000 loan loss. Those substantial lossesin conjunction with the inability of stockholders to raiseadditional capital have left the bank in a precariousposition militating against its future survivability as aviable institution.

The instant merger will benefit the Millington com-munity, now served by the merging bank, by providinga more aggressive and viable competitor. Additionally,the merger will only slightly increase the charter bank'srelative position in Anne Arundel County. The resultingbank will offer new services and expand existing ser-vices in the area now served by the merging bank.Farmers National Bank has both the capital and man-agement capacity to absorb the merger without anydetriment to its own financial position, and to becomea vigorous competitor in Kent County. Of vital impor-tance, consummation of this merger will insure the con-tinued, uninterrupted, provision of banking services tothe present customers of The Millington Bank of Mary-land, thereby maintaining the confidence of the publicin the banking system.

Applying the statutory criteria contained in 12 USC1828(c), the Comptroller of the Currency finds that anemergency exists because of the present condition ofthe Millington Bank of Maryland which requires ex-peditious action in order to prevent the failure of thatbank at some future date. Consistent with that finding,it is concluded that the subject merger will not ad-versely affect competition in Maryland. Accordingly,this application is in the public interest and should be,and is, approved.

February 23, 1976.



Applicant operates solely in Anne Arundel County(population 298,000) and Bank operates solely in KentCounty (population 16,000). The office of Applicantclosest to the sole office of Bank is 51 miles away, andthere are both competitive banking alternatives andthe Chesapeake Bay located in the area which sepa-rates Applicant and Bank. Thus, there currently existsat best a negligible amount of competition betweenApplicant and Bank.

There are currently 16 commercial banks servingAnne Arundel County and they collectively operate 63offices. Applicant operates nine of the offices and cur-rently ranks second with 16 percent share of the de-posits in the county. The five largest banks in the stateall have offices in Anne Arundel County. Bank is thesmallest of the five banks which currently operate atotal of nine offices in Kent County. Bank holds 7.5percent of total county deposits. Two of the largest

banks in the state operate in Kent County. In anyevent, since Applicant does not operate in KentCounty and Bank does not operate in Anne ArundelCounty, the proposed acquisition will not increase thelevel of concentration in either market.

Statewide branching is permitted in Maryland, soboth Applicant and the Bank are free to openbranches in the counties served by each other. The fi-nancial condition of Bank makes it obvious that it can-not entertain serious notions about expansion any timesoon, and the small population of Kent County and thepresence of many other banks in the county renderKent County a less than likely target for expansion byApplicant.

In sum, the proposed acquisition will not eliminateany significant amount of existing competition, nor willit appreciably increase concentration. It will removethe theoretical possibility of de novo entry by eachbank into the area served by the other, a possibilitywhich appears to be rather remote.

THE FIRST NATIONAL BANK OF HUNTSVILLE,Huntsville, Ark., and The Valley Bank, Hindsville, Ark.



The Valley Bank, Hindsville, Ark., with $1,936,637was purchased Mar. 9, 1976, by The First National Bank of Huntsville, Huntsville, Ark. (8952),which had 18,457.000After the purchase was effected, the receiving bank had 20,077,000


On March 8, 1976, application was made to the Comp-troller of the Currency by the First National Bank ofHuntsville, Huntsville, Ark. ("Assuming Bank") for per-mission to purchase the assets and assume theliabilities of The Valley Bank, Hindsville, Ark. The appli-cation rests upon an agreement incorporated hereinby referencing the same as if fully set forth, and, for thereasons set forth below the application is hereby ap-proved and the Assuming Bank is hereby authorizedimmediately to consummate the purchase and as-sumption transaction, and to operate the office of TheValley Bank as a branch office of the Assuming Bank.

During the course of an examination of The ValleyBank, commencing February 10, 1976, a shortagepresently estimated at approximately $645,000 wasdiscovered. That shortage resulted from loans eitherforged or in the names of non-existent persons. Capitaland reserves of The Valley Bank as of February 9,1976, totalled approximately $152,600. In addition, thebank carries a $75,000 Fidelity Coverage Bankers Blan-ket Bond, however, the bank carries no excess Em-ployee Dishonesty Bond. Applicant is one of only twobanks eligible to establish a branch in Hindsville. Theother eligible bank, Bank of Kingston, Kingston, Ark., is


a small institution located in a remote area of MadisonCounty, approximately 30 miles from Hindsville. TheBank of Kingston has total deposits of approximately$1.1 million and does not have the financial capacity toabsorb the Hindsville bank.

Under the Bank Merger Act, 12 USC, 1828(c), theComptroller cannot approve a purchase and assump-tion transaction which would have certain proscribedanticompetitive effects unless he finds these anticom-petitive efects to be clearly outweighed in the publicinterest by the probable effect of the transaction inmeeting the convenience and needs of the communityto be served. Additionally, the Comptroller is directedto consider the financial and managerial resourcesand future prospects of the existing and proposedinstitution and the convenience and needs of thecommunity to be served. When necessary, however, toprevent the disruptions attendant upon the failure of abank, the Comptroller can dispense with the uniformstandards applicable to usual acquisition transactionsand need not consider reports on the competitive con-sequences of the transaction ordinarily solicited fromthe Department of Justice and the other bankingagencies. He is authorized in such circumstances toact immediately in his sole discretion, to approve anacquisition and to authorize the immediate consumma-tion of the transaction.

The proposed acquisition will be in accord with all


pertinent provisions of the National Bank Act and willprevent disruption to the Hindsville community and po-tential losses to several uninsured depositors. The As-suming Bank has sufficient financial and managerialresources to absorb The Valley Bank. Thus, the ap-proval of this transaction will help to avert a loss ofpublic confidence in the banking system and preventdisruption of banking services to the community.

The Comptroller finds that the anticompetitive effectsof the proposed transaction, if any, are clearly out-weighed in the public interest by the probable effect ofthe proposed transaction in meeting the convenienceand needs of the community to be served. For thosereasons, the Assuming Bank's application to assume

the liabilities and purchase the assets of The ValleyBank, as set forth in the purchase agreement, ishereby approved. The Comptroller further finds thatthe failure of The Valley Bank requires him to act im-mediately, as contemplated by the Bank Merger Act, toprevent disruption of banking services to the community;and the Comptroller thus waives publication of notice,dispenses with the solicitation of competitive reportsfrom other agencies and authorizes the transaction to beconsummated immediately.

March 9, 1976.


UNITED NATIONAL BANK,Castlewood, S. Dak., and First State Bank, Lake Norden, S. Dak.



First State Bank, Lake Norden, S. Dak., withand United National Bank, Castlewood, S. Dak. (16470), which hadmerged Mar. 15, 1976, under charter and title of the latter bank (16470). The merged bankat date of merger had

$4,664,736 15,190,046 19,854,782


On October 22, 1975, First State Bank, Lake Norden,S. Dak., and United National Bank, Castlewood, S.Dak., applied to the Comptroller of the Currency forpermission to merge under the charter and with thetitle of the United National Bank.

United National Bank, the charter bank, was or-ganized as a state bank in 1902, converted to a na-tional bank in 1975, and now has assets of $5.2 millionand IPC deposits of $3.3 million. The bank operates nobranch offices. The service area of the charter bankincludes the town of Castlewood, S. Dak., population523, and its immediate environs which include the sur-rounding area within an 8- to 10-mile radius.

The charter bank is the only bank domiciled inCastlewood and competes primarily with two banks lo-cated in Watertown, about 15 miles north ofCastlewood. The larger of the two competitors inWatertown, the largest city in the immediate area, isthe First National Bank of Watertown with deposits of$39.5 million, a subsidiary of Northwest Bancorpora-tion, Minneapolis. The other competitor, Farmers andMerchants Bank & Trust, is an independent bank withtotal deposits of $45.0 million. Those two banks, be-cause of their size, are able to offer services, such asgreater lending limits, which the United National Bankat Castlewood, because of its present small capitalbase, is unable to extend. Competition between thecharter bank and these competitors is, therefore, sub-stantial.

First State Bank, the merging bank, was organizedas a national bank in 1928, has operated as a statebanking institution since 1965 and now has assets of$4.5 million and IPC deposits of $3.6 million. The bank

operates no branch offices. The town of Lake Norden,in which the bank is located, has a population of ap-proximately 400 inhabitants. The bank's service areaincludes Lake Norden and extends approximately 10miles in all directions from Lake Norden. The economyof the service area, like that of Castlewood, is almostexclusively agricultural and there is no major industrialoperation in the Lake Norden area. Competition for themerging bank is provided by the two banks in Water-town which compete with the charter bank.

There is no significant competition between the char-ter and merging banks because of the distanceseparating the two banks and the existence of naturalbarriers. The 19-mile distance between the two banksand the presence of several intervening lakes establishtwo different service areas. Moreover, the banksinvolved in the proposed transaction are controlled bythe same individual. The transaction is therefore effec-tively a corporate reorganization of that individual'sholdings into a single entity which will not result in anychanges of policy or management. Finally, there is nopotential competition between the charter and mergingbanks due to South Dakota's restrictive branch bank-ing statutes which provide for home office protection.Additionally, neither bank is of the size to undertake denovo branching.

Consummation of the proposed merger may result insome operational cost efficiencies, and the resultingbank will have a larger lending limit thereby enabling itto better serve the banking needs of the populace. Theresulting bank, with assets of $9.7 million and IPC de-posits of $6.9 million, will remain considerably smallerin size than the banks with which it will compete.



the proposed merger would have no adverse competi-tive effects and is not adverse to the public interest.Accordingly, this application should be, and thereforeis, approved.

February 13, 1976.


The main (and only) office of Applicant in Castlewood(population 523) is 19 miles from the main (and only)office of the Bank in Lake Norden (population 393) andthere are competitive banking alternatives located inthe intervening area between the two towns. As ofJune 30, 1974, five banks operated six offices in Ham-lin County, with the Applicant holding about 11 percentand the Bank holding about 10 percent of total HamlinCounty deposits. If the merger is approved, the result-

ing bank will be the largest in Hamlin County, holdingabout 21 percent of county deposits.

The majority control of both the Applicant and theBank is held by the same individual, with the result thatthe two banks have had numerous loan participationsduring the past year. This factor somewhat mitigatesthe anticompetitive effects of the merger.

It appears that the merger would eliminate someexisting competition as well as the potential forincreased competition in the future, and would alsosubstantially increase concentration among commer-cial banks in Hamlin County. It thus appears that theproposed merger would have an adverse effect oncompetition, although we note that the two banks arequite small and Hamlin County is a sparsely populatedarea which probably will not experience significanteconomic growth anytime soon.

VIRGINIA NATIONAL BANK,Norfolk, Va., and North American Bank and Trust, Leesburg, Va.



North American Bank and Trust, Leesburg, Va., with $ 8,783,472and Virginia National Bank, Norfolk, Va. (9885), which had 1,745,416,361merged Mar. 15, 1976, under charter and title of the latter bank (9885). The merged bankat date of merger had 1,753,137,292

1118

119


On December 23, 1975, North American Bank andTrust, Leesburg, Va., and Virginia National Bank, Nor-folk, Va., applied to the Comptroller of the Currency forpermission to merge under the charter and title of "Vir-ginia National Bank."

Virginia National Bank, Norfolk, Va., the charterbank, is the lead bank for Virginia NationalBankshares, Inc., a multi-bank holding company that isthe second largest banking organization in the state.The charter bank, with assets of $1.7 billion and IPCdeposits of $1.2 billion, operates 116 offices through-out the state of Virginia.

North American Bank and Trust, Leesburg, Va., themerging bank, was established in 1972 under a statecharter and now has assets of $9.6 million and IPCdeposits of $5.4 million. The merging bank primarilyserves the town of Leesburg and the surrounding areain Loudoun County. Loudoun County is located on thefringe of the Washington, D. C. Standard MetropolitanStatistical Area (SMSA) and is predominantly rural innature. Approximately one-third of the work force inLoudoun County commutes to Washington, D. C, foremployment.

North American Bank and Trust is the smallest ofnine banks serving Loudoun County. The two dominantcompetitors in its service area are First Virginia Bank/First National, Purcellville, with deposits of $18 million,

which is a member of First Virginia Bankshares Corpo-ration, and The Peoples National Bank of Leesburg,with deposits of $28 million, which is a member of Fi-nancial General Bankshares, Inc.

The charter bank has no offices in Loudoun Countyor within 25 miles of the merging bank. As a result, theproposed transaction will not lessen any competitionwithin Loudoun County. In addition, consummation ofthe merger will not significantly increase Virginia Na-tional Bank's relative position statewide.

Since its establishment in 1972, the merging bankhas been unable to achieve a profitable level of earn-ings. The bank has been experiencing increasing loanlosses, low liquidity and a deteriorating capital posi-tion. The future prospects for the merging bank are notencouraging. The subject transaction presents a de-sirable alternative to possible liquidation of the bank orfinancial support from regulatory agencies. The charterbank has sufficient capital, financial resources andmanagement depth to absorb North American Bankand Trust without damage to the charter bank's presentfinancial condition.

Consummation of the proposed transaction willstrengthen competition in Loudoun County. The result-ing bank will offer additional banking services to thecommunity not presently offered by the merging bank,such as more sophisticated real estate financing andtrust services. Virginia National Bank will not enter this


service area in a dominant position and a financiallyweak competitor will have been replaced by a moreviable institution.

Applying the statutory criteria, it is concluded thatthe proposed merger is in the public interest and thisapplication is therefore approved.

February 12, 1976.


In sum, the proposed merger would not eliminate anysignificant amount of existing competition. It wouldabort the theoretical possibility that Applicant wouldenter the market through the chartering of a new bank.On balance, thev proposed merger would have only aslightly adverse effect on competition.

PEOPLES BANK OF MISSISSIPPI, NATIONAL ASSOCIATION,Union, Miss., and Clinton National Bank, Clinton, Miss.


Clinton National Bank, Clinton, Miss. (16253), withand Peoples Bank of Mississippi, National Association, Union, Miss. (16194), which had . . .merged Mar. 17, 1976, under charter and title of the latter bank (16194). The merged bankat date of merger had

Total assets

$ 5,545,66568,219,855

73,765,520

Banking

Inoperation

114

offices

To beoperated

15


On October 11, 1975, Clinton National Bank, Clinton,Miss., and Peoples Bank of Mississippi, National As-sociation, Union, Miss., applied to the Comptroller ofthe Currency for permission to merge under the char-ter and with the title of Peoples Bank of Mississippi,National Association.

Peoples Bank of Mississippi, National Association,the charter bank, was organized in 1919 and, with IPCdeposits of $52.3 million and assets of $65.9 million,operates 11 branches in seven counties east andnortheast of Jackson, Miss. The bank also had pend-ing an application for another branch office in WinstonCounty. The charter bank's service area is consideredto be the seven counties in which it presently conductsbusiness: Attala, Grenada, Lauderdale, Neshoba,Newton, Oktibbeha and Scott.

Competition is provided the charter bank by officesof 16 different banking institutions, including GrenadaBank, Grenada, with deposits of $175.8 million; Citi-zens National Bank of Meridian, with deposits of $58.4million; Merchants and Farmers Bank, Koscuisko, withdeposits of $43.8 million; and Citizens Bank ofPhiladelphia, with deposits of $24.6 million, amongother competitors.

Clinton National Bank, the merging bank, opened forbusiness on January 2, 1974, and, with IPC deposits of$3.6 million and assets of $6.4 million, does not oper-ate any branches. The service area of Clinton NationalBank consists of Clinton and its immediate environswith a population estimated to be in excess of 13,500persons. The merging bank is the fourth smallest of 11commercial banks headquartered in Hinds County andcompetes with offices of Mississippi's two largestbanks, First National Bank of Jackson, with deposits of$586.5 million, and Deposit Guaranty National Bank,Jackson, with deposits of $673.5 million. The mergingbank also competes with Mississippi Bank, Jackson,with deposits of $76.3 million; First Mississippi NationalBank, Hattiesburg, with deposits of $181.8 million; and

Fidelity Bank, Utica, with deposits of $17.6 million,among other competitors.

There is minimal competition between Peoples Bankof Mississippi, N.A., and Clinton National Bank be-cause their closest two offices are separated by a dis-tance of approximately 41 miles. Moreover, the merg-ing bank's small size and its lack of experienced bankmanagement prevents the bank from being a signifi-cant competitor of Peoples Ba'nk of Mississippi. Thepossible entry by the charter bank into Hinds County isnot so easily discounted. The charter bank has suffi-cient resources to enter the Hinds County service areaate novo if the proposed merger is denied; neverthe-less, consummation of the merger would not have anadverse competitive effect. The merging bank would,at best, provide weak competition for a de novo HindsCounty office of the charter bank if the latter chose thatalternative to enter Hinds County; the merging bank iswithout experienced management and, given thatbank's portfolio problems and size, it will be quitesome time (should the merger not be consummated)before Clinton National is a substantial competitive fac-tor in the Hinds County service area. Further, entry intoHinds county by Peoples Bank of Mississippi, with re-sources only a tenth as great as the major banks in theJackson area, will not have a dramatic impact on thevarious markets for banking services. The state'slargest banks, Frist National Bank of Jackson and De-posit Guaranty Bank, dominate banking in HindsCounty and each operates a branch in Clinton wherethe merging bank is located.

Consummation of the proposed merger shouldstimulate competition in the service area of the merg-ing bank. The transaction will resolve Clinton National'smanagement problems. Further, the resulting bank islikely to retain the charter bank's aggressive competi-tive traits. In addition to replacing a relatively new,inexperienced commercial bank with a more estab-lished and expansion-minded financial institution, con-summation of this transaction will provide Clinton area


residents and businesses with the availability of a sub-stantially increased lending limit, lower servicecharges, extended banking loans and "personal bank-ing service."

Applying the statutory criteria it is concluded that theproposed merger is in the public interest and this ap-plication is therefore, approved.

February 11, 1976.


The closest offices of Applicant and Bank are approx-imately 61 miles apart and there are numerous otherbanks plus the Metropolitan Jackson Area in theintervening area. It appears, therefore, that the proposedacquisition will not eliminate existing competitionto any appreciable extent. As of June 30, 1975, Appli-cant held approximately 1.03 percent of total state de-

posits and Bank held .10 percent. Thus, the merger ofthe two banks will not appreciably increase concentra-tion in commercial banking in the state or in any localmarkets therein.

Both of the largest banks in the state have branchesin Clinton, a fast-growing town to approximately 10,000people. A third bank was established in 1973. Theproposed acquisition can be characterized as a toe-hold acquisition by Applicant. It appears that Applicantcould have established (assuming state approval) a denovo branch in Clinton, and the growth rate in the Clin-ton area suggests that a de novo branch might well bepossible, at least in the near term if not immediately.Thus, the proposed merger may eliminate some poten-tial competition.

In sum, the proposed merger may have slightly ad-verse anticompetitive consequences.

PUGET SOUND NATIONAL BANK,Tacoma, Wash., and Continental Bank, Burien, Wash.


Continental Bank, Burien, Wash., withwas purchased Mar. 20, 1976, by Puget Sound National Bank, Tacoma, Wash. (12292), whichhadAfter the purchase was effected, the receiving bank had

Total assets *

$20,514,344

395,792,000481,871,000

Banking

Inoperation

4

35

offices

To beoperated

39


On March 10, 1976, application was made to theComptroller of the Currency by Puget Sound NationalBank, Tacoma, Washington ("Assuming Bank") topurchase the assets and assume the liabilities of Con-tinental Bank, Burien, Wash. ("Selling Bank").

Assuming Bank, with approximately $346 million indeposits, is the sixth largest bank in the state ofWashington. The Assuming Bank operates through a34-branch network; all except five of the branches arelocated in Pierce County. Two of the branches are lo-cated in King County, home of the Selling Bank, andone of those branches is located approximately 5miles from a branch office of the Selling Bank. How-ever, because of the restrictions in the branching lawsof the state of Washington, Assuming Bank's furtherexpansion into King County and the trade area of Sell-ing Bank, as a practical matter, can come only throughacquisition of an existing bank.

Selling Bank was chartered in 1969, and presentlyhas approximately $18 million in deposits. The tradearea of Selling Bank is presently serviced by 37 officesof other commercial banks with total deposits of ap-proximately $343 million.

An examination of Continental Bank on January 30,1976, disclosed that the Selling Bank had been the vic-


tim of certain forged notes creating a substantial anddebilitating effect upon its capital accounts. Currentknown losses aggregate approximately $1.47 million,reducing the capital accounts of the Selling Bank toapproximately $70,000.

Pursuant to the provision of the Bank Merger Act, 12USC 1828(c), the Comptroller of the Currency cannotapprove a purchase and assumption transaction whichwould have certain proscribed anticompetitive effectsunless the Office concludes that those anticompetitiveeffects are clearly outweighed in the public interest bythe probable effect of the proposed transaction inadequately meeting the convenience and needs of thecommunity to be served. Furthermore, the Office of theComptroller is directed to also fully consider the finan-cial and managerial resources and future prospects ofthe existing and proposed institution. When necessary,however, to prevent the disruption attendant upon theprobable failure of a bank, the Comptroller can dis-pense with the uniform standards applicable to usualacquisition transactions and need not consider reportsrelating to the competitive consequences of the trans-action ordinarily solicited from the United States De-partment of Justice and other banking agencies. TheComptroller is specifically authorized in such exigentcircumstances to act immediately, in his sole discre-tion, to approve an acquisition and to authorize theimmediate consummation of the proposed transaction.

The subject proposed transaction is deemed to bein accord with all pertinent provisions of the National


Bank Act and will serve to prevent disruption of bank-ing services to the Burien banking community and po-tential losses to uninsured depositors. The AssumingBank has sufficient financial and marginal resources toabsorb Continental Bank and be a strong competitiveforce in Selling Bank's trade area. Approval of theinstant transaction will avert a potential loss of publicconfidence in the banking system, and prevent disrup-tion of any banking services to the relevant community.

Although this requisition will eliminate some directcompetition, the Comptroller finds that any anticom-petitive effects of the proposal are clearly outweighedby the probable effect of the resultant bank's ability tomeet the convenience and needs of the community tobe served. For the reasons herein stated, the Assum-

ing Bank's application to purchase the assets and as-sume the liabilities of Continental Bank is deemed tobe in the public interest and is approved. The Comp-troller also finds that the probable failure of Continen-tal Bank requires this Office to act immediately, as con-templated by The Bank Merger Act, to prevent disrup-tion of banking services to the community, and theComptroller hereby waives publication of notice, dis-penses with the solicitation of competitive factor re-ports from other agencies, and authorizes the im-mediate consummation of the proposed transaction.

March 20, 1976.


THE EDISON BANK, NATIONAL ASSOCIATION,South Plainfield, N.J., and First National State Bank of the Jersey Coast, Spring Lake, N.J.


First National State Bank of the Jersey Coast, Spring Lake, N.J. (13898), withand The Edison Bank, National Association, South Plainfield, N.J. (15845), which hadmerged Mar. 26, 1976, under charter of the latter bank (15845) and titled "Edison/FirstNational State Bank." The merged bank at date of merger had

Total assets

$ 93,182,05493,500,271

186,682,325

Banking

Inoperation

1110

offices

To beoperated

21


On December 12, 1975, First National State Bank ofthe Jersey Coast, Spring Lake, N.J., and The EdisonBank, National Association, South Plainfield, N.J.,applied to the Comptroller of the Currency for permis-sion to merge under the charter of the latter and withthe title of "Edison/First National State Bank."

The Edison Bank, National Association, the charterbank, was originated in 1956 as a state bank and nowoperates 10 branches with assets of $98.8 million andIPC deposits of $74.1 million. The service area of thebank consists of Middlesex County, which has a popu-lation of approximately 607,000.

First National State Bank of the Jersey Coast, themerging bank, is the survivor of a 1974 merger withFirst National State Bank of Ocean County. The merg-ing bank, with 11 offices, has assets of $94.2 millionand IPC deposits of $80.8 million. The bank's servicearea includes Monmouth County, where it has four of-fices, and Ocean County where the bank maintainsseven offices. The combined population of the two

counties that comprise its service is estimated at738,000.

Edison Bank, National Association and First NationalState Bank of the Jersey Coast are both wholly-ownedsubsidiaries of the same multi bank holding com-pany, First National State Bancorporation, Newark,N.J., which controls six other banks and has aggre-gate deposits of $1.9 billion. As such, their proposedmerger is a corporate reorganization and would haveno effect on competition.

Applying the statutory criteria, it is concluded thatthe proposed merger is not adverse to the publicinterest and this application is, therefore, approved.

February 24, 1976.




EUCLID NATIONAL BANK,Euclid, Ohio, and The Continental Bank, Cleveland, Ohio



The Continental Bank, Cleveland, Ohio, with $100,204,382was purchased Mar. 31, 1976, by Euclid National Bank, Euclid, Ohio (15573), which had 134,748,000After the purchase was effected, the receiving bank had 225,689,000

108

18


On January 19, 1976, Euclid National Bank, Euclid,Ohio, applied to the Comptroller of the Currency topurchase certain assets and assume certain liabilitiesof The Continental Bank, Cleveland, Ohio.

Euclid National Bank, the purchasing bank, was or-ganized in 1952 as a state savings and loan associa-tion, has operated as a national bank since February1966, and now has total deposits of approximately$111 million. The bank operates seven branch officesthroughout Cuyahoga County and one branch office inneighboring Lake County in addition to its head officein Euclid, a suburban community which lies in bothCuyahoga and Lake counties.

The Continental Bank, the selling bank, commencedcommercial banking operations in 1927 as a statebanking institution and now operates 10 offices inCuyahoga County. As of September 30, 1975, TheContinental Bank controlled total deposits of $77.1 mil-lion and ranked immediately behind the purchasingbank as eighth largest of the 12 banks in the county.

Although both banks involved in the proposedmerger presently compete in the same relevant bank-ing market, approximated by the Cleveland SMSA, inonly one instance do the subject banks' branches di-rectly compete in the same service area. That competi-tive situation is, however, greatly mitigated by the re-stricted capabilities of the selling bank, which severelylimit its competitive posture, and further by the addi-tional benefits accruing to the public through condi-tions of convenience and needs.

On a pro forma basis, approval of the instant appli-cation would have the effect of combining into oneinstitution the seventh and eighth largest banks inCuyahoga County which control approximately 1.4percent and 1.0 percent of the total deposits in thecounty, respectively. The resultant bank would be-come the sixth largest bank, surpassing The CapitalNational Bank, a subsidiary of BancOhio Corporation,by 0.1 percent. Additionally, it is noted that Euclid Na-tional Bank is a subsidiary of Winters National Corpora-tion, Dayton, and the merger of the two subject bankswould not alter the present bank holding company's


rank as 11th largest multi-bank holding company inOhio, controlling approximately 2.4 percent of totalstate commercial banking deposits.

Winters National Corporation has committed itself toadd an additional $5 million in capital to the resultingbank upon consummation of this merger. Also, theparent bank holding company assures that assistancewill be provided management if the need arises. Con-summation of the proposal should therefore resolve thesevere capital and managerial problems of the sellingbank. The combination of the two banks will improvethe ability of the surviving bank to better service theneeds and enhance the convenience of the bankingpublic by increasing the legal lending limit of the bank,providing greater access to capital markets, increas-ing capabilities in international banking and providingleasing and trust expertise; thereby resulting in a moreviable banking alternative better able to compete withits five substantially larger competitors in the area, allfive of which are also affiliated with large, multi-bankholding companies.

In conclusion, while consummation of the instantproposal would result in the foreclosure of some slightdegree of present competition and preclude probablefuture competition between the two banks, the slightlyadverse competitive effects are clearly outweighed byoverriding considerations with respect to convenienceand needs of the community to be served.

Applying the statutory criteria, it is concluded thatthe proposed acquisition would have no significantcompetitive effects and is not adverse to the publicinterest. Accordingly, this application should be, andtherefore is, approved.

March 1, 1976.


Applicant and Bank both principally operate inCuyahoga County, Ohio, and it is apparent from anexamination of the map contained in the applicationthat the two banks compete directly with each other. Itis thus clear that the proposed acquisition will elimi-nate direct competition between the parties.

The Cuyahoga County market is dominated by fivelarge banking institutions — Cleveland Trust Com-pany, National City Bank, Central National Bank, UnionCommercial Bank and Society National Bank — whichcollectively control 94.9 percent of deposits and 95.1percent of loans and operate 85.7 percent of the bank-


ing offices in Cuyahoga County. Applicant ranks sixthand Bank ranks seventh in size in Cuyahoga County.However, Applicant and Bank combined would haveonly a 2.9 percent share of deposits and 2.5 percentshare of loans in the market. Thus, the proposed ac-

quisition will not contribute significantly to the alreadyexisting unhealthy degree of concentration in commer-cial banking in the area.

In short, the proposed acquisition will have someadverse competitive effects.

THE FIRST NATIONAL BANK OF ALLENTOWN,Allentown, Pa., and The Kutztown National Bank, Kutztown, Pa.


The Kutztown National Bank, Kutztown, Pa. (5102), withand The First National Bank of Allentown, Allentown, Pa. (373), which hadmerged Mar. 31, 1976, under charter and title of the latter bank (373). The merged bankat date of merger had

Total assets

$ 28,317,000512,774,000

541,091,000

Banking

Inoperation

118

offices

To beoperated

19


On September 15, 1975, The Kutztown National Bank,Kutztown, Pa., and The First National Bank of Allen-town, Allentown, Pa., applied to the Comptroller of theCurrency for permission to merge under the charterand title of The First National Bank of Allentown.

The First National Bank of Allentown, the charterbank, was established in 1855 and is the largest of twobanks headquartered in Allentown with IPC deposits of$420 million and assets of $479 million. The bank op-erates 16 offices with four additional approved but un-opened new branch sites. Allentown is located approx-imately 55 miles northwest of Philadelphia in theLehigh Valley which encompasses the three contigu-ous cities of Allentown, Bethlehem and Easton whichhave a combined population of about 494,000 per-sons. The area is economically progressive with anabundance of both light and heavy industry. The char-ter bank primarily serves that three-city area and thesurrounding area in Lehigh and Northampton counties.

Although the only two banks headquartered in Allen-town are the charter bank and The Merchant's NationalBank of Allentown, with deposits of $308 million, com-petition is provided by branches of banks headquar-tered in other areas, such as Girard Bank, Philadel-phia, with deposits of $2.8 billion; Industrial ValleyBank and Trust Company, Jenkintown, with deposits of$783 million; Union Bank and Trust Company of East-ern Pennsylvania, Bethlehem, with deposits of $142million, and First Valley Bank, Bethlehem, with depositsof $448 million. Other banks which have recently ex-panded into Allentown include First PennsylvaniaBank, N. A., Philadelphia, with deposits of $4.2 billion;American Bank and Trust Co. of Pennsylvania, Read-ing, with deposits of $951 million; and Bank ofPennsylvania, Reading, with deposits of $283 million.

The Kutztown National Bank, the merging bank, wasestablished in 1897 and operates as a unit bank withIPC deposits of $23.6 million and assets of $27 million.Kutztown, in Berks County, is located approximately 16

miles southwest of Allentown and is largely residentialand agricultural with an estimated population of 4,100persons. The service area of the merging bankincludes Kutztown and the immediately surroundingarea. Competition for the merging bank is provided byFarmers Bank of Kutztown with deposits of $20.5 mil-lion and a recently opened branch of American Bankand Trust Company, Reading.

Because some Kutztown residents work in Allentownand Lehigh County, the charter and merging banks dohave some mutual customers. However, because ofthe intervening distance and because of the mergingbank's local orientation, there is minimal competitionbetween them. First National Bank of Allentown drawsfew substantial depositors and loan customers fromthe Kutztown vicinity.

The resulting bank will be able to offer a much widerrange of services to the Kutztown residents than is nowprovided by Kutztown National Bank, such asliberalized and more complete personal and commer-cial loan programs, compound interest from day ofdeposit to day of withdrawal, higher interest rates onsavings, increased lending capacity for commercialand industrial loans and expanded trust and estateplanning services.

Applying the statutory criteria, it is concluded thatalthough there will be a slight lessening of competitionthe proposed merger is in the public interest and thisapplication is, therefore, approved.

February 2, 1976.


Although the main offices of the parties are about 17miles apart, three of Applicant's branches in south-western Lehigh County are within 10 to 12 miles ofBank. However, there are several competitive alterna-tives in the intervening areas. Thus, on balance it ap-pears that the proposed merger would eliminate someexisting competition between the parties.

Applicant is permitted by state law to enter de novo


the market served by Bank and it has the resources todo so. Commercial banking in Berks County is highlyconcentrated, with four banks controlling 88 percent ofdeposits as of 1974. Bank ranked seventh of the 16banks which serve Berks County, holding 2 percent of

total deposits held in the county. However, in view ofthe existence of other significant potential entrants andthe modest market position of Bank, it appears that theproposed merger would not eliminate substantial po-tential competition.

THE NEW FARMERS NATIONAL BANK OF GLASGOW,Glasgow, Ky., and Hiseville Deposit Bank, Hiseville, Ky.


Hiseville Deposit Bank, Hiseville, Ky., withand The New Farmers National Bank of Glasgow, Glasgow, Ky. (13651), which hadmerged Apr. 1, 1976, under charter and title of the latter bank (13651). The merged bankat date of merger had

Total assets

$ 4,939,16040,689,444

47,103,621

Banking

Inoperation

13

offices

To beoperated

4


On December 22, 1975, Hiseville Deposit Bank,Hiseville, Ky., and The New Farmers National Bank ofGlasgow, Glasgow, Ky., applied to the Comptroller ofthe Currency for permission to merge under the char-ter and title of "The New Farmers National Bank ofGlasgow."

The New Farmers National Bank of Glasgow, thecharter bank, was established in 1932 and, with assetsof $36 million and IPC deposits of $27.7 million, nowoperates three offices in Glasgow. Glasgow is locatedin Barren County approximately 100 miles south ofLouisville, Ky., and has an estimated population of11,000. The economy of Barren County is supportedprimarily by farming, however industrial employmentopportunities are increasing in the county, particularlyin Glasgow. The charter bank's service area includesall of Barren County; it is the second largest of fivebanks headquartered in the county.

Hiseville Deposit Bank, the merging bank, was es-tablished in 1903 and now operates as a unit bank withassets of $4.3 million and IPC deposits of $3.6 million.Hiseville is a small farming community with a popula-tion of about 200, located 9 miles northeast of Glas-gow. The merging bank's service area is limited toHiseville and the immediately surrounding agriculturalarea.

Competition for both banks is provided by the otherthree banks located in Barren County including Citi-zens Bank & Trust Company, Glasgow, with depositsof $37.5 million; The Peoples Bank, Cave City, withdeposits of $5.9 million; and Park City State Bank, ParkCity, with deposits of $2.4 million. Competition is alsoprovided by the banks located just outside BarrenCounty such as Horse Cave State Bank, Horse Cave,with deposits of $14.9 million; Edmonton State Bank,Edmonton, with deposits of $9.9 million; Bank of Sum-mer Shade, Summer Shade, with deposits of $5.2 mil-lion; the Smith Grove branch of The American NationalBank and Trust Company of Bowling Green, with totaldeposits of $69.6 million; and the Fountain Runn

agency branch of Gamaliel Bank, Gamaliel, with totaldeposits of $9.5 million.

The service areas of the charter and merging banksdo overlap, and consummation of the proposed trans-action will result in a slight lessening of competition.However, the extent of any loss of competition in Bar-ren County is minimized by the fact that Hiseville De-posit Bank has had little competitive impact outside ofits own service area. In addition, the merger will notplace the resulting bank in a dominant position andthere are sufficient banking alternatives in the county.

Consummation of the proposed transaction will re-sult in new and expanded banking services for theHiseville community. The resulting bank will offer ag-ricultural and installment lending programs, bankcredit card services and trust services, none of whichare presently provided by the merging bank.

Recently, the chief executive officer of Hiseville De-posit Bank died suddenly, leaving a void in the bank'sleadership. Because of the size and location of themerging bank, it will have difficulty attracting qualifiedsuccessor management. The subject proposal willsolve that problem.

Applying the statutory criteria, it is concluded thatalthough the proposed merger will result in a slightlessening of competition, the Hiseville community willreceive increased and more convenient banking ser-vices; therefore, this application is approved.

February 24, 1976.


In sum, this proposed merger will eliminate some exist-ing competition and will slightly increase concentrationin commercial banking, and will eliminate one of thefive banks currently serving the area. Be that as it may,in view of the small size of Bank and the community itserves, the low population density of the market andthe managerial difficulties suffered by Bank, we con-clude that the overall competitive effect of the proprosedmerged would be slightly adverse.


GREENVILLE NATIONAL BANK,Greenville, Ohio, and The Citizens Bank Company, Ansonia, Ohio



The Citizens Bank Company, Ansonia, Ohio, withwas purchased Apr. 10, 1976, by Greenville National Bank, Greenville, Ohio (13944), whichhadAfter the purchase was effected, the receiving bank had

$8,473,000 1

35,096,000 443,797,000


On October 29, 1975, Greenville National Bank,Greenville, Ohio, applied to the Comptroller of the Cur-rency for permission to purchase the assets and as-sume the liabilities of the Citizens Bank Company, An-sonia, Ohio.

Greenville National Bank, the purchasing bank, waschartered in 1934 and is presently the second largestof nine banks located in Darke County, Ohio. The bankoperates three banking offices—two in Greenville, andone in Gettysburg, 7 miles to the east. The purchasingbank has received approval to open an additional of-fice in Darke County. The bank has assets of approxi-mately $34.9 million and total IPC deposits of approxi-mately $26.9 million.

The Citizens Bank Company, the selling bank, wasorganized in 1904 and operates one banking office.With assets of $8.2 million and total IPC deposits of$6.4 million, it is the smallest commercial bank inDarke County.

Both banks are located in Darke County, in south-western Ohio, population about 50,000. The servicearea of the purchasing bank is the Greenville - Gettys-burg area which has a population of approximately40,000 persons and, despite the presence of somemanufacturers, is primarily an agricultural area. Theselling bank is located in Ansonia, 8 miles north ofGreenville and has a population of 1,100. With the ex-ception of a few small stores, the service area of theselling bank is entirely reliant upon agriculture for itseconomic base.

Both the selling and purchasing bank compete withseven banks located in Darke County. They are: Sec-ond National Bank of Greenville, Greenville, Ohio, withtotal deposits of $33.1 million; The Farmers State Bank,Union City, Ohio, with total deposits of $17.8 million;Peoples National Bank, Versailles, Ohio, with total de-posits of $16.1 million; Arcanum National Bank, Ar-canum, Ohio, with total deposits of $14.8 million; TheFarmers State Bank and Trust Company, New Madi-son, Ohio, with total deposits of $10.2 million; The Citi-zens State Bank, Greenville, Ohio, with total depositsof $9.3 million; and The Osgood State Bank, Osgood,Ohio, with total deposits of $7.1 million. Competition isalso provided by three savings and loan institutions:Greenville Federal Savings and Loan Association,


Greenville, Ohio, with total deposits of $41.6 million;Arcanum Federal Savings and Loan Association, Ar-canum, Ohio, with total deposits of $17.7 million; andVersailles Savings and Loan Company, Versailles,Ohio, with total deposits of $5.9 million.

Because the purchasing and selling banks' head of-fices are located approximately 8 miles apart there issome competitive overlap in trade areas and there issome direct competition between them. Should theproposed transaction take place, the resulting bankwould become the largest bank in Darke County givingthe applicant approximately 26 percent of the county'stotal deposits. The next largest bank in Darke County,Second National Bank of Greenville, has approximately24 percent of the total deposits in the county. A total ofsix banks will remain in Darke County to provide alter-native banking services in addition to the resultingbank. Furthermore, inasmuch as the selling bank is thesmallest bank in Darke County, its elimination will notgreatly alter the competitive structure of the bankingmarket within the county.

Any slightly adverse competitive effects experiencedas a result of this transaction will be outweighed by thebenefits to the community which will accrue in terms ofits convenience and needs. The lending limit of the re-sulting bank will be much larger than the current limitof the selling bank, which is considered inadequate tomeet the requirements of the larger agricultural farmslocated in the trade area. Other benefits that will resultfrom the consummation of the proposed transactionwill be an increased capacity for consumer lending,introduction of a bank credit card plan and automatedbookkeeping.

It is noted that the selling bank's chief executive of-ficer is 23 years old with only 1 year of banking experi-ence, four of its six directors are at least 75 years old,and there is no provision for successor management.Management of the purchasing bank is consideredgood and, if the proposed acquisition occurs, the re-sulting bank will provide the Ansonia area with thosequalities now found lacking in the selling bank's man-agement.

The statutory criteria having been met, it is con-cluded that the proposed transaction is in the publicinterest. The application is, therefore, approved.

March 2, 1976.


There are presently nine banks in Darke County, ofwhich Second National Bank of Greenville is the


largest (total deposits - $30 million; IPC demand de-posits $11.2 million, as of June 30, 1975) with about 22percent of total county deposits. Applicant is the sec-ond largest with about 21 percent of total county de-posits. Bank ranks eighth, with about 5 percent of totalcounty deposits. The remaining six banks in the countyare relatively small, single-office banks. The proposedacquisition, accordingly, would give Applicant about26 percent of total county deposits, woutd make Appli-

cant the largest bank in the county and would give thetwo largest banks in the county control over almost 50percent of total county deposits.

Accordingly, although Bank is rather small, it ap-pears that the proposed acquisition will have an ad-verse effect on competition inasmuch as it will elimi-nate some direct competition and will also contributeto increased concentration of commercial banking inDarke County.

LANDMARK BANK OF POMPANO BEACH, N.A.,Pompano Beach, Fla., and The Security State Bank of Pompano Beach, Pompano Beach, Fla.


The Security State Bank of Pompano Beach, Pompano Beach, Fla., withwas purchased Apr. 19, 1976, by Landmark Bank of Pompano Beach, N. A., Pompano Beach, Fla.(16574), which hadAfter the purchase was effected, the receiving bank had

Total assets*

$5,007,000

945,0005,242,000

Banking

Inoperation

1

0

offices

To beoperated

1


Landmark Bank of Pompano Beach, N.A. (a proposedde novo bank), Pompano Beach, Fla. ("AssumingBank") has applied to the Comptroller of the Currencyfor permission to purchase substantially all of the as-sets and assume substantially all of the liabilities ofThe Security State Bank of Pompano Beach, PompanoBeach, Fla., ("Selling Bank") under the charter andwith the title of the former. This application has beenprocessed pursuant to the emergency provisions ofthe Bank Merger Act of 1966, contained within 12 USC1828(c).

Inasmuch as the Assuming Bank is a proposed newbank, it has no operating history. Selling Bank was or-ganized in 1973 and currently has total deposits of$4.4 million. On a pro forma basis, the surviving bank-ing institution will become a wholly-owned subsidiaryof Landmark Banking Corporation, Fort Lauderdale,Fla. ("Landmark"). Landmark is presently the eighthlargest bank holding company in the state of Florida,with 16 banking subsidiaries controlling total depositsof $744.3 million, representing approximately 3 per-cent of total commercial bank deposits in Florida.

In the relatively short operating history of the SellingBank, it has experienced an unusually rapid turnoverof management personnel, and has suffered substan-tial loan losses that have had a seriously adverse ef-fect upon the bank's capital structure. Additionally,Selling Bank has not been able to augment its erodedcapital position due to a trend of net operating losses.In view of these and other relevant factors of record, itis the conclusion of this Office that, absent the subjectproposal, the failure of Selling Bank is probable.


Pursuant to the provisions of the Bank Merger Act of1966, 12 USC 1828(c), the Comptroller of the Currencycannot approve a purchase and assumption transac-tion which would have certain proscribed anticompeti-tive effects unless the Office concludes that the an-ticompetitive effects are clearly outweighed in the pub-lic interest by the probable effect of the proposedtransaction in adequately meeting the convenienceand needs of the community to be served. Further-more, the Office of the Comptroller is also directed tofully consider the financial and managerial resourcesand future prospects of the existing and proposedinstitution. Whenever necessary, however, to success-fully prevent the disruption attendant upon the probablefailure of a bank, the Comptroller can dispensewith the uniform standards applicable to usual acquisi-tion transactions and need not consider the reports re-lating to the competitive consequences of the transac-tion ordinarily solicited from the United States Depart-ment of Justice and other banking agencies. TheComptroller is specifically authorized in such exigentcircumstances to act immediately, in his sole discre-tion, to approve an acquisition and to authorize theimmediate consummation of the proposed transaction.

The subject proposal is deemed to be in accord withall pertinent provisions of the National Bank Act andwill Serve to prevent disruption of banking services tothe Pompano Beach banking community and any po-tential losses to uninsured depositors.

Because of the proposed affiliation with Landmark,the surviving institution's financial and managerial re-sources and future prospects are enhanced and ap-pear favorable. Of vital importance, consummation ofthis proposal will insure the continued, uninterruptedprovision of banking services to the present customersof The Security State Bank of Pompano Beach, therebymaintaining the confidence of the public in the bankingsystem.


Applying the statutory criteria contained within 12USC 1828(c), the Comptroller of the Currency con-cludes that an emergency situation exists that requiresexpeditious action in order to prevent the probablefailure of the Selling Bank. For the reasons hereinstated, the Assuming Bank's application to purchasethe assets and assume the liabilities of The Security

State Bank of Pompano Beach is judged to be in thepublic interest and should be, and hereby is, ap-proved.

April 15, 1976.


THE FIRST NATIONAL BANK OF GREENVILLE,Greenville, Ala., and The Citizens Bank of Georgiana, Georgiana, Ala.



The Citizens Bank of Georgiana, Georgiana, Ala., with $ 7,858,133and The First National Bank of Greenville, Greenville, Ala. (5572), which had 35,702,450merged Apr. 30, 1976, under charter and title of the latter bank (5572). The merged bankat date of merger had 43,217,737


On November 18, 1975, The Citizens Bank of Geor-giana, Georgiana, Ala., and The First National Bank ofGreenville, Greenville, Ala., applied to the Comptrollerof the Currency for permission to merge under thecharter and with the title of the latter.

The First National Bank of Greenville, the charterbank, was established September 10, 1900, and nowhas total commercial deposits of approximately $31million, which represent approximately 57 percent oftotal deposits in Butler County. The bank is domiciledin the city of Greenville and currently operates as a unitbank.

In 1930, the city of Georgiana, Ala., had two bankinginstitutions; however, both failed and the town was leftwithout local banking service. Consequently, the man-agement and shareholders of the charter bank soughtpermission to establish an office in Georgiana, butAlabama's restrictive state branching statutes in effectat the time forbade the establishment of a branch of-fice. Utilizing a portion of the capital funds of the char-ter bank, principals of the charter bank became or-ganizers of The Citizens Bank of Georgiana, the merg-ing bank, which opened as a state-chartered bankinginstitution in 1931. The two banks are affiliates as de-fined by 12 USC 221a. From that beginning, the twobanks have continued to operate as affiliates with con-siderable directorate and shareholder interlocks. Tocite but one case-in-point, the same person serves aspresident of both the charter and merging banks.

On March 10, 1975, the Alabama State Legislaturemade provision for:

Any bank, either incorporated or unincorporated,whose principal place of business is located inButler County shall have the power to establish, tomaintain, and to operate within the limits or bound-

aries of such county one or more branches orbranch banks. . . .

The purpose of the instant proposal is to provide themeans whereby The Citizens Bank of Georgiana maybecome a more integral part of the charter bank, asopposed to the merging bank continuing its presentstatus as an affiliate. Consummation of the subjectproposal will provide for certain economies of scale,permit consolidation of some banking services and,generally, improve and expand banking servicesavailable to the populace of Butler County.

It is recognized that approval of this proposal wouldhave the effect of eliminating one of three banking al-ternatives domiciled in Butler County, Ala. However,the charter bank competes with 13 banking offices,excluding the merging bank, in its service area whichincludes portions of seven neighboring counties.Moreover, due to the aforementioned long-standing af-filiation between the charter and merging banks, andthe approximately 20 miles which separate the twobanks, neither bank actively solicits business from theprimary service area of the other.

Applying the statutory criteria, it is concluded thatthe proposed merger would have no significantly ad-verse competitive effects and is not adverse to thepublic interest. Accordingly, this application should be,and therefore is, approved.

March 8, 1976.


Both parties to this proposed merger operate underthe same majority stockholder and director control,one branch having been initially created andcapitalized by the other. In short, the merger proposalis essentially a corporate reorganization. Accordingly,it appears that the proposal will have no effect uponcompetition.


THE HUNTINGTON NATIONAL BANK OF COLUMBUS,Columbus, Ohio, and The Pickerington Bank, Pickerington, Ohio



The Pickerington Bank, Pickerington, Ohio, with $ 8,999,000and The Huntington National Bank of Columbus, Columbus, Ohio (7745), which had 872,964,000merged May 1, 1976, under charter and title of the latter bank (7745). The merged bankat date of merger had 881,175,000

232

34


On January 5, 1976, The Pickerington Bank, Pick-erington, Ohio, and The Huntington National Bank ofColumbus, Columbus, Ohio, applied to the Comptrollerof the Currency for permission to merge under thecharter and title of "The Huntington National Bank ofColumbus."

The Huntington National Bank of Columbus, thecharter bank, was organized in 1866 and presentlyoperates 33 offices with assets of $822 million and IPCdeposits of $531 million. The charter bank is the leadbank for Huntington Bancshares, Inc., Columbus,which has 11 other affiliated banks, and is the state'seighth largest bank holding company.

The primary service area for the charter bank isFranklin County, Ohio. Columbus, the principal city inFranklin County, is the state capital and second largestcity in Ohio with a population of approximately540,000. The economy of Franklin County is highly di-versified and is supported by a mix of manufacturing,service and transportation industries.

The charter bank is the second largest of eightbanks in Franklin County and competes primarily withother commercial banks located in the Columbus Met-ropolitan Area, including Ohio National Bank, Colum-bus, with deposits of $974 million, a member of Bane-Ohio Corporation; The City National Bank and TrustCompany of Columbus, with deposits of $544 million, amember of First Bank Group of Ohio, Inc.; and TheOhio State Bank, Columbus, with deposits of $103 mil-lion, a member of BancOhio Corporation.

The Pickerington Bank, the merging bank, was es-tablished in 1910 and currently has assets of $9.5 mil-lion and IPC deposits of approximately $7.5 million.The merging bank operates only one branch in Pick-erington in addition to its main office. Pickerington is asmall rural community with a population of about 700persons, located approximately 18 miles southeast ofdowntown Columbus. The service area of the mergingbank is confined to Pickerington and the immediatelysurrounding area in northwest Fairfield County. Histori-cally, the service area has been almost entirely resi-dential and agricultural, with very little industry.

Fairfield County is adjacent to Franklin County but,because of Ohio's branching laws, the charter bankhad been unable to expand into the merging bank'sservice area through branching. However, portions ofthe northwest area of Fairfield County were recentlyannexed into the Columbus Standard MetropolitanStatistical Area (SMSA). As a result, the proposed

merger is now permissible under Ohio's branchinglaws.

The merging bank is the only bank headquartered inPickerington, and is the fifth largest of eight banks inFairfield County. Within the last 2 years, severalColumbus-based financial institutions have opened of-fices in the merging bank's service area, includingOhio National Bank, noted above, and three savingsand loan associations. Other competition for the merg-ing bank is provided by The Millersport Bank Com-pany, Millersport, with deposits of $6 million; The Hock-ing Valley National Bank, Lancaster, with deposits of$36 million, a member of BancOhio Corporation; TheFarmers & Citizens Bank of Lancaster, with deposits of$45 million; and The Fairfield National Bank, Lancaster,with deposits of $36 million.

Consummation of the proposed transaction will re-sult in eliminating one independent bank serving Fair-field County. However, the impact of any loss of com-petition is greatly minimized by the fact that the merg-ing bank, because of its limited resources, has notbeen a strong competitor in the county. Additionally, itis unlikely that the merging bank will be able to offerthe level of services needed to compete effectivelywith the substantially larger Columbus-basedinstitutions which have recently branched into its ser-vice area. Also, the number of financial institutions nowin the area militates against the charter bank's suc-cessful de novo branching into the immediate Pick-erington area; but, by consummation of the subjecttransaction, a new vigorous competitor will enter thecommunity.

Furthermore, the resulting bank will offer the follow-ing services not presently available to the customers ofthe Pickerington Bank, a full line of checking accounts,such as overdraft checking; computerized savings ac-counts with higher effective interest rates; 24-hour au-tomatic teller machines; lower minimum amounts oncertificates of deposit; a bank credit card program;and real estate mortgages with lower down paymentsand longer terms.

The subject merger will not change the charterbank's deposit ranking in Franklin County and the par-ent holding company, Huntington Bancshares, Inc.,will retain the same relative competitive position.

Applying the statutory criteria, it is concluded thatthe proposed merger will result in some slight degreeof loss of competition, but the community of Pick-erington will benefit by increased banking services. Itis the opinion of this Office that any slightly anticom-petitive effects of the subject proposal are clearly out-


weighed by considerations of convenience and needsand considerations relating to financial and managerialresources. Accordingly, the proposal is deemed to bein the public interest and should be, and hereby is,approved.

March 29, 1976.


Fairfield County (population 80,000) is in central Ohioand borders Franklin County in which Columbus issituated. The Columbus SMSA embraces Franklin,Fairfield and three other counties. Fairfield County isnow part of the Columbus SMSA. Pickerington, thesitus of Bank, is in the northeastern portion of FairfieldCounty and is located approximately midway (about18 miles from each) between Lancaster, the countyseat, and downtown Columbus. The Pickerington areahas been growing more rapidly than the remainder ofFairfield County; its population increased by over 50percent between 1960 and 1970, to about 4,800, andis expected to almost double to about 8,800 by 1980.Much of that growth is due to the area becoming aresidential suburb of Columbus.

Applicant has two offices located 6 and 7 miles, re-spectively, from the head office of Bank; one of theseoffices appears to be only 2.5 miles from Bank'sbranch office. It appears that Applicant derives 0.5percent of its total deposits and loans from the princi-pal service area of Bank and, conversely, that Bankderives 17 percent of the total deposits and 15 percentof its total loans from the principal service area of Ap-plicant. Thus, although the dollar amounts involved arerelatively small, it is nonetheless obvious that the pro-posed acquisition will eliminate existing competitionbetween the merger parties.

The Columbus banking market is highly concen-trated with three of the 13 banking organizations(which operate 15 banks) serving the area accountingfor 95 percent of the total deposits. It appears that Ap-plicant ranks second with 25.6 percent of total de-posits, with the largest bank holding 45.7 percent oftotal deposits, and that Bank ranks 14th among the 15banks, with a market share of 0.4 percent. Thus, theproposed acquisition will increase Applicant's marketshare to 26 percent and thus will worsen an alreadybadly concentrated situation. It should be noted thatthe 10 banks which collectively share with Bank the 5percent of total deposits left over from the three domi-nant banks are each large enough to be potential can-didates for merger with Bank, and that a merger be-tween any of the 10 banks and Bank would be farpreferable to the proposed merger between Ap-plicant and Bank.

Applicant currently has no branches in FairfieldCounty. However, the extension of the corporate limitsof Columbus in 1974 means that Applicant is now freeto branch into Pickerington, Bank's headquarters.Indeed, Ohio National, the largest bank in the Colum-bus banking market, recently received approval toopen a branch in Pickerington and is in the process ofconstructing it. The rapid growth in Pickerington, andits projected continuation, suggest that Applicantmight well decide to enter the area de novo absent thisproposed acquisition.

In sum, the proposed acquisition, although itinvolves the acquisition of a relatively small bank, willnonetheless have an adverse effect upon both existingand potential competition and will contribute to the un-healthy degree of concentration which characterizesthe Columbus banking market.

THE FIRST NATIONAL BANK OF STONE HARBOR,Stone Harbor, N.J., and Independent National Bank, Willingboro, N.J.



Independent National Bank, Willingboro, N.J. (16092), with $15,752,751and The First National Bank of Stone Harbor, Stone Harbor, N.J. (12978), which had 37,263,361merged May 3, 1976, under charter of the latter bank (12978) and title "Independent Na-tional Bank." The merged bank at date of merger had 53,016,112


On July 15, 1975, Independent National Bank, Wil-lingboro, N.J., and The First National Bank of StoneHarbor, Stone Harbor, N.J., applied to the Comptrollerof the Currency for permission to merge under thecharter of First National Bank of Stone Harbor and withthe title "Independent National Bank."

The First National Bank of Stone Harbor, the charterbank, was established in 1926 and now operates threeoffices in Cape May County with IPC deposits of ap-proximately $16.3 million and total assets of approxi-mately $3.1 million. The primary service area of the

bank is located in the mideastem portion of Cape MayCounty which is a summer resort and retirement areawith an estimated population of 8,784 persons. The en-tire county of Cape May has an estimated populationof 59,000 persons.

Competition for the charter bank is provided by anoffice of First National Bank of South Jersey,Pleasantville, with deposits of $387 million, which re-cently acquired The Cape May County National Bank,Ocean City. Coastal State Bank, Ocean City, with de-posits of $28.9 million, has an application pending fora branch in the primary service area of the charterbank. Additional competition in Cape May County is


provided by First National Bank of Cape May CourtHouse, with deposits of $46.8 million; Marine NationalBank, Wildwood, with deposits of $54.5 million; UnionTrust Company of Wildwood, with deposits of $32.3million; and Citizens United Bank, N. A., Vineland, withdeposits of $106 million, which is a member of CitizensBankcorp.

Independent National Bank, the merging bank, wasorganized in 1973 and has IPC deposits of $6.5 millionand assets of $10.2 million. The merging bank's ser-vice area is located in the northwestern portion of Bur-lington County which is an economically diversifiedarea with considerable growth potential and has an es-timated population of 323,123 persons.

Competition for the merging bank is provided by of-fices of New Jersey National Bank, Trenton, with de-posits of $625 million, which is a member of New Jer-sey National Corporation; First National State Bank/Mechanics, Burlington Township, with deposits of $121million, which is a member of First National State Ban-corporation; Fidelity Bank and Trust Company of NewJersey, Pennsauken, with deposits of $62.8 million;Bank of West Jersey, Delran, with deposits of $34.5million, which is a member of Fidelity Union Bancorpo-ration; Friendly National Bank of New Jersey, Cin-naminson, with deposits of $22.2 million; and First Na-

tional Bank and Trust Company of Beverly, EdgewaterPark, with deposits of $21.4 million. Competition in theservice area is also provided by offices of the HowardSavings Bank, Newark, with deposits of $1.3 billion.

There is negligible competition between the mergingbanks because of the large distance between them.The closest offices of these two banks are 63 milesapart.

Consummation of the proposed merger will stimulatecompetition in the service area of the merging bankbecause the resulting branch in Willingboro will have alarger lending limit and be an overall stronger com-petitor to the other banks in that market. The proposedmerger will also help to alleviate a management suc-cession problem at Independent National Bank.

Applying the statutory criteria, it is concluded thatthe proposed merger is in the public interest and theapplication is, therefore, approved.

February 10, 1976.




THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION),New York, N.Y., and Chase Manhattan Bank of Long Island (National Association), Melville, N.Y., and Chase Man-hattan Bank of the Mid-Hudson (National Association), Saugerties, N.Y., and Chase Manhattan Bank of Central NewYork (National Association), Syracuse, N.Y., and Chase Manhattan Bank of Eastern New York (National Associa-tion), Albany, N.Y., and Chase Manhattan Bank of the Southern Tier (National Association), Binghamton, N.Y., andChase Manhattan Bank of Greater Rochester (National Association), Calendonia, N.Y., and Chase Manhattan Bankof Western New York (National Association), Buffalo, N.Y., and Chase Manhattan Bank of Northern New York (Na-tional Association), Canton, N.Y.


Inoperation

To beoperated

Chase Manhattan Bank of Long Island (National Association), Melville, N.Y. (15922), whichmerged Mar. 22, 1976, with $ 27,867,484and Chase Manhattan Bank of the Mid-Hudson (National Association), Saugerties, N.Y. (1040),which merged Apr. 2, 1976, with 28,546,044and Chase Manhattan Bank of Central New York (National Association), Syracuse, N.Y.(16047), which merged Apr. 9, 1976, with 18,019,231and Chase Manhattan Bank of Eastern New York (National Association), Albany, N.Y.(16203), which merged Apr. 16, 1976, with 12,063,811and Chase Manhattan Bank of the Southern Tier (National Association), Binghamton, N.Y.(16379), which merged Apr. 23, 1976, with 6,843,472and Chase Manhattan Bank of Greater Rochester (National Association), Caledonia, N.Y.(16050), which merged May 3, 1976, with 25,631,563and Chase Manhattan Bank of Western New York (National Association), Buffalo, N.Y. (13952),which merged May 7, 1976, with 30,910,986and Chase Manhattan Bank of Northern New York (National Association), Canton, N.Y. (3696),which merged May 21, 1976, with 20,445,027and The Chase Manhattan Bank (National Association), New York, N.Y. (2370), which had 25,409,953,855merged under charter and title of the latter bank (2370). The merged bank at date of mergerhad 25,489,462,000

6

9

6

4

2

7

9

1227

270


On January 9, 1976, the following banks applied to theComptroller of the Currency for permission to mergewith The Chase Manhattan Bank (National Associa-tion), New York, N.Y., under its charter and title: ChaseManhattan Bank of Long Island (National Association),Melville, N.Y.; Chase Manhattan Bank of the Mid-Hudson (National Association), Saugerties, N.Y.;Chase Manhattan Bank of Eastern New York (NationalAssociation), Albany, N.Y.; Chase Manhattan Bank ofCentral New York (National Association), Syracuse,N.Y.; Chase Manhattan Bank of the Southern Tier (Na-tional Association), Binghamton, N.Y.; Chase Manhat-tan Bank of Greater Rochester (National Association),Caledonia, N.Y.; Chase Manhattan Bank of WesternNew York (National Association), Buffalo, N.Y.; andChase Manhattan Bank of Northern New York (NationalAssociation), Canton, N.Y.

The proposed merger represents a corporate reor-

ganization which would merely combine nine existingsubsidiary banks of Chase Manhattan Corporation intoa single institution that would continue under the own-ership of the holding company. The resulting bank willcontinue to operate all existing offices of the charterand merging banks.

Applying the statutory criteria, it is concluded thatthe proposed merger is merely part of an internal cor-porate reorganization which will have no affect uponcompetition in New York State. This application is,therefore, approved.

February 20, 1976.


The merging banks are all wholly-owned subsidiariesof the same bank holding company. As such, theirproposed merger is essentially a corporate reorganiza-tion and would have no effect on competition.


THE CITIZENS NATIONAL BANK IN GASTONIA,Gastonia, N.C., and Union Trust Company of Shelby, Shelby, N.C.



Union Trust Company of Shelby, Shelby, N.C, with $ 69,482,000and The Citizens National Bank in Gastonia, Gastonia, N.C. (13779), which had 125,452,000merged June 1, 1976, under charter of the latter bank (13779) and title "IndependenceNational Bank." The merged bank at date of merger had 195,456,000

1313

26


On November 26, 1975, The Citizens National Bank inGastonia, Gastonia, N.C, applied to the Comptroller ofthe Currency for permission to merge with.Union TrustCompany of Shelby, Shelby, N.C, under the charter ofthe Citizens National Bank in Gastonia and with the title"Independence National Bank."

The Citizens National Bank in Gastonia, the charterbank, was chartered in 1933, and at present operates12 offices: six branches in Gastonia and five branchesin Gaston County. Citizens National Bank has assets of$115 million and IPC deposits of approximately $95million which make it the 16th largest bank in NorthCarolina.

The charter bank serves Gaston County, a relativelywell developed area, which is coextensive with theGastonia SMSA. The principal manufacturing activity,textile and textile related production, generated 59percent of the county's 1973 payroll. The GastonCounty textile industry has recently rebounded from arecessionary period during which there was high un-employment.

Citizens National Bank competes directly with ninecommercial banks, three of which are among the fourlargest banks in North Carolina. Competitors includeWachovia Bank and Trust Co., N.A., with deposits of$2.64 billion; First Union National Bank, with depositsof $1.45 billion; and First-Citizens Bank and Trust Co.,with deposits of $1.05 billion. Forty-two percent of thebanking offices in Gaston County are maintained bythose three banks. Competition is also provided byseven savings and loan associations and 18 loan andfinance companies.

Union Trust Co. of Shelby, the merging bank, waschartered in 1922 and consolidated with ClevelandBank and Trust Co. around 1930. It presently operates11 branches in the Cleveland - Rutherford County areaand has received approval to open a 12th branch. Theeconomy in Cleveland and Rutherford counties is pre-dominately agricultural and is less dependent on thetextile industry than is Gaston County's.

At present, Union Trust Co. has total assets of $71.4million and total IPC deposits of $50.6 million, making itthe second smallest bank in the Cleveland - RutherfordCounty area. Union Trust Co. competes directly withFirst Union National Bank, with deposits of $1.45 bil-lion; First Citizens Bank and Trust Co., with deposits of$1.05 billion; and Northwest Bank, with deposits of$936 million. Those are three of the state's five largest

banks and they operate 56 percent of the offices in thetwo-county area.

The two banks submitting this application operate indifferent geographic areas. Their nearest offices are 20miles apart and there is little, if any, direct competitionbetween them.

Consummation of the proposed merger will leave therelative position of competitor banks in the Gaston -Rutherford - Cleveland County market areas virtuallyunchanged. Since four of the five largest NorthCarolina banks operate in the market area of the result-ing bank, consummation of the proposed transactionwill not adversely affect competition. On the contrary,competition in the three-county area should be furtherstimulated by the addition of a new, larger competitor,able to offer a wider range of services that either bankis capable of offering as an independent competitor.

Applying the statutory criteria, it is concluded thatthe proposed merger is in the public interest and willnot adversely affect competition. This application is,therefore, approved.

March 12, 1976.


The proposed merger would not produce a significantincrease in concentration in commercial banking.Commercial banking in North Carolina is dominated byfive major banks who collectively hold in excess oftwo-thirds of total statewide deposits. Consummationof the proposed merger will not exacerbate the currentstructure of commercial banking in the state and,indeed, it may produce a new bank of sufficiently en-hanced competitive vigor so as to offset the power ofthe dominant banks. In terms of the tri-county area inwhich the parties operate, the proposed merger willproduce a modest degree of increased concentration.Applicant is the fifth largest of nine commercial banksoperating in Gaston County and Bank is the smallestbank operating in Cleveland County, although it is thefourth largest of five commercial banks operating in thecombined Cleveland and Rutherford counties.

North Carolina law permits statewide branch bank-ing. Hence, in theory, the participants are free tobranch into the areas currently served by each other.However, there appears to be little likelihood that eitherApplicant or Bank would be apt to make further entryinto each other's service area. The towns in the tri-county area served by Applicant and Bank are all


presently served by more banks on the average thanare towns of similar population size nationwide. In ad-dition, there are 40 banking offices in the areainvolved, and the population per banking office is 12 to

18 percent below the United States average.In conclusion, it is our view that the proposed ac-

quisition will have an insignificant effect upon competi-tion.

FIRST CITY BANK - NORTHEAST, N.A.,Houston, Tex., and Northeast Bank of Houston, Houston, Tex.



Northeast Bank of Houston, Houston, Tex., with $19,872,000was purchased June 8, 1976, by First City Bank - Northeast, N. A., Houston, Tex. (16585),which had 1,250,000After the purchase was effected, the receiving bank had 16,724,000


On June 6, 1976, application was made to the Comp-troller of the Currency by the First City Bank - North-east, N.A., Houston, Tex., for permission to purchasecertain of the assets and assume certain of theliabilities of the Northeast Bank of Houston, Houston^Tex. Instant application rests upon an agreementincorporated herein by referencing the same as if fullyset forth, and, for the reasons set forth below the ap-plication is hereby approved and the assuming bank ishereby authorized immediately to consummate pur-chase and assumption transaction.

Under the Bank Merger Act, 12 USC 1828(c), theComptroller cannot approve a purchase and assump-tion transaction which would have certain proscribedanticompetitive effects unless he finds these anticom-petitive effects to be clearly outweighed in the publicinterest by the probable effect of the transaction inmeeting the convenience and needs of the communityto be served. Additionally, the Comptroller is directedto consider the financial and managerial resourcesand future prospects of the existing and proposedinstitution, and the convenience and needs of thecommunity to be served. When necessary, however, toprevent the evils attendant upon the failure of a bank,the Comptroller can dispense with the uniform stan-dards applicable to usual acquisition transactions andneed not consider reports on the competitive conse-quences of the transaction ordinarily solicited from theDepartment of Justice and other banking agencies. He


is authorized in such circumstances to act im-mediately, in his sole discretion, to approve an acquisi-tion, and to authorize the immediate consummation ofthe transaction.

The proposed acquisition will be in accord with all per-tinent provisions of the National Bank Act and will pre-vent disruption to the community and potential losses toa number of uninsured depositors. The assuming bankwill have strong financial and managerial resources, andthis acquisition will enable it to enhance the banking ser-vices offered in the Houston community. Thus, the ap-proval of this transaction will help to avert a loss of publicconfidence in the banking system, and will improve theservices offered to the banking public.

The Comptroller finds that the anticompetitive effectsof the proposed transaction, if any, are clearly out-weighed in the public interest by the probable effect ofthe proposed transaction in meeting the convenienceand needs of the community to be served. For thosereasons, the assuming bank's application to assumecertain liabilities and purchase certain assets of North-east Bank of Houston as set forth in the agreement isapproved. The Comptroller further finds that the failureof Northeast Bank of Houston requires him to act im-mediately, as contemplated by the Bank Merger Act,to prevent disruption of banking services to the com-munity; and the Comptroller waives publication ofnotice, dispenses with the solicitation of competitivereports from other agencies and authorizes the trans-action to be consummated immediately.

June 8, 1976.



VALLEY NATIONAL BANK,Passaic, N.J., and Bank of Wayne, National Association, Wayne, N.J.



Bank of Wayne, National Association, Wayne, N.J. (15934), with $ 10,079,000 1and Valley National Bank, Passaic, N.J. (15790), which had 242,671,000 9merged June 11, 1976, under charter and title of the latter bank (15790). The merged bankat date of merger had 252,535,000 10


On January 16, 1976, Bank of Wayne, National Asso-ciation, Wayne, N.J., and Bank of Passaic and Clifton,National Association, Passaic, N.J., applied to theComptroller of the Currency for permission to mergeunder the charter of the latter and with title "Valley Na-tional Bank."

Bank of Passaic and Clifton, National Association("BOPAC"), the charter bank, was organized in 1927,and converted to a national banking charter in 1970.As of December 31, 1975, BOPAC was the 27thlargest bank domiciled in New Jersey, and controlledtotal commercial deposits of $217.1 million. BOPACpresently operates seven branches within the countiesof Passaic and Morris in the municipalities of Passaic,Clifton, Little Falls, and Pequannock.

Bank of Wayne, National Association ("BOW"), themerging bank, is headquartered in the township ofWayne, N.J., and opened for business in 1972. As ofDecember 31, 1975, BOW was the 161st largest com-mercial bank in the state and had total deposits of $9.3million. The merging bank presently has no operatingbranches, but does have one approved, but un-opened, branch approximately 4 miles southeast of itsmain office.

The charter and merging banks have always beenaffiliated by virtue of their common stock ownership.BOW was opened in 1972 in order to enable BOPACto better serve the banking needs of customers in theimmediate Wayne area. The merging bank was forced

to enter as a ate novo institution inasmuch as New Jer-sey restrictive branching statutes in effect at that time,did not permit BOPAC to branch into Wayne.

As aforenoted, both banks are owned by commonstockholders. Additionally, seven of 10 directors ofBOW are directors of BOPAC, and seven of 12 di-rectors of BOPAC are also directors of BOW. Becauseof that close affiliation, there has never been, and isnot presently, any active competition between the twobanks. Consummation of the instant proposal would,therefore, not adversely effect either present or futurecompetition in the area. The proposed merger shouldbring into being greater economies of operation for thetwo banks and the resulting institution should be betterable to more adequately and more actively competewith numerous other financial institutions in the area byutilizing its resources to the fullest.

Applying the statutory criteria, it is concluded thatthe proposed merger will result in a more viable com-petitor in the relevant market and increase the bankingservices offered to the community. It is the opinion ofthis Office that the proposal is in the public interest,and should be, and hereby is, approved.

April 9, 1976.




NEW JERSEY BANK (NATIONAL ASSOCIATION),Clifton, N.J., and First State Bank of Hudson County, Jersey City, N.J.


First State Bank of Hudson County, Jersey City, N.J., withwas purchased June 15, 1976, by New Jersey Bank (National Association), Clifton, NJ.(15709), which hadAfter the purchase was effected, the receiving bank had

Total assets *

$13,646,000

749,973,000775,979,000

Banking

Inoperation

3

37

offices

To beoperated

40


On June 15, 1976, application was made to the Comp-troller of the Currency by the New Jersey Bank, Na-tional Association, Clifton, N.J. ("Assuming Bank"), forpermission to purchase certain of the assets and as-sume certain of the liabilities of the First State Bank ofHudson County, Jersey City, N.J. This application restsupon an agreement incorporated herein by referencingthe same as if fully set forth and, for the reasons setforth below the application is hereby approved and theAssuming Bank is hereby authorized immediately toconsummate the transaction.

Under the Bank Merger Act, 12 USC 1828(c), theComptroller cannot approve a purchase and assump-tion transaction which would have certain proscribedanticompetitive effects unless he finds these anticom-petitive effects to be clearly outweighed in the publicinterest by the probable effect of the transaction inmeeting the convenience and needs of the communityto be served. Additionally, the Comptroller is directedto consider the financial and managerial resourcesand future prospects of the existing and proposedinstitution, and the convenience and needs of thecommunity to be served. When necessary, however, toprevent the evils attendant upon the failure of a bank,the Comptroller can dispense with the uniform stan-dards applicable to usual acquisition transactions andneed not consider reports on the competitive conse-quences of the transaction ordinarily solicited from theDepartment of Justice and other banking agencies. He


is authorized in such circumstances to act im-mediately, in his sole discretion, to approve an acquisi-tion and to authorize the immediate consummation ofthe transaction.

The proposed acquisition will be in accord with allpertinent provisions of the National Bank Act and willprevent disruption to the community. The AssumingBank has adequate financial and managerial re-sources, and this acquisition will enable it to enhancethe banking services offered in the Clifton community.Thus, the approval of this transaction will help to averta loss of public confidence in the banking system andwill improve the services offered to the banking public.

The Comptroller finds that the anticompetitive effectsof the proposed transaction, if any, are clearly out-weighed in the public interest by the probable effect ofthe proposed transaction in meeting the convenienceand needs of the community to be served. For thosereasons, the Assuming Bank's application to assumecertain liabilities and purchase assets of First StateBank of Hudson County as set forth in the aforemotedagreement is approved. The Comptroller further findsthat the failure of First State Bank of Hudson Countyrequires him to act immediately, as contemplated bythe Bank Merger Act, to prevent disruption of bankingservices to the community; and the Comptroller thuswaives publication of notice, dispenses with the solici-tation of competitive reports from other agencies andauthorizes the transaction to be consummated im-mediately.

June 15, 1976.



FIRST BANK NATIONAL ASSOCIATION,Cleveland, Ohio, and Community National Bank of Warrensville Heights, Warrensville Heights, Ohio


Community National Bank of Warrensville Heights, Warrensville Heights, Ohiowas purchased June 18, 1976, by First Bank National Association, Cleveland,which hadAfter the purchase was effected the receiving bank had

(15561), withOhio (16545),

Total assets *

$15,927,000

12,760,00029,734,000

Banking

Inoperation

2

1

offices

To beoperated

3


On June 17, 1976, application was made to the Comp-troller of the Currency for prior approval for First BankNational Association, Cleveland, Ohio, ("AssumingBank"), to purchase the assets and to assume theliabilities of Community National Bank of WarrensvilleHeights, Warrensville Heights, Ohio ("CNB"). Theinstant application rests upon an agreement,incorporated herein by reference the same as if fullyset forth, and, for the reasons set forth below, the ap-plication is hereby approved, and the Assuming Bankis hereby authorized to immediately consummate thepurchase and assumption transaction.

CNB was organized as a national bank onNovember 30, 1965, when it was granted charternumber 15561. As of March 31, 1976, CNB was theonly bank headquartered in Warrensville Heights,Ohio, and had total assets of approximately $16 mil-lion. It has operated one branch office. During anexamination of CNB commenced on July 15, 1974, alarge number of poor quality loans purchased from, ororiginated through, Northern Ohio Bank, Cleveland,Ohio, were discovered. The Comptroller of the Cur-rency entered into an agreement with the board of di-rectors of the CNB on November 22, 1974, calling forthe removal of approximately $6,553,000 in loans ac-quired from, or originated by, the Northern Ohio Bank.All such loans were to be disposed of by January 31,1975. Many of the loans were resold to the originatingbank during the 3-month period from November 1974through January 1975. However, upon the closing ofNorthern Ohio Bank in February 1975, approximately$1,978,0(30 in loans purchased or otherwise acquiredthrough that bank remained on the books of CNB.Subsequent loan losses and operating losses resultingfrom high interest cost, heavy occupancy expenses,declining loan revenues and a large employee staffeliminated all equity capital in the bank and en-croached upon the $540,000 in outstanding subordi-nated debentures. Equity capital was a deficit of$142,000 as of the March 31, 1976 report of condition.

The severity and multiplicity of problems facing CNBby early 1976 required the earliest feasible addition of


equity capital and management expertise. An agree-ment has been negotiated between CNB and the As-suming Bank whereby the latter would purchase theassets and assume the liabilities, including all depositliabilities, of the former. It is this agreement that theComptroller is now asked to approve.

Pursuant to the Bank Merger Act of 1966, 12 USC1828(c), the Comptroller of the Currency cannot ap-prove a purchase and assumption transaction whichwould have certain proscribed anticompetitive effectsunless he finds those anticompetitive effects to beclearly outweighed in the public interest by the prob-able effect of the transaction in meeting the conveni-ence and needs of the community to be served. Addi-tionally, the Comptroller is directed to consider the fi-nancial and managerial resources and future pros-pects of the existing and proposed institution and theconvenience and needs of the community to beserved. When necessary, however, to prevent the evilsattendant upon the failure of a bank, the Comptrollercan dispense with the uniform standards applicable tousual acquisition transactions and need not considerreports on the competitive consequences of the trans-action ordinarily solicited from the Department of Jus-tice and other banking agencies. He is authorized insuch circumstances to act immediately, in his sole dis-cretion, to approve an acquisition, and to authorize theimmediate consummation of the transaction.

The proposed acquisition will be in accord with allpertinent provisions of the National Banking Act andwill prevent a disruption of banking services to thecommunity and potential losses to a number of un-insured depositors. The Assuming Bank will havestrong financial and managerial resources and thisacquisition will enable it to enhance the banking ser-vices offered in the Warrensville Heights community.Thus, the approval of this transaction will help to averta loss of public confidence in the banking system andwill improve the services offered to the banking public.

The Comptroller finds that the anticompetitive effectsof the proposed transaction, if any, are clearly out-weighed in the public interest by the probable effect ofthe proposed transaction in meeting the convenienceand needs of the community to be served. For thosereasons, the Assuming Bank's application to purchasethe assets and to assume the liabilities of CNB as setforth in their agreement is approved. The Comptroller


further finds that the possible failure of CNB requireshim to act immediately, as contemplated by the BankMerger Act, to prevent disruption of banking servicesto the community; the Comptroller thus waives publica-tion of notice, dispenses with the solicitation of com-

petitive reports from other agencies and authorizes thetransaction to be consummated immediately.

June 18, 1976.


WELLS FARGO BANK, NATIONAL ASSOCIATION,San Francisco, Calif., and the Topanga Plaza Branch of City National Bank, Beverly Hills, Calif.

Name of bank and type of transaction Total assets *Banking offices


Topanga Plaza Branch of City National Bank, Beverly Hills, Calif. (14695), with $2,393,000was purchased June 28, 1976, by Wells Fargo Bank, National Association, San Francisco,Calif. (15660), which had 10,766,126,000After the purchase was effected, the receiving bank had 11,153,293,000

1

336337


Wells Fargo Bank, National Association, San Francisco("Wells"), has made application to the Comptroller ofthe Currency to purchase the assets and assume theliabilities of the Topanga Plaza Branch of City NationalBank, Beverly Hills ("Topanga Plaza Branch").

Wells is the successor to Mercantile Trust Companywhich was incorporated under the laws of the state ofCalifornia in 1920. Wells became a national bankingassociation on January 30, 1962, and is the wholly-owned subsidiary of Wells Fargo Company, San Fran-cisco. The third largest commercial bank domiciled inCalifornia, Wells controls total domestic deposits of$9.8 billion.

City National Bank, the wholly-owned subsidiary ofCity National Corporation, Beverly Hills, was estab-lished in 1953, and currently holds total commercialbank deposits of $560 million. The Topanga PlazaBranch of City National Bank was opened for businessin March 1960, and has total deposits of approximately$2.4 million.

The service area of Topanga Plaza Branch encom-passes the communities of Woodland Hills, WarnerRanch and Canoga Park in the southwestern portion ofthe San Fernando Valley in the city of Los Angeles. Theclosest banking office of Wells is the Warner Ranch Of-fice, less than 1 mile south of Topanga Plaza Branch.Wells and City National Bank are, therefore, consid-ered to be in direct competition. However, the LosAngeles-Orange County banking market, the relevantbanking market, is served by over 70 banks, includingthe 10 largest commercial banks in California. In amarket as large as that of Los Angeles-Orange County,


the transfer of less than $3 million in deposits betweentwo banks whose market share of deposits is relativelysmall, will have no significant impact upon bankingcompetition within the relevant area.

In conclusion, it is the opinion of this Office that thisproposal will not adversely affect competition amongbanks in the relevant banking market, and inasmuchas the Topanga Plaza Branch of City National Bankhas not been able to generate a satisfactory profit orvolume of business sufficient to justify its continuedexistence, (as of October 1975, Topanga Plaza Branchcontrolled total deposits approximately $725 thousandless than it did in December 1971) its pro forma opera-tion as an adjunct to the Warner Ranch Office of Wellswould insure the uninterrupted provision of bankingservices to the banking public. Accordingly, this appli-cation should be, and hereby is, approved.

May 25, 1976.


Applicant operates a branch office approximately 0.75mile away from the Topanga Plaza Branch office in theLos Angeles area. Accordingly, there exists some de-gree of direct competition between Applicant and theTopanga Plaza Branch of Bank, minimized somewhatby the fact that the branches are on opposite sides ofa heavily travelled boulevard which acts as a barrier.Applicant's branch holds about 3.4 percent of com-mercial banking deposits in the area and the TopangaPlaza Branch of Bank holds 1.1 percent of deposits.Hence, the proposed acquisition will have only a mini-mal effect upon concentration. Finally, althoughCalifornia permits statewide branch banking, it ap-pears very improbable that the area could support atenovo entry by Applicant.

In sum, the proposed acquisition will have only aminimal adverse effect upon competition.


FIRST NATIONAL BANK OF SPRINGFIELD,Springfield, Vt., and The Merchants National Bank of St. Johnsbury, St. Johnsbury, Vt.



The Merchants National Bank of St. Johnsbury, St. Johnsbury, Vt. (2295), with $ 9,374,000and First National Bank of Springfield, Springfield, Vt. (122), which had 40,856,000merged June 30, 1976, under charter and title of the latter bank (122). The merged bankat date of merger had 48,691,000


The Merchants National Bank of St. Johnsbury, St.Johnsbury ("Merchants"), and First National Bank ofSpringfield, Springfield ("FNB"), have applied to theComptroller of the Currency for permission to mergeunder the charter and with the title of the latter.

Merchants, the merging bank, was organized in1875 and operates its head office in St. Johnsbury andbranches in Lyndonville and Newport. As of December31, 1975, Merchants controlled total commercial bankdeposits of $8.1 million.

FNB, the charter bank, was chartered as a nationalbanking association in 1863 and, with total deposits ofapproximately $36 million, is now the ninth largest of30 commercial banks domiciled in Vermont. FNB cur-rently operates a total of six banking offices in thestate.

The closest operating branch offices of FNB andMerchants are more than 50 miles from each other,and the head offices of the two subject banks areseparated by approximately 100 miles. Each of the twobanks serves a separate and distinct market, andneither bank actively competes with the other. Con-summation of the instant merger, therefore, would noteliminate any meaningful degree of existing competi-tion.

Pursuant to applicable Vermont state statutes,statewide branching is permitted. Thus, either FNB orMerchants could legally establish a ofe novo branch of-fice within the service area of the other subject bank.However, due to the relatively small size of both banksherein involved and the economic infeasibility of sucha venture, it does not appear likely that these twobanks would choose this mode of expansion. It is con-

cluded, therefore, that this merger would not adverselyaffect potential competition between these twoinstitutions.

The resulting institution should be recognized as amore viable competitor and a more meaningful bank-ing alternative that is better able to meet the bankingneeds of the communities to be served.

Accordingly, it is the opinion of this Office that theproposed transaction is in the public interest, andshould be, and hereby is, approved.

May 26, 1976.


The head offices of the merging banks are located 100miles apart and their closest branch offices are 50miles apart. Thus, it would appear that no significantamount of direct competition would be eliminated bythe proposed merger.

Under Vermont law, statewide branching is permit-ted. Applicant could, therefore, branch de novo intoBank's service area. Opportunities for further branch-ing into the sparsely settled St. Johnsbury area are lim-ited, however, due to the present concentration of fourbanking organizations in St. Johnsbury. Also, Appli-cant's resources are apparently not sufficient to justifybranching into a distant area dominated by bankssubstantially larger than Bank, which is the smallestbanking organization operating in St. Johnsbury.

The proposed transaction would not eliminate anysignificant amount of direct competition, although itwould eliminate the potential for increased competitionwhich would result if Applicant established a branchoffice in St. Johnsbury. Overall, the proposed mergerhas no significant competitive effect.


BEACH HAVEN NATIONAL BANK AND TRUST COMPANY,Beach Haven, N.J., and The Bank of New Jersey, N.A., Moorestown, N.J.


Beach Haven National Bank and Trust Company, Beach Haven, N.J. (11658), withand The Bank of New Jersey, N.A., Moorestown, N.J. (16397), which hadmerged June 30, 1976, under charter and title of the latter bank (16397). The merged bankat date of merger had

Total assets

$68,562,0006,728,000

75,290,000

Banking offices


-j

Q

10


Beach Haven National Bank and Trust Company,Beach Haven ("Beach Haven Bank"), and The Bank ofNew Jersey, N.A., Moorestown ("BNJ"), have appliedto the Comptroller of the Currency for permission tomerge under the charter and with the title of the latter.The head office of the resulting bank will be at Moores-town.

Beach Haven Bank was chartered as a nationalbanking association in 1920, and, as of December 31,1975, controlled total commercial bank deposits ofapproximately $58 million. With" the one exception of abranch office located in Medford Lakes in BurlingtonCounty, the remaining seven branches and BeachHaven Bank's main office, are all located in the south-eastern portion of Ocean County.

BNJ commenced business November 8, 1974, as ade novo banking subsidiary of the ninth largest bank-ing organization in the state, Bancshares of New Jer-sey, Moorestown ("Bancshares"), a registered multi-bank holding company. At year-end 1975,Bancshares' three subsidiary banks held commercialbank deposits aggregating approximately $644 million,$2.6 million of which was controlled by BNJ. BNJ cur-rently operates only from its head office. The bank hashowever, filed an application for permission to estab-lish a branch office in Moorestown. To date, this Officehas not acted upon the separate branch application ofBNJ.

The closest office of Beach Haven Bank is approxi-mately 12 miles distant from BNJ, although anothersubsidiary of Bancshares, The Bank of New Jersey,Camden, maintains a branch approximately 11 milesfrom the Medford Lakes branch of Beach Haven Bank.All other branches of Beach Haven Bank are at least45 miles from BNJ's location in Moorestown. Due to thegeographical distance involved and the presence ofnumerous intervening banks, consummation of theinstant proposal would not eliminate any meaningfuldegree of present competition between the two sub-ject banks.

Applicable New Jersey state banking statutues domake provision for statewide branch banking exceptfor towns with a population of less than 20,000 persons(10,000 after January 1, 1977) where home office pro-tection is in effect. Therefore, this merger would havethe effect of foreclosing the potential for increasedcompetition between subsidiaries of Bancshares andBeach Haven Bank.

By statute, 12 USC 1828(c)(5)(b), the Comptroller ofthe Currency must also consider the public interest bybeing mindful of the probable effect of the transactionin meeting the convenience and needs of the commu-nity to be served, and the Comptroller cannot approvea merger transaction which would have certain pro-scribed anticompetitive effects unless the Office con-cludes that these anticompetitive effects are clearlyoutweighed in the public interest by the probable ef-fect of the proposed transaction in more adequatelymeeting the convenience and needs of the communityto be served.

Consummation of this merger would enhance com-petition within Ocean County, and Beach Haven, N.J.,would become open to de novo branching, and theservices of the resulting institution would be extendedbeyond the resort-oriented trade area presently servedby Beach Haven Bank. Additionally, affiliation withBancshares will enhance the future prospects of thesurviving bank by increasing the legal lending limit ofthe bank, providing greater access to capital markets,and providing for management depth and manage-ment succession. Thus, the new bank should be amore viable banking alternative that will be better ableto compete with larger competitors and, thereby, bet-ter serve the needs of its banking community.

Accordingly, applying the statutory criteria, it is theopinion of this Office that the foreclosure of any slightdegree of probable future competition which mightarise between Beach Haven Bank and BNJ is clearlyoutweighed by considerations relating to convenienceand needs and future prospects of the bank. There-fore, it is the opinion of this Office that this transactionis in the public interest, and should be, and hereby is,approved. This approval is conditioned upon amend-ments to the merger agreement and articles of associ-ation which will reflect the head office of BNJ asMoorestown. The amendments must be approved byshareholders of both banks and evidence of such ap-proval must be received by the Comptroller's Officeprior to consummation of the transaction.

May 28, 1976.


Bank's Medford Lakes Branch office is located about12 miles northeast of Applicant's office and about 10miles northeast of the two Gibbsboro offices ofBancshares. Bank's remaining branch offices are atleast 45 miles southeast of Applicant's office. Thus, it


appears that the proposed acquisition will eliminate di-rect competition to an insignificant degree.

New Jersey law permits statewide branch bankingexcept for home office protection in towns of under10,000. Accordingly, the only offices of Bank which areprotected are in Beach Haven (population 1,640), andApplicant and Bancshares could branch de novoelsewhere in Ocean County where Bank maintains itsother offices. Hence, the proposed acquisition wouldeliminate potential competition to some extent.

The proposed acquisition will not contribute signifi-cantly to increased concentration. Applicant and itsparent collectively control about 7 percent of total de-posits. Bank operates one branch in Burlington Countyand the proposed acquisition would therefor increasethe combined market share of Applicant andBancshares to 7.5 percent.

In sum, the proposed acquisition would have only aslightly adverse effect upon competition.

THE NATIONAL BANK OF GEORGIA,Atlanta, Ga., and Mercantile National Bank, Atlanta, Ga.



Mercantile National Bank, Atlanta, Ga. (15789), with $ 9,001,000 3was purchased July 1, 1976, by The National Bank of Georgia, Atlanta, Ga. (15541), whichhad 346,997,000 26After the purchase was effected, the receiving bank had 380,969,000 29


The National Bank of Georgia, Atlanta, Ga. ("NBG"),has applied to the Comptroller of the Currency forpermission to purchase substantially all of the assetsand to assume the liabilities of Mercantile NationalBank, Atlanta, Ga. ("Mercantile"). This application hasbeen processed under the emergency provisions ofthe Bank Merger Act of 1966, as set forth in 12 USC1828(c).

NBG, the assuming bank, was founded in 1911 asthe second Morris Plan Bank in the United States. NBGbecame a national banking organization in 1965, andcurrently has total commercial bank deposits of ap-proximately $290 million. NBG presently ranks as thefifth largest bank in the Atlanta banking market (ap-proximated by the whole of Fulton and DeKalb coun-ties), controlling 4.2 percent of total deposits within therelevant market.

Mercantile, the selling bank, was chartered as a na-tional banking organization in 1970 after operating for10 years as a state banking instutition. Mercantile as ofMarch 31, 1976, held total commercial bank depositsof $9.6 million, representing 0.2 percent of total marketdeposits.

As may be seen by its deposit size, Mercantile isamong the smallest commercial banks operating withinthe Atlanta market. During the years 1971 through1975, inclusive, Mercantile's total assets decreasedapproximately 18 percent, demand deposits de-creased more than 30 percent and time deposits de-creased about 10 percent. Decline in size and marketshare has made the bank a relatively ineffective com-


petitor within the relevant market. Furthermore, duringthe same 5-year period, Mercantile only had a netoperating profit in 1972 and 1973, with an average netoperating loss per year of approximately $63,000 forthe 5-year period. For the first quarter of 1976, Mercan-tile has reflected an average monthly net operatingloss of approximately $37,000. Operating losses inaddition to substantial loan losses have seriouslyeroded the bank's capital structure. To further strain adifficult situation, in its relatively short operating history,Mercantile has experienced a rapid turnover of man-agement personnel. The selling bank has not beenable to successfully augment its diminished capitalbase through a retention of earnings due to the afore-noted net operating losses and, at the request of thedirectors of Mercantile, the Comptroller of the Cur-rency, on May 13, 1976, pursuant to Sections 12(i) and12(k) of the Securities Exchange Act of 1934, tem-porarily suspended over-the-counter trading of Mer-cantile's securities.

In view of the record in this matter, it is the conclu-sion of this Office that an emergency situation existswhich requires an expeditious solution by the Comp-troller's Office. Consistent with the applicable provi-sions of 12 USC 181, the Comptroller of the Currencyhereby specifically waives the requirement forshareholder approval by owners of Mercantile's stock.Also, the decision of the Comptroller is rendered pur-suant to an agreement between the proponent banksupon which the instant application rests, and isincorporated herein by reference the same as if fullyset forth.

Pursuant to the provisions of the Bank Merger Act of1966, 12 USC 1828(c), the Comptroller of the Currencycannot approve a purchase and assumption transac-tion which would have certain proscribed anticompeti-


five effects unless the Office concludes that those an-ticompetitive effects are clearly outweighed in the pub-lic interest by the probable effect of the proposedtransaction in adequately meeting the convenienceand needs of the community to be served. Further-more, the Office of the Comptroller is also directed tofully consider the financial and managerial resourcesand future prospects of the existing and proposedinstitution. However, when an emergency situationexists, the Comptroller may dispense with the normaltime requirements applicable to usual acquisitiontransactions. In such situations the 30-day commentperiod in which the Department of Justice and otherbanking agencies submit reports relating to the com-petitive consequences of the transaction is reduced toa 10-day comment period. Consummation of thetransaction must await an additional 5-day period.

Applying the statutory criteria contained with 12 USC1828(c), the Comptroller of the Currency concludesthat an emergency situation exists, due to the generalcondition of Mercantile, that requires expeditious ac-tion. For the reasons herein stated, NBG's applicationto purchase the assets and assume the liabilities ofMercantile National Bank is judged to be in the publicinterest and is, hereby, approved.

June 24, 1976.


The application has conflicting testimony about the dis-tances between offices of Applicant and Bank, but ap-parently they are within a mile or two of each other incertain areas. Accordingly, the proposed acquisitionwill doubtless eliminate some existing competition.

The application lists 26 banks in the market areaserved by the Applicant and Bank. Applicant ranksfifth among these with 4.2 percent of combined de-posits of $6.1 billion and Bank is one of five banks with0.1 percent (there are five with 0.1 percent each). Thethree largest banks have deposits, respectively, of$1.9 billion (equal to 31 percent), $1.5 billion (equal to24 percent), and $1.2 billion (equal to 20 percent) andthe fourth in size has $561 million (equal to 9 percent).These four large banks operate 51 offices, 53 offices,38 offices and 30 offices, respectively. The proposedacquisition will increase concentration only to a slightextent.

In sum, the proposed acquisition will eliminate directcompetition and will contribute slightly to increasedconcentration. However, in view of the deterioration ofBank's position in the market and the increasinglylarge operating losses it has had to absorb in recentyears, the overall effect of the acquisition would not besubstantially adverse.

THE PLANTERS NATIONAL BANK AND TRUST COMPANY,and Hanover Bank, Wilmington, N.C.



Hanover Bank, Wilmington, N.C, with $ 11,512,000and The Planters National Bank and Trust Company, Rocky Mount, N.C. (10608), which had 240,995,000merged July 12, 1976, under charter and title of the latter bank (10608). The merged bankat date of merger had 252,507,000

133

34


Pursuant to the provisions of the Bank Merger Act of1966 [12 USC 1828(c)L Hanover Bank, Wilmington,N.C. ("Hanover"), and The Planters National Bank andTrust Company, Rocky Mount, N.C. ("Planters"), haveapplied to the Comptroller of the Currency for priorpermission to merge under the charter and with thetitle of the latter.

Hanover, the merging bank, was organizedNovember 29, 1973, and commenced commercialbank operations November 1, 1974. Hanover, thesmallest of 7 commercial banks serving the Wil-mington, N.C. area, operates only from its main office,but has sought and received permission for the estab-lishment of a branch office in Wilmington. As of De-cember 31, 1975, Hanover held total deposits of ap-proximately $9 million.

Planters, the charter bank, was originally charteredas a state banking institution in 1899, and converted toa national banking association charter in 1914. Pre-sently the 10th largest commercial bank domiciled in

North Carolina, Planters maintains 31 banking officesin 14 countries throughout the State. As of year-end1975, Planters total deposits aggregated $226.4 mil-lion, representing 1.8 percent of total deposits held byall commercial banking offices within the state.

The closest operating offices of the proponents are inexcess of 100 miles apart and there is no competition be-tween these two banks. Inasmuch as applicable statestatutes do make provision for statewide branching, andbank holding companies are permitted to establish denovo subsidiaries, there exists the potential for the sub-ject banks to become competitors at some date in the fu-ture. The likelihood of this event coming to fruition, how-ever, is considered remote and highly unlikely given themerging bank's deposit size and the economic factors inthe Wilmington area. Consummation of this proposal,therefore, is considered to have no seriously adverse ef-fect upon competition within the relevant area.

Accordingly, applying the statutory criteria, it is theconclusion of this Office that the transaction would


have the effect of improving the competitive position ofthe merging bank through operating economies andefficiencies, and provide an additional source of full-service banking for the banking community. The result-ing institution should be a well managed bank that is amore meaningful banking alternative better able toserve the needs of the public. This application is thusdeemed to be in the public interest and should be, andhereby is, approved.

June 10, 1976.


The office of Applicant closest to an office of Bank isabout 100 miles away, which indicates that the pro-posed acquisition will not eliminate any existing com-petition.

Bank is currently the smallest of the seven banksthat serve the Wilmington area. The three largestbanks collectively hold almost 76 percent of the de-posits in the area. The two largest banking organiza-.tions in the state share 61 percent of total deposits inthe area. Bank currently has only a 3.5 percent shareof total deposits. Hence, the proposed acquisitionshould enhance competition in the area through thestrengthening of the smallest bank. North Carolinadoes permit statewide branching and holding com-panies are permitted to establish de novo subsidiaries.Accordingly, there is no impediment to the entry byApplicant into the Wilmington area through meansother than acquisition. In this respect the proposedacquisition does have some anticompetitive effect.

In sum, the proposed acquisition will have some an-ticompetitive effect because of its elimination of poten-tial competition.

THE ONEIDA NATIONAL BANK AND TRUST COMPANY OF CENTRAL NEW YORK,Utica, N.Y., and The Red Creek National Bank, Red Creek, N.Y.



The Red Creek National Bank, Red Creek, N.Y. (10781), with $ 12,073,000was purchased July 20, 1976, by The Oneida National Bank and Trust Company of Central NewYork, Utica, N.Y. (1392), which had 480,748,000After the purchase was effected, the receiving bank had 512,527,000

2

2931


On July 12, 1976, application was made to the Comp-troller of the Currency by The Oneida National Bankand Trust Company of Central New York, Utica, N.Y.("Assuming Bank") for permission to purchase the as-sets and assume certain of the liabilities of The RedCreek National Bank, Red Creek, N.Y. The applicationrests upon an agreement dated July 9, 1976 and a let-ter amending said agreement dated July 14, 1976.Said agreement and letter are incorporated herein byreferencing the same as if fully set forth, and, for thereasons set forth below, the application is hereby ap-proved and the Assuming Bank is hereby authorizedimmediately to consummate the purchase and as-sumption transaction and to operate the head officeand branch office of The Red Creek National Bank asbranch offices of the Assuming Bank.

An examination of The Red Creek National Bank,which commenced on June 28, 1976, indicates thatthe bank is in critical condition. Estimated losses as ofthis examination total approximately $835,000 leavinga deficit capital position of approximately $181,000.Classified assets total 437 percent of gross capitalfunds. Past-due loans are 19.5 percent of total loans.Loans lacking current and satisfactory credit informa-tion represent 23.1 percent of the loan portfolio. Pres-


ent management is not considered capable of han-dling the affairs of the bank. During the course of theexamination, the president resigned. Supervision bythe board of directors has been lacking, and the di-rectors have failed to institute sufficient measures tocorrect the deteriorating condition of the bank.

In view of the record in this matter, it is the conclu-sion of this Office that an emergency situation existswhich requires an expeditious solution by the Comp-troller's Office. Consistent with applicable provisionsof 12 USC 181, the Comptroller of the Currency herebyspecifically waives the requirement for shareholderapproval by owners of The Red Creek National Bank'sstock.

Under the Bank Merger Act, 12 USC 1828(c), theComptroller cannot approve a purchase and assump-tion transaction which would have certain proscribedanticompetitive effects unless he finds those anticom-petitive effects to be clearly outweighed in the publicinterest by the probable effect of the transaction inmeeting the convenience and needs of the communityto be served. Additionally, the Comptroller is directedto consider the financial and managerial resourcesand future prospects of the existing and proposedinstitution, and the convenience and needs of thecommunity to be served. When necessary, however, toprevent the disruption attendant upon the failure of abank, the Comptroller can dispense with the uniformstandards applicable to usual acquisition transactions,


and need not consider reports on the competitive con-sequences of the transactions ordinarily solicitedfrom the Department of Justice and the other bankingagencies. He is authorized in such circumstances toact immediately, in his sole discretion, to approve anacquisition and to authorize the immediate consumma-tion of the transaction. The proposed acquisition willbe in accord with all pertinent provisions of law and willprevent disruption of banking services to the RedCreek and the North Rose communities and avert aloss of public confidence in the banking system. TheAssuming Bank has sufficient financial and managerialresources to absorb The Red Creek National Bank.

The Comptroller finds that any possible anticompeti-tive effects of the proposed transaction, are clearlyoutweighed in the public interest by the probable ef-fect of the proposed transaction in meeting the con-

venience and needs of the communities to be served.For those reasons, the Assuming Bank's application toassume the liabilities and purchase the assets of TheRed Creek National Bank as set forth in the purchaseagreement and subsequent letter, dated July 14, 1976,is hereby approved. The Comptroller further finds thatthe probable failure of The Red Creek National Bankrequires him to act immediately, as contemplated bythe Bank Merger Act, to prevent disruption of bankingservices and the Comptroller thus waives publicationof notice, dispenses with the solicitation of competitivereports from other agencies and authorizes the trans-action to be consummated immediately.

July 20, 1976.


SEATTLE - FIRST NATIONAL BANK,Seattle, Wash., and First National Bank in Port Angeles, Port Angeles, Wash., and The First American National Bank ofPort Townsend, Port Towsend, Wash., and Bank of Sequim, Sequim, Wash., and Forks State Bank, Forks, Wash.


First National Bank In Port Angeles, Port Angeles, Wash. (6074), with $ 56,687,000The First American National Bank of Port Townsend, Port Townsend, Wash. (13351), with 26,675,000Bank of Sequim, Sequim, Wash., with 23,870,000and Forks State Bank, Forks, Wash., with 14 211 000were purchased Aug. 24, 1976, by Seattle - First National Bank, Seattle, Wash. (11280),which had 4,576,802,000After the purchase was effected, the receiving bank had 4,899,325,000

Inoperation

6331

146

To beoperated

159


Seattle - First National Bank, Seattle, ("Seattle - First"),has applied to the Comptroller of the Currency forpermission to purchase the assets and assume theliabilities of First National Bank in Port Angeles, PortAngeles ("Port Angeles Bank"), The First American Na-tional Bank of Port Townsend, Port Townsend ("FirstAmerican"), Bank of Sequim, Sequim ("SequimBank"), Forks State Bank, Forks ("Forks Bank"), collec-tively, "Union Bond Banks" or "Merging Banks". Thedecision of the Office of the Comptroller of the Cur-rency is rendered pursuant to an agreement executedbetween the proponent banks upon which the instantapplication rests, and is incorporated herein by refer-ence, the same as if fully set forth.

Seattle - First, the charter bank, is the largest com-mercial bank domiciled in the state of Washington, andis the wholly-owned subsidiary of SeaFirst Corporation,Seattle, a registered one-bank holding company or-ganized in 1974. Seattle - First has total deposits of$3.3 billion,1 representing approximately 35 percent ofthe total commercial bank deposits in the state of

* Asset figures are as of call dates immediately before and after trans-action.1 All deposit data are as of December 31, 1975, unless otherwisenoted.

Washington. Seattle - First operates 150 branch officesand is represented in 30 of the 39 counties in the state;with 11 of those offices located in and around the cityof Seattle in King County.

The merging banks are controlled, and have beenoperated as a group banking system since their estab-lishment, by Union Bond and Mortgage Company, afamily-controlled multi-bank holding company, and thePhillips family. Port Angeles Bank was organized as aunit bank in 1901 and merged in 1919 with The PortAngeles Trust and Savings Bank, the latter havingbeen established in 1914 by the late Ben Phillips,father of James E. Phillips, president and chairman ofthe Board of Port Angeles Bank. Port Angeles Bankcurrently has total deposits of approximately $46 mil-lion and operates its main office and four branches inPort Angeles and one branch in Clallam Bay, an un-incorporated community approximately 50 miles to thewest of Port Angeles near the northwestern tip of theOlympic Peninsula.

First American was organized in 1929 by Ben Phil-lips, currently has total deposits of $22.6 million andoperates its head office and one of its two branches inPort Townsend, the county seat and only incorporatedcity in Jefferson County. First American's secondbranch is located in Hadlock, 9 miles south of PortTownsend.


Sequim Bank was established in 1936 and operatesits main office and a drive-in branch in Sequim.Sequim Bank has an application recently approved bythe state of Washington for the establishment of a newbranch. As of year-end 1975, Sequim Bank had totaldeposits of $20.2 million.

Forks Bank was opened for business in 1944, andoperates no branches. The bank has total deposits of$12.4 million. In the aggregate, Union Bond Bankscontrol total deposits of $101.2 million, representingapproximately 1 percent of total commercial bank de-posits in the state of Washington.

The relevant banking markets are approximated bythe various municipalities, and their respective im-mediate environs, wherein the Union Bond Banks'principal offices are domiciled. All of those local mar-kets are located within Clallam and Jefferson countieswhich form the northwestern tip of the Olympic Penin-sula. The relevant area is remote and is surrounded onthree sides by bodies of water: the Pacific Ocean tothe west, the Strait of Juan de Fuca to the north, andPuget Sound and the Hood Canal to the east. The rug-ged Olympic Mountain chain provides a natural barrieralong the southern border of the two-county area. TheOlympic National Park and Olympic National Forestoccupy more than half of the land mass of the twocounties and most of the population is located alongthe northern coastal region of the peninsula.

There is virtually no existing competition among theUnion Bond Banks, a fact which is attributable to theircommon ownership and control. In Port Angeles, popu-lation 17,286, the major city and banking market on thenorthern Olympic Peninsula, Port Angeles Bank expe-riences competition from two branch offices of PeoplesNational Bank of Washington, Seattle, the fourth largestcommercial bank in the State, and from a relativelynew unit bank, Northwestern National Bank, PortAngeles, chartered in 1972, which operates a singlebanking office. First American Bank's primary localcompetitor in Port Townsend, population 5,075, is anewly opened bank (chartered in 1975), Jefferson Na-tional Bank, with a single banking office. Jefferson Na-tional Bank has recently received approval for the es-tablishment of a branch office in Quilcene.

The community of Sequim, population 2,035, re-ceives local banking services from the two offices ofSequim Bank and the Sequim branch of Peoples Na-tional Bank of Washington. Forks, Wash., population1,956, is served by only the single office of Forks Bank.

The closest office of Seattle - First to any office of themerging banks is the Bremerton Office of Seattle -First, more than 50 miles from the Hadlock branch ofFirst American. Seattle - First does not operate any of-fices in either Clallam or Jefferson County and, due tothe presence of intervening banks and the geographicdistance between the closest office of Seattle - Firstand any office of the merging banks, consummation ofthe instant transaction would not have the effect of

2 The question of whether a national bank may establish a branch pur-suant to the authorization provided by the case of Washington MutualSavings Bank v. FDIC (482 F. 2d 459 (9th Cir. 1973)), is now pendingbefore the U.S. Appeals for the Ninth Circuit.

eliminating any meaningful degree of direct competi-tion between Seattle - First and the merging banks.

Inasmuch as Union Bond and Mortgage Company isone of only two multi-bank holding companies withheadquarters in Washington state (The second multi-bank holding company is Washington Bancshares,Inc., Spokane), and the only multi-bank holding com-pany represented on the northern Olympic Peninsula,the Union Bond Banks have, through the passage oftime and use of the applicable provisions of statebranch banking law, evolved into a position of domi-nance in their respective market areas. Under statestatutes as presently constituted, no other banking or-ganization in Washington can realistically hope toachieve a parity of competitive status with the UnionBond Banks within either Clallam or Jefferson County.

The Bank Merger Act mandates that the conveni-ence and needs of the communities to be served mustbe considered in every proposed acquisition of acommercial bank by another commercial bank. Bypermitting acquisition of all offices of the Union BondBanks by the state's largest financial institution, thisagency would be foreclosing a significant and mean-ingful avenue for entry into the most attractive marketson Puget Sound by other Washington commercialbanks. The opportunity, through this application, toopen the Port Angeles - Sequim markets to additionalentry and competition is of such consequence in con-sidering the convenience and needs of the public inthese markets as to preclude Seattle - First from ac-quiring all of the offices in these markets. Such an un-balanced banking structure where one institution con-trols, in the aggregate, approximately 80 percent of thetotal commercial bank deposits within Clallam and Jef-ferson counties, is of major concern in reaching a de-termination in this matter; and this control situation isnot considered by this Office to be conducive to effec-tive competition, regardless of who controls such alarge share of commercial bank deposits. Uncondi-tional approval of this application would thus per-petuate the concentration existent within both Clallamand Jefferson counties by adding the sanction of theOffice of the Comptroller of the Currency. Therefore,such a course of action is totally unacceptable to thisOffice when an alternative is available that wouldincrease the number of alternative suppliers of bankingservices.

Pursuant to the provisions of Washington state stat-utes concerning the establishment of de novobranches by commercial banks, such branches areessentially limited to the county in which the head of-fice is located and unbanked cities and townsthroughout the state. Section 30.40.020 of theWashington Revised Code (Supp. 1973) provides inrelevant part2:

No bank or trust company shall establish or oper-ate any branch, . . . in any city or town outside thecity or town in which its principal place of businessis located in which any bank, trust company or na-tional banking association regularly transacts abanking or trust business, except by taking over oracquiring an existing bank, trust company or na-tional banking association, or the branch of any


bank, trust company or national banking associa-tion operating in such city or town.3

Furthermore, as additional evidence of Washingtonstate's stringent restrictions placed upon branch bank-ing, applicable state statute forbids any bank holdingcompany from owning or controlling 25 percent ormore of the outstanding voting shares of more thanone bank, a restriction which effectively prevents andprecludes the development of any multi-bank holdingcompany within the state4.

Since there are no viable, unbanked communities ineither Clallam or Jefferson County, Seattle - First is ef-fectively precluded from the establishment of any newbranch operations in these areas. The Union BondBanks could, however, within the provisions of appli-cable state statutes, expand by de novo branchingoutside their traditional operating territory, but haveshown no interest or desire in so doing. It is thereforeconcluded that there is little probability that Seattle -First and the merging banks would become directcompetitors through de novo branching and consum-mation of this proposal would not, from an antitrustreference, have an adverse effect upon potential compe-tition within the relevant markets.

All of the Union Bond Banks are considered as via-ble competitors within their respective markets, and allrepresent attractive potential acquisitions for bankingorganizations not represented in the extreme northernPuget Sound area. It seems highly unlikely, however,that Seattle - First could be perceived as a potentialentrant into those banking markets through any meansexcept via the acquisition of an existing bank. (SeeUnited States v. Marine Bancorporation, Inc., 418 U.S.602 (1974).) As previously noted, applicableWashington state law does make provision for bankmerger acquisitions; but the same state statute effec-tively restricts the branching activities of a bankwhenever acquired by an out-of-county bank.Inasmuch as Seattle - First's home county is KingCounty, consummation of this merger would, undercurrent applicable state statute, eliminate the possibil-ity of Seattle - First establishing any new branch officeat any location within either Clallam or JeffersonCounty.

The conclusion that a transaction does not violatejudicially accepted antitrust standards, does not re-lieve the Comptroller of the Currency from considering

3 As this Office indicated a decade and a half earlier upon the mergerapplication to merge National Bank of Westchester, Westchester, N.Y.,and The First National City Bank of New York, N.Y. (1961):

As our society changes so must every business desiring to main-tain its position and achieve its growth potential change also. Oneof the serious problems in banking today arises from legal restric-tions, many of which were designed for an earlier age, which havehampered the proper accommodation by banks to the changingnature of our society, and have inhibited not only their growth, buttheir ability to serve efficiently our growing economy.

4The Union Bond and Mortgage Company, a registered multi-bankholding company, is "grandfathered" under Washington state's lawprohibiting multi-bank holding companies.

5H.R. Rep. No. 1221, 89th Cong., 2d Sess., 4(1966).

other factors not associated with Section 7 of theClayton Act, which may have implications relating tobanking structure and competition. The Comptrollerclearly has always had discretion through his generalsupervisory responsibility to help create a viable bank-ing system through decisions upon individual applica-tions, such as this one, based upon the consideration ofall factors which are deemed relevant.5 It is the Comp-troller's view that although antitrust law may provide thebasic framework for safeguarding competition, the ex-pertise of the banking agencies, including this Office,permits a more intensive evaluation of particular mer-gers.

By statute, 12 USC 1828 (c)(5)(B), the Office of theComptroller cannot approve:

any . . . proposed merger transaction whose effectin any section of the country may be substantiallyto lessen competition, or to tend to create amonopoly, or which in any other manner would bein restraint of trade, unless it finds that the an-

• ticompetitive effects of the proposed transactionare clearly outweighed in the public interest by theprobable effect of the transaction in meeting theconvenience and needs of the community to beserved.

The Bank Merger Act of 1966, makes it clear that bankmergers violative of the Clayton Act cannot be ap-proved unless the anticompetitive effect of the pro-posed transaction is clearly outweighed by the prob-able convenience and needs benefits which would resultfrom the merger. In addition, the Comptroller believesthat Congress intended for the National Banking Systemto be structured by the statutes pertaining specifically tonational banks and the Comptroller's responsibility for,and authority over, all national banks. Indeed, the Officeof the Comptroller of the Currency has not only a right,but a resibility and an obligation, to promote and insure asound National Banking System which best serves theneeds of the banking public.

With respect to the instant transaction, SeaFirst Cor-poration and its subsidiary Seattle - First, propose toaugment existing services provided by Union BondBanks and further to introduce new banking services inthe relevant market areas. Seattle - First has a legallending limit in excess of $22 million, while the com-bined legal lending limit of the four Union Bond Banksis approximately $800,000. With its substantially largersize and more diversified economic base, Seattle -First will be able to respond more adequately to theincreasing credit needs of the market area.

Through both Seattle - First and FirstBank MortgageCorporation, a wholly-owned subsidiary of the bank,Seattle - First will be able to serve the local residentialand real estate mortgage markets and also service thecommercial real estate mortgage markets of the rele-vant areas.

At the present time, Port Angeles Bank is the onlyone of the Union Bond Banks with trust powers, andthe bank has only one trust officer who serves the cus-tomers of all four affiliated banks. Subsequent to themerger, Seattle - First will offer a more comprehensivepackage of trust services to the residents and busi-ness organizations in the areas.


Customers of Union Bond Banks will enjoy the bene-fit of being able to transact business throughout thestate through the use of Seattle - First's extensivebranch network.

None of the merging banks presently offersinternational banking services to its customers. Seattle- First will introduce these services which should bene-fit, among others, the larger lumber products firms inthe area which have established an extensive tradewith such foreign nations as Japan and Canada.

Present customers of Union Bond Banks will alsobenefit from the additional proposed services of cus-tomer investment service and counseling; businessadvisory services; automated banking services; elec-tronic data processing services such as remittancebanking, account reconciliation and payroll process-ing; and specialized checking services, including noservice fee checking with the maintenance of aminimum balance.

In addition to the competitive and antitrust factorsand the convenience and needs of the community tobe served, the Office of the Comptroller is chargedwith the responsibility of considering the financial andmanagerial resources and future prospects of thebanks involved in the proposed merger. A review ofthe financial factors of the banks reveals that all are ingenerally satisfactory overall condition with soundmanagement.

We believe the facts and circumstances of theinstant application are distinguishable from thoseinvolved in Washington Mutual Savings Bank v. FDIC,482 F. 2d 459 (9th Cir. 1973). Furthermore, nothing inthe language of the Bank Merger Act of 19666 com-pels, nor even suggests, that mergers which do not vi-olate any of the antitrust standards of the Act, must beapproved; nor does the law limit agency inquiry exclu-sively to the competitive impact of a proposed bankmerger.

Unquestionably some of what is stated herein underthe convenience and needs factor could also be ap-plicable to the competitive factor. However, the pri-mary consideration is with the balance of the bankingsystem on Puget Sound and, in particular, the PortAngeles - Sequim markets, the future structure of thosemarkets, how the banking needs of the communitieswill best be served, what sizes and types of banksthere should be in these markets and the number ofbanks present in the markets. In the Comptroller's viewthose matters are clearly relevant to the banking fac-tors and for determination by the Comptroller in theexercise of his supervisory authority over the NationalBanking System, rather than exclusively to the com-petitive factors under the Bank Merger Act where theprimary concern is directed toward lessening of com-petition and monopoly. It is the Comptroller's respon-sibility, acting within the statutory policies prescribedby Congress, to preserve and foster the National Bank-ing System to insure that it has the capacity to, anddoes, perform efficiently and in the public interest and,specifically, whether proposed acquisitions are in thepublic interest.

612 USC 1828(c).

Having considered all relevant statutory criteria, it isconcluded that should the Union Bond Banks be ac-quired individually, or in combination by more than onebanking organization, the effect would be the decon-centration of already highly concentrated markets andthe relevant markets would be provided with additionalbanking alternatives and competition, thereby betterserving the banking community and fostering a moreresponsive banking atmosphere. It is further the opin-ion of this Office that the relevant banking factorsherein require that Seattle - First not be allowed the ac-quisition of all of the offices of the Union Bond Banks;such an across-the-board approval does not appeareither desirable or warranted.

Therefore, the Comptroller of the Currency herebygrants approval of the application for Seattle - First topurchase the assets and assume the liabilities of theUnion Bond Banks subject to the following stipulationsand conditions:

1. Within 12 months from the date of consummation ofthe instant transaction, Seattle - First will divest itselfof any and all interests in the following branch of-fices of Port Angeles Bank and Sequim Bank:

Port Angeles Bank

(a) "Eighth Street Branch"134 West Eighth StreetPort Angeles, Wash.

(b) "Penn Street Branch"1633 East First StreetPort Angeles, Wash.

(c) "Clailam Bay Branch"Corner of Bogachiel and Pioneer StreetsClailam Bay, Wash.

Sequim Bank

(a) "Valley Branch"Highway 101 and Loft Mountain RoadCarlsborg, Wash.

2. Such divestiture of the branch offices herein statedis further conditioned that Seattle - First must notsell the subject branch offices, in whole or in part,to any banking organization(s) now represented ineither Clailam or Jefferson counties, nor may thesebranch offices be sold to any individual(s), group(s)or organization(s), whose offices and/or directorsare affiliated with any banking organization(s) nowrepresented in either Clailam or Jefferson counties.

3. The branch offices must not be sold to anyindividual(s), group(s}-or organization(s), who areofficers and/or directors, of Seafirst or Seattle -First, or any of their respective subsidiaries or af-filiates.

4. The Comptroller must give his express prior ap-proval of the proposed branch purchaser(s) toSeattle - First, for the purpose of assuring com-pliance with this decision, prior to consummation ofthe sale of the branch offices.


Subject to the foregoing conditions this transaction isapproved.

July 23, 1976.


The service area of the four Union Bond banks is thewhole of Clallam and Jefferson counties which em-braces roughly the northern half of the Olympic Penin-sula, a remote area which has a population of 48,100.Applicant has no offices in Clallam and Jefferson coun-ties. The closest offices of the Applicant and the UnionBond banks are approximately 56 miles apart, includ-ing a toll bridge which costs $3 for a round trip. Appli-cant has total deposits from the Union Bond servicearea of $706,536, which amounts to 0.74 percent ofthe total deposits held by the Union Bond banks and0.53 percent of all deposits held in the two counties.Thus, it is apparent that the proposed acquisition willhave only a negligible effect upon existing competitionbetween the merger parties.

As of December 31, 1974, Applicant ranked firstamong the commercial banks in Washington with 34percent of total statewide deposits. The second largestbank had a 19.2 percent share of the market. Thethird, fourth and fifth largest had market shares of 8.8,6.6 and 5.5 percent, respectively. It can thus be fairlysaid that commercial banking in Washington, with thetwo largest banks controlling more than 53 percent oftotal deposits, already suffers from an unhealthy de-gree of concentration. The Union Bond banks collec-tively rank 10th among commercial banks inWashington with 1 percent of total deposits. The pro-posed acquisition would increase Applicant's marketshare to 35 percent and thus contribute importantly tothe trend toward increased concentration in banking inWashington.

As of December 31, 1974, there were seven com-mercial banks (counting the Union Bond banks asfour) and one mutual savings bank in Clallam and Jef-

ferson counties. In terms of total deposits, the UnionBond banks are the largest banks operating in thearea with a 74.4 percent market share. Of the remain-ing three commercial banks, only People's NationalBank of Washington, which ranks fourth statewide with6.6 percent of total deposits, holds substantial de-posits in the amount of $26,711,000 (20 percent of themarket). The Union Bond banks and People's NationalBank of Washington control 94.4 percent of the totaldeposits in Clallam and Jefferson counties. Thus, theproposed acquisition raises the spectre of the largestbanking system in the state moving into a new marketby purchasing a banking system which has a 74.4percent share of the local market.

Washington banking law prevents Applicant from en-tering the Jefferson - Clallam market de novo throughestablishment of a branch. The state law permits denovo branching by a commercial bank outside of itshome county only in incorporated but unbanked com-munities, i.e., an out-of-county bank cannot open abranch in an unincorporated area or in an incorporatedcommunity which already has a bank. Since Appli-cant's home county is King County and since the areait is desirous of servicing is outside of its home county,is incorporated, but is already banked, Applicant ap-pears to be precluded from opening branches in theJefferson - Clallam County communities on a de novobasis. Furthermore, it appears that Applicant cannotenter the market through the normal bank holdingcompany device due to statutory prohibition of multi-bank holding companies.

Consummation of the proposed acquisition willinstantaneously render Applicant the dominant com-mercial bank in the two-county area. In sum, the pro-posed acquisition will contribute importantly to theseemingly inexorable movement toward a decidedlyunhealthy degree of concentration in commercial bank-ing in Washington, and for that reason must be viewedunsympathetically as having an adverse effect uponcompetition.

THE FIRST NEW HAVEN NATIONAL BANK,New Haven, Conn., and The North Haven National Bank, North Haven, Conn.


The North Haven National Bank, North Haven, Conn. (15439), withand The First New Haven National Bank, New Haven, Conn. (2), which hadmerged Aug. 31, 1976, under charter and title of the latter bank (2). The merged bank atdate of merger had

Total assets

$ 14,434,000344,161,000

356,693,000

Banking

Inoperation

324

offices

To beoperated

27


The North Haven National Bank, North Haven, Conn.("North Haven Bank"), and The First New Haven Na-tional Bank, New Haven, Conn. ("New Haven Na-tional"), have applied to the Comptroller of the Cur-rency for prior permission to merge under the charterand with the title of The First New Haven NationalBank. The decision of the Comptroller is rendered pur-

suant to an agreement executed between the propo-nent banks upon which the instant application rests,and is incorporated herein by reference the same as iffully set forth.

New Haven National, the charter bank, was char-tered pursuant to applicable laws of the state of Con-necticut in 1792, and became a national banking as-sociation in 1863. New Haven National's charter,


number 2, is the oldest national bank charter in con-tinuous use in the United States. As of December 31,1975, New Haven National held commercial bank de-posits aggregating $285.4 million, and is the eighthlargest banking organization domiciled within the stateof Connecticut. The subject bank operates a total of 23branch offices in the greater New Haven area and 1branch in the Cayman Islands.

North Haven Bank, the merging bank, was charteredin 1964, and is the only commercial bank headquar-tered within the community of North Haven. NorthHaven Bank operates 2 branches in addition to itsmain office, all of which are located in North Haven. Atyear-end 1975, the bank controlled total deposits of$13.3 million.

The head offices of the proponent banks are approx-imately 9 miles apart, and the two closest branches ofNew Haven National and North Haven Bank are about3 miles distant from each other.

New Haven National is the largest of 17 banking or-ganizations operating in the New Haven banking mar-ket (an area encompassing portions of New Havenand Middlesex counties) and North Haven Bank is theeighth largest commercial bank in the area, and con-fines its services primarily to its home office town ofNorth Haven, and the contiguous towns of New Haven,East Haven, Hamden, North Branford and Wallingford.North Haven Bank's service area is completely en-compassed by that of New Haven National. Inasmuchas the subject banks are direct competitors, approvalof the instant proposal would have the effect ofeliminating existing competition between the two bank-ing institutions.

Pursuant to the provisions of the Bank Merger Act of1966, 12 USC 1828(c), the Comptroller of the Currencycannot approve a merger transaction which wouldhave certain proscribed anticompetitive effects unlessthe Office concludes that those anticompetitive effectsare clearly outweighed in the public interest by theprobable effect of the proposed transaction inadequately meeting the convenience and needs of thecommunity to be served. Furthermore, the Comptrolleris also directed to fully consider the financial and man-agerial resources and future prospects of the existingand proposed institution.

Connecticut law does make provision for de novobranch banking, subject to home office protection.Approval of this proposal would remove home officeprotection from North Haven and open the communityto other banking organizations that have been pre-cluded from entering the town since 1964. Further,since December 31, 1975, mutual savings banks andstate-chartered savings and loan associations in Con-necticut have been authorized to accept demand de-posits and to offer personal checking accounts to theircustomers. The effects of the proposed merger shouldbe positive within the relevant area inasmuch as theresulting bank would have an increased lending limit,and be able to provide a more sophisticated array ofcredit services, including international banking andtrust services. Also, New Haven National possessesthe capital resources needed to make improvements inNorth Haven Bank's physical facilities, an undertaking

which North Haven Bank has not been able to makedue to poor earnings and difficulties experienced inmaking capital augmentations.

North Haven Bank has, since 1972, conducted asearch for a new president for the bank. To date, thatsearch has not proven successful and,,at the presenttime, North Haven Bank's chairman and president areinactive directors and the bank is without a cashierand installment loan manager. Since its organization,North Haven Bank has had five cashiers, and the bankdoes not presently have in its employ any person whois fully qualified to discharge the duties of this positionin the management staff. To further complicate thesituation, North Haven Bank does not have a for-malized training program. New Haven National is cur-rently providing, on an interim basis, an operating of-ficer who is acting as a full-time chief operating officerfor North Haven Bank. New Haven National does havea well developed management training program andNew Haven National is considered to presently pos-sess the managerial talent and expertise necessary torectify the problems currently confronting North HavenBank. Accordingly, it is the conclusion of this Officethat the future prospects of the combined institutionare greatly enhanced via means of consummation ofthis application, and the banking public will be betterserved by the replacement of a restricted competitorwith a vibrant competitor that is a more meaningfulbanking alternative.

It is therefore, the opinion of this Office that any an-ticompetitive effects of this proposal are clearly out-weighed by the probable effects of the transaction inadequately meeting the convenience and needs of thecommunity to be served, and by enhancing the futureprospects of the resulting institution through the provi-sion of needed financial and managerial resources.The application is thus deemed to be in the publicinterest, and should be, and hereby is, approved.

July 27, 1976.


It appears that the primary market served by Applicantis an area encompassing portions of New Haven andMiddlesex counties and in which there are 22 towns.Applicant has offices in 11 of the towns. Bank operatesall three of its offices in North Haven, one of the 22towns in the Applicant's primary market, and Bankconfines itself primarily to serving the local NorthHaven market. The nearest offices of Applicant andBank are about 3 miles apart, and the next nearest pairof offices are 4 miles apart although there are offices ofother banks in the intervening area. As might be ex-pected, Applicant draws a significant amount.of busi-ness from the primary market of Bank and is directlycompetitive with Bank. For example, 1,349 demanddeposit accounts in Applicant, totalling $87 million,originate in the area served by Bank. Bank obtained669 demand deposit accounts, worth $297,400, frompersons located in New Haven. In addition, Applicantappears to get many of the large loans in the areaserved by Bank. Applicant had made 625 installmentloans to persons living in the area served by Bank (as


of September 30, 1975). It thus seems clear that theproposed acquisition will eliminate existing competitionto a significant extent.

Applicant currently ranks as the eighth largest com-mercial bank in the state with 4.3 percent of total IPCdeposits. The proposed acquisition will enhance Ap-plicant's statewide position very slightly — an increaseof 0.2 percent of total IPC deposits and no change inranking. However, Applicant is the largest bankinginstitution in its primary market area with a 26.5 per-cent share of total deposits, and the proposed acquisi-tion would increase Applicant's share of the market to27.7 percent and would also give Applicant a domi-nant position in the submarket served by Bank. Hence,

the proposed acquisition will increase concentration inthe relevant banking markets.

Connecticut law, which permits de novo branchingsubject to home office protection, precludes Applicantfrom branching into North Haven, but Applicant doesoperate 12 branch offices in the adjacent towns whichfall within Bank's primary market. Bank has notbranched outside North Haven and appears unlikely todo so owing to lack of resources.

In sum, the proposed acquisition will eliminate asubstantial volume of direct competition and will mate-rially increase concentration in the relevant markets,with the consequence that it would have an adverse ef-fect upon competition.

UNITED STATES NATIONAL BANK IN JOHNSTOWN,Johnstown, Pa., and The First National Bank of Coalport, Coalport, Pa.



The First National Bank of Coalport, Coalport, Pa. (6887), with $ 7,476,000and United States National Bank in Johnstown, Johnstown, Pa. (13781), which had 274,767,000merged Sept. 15, 1976, under charter and title of the latter bank (13781). The merged bankat date of merger had 282,244,000

115

16


The First National Bank of Coalport, Coalport, Pa.("Coalport Bank"), and United States National Bank inJohnstown, Johnstown, Pa. ("USNB"), have applied tothe Comptroller of the Currency for prior permission tomerge under the charter and with the title of TheUnited States National Bank in Johnstown. The de-cision of the Office of the Comptroller is issued pur-suant to an agreement executed between the proponentbanks upon which the instant application rests, and isincorporated herein by reference the same as if fully setforth.

USNB, the charter bank, was chartered as a nationalbanking association on September 22, 1933 and, as ofMarch 31, 1976, held commercial bank deposits ag-gregating $240 million. USNB operates its head officein Johnstown and an additional 13 branch offices inCambria County. In addition, USNB also operates 3 of-fices in neighboring Somerset County, and has ap-proval for the establishment of offices in UniversityHeights and Seward.

Coalport Bank, organized in 1903, operates its soleoffice in the community of Coalport, and has totalcommercial bank deposits of approximately $5.9 mil-lion. Due in large measure to the mountainous topog-raphy of the area, the mobility of the populace is lim-ited, and Coalport Bank derives most of its busi-ness from the area within a 15-mile radius of Coalport.

The Carrolltown office of USNB is the closest officeof the charter bank to Coalport Bank's location, ap-proximately 16 miles distant, and there is an office ofanother bank located in the intervening area. Neither ofthe proponent banks derives a significant amount of itsdeposits or loan accounts from the primary service

area of the other and no appreciable degree of exist-ing competition between two banking institutionswould be eliminated via means of the proposed trans-action. Applicable Pennsylvania state branching stat-utes do make provision for the establishment ofbranch offices within the home office county of acommercial banking institution and in counties con-tiguous thereto. Therefore, USNB could legally estab-lish a de novo office in Coalport Bank's home officecounty of Clearfield. However, given the small popula-tion of Coalport (approximately 800 persons) and thegeneral decrease in population within the county, itdoes not appear that USNB would consider such aventure to be economically feasible; especially since astate bank has recently received permission to estab-lish a branch in Coalport.

Accordingly, applying the statutory criteria, it is theconclusion of this Office that consummation of theinstant proposal will provide the Coalport area with amore meaningful banking alternative that is a morevigorous competitor with a sound financial base andcapable management. Therefore, this application isdeemed to be in the public interest and should be, andhereby is, approved.

July 28, 1976.


Applicant operates principally in Cambria County, Pa.,and also operates to a lesser extent in SomersetCounty and Westmoreland County. Bank operates onlyin Clearfield County, which abuts Cambria County. Thebanking office of Applicant closest to Bank is about 16miles distant and the remainder of the offices are con-siderably further apart. Thus, it appears that the pro-


posed acquisition would eliminate only a small amount ofexisting competition.

Since neither bank operates in markets served bythe other, the proposed acquisition will not produceany increase in concentration in either market.Pennsylvania permits the establishment of branch of-fices only in the same county in which a bank main-tains its principal office and in contiguous counties.Thus, since Cambria County is contiguous to ClearfieldCounty, Applicant is free to branch into Clearfield

County in lieu of entering the market through acquisi-tion. Indeed, entry via branching seems preferable toentry via acquisition as a general proposition. How-ever, given the population of Coalport (800) and therecent decrease in population of Clearfield County, itperhaps would not be economically feasible for Appli-cant to establish a branch in the county.

In sum, the proposed acquisition would cause someanticompetitive effects, particularly in regard to theelimination of potential competition.

FIRST NATIONAL BANK, CARBONDALE, PENNSYLVANIA,Carbondale, Pa., and The First National Bank of Dickson City, Dickson City, Pa.


The First National Bank of Dickson City, Dickson City, Pa. (13937), withand First National Bank, Carbondale, Pennsylvania, Carbondale, Pa. (664), which hadmerged Sept. 20> 1976, under charter and title of the latter bank (664). The merged bankat date of merger had

Total assets

$21,614,00059,518,000

81,244,000

Banking

Inoperation

17

offices

To beoperated

8


The First National Bank of Dickson City, Dickson City,Pa. ("Merging Bank"), and First National Bank, Car-bondale, Pennsylvania, Carbondale, Pa. ("CharterBank"), have applied to the Comptroller of the Cur-rency for permission to merge under the charter andwith the title of the latter.

Merging Bank, a unit national banking organization,was chartered in 1934, and currently has total com-mercial deposits of $18.6 million.

Charter Bank became a national banking organiza-tion in 1864. Located approximately 15 miles northeastof Scranton, Pa., Charter Bank operates its main officeand six of its seven branches in Lackawanna County(the seventh branch office is domiciled in WayneCounty). Charter Bank currently has total deposits of$47.5 million.

Both Merging Bank and Charter Bank conductcommercial banking operations within the Scranton,Pa. banking market. The Scranton, Pa. banking marketis approximated by the whole of Lackawanna County,the northeastern half of Wyoming County, the southernhalf of Susquehanna County, and small contiguousportions of Luzerne, Pike and Wayne counties. Theclosest office of Charter Bank, the Archbald branch, islocated approximately 5 miles from Merging Bank, andall offices of Charter Bank are located within a 13 milesradius of Dickson City. Within the relevant bankingmarket, 24 banks operate 55 offices. Charter Bank iscurrently the seventh largest commercial bank operat-ing within the market, controlling 4.1 percent of marketdeposits. Merging Bank is the second smallest bankwithin the market, and controls approximately 1.5 per-cent of market deposits. Consummation of the pro-posed transaction would result in the surviving institu-tion becoming the fourth largest commercial bank withinthe market. The instant proposal would have the effect ofeliminating a small degree of direct competition between

the two merging institutions; however, there are severalconveniently located banking alternatives, three ofwhich are located between the closest offices of CharterBank and Merging Bank, as to mitigate any adverse ef-fect upon competition.

The statute, 12 USC 1828(c)(5)(b), the Comptrollerof the Currency must also consider the public interestby being mindful of the probable effect of the transac-tion in meeting the convenience and needs of thecommunity to be served. Consummation of the subjectproposal would eliminate the current problem of man-agement succession at Merging Bank. The lendingcapacity of the resulting institution would be increasedand the resulting bank should be better able to servethe needs of the banking community and result in amore meaningful banking alternative which is betterable to compete with the larger financial institutions inthe market. Additionally, the resulting bank will providesuch new services as BankAmericard and additionaloperating hours. On balance, it is the conclusion of thisOffice that any slightly adverse competitive effectsinherent within this transaction are clearly outweighedby the aspects of convenience and needs of the bank-ing community to be served.

Accordingly, it is the opinion of this Office that theproposed transaction is in the public interest andshould be, and hereby is, approved.

August 12, 1976.


The closest office of Applicant to that of Bank is lo-cated at Archbald which is 4.7 miles distant fromDickson City. There are 3 intervening banks betweenthese offices. Applicant has another office at Mayfieldwhich is 8.6 miles distant from Bank and another atElmhurst which is 10.5 miles distant therefrom. All ofApplicant's banks are within a 12.5 mile radius ofDickson City. A survey of accounts discloses that Ap-


plicant's banks have 67 customers in the Dickson Citybanking market which represents a total of $41,000 indeposits and $235,000 in loans. Bank has no accountsin the Carbondale banking market. Thus, the proposedmerger would eliminate some existing competition be-tween the participants.

In Lackawanna County, 16 county-based banks op-erated 39 banking offices on June 30, 1975. Bank isthe next to smallest bank based in this county, with 1.5percent of total county deposits. Applicant is theseventh ranked bank with 4.1 percent of county de-posits. If the proposal is approved, Applicant will have5.5 percent of such deposits and will rank fifth among

county-headquartered banks. The largest county bankhas 41.2 percent of these deposits, the second rankedbank has 11.2 percent and the third ranked 8.1 per-cent. Therefore, the proposed merger would increaseconcentration among commercial banking resourcesin Lackawanna County to a small extent.

We conclude that the instant proposal would elimi-nate some direct competition between the mergingbanks and would somewhat increase concentrationamong the commercial banks based in LackawannaCounty. Its overall effect, however, would only beslightly adverse.

Fl NATIONAL BANK,Ironton, Ohio, and The First National Bank of Ironton, Ironton, Ohio


The First National Bank of Ironton, Ironton, Ohio (98), withwas purchased Sept. 30, 1976, by Fl National Bank, Ironton, Ohio (16607), which hadAfter the purchase was effected, the receiving bank had

Total assets *

$64,442,0001,200,000

66,670,000

Banking

Inoperation

10

offices

To beoperated

1


Fl National Bank (organizing), Ironton, Ohio, hasapplied to the Comptroller of the Currency for priorpermission to acquire all of the assets and assume allof the liabilities of The First National Bank of Ironton,Ironton, Ohio.

The First National Bank of Ironton, Ironton, Ohio, themerging bank, was chartered as a national bankingassociation on June 6, 1890. As of March 31, 1976, themerging bank held total deposits of $59.2 million.

The proposed purchase and assumption transactionis the facility whereby the acquisition of The First Na-tional Bank of Ironton by First National Cincinnati Cor-poration, Cincinnati, Ohio, a registered multi-bankholding company, will be accomplished. The instanttransaction would merely combine an existing com-mercial bank with a non-operating institution; and as


such, without regard to the proposed acquisition of thesurviving bank by First National Cincinnati Corporation,would have no effect upon competition within therelevant banking market (approximated by the whole ofLawrence County, Ohio).

Consequently, applying the statutory criteria, it is theconclusion of this Office that the subject proposal isnot adverse to the public interest. Accordingly, thisapplication should be, and hereby is, approved.

August 30, 1976.


The proposed transactions are parts of plans throughwhich First National Bank of Ironton and First NationalBank & Trust Company would become subsidiaries ofFirst National Cincinnati Corporation, a bank holdingcompany. The instant transactions, however, wouldmerely combine existing banks with non-operatinginstitutions; as such, and without regard to the acquisi-tion of the surviving banks by First National CincinnatiCorporation, it would have no effect on competition.


FT NATIONAL BANK,Troy, Ohio, and The First National Bank & Trust Company, Troy, Ohio


In To be-operation operated

The First National Bank & Trust Company, Troy, Ohio (3825), with $76,998,000was purchased Sept. 30, 1976, by FT National Bank, Troy, Ohio (16608), which had 2,400,000After the purchase was effected, the receiving bank had 81,467,000


FT National Bank (organizing), Troy, Ohio, has appliedto the Comptroller of the Currency for prior permissionto acquire all of the assets and assume all of theliabilities of The First National Bank & Trust Company,Troy, Ohio.

The First National Bank & Trust Company, Troy,Ohio, the merging bank, was chartered as a nationalbanking association on December 16, 1887 and, as ofMarch 31, 1976, held commercial bank deposits ag-gregating $65.5 million.

The proposed transaction is the facility whereby FirstNational Cincinnati Corporation, Cincinnati, Ohio, aregistered multi-bank holding company, will acquire thesuccessor by purchase and assumption to The First Na-tional Bank & Trust Company. This transaction wouldhave the effect of merely combining an existing entity

* Asset figures are as of call date immediately before and aftertransaction.

CANAL NATIONAL BANK,Portland, Me., and Central National Bank, Waterville, Me.

with a non-operating institution; and as such, without re-gard to the proposed acquisition of the surviving bank byFirst National Cincinnati Corporation, would have no ef-fect upon competition within the relevant banking market(approximated by the Dayton, Ohio banking market).

Accordingly, applying the statutory criteria, it is theconclusion of this Office that the subject proposal isnot adverse to the public interest and should be, andhereby is, approved.

August 30, 1976.


The proposed transactions are part of plans throughwhich First National Bank of Ironton and First NationalBank & Trust Company would become subsidiaries ofFirst National Cincinnati Corporation, a bank holdingcompany. The instant transactions, however, wouldmerely combine existing banks with non-operatinginstitutions; as such, and without regard to the acquisi-tion of the surviving banks by First National CincinnatiCorporation, it would have no effect on competition.

* * *



Central National Bank, Waterville, Me. (15954), with $ 10,100,000and Canal National Bank, Portland, Me. (941), which had 180,348,000merged Oct. 1, 1976, under charter and title of the latter bank (941). The merged bankat date of merger had 193,263,000

228

30


Central National Bank, Waterville, Me. ("Central N/B"),the merging bank, and Canal National Bank, Portland,Me. ("CNB"), the charter bank, have applied to theComptroller of the Currency for prior permission to ef-fectuate a merger under the charter and with the title ofCanal National Bank. The instant application restsupon an agreement executed between the proponentbanks, and is incorporated herein the same as if fullyset forth.

Central N/B was chartered as a national banking as-sociation on March 30, 1972 and, as of May 28, 1976,held total commercial bank deposits of $9.5 million.Central N/B maintains its head office in the town ofWaterville and operates one branch office in Augusta,the state capital.

CNB became a national banking association on May

29, 1969, is the fifth largest bank in the state, and con-trols deposits aggregating approximately $147.5 mil-lion. CNB operates a system of 28 branches, concen-trated in southern and south-central Maine.

Both Central N/B and CNB are wholly-owned bank-ing subsidiaries of the sixth largest commercial bank-ing organization domiciled within the state of Maine,Canal Corporation, Portland, Me. Canal Corporationcontrols 4 banks with total deposits of $183.4 million,9.3 percent of total commercial bank deposits inMaine.

The closest offices of the charter bank and mergingbank are approximately 25 miles distant, and given thegeographic distance that separates those two banks inconjunction with their common ownership and control,there is no meaningful degree of competition betweenthe two institutions.


Essentially the subject application represents a cor- SUMMARY OF REPORT BY ATTORNEY GENERALporate reorganization whereby Canal Corporation isconsolidating its banking interests. Accordingly, theapplication is not adverse to the public interest, andshould be, and hereby is, approved.

August 30, 1976.


THE CITIZENS NATIONAL BANK OF EVANSVILLE,Evansville, Ind., and The Lamasco Bank, Evansville, Ind.



The Lamasco Bank, Evansville, Ind., with $ 21,295,000and The Citizens National Bank of Evansville, Evansville, Ind. (2188), which had 231,241,000merged Oct. 1, 1976, under charter and title of the latter bank (2188). The merged bankat date of merger had 252,081,000


The Citizens National Bank of Evansville, Evansville,Ind., the charter bank ("Citizens N/B"), and theLamasco Bank, Evansville, Ind., the merging bank("Lamasco Bank"), have applied to the Comptroller ofthe Currency for prior permission to merge into TheCitizens National Bank of Evansville. The subject ap-plication rests upon an agreement executed betweenthe proponent banks and is incorporated herein byreference, the same as if fully set forth.

Citizens N/B was chartered in 1875 and, as of De-cember 31, 1975, held total deposits of $191.6 million.It currently operates six branch offices in VanderburghCounty and has approval for the establishment of threeadditional offices. Currently the second largest com-mercial bank in the county, Citizens N/B controls ap-proximately 30 percent of the county deposits.

Lamasco Bank, organized in 1914, is the smallest offive commercial banks domiciled in VanderburghCounty, and has commercial bank deposits aggregat-ing $17.6 million, which represent 3 percent of de-posits within the county.

Lamasco Bank's sole office is located approximately1 mile from the main office of Citizens N/B. There are,however, six banking offices, including the main officeof each of the remaining three commercial banksdomiciled in Evansville, within two blocks of the headoffice of the charter bank. Citizens N/B also operates abranch office about 1 mile west of Lamasco Bank'ssite, but there is an intervening office of another bankbetween those two offices of the proponent banks.Lamasco Bank's entire service area is enveloped bythat of Citizens N/B, and approval of the subject trans-action would have the effect of eliminating some de-gree of existing competition between the charter andmerging banks and foreclose the possibility of any fu-ture competition developing between these two banks.Although applicable Indiana state statutes do makeprovision for county-wide de novo branching, LamascoBank, in its half century of existence, has not estab-lished any branches and, given its small size and other

pertinent factors outlined within this decision, the likeli-hood of Lamasco Bank utilizing this mode of expan-sion, appears remote.

Pursuant to the provisions of the Bank Merger Act of1966, 12 USC 1828(c), the Comptroller of the Currencycannot approve a merger transaction which wouldhave certain proscribed anticompetitive effects unlessthe Office concludes that those anticompetitive effectsare clearly outweighed in the public interest by theprobable effects of the proposed transaction inadequately meeting the convenience and needs of thecommunity to be served. Furthermore, the Office of theComptroller is also directed to fully consider the finan-cial and managerial resources and future prospects ofthe existing and proposed institutions.

Lamasco Bank is located On the west side of the cityof Evansville, approximately 1 mile from the city'sdowntown business district, in an area formerly re-ferred to as Lamasco City. Formerly a residentialneighborhood composed of citizens of German extrac-tion, the area has experienced a period of major transi-tion, and is presently developed into an industrial andcommercial complex with the few remaining residentialdwellings in a general state of decline. The majority ofLamasco Bank's customers are former neighborhoodresidents who have moved away from the immediatearea, (only approximately 30 percent of the bank's cus-tomers live within a 1-mile radius of Lamasco Bank'ssite) but have maintained their accounts with LamascoBank due to ethnic bonds and personal loyalty tosenior management of the bank. With the major transi-tion within Lamasco Bank's primary service area, themerging bank's conservative operational policies andresultant lack of growth, have placed the bank in a po-sition which in effect precludes it from successfullycompeting for the banking business of the commercialand industrial concerns that have recently entered thearea around Lamasco Bank. Consequently, thosebusinesses have sought the services of the larger, moreaggressive, commercial banks located in Evansville.

In passing upon this application, it is noted that in


addition to the significantly larger commercial bankslocated within Vanderburgh County, Lamasco Bankmust also compete with seven savings and loan asso-ciations, six of which have larger share accounts (de-posits) than does Lamasco Bank; two industrial banks;and 10 credit unions. A review of Lamasco Bank's loanportfolio reveals that approximately 50 percent of theloan portfolio is in real estate loans, 18 percent is in di-rect auto financing extensions and only 25 percent isin the area of commercial and industrial loans. It is evi-dent from that review that Lamasco Bank has operatedin a fashion more like a mortgage banking institution orsavings and loan institution, than a commercial bank.

As aforenoted, many of Lamasco Bank's customershave maintained a business affiliation with the bankbecause of personal loyalties to the merging bank'ssenior management. The majority of the children of thelong-time customers do not, however, share that feel-ing of personal loyalties and ethnic identity with thebank. Consequently, they conduct their banking busi-ness elsewhere. The former president of the LamascoBank, Mr. E. J. Schroeder, passed away in July 1975,and the current bank president, Mr. Lawrence Goebel,who is 67 years of age, has said he is most anxious toretire; there is no member of the bank's present man-agement who appears to be fully capable of assumingthe duties of that position. Additionally, members of theboard of directors of Lamasco Bank have made itknown that they wish to become less involved in the af-fairs of the bank and, further, that they have no desireto, or intention of, serving on the board of the resultingbank.

Inasmuch as the majority of Lamasco Bank's stock isheld by the bank's directors, all of whom have ex-pressed a desire to get out of the banking business,and given the extremely conservative manner in whichthis bank has historically operated, this Office mustconsider the questions: How effectively is LamascoBank competing with other institutions in the area?How well is this bank serving the banking needs of thepublic? Would denial of this application serve to pre-serve an independent banking alternative in theEvansville area? The Office concludes that LamascoBank is far from being considered an aggressive com-petitor and, although a superficial analysis of the factsof record shows that the merging bank controls ap-proximately 3 percent of commercial bank deposits inVanderburgh County, and that approval of this applica-tion would result in the charter bank holding approxi-mately one-third of the total deposits within the county,further analysis indicates that Lamasco Bank's de-posits size is only half that of the fourth largest com-mercial bank in the county, and the ranking of CitizensN/B as the second largest bank in the county would beunchanged on a pro forma basis. Due to its small size,and its extremely conservative trend of operations(approximately 22 percent of Lamasco Bank's invest-ment portfolio is in U. S. Treasury securities and over40 percent of its total deposits are invested in U. S.government obligations), the merging bank is simplyunable, and essentially lacks the desire, to provide afull range of banking services to all segments of the

Evansville banking public. Lamasco Bank has only anominal 2 percent of total commercial and industrialloans originating from within Vanderburgh County.

The record reflects that the charter bank is not theonly bank in the Evansville area that has expressed thedesire to become a merger partner with LamascoBank. Given the sum of these factors, this Office mustconclude that it is simply a matter of time untilLamasco Bank ceases to be an independent entityand that the public is not well served by this presentsituation. Approval of this application would have theeffect of replacing a lethargic institution with a com-petitor which provides more banking alternatives, andone which is better able to serve the full bankingneeds of the public.

A review of both banks indicates that both are insatisfactory financial condition and, with the exceptionnoted concerning Lamasco Bank's lack of manage-ment depth, both banks are capably managedinstitutions.

Accordingly, applying the statutory criteria, it is theconclusion of this Office that any anticompetitive ef-fects attendant to the proposed merger are clearlyoutweighed by considerations relating to the conveni-ence and needs of the area to be served, and that thepublic will be served by a more aggressive and mean-ingful banking alternative. Also, Citizens N/B is con-sidered to possess both the financial and managerialresources necessary to enhance the future prospectsof the surviving institution. Therefore, this application isdeemed to be in the public interest, and should be,and hereby is, approved.

August 12, 1976.


The only office of Bank is located about 1 mile from theheadquarters office of Applicant. However, there aresix banking offices, including the main offices of theremaining three commercial banks in Evansville, withintwo blocks of Applicant's headquarters. Applicant alsooperates a branch office about a mile west of Bank,but another bank operates a branch in the interveningarea. Thus, it appears that there is direct competitionbetween Applicant and Bank.

Indiana is a limited branching state, where commer-cial banks can only branch in the county in which abank is headquartered. Thus, Applicant and Bank arelimited in their branching to Vanderburgh County. Inthat county, there are five commercial banks with 29offices, all but two of which are located in Evansville.As of June 30, 1975, Applicant held the second largestshare, approximately 30 percent, of total deposits inthe county. Bank held the fifth largest share, about 3percent. As a consequence of the proposed acquisi-tion, Applicant's share of the market would increase to33 percent and the top three banks would control over90 percent of total deposits.

In sum, the proposed acquisition would both elimi-nate some direct competition and produce an increasein concentration. Accordingly, it would have an ad-verse competitive effect.


THE NATIONAL BANK OF GEORGIA,Atlanta, Ga., and The Hamilton Bank and Trust Company, Atlanta, Ga.


The Hamilton Bank and Trust Company, Atlanta, Ga., withwas purchased Oct. 8, 1976, by The National Bank of Georgia, Atlanta, Ga. (15541), whichhadAfter the purchase was effected, the receiving bank had

Total assets *

$39,622,000

380,969,000404,122,000

Banking

Inoperation

2

27

offices

To beoperated

29


On October 8, 1976, application was made to theComptroller of the Currency for prior written approvalfor The National Bank of Georgia, Atlanta, Ga., ("As-suming Bank") to purchase certain of the assets andassume certain of the liabilities of the Hamilton Bankand Trust Company, Atlanta, Ga., ("Hamilton").

On October 8, 1976, Hamilton was a state-charteredbank operating through its main office and one branchoffice with deposits of approximately $30 million. In theafternoon of October 8, 1976, Hamilton was declaredinsolvent and the Federal Deposit Insurance Corpora-tion ("FDIC") was appointed as receiver. The presentapplication is based upon an agreement, which isincorporated herein by reference, by which the FDICas receiver has agreed to sell certain Hamilton assetsand liabilities to the Assuming Bank. For the reasonsstated hereafter, the Assuming Bank's application isapproved and the purchase and assumption transac-tion may be consummated immediately.

Under the Bank Merger Act, 12 USC 1828(c), theComptroller cannot approve a purchase and assump-tion transaction which would have certain proscribedanticompetitive effects unless he finds those anticom-petitive effects to be clearly outweighed in the publicinterest by the probable effect of the transaction inmeeting the convenience and needs of the communityto be served. Additionally, the Comptroller is directedto consider the financial and managerial resourcesand future prospects of the existing and proposedinstitution and the convenience and needs of thecommunity to be served. When necessary, however, toprevent the evils attendant upon the failure of a bank,the Comptroller can dispense with the uniform stan-dards applicable to usual acquisition transactions andneed not consider reports on the competitive conse-quences of the transaction ordinarily solicited from the


Department of Justice and other banking agencies. Heis authorized in such circumstances to act im-mediately, in his sole discretion, to approve an acquisi-tion and to authorize the immediate consummation ofthe transaction.

The proposed acquisition will prevent disruption ofbanking services to the community and potential los-ses to a number of uninsured depositors. The Assum-ing Bank has sufficient financial and managerial re-sources to absorb Hamilton and enhance the bankingservices it offers in the Atlanta market.

The Comptroller thus finds that the proposed trans-action will not result in a monopoly, be in furtherance ofany combination or conspiracy to monopolize or at-tempt to monopolize the business of banking in anypart of the United States, and that the anticompetitiveeffects of the proposed transaction, if any, are clearlyoutweighed in the public interest by the probable ef-fect of the proposed transaction in meeting the con-venience and needs of the community to be served.For those reasons, the Assuming Bank's application toacquire certain liabilities and purchase certain assetsof Hamilton as set forth in the agreement executed withthe IC as receiver, is approved. This approval alsoincludes specifically approval to operate all offices ofHamilton as branches of the Assuming Bank and ap-proval of the transfer to the Assuming Bank of Hamil-ton's trust business as provided in the agreement. TheComptroller further finds that the failure of Hamilton re-quires him to act immediately, as contemplated by theBank Merger Act, to prevent disruption of banking ser-vices to the community. The Comptroller thus waivespublication of notice, dispenses with the solicitation ofcompetitive reports from other agencies and au-thorizes the transaction to be consummated im-mediately.

October 8, 1976.



NEW JERSEY BANK (NATIONAL ASSOCIATION),Clifton, N.J., and Plaza National Bank, Secaucus, NJ.



Plaza National Bank, Secaucus, NJ. (15228), with $ 28,432,000and New Jersey Bank (National Association), Clifton, NJ. (15709), which had 825,071,000merged Oct. 18, 1976, under charter and title of the latter bank (15709). The merged bankat date of merger had 853,503,000

339

42


Plaza National Bank, Secaucus, N.J. ("Plaza N/B"), themerging bank, and New Jersey Bank (National Asso-ciation), Clifton, N.J. ("NJB"), the charter bank, haveapplied to the Comptroller of the Currency for priorpermission to merge under the charter and with thetitle of New Jersey Bank (National Association).

Plaza N/B was chartered as a national banking as-sociation on December 23, 1963, and as of March 31,1976, held total commercial bank deposits of $25.2million. Plaza N/B maintains its head office and onebranch in Secaucus and one branch in West NewYork, all in Hudson County, N.J.

NJB, with deposits of approximately $675 million,operates a total of 40 banking offices in seven countiesof northern and northeastern New Jersey.

Both Plaza N/B and NJB are wholly-owned bankingsubsidiaries of Greater Jersey Bancorp., West Pater-son, N.J., the sixth largest commercial banking organi-zation domiciled within the state of New Jersey.Greater Jersey Bancorp, has one other banking sub-sidiary, Provident Bank of New Jersey, Willingboro.

Given the common ownership and control of boththe merging bank and the charter bank, there is nosignificant degree of competition existing betweenthese two institutions, nor is there a potential for suchcompetition to develop in the future. The subject trans-action essentially effects a corporate reorganizationand, of itself, will have no adverse impact upon com-petition.

Additionally, the merger of these two banks will re-sult in certain economies of operation, streamline thebank holding company operation, increase efficiencyand simplify the management structure.

In conclusion, it is the opinion of this Office that thesubject proposal is not adverse to the public interestand should be, and hereby is, approved.

September 7, 1976.



THE CUMBERLAND NATIONAL BANK OF BRIDGETON,Bridgeton, NJ., and United Jersey Bank/City National, Vineland, N.J.



United Jersey Bank/City National, Vineland, N.J. (14673), withand The Cumberland National Bank of Bridgeton, Bridgeton, N.J. (1346), which had..merged Nov. 1, 1976, under charter of the latter bank (1346) and title "United JerseyBank/Cumberland National." The merged bank at date of merger had

$29,098,000 454,820,000 483,918,000


United Jersey Bank/City National, Vineland, N.J. ("CityNational"), the merging bank, and Cumberland Na-tional Bank of Bridgeton, Bridgeton, N.J. ("CNB"), thecharter bank, have applied to the Comptroller of theCurrency for prior permission to effectuate a mergerunder the charter of Cumberland National Bank ofBridgeton, and with the title of United Jersey Bank/Cumberland National. The instant application restsupon an agreement executed between the proponentbanks, and is herein incorporated by reference thesame as if fully set forth.

City National became a national banking associationon April 26, 1972. As of March 31, 1976, City National

held total commercial bank deposits of approximately$27 million at its main office and three branches, alldomiciled in Millville. The merging bank also has anapproved, but unopened, branch office in the city ofVineland.

CNB was chartered as a national banking associa-tion on September 28, 1970, and has deposits ag-gregating $43.9 million. CNB operates its main officeand two branches in the community of Bridgeton andone branch in Hopewell Township.

The proponent banks are both wholly-owned sub-sidiaries of United Jersey Banks, Princeton, N.J., aregistered bank holding company. United Jersey Banksis the second largest banking organization in the state of


New Jersey, with 14 subsidiary banks controlling 7.1percent of all commercial bank deposits in the state.

All offices of the charter bank and the merging bankare located within Cumberland County, and the closestoffices of the two banks are approximately 11 milesapart. However, given the common ownership andcontrol of City National and CNB by United JerseyBanks, approval of this application would not have theeffect of eliminating any meaningful degree of existingcompetition between the two banks, nor would theproposed merger affect the potential for increasedcompetition, nor alter the share of deposits held in anyrelevant area by the parent bank holding company.

Inasmuch as the instant application essentially rep-resents a corporate reorganization whereby UnitedJersey Banks is realigning and consolidating its bank-ing interests, there is no basic change in the competi-

tive environment within which the proponent banksmust operate and the convenience and needs of thebanking community will be unaltered. The greatest de-gree of change will relate to the financial and manage-rial resources and future prospects of the combinedinstitution.

Accordingly, applying the statutory criteria, it is theconclusion of this Office that the instant application isnot adverse to the public interest, and is hereby ap-proved.

October 1, 1976.



VIRGINIA NATIONAL BANK,Norfolk, Va., and Fairfax County National Bank, Seven Corners, Va.



Fairfax County National Bank, Seven Corners, Va. (14824), with $ 62,491,000and Virginia National Bank, Norfolk, Va. (9885), which had 1,804,327,000merged Nov. 12, 1976, under charter and title of the latter bank (9885). The merged bankat date of merger had 1,862,225,000

11119

130


Virginia National Bank, Norfolk, Va. ("VNB"), the char-ter bank, and Fairfax County National Bank, Seven v.Corners, Va. ("FCNB"), the merging bank, haveapplied to the Comptroller of the Currency for priorpermission to effectuate a merger under the charterand with the title of Virginia National Bank. The instantapplication rests upon an agreement executed be-tween the proponent banks, and is incorporated hereinby reference the same as if fully set forth.

VNB was chartered as a national banking associa-tion on November 5, 1910, and as of June 20, 1976,had commercial bank deposits aggregating approxi-mately $1.5 billion. A wholly-owned banking subsidiaryof Virginia National Bankshares, Inc., Norfolk, Va., aregistered bank holding company with five subsidiarybanks, VNB serves as the lead bank of Virginia Na-tional Bankshares, Inc., and operates 123 offices in 24counties and 18 independent cities throughout theCommonwealth of Virginia.

FCNB became a national banking association onDecember 30, 1957, and has total deposits of $55.9million at its main office and 10 branches in FairfaxCounty and one branch in tbe independent city of FallsChurch.

FCNB has, since 1963, been a subsidiary of Ameri-can Security Corporation, Washington, D. C, whichcontrols 96.5 percent of the outstanding voting sharesof FCNB. The Board of Governors of the Federal Re-serve System has determined that the relationshipexistent between American Security Corporation and

FCNB is in violation of the Bank Holding Company Actof 1956, as amended and, on November 12, 1974, theBoard ordered American Security Corporation to re-duce its ownership of FCNB to less than 25 percent byNovember 12, 1976. The instant application is evi-dence of American Security Corporation's attempt tocomply with the Board's order.

As aforenoted, all of the offices of FCNB aredomiciled within the Washington, D. C. MetropolitanArea. The relevant banking market to be considered inthis application is approximated by the Washington, D.C. SMSA which includes the District of Columbia; theMaryland counties of Charles, Montgomery and PrinceGeorges; and the Virginia counties of Arlington, Fair-fax, Loudoun and Prince William; in addition to theindependent cities of Alexandria, Fairfax and FallsChurch, Va. VNB has two offices in Falls Church whereFCNB has one office. Another subsidiary of VirginiaNational Bankshares, Inc., Virginia National Bank/Fairfax, has two offices in Fairfax County where theremaining 11 FCNB offices are located. The closest of-fices of VNB and FCNB appear to be in the city of FallsChurch, approximately 0.75 mile east of and 0.5 milesouth of FCNB's Falls Church branch. Additionally,Virginia National Bank/Fairfax recently opened abranch in Springfield, 0.5 mile north of FCNB. There-fore, approval of this proposal would have the effect ofeliminating a degree of existing competition betweencharter bank and merging bank. However, given thelarge number of banking alternatives available withinthe relevant market and the relatively small share of


market deposits to be controlled (the combined bankwould rank as sixth largest of 17 commercial banks inFairfax County, with 2.4 percent of the total deposits inthe market), this proposal would have only a deminimus effect upon competition.

Pursuant to applicable Virginia state branching stat-utes, a commercial bank may branch within the city orcounty limits of its principal office and in contiguouscities and towns. Thus, the proposed acquisition wouldforeclose the potential for future competition betweenVNB and FCNB. That is mitigated, however, by the factthat Virginia National Bankshares, Inc., is the secondsmallest of the seven bank holding companies operat-ing in the Northern Virginia area and, further, by thefact that there does not appear to be any independentbank in the relevant area that is able to absorb aninstitution the size of FCNB.

The Comptroller of the Currency, pursuant to theprovisions of the Bank Merger Act of 1966, 12 USC1828(c), cannot approve any transaction which wouldhave certain proscribed anticompetitive effects unlessthe Office concludes that those anticompetitive effectsare clearly outweighed in the public interest by theprobable effects of the proposed transaction inadequately meeting the convenience and needs of thecommunity to be served. Furthermore, the Office of theComptroller is also directed to fully consider the finan-cial and managerial resources and future prospects ofthe existing and proposed institution.

The Federal Reserve Board, in ordering the severingof the affiliation between American Security Corpora-tion and FCNB, was of the opinion that the publicwould be better served if that affiliation were broken.Approval of this proposal would better serve the publicbecause the resulting bank would have an increasedlending limit, provide sophisticated trust services, offerinternational services, have greater access to capitalmarkets and operational efficiencies and provide formanagement depth and management succession, tobetter serve the public and insure the successful futureprospects of the combined institution through the es-tablishment of a financially sound, well-managed bank.

Accordingly, applying the statutory criteria, it is theopinion of this Office that the elimination of any slightdegree of competition between the proponent banks isclearly outweighed by considerations relating to con-venience and needs and future prospects of the com-bined bank. Therefore, it is the conclusion of the Officeof the Comptroller of the Currency that this transactionis in the public interest and should be, and hereby is,approved. This approval is conditioned upon the ratifi-cation of at least two-thirds of the outstanding votingshares of both VNB and FCNB, as required by 12 USC215(a).

October 12, 1976.


Applicant operates one office in Fairfax County fromwhich it derived $5.4 of its total deposits, and it ranks17th out of 20 commercial banks in the county. Bank,with 11 county offices from which it derived $41.9 mil-lion in total deposits, ranks sixth in the country. Theclosest offices of Applicant and Bank are 1 mile apart.Thus, Applicant's deposits emanating from the countyconstitute 11.0 percent of Bank's total deposits, asmall but not significant amount of competition. Theproposed acquisition will, therefore, eliminate someexisting .competition.

Fairfax County has 20 banks with 102 offices. As ofJune 30, 1975, the four largest banks in the marketheld 60.4 percent of total deposits, and 57.2 percentdemand IPC deposits. Applicant's share of the marketof total deposits is 0.7 percent (0.8 percent demandIPC), whereas Bank's share of the market of total de-posits is 5.6 percent (6.2 percent demand IPC). Com-bining both shares results in 6.2 percent share of totaldeposits (7.1 percent demand IPC). The proposed ac-quisition represents the joinder of the sixth and the17th largest commercial banks in the county (in termsof total deposits), and the resulting bank will continueto rank sixth. Within the Washington, D. C. SMSA, Ap-plicant has a market share of total deposits of 1.8 per-cent. Bank's share of that market is 0.6 percent, or acombined share of 2.4 percent. Regardless of whetherone views the proposed acquisition in the context ofFairfax County or the Washington, D.C. SMSA, it ap-pears that consummation of the transaction will notcontribute importantly to an increase in concentration.

Under Virginia law a bank may branch within thetown, city, or county limits of its principal office and incontiguous cities and counties, unless offices are ac-quired by merger. Since Applicant has one branch al-ready in the market, de novo branching would be apractical means of expansion within Fairfax County.Hence, the proposed acquisition would eliminate po-tential competition. This fact is mitigated somewhatbecause of the divestiture order. The Bank must besold, and Applicant ranks sixth out of seven among thebank holding companies in the Northern Virginia areathat possess the requisite financial wherewithal tomake an acquisition of this size. It does not appearthat any independent bank in the area is able to ab-sorb an institution the size of Bank. Thus, given thenecessity to sell Bank, a sale to Applicant is much lessundesirable than would be a sale to other potentialpurchasers.

In sum, the proposed acquisition will eliminate somedirect competition, will slightly increase concentrationand will eliminate potential competition, the cumulativeeffect of which is that it will have some adverse effectupon competition.

97


THE ONEIDA NATIONAL BANK AND TRUST COMPANY OF CENTRAL NEW YORK,Utica, N.Y., and Ogdensburg Trust Company, Ogdensburg, N.Y.



Ogdensburg Trust Company, Ogdensburg, N.Y., with $ 35,471,000and The Oneida National Bank and Trust Company of Central New York, Utica, N.Y. (1392),which had 524,974,000merged Nov. 19,1976, under charter and title of the latter bank (1392). The merged bankat date of merger had 552,015,000

3

30

33


Ogdensburg Trust Company, Ogdensburg, N.Y.("Merging Bank"), and The Oneida National Bank andTrust Company of Central New York ("Charter Bank"),Utica, N.Y., have applied to the Comptroller of the Cur-rency for prior permission to effectuate a merger underthe charter and with the title of The Oneida NationalBank and Trust Company of Central New York. Theinstant application rests upon an agreement executedbetween the proponent banks, and is incorporatedherein by reference the same as if fully set forth.

Merging Bank was chartered as a state banking or-ganization in 1829 and, as of December 31, 1975, con-trolled commercial bank deposits aggregating $27.6million. In addition to its main office and one branchdomiciled within the community of Ogdensburg, Merg-ing Bank operates one branch office in St. Regis Falls.

Charter Bank was organized in 1836, and became anational banking association on July 5, 1865. With itspresent network of 29 branch offices which coversegments of nine counties within the northcentral sec-tion of the state, Charter Bank, as of year-end 1975,held total deposits of approximately $412 million.

The main offices of Merging Bank and Charter Bankare approximately 130 miles apart, and the closest of-fices of the two proponent banks are separated bynearly 100 road miles. Due to the geographic distanceinvolved, the presence of intervening banks and otherbanking alternatives available to the banking public,approval of this application would not have the effectof eliminating any meaningful degree of existing com-petition between Merging Bank and Charter Bank. Al-though applicable state banking statutes would legallypermit Merging Bank and Charter Bank to expand denovo into each other's primary service area, Merging

Bank does not appear to possess either the willing-ness or resources necessary to do so. Likewise, due tothe declining population and economic status of theOgdensburg area, it appears highly unlikely that Char-ter Bank would choose this means to enter the servicearea of Merging Bank. It is/therefore, the conclusion ofthis Office that the foreclosure of any potential compe-tition between these two banks is not significant.

Approval of this application would provide for man-agement succession at Merging Bank and the futureprospects of the combined institution appear favor-able. Also, the banking public in the Ogdensburg areawould be provided with a financially sound institutionthat is a more meaningful banking alternative that willserve as a source of full-service banking for the com-munity.

The Office of the Comptroller of the Currency, there-fore, concludes that consummation of this proposal isin the public interest and should be, and hereby is,approved.

October 14, 1976.


Applicant, the largest independent bank in UpstateNew York, proposes to acquire a three office bank, theclosest office of which is 100 miles away. No directcompetition is involved.

Several major competitors operate in Applicant'sarea but they, too, are considerable distances fromBank. It thus appears that, if the area in which Bankoperates should be suitable for de novo entry, Appli-cant would be among the smaller potential entrants.Accordingly, we conclude that the probable effect ofthe proposed merger on competition is not adverse.


FIRST NATIONAL BANK OF RIO GRANDE CITY,Rio Grande City, Tex., and First State Bank & Trust Company, Rio Grande City, Tex.


First State Bank & Trust Company, Rio Grande City, Tex., withwas purchased Nov. 29, 1976, by First National Bank of Rio Grande City, Rio Grande City,Tex. (16618), which hadAfter the purchase was effected, the receiving bank had

Total assets

$15,480,000

1,500,00014,874,000

Banking offices

Inoperation

1

0

To bei operated

1


On November 26, 1976, application was made to theComptroller of the Currency by the First National Bankof Rio Grande City, Rio Grande City, Tex. ("AssumingBank"), for permission to purchase certain of the as-sets and assume the liabilities of the First State Bank &Trust Company, Rio Grande City, Tex. First State Bank& Trust Company was placed in receivership andtaken over by the Federal Deposit Insurance Corpora-tion on November 24, 1976.

Assuming Bank's application rests upon an agree-ment incorporated herein by reference, the same as iffully set forth, between the Assuming Bank and theFederal Deposit Insurance Corporation, as receiver.For the reasons set forth below, this application ishereby approved and the Assuming Bank is herebyauthorized immediately to consummate the purchaseand assumption transaction.

Under the Bank Merger Act, 12 USC 1828(c), theComptroller cannot approve a purchase and assump-tion transaction which would have certain proscribedanticompetitive effects unless he finds those anticom-petitive effects to be clearly outweighed in the publicinterest by the probable effect of the transaction inmeeting the convenience and needs of the communityto be served. Additionally, the Comptroller is directedto consider the financial and managerial resourcesand future prospects of the existing and proposedinstitution and the convenience and needs of thecommunity to be served. When necessary, however, toprevent the evils attendant upon the failure of a bank,the Comptroller can dispense with the uniform stan-dards applicable to usual acquisition transactions andneed not consider reports on the competitive conse-quences of the transaction ordinarily solicited from theDepartment of Justice and other banking agencies. He

is authorized in such circumstances to act im-mediately, in his sole discretion, to approve an acquisi-tion and to authorize the immediate consummation ofthe transaction.

The proposed acquisition will be in accord with allpertinent provisions of the National Bank Act and willprevent disruption to the community. The AssumingBank will have sufficient financial and managerial re-sources to enable it to continue banking services inRio Grande City and environs. Thus, the approval ofthis transaction will help to avert a loss of public confi-dence in the banking system, and a loss of bankingservices to the community. The Comptroller finds thatthere are no anticompetitive effects of the proposedtransaction. First State Bank & Trust Company was theonly operating bank within Starr County, Tex., and theonly bank within approximately 40 miles of Rio GrandeCity. For the reasons indicated, the Assuming Bank'sapplication to purchase certain of the assets and as-sume the liabilities of First State Bank & Trust Com-pany, as set forth in the agreement between the Fed-eral Deposit Insurance Corporation, as receiver, andthe organizers of First National Bank of Rio GrandeCity, is approved.

The Comptroller further finds that the failure of FirstState Bank & Trust Company requires immediate ac-tion as contemplated by the Bank Merger Act, to pre-vent continued disruption of banking services to thecommunity. The Comptroller thus waives publication ofnotice, dispenses with the solicitation of competitivereports from other agencies and authorizes the trans-action to be consummated immediately.

November 29, 1976.



AMERICAN NATIONAL BANK,Hamden, Conn., and Laurel Bank and Trust Company, Meriden, Conn.



Laurel Bank and Trust Company, Meriden, Conn., withand American National Bank, Hamden, Conn. (15496), which hadmerged Dec. 1, 1976, under charter and title of the latter bank (15496). The merged bankat date of merger had

$24,869,000 354,779,000 4

79,907,000


Laurel Bank and Trust Company, Meriden, Conn.("Merging Bank"), and American National Bank, Ham-den, Conn. ("Charter Bank"), have applied to theComptroller of the Currency for prior permission to ef-fectuate a merger under the charter and with the title ofAmerican National Bank. The instant application restsupon an agreement executed between the proponentbanks, and is incorporated herein by reference thesame as if fully set forth.

Merging Bank was organized in 1968, and operatesits main office in Meriden, New Haven County, and twobranch offices in adjoining Middlesex County, approx-imately 7 and 10 miles, respectively, from the head of-fice. As of March 31, 1976, Merging Bank had totaldeposits of $22.7 million, was the fourth largest of sixcommercial banks serving Meriden and ranked fifthamong 12 commercial banks serving MiddlesexCounty.

Charter Bank became a national banking associa-tion on March 30, 1965, now has deposits of $38.8 mil-lion and operates four offices, three in Hamden andone in West Haven.

The closest offices of the proponent banks are Merg-ing Bank's head office in Meriden and Charter Bank'soffices in Hamden, approximately 14 miles apart.There are however, several offices of other bankswithin the intervening area; existing competition be-tween Charter Bank and Merging Bank is minimal andthere does not appear to be the possibility of a sub-stantial increase in competition between these twobanks in the foreseeable future. Merging Bank has ex-perienced little growth over the past 3 operating years,and the bank's generated earnings have shown a sig-nificant decline during the same period. Additionally,Merging Bank has sustained substantial loan losseswhich have begun to erode the subject bank's capitalaccounts. Consequently, the internal operating difficul-ties experienced recently by Merging Bank have af-fected the bank's ability to act as viable competitor.The combination of the financial and managerial re-sources of Merging Bank and Charter Bank should

better enhance the favorable future prospects of thesurviving bank, and the banking public will be betterserved by a stronger, more meaningful banking alter-native.

Accordingly, applying the statutory criteria, it is theconclusion of the Office of the Comptroller of the Cur-rency that this proposal is in the public interest andshould be, and hereby is, approved.

November 1, 1976.


Bank concentrates its business activity in upper NewHaven County and the adjoining area of MiddlesexCounty. Its two branches in Middlesex County are 7and 10 miles, respectively, from its head office inMeriden. Applicant's offices in Hamden are about 14miles from Bank's closest office and its West Haven of-fice is 29 miles from Bank's nearest office. Thus, thetwo banks are oriented toward different geographicareas and it appears that the proposed acquisitionwould not eliminate existing competition to any appre-ciable extent. Moreover, because of Connecticut bank-ing laws, neither bank can branch into the two where theother's head office is located.

Both banks are rather small. In Hamden, althoughApplicant ranks first in local deposits among the sixcommercial banks serving the town, the other banksare five of the nine largest commercial banks in thestate. Bank ranks fourth among the six commercialbanks serving Meriden, among which are four of thelargest commercial banks in the state. In MiddlesexCounty, Bank ranks fifth among the 12 commercialbanks serving the county, which includes five of thestate's largest. It thus appears that the proposed ac-quisition may produce a commercial bank which isbetter able to compete against the large banks cur-rently serving the affected towns. Furthermore, giventhe highly concentrated structure of Connecticut bank-ing, where the top 10 among the state's 70 banks hold82 percent of deposits, the proposed merger of two ofthe smaller banks in the state may prove to be pro-competitive.


THE FIRST NATIONAL BANK AND TRUST COMPANY OF WESTERN MARYLAND,Cumberland, Md., and The First National Bank of Mount Savage, Mount Savage, Md.



The First National Bank of Mount Savage, Mount Savage, Md. (6144), withand The First National Bank and Trust Company of Western Maryland, Cumberland, Md. (381),which hadmerged Dec. 1, 1976, under charter and title of the latter bank (381). The merged bankat date of merger had

$ 2,528,000 1

90,032,000 6

92,539,000


The First National Bank of Mount Savage, Mount Sav-age ("Mount Savage Bank"), and The First NationalBank and Trust Company of Western Maryland, Cum-berland ("FNBTC"), have applied to the Comptroller ofthe Currency for prior consent to merge under thecharter and with the title of the latter.

Mount Savage Bank, the merging bank, was or-ganized as a national banking association in 1902 and,with total commercial bank deposits of $2 million, nowis the smallest of eight commercial banks operating inAllegany County.

FNBTC, the charter bank, opened for business in1812, and converted to a national bank charter in1864. Currently the largest bank domiciled in AlleganyCounty, FNBTC, as of March 31, 1976, held total de-posits of $68.3 million. FNBTC operates its head officeand three branches in Cumberland and one brancheach in Creseptown and La Vale.

The head offices of the merging banks are approxi-mately 10 miles apart, and the closest office of FNBTCto Mount Savage Bank is the La Vale office, approxi-mately 7 miles away. The proposed merger wouldtherefore have the effect of eliminating a de minimisdegree of present competition existent between thetwo subject banks and eliminate one independentbanking alternative.

By statute, 12 USC 1828 (c), the Comptroller of theCurrency,must also consider the public interest bybeing mindful of the probable effect of the transactionin adequately meeting the convenience and needs ofthe community to be served. As is indicated by its ageand small deposit size, Mount Savage Bank has notbeen a viable competitor in its market. To the contrary,it is considered to be the least aggressive and leastcompetitive bank in the area. Its small size forces loanand savings customers requiring more sophisticatedservices to look beyond the Mount Savage area inorder to meet their needs.

Additionally, the future prospects of the combinedinstitution appear far more favorable. The increasedlending limit and higher interest rate on savings wouldallow customers in the Mount Savage area to enjoy thebenefit of a full-service bank. The proposed mergerwould also provide the assurance of management

depth and provide for management succession at theMount Savage Bank. That takes on additional signifi-cance because Mount Savage Bank's present seniormanagement is well beyond the normal retirement ageand has expressed a desire to become less involvedin the daily operations of the bank.

Accordingly, applying the statutory criteria, it is theconclusion of this Office that any slightly anticompeti-tive effects of this proposal are clearly outweighed byfactors relating to convenience and needs, managerialand financial resources and future prospects of the re-sulting bank. This application is thus deemed to be inthe public interest, and should be, and hereby is, ap-proved.

September 30, 1976.


The head offices of the merging banks are 9 milesapart and their closest offices (Applicant's branch atLa Vale) are 7 miles apart. Thus, the proposed mergerwould eliminate some existing competition betweenthe participants.

There are 24 commercial banks in the area servedby Applicant and Bank. The primary service area forApplicant and Bank is principally located in AlleganyCounty, Md., with Cumberland the county seat, whileparts of West Virginia and Pennsylvania can properlybe included within the surrounding area from whichboth banks draw many of their customers. In this ill-defined area, which clearly overstates the market, Ap-plicant, the largest bank of the 24 commercial banksserving the area, has 12.59 percent of the total de-posits and Bank has 0.36 percent. The second-rankedbank has 11.34 percent of such deposits and thethird-ranked has 10.93 percent. Consummation of theproposed transaction would increase Applicant's leadshare of the total deposits in this market to 12.95 per-cent.

The instant proposal would eliminate some existingcompetition between Applicant and Bank and wouldincrease Applicant's share of the deposits in the tri-state service area in which both operate by less than0.5 percent of such deposits. Thus, the proposed ac-quisition would have some anticompetitive effect.


NEW JERSEY NATIONAL BANK,Trenton, N.J., and First State Bank, Toms River, N.J.



First State Bank, Toms River, N.J., with $161,224,000was purchased Dec. 17, 1976, by New Jersey National Bank, Trenton, N.J. (1327), whichhad 823,889,000After the purchase was effected, the receiving bank had 1,038,241,000

12

3547


New Jersey National Bank, Trenton, N.J. ("PurchasingBank"), has made application to the Comptroller of theCurrency for prior permission to purchase substantiallyall of the assets and assume all of the liabilities of FirstState Bank, Toms River, N.J. ("Selling Bank"). The sub-ject application rests upon an agreement executed be-tween the proponent banks, and is incorporated hereinby reference the same as if fully set forth.

Purchasing Bank, the second oldest banking institu-tion within the state of New Jersey, was organized as astate-chartered bank in 1804, and was chartered as anational banking association on June 22, 1865. As ofJune 30, 1976, Purchasing Bank had total commercialbank deposits of $730.4 million, and operated 31 bank-ing offices that primarily serve central New Jersey. Thewholly-owned banking subsidiary of New Jersey Na-tional Corporation, Trenton, N.J., a registered one-bank holding company, Purchasing Bank ranks as theseventh largest banking organization in the state.

Selling Bank, with total deposits of $142 million, wasorganized in 1964 as a state-chartered institution and,in 1972, became the wholly-owned subsidiary ofAmerican Bancorp, Toms River, N.J., also a registeredone-bank holding company. Selling Bank presentlyoperates 12 banking offices, all of which are domiciledwithin Ocean County.

The proponent banks' closest offices, Selling Bank'sJackson branch, in Ocean County, and PurchasingBank's Howell Township branch, in adjacent Mon-mouth County, are approximately 4 miles apart; but allother offices are at least 15 miles apart, and there arenumerous intervening offices of competing banks. Ap-proval of this application would therefore have the ef-fect of eliminating only a minimal degree of existingcompetition between Purchasing Bank and SellingBank.

Applicable New Jersey state branching statutesprovide for de novo branching by commercial banks inany municipality within the state except where anotherbanking institution maintains its principal office, and inmunicipalities whose population is less than 20,000. Asof January 1, 1977, the population requirement be-comes 10,000. Thus, Purchasing Bank could be per-ceived as a possible entrant into Ocean County via denovo expansion. Militating against Purchasing Bank'sde novo entry is the concentration of banks presentlylocated within Ocean County, the declining growth rate

* Asset figures are as of call dates immediately before and aftertransaction

of central New Jersey and the low banking office topopulation ratio of Ocean County. Therefore, absentthe proposed acquisition, it appears highly unlikelythat Purchasing Bank would choose to enter OceanCounty to any significant degree in the near future, andthe proposed acquisition will have no significantly ad-verse effect upon potential competition.

During the recent past, Selling Bank has experi-enced certain operational difficulties that have ad-versely affected the bank. The preponderence of Sell-ing Bank's loan portfolio is real estate-related, much ofwhich has been subject to criticism by bank regulatoryauthority, which has had a severe impact upon thisbank's earnings performance. Also, neither SellingBank nor its bank holding company parent appear tohave the necessary financial and managerial re-sources to solve the myriad problems currently con-fronting Selling Bank. Purchasing Bank appears topossess the financial resources and qualified man-agement with sufficient experience and expertise togreatly aid Selling Bank in coping with its problems.Furthermore, Purchasing Bank has committed to aug-ment its total capital accounts by $20 million. With theadditional capital, the favorable future prospects of thecombined institution are greatly enhanced.

Accordingly, applying the statutory criteria, it is theconclusion of the Office of the Comptroller of the Cur-rency that any slightly adverse competitive aspects ofthis proposal are clearly outweighed by factors relatingto the convenience and needs of the banking publicand further by the favorable future prospects of thecombined bank which are primarily dependent uponthe financial and managerial resources of PurchasingBank. This application is therefore deemed to be in thepublic interest and should be, and hereby is, ap-proved. Approval of this proposal by the Comptroller ofthe Currency is conditioned upon Purchasing Bank'scommitment to augment the capital accounts of NewJersey National Bank by $20 million, and this augmen-tation must be accomplished within 1 year from thedate of this statement.

November 15, 1976.


Applicant operates no banking offices in OceanCounty and only 0.9 percent of Applicant's depositsand 4.6 percent of its loans are derived from OceanCounty residents. Although the parties have twobranches that are only 4 miles apart on opposite sidesof the Ocean County - Monmouth County boundary,


the next closest offices are 16 road miles apart, withsome 22 offices of competing banks intervening. Inaddition, approximately 0.6 percent of Bank's depositsand 8 percent of its loans are derived from customerswith addresses in service areas of Applicant. There-fore, it appears that the proposed acquisition will noteliminate any significant amount of existing competi-tion between the parties.

New Jersey law permits de novo branching bycommercial banks in any municipality in the state ex-cept for municipalities in which another banking institu-tion maintains its principal office and whose populationis less than 20,000. As of January 1, 1977 the popula-tion requirement becomes 10,000. Applicant, the fifthlargest bank by total deposits in New Jersey, is thefourth largest bank in Monmouth County, which adjoinsOcean County, and the largest bank in the MercerCounty market. Thus, with the liberalization in New Jer-sey branching laws, Applicant should be deemed apossible entrant into Ocean County market. However,militating against Applicant's de novo entry is the con-centration of banks in Ocean County and the declininggrowth trend in the central New Jersey area. The bank-ing office to population ratio in Ocean County is 1 to

2,313 (112 offices per 259,120 persons), compared toa statewide average of 3,179 persons per office. Thus,absent the proposed acquisition, it appears unlikelythat Applicant would enter the market to any significantextent in the near future and, therefore, the proposedacquisition will have only a slightly adverse effect onpotential competition.

Sixteen commercial banks with 75 offices presentlyserve Ocean County. Bank, which holds approximately17 percent of the total deposits of commercial bankingoffices within the county, ranks second among allinstitutions competing in Ocean County. Thus, theproposed acquisition involves the fifth largest com-mercial bank in the state entering Ocean Countythrough the acquisition of the second largest commer-cial bank in the county. It obviously would have beenpreferable had Applicant chosen a smaller bank as itsvehicle for entry into the Ocean County market, assum-ing, without knowing, that a smaller institution wasavailable for acquisition.

In sum, the proposed acquisition would not eliminateeither actual or potential competition to any significantdegree. Overall, the proposed acquisition will have aslightly adverse competitive effect.

CITIZENS FIRST NATIONAL BANK OF NEW JERSEY,Ridgewood, N.J., and The State Bank of North Jersey, Pine Brook, N.J.



The State Bank of North Jersey, Pine Brook, N.J., with $52,454,000was purchased Dec. 28, 1976, by Citizens First National Bank of New Jersey, Ridgewood,NJ. (11759), which had 342,790,000After the purchase was effected, the receiving bank had 402,114,000

7

2128


Citizens First National Bank of New Jersey,Ridgewood, N.J. ("Purchasing Bank"), has applied tothe Comptroller of the Currency for prior permission topurchase all of the assets and assume all of theliabilities of The State Bank of North Jersey, PineBrook, N.J. ("Selling Bank"). The instant applicationrests upon an agreement executed between the pro-ponent banks, and is incorporated herein by reference,the same as if fully set forth.

Purchasing Bank, with total commercial bank de-posits of $246.9 million as of December 31, 1975, op-erates 18 branches in addition to its main office, andhas received approval for the establishment of threenew offices. Chartered as a national banking associa-tion on June 18, 1920, Purchasing Bank's branch net-work serves the northern, western and central portionsof Bergen County, and has one branch domiciledwithin an adjacent area of Passaic County.

Selling Bank, with year-end 1975 total deposits ofapproximately $44 million, operates its head office and


six branches in eastern Morris County. Morris Countyis located southwest of Bergen and Passaic countiesin north-central New Jersey and is a rapidly growingarea with a diversified economy.

The head offices of the proponent banks are 18 milesapart, and the closest offices of these two banks arePurchasing Bank's office in Hawthorne and SellingBank's Pine Brook office, approximately 15 miles apart.There are intervening offices of other commercialbanks situated between the closest offices of Purchas-ing Bank and Selling Bank, and it does not appear thatthe proposed acquisition would eliminate any mean-ingful degree of existing competition.

Pursuant to applicable state banking statutes, Pur-chasing Bank could legally establish a de novo branchin the area served by Selling Bank; however, there areother banking organizations of comparable size toPurchasing Bank that could also enter the area via denovo expansion. Furthermore, because Selling Bankcontrols a relatively small percentage of total commer-cial bank deposits within Morris County (4.8 percent), itis highly unlikely that consummation of the proposalwould have a significantly adverse effect upon poten-tial competition.


Accordingly, applying the statutory criteria, it is theconclusion of the Office of the Comptroller of the Cur-rency that approval of the subject proposal will providenew and expanded banking services in the SellingBank's service area, thereby better serving the needsof the banking public through a financially sound,well-managed institution. The application is hereby,approved.

November 11, 1976.


Morris County is located southwest of Bergen andPassaic counties in north-central New Jersey. It is arapidly growing county with a diversified economy. Be-tween 1960 and 1970 its population increased from262,000 to 383,000, and it is predicted that its popula-tion will increase to 452,000 by 1985; increases whichexceed the average population increases for the stateas a whole. Business and industry have also expandedsubstantially in Morris County; county employmentclimbed from 70,000 to 120,000 between 1960 and1970 and it is predicted that by 1985 it will climb to190,000.

As of December 31, 1975, 20 banking organizationsoperated in Morris County, and held a total of $895.4million in county deposits. Banking is concentrated inMorris County, with the top four banks controlling 65.5percent of total county deposits. Bank holds 4.8 per-cent of total county deposits and is the seventh largestbanking organization in Morris County in terms of totalcounty deposits.

The head offices of Applicant and Bank are 18 milesapart. Their closest offices (Applicant's Hawthorne of-fice and Bank's Pine Brook office) are approximately14 miles apart and there are approximately six banksin the intervening area. It appears that the proposedacquisition would not eliminate any substantial existingcompetition.

Under New Jersey law, Applicant could be permit-ted to branch de novo into the area served by Bank.There are, however, other banking organizations aslarge as Applicant which also could be permitted toenter that area de novo. Moreover, Bank controls a rel-.atively small percentage of Morris County deposits.Therefore, it is unlikely that the proposed acquisitionwould have a significantly adverse effect on potentialcompetition.

FIRST NATIONAL BANK OF JACKSON,Jackson, Miss., and Columbia Bank, Columbia, Miss.



Columbia Bank, Columbia, Miss., with $ 27,839,000and First National Bank of Jackson, Jackson, Miss. (10523), which had 810,858,000merged Dec. 31, 1976, under charter and title of the latter bank (10523). The merged bankat date of merger had 838,697,000

231

33


Columbia Bank, Columbia, Miss. ("Columbia Bank"),the merging bank, and First National Bank of Jackson,Jackson, Miss. ("FNB"), the charter bank, haveapplied to the Comptroller of the Currency for priorpermission to effectuate a merger under the charterand with the title of First National Bank of Jackson. Thesubject merger rests upon an agreement executed be-tween the proponent banks and is incorporated hereinby reference, the same as if fully set forth.

Columbia Bank was established in 1899 and, with de-posits of approximately $21 million as of March 31,1976, is the second largest of three commercial banksdomiciled within Marion County, Miss., the approxi-mate relevant banking market. Columbia Bank oper-ates both its main office and one branch in the city ofColumbia.

FNB was chartered as a national banking associa-tion on April 27, 1914, and holds commercial bank de-posits of $597.7 million. FNB operates a total of 30banking offices in seven counties of the state; theclosest to Columbia Bank" is FNB's Tylertown BankBranch in adjacent Walthall County, approximately 22

miles distant. Inasmuch as the main offices of twoproponent banks are approximately 80 air miles apartand the competition now existing between the twobanks is minimal, approval of this application wouldnot have the effect of eliminating a meaningful degreeof present competition.

Applicable Mississippi state statutes would permitthe establishment of a de novo branch in MarionCounty by FNB. However, given the fact that threecommercial banks now serve the area, which has apopulation of slightly less than 8,000, it does not ap-pear likely that FNB would consider that means of ex-pansion into the area.

Approval of the instant proposal would provide Co-lumbia Bank with a means for management succes-sion. That factor has additional significance becauseColumbia Bank's president is at normal retirement ageand has expressed the desire to become less involvedin the daily affairs of the bank. Also, the introduction ofFNB into the Columbia area would provide the bankingpublic with expanded and additional banking services.

In conclusion, it is the opinion of this Office that ap-proval of this application would provide the banking


public with convenient full-service banking in the Co-lumbia area by a financially strong and well-managedinstitution. Accordingly, this application should be, andhereby is, approved.

November 19, 1976.


Three banks with five offices currently operate withinMarion County, which is the appropriate geographicmarket in which to evaluate the competitive effects ofthe proposed merger. Of these, Citizens Bank, withone office in Columbia, is the largest. It had total de-posits of $24,488,000 as of March 31, 1976, or a 45.78percent share of the commercial banking market inMarion County. Bank is second largest with$21,100,000 in total deposits on the same date, or39.45 percent of the market. The Foxworth Bank, withits main office in a settlement about 3 miles east of Co-lumbia and one branch in Columbia, is third largestwith total deposits of $7,903,000, or 14.77 percent ofthe market. Although Bank's total deposits havegradually increased during the past 5 years, its shareof the Marion County market has declined. In 1971,Bank was the largest bank in the county, with a 47percent market share. Since that time, Citizens Bank'sshare has increased from 40 percent to 46 percent;Foxworth Bank's share has increased from 8 percentto 15 percent; and Bank's share has declined to 39percent.

Applicant is not a significant competitor in the Mar-ion County banking market. Its main office in Jacksonis 79 air miles from Columbia, and its closest branchbank, in Tylertown, Walthall County, is 22 miles there-from. Only 0.4 percent of Bank's demand depositsoriginate in the service area of Applicant's Tylertownbranch. Only 3.6 percent of the Tylertown branch

bank's deposits originate in Marion County, althoughthis figure is somewhat overstated in that many Walt-hall County residents have a Marion County rural de-livery mailing address. Thus, the proposed mergershould eliminate a minimal amount of existing competi-tion beween Bank and Applicant's closest subsidiary.

While Mississippi law permits Applicant to open a cfenovo branch in Marion County, such a development isunlikely to occur. The banking needs of Marion Countyresidents appear to be adequately served by the exist-ing banks. The city of Columbia would be the most log-ical location for a new bank, yet three banks with fouroffices now serve its population of 8,000. Furthermore,given the county's generally declining population, theprospects for an expanding banking market in the fu-ture are not bright. Therefore, it is unlikely that theproposed merger would eliminate any potential com-petition between Applicant and Bank.

The proposed merger would not have any significanteffect on concentration in commercial banking in Mar-ion County, although it may strengthen Bank's com-petitive position to the detriment of Foxworth Bank, thecounty's smallest bank. Viewed on a statewide basis,the proposed acquisition would increase Applicant'sshare of total deposits from 11.0 percent to 11.4 per-cent, but Applicant would remain the second largestbank behind the Deposit Guaranty National Bank,which currently has a 12.9 percent share of all Missis-sippi bank deposits. The third and fourth largest banksin the state have market shares, respectively, of 4.1percent and 3.6 percent, so the proposed mergerwould increase the four-firm concentration index forthe state as a whole from 31.6 percent to 32.0 percent.

For the reasons stated above, we conclude that theproposed merger would have a slightly adverse effecton competition in Marion County and Mississippi as awhole.

FIRST PEOPLES NATIONAL BANK OF NEW JERSEY,Haddon Township (P. O. Westmont), N.J., and The Provident Bank of New Jersey, Willingboro, N.J.

Name of bank and type of transaction Total assets'Banking offices


The Provident Bank of New Jersey, Willingboro, N.J., with $35,642,000was purchased Dec. 31, 1976, by First Peoples National Bank of New Jersey, Haddon Town-ship, (P.O. Westmont), N.J. (399), which had 555,861,000After the purchase was effected, the receiving bank had 606,575,000

4

3640


First Peoples National Bank of New Jersey, HaddonTownship, N.J. ("Purchasing Bank"), has made appli-cation to the Comptroller of the Currency for prior per-mission to purchase the assets and assume theliabilities of The Provident Bank of New Jersey, Wil-lingboro, N.J. ("Selling Bank"). The subject applicationrests upon an agreement executed between the pro-


ponent banks and is incorporated herein by referencethe same as if fully set forth.

Purchasing Bank, the 15th largest commercial bank-ing organization with headquarters domiciled withinthe state of New Jersey, was chartered as a nationalbanking association on April 25, 1864. As of June 30,1976, Purchasing Bank held total deposits of $477.4million and operated 34 banking offices throughoutseven southern New Jersey counties.

Selling Bank, which had total deposits of $32.3 mil-lion as of mid-year 1976, was established in 1959 as


an independent state-chartered, non-member com-mercial banking institution. In 1973, Selling Bank be-came a wholly-owned subsidiary of a registeredmulti-bank holding company, Greater Jersey Bancorp,West Paterson, N.J., the sixth largest commercial bank-ing organization in the state. Selling Bank currently op-erates four banking offices in Willingboro and has anapplication pending for the establishment of a branchoffice in Berlin, N.J.

The main office of Purchasing Bank is located ap-proximately 15 miles southwest of the head office ofSelling Bank. The closest offices of the proponentbanks are Purchasing Bank's three offices in CherryHill, and Selling Bank's main office in Willingboro, ap-proximately 14 road miles apart. There are however,offices of other banks in the intervening area; and thearea is largely undeveloped, with road traffic limited bycertain geographic barriers. It, therefore, appears thatonly a negligible degree of existing competition existsbetween the proponent banks, and approval of thisproposal would not have the effect of eliminating anymeaningful competition between the two banks.

Applicable state branching statutes permit de novobranching by commercial banks into all municipalitiesexcept those in which another banking institution main-tains its head office and those municipalities withpopulations less than 20,000 persons. As of January 1,1977, the population requirement becomes 10,000inhabitants. Inasmuch as this Office denied an applica-tion in early 1975 sponsored by Purchasing Bank to es-tablish a de novo branch in Willingboro, it appearshighly unlikely that Purchasing Bank could be per-ceived as a potential entrant into the Willingboro areavia de novo expansion in the near future.

As aforenoted herein, Selling Bank has been af-filiated with Greater Jersey Bancorp since 1973.Greater Jersey Bancorp's primary banking operationshave been concentrated, with the exception of SellingBank, in northern New Jersey. Selling Bank was ac-quired apparently to afford the holding company afoothold representation in southern New Jersey fromwhich to expand throughout the southern portion of thestate. To date, that expansion has not materialized,and it appears that Selling Bank has been largely ne-glected by its parent bank holding company. In an ef-fort to improve its earnings and loss of customers de-posits, Selling Bank has curtailed certain banking ser-vices to its customers, thereby resulting in anincreasingly severe competitive disadvantage andfurther in a disservice to the banking public.

First Peoples National Bank of New Jersey has man-agers who are considered by this Office to be compe-tent and capable bankers; the bank also has the finan-cial capacity to aid Selling Bank's representation to bethat of a more aggressive and effectual competitor inthe Willingboro area. Purchasing Bank is regarded asa retail-oriented institution and the banking public willbe well served by the introduction of new and ex-panded banking services.

Therefore, applying the statutory criteria, it is theconclusion of the Office of the Comptroller of the Cur-rency that any slightly adverse competitive conse-quences of this proposal are clearly outweighed by the

convenience and needs of the banking public and themore favorable future prospects of the combinedinstitution because of the financial and managerial re-sources of Purchasing Bank. This application is thusdeemed to be in the public interest and should be, andhereby is, approved.

December 1, 1976.


Applicant's sole Burlington County office is locatedapproximately 55 miles from the Willingboro tradearea. However, Applicant's main office in HaddonTownship is approximately 15 miles southwest of Wil-lingboro, and it operates three offices in Cherry Hill,N.J., the nearest of which is 8.9 air miles (13.6 roadmiles) from Willingboro. Although the area between theservice areas of Bank and Applicant is largely un-developed and road traffic is limited by certain geo-graphic obstructions, it appears likely that some com-petition presently exists between the parties. In partic-ular, it should be noted that, according to a New JerseyDepartment of Labor Survey in 1973, approximately 56percent of Willingboro's workers commuted to placesoutside of Burlington County for their employment — ofthese, approximately 49 percent traveled to PhiladelphiaCounty and 18 percent to Camden County for their em-ployment. Given these commutation patterns and theproximity of the trade areas, it appears likely that a mod-erate degree of competition currently exists betweenApplicant and Bank. As a result, the proposed acquisi-tion will eliminate existing direct competition to some ex-tent.

Applicant, the 12th largest commercial bankinginstitution in New Jersey, ranks third in total depositsamong banks competing in Camden County. GivenApplicant's size, its considerable growth in recentyears and the similarity between the Camden Countyand Willingboro markets, Applicant would appear tobe a likely potential entrant into the growing westernBurlington County market. New Jersey law permits denovo branching by commercial banks in any munici-pality in the state except for municipalities in whichanother banking institution maintains its principal officeand whose population is less than 20,000. As of Janu-ary 1, 1977, the population requirement becomes10,000. Applicant, in fact, recently filed an applicationto establish a de novo branch in Willingboro. However,this application was denied in early 1975 on thegrounds, inter alia, that Applicant lacked sufficientexisting customers in the trade area to justify grantinga branch application in Willingboro. Applicant ac-knowledges that should this acquisition be denied itwould "no doubt refile at some remote future point" toestablish a branch in the Willingboro area. It thus ap-pears that the Applicant is a likely entrant into the mar-ket at some future time. However, given Applicant'srecent unsuccessful attempt to establish a de novobranch in Willingboro, it appears that entry by Appli-cant is unlikely in the near term.

Bank, although it has less than 5 percent of the totaldeposits among commercial banks in BurlingtonCounty, is nevertheless the largest competitor in theWillingboro market. Thus, the proposed merger would


combine a potential entrant into the Willingboro marketwith the dominant competitor there. Moreover, even ifde novo entry by Applicant were not possible, theproposed acquisition would foreclose the possibility ofentry by Applicant by means of a merger with one of

the small banks in the area. Accordingly, the proposedacquisition would have an adverse effect on potentialcompetition.

In sum, the proposed acquisition, overall, wouldhave an adverse competitive effect.

MIDLANTIC NATIONAL BANK,Newark, N.J., and Midlantic National Bank/West, Morristown, N.J.



Midlantic National Bank/West, Morristown, N.J. (15360), with $ 40,219,000and Midlantic National Bank, Newark, N.J. (1316), which had 1,000,472,000merged Dec. 31, 1976, under charter and title of the latter bank (1316). The merged bankat date of merger had 1,040,691,000

839

47


Midlantic National Bank/West, Morristown, N.J. ("Merg-ing Bank"), and Midlantic National Bank, Newark, N.J.("Charter Bank"), have applied to the Comptroller ofthe Currency for prior permission to effectuate amerger under the charter, and with the title of, Midlan-tic National Bank. The subject application rests uponan agreement executed between the proponent banksand is incorporated herein by reference, the same as iffully set forth.

Both Merging Bank and Charter Bank are wholly-owned, except for directors' qualifying shares, by thethird largest multi-bank holding company headquar-tered in New Jersey, Midlantic Banks, Inc., Newark,N.J. Merging Bank was chartered as a national bank-ing association on July 24, 1964, and, as of June 30,1976, had commercial bank deposits aggregating ap-proximately $34 million. Charter Bank is headquarteredin Newark, 34 of its 38 banking offices are located inEssex County, and serves as a head bank for its par-ent bank holding company. As of mid-year 1976, Char-ter Bank had total deposits of $829.5 million. Becauseof the common ownership and control existing be-tween Merging Bank and Charter Bank, there is no

present competition between these two banks nor isthere any potential for increased competition in the fu-ture.

This application is considered essentially as a cor-porate reorganization of Midlantic Banks, Inc. The sur-viving institution should realize certain operating ef-ficiencies and increased profitability. Furthermore, thebanking public will continue to be served by a sourceof full-service commercial banking.

Accordingly, applying the statutory criteria, it is theconclusion of the Office of the Comptroller of the Cur-rency that this proposal is not adverse to the publicinterest and should be, and hereby is, approved. Thisproposal may not be consummated prior to the statu-tory waiting period, nor prior to receipt by this Office ofevidence of publication requirements pursuant to Sec-tions 215(a) and 1828(c) of the United States Code.

November 29, 1976.




UNION CHELSEA NATIONAL BANK,New York, N.Y., and Chelsea National Bank, New York, N.Y.



Chelsea National Bank, New York, N.Y. (15428), with $31,724,000was purchased Dec. 31, 1976, by Union Chelsea National Bank, New York, N.Y. (16629), whichhad 1,006,005After the purchase was effected, the receiving bank had 31,174,000


Union Chelsea National Bank, New York, N.Y.("UCNB"), has made application to the Comptroller ofthe Currency for prior permission to purchase the as-sets and assume the liabilities of Chelsea NationalBank, New York, N.Y. ("Chelsea"). This application hasbeen processed pursuant to the emergency provisionsof the National Bank Act, as set forth in 12 USC 181and the Bank Merger Act of 1966, as set forth in 12USC 1828(c). Also, the decision of the Comptroller isrendered pursuant to an agreement executed betweenthe proponent banks upon which the instant applica-tion rests and is incorporated herein by reference, thesame as if fully set forth.

UCNB, the assuming bank, was, on December 20,1976, granted preliminary approval to organize by theOffice of the Comptroller of the Currency and, to date,has no operating history.

Chelsea was chartered as a national banking asso-ciation on November 13, 1964 and, as of September30, 1976, held total commercial bank deposits ag-gregating $28.7 million. In addition to its main officelocated in the Chelsea district of Manhattan, Chelseaoperates one branch office in the financial district (111John Street), and one branch in the theatrical district(7th Avenue and 53rd Street).

Chelsea was visited by representatives of the Officeof the Comptroller of the Currency on October 26,1976, for the purpose of examining the bank's opera-tions and determining its overall condition. Examinersindicated that there had been further deterioration inChelsea's loan portfolio since the previous examina-tion; loan losses classified by examiners at the Octo-ber 1976 examination aggregated approximately$763,000. Subsequent to those loan charge-offs,Chelsea's gross capital funds were $528,000, anamount woefully inadequate to support the bank'sscope of operation. Additionally, operating losses forChelsea had continued to mount and, as of examina-tion date, were averaging $60,000 per month.

On December 8, 1976, examiners for the Comptrol-ler again visited Chelsea; at that time, it was deter-mined that additional loan losses amounting to$429,000 existed. The bank's equity capital was only$400,000 at the time. Efforts by the bank's directors


and shareholders to raise new capital funds have beenwithout success.

In view of the record in this matter, it is the conclu-sion of this Office that an emergency situation existswhich requires expeditious action by the Comptroller'sOffice. Consistent with the applicable provisions of 12USC 181, the Comptroller of the Currency hereby spe-cifically waives the requirement for shareholder ap-proval by owners of Chelsea's stock.

Pursuant to the Bank Merger Act of 1966, 12 USC1828(c), the Comptroller of the Currency cannot ap-prove a purchase and assumption transaction whichwould have certain proscribed anticompetitive effectsunless he finds those anticompetitive effects to beclearly outweighed in the public interest by the prob-able effect of the transaction in meeting the conveni-ence and needs of the community to be served. Addi-tionally, the Comptroller is directed to consider the fi-nancial and managerial resources and future pros-pects of the existing and proposed institution and theconvenience and needs of the community to beserved. When necessary, however, to prevent the evilsattendant upon the failure of a bank, the Comptrollercan dispense with the uniform standards applicable tousual acquisition transactions and need not considerreports on the competitive consequences of the trans-action ordinarily solicited from the Department of Jus-tice and other banking agencies. He is authorized insuch circumstances to act immediately, in his sole dis-cretion, to approve an acquisition and to authorize theimmediate consummation of the transaction.

The proposed acquisition will be in accord with allpertinent provisions of the National Banking Act andwill prevent a disruption of banking services to thecommunity and potential losses to a number of un-insured depositors. The assuming bank will havestrong financial and managerial resources and the ac-quisition will enable it to enhance the banking servicesoffered in the New York City area. Thus, the approvalof this transaction will help to avert a loss of publicconfidence in the banking system and should improvethe services offered to the banking public.

The Comptroller finds that there are no anticompeti-tive effects of the proposed transaction. For thosereasons, the assuming bank's application to purchasethe assets and to assume the liabilities of Chelsea asset forth in their agreement is approved. The Comptrol-ler further finds that the possible failure of Chelsea re-quires him to act immediately, as contemplated by the


Bank Merger Act, to prevent disruption of banking ser-vices to the community; the Comptroller thus waivespublication of notice, dispenses with the solicitation ofcompetitive reports from other agencies, authorizesUCNB to operate all former offices of Chelsea as

branches of UCNB and, further, authorizes the transac-tion to be consummated immediately.

December 31, 1976.


//. Mergers consummated, involving a single operating bank.

GATEWAY NATIONAL BANK OF FORT WORTH,Fort Worth, Tex., and Circle National Bank of Fort Worth, Fort Worth, Tex.


Gateway National Bank of Fort Worth, Fort Worth, Tex. (14962), withand Circle National Bank of Fort Worth, Fort Worth, Tex. (14962), which hadmerged Jan. 5, 1976, under the charter of the latter bank (14962) and title "GatewayNational Bank of Fort Worth." The merged bank at date of merger had

Total assets*

$24,695,000120,000

25,456,000

Banking

Inoperation

10

offices

To beoperated

1


On March 8, 1974, Gateway National Bank of FortWorth, Fort Worth, Tex., and Circle National Bank ofFort Worth (organizing), Fort Worth, Tex., applied to theComptroller of the Currency for permission to mergeunder the charter of the latter and the title of theformer.

Gateway National Bank of Fort Worth, the mergingbank, was chartered in 1962 and has assets of $18.9million and IPC deposits of $15.7 million. The mergingbank is the 25th largest of the 46 banks in the FortWorth area.

Circle National Bank of Fort Worth (organizing), thecharter bank, is being organized to provide a vehicleby which to transfer ownership of the merging bank toFirst United Bancorporation, Inc., Fort Worth, a multi-bank holding company with aggregate deposits of$760.3 million. The charter bank will not be operatingas a commercial bank prior to the merger.

Consummation of the proposed transaction will re-sult in no adverse competitive effects. The mergingbank has had a long-standing relationship with theholding company, including legal affiliation with the


holding company's largest subsidiary, The First Na-tional Bank of Fort Worth, since 1972. The closest sub-sidiary of the holding company, Security State Bank, islocated 5 miles from the merging bank, with several al-ternative banking facilities situated in the interveningarea.

Applying the statutory criteria, it is concluded thatthe proposed transaction is in the public interest andthis application is, therefore, approved.

December 5, 1975.


This is in reply to your letter of March 13, 1974, re-questing a report pursuant to Section 18(c) of the Fed-eral Deposit Insurance Act on the competitive factorsinvolved in the proposed merger of Gateway NationalBank of Fort Worth, Fort Worth, Tex., and Circle Na-tional Bank of Fort Worth (org.), Fort Worth, Tex.

The proposed merger is part of a plan through whichGateway National Bank of Fort Worth would become asubsidiary of First United Bancorporation, Inc., a bankholding company. The instant merger, however, wouldmerely combine an existing bank with a non-operatinginstitution; as such, and without regard to the acquisi-tion of the surviving bank by First United Bancorpora-tion, Inc., it would have no effect on competition.


COMMERCIAL NATIONAL BANK,Cassopolis, Mich., and C National Bank, Cassopolis, Mich.


Commercial National Bank, Cassopolis, Mich. (16371), withand C National Bank, Cassopolis, Mich. (16371), which hadmerged Mar. 11, 1976, under charter of the latter bank (16371) and title "CommercialNational Bank." The merged bank at date of merger had

Total assets*

$60,585,000120,000

67,622,000

Banking

Inoperation

OC

X)

offices

To beoperated

8


On November 19, 1974, C National Bank, (organizing),Cassopolis, Mich., and Commercial National Bank,Cassopolis, Mich., applied to the Comptroller of theCurrency for permission to merge under the charter ofthe former and with the title of the latter.

Commercial National Bank, the existing bank, wasorganized in 1864 and presently operates sixbranches. It has total assets of $54.5 million and IPCdeposits of $38.9 million. The primary service area ofthis bank encompasses central and southern CassCounty, southwestern St. Joseph County and the cityof Niles, all of which are located in Michigan; andnorthern Elkart County, Ind.

Direct competition for Commercial National Bank isprovided by First National Bank of SouthwesternMichigan, Niles, with deposits of $109 million; First Na-tional Bank and Trust Company, Sturgis, with depositsof $29.1 million; Community State Bank of Dowagiac,with deposits of $13.5 million; and First National Bankof Cassopolis, with deposits of $13.2 million.

C National Bank is being organized to provide a ve-hicle by which to transfer ownership of Commercial Na-tional Bank to Michigan National Corporation. BloomfieldHills, Mich. The new bank will not be operating as acommercial bank prior to this merger.

Michigan National Corporation, the bank holdingcompany which will acquire the resulting bank was or-ganized in 1972 and presently is the third largest bankholding company in Michigan. It controls nine bankswith aggregate deposits of $2.5 billion. The two largestsubsidiaries are Michigan National Bank, Lansing, withdeposits of $1.3 billion, and Michigan National Bank ofDetroit, with deposits of $881 million. Michigan Na-


tional Corporation also controls two bank-related sub-sidiaries which specialize in leasing and auditing.

There is no competition between Michigan NationalCorporation or its subsidiaries and Commercial Na-tional Bank because their nearest offices are sepa-rated by a distance of 35 miles and an adequatenumber of alternative banking facilities operatein the intervening area.

Consummation of the proposed merger will stimulatecompetition in the service area of the resulting sub-sidiary because it will be able to offer new and im-proved services, such as commercial and mortgagelending, investment banking, trust services andinternational banking. The acquisition of the existingbank by Michigan National Corporation will result in aneconomy of operation which will be reflected inincreased profits for that bank.

Applying the statutory criteria, it is concluded thatthe proposed merger is in the public interest and thisapplication is, therefore, approved.

February 9, 1976.


This is in reply to your letter of November 20, 1974, re-questing a report pursuant to'Section 18(c) of the Fed-eral Deposit Insurance Act on the competitive factorsinvolved in the proposed merger of Commercial Na-tional Bank, Cassopolis, Mich., and C National Bank(org.), Cassopolis, Mich.

The proposed merger is part of a plan through whichCommercial National Bank would become a subsidiaryof Michigan National Corporation, a bank holdingcompany. The instant merger, however, would merelycombine an existing bank with a non-operating institu-tion; as such, and without regard to the acquisition ofthe surviving bank by Michigan National Corporation, itwould have no effect on competition.


AMERICAN SECURITY AND TRUST COMPANY, NATIONAL ASSOCIATION,Washington, D.C., and American Security and Trust Company, Washington, D.C.



American Security and Trust Company, Washington, D.C, with $1,122,122,000 31and American Security and Trust Company, National Association, Washington, D.C. (16565),which had 240,000 0merged Mar. 31, 1976, under charter and title of the latter bank (16565). The merged bankat date of merger had 1,052,219,000 31


On July 31, 1975, the American Security and TrustCompany, Washington, D.C., and the American Secu-rity and Trust Company, National Association (organiz-ing), Washington, D.C., applied to the Comptroller ofthe Currency for permission to merge under the char-ter and with the title of American Security and TrustCompany, National Association.

American Security and Trust Company, the mergingbank, is headquartered in Washington, D.C., and has30 banking offices in the District of Columbia and oneforeign branch in Nassau, Bahamas. The bank, withtotal assets of 1.2 billion and IPC deposits of $725.7million was originally chartered in 1889.

American Security and Trust Company, National As-sociation, the charter bank, is being organized to pro-vide a vehicle by which to transfer ownership of themerging bank to the American Security Corporationwhich will become a one-bank holding company uponits acquisition of the resulting bank. The charter bankwill not be operating as a commercial bank prior to themerger.

Because the merging bank is the only operatingbank involved in the proposed transaction, there can


be no adverse effect on competition resulting fromconsummation of the proposed merger. The resultingbank will conduct the same banking business at thesame locations and with almost the same name as pre-sently used by the merging bank.

Applying the statutory criteria, it is concluded thatthe proposed merger is in the public interest and thisapplication is, therefore, approved.

February 25, 1976.


This is in reply to your letter of July 31, 1975, request-ing a report pursuant to Section 18(c) of the FederalDeposit Insurance Act on the competitive factorsinvolved in the proposed merger of American Securityand Trust Company, Washington, D.C. and AmericanSecurity and Trust Company, N.A. (org.), Washington,D.C.

The proposed merger is part of a plan through whichAmerican Security and Trust Company would becomea subsidiary of American Security Corporation, a bankholding company. The instant merger, however, wouldmerely combine an existing bank with a non-operatinginstitution; as such, and without regard to the acquisi-tion of the surviving bank by American Security Corpo-ration, it would have no effect on competition.

THE FIRST NATIONAL BANK OF NEW BRAUNFELS,New Braunfels, Tex., and New Braunfels Commerce Bank National Association, New Braunfels, Tex.



The First National Bank of New Braunfels, New Braunfels, Tex. (4295), withand New Braunfels Commerce Bank National Association, New Braunfels, Tex. (4295), whichhadmerged Apr. 16, 1976, under charter of the latter bank (4295) and title "First NationalBank of New Braunfels." The merged bank at date of merger had

$31,452,000 1

120,000 0

33,272,000


On August 6, 1975, New Braunfels Commerce Bank,National Association (organizing), New Braunfels, Tex.,and First National Bank of New Braunfels, New Braun-fels, Tex., applied to the Comptroller of the Currencyfor permission to merge under the charter of New


Braunfels Commerce Bank, National Association, andwith the title "First National Bank of New Braunfels."

The proposed merger is part of a plan through whichFirst National Bank of New Braunfels will become awholly-owned subsidiary of Texas CommerceBancshares, Inc., Houston, Tex., a registered bankholding company.

Applying the statutory criteria, it is concluded thatthe merger will merely combine an existing bank with anon-operating institution; as such, and without regard


to the acquisition of the surviving bank by TexasCommerce Bancshares, Inc., there will be no effect oncompetition.

This application, therefore, should be, and hereby is,approved.

March 17, 1976.


This is in reply to your letter of August 6, 1975, request-ing a report pursuant to Section 18(c) of the FederalDeposit Insurance Act on the competitive factorsinvolved in the proposed merger of The First National

Bank of New Braunfels, New Braunfels, Tex., and NewBraunfels Commerce Bank National Association (org.),New Braunfels, Tex.

The proposed merger is part of a plan through whichThe First National Bank of New Braunfels would be-come a wholly-owned subsidiary of Texas CommerceBancshares, Inc., a bank holding company. Theinstant merger, however, would merely combine anexisting bank with a non-operating institution; as such,and without regard to the acquisition of the survivingbank by Texas Commerce Bancshares, Inc., it wouldhave no effect on competition.

THE GEAUGA COUNTY NATIONAL BANK OF CHARDON,Chardon, Ohio, and The G. C. National Bank, Chardon, Ohio


The Geauga County National Bank of Chardon, Chardon, Ohio (14879), withand The G. C. National Bank, Chardon, Ohio (14879), which hadmerged Apr. 29, 1976, under charter of the latter bank (14879) and title "The Geauga CountyNational Bank of Chardon." The merged bank at date of merger had

Total assets*

$16,918,000125,000

21,200,000

Banking

Inoperation

CO

O

offices

To beoperated

3


On January 14, 1976, The Geauga County NationalBank of Chardon, Chardon, Ohio, and The G. C. Na-tional Bank (organizing), Chardon, Ohio, applied to theComptroller of the Currency for permission to mergeunder the charter of G. C. National Bank and with thetitle, The Geauga County National Bank of Chardon.

The proposed merger is part of a plan through whichThe Geauga County National Bank of Chardon will be-come a wholly-owned subsidiary of BancOhio Corpo-ration, Columbus, Ohio, a bank holding company.

Applying the statutory criteria, it is concluded thatthe instant merger will merely combine an existingbank with a non-operating institution; as such, andwithout regard to the acquisition of the surviving bank


by BancOhio Corporation, it will have no effect oncompetition. This application is, therefore, approved.

March 11, 1976.


This is in reply to your letter of January 14, 1976, re-questing a report pursuant to Section 18(c) of the Fed-eral Deposit Insurance Act on the competitive factorsinvolved in the proposed merger of Geauga CountyNational Bank of Chardon, Chardon, Ohio, and G. C.National Bank (org.), Chardon, Ohio.

The proposed merger is part of a plan through whichGeauga County National Bank of Chardon would be-come a subsidiary of BancOhio Corporation, a bankholding company. The instant merger, however, wouldmerely combine an existing bank with a non-operatinginstitution; as such, and without regard to the acquisi-tion of the surviving bank by BancOhio Corporation itwould have no effect on competition.


THE FIRST NATIONAL BANK OF SAN JOSE,San Jose, Calif., and F. N. National Bank, San Jose, Calif.



The First National Bank of San Jose, San Jose, Calif. (2158), with $360,007,000and F. N. National Bank, San Jose, Calif. (2158), which had 256,250merged June 16, 1976, under charter of the latter bank (2158) and title "The First NationalBank of San Jose." The merged bank at date of merger had 381,161,000

340

34


The First National Bank of San Jose, San Jose, Calif.,and F. N. National Bank (organizing), San Jose, Calif.,have applied to the Comptroller of the Currency forpermission to merge under the charter of the latter andwith the title of the former.

The First National Bank of San Jose, the mergingbank, is the 17th largest commercial bank in the stateof California, and is the fifth largest banking organiza-tion in the market area (approximated by Santa Clara,Alameda and San Mateo counties). The bank has totaldeposits of approximately $299 million.

The proposed merger is the facility whereby the ac-quisition of The First National Bank of San Jose by FirstNational Bancshares Inc., San Jose, a proposed bankholding company, will be accomplished. The instantmerger would have the effect of merely combining anexisting commercial bank with a non-operating institu-tion, and as such, without regard to the proposed ac-quisition of the surviving bank by First National


Bancshares Inc., would have no adverse effect uponcompetition in the relevant banking market.

Consequently, applying the statutory criteria, it isconcluded that the proposed merger is not adverse tothe public interest. Accordingly, this application shouldbe, and hereby is, approved.

April 30, 1976.


This is in reply to your letter of January 8, 1976, re-questing a report pursuant to Section 18(c) of the Fed-eral Deposit Insurance Act on the competitive factorsinvolved in the proposed merger of First National Bankof San Jose, San Jose, Calif, and F. N. National Bank(org.), San Jose, Calif.

The proposed merger is part of a plan through whichFirst National Bank of San Jose would become a sub-sidiary of First National Bancshares Inc., a bank hold-ing company. The instant merger, however, wouldmerely combine an existing bank with a non-operatinginstitution; as such, and without regard to the acquisi-tion of the surviving bank by First National BancsharesInc., it would have no effect on competition.

THE FIRST NATIONAL BANK OF TROUTVILLE,Troutvllle, Va., and Troutville Bank, N. A., Troutville, Va.



The First National Bank of Troutville, Troutville, Va. (9764), withand Troutville Bank, N. A., Troutville, Va. (9764), which hadmerged July 1, 1976, under charter of the latter bank (9764) and title "The First NationalBank of Troutville." The merged bank at date of merger had

$12,486,000 260,000 0

13,249,000


The First National Bank of Troutville, Troutville, Va., andTroutville Bank, N. A. (organizing), Troutville, Va., haveapplied to the Comptroller of the Currency for permis-sion to merge under the charter of the latter and withthe title of the former.

The First National Bank of Troutville, the mergingbank, was chartered in 1910, and currently has de-posits of approximately $11 million. In addition to itsmain office in Troutville, The First National Bank of


Troutville operates one branch office in Daleville, Va.,approximately 5 miles east of Troutville.

The proposed merger is the facility whereby the ac-quisition of The First National Bank of Troutville by Val-ley of Virginia Bankshares, Inc., Harrisonburg, amulti-bank holding company, will be accomplished.The instant merger would have the effect of merelycombining an existing commercial bank with a non-operating institution, and as such, without regard to theproposed acquisition of the surviving bank by Valley ofVirginia Bankshares, Inc., would have no adverse ef-fect upon competition in the relevant banking market.

Consequently, applying the statutory criteria, it isconcluded that the proposed merger is not adverse to


the public interest. Accordingly, this application shouldbe, and hereby is, approved.

May 19, 1976.


This is in reply to your letter of February 27, 1976, re-questing a report pursuant to Section 18(c) of the Fed-eral Deposit Insurance Act on the competitive factorsinvolved in the proposed merger of Troutville Bank,

N.A. (org.), Troutville, Va., and First National Bank ofTroutville, Troutville, Va.

The proposed merger is part of a plan through whichFirst National Bank of Troutville would become a sub-sidiary of Valley of Virginia Bankshares, Inc., a bankholding company. The instant merger, however, wouldmerely combine an existing bank with a non-operatinginstitution; as such, and without regard to the acquisi-tion of the surviving bank by Valley of VirginiaBankshares, Inc., it would have no effect on competi-tion.

THE FIRST NATIONAL BANK OF ELYRIA,Elyria, Ohio, and FNB National Bank, Elyria, Ohio



First National Bank of Elyria, Elyria, Ohio (14968), with $34,988,000and FNB National Bank, Elyria, Ohio (14968), which had 240,000consolidated Aug. 16, 1976, under charter and title of "The First National Bank of Elyria"(14968). The consolidated bank at date of consolidation had 36,192,000


The First National Bank of Elyria, Elyria, Ohio, the Char-ter Bank ("Elyria Bank"), and FNB National Bank (or-ganizing), Elyria, Ohio ("FNB"), have applied to theComptroller of the Currency for prior permission to ef-fectuate a consolidation of the proponent banks underthe charter and with the title of The First National Bankof Elyria. The decision of the Office of the Comptrollerof the Currency is rendered pursuant to an agreementexecuted between Elyria Bank and FNB, upon whichthe instant application rests, and such agreement isherein incorporated by reference, the same as if fullyset forth.

Elyria Bank was chartered as a national banking as-sociation on April 13, 1962 and, as of March 31, 1976,controlled total commercial bank deposits of $30.8 mil-lion, representing approximately 0.1 percent of com-mercial bank deposits in the state of Ohio.

The proposed consolidation is the facility wherebythe acquisition of The First National Bank of Elyria byNational City Corporation, Cleveland, Ohio, will be ac-complished. The instant consolidation would merelycombine an existing commercial bank with a non-


operating institution, and as such, without regard to theproposed acquisition of the surviving bank by NationalCity Corporation, would have no adverse effect uponcompetition within the relevant banking market.

Consequently, applying the statutory criteria, it is theconclusion of this Office that the instant proposedtransaction is not adverse to the public interest. Ac-cordingly, this application should be, and hereby is,approved.

July 16, 1976.


This is in reply to your letter of June 16, 1976, request-ing a report pursuant to Section 18(c) of the FederalDeposit Insurance Act on the competitive factorsinvolved in the proposed consolidation of FNB NationalBank, Elyria, Ohio (org.) and First National Bank ofElyria, Elyria, Ohio.

The proposed consolidation is part of a plan throughwhich First National Bank of Elyria would become asubsidiary of National City Corporation, a bank holdingcompany. The instant transaction, however, wouldmerely combine an existing bank with a non-operatinginstitution; as such, and without regard to the acquisi-tion of the surviving bank by National City Corporation,it would have no effect on competition.


THE FIRST NATIONAL BANK OF HENDERSON,Henderson, Tex., and South Main & Richardson National Bank, Henderson, Tex.



The First National Bank of Henderson, Henderson, Tex. (6176), with $31,062,000and South Main & Richardson National Bank, Henderson, Tex. (6176), which had 130,000merged Oct. 1, 1976, under charter of the latter bank (6176) and title "The First NationalBank of Henderson." The merged bank at date of merger had 33,574,000


The First National Bank of Henderson, Henderson,Tex., and South Main & Richardson National Bank (or-ganizing), Henderson, Tex., have applied to the Comp-troller of the Currency for prior permission to mergeunder the charter of South Main & Richardson NationalBank, and with the title of The First National Bank ofHenderson.

The First National Bank of Henderson, Henderson,Tex., the merging bank, was chartered as a nationalbanking association on March 27, 1902, and as of De-cember 31, 1975, held total commercial bank depositsof $26.6 million, representing approximately 5.6 per-cent of the Longview banking market, approximatedby the whole of Gregg, Harrison and Rusk counties.

The proposed merger is the facility whereby the ac-quisition of the merging bank by Republic of TexasCorporation, Dallas, Tex., the fourth largest bankingorganization domiciled in Texas, will be accomplished.The subject merger would merely combine an existingcommercial bank with a non-operating entity, and as


such, without regard to the proposed acquisition of thesurviving institution by Republic of Texas Corporation,would have no adverse effect upon competition withinthe relevant market.

Accordingly, applying the statutory criteria, it is theconclusion of this Office that the proposed merger isnot adverse to the public interest, and should be, andhereby is, approved.

August 26, 1976.


This is in reply to your letter of June 25, 1976, request-ing a report pursuant to Section 18(c) of the FederalDeposit Insurance Act on the competitive factorsinvolved in the proposed merger of First National Bankof Henderson, Henderson, Tex., and South Main &Richardson National Bank (org.), Henderson, Tex.

The proposed merger is part of a plan through whichFirst National Bank of Henderson would become asubsidiary of Republic of Texas Corporation, a bankholding company. The instant merger, however, wouldmerely combine an existing bank with a non-operatinginstitution; as such, and without regard to the acquisi-tion of the surviving bank by Republic of Texas Corpo-ration, it would have no effect on competition.

THE NATIONAL BANK OF LUDINGTON,Ludington, Mich., and NBL National Bank, Ludington, Mich.



The National Bank of Ludington, Ludington, Mich. (14016), with $30,919,000and NBL National Bank, Ludington, Mich. (14016), which had 120,000consolidated Dec. 3, 1976, under the charter of the former (14016) and with the title"National Bank of Ludington." The consolidated bank, at date of consolidation had 31,690,000


The National Bank of Ludington, Ludington, Mich., thecharter bank, and NBL National Bank (organizing),Ludington, Mich., the merging bank, have applied tothe Comptroller of the Currency for prior permission toeffectuate a consolidation under the charter, and withthe title of The National Bank of Ludington. The instantapplication rests upon an agreement executed be-


tween the proponent banks, and is incorporated hereinby reference, the same as if fully set forth.

The charter bank became a national banking asso-ciation on February 19, 1934 and, as of March 31,1976, had total commercial bank deposits of $29.4 mil-lion.

The proposed consolidation is the facility wherebythe acquisition of The National Bank of Ludington byFirst National Financial Corporation, Kalamazoo, Mich.,a registered multi-bank holding company, will be ac-complished. The instant transaction would merelycombine an existing commercial bank with a non-


operating institution, and as such, without regard to theproposed acquisition of the surviving bank by First Na-tional Financial Corporation, would have no effect uponcompetition within the Ludington banking market.

Accordingly, applying the statutory criteria, it is theconclusion of the Office of the Comptroller of the Cur-rency that the subject proposal is not adverse to thepublic interest and should be, and hereby is, ap-proved.

October 22, 1976.


The proposed consolidation is part of a plan throughwhich National Bank of Ludington would become asubsidiary of First National Financial Corporation, abank holding company. The instant transaction, how-ever, would merely combine an existing bank with anon-operating institution; as such, and without regardto the acquisition of the surviving bank by First Na-tional Financial Corporation, it would have no effect oncompetition.

ALAMO HEIGHTS NATIONAL BANK,Alamo Heights, Tex., and Heights Bank, National Association, Alamo Heights, Tex.


Alamo Heights National Bank, Alamo Heights, Tex. (15514), withand Heights Bank, National Association, Alamo Heights, Tex. (15514), which hadmerged Dec. 31, 1976, under charter of the latter bank (15514) and title "Alamo HeightsNational Bank." The merged bank at date of merger had

Total assets*

$33,635,000125,000

35,756,000

Banking offices


•j

0-j


Alamo Heights National Bank, Alamo Heights, Tex.("Merging Bank"), and Heights Banks, National Asso-ciation (organizing), Alamo Heights, Tex. ("CharterBank"), have applied to the Comptroller of the Cur-rency for prior permission to effectuate a merger underthe charter of Heights Bank, National Association, andwith the title of Alamo Heights National Bank. The sub-ject application rests upon an agreement executed be-tween the proponent banks, and is incorporated hereinby reference, the same as if fully set forth.

Merging Bank was chartered as a national bankingassociation on May 10, 1965, and as of June 30, 1976,held total deposits of $30.8 million. Charter Bank is anewly created institution, and has no operating history.

The proposed merger is the facility whereby Merg-ing Bank will become a wholly-owned, less directors'qualifying shares, subsidiary of the largest banking or-ganization headquartered in the state of Texas, FirstInternational Bancshares, Inc., Dallas, Tex. As of De-cember 31, 1975, First International Bancshares, Inc.


controlled 23 commercial banking subsidiaries withaggregate deposits of approximately $3.6 billion, 7.6percent of the state deposits. This merger would havethe effect of merely combining an existing commercialbank with a non-operating entity, and as such, disre-garding the proposed acquisition of the survivinginstitution by First International Bancshares, Inc., wouldhave no adverse competitive effect within the San An-tonio SMSA, the approximate relevant banking market.

Accordingly, applying the statutory criteria, it is theconclusion of the Office of the Comptroller of the Cur-rency that the proposed transaction is in the publicinterest,-and should be, and hereby is, approved.

December 1, 1976.


The proposed merger is part of a plan through whichAlamo Heights National Bank would become a sub-sidiary of First International Bancshares, Inc., a bankholding company. The instant merger, however, wouldmerely combine an existing bank with a non-operatinginstitution; as such, and without regard to the acquisi-tion of the surviving bank by First InternationalBancshares, Inc., it would have no effect on competi-tion.


FIRST NATIONAL BANK OF FREEPORT,Freeport, III., and First Freeport Bank, National Association, Freeport,



First National Bank of Freeport, Freeport, III. (13695), withand First Freeport Bank, National Association, Freeport, III. (13695), which hadmerged Dec. 31, 1976, under charter of the latter bank (13695) and title "First NationalBank of Freeport." The merged bank at date of merger had

$79,640,000 2130,000 0

83,601,000


First National Bank of Freeport, Freeport, III. ("MergingBank"), and First Freeport Bank, National Association(organizing), Freeport, III. ("Charter Bank"), haveapplied to the Comptroller of the Currency for priorpermission to effectuate a merger under the charter ofFirst Freeport Bank, National Association, and with thetitle of First National Bank of Freeport. The instant ap-plication rests upon an agreement executed betweenthe proponent banks, and is incorporated herein by ref-erence, the same as if fully set forth.

Merging Bank was chartered as a national bankingassociation on May 29, 1933 and, as of June 30, 1976,held total commercial bank deposits of $69.6 million.

The proposed merger is the facility whereby the ac-quisition of Merging Bank by First Freeport Corpora-tion, Freeport, III., a proposed one-bank holding com-pany, will be accomplished. The instant merger wouldmerely have the effect of combining an existing com-


mercial bank with a non-operating institution; and assuch, without regard to the proposed acquisition of thesurviving bank by First Freeport Corporation, wouldhave no adverse effect upon competition within the rel-evant banking market, approximated by the whole ofStephenson County.

Accordingly, applying the statutory criteria, it is theconclusion of the Office of the Comptroller of the Cur-rency that the proposed merger is not adverse to thepublic interest and should be, and hereby is, ap-proved.

November 5, 1976.


The proposed merger is part of a plan through whichFirst National Bank of Freeport would become a sub-sidiary of First Freeport Corporation, a bank holdingcompany. The instant merger, however, would merelycombine an existing bank with a non-operating institu-tion; as such, and without regard to the acquisition ofthe surviving bank by First Freeport Corporation, itwould have no effect on competition.

THE CHESTER NATIONAL BANK,Chester, N.Y., and Chester Bank, N.A., Chester, N.Y.


The Chester National Bank, Chester, N.Y. (1349), withand Chester Bank, N.A., Chester, N.Y. (1349), which hadmerged Dec. 31, 1976, under charter of the latter bank (1349) and title "The Chester NationalBank." The merged bank at date of merger had

Total assets*

$53,286,00060,000

51,606,000

Banking

inoperation

100

offices

To beoperated

10


The Chester National Bank, Chester, N.Y. ("MergingBank"), and Chester Bank, N.A., (organizing), Chester,N.Y. ("Charter Bank"), have applied to the Comptrollerof the Currency for prior permission to effectuate amerger under the charter of Chester Bank, N.A. andwith the title of The Chester National Bank. The instantapplication rests upon an agreement executed be-tween the proponent banks, and is incorporated hereinby reference, the same as if fully set forth.

The proposed merger is the facility whereby FirstCommercial Banks Inc., Albany, N.Y., a registered


multi-bank holding company with five commercialbanking subsidiaries that have total deposits of $1.4billion, will be accomplished. The instant merger wouldmerely combine an existing commercial bank with anon-operating institution, and as such, without regardto the proposed acquisition of the surviving bank byFirst Commercial Banks Inc., would have no adverseeffect upon competition within the relevant bankingmarket, approximated by Orange and Sullivan coun-ties.

Accordingly, applying the statutory criteria, it is theconclusion of the Office of the Comptroller of the Cur-rency that the proposed transaction is not adverse tothe public interest and should be, and hereby is ap-proved.

November 26, 1976.



The proposed merger is part of a plan through whichChester National Bank would become a subsidiary ofFirst Commercial Banks Inc., a bank holding company.

The instant merger, however, would merely combinean existing bank with a non-operating institution; assuch, and without regard to the acquisition of the sur-viving bank by First Commercial Banks Inc., it wouldhave no effect on competition.

THE ILLINOIS NATIONAL BANK OF SPRINGFIELD,Springfield, III., and INB National Bank, Springfield, III.


The Illinois National Bank of Springfield, Springfield, III. (3548), withand INB National Bank, Springfield, III. (3548), which hadmerged Dec. 31, 1976, under charter of the latter bank (3548) and title "The IllinoisNational Bank of Springfield." The merged bank at date of merger had

Total assets*

$187,084,000250,000

205,959,000

Banking offices


o

0o


On January 20, 1976, The Illinois National Bank ofSpringfield, Springfield, III., and INB National Bank (or-ganizing), Springfield, III., applied to the Comptroller ofthe Currency for permission to merge under the char-ter of the latter and with the title of the former.

The proposed merger is part of a corporate reor-ganization through which The Illinois National Bank ofSpringfield will become a wholly-owned subsidiary ofIllinois National Bancorp, Inc., Springfield, III., a bankholding company.

Applying the statutory criteria, it is concluded thatthe instant merger will merely combine an existing


bank with a non-operating institution, as such, andwithout regard to the acquisition of the surviving bankby Illinois National Bancorp, Inc., it will have no effecton competition. This application is, therefore, ap-proved.

May 5, 1976.


The proposed merger is part of a plan through which Il-linois National Bank of Springfield would become asubsidiary of Illinois National Bancorp, Inc., a bankholding company. The instant merger, however, wouldmerely combine an existing bank with a non-operatinginstitution; as such, and without regard to the acquisi-tion of the surviving bank by Illinois National Bancorp,Inc., it would have no effect on competition.

WILLIAMSTOWN NATIONAL BANK,Williamstown, Mass., and Williamstown Bank (National Association), Williamstown, Mass.



Williamstown National Bank, Williamstown, Mass. (3092), with $10,877,000and Williamstown Bank (National Association), Williamstown, Mass. (3092), which had 120,000merged Dec. 31, 1976, under charter of the latter bank (3092) and title "WilliamstownNational Bank." The merged bank at date of merger had 11,111,000

20


Williamstown National Bank, Williamstown, Mass.("Merging Bank") and Williamstown Bank (NationalAssociation) (organizing), Williamstown, Mass. ("Char-ter Bank") have made application to the Comptroller ofthe Currency for prior permission to effectuate amerger under the charter of Williamstown Bank (Na-tional Association) and with the title of WilliamstownNational Bank. The instant application rests upon an


agreement executed between the proponent banksand is incorporated herein by reference, the same as iffully set forth.

Merging Bank was chartered as a national bankingassociation on December 17, 1883 and, as of June 30,1976, held total commercial bank deposits of $9.1 mil-lion.

The proposed merger is the facility whereby the ac-quisition of Merging Bank by T.N.B. Financial Corp.,Springfield, Mass., a registered one-bank holdingcompany, will be accomplished. The subject mergerwould merely have the effect of combining an existing


commercial bank with a non-operating institution, andas such, without regard to the proposed acquisition ofthe surviving bank by T.N.B. Financial Corp., wouldhave no effect upon competition.

Accordingly, applying the statutory criteria, it is theconclusion of the Office of the Comptroller of the Cur-rency that the proposed merger is not adverse to thepublic interest and should be, and hereby is, ap-proved.

November 29, 1976.


The proposed merger is part of a plan through whichWilliamstown National Bank would become a sub-sidiary of T.N.B. Financial Corporation, a bank holdingcompany. The instant merger, however, would merelycombine an existing bank with a non-operating institu-tion; as such, and without regard to the acquisition ofthe surviving bank by T.N.B. Financial Corporation, itwould have no effect on competition.

///. Mergers approved but abandoned, no litigation.

SOUTHEAST FIRST NATIONAL BANK OF SARASOTA,Sarasota, Fla., and Palmer First National Bank and Trust Company of Sarasota, Sarasota, Fla.


Palmer First National Bank and Trust Company of Sarasota, Sarasota, Fla. (13352) and Southeast First National Bank of Sarasota, Sarasota, Fla.(16531) applied for permission to merge Dec. 3, 1975, under charter and title of the latter bank (16531). The application was approved Dec. 23,1975, but was abandoned by the banks Jan. 14, 1976.


On December 3, 1975, Southeast First National Bankof Sarasota (organizing), Sarasota, Fla., and PalmerFirst National Bank and Trust Company of Sarasota,Sarasota, Fla., applied to the Comptroller of the Cur-rency for permission to merge under the charter andwith the title of Southeast First National Bank ofSarasota.

The proposed merger is between two bankswholly-owned, except for directors qualifying shares,by Southeast Acquisition Corporation, a registeredbank holding company.

Applying the statutory criteria, it is concluded thatthe instant merger will merely combine an existingbank with a non-operating institution; as such, it will

have no effect on competition. This application is,therefore, approved.

December 23, 1975.


The proposed merger is part of a plan through whichPalmer First National Bank and Trust Company ofSarasota would become a subsidiary of SoutheastBanking Corporation, a bank holding company. Theinstant merger, however, would merely combine anexisting bank with a non-operating institution; as such,and without regard to the acquisition of the survivingbank by Southeast Banking Corporation, it would haveno effect on competition.

THE FIRST NATIONAL BANK OF MARYLAND,Baltimore, M<±, and The Citizens National Bank of Havre de Grace, Havre de Grace, Md.


The Citizens National Bank of Havre de Grace, Havre de Grace, Md. (5445) and The First National Bank of Maryland, Baltimore, Md. (1413)applied for permission to merge Mar. 8, 1976, under the charter and title of the latter bank (1413). The application was approved May 28, 1976,but was abandoned by the banks July 20, 1976.


The Citizens National Bank of Havre de Grace, Havrede Grace ("Citizens") and The First National Bank ofMaryland, Baltimore ("FNB") have applied to the Comp-troller of the Currency for permission to merge underthe charter and with the title of the latter.

FNB, is the wholly-owned banking subsidiary of FirstMaryland Bancorp, Baltimore, Md. Currently the thirdlargest commercial banking organization domiciledwithin the state of Maryland, FNB, as of March 31,1976, held total domestic deposits of approximately$933 million, representing approximately 11 percent oftotal commercial bank deposits in Maryland. Operating


a total of 70 banking offices throughout the state,FNB's principal market area is the city of Baltimore andadjacent Baltimore County.

Citizens was chartered in 1900 and currently holdsdeposits aggregating approximately $9 million at itsmain office and one drive-in facility in Havre de Grace.Located in the extreme northeastern section of HarfordCounty, Citizens primarily serves the immediate Havrede Grace area, and the municipalities of Perryville andPort Deposit in adjacent Cecil County.

Citizens' two banking offices experience the greatestdegree of competition from two offices of Maryland Na-tional Bank, the state's largest bank. Additionally, thereare 39 offices of 10 commercial banks operating withinCitizens' relevant market area, including five offices ofMaryland National Bank, 10 offices of The EquitableTrust Company and eight offices of FNB; the threelargest commercial banks in Maryland. The closest of-fice of FNB to a Citizens location is FNB's Aberdeen of-fice, slightly less than 5 miles south of Havre de Grace.All other offices of FNB are more than 15 miles fromHavre de Grace. Accordingly, consummation of theproposed merger would have the effect of eliminatinga degree of existing competition between FNB'sbranch office in Aberdeen and Citizens. Furthermore,the Office of the Comptroller of the Currency, on De-cember 29, 1975, gave approval to FNB's applicationto establish a de novo banking office within the city ofHavre de Grace. To date, that new FNB office has notopened for business, but it will be opened as an addi-tional banking site of FNB in Havre de Grace if this ap-plication is approved. Therefore, if the subject mergeris approved, the potential for increased competitionbetween FNB and Citizens is eliminated.

Pursuant to the provisions of the Bank Merger Act of1966, 12 USC 1828(c), the Comptroller of the Currencycannot approve any transaction which would have cer-tain proscribed anticompetitive effects unless the Of-fice concludes that those anticompetitive effects areclearly outweighed in the public interest by the proba-ble effects of the proposed transaction in adequatelymeeting the convenience and needs of the communityto be served. Furthermore, the Office of the Comptrol-ler is also directed to fully consider the financial andmanagerial resources and future prospects of theexisting and proposed institution.

As noted, Citizens primary competition is from twobranches of the largest bank in Maryland. In light ofCitizens' small deposit size relative to Maryland Na-tional Bank, it must be concluded that Citizens has notbeen an effective competitor in its relevant market.Also, Citizens' small size precludes it from adequatelymeeting any large commercial customer loan requests.This merger would have the effect of providing a via-ble, full-service banking competitor to Maryland Na-tional Bank in Havre de Grace, and a second meaning-ful baking alternative would be available to fully servethe needs of the Havre de Grace banking community.

Furthermore, the senior management of Citizens is be-yond normal retirement age. Affiliation with FNB wouldensure both management depth and provide for man-agement succession at Citizens.

In conclusion, it is the opinion of this Office that anyanticompetitive effects of the subject merger areclearly outweighed by the aspects of convenience andneeds of the banking community to be served and,further, by considerations with respect to the financialand managerial resources and future prospects of thesurviving banking institution.

It is therefore, the opinion of this Office that theproposed merger is in the public interest and shouldbe, and hereby is, approved.

May 28, 1976.


Applicant operates a branch office in Aberdeen whichis 4.6 miles south of Havre de Grace. It also operatesadditional nearby offices at Bel Air and Edgewood. Asurvey of accounts disclosed that 2.4 percent of Ap-plicant's deposits in Harford County, wherein Havre deGrace is located, originate in Havre de Grace and that6.6 percent of Bank's deposits originate within the BelAir, Aberdeen and Edgewood areas. Thus, it wouldappear that the proposed merger would eliminatesome existing competition between the participants.

A total of 10 banks, including the parties to thistransaction, operate 26 offices within the southeasternpart of Harford County which includes Bel Air, Aber-deen and Edgewood and the southwestern part ofCecil County which includes Perryville and Port De-posit, where the major impact of this merger will be feltand which appears to be the appropriate geographicmarket within which to gauge the effects of the pro-posed acquisition. As of June 30, 1975, Applicant heldthe largest share of total deposits in this area, approx-imately 35 percent, while Bank held the fifth largestshare, some 4 percent. The Equitable Trust Companyheld the second largest share (about 23 percent), theCommercial and Savings Bank of Bel Air held the thirdlargest share (16 percent) and Maryland NationalBank, the largest bank in the state, held the fourthlargest share (approximately 11 percent). Thus, con-summation of the proposed merger would result inApplicant holding about 39 percent of total area de-posits.

We conclude that the proposed merger would elimi-nate some existing competition between the mergingparties and would increase concentration amongcommercial banking institutions in the southeasternpart of Harford County which includes Bel Air, Aber-deen and Edgewood and the southwestern part ofCecil County, which includes Perryville and Port De-posit. Its overall effect on competition would be ad-verse.


APPENDIX B

Statistical Tables


Statistical Tables

Table TableNo. Title Page No.

B-1 Comptrollers of the Currency, 1863tothe B-20present 125

B-2 Deputy Comptrollers of the Currency .. 126B-3 Regional administrators of national banks 126B-4 Changes in the structure of the National B-21

Banking System, by states, 1863-1976 . 127B-5 Charters, liquidations and changes in is- B-22

sued capital stock of national banks,calendar 1976 128

B-6 Applications for national bank charters, B-23approved and rejected, by states, calen-dar 1976 129 B-24

B-7 Applications for national bank charterspursuant to corporate reorganizations, bystates, calendar 1976 130 B-25

B-8 Newly organized national banks, bystates, calendar 1976 130

B-9 National bank charters issued and mer- B-26gers consummated pursuant to corpo-rate reorganizations, by states, calendar1976 132 B-27

B-10 State-chartered banks converted to na-tional banks, by states, calendar 1976 . 133

B —11 National bank charters issued pursuantto corporate reorganizations, by states, B-28calendar 1976 133

B-12 National banks reported in voluntary liq- B-29uidation, by states, calendar 1976 134

B-13 National banks merged or consolidatedwith state banks, by states, calendar B-301976 135

B-14 National banks converted into state B-31banks, by states, calendar 1976 136

B-15 Purchases of state banks by nationalbanks, by states, calendar 1976 137 B-32

B-16 Consolidations of national banks, or na-tional and state banks, by states, calen-dar 1976 137 B-33

B-17 Mergers of national banks, or nationaland state banks, by states, calendar B-341976 138

B-18 Mergers resulting in national banks, by B-35assets of acquiring and acquired banks,1960-1976 140 B-36

B-19 Total assets, liabilities and equity capitalof domestic offices and subsidiaries of B-37national banks, United States and otherareas, June 30, 1976 141

Title PageTotal assets, liabilities and equity capitalof domestic offices and subsidiaries ofnational banks, United States and otherareas, December 31,1976 149Loans of national banks, by states, De-cember 31, 1976 157Outstanding balances, credit cards andrelated plans of national banks, by states,December 31, 1976 158National banks involved in direct leasefinancing, December 31, 1976 159Principal assets, liabilities and capitalaccounts of national banks, by asset size,year-end, 1976 160Ratios of classified assets to total loansfor national banks, deposit size category,under $100 million 161Ratios of classified assets to total loansfor national banks, deposit size category,$100 million and over 161Income and expenses of foreign anddomestic offices and subsidiaries of na-tional banks, United States and otherareas, year ended December 31, 1976 162Income and expenses of national banks,by asset size, December 31, 1976 178Average assets and equity capital, netincome and dividends of national banks1961-1976 179Loan losses and recoveries of nationalbanks, 1961 -1976, domestic offices only 180Assets and liabilities of national banks,date of last report of condition, 1961 -1976, domestic offices only 181Consolidated assets and liabilities of na-tional banks with foreign operations, De-cember 31, 1976 182Foreign branches of national banks, byregion and country, December 31, 1976 183Total foreign branch assets of nationalbanks, year-end 1953-1976 184Foreign branches of national banks,1960-1976 184Foreign branch assets and liabilities ofnational banks, December 31, 1976 . . . 184Trust assets and income of nationalbanks, by states, calendar 1976 185


Significant Changes in the Financial Reports of National Banks

Beginning with the first call report of 1976, for March 31,a number of significant changes, were incorporated inthe quarterly financial reports submitted by nationalbanks. Those changes affected the domestic report ofcondition, the foreign and domestic report of conditionand the report of income and are reflected in the statisti-cal tables presented throughout this Annual Report. Di-rect comparison of certain 1976 data with those of earlieryears is often impossible because of the changes. Tofacilitate the use of this report, major changes affectingindividual tables have been footnoted where appropri-ate. The following general explanation of the reportingchanges instituted in 1976 should prove helpful inanalyzing current and prior years' data.

Reports of income for 1976 were prepared on a fullyconsolidated foreign and domestic basis, instead of adomestic-only basis. Banks which have foreign offices,i.e., foreign branches, foreign subsidiaries or Edge Actor Agreement subsidiaries, began reporting income andexpenses from those offices, along with that of domesticoffices, on the appropriate lines of the income and ex-pense statement. For example, a bank with foreign of-fices reports the combined income earned on loansbooked in the bank's domestic and in its foreign officesas "Interest and fees on loans." For 1975 and prior years,banks with foreign offices reported net earnings fromforeign branches and net earnings from foreign sub-sidiaries as single entries under "Other operatingincome." Beginning in 1976, gross income and ex-penses of a bank's foreign offices are consolidated withthose of the domestic offices on a line-by-line basis.

Readers should be mindful of that change when-com-paring income and expense items with correspondingasset items. For 1976, an income item such as "Interestand fees on loans," relates to the consolidated foreignand domestic loans of a bank with foreign operations.Similarly, total income and expenses for all nationalbanks corresponds to the total assets and liabilities ofdomestic offices and subsidiaries and the additional as-sets and liabilities held in foreign offices. For 1975 andprior years, however, "Interest and fees on loans" relatesonly to the domestic loans of a bank or of the NationalBanking System. To facilitate proper analysis of theaggregate income data presented in the report, the con-solidated foreign and domestic balance sheet of nationalbanks with foreign assets is presented for the first time(Table B-32). The difference between the domestic andthe consolidated foreign and domestic items for thosebanks may be added to the domestic-only balance sheetfor all national banks to arrive at a fully consolidated bal-ance sheet for the National Banking System.

The fully consolidated foreign and domestic balancesheet differs, in two important ways, from that producedby adding the domestic-only balance sheet to the totalforeign branch assets found in earlier Annual Reports.First, the aggregate foreign branch data, which are thesummations of reports by individual foreign branches,contain significant intra-bank items which should be net-ted out before calculating total foreign and domestic as-sets. Intra-bank items are normally excluded from theconsolidated foreign and domestic report of condition.

Second, the assets and liabilities of foreign subsidiaries,including, by definition, Edge Act and Agreement sub-sidiaries located in the U.S., do not appear on the foreignbranch reports, but were reported only as netinvestments in unconsolidated subsidiaries on thedomestic balance sheet. Those items are included on aline-by-line basis in the fully consolidated foreign anddomestic report of condition.

Major changes in 1976 reports of condition, bothdomestic and foreign and domestic, included the recast-ing of reserves on loans and securities and the reportingof assets and loans net of unearned discount and valua-tion reserves on loans. Those changes required new def-initions of both "Total assets" and "Total equity capital"that preclude direct comparison with the same items for1975 and earlier years.

Beginning in 1976, loans and, therefore, "Total assets"are reported net of unearned discount. Before 1976, un-earned income, which relates primarily to installmentloans, was reported under "Other liabilities" by all na-tional banks on an accrual accounting basis. Thatincluded all banks with more than $25 million in assets,those that had been recently chartered and those smallbanks that had chosen to use accrual accounting. At theend of 1975, banks on the accrual basis reported ap-proximately $6 billion in unearned income on loans. Priorto 1976, national banks on a cash basis of accounting,only certain smaller banks, were permitted to includetheir interest collected but not earned on installmentloans in undivided profits. That amounted to only some-thing over $100 million. Beginning in 1976, all banks hadto deduct unearned income from total loans. That re-sulted in a downward adjustment of "Total assets" bymore than $6 billion and a slight reduction in total equitycapital.

In addition, the valuation portion of the reserve for baddebt losses, consisting of amounts added to the reserveby charges to operating expense and reduced by netcharge-offs, is now deducted from total loans net of un-earned discount. The valuation portion constituted themajority of the reserve for bad debt losses on loans asreported in the years 1969 through 1975; as of Decem-ber 31, 1975, it equalled approximately $3.5 billion.Therefore, at the beginning of 1976, "Total assets" had tobe adjusted downward an additional $3.5 billion, for atotal downward adjustment of that item of more than $9.5billion.

The remainder of the old item "Reserves on Loans andSecurities" consisted of contingency and deferred taxportions. The contingency portion consisted of amountstransferred to the loss reserve from "Undivided profits"and, thus, represents the cumulative difference betweenthe expense item "Provision for loan losses" reported inthe report of income, and the total provision for loanlosses allowed for income tax purposes. The deferredtax portion of the reserve consists of the total tax effect ofamounts transferred to the reserve from undivided prof-its, when amounts provided for in the income statementare less than the amounts deducted for income tax pur-poses. Beginning in 1976, the contingency portion is re-ported as part of total equity capital and is generally


carried in the item "Reserve for contingencies and othercapital reserves." That reporting change, breaking up theold "Reserves on Loans and Securities," caused an up-ward adjustment in total equity capital in 1976 of approx-imately $1 billion. The deferred tax portion, whichamounted to more than $600 million at the end of 1975, isnow reported under "Other liabilities."

Other changes involved separating Federal Reservestock out of "Other bonds, notes and debentures" on thereport of condition. Minority interest in consolidated sub-

sidiaries is now reported as part of "Other liabilities"rather than as a separate entry below total liabilities.

In addition to being fully consolidated, the report ofincome now provides detail on interest earned on bal-ances with banks, interest expense of large time certifi-cates of deposit, interest expense of deposits in foreignoffices and income from direct lease financing.

Because of the major reporting changes outlinedabove, care should be taken when calculating assetgrowth rates, changes in capital and earnings ratios andwhen making historical comparisons in general.

124


Table B-1

Comptrollers of the Currency, 1863 to the present

No. NameDate of

appointmentDate of

resignation State

123456789

101112131415161718192021222324

McCulloch, HughClarke, FreemanHulburd, Hiland R. . . .Knox, John JayCannon, Henry W. . . .Trenholm, William L. .Lacey, Edward S. . . .Hepburn, A. Barton ..Eckels, James HDawes, Charles G.Ridgely, William BarretMurray, Lawrence O. .Williams, John SkeltonCrissinger, D.RDawes, Henry MMclntosh, Joseph W. ,Pole, John WO'Connor, J. F. TDelano, PrestonGidney, Ray MSaxon, James JCamp, William BSmith, James EHeimann, John G

May 9,Mar. 21,Feb. 1,Apr. 25,May 12,Apr. 20,May 1,Aug. 2,Apr. 26,Jan. 1,Oct. 1,Apr. 27,Feb. 2,Mar. 17,May 1,Dec. 20,Nov. 21,May 11,Oct. 24,Apr. 16,Nov. 16,Nov. 16,July 5,July 21,

186318651867187218841886188918921893189819011908191419211923192419281933193819531961196619731977

Mar.JulyApr.Apr.Mar.Apr.JuneApr.Dec.Sept.Mar.Apr.Mar.Apr.Dec.Nov.Sept.Apr.Feb.Nov.Nov.Mar.July

8, 186524, 18663, 1872

30, 18841, 1886

30, 188930, 189225, 189331, 189730, 190128, 190827, 19132, 1921

30, 192317, 192420, 192820, 193216, 193815, 195315, 196115, 196623, 197331, 1976

Indiana.New York.Ohio.Minnesota.Minnesota.South Carolina.Michigan.New York.Illinois.Illinois.Illinois.New York.Virginia.OhioIllinois.Illinois.Ohio.California.Massachusetts.Ohio.Illinois.Texas.South Dakota.New York.


Table B-2

Deputy Comptrollers of the Currency

No. Name DatesMayAug.Mar.Aug.Jan.Jan.Aug.Apr.Mar.Sept.JuneJulyMayJulyJan.JulyJulyDec.Jan.Feb.Jan.Jan.Oct.MayJulySept.Oct.Jan.Sept.Mar.Feb.Sept.MayApr.Aug.Sept.Dec.Jan.JulySept.Sept.JulyJulyFeb.JulyJulyFeb.Aua, yAug.AuaAug.AuaAug".

9,1,

12,8,5,

27,11,7,

12,1,

29,1,

21,1,6,1,6,1,

24,24,16,16,

1,1,7,1,1,1,1,1,

18,15,16,

2,4,3,

23,1,

13,1,1,

19,1,

21,5,5,2,

31,31,31,31,3131,

of tenure19631865186718721886188718901893189618981899190819231923192519271927192819331936193819381938193919411941194419491950195119521959196019621962196219621963196419641964196519661967197319731975197519751975197519751975

Aug.Jan.Apr.Jan.Jan.MayMar.Mar.Aug.JuneMar.Feb.Dec.JuneNov.Feb.Oct.Jan.Jan.Jan.Sept.Sept.Dec.Aug.Mar.Sept.Feb.Aug.MayApr.Dec.Aug.Aug.Nov.Oct.July

JuneSept.JuneOct.

Dec.

Sept.

1,186531,186724, 18723, 18863, 1887

25, 189016, 189311, 189631, 189827, 1899

2, 192314, 192719, 192430, 192730, 192815, 193616, 194123, 193315, 193815, 193830, 193830, 193831, 194831, 1941

1, 195130, 194417, 195231, 195016, 1960

1, 196231, 196231, 1962

3, 196215, 196626, 196318, 1975

30, 196626, 1975

1, 196726, 1974

31, 1974

20, 1976

StateNew York.Ohio.Minnesota.New York.New York.Virginia.Indiana.Kentucky.South Carolina.New York.District of ColumbiaIndiana.Illinois.Illinois.Virginia.Maryland.Indiana.Washington.Georgia.California.Texas.California.Iowa.Iowa.Iowa.Nebraska.Nebraska.Texas.New York.Virginia.Colorado.Ohio.Missouri.Texas.Connecticut.Ohio.Iowa.Virginia.Iowa.Massachusetts.Wisconsin.Louisiana.Ohio.Mississippi.Georgia.Kansas.Pennsylvania.New York.Missouri.Pennsylvania.Texas.Maryland.Texas.

1234567891011121314151617181920212223242526272829303132333435363738394041424344454647484950515253

Howard, Samuel T. ...Hulburd, Hiland RKnox, John JayLangworthy, John S. ..Snyder, V. PAbrahams, J. DNixon, R. MTucker, Oliver PCoffin, George MMurray, Lawrence O. .Kane, Thomas PFowler, Willis JMclntosh, Joseph W. .Collins, Charles W. . . .Stearns, E. WAwait, F. GGough, E. HProctor, John LLyons, GibbsPrentiss, Jr., William ..Diggs, Marshall ROppegard, G. JUpham, C. BMulroney, A. JMcCandless, R. BSedlacek, L HRobertson, J. LHudspeth, J.WJennings, L. ATaylor, W. MGarwood, G. WFleming, Chapman C. .Haggard, Hollis SCamp, William BRedman, Clarence B. .Watson, Justin TMiller, Dean EDeShazo, Thomas G. .Egertson, R. Coleman .Blanchard, Richard J. .Park, RadcliffeFaulstich, Albert JMotter, David CGwin, John DHowland, Jr., W. A.Mullin, Robert AReam, Joseph MBloom, RobertChotard, Richard D. ..Hall, Charles BJones, David HMurphy, C. WestbrookSelby, H. Joe

Table B-3

Regional Administrators of National banksRegion

1

23456789

1011121314

NameCharles H. Paterson

Charles M. Van HornR. Coleman EgertsonLarry T. GerzemaClifton A. PooleDonald L. TarletonBilly C. WoodJohn W. Schaffer, JrKenneth W, LeafJohn R. BurtMichael DomanKent D. GloverM. B. AdamsJohn G. Hensel

HeadquartersBoston, Mass

New York, N.YPhiladelphia, PaCleveland, OhioRichmond, VaAtlanta, GaChicago, IIIMemphis, TennMinneapolis, MinnKansas City, MoDallas, TexDenver, ColoPortland, OregSan Francisco, Calif

StatesConnecticut, Maine, Massachusetts, New Hampshire, Rhode Island,

Vermont.New Jersey, New York, Puerto Rico, Virgin Islands.Pennsylvania, Delaware.Indiana, Kentucky, Ohio.District of Columbia, Maryland, North Carolina, Virginia, West Virginia.Florida, Georgia, South Carolina.Illinois, Michigan.Alabama, Arkansas, Louisiana, Mississippi, Tennessee.Minnesota, North Dakota, South Dakota, Wisconsin.Iowa, Kansas, Missouri, Nebraska.Oklahoma, Texas.Arizona, Colorado, New Mexico, Utah, Wyoming.Alaska, Idaho, Montana, Oregon, Washington.California, Guam, Hawaii, Nevada.


Table B-4

Changes in the structure of the National Banking System, by States, 1863-1976

Organizedand opened

for busi-ness 1863-

1976

Consolidated and mergedunder 12 USC215

Consoli-dated Merged

Insol-vencies

Liqui-dated

12 USC 214

Converted tostate banks

Merged orconsolidated

with statebanks

InoperationDec. 31,

1976

All national banks .

AlabamaAlaskaArizonaArkansasCaliforniaColoradoConnecticutDelawareDistrict of Columbia . . .Florida



New JerseyNew MexicoNew YorkNorth CarolinaNorth DakotaOhioOklahomaOregonPennsylvaniaRhode Island

South CarolinaSouth DakotaTennesseeTexasUtahVermontVirginiaWashingtonWest VirginiaWisconsinWyoming

Virgin IslandsPuerto Rico

16,634 729 895 2,835 6,779 278

2379

331736252891413244396

2178

1131,012456569465253130131

1614014085261073542134161891

503102

1,064170264756793154

1,30470

140225239

1,496538531325122231385

22

4011

215110

10201446114

3451186134214

571

1278333122

1123

149454323191190

00

2600356410012

402188243311

192833061213013

951

13023044114

1222

1431472296310211

00

4506

396859717

43

430

352279820677371613

1728771161659768345

61251324410011385312112

4493361426182852385412

00

642

2155

3978669181343

894

652992052431981105379

6920815719336

14976

1998

23

15637

44358

11833945410349658

498195

574232974

14868

11726

11

1012535000

912

217

1211801

1136450903

10

14002

360

170

229

623340020

00

381

0110

200

16800

0032420202

111650110010

290

8990607

1090

402529

131000

00

4,737

9763

7358

13223

515

306

6426

425120100169825417

4175

12220338

11556

1204

43

10438

1292843

219195

7237

5

193274

5961314

10821

10313046

11

Does not include one non-national bank in the District of Columbia supervised by the Comptroller of the Currency.


Table B-5

Charters, liquidations and changes in

Increases:Banks newly chartered:

Primary organizationConversion of state banks

Capital stock:Preferred: 3 cases by new issueCommon:

439 cases by statutory sale503 cases by statutory stock dividends1 case by statutory consolidation21 cases by statutory merger19 cases by conversion of preferred stock50 cases by conversion of capital notes

Subordinated notes and debentures: 160 cases by new issue

Total increases

Decreases:Banks ceasing operations:

Voluntary liquidations:Succeeded by national banksSucceeded by state banks

Statutory mergersConverted into state banksMerged or consolidated into state banksInsolvent

Capital stock:Preferred" 19 RetiredCommon:

12 cases by statutory reduction12 cases by statutory merger .

Subordinated notes and debentures:80 retirements50 converted to common stock

Total decreases

Net changeCharters in force Dec. 31, 1975, and issued capital

Charters in force Dec. 31, 1976, and issued capital

issued capital

Number ofbanks

79*9

88

104

43t2313

1

94

- 64,747$

4,741$

stock of national banks, calendar 1976

Capital stock

Common

$50,090,6708,974,000

125,198,150184,473,526

800,0008,408,000

608,777494,588

379,047,711

15,331,000400,000

26,121,03022,827,000

200,000

12,411,57717,454,000

94,744,607

284,303,1048,785,389,103

9,069,692,207

Preferred

$100,000

8,659,236

8,759,236

2,953,114

2,953,114

5,806,12214,333,810

20,139,932

Subordinatednotes anddebentures

$2,000,000

1,628,000

470,209,900

473,837,900

1,040,000

7,550,000752,000

44,378,5931,125,760

54,846,353

418,991,5472,584,836,844

3,003,828,391

* Includes 13 reorganized banks with capital stock of $1,655,000.t Includes 13 reorganized banks.t Represents charters issued, not banks in operation.

NOTE: Premium on sale of common stock .$169,045,095 (457 cases)Premium on sale of convertible notes 631,173 ( 50 cases)

Total $169,676,268 (507 cases)


Table B-6

Applications for national bank charters*, approved and rejected, by states, calendar 1976

ALABAMA

Alexander CityDothanARKANSAS

F i r s t N a t i o n a l B a n k o f S h e r i d a n , S h e r i d a n . . . .CALIFORNIA

FallbrookLos AngelesLos AngelesCOLORADO

Citizens National Bank, Colorado SpringsWestern National Bank South, LongmontFLORIDAClearwaterClermontRoyal Trust Bank of South Dade, N.A., unin-

corporated area of Dade CountyUnincorporated area of Dade CountyDelray BeachDelray BeachUnincorporated area of Orange CountyUnincorporated area of Orange CountyFlorida Coast Bank of South Palm Beach

County, N.A., unincorporated area of PalmBeach County

Unincorporated area of Palm Beach County . . . .Unincorporated area of Pasco CountyLandmark Bank of Pompano Beach, N.A.,

Pompano BeachUnincorporated area of St. Lucie CountyTallahasseeTemple Terrace •ILLINOIS

Market Place National Bank, ChampaignMidland National Bank, ChicagoChicagoChicagoThe Guarantee National Bank of Rockford,

RockfordSt. CharlesSpring ValleyINDIANA

Industrial National Bank of East Chicago,East Chicago

East ChicagoSouth Lake National Bank, LowellLiberty National Bank, SelmaKENTUCKY

HopkinsvilleLOUISIANA

New OrleansMICHIGAN

Manufacturers Bank of Southfield, N.A.,Southfield

MINNESOTA

Granite City National Bank of St. Cloud,St. Cloud

Approved Rejected

Feb. 19Dec. 16

July 2

Jan. 27June 7

__ July 8July 8July 8

Dec. 14

Jan. 9Jan. 8

Dec. 29

__ Jan. 8Jan. 6

__ May 20__ Jan. 27

May 6

Mar.

JuneJuly

Oct.

Feb.

JuneApr.

Apr

June

12

78

26

19

716

?6

7

Jan.May

Jan.Aug.Oct.

JulyJulv

Jan.Mar.

Feb.

Dec

Sept

6?4

2720

88

2719

19

14

NEW JERSEY

City Trust Services, National Association,Elizabeth

NEW YORK

GreenburghGolden Pacific National Bank, Borough of

ManhattanUnion Chelsea National Bank, New YorkNiskayunaNORTH DAKOTA

First National Bank of Crosby, Crosby

OHIO

Fl National Bank, IrontonFT National Bank, Troy

OKLAHOMA

Miami National Bank, MiamiLakeshore Bank, N.A., Oklahoma CityTulsa

PENNSYLVANIA

ErieTENNESSEE

First Tennessee National Bank, Chattanooga . . .

TEXAS

First City Bank - Northeast, N.A., HoustonSouth Loop National Bank, HoustonHoustonHoustonSouth Texas National Bank of Laredo, La-

redoWestern National Bank, OdessaFirst National Bank of Rio Grande City, Rio

Grande City

UTAH

First Security Bank of Orem, National Asso-ciation, Orem

Richfield

WASHINGTON

Pioneer National Bank, Yakima

WEST VIRGINIA

Unincorporated area of Glen DanielCentral National Bank, MorgantownMountaineer National Bank, MorgantownSalemWheeling

WISCONSIN

The First National Bank of Boscobel, Boscobel .First National Bank of Minocqua and Woodruff,

MinocquaMinocqua -WYOMING

Miles

Approved Rejected

June 14

Apr.Dec.

Jan

JuneJune

Mar.Mar.

Feb

JuneMar

Sept.Nov

Nov.

Feb.

June

Aug.Aug.

Feb.

Dec.

2717

6

22??

1924

16

71

30?1

?7

18

30

2020

18

16

Jan.

Mar.

Auq.

July

Feb.July

Mar.

Apr.

Jan.Dec.

Jan.

Jan.

6

19

9

?R

98

19

16

69

6

6

• Does not include applications for conversion or pursuant to corporate reorganizations.


Table B-7

Applications for national bank charters pursuant to corporate reorganizations,by states, calendar 1976

GEORGIA Approved Rejected

First National Interim Bank of Albany, Al-bany Dec. 29

Georgia National Bank, Atlanta Dec. 9First National Interim Bank of Brunswick,

Georgia, Brunswick Dec. 29ILLINOIS

O'Hare National Bank, Chicago Jan. 19First Freeport Bank, National Association,

Freeport Mar. 31Maywood National Bank, village of Maywood . . . Oct. 22INDIANA

East Chicago Withdrawn Feb. 19MARYLAND

New University National Bank, Rockville June 7MASSACHUSETTS

First Bank of Athol (National Association),Athol Sept. 13

Williamstown Bank (National Association)^Williamstown Sept. 13

The Yarmouth Bank, National Association,Yarmouth Nov. 18

Approved Rejected

MICHIGAN

The First Iron River National Bank, Iron River . . . . Oct. 12Kentwood Bank, N.A., Kentwood Oct. 19Lapeer Bank, N.A., Lapeer Nov. 5Cassopolis National Bank, Niles Feb. 10P. Bank National Association, Trenton Feb. 2

NEW YORK

Chester Bank, N.A., Chester June 5OHIO

FNB National Bank, Elyria May 21TEXAS

Heights Bank, National Association, Ala-mo Heights July 15

New Citizens National Bank of Baytown,Texas, Baytown Dec. 2

3300 Commerce National Bank, Dallas Nov. 16Bexar County Commerce Bank National As-

sociation, San Antonio May 21VIRGINIA

Troutville Bank, N.A., Troutville June 25

Table B-8

Newly organized national banks, by states, calendar 1976

CharterNo. Title and location of bank

Total capitalaccounts

165791655316547

1659516605

1658916616165831656116590165741654916531

165691659316594166011658816584

16582

1658116611

16551

Total, United States: 65 banks

ALABAMA

First National Bank of Hamilton, HamiltonCommonwealth National Bank, Mobile . . .First Shelby National Bank, Pelham

Total: 3 banks

$101,066,005

CALIFORNIA

Anaheim National Bank, AnaheimVista National Bank, Vista

Total: 2 banks

FLORIDA

Barnett Bank of Gainesville, National Association, Gainesville .. .Century National Bank, JacksonvilleFirst Commercial National Bank, LakelandSecond National Bank of Lakeland, LakelandBarnett Bank of Orange Park, National Association, Orange ParkLandmark Bank of Pompano Beach, N.A., Pompano BeachSinger Island National Bank, Riviera BeachSoutheast First National Bank of Sarasota, Sarasota

Total: 8 banks ."

ILLINOIS

Airport National Bank, BethaltoColumbia National Bank, ColumbiaFirst National Bank of Lake Zurich, Lake Zurich .First National Bank of Marengo, MarengoMadison National Bank of Niles, NilesButterfield National Bank, Wheaton

Total: 6 banks

INDIANA

First National Bank of Paoli, Paoli

KENTUCKY

Continental National Bank of Kentucky, LouisvilleFirst National Bank of Lewis County, Vanceburg .

Total: 2 banks

LOUISIANA

First National Bank of Eunice, Eunice

1,000,000750,000

1,500,0003,250,000

2,000,0001,250,000

3,250,000

1,000,000845,000

1,200,0001,000,0001,250,000

945,0001,200,0005,000,000

12,440,000

1,000,0001,000,0001,500,000

750,0001,000,0001,500,0006,750,000

1,000,000

1,000,0001,000,0002,000,000

1,000,000


Table B-8—Continued

Newly organized national banks, by states, calendar 1976

CharterNo. Title and location of bank

Total capitalaccounts

1661216554

165991655916548

16592165701654616603

16580

1656616596

16629

16560

166071656316608

16606

16552

16557166251654416575165981657216624166021658516564165581660016555166181657816614166261655016617

16615

16613

1662016604

MICHIGAN

National Bank of Port Huron, Port HuronNational Bank of Troy, Troy

Total: 2 banks

MINNESOTA

American National Bank of Brainerd, BrainerdSuburban National Bank, Eden PrairieNational City Bank of Ridgedale, Village of Minnetonka .

Total: 3 banksMISSOURI

Commerce Bank of Grandview, National Association, Grandview .Mark Twain National Bank, LadueChristian County National Bank, OzarkMehlville National Bank, unincorporated Area of St. Louis County

Total: 4 banks

MONTANA

G l a c i e r N a t i o n a l B a n k , C o l u m b i a F a l l s . . . .

NEW MEXICO

San Juan National Bank, FarmingtonBank of Las Cruces, National Association, Las Cruces

Total: 2 banksNEW YORK

U n i o n C h e l s e a N a t i o n a l B a n k , N e w Y o r k . . . .

NORTH CAROLINA

U n i t e d N a t i o n a l B a n k , F a y e t t e v i l l e . . . .

OHIO

Fl National Bank, IrontonNational City Bank of Lake County, MentorFT National Bank, Troy

Total: 3 banks

OKLAHOMA

Miami National Bank, Miami

TENNESSEE

First Tennessee National Bank, Chattanooga

TEXAS

Prestonwood National Bank, AddisonAnahuac National Bank, AnahuacNational Bank of Commerce, AustinWestern National Bank, AustinChemical National Bank, CluteNational Bank of Commerce, EdinburgChamizal National Bank, El PasoBraes Bayou National Bank, HoustonFirst City Bank - Northeast, N.A., HoustonParkway National Bank, HoustonSouth Loop National Bank, HoustonFirst National Bank of Pearland, PearlandCanyon Creek National Bank, RichardsonFirst National Bank of Rio Grande City, Rio Grande CityPlaza National Bank, San AntonioHays County National Bank, San MarcosCentral National Bank of Woodway-Hewitt, WacoFirst National Bank of West University Place, West University PlaceAmerican National Bank, Wichita FallsTotal: 19 banksUTAH

First Security Bank of Orem, National Association, Orem

VIRGINIA

Patrick Henry National Bank, Bassett

WISCONSIN

Regency National Exchange Bank, BrookfieldCommunity National Bank, Oregon

Total: 2 banks

$2,000,0003,000,0005,000,000

1,000,0002,000,0002,000,0005,000,000

1,000,0001,000,0001,000,0001,200,000

4,200,000

700,000

1,000,0001,000,0002,000,000

$1,006,005

750,000

1,200,0002,500,0002,400,000

6,100,000

1,200,000

16,000,000

2,000,0001,000,0002,000,0001,000,000

600,0001,000,0001,000,0001,000,0001,250,0002,500,0001,120,0001,000,0001,000,0001,500,0001,250,0001,000,0001,200,0001,000,0001,000,000

23,420,000

1,000,000

2,000,000

2,000,0001,000,0003,000,000


Table B-9

National bank charters issued* and mergers consummated pursuant to corporate reorganizations,by states, calendar 1976

Effectivedate ofmerger

June 16

Mar. 31

Dec. 31

Dec. 31

Mar. 11

Dec. 3

Dec 31

Apr. 29

Aug. 16

Dec. 31

Oct. 1

Apr. 16

July 1

Operating bankNew bank

Resulting bank

CALIFORNIA

The First National Bank of San Jose, San JoseF.N. National Bank, San Jose

Charter issued June 14, 1976The First National Bank of San Jose, San Jose

DISTRICT OF COLUMBIA

American Security and Trust Company, WashingtonAmerican Security and Trust Company, National Association, Washington

Charter issued March 26, 1976American Security and Trust Company, National Association, Washington

ILLINOIS

First National Bank of Freeport, FreeportFirst Freeport Bank, National Association, Freeport

Charter issued December 27, 1976First National Bank of Freeport, Freeport

MASSACHUSETTS

Williamstown National Bank, WilliamstownWilliamstown Bank (National Association), Williamstown

Charter issued December 28, 1976Williamstown National Bank, Williamstown

MICHIGAN

Commercial National Bank, CassopolisC. National Bank, Cassopolis

Charter issued March 9, 1976Commercial National Bank, CassopolisThe National Bank of Ludington, LudingtonNBL National Bank, Ludington

Charter issued December 1, 1976The National Bank of Ludington, Ludington

NEW YORK

The Chester National Bank, ChesterChester Bank, N.A., Chester

Charter issued December 22, 1976Chester National Bank Chester

OHIO

The Geauga County National Bank of Chardon, ChardonG. C. National Bank, Chardon

Charter issued April 28, 1976The Geauga County National Bank of Chardon, ChardonFirst National Bank of Elyria, ElyriaFNB National Bank, Elyria

Charter issued August 9, 1976First National Bank of Elyria, Elyria

TEXAS

Alamo Heights National Bank, Alamo HeightsHeights Bank, National Association, Alamo Heights

Charter issued December 15, 1976Alamo Heights National Bank, Alamo HeightsThe First National Bank of Henderson, HendersonSouth Main & Richardson National Bank, Henderson

Charter issued September 30, 1976Thp Fir^t National Bank of Hpndprson HendersonThe First National Bank of New Braunfels, New BraunfelsNew Braunfels Commerce Bank National Association, New Braunfels

Charter issued April 15, 1976Fir<=;t National Bank of NPW Braunfpls New Braunfels

VIRGINIA

The First National Bank of Troutville, TroutvilleTroutville Bank, N.A., Troutville

Charter issued June 25, 1976The First National Bank of Troutville Troutville

Totalcapital

accounts^

$22,445

95,918

5,905

941

3,866

2,036

3,174

1,307

3,442

2,294

2,426

3,527

1,073

Totalassets

$391,867

1,069,068

83,601

11,111

61,587

32,612

51,607

17,898

39,200

35,756

31,371

34,591

12,486

* Includes only charter issuances related to mergers consummated during 1975. For a full listing of charters issued pursuant to corporatereorganizations during the year see Table B-11.

t Includes subordinated notes and debentures, if any.


Table B-10

State-chartered banks converted to national banks*, by states, calendar 1976

Charterno.

16556

16576

16586

16630

16567

16571

16568

16545

16610

Title and location of bank

Total: 9 banksFLORIDA

City National Bank of Lauderhill, LauderhillConversion of City Bank of Lauderhill . . .

The National Bank of Collier County, Marco IslandConversion of First Bank of Marco Island

Century National Bank of Palm Beach County, West PalmBeachConversion of Northwood Bank of West Palm Beach . . .

The Exchange National Bank of Lake County, ClermontConversion of The Exchange Bank of Clermont

GEORGIA

The First National Bank of Haralson County, BuchananConversion Haralson County Bank

MICHIGAN

Peoples Bank and Trust, N.A., TrentonConversion of Peoples Bank . . . .

NORTH CAROLINA

Burlington National Bank, BurlingtonConversion of Burlington Bank and Trust Company .. .

OHIO

First Bank National Association, ClevelandConversion of First Bank and Trust of Cleveland

VIRGINIA

Virginia National Bank/Richmond, RichmondConversion of Virginia Trust Company

Effectivedate ofcharter

Feb. 23

Apr. 28

June 14

Dec. 30

Mar. 26

Apr. 1

Mar. 29

Jan. 21

Oct. 20

Outstandingcapital stock

$11,574,000

990,000

490,000

1,260,000

400,000

100,000

2,422,000

2,611,000

2,101,000

1,200,000

Surplus, undi-vided profitsand reserves

$15,682,922

1,451,471

737,524

398,000

1,288,495

517,937

3,115,426

1,239,673

1,452,477

5,481,919

Total assets

$285,586,959

34,844,352

17,073,681

9,854,779

23,644,560

7,449,615

147,580,834

11,455,000

13,163,138

20,521,000

* Does not include one bank that converted to national status through a merger pursuant to corporate reorganization. That bank was AmericanSecurity and Trust Company, Washington, D.C., which merged with American Security and Trust Company, National Association, Washington,D.C., charter number 16565, formed for the purpose of effecting a corporate reorganization. For complete information see Table B-9.

Table B-11

National bank charters issued pursuant to corporate reorganizations, by states, calendar 1976

Charterno. Title and location of bank

Date ofissuance

2158

16565

136953548

3092

1637114016

1349

1487914968

Total: 14 banks

CALIFORNIA

F. N. National Bank, San Jose

DISTRICT OF COLUMBIA

American Security and Trust Company, National Association, Washington

ILLINOIS

First Freeport Bank, National Association, FreeportI N B National Bank, Springfield

Total: 2 banks

MASSACHUSETTS

Williamstown Bank (National Association), Williamstown

MICHIGAN

C. National Bank, CassopolisN B L National Bank, Ludington

Total: 2 banks

NEW YORK

Chester Bank, N.A., Chester

OHIO

The G. C. National Bank, ChardonF N B National Bank, Elyria

Total: 2 banks

June

Mar.

Dec.Dec.

Dec.

Mar.Dec.

Dec.

Apr.Aug.

14

26

2727

28

22

289


Table B—11— Continued

National bank charters issued pursuant to corporate reorganizations, by states, calendar 1976


Date ofissuance

1551461764295

9764

TEXAS

Heights Bank, National Association, Alamo HeightsSouth Main & Richardson National Bank, HendersonNew Braunfels Commerce Bank National Association, New Braunfels

Total: 3 banksVIRGINIA

Troutville Bank, N.A., Troutville

Dec.Sept.Apr.

June

153015

25

Table B-12

National banks reported in voluntary liquidation, by states, calendar 1976(Dollar amount in thousands)

Title and location of bankDates of

liquidations

Total capitalaccounts ofliquidated

banks*Total: 14 National banks

FLORIDA

Palmer First National Bank and Trust Company of Sarasota (13352), Sarasota, absorbed by Southeast First NationalBank of Sarasota (16531), Sarasota

GEORGIA

Mercantile National Bank (15789), Atlanta, absorbed by The National Bank of Georgia (15541), Atlanta

MISSOURI

Deposit Insurance National Bank of Kansas City (99001), Kansas City, absorbed by Laurel Bank of Kansas City,Kansas City

NEW YORK

Chelsea National Bank (15428), New York, absorbed by Union Chelsea National Bank (16629), New YorkThe Red Creek National Bank (10781), Red Creek, absorbed by The Oneida National Bank and Trust Company of

Central New York (1392), Utica

OHIO

The First National Bank of Amesville (7235), Amesville, absorbed by The Glouster Community Bank, Glouster..The First National Bank of Ironton (98), Ironton, absorbed by F I National Bank (16607), IrontonThe First National Bank & Trust Company (3825), Troy, absorbed by F T National Bank (16608), TroyCommunity National Bank of Warrensville Heights (15561), Warrensville Heights, absorbed by First Bank National

Association (16545), Cleveland

TENNESSEE

The Hamilton National Bank of Chattanooga, (7848), Chattanooga, absorbed by First" Tennessee National Bank(16522), Chattanooga

VERMONT

The Enosburg Falls National Bank (13986), Enosburg Falls, absorbed by Sterling Trust Company, Johnson

WASHINGTON

The First National Bank of Redmond (12121), Redmond, absorbed by Seattle Trust and Savings Bank, Seattle .First National Bank in Port Angeles (6074), Port Angeles, absorbed by Seattle - First National Bank (11280), SeattleThe First American National Bank of Port Townsend (13351), Port Townsend, absorbed by Seattle - First National

Bank, (11280), Seattle

Jan. 15

July

Dec. 18

$53,068

1,000

851

0

Dec.

July

JuneSept.Sept.

June

Feb.

Jan.

Sept.Aug.

Aug.

31

20

303030

18

16

30

1724

24

272

938

4004,3897,386

3,084

26,273

551

1,4484,341

2,135

' Includes subordinated notes and debentures, if any.


Table B-13

National banks merged or consolidated with state banks, by states, calendar 1976(Dollar amount in thousands)

Title and location of bank

Total: 13 banks

MAINE

Casco Northern National Bank (16382), Augusta, merged into Casco Bank & Trust Company, Portland, under title"Casco Bank & Trust Company"

MASSACHUSETTS

The Park National Bank of Holyoke (4703), Holyoke, merged into Western Bank and Trust Company, WestSpringfield, under title "Park West Bank and Trust Company"

The Union Market National Bank of Watertown (2108), Watertown, merged into BayBank Newton-Waltham TrustCompany, Waltham, under title "BayBank Newton-Waltham Trust Company"

NEW JERSEY

Suburban National/A United Jersey Bank (16129), South Plainfield, merged into United Jersey Bank/Central,Elizabeth, under the title "United Jersey Bank/Central"

NEW YORK

Manufacturers Hanover Trust Company/Suffolk, National Association (10029), Bay Shore, merged into Manufactur-ers Hanover Trust Company, New York, under title "Manufacturers Hanover Trust Company"

Marine Midland Bank-Chautauqua, National Association (8453), Jamestown, merged into Marine Midland Bank,Buffalo, under title "Marine Midland Bank"

Marine Midland Tinker National Bank (11511), Melville, merged into Marine Midland Bank, Buffalo, under title"Marine Midland Bank"

Bankers Trust of Suffolk, National Association (12788), Patchogue, merged into Bankers Trust Company, New York,under title "Bankers Trust Company"

Marine Midland Bank of Southeastern New York, N.A. (465), Poughkeepsie, merged into Marine Midland Bank, Buf-falo, under title "Marine Midland Bank"

Marine Midland Bank-Eastern, National Association (721), Troy, merged into Marine Midland Bank, Buffalo, undertitle "Marine Midland Bank"

PENNSYLVANIA

The First National Bank of Lewistown (1579), Lewistown, merged into Central Counties Bank, State College, undertitle "Central Counties Bank"

The First National Bankof Shoemakersville (11841), Shoemakersville, merged into American Bank and Trust Co. ofPa., Reading, under title "American Bank and Trust Co. of Pa."

VIRGINIA

Richmond National Bank (15027), Richmond, merged into First Virginia Bank of Colonial Heights, Colonial Heights,under title "First Virginia - Colonial"

* Includes subordinated notes and debentures, if any.

Effectivedate

Total capitalaccounts of

nationalbanks*

June 25

July 16

July 6

Oct. 29

Nov.

$101,453

1,088

1,794

4,990

978

July

Jan.

Jan.

Oct.

Jan.

Jan.

Sept.

Apr.

30

1

1

29

1

1

30

23

10,081

12,952

14,106

9,928

21,139

16,278

3,503

1,161

3,455


Table B-14

National banks converted into state banks, by states, calendar 1976(Dollar amounts In thousands)


Effectivedate

Total capitalaccounts ofnationalbanks*

11635

1497314606

15958

1058214595

111

306614978

2260

849614582

10740

8011

1242

10087

8704984

13539

1508216213148111582712691

Total: 24 banks ".

ALABAMA

Opelika National Bank, Opelika, converted into The Bank of East AlabamaARKANSAS

First National Bank of Dermott, Dermott, converted into First State Bank of DermottFirst National Bank of Jonesboro, Jonesboro, converted into First Bank & Trust of JonesboroCALIFORNIA

Gavilian National Bank, Gilroy, converted into Gavilan Bank

ILLINOIS

The First National Bank of Marine, Marine, converted into First Bank of MarineWheaton National Bank, Wheaton, converted into Bank of Wheaton

Sept.

Oct. 15Dec. 22

Apr.

Nov. 30June 30

INDIANA

The First National Bank of Madison, Madison, converted into First Bank of MadisonKANSAS

The First National Bank of Concordia, Concordia, converted into First Bank and TrustEast Side Bank and Trust, National Association, Wichita, converted into East Side Bank and TrustMAINE

Northeast Bank, N. A. of Lewiston and Auburn, Lewiston, converted Northeast Bank of Lewiston and AuburnMICHIGAN

Northern Michigan Bank, N.A., Escanaba, converted into Northern Michigan BankFirst National Bank & Trust Company of Midland, Midland, converted into First Midland Bank & Trust Com-

pany

Apr.

Mar.

July

Apr.MINNESOTA

First National Bank of Lakeville, Lakeville, converted into First Lakeville State BankMISSOURI

Plaza First National Bank of West Port, St. Louis County, converted into Plaza Bank of West PortNEW HAMPSHIRE

Monadnock National Bank, Jaffrey, converted into Monadnock Bank

NEW YORK

Long Island National Bank, Hicksville, converted into Long Island Bank

PENNSYLVANIA

Marine National Bank, Meadville, converted into Marine Bank

The First National Bank of Troy, Troy, converted into First Bank of Troy

TENNESSEE

United American Bank, N.A., Knoxville, converted into United American Bank in Knoxville

TEXAS

Western National Bank of Denton, Denton, converted into Western State BankHeritage National Bank, Houston, converted into Heritage BankSabine National Bank of Port Arthur, Port Arthur, converted into Sabine BankFirst National Bank of Tomball, Tomball, converted into First Bank & TrustFannin National Bank in Windom, Windom, converted into The Fannin Bank

14

July 31Sept. 2

16

30

29

Oct. 29

Sept. 16

Aug. 30

Sept. 7

Dec. 22

Mar. 5

Oct. 29

June 9Nov. 12Feb. 2Sept. 29Jan. 20

$109,018

2,765

8051,883

3,327

3964,496

2,093

1,1012,033

8,967

2,527

5,402

874

3,673

863

13,086

14,9822,273

30,359

1,302929

3,1471,323

412

* Includes subordinated notes and debentures, if any.


Table B-15

Purchases of state banks by national banks, by states, calendar 1976(Dollar amounts in thousands)

Title and location of bankEffective

date

Total capitalaccounts ofstate banks*

Total: 17 banks

ARKANSAS

The First National Bank of Huntsville (8952), Huntsville, purchased The Valley Bank, Hindsville

FLORIDA

Landmark Bank of Pompano Beach, N.A. (16574), Pompano Beach, purchased The Security State Bank of Pom-pano Beach, Pompano Beach

GEORGIA

T h e N a t i o n a l B a n k o f G e o r g i a ( 1 5 5 4 1 ) , A t l a n t a , p u r c h a s e d T h e H a m i l t o n B a n k a n d T r u s t C o m p a n y , A t l a n t a . . . .NEW JERSEY

New Jersey Bank, National Association (15709), Clifton, purchased First State Bank of Hudson County, Jersey CityFirst Peoples National Bank of New Jersey (399), Haddon Township, purchased The Provident Bank of New Jersey,

WillingboroFirst National State Bank of New Jersey (1452), Newark, purchased The Bank of Bloomfield, BloomfieldCitizens First National Bank of New Jersey (11759), Ridgewood, purchased The State Bank of North Jersey, Pine

Brook (Montville Township)New Jersey National Bank (1327), Trenton, purchased First State Bank, Toms River (Dover Township)

Mar.

OHIO

Euclid National Bank (15573), Euclid, purchased The Continental Bank, ClevelandGreenville National Bank (13944), Greenville, purchased The Citizens Bank Company, AnsoniaTEXAS

First City Bank - Northeast, N.A. (16585), Houston, purchased Northeast Bank of Houston, HoustonSouth Loop National Bank (16558), Houston, purchased South Texas Bank, HoustonFirst National Bank of Rio Grande City (16618), Rio Grande City, purchased First State Bank & Trust Company, Rio

Grande City

Dec.Jan.

Dec.Dec.

Mar.Apr.

JuneMar.

Nov.WASHINGTON

Puget Sound National Bank (12292), Tacoma, purchased Continental Bank, BurienSeattle - First National Bank (11280), Seattle, purchased Bank of Sequim, Sequim

and Forks State Bank, ForksOld National Bank of Washington (4668), Spokane, purchased Bank of the West, Bellevue ..

9

Apr. 19

Oct. 8

June 15

3110

2817

3110

1

29

Mar. 20Aug. 24Aug. 24Mar. 4

$44,422

143

388

4,471

1,8492,490

4,1429,799

5,126651

558666

1,103

1,4551,3141,7498,518

Table B-16

Consolidations* of national banks, or national and state banks, by states, calendar 1976(Dollar amounts in thousands)

Effectivedate

Feb. 17

Consolidating banksResulting bank

Totaf: 1 consolidation

SOUTH DAKOTA

United National Bank (15639), Rapid CityUnited Bank & Trust, Sioux FallsUnited National Bank (15639), Rapid City

Outstandingcapitalstock

$1,500500

2,300

Surplus

$1,5001,0002,500

Undividedprofits andreserves

$2,490628

2,819

Total assets

$95,55932,888

128,446


Table B-17

Mergers* of national banks, or national and state banks, by states, calendar 1976(Dollar amounts in thousands)

Effectivedate

Merging banksResulting banks

Total: 36 merger actions

ALABAMA

The Citizens Bank of Georgiana, GeorgianaThe First National Bank of Greenville, Greenville (5572) . . . .The First National Bank of Greenville, Greenville (5572)

CONNECTICUT

The North Haven National Bank, North Haven (15439)The First New Haven National Bank, New Haven (2)The First New Haven National Bank, New Haven (2)Laurel Bank and Trust Company, MeridenAmerican National Bank, Hamden (15496)American National Bank, Hamden (15496)INDIANA

The Lamasco Bank, EvansvilleThe Citizens National Bank of Evensville, Evansville (2188) .The Citizens National Bank of Evansville, Evansville (2188) .KENTUCKY

Hiseville Deposit Bank, HisevilleThe New Farmers National Bank of Glasgow, Glasgow (13651)The New Farmers National Bank of Glasgow, Glasgow (13651)MAINE

Central National Bank, Waterville (15954)Canal National Bank, Portland (941)Canal National Bank, Portland (941)

MARYLAND

The Millington Bank of Maryland, MillingtonThe Farmers National Bank of Annapolis, Annapolis (1244).Farmers National Bank of Maryland, Annapolis (1244)The First National Bank of Mount Savage, Mount Savage

(6144)The First National Bank and Trust Company of Western Mary-

land, Cumberland (381)The First National Bank and Trust Company of Western Mary-

land, Cumberland (381)

MASSACHUSETTS

Heritage Bank and Trust Company, WestfieldOld Colony Bank of Hampden County, N.A., Holyoke (1939)Old Colony Bank of Hampden County, N.A., Holyoke (1939)

MISSISSIPPI

Clinton National Bank, Clinton (16257)Peoples Bank of Mississippi, National Association, Union

(16194)Peoples Bank of Mississippi, National Association, Union

(16194)Columbia Bank, ColumbiaFirst National Bank of Jackson, Jackson (10523)First National Bank of Jackson, Jackson (10523)NEW JERSEY

Somerset Hills & County National Bank, Basking Ridge (6960)First National State Bank/Mechanics, Burlington Township

(1222)First National State Bank of West Jersey, Burlington Township

(1222)First National State Bank of the Jersey Coast, Spring Lake

(13898)The Edison Bank, National Association, South Plainfield

(15845)Edison/First National State Bank, South Plainfield (15845) ..Independent National Bank, Willingboro (16092)The First National Bank of Stone Harbor, Stone Harbor (12978)Independent National Bank, Stone Harbor (12978)Bank of Wayne, National Association, Wayne (15934)Valley National Bankt, Passaic (15790)Valley National Bank, Passaic (15790)


$75250300

2565,0835,0831,2091,6442,076

4004,8005,900

60600720

4005,4005,750

501,5001,560

25

1,477

1,530

330700700

400

1,012

1,213375

8,5948,594

1,718

3,650

5,368

2,500

2,1655,000

800622

1,022600

4,2504,625

Surplus

$150500675

25615,00015,000

9831,8013,561

6007,2007,800

2501,4001,650

3004,5004,850

02,5002,500

325

3,023

3,320

3302,7402,740

625

2,800

3,6251,725

43,51145,806

2,300

3,650

5,950

2,050

2,5005,000

8002,0633,263

6004,2504,625


$3491,7232,072

2959,1299,129

0566

0

1,4336,2867,019

119881951

181,6191,549

741,7811,845

140

2,714

2,854

262465465

0

580

562664

1,3841,384

1,950

1,479

3,429

1,201

3,9474,362

4831,0141,497

39113,87814,720

Total assets

$7,85835,70243,218

14,434344,161356,693

24,86954,77979,907

21,295231,241252,081

4,93940,68947,104

10,100180,348193,263

5,39976,25281,651

2,528

90,032

92,539

11,81036,27347,162

5,546

68,220

73,76627,839

810,858838,697

83,022

124,172

207,195

93,182

93,500186,68215,75337,26353,01610,079

242,671252,535

Apr.

Aug.

Dec.

30

31

1

Oct. 1

Apr. 1

Oct. 1

Mar. 5

Dec. 1

Feb. 3

Mar. 17

Dec. 31

Feb. 6

Mar. 26

May 3

June 11

See footnotes at end of table.




Effectivedate

Merging banksResulting bank's


$1,594400

1,994532

9,6939,693700

5001,2001,20016,72616,726

1,400

1,400

1,4001,400

1,4001,400

1,400750,691750,691

800

857

800800

800

950

1,400

250

536,270536,9766,000

6,342

6,342

8961,3052,0891,100

4,227

4,887

57529,24529,245

25012,83712,837

Surplus

$1,606400

2,0061,27819,44421,254

820

2,5003,3201,065

39,27741,542

1,100

3,600

3,6001,100

1,1001,100

1,100880,754880,754

800

526

800800

800

210

611

1,010

708,995709,626

1,500

10,500

10,500

2,3543,2995,7651,107

5,053

6,600

1,32595,23595,235

25023,16323,163


$1,881154

2,035233

11,96012,193

0

1,4211,319

032,50132,333

283

1,160

65885

85854

2961,085,6431,085,139

0

0

00

161

2

0

873

582,701582,7011,828

19,387

19,490

3,2475,9429,198109

5,225

5,334

1,01263,64763,126

28823,13723,137

Total assets

$ 68,5626,72875,29028,432825,071853,50329,098

54,82083,91840,219

1,000,4721,040,691

36,362

34,903

•41,32146,650

159,23647,012

33,10126,732,19626,812,309

27,867

28,546

17,99312,647

7,317

25,641

29,458

17,974

25,409,95425,489,462

35,471

524,974

552,015

69,482125,452195,45611,512

240,995

252,507

30,5462,569,1032,592,844

8,999872,964881,175

June

Oct.

Nov.

Dec.

30

18

31

Jan.

Jan.

May 21

Nov. 19

June 1

July 12

Jan.

May

JEW JERSEY—Continued

Beach Haven National Bank and Trust Company, BeachHaven (11658) '

The Bank of New Jersey, N.A., Moorestown (16397)The Bank of New Jersey, N.A., Moorestown (16397)Plaza National Bank, Secaucus (15228)New Jersey Bank (National Association), Clifton (15709) . . .New Jersey Bank (National Association), Clifton (15709) . . .United Jersey Bank/City National, Vineland (14673)The Cumberland National Bank of Bridgeton, Bridgeton

(1346)United Jersey/Cumberland National, Bridgeton (1346)Midlantic National Bank/West, Morristown (15360)Midlantic National Bank, Newark (1316)Midlantic National Bank, Newark (1316)

NEW YORK

Citibank (Eastern), National Association, Castleton-on-Hudson (5816)

Citibank (Central), National Association, Oriskany Falls(16089)

Citibank (Mid-Western), National Association, Honeoye Falls(15976)

Citibank (Western), National Association, Buffalo (10258) ..Citibank (New York State), National Association, Buffalo

(10258)Citibank (Suffolk), National Association, Islip (15917)Citibank (Mid-Hudson), National Association, Woodbury

(9990)First National City Bank, New York (1461)First National City Bank, New York (1461)Chase Manhattan Bank of Long Island, N.A., Melville (15922)Chase Manhattan Bank of the Mid-Hudson, N.A., Saugerties

(1040) ,Chase Manhattan Bank of Central New York, Syracuse

(16047)Chase Manhattan Bank of Eastern New York, Albany (16203)Chase Manhattan Bank of the Southern Tier, Binghamton

(16379)Chase Manhattan Bank of Greater Rochester, N.A., Rochester

(16050)Chase Manhattan Bank of Western New York, N.A., Buffalo

(13952)Chase Manhattan Bank of Northern New York, N.A., Canton

(3696)Chase Manhattan Bank, National Association, New York

(2370)Chase Manhattan Bank, N.A., New York (2370)Ogdensburg Trust Company, OgdensburgOneida National Bank and Trust Company of Central New

York, Utica (1392)Oneida National Bank and Trust Company of Central New

York, Utica (1392)

NORTH CAROLINA

Union Trust Company of Shelby, ShelbyThe Citizens National Bank in Gastonia, Gastonia (13779)..Independence National Bank, Gastonia (13779)Hanover Bank, WilmingtonThe Planters National Bank and Trust Company, Rocky Mount

(10608)The Planters National Bank and Trust Company, Rocky Mount

(10608)

OHIO

The Bank of Cleveland, ClevelandNational City Bank, Cleveland (786)National City Bank, Clevelrnd (786)The Pickerington Bank, PickeringtonThe Huntington National Bank of Columbus, Columbus (7745)The Huntington National Bank of Columbus, Columbus (7745)





Effectivedate

Merging banksResulting banks

PENNSYLVANIA

The Kutztown National Bank, Kutztown (5102)The First National Bank of Allentown, Allentown (373)The First National Bank of Allentown. Allentown (373)The First National Bank of Coalport, Coalport (6887)United States National Bank in Johnstown, Johnstown M 3781)United States National Bank in Johnstown, Johnstown (13781)The First National Bank of Dickson City, Dickson City (13937)First National Bank, Carbondale (664)First National Bank, Carbondale (664)

SOUTH DAKOTA

First State Bank, Lake NordenUnited National Bank, Castlewood (16470)United National Bank, Castlewood (16470)

VERMONT

The Merchants National Bank of St. Johnsbury, St. Johnsbury(2295)

First National Bank of Springfield, Springfield (122)First National Bank of Springfield, Springfield (122)

VIRGINIA

Bank of Virginia - Lynchburg, LynchburgBank of Virginia, N.A., Vinton (16485)Bank of Virginia, N.A., Vinton (16485)Bank of Virginia - Danville, DanvilleBank of Virginia, N.A., Vinton (16485)Bank of Virginia, N.A., Vinton (16485)North American Bank and Trust, LeesburgVirginia National Bank, Norfolk (9885)Virginia National Bank, Norfolk (9885)Fairfax County National Bank, Seven Corners (14824)Virginia National Bank, Norfolk (9885)Virginia National Bank, Norfolk (9885)


$4203,8714,396

752,1882,282

1001,3801,840

100150400

150800800

2942,7006,000*1,6002,7006,000*

77920,55220,552

1,48520,55220,552

Surplus

$83020,00020,830

32516,00016,5001,0001,7003,770

125200125

150800800

4571,7702,000*

5001,7702,000*

45131,80331,803

1,40031,80331,803


$89511,34512,135

4205,3945,621

6832,8621,321

76118144

3501,3401,340

191,7502,170*1,0811,7502,170*

046,61646,616

1,25849,25153,346

Total assets

$28,317512,774541,091

7,476274,767282,244

21,61459,51881,244

4,6655,1909,855

9,37440,85648,691

11,78290,436

145,631*43,41390,436

145,631*8,783

1,745,4161,753,137

62,4911,804,3271,862,225

Mar. 31

Sept. 15

Sept. 20

Mar. 15

June

Jan.

Jan.

Mar.

Nov.

30

31

31

15

12

* Excludes mergers involving only one operating bank, effected pursuant to corporate reorganizations,t Formerly Bank of Passaic and Clifton, National Association.* Information for the resulting bank is after the two actions involving Bank of Virginia, N.A., that day.

Table B-18

Mergers resulting in National banks, by assets of acquiring and acquired banks, 1960-1976"

Assets of acquiring banks1~Acquired

banks1960-1976

Assets of acquired bank

Under $10million

$10 to 24.9million

$25 to 49.9million

$50 to 99.9million

$100 millionand over

Under $10 million$10 to 24.9 million . . .$25 to 49.9 million . ..$50 to 99.9 million . . .$100 million and over

99153176199633

99135114117242

0184749

221

00

152993

0004

34

0000

43

Total 1,260* 707 335 137 38 43

* Includes all forms of acquisitions involving two or more banks from May 13, 1960 through December 31, 1975.t In each transaction, the bank with the larger total assets was considered to be the acquiring bank.*Comprises 1,202 transactions, 27 involving three banks, nine involving four banks, two involving five banks and one involving nine DanKs.


Table B-19

Total assets, liabilities and equity capital of domestic offices and subsidiaries of nationalbanks, United States and other areas, June 30, 1976

(Dollar amounts in thousands)

Total, U.S. andother areas

Total,United States Alabama Alaska Arizona Arkansas California

Number of banksAssetsCash and due from banksU.S. Treasury securitiesObligations of other U.S. government agencies and corporationsObligations of states and political subdivisionsOther bonds, notes and debenturesFederal Reserve stock and corporate stockTrading account securitiesFederal funds sold and securities purchased under agreements to resell.Loans, total (excluding unearned income)


Direct lease financingBank premises, furniture and fixtures and other assets representing bank

premisesReal estate owned other than bank premisesInvestments in unconsolidated subsidiaries and associated companiesCustomers' liabilities to this bank on acceptances outstandingOther assets

Total assetsLiabilitiesDemand deposits of individuals, partnerships and corporationsTime and savings deposits of individuals, partnerships and corporationsDeposits of U.S. governmentDeposits of states and political subdivisionsDeposits of foreign governments and official institutionsDeposits of commercial banksCertified and officers' checks

Total deposits

Total demand depositsTotal time and savings deposits

Federal funds purchased and securities sold under agreements to repurchaseLiabilities for borrowed moneyMortgage indebtednessAcceptances executed by or for account of this bank and outstandingOther liabilities

Total liabilities


Equity CapitalPreferred stockCommon stockSurplusUndivided profitsReserve for contingencies and other capital reserves



4,749 4,747 98 75 56

$75,491,15547,410,41916,506,34256,893,6322,779,940

923,5623,824,936

21,701,787287,151,419

$75,488,25047,409,32416,504,63056,888,9872,779,940

923,5123,824,936

21,700,362287,136,830

$787,485510,480361,120

1,052,79022,531

9,32327,146

213,3303,657,623

$166,61547,62751,083

197,241961

2,7550

63,250578,557

$574,690502,096137,984462,516

9,4106,5906,820

210,0103,136,584

$543,701280,940169,333510,934

15,0154,577

21,456225,972

2,005,487

$11,161,0326,392,5802,343,8904,209,926

274,48694,980

344,1153,530,808

42,323,437

3,562,559283,588,860

3,561,395283,575,435

44,8473,612,776

6,477572,080

23,9733,112,611

18,9131,986,574

471,58441,851,853

3,480,114

9,577,5201,354,8911,609,5146,215,868

17,367,303

3,480,114

9,577,3381,353,9931,609,5146,215,868

17,366,738

23,294

141,5724,480

22120,42187,234

4,124

39,3912,078

0100

15,908

3,031

146,3255,838

08,497

68,908

4,382

87,6484,474

201,536

55,422

1,403,185

1,392,52771,180

484,2811,275,5933,497,422

548,725,843 548,698,941 6,874,203 1,163,213 5,255,326 3,911,984 78,327,858

136,751,059231,704,992

3,308,32636,011,521

5,610,61825,176,4325,714,568

136,747,862231,688,090

3,308,30536,007,4545,610,618

25,175,6885,712,987

1,889,7233,113,678

28,531622,693

0203,17040,525

491,382331,242

20,926152,139

03,503

22,688

1,463,8002,850,197

23,472166,577

7931,05264,714

1,133,2871,662,893

14,426311,359

0202,02120,298

18,271,28136,760,213

441,0424,289,9341,499,0592,128,012

837,332

444,277,516 444,251,004 5,898,320 1,021,880 4,599,891 3,344,284 64,226,873

175,576,220268,701,296

175,570,607268,680,397

2,337,1283,561,192

594,842427,038

1,647,0892,952,802

1,464,0631,880,221

21,426,56642,800,307

42,719,4232,464,780

446,2146,257,308

10,446,027

42,719,4232,464,780

446,2146,257,308

10,445,509

299,1787,4842,375

20,42195,705

50,0021,145

213100

9,814

258,468599721

8,49741,619

210,1943,544

871,535

47,310

5,970,291297,90488,703

1,276,7351,713,535

506,611,268 506,584,238 6,323,483 1,083,154 4,909,795 3,606,954 73,574,041

2,610,607 2,610,607 23,996 740 77,668 24,105 405,178

19,4378,960,644

15,222,32214,231,8371,069,728

19,4378,959,764

15,221,52214,233,6451,069,728

0114,069211,732192,509

8,414

023,25934,37319,5202,167

040,91099,776

119,5177,660

066,43084,885

116,13313,477

0844,955

1,840,5851,613,043

50,056

39,503,968 39,504,096 526,724 79,319 267,863 280,925 4,348,639

548,725,843 548,698,941 6,874,203 1,163,213 5,255,326 3,911,984 78,327,858





Number of banks

AssetsCash and due from banksU S Treasurv seruritip^Obligations of other U.S. government agencies and corporationsObligations of states and political subdivisionsOther bonds notes and debenturesFederal Reserve stock and coroorate stockTrading account securitiesFederal funds sold and securities purchased under agreements to resellLoans, total (excluding unearned income)



premisesReal estate owned other than bank premises ..Investments in unconsolidated subsidiaries and associated companiesCustomers' liabilities to this bank on acceptances outstandingOther assets

Total assets

LiabilitiesDemand deposits of individuals, partnerships and corporationsTime and savings deposits of individuals, partnerships and corporationsDeposits of U.S. governmentDeposits of states and political subdivisionsDeposits of foreign governments and official institutionsDeposits of commercial banksCertified and officers' checks

Total deposits


Federal funds purchased and securities sold under agreements to repurchase . . . .Liabilities for borrowed moneyMortgage indebtednessAcceptances executed by or for account of this bank and outstandingOther liabilities

Total liabilities

Subordinated notes and debenturesEquity CapitalPreferred stockCommon stock.SurplusUndivided profitsReserve for contingencies and other capital reserves


Total liabilities, subordinated notes and debentures and equity capital . . . .

Colorado

132

$1,015,970444,465151,753670,998

7,3829,318

17,306244,736

3,509,173

34,5863,474,587

27 149

132,12622 2852,904

15 02590,965

6,326,969

1,866,4712,437,052

41,986529,206

0373,905

60,085

5,308,705

2,411,0272,897,678

403,21052,02915,05415,02567,087

5,861,110

30,479

095,984

155,008174 850

9,538

435,380

6,326,969

Connecticut

24

$721,183209,221

99,942385,032

92,2848,666

13,78146,230

2,045,190

20,0542,025,136

26 771

95,2813,319

99,917

171,233

3,908,005

1,238,0531,563,983

31,635254,996

228272,582

31,992

3,393,469

1,636,5051,756,964

194,0794,575

5469,917

32,337

3,634,923

11,388

062,681

130,68964,4483,876

261,694

3,908,005

Delaware

5

$6,4338,3402,9663,193

38492

02,200

38,580

17538,405

0

1,08369

00

432

63,597

17,11138,078

9391,395

00

342

^_ 57,865

18,54439,321

0200

00

351

58,416

200

01,5501,4861 917

28

4,981

63,597

District ofColumbia

15

$603,118541,281

95,652474,203

18,7248,722

0211,590

2,184,061

28,8872,155,174

25,432

57,5281,239

05,255

76,274

4,274,192

1,679,7921,528,144

80,3452,382

169,55366,78972,080

3,599,085

2,036,2711,562,814

210,39029,965

3355,255

40,318

3,885,348

13,532

43062,851

134,690171,773

5,568375,312

4,274,192

Florida

303

$2,351,5372,276,844

834,0332,105,756

92,79729,71340,064

561,0707,352,172

93,4157,258,757

33,165

370,75995,7813,642

12,222271,542

16 337 682

4,697,8427,303,278

56,4861,293,716

4,534574,085174,344

14,104,285

5,780,4308,323,855

663,81112,5596,281

12,227149,660

14,948,823

37,347

1,001355,324539,485423,670

32,032

1,351,512

16,337,682

Georgia

65

$1,331,744399,626131,947616,786

16,85152,39312,560

242,2284,146,204

56,4954,089,709

36,574

238,098118,19577,52255,700

142,340

7 562 273

2,275,8512,290,397

45,545569,568

15,026556,50541,693

5,794,585

3,002,6842,791,901

655,546197,48423,60256,074

198,320

6,925,611

58,838

0143,058209,408157,60067,758

577,824

7,562,273

Hawaii

2

$19,86220,654

8,7812,757

0214

02,700

94,767

48094,287

0

2,09450

1621,647

153,163

42,42064,098

54828,138

02,5552,298

140,057

48,31691,741

01,200

0162

2,257

143,676

1,500

03,7972,8061,184

2007,987

153,163





Number of banksAssetsCash and due from banksU S Treasury securities • •Obligations of other U.S. government agencies and corporationsObligations of states and political subdivisionsOther bonds notes and debenturesFederal Reserve stock and corporate stock . .Trading account securitiesFederal funds sold and securities purchased under agreements to resellLoans, total (excluding unearned income)




Total assets

LiabilitiesDemand deposits of individuals, partnerships and corporationsTime ancf savings deposits of individuals, partnerships and corporationsDeposits of U S governmentDeposits of states and political subdivisionsDeposits of foreign governments and official institutionsDeposits of commercial banksCertified and officers' checks

Total deposits


Federal funds purchased and securities sold under agreements to repurchase . . . .Liabilities for borrowed money . . . .Mortgage indebtednessAcceptances executed by or for account of this bank and outstandingOther liabilities

Total liabilities


Equity CapitalPreferred stock .Common stockSurplusUndivided profitsReserve for contingencies and other capital reserves



Idaho

6

$256,310178,09361,806

283,9972,3053,795

050,747

1,473,058

12,8311,460,227

12,146

40,1121,777

1090

32,254

2 383,678

639,9051,219,892

15,140215,214

04,308

19,576

2,114,035

732,0351,382,000

76,3564,295

1900

27,824

2,222,700

9,340

035,94388,86922,7354,091

151,638

2,383,678

Illinois

424

$5,394,5754,608,3681,811,8155,114,004

452,66479,120

391,7081,352,456

26,959,698

390,89826,568,800

69,913

591,388141,665156,163453,529

1,446,863

48,633,031

10,187,71120,294,029

227,5092,201,6291,278,8902,574,326

396,045

37,160,139

12,793,04424,367,095

6,610,03555,47618,158

461,235898,551

45,203,594

84,037

1,665754,731

1,472,3971,039,185

77,422

3,345,400

48,633,031

Indiana

120

$1,272,0621,512,700

586,0061,472,559

110,06916,25557,316

742,8796,020,963

74,9365,946,027

136,688

206,60427,100

7,54743,384

421,732

12,558,928

2,715,1835,610,498

58,0091,371,539

1,446313,72996,098

10,166,502

3,712,2326,454,270

1,145,30494,162

9,70343,384

209,235

11,668,290

5,679

0186,442348,137334,040

16,340

884,959

12,558,928

Iowa

100

$625,678366,525210,481561,678

21,6254,5136,042

144,2842,314,767

20,9552,293,812

1,405

65,7684,1011,543

29368,551

4,376,299

1,026,9062,163,852

19,543242,135

0306,050

27.608

3,786,094

1,404,3822,381,712

221,9254,404

742293

51,348

4,064,806

20,949

059,90481,845

133,42915,366

290,544

4,376,299

Kansas

171

$632,318482,494254,708647,842

10,2787,764

30,930352,210

2,356,541

25,1922,331,349

3,650

116,3012,9431,353

048,720

4 922 860

1,266,2392,002,492

20,024664,960

0216,798

26,650

4,197,163

1,724,7912,472,372

249,28114,509

3560

38,181

4,499,490

19,640

092,599

150,757152,906

7,468

403,730

4,922,860

Kentucky

81

$486,282476,673137,157580,471

6,2856,1326,148

287,0352,422,006

24,7402,397,266

54,979

87,4057,626

694,097

102,642

4 640 267

1,336,0712,126,395

39,658297,175

0199,74628,528

4,027,573

1,680,3152,347,258

183,49617,4502,2944,097

51,228

4,286,138

5,965

072,284

120,683142,255

12,942

348,164

4,640,267

Louisiana

54

$915,6201,107,855

205,369917,031

10,77712,8773,111

501,8503,354,334

41,4123,312,922

26,939

148,39711,138

1,9434,476

122,091

7 302 396

2,068,3512,677,761

27,182897,989

7,816332,004

59,442

6,070,545

2,624,7003,445,845

530,01013,24022,3824,476

77,110

6,717,763

18,139

1,800101,598220,851219,739

22,506

566,494

7,302,396





Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri

Number of banksAssetsCash and due from banksU.S. Treasury securitiesObligations of other U.S. government agencies and corporationsObligations of states and political subdivisionsOther bonds, notes and debenturesFederal Reserve stock and corporate stockTrading account securitiesFederal funds sold and securities purchased under agreements to resellLoans, total (excluding unearned income)




Total assets


Total deposits



Total liabilities

Subordinated notes and debenturesEquity CapitalPreferred stockCommon stockSurplusUndivided profitsReserve for contingencies and other capital reserves



18

$129,54269,72628,857

129,4391,2811,260

030,506

578,292

5,555572,737

0

22,0102,397

30

10,950

998,708

287,586510,384

6,47366,940

03,5897,578

882,550

329,599552,951

32,845886331

08,181

924,793

1,550

020,06621,79729,544

958

72,365

998,708

42 77 122 203 38 115

$585,586299,503103,516595,451

7,1217,720

53,232261,372

2,916,663

$1,744,6181,087,142

188,668897,14342,69230,547

110,236314,595

5,987,149

$3,046,8981,727,253

483,3252,275,757

127,22932,56111,126

831,26810,465,001

$1,399,960943,221397,191

1,295,91017,19717,589

301,740361,011

6,205,650

$473,747267,003

78,303425,172

8,8536,257

25,163168,523

1,603,722

32,9172,883,746

69,4785,917,671

112,39710,352,604

65,5846,140,066

18,2801,585,442

33,089

85,34316,031

53611,089

279,428

60,988

241,70121,30466,327

138,240928,747

43,865

312,42829,38948,58586,957

382,397

60,093

144,25757,6383,596

58,742192,890

190

69,3034,991

79905

41,332

5,222,763 11,790,619 19,791,642 11,391,101 3,155,263

1,445,0192,540,433

47,235202,288

36491,39444,715

3,356,3994,094,201

123,802829,205182,867487,339105,464

4,344,2249,784,314

156,1391,659,258

4,547379,244478,519

2,441,6444,902,176

53,989734,105

548574,693

76,126

845,4671,195,572

10,377513,570

6,309160,373

9,441

4,371,448 9,179,277 16,806,245 8,783,281 2,741,109

1,684,5092,686,939

4,476,9874,702,290

5,636,10411,170,141

3,263,4165,519,865

1,183,5331,557,576

401,62114,925

31511,08965,916

1,206,87874,2882,444

141,276201,703

1,100,05613,9787,293

86,957259,666

1,219,979143,747

17,17559,466

238,797

148,768655845905

28,003

4,865,314 10,805,866 18,274,195 10,462,445 2,920,285

6,157 45,198 83,543 118,576 9,540

. 064,652

119,485152,779

14,376

0172,383414,212322,694

30,266

100294,204603,057503,39633,147

0256,715262,110263,184

28,071

044,436

165,06313,5042,435

351,292 939,555 1,433,904 810,080 225,438

5,222,763 11,790,619 19,791,642 11,391,101 3,155,263

$1,454,236694,095319,608

1,131,79118,12214,82548,498

912,6474,562,634

53,5634,509,071

47,420

107,44918,43510,09535,933

153,810

9,476,035

2,521,8743,176,331

74,671509,014

26803,722

56,915

7,142,553

3,445,3943,697,159

1,404,22724,3585,767

35,940117,200

8,730,045

29,122

4,809152,879230,432313,451

15,297

716,868

9,476,035





Montana

56

$199,060147,40057,908

281,8752,8213,381

045,611

1,115,707

11,0701,104,637

2,686

31,9052,141

01,943

26,195

1,907,563

439,8491,049,389

6,358151,001

033,58715,098

1,695,282

538,6281,156,654

41,45232402

1,94326,130

1,765,241

12,725

051,63551,73023,0483,184

129,597

1,907,563

Nebraska

120

$623,371300,465184,925521,76810,8595,199

28,236144,341

2,416,671

26,3562,390,315

39,627

72,0076,327

291,822

57,768

4,387,059

1,161,8141,986,152

18,537257,356

0296,14823,300

3,743,307

1,569,9792,173,328255,258

1,549793

1,82242,396

4,045,125

21,920

10170,01888,842150,56310,490

320,014

4,387,059

Nevada

4

$148,394148,33985,259159,86221,2281,657

072,200

722,128

7,466714,662

11,114

34,9494,782

00

12,930

1,415,376

444,608627,699

7,951165,469

02,402

24,593

1,272,722

525,900746,8226,89514,182

7650

10,859

1,305,423

0

027,51827,71752,2032,515

109,953

1,415,376

NewHampshire

44

$149,645131,01618,979

146,8751,4711,953

014,245

673,249

7,003666,246

28

27,7386250

4899,076

1,168,386

328,525538,30810,861

105,3350

2,35010,371

995,750

408,093587,65751,8021,4851,500489

13,5081,064,534

1,125

015,55446,69738,4482,028

102,727

1,168,386

New Jersey

108

$1,896,9631,585,087756,391

2,432,328385,95922,9798,493

344,9778,608,002

110,8188,497,184

71,889

329,74927,949

26122,474

301,519

16,684,202

4,266,7018,826,511121,917

1,199,6960

158,719167,687

14,741,231

5,256,1639,485,068

443,50246,4179,711

22,970170,705

15,434,536

61,620

25296,335458,364406,11427,208

1,188,046

16,684,202

New Mexico

37

$264,024158,700123,037295,641

1,6583,563

0124,895

1,124,172

14,0941,110,078

1,373

53,1247,708455122

28,094

2,172,472

603,962863,29129,359

366,3620

40,62420,437

1,924,035

730,7241,193,311

62,3383,543420122

22,9462,013,404

12,960

044,38755,42943,1543,138

146,108

2,172,472

New York

133

$11,613,3503,641,777744,050

4,340,431312,480144,540

1,343,4601,069,112

34,288,900

602,10533,686,795

470,922

704,371162,774586,776

2,675,9574,405,747

65,902,542

15,238,15320,966,791

359,9361,597,4372,123,0377,518,1401,382,548

49,186,042

24,105,96825,080,0744,196,806700,00619,484

2,703,5742,749,557

59,555,469

372,138

1,5061,544,5832,036,7962,268,985123,065

5,974,935

65,902,542

Number of banks

AssetsCash and due from banksU.S. Treasury securitiesObligations of other U.S. government agencies and corporationsObligations of states and political subdivisionsOther bonds, notes and debenturesFederal Reserve stock and corporate stockTrading account securitiesFederal funds sold and securities purchased under agreements to resellLoans, total (excluding unearned income)



premisesReal estate owned other than bank premisesInvestments in unconsolidated subsidiaries and associated companies ..........Customers' liabilities to this bank on acceptances outstandingOther assets

Total assets


Total deposits


Federal funds purchased and securities sold under agreements to repurchase . . .Liabilities for borrowed moneyMortgage indebtednessAcceptances executed by or for account of this bank and outstandingOther liabilities :

Total liabilities




Total liabilities, subordinated notes and debentures and equity capital . . .en





Number of banks

AssetsCash and due from banksU.S. Treasury securitiesObligations of other U.S. government agencies and corporationsObligations of states and political subdivisionsOther bonds notes and debenturesFederal Reserve stock and corporate stockTrading account securitiesFederal funds sold and securities purchased under agreements to resellLoans, total (excluding unearned income)



premises .Real estate owned other than bank premisesInvestments in unconsolidated subsidiaries and associated companiesCustomers' liabilities to this bank on acceptances outstandingOther assets

Total assets

LiabilitiesDemand deposits of individuals, partnerships and corporationsTime and savings deposits of individuals, partnerships and corporationsDeposits of U S governmentDeposits of states and political subdivisionsDeposits of foreign governments and official institutionsDeposits of commercial banksCertified and officers' checks

Total deposits


Federal funds purchased and securities sold under agreements to repurchase . ..Liabilities for borrowed moneyMortaaae indebtedness ..Acceptances executed by or for account of this bank and outstanding "Other liabilities

Total liabilities


Equity CapitalPreferred stockCommon storkSurolusUndivided profitsReserve for contingencies and other capital reserves


Total liabilities, subordinated notes and debentures and equity capital . ..

North Carolina

28

$1,246,849513,264355,141

1,177,1248,079

12,73496,871

258,3474,975,839

63,0994,912,740

48,023

170,13430 288

7,217113,529324,541

9,274,881

2,723,6873,645,719

60 803633,826

15,204302 140

50,870

7,432,249

3,290,6374,141,612

777,34017 2754 060

113,529149,309

8,493,762

135,695

0164,655246,233226,168

8,368

645,424

9,274,881

North Dakota

43

$145,049128,19657,761

208,8102,6361,863

20013,395

883,852

9,257874,595

0

28,672122155814

18,818

1,481,086

378,871833,527

4,87678,603

013,85011,667

1,321,394

434,834886,560

25,7821,376

477814

17,058

1,366,901

9,954

029,16333,45036,372

5,246

104,231

1,481,086 n

Ohio

220

$2,470,6852,794,244

433,1713,432,131

115,06339,420

119,491952,290

10,397,454

133,83310,263,621

90,447

378,28712,22612,01159,108

754,769

21,926,964

5,352,36410,601,126

127,0651,406,567

1,007326,906173,784

17,988,819

6,421,89011,566,929

1,576,90714,937

1,85459,108

447,497

20,089,122

42,135

0371,710809,359577,874

36,764

1,795,707

21,926,964

Oklahoma

194

$1,121,249921,867

96,5381,330,068

23,77512,69548,494

544,6863,924,477

38,8373,885,640

27,865

154,24211,724

800901

97,403

8,277,947

2,290,4463,337,176

63,750961,678

0427,469

61,293

7,141,812

2,915,4994,226,313

376,3832,7491,943

90173,920

7,597,708

57,158

500134,511176,561300,327

11,182

623,081

8,277,947

Oregon

7

$1,309,951365,138188,210732,592

5,9679,2044,204

236,0103,191,078

28,2913,162,787

22,521

150,62212,4577,012

88,23169,123

6,364,929

1,610,1422,554,210

26,252378,897

094,85657,011

4,721,368

1,930,2612,791.107

999,7129,831

37088,23185,409

5,904,921

100,750

092,530

124,633141,032

163

358,358

6,364,029

Pennsylvania

241

$4,002,0223,426,7171,191,1873,521,130

253,50562,480

402,2391,475,121

20,310,958

236,48620,074,472

208,704

497,49483,91677,460

581,493982,021

36,839,961

8,071,59716,809,165

191,8641,786,005

202,3461,250,756

226,025

28,537,758

9,749,42418,788,3343,639,522

356,42515,703

581,607842,719

33,973,734

234,290

1,335495,684

1,156,632886,509

91,777

2,631,937

36,839,96?!

Rhode Island

5

$260,200176,39758,563

246,18423,5224,703

56,94367,000

1,650,162

15,8661,634,296

25,49^

41,707-7,598

82053,74058,453

2,715,623

502,2291,481,794

12,368186,788

012,29920,436

2,215,914

630,0921,585,822

150,0941,769

053,74096,299

2,517,816

5,000

030,39083,34873,3265,743

192,807

2,715,623





South Carolina South Dakota Tennessee Texas Utah Vermont Virginia

Number of banks

AssetsCash and due from banksU.S. Treasury securitiesObligations of other U.S. government agencies and corporationsObligations of states and political subdivisionsOther bonds, notes and debenturesFederal Reserve stock and corporate stockTrading account securitiesFederal funds sold and securities purchased under agreements to resell.Loans, total (excluding unearned income)





Total deposits


Federal funds purchased and securities sold under agreements to repurchase . ..Liabilities for borrowed moneyMortgage indebtednessAcceptances executed by or for account of this bank and outstandingOther liabilities

Total liabilities




19

$357,693180,26194,752

353,177118

3,49626,339

132,9751,351,817

14,5991,337,218

4,216

71,8947,065

01,215

30,845

2,601,264

1,133,877841,844

20,935156,777

031,63820,994

2,206,065

1,301,079904,986

144,0597,304

711,215

25,212

2,383,926

7,600

039,20574,74191,3904,402

209,738

2,601,264

32 75 591 12 14

$190,556146,31167,011

292,4577,7372,537

2431,033

1,184,075

$1,263,702812,581341,125814,68032,10115,34713,820

479,4504,346,248

$6,158,8683,420,4841,274,6925,536,591

103,10953,49670,430

2,165,49718,503,308

$252,591156,04650,955

164,332253

2,6128,558

80,6981,091,252

$31,38535,132

8,96245,310

4,913484

08,480

268,584

13,7141,170,361

53,7464,292,502

215,99418,287,314

9,5261,081,726

2,558266,026

1,402

36,765720

0798

27,632

26,493

191,74575,594

346,219

265,508

91,263

799,20589,38927,952

142,193728,553

15,885

34,7252,354

082

29,794

225

7,954685

00

3,489

1,975,344 8,630,901 38,949,036 1,880,611 413,045

442,5471,118,617

8,543179,002

025,41210,258

2,129,7993,731,406

57,683801,583

1,040569,053

50,676

11,296,87413,085,470

265,8144,375,130

22,2782,505,002

294,721

493,468817,855

14,192225,501

027,56533,734

88,059266,448

1,43312,510

01,1183,824

1,784,379 7,341,240 31,845,289 1,612,315 373,392

519,1491,265,230

2,851,9094,489,331

14,762,92317,082,366

604,9691,007,346

100,125273,267

15,76029

2,041798

23,267

558,0049,9685,8446,219

98,358

3,333,31285,17497,560142,412483,186

109,1852,81411982

19,538

1,4724,615

00

2,371

1,826,274 8,019,633 35,986,933 1,744,053 381,850

16,821 36,660 137,235 19,456 1,757

037,99842,19048,4553,606

0145,613211,788202,78714,420

140698,187855,143

1,107,155164,243

030,73449,55835,5191,291

06,7689,01012,4361,224

132,249 574,608 2,824,868 117,102 29,438

1,975,344 8,630,901 38,949,036 1,880,611 413,045

108

$1,105,246739,471302,363

1,223,30010,71617,1456,514

285,9275,313,256

55,9385,257,318

12,078

260,41535,527

162,182

112,142

9,370,360

2,520,3954,783,649

74,729612,218

112112,47959,755

8,163,337

2,926,2435,237,094

287,74523,60445,7812,182

117,316

8,639,965

37,437

0165,376263,355249,32414,903

692,958

9,370,360





Washington West Virginia Wisconsin WyomingOther areas

Puerto Rico Virgin IslandsDistrict ofColumbia

non-national*

Number of banks





Total assets


Total deposits



Total liabilities




* Non-national banks in the District of Columbia are supervised by the Comptroller of

24

$1,518,978486,683133,896970,974

5,65611,19136,920

718,0025,848,264

65,8545,782,410

134,702

245,87213,03321,636

197,996164,797

10,442,746

2,743,4244,265,082

53,540772,99630,381

249,58293,153

8,208,158

3,279,3704,928,788

1,189,19434,953

2,459197,997128,544

9,761,305

77,625

6,025143,923204,023224,819

25,026

603,816

10,442,746

103 128 46 1

$440,397469,813306,964661,918

14,9685,7274,880

233,0101,781,445

$879,187950,463255,493772,99842,12014,74820,322

307,7484,143,067

$138,033118,66762,003

206,0541,9031,800

029,805

730,552

$2,48800

4,6450

500

70014,581

21,7781,759,667

46,7164,096,351

7,767722,785

1,16413,417

6,728

95,7021,967

0189

34,315

25,155

193,34180,560

27522,29892,664

2,799

21,821984

580

18,808

0

182898

00

513

4,036,245 7,753,723 1,325,520 22,893

933,6192,091,668

18,564209,120

9960,21030,788

1,669,9603,720,995

48,211601,32543,822

228,55757,130

333,300602,615

37,132159,148

023,33211,738

2,28114,277

124,067

0729

1,354

3,344,068 6,370,000 1,167,265 22,720

1,128,8542,215,214

2,075,9974,294,003

417,391749,874

4,44618,274

308,8577,2007,452

18928,932

690,33719,6181,442

22,29888,637

31,75512,864

510

10,580

0000

194

3,696,698 7,192,332 1,222,515 22,914

7,186 52,669 6,285 0

060,773

127,218133,212

11,158

0129,909210,304154,80713,702

08,901

33,78350,6133,423

0880800

1,7010

332,361 508,722 96,720 21

4,036,245 7,753,723 1,325,520 22,893

$4171,0951,712

0000

7258

0000

52

4,009

9162,625

900

15227

3,792

1,1672,625

0000

324

4,116

107

4,009

1

$3,0597,3564,0888,5733,342

10

1,80012,173

31811,855

0

42447

00

408

40,953

14,46222,517

413200

535

37,929

15,41222,517

37,937

190

000

1070

0278

1,000923625

2,826

40,953

the Currency.Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Table B-20

Total assets, liabilities and equity capital of domestic offices and subsidiaries of nationalbanks, United States and other areas, December 31, 1976

(Dollar amounts in thousands)Total, U.S.

andother areas

4,737

$76,078,03152,612,83617,005,88057,384,3632,987,415

967,3044,973,779

30,140,010303.436.774

3,589,367299,847,407

3,808,381

9,879,9531,722,9841,777,3885,086,708

19,076,586

583,349,025

147,018,169242,873,535

2,126,65338,088,306

5,917,74027,332,987

6,051,345

469,408,735

188,175,050281,233,685

51,678,9412,741,434

406,1125,140,6759,921,683

539,297,580

2,726,628

18,7549,106,275

15,853,73815,271,8331,074,217

41,324,817

583,349,025

Total,United States

4,735

$76,074,00152,610,73617,004,197

57,379,7182,987,415

967,1594,973,779

30,135,213303.422.203

3,588,723299,833,480

- 3,808,381

9,879,7381,721,5361,777,3885,086,708

19,076,206

583,315,655

147,014,675242,853,964

2,126,64738,085,623

5,917,74027,328,648

6,050,839

469,378,136

188,170,057281,208,079

51,678,9412,741,434

406,1125,140,6759,920,706

539,266,004

2,726,628

18,7549,103,635

15,851,53015,274,887

1,074,217

41,323,023

583,315,655

Alabama

97

$852,828523,198284,199

1,149,81729,843

9,82835,106

381,4654.007.413

46,8893,960,524

23,271

144,3225,219

18016,28891,169

7,507.257

2,059,9973,326,242

40,147647,704

0263,822

38,174

6,376,086

2,561,5023,814,584

386,89739,6342,311

16,288116,350

6,937,566

23,996

0113,855211,967212,607

7,266

545,695

7,507,257

Alaska

6

$166,93782,680

-50,314175,303

3,1582,416

035,000

625.034

6,443618,591

6,761

42,0861,280

5850

18,194

1,203,305

468,691389,666

12,774135,738

02,196

20,448

1,029,513

546,677482,836

56,27012,684

610

12,749

1,111,277

990

023,62438,71826,651

2,045

91,038

1,203,305

Arizona

3

$562,349586,599118,927419,178

8,6596,9968,178

214,6003,236,168

23,9143,212,254

3,445

147,5948,296

07,335

91,029

5,395,439

1,548,3983,018,899

17,236156,338

5,24029,38167,448

4,842,940

1,714,8323,128,108

145,083280485

7,33544,636

5,040,759

77,666

040,91099,847

128,8437,414

277,014

5,395,439

Arkansas

73

$587,185271,330159,559531,077

10,4454,737

22,257347,379

2,140,981

19,3432,121,638

5,167

89,4693,921

117901

57,123

4,212,305

1,188,9681,765,090

13,842315,865

0255,495

24,957

3,564,217

1,556,8892,007,328

280,5792,280

92901

45,697

3,893,766

25,863

067,26887,429

124,22013,759

292,676

4,212,305

California

58

$10,587,1967,736,6802,078,6115,120,513

198,749109,887313,924

4,197,89744,163.743

493,90043,669,843

1,483,465

1,463,89874,746

480,3431,763,8433.973,410

83,253,005

19,470,72437,635,748

214,7265,305,8141,705,4322,022,6141,079,533

67,434,591

23,065,67044,368,921

6,736,818561,465

61,0231,769,7451,506,292

78,069,934

404,747

0915,465

2,070,9881,748,723

43,1484.778,324

83,253,005CO

Number of banks





Total assets


Total deposits



Total liabilities

Subordinated notes and debenturesEquity CapitalPreferred stockCommon stockSurplusUndivided profitsReserve for contingencies and other capital reserves >


Total liabilities, subordinated notes and debentures and equity capital . . ..





Colorado

132

$1,035,822468,939153,504675,014

6,1159,3364,999

413,3853,773,086

36,3893,736,697

28,949

137,22627,5522,421

17,85795,184

6,813,000

2,019,5642,734,692

35,981522,842

0405,063

59,0055,777,147

2,587,5073,189,640

391,99546,15211,48917,85779,464

6,324,104

29,952

098,686

160,213193,527

6,518458,944

6,813,000

Connecticut

23

$676,022296,611129,804372,088

94,9268,720

27,719127,505

2,091,424

23,4312,067,993

25,544

94,6766,473

86,376

161,626

4,096,091

1,333,2271,611,012

23,360313,757

0248,665

28,1493,558,170

1,707,9371,850,233

212,0816,661

5276,376

36,796

3,820,611

12,473

062,866

136,56459,5943,983

263,007

4,096,091

Delaware

5

$4,9058,6882,6963,325

38397

04,100

40,436

15340,283

0

1,03170

00

406

65,984

17,44939,900

6861,325

00

597

59,957

18,85741,100

098

00

354

60,409

200

01,5801,6762,050

69

5,375

65,984

District ofColumbia

15

$572,783480,449109,583578,637

16,7848,810

13,769345,420

2,281,027

29,3302,251,697

27,677

49,6371,633

0581

52,906

4,510,366

1,760,7431,746,749

28,3327,200

184,66857,21962,519

3,847,430

2,043,4071,804,023

196,6899,275

0580

53,957

4,107,931

13,128

40063,185

134,756186,801

4,165389,307

4,510,366

Florida

306

$2,540,6052,472,7461,002,4991,979,596

122,62628,52825,938

1,270,4827,655,460

88,0037,567,457

38,440

373,032108,043

3,19814,620

291,831

17,839,641

5,169,3607,715,255

69,9511,472,267

2,994733,926167,473

15,331,226

6,497,4028.833.824

908,6526,3157,579

14,621160,048

16,428,441

36,486

1,001357,979546,952441,97426,808

1,374,714

17,839,641

Georgia

64

$1,214,147449,883148,357561,899

13,14653,06326,708

439,3774,225,161

55,6944,169,467

33,733

238,937145,44680,38274,513

124,462

7,773,520

2,365,3432,397,711

35,363532,91021,725

551,32966,437

5,970,818

3,117,7612.853.057

839,69749,80825,60977,039

150,944

7,113,915

66,340

0144,960216,573164,03567,697

593,265

7,773,520

Hawaii

2

$21,36024,151

9,0591,327

0200

05,270

91,610

98190,629

0

2,37050

1151,459

155,945

47,73666,773

60723,094

02,9091,933

143,052

53,61689,436

02,306

0115

1,306

146,779

1,500

03,7972,5061,363

0

7,666

155,945

Number of banksAssetsCash and due trom banksU.S. Treasury securitiesObligations of other U.S. government agencies and corporationsObligations of states and political subdivisionsOther bonds, notes and debenturesFederal Reserve stock and corporate stockTrading account securitiesFederal funds sold and securities purchased under agreements to resellLoans, total (excluding unearned income)





Total deposits



Total liabilities








Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana

Ol

Number of banks






Total deposits



Total liabilities




425 120 100 169 82 54

$298,784192,85456,646

330,7321,2833,8191,997

47,4671,553,686

$4,760,8764,910,9871,939,8645,194,676433,63084,561

543,0681,616,440

28,331,740

$1,392,6701,535,,529675,793

1,485,802177,09116,38445,924

782,4456,328,163

$671,828380,866197,627562,39514,8084,55312,773

225,7812,494,894

$720,794489,521233,865634,931

9,9437,66214,342

433,6302,521,162

$562,411500,445127,776584,857

2,7976,3068,969

406,4002,632,696

13,6101,540,076

364,85427,966,886

80,3196,247,844

20,6612,474,233

25,1302,496,032

25,6692,607,027

9,559

42,0631,058

06

34,139

71,152

606,458199,707202,897137,430

1,447,365

131,876

217,58936,0727,712

46,800546,624

1,921

66,9074,2901,212730

79,606

4,076

119,0652,8941,484105

53,115

64,024

91,6756,596

74545

76,293

2,560,483 50,115,997 13,346,155 4,699,530 5,221,459 5,046,195

693,0781,328,076

11,910219,718

08,23418,685

10,599,13420,054,426

161,5882,031,0591,380,2222,693,400399,507

3,019,6565,968,533

45,5421,324,445

1,470340,831100,629

1,145,8802,322,194

20,397260,862

0335,43827,026

1,365,9282,184,611

17,924566,423

0294,11130,908

1,493,2002,245,443

16,043313,252

0217,24130,551

2,279,701 37,319,336 10,801,106 4,111,797 4,459,905 4,315,730

804,3371,475,364

13,287,63724,031,699

3,977,2366,823,870

1,548,7032,563,094

1,903,0792,556,826

1,817,8172,497,913

79,7282,533228

630,217

8,135,12736,82917,479

138,170829,339

1,336,47732,6769,829

46,814187,651

185,6173,436617730

64,227

266,28213,746

282105

42,972

286,7634,9192,197545

55,087

2,392,413 46,476,280 12,414,553 4,366,424 4,783,292 4,665,241

7,964 87,431 12,538 26,884 21,065 11,596

035,94396,96922,9274,267

2,365760,952

1,548,9831,142,087

97,899

0189,103354,744359,66015,557

060,75083,510148,22613,736

092,459151,554165,5427,547

072,978123,789162,31610,275

160,106 3,552,286 919,064 306,222 417,102 369,358

2,560,483 50,115,997 13,346,155 4,699,530 5,221,459 5,046,195

$1,099,2061,102,507164,198908,516

9,63712,305

399837,227

3,552,320

41,1283,511,192

25,989

149,70916,8901,877

10,711128,478

7,978,841

2,309,5002,881,421

24,699890,668

7,429420,53462,095

6,596,346

2,952,9833,643,363

635,44113,57818,76210,71292,524

7,367,363

18,121

1,800101,647223,007241,60325,300

593,357

7,978,841











Total deposits ,



7"ofa/ liabilities





17

$101,96066,57529,233

139,721787

1,2870

68,655603,395

5,763597,632

0

21,7552,116

30

10,957

1,040,681

289,804543,127

5,63965,874

09,8416,844

921,129

341,182579,947

33,465375328

08,304

963,601

1,550

020,14022,64231,856

892

75,530

1,040,681

41 75 122 203 38 115

$627,268267,477110,296556,213

8,5227,8526,295

370,2283,197,141

$1,707,9011,525,350

166,445829,490

58,09337,120

184,464298,732

5,949,125

$2,494,3452,007,525

396,7542,367,093

137,02432,87928,046

944,96711,203,366

$1,605,7441,083,208

395,9041,314,147

66,07318,996

486,408653,137

6,558,395

$501,106300,888

77,806442,990

7,4126,483

68,736174,015

1,728,317

27,8023,169,339

76,9965,872,129

112,67811,090,688

61,7086,496,687

17,9301,710,387

34,552

86,68010,411

8385,994

302,147

54,538

238,73824,23470,04597,344

1,021,460

45,536

318,98838,28548,34750,240

449,025

68,500

148,70554,8544,522

64,111205,850

207

71,1634,595

79556

45,740

5,564,112 12,186,083 20,449,742 12,666,846 3,412,163

1,495,3972,581,430

23,814263,239

29386,39731,976

3,582,6223,960,011

42,077758,417135,195643,377126,636

4,353,08210,132,242

74,7031,778,592

4,861359,790434,664

2,821,3275,383,103

40,003791,887

331716,24093,066

891,7501,394,094

13,414441,303

6,413180,11616,456

4,482,546 9,248,335 17,137,934 9,845,957 2,943,546

1,718,4052,764,141

4,764,1394,484,196

5,534,74611,603,188

3,801,6636,044,294

1,224,9771,718,569

622,17511,442

3615,994

70,650

1,554,52963,155

2,787100,013218,824

1,391,1796,3216,562

50,240300,285

1,336,051208,953

8,34364,281

232,260

191,288356

1,483556

29,949

5,193,168 11,187,643 18,892,521 11,695,845 3,167,178

6,157 45,344 84,358 131,686 9,460

066,068

121,021163,05514,643

0170,962411,992343,527

26,615

100297,691605,024536,33033,718

0257,879268,634282,170

30,632

045,162

183,3583,4063,599

364,787 953,096 1,472,863 839,315 235,525

5,564,112 12,186,083 20,449,742 12.666,846 3,412,163

$1,951,675668,673364,479

1,163,72724,12615,312

119,9041,534,7634,823,901

57,5314,766,370

49,919

118,58319,22911,18025,361

168,844

11,002,145

2,918,1853,546,707

34,603547,577

01,069,489

60,629

8,177,190

4,201,4473,975,743

1,888,63518,5405,510

25,361121,755

10,236,991

29,119

2,129154,758243,422322,979

12,747

736,035

11,002,145





Montana Nebraska NevadaNew

Hampshire New Jersey New Mexico New York





Total assetsLiabilitiesDemand deposits of individuals, partnerships and corporationsTime and savings deposits of individuals, partnerships and corporationsDeposits of U.S. governmentDeposits of states and political subdivisionsDeposits of foreign governments and official institutionsDeposits of commercial banksCertified and officers' checks •

Total deposits



Total liabilities




56

$215,972146,13062,696

273,6003,2763,278

087,178

1,185,065

11,0161,174,049

2,624

34,9922,332

0264

25,814

2,032,205

492,7281,099,922

8,152157,339

036,57914,922

1,809,642

591,8881,217,754

46,03319

412264

25,996

1,882,366

15,303

056,16956,27518,6333,459

134,536

2,032,205

120 43 104 38 129

$689,163283,169170,621534,955

10,8575,272

35,154215,209

2,576,997

$162,060253,177101,412150,25024,147

1,8070

21,800755,154

$149,632130,665

14,745134,886

1,5831,935

045,205

726,724

$1,896,9431,738,311

982,9252,504,592

433,98323,3766,662

636,1878,989,324

$274,519181,011122,219301,489

1,8093,669

0134,400

1,198,543

$11,025,9453,974,445

661,0853,715,840

297,925149,539

1,324,250912,809

37,978,846

26,3742,550,623

8,291746,863

6,961719,763

107,9138,881,411

13,4011,185,142

589,44337,389,403

41,296

74,0075,623

576551

61,209

17,740

34,789288

00

16,237

74

29,789946

01,0539,347

74,587

348,81964,530

98828,771

341,666

1,518

53,9965,588

496394

30,634

475,319

759,263334,886698,550

1,362,9384,559,342

4,678,285 1,530,570 1,239,623 17,963,751 2,296,884 67,641,539

1,237,7082,093,275

12,156259,334

0370,32425,113

493,703649,181

5,341210,256

02,895

22,822

356,312597,654

9,356114,736

01,461

11,810

4,544,0029,348,950

90,0531,409,905

2,104199,539192,259

633,823920,45825,969

399,3260

50,37121,931

15,437,98022,207,206

172,5931,565,8852,014,6587,510,1931,195,514

3,997,910 1,384,198 1,091,329 15,786,812 2,051,878 50,104,029

1,703,0672,294,843

570,149814,049

445,290646,039

5,552,44510,234,367

762,1881,289,690

24,221,90425,882,125

267,0384,5201,192

55150,647

11,8851,5221,123

014,001

26,82145

1,4171,053

12,918

625,69547,400

9,32628,893

186,689

55,2090

402394

23,043

6,486,825734,303

18,6261,404,6112,292,124

4,321,858 1,412,729 1,133,583 16,684,815 2,130,926 61,040,518

23,910 0 1,125 62,781 12,925 370,014

10172,89493,840

155,04110,641

027,51828,71859,295

2,310

015,32846,55340,659

2,375

25296,557464,338427,094

28,141

1,50045,93857,23945,339

3,017

1,4211,542,8672,136,8362,448,803

101,080

332,517 117,841 104,915 1,216,155 153,033 6,231,007

4,678,285 1,530,570 1,239,623 17,963,751 2,296,884 67,641,539





North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island




premisesReal estate owned other than bank premisesInvestments in unconsolidated subsidiaries and associated companies \Customers' liabilities to this bank on acceptances outstandingOther assets


Total deposits



Total liabilities




28

$1,338,632611,222433,614

1,107,69151,47012,855

212,238557,269

5,230,004

61,3925,168,612

50,593

170,28728,2434,965

114,267450,381

10,312,339

3,035,3223,937,029

39,579733,610

10,212344,099

59,669

8,159,520

3,633,4804,526,040

1,019,98622,7624,217

114,267177,037

9,497,789

136,920

0166,399249,235251,922

10,074

677,630

10,312,339

43 219 195 237

$169,343120,80258,784

219,9461,9791,969

038,091

940,039

$2,915,2872,800,474

588,2443,519,569

118,57941,743

152,3221,361,465

11,028,029

$1,420,8671,003,100

113,9181,303,258

26,56313,10590,628

703,6004,293,221

$865,933387,729156,671747,773

5,5289,3766,795

262,0513,331,323

$3,973,8964,184,8321,412,9773,709,905

276,58664,014

569,6831,879,990

20,585,750

8,988931,051

137,55110,890,478

41,8074,251,414

28,5623,302,761

246,98120,338,769

364

29,8011,555

5268

18,871

102,176

392,60115,71014,78653,754

890,024

29,578

168,8298,654826

1,173104,487

24,627

149,89311,5598,121

107,859429,572

300.523

502,70489,54775,507

559,600983,071

1,592,829 23,857,212 9,240,000 6,476,248 38,921,604

423,270883,646

6,43585,779

020,38914,014

6,133,43811,110,048

83,6921,458,445

1,007558,441192,876

2,495,6833,653,904

47,729963,075

0634,23680,849

1,750,7712,734,779

14,551452,076

094,85591,405

8,555,41517,356,767

86,6422,120,214351,062

1,183,543268,081

1,433,533 19,537,947 7,875,476 5,138,437 29,921,724

492,928940,605

7,490,78212,047,165

3,317,9824,557,494

2,062,6743,075,763

10,207,59119,714,133

13,8211,346440268

20,297

1,923,78914,2973,669

53,754404,659

519,53245,3652,0871,173

85.629

659,77810,599

347107,85985,555

4,282,452435,52916,188

559,681763,964

1,469,705 21,938,115 8,529,262 6,002,575 35,979,538

13,041 47,078 58,797 100,750 232,281

030,26335,97338,3105,537

0375,237842,735622,18831,859

500135,999179,440325,10910,893

092,531124,632145,04110,719

1,254492,816

1,174,943949,92590,847

110,083 1,872,019 651,941 372,923 2,709,785

1,592,829 23,857,212 9,240,000 6,476,248 38,921,604

$281,677330,27043,554

202,44525,2195,005

51,280118,090

1,673,063

15,0991,657,964

72,92845,873

15,653843

57,81672,469

2,981,086

536,8571,533,669

7,210242,474

012,85720,843

2,353,910

661,3331,692,577

225,69548,807

057,81687,662

2,773,890

5,000

030,39088,66376,0657,078

202,196

2,981,086





South Carolina

19

$391,853187,47098,404

366,123818

3,51511,129

127,2901,425,766

16,0051,409,761

4,705

73,0637,238

03,309

31,167

2,715,845

1,176,270884,87315,837

188,5050

34,59520,056

2,320,136

1,371,466948,670

131,5255,117268

3,30929,380

2,489,735

7,600

039,32674,973100,4463,765

218,510

2,715,845

South Dakota

32

$219,596148,10980,409

284,14511,9942,586

3153,915

1,251,569

12,9481,238,621

1,922

39,4431,059

0204

29,044

2,111,078

493,0381,197,683

9,928159,709

030,98714,088

1,905,433

567,4141,338,019

14,763500

2,033204

28,284

1,951,217

21,321

038,49942,86353,0414,137

138,540

2,111,078

Tennessee

74

$1,220,824789,696285,434746,62626,50014,97815,860

635,6824,320,781

52,0724,268,709

37,385

182,05874,465

369,347

276,492

8,584,092

2,207,9663,705,126

31,730665,263

1,087584,980

I 53,964

7,250,116

2,916,9864,333,130

591,4811,3245,7159,347

128,791

7,986,774

33,020

0142,017211,027193,36417,890

564,298

8,584,092

Texas

596

$6,958,8243,961,8841,273,0525,327,750119,98456,225

323,2423,994,61419,794,806

229,21419,565,592

100,556

821,27391,65831,313199,566709,037

43,534,570

12,845,60014,303,187

225,8184,475,752

19,7752,889,645404,508

35,164,285

16,689,98518,474,300

4,237,744112,83598,329199,577570,802

40,383,572

181,940

133727,607886,613

1,173,637181,068

2,969,058

43,534,570

Utah

13

$301,005156,75149,000149,120

1,1942,724

23,32774,297

1,240,397F 10,075

1,230,322

16,880

36,8881,505

090

24,674

2,067,777

556,325938,724

2,204261,981

044,24519,612

1,823,091

667,7831,155,308

79,2181,76211390

22,690

1,926,964

16,526

035,10351,51735,9501,717

124,287

2,067,777

Vermont

14

$34,92735,5808,02953,0303,1154960

16,050285,620

2,529283,091

170

8,318481330

3,517

446,837

88,772282,545

1,57228,580

01,5634,646

407,678

106,211301,467

1,2001,657

00

2,748

413,283

3,249

07,2699,21312,6961,127

30,305

446,837

Virginia

108

$1,160,748844,260299,439

1,304,01711,88717,50613,835

395,6265,546,200

57,5185,488,682

11,380

264,66730,905

429,662

130,591

9,983,163

2,731,0395,017,371

68,253673,874

128128,63573,213

8,692,513

3,155,4035,537,110

327,22520,73545,5289,662

124,670

9,220,333

46,196

0166,144265,984271,14013,366

716,634

9,983,163Ol





Total assets


Total deposits



Total liabilities



Total liabilities, subordinated notes and debentures and equity capital.....







non-national*

Number of banks



Direct lease financingBank premises; furniture and fixtures and other assets representing bank


Total assets


Total deposits ..



Total liabilities




21

$1,544,863567,675163,446984.3405,67411,921102,067758,756

6,167,453

68,5116,098,942

165,198

257,73711,82522,535217,481188,435

11,100,895

3,086,5624,659,941

32,875771,64319,995

261,17796,955

8,929,148

3,599,3985,329,750

1,044,85041,6382,650

217,482151,120

10,386,888

84,332

6,025142,626202,616254,67623,732

629,675

11,100,895

103 130 46 1

$397,058469,907303,618689,70914,0415,8721,397

392,3851,886,890

$963,108748,245268,487759,57154,13714,45533,956510,002

4,387,494

$182,619121,46367,616206,0242,5071,801

027,485813,301

$3,6919970

4,6450

1450

4,60014,567

21,1461,865,744

50,5804,336,914

8,097805,204

64413,923

9,717

99,5131,838

0189

38,134

25,202

195,579110,732

29615,790103,572

3,018

23,200801500

19,977

0

2071,448

00

318

4,289,122 8,140,046 1,461,765 29,974

982,2252,215,818

18,908235,257

075,35425,520

1,922,6593,898,369

35,869574,75241,439275,01760,924

368,464650,68448,834189,683

035,0108,900

2,50117,397

02,683

04,339325

3,553,082 6,809,029 1,301,575 27,245

1,170,8722,382,210

2,398,0904,410,939

462,340839,235

3,81323,432

329,7039,2807,149189

36,144

631,92016,152

65315,84790,331

27,23510,103

2840

12,888

0000

662

3,935,547 7,563,932 1,352,085 27,907

7,156 52,524 6.225 0

061,933130,233143,02711,226

0132,428215,960161,35413,848

09,11034,27356,0604,012

02,6402,2082,781

0

346,419 523,590 103,455 2,067

4,289,122 8,140,046 1,461,765 29,974

1

$3391,1031,683

0000

1974

800062

3,396

9932,174

6000

181

3,354

1,1802,174

0000

315

3,669

0

000

2730

273

3,396

1

$2,2305,7956,4687,0962,665

11,90014,105

166

13,9390

437

000

57941,110

14,130

23,2771193000

327

37,856

14,55923,297

37,857

170

0278

1,0001,180625

3,083

41,110


Table B-21

Loans of national banks, by states, December 31, 1976

(Dollar amounts in millions)

Totalloans

Loanssecuredby realestate

Loans tofinancial

institutions

Loans topurchaseor carry

securities

Loans tofarmers

Commercialand indus-trial loans

Personalloans to

individualsOtherloans

Total loansless un-earned

income^

All national banks

AlabamaAlaskaArizonaArkansasCaliforniaColoradoConnecticutDelawareDistrict of Columbia ..Florida






$310,559 $82,922 $22,694 $8,637 $11,324 $109,489 $66,747 3,747

4,163646

3,3822,20345,2483,8542,137

422,3097,884

4,40693

1,60628,6706,5542,5242,5742,7213,654616

3,3016,04011,4796,7021,7884,8831,2372,628782754

9,2471,246

38,4685,456967

11,4464,3783,39421,0811,705

1,4801,2874,48520,1681,266293

5,7586,2292,0054,463841

415

972247

1,003648

14,10188172623784

2,665

1,14959

4845,0122,609706424889932233

1,1991,1244,5001,944478

1,051333347364253

4,034279

6,376971261

3,744912930

6,236685

287327

1,1663,342477155

2,2861,559802

1,732218

02

1742

16931

3,934149590

348300

207119

4,0071713852831771

1626066953806934033452

37223

4,567341

1359182404

2,09795

214

2261,056

22

13034012

2242

0

53

2063843621101781

4402

1,4675759962555

49761512692320629711

437

2,94858387248393773

845173713

29645773

00

97

249114

1,688440711

65

391

2667921805366201255410

255

11240961

267224921142

11120594203176506175169

2437476

1,1054368936111117146

00

1,320220971646

14,5721,1956896

5192,166

1,43122

38812,5061,581600690672

1,436182

8172,9763,0132,282517

1,839305580174239

2,354411

19,3342,082281

3,0851,4711,1217,136569

484300

1,4688,73342362

1,3252,349368

1,310256

012

1,420171929653

8,6281,03958812

4872,456

1,40210

4353,9751,818541659878915176

9431,1592,4471,227580

1,071354609212250

2,242398

3,9211,784211

3,773968670

4,393304

610268

1,4134,36527065

1,7641,424777882199

01

12764048

1,4818855

154152

133112

9111374333488414

10494561190611101540127

19417

1,1171268

222915567448

461186829185

1341323112218

$303,437

4,007625

3,2362,14144,1643,7732,091

402,2817,655

4,22592

1,55428,3326,3282,4952,5212,6333,552603

3,1975,94911,2036,5581,7284,8241,1852,577755727

8,9891,199

37,9795,230940

11,0284,2933,33120,5861,673

1,4261,2524,321

19,7951,240

2865,5466,1671,8874,387

813

015

District of Columbia-all* 2,324 793 349 17 521 489 154 2,295

* Includes national and non-national banks in the District of Columbia, all of which are supervised by the Comptroller of the Currency.t Equals total loans from the balance sheet before the removal of the reserve for possible loan losses.NOTE: Data may not add to totals because of rounding. Dashes indicate amounts of less than $500,000.


Table B-22

Outstanding balances, credit cards and related plans of national banks, December 31, 1976

Credit cards

Number ofbanks

Outstandingvolume

(dollars inthousands)

Other related credit plans

Number ofbanks

Outstandingvolume

(dollars inthousands)

All national banks


GeorgiaHawaiiIdahoIllinois :IndianaIowaKansasKentuckyLouisianaMaine





958 3,215,846

162252661501

83

241341598533612

437343231695319

1542596

11173174

401256543261164

99,83220,512123,92126,142

1,716,337185,073104,265

078,441266,506

219,384363

32,552609,934142,08048,71559,91976,50963,05315,474

157,266148,865366,12824,52736,563228,3233,867

141,22823,27917,239

105,56924,844648,682151,7731,084

420,178106,110119,878341,61836,640

51,6660

144,076370,74544,2853,426

225,766223,08819,734137,4082,979

00

1,216 $1,645,947

913536701101058

1012

117212215959

1749441151

351925115

56443241363240452

5106702224116315

00

2,775164

26,189821

292,78723,46926,248

040,65131,567

25,778617

10,42655,94616,1592,5322,5004,52513,4186,041

30,240104,75752,51664,970

80118,7352,5824,0524,9693,975

93,2661,114

277,55863,9052,70845,3584,097

0174,53714,941

5,9091,09810,97431,153

08

10,24315,5896,48514,5312,263

00


Table B-23

National banks engaged in direct lease financing, December 31, 1976

Total numberof banks

Number of banksengaged in direct

lease financing

Amount of directlease financing

(dollars in thousands)

All national banks



MarylandMassachusetts . .MichiganMinnesotaMississippiMissouriMontanaNebraskaNevadaNew Hampshire ,


South Carolina ..South Dakota . ..TennesseeTexasUtahVermontVirginiaWashingtonWest Virginia .. .WisconsinWyoming

Virgin Islands . . .Puerto Rico

4,737 769 $3,808,381

9763

7358

132235

15306

6426

425120100169825417

4175

12220338

11556

1204

43

10438

1292843

219195

7237

5

193274

5961314

10821

10313046

11

21

102130

404

48

802

643016241590

49

22166

27132123

99

1481

5482

2152

23

1158426

1117231600

23,2716,7613,4455,167

1,483,46528,94925,544

027,67738,44033,733

09,559

71,152131,876

1,9214,076

64,02425,989

0

34,55254,53845,53668,500

20749,9192,624

41,29617,740

74

74,5871,518

475,31950,593

364102,17629,57824,627

300,52372,928

4,7051,922

37,385100,556

16,880170

11,380165,198

9,71725,2023,018

00

District of Columbia — all* 16 27,677

* Includes national banks and non-national banks in the District of Columbia, all of which are supervised by the Comptroller of the Currency.


Table B-24Principal assets, liabilities and capital accounts of national banks, by asset size, year-end 1976

(Dollars in thousands)

Number of banksAssetsCash and due from banksU S Treasury securitiesObligations of other U.S. government agencies and corporations . . .Obligations of states and political subdivisionsOther bonds notes and debentures . . .Federal Reserve stock and corporate stockTrading account securitiesFederal funds sold and securities purchased under agreements to re-

sellLoans, total (excluding unearned income)


Direct lease financingBank premises, furniture and fixtures and other assets rep-

resenting bank premises . . . .Real estate owned other than bank premisesInvestments in unconsolidated subsidiaries and associated com-

panies .Customers' liabilities to this bank on acceptances outstandingOther assets

Total assetsLiabilitiesDemand deposits of individuals, partnerships and corporations . . . .Time and savings deposits of individuals, partnerships and cor-

portionsDeposits of U.S. governmentDeposits of states and political subdivisionsDeposits of foreign governments and official institutionsDeposits of commercial banksCertified and officers' checks

Total depositsTotal demand depositsTotal time and savings deposits

Federal funds purchased and securities sold under agreements torepurchase

Liabilities for borrowed moneyMortgage indebtednessAcceptances executed by or for account of this bank and outstand-

ingOther liabilities -

Total liabilitiesSubordinated notes and debentures


Total equity capitalTotal liabilities and equity capital

Standby Letters of Credit (outstanding as of report dateA. Time certificates of deposit in denominations

of $100,000 or more

B. Other time deposits in amounts of

All nationalbanks

4,737

$76,078,03152,612,83617,005,88057,384,3632,987,415

967,3044,973,779

30,140,010

303,436,7743,589,367

299 847 4073,808,381

9,879,9531,722,984

1,777,3885,086,708

19,076,586583.349,025

147,018,169

242,873,5352,126,653

38,088,3065,917,740

27,332,9876,051.345

469,408,735188,175,050281,233,685

51,678,9412,741,434

406,112

5,140,6759.921.683

539 297 5802,726,628

18,7549 106,275

15,853,73815,271,8331,074,217

41,324,817

583,349,0257,416,516

68,226,974

Banks with assets of—

Less than$5 million

223

$103,075134,70056,61736,937

5,0672,736

073,819

355,0182,618

352 400232

25,890477

043

6.119798,112

252,912

317,7574,047

76,2140

7,8269.400

668,156295,636372,520

1,605640286

434.075

674 805235

045 89443,10532,298

1,775123,072

798,112356

38,941

$5 to $10million

563

$491,638624,717316,301345,226

17,7457,462

0276,625

2,104,92916,855

2.088.0741,722

88,0422,801

7407

29,0324,289,799

1,290,839

2,105,61326,406

353,634543

11,66236.597

3,825,2941,493,1052,332,189

19,5943,265

812

40720,352

3.869J242,875

0117 823124,823160,832

13,722417,200

4,289,7991,965

173,345

$10 to $25million

1,558

$2,831,7543,230,5771,651,8343,201,894

154,37736,609

411,332,846

13,237,595120,895

13.116.70019,914

465,02622,146

1 0961,227

205,11926,271,160

7,319,960

13,772,201145,618

2,188,424811

82,196237.966

23,747,1768,551,793

15,195,383

167,96118,5293,857

1,227171,512

24.110.26242,426

1,101451,098652,932918,036

95,3052,118,472

26,271.16022,117

1,315,516

$25 to $100million

1,750

$8,804,0878,986,8494,338,578

11,619,868556,750114,979

7,5043,442,304

42,822,954424,067

42.398.88794,673

1,598,651112,209

7,95916,124

979.24883,078,670

22,084,943

43,904,360446,040

6,865,44782

571,752711.763

74,584,38725,694,66548,889,722

1,064,04273,77239,563

16,147802,453

76.580.364247,448

6,4501,376,4872,172,4952,447,187

248,2396,250,858

83,078,670136,542

5,707,670

$100 to $300million

396

$7,701,6216,678,6043,118,9218,651,075

527,75888,92149,264

3,014,426

31,992,539358,668

31.633.871144,610

1,216,330121,074

9,45217,590

806,09463,779,611

16,569,441

31,130,407300,960

5,509,0456,666

1,912,689531.313

55,960,52120,584,20935,376,312

2,217,86755,89626,631

17,601660,562

58.939.078264,211

1,9791,063,6381,722,2201,659,594

128,8914,576,322

63.779,611194,577

5,842,115

$300to$1,00Cmillion

162

$11,919,0597,575,0812,475,1029,779,727

600,424120,096387,519

5,945,879

43,404,249502,003

42.902.246482,244

1,657,713233,289

19,543110,854

1,247,51285,456,288

23,769,286

35,149,960362,262

7,110,79434,308

4,520,686756.619

71,703,91530,651,76541,052,150

6,316,953197,89384,686

110,890990,830

79.405,167429,074

8,8241,332,3722,214,2431,951,726

114,8825,622,047

85,456,288495,292

9,851,985

$1,000 millionand more

85

$44,226,79725,382,308

5,048,52723,749,636

1,125,294596,501

4,529,45116,054,111

169,519,4902,164,261

167.355,2293,064,986

4,828,3011,230,988

1,739,3314,940,463

15,803,462319,675,385

75,730,788

116,493,237841,320

15,984,7485,875,330

20,226,1763.767.687

238,919,286100,903,877138,015,409

41,890,9192,391,439

250,277

4,994,3607,271,899

295,718.1801,740,359

4004,718,9638,923,9208,102,160

471,40322,216,846

319,675,3856,565,667

45,297,402Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Table B-25

Ratios of classified assets to total loans for National banks, deposit size category, under $100 million

Classifiedassets as apercent oftotal loans

0-.91-1.9. ..2-2.9 . . . .3-3.94-4.95-5.96-6.97-7.98 and over

Total

7969

Num-ber ofbanks

2,0999534883211801086548

118

4,380

Per-cent

47.921.811.17.34.12.51.51.12.7

100.0

7970

Num-ber ofbanks

1,7799715613542191358962

142

4,312

Per-cent

41.322.513.08.25.13.12.11.43.3

100.0

7977

Num-ber ofbanks

1,7179455993632351187750

137

4,241

Per-cent

40.522.314.18.65.52.81.81.23.2

100.0

Latest examination

197

Num-ber ofbanks

1,8401,005

60831318397594580

4,230

2

Per-cent

43.523.814.47.44.32.31.41.11.9

100.0

in—

7973

Num-ber ofbanks

2,00495857928816180482873

4,219

Per-cent

47.522.713.76.83.81.91.10.71.7

100.0

7974

Num-ber ofbanks

1,7419606063721961277048

125

4,245

Per-cent

41.022.614.38.84.63.01.71.12.9

100.0

7975

Num-ber ofbanks

1,35790764938230619612080

238

4,235

Per-cent

32.021.415.39.07.24.62.81.95.6

100.0

7976

Num-ber ofbanks

1,21487866641531820313964

242

4,139

Per-cent

29.321.216.110.07.74.93.41.65.9

100.0

NOTE: Previous years have been revised.

Table B-26

Ratios of classified assets to total loans for National banks, deposit size category, $100 million and over

Classifiedassets as apercent oftotal loans

0-.91-19 . .2-2 9 .. .3-39 .4-4.95-5.96-6 97-79 .8 and over

Total

7969

Num-ber ofbanks

1597649

975213

311

Per-cent

51.124.415.82.92.31.60.60.31.0

100.0

7970

Num-ber ofbanks

998464261614818

320

Per-cent

30.926.320.08.15.04.42.50.32.5

100.0

1971

Num-ber ofbanks

119926737211064

10

366

Per-cent

32.525.118.310.15.72.71.61.12.7

100.0

Latest examination

1972

Num-ber ofbanks

1528980291213536

389

Per-cent

39.122.920.67.53.13.31.30.81.5

100.0

in—

1973

Num-ber ofbanks

1641297730168426

436

Per-cent

37.629.617.76.93.71.80.90.51.4

100.0

7974

Num-ber ofbanks

1161088853332688

24

464

Per-cent

25.023.319.011.47.15.61.71.75.2

100.0

7975

Num-ber ofbanks

678888563735222183

497

Per-cent

13.517.717.711.37.47.04.44.2

16.7

100.0

7976

Num-ber ofbanks

669885545332201399

520

Per-cent

12.718.916.410.410.26.23.62.5

19.0

100.0.

NOTE: Previous years have been revised.


Table B-27

Total income and expenses of foreign and domestic offices and subsidiaries of nationalbanks*, United States and other areas, year ended December 31, 1976


Number of banks

Operating income:Interest and fees on loansInterest on balances with banks .Income on Federal funds sold and securities purchased under agreements to

resell in domestic officesU S Treasury securitiesObligations of other U.S. government agencies and corporationsObligations of states and political subdivisionsOther bonds notes and debenturesDividends on stockIncome from direct lease financingIncome from fiduciary activitiesService charges on deposit accounts in domestic officesOther service charges commissions and fees . . . .Other income


Operating expenses:Salaries and employee benefits . . .Interest on time certificates of deposit of $100,000 or more, issued by domestic

officesInterest on deposits in foreign officesInterest on other depositsExpense of Federal funds purchased and securities sold under agreements to

repurchase in domestic officesInterest on borrowed moneyInterest on subordinated notes and debenturesOccupancy expense of bank premises netFurniture and equipment expenseProvision for possible loan losses (or actual net loan losses)Other expenses



Securities gains (losses) grossApplicable income taxes (domestic and foreign)

Securities gains (losses) netIncome before extraordinary itemsExtraordinary items, net of tax effect

Net income

Total,U.S. and

other areas

4,737

$31,031,0462,946,656

1,229,1823,193,2741,210,1492,801,076

492,07262,149

408,4381,029,203

911,4671,441,4841,265,214

48,021,410

8,575,522

4,327,8915,962,140

10,595,809

2,268,120454,745179,190

1,548,3121,015,4892,250,4274,925,748

42,103,393

5,918,0171,436,7554,481,262

168,49372,596

95,8974,577,159

13,891

4,591,050

Total,United States

4,735

$31,030,0702,946,577

1,228,9533,192,9271,210,0322,800,801

492,07262,147

408,4381,029,203

911,4031(441t4061,265,211

48,019,240

8,574,895

4,326,8575,962,140

10,595,325

2,268,120454,745179,190

1,548,1391,015,4442,249,4574,925,197

42,099,509

5,919,7311,436,7554,482,976

168,47072,596

95,8744,578,850

13,891

4,592,741

Alabama

97

$345,8624,428

11,91434,54623,56453,931

1,674582

1,11711,77617,81518,6898,662

534,560

110,035

50,83020

148,429

16,2864,3372,022

16,26515,04419,99672,048

455,312

79,24811,54867,700

1,256455

80168,501

650

69,151

Alaska

6

$64,6351,189

2,0303,5053,9169,552

242156484

1,0375,0164,9601,386

98,108

30,889

7,6180

15,282

2,0403048

4,8494,1081,102

11,912

77,878

20,2305,175

15,055

258112

14615,201

0

15,201

Arizona

3

$276,5291,895

11,67233,97910,25721,593

657297286

9,71617,3375,8177,850

397,885

102,728

27 511994

136,427

8,8087

4,98220,49410,4619,396

43,320

365,128

32,7573,422

29,335

14474

7029,405

0

29,405

Arkansas

73

$179,2671,611

11,92519,49411,86026,823

961290731

3,2099,2407,0328,850

281,293

57,365

25,0170

83,568

9,664251

1,72312,06910,3755,811

36,470

242,313

38,9804,866

34,114

1,664596

1,06835,182

6

35,188

California

58

$5,255,006921,743

161,019399,103164,915188,87982,28512,529

151,911114,575163,538284,257162,171

8,061,931

1,412,190

623,9001,734.5281,713,474

249,42938,92727,586

246,215128,266314,248613,420

7,102,183

959,748399,004560,744

5,3382,492

2,846563,590

1,270

564,860


Equity capital, beginning of periodNet income (loss)Sale, conversion, acquisition or retirement of capitalChanges incident to mergers and absorptionsCash dividends declared on common stockCash dividends declared on preferred stockStock dividends issuedOther increases (decreases)

Equity capital, end of period

Reserve for possible loan losses, beginning of periodRecoveries credited to reserveChanges incident to mergers and absorptionsProvision for possible loan lossesLosses charged to reserve

Reserve for possible loan losses, end of period

Ratios:Net income before dividends to average equity capitalf (percent)

Total operating expense to total operating income (percent)

36,493,1714,591,050

352,001206,930

-1,820,000-1,088

- 7 31,502,734

41,324,725

3,541,243439,352

20,5572,250,427

-2.544,934

3,706,645

11.50

87.68

36,491,7654,592,741

348,833206,930

-1,820,000-1,088

- 7 31,503,824

41,322,932

3,540,243439,262

20,5572,249,457

-2,543,518

3,706,001

11.64

87.67

487,53569,1514,804

648-23,786

01

7,341

545,694

42,2016,070

9719,996

-21,484

46,880

13.24

85.18

70,79915,2014,607

0-1,306

00

1,737

91,038

6,2221,012

01,102

-1,893

6,443

18.87

79.38

249,76929,405

780

-12,35900

10,121

277,014

23,3332,570

09,396

-11.385

23,914

11.05

91.77

256,82435,188

1,0380

-7,64700

7,271

292,674

18,2652,852

05.811

-7,584

19,344

12.59

86.14

3,798,945564,860

65,410305

-230,14300

578,944

4,778,321

482,01151,471

1,215314,248

-315,237

533,708

13.16

88.10






Colorado

132

$340,233860

14,26329,91410,85535,078

584507

3,17118,75117,41517,63311,968

501,232

110,796

44,810288

118,379

17,3321,8862,312

19,88014,70019,27284,494

434,149

67,08314,01953,064

1,727808

91953,983

122

54,105

Connecticut

23

$198,52510,890

4,34114,6537,602

18,6756,105

4482,657

17,1515,5588,9448,917

304,466

79,395

22,0653,813

70,886

16,149891638

16,74811,61226,03340,777

289,007

15,459-549

16,008

1,199580

61916,627

31

16,658

Delaware

5

$3,5150

19654519115928400

1057752

4,872

1,003

850

1,983

09

1418512859

731

4,197

675213462

133

10472

0

472

District ofColumbia

15

$189,93820,396

14,17334,339

6,69121,421

1,275354

2,09214,0489,2175,8274,199

323,970

75,404

19,78623,37262,647

11,393667724

13,5428,988

12,33938,408

267,270

56,70017,46639,234

2,6601,322

1,33840,572

171

40,743

Florida

306

$673,11916,023

48,835152,94260,707

105,9747,6301,6685,005

38,83135,48532,93024,486

1,203,635

232,292

99,4481,003

362,381

40,157989

2,43840,53132,81671,642

239,413

1,123,110

80,525-2,46782,992

12,7065,008

7,69890,690

105

90,795

Georgia

64

$425,32614,716

16,64527,070

8,74630,658

2,3302,1653,605

19,31026,95818,61135,058

631,198

149,639

56,90311,920

100,604

47,22313,0584,495

24,01620,08854,30295,939

578,187

53,0115,776

47,235

2,049630

1,41948,654

-47

48,607

Hawaii

2

$8,5869

1791,213

703144

013001

1,28622

12,156

3,354

2,0970

2,952

600

75824345948

2,151

12,806

-65014

-664

2610

261-403

0

-403

Number of banks

Operating income:Interest and fees on loansInterest on balances with banksIncome on Federal funds sold and securities purchased under agreements to

resell in domestic officesU.S. Treasury securitiesObligations of other U.S. government agencies and corporationsObligations of states and political subdivisionsOther bonds, notes and debenturesDividends on stockIncome from direct lease financingIncome from fiduciary activitiesService charges on deposit accounts in domestic officesOther service charges, commissions and feesOther income

Total operating income .'

Operating expenses:Salaries and employee benefitsInterest on time certificates of deposit of $100,000 or more, issued by domestic


repurchase in domestic officesInterest on borrowed moneyInterest on subordinated notes and debenturesOccupancy expense of bank premises, netFurniture and equipment expenseProvision for possible loan losses (or actual net loan losses)Other expenses



Securities gains (losses), grossApplicable income taxes (domestic and foreign)

Securities gains (losses), netIncome before extraordinary itemsExtraordinary items, net of tax effect

Net income






Ratios:Net income before dividends to average equity capitalt (percent)


410,98554,1053,887

0-20,245

00

10,213

458,945

33,4794,469

22219,272

-21,054

36,388

12.43

86.62

253,81616,658

636114

-12,07000

3,852

263,006

22,9513,339

73626,033

-29,628

23,431

6.41

94.92

4,773472195

0-153

00

88

5,375

14030

59- 4 8

154

9.33

86.15

359,76040,743

1,4560

-17,054-169

04,569

389,305

29,0402,158

012,339

-14,208

29,329

11.39

82.50

1,294,40490,795

1,48216,250

-50,121-60

021,957

1,374,707

90,58215,9376,878

71,642-97,033

88,006

6.75

93.31

561,09648,607

7,3660

-28,97800

5,172

593,263

59,7179,587

054,302

-67,550

56,056

8.46

7,869-403

00000

200

7,666

652730

948-692

981

-5.08

91.60 105.35


en



Total income and expences of foreign and domestic offices and subsidiaries of nationalbanks*, United States and other areas, year ended December 31, 1976


Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana

Number of banks






repurchase in domestic officesInterest on borrowed moneyInterest on subordinated notes and debenturesOccupancy expense of bank premises, net ,Furniture and equipment expenseProvision for possible loan losses (or actual net loan losses)Other expenses





Net income

$143,887618

2,03013,3194,531

13,355184238964

1,4146,5474,1501,448

192,685

39,390

15,6020

64,664

3,0017

6285,3454,9403,984

22,432

159,993

32,6929,?330

23,362

-185-94

-9123,271

3

23,274

425 120 100 169 82

$2,697,593342,558

79,211330,106138,143254,82948,670

7,08611,17799,62842,76295,216

132,295

$552,36317,839

33,718100,71741,57874,6569,354

94910,55720,65320,71523,61012,143

$203,6131,541

13,09424,75615,31226,879

1,577263211

6,7635,575

10,2983,408

$212,295298

15,73133,61118,44231,747

745412

1,1655,8787,854

10,6134,446

$228,1734,077

15,41333,75310,16731,263

228350

4,9203,8436,285

11,2424,212

4,279,274 918,852 313,290 343,237 353,926

576,183

526,972657,724817,424

375,72429,2106,050

102,65474,359

252,476328,959

164,766

84,7238,711

284,127

61,2171,914

59531,83525,58139,835

101,700

54,696

14,4590

122,826

11,789207

1,6169,4797,1483,510

39,170

64,347

30,0520

109,253

10,4941,2421,519

10,48610,3848,211

39,712

67,179

28,0972,871

106,558

12,175526479

11,91210,7469,497

43,227

3,747,735 805,004 264,900 285,700 293,267

531,539133,163398,376

113,84816,32997,519

48,3909,793

38,597

57,53712,51445,023

60,65911,93548,724

34,17015,255

7,5363,442

1,218553

1,916633.

68483

18,915417,291

2,878

4,094101,613

- 2 6

66539,262

275

1,28346,306

163'

60149,325

53

420,169 101,587 39,537 46,469i 49,378

54

$307,3167,039

22,99272,74314,18644,509

785746

2,9545,771

14,93317,6844,827

516,485

93,924

82,3132,452

110,973

25,460646

1,39518,32819,62719,62063,560

438,298

78,18716,23661,951

5,9931,150

4,84366,7942,139

68,933




Reserve for possible loan losses, beginning of period ..Recoveries credited to reserveChanges incident to mergers and absorptionsProvision for possible loan lossesLosses charged to reserve

Reserve for possible loan losses, end of period ..



140,08023,274

00

-7,40100

4,153

160,106

11,5722,191

03,984

-4,137

13,610

15.36

83.03

3,074,759420,169

19,0611,083

-141,663-95

0178,960

3,552,274

393,38428,071

1,335252,476

-289,773

385,493

12.60

87.58

838,249101,587

3,6362,672

-38,98200

11,903

919,065

69,2859,7701,051

39,835-39,621

80,320

11.50

87.61

266,17539,537

1,6620

-11,31500

10,162

306,221

20,9741,874

113,510

-5,709

20,660

13.71

84.55

376,81646,469

1,24524

-13,48300

6,028

417,099

23,2544,113

708,211

-10,511

25,137

11.57

83.24

314,91249,378

2,330445

-11,16200

13,453

369,356

520,91468,9333,863

0-17,384

- 8 90

17,117

593,354

24,3363,045

409,497

-11,248

42,8996,680

019,620

-28,072

25,670 41,127

14.27 12.25

82.86 84.86


i


CO


Total income and expences of foreign and domestic offices and subsidiaries of nationalbanks*, United States and other areas, year ended December 31, 1976



Number of banks




Operating expenses:Salaries and employee benefitsInterest on time certificates .of deposit of $100,000 or more, issued by domestic







Net income

17

$55,431120

3,6684,8862,0375,970

84750

2,3202,0142,3211,000

79,926

19,102

4,0660

25,629

1,4443

1343,6942,5332,63510,604

69,844

10,0821,8588,224

477238

2398,463-53

8,410

41 75 122 203 38

$275,9001,709

13,93821,0647,816

26,219561329

3,7825,42911,6887,83114,061

$681,748138,470

19,22380,21013,41544,38835,0641,407

22,88852,29916,15055,44728,986

$985,63961,599

43,717119,64133,228113,09111,0951,7293,23035,70330,39825,37319,145

$522,83513,340

21,48356,41429,80263,6392,059918

5,85923,97313,21928,90047,629

$151,8762,544

7,03418,4415,96720,822

51635381

2,4048,7878,5597,746

390,327 1,189,695 1,483,588 830,070 235,130

87,023

32,9466,754

109,697

19,011579472

16,52811,28715,64446,777

244,767

115,687204,688139,890

70,98232,6833,29250,09326,48577,601126,113

283,791

101,49277,600

512,811

47,646608

8,63551,04934,98741,763140,067

138,815

69,64811,192

245,180

60,42910,5018,302

20,19515,01826,27599,968

45,711

30,7220

58,141

9,24739

5458,4708,08110,19529,841

346,718 1,092,281 1,300,449 705,523 200,992

43,6096,200

37,409

97,41430,00267,412

183,13928,633154,506

124,54731,50293,045

34,1385,60328,535

845209

8,0744,129

-714-503

1,132323

748124

63638,045

-15

3,94571,357

-40

-211154,295

237

80993,854

161

62429,159

609

38,030 71,317 154,532 94,015 29,768

115

$394,63715,854

52,67145,64123,41154,8941,112783

5,57523,9138,203

23,65423,664

674,012

123,137

68,7616,622

140,814

80,3151,4191,436

18,86418,34723,92984,017

567,661

106,35123,86182,490

2,4951,092

1,40383,893

33

83,926




Reserve for possible loan losses, beginning of periodRecoveries credited to reserveChanges incident to mergers and absorptions . . . .Provision for possible loan lossesLosses charged to reserve


Ratios:Net income before dividends to average equity capitalf (percent) ..


68,8348,410

832718

-4,56100

1,297

75,530

6,6401,205

1052,635

-4,822

5,763

11.24

87.39

330,03938,030

578566

-11,58800

7,158

364,783

27,1083,610

5515,644

-18,617

27,800

10.85

88.83

887,80971,317

2450

-37,71200

31,435

953,094

76,00416,272-272

77,601-89,949

79,656

7.65

91.81

1,325,990154,532

9,605420

-67,137- 6

049,459

1,472,863

110,62711,045

11241,763

-49,526

114,021

10.92

87.66

744,91794,01516,113

0-34,682

00

18,953

839,316

58,6273,559

8526,275

-26,832

61,714

9.53

85.00

207,59329,768

1583,125

-9,67000

4,551

235,525

17,4503,596

20610,195

-13,521

17,926

13.28

85.48

676,70983,9265,026

0-44,180

-2480

14,792

736,025

51,6406,540

50623,929

-25,084

57,531

11.77

84.22


CO





Montana

56

$105,562420

3,21810,0874,271

13,563235181380764

3,4384,8951,133

148,147

24,695

8,4920

59,085

2,022103951

3,6273,1625,042

19,219

126,398

21,7493,642

18,107

2578

24918,356

17

18,373

Nebraska

120

$220,157649

9,38121,90613,56827,607

744308

4,0958,6795,872

15,1205,714

333,800

63,175

18,9210

107,783

10,3493,3121,617

12,08510,78911,55140,862

280,444

53,3569,387

43,969

619211

40844,377

176

44,553

Nevada

4

$68,895233

2,53911,7326,2657,6391,354

991,4371,9495,8111,7741,536

111,263

25,984

13,2520

24,804

28370

05,0642,2042,106

14,055

87,822

23,4417,363

16,078

- 7 0- 3 3

- 3 716,041

0

16,041

NewHampshire

43

$65,607953

1,5568,4851,3177,093

102110

152,2472,7451,886

843

92,959

21,865

8,2460

24,372

1,6662382

4,8632,7403,811

16,220

83,888

9,071742

8,329

1,208465

7439,072

219 *

9,291

New Jersey

104

$728,90220,981

25,029110,69058,568

122,05630,666

1,4666,568

19,90028,14324,74116,429

1,194,139

260,464

65,0357,139

432,908

23,8853,0683,951

57,22435,30738,490

144,504

1,071,975

122,164-467

122,631

4,1301,498

2,632125,263

346

125,609

New Mexico

38

$108,4561,861

6,19010,8358,453

14,141164197167

2,3135,5376,1511,403

165,868

33,708

25,1310

44,964

2,88562

1,1146,7415,5478,516

20,781

149,449

16,4192,078

14,341

1,180415

76515,106-393

14,713

New York

129

$5,974,143815,701

45,552237,642

58,245228,326187,367

7,68775,280

136,85860,419

327,782338,719

8,493,721

1,328,444

689,6492,610,087

692,199

270,746255,431

19,150264,051103,540590,930690,809

7,515,036

978,685333,405645,280

25,88616,017

9,869655,149

527

655,676

Number of banks











Net income








117,42318,373

9130

-6,19900

4,031

134,541

10,5241,796

05,042

-6,344

11,018

14.33

85.32

295,67344,553

5640

-16,169- 6

- 7 57,976

332,516

29,7163,111

011,551

-17,998

26,380

14.02

84.02

103,12516,041

00

-4,56700

3,242

117,841

7,3501,021

02,106

-2,186

8,291

14.54

78.93

98,1229,291

190

-3,91300

1,395

104,914

6,785692

83,811

-4,337

6,959

9.08

90.24

1,107,050125,609

36923,342

-63,316- 2

023,103

1,216,155

105,07511,1262,160

38,490-48,944

107,907

10-61

89.77

136,82014,7135,698

0-6,216

- 2 30

2,040

153,032

12,9272,435

08,516

-10,477

13,401

10.08

90.10

5,552,322655,67644,343

124,913-270,137

- 50

123,896

6,231,008

594,83387,543

1,967590,930

-643,131

632,142

11.01

88.48






North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island

Number of banks











Net income

28

$475,69637,920

25,86236,60327,48057,2342,045

7246,929

23,23321,80920,14330,997

766,675

165,315

60,08741,038

175,408

47,869725

10,18632,60819,29724,58490,298

667,415

99,26018,77180,489

138-33

17180,660

601

81,261

43 219 195 237

$79,624137

1,7678,8744,346

10,61097

1070

1,8932,2263,4181,220

$976,82644,096

52,345193,74734,232

167,6448,5412,363

10,15743,18244,79441,98830,604

$362,8752,651

27,23661,5087,392

65,1981,942

8102,170

10,18114,50812,51316,111

$295,02019,116

12,77923,82813,51536,675

474393

2,82810,85319,68319,9606,051

$1,833,243139,894

96,535229,71993,453175,97621,3435,59717,14880,09925,23449,908100,589

114,319 1,650,519 585,095 461,175 2,868,738

19,055

3,3750

50,051

590213698

2,8312,1781,014

12,153

314,208

101,65211,859

520,351

85,969964

2,45154,70641,80354,297196,248

103,531

94,636359

145,109

21,9851,0414,08313,59415,35635,81373,822

103,808

28,80910,579123,022

30,118489

7,48216,29711,0857,895

50,807

495,614

293,557206,993738,905

213,58628,99316,71994,38261,220134,244262,079

92,158 1,384,508 509,329 390,391 2,546,292

22,1615,51716,644

266,01143,206222,805

75,7661,938

73,828

70,78418,19552,589

322,44633,814

288,632

7028

3,0121,148

4,3131,317

-1,289-658

10,3354,477

4216,686

46

1,864224,669

186

2,99676,824

939

-63151,958

0

5,858294,490

221

16,732 224,855 77,763 51,958 294,711

$148,7711,949

3,14814,2783,48510,3331,555287

2,79310,0943,4024,24810,149

214,492

40,279

22,3758,558

61,579

7,249329314

7,4393,33410,06226,022

187,540

26,9527,94719,005

432164

26819,273

0

19,273




Reserve for possible loan losses, beginning of period ..Recoveries credited to reserveChanges incident to mergers and absorptionsProvision for possible loan lossesLosses charged to reserve




598,42381,261

7098,362

-26,60900

15,484

677,630

58,1246,209

96324,584

-27,122

62,758

12.68

87.05

94,80016,732

2000

-5,35700

3,704

110,079

9,194338

01,014

-1.559

8,987

16.18

80.61

1,676,246224,855

17,68216,812

-98,90600

35,322

1,872,011

123,83418,725

1,02154,297

-60,237

137,640

12.56

83.88

588,12377,7633,253

0-24,951

- 4 50

7,802

651,945

37,4649,830

1535,813

-41,312

41,810

12.47

87.05

332,19251,958

100

-21,82300

10,587

372,924

27,0702,318

07,895

-8,721

28,562

14.58

84.65

2,483,277294,711

12,1574,019

-136,048- 6 9

051,734

2,709,781

255,37916,044

444134,244

-156.122

249,989

11.22

3.76

182,00019,273

00

-10,94700

11,867

202,193

15,6481,690

010,062

-12,301

15,099

10.01

87.43






South Carolina South Dakota Tennessee Texas Utah Vermont Virginia

Number of banks

Operating income:Interest and fees on loansInterest on balances with banksIncome on Federal funds sold and securities purchased under agreements to t










Net income

19

$129,004698

5,74212,6537,13916,786

66201170

4,94811,7806,6604,580

200,427

60,395

3,4720

45,882

6,509231607

8,3628,7248,68929,589

172,460

27,9674,11023,857

1869

17724,034

0

24,034

32 74 596 13 14

$110,047669

2,21010,0805,54214,863

520168453

1,7093,4384,7031,242

$386,94311,924

24,06250,94022,60939,4242,288761

2,19012,52218,20826,64314,025

$1,764,099186,115

144,654238,58491,977264,03310,0553,0227,43665,37663,51058,56643,427

$109,4041,042

3,72611,1103,6888,850

37173

1,7022,7055,1065,2232,717

155,644 612,539 2,940,854 155,483

24,832

8,3860

67,813

73761

1,2664,1382,9591,47615,597

121,937

71,9805,037

167,489

27,210750

1,76422,86120,16456,64678,994

452,922

418,265239,246604,661

185,97710,7209,90070,32762,70698,253329,002

27,805

22,0760

38,501

4,900688

1,4114,5885,9163,83418,799

127,265 574,832 2,481,979 128,518

28,3796,60221,777

37,707-103

37,810

458,87590,605

368,270

26,9658,59418,371

287144

8,9724,419

5,608346

-262-135

14321,920

103

4,55342,363

-75

5,262373,532

1,572

-12718,244

35

22,023 42,288 375,104 18,279

$24,28262

7562,370752

2,3493112819

260950338545

33,022

7,167

5280

14,304

1116

1451,297929752

3,825

29,064

3,958581

3,377

-36

443,421

99

3,520

108

$511,9698,640

18,00450,58621,78062,942

913934648

16,77314,11019,84512,980

740,124

144,610

49,6131,490

244,297

17,178336

3,37926,71020,46525,582129,884

663,544

76,5803,05473,526

1,975682

1,29374,819

121

74,940




Reserve for possible loan losses, beginning of periodRecoveries credited to reserveChanges incident to mergers and absorptions . . . .Provision for possible loan lossesLosses charged to reserve


Ratios:Net income before dividends to average equity capitalf (percent)


198,83424,034

50

-8,67800

4,314

218,509

13,9412,005

08,689

-8,629

16,006

11.47

86.05

118,43222,023

3002,553

-7,04100

2,271

138,538

13,4851,507

3301,47(5

-3,850

12,948

16.85

81.77

516,58742,28817,591

0-16,933

00

4,767

564,300

54,81415,248

056,646

-74,634

52,074

7.39

93.84

2,557,076375,104

78,630475

-139,59600

97,348

2,969,037

218,06633,044

33198,253

-118,604

231,090

13.37

84.40

108,46318,2791,000

0-6,717

00

3,260

124,285

9,022945

03,834

-3,726

10,075

15.56

82.66

27,4053,520

150

-1,44100

804

30,303

2,460187

0752

-870

2,529

11.89

88.01

652,62074,9402,2933,905

-32,39600

15,273

716,635

53,6988,726

85525,582

-31,341

57,520

10.85

89.65



l






n on-national +Number of banks











Net income

21

$578,97618,825

38,82134,3609,28746,891

921687

16,31518,10733,48327,62921,084

845,386

201,276

§3,71238,240205,496

46,5974,1434,81331,18523,33722,74996,729

738,277

107,10924,87082,239

24242

20082,439

21

82,460

103 130 46

$158,0592,210

16,24930,93322,51432,2101,109331

1,2553,9802,9974,9822,853

$366,08528,196

18,62356,37817,58039,2593,193760

3,55411,3078,34619,45520,331

$73,578269

1,8548,3944,5329,951225102307876

3,0391,8741,298

$97679

1523010

275020064553

279,682 593,067 106,299 1,907

44,839

15,2780

108,851

14,496525581

6,6887,4604,77931,678

102,438

46,59226,963195,666

36,1681,0463,86319,16716,25725,64265,975

18,608

8,1280

36,826

1,560780508

2,7542,5112,37712,016

409

1,0340

363

0008215

970502

235,175 539,777 86,068 3,375

44,5074,492

40,015

53,2908,425

44,865

20,2314,54115,690

-1,4680

-1,468

1,366502

5,6872,696

516189

230

86440,879

220

2,99147,856

279

32716,017-94

23-1,445

0

41,099 48,135 15,923 -1,445

1

00

$7746117000000230

263

218

00

121

0009130049

509

-2460

-246

0-246

0

-246

1

$1,0600

111325448527250000

17340

2,942

856

2390

777

101397360

453

2,472

47030

440

-140

04260

426


Equity capital beginning of periodNet income (loss) . .Sale, conversion, acquisition or retirement of capitalChanges incident to mergers and absorptionsCash dividends declared on common stock.Cash dividends declared on preferred stock . . .Stock dividends issuedOther increases (decreases)



Reserve for possible loan losses, end of period . .

Ratios:Net income before dividends to average equity capitalt (percent) . . .


540,89382,460

456-3,821

-21,014271

030,972

629,675

63,8378,614

-1022,749

-23,259

71,931

13.82

87.33

307,74741,099

1,3440

-10,13101

6,356

346,416

21,6971,588

04,779

-6,919

21,145

12.42

84.09

479,78048,135

4,8190

-22,07800

12,932

523,588

45,5972,577

2025,642

-23,255

50,581

9.51

91.01

87,96115,923

1,1500

-4,03500

2,458

103,457

7,310831

12,377

-2,422

8,097

16.54

80.97

1,518-1,445

3,1680000

-1,175

2,066

1,00090

0970

-1,416

644

-110.31

176.98

-112-246

00000

85

-273

000

0

0

-13.62

193.54

2,623426

00

- 7 000

104

3,083

13,403686

03,812

-4,832

13,069

15.10

84.02

* Includes all banks operating as national banks at year-end, with full-year data for state chartered banks that converted to national banks during the year.tThis is an average of five periods beginning with December 31,1975. The 1975 figure is not identical in definition with the four figures from 1976 because of

major reporting changes instituted in 1976.tNon-national banks in the District of Columbia are supervised by the Comptroller of the Currency.


Table B-28

Income and expenses of national banks, by asset size, December 31, 1976

(Dollars in thousands)

Report of income accounts

Allnationalbanks

Banks with assets of—

Less than$5 million

$5 to $10million

$10 to $25million

$25 to $100million

$100 to $300million

$300 to $1,000million

$1,000 millionand more

Number of banks

Interest and fees on loansInterest on balances with banksIncome on federal funds sold and securities purchased under

agreements to resell in domestic officesInterest on U.S. Treasury securitiesInterest on obligations of other U.S. government agencies and cor-

porationsInterest on obligations of states and political subdivisions of the U.S.Interest on other bonds notes, and debenturesDividends on stockIncome from direct lease financingIncome from fiduciary activitiesService charges on deposit accounts in domestic officesOther service charges, commissions and feesOther income


Salaries and employee benefitsInterest on time certificates of deposit of $100,000 or more issued by

domestic officesInterest on deposits in foreign officesInterest on other depositsExpense of federal funds purchased and securities sold under agree-

ments to repurchase in domestic officesInterest on borrowed moneyInterest on subordinated notes and debentures

Occupancy expense of bank premises, grossLess: rental income

Occupancy expense of bank premises, netFurniture and equipment expenseProvision for possible loan losses (or actual net loan losses)Other expenses


Income before income taxes and securities gains or losses .Applicable income taxes (domestic and foreign)Income before securities gains or lossesSecurities gains (losses), grossApplicable income taxesSecurities gains (losses), netIncome before extraordinary itemsExtraordinary items, net of tax effect

Net income

4,737

$31,031,0462,946,656

1,229,1823,193,274

1,210,1492,801,076

492,07262,149

408,4381,029,203

911,4671,441,4841,265,214

48,021,410

8,575,522

4,327,8915,962,140

10,595,809

2,268,120454,745179,190

1,879,653331.341

1,548,3121,015,4892,250,4274,925,748

42,103,393

5,918,0171,436,7554,481,262

168,49372,59695,897

4,577,15913,891

4,591,050

223 563 1,558 1,750 396 162

$27,303617

3,4238,368

3,7981,942

2948713

2,3491,9214,261

562

$174,9051,754

13,50242,291

23,44217,827

1,243341164

5,90410,8176,0242,943

$1,140,79813,123

65,403212,906

120,954162,385

11,2421,9892,6248,363

61,25735,24918,319

$3,725,34648,379

164,241598,033

305,426572,568

41,5856,606

12,40547,118

168,500107,94156,373

$2,752,51043,988

127,694421,438

214,333419,16537,0915,24016,49198,047105,602103,29069,786

$3,744,94654,098

211,002483,718

175,314476,92842,8546,835

48,125183,887149,739189,209111,863

54,938 301,157 1,854,612 5,854,521 4,414,675 5,878,518

18,486

1,4490

15,478

13914720

71,290

8,9170

109,270

653265206

371,576

75,4770

724,040

7,2061,2913,088

1,099,862

348,0520

2,256,882

50,8815,84716,949

869,238

365,6081,302

1,497,633

107,9224,65117,602

1,256,160

600,99819,650

1,527,885

292,81517,30029.462

3,43995_

3,3442,4461,714

11,164

12,384466

11,9188,8689,626

45,196

63,1273,32259,80546,84353,904

242,065

219,63121,308158,323145,821174,754727,387

199,17635,509163166?118,853146,784570,117

308,17166.657

241,514187,917262,857792,248

54,387 266,209 1,585,295 5,024,758 3,863,377 5,228,806

55152724

57995

484508-86

34,9486,174

28,7743,031674

2,35731,131

-58

269,31745,092224,22515,6073,94011,667

235,8922,597

829,763126,818702,94535,15411,10424,050

726,9954,661

551,29862,729

488,56930,18513,11117,074

505,6432,643

649,71276,576

573,13621,60210,08611,516

584,6523,131

422 31,073 238,489 731,656 508,286 587,783

85

$19,465,2382,784,697

643,9171,426,520

366,8821,150,261357,76341,051328,616683,535413,631995,510

1,005,368

29,662,989

4,888,910

2,927,3905,941,1884,464,621

1,808,504425,244111,863

1,07J,725203.984869,741504,741

1,600,7882,537,57126,080,561

3,582,4281,118,8392,463,589

62,33533,58628,749

2,492,3381,003

2,493,341


Table B-29

Average assets and equity capital, net income, and dividends of National banks, 1961-1976


Year

1961196219631964196519661967 . .1968 .. .19691970197119721973197419751976

Numberof

banks

4,5134,5034,6154,7734,8154,7994,7584,7164,6694,6214,6004,6144,6614,7084,7444,737

Averagetotal

assets *

$142,456153,675164,546178,483200,938226,847247,136275,155303,127318,718352,924397,169453,761508,688536,370554,666

Average capital stock (par value)*

Preferred

$2102427292938586063574339271318

Common

$3,4643,6633,8624,1364,6005,0365,2245,5045,9836,3276,6417,1327,6768,1788,5509,060

Total

$3,4663,6733,8864,1634,6295,0655,2625,5626,0436,3906,6987,1757,7158,2058,5639,078

Averagetotal

equitycapital*

$11,47112,28913,08714,02315,30416,81717,88719,29121,29822,94224,67926,88829,64732,39135,16339,915

Net incomebefore

dividends

$1,0421,0691,2061,2131,3871,5831,7571,9322,5342,8293,0413,3083,7684,0444,2594,591

Cashdividends

oncapitalstock

$486518548593683738796897

1,0681,2781,3901,3101,4491,6711,8211,821

Ratios (percent)

Net incomebefore

dividends toaverage total

assets

0.73.70.73.68.69.70.71.70.84.89.86.83.83.79.79.83

Net incomebefore

dividends toaverage totalequity capital

9.088.709.228.659.069.419.82

10.0211.9012.3312.3212.3012.7112.4812.1111.50

Cashdividends tonet income

beforedividends

46.6448.4645.4448.8949.2446.6245.3046.4342.1545.1745.7139.6038.4641.3242.7639.66

Cashdividends

to totalequitycapital

4.244.224.194.234.464.394.454.655.015.575.634.874.895.165.184.56

* Prior to 1976 these are averages of data from the reports of condition for the previous December and June and December of the respective years. Beginning with 1976, these are averages of datafrom the reports of condition for the previous December and the four calls in the year. Data are not exactly comparable because assets through 1975 are net of reserves on loans and securities andsince then are net of valuation reserves and unearned discount on loans. Also, equity capital for 1976 was reported including certain components of the reserve on loans and securities which werenot reported separately for the years 1969-1975.NOTE: For earlier data, see Annual Reports of the Comptroller of the Currency, 1938, p. 115, 1963, p. 306 and 1975, p. 160. In the table above, "Average total equity capital" does not include subor-dinated capital notes or debentures.

CD


Table B-30

Loan losses and recoveries of national banks, domestic offices only, 1961-1976

19611962196319641965 . . .19661967196819691970197119721973 . . . .197419751976

Year Total loans,end of year, net*

$ 67 308,73475,548,31683,388,44695,577,392

116,833,479126,881,261136,752,887154,862,018168,004,686173,456,091190,308,412226,354,896266,937,532292,732,965287,362,220299,833,480

Net losses orrecoveries^

$ 112,41297,617

121,724125,684189,826240,880279,257257,280303,357601,734666,190545,473731,633

1,193,7302,047,643r

1,819,748

Ratio of net lossesor net recoveries^

to loans

Percent0.170.130.150.130.160.190.200.170.180.350.350.240.270.410.71r

0.61

* Loans used in all years are net of reserves; and 1976 loans are also net of unearned discount.f Ratios are based on end-of-year-loans.r Restated.NOTE: For earlier data, see Annual Reports of the Comptroller of the Currency, 1947, p. 100; 1968, p. 233 and 1975, p. 161.


Table B-31

Assets and liabilities of domestic operations of national banks, date of last report ofcondition, 1961-1976


Year

1961196219631964196519661967196819691970197119721973197419751976

Numberof

banks

4,5134,5034,6154,7734,8154,7994,7584,7164,6694,6214,6004,6144,6614,7084,7444,737

Assets

Totalassets *

$150,809160,657170,233190,113219,103235,996263,375296,594310,263337,070372,538430,768484,887529,232548,170583,349

Cashand due

from banks

$31,07829,68428,63534,06636,88041,69046,63450,95354,72856,04059,20167,40170,72476,55778,05076,078

Totalsecurities

$49,09451,70652,60254,36757,31057,66769,65676,87270,03084,15795,949

103,659104,607106,931125,332135,932

Loans,net*

$67,30975,54883,38895,577

116,833127,454136,753154,862168,005173,456190,308226,355266,938292,733287,362299,847

Otherassets

$3,3283,2705,6086,1038,0799,185

10,33213,90717,50023,41627,08033,35442,61953,01257,42671,492

Liabilities

Totaldeposits

$135,511142,825150,823169,617193,860206,456231,374257,884256,427283,784314,212359,427395,881431,225447,712469,409

Otherliabilities^

$3,4245,0835,9075,9228,943

12,24313,50618,44231,70329,57132,70243,11758,07264,43563,76972,615

Totalequitycapital

$11,87512,75013,50314,57316,30017,29818,49520,26822,13423,71425,62328,22330,93533,57236,68841,325

* For years 1961-1975, data are net of securities and loan reserves. 1976 data are net of valuation reserves and unearned discount on loans.t Includes subordinated capital notes and debentures.

00


Table B-32

Consolidated assets and liabilities of national banks with foreign operations, December 31, 1976


Foreign anddomestic assets

and liabilities

$95,419,45958,482,635

25,206,8115,149,924

23,984,7944,141,106

706,4524,958,619

64,147,706

16,558,193244,299,335

2,314,971241,984,364

3,703,415

5,370,7811,325,549

805,7966,615,8348,614,285

444,545,381

103,280,791138,885,643112,836,769

355,003,203

42,210,6535,568,103

280,0956,739,123

10,512,485

420,313,660

1,797,342

22,434,377

444,545,381

Domesticassets and

liabilities

$45,060,60555,393,861

25,197,7625,149,742

23,866,3571,180,000

598,4584,614,635

60,606,954

16,556,595171,571,382

2,197,688169,373,693

3,109,212

4,879,7621,273,2651,735,0354,980,317

15,989,759

323,565,198

103,280,791138,885,643

N.A.

242,166,434

42,106,3742,440,982

272,1435,034,2157,316,312

299,336,460

1,794,362

22,434,377

323,565,198

Foreign assetsand liabilities

(Column 1minus column 2)

$50,358,8543,088,774

9,049182

118,4372,961,106

107,994343,984

3,540,752

1,59872,727,953

117,28372,610,671

594,203

491,01952,284

-929,2391,635,517

-7,375,474

120,980,183

N.A.N.A.

112,836,769

112,836,769

104,2793,127,121

7,9521,704,9083,196,173

120,977,200

2,980

0

120,980,183

AssetsCash and due from banksInvestment securities

U.S. Treasury securitiesObligations of other U.S. government agencies and corporationsObligations of states and political subdivisionsOther bonds, notes, and debentures

Federal Reserve stock and corporate stockTrading account securities

Total securities

Federal funds sold and securities purchased under agreements to resell . . . .Total loans (excluding unearned income)


Direct lease financingBank premises, furniture and fixtures, and other assets representing bank

premises •.Real estate owned other than bank premisesInvestments in unconsolidated subsidiaries and associated companiesCustomers' liability to this bank on acceptances outstandingOther assets

Total assets

LiabilitiesDeposits:

Total demand deposits, domesticTotal time and savings deposits, domesticTotal deposits in foreign offices

Total deposits in domestic and foreign offices

Federal funds purchased and securities sold under agreements to repurchase . . . .Liabilities for borrowed moneyMortgage indebtedness 'Acceptances executed by or for account of this bank and outstandingOther liabilities

Total liabilities



Total liabilities subordinated notes and debentures and equity capital

N.A. — Not applicable.NOTE: Data may not add to totals because of rounding.


Table B-33

Foreign branches of national banks, by region and country, December 31, 1976

Region and country

Central America

El SalvadorGuatemalaHondurasMexicoNicaraguaPanama

South America

ArgentinaBoliviaBrazilChileColumbiaEcuadorGuyanaParaguayPeruUruguayVenezuela

West Indies — Caribbean

AntiguaBahamasBarbadosBritish Virgin IslandsCayman IslandsDominican RepublicFrench West IndiesHaitiJamaicaMontserratNetherlands AntillesSt. LuciaTrinidad and TobagoWest Indies Federation of States

Europe

AustriaBelgiumDenmarkEnglandFranceGermanyGreeceIrelandItalyLuxembourgMonacoNetherlands

Number Region and country

Europe—ContinuedNorthern IrelandScotlandSwitzerland

Africa

EgyptGabonIvory CoastKenyaLiberiaMauritiusSenegal

Middle East

BahrainJordanLebanonOmanQatarSaudi ArabiaUnited Arab EmiratesYeman Arab Republic

Asia and Pacific

BruneiFiji IslandsHong KongIndiaIndonesiaJapanKoreaMalaysiaPakistanPhilippinesRepublic of ChinaSingaporeThailand

U.S. overseas areas and trust territories

American SamoaCanal Zone (Panama)Caroline IslandsGuamMarianas IslandsMarshall IslandsPuerto RicoVirgin Islands

Total

Number

49

2335531

93

32418171315354

160

162624119248141

130

1633414201849516

10

2112211

25

333212101

112

24271162445444152

56

1214112323

635


Table B-34

Total foreign branch* assets of national banks, year-end 1953-1976


195319541955195619571958195919601961196219631964

$1,682,9191,556,3261,116,0031,301,8831,342,6161,405,0201,543,9851,628,5101,780,9262,008,4782,678,7173,319,879

19651966196719681969197019711972197319741975r

1976

$7,241,0689,364,278

11,856,31616,021,61728,217,13938,877,62750,550,72754,720,40583,304,44199,810,999

111,514,147134,790,497

* Includes military facilities operated abroad by National banks from 1966 through 1971r Revised.

Table B-35

Foreign branches of national banks, 1960-1976

End of year

19601961196219631964196519661967

Number of branchesoperated by

national banks

93102111124138196230278

National bankbranches as a

percentage of totalforeign branches

of U.S. banks

75.075.676.677 576 793.594.395.5

End of year

1968 . .1969 . .1970 . .19711972197319741975r

1976

Number of branchesoperated by

national banks

355428497528566621649675635

National bankbranches as a

percentage of totalforeign branches

95.093.092.791.590.289.589.488.687.2

r Revised.

Table B-36

Foreign branch assets and liabilities of national banks, December 31, 1976


ASSETSCash and cash items in process of collection $ 480,698Demand balances with other banks 4,216,388Time blances with other banks 44,561,722Securities 2,054,193Loans, discounts and overdrafts, etc 61,150,749Customers' liability on acceptances outstanding . . . . 2,503,491Customers' liability on deferred payment letters of

credit 84,597Premises, furniture and fixtures 262,763Accruals — interest earned, foreign exchange profits,

etc 1,807,025Due from other foreign branches of this bank 14,443,383Due from head office and its domestic branches . . . . 2,506,916Other assets 718,572

Total assets $134,790,497

LIABILITIESDemand depositsTime depositsLiabilities for borrowed moneyAcceptances executedDeferred payment letters of credit outstandingReserve for interest, taxes and other accrued ex-

pensesOther liabilitiesDue to other foreign branches of this bankDue to head office and its domestic branches

Total liabilities :MEMORANDALetters of credit outstandingFuture contracts to buy foreign exchange and bul-

lionFuture contracts to sell foreign exchange and bul-

lion

$ 7,736,67292,984,5632,349,8112,464,017

84,622

1,857,729682,670

14,646,13411,984,279

$134,790,497

$ 2,546,549

$52,658,624

$50,782,092


Table B-37

Trust assets* and income of national banks, by states, calendar 1976


Numberof banks

Employeebenefit

accounts't

Othertrust

accountst

Totaltrust

accountsagency

accounts^

Totaltrust andagency

accounts

Trustdepartment

income(Dollar

amounts inthousands)

All national banks ..

AlabamaAlaskaArizonaArkansasCaliforniaColoradoConnecticutDelawareDistrict of Columbian.

Florida.. .Georgia .Hawaii...Idaho.. . .Illinois . . .Indiana ..IowaKansas ..KentuckyLouisianaMaine . . .


New JerseyNew MexicoNew YorkNorth Carolina ..North Dakota . . .OhioOklahomaOregonPennsylvania . . .Rhode Island . ..

South CarolinaSouth Dakota..TennesseeTexasUtahVermontVirginiaWashington . ..West Virginia ..WisconsinWyoming

Puerto Rico ..Virgin Islands

1,982 $96,658 $111,687 $208,345 $64,498 $272,843

4242

4312421125

10232

04

202996560572415

15634829235416364

32

60206816156847

2113

4

91139

17937

5511444820

00

80637

437117

13,7601,112

8400

778

5061,183

0148

10,5311,128

235239131447

64

2584,574

11,1152,092

1131,663

144764430

60058

18,8542,717

953,540

885493

8,284465

25157

5794,905

1832

536663

96503

14

00

1,50359

1,157295

10,7561,6102,357

01,641

5,1531,504

0184

7,9013,010

863812515467273

8374,5043,6892,375

3313,559

86894426313

2,253338

10,7822,315

2036,3161,354

89411,368

1,403

561189

1,8757,117

34438

1,8222,139

7692,391

140

00

2,30997

1,594412

24,5162,7233,197

02,418

5,6592,687

0332

18,4314,1381,0981,051

646914337

1,0959,077

14,8054,467

4445,222

1001,371

471344

2,853396

29,6365,032

2989,8552,2401,388

19,6511,868

812246

2,45512,022

52740

2,3582,802

8652,894

154

00

35724318956

2,991363

1,2800

1,811

9113,123

032

5,9971,905

592445178233155

2182,0592,780

86928

2,28415

59257

179

1,24561

12,7791,051

772,511

993239

9,007437

17091

5863,075

646

949630182373

32

00

2,665340

1,783468

27,5083,0854,477

04,230

6,5705,810

0364

24,4286,0431,6901,496

8251,147

492

1,31311,13717,5855,336

4727,506

1151,962

527523

4,098457

42,4156,083

37512,3663,2321,627

28,6582,305

982337

3,04015,097

59146

3,3073,4321,0473,267

186

00

$1,025,942

11,7761,0379,7163,208

114,57518,75117,151

014,048

38,82719,310

01,414

99,57620,653

6,7635,8783,8435,7682,320

5,42952,29935,70323,973

2,40423,913

7648,6791,9492,247

19,8332,313

134,51123,233

1,88743,15110,18110,85380,09910,094

4,9141,709

12,52265,373

2,704260

16,06118,1073,980

11,307876

00

* As of December 31, 1976.f Employee benefit accounts include all accounts for which the bank acts as trustee, regardless of whether investments are partially, or wholly,

directed by others. Insured plans or portions of plans funded by insurance are omitted, as are employee benefit accounts held as agent.$ Includes all accounts, except employee benefit accounts and corporate accounts, for which the bank acts in the following, or similar capacities

trustee (regardless of whether investments are directed by others), executor, administrator, guardian; omits all agency accounts and accounts forwhich the bank acts as registrar of stock and bonds, assignee, receiver, safekeeping agent, custodian, escrow agent or similar capacities.

§ Includes both managing agency and advisory agency accounts.II Includes national and non-national banks in the District of Columbia, all of which are supervised by the Comptroller of the Currency.NOTE: Data may not add to totals because of rounding.


APPENDIX C

Addresses and SelectedCongressional Testimony


Addresses and Selected Congressional Testimony

Date and Topic Page

Jan. 20, 1976, Statement of Robert Bloom, First Deputy Comptroller of the Currency for Policy, before theSubcommittee on Commerce, Consumer and Monetary Affairs of the House Government OperationsCommittee, Washington, D.C

Jan. 29, 1976, Statement of James E. Smith, Comptroller of the Currency, before the Subcommittee on Fi-nancial Institutions, Supervision, Regulation and Insurance of the House Banking, Currency andHousing Committee, Washington, D.C

Feb. 5, 1976, Statement of James E. Smith, Comptroller of the Currency, before the Senate Committee onBanking, Housing and Urban Affairs, Washington, D.C

Mar. 1, 1976, Statement of James E. Smith, Comptroller of the Currency, before the Senate Committee onBanking, Housing and Urban Affairs, Washington, D.C 215

Mar. 11, 1976, Statement of John E. Shockey, Deputy Chief Counsel to the Comptroller of the Currency,before the Senate Committee on Banking, Housing and Urban Affairs, Washington, D.C 217

Mar. 16, 1976, Remarks of H. Joe Selby, First Deputy Comptroller of the Currency for Operations, beforethe Texas Six Flags Chapter of the Bank Administration Institute, Victoria, Tex 218

Mar. 26, 1976, Statement of C. Westbrook Murphy, Deputy Comptroller for Law and Chief Counsel to theComptroller of the Currency, before the Senate Committee on Banking, Housing and Urban Affairs,Washington, D.C 2 2 2

May 5, 1976, Statement of James E. Smith, Comptroller of the Currency, before the Committee to Investi-gate a Balanced Federal Budget of the Democratic Research Organization, Washington, D.C 2 2 5

June 1, 1976, Statement of James E. Smith, Comptroller of the Currency, before the Subcommittee onCommerce, Consumer and Monetary Affairs of the House Government Operations Committee,Washington, D.C 2 2 6

July 29, 1976, Statement of Thomas W. Taylor, Associate Deputy Comptroller of the Currency for Con-sumer Affairs, before the Senate Committee on Banking, Housing and Urban Affairs, Washington, D.C. 241

Sept. 16, 1976, Statement of Thomas W. Taylor, Associate Deputy Comptroller of the Currency for Con-sumer Affairs, before the Subcommittee on Commerce, Consumer and Monetary Affairs of the HouseGovernment Operations Committee, Washington, D.C 255

Dec. 14, 1976, Remarks of H. Joe Selby, First Deputy Comptroller of the Currency for Operations, beforethe American Institute of Certified Public Accountants, Washington, D.C 259

188


Statement of Robert Bloom, First Deputy Comptroller of the Currency for Policy,before the Subcommittee on Commerce, Consumer and Monetary Affairs of theHouse Government Operations Committee, Washington, D.C., January 20, 1976

I have been asked by the Subcommittee to discussthe examination practices and procedures of the Of-fice of the Comptroller of the Currency. In view of re-cent newspaper articles on the subject of so-called"problem banks," it is important to shed light on thistopic as the publicity has tended to confuse ratherthan enlighten the public.

The term "problem bank" is a vague term which hasbecome banking agency jargon without precise defini-tion. If what is meant is a bank, the liquidity and sol-vency of which is in serious question, let me hasten toassure you that very few national banks, and none ofthe money center national banks, are considered byour Office to be "problem banks."

On the other hand, many national banks receiveextra analysis and attention for a variety of reasons.The degree of supervision is determined through ob-jective and subjective judgments made by fieldexaminers, regional administrators and Washingtonstaff. The Comptroller's Office maintains no list of suchbanks that could be characterized as a "problem banklist." Each bank is handled on a case-by-case basis.

There is no magic formula or ratio which is capableof identifying banks for special supervision with anydegree of accuracy. As a practical matter, however,we have used in the past a quantitative formula basedon examination report data which identify those banksto be given further analysis at all staff levels. All bankswith criticized assets (100 percent of substandard, 50percent of "other loans especially mentioned," 50 per-cent of doubtful) aggregating 65 percent or more ofadjusted capital funds (equity accounts, reserves forloan losses and capital notes, less losses and 50 per-cent of doubtful) are given special analysis and atten-tion by this Office.

It was apparently a list of banks with classified as-sets equal to more than 65 percent of capital whichwas referred to in the Washington Post story as theComptroller's "problem bank" list. As the Comptrollerstated in his press release following the Post story, thelabeling of every bank with a ratio of criticized assetsto capital of 65 percent or more as a "problem bank" isa misstatement and over-simplication. The volume ofcriticized loans in a particular bank, taken alone, with-out further information as to the strength of manage-ment, earnings, liquidity, ability to raise additional capi-tal, access to the money markets and other factors, isnot significant. In addition, a great deal depends onthe state of the economy during the period in question.The significance of classified asset ratios as a super-visory tool is greater during prosperous times than it isduring periods of recession, such as 1974 and 1975. A

ratio of 65 percent or more of classified assets in aprosperous economy could be reflective of poor man-agement. A ratio of 65 percent or more during 1975and at present does not necessarily reflect adverselyon management. It is common knowledge in financialcircles that many banks, both large and small, wellmanaged and poorly managed, today have ratios inexcess of 65 percent. Indeed, any bank whose volumeof criticized loans did not increase during 1975 proba-bly was not performing the normal risk-taking functionsthrough which a commercial bank serves its commu-nity.

There are two principal aspects in singling out banksfor special supervisory attention. First, there are theprocedures and criteria to be used in identifying suchbanks, and second, there are the procedures andmethods for correcting whatever deficiencies exist insuch banks. This Office is now engaged in a major re-vision and improvement of its operations in both ofthese areas, based largely on the recommendations ofHaskins & Sells, an outside consulting firm retained bythe Office in May 1974. The Haskins & Sells recom-mendations have been made public, and copies of thereport have been sent to each member of Congress.

Existing Grading Systems

Under the traditional system for pinpointing banks forspecial attention, a great deal of emphasis was placedon the ratio of classified assets to gross capital. Clas-sified assets are those assets which are singled out bythe examiner as having credit weaknesses of varyingdegrees of intensity. The classifications, in ascendingorder of severity, are "other loans especially men-tioned" (OLEM), substandard, doubtful and loss.Banks are graded in four groupings according to theratio of assets classified as loss, doubtful or substan-dard to gross capital funds. The four groupings are:

A — less than 20 percentB — 20 to 40 percentC — 40 to 80 percentD — 80 percent or more.In addition, examiners rate capital adequacy on a one

through four scale, taking into account the quality ofmanagement, the liquidity of assets, the history of earn-ings, the quality and character of ownership, the burdenof meeting occupancy expenses, the potential volatilityof the deposit structure, the efficiency of operations andcertain competitive factors. Bank management is ratedin three categories, strong, fair or poor. After the capitalposition, the quality of assets and management arescored, the examiners assign a composite or group rat-

189


ing to the bank. Group 1 banks are those considered tohave good capital, competent management, good op-erations, good liquidity and classified assets to grosscapital of less than 20 percent. At the other end of thespectrum, Group 4 banks are those which could be ap-proaching insolvency, thus requiring an immediate injec-tion of capital, new management or both.

in the past, this Office has maintained lists of banksfalling within composite groups 3 and 4 as describedabove. A schedule included with this statement re-flects the number of banks on these lists from July 5,1972 to July 1, 1974. Such lists, because of the primaryemphasis placed on the volume of classified loans,under present economic conditions, are not consideredparticularly meaningful. This Office still reviews eachexamination report on a case-by-case basis and, afterdiscussions with our regional administrators and the na-tional bank examiners, determines whether or not addi-tional supervision is necessary. In those cases where it isdecided that such supervision is required, personnelfrom Washington work closely, in some cases on a dailybasis, with personnel in the region and with personnelfrom the bank.

The New System

As I have noted, our Office is presently actively engagedin modernizing its system for identifying and dealing withbanks requiring special attention. A computerized "earlywarning system" called the National Bank SurveillanceSystem (NBSS) will consist of four basic elements:

1. A data collection system.2. A computer-based monitoring system that would

detect unusual or significantly changed cir-cumstances within a bank and within the NationalBanking System.

3. An evaluation by experienced personnel of theimpact of such changes on bank soundness.

4. A review procedure that would provide adminis-trative controls over all proposed Office of theComptroller of the Currency remedial actions, in-cluding those of Washington personnel.

A Deputy Comptroller of the Currency and a projectmanager from Haskins & Sells initiated the NBSS in Sep-tember 1975. Their efforts have been directed towardsteps 1 and 2, a data collection system and acomputer-based monitoring system. They also havebegun work on step 3 by selecting experiencedexaminers who will analyze the importance of the com-puterized data.

The data which have been reported to the three fed-eral regulatory agencies by their respective banks havetraditionally been used for historical statistical purposes.Major portions of those data have, by joint agreement ofthe three agencies, been stored in the FDIC's computer.When this Office decided to use those data for supervis-ory purposes, one of the first steps in creating the NBSSrequired the transfer of portions of the data in the FDIC'scomputer to a data base in a separate computer whichcould be used by our Office for supervisory purposes.

The data base has been transferred and essentially cov-ers the condition and income reports of national banksduring the past 5 years.

Three additional steps are being taken to improve andexpand the data base. First, we are conducting frequent,almost daily, discussions with representatives of theFederal Reserve and the FDIC to amend the conditionand income reports so that the facts in these reports willbe more meaningful for supervisory purposes. When in-formation desired by this Office is not deemed neces-sary by the other two regulators, we will acquire that datathrough special reports submitted by the bank sepa-rately from the customary call and earnings reports.Second, certain portions of the non-public reports ofexamination will be included in our data base. Third, if allof the data is to be analyzed on a timely basis, it must beprocessed rapidly. To accomplish this objective, theManagement Services Division of the Comptroller's Of-fice has made two trial runs on the direct processing ofNBSS data from reports of condition and has concludedthat those data can be processed within 45 days of thedate of the call, in lieu ot the 5-month period normally re-quired for the combined production by the three federalbank regulators.

The NBSS will work with banks that are segregatedinto peer groups in our data base. The statistical trendsof each peer group and of each bank within the peergroup will alert this Office to exceptional banks or groupsof banks on no less than a quarterly basis. In view of to-day's rapidly changing economy, that system will bemore timely than the traditional system cf supervisionthrough the receipt of reports of examination which arerequired only three times in each 2-year cycle.

The fourth element of the system is an administrativereview procedure, or monitoring system, which wouldstem from the quarterly analysis of data. The review andmonitoring system will enable a staff of experiencedexaminers to make recommendations, on a bank-by-bank basis, to each of 14 regional administrators, aboutthe type and scope of examination which may be re-quired promptly for individual banks. The monitoring sys-tem will also be computer-assisted to the extent that therecommendations and the reactions, both positive andnegative, by both examiners and bankers will promptsuccessive steps of recommended corrective action asneeded.

What we are developing is an NBSS which will servethe regulator and the banker in maintaining a sound fi-nancial system, to serve the public needs. The NBSS willhelp in the detection and the correction of impendingproblems before they become serious cases. This sys-tem will neither eliminate the human element from bankregulation nor will it eliminate the human element fromthe management of individual banks. It should, however,substantially aid in the prevention of future bank failures.

Enforcement Follow-up

Once significant problems of a national bank have beenidentified through the examination process, theexaminer commences the supervisory action process bycommenting in the report of examination on importantmatters requiring attention of the Comptroller, the bank's


board of directors and active executive management.The examiner's comments are supplemented by a letterfrom the regional administrator which highlights thebank's problems and requests the board of directorsand executive management to institute appropriate cor-rective measures. Depending on the circumstances andseverity of problems, the bank's executive managementmay be requested to submit monthly reports regardingprogress it has made toward improving unsatisfactoryareas of the bank. In addition, frequent visitations andexaminations may be conducted.

When an examination or special visitation of a nationalbank discloses a condition so unsatisfactory as to war-rant that the board of directors should be promptly andpersonally informed, a special meeting with the board iscalled by the examiner or his regional administrator.Special representatives of the Comptroller's Office mayattend the meeting depending on the circumstancesand severity of the problem. The objectives of meetingwith a board of directors are to discuss the conditionsand affairs of the bank that were observed during themost recent examination, to reach an agreement on anysignificant problems in the bank, to obtain a definitivecommitment from the board, to institute the proper cor-rective actions, and to obtain information concerning fu-ture plans and proposed changes in bank policy thatmay have a significant impact on the future condition ofthe bank.

Bank supervision provided at the regional level iscoordinated with the Washington staff which providesadditional legal assistance, coordination with other reg-ulatory agencies, attendance at board meetings, analyti-cal support, and follow-up review. Where the facts indi-cate a serious problem, a possible violation of law, or un-safe and unsound practices, we may call upon the En-forcement and Compliance Division of our Law Depart-ment. This assistance may consist of the attendance ofan attorney from the Enforcement and Compliance Divi-sion at a board of directors meeting to discuss with thebank the problems and the suggested corrective action.In other cases it may require the investigation by the En-forcement and Compliance Division to determinewhether sufficient facts justify the commencement of acease and desist proceeding or the certification to theFederal Reserve Board for removal of an official or themaking of a criminal referral to the Department of Justice.In the latter two situations, the investigation must dis-close that the particular activities of an individual consti-tute evidence of personal dishonesty.

In addition, the bank must come to the Comptroller forapprovals of various corporate changes, such as theopening of a new branch, dividend restrictions, invest-ments in premises and other approvals. The Comptrollermay withhold his approval on such applications until heis satisfied concerning the responsiveness of a bank tohis recommendations.

In determining the appropriate remedy for a particularbank, the Comptroller, together with the Deputy Comp-trollers, regional administrators, examiners and the LawDepartment, must determine which type of action will bethe best rehabilitative type of remedy to assist the bank.

Where the facts indicate that there are serious problemsor that there are repeated violations of law or unsafe andunsound practices, this Office has a wide range of ad-ministrative remedies to deal with the situation. Theseremedies, however, are not punitive but are of a re-habiliative nature. One of the principal remedies avail-able to the Comptroller is the power given under the Fi-nancial Institutions Supervisory Act of 1966 to commencecease and desist proceedings. Cease and desist pro-ceedings are rehabilitative, intermediate tools whichallow the Comptroller to force a bank to work out its prob-lems without resorting to the more drastic measures ofreceivership, conservatorship, termination of insurance,forfeiture of charter, or forced merger. Our experiencehas indicated that the threat of a cease and desist pro-ceeding enables this Office to handle the majority ofbank problems through the less formal techniques ofpersuasion, frequent examinations and meetings with di-rectors.

Of course, the success of all these efforts will dependon the quality of information we receive. While ourexaminers independently search for information inexamining banks, much information is derived from acandid exchange of views with bank directors and offic-ers and other members of the public, conducted on astrictly confidential basis. If the rules are changed to re-quire public disclosure of what is in the examination re-port, there is no doubt that we will be hampered consid-erably in obtaining a complete picture of national banks.Likewise, the disclosure of which banks are subject tospecial supervision will make correction of problems in-comparably more difficult, if not impossible, in somecases.

The confidentiality of government examinations, how-ever, does not impair the public's right to obtain neces-sary financial information about banks. Banks are sub-ject to the disclosure provisions of the SecuritiesExchange Act of 1934 to the same extent as are otherpublicly held companies. In addition to what non-bankcorporations must disclose, banks must publish, quar-terly, a report of condition, which includes both balancesheet and income and expense information. The threefederal banking agencies have recently increased sub-stantially these disclosure requirements. Beginning withthe March 31,1976 report of condition, banks will be dis-closing publicly more financial information than anyother major category of publicly owned companies.

We thus respectfully must decline to comment specifi-cally on the affairs of any particular bank, includingChase Manhattan Bank and First National City Bank. Toviolate confidences which we have elicited in order to in-vestigate more thoroughly these and other banks wouldrun counter to the venerable Congressional policy of pro-tecting the confidentiality of bank records and examina-tion reports. (See 5 USC 552 (b) (8), 12 USC1817 (a) (2), 12 USC 1442, 12 USC 481, 12 USC 484,18USC 1905, 18 USC 1906.)

Thank you for this opportunity to discuss the examina-tion and supervisory activities of the Comptroller's Of-fice.


Schedule of Banks with Composite Ratings of 3 or 4

Date

JulyJan.JulyJan.July

of list

5, '10,3, '

11,1, '

7273737474

Totalnumber of

nationalbanks

46074614462946614695

Number ofbanks on

list

122110

94109133

Bankslisted

(Percent ofnationalbanks)

2.62.42.02.32.8

Date ofcall

report

June 30,Dec. 31,June 30,Dec. 31,June 30,

7272737374

Totalassets (Inmillions of

dollars)

18,66121,79621,09522,92442,086

Totaldeposits (Inmillions of

dollars)

15,22218,28216,72318,14631,282

Totalassets

of bankson list

(Percent ofnational

bank assets)

4.85.04.74.7

' 8.1

Totaldepositsof banks

on list(Percent of

nationalbank deposits)

4.75.14.64.67.7

Statement of James E. Smith, Comptroller of the Currency, before theSubcommittee on Financial Institutions, Supervision, Regulation and Insurance ofthe House Banking, Currency and Housing Committee, Washington, D.C.,January 29, 1976

I am pleased to respond to your invitation to testify be-fore the Committee in connection with its study of Finan-cial Institutions and the Nation's Economy (FINE). Mystaff and I are familiar with the FINE study "DiscussionPrinciples." In connection with your study, we alreadyhave submitted our complete responses to your com-prehensive questionnaire. We will be glad to continue toprovide any information or assistance requested by theCommittee.

Because the "Discussion Principles" are so extensiveand time is limited, I will confine my comments today toseveral areas in which we can be particularly helpful toyour study.

Regulatory Agencies

There seems to be considerable discussion of proposalsto reorganize the federal bank regulatory structure. TheFINE "Discussion Principles", for example, recommendthe consolidation of all federal regulatory authority overdepository institutions into a single, new agency.

Unfortuately, those who advocate complete regula-tory structural change appear to have lost sight ofmany of the advantages of the present system of bankregulation. I suggest that that oversight is attributablein large measure to the common misbelief that the fed-eral bank regulatory structure is an accident of historyor a reflection of Congressional refusal over the pastcentury to deal with long-run regulatory problems.

If there has been a single, identifiable public objectivewith respect to government's involvement with bankingin this nation over almost two centuries, it has been hostil-ity toward the concentration of financial power, whetherin public or private hands. The record is so clear as torequire only a few illustrations. We can note, for example,President Jackson's destruction of the Bank of the Un-ited States in 1832, bringing to an end the federal gov-ernment's first attempt to centralize banking power. Wecan point to the fact that when the federal government

again entered the banking arena, it did so in 1863 byadopting the free banking principles of the states andproviding for the establishment of locally owned nationalbanks. So strong was the fear of centralization of finan-cial power that all during the 19th century and until wellinto the 20th, the United States, alone among indus-trialized nations, had no central bank. When the FederalReserve finally was organized in 1913, Congress re-jected the idea of a single institution and opted insteadfor 12 regional Federal Reserve banks. Moreover, therecord is clear that the Congress explicity consideredand rejected, in 1913 and again in 1933, the inclusionof a federal deposit insurance system, and, in 1919and again in 1921, the inclusion of the functions of theComptroller's Office within the Federal Reserve Sys-tem.

The federal bank regulatory system which now existsis a testament to American abhorrence of concentrationof financial control, whether accomplished through thepolitical process or the economic process. Certainly, it isappropriate continually to examine the suitability of thissystem to the evolving world of banking and to seek tomake improvements where needed. But the question ofsuitability should be debated on its own merits, withoutresort to a distortion of the historical record.

In this connection, I think it is instructive to note justwhat studies other than FINE have recommended in re-cent times. In 1937, the Brookings Institution called forconsolidation of all bank regulatory authority in the FDIC.Twelve years later the Hoover Commission recom-mended transferring the FDIC to the Treasury Depart-ment. The second Hoover Commission, in 1955, madeno recommendation for change at all. The 1961 Com-mission on Money and Credit concluded that the FederalReserve should have sole responsibility for bank regula-tion. In contrast, the Hunt Commission, in 1971, recom-mended that the Federal Reserve and FDIC be strippedof bank regulatory powers, leaving them to a new federaladministrator of state banks. Not one of these studies


recommended consolidating all federal bank regula-tory authority in a new agency, let alone federal author-ity over all depository institutions, as the FINE "Discus-sion Principles" urge.

There is no question that we have a complex federalbank regulatory structure. This complexity stems ba-sically from the fact that all national banks must be mem-bers of the Federal Reserve System and that all mem-bers of the Federal Reserve System must be members ofthe deposit insurance system. State-chartered bankshave elected overwhelmingly to avail themselves of de-posit insurance but, for the most part, to remain outsideof the Federal Reserve System. Finally, the Federal Re-serve Board regulates and supervises all bank holdingcompanies.

The resulting structure, three federal bank regulatoryagencies with responsibilities which in some respectsare quite similar and in other respects are quite different,is neither simple nor tidy. To be sure, it is an affront to thesensitivities of those who would prefer to see abstractorderliness in governmental structures or who are wed-ded to the beguiling symmetry of organization charts. Itis said to be an inefficient structure, though the record isfree of hard evidence that substantial efficiencies can beachieved by any change.

I believe, as have most of my predecessors, that an ef-fective and adaptive banking system must embraceboth soundness of operation and freedom of competi-tion. I am compelled, as well, to recognize that nothingcould be more difficult than to devise a system which canaccommodate two such opposite objectives. Athoroughly safe banking system also cannot be vigor-ously competitive; an intensively competitive systemnever can be completely safe. Yet, I suggest that ourfederal bank regulatory structure has come as close toachieving these twin objectives as is possible.

What, in fact, is the record of the modern Americanbank regulatory system? The existing structure was putinto place in 1933, following the collapse of the economyand the banking system. In the years since World War II,we have had 121 bank closings requiring FDIC dis-bursements, an average of approximately 4 per year.That is hardly a frightening number when measuredagainst a banking system which is comprised of morethan 14,000 corporate entities. It becomes an impressiverecord when we recall that some 9,000 banks closedtheir doors during the Great Depression.

Depositor losses have been miniscule. Since 1933, ofthe $4.5 billion of deposits in all of the insured banks re-quiring disbursements, depositors actually lost only$21.8 million, or 0.5 percent. I would remind you thateven in the cases of large bank closings, which have at-tracted so much attention in recent years, depositors didnot lose a dime.

In this last regard, some observers, apparently un-familiar with the facts, have suggested that the presentregulatory structure must bear substantial responsibilityfor the financial difficulties experienced by these largeinstitutions. The problems of each of those banks havebeen detailed before this Committee and in the financialpress, and require no elaboration here. It is clear thatthey were in no way related to the organization of federalsupervisory authority.

Quite properly, in each of those cases, questionsmight be raised now as to whether the federal agency in-volved should have acted more or less expeditiously orshould have taken some course of action other than thatit did. However, there is no reason to believe that a con-solidated agency would have dealt differently with any ofthose situations, not to mention the possibility that itmight not have acted as well, or as promptly. Under thepresent arrangement, no banking problem encounteredby one of the federal agencies can fail to touch the reg-ulatory responsibilities of at least one and often both ofthe other agencies. That trichotomy of checks and bal-ances offers a significant advantage unavailable to aconsolidated regulatory body.

Having demonstrated the overall safety of the bankingsystem, I now turn to the question of its ability to meet thechallenges of a competitive financial world. Federalbank regulators have contributed notably to industry in-novation and responsiveness to public needs. Since theearly 1960's, the Comptroller's Office has been a leaderin overcoming tradition-bound restrictions on free com-petition and improved services. Other bank regulatoryagencies have acted in the same spirit, but frequently indifferent particulars, with regard to the institutions whichthey supervise.

There are those who have characterized the attempt toidentify and discard archaic and outmoded laws whichunnecessarily shackle the banking industry as a "com-petition in laxity." I give little credence to this phrase.Blind adherence to the past is not prudence. Repeal ofthe obsolete is not laxity.

Statistics on bank conversions do not support the im-age, painted by critics, of a continual ferment of banksswitching from one federal regulator to another in an ef-fort to find friendly or lenient supervisors. The recordsuggests quite the opposite. In 1974, a typical year inthat respect, and the latest for which we have completedata, a total of 72 banks, or about 0.5 percent of allbanks, changed federal supervisors and their reasonsfor doing so seem fairly routine.

Of those 72,48 left the Federal Reserve System but re-tained deposit insurance. Twenty of those had had na-tional charters and 28 had had state charters. Under-standably, their changes were occasioned by the attrac-tiveness of lower state reserve requirements.

Of the remaining 24 banks, 15 converted from state tonational charters, and nine joined the Federal ReserveSystem while retaining their state charters. Again, themotivation for change is easily understood. Federal Re-serve membership, under either national or state charter,becomes more attractive as a bank grows larger. Often,an increasing volume of correspondent businessprompts the move. In many instances, the advantages ofhaving a single regulator convince a bank to seek a na-tional charter. Also, as a bank grows and diversifies, itmay find the National Bank Act to be a more sophisti-cated code under which to operate. That last reason,traditionally, has been important and has led to the mod-ernization of many state codes. For the Committee's in-formation, a chart is attached showing net changes inregulatory status system-wide over the past three years.

My remarks thus far have not been intended to lay thefoundation for a defense of thestatus quo; I discern a real


need for improvement in bank supervision and regula-tion. I do mean to suggest, however, that improvementcan be achieved without consolidating the federal agen-cies and thereby abandoning a framework of proven ef-fectiveness.

As a basic first step, the banking agencies must rec-ognize their responsibility to modernize their proce-dures. This has been a primary goal at the Office of theComptroller of the Currency during recent years, and it fsevident that similar programs are under way at the Fed-eral Deposit Insurance Corporation and at the FederalReserve Board. While I cannot comment on the specificprograms in those'agencies, I can say that my Office nowis engaged in implementing the recommendations madeby the consulting firm of Haskins & Sells following acomprehensive year-long review of our operations.

Haskins & Sells (H&S) reported that our Office hadkept up with some changes in the banking industry, butnot with others. They strongly recommended that theComptroller establish a systematic way of identifyingwhich of the many rapid changes in the banking industrymight require a regulatory response, and fashioning thatresponse in time to shape developments, not merely toreact to them. We now are implementing that recom-mendation. We also are implementing, as a result of theH&S report, a new statistical monitoring system whichwill permit the Office, much more rapidly than before, todiscern trends in the national banking industry as awhole and in individual banks. The information requiredby the new call report requirements adopted by all threefederal banking agencies to be effective with the March31, 1976, report of condition are an integral part of thisstatistical system.

Consistent with another H&S recommendation, sub-stantial improvements in national bank examination pro-cedures now are being adopted. The new procedureswill gear examination efforts more precisely to the needsof the Comptroller's Office and the particular bank beingexamined and will stress review of bank internal controls,such as audits and prudent credit and investment rules.Thus, examiners will devote more time to evaluation of abank's policies, its decision-making process, and itsmanagement information systems.

We also are revamping completely our personnelpolicies, our training programs, our examination manual,and the organization of most of our executive and ad-ministrative functions.

In addition to internal operational adjustments, I rec-ommend a limited redistribution of federal bank reg-ulatory authority designed to streamline the system andimprove the quality of bank supervision. As the centralpart of this plan, I propose an end to the present divisionof supervisory responsibilities over banks and bank hold-ing companies. Specifically, I recommend that a bankholding company be supervised by the same federalagency which supervises the institution or institutionswhich hold a preponderance of the bank assets in thatcompany. I would leave with the Federal Reserve, how-ever, its present rulemaking authority over the nature andscope of bank holding company activities, so that thedispersed responsibility for examination and supervisionproceeds from a uniform body of law and regulation.That arrangement, which would not require any change

in the existing division of bank regulatory and supervi-sory authority among the Federal Reserve, FDIC andComptroller of the Currency, has worked successfully,particularly for recent consumer legislation.

At the present time there are 1,616 bank holding com-panies registered with the Federal Reserve. Of those,1,340 are one-bank companies which, under my pro-posal, would be distributed for supervisory purposesamong the banking agencies as follows:

• Comptroller of the Currency —427 companieswith $204 billion in assets.

• Federal Reserve — 85 companies with $42 bill-ion in assets.

• FDIC — 828 companies with $36 billion in assets.

Of the 276 multi-bank companies, the Comptroller'sOffice would supervise 156 companies for which thepreponderance of assets is in national banks; thosecompanies have total assets of $214 billion. The supervi-sion of the other murtti-bank companies would be dividedbetween the Federal Reserve, 44 companies with $122billion in assets, and the FDIC, 76 companies with $22billion in assets.

Not only does the artificial separation of supervisoryauthority between banks and bank holding companiescreate unnecessary bureaucratic delay, but, even moreimportant, it deprives the bank supervisor of the poweressential to deal with activities which may imperil thesafety or soundness of a bank. For example, it has beenour experience that often the board of directors of a bankwhich is wholly-owned by a holding company will consistof mere nominees of the holding company board. Actionwhich a supervisor may take against a bank director inthat case may prove ineffective in curbing the misdeedsof the actual decision-maker at the holding companylevel.

Those kinds of problems were foreseen in 1970 beforethe Bank Holding Company Act Amendments wereadopted. A high Treasury official at the time stronglyurged both this Committee and its counterpart in theSenate not to disrupt the basic supervisory pattern bycentralizing bank holding company supervision in asingle agency. As he told the Senate Banking Commit-tee: "We are . . . concerned by the layers of federalbank supervision . . . we think that it is the examiningauthority that knows more about the bank which wouldbe the central unit in the particular holding company."

Most recently, my colleague at the FDIC, ChairmanFrank Wille, suggested that the Comptroller of the Cur-rency be given authority to approve or deny non-bankacquisitions by one-bank holding companies where theonly bank subsidiary of the holding company is a na-tional bank, and that full examination and supervisory au-thority over each such one-bank holding company alsobe placed in this Office. I, of course, endorse that viewand simply urge that it be extended to multi-bank com-panies where the preponderance of bank assets is in na-tional banks. A similar redistribution of authority wouldtake place among the other federal agencies where thesingle subsidiary is a state bank, or where the prepon-derance of assets is in state-chartered banks.


Second, I suggest that all supervisory functions relat-ing to overseas operations of national banks be vested inthe Comptroller of the Currency. As now structured, au-thority to supervise and regulate Edge Act Corporationsand their banking subsidiaries and foreign banking sub-sidiaries of national banks rests with the Federal ReserveBoard. Also, while my Office supervises and regulatesforeign branches of national banks, the Federal Reserveis responsible for approving their establishment. Thatconfused pattern only serves to hamper the efficiencyand effectiveness of regulatory action.

As a third recommendation to redistribute authority, Isuggest that Congress require the Federal ReserveBoard to designate one Governor to exercise exclusiveresponsibility for bank supervision. That Governor alsowould be appointed to sit as the third member of theboard of directors of the FDIC. Placing a representativeof each bank supervisor on one board is a simple andready means of facilitating coordination and commu-nication among the agencies without disrupting the exist-ing regulatory structure.

Fourth, I wish to endorse a recommendation, recentlymade to this Committee, for the establishment of a Fed-eral Bank Examination Council. Governor Holland of theFederal Reserve Board already has outlined this pro-posal, which apparently has strong support within theBoard of Governors, and I need not dwell on it at length.The Council would be authorized to establish standardsand procedures for bank surveillance, examination, andfollow-up, applicable to all the federal banking agencies,and to review significant problem cases when and asthey develop. All three federal agencies would be rep-resented, with a member of the Board of Governorsserving both as Federal Reserve representative and aschairman of the Council.

The proposal seems to me to have considerable merit,although one might question assigning the chairman-ship to a particular agency rather than to the individualmost experienced in bank examination procedures.Apart from that, however, I suggest, as one additionalimprovement, that one representative from the statebanking authorities should sit on the Council.Examinations conducted by the FDIC and the FederalReserve Banks are concerned to a considerable degreewith the application of state law, and those agenciesregularly combine forces with state regulators. Accord-ingly, it would seem appropriate to receive input from thestate supervisory system in the deliberations of theproposed Council. Selection of the state representativeis a matter easily resolved; my objective is, simply, to as-sure that we do not ignore that half of the dual bankingsystem.

Finally, efforts must continue to assure that, whereverpossible, savings are accomplished and potential con-flicts eliminated under the present system. I would pointout, however, that it is recognized generally, so far as thegreat bulk of bank supervisory activity is concerned, thatthe work has been parcelled out among the three federalagencies in such manner as to leave little to be saved byany consolidation. Some would suggest that savings canbe realized by cutting the costs of research or personneltraining conducted separately in each of the three agen-cies. Frankly, I have not noticed that we are suffering

from an over-abundance of research or training, but cer-tainly, if there is wasteful duplication, it can be eliminatedwithout the drastic surgery of consolidation.

Sweeping, fundamental reform of the federal bankregulatory system is not a matter to be undertaken lightly.A passion for tidiness and symmetry must not be allowedto obscure the true goal of increased bank safety, flexibil-ity, and innovation. Consolidation is not the answer. We,instead, should preserve with care and improve theunique American banking system which has served usso well for so long.

Structure of Depository Institutions

On numerous occasions, I have stated that improvementshould take the form of increased asset and liabilitypowers for thrift institutions, and a removal of the stric-tures of governmental^ imposed interest rate ceilingsfor all financial institutions. I am pleased that the "Dis-cussion Principles" endorse these concepts.

Electronic Funds Transfer Systems

I would like now to turn to the electronic funds transferdebate, the resolution of which I consider vital to the suc-cess of the quest for improved operational effectivenessof the nation's banking system. As the Committee knows,the electronic delivery of financial services, commonlyreferred to as EFTS, is a fairly recent development withinthe financial service industry and offers the Americanconsumer convenience of location and time.

At present, federally chartered savings and loan as-sociations and federal credit unions enjoy a great deal oflatitude in the deployment of computer terminals throughwhich customer transactions can be accommodated.Commercial banks are presently constrained by thepossibility that these devices may be classified as"branches." Notwithstanding the determinations of theComptroller of the Currency, and a number of statestatutes, that EFTS terminals are not "branches," litiga-tion and other legal uncertainties are serving to retardboth innovative development and service delivery sys-tem deployment by commercial banks. At the sametime, savings and loan associations, credit unions, andmutual savings banks are expanding their EFTScapabilities and are moving into the marketplace withincreasing frequency and determination.

Most damaging to the National Banking System in thisregard is the recent decision, now on appeal, of the U.S.District Court for the District of Columbia ordering sus-pension of our interpretive ruling on customer-bankcommunication terminals. A Missouri federal court alsohas ruled that CBCT's constitute branches. In contrast,federal courts in Colorado and Illinois have permitted in-stallation of terminal devices, while limiting the functionswhich may be performed; and in Oklahoma deploymenthas been upheld without restriction. Cases are pendingin Michigan, Ohio, and West Virginia.

The diversity of judicial and legislative treatment is acompelling argument for the imposition of a nationalstandard in that field. I continue to believe that during theinitial experimental phase in the development of EFTS, itis desirable to provide competing institutions with the


greatest degree of flexibility in both service offerings anddelivery systems. Enhanced competition in the mar-ketplace can only result in a broader range of financialoptions for the consumer, offered at lower prices and athigher quality than would be the case in a monopolisticor oligopolistic market or one in which the principal com-petitors were constrained by statutes or regulators fromparticipating.

By creating the National Commission on ElectronicFund Transfers, Congress, too, has recognized the im-portance of studying the issues and formulating a na-tional EFTS policy. Like you, I am hopeful for expeditiousaction by the Commission so that we all can receiveclarification and guidance, either through research bythe Commission or through actual industry experience,before the debate is rendered academic by disjointeddevelopments in the marketplace and the courts.

Branching

Essentially related to the electronic fund transfersquestion is the broader issue of branch banking. I be-lieve this issue must be addressed, even though anyattempt to alter the present, state-oriented branchingstructure will meet vigorous resistance.

Branching has been a topic of intense debatethroughout the modern history of the Comptroller's Of-fice. As the law now stands, appropriate changes canbe accomplished by amendments to state laws, butuniformity of state action appears to be unlikely. Thus,amendment of federal law is likely to be necessary toprovide banks uniform authority to establish branchesto serve the needs of the modern community.

To that end, I endorse the recommendation in theFINE "Discussion Principles" to permit all federally in-sured depository institutions to branch interstate wherestate law does not conflict. Power for federally-chartered institutions to establish branches within theirown SMSA's regardless of state law also would be awelcome improvement.

We all can recognize that many cities are situatednear state bprders so that their metropolitan areasextend into two or more states. For many commercialpurposes a metropolitan area is a single entity, not acollection of units. To permit branching within a met-ropolitan area would enable banks to locate brancheswherever they would be most useful for customers.

My Office recently completed a study of the nation's50 largest SMSA's. Of the 11 million people in thecommuting work force of those cities, approximatelyhalf are denied access at work to the same financialinstitutions at which they bank at home. TheWashington, D.C., metropolitan area is a primeexample. There, 360,000 people, or close to one-thirdof the total area work force, commute across a districtor state line and, therefore, cannot bank at the sameinstitution at work and at home.

Returning to the "Discussion Principles", I do notfavor an absolute prohibition against entry into met-ropolitan areas by merger. I believe that existing anti-trust standards are sufficient to guard against an-ticompetitive mergers.

Securities Underwriting

I note with approval the recommendation that banksbe permitted to underwrite state and municipal secu-rities, including revenue bonds. The Comptroller's Of-fice repeatedly has recommended that the present au-thority of national banks to underwrite general obliga-tions of state and municipal governments be extendedto permit also the underwriting of revenue issues —most recently, on December 9, 1975, in my testimonybefore the Subcommittee on Securities of the SenateCommittee on Banking, Housing, and Urban Affairs.*

Banks have underwritten general obligation bondsfor years, subject to the supervision of federal bankregulators. This supervision has been strengthenedrecently by the enactment of the provisions of the Se-curities Acts Amendments of 1975 relating to munici-pal bond dealers. For those reasons, I am confidentthat the performance of that underwriting function willbe afforded all necessary protection. I would recom-mend only one additional safeguard, that is, that abank be required to obtain approval from the appro-priate bank regulatory agency before engaging in thebusiness of underwriting.

Municipalities, particularly small ones, will reapnumerous benefits from this new bank underwriting au-thority. They will be able to tap a significantly broadermarket which, according to studies in this field, shouldfacilitate the sale of their securities and decrease theirinterest costs, as well.

On the general subject of securities underwriting, Ioffer one additional recommendation that the appro-priate provisions of the Banking Act of 1933 beamended to permit national banks to operate com-mingled investment accounts. For years bank trust de-partments have offered investment services as part oftheir role as trustee of personal and employee benefittrusts, as executor, administrator or guardian ofestates, and as agent for various purposes. In the pro-cess they have acquired extensive research and in-vestment capabilities. Through the pooling whichcommingled investment accounts involve, thesecapabilities can and should be made available to thegeneral public.

I realize that in offering this type of service a bankmay face situations in which a conflict of interest arisesbetween the needs of one customer and those ofanother customer or the bank's commercial depart-ment. This is not new to banks. Similar conflicts ofinterest arise with respect to investment managementservices regularly provided through bank trust de-partments. Neither will authority to offer commingledinvestment accounts significantly increase the amountof assets affected by such conflicts. Supervision ofbank trust departments is designed to detect thosesituations and to monitor the effectiveness of controlswhich banks themselves impose. I do not mean to saythat additional safeguards would be inappropriatewere that service to be permitted. I see merit in requir-

* For full testimony, see pages 209-212 of the Annual Report of theComptroller of the Currency, 1975.


ing banks to obtain permission from the appropriatebank regulatory agency before establishing comming-led agency accounts, and I would not oppose a deci-sion to subject these accounts to the protections of theInvestment Company Act of 1940.

Foreign Banks in the United States

I wish briefly to comment upon the constraints which the"Discussion Principles" would have Congress imposeupon the U.S. operations of foreign banks. I have just re-turned from meeting with European leaders and I ammore convinced than ever that legislation in that areashould be drafted very carefully and after much delibera-tion.

While there is, of course, no objection to even-handedtreatment of our own banks and foreign banks, I wouldcaution that it is a very delicate and complex matter in-volving reciprocal treatment of American banks abroadand our whole foreign trade policy. Thus, any legislationmust be written painstakingly to assure that withoutdoubt there is even-handed treatment.

In addition, it is possible that the deliberations of theEFT Commission, which Congress has instituted, willproduce recommendations for change in the geo-graphical location restrictions for U.S. banks. It wouldseem more appropriate to await those recommendationsbefore applying domestic geographic limitations toforeign banks operating in the United States.

In regard to the "Discussion Principles" recommenda-tion that certain types of underwriting activities and cor-porate equity powers be forbidden to foreign banks, Ithink that legislation should await the studies of secu-

rities activities restrictions on national banks imposed bythe Glass-Steagall Act. The Congress currently is en-gaged in a study on the subject, and we are cooperatingwith them.

Finally, my impression is that foreign banks, like ourown, are taking a hard look at balance sheet considera-tions. I do not think that much expansion by foreignbanks in the U.S. is likely in the year ahead. There is noneed for haste in drafting legislation in this extremelysensitive area.

Enforcement Powers of the Comptroller'sOffice

The "Discussion Principles" do not include anything re-lating to the enforcement powers of the banking agen-cies. Because that subject has been much in the news inrecent weeks, however, I would like to conclude bycommenting upon it.

In September 1975 Chairman Burns of the Federal Re-serve Board, on behalf of the Board, the Comptroller,and the FDIC, sent this Committee recommended legis-lation for strengthening the enforcement powers of allthree agencies. We heartily endorse the substance ofthis proposed legislation — although the Comptroller'sOffice has some ideas on how a few of the details mightbe improved. If the Committee would like to considersuch legislation, we would be happy to work with theCommittee and its staff in that endeavor.

Again, I would like to thank you for this opportunity toparticipate in your deliberations on the FINE study, andto assure you of the desire of my Office to render any helpthat you require of us as the study progresses.

Statement of James E. Smith, Comptroller of the Currency, before the SenateCommittee on Banking, Housing and Urban Affairs, Washington, D.C., February 5,1976

I appreciate this opportunity to discuss examinationpractices and procedures of the Office of the Comptrol-ler of the Currency and to review with the Committeesome of the questions raised by the recent series ofnewspaper articles on the subject of so-called "problembanks." I hope my statement today will help correctsome of the misunderstanding caused by the articles.

My testimony will touch upon three areas. First is anoverview of the condition of the national banking system.Second is a discussion of the subject of so-called"problem banks." Third is a review of the modernizingprocedures by which the Comptroller's Officeexamines banks and follows up on any corrective ac-tion which may be required. I am attaching to mystatement a detailed response to the specific ques-tions raised in the Chairman's letters to me of January14 and 20, 1976.

The Condition of the National Banking System

The United States is now emerging from the severest

economic recession since the Great Depression of the1930's. Not surprisingly, the serious economic conditionweakened many of the businesses upon which oureconomy depends. In view of that, it would be unrealisticto expect that those major economic problems would notaffect the nation's banks, especially those larger institu-tions which are the principal credit sources for regionaland national businesses.

Despite the economic problems, the National BankingSystem, which is supervised by the"Office of the Comp-troller of the Currency, is sound and prosperous. Indica-tive of that strength is the remarkably resilient perform-ance of the 10 largest national banks in 1975.

The Committee might wish briefly to review that rec-ord. Those 10 national banks hold about 40 percent ofthe assets and deposits of all national banks. Each ofthem is the principal subsidiary of a bank holding com-pany whose year-end 1975 data are available foranalysis.

Outstanding loans for those 10 banking companies to-taled $152 billion at year-end 1975. Their total net loan


losses for all of 1975 equalled $1.1 billion, or 0.7 percentof outstanding loans. Although those losses were abovethe historic annual figures since World War II, let us ask:

• Did they severely impair the banks' capital?No. In fact, capital accounts of these 10 bankingcompanies grew $1.4 billion in 1975.

• Did they exhaust loan loss reserves?No. Their loan loss reserves were strengthened in1975 by some $206 million.

• How were the loan losses absorbed?Entirely out of current earnings.

Recognizing the severity of the recession and the im-pact it was having on their loan portfolios, those 10money market banking companies during 1975 setaside $1.3 billion from current revenues to cover possi-ble loan losses. Actual net loan losses totaled $1.1 bill-ion, however. Thus, the $200 million difference betweenthe provision for possible losses and actual losses wasadded to their reserve for loan losses, which broughtthose loan loss reserves to 0.95 percent of outstandingloans at year-end 1975. A year earlier, the reserve forloan losses amounted to 0.81 percent of outstandingloans. To place that ratio in perspective, net loan lossesof those 10 banking companies averaged only 0.34 per-cent of their total loans over the past 5 years.

In other words, those 10 money market banking com-panies individually, as well as in the aggregate, coveredtheir entire 1975 loan losses from current earnings. Evenafter charging off some $1.1 billion in bad loans, thecompanies earned before-tax income of $2.2 billion.Adding their before-tax earnings of $2.2 billion to the$1.3 billion they provided to cover losses, one can seethat those banking companies could have charged off1975 losses two or three times over, without reducingtheir reserves for loan losses or impairing capital.

The Committee should study the origin of the classifiedloans found today in banks. To the extent that these loansreflect banking mistakes, they are not the result of baddecisions made in the past months or even during thepast year. On the contrary, 1975 was a year of markedretrenchment for the banking industry. The dollar amountof total loans of the 10 banking companies at year-end1975 showed an absolute decline from that outstandingat the beginning of 1975.

The loan losses which were absorbed last year camefrom loans made in the prosperous environment of 1971,1972 and 1973. Thus, we are not dealing with an expand-ing problem, but with one whose limits seem to beknown. In simple terms, most of today's classified loansare loans that were pfaced on the books during an earlierperiod.

As will be evident later in my testimony, earnings, andtheir relationship to loan losses or capital, are not the onlyfactors which can or should be used in analyzing abank's performance and soundness. Those 10 bankingcompanies' capital and liquidity positions, which im-proved measurably in 1975, are also important consid-erations in judging their soundness. In the case of thosemoney center companies, however, the earnings-basedanalysis employed does give an accurate picture of theircondition.

In summary, I believe that public confidence in thebanking system of the United States is fully justified, bothon the basis of present condition and recent perform-ance. Indeed for that system to have had the fundamen-tal strength and resiliency to carry through this enorm-ously difficult economic period with only limited resort toforeclosure and other liquidating practices has doubt-less contributed materially to the avoidance of an evendeeper and more severe recessionary experience forthis nation and its people.

I do not suggest that the system is faultless. Certainlysome of the problems in the loan pouch are the result ofpoor decisions made by individual banks. But, in themain, the asset problems are economy related, and thecapacity of our banking system to shoulder thoseproblem loans is a matter deserving of commendationrather than condemnation. The banking industry andthe other financial facilities of the private and publicsectors are now being looked to for active involvementin financing our national economic recovery. Stridentcriticism could well drive the directorates and man-agement of banks in the direction of credit policies soinordinately conservative as to thwart or severely re-tard economic recovery. I earnestly hope that our criti-cal examination of present and past banking practiceswill be ever mindful of the potential for that unwantedpsychological fallout.

Problem Banks

There recently has been discussion in the press aboutso-called "problem banks", which has led to much con-fusion. I would like to attempt to put that matter inperspective.

The Comptroller's Office for many years has beenidentifying certain banks for special attention. Until 1974,the term "problem bank" as used by the Comptroller'sOffice meant no more than a bank whose classified as-sets, that is loans judged by the examiner to be sub-standard, of doubtful collectability or a loss, aggregated40 percent or more of the bank's gross capital funds(equity accounts, subordinated capital notes and de-bentures and reserves for loan losses). Thus the term"problem bank" never had been used in the sense ofidentifying the very few banks which, at any time, theComptroller's Office believed to be in serious danger offailing, although those very few banks normally would beincluded within the group netted by the 40 percent clas-sified asset to capital ratio.

This formula for identifying banks which should bemore closely analyzed or tracked by the Comptroller'sOffice may have been appropriate when it first was con-ceived in the economic conditions of the 1950's. Weconcluded that it would not be, in the economic andbanking climate of the 1970's, a useful way to designatebanks which require our special attention. We thus havebeen determined to develop more discerning methodsof singling out the banks which require our special atten-tion; and the Office has made considerable improve-ment in that regard. For example, we no longer use the40 percent ratio to define a bank which should be re-viewed for possible special attention.


Our present method of identifying banks that requireextra attention cannot be understood without also re-viewing the changes in our procedures for monitoringthose banks once they are identified. In January 1974, Ibegan a weekly meeting with my senior examining andlegal staffs to discuss bank-by-bank the problems whichthe staff had identified as requiring extra attention. In thecase of large banks with problems of unusual severity,the regional administrator and the examiner were flownto Washington to participate in those meetings. If the cor-rective actions already underway were deemed insuffi-cient, other possible corrective actions were decidedupon and responsibilities were delegated to make surethat those actions were accomplished. That series ofmeetings permitted me to assess, firsthand, the methodsthen existing for dealing with problem banks. They alsohad the positive effect of bringing our Washington staffmore deeply into enforcement activity.

These meetings, however, revealed some of theweaknesses in our methods of identifying and trackingso-called "problem banks." Particularly disturbing wasthe observation that time and resources were being de-voted to banks which did not really have severe prob-lems. As a result, the Office established, experimentally,the "Victor" program.

On November 15, 1974, a memo was sent to all na-tional bank examiners outlining the Victor program, anddescribing it as:

a better means of coordinating the various skills andresources that we have in the problem identificationand correction area and of applying them more ex-peditiously and precisely than previous procedureshave allowed.

The program was under the supervision of a DeputyComptroller of the Currency with over 25 years of examin-ing experience. He reported directly to me.

The Victor program was largely one of communication.It established procedures through which examiners atthe time of examination, regional administrators, andprogram personnel in Washington were required tocommunicate swiftly and regularly to make sure thatproblems identified either by the examiner or by thoseanalyzing the report were called to the attention of thebank in an appropriate fashion and corrective measuressought and monitored.

In order to understand the methodology of the pro-gram, I should explain that every bank examination con-tains a rating by the regional administrator on severalfactors, and a composite rating for the bank of 1 through4, with 1 being best. That composite rating system, likethe 40 percent classified asset to capital ratio, is overlysimplistic, although it is still found on our examinationreport. As of November 1974, it was the best tool wehad — so we used it.

The Victor program originally included all banks with acomposite rating of 3 or 4 and any other bank which theexaminer, the regional administrator or Washington per-sonnel believed merited the special kind of attention theprogram was designed to provide. A total of 186 bankswith total assets of $228 billion and total deposits of $183billion were originally included in the program.

The Victor program from its inception was intended tobe evolutionary. It soon became apparent that the com-posite rating system included banks which did not needthe intensive supervision that the Victor program in-volved. We thus looked for a new way to identify suchbanks.

On December 31, 1974, a memorandum was sent toall regional administrators and all examining personnelrequiring the examiner to write a special memorandumsummarizing a bank's condition when, in the examiner'sjudgment, any condition existed which could lead to thebank's insolvency; or when criticized assets, that is, 100percent of loans classified substandard plus 50 percentof doubtful loans and other loans especially mentioned,equalled 65 percent or more of adjusted capital funds(equity accounts, capital notes, debentures and re-serves for loan losses less losses and 50 percent of as-sets classified as doubtful). Thus, in lieu of using a ratiorelating gross classified assets to gross capital at thestart of an examination, we began to use a ratio of the re-maining criticized assets to the remaining capital at theend of an examination. Those memos were sent forfurther evaluation and followup action to the appropriateregional office and thence to Washington. Theexaminers were told:

While some statistics and ratios are necessary,please understand that I am depending primarilyupon your professional ability and judgment, notratios, to disclose those serious banking matters re-quiring our attention.

We are developing a program with quantitative ratioswhich will be more discriminating. Meanwhile, however,we must work with the tools we have.

In short, we are still using the 65 percent ratio, but onlyas a fine mesh screening device. Every bank withcriticized assets equal to 65 percent or more of its ad-justed capital funds is reviewed in the Washington Officeto determine whether or not the bank warrants specialand unusual surveillance. The 65 percent ratio thus au-tomatically identifies only those banks which will be re-viewed. That ratio does not identify those banks whichare defined as "problems".

On September 2,1975, the Comptroller's WashingtonOffice underwent a major reorganization. As a small partof this reorganization, the name Victor was dropped, andthe personnel supervising the program changed. Thereare now two organizational units within the WashingtonOffice, each staffed by experienced examiners, whosesole responsibility is to identify such banks, analyze theirproblems, see that corrective measures are agreedupon, and follow up on the implementation of such cor-rective measures.

As of today, there are 28 banks which the Comptrol-ler's Office would describe as "problem banks", for wantof a better term. Of those 28, seven banks, with total as-sets of $1,669 million and deposits of $1,359 million,exhibit a combination of weaknesses and adverse finan-cial trends which pose an immediate threat to liquidity orsolvency of the institution. The remaining 21 banks, withtotal assets of $9,856 million and deposits of $6,242 mil-lion, are considered by the Office to be in "serious" con-


dition. The weaknesses in those 21 banks could lead toinsolvency if not corrected, but they are in no immediatedanger.

Additionally we are giving some extra attention to 57national banks. Those banks include those selectedfrom our routine review of all banks meeting the 65 per-cent ratio and those we believe deserve special atten-tion, even though their classified asset to capital ratio isunder 65 percent. While we believe these banks exhibitcertain performance characteristics warranting specialsurveillance, we do not regard these as "problembanks".

I think our Office has made important strides over thepast 2 years in both the identification and supervision of"problem banks1'. This has been an evolutionary pro-cess, and it continues. I hope the next 2 years will witnessas much progress in improving these procedures as hasoccurred in the last 2 years.

I should add one caveat: I don't think that the Comp-troller's Office or any other bank regulatory agency canprevent bank failures in our present competitivelyoriented banking system. We can identify potential prob-lems and we can attempt to assure the best efforts bothof the regulatory agency and of the bank to correct theseproblems. It would be wrong to believe, however, thatevery bank problem, whatever its size or complexity, canbe remedied solely because the problem has been iden-tified and all reasonable solutions have been attempted.

Modernizing Changes in Examination andSupervision

As is evident from this discussion of the "problem bank"situation, I became firmly persuaded, soon after becom-ing Comptroller, that major improvements were neededin the examination and follow-up procedures used by theComptroller's Office in its supervision of national banks.In the past, the Comptroller's Office used the review ofthe loan portfolio as a focal point of examinations. It wasobvious, however, that the tremendous growth of bankassets during the 1960's and early 1970's had outstrip-ped the ability of the Comptroller's Office to check allloans. Indeed, our Office would need several times thenumber of employees we presently have to evaluate allloans on an individual basis.

In the spring of 1974, the Office commissioned the na-tionally recognized accounting and management firm ofHaskins & Sells (H&S) to conduct a major study of theComptroller's Office and, where indicated, to recom-mend improvements. The H&S report was released inAugust 1975. It is available to the public and a copy wassent by my Office to each member of Congress. We are.now busily engaged in implementing the major changesrecommended in that study.

Endorsement of those new procedures is not meant tocriticize either the personnel in the Comptroller's Officeor those who preceded me as Comptroller. Indeed, mostof the recommendations are synthesized from criticismthat came from within the Comptroller's Office. The bank-ing industry in the last 15 years has changed dramati-cally in terms of size, functions and the velocity of activ-ity, and our procedures simply had not kept up with the

accelerated pace of change in the industry we super-vise.

H&S recommended that the Comptroller establish asystematic way of identifying which of the many rapidchanges in the banking industry might require a regula-tory response, and fashioning that response in time toshape developments, not merely react to them. Centralto that response is the recognition that a sound bankingsystem must be soundly managed by bankers them-selves — and we must be able promptly and accuratelyto evaluate bank management. We now are implement-ing those recommendations.

We also are implementing, as a result of the H&S re-port, a new statistical monitoring system which will per-mit the Office, much more rapidly than before, to discerntrends in the national banking industry as a whole and inindividual banks. The information required by the newcall report requirements adopted by all three federalbanking agencies, to be effective with the March 31,1976 report of condition, is an integral part of that statisti-cal system.

Consistent with another H&S recommendation, sub-stantial improvements in national bank examination pro-cedures now are being adopted. The new procedureswill gear examination efforts more precisely to the needsof the Comptroller's Office and the particular bank beingexamined and will stress review of bank internal controls,such as prudent credit and investment rules and internalaudit procedures. By devoting more time to evaluation ofa bank's own policies and procedures, its decision-making process, and its management information sys-tem and less time to independent duplication of what thebank already has done, we expect greatly to increasethe efficiency of our examiners.

Although there will be more emphasis on systemschecks and less on individual loan verifications, ourexamination process will employ more efficient proce-dures in the areas of national credits and country credits.If a debtor has an aggregate line of credit in excess of$20 million shared by two or more national banks in thiscountry, three experienced examiners will review thecredit. A majority vote will determine a uniform classifica-tion to be used by all examiners in every national bank inthe United States. As regards country credits, since July1974, three senior international examiners, from NewYork, Chicago and San Francisco, and two internationalofficials from our Washington Office have analyzed,semiannually, facts on loans from banks into foreigncountries and, by a majority vote, have determineduniform classifications for each such loan. That pro-cedure should establish consistency, focus the atten-tion of our most talented examiners on the classifica-tion, and be an immense saving of time.

We also are reviewing and improving our personnelpolicies, our training programs, our examination manual,and the organization of most of our executive and ad-ministrative fuctions. I am aware that any bank regula-tory organization, no matter how structured, is only aseffective as the quality of its personnel.

All these steps are being taken to improve the banksupervisory and regulatory functions under existinglaws. In the follow-up procedures to bank examination,however, we need new legal authority to strengthen our


ability to deal with particularly difficult problems. TheCommittee already has before it S. 2304, which containssome amendments recommended jointly by the Comp-troller, the Federal Reserve Board, and the FDIC to en-able us better to deal with problem banks. I urge promptCommittee consideration and passage of that legisla-tion.

The legislation has several provisions. The first em-powers the banking agencies to assess civil penalties forviolations of various banking statutes and cease and de-sist orders. I endorse wholeheartedly the idea of givingthe agencies that authority. My staff and I believe thatsome improvement can be made in the procedures nowfound in S. 2304 through which those penalties would beassessed and collected. We would be happy to consultwith the Committee staff on this matter.

Another provision of the bill which I heartily supportwould give the banking agencies power to remove an of-ficer, director, or other person participating in the affairsof the bank from his position upon being able to showgross negligence in the operation or management of thebank or a willful disregard for the bank's safety andsoundness. Under the present statute, bank officials canbe removed only if the agency can establish "personaldishonesty". The judicial review provisions already con-

tained in the statues are ample to protect against arbi-trary or capricious use of that power.

The procedures by which an officer or a director of anational bank can be removed also need amendment.Under existing law, the Comptroller lacks power to re-move a bank official unless that official has been in-dicted. If he has not been indicted, the Comptroller cando no more than certify facts to the Federal ReserveBoard. The Federal Reserve is given the responsibilityfor issuing a notice of proposed removal, prosecutingthe case, hearing the evidence and making the final de-cision. The Comptroller cannot even institute the pro-ceeding.

That procedure is so cumbersome to use that neitherthe Federal Reserve Board nor my Office believes that ithas been very effective. We thus have recommended aprovision in S. 2304 which would empower the Comptrol-ler to institute and prosecute proceedings. The Comp-troller also would have the power to suspend a bank offi-cial pending completion of the proceedings. The FederalReserve Board, however, would retain its present author-ity to hear the case and make final decisions. I am incomplete agreement with that recommendation.

In conclusion, I refer the Committee to the responsesfrom my Office to specific questions contained in Chair-man Proxmire's letter of invitation to me.

Appendix to February 5 Statement by James E. Smith

Responses to the Committee's Questions

The Committee has asked in Chairman Proxmire's letterof invitation for responses to specific questions. Some ofthe questions have been answered by information pre-sented in the earlier portions of this statement. The re-maining responses are below.

Question 1: The Standards for Assets,Capital, Liquidity and ManagementClassification of LoansThe evaluation of loans and discounts is one of the mostimportant phases of a national bank examination. Theexaminer bases many of his conclusions regarding thecondition of a bank, the strength of its management, andits service to the community on his appraisal of the loanaccount.

In each bank under examination, the examiner deter-mines the volume of loans to be appraised. Generally,examination coverage of the loan portfolio exceeds 70percent of total dollar amount outstanding and alwaysincludes overdue loans, non-accrual loans, previouslyclassified loans and other paper which the examiner hasdefinite reasons for investigating and appraising.

Once it is determined which loans will be reviewed, theexaminer systematically appraises each loan by analyz-ing available financial information, including financialstatements and other statistical support, as well asevaluating pledged collateral if the loan was granted on

a secured basis. Financial data and other essential in-formation such as the purpose of the borrowing and theintended sources of repayment, progress reports, in-spections, and memoranda of outside information andloan conferences, are normally maintained in the bank'scredit files.

Open and candid discussion with bank officers and di-rectors, who are familiar with borrowing customers, is anequally important step in the process of appraising thevarying degrees of risk in a given loan. Factors relating tothe character of the borrower in the case of an individual,or the competency of management if the loan is to a cor-poration, usually may be determined from discussionwith the appropriate bank officers. Analysis of financialdata alone may not reveal credit factors of this nature,which could have a significant bearing on the ultimatecollectability of a loan. Frank communication betweenthe examiner and the banker is a crucial element in theloan review process.

When the examiner has identified individual creditsthat require criticism, the loans are assigned a "classifi-cation" based on the degree of risk. Each such loan issupported in the report of examination by informativeand factual comments which justify the classification. Aloan to a given borrower may be categorized as "otherloans especially mentioned" (OLEM), substandard,doubtful or loss. Portions of the loan may, depending onthe circumstances, be assigned different classifications.For example, the following hypothetical $100,000 to a


self-employed individual, based on varying elements ofrisk, might be classified as follows:

NotCriticized OLEM Substandard Doubtful Loss

(1) $10,000 (2) $5,000 (3) $40,000 (4) $30,000 (5) $15,000

(1) The collateral for this portion of the debt is a pledgeof U.S. Government securities with a current marketvalue of $10,000. Aside from a potential decline in themarket value of the securities, this part of the loan is vir-tually without risk.

(2) This is the unsecured portion of the loan on whichthe bank holds the guaranty of a financially responsibleindividual. Bank management feels confident that theguarantor has the capacity and willingness to honor thisobligation; however, financial information supporting theguaranty is outdated and the bank has not yet attemptedto collect from the guarantor. Until the guarantor per-forms, this portion of the loan warrants more than thenormal degree of supervision.

(3) The collateral for this portion of the debt is a realestate mortgage on borrower's personal residence, ap-praised at $40,000. Three monthly payments are pastdue. This portion of the debt fits the substandard defini-tion; the bank appears protected from loss because ofthe underlying value of the real estate. However, the loanis a non-earning asset, as evidenced by the past duestatus, and the bank may be forced to foreclose on theproperty in order to effect collection. Foreclosure actionwould not necessarily assure disposal of the property forthe appraised value.

(4) The collateral for this portion of the debt is a lien onequipment formerly used in borrower's now defunctmachine shop business. Bank has taken possession ofthe equipment and is attempting to arrange a sale; how-ever, the age and specialized nature of the equipmentmitigates against sale at a price sufficient to liquidate thedoubtful portion. The probability of loss is high, althougha favorable sale could still materialize.

(5) This portion of the loan is unsecured and past duefor an extended period. The borrower has no apparentsource of repayment at this time and continuance as anactive asset is not warranted. Some recovery at a futuredate might be effected if the borrower is able to find gain-ful employment.

To clarify exactly what we mean by the differentcategories, we provide the following definitions:

• Other Loans/Assets Especially Mentioned(OLEM) — Currently protected but potentiallyweak credits or other assets.

• Substandard — Assets with a positive and well-defined weakness or weaknesses which jeopar-dize the liquidation of the debt. Defined in a gen-eral way, a substandard asset is a bank asset in-adequately protected by the current sound worthand paying capacity of the obligor, or pledgedcollateral, if any.

• Doubtful — Assets with all the weaknesses inhe-rent in assets classified substandard with theadded proviso that the weaknesses are pro-

nounced to a point where collection or liquidationin full, on the basis of currently existing facts,conditions and values, is highly questionable andimprobable. The probability of total or substantialloss is high but extraneous factors might makepossible the strengthening or liquidating of theasset.

• Loss — Assets considered uncollectable and ofsuch little value that their continuance as activeassets of the bank is not warranted. Assignmentof this classification does not mean that an assethas absolutely no recovery or salvage value, butsimply that it is not practical or desirable to deferwriting off a basically worthless asset eventhough partial recovery may be effected in the fu-ture.

• Classified Assets — The sum of substandard,doubtful and loss classifications.

• Criticized Assets — Classified assets plus OLEM.• Gross Capital Funds —The sum of capital stock,

surplus, undivided profits, reserves against loanand security losses and long-term subordinatednotes and debentures.

• Adjusted Capital Funds — Gross capital fundsless estimated losses and 50 percent of doubtfulclassifications.

• Equity Capital — The sum of capital stock,surplus and undivided profits.

Evaluation of Bank Capital & Ratio AnalysisBank capital has myriad uses and purposes. It allows abank to gain competitive entry by acquiring the neces-sary infra-structure to operate. It provides a cushion towithstand abnormal losses not covered by current earn-ings, enabling the bank to regain equilibrium and re-establish a normal earnings pattern. It serves the im-portant psychological role of maintaining the confidenceof public lenders and investors in the bank's ability tomeet maturing demands in most market conditions, tosustain present and contemplated growth patterns andto conform to industry standards. In liquidation it pro-vides protection to both depositors and other creditors.

Although the purposes and uses of capital are easilydefined, capital adequacy is not. Attempts to constructobjective criteria to measure what is substantially a sub-jective concept have been mired in controversy for yearsand have resulted in no firm answers to this complex sub-ject.

As we see it, there are five major issues relating to thecapital adequacy of banks. They are:

1. The relevance of total economic collapse.2. The weight to be given the quality of manage-

ment.3. The role of capital notes and debentures.4. The role of bank capital in bank holding com-

panies.5. The usefulness of capital ratios as measures of

capital adequacy.


Each of these topics will be discussed in turn.The first problem that must be faced in any discussion

of capital adequacy is composing a list of contingenciesthreatening bank capital. At the forefront of that problemis the question of whether the list should include totaleconomic collapse.

Perhaps the principal element that may distinguish theanswer to that question today from the answer that mayhave been appropriate 40 years ago is the changing roleof national economic policies. Most economic authoritiesare in agreement that our knowledge of appropriatecounter-cyclical fiscal and monetary policies is vastlysuperior to that available to our policymakers in the early1930's. From that, one reasonably may assume that aneconomic debacle of the magnitude of the Great De-pression of the early 1930's is avoidable.

What does that mean for the banker and the bank reg-ulator in connection with capital adequacy? We think it isdefensible for both bank regulators and bankers to as-sume that fiscal and monetary policies will allow the pre-vention of large-scale economic crises. We are wellaware, however, that cyclical movements have not beenabolished, and that periodic recessions of more limitedamplitude are to be expected. Those swings can bringsignificant pressures to bear upon banks, as has beenevident in the last 2 years.

The second issue to be considered is whether thequality of management should influence determinationsof capital adequacy. Some views from outside and in-side banking suggest that management quality has notbeen given its due.

For example, a major study completed a few years agoby Professors Robinson and Pettway suggested thatbank examiners". . . should take their eyes off bank cap-ital and focus on the quality of bank management." Theauthors continue:

An analogy will help at this point: examiners do nottry to specify the elements of a liquidity policy to abank but they rightly criticize a bank if it does nothave a clearly articulated liquidity policy. By thesame token, why should examiners try to establishcapital standards (which by their nature can't bespecified)? Shouldn't their efforts and energy be di-rected to the problem of making sure that bankmanagements have clearly articulated capitalpolicies and that they are implemented by mana-gers of as high skill and training as possible?

Mr. George Vojta, in a recent monograph, afterexamining the body of research dealing with the rela-tionship between bank capital and bank failures, con-cludes that". . . the important causal factors relating tosolvency are competence and integrity of manage-ment."

The Comptroller's Manual contained a section dealingwith capital adequacy until the 1971 revision, when thesection was deleted. It opened with the statement that

the Comptroller of the Currency will not hereafterrely on the ratios of capital to risk assets and to totaldeposits in assessing the adequacy of capital of na-tional banking associations.

The section also included the well-known set of eight

factors to ". . . be considered by the Comptroller in as-sessing the adequacy of capital." The very first factorlisted was "the quality of management." The other sevenwere:

• The liquidity of assets.• The history of earnings and of the retention

thereof.• The quality and character of ownership.• The burden of meeting occupancy expenses.• The potential volatility of deposit structure.• The quality of operating procedures.• The bank's capacity to meet present and future

financial needs of its trade area, considering thecompetition it faces.

Although that list is not contained in the current editionof the Manual, the factors have not been disowned bythis Office. Indeed, to some degree that set of factors hascome to epitomize the non-ratio approach with which theComptroller has been identified during the past decade.

Subjective factors and good judgment with respectthereto, thus, play a far more important role in our as-sessment of capital adequacy than the use of objectivecapital ratios, which have never proven reliable. This Of-fice has placed a great deal of emphasis on two key fac-tors, the quality of management and the quality of earn-ings, in assessing the capital adequacy of individualbanks. Banks cannot survive without either for very longand the two factors are usually inseparable.

While a premium has been placed on managementcapability and earnings capacity in assessing capitaladequacy, asset quality and liquidity/liability manage-ment are given near equal emphasis, depending on in-dividual bank circumstances. The point is that capitaladequacy can only be determined by a subjectiveanalysis of all factors affecting a bank's condition. Em-phasis must be given to those factors affecting thebank's performance and those will vary from bank tobank and will also vary with prevailing market andeconomic conditions, either locally, nationally or interna-tionally.

The role of capital notes and debentures is a third con-troversial subject. The Office of the Comptroller of theCurrency in the early 1960's issued a ruling that encour-aged national banks to resort, on appropriate occasions,to the sale of debentures to supplement their capitalposition. Until that ruling, senior capital, in the view ofmany banks, was associated only with near-emergency situations at financially weak institutions.Our Office has applied a rule of thumb that limits theproportion of a national bank's total capital that can bein debentures to one-third.

Some of the capital formulae applied by bank reg-ulators discriminate against the use of debentures. Forexample, one such ratio involves total equity capital plusreserves on loans and securities, divided by the sum oftotal liabilities plus total debentures less cash and cashitems. It is obvious that a bank with outstanding deben-tures is penalized in the application of that ratio as com-pared with a bank that has issued none.


In our Office, we believe there is a place for debt in-struments in the capital structure of national banks. Thebasic regulatory function of bank capital is to serve asprotection for depositors and those who assume theirrisks. Subordinated notes and debentures extend sub-stantial additional protection to bank depositors. Further,some market situations would penalize bank stock-holders greatly, were the regulatory authorities to insistupon the sale of equity securities. Having the option ofselling subordinated notes yields valuable flexibility.

A subsidiary question, in connection with bank debtcapital, relates to the sale by one bank, usually a smallerone, of its debentures to a larger bank. There are, we be-lieve, reasons for holding such transactions to aminimum. From the standpoint of the entire banking sys-tem, such transactions do not provide any net inflow ofcapital. Were such transactions to proceed on a round-robin basis throughout the system, it is evident that asubstantial watering down of capital requirements for thesystem would have occurred. If the regulatory authoritiesdesire to reduce capital requirements for the system, itmay be preferable to take such action directly. We donot, however, advocate abolition of this type of transac-tion. On occasion, in a particular situation, this course ofaction can be beneficial to both banks involved.

There is also the fourth question of bank capital forholding company banks. There appears to be fairly gen-eral agreement that a bank and its capital position mustbe protected, whether or not it is a holding companysubsidiary. Certainly, from the standpoint of a primarybank regulator, the relationship of a regulated bank witha parent bank holding company and its associatednon-bank affiliates, should be a source of positivestrength for the bank. Our Office will oppose any affilia-tion for a national bank when that affiliation would tend tothreaten the soundness of the bank.

The fifth and final issue mentioned above relates to theusefulness of capital ratios as measurements of capitaladequacy. In fact, somewhat more broadly, the questionreally is: How may the adequacy of capital be meas-ured?

A variety of capital ratios are used by all bankexaminers as initial screening devices in their attempt todetermine whether an institution under examination isadequately capitalized. The loans-to-capital ratio, thecapital-to-total assets ratio, the capital-to-total depositsratio, those and others are among the more popularmeasures.

As to the norms or "acceptable" levels for thoseratios, it is undoubtedly true that the current averagefigures tend to become a sort of standard. There hasbeen a decline in capital ratios over the past 60 years,and that drop illustrates that we tend to look at theconcept of capital adequacy in relative rather than ab-solute terms.

In using ratios, one is often tempted to adopt"minimum" values for regulatory purposes. When thatis done, there is a natural tendency on the part of bank-ers, hard pressed as they are to maintain a favorablerate of return on capital, to allow their institutions toslide gradually to the minimum acceptable levels. Thechoice of any minimum which lies below the ratios of asignificant number of banks would tend, in and of it-

self, to exert downward pressure on the aggregatecapital ratios of the system.

We believe that no strict formulation can substitutefor the factor of human judgment in determining capitaladequacy. Obviously, were that not so, the worldwould be an easier place for bank regulators. Weremechanistic judgments to be finally determinative, oneperhaps could appoint the latest generation computeras regulator.

Evaluation of Bank Asset LiquidityThe liquidity of a bank refers to the volume of cash andother assets, readily convertible into cash, which pro-vide its capacity promptly to meet demands for pay-ment of its obligations. Banks tend to hold their cashand balances with other banks at a minimum sincethose are nonearning assets. Accordingly, most banksrely upon a special liquidity account consisting ofshort-term, readily marketable high grade assets whichcan be quickly converted into cash at any time to meetloan and deposit fluctuations. Banks are not restrictedto the asset side of the balance sheet in meeting theirliquidity needs, for they can also borrow money, pur-chase federal funds, and attract time certificates ofdeposit in order to gain needed liquidity.

This Office computes liquidity for each bank on aseparate form attached as part of each examinationreport. Simply stated, on that form liquidity is meas-ured by determining the percentage of a bank'sliabilities held in the form of cash or assets readilyconvertible into cash. In general we prefer to seeliquidity ratios in the range of 15 to 20 percent or more.A secondary liquidity position also is computed by giv-ing consideration to the liquidity inherent in other as-sets listed as memoranda accounts. Thosememoranda accounts include loans to U.S. govern-ment securities dealers, eligible bankers' accep-tances, other loans eligible for discount at the FederalReserve, commercial paper, and other securities withmaturities of over 2 years.

After those computations, the examiner evaluatesthe adequacy of the bank's liquidity position in relationto the bank's demand for liquid assets to meet loancommitments and other contractual obligations, andthe composition and volatility of its deposit structure.Consideration is also given to the quality of the bank'sloan portfolio and the cash throw-off it provides asloans are reduced and paid.

For larger banks which are heavily engaged inmoney market operations, a more sophisticated ap-proach is used in determining the adequacy ofliquidity/liability management. One has to approachsuch banks with an overview of their market positionsand the diversification, quality and stability of theirfunds sources. In addition an analysis must be madeof the bank's liability management. Money market pur-chased funds (negotiable CD's, Eurodollars, federalfunds, etc.) are extremely interest sensitive and mustbe properly matched as to maturity and rate with inter-est sensitive assets to provide the bank with a profit-able interest spread and a means to meet current de-mands placed upon it.

Those funds are also extremely "confidence" sensi-


tive and are subject to the vagaries and whims of thefinancial money markets. Individual banks with a mar-ginal access to money market funds or an uncertainstatus in the markets due to adverse financial trendscan be extremely vulnerable to a liquidity crisis whenthe confidence of large individual or institutional de-positors or lenders diminishes with respect to thebank.

The psychology of the market place is especiallyimportant to banks during adverse economic times.For example, the combinations of steadily rising inter-est rates, tight money conditions, a prolongedeconomic recession and a few bank failures, both hereand abroad, in 1974 created problems for some re-gional and money market banks which were highlydependent on purchased funds. Some tiering devel-oped in the money market and the very largest bankswith excellent national and international reputationsand several well-managed regional banks were the di-rect beneficiaries. Other regional and smaller moneycenter banks were often denied some funds or wereforced to pay a high premium for their funds.

Thus, a bank's position in the money market, its stay-ing power, its liability management techniques and itsreputation are key factors which must be objectivelyand subjectively analyzed to determine the adequacyof liquidity in money center banks.

Question 2: Ratio AnalysisAs stated in the second part of this testimony, banks tobe selected for special attention are of two types:Banks which, in the examiner's judgment show anycondition which could lead to insolvency and banksselected from those whose criticized assets equal 65percent or more of adjusted capital funds. Furtheranalysis of those banks, based upon the factors listedin response to Question 1, is made to determine whichbanks truly are deserving of special attention.

Question 3: Categories of BanksThe evolution of bank examinations and supervision aspracticed by my Office has been extensively de-scribed in the first part of this statement. That shouldbe considered my answer to this question.

Question 4: Procedures for Abating UnsoundConditionsOnce significant problems of a national bank have beenidentified through the examination process, theexaminer begins the supervisory action process bycommenting in the report of examination on importantmatters requiring attention of the Comptroller, the boardof directors and the active executive management. Theexaminer's comments are supplemented by a letter fromthe regional administrator which highlights the bank'sproblems and requests the board of directors andexecutive management to institute appropriate correc-tive measures. Depending on the circumstances andseverity of problems, the bank's executive managementmay be requested to submit monthly reports regardingprogress it has made toward improving unsatisfactory

areas of the bank. In addition, frequent visitations andexaminations may be conducted.

When an examination or special visitation of a nationalbank discloses a condition so unsatisfactory as to war-rant that the board of directors should be promptly andpersonally informed, a special meeting with the board iscalled by the examiner or his regional administrator.Special representatives of the Comptroller's Office mayattend the meeting depending on the circumstancesand severity of the problem. The objectives of meetingwith a board of directors are to discuss the conditionsand affairs of the bank that were observed during themost recent examination, to reach an agreement on anysignificant problems in the bank, to obtain a definitivecommitment from the board, to institute the proper cor-rective actions, and to obtain information concerning fu-ture plans and proposed changes in bank policy thatmay have a significant impact on the future condition ofthe bank.

Bank supervision provided at the regional level iscoordinated with the Washington staff which providesadditional legal assistance, coordination with other reg-ulatory agencies, attendance at board meetings, analyt-ical support, and follow-up review. Where the facts indi-cate a serious problem, a possible violation of law, orunsafe and unsound practices, we may call upon theEnforcement and Compliance Division of our Law De-partment. That assistance may consist of the attendanceof an attorney from the Enforcement and Compliance Di-vision at a board of directors' meeting to discuss with thebank the problems and the suggested corrective action.In other cases it may require the investigation by the En-forcement and Compliance Division of a cease and de-sist proceeding or the certification to the Federal Re-serve Board for removal of an official or the making of acriminal referral to the Department of Justice. In the lattertwo situations, the investigation must disclose that theparticular activities of an individual constitute evidenceof personal dishonesty.

In addition, the bank must obtain the approval of thisOffice for various corporate changes, such as the open-ing of a new branch, dividend restrictions, investments inpremises and other approvals. That approval may bewithheld until this Office is satisfied that the bank willadopt the recommendations.

In the abnormal case where it is determined by this Of-fice that stronger enforcement action should be taken toensure that a bank is functioning in a safe and soundmanner and within the law, the Comptroller has a rangeof administrative remedies to deal with the situation. Indetermining the appropriate remedy for a particularbank, the Comptroller, together with the Deputy Comp-trollers, regional administrators, examiners and theLaw Department, must determine which type of actionwill be the best rehabilitative remedy to assist the bank.

Where the facts indicate that there are serious prob-lems or that there are repeated violations of law or unsafeand unsound practices, this Office may use the powergiven under the Financial Institutions Supervisory Act of1966 to begin cease and desist proceedings. Cease anddesisi proceedings are rehabilitative, intermediatetools which allow this Office to force a bank to work outits problems without resorting to the more drastic


measures of receivership, conservatorship, terminationof insurance, forfeiture of charter, or forced merger.Our experience has indicated that the threat of acease and desist proceeding enables this Office tohandle the majority of bank problems through the lessformal techniques of persuasion, frequent examina-tions and meetings with directors.

Question 5: Updating of Previously FurnishedInformationThe Chairman's letters of January 14 and January 20,1976, included a request for information on banks incomposite categories 3 and 4, including a statement oftheir assets and deposits from call reports for the years1971 through 1975. That information is included inTable A.

Question 6: Cease and Desist ProceedingsOver the past several years this Office has resorted tothe use of formal cease and desist proceedings underthe Financial Institutions Supervisory Act of 1966, 12USC 1818 as set forth below:

Year19711972197319741975

Number

36 (one

101923

of Cease and DesistProceedings

involving several ban

Because none of the cases matured into litigation, nosummary of court action is available. Summaries of theindividual orders appear [at the end of] this statement.

While the Financial Institutions Supervisory Act hasbecome increasingly useful as a regulatory tool, we has-ten to point out that it has several serious deficiencies.

As noted in the earlier portions of this statement, weendorse a proposal, S. 2304, which would correctsome of the problems with the FISA and grant the reg-ulatory agencies the powers they originally requestedwhen the FISA was conceived in 1966. Among theamendments we seek is a change from a standard forremoval of an officer or director of "personal dishon-esty" to a standard of gross negligence or willful mis-conduct. That change alone would be helpful in pre-venting the development of many new problem banksituations for it will allow for the removal of bad man-agement at an earlier stage. Other provisions includedin S. 2304 will simplify the administrative procedures ina removal case and end the unnecessary administra-tive delays now present in the system.

Question 7: Exchange of Examination Reportsand Other DataThis Office routinely provides a copy to the FDIC of all re-ports of examination of national banks which carry anOCC composite rating of 3 or 4. In addition, theWashington Office of the FDIC has checkout privilegeswith our Central Records Section and may request acopy of the examination report or other data on any na-tional bank. The Board of Governors of the Federal Re-serve System, in Washington, is granted the same ac-cess to examination reports and other data relating to na-tional banks.

Each of our 14 regional offices has an arrange-ment with the Federal Reserve District Bank of jurisdic-tion to provide to that bank, a copy of every report ofexamination of national banks. Moreover, the regional of-fices of the OCC freely exchange information on banksand bank holding companies with the Federal ReserveDistrict Banks where there is a mutual interest to beserved in the regulation and supervision of the nation'sbanking system.

Date oflist

12/706/7112/716/7212/726/7312/736/7412/746/7512/75

Totalnumber ofnationalbanks

4,3484,3664,3854,4174,4494,4954,5464,6124,6594,7034,709

Totalassets ofnationalbanks

$323,359354,327373,870398,278425,550466,265497,583545,290579,715599,803600,860

Totaldeposits of

nationalbanks

$269,690299,254315,212333,843354,442388,516410,471444,084469,181489,624490,594

Numberof banks

104112101105615671

110169251251

Table Ai

National Banks Rated 3 and 4*

(Dollars

Assets

$3,0585,002

13,08413,55810,69311,60113,742

119,603225,164249,725249,747

in millions)

Group 3

Deposits

$2,6854,311

10,99011,3999,1079,472

10,73597,397

180,916201,919201,917

Percent of all national banksNumber

2.42.62.32.41.41.21.62.43.65.35.3

Assets

.91.43.5342.52.52.8

21.938.841.641.6

Deposits

1.01.43.53.42.62.42.6

21.938.641.241.2

Numberof banks

8885688

11172524

Assets

$2113281219381

131144225

2,37.63,5273,487

Group

Deposits

$1932941098373

116131202

1,779. 2,901

2,866

4Percent of all natNumber

.2

.2

.2

.1

.1

.2

.2

.2

.4

.5

.5

Assets

.1

.1——————.4.6.6

ional bankDeposits

.1

.1——————.4.6.6

NOTE: Dashes indicate amounts less than .05 percent.*A reconstruction based on examination reports of banks still in existence.


This Office and the Federal Reserve System have anestablished communications procedure, both betweenthe respective Washington offices and the regional of-fices of each agency, whereby we provide prompt notifi-cation to the Federal Reserve System whenever ourexamination of a subsidiary bank of a bank holding com-pany reveals that the condition of that bank is deteriorat-ing significantly or that it is in a generally unsatisfactorycondition. Similarly we give the Federal Reserve Systemperiodic progress reports, either verbal or written, duringan examination, and subsequent to it, for such banks.

The Federal Reserve System, in turn, provides this Of-fice with reports of examination of bank holding com-panies which have national banks as subsidiaries. TheFederal Reserve also promptly informs the OCCwhenever it has information that a holding company'scondition or actions could have an adverse effect upon asubsidiary national bank.

Similar formal and informal communications proce-dures exist between the OCC and the regional andWashington offices of the FDIC. That communicationnetwork is further augmented by my direct participationas one of the three directors of the FDIC and through theliaison staff of this Office at the FDIC.

All three federal banking agencies work in close con-cert, especially when it becomes apparent that the na-ture and volume of weaknesses and the trends of a par-ticular bank are such that correction is urgently needed.For example, at the early stages of a problem involving abank holding company, the agencies have often con-

ducted a simultaneous examination of the holding com-pany and its affiliates. The follow-up procedure has beento monitor the entire system under the control of the af-fected holding company and to impose and enforce acoordinated corrective program on the particularproblem affiliates within the holding company system.

In addition to the above-descibed arrangements andpractices existing between the bank regulatory agen-cies, all three agencies participate in regular meeings ofthe Interagency Coordinating Committee; in meetingsdesigned to coordinate and standardize examinationprocedures; and in frequent meetings to develop com-mon reporting requirements, including call report andincome and expense items to be disclosed by all com-mercial banks.

Queston 8: Aggregate Data and Ratios forThree Classes of BanksThe Committee has requested certain statistical informa-tion for banks over $5 billion in assets, banks having $1billion to $5 billion in assets and banks with less than $1billion in assets. The data appear in the tabular materialthat follows.

Table I compares aggregate classified loans to grosscapital funds and total assets for 1972 -1975 for nationalbanks with assets exceeding $5 billion dollars; Table IIcompares the same information for national banks withassets of $1 to $5 billion. For the largest national banks(Table I) classified assets have risen as a percentage of

Table IAggregate Classified Assets, National Banks with Assets over $5 Billion, 1972 - 1975

(Dollars in millions)

Year

1972197319741975

Numberof banks

11111212

Totalassets

$151,597186,510233,394248,173

Grosscapital funds

(GCF)

$10,17011,02612,35113,245

Substandardassets

$2,4592,6115,4799,840

Substandardas a percent

of totalclassified

assets

76747773

Doubtfulassets

$ 602753

1,3173,224

Doubtfulas a percent

of totalclassified

assets

19211924

Lossassets

$159193314439

Loss as apercentof total

classifiedassets

5543

Totalclassified

assets

$ 3,2203,5577,110

13,503

Totalclassified

assets /GCF(Percent)31.732.357.6

101.9

Totalclassifiedassets 1

Total assets(Percent)

2.11.93.05.5

Source: U.S. Comptroller of the Currency examination reports for years indicated.

Table IIAggregate Classified Assets, National Banks with Assets of $1 to 5 Billion, 1972 - 1975


Year

1972197319741975

Numberof banks

48496058

Totalassets

$81,88794,312

117,649115,398

Grosscapital funds

(GCF)

$6,2276,8008,3138,675

Substandardassets

$1,0091,0102,3213,577

Substandardas a percent

of totalclassified

assets

75798282

Doubtfulassets$257

186344624

Doubtfulas a percent

of totalclassified

assets19151214

Lossassets

$ 7478

163167

LOSS as apercentof total

classifiedassets

6664

Totalclassified

assets

$1,3401,2742,8284,368

Totalclassified

assets IGCF(Percent)

21.518.734.050.4

lotaiclassifiedassets 1

Total assets(Percent)

1.61.42.43.8

Source: U.S. Comptroller of the Currency examination reports for the years indicated.


gross capita! funds in each of the last 4 years. Most ofthat increase occurred in 1974 and 1975 and reflects, toa great degree, the adverse economic conditions exist-ing in those years.

T a b l e IIIAggregate and Average Classified Assets,

National Banks with Assets Under $1 Billion,1970- 1975


Year

197019711972197319741975*

Aggregateclassified

assets

$1,4951,6251,6731,9182,6954,112

Averageclassified

assets

$ .333.351.361.414.581.887

Classifiedassets /Grosscapital funds

(percent)

12.1712.0911.1611.2915.7820.87

Source: U.S. Comptroller of the Currency examination reports for yearsindicated.NOTE: The EDP data base does not carry individual totals for substan-dard, doubtful and loss. Therefore, such information could not be fur-nished. Based on 4,635 national banks.* Through September.

To put classified assets into perspective, it is importantto look at their composition.

For the 12 largest national banks, in 1975, substan-dard classifications accounted for 73 percent of totalclassified assets, doubtful classifications for 24 percentand loss for only 3 percent. Substandard assets are con-sidered by examiners to have only a minimal or, in mostcases, no potential for loss. Historically, for analyticalpurposes, we have assumed that approximately 50 per-cent of the doubtful classifications will translate into loss.Today, one cannot generalize on this translation;analysis on a case-by-case basis is necessary. A sig-nificant volume of loans classified doubtful in the bank-ing industry today have underlying collateral of consid-erable value. With even nominal improvement ineconomic conditions, that value will be realized, result-ing in little if any loss to the banks. For example, of the$3,224 million in assets classified doubtful in 1975 for the12 largest national banks, $1,526 million or 47 percentwas centered in loans to real estate investment trusts(REIT's). Another $2,030 million, 21 percent of all sub-standard, in REIT loans was classified substandard.The examiners for the most part classified those REITloans in their full amount, despite the underlying valueof the properties held by the REIT's. No one, especiallya bank examiner anticipates that those 12 banks willincur losses on their REIT loans at anywhere near thebooked amount. In fact, a recent study by Drexel Burn-ham & Company indicated that the potential loss onloans to the most troubled REIT's is likely to be about

Table IV

Equity Capital to Total Assets, National Banks,1970- 1975, by Size of Bank

(Percent)

Banks with Assets of—

Year

197019711972197319741975

$5 billionand over

5.445.234.844.243.874.29

$1 to 5billion

6.536.185.675.265.37N.A.

Under $1billion

7.156.916.676.686.90N.A.

Number of banks 12 63 4,636

Source: U.S. Comptroller of the Currency year-end call reports of na-tional banks.N.A. - Information not available.

25 percent over time. Some industry experts expect aneven smaller percentage to translate to loss.

Even more perspective^ gained on classified assetsif the aggregates are compared to total assets. For the 12largest national banks in 1975, substandard classifica-tions accounted for 4 percent of their total assets, doubt-ful classifications for only 1.3 percent of total assets, andestimated losses for a mere 0.2 percent of total assets.

To understand fully the trends in banking during thelast few years, particularly with respect to the rise in clas-sified assets, one has to reflect on the state of theeconomy and the condition of the capital markets duringthe same period. Banks, after all, mirror the economicconditions affecting the industries to which they lend andthe banking system in any country is only as good as theeconomy in which it functions.

Table V

Equity Capital to Deposits, National Banks,1970- 1975, by Size of Bank

(Percent)


Year

197019711972197319741975

Number

$5 billionand over

6.446.215.855.184.695.21

of banks 12

$1 to 5billion

7.927.597.016.786.94N.A.

63

Under $1billion

8.177.927.631118.08N.A.

4,636



Table VI

Debt Capital to Total Capital, National Banks,1970- 1975, by Size of Bank

(Percent)


Year

197019711972197319741975

Number of banks

$5 billionand over

5.045.336.735.255.505.15

12

$1 to 5billion

8.018.69

11.2411.1510.62N.A.

63

Under $1billion

2.583.354.675.185.02N.A.

4,636


Despite the adverse economic conditions of the pastfew months, the commercial banking system has con-tinued to meet its responsibilities in assisting the func-tioning of our economy. Banks have carried individuals,businesses and local and state governments throughwhat has been described as the worst recession sincethe 1930's. This was done at no small cost to the bankingsystem and a hangover of substandard assets still re-mains. Yet, the banking system has come through theunstable economic conditions of the last few years andhas emerged strong and well-positioned for the recoveryahead. (Tables III through VI appear in somewhat differ-ent format than that in which they were presented toCongress. That was done to facilitate printing.)

Question 9: Examination and Regulation ofHolding CompaniesAlthough this Office is authorized to examine bank hold-ing companies and their nonbanking subsidiaries whichare affiliated with national banks, this Office does notregulate them. Since the regulatory and enforcement ac-tions against holding companies under present law arewithin the jurisdiction of the Federal Reserve Board, amore detailed response to this question more properly isleft to that agency.

The separate corporate existence of nonbank affiliatesprovides, within limits, a separation between the bankand these affiliates. However, cases in recent years,such as that of Beverly Hills National Bank, appear todemonstrate that difficulties of nonbank subsidiarieswithin a holding company can redound to the detrimentof a bank.

Recognizing this principle of nonseverability, this Of-fice has undertaken full examination of bank holdingcompanies and their nonbanking subsidiaries in con-junction with the examination of subsidiary nationalbanks when there has been a.need for information onthe bank holding companies and their inter-companytransactions. Such examinations are usually con-

ducted to determine whether such relationships aredetrimental to the safety and soundness of the bank.

In recent years this Office has promoted the idea thatbank regulators should look beyond the bank to includethe entire corporate family as an entity. Such anexpanded view is consistent with the plans of this Officeto broaden surveillance of all affiliates of national banks.

As of December 2, 1974, I have requested that everynational bank which is a subsidiary of a bank holdingcompany which files annual reports or Form 10-K withthe Securities and Exchange Commission maintain onecopy of the most recent such annual report at the mainoffice of the bank for review by national bank examiners.In most cases, the reporting requirements just de-scribed, together with information derived from affiliateexamination reports of this Office and those of the Fed-eral Reserve System, provide a sufficient data base tokeep the Office fully apprised of the possible problemsof bank holding company affiliates which would have adetrimental effect on the holding company and its banks.

While improved reporting requirements and the au-thority under 12 USC 481 to examine entities affiliatedwith any national bank have kept this Office reasonablyabreast of the activities and financial conditions of mostaffiliates of national banks, some gaps remain in our abil-ity to properly supervise and regulate holding companynational banks. We believe our Office should have theauthority to examine any affiliate of a national bank.

An additional change which we recommend is to unifysupervisory and examination authority over holdingcompanies and their affiliates according to the prepon-derance of banking assets within the holding company.Under our proposal, national one-bank holding com-panies and multi-bank holding companies with a pre-ponderance of their assets held in national banks wouldbe examined and supervised by the Comptroller of theCurrency. State one-bank holding companies andmulti-bank holding companies with a preponderance ofstate bank assets would be examined and supervised bythe Federal Reserve. Regulations, as opposed to super-vision, would still be the prerogative of the Federal Re-serve. In this way, the pattern of enforcement and super-vision according to the type of charter under uniformregulations prescribed by the Federal Reserve will bepreserved and strengthened.

Question 10: Foreign Branch ExaminationsDuring every examination of a national bank, the ac-tivities of all of its foreign branches are also examined.Multi-national banks place loans or portions of loans intheir various foreign and domestic offices for funding,customer convenience, and other reasons. When theprincipal domestic office of a national bank is examined,the loans of that bank's foreign offices are normallyexamined as of the same date. When an examiner de-termines, for example, that he can review 70 to 80 per-cent of a bank's loans by reviewing the credit files of allloans of $50 million or more, he applies the same criteriato loans carried in foreign branches.

It is obviously impossible to place bank examiners in alarge number of foreign or domestic offices on the samedate. Therefore, the policies and practices of this Of-fice have required national banks to maintain duplicate


credit files and other information necessary to conductan examination of the activities of foreign branches in thebank's principal domestic office or in readily accessibleforeign offices. To assure the continuance of that policyduring the period when the number of national bankswith foreign branches was increasing, this Office issuedan examining circular on March 18, 1970. That circularstated:

Each national bank will be expected to maintain or toreadily obtain from its foreign branches and af-filiates such information as shall be necessary todisclose their condition to National Bank Examinersand to the bank's directors.The information which will normally be expected willpertain to a substantial majority of the branches' oraffiliates' assets. Generally, the names, amounts,and credit data pertaining to all investments and to70 percent or 80 percent of all extensions of creditwill be required. It will be incumbent on the bank toobtain such customers' waivers as it may deemnecessary to comply with these requirements.

On June 28, 1971, that examining circular wassupplemented to permit national banks to maintain thenecessary data in foreign regional offices providing:

the foreign regional office is located in a countrywhere all conditions readily permit examinations bynational bank examiners.

On June 7, 1973, the Board of Governors of the FederalReserve System published an interpretation on Part 213of Title 12 which requires all member banks to follow es-sentially the same procedures as stated above.

During the years of the Voluntary Foreign Credit Re-straint Program, London, England, developed as theworld's leading international financing center. It also be-came a center for foreign branches and affiliates of na-tional banks engaged in lending, money market andforeign exchange activities. Located at the top of thetime zones covering all of Europe, the Middle East, andAfrica, it was a favored location for the administrative of-fices of national banks covering their branches and af-filiates in that geographic area. Those activities requiredthe placement of examiners in London on a permanentbasis to supervise the foreign exchange and moneymarket activities of the London branches of nationalbanks and to examine the regional office records of otherbranches and affiliates located throughout Europe, theMiddle East and Africa. Permission to establish a na-tional bank examiners's office in the American Embassyin London was requested in 1971 and permission wasgranted and the office was established in 1972. The sixnational bank examiners headquartered in Londonprimarily review the foreign exchange and operationalactivities of the London branches of 23 national banks.The examiner hour requirements necessary for the re-view and evaluation of loans and other assets carried onthe books of London branches is still carried byexaminers located in the United States. However, the re-view of such assets at the London regional offices of afew national banks is covered by the London examinerswith the assistance of examiners from the United Statesfor temporary intervals.

While an asset evaluation of a worldwide network ofbranches of a single national bank can most efficientlybe conducted from a few regional centers as of a singlecommon date, the operational aspects can bestbe examined on site. These on-site operationalexaminations are conducted not on a bank-by-bankbasis, but on a country-by-country basis. During thesepersonal visits to foreign branches by national bankexaminers, all of the branches of all national banks inselected foreign cities are examined during a single visitto the particular country. In cases where national bankexaminers, as U.S. government employees, are pre-vented from entering a foreign country for reasons oflegal safety or cost, the examiners will review the ade-quacy of operational audits made by independent au-ditors or by the bank's own internal auditors.

The following chart shows the number of overseasforeign branch examinations conducted during each ofthe past 5 years. The numbers do not include on-siteoverseas examinations of affiliates and regional centers.

Year19751974197319721971

Totalbranches

660649621566528

Branchesexamined

on site80

137927259

Percentageexamined

on site12.121.114.812.711.2

The decline in number of on-site examinations from1974 to 1975 is primarily attributable to an increasedemphasis on examination through regional credit cen-ters of Bank of America and Chase Manhattan. The re-gional credit centers of those two banks were respon-sible for 111 branches in 1975.

Question 11: Foreign LoansThe [following] chart shows the information on theforeign loan activities of the 20 largest national banksfor the past 5 years. The chart includes information foreach year on the volume of international loans, the vol-ume of classified international loans and the volume ofclassified loans to foreign governments.

This Office does not currently maintain recordswhich show the name of each foreign government re-ceiving a loan from a national bank or the purpose ofeach loan to a foreign government. A foreign govern-ment loan is identified to this Office by name and pur-pose only when an examiner determines that it shouldbe classified.

Five-Year Foreign Loan Experienceof the 20 Largest National Banks

(Dollar amounts in millions)Classified

Total International Loans toInternational Classified Foreign

Year Loans Loans Governments19751974197319721971

$52,43845,66531,26322,19819,529

$2,3221,360

608401458

$2065432

12123


Information on classified loans is not available for allbanks in this group for 1971-1973. Information on clas-sified loans to foreign governments includes informa-tion from 15 banks in 1971, 15 banks in 1972 and 13banks in 1973. Information on all international clas-sified loans reflects information from 19 banks for1971, 16 banks for 1972 and 19 banks for 1973. In ad-dition, for the year 1971, 19 banks' figures are reported

in computing total international loans, as one bank nowin the top 20 was not a national bank in that year. Thefigures for 1974 and 1975 represent totals for all inter-national loans by these banks. For 1971-1973, figuresare for only those international loans booked at foreignbranches.

The basis for all years is the 20 largest nationalbanks as of December 31, 1974.

Proceedings Brought by the Comptroller Pursuant to theCease and Desist Provisions of the Financial Institutions

Supervisory Act of 1966, 12 USC 1818 (b),1971-1975

19711. An Agreement to eliminate self-dealing and self-

serving transactions by directors, officers orshareholders of more than 2 percent of the out-standing shares of the bank. Limitations on thetrade area and management contracts to be madeby the bank.

2. An Agreement to eliminate unreasonable employ-ment contracts of insiders and eliminate insiderdealings. The bank also was to improve the creditquality of its loan portfolio and take steps to elimi-nate general criticized problems, unsafe and un-sound practices and violations of law.

3. An Agreement to eliminate extensions of credit tounqualified borrowers, self-dealing by insiders andself-serving management contracts. Also provi-sions to improve the credit quality of the loanportfolio and to take steps to eliminate generalcriticized problems, unsafe and unsound prac-tices and violations of law.

19724. A Notice of Charges and Permanent Order to

Cease and Desist to eliminate extensions of creditto insiders and self-dealing transactions. Provi-sions to eliminate overdrafts and increase thedocumentation for loans. Elimination of furtherextensions of credit on classified loans and theelimination of an unsafe and unsound correspon-dent account relationship. Also elimination of viola-tions of 12 USC 84, 375a and various unsafe andunsound practices.

5. An Agreement to eliminate loans in violation of 12USC 84 and the indemnification of the bank forlosses.

6. An Agreement with several banks rectifying prob-lems in employee benefit trusts and eliminatingself-serving employment and management con-tracts which were entered into on behalf of thebank for a controlling owner of the banks. Elimina-tion of a number of unsafe practices.

7. An Agreement to eliminate loans made in excessof the lending limit and to update the loan portfoliowith credit information and strengthening in the

collection efforts of the bank. Termination ofemployment of the bank's president because ofself-dealing and illegal practices.

8. A Notice of Charges and Permanent Order toCease and Desist to strengthen managementthrough eliminating the problems of an unsafe andunsound nature such as excessive classified as-sets, overdrafts, collateral imperfections, and theelimination of concentrations of credit. Provisionsto directthe strengthening of the bank's liquidity andcapital. Provisions to cause an outside audit and aneffective loan policy. Provisions to eliminate anumber of unsafe and unsound practices, as well asviolations of law, including 12 USC 84.

9. An Agreement to prohibit the extensions of creditto insiders and to eliminate self-dealing by majorshareholders. Provisions eliminating the ex-tensions of credit to these insiders and a reduc-tion in excessive compensation of the insiders.

197310. An Agreement to eliminate insider and self-dealing

and the illegal practice of nominee loans. Theelimination of excessive extensions of credit to af-filiates and affiliated persons. Provisions to elimi-nate unsafe practices including the handling ofcriticized loans and the modification of a self-dealing management contract.

11. A Notice of Charges and an Agreement to elimi-nate excessive directors' compensation and self-dealing by principal owners and directors of abank.

12. A Notice of Charges and an Order to Cease andDesist to eliminate extensions of credit to affiliatesand substantial self-dealing transactions by aprincipal officer and shareholder of the bank. Theappointment of a committee to eliminate the vari-ous violations of law and unsafe and unsoundbanking practices including the collection of clas-sified assets and elimination of contingentliabilities, as well as provisions to help restore theliquidity and establishing a loan and investmentpolicy. The removal of the principal officer and


controlling person from positions of authority in thebank. Indemnification for losses on the self-dealing transactions.

13. An Agreement to eliminate various violations oflaw, including 12 USC 84, and to prohibit generalunsafe and unsound banking practices. Proce-dures to effect collection of substantial criticizedassets and the obtaining of current and satisfac-tory credit information. Provisions to help restorethe capital position of the bank.

14. A Notice of Charges and a Permanent Order toeliminate loans of a self-dealing nature to com-panies closely related to the controlling owner ofthe bank and the elimination of any nominee loans.The establishment of a committee and provisionsto correct unsafe and unsound banking practicesas well as violations of 12 USC 84, 371, 371c,375a, 473 and the Truth-in-Lending statute (Regu-lation Z). Provisions requiring the indemnificationfor loss on certain violations of law. Provisions tohelp restore the capital and limitations on div-idends.

15. An Agreement to eliminate insider and self-dealingand illegal nominee loans. The elimination ofexcessive extensions of credits for the benefit ofaffiliates and affiliated persons. Provisions toeliminate unsafe practices including the handlingof criticized loans, executive salaries and modifi-cations of a self-dealing management contract.

16. A Notice of Charges and a Permanent Order to en-force an agreement previously entered for variousviolations of law including 12 USC 84 and to pro-hibit general unsafe and unsound practices. Pro-cedures to effect collection of substantial criticizedassets. Provisions to improve the capital andliquidity positions of the bank.

17. An Agreement to eliminate self-dealing and self-serving loans made for the benefit of the control-ling owner of the bank and to eliminate self-dealing loans to affiliates. Indemnification forlosses on the self-dealing loans.

18. An Agreement to eliminate abuses by the presi-dent and controlling shareholders. Provisions to ef-fect collection of criticized assets and for theelimination of violations of law, including 12 USC375a.

19. A Notice of Charges and a Temporary Order toCease and Desist from unsafe and unsound prac-tices. Provisions to eliminate loans or extensions ofcredit to related companies or individuals and topreclude the issuance of letters of credit, guaran-tees or endorsements to related companies or in-dividuals. The elimination of breaches of fiduciaryrelationships.

197420. An Agreement to establish internal controls and

eliminate management problems as well as to rec-tify violations of law, including 12 USC 1829b, 31CFR 103, 12 CRF 217 and Regulations J and Q.

21. An Agreement to eliminate self-dealings by an of-ficial of the bank and to obtain his resignation. A limi-tation on loans to certain individuals. Provisions toimprove the credit quality of the loan portfolio and totake steps to eliminate general criticized problems,unsafe and unsound practices and violations of law,including 12 USC 84.

22. An Agreement to establish internal controls andeliminate management problems. Provisions toimprove the credit quality of the investment andloan portfolio and to take steps to eliminate anumber of criticized problems, unsafe and un-sound practices and violations of law, including 12USC 84. Provisions for indemnification for losses.

23. An Agreement to eliminate management andinternal control problems. Provisions to upgradethe credit quality and procedures for handlingloans. Provisions to eliminate unsafe and unsoundpractices, criticized problems and violations oflaw, including 12 USC 84 and 375a.

24. An Agreement to eliminate extensions of credit toaffiliates and to eliminate several problems in theloan portfolio. Provisions to eliminate unsafe andunsound practices and criticized problems.

25. An Agreement to improve the credit quality of theloan portfolio and to take steps to eliminate variouscriticized problems, unsafe and unsound bankingpractices and violations of law, including 12 USC84.

26. An Agreement eliminating various self-dealingtransactions and excessive concentrations ofcredit. Provisions to eliminate specific manage-ment problems, unsafe and unsound bankingpractices and violations of law, including 12 USC84.

27. An Agreement to correct a number of unsafe andunsound banking practices including violations of12 USC 84, 375a and 24(7). Provisions to elimi-nate abuses by the controlling owner and a re-quirement to obtain a new active and capablechief executive officer.

28. An Agreement to eliminate insider and self-dealingextensions of credit to affiliates and controllingpersons. Provisions to eliminate unsafe practicesincluding the handling of criticized loans.

29. An Agreement to improve the credit quality of theloan portfolio and to take steps to eliminate anumber of criticized problems, unsafe and un-sound practices, and violations of law.

30. An Agreement to establish internal controls andeliminate management problems. Provisions toimprove the credit quality of the investment andloan portfolio and to take steps to eliminate anumber of criticized problems, unsafe and un-sound practices and violations of law, including 12USC 84, 82, 371c and 375a. Provisions for indem-nification for losses.

31. A Notice of Charges and a Cease and DesistOrder requiring the bank to comply with a previ-ously issued formal written agreement and particu-


larly requiring the bank to eliminate violations of 12USC 84, 375a and 24(7). The Order also requiredthe obtaining of a new and active chief executiveofficer.

32. An Agreement to eliminate various violations oflaw, including 12 USC 84 and to prohibit unsafeand unsound banking practices. Procedures to ef-fect collection of substantial criticized assets andthe obtaining of current and satisfactory credit in-formation. Provisions to help restore the capitalposition of the bank.

33. A Letter Agreement dealing with restrictions on theloan portfolio and a concomitant reduction of thedependency on volatile money. Limitations onexpansion and implementation of managementchanges.

34. A Notice of Charges and an Order to Cease andDesist from advertising and paying excessiveinterest rates in violation of 12 CFR 217.

35. An Agreement to establish a management commit-tee to direct corrective actions to improve thecredit quality of the loan and investment portfolioand to take steps to eliminate criticized problemsincluding violations of law and unsafe and un-sound practices.

36. An Agreement to eliminate violations of variousstatutes including 12 USC 84 and establishment ofprocedures of a safe and sound nature to elimi-nate excessive criticized assets and unjustifiedloan participations from affiliate banks.

37. An Agreement to eliminate violations of variousstatutes including 12 USC 84 and 375a, as well asan indemnification agreement for certain loansmade in violation of law. The establishment ofpolicies for eliminating problem credits andestablishing guidelines for the bank's operations.Provisions to insure that no nominee loans aremade for the benefit of companies or individualsnot primarily obligated on the loans. Provisions forobtaining and employing the services of a new pres-ident and chief executive officer as well as a reviewof executive salaries, dividends, and loans to di-rectors.

38. An Agreement to eliminate transactions betweenaffiliated corporations and individuals.

197539. An Agreement to eliminate various unsafe and un-

sound banking practices including excessiveamounts of criticized assets and the establishmentof policies to eliminate unsafe practices. Elimina-tion of violations of various statutes including 12USC 84. Establishment of procedures to closelyevaluate transactions between the directors,employees and their related interests.

40. An Agreement to take corrective action relating tocriticized assets. Establishment of procedures tostrengthen capital. Removal of bank personnel re-sponsible for the problems in the bank.

41. An Agreement to eliminate various unsafe and un-

sound banking practices including concentrationsof credit as well as the elimination of violations oflaw. The adoption of a new loan policy as well asthe hiring of additional lending officers.

42. An Agreement to eliminate self-dealing, insiderextensions of credit to affiliates and closely relatedindividuals. Various provisions to eliminate unsafeand unsound practices and violations of law.

43. An Agreement to eliminate participation of loanswith affiliates and violations of various laws, rulesand regulations including 12 USC 84, 161 and371c, and to eliminate unsafe and unsound bank-ing practices.

44. A Notice of Charges and a Permanent Cease andDesist Order for a failure to conform to an agree-ment which required compliance with various lawsincluding 12 USC 84, and inadequate and unsafepractices requiring an independent audit, addi-tional capital and a new chief executive officer.

45. An Agreement to eliminate various violations of lawincluding 12 USC 84 and to eliminate statutoryproscribed tying agreements in violation of 12USC 1972. The agreement likewise required com-pliance with the Truth-in-Lending Act of 1968 (15USC 1601; 12 CFR 226) and required disclosureby the bank. Various violations of law also requiredcorrective action including 12 USC 371, 222 and371c, as well as other unsafe and unsound bank-ing practices.

46. An Agreement to eliminate self-dealing and insidertransactions and for the termination of certain offi-cials of the bank responsible for extraordinaryextensions of credit to closely related individualsand companies. Corrections of various violationsof law including 12 USC 84. Restrictions placed onactive officers of the bank.

47. An Agreement eliminating various violations of thelaw including 12 USC 84 and procedures to elimi-nate various unsafe and unsound banking prac-tices concerning the elimination of criticized as-sets and overdue loans. A policy to hire additionallending officers and to insure that internal opera-tions and control were instituted.

48. An Agreement between several banks and this Of-fice eliminating loans and participations with af-filiates and the elimination of unsafe and unsoundbanking practices.

49. An Agreement to eliminate unsafe and unsoundbanking practices and provisions to improve thecredit quality of the loan portfolio and to take stepsto eliminate criticized problems, unsafe and un-sound banking practices and violations of law in-cluding 12 USC 84 and the Truth-in-Lending stat-ute (Regulation Z).

50. A Notice of Charges, a Temporary Cease and De-sist Order and a Permanent Order eliminating theextensions of loans of a self-dealing nature and aprohibition to preclude the purchase of loans forthe benefit of controlling persons or officials of thebank. A provision to eliminate a potential misuse of


a correspondent account by the officials of thebank for their own personal benefit.

51. An Agreement to eliminate internal controls andmanagement problems and a provision requiringthe hiring of a new executive officer. Provisions toimprove the credit quality of the loan portfolio andto take steps to eliminate criticized problems, un-safe and unsound banking practices and viola-tions of law including 12 USC 375a and 463.

52. An Agreement amending a previous agreementdealing with loans to affiliates and subsidiaries inviolation of 12 USC 371c.

53. An Agreement to eliminate internal controls andmanagement problems. Provisions to improve thecredit quality of the investment and loan portfolioand to take steps to eliminate criticized problems,unsafe and unsound banking practices and viola-tions of law including 12 USC 84, 371c and 1829b.Provisions to improve the capital position of thebank and the loan policies of the bank.Provisions to preclude the assumptions of obliga-tions incurred by affiliated companies or individu-als and the elimination of concentrations of creditto individuals or to industries.

54. A Notice of Charges and a Permanent Order toestablish internal controls and eliminate manage-ment problems with provisions to improve thecredit quality of the investment and loan portfolioand to take steps to eliminate criticized problems,unsafe and unsound banking practices and viola-tions of law including 12 USC 371c, 72 and 375aand 12 CFR 23. Procedures to eliminate self-dealing by officials of the bank.

55. Resolution Agreement to eliminate unsafe and un-sound and self-dealing practices and relationshipswith controlling owner. Limitations of loans tospecified insiders. Removal of officers and direc-tors for unsafe and self-dealing practices.

56. Resolution Agreement to eliminate unsafe and un-sound and self-dealing practices and relationshipswith controlling owner. Limitations of loans tospecified insiders.

57. Resolution Agreements to eliminate unsafe andunsound and self-dealing practices and relation-ships with controlling owner. Limitations of loans tospecified insiders.

58. An Agreement to establish internal controls andeliminate management problems with provisions toimprove the credit quality of the investment andloan portfolio and to take steps to eliminatecriticized problems, unsafe and unsound bankingpractices and violations of law including 12 USC84. Provisions to eliminate concentrations of creditto single or closely-related borrowers.

59. An Agreement to establish internal controls andeliminate management problems together withprovisions to improve the credit quality of the in-vestment and loan portfolio and to take steps toeliminate criticized problems, unsafe and unsoundbanking practices and provisions to strengthenthe capital position of the bank. Provisions toeliminate self-dealing transactions by officials ofthe bank and to obtain new capable lending offi-cers.

60. A Notice of Charges, Temporary Cease and DesistOrder and Permanent Order to eliminate man-agement and internal control problems includingprovisions to upgrade the credit quality and pro-cedures for handling loans. Provisions to eliminateunsafe and unsound banking practices, criticizedproblems and violations of various statutes includ-ing 12 USC 84, 24(7) and 371a, 12 CFR 217 and226 and 15 USC 1601. Limitations placed on thetrust department and a procedure to assist thebank in obtaining additional capital. Also a provi-sion for the bank to obtain a new capable execut-ive officer. Provisions to eliminate self-dealing byofficials of the bank.

61. A Notice of Charges and a Permanent Order for abreach of an Agreement entered into to eliminateviolations of 12 USC 84, Regulation Z (12 CFR226) and the Truth-in-Lending Act (15 UnitedStates Code 1601) as well as violations of provi-sions of the agreement and substantial manage-ment and internal control problems.


Statement of James E. Smith, Comptroller of the Currency, before the SenateCommittee on Banking, Housing and Urban Affairs, Washington, D.C., March 1,1976

I appreciate this opportunity to give my views on S.2298. This bill would restructure the federal bank reg-ulatory system. Under the bill the bank regulatory func-tions of the Comptroller of the Currency, the Federal Re-serve Board, and the Federal Deposit Insurance Corpo-ration would be consolidated into a new Federal BankCommission.

Restructuring of the banking agencies should not beundertaken now for at least three important reasons:

1. Substantive, not organizational, restructuring isthe first priority for improving bank supervision.The disruption resulting from restructuringwould impede the necessary substantive im-provements. Within our Office, we are particu-larly distressed at the inevitable disruptionwhich would occur in the implementation of theextensive recommendations of the Haskins &Sells report of 1975. At best, these implementa-tion efforts would certainly be delayed. Atworst, the progress already made and thatplanned for the next few months would be lost.

2. This Committee and the Senate have overwhelm-ingly passed the Financial Institutions Act. ThatAct calls for far-reaching changes in the powersand the operations of depository institutions.Such major changes should, in my view, be di-gested and absorbed within the framework of areasonably stable regulatory system. The HuntCommission called for changes in both deposit-ory institutions' powers and regulatory structure.The Administration, in drafting the FIA, weighedthe merits of the Hunt Commission recommenda-tion, and came to a carefully considered deci-sion that any proposals for regulatory structuralchange should not be implemented until experi-ence had been gained under the new groundrules for operations of depository institutions. Webelieve that that decision is still appropriate.

3. Temporary deferral would not harm the publicinterest because, by any fair and impartial stan-dard, the present system has worked reasonablywell. No objective observer could state that thepresent system has functioned in a manner soinconsistent with the public interest that it mustbe eradicated and replaced immediately. ThisCommittee thus has time to undertake an in-depth management study of the performance ofthe three agencies.

Restructuring would disrupt needed reforms inexamination procedures

The urgent need for change in bank supervision is in thesubstance of the examination process, not in the struc-ture of the agencies. To this end we commend the Com-mittee's action in scheduling early consideration of the

legislation requested by the three agencies to augmenttheir present enforcement powers. The magnitude, func-tional diversity, and transactional velocity of modernbanking cannot be effectively supervised by anyagency, existing or newly created, with antiquatedtechniques and procedures.

The Comptroller's Office is on the verge of the first realbreakthrough in applying modern technology, informa-tion systems, and management techniques to the pro-cess of bank examination. Our efforts center around therecommendations of Haskins & Sells, the nationallyknown firm of auditing and management experts.

The other agencies also are actively engaged in im-proving their procedures and technology. The examina-tion procedures used by the other agencies for the lastfour decades have been basically the same as thoseused by the Comptroller's Office. There is now a vitalcompetition among the agencies: a competition increativity to devise the best and most effective mode ofexamination and follow-up procedures. To consolidatethe agencies now into one commission would destroythat healthy competition.

Let me describe specifically just a few of the improve-ments now under way in the Comptroller's Office.

One of the key elements of the new examination pro-cess is the National Bank Surveillance System. NBSS is aprogram of computer-based data and ratio analysiswhich now is being tested in the field. When a nationalbank is to be examined, the examiner-in-charge will beprovided with the most recent statistical analysis of thatbank. That analysis will already have been reviewed by aspecialist in the Comptroller's Office. He will provide theexaminer with a list of specific matters which should beinquired into during the examination. The NBSS systemalso will warn of potentially dangerous positions in par-ticular banks or in the National Banking System as awhole. Through NBSS we are supplementing evaluationof bank assets with modern financial analysis.

The Comptroller's Office now is able to process callreport data and make it ready for analysis three timesfaster than in 1975. This prompt processing is necessaryfor the NBSS system. Additionally, much more completedata will be available because of an expanded call re-port form effective March 31, 1976.

Testing has just begun on another key operating sys-tem: an entirely new manual of examination work pro-grams. That manual details each examination procedureand contains extensive instructions, statistical samplingtechniques, checklists, and detailed work programs.The conceptual thrust of those modern examination pro-cedures is to devote more of our inspection time to test-ing and evaluating the adequacy of a bank's own con-trols, operating procedures and policies, and less time tothe independent valuation of the bank's loan assets.

The efficiencies of the new methods will permit us toexamine a bank both more comprehensively and morequickly. The shorter time for completing an examinationis critical so that the examiner's analysis is current when


forwarded to bank management and the Comptroller.Furthermore, we believe that the new procedures willgive us, for the first time, objective standards for judgingthe quality of a bank's management and managementsystems. Management is the key factor on which thesoundness of any bank ultimately turns.

Individual examination programs are now being fieldtested. The first complete bank examination incorporat-ing all the new procedures will be conducted next month.When the new manual is issued, copies will be furnishedto the Committee.

The report of examination form is being completelyrevised. The evaluation of bank management and fu-ture prospects now reported only to the Comptrollerwill routinely be given to the bank's board of directors.In addition, examiners now are required to meet witheach national bank's board of directors at least once ayear. Such meetings formerly occurred only if the re-gional administrator wished to discuss a particularproblem with the board.

A Division of Strategic Studies has been establishedto monitor financial and technological developments inbanks, and identify those which ought to be of regula-tory concern. A formal planning system will augmentour capacity to keep abreast of the change anddynamism of the banking system.

Another important development is a new perform-ance audit group to apprise systematically the Com-ptroller of deficiencies in current performance of theOffice and of the need to modify existing practices andprocedures.

The principal asset of our Office is the professionalexaminer. We are well on the way to establishing aHuman Resources Division to improve vastly on theway we recruit, train, and reward this valuable profes-sional.

I have taken the Committee's time to describe thenew developments in the Comptroller's Office becausethat modernization of the examination and regulatoryprocess seems to us to be far more important than re-structuring the regulatory agencies. At the very least, itwould seem that this Committee should not approverestructuring without carefully studying the ongoingchanges within each agency to determine whether ornot the agencies themselves have perceived the prob-lems which exist in the regulatory process and are tak-ing appropriate steps to remedy those problems.

Changes in the industry

Vast changes are occurring in the banking industrybecause of economic forces and new legislation. Nowis an inauspicious time to create a new and, therefore,uncertain regulatory structure. Only after determiningthe probable future nature of the financial industry canthe question of restructuring the regulatory agenciesbe rationally addressed.

The Senate's action in passing the Financial Institu-tions Act, S. 1267, if supported by the House, prom-ises important changes in the services available to thepublic through a variety of financial institutions. Thereis a possibility that, as a result of the work of a sub-committee of this Committee, the Glass-Steagall Act

will be amended to change the restrictions applying tobanks' securities activities. The amendment of theMcFadden Act is also a possibility. The NationalCommission on Electronic Funds Transfers is to reportto Congress what legislation is needed in this vitalarea.

All of those changes will affect enormously the struc-ture and operations of financial institutions. The reg-ulatory structure should not be destabilized while suchvast changes are occurring in the regulated industries.

Immediate restructuring is not necessary

The issue raised by S. 2298 is whether the existing sys-tem of decentralized bank regulation should be consoli-dated immediately into one monolithic agency.

Congress has, during the entire history of this country,adhered to the conscious policy of dispersing financialpower — both privately and governmentally. We onlyneed to be reminded of the destruction of the Bank of theUnited States by Andrew Jackson in 1832; the adoptionof the dual banking system in 1863; the rejection of a cen-tral bank until 1913; and the creation in 1933 of a depositinsurance organization as a separate entity.

The present federal system of bank supervision wasestablished in 1933. Since then, actual depositor lossstemming from the closing of insured banks has totalledless than $22 million. For purposes of comparison, totalestimated deposits of all banks as of December 31,1975, were $780 billion. There have been absolutely nodepositor losses in the few large bank closings whichhave occurred in recent years.

This country has a decentralized banking system thatis unique among industrialized nations. Over 14,000separate banking associations exist. In the past 30years, there have been only 121 bank closings requiringFDIC disbursements, or an average of about four peryear. When those figures are contrasted with theexperience of the United States during the late 1920'sand 1930's, when thousands of banks were forced toclose their doors, the regulatory record hardly seems torequire a defense, much less a call for an immediate anddrastic change.

In addition to the historical record, the performance ofthe United States commercial banking system during thepast 3 years shows that a deferral of plans to restructurethe regulatory system would not endanger the publicinterest. In the 1973-75 period, the United States suf-fered its most severe economic recession since the1930's. Largely as a result of this recession, and not at allunexpectedly, bank loan losses rose sharply. Further,banks have prudently increased loan loss reserves inanticipation of possible additional recession-relatedlosses.

The banking industry has shown remarkable resiliencyin withstanding the effects of the severe recession. As Ipointed out to this Committee on February 5, the recordof the 10 largest national banks in 1975 shows that, de-spite net loan losses in 1975 of $1.1 billion, or 0.7 percentof outstanding loans, those banks actually provided$200 million more for their loan loss reserves than the ac-tual loss figure and still earned before-tax income of $2.2billion. Thus we can see that those institutions could have


charged off their 1975 losses two or three times over,without reducing their reserves for loan losses or impair-ing their capital.

To support further the idea that there is no urgentnecessity for immediate regulatory restructuring, the re-cession bottomed out in the spring of 1975. The liquidityposition and the risk exposure of the commercial bank-ing industry are improving. Total investment securitiesheld by commercial banks increased an estimated $34billion in 1975, while total commercial bank loans out-standing actually decreased by approximately $5 billiondue to diminished loan demand.

The United States commercial banking system is sig-nificantly stronger in 1976 than it was 2 years ago. Thusthere is no immediate need for change in the regulatorystructure and ample time for the Committee to considermore pragmatically the question of restructuring.

In summary, the disruption that is certain to occur fromagency consolidation or major restructuring surely willdelay the final implementation of important new examina-tion procedures. It is even possible that they may be en-tirely lost in the unsettling course of consolidation.

Also, the agencies should not be radically changed atthe very time when they are expected to superviserapidly evolving new developments in the regulated in-dustries. Instead, agency changes should not be madeuntil the structural impact of those new developments canbe more clearly defined. There is time for the Committeefully to inform itself as to all of the factors contained in mytestimony.

Agency restructuring now, in our opinion, would be en-tirely contrary to the public interest, and would not fulfillthe public need for a modern and efficient bank super-visory system.

Statement of John E. Shockey, Deputy Chief Counsel to the Comptroller of theCurrency, before the Senate Committee on Banking, Housing and Urban Affairs,Washington, D.C., March 11, 1976

Thank you for this opportunity to present the views anddescribe the efforts of the Comptroller's Office in the areaof fair lending practices. I would like to concentrate myremarks today on our responsibilities under the fair lend-ing provisions of Title 8 of the Civil Rights Act of 1968.

Title 8 prohibits national banks, as well as all otherlending institutions, from denying a mortgage or homeimprovement loan to anyone for reasons of race, color,religion, sex or national origin. Enforcement of this direc-tive is a statutory duty of the Comptroller's Office. To thatend, the present Comptroller, from the time he assumedoffice, has been committed to devising and implement-ing an effective enforcement mechanism.

Recognizing the peculiar complexities of detectingand correcting violation of the fair lending laws, theComptroller has sponsored research in this area in re-cent years. At present, a Special Assistant to the Comp-troller, two attorneys and one examiner in ourWashington headquarters have been assigned primaryresponsibility for studying various means of enforcingthe anti-discrimination statutes. Those personnel aresupported by agency economists, lawyers and con-sumer specialists in preparing analyses and draftingnew procedures.

The Committee is aware of our research effort in theFair Housing Lending Practices Pilot Project, conductedjointly by the federal banking agencies during the latterhalf of 1974. Unfortunately, the mechanics of data collec-tion did not yield results that could be considered reli-able for valid statistical inference. Rather than pursue aprogram which could not accomplish the goals fixed byCongress, we have preferred to study new and poten-tially more beneficial approaches to the problem of fairlending enforcement.

This is not to say, however, that we did not learn somevaluable lessons from the pilot project. Most important isa better awareness of the constraints imposed by sam-ple size and prevailing economic conditions upon any

statistical analysis we might wish to conduct. The resultsalso have helped us refine the types and formats of thequestions which must be asked in order to adduce usefulinformation, and we are investigating methods other thanthat used in the pilot project for pinpointing the exact lo-cation of each mortgaged property.

Our principal concern is the quantification of normallysubjective criteria which signal discriminatory lendingpractices at individual institutions. Except for the pilotproject, this Office never has attempted to construct adata base for loan denials or for personal characteris-tics of loan applicants at national banks. The neces-sary information is not available from the traditionalbank-by-bank, loan-by-loan examination process. Thisprocess must be supplemented in this area with newtechniques which reveal patterns of lending behaviorhaving possible discriminatory effect. Designing anappropriate system for data collection analysis iscomplicated by present estimates that national bankshandle 200,000 to 300,000 mortgage applications an-nually.

We have, however, made progress toward institutingan appropriate system for data collection and analysiswhich is designed to avoid the problems encountered inthe pilot project. We contemplate requesting loanapplicants at national banks to complete a new data col-lection form designed to provide relevant personal andeconomic information. Completed forms will be kept onfile at the banks. Each form will include a detachable sec-tion, to be mailed by the applicant and addressed to theComptroller of the Currency with postage prepaid, whichhas space for the applicant's name and social securitynumber, as well as a bank identification code number.That section will serve as a double-check against thepossibility of a bank concealing specific applications. Byrequiring a bank to keep all forms on file for a specifiedperiod of time, examiners can conduct a review andverification of the bank's practices during regularly


scheduled examinations. Because of the large numberof loan applications that some banks receive, it would beimpractical to review every form. However, we think thata sampling technique will be effective. In such instancesthe examiner will be instructed to make copies of the ap-propriate number of forms and forward them to ourWashington Office for computer processing. Thatmethod will enable us to construct models of the lendingpatterns of various banks and compare banks withothers of comparable size in their communities andthroughout the country. In that regard we are developinga computer base for determining demographic charac-teristics of every community in the country in which na-tional banks operate. Portions of the new procedures areexpected to be ready for selective field testing thisspring.

If we find that our efforts would be aided materially, wewill incorporate into this program additional specialrecordkeeping requirements. In attempting to containthe proliferation of unnecessary forms and reports inkeeping with the Federal Paperwork Commission Act,the President's recent directive and similar Congres-sional concern in the Home Mortgage Disclosure Act of1975, we also are taking into consideration, throughoutour planning, the burdens of increased paperwork whichwould be imposed upon consumers and banks.

In a separate but related endeavor, our Office now isengaged in drafting extensive instructions for examin-ers dealing with the various consumer laws which af-fect national banks. That material, which includes allfair lending laws, will comprise a totally new supple-ment to the Comptroller's Handbook of ExaminationProcedure which will give deserved emphasis to anarea of Congressional priority. That will be used as afoundation for a new, specialized examination. Wepresently anticipate that those procedures may involveappointment of a consumer affairs officer in each re-gion to coordinate implementation of the new examina-tion and other procedures calculated to obtainmaximum compliance.

With respect to the problem of lending discriminationon the basis of property location, otherwise referred to as"redlining," the Comptroller has urged publicly that na-tional bankers take an active role in combating urbandecay in their respective communities and in assuringequal access to lendable funds for all creditworthyapplicants. Indeed, the Comptroller's Office long hasgiven consideration, in acting upon branch and similarapplications, to an institution's willingness to serveunmet credit needs of a community which it proposes toenter. We expect that the proposed procedures formonitoring compliance with Title 8 may provideexaminers with a more effective means of discoveringand investigating lending practices having an unlawfullydiscriminatory effect.

However, where loan denials are found not to bepremised upon racial or other unlawful criteria, we wouldoppose any plan which would prevent a mortgage officerfrom exercising his own judgment regarding the physicalcondition of collateral security or the creditworthiness ofthe prospective borrower. Such constraints could forcebankers to take inordinate risks with depositors' moneyand thereby jeopardize bank soundness.

As part of our fair lending research and regulatory ef-forts in recent months, we have approached the CivilRights Division of the Justice Department to avail our-selves of the expertise of their staff in developing spe-cial examining and recordkeeping techniques. In addi-tion, we have arranged to facilitate the flow of informa-tion between the two agencies on a case-by-casebasis regarding fair lending matters at individual na-tional banks. Justice now may gain access to relevantbank records for the purpose of investigating allegedviolations of Title 8 and patterns of discrimination.

In closing, we would be pleased to provide the Com-mittee with any information or assistance it deems useful.In turn, we are certain that we will benefit from the Com-mittee's findings in our continuing development of ameaningful and effective fair lending regulatory pro-gram.

Remarks of H. Joe Selby, First Deputy Comptroller of the Currency for Operations,before the Texas Six Flags Chapter of the Bank Administration Institute, Victoria,Tex., March 16, 1976

"What a Bank Director Should Know about BankExaminations"

I would like to impart to each of you a broad view of whata director should know about examiners andexaminations and conversely what the examiner willneed to know about each of you.

Of extreme concern to the Office of the Comptroller ofthe Currency has been the reliance by the directors onexamination reports of the regulatory authorities. We ap-pear to have become the proverbial "crutch."

In reviewing director action, we find many directorscorrecting deficiencies in examination reports, wherepossible, then relaxing and waiting for the next examina-tion to see if any new deficiencies have arisen. With the

rapid changes occurring in the banking industry andincreased competitive pressures, serious deficienciesor problems can arise in a very short period of time, in-deed between examinations, which can cause severeharm to a bank. Directors must initiate necessarymechanisms to identify and deal with those changes andcompetitive pressures without jeopardizing the bank'ssoundness.

I personally believe that our changes in examinationprocedures and philosophies will go a long way in plac-ing the responsibility for bank direction squarely on theshoulders of each bank's directors.

Over the past 20 years, the national bank examinerhas devoted less and less time to detailed audit or verifi-


cation procedures. Also, there has been an increase inboth the volume of activity and the variety of services of-fered by banks. During that period, there has been ageneral increase in the quality of internal control, includ-ing the problem of internal audit of many banks. Also, anever increasing number of banks are employing the ser-vices of outside accounting firms to provide either limitedor complete financial audits. Proper internal control,however, is a day-to-day proposition and cannot besatisfactorily accomplished by an outside examinationor audit. The assumption of responsibility for internalcontrols by the board should promote in the directors abetter understanding and knowledge of the institutionand will give them a greater involvement in the protectionof a bank's depositors and shareholders. That approachis grounded in the assumption that it is in a bank's ownbest interest for its directors and management to assumetheir roles of responsibility as dictated by both law andtradition.

Over the past several years, bank examiners have ful-filled a role which has been weighted toward verificationand audit procedures. The new philosophy of the Officeof the Comptroller of the Currency will move the examineraway from his traditional role. The new philosophy willencompass managerial appraisal as well as director ap-praisal; in other words, the examiner will be interested inhow good you and your management are doing yourjobs. We feel that in determining the scope of anexamination, the examiner should evaluate the system ofinternal control including the program of internal audit,and the scope and adequacy of the external audit.

We are in the process of designating, for each area ofexamination interest, those procedures consideredsupervisory in nature; that is, the minimum proceduresthat must be performed by the examiner in each area.We also are developing verification procedures which, ifnot performed by others, must be performed on a testbasis by examiners.

Our initial concentration will be in obtaining a descrip-tion of and evaluating the program of internal audit as itrelates to those verification procedures. In the absenceof internal auditing which accomplishes those proce-dures, the examiner will be instructed to review thescope of any audit performed by independent accoun-tants to determine if that audit scope will satisfy the re-spective verification procedures.

This concept of reliance on the verification of data byothers has considerable merit and will actually result in amore thorough examination. By concentrating our effortsin areas where we have the expertise and/or statutoryresponsibility, we will be able to provide better service tothe banking community.

It is interesting to note that the FDIC is following ourlead in this respect. A recent press release stated thatthe agency "has begun giving greater weight to outsideaudits by accounting firms in assessing the balancesheets and income statements of state banks." It alsostated that the audit mechanism would permit examinersto dispense with extensive proof and verification re-quests which can burden banks being examined.

Regardless of the amount of auditing performed byothers, our examiners will perform minimum tests to de-

termine a bank's compliance with its system of internalcontrols. If, after reviewing and testing the internal con-trols in effect and reviewing the scope of external auditactivities, the examiner concludes that there areshortcomings in the bank's program, he must expandthe scope of his examination to include the performanceof verification or audit procedures for the area consid-ered appropriate in light of the deficiencies. Under thosecircumstances, the shortcomings must be of the mag-nitude to indicate to the examiner that he cannot rely onthe system of internal control and the external audit toprovide reliable financial records.

Under ideal circumstances, however, it is theexaminer's job to perform only examining procedures.These are the procedures that are considered supervi-sory in nature and logically should be performed by a na-tional bank examiner. They allow the examiner to ac-complish target objectives for each area of examinationinterest which, in turn, will accomplish the essential ob-jectives previously set forth. Although it is the examiner'sgoal to assume his supervisory role and leave the per-formance of verification procedures to others, it shouldbe noted that there is a difference between theexaminer's ideal role and his responsibility. Where theexaminer judges that a bank's internal control proce-dures are inadequate, it is his responsibility to broadenthe scope of his examination to gain assurance of theexistence of assets and the reliability of the financial rec-ords he is using to correct shortcomings in the bank'sprograms of internal control and audit. The examiner canassume a normal supervisory posture in futureexaminations after needed corrections have been madeby the bank.

The national bank examiner must also consider thesoundness of the banking policies and practices of thebank being examined before he begins to apply otherexamination procedures appropriate to each area ofexamination interest. For example, the examiner mustdetermine the extent to which the bank's practices re-garding information compiled on borrowers and themaintenance of credit files on borrowers conform withacceptable bank practices. If the examiner finds that thebank's policy requires that prospective borrowers sub-mit financial statements at least annually, that all loans beapproved by two officers before being made, and thatloan files be reviewed on a regular basis by a senior of-ficer of the bank, he might then be justified in reducingthe extent to which he reviews credit files in detail. Con-versely, if the examiner determines that effective proce-dures do not exist, because of weaknesses in the proce-dures, lack of adequate personnel or other reasons, heshould extend his review of credit files accordingly.

Presently, loan classifications are largely developedby examiners, independent of any evaluations that mayhave been made by management. We believe there isconsiderable merit in utilizing management's evaluationof loans, particularly in banks where procedures providefor credit reviews by officers independent of those re-sponsible for making loans. In banks which have internalloan review systems requiring regular evaluations of col-lateral and ratings of loans by quality and performance,the system will be checked, on a sampling basis, but not


duplicated, by an evaluation of 80 percent of the bank'sloan portfolio, as is currently done.

The use of management's evaluation may provide theexaminer with information on other loans that should beselected for detailed review. We will allocate sufficienttime to evaluating the loan review process and determin-ing the scope of the review, credit lines selected, qualifi-cations of the reviewers, etc. We will investigate problemcredits surfaced during the examination which shouldhave been uncovered during the loan review process.Material amounts of such credits will, of course, im-mediately prompt the examiner to increase the scope ofthe examination. Subsequently, we will report to the di-rectorate any deficiencies in the loan review area andhopefully effect corrective action.

We are currently developing a new report of examina-tion. The report will be divided into three major sections.The first section of the report will be directed to the boardof directors, its examining committee and senior man-agement. That section will summarize the examiner'scritical comments and the recommended remedial ac-tion. Comments will be supported by schedules andanalyses, where appropriate, to fortify the examiner'sconclusions. We would hope the information would bepresented in such a manner that it will aid the directorateand senior management in pursuing avenues for correc-tive action. Examples of comments that may appear inthis section of the report include major deficiencies inpolicies and procedures directly relating to manage-ment, internal controls, the quality of the assets and capi-tal deficiency.

The second section of the report will include deficien-cies of a less serious nature than those included in thefirst section. I would best describe these as isolatedexceptions to policy, minor deficiencies in internal con-trol, collateral exception, etc.

The important difference between the sections is thatthose comments in the first section will require the bank,through the chairman of the board of directors, to re-spond within a predetermined period of time, indicatingwhether they agree or disagree with the examiner'scomments. If the bank generally agrees with the com-ments made, We would request a report on the correctiveaction which will be taken. We would hope that the direc-tors and/or senior management would follow-up on thedeficiencies in the second section. However, they wouldnot be required to notify the Office of such actions. We, ofcourse, would follow-up during our next regularexamination.

The third or confidential section, which we have in theexisting report of examination, will be modified. A majorchange is that much of the information which now ap-pears in the confidential section will appear in one of thetwo previously mentioned sections. For example, ourevaluation of management, earnings analysis, and futureprospects will be addressed in the open sections, whereappropriate. The confidential section will be limited to:

• Suspected violations of law found during theexamination and reported to the appropriate reg-ulatory and enforcement agencies.

• Critical comments relating to senior bank officersthat require remedial action by the Office, such asthe threat of cease and desist orders or officer re-moval.

• Other critical comments regarding major prob-lems that require remedial actions but aboutwhich the bank has failed or refused to initiate anycorrective measures.

The great abyss between the examiner, his report andthe board of directors will hopefully narrow as a result ofour new procedures on directors' meetings. The Comp-troller of the Currency has inaugurated a programwhich should initiate a continuing dialogue betweenboards of directors and examiners. The Office hasinstituted a program requiring that an examiner visiteach board of directors at least annually. Those meet-ings will normally be convened in conjunction with aregular examination of the bank. In some cases, meet-ings might be held with the examining, executive, ordiscount committee, provided outside directors are re-presented on those committees.

The objectives of meeting with members of the boardof directors are to discuss the conditions and affairs ofthe bank that were observed during the most recentexamination, to reach agreement on any significantproblems, to obtain a definitive commitment from theboard of directors to institute the proper corrective actionand to obtain information concerning future plans andproposed changes in bank policy that may have sig-nificant impact on the future condition of the bank. Thosemeetings will initially provide the forum where futureexamination criteria can be discussed. The meetings willserve to keep the directors informed while providingthem the opportunity to discuss, with an examiner, situa-tions germane to the bank or general banking commu-nity. The interaction between the board and theexaminers can be a meaningful exchange of ideas andopinions if properly utilized.

In reviewing what a bank director should know aboutbank examinations, the question also arises as to what abank's directors should know about their own responsi-bilities. Directors are placed in positions of trust by theshareholders of the bank. Both statutory and commonlaw have placed responsibility for the management of abank, whether it involves the lending or investing func-tion, protection against internal fraud, or any other bank-ing activity, firmly and squarely on its board of directors.The directors of a national bank may delegate the day-to-day routine of conducting the bank's business, butthey cannot delegate to their officers and employees theresponsibility for the consequences resulting from un-sound or imprudent policies and practices. The director-ate is responsible to its depositors and shareholders forsafeguarding their interests through the lawful, informed,efficient, and able administration of the institution. Quitefrankly, in this business, the buck stops on the boardroom table.

Unless bank directors realize the importance of theirposition and act accordingly, they are failing to dis-


charge their obligations to the shareholders and de-positors and are failing to take advantage of their op-portunity to exercise a sound and benefical influenceon the economy of their community. The following arethe major, specific responsibilities of bank directors:

• To select competent executive officers.• To effectively supervise the bank's affairs.• To adopt and follow sound policies and objec-

tives.• To avoid self-serving practices.• To be informed of the bank's condition and

management policies.• To maintain reasonable capitalization.• To observe banking laws, rulings, and regula-

tions.• To ensure that the bank has a beneficial influ-

ence on the economy of its community.

I can assure you that directors' participation in bank-ing or the lack thereof is significantly involved in manyof the problems that I deal with on a day-to-day basis.But to give major emphasis to the director's part inday-to-day operations is to seriously limit and distortthe director's total role. An approach from the oppositepoint of view, that is, emphasizing the director's par-ticipation in and impact upon long-range trends anddevelopments provides a far more accurate initialcharacterization. Directors are not day-to-day prac-titioners of banking. They are the philosophers of theprofession. They have a primary responsibility to seethe business of banking at its broadest, most vital,most essential terms. Banking's primary task is to meetan almost universal need for temporary financial helpto initiate, maintain, and/or expand economicallysound projects. Consumers, business firms, andagencies of government are all subject to that need.The power to meet such needs, to supply funds thatcreate jobs and produce goods, is really an awesomepower when you see it as directors ought to see it. Tomisuse such power for personal gain, or to permit sucha misuse when means are at hand to prevent it, is aserious breach of moral standards which, sooner orlater, is bound to have very serious consequences.There seems to be a great deal of cynicism in peoplethese days. It's an infectious kind of cynicism that goesdeeper than the definitional concept of assuming hid-den motives behind every good deed. Today's cynicismcan become an exercise in self-justification, and thecynic not only disbelieves the apparent kindness andgenerosity of other people's motives, but also drawsencouragement from his disbelief for his own self-serving plans and activities. Modern cynicism fre-

quently remains hidden until some unexpected turn ofevents reveals its corrosive presence. Think of howmany news stories lately reveal the extent of that cyni-cism and the carelessness, confusion and dishonestythat its presence encourages, and even justifies, insome mixed-up minds. Sometimes, even in a reason-able mind, desirable ends may seem to justify unethicalmeans.

Leaders, such as bank directors, cannot ignore un-ethical, questionable or dishonest events; they mustrespond to them, verbally and actively. Many peopleare deeply influenced by events which they them-selves are not realiy capable of evaluating. They re-quire leadership. The original cynics, you recall, werephilosophers of ancient Greece whose basic beliefwas that truth and happiness are achieved in the pur-suit of goodness and virtue rather than in the pursuit ofpleasure. The cynics in their day represented a reac-tion against the hedonistic practices and philosophiesof the times. Their criticisms of society at large, how-ever, became more and more bitter and less and lessrational until they established a reputation for beingunable to see or believe anything good about anyone.They lost both their objectivity and their effectiveness.

Modern society produces many ambivalent peoplewho are capable of moving in many directions depend-ing on what pressures they feel and what motives cap-ture their attention and enlist their loyalties. Such asituation calls for strong leadership based on soundprinciples effectively stated and clearly demonstratedin practice and policy. Directors' responsibilities reachfrom the top down through the organization, and out-ward to the stockholders and the public. Directorsmust not only select competent and effective adminis-trators, but they themselves must keep informed aboutcurrent problems, both internal and external. Theymust participate actively in finding workable solutions.Directors must resist any tendency to recognize anyone influence on their thinking as dominant. They havebeen elected by the shareholders for the purpose ofoverseeing the operations of a bank, which automati-cally requires sensitivity to the public interest. In behalfof the stockholders and for the purpose of serving thepublic profitably, directors select top administrative of-ficers to whom decision-making powers are delegated.Directors must be certain that their relations with man-agement remain fluid and well-balanced so that eachrespects the authority and seeks the counsel of theother. Directors are expected to provide banks withtheir special areas of expertise. But their fundamentalability to establish a general atmosphere of trust, con-fidence, enthusiasm, and understanding — an atmos-phere in which the bank's work can be and must be ef-fectively carried forward — is their most important re-sponsibility.


Statement of C. Westbrook Murphy, Deputy Comptroller for Law and Chief Counselto the Comptroller of the Currency, before the Senate Committee on Banking,Housing and Urban Affairs, Washington, D.C., March 26, 1976

I appreciate the opportunity to appear in support of S.2304. This bill is based upon a joint request of the threefederal bank regulatory agencies for legislation to im-prove the enforcement powers provided in the federalbanking laws.

I am accompanied today by the director of our En-forcement and Compliance Division. He joined the staffof the Comptroller of the Currency in November of1971 and, since then, has participated personally inmore than half of all the cease and desist activities in-itiated by the three banking agencies. Those activitiesare summarized, in accordance with the Chairman'srequest of March 15, 1976, in [the appendix] to thistestimony.

S. 2304 in its present form would bring significantimprovement to the regulatory agencies' supervisoryfunctions. In order to expedite Congressional consid-eration, our Office joined with the Federal Reserve andthe FDIC in the transmittal of the bill. However, we ad-vised the primary drafter, the Federal Reserve, that wewould suggest some changes to the Committees. Ac-cordingly, our testimony will suggest some minorchanges which, in our opinion, would strengthen thebill.

Officer and Director Removal

Section 6 of the bill would simplify both the substanceand the procedure of the officer removal provisions ofthe Financial Institutions Supervisory Act.

Under existing law a bank official who has not beenindicted may be removed from his position only if theagency can establish, inter alia, "personal dishonesty."That standard is vague and difficult to establish. It alsoprovides no remedy against a bank official whose ac-tions, although honest, are so incompetent as tojeopardize the soundness of the bank. S. 2304 addsanother ground to justify removal of a bank official:"gross negligence in the operation or management ofthe bank or a willful disregard for the safety or sound-ness of the bank."

The new procedures for officer removal affectprimarily the Comptroller's Office. Under existing lawthe Comptroller may not initiate officer removal pro-ceedings. The Comptroller only may certify facts tothe Federal Reserve Board, which then is given full re-sponsibility for all proceedings, from the issuance ofthe notice of charges which begins the proceedingsthrough final decision.

Both the Comptroller's Office and the Federal Re-serve Board have found this procedure to be ineffec-tive. We thus endorse the provisions of S. 2304 whichwould empower the Comptroller to:

• Issue a notice of intention to remove.• Establish the hearing date and arrange for the

appointment of an Administrative Law Judge.

• Decide procedural questions arising in thecourse of the proceedings.

• Prosecute the case before the AdministrativeLaw Judge.

• Issue, in an appropriate case, a temporary re-moval order pending completion of the pro-ceedings.

The Administrative Law Judge, under the bill, wouldcertify his findings and conclusions to the Federal Re-serve Board for final determination of whether an offi-cial should be removed. The bill thus provides effec-tive and efficient administrative procedures, while stillleaving the final decision with a seven-man board in-stead of just one individual.

We expect that the combination of the new groundsfor officer removal and the streamlining of procedureswill, for the first time, make the officer removal statute aneffective tool for the Comptroller's Office.

A brief word is in order concerning the philosphy ofthe officer removal provisions of the Financial Institu-tions Supervisory Act. The removal provision which hasbeen most used by the banking agencies permitssummary removal of a bank officer who has been in-dicted for a felony involving personal dishonesty orbreach of trust. Two courts of appeals have expressedsome doubt about the constitutionality of those provi-sions. See Manges v. Camp, 474 F.2d 97 (5th Cir.1973); and Fineberg v. FDIC, 522 F.2d 1335 (D. C. Cir.1975). Those courts seemed troubled by the abruptmanner in which a bank officer may be removed.

I suggest to the Committee that those courts havegiven insufficient weight to the legitimate Congres-sional concern with maintaining a safe and soundbanking system. All banks covered by the removal stat-ute have federal deposit insurance. Many of them be-long to the Congressionally established Federal Re-serve System. Many of them are chartered by the fed-eral government and governed in their most importantactivities by federal law. Additionally, the banking sys-tem is the principal means of effecting payment forgoods and services and of funding commerce in theUnited States. Congress, thus, has a far greater con-cern for the health and safety of the banks than it doesfor other privately owned corporations. The removalprovisions, in my opinion, are an appropriate expres-sion of this Congressional concern.

Naming Persons in Cease and DesistProceedings

Under existing law, only a bank may be named as a partyto a cease and desist proceeding and only a bank maybe served with a temporary cease and desist order. Afinal order, however, may be directed not only to the


bank, but also to its directors, officers, employees, andagents.

Section 6 of S. 2304 would permit the agency to nameas full parties to a cease and desist proceeding any di-rector, officer, employee, agent, or other person par-ticipating in the conduct of the affairs of the bank. Wehave occasionally encountered situations in which theculpable party was not the bank, but an individual orcorporation directing the bank's affairs. That new provi-sion of the bill should permit us to deal more effectivelywith that situation.

Civil Money Penalties

The provision for civil money penalties for violation of thebanking laws is one of the most important provisions in S.2304. Civil money penalties are now applicable to na-tional banks only for failure to file reports or to make in-formation available to a national bank examiner. See 12USC 161 and 481. Under sections 1,2,5,6 and 7 of thebill, civil money penalties could be imposed to cover vio-lations of various provisions of the Federal Reserve Act,the Federal Deposit Insurance Act, and the Bank Hold-ing Company Act; and of orders issued under the Finan-cial Institutions Supervisory Act of 1966. That authority toassess civil penalties will give the bank regulators an im-portant tool in seeking compliance with these variouslegal mandates.

The civil money penalty provisions of section 6 wouldallow the "appropriate Federal banking agency" to as-sess civil money penalties for violation of a final order is-sued under the provisions of 12 USC 1818(b) and (c), asamended by the bill. Under present law the only en-forcement procedure available to the banking agencyfor violation of a cease and desist order is an injunctiveaction in the Federal district court. Civil money penaltiesmay in some instances be a more effective enforcementtool, particularly since such penalties may be assessedunder the bill against individuals as well as against thebank involved. We, therefore, strongly endorse the con-cept of permitting the appropriate federal bankingagency to assess civil money penalties for violation of acease and desist order.

In contrast, the civil penalty provision of section 1 ofthe bill, dealing with violations of sections 22 and 23A ofthe Federal Reserve Act (insider lending restrictions)would vest the power to assess a civil penalty exclusivelyin the Federal Reserve. Because the detection and cor-rection of insider lending abuses is the responsibility ofthe primary supervisor of a bank, we think it logical togive the civil penalty authority to such supervisor. Thusthe Comptroller should be given civil penalty authority todeal with insider lending violations in national banks. Wehave no objection, however, to the Federal ReserveBoard also having authority to assess penalties againstnational banks, if they so desire.

Giving the Federal Reserve Board exclusive authorityto assess penalties against national banks would besimilar to the unsuccessful officer removal provisions ofthe existing law. The agencies' experience under thatprocedure has been less than satisfactory to all con-cerned and, as already noted, S. 2304 includes provi-

sions to correct the situation. It would be anomalous inthe same bill to correct a discredited procedure for remov-ing officers in one section and in a different section installa similar procedure for assessing civil penalties. I hopethe Committee will amend the bill to give the Comptrollerauthority to assess penalties against national banks orofficials of national banks who engage in insider lendingpractices which violate sections 22 and 23A.

Additionally, the bill does not spell out sufficiently theprocedure for collecting a civil penalty and disposition ofthe amounts received. Civil penalties imposed under S.2304 would be collected "by suit or otherwise." The word"otherwise" may include administrative processes, butthat is not apparent from the bill. The bill should clearlystate that civil penalties can be collected through ad-ministrative processes. That change would clarify the in-tent of the bill and assure that the civil penalty is per-ceived by bankers and regulators as an easily availableenforcement tool.

One possible means of administrative enforcement ofcivil penalties is suggested by section 5213 of the Re-vised Statutes, 12 USC 164. That section allows theComptroller to assess a penalty against a national bankfor failure to make a proper report by requesting theTreasurer of the United States to retain the interest onU.S. bonds held by the Treasurer for the bank. That sec-tion has been obsolete since national banks stopped is-suing currency, but it does provide a precedent for ad-ministrative collection of civil penalties which would beimposed under S. 2304. The Comptroller thus recom-mends the addition to S. 2304 of a provision to allow theassessment of civil penalties from funds of the offendingbank held at its Federal Reserve Bank. The paymentswould be made out of those funds on order of the FederalReserve Board or of the Comptroller, as appropriate,after 10 days notice to the bank.

Combining of Insider Loans

Sections 3 and 7 of the bill would add new restrictions onloans by a bank to its officers and directors or to indi-viduals controlling more than 5 percent of any class ofvoting securities of the bank. The bill would require loansto each of those individuals to be aggregated with anyloans made by the bank to any company controlled byhim or in which he owns 25 percent or more of any classof voting securities. That provision thus would applymore stringent rules of aggregation to officers and di-rectors than are applied to borrowers generally.

The Comptroller's Office is fully mindful of the potentialfor abuse in insider lending. In the spring of 1975 we pub-lished a regulation enabling both our examiners and anational bank's own board of directors better to identifyand scrutinize loans by a bank to outside business en-terprises of its own officers or directors. The FDIC has re-cently issued an extensive regulation on the same sub-ject. We are now reviewing the FDIC regulation to seewhat improvements might be suggested for our ownregulations or procedures.

The Comptroller's Office fears that the effect of theproposed new statutory aggregation rule might be to


Appendix to March 26 Statement of C. Westbrook MurphyCease and Desist Proceedings Brought by The Comptroller of the Currency,

Pursuant to 12 USC 1818(b), 1971-1975

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3 2 , 0 0 0 1 X X X X X3 0 , 0 0 0 2 X X X X X X

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5 3 , 0 0 0 6 X X X X X X6 , 0 0 0 7 X X X X X X X X

2 2 , 0 0 0 8 X X X X X X X X X X X9 8 , 0 0 0 9 X X X X9 5 , 0 0 0 1 0 X X X X X X1 1 , 0 0 0 1 1 X X

9 3 4 , 0 0 0 1 2 X X X X X X X X X X X X1 1 , 0 0 0 1 3 X X X X X X X X X X X X X X X3 1 , 0 0 0 1 4 X X X X X X X X X X X X X X X X X X5 1 , 0 0 0 1 5 X X X X X X1 2 , 0 0 0 1 6 X X X X X X X X X X X X X5 5 , 0 0 0 1 7 X X X X7,000 18 X X

1 0 5 , 0 0 0 1 9 X X1 7 , 0 0 0 2 0 X X X X X2 4 , 0 0 0 2 1 X X X X X X X X X X X X1 1 , 0 0 0 2 2 X X X X X X X X X1 5 , 0 0 0 2 3 X X X X X X X X X X1 4 , 0 0 0 2 4 X X X X X X X X X X1 1 , 0 0 0 2 5 X X X X X X X X X3 1 , 0 0 0 2 6 X X X X X X X X X X1 9 , 0 0 0 2 7 X X X X X X X X X X2 9 , 0 0 0 2 8 X X X X X X X X X X X X X X X

8 , 0 0 0 2 9 X X X X X X X X X X2 8 , 0 0 0 3 0 X X X X X X X X X X X1 9 , 0 0 0 3 1 X X X X X X X X X X

3 4 5 , 0 0 0 3 2 X X X X X X X X X X X X X X X1 , 4 2 0 , 0 0 0 3 3 X X X X X

3 0 , 0 0 0 3 4 X8 5 9 , 0 0 0 3 5 X X X X X X X

3 2 , 0 0 0 3 6 X X X X X X X X1 0 , 0 0 0 3 7 X X X X X X X X X X X X X X X X X X438,000 38 X X

3 2 , 0 0 0 3 9 X X X X X X X X X X X X4,000 40 X X X X

2 3 7 , 0 0 0 4 1 X X X X X X X X X X X1 1 , 0 0 0 4 2 X X X X X X X X2 1 . 0 0 0 4 3 X X X X X X X X X

7 , 0 0 0 4 4 X X X X X X X X X2 5 , 0 0 0 4 5 X X X X X X X X X4 0 , 0 0 0 4 6 X X X X X X X X X X X X X X X X3 4 , 0 0 0 4 7 X X X X X X X X X

1 4 4 , 0 0 0 4 8 X X X X X X X X X X X X X X1 6 , 0 0 0 4 9 X X X X X X

1 2 4 , 0 0 0 5 0 X X X X X X" 2 8 , 0 0 0 5 1 X X X X X X X X X X X X

3 9 5 , 0 0 0 5 2 X7 8 , 0 0 0 5 3 X X X X X X X X X X X X X3 7 , 0 0 0 5 4 X X X X X X X X X X X2 1 , 0 0 0 5 5 X X X X X X X X X X1 4 . 0 0 0 5 6 X X X X X X X X X X3 4 , 0 0 0 5 7 X X X

9 7 1 , 0 0 0 5 8 X X X X X X X X X4 8 , 0 0 0 5 9 X X X X X X X X X X X X X7 7 , 0 0 0 6 0 X X X X X X X X X X X X X1 7 , 0 0 0 6 1 X X X X X X X X X

T o t a l s 3 6 1 6 1 3 8 1 7 4 3 4 3 1 2 1 0 2 4 2 1 2 7 5 2 1 3 9 5 4 2 3 0 5 3 6 2 5 2 1 2 2 5 1 5 4 2

N O T E : A d e t a i l e d d e s c r i p t i o n o f e a c h o f t h e s e w a s a l s o i n c l u d e d w i t h t h i s t e s t i m o n y . I t m a y b e f o u n d i n t h e A p p e n d i x t o t h e F e b r u a r y 5 S t a t e m e n t b yJames E. Smith, pp. 211-214, in this report.


force bank directors and officers to leave a bank in orderto preserve lines of credit for firms with which they areassociated. Thus, in many communities, the most active,intelligent and able business people couldn't serve onthe boards of directors, and banks would be deprived oftheir guidance. The Committee might wish to considerboth this possible adverse effect and the experience ofthe Comptroller and the FDIC under their new regula-tions before changing the statutes regulating insiderlending.

Conclusion

Change in the supervisory laws is necessary. As notedabove, the Comptroller's Office supports S. 2304 and weare pleased that the Committee is holding hearings onthe legislation. Our few recommendations for change inthe bill are intended to suggest to the Committee ways tostrengthen the bill and to eliminate some foreseeableproblems. We hope the Committee will report favorablyon S. 2304.

Statement of James E. Smith, Comptroller of the Currency, before the Committee toInvestigate a Balanced Federal Budget of The Democratic Research Organization,Washington, D.C., May 5, 1976

I welcome the opportunity to appear before the Com-mittee to Investigate a Balanced Federal Budget of theDemocratic Research Organization. You have asked meto address the following question: What impact have in-flation and high interest rates had on the lending capabil-ity of financial intermediaries since 1965?

Your question correctly ties together inflation and highinterest rates. To be induced to forego current consump-tion, savers will not settle for a "normal" rate.of return inperiods of inflation; because inflation reduces the pur-chasing power of principal, savers demand an inflationpremium. That premium has represented a major portionof market interest rates in recent years when we haveseen double-digit inflation and are only now returning toan inflation rate of 5 to 6 percent.

I would like to divide my discussion concerning the im-pact of inflation on financial intermediaries into threeparts:

1. Inflation as a generator of higher interest rates,and, in turn, disintermediation;

2. Inflation as a major contributing factor to reces-sion; and

3. The effect of inflation on capital markets.

As already noted, inflationary pressures have been amajor contributor to the relatively high rates of interestthis economy has experienced in recent years. In and ofthemselves, those higher rates would not necessarilyimpair the lending capacity of financial institutions. Thatis, if lending institutions were able to maintain an appro-priate margin between rates received on loans and ratesthat must be paid for funds, they could continue their in-termediary function. However, as we all recognize, that issuch an oversimplication that it has little practical rele-vance. Financial intermediaries, in varying degrees, arelocked into portfolios bearing fixed rates of return overstated maturities. That is especially true of specialized fi-nancial institutions such as savings and loan associa-tions and mutual savings banks. As a result, sharp up-ward movements in interest rates can place suchspecialized institutions in a difficult position, especiallyduring a period of transition.

Thus, even in the absence of interest rate ceilings for

deposit institutions, it is likely that some disintermedia-tion would occur in periods of sharply rising interest ratesbecause of the locked-in position of financial institutions.The presence of interest rate ceilings has the effect of vir-tually forcing disintermediation when market rates oncompeting financial instruments move above the legalceilings on the rates financial institutions can pay on theirdeposits. A major factor in the credit crunches of 1966and 1969, was Regulation Q, for member banks, andcomparable regulations for other financial institutions.

A severe liquidity squeeze occurred in the banking in-dustry in 1970, associated with the collapse of Penn Cen-tral. For a time, that squeeze made it impossible forcommercial banks to meet the credit demands of worthycustomers of long standing. The severity of the pres-sures was reduced for larger banks by the action of theFederal Reserve Board in removing ceiling rates onshort-term certificates of deposit (CD's). That action al-lowed large commercial banks to tap the short-termmoney market funds on a competitive basis. In 1973, allceiling rates on deposits of $100,000 and over were re-moved. As a result, large banks in money market centersand the larger of the regional banks have been able tosecure short-term money market funds at going rates.However, ceiling rates continue for smaller denomina-tion time deposits of financial intermediaries. Thus, in-stitutions that rely on such deposits are still subject to thevicissitudes created by sharp movements in short-termrates on instruments that are not subject to controls.

To summarize my first point, interest rate controls haveworsened the impact of inflation on the lendingcapabilities of financial intermediaries. However, even inthe absence of such controls, the phenomen of disinter-mediation, with some resultant reduction in lendingcapabilities, would probably occur, because of the na-ture of the asset portfolios of the institutions.

My second major point relates to the causal relation-ship between sharp inflation and the occurrence of re-cession. We are all painfully aware of the fact that wehave just come through the worst recession in the U.S.economy since the 1930's. Many knowledgeable observ-ers have pointed out that inflation was itself a key factorin creating the conditions that led to that recession.With double-digit inflation, the confidence of consum-


ers and, to a very considerable extent, the confidenceof businesses, was shaken. With inflation outpacingthe growth in personal disposable income, the realdisposable income of many individuals actually fell.That decline in real income was coupled with the nega-tive expectation that continuing inflation might lead toeven a sharper decline. As a result, the effective de-mand for goods and services fell off. In this uncertainatmosphere, businesses were hesitant to carry outtheir plans for expansion of plant and equipment.

The 1973-75 recession had, not surprisingly, a quiteadverse effect on the banking industry. Predictably,loan losses moved upward sharply, cutting into netearnings. Fortunately, even in that recessionary period,earnings before loan losses were sufficient to allow thebanking industry to emerge in a relatively strong posi-tion. Because the recession bottomed out in the springof 1975, and because loan demand had been soft dueto the recession, the quality of loan portfolios hasstrengthened during the past year. We will still see re-latively high loan losses in 1976, but they will comeprimarily from known weaknesses in certain loansmade some time ago. The worst of the impact of therecession is over for the banking industry. However, tothe extent inflation was a major contributing factor tothe recession, it is simply another way inflation im-paired the lending capabilities of financial institutions.

My third major point, and perhaps the most im-portant one in terms of where our economy goes fromhere, relates to the effect of inflation on the functioningof our capital markets. We are all aware that our capitalmarkets have performed less than adequately in re-cent years. In my view, a major reason has been thesharp inflation that we have experienced. In fact, Ithink it is unlikely that our capital markets will be ableto carry out their crucial role in an acceptable way untilthe rate of inflation is substantially reduced.

The relative deterioration of the capital markets hashad a two-pronged effect upon the banking industry.First, it has made it nearly impossible during much ofthe recent past for banks or banking organizations toissue equity capital. The market for debt has also beenrelatively unfavorable for banking organizations duringthat period. Consequently, banks have not been ableto add to their capital base at a rate comparable totheir rate of asset growth, although that has become agoal for many banks in recent years. Retained earn-

ings have been the principal source of additions tobank capital, but have been insufficient to stabilize theratio of capital to total assets.

Thus banks and banking organizations have be-come considerably more leveraged in recent years. Asa result, bank lending capability has been reduced' rel-ative to what it would have been, if capital marketscould have been tapped.

The second prong of the relationship between infla-tion and the functioning of capital markets has alsopresented problems for the banking industry. Bank'sprime corporate customers have experienced thesame sort of difficulties in capital markets as havebanks. Consequently, there has been some increase inpressure on banks to become suppliers of quasi-capital for corporate customers through the medium ofterm lending. Within reasonable limits, such action bythe banking industry has been in the public interest. Inother words, for limited periods, banks can serve as a"bridge," pending an improvement in the performanceof capital markets. It is obvious, however, that theremust be limits on such lending activity by the industry,if it is to remain sound and capable of meeting otherpublic demands for funds. Fortunately, we see someevidence that, with the current reduction in the rate ofinflation, access to capital both for banks and for othercorporations has improved somewhat.

In overall summary, I am pleased to report that thebanking industry has withstood the perils of a difficultperiod and is strong and healthy today. However, wehave noted three different paths through which inflationhas had a deleterious effect on the capacity of finan-cial intermediaries to serve the financial needs of thepublic. It is evident that we must strive to developpolicies that will hold the rate of inflation to acceptablelevels.

Government has a major role to play in that attempt.In the final analysis, we must have a climate which in-duces savers to supply sufficient funds to support alevel of investment that is consistent with economichealth and appropriate economic growth. Somehow,we must find a way to tilt the consumption-savings mixin favor of additional saving. Others of your expert wit-nesses have provided some prescriptions which areaimed at achieving that purpose; it is beyond the provinceof my testimony to discuss specific remedies.

Statement of James E. Smith, Comptroller of the Currency, before theSubcommittee on Commerce, Consumer and Monetary Affairs of the HouseGovernment Operations Committee, Washington, D.C., June 1, 1976

I appreciate this opportunity to appear before theCommittee in connection with its inquiry into the Comp-troller's regulatory processes. In this hearing the Com-mittee is attempting to evaluate those processes througha study of the Franklin National Bank, which was placedin receivership on October 8, 1974.

I believe that we can learn from our past experiences,both good and bad. Thus, as the Committee staff tes-

tified last week, even before the failure of Franklin Na-tional Bank, I initiated a special study of the events lead-ing to the bank's difficulties.

This Committee's record on Franklin National Bankwould be incomplete, however, without including infor-mation on the behavior of the financial market place dur-ing the critical years 1970-1974 and the changes thathave occurred in the Comptroller's Office.


The Financial Market Place and Its Effect onFranklin

National banks are privately owned corporations. Themost important decisions made in each bank are thoseof the bank's own board of directors and management,responding to competitive pressures and opportunities.Thus no inquiry into the failure of Franklin National Bankcan be complete without an examination of the decisionsmade by the Franklin management in the context of thethen existing market place environment.

Inflation during the 1970-1974 period was rampant;because of the effects of the Vietnam war, anexpansionary monetary policy and other such factors,consumer prices increased by 31.9 percent from 1970 to1974. At the same time, the steepest recession since theGreat Depression of the 1930's had set in.

From the banker's point of view, the greatest problemwas the enormous increase in interest rates; the Federal,funds rates during the summer of 1974 rose to an unprec-edented 12.9 percent and the prime rate was at a stag-gering 12.1 percent. The basic cost of money to banksaggressively using liability management during the1970-1974 period had increased an incredible 105.3percent. Franklin was particularly ill-suited to survivethose economic pressures.

Franklin was a marginal operation throughout the1960's, yet the bank managed to operate and grow to a$3 billion institution by the end of 1969 without arousingany significant concerns by this Office or the financial in-dustry. Despite its apparent progress, however, particu-larly in 1968 and 1969, the bank had neither the man-agement depth and acumen nor the operational systemsand controls to cope with its ambitious expansion pro-gram and the financial perils of the 1970's. Had the bankcurtailed its activities after 1969 and solidified its positionin the marketplace, the results might have been different.

By December 31, 1973, Franklin's resourcesexceeded $5 billion. The bank's management provedincapable of developing and handling the sophisticatedasset and liability management techniques necessaryfor a bank that size.

During the 1960's and early 1970's, the money marketbanks, faced with declining rates of growth in deposits,sought new ways to meet the heavy credit demands oftheir customers. In consequence, Franklin and otherbanks placed less and less reliance on the generation ofliquidity through asset composition and cash flow. In-stead, increasing emphasis was given to acquisition ofdeposits and the purchase of a wide array of borrowedmoney, including Federal funds, Eurodollars, negotiablecertificates of deposit and long-term debt.

Franklin thus was able to buy its liquidity in the mar-ketplace to support its rapid asset growth. In retrospect,Franklin's liability structure and asset structure made thebank exceptionally vulnerable to the confidence of themoney markets.

Confidence in financial institutions declined signifi-cantly in 1973 and 1974 as a result of bank failures bothhere and abroad, significant foreign exchange losses inseveral major banks and evidence of deterioration inbank loans to struggling real estate firms, airlines, publicutilities and the like. That decline in confidence, coupled

with steadily rising interest rates, tight money conditions,high inflation and the beginnings of a recession led to arush to safe havens for funds. The very largest banks withunquestioned national and international reputationswere the direct beneficiaries, because money marketparticipants seemed to think that biggest also meantsafest. Marginally operated and smaller money centerbanks like Franklin were often denied funds altogether orwere forced to pay high premiums for a limited amount offunds. The tiered markets which developed forced manybanks to scramble to avoid negative margins and to as-sure liquidity adequate to meet the claims against them.Franklin had long-term, low yield assets in both its loanand its investment portfolios, and thus was locked into anegative margin between the cost of the funds it bor-rowed and the uses it made of those funds.

Under these turbulent market conditions, Franklinstruggled. The money market's continuing concernabout Franklin was greatly aggravated in the spring of1974 when significant problems were disclosed andmarket rumors about substantial losses became gener-ally known. A loss of confidence occurred and a massiveoutflow of funds resulted, from which Franklin never re-covered. The specific actions taken by the Comptroller'sOffice during the November 1973 through October 8,1974 Franklin difficulties are detailed in the appendix tothis statement.

That all banks could not always be assured of equalaccess to the money markets was a rude awakening formany banks practicing liability management and an im-portant lesson for us. We believe we now have thesophisticated analytical techniques and a far better un-derstanding of money market banks to enable us to takeremedial action early and effectively.

However, because our powers, by design, fall far shortof actually running a bank, there will always be a limit onour capacity to insure a fail-safe National Banking Sys-tem.

Changes in the Comptroller's Office

The Committee staff's testimony last week mentionedseveral times the year-long study and report on theComptroller's Office by the nationally known manage-ment consulting firm of Haskins & Sells. There was ap-parently no direction to the Committee staff, however, toevaluate the many changes which have resulted fromimplementation of the recommendations in that report.

As the Committee knows, the General Accounting Of-fice is now undertaking a full scale review of the opera-tions of the Comptroller's Office. The GAO's report isexpected to deal with the changes in our regulatory andsupervisory procedures.

Meanwhile, however, I should review for the Commit-tee some of those changes in order to dispel the errone-ous impression that might be left in the record from thelimited scope of the testimony already presented to thisCommittee.

Domestic Examination ProceduresSubstantial improvements in national bank examinationprocedures now are being adopted.

The new procedures will gear examination efforts


more precisely to the needs of the Comptroller's Officeand the particular bank being examined and will stressreview of bank internal controls, such as credit and in-vestment rules, and internal audit procedures.Examiners will devote more time to the review and evalu-ation of the bank's own policies and procedures, itsdecision-making process, and its management informa-tion system. Had the new examination procedures andprocesses been in place earlier, they might have en-abled the examiners of the Franklin National Bank to per-ceive much earlier the inherent weaknesses in the bank'sphilosophy, policies and procedures which eventuallycreated the problems leading to its demise.

In addition to the new examination processes, majorrevisions are being made in the examination report itself.The primary purpose of the revised report of examinationis to communicate meaningful information effectively toboth the Office of the Comptroller of the Currency and tobank directors and management. The report mustclearly identify the problems of special concern to theexaminer, the factors that have caused the problemsand the remedial action suggested.

To promote effective communication of these mattersto the intended recipients, the new report of examinationis divided into three sections designed to explain the rel-ative importance of the examiner's findings of problemsand causes and to indicate recommended corrective ac-tion to the applicable recipient.

The first section of the report is designed specificallyfor the immediate benefit of the board of directors and itsexamining committee, as well as senior management. Itis to be in letter form and will set forth the scope of theexamination plus a summary of all critical comments, innarrative form, backed by appendices and schedulesthat will support the conclusions in sufficient detail to en-able the board, or its representatives, to take specificcorrective action. The examiner's comments are to in-clude probable causes of problems and recommendedactions to assist the directorate with this aspect of reme-dial responsibility.

The second section of the report consists of variousschedules, technical irregularities and deficiencies andcomments by the examiner relative to the conclusionsand evaluation of specific areas. That section will be achecklist against which a bank's auditor, cashier or otherdesignated officer can effect correction and againstwhich the bank's board of directors and/or seniormanagement can measure the progress of the correc-tive action.

The third section of the report is designed specificallyfor the Comptroller's Office, although we will receivecopies of all three report sections. The third section willinclude confidential information and a certain amount ofadditional informative data necessary to the operation ofour Office. The confidential section will set forth mattersrequiring the prompt attention of our senior staff, such as:

• Suspected violations of law uncovered during thecourse of the examination reported, or to be re-ported, to the appropriate Comptroller officials orother regulatory and enforcement agencies.

• Critical comments relating to senior bank officerswhich may require official remedial action by the

Comptroller's Office such as the threat of ceaseand desist orders or officer removal.

• Subjective comments regarding management orother matters which have not been factually prov-en by the examiner but which, nevertheless,constitute areas of concern.

As is evident, the report of examination and relatedprocedures have undergone substantial change.Perhaps the most important change is that most of theinformation previously "hidden" in the confidential sec-tion of the report of examination is now presented inthe open section. Directors and management of thebank will have no excuse for doubt concerning our Of-fice's evaluation of the condition of the bank.

National Bank Surveillance SystemWe are also implementing a bank evaluation andmonitoring system called the National Bank SurveillanceSystem (NBSS). Had that system been in operation at thetime when Franklin's earnings problems were develop-ing, the system, in coordination with the new examinationprocedures, would have assisted in detecting the de-tailed causes of those problems and, more importantly,could have helped management correct those problemsin a timely manner.

The NBSS consists of four elements: a data collectionsystem; a computerized analysis system which detectsunusual or changing conditions in any national bank; ananalysis of those changes by trained NBSS specialists;and, of primary importance, an Action Control System.

Rapidly processed reports of condition and incomefrom each national bank are entered into the system atquarterly intervals. The computer calculates 15 pages ofmeaningful ratios and percentages for each bank. Asecond computer program summarizes those perform-ance reports and ranks each bank in an "Anomaly Sever-ity Ranking Report." That report simply designates thosebanks in the National Banking System which deserve apriority review. At that point the human element re-entersthe process. The trained NBSS specialists review eachof the 15-page reports and all other relevant data oneach bank which the Anomaly Severity Ranking Reporthas designated for priority review.

The Anomaly Severity Ranking System covers threebasic aspects of a bank's condition in relation to that ofother banks in its peer group. It considers the bank's cur-rent position in each ratio, its short-term trend in the mostrecent quarter and its long-term trend over the past 5years. Had the NBSS been in use earlier, it would havedesignated Franklin for priority review. The NBSSspecialists would have noted a number of conditions inthe Franklin report, including its low and declining earn-ings; its sources of those earnings; its inadequate provi-sions for its reserve for possible loan losses; and its in-ability to utilize fully its municipal tax exempt income. Inview of all of those factors, the hazards involved in itslarge, volatile liabilities would have been flagged.

When the Anomaly Severity Ranking System desig-nated Franklin for priority review, an NBSS specialistwould have reviewed the performance report, notedconditions of concern, and then turned to the Action Con-trol System.


All banks designated for priority review are placed inthe Action Control System quarterly. The bank cannot beremoved from the Action Control System until the condi-tions of concern have been corrected. While the bankremains in the Action Control System, reports must bemade every 2 weeks showing the progress or the lack ofprogress in correcting conditions of concern.

The conditions of concern must be acknowledged bythe regional administrator, who has the responsibility forthe initiation of corrective action. He must respond to theconditions cited in the Action Control System. He canachieve correction at his discretion, but correctionand/or his response must be made within 30 days.

The Action Control reports will also be utilized by vari-ous functional units of the Washington Office. If those re-ports show a bank or a region as delinquent or unsuc-cessful in its corrective efforts, they can be assisted byother appropriate units such as our Special Projects staffor the staff of our Enforcement and Compliance Division.

The NBSS does exist now to this extent. Fast and accu-rate data is flowing into the system. The 15-page per-formance reports are being produced and they arebeing utilized in most of our geographic regions. Seventrained NBSS specialists are now in regional offices andall 14 regional offices will have trained specialists beforethe end of June 1976. The Anomaly Severity Ranking re-ports have been utilized repeatedly and they have prov-en reliable. We have used the results of the reports andthe specialists' work in banks to cause the correction ofserious problems which would otherwise not have beendetected at an early date.

The Action Control System is a crucial part of the sys-tem. Its programming is nearly complete. Its action, con-dition and response codes have been tested and, withthe input of the next quarter's data, the Action ControlSystem is to be implemented.

We will then be using a new system of bank supervi-sion. We know that system must remain flexible to copewith the rapid changes in the banking system. It mustalso maintain the proper balance between its machine-operated segments and those involving good humanjudgment.

Foreign Exchange ProceduresWe are in the process of finalizing a new examinationprocedures manual which covers every aspect offoreign exchange trading and requires written policygoals and guidelines, segregation of specific duties bytrading and bookkeeping personnel, specific confirma-tion requirements, internal controls and audit programs.

Recognizing that with relatively minor changes in ourold techniques we might well have found reason to sus-pect some less than prudent action on the part ofFranklin's personnel, we now require that the examinerreview, not just the most recent, but all monthly revalua-tion worksheets since the last examination to insure thatproper market rates were used. The new procedures,under appropriate circumstances, require the examinerto intercept all mail to insure that all incoming confirma-tions can be identified with contracts on the bank'sbooks. These new examination procedures are the mostcomprehensive guidelines written to date.

We have made other modifications in personnel, train-

ing and examining procedures and policies. These aredesigned to help prevent the occurrence of similar situa-tions in other banks.

We insist that the board, through senior management,set up strict segregation of duties and responsibilities forevery function of this and every other area. Tradersshould trade and nothing else. Accounting personnelshould be responsible for all accounting, confirmation,revaluation and other recordkeeping functions andcompletely independent of all trading functions. Theirduties would include sending and receiving trade con-firmations, checking discrepancies directly with thecounterparties and reporting those activities to the auditdepartment and obtaining forward rates for revaluationsindependently and performing revaluations without inter-ference from the traders. Auditors must be truly indepen-dent from the influence of senior management or thepersonnel they are auditing. They must feel free to reporttheir findings to proper board-level committees. The posi-tion clerk should only keep records for the trader and notprepare reports-for management. Such reports shouldbe prepared by the accounting department.

Examiners are to evaluate the organization and effec-tiveness of that separation of duties and to commentupon deficiencies or overlapping of responsibilities. Crit-ical comments are made directly to senior managementand the board. Examiners include in their examinationprocedures an inspection of internal bank reports fromperiods between examinations to insure their accuracyand the correctness of their content.

In addition, as part of the "ongoing examination" con-cept, while examiners are in the bank they review re-ports, daily activities, and similar matters, at least on atest basis, to ascertain if required procedures are fol-lowed as a regular practice and also to determine anymajor changes in positions and policies.

The International Banking Group continues its effortsto upgrade the quality, knowledge and experience ofpersonnel engaged in examining international activities.Examiners-in-charge of international divisions are nowrecommended by the regional administrators and finalselections are made by the International Banking Group,based on experience, ability and availability. Additionalpersonnel are participating in quarterly training sessionson international banking. This training, both in general in-ternational banking and in foreign exchange, is con-ducted by Washington staff personnel, as well as byother authorities from government agencies such as theEx-lm Bank and the Federal Reserve, and byexperienced bankers. An advanced seminar on foreignexchange trading is also given at least twice annually tohelp disseminate knowledge of this subject to as many ofour examiners as possible. In addition, internationalexaminers travel to other areas of the country in order tohelp where experienced support personnel are needed,and to gain experience from the increased exposure.

Branch and Other ApprovalsProcedures for actions on corporate activities, such asnew branches, mergers and other applications in thecorporate area, are being developed to examine moreclosely the expansion policies of a national bank in lightof its historical and current condition.


The Comptroller's Office will soon announce policystatements which will be published for comment by thepublic prior to adoption. Those policies will set forthguidelines under which the Comptroller's Office willeither grant or deny branches, mergers and other appli-cations of a corporate nature. Those guidelines willspecify that, if a regional administrator wants to approvea branch or merger which falls outside the guidelines,the application will get close scrutiny in Washington. If aparticular bank is subject to special surveillance, its ap-plication will undergo special analysis by the Bank Or-ganization and Structure Division in consultation with thespecial surveillance units in Washington.

In short, our new policies in regard to corporateexpansion will permit closer monitoring, in conjunctionwith our new examination and analysis techniques, bothat the regional and Washington levels.

Operations ReviewPrior to 1976 the Comptroller's Office had no formal pro-cess for reviewing in a systematic way the manner inwhich national bank examiners perform theirexaminations to assure that performance is consistentwith established instructions and procedures. Such aformal operations review process is now in place. It isheaded by a Deputy Comptroller with 27 years examin-ing experience who reports directly to me. He is our owninternal inspector general.

Under his supervision, examiners in each of our 14 re-gions have been specially trained to review the proce-dures by which banks in other regions are examined andsupervised. Any exceptions to established proceduresand instructions are noted and reported to theWashington Office.

Additionally, our Deputy Comptroller for OperationsReview is the person to whom a banker who is fundamen-tally aggrieved by any of our regulatory activities canbring his complaint.

Operations review procedures should lessen the pos-sibility of examinations being conducted improperly ornot in accordance with the new procedures beingestablished by our Office.

Recommended Enforcement LegislationAlthough the already mentioned changes should makeour Office more effective, there are still more tools we

need that only the Congress can provide. The Congressis currently considering enforcement legislation recom-mended jointly by the Comptroller, the Federal ReserveBoard and the FDIC to enable us better to deal with prob-lem banks. I urge prompt consideration and passage ofthat legislation.

The legislation has several provisions. The first em-powers the banking agencies to assess civil penalties forviolations of various banking statutes and cease and de-sist orders. I endorse the idea of giving the agencies thatauthority.

Another provision of the bill which I heartily supportwould give the banking agencies power to remove an of-ficer, director or other person participating in the affairsof the bank from his position for gross negligence in theoperation or management of the bank or a willful disre-gard for,the bank's safety and soundness. Under thepresent statute, bank officials can be removed only if theagency can establish "personal dishonesty." The judi-cial review provisions already contained in the statutesare ample to protect against arbitrary or capricious useof such power.

The procedures by which an officer or a director of anational bank can be removed also need amendment.Under existing law, the Comptroller lacks power to re-move a bank official unless that official has been in-dicted. If he has not been indicted, the Comptroller cando no more than certify facts to the Federal ReserveBoard. The Federal Reserve is given the responsibilityfor issuing a notice of proposed removal, prosecutingthe case, hearing the evidence and making the final de-cision. The Comptroller cannot even institute the pro-ceeding.

That procedure is so cumbersome to use that neitherthe Federal Reserve Board nor my Office believes that ithas been very effective. We thus have recommended aprovision which would empower the Comptroller to insti-tute and prosecute proceedings. The Comptroller alsowould have the power to suspend a bank official pendingcompletion of the proceedings. The Federal ReserveBoard, however, would retain its authority to hear thecase and make final decisions. I am in complete agree-ment with that recommendation.

In addition to this general statement on Franklin andthe operations of our Office, responses to specific ques-tions in your letter of invitation of May 4, 1976 are ad-dressed in the Appendix to the statement.

Appendix to June 1 Statement by James E. Smith

Franklin National Bank — November 1973 -October 8, 1974

On November 14, 1973, our Office began a regularexamination of Franklin. That examination, which was notto conclude until March 8, 1974, disclosed that Franklinhad serious financial problems. Those problems in-cluded a low-yielding loan portfolio, depreciation in themunicipal and investment portfolios, heavy reliance bythe bank on short-term borrowed funds (so-called hot

money) and the bank's poor management. Uncollect-able loans totalled $10 million. The operating income ofthe bank was poor, and, because that was public infor-mation, public confidence in the bank was affected.

Total resources of the bank had grown to$4,852,999,972, which was 29 percent higher than theprevious December 8, 197-2 examination. The capital,however, had increased by less than 0.5 percent; de-mand and savings deposits actually had declined 5.5percent. The bank's recent growth had been financed


almost entirely by using short-term borrowed funds, in-cluding time deposits of other banks and money marketcertificates of deposit. Those types of funds totaled $2.3billion, or 50 percent of the bank's liabilities. They had in-creased dramatically by $984 million, or 76 percent,since the last examination. Such borrowed funds arevolatile and likely to disappear quickly if creditors havereason to question a bank's stability or soundness.

I instructed Regional Administrator Van Horn by letteron February 22, 1974, to meet with the senior manage-ment of Franklin in order to formulate a plan with the bankfor remedial action such as reducing all forms ofborrowings, setting standards for new loan extensionsand adjusting the imbalance between the bank's capitaland the size of its operations. Mr. Van Horn met with thesenior officers of Franklin on February 28,1974, and withthe board of directors on March 28, 1974. The bankagreed to reduce its borrowings by $500 million byliquidating $260 million carried in its bond trading ac-count, selling another bank $100 million in loans, reduc-ing new loan commitments and increasing borrowers'compensating deposits maintained at the bank.

On April 18, 1974, Franklin New York Corporation(FNYC) announced net operating income for the firstquarter of 2 cents per share, or $79,000, down from theprevious year's 68 cents per share, or $3.123 million. Theholding company release stated that income was "ad-versely affected by the sharp rise in the cost of short-termborrowings needed to carry assets during the 1974 quar-ter."

On May 1, 1974, the Federal Reserve Board an-nounced its denial of the holding company's applicationto acquire Talcott National Corporation, a businessfinancing and factoring firm. FNYC had applied for thatacquisition on August 13, 1973. The Board decided that"this proposal may constitute an undue drain on Appli-cant's managerial and financial resources."

On May 10, 1974, the Comptroller's office and theFederal Reserve Board learned from Franklin that heavylosses in an undetermined amount had occurred in thebank's foreign exchange department. Bank manage-ment decided to announce those losses. It was clear thatan announcement of this kind would dry up the bank'ssources of borrowed funds, thereby creating a severeliquidity crisis. In anticipation, the bank sought a hugeloan from the Federal Reserve Bank of New York to coverthe expected run-off.

On May 10, 1974, management announced that, inlight of the small profit for the first quarter of 1974 andmanagement's estimate for the second quarter, it wouldrecommend that Franklin's board of directors not de-clare the regular dividend on Franklin's common stockand convertible preferred stock.

We advised the FDIC of those events.Taken together, the bank's April 18 release, the May 1

Talcott turndown and the May 10 release caused largescale institutional withdrawals and forced the bank to theFederal Reserve discount window to obtain the liquidityfunds it needed.

At that time, management of the bank and representa-tives of this Office began exploring merger possibilities.The only possible, immediate merger partner showingserious interest was Manufacturers-Hanover Trust Com-

pany of New York. Manufacturers-Hanover, in April1974, had loaned FNYC $30 million on a long-term basis.After intensive discussions with the officers of Franklin,the management of Manufacturers-Hanover determinedon May 12 that an immediate merger was not feasible.

On Friday and Saturday, May 10 and May 11,1974, aninternal review of the foreign exchange department wastaking place and by Saturday evening, May 11, 1974, arelatively large loss was estimated. On Sunday, May 12,1974, Franklin issued a press release, which stated inpart:

The bank also reported that its foreign currencyexchange department has realized losses sinceMarch 31,1974, of approximately $2 million. In addi-tion, it has recently been discovered that because ofa trader in that department operating beyond his au-thority and without the bank's knowledge, it will havesustained losses, as of May 13,1974, of $12 million,and has potential losses of $25 million at May 10,1974 rates.

The bank also noted that earlier in the day on May 12,1974, Vice-Chairman Mitchell of the Federal ReserveBoard, after having been assured by our Office thatFranklin was solvent, advised in a press release that "aswith all member banks, the Federal Reserve Systemstands prepared to advance funds to this bank asneeded." FNYC asked the Securities and ExchangeCommission to suspend trading in its securities. TheSEC did suspend trading and conducted an investiga-tion into the accuracy of FNYC financial statements. Ul-timately a lawsuit was instituted by the SEC.

On May 13, 1974, at a special meeting of the bank'sboard of directors, the president of the bank and thehead of its foreign exchange department were fired.Those events further eroded confidence in the bank sothat, by close of business on Wednesday, May 15,1974,the bank's loan at the Federal Reserve discount windowreached $780 million.

Much of the public attention at that time was focusedon Michele Sindona, an Italian lawyer and resident ofSwitzerland, who, in July 1972, had purchased1,000,000 shares of FNYC through his holding company,Fasco. That stock constituted 21.6 percent of the out-standing shares of the common stock of FNYC. Mr. Sin-dona became a director of FNYC in August 1972.

In view of the public concern over Mr. Sindona's as-sociation with the holding company, Mr. Sindona agreedthat, for one year, he would relinquish his rights to votethe FNYC stock held by Fasco and would give the solevoting rights to former Treasury Secretary David Ken-nedy. That was completely agreeable to me and an an-nouncement to that effect was made by Franklin in apress release dated May 12, 1974. Franklin also an-nounced plans to raise additional capital of $50 millionand several major management changes which were tobe put into effect at the bank's board meeting the nextday. On Monday, May 13, the bank accepted the resig-nations of Paul Luftig, the president and chief executiveofficer of the bank and Peter Shaddick, vice chairman incharge of Franklin's international department.

On Tuesday, May 14, 1974, a new examination of thebank was commenced in order to update the value of its


loans, its securities and foreign exchange position. TheMay 14 examinations showed large foreign exchangelosses, accelerated depreciation in securities and ageneral lack of improvement in the bank's conditionsince November 1973.

On May 13, 1974, I requested the member banks ofthe New York Clearing House Association to exploreFranklin's affairs. The purpose of this review wasthreefold:

1. To advise me and my staff as to how other bank-ers would view the condition of Franklin NationalBank;

2. To establish a foundation upon which the Clear-ing House Association members might act tohelp with Franklin's liquidity problems; and

3. To provide information to members of the Clear-ing House who might be interested in acquiringFranklin National Bank. In this regard, it wasagreed that any information received throughthis processing by members of the ClearingHouse also would be made available to anynon-Clearing House member interested in ac-quiring Franklin National Bank.

On June 11,1974, with the encouragement of the Fed-eral Reserve System, an arrangement was reachedwhereby members of the Clearing House individuallywould loan Federal funds to Franklin in an amount whichaggregated $225 million.

Meanwhile, efforts had been made to attract strongermanagement. With my assistance, Mr. Edwin Reicherswas brought into Franklin on May 17,1974, as an execu-tive vice president in charge of Franklin's foreignexchange operations. He had for 40 years been with FirstNational City Bank of New York, and headed that bank'sforeign exchange operations.

A long search for a new head of Franklin culminated onJune 21, when Joseph W. Barr was brought into Franklinas its chief executive officer.

Mr. Barr, who is well known to many members of thisCommittee as a former colleague in the House, had a dis-tinguished background in the fields of government andfinance, having served as Chairman of the FDIC, UnderSecretary and Secretary of the Treasury Department,and as the Chairman and Chief Executive Officer ofAmerican Security and Trust Company of Washington,D.C. He was well and favorably known by foreign finan-cial institutions, and was a man with whom I was confi-dent we could work effectively under most demandingconditions. My confidence in him was fully justified by hisperformance. Without him and the qualities of integrity,courage, and decisiveness which he brought to bear onthe myriad problems, I frankly doubt that the success-ful result on behalf of Franklin's depositors could havebeen achieved.

On July 2, I wrote the FDIC requesting that it contactother banking organizations which were potential pur-chasers of some or all of the business assets of FranklinNational Bank. The FDIC developed a plan to assist aprospective purchaser to assume liabilities and pur-chase assets of Franklin and began negotiations with

interested bankers to draft a set of acquisition papersupon which banks could bid competitively in the eventthe FDIC became the receiver.

In an effort to alleviate further liquidity problems, I re-quested a meeting of representatives of 17 large U.S.banks to discuss selling Franklin's portfolio of Euro-currency loans. The meeting took place in Chicago onJuly 22. Some $300 million of loans were offered for sale.That proved unsuccessful, however, because of theinterest rates on the credits in comparison with the thenprevailing high interest rates, and because of the liquid-ity problems of all large banks at that time.

In September, Mr. Barr presented the regulatoryagencies a plan by which, with substantial assistancefrom the FDIC, Franklin would retrench, give up mostof its national and international business, and become aLong Island bank. I requested the investment bankingfirm of Blyth Eastman Dillon & Co. to advise us con-cerning Mr. Barr's proposal. On October 3, the firmadvised that the prospects of Franklin's achieving fi-nancial viability as an independent banking institutionwere bleak.

Mr. Barr also suggested that in the event a takeoverof Franklin became necessary, it would be beneficial tothe interests of the shareholders and to the competitivesituation to widen, as much as possible, the list of po-tential purchasers. The greatest obstacle to that wasthe legal situation which limited the list of potential U.S.buyers to New York State-chartered institutions and na-tional banks located in New York. Mr. Barr requestedthat, not only for this case, but also for the future, Con-gress should act quickly on legislation which wouldpermit the purchase and operation of banks acrossstate lines where necessary to prevent the probablefailure of a large institution. Time did not permit theadoption of such legislation before the end came forFranklin, but I hope that the Congress will soon providefor such a situation.

As a result of continuing negative publicity, continu-ing deposit decline and management's continued in-ability to reduce the loan portfolio, on September 30,Franklin's total borrowings from the Federal ReserveBank of New York exceeded $1.7 billion. By the end ofSeptember, total deposits were rapidly declining to the$1 billion mark and total other liabilities, principally bor-rowings, were rising to nearly $2 billion. The bank wasunable to retain large maturing certificates of depositsor other maturing money market liabilities.

Based on all facts available, including Mr. Barr'sproposal which conceded that the bank could not sur-vive without massive government assistance, the BlythEastman Dillon report, and the negative reports by theNew York Clearing House banks, I concluded thatFranklin did not appear to be a viable institution.

On October 4, I wrote to the Federal Reserve bank,briefly reviewing the situation, and asking for the Fed-eral Reserve Bank's views with respect to its continuedwillingness to lend funds to Franklin. On October 7, theFederal Reserve Bank replied, stating that itsemergency credit assistance to Franklin was based onpublic policy considerations arising from the responsi-bility of the Federal Reserve System as a lender of last


resort and was designed to give Franklin and the con-cerned Federal bank regulatory agencies a sufficientperiod to work out a permanent solution to the bank'sdifficulties. The Federal Reserve Bank also had con-cluded that the Franklin proposal of September 16, tothe FDIC did not offer a feasible means of achievingthe continuation of Franklin as an independent, viablebank. The Federal Reserve Bank advised that it wouldnot be in the public interest for that bank to continue itsprogram of credit assistance to Franklin.

It was no longer in the best interest either ofFranklin's depositors and other creditors or of itsshareholders to wait for further deterioration in thebank's condition, especially when the alternative of theFDIC-assisted purchase of the bank at a price includ-ing a substantial premium for a going concern, be-came available. By October 8, Franklin was no longerthe 20th largest bank in the country but had becomeabout the 46th largest bank. Of the 65 banks in its sizecategory, those with $1 to 5 billion in deposits, Franklinhad ranked 65th in earning power. That lack of abilityto generate earnings, combined with heavy reliance onpurchased money, finally created a set of cir-cumstances which the bank could not bear. On Oc-tober 8, having become satisfied that Franklin NationalBank was insolvent, and acting pursuant to 12 USC191, I declared the bank insolvent and appointed theFDIC as receiver.

In order to protect all of the depositors of Franklin,the FDIC moved immediately to accept bids from sev-eral major New York banks upon a pre-negotiated con-tract which provided full projection for all Franklin de-positors and other normal banking creditors. All bidswere opened simultaneously in the presence of the en-tire FDIC Board of Directors. The high bidder was theEuropean-American Bank and Trust Company, a fed-erally insured, New York State-chartered institutionowned by six large European banks. The following dayevery banking office of Franklin was opened at theregular banking hour by the European-American Bank.All depositors in Franklin, including holders of certifi-cates of deposit, savings accounts, time accounts,and checking accounts, automatically became de-positors of the European-American Bank. TheEuropean-American Bank also assumed all existingliabilities to trade creditors of Franklin. The approval ofthe purchase and assumption transaction avoided anydisruption in service for depositors and increased thechances of subordinate creditors for full repayment oftheir claims.

In summary, our number one goal was to protect the

depositors and the banking system of this country, andthat goal was achieved.

Responses to the Subcommittee's QuestionsThe Subcommittee has asked, in Chairman Rosenthal'sletter of May 4,1976, for responses to a series of specificquestions. Most of the questions have been answered inthe earlier portions of the statement or by making avail-able documents to the Committee staff. The remainingquestions are answered below.

Question: For the years 1971 to date, provide the numberof parties to, terms of, and degree of compliance witheach (i) agreement between the Office of the Comptrollerof the Currency and a national bank, and (ii) statement ofintent or assurance by the board of directors and/or of-ficers of a national bank, which was given as a conditionfor obtaining approval for a merger, acquisition, newdomestic or foreign branch, expansion of office facilities,an issuance of equity shares or debentures, or other actrequiring the consent of the Comptroller of the Currency.

Answer: Exhibit A is a summary of the administrative ac-tions brought pursuant to the Financial InstitutionsSupervisory Act of 1966 from 1971 to present. [With it is]a copy of a chart prepared reflecting the number of timesspecific violations were addressed in the proceedings.

We have found that the administrative actions takenhave proven successful in the majority of instances. Inthat regard, we note that in 29 instances since 1971, thisOffice has requested banks to obtain additional capitalor to initiate plans to increase capital. In all but fourinstances, the banks have complied with those require-ments. In two of the four instances where there wasinadequate compliance with formal written agreementsbetween the bank and this Office, we resorted to the is-suance of a Notice of Charges and a commencement ofa formal Cease and Desist proceeding. In both of thoseinstances the bank added additional capital as a directresult of the proceedings.

Four of the proceedings brought have been formallyconcluded as there has been complete compliance withthe provisions. Nine proceedings have been terminateddue to the sale, merger or failure of the banks while underadministrative actions. We believe that in at least 37 in-stances, proceedings, although still in effect, may beconcluded as the banks have fully complied or are takingadequate steps to gain compliance.

The remainder of the banks have not yet fully compliedand may require additional administrative action.


Exhibit A

Proceedings Brought by the Comptroller Pursuant to theCease and Desist Provisions of the Financial Institutions

Supervisory Act of 1966, 12 USC 1818(b),1971 - Present

[For 1971 through 1975, see pp. 211-214 of this report. For printing, those years were not repeated here.]

1976

62. An Agreement to eliminate excessive extensions ofcredit, in violation of 12 USC 84, and to eliminate var-ious unsafe and unsound banking practices con-cerning criticized assets. Provisions to upgrade thecredit quality and procedures for handling loansand to improve the capital position of the bank.

63. A Notice of Charges, a Temporary Cease and DesistOrder and a Permanent Order to eliminate unsafeand unsound banking practices, criticized assetsand violations of law, including 12 USC 84, 31 CFR103.33, and 12 CFR 221 and 226. Provisions to im-prove the capital position of the bank and the loanpolicies of the bank and the elimination of excessiveconcentrations of credit. Provisions to cause the col-lection of all debts previously charged off and to hirean executive officer and operations officer.

64. An Agreement to improve the capital position, theliquidity position and the loan policies of the bank.Provisions for the elimination of unsafe and unsoundbanking practices, criticized assets and violationsof law, including 12 USC 84 and the Truth-in-Lendingstatute (Regulation Z). A provision to hire a newexecutive officer.

65. An Agreement to eliminate various unsafe and un-sound banking practices and to take steps to elimi-nate criticized problems, including excessive hold-

ings in real estate. Provisions requiring the im-provement of the capital position of the bank and thehiring of an executive officer.

66. An Agreement to eliminate excessive extensions ofcredit, in violation of 12 USC 84, and to eliminate var-ious unsafe and unsound banking practices con-cerning criticized assets. Provisions to improve thecapital and earnings position of the bank and to up-grade the credit quality and procedures for handlingloans. Provisions to hire an executive officer and afull-time auditor.

67. A Notice of Charges and a Temporary Cease andDesist Order to eliminate extensions of credit of aself-dealing and self-serving nature for the benefit ofthe controlling shareholder of the bank and relatedcompanies or individuals. A provision to eliminateoverdrafts.

68. An Agreement to improve the liquidity position of theBank and to upgrade the credit quality and proce-dures for handling loans. Provisions for the elimina-tion of unsafe and unsound banking practices,criticized problems, excessive concentrations ofcredit, and violations of law, including 12 USC 371 c,12 CFR 23,11 and 18. Provisions for the hiring of anoperations officer to ensure adequate internal con-trols.

Chart

Cease and Desist Proceedings Brought by the Comptroller of the Currency, Pursuant to 12 USC 1818(b),1971 to Present

[For 1971 through 1975, see page 224 of this report. For printing, those years were not repeated here.]

Deposits(Thousands of dollars)

1,003,1009,653

11.550B3.8P765.12346.04410.200

Total for1976 to date

Num

ber

626364fifi

67c)8

12 U

SC

84

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X

1

Cor

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of L

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X

x

2

Man

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icat

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X

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Incr

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Liqu

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XX

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7


This Office has on several occasions attached condi-tions to the approval of branches, mergers, acquisitionsand other actions by banks. The typical situation involvesa request for a branch, the approval of which is con-ditioned on the bank's increasing its capital by a specificamount. Neither the files on mergers and branches northe files on capital increase are established to reflectafter the event that the raising of new capital was a condi-tion for approval of a new branch. The information can bedeveloped only by a separate review of documents as-sociated with each branch, merger, acquisition, capitalissue or expansion.

Question: All approvals and consents given and madeby personnel of the Comptroller of the Currency permit-ting mergers, the opening of new domestic or foreignbranches, and /or expansion of office facilities regardingFNB for each year from 1965 through 1974.Answer:

Foreign Branches

The only merger during the period was with FederationBank and Trust, referred to above. The New York re-gional office issued two approvals during 1972 permit-ting expansion of office space pursuant to 12 USC 371 d.This Office has no authority to approve or disapproveforeign branches. Documents in OCC files pertaining toFranklin foreign branches have been provided to theCommittee staff.

Branches, Mergers and Expansion

the following new domestic branch applications wereapproved or denied during the 1971 through 1975period:

Year1965196619671968196919701971197219731974

of Facilities

Domestic

FinalApprovalsPermittingOpenings

44

15*1337510

of Franklin

Branches

Rejected1430241000

Withdrawn2000220000

*The approvals of 1967 include the main office (retained as a branch)and 13 operating branches of the Federation Bank and Trust Co. ac-quired by merger June 30, 1967.

Question: Set forth the number of national banks whichwere given composite or group ratings of 3 or 4 continu-ously from 1971 through 1975, and for each bank the an-nual number of (i) new domestic branches, (ii) newforeign branches and (iii) expansions of office space theComptroller of the Currency has approved for each yearsince 1972.

Answer: There were five national banks which weregiven composite or group ratings of 3 or 4 continuouslyfrom 12/31/71 through 12/31/75. For those five banks,

1972Approved Denied

1973Approved Denied

1974Approved Denied

22

1975Approved Denied

Bank#1Bank #2Bank #3Bank #4Bank #5

Total forthe period: Applications - 5; Approved - 1 ; andDenied - 4.

For the same five national banks, the Office receivedno applications for new foreign branches.

Pursuant to 12 USC 371 d, a national bank may investin bank premises up to 100 percent of its capital stockwithout the approval of the Comptroller of the Currency.Bank #2 applied to the Office for permission to exceedits limitation in 1974. Permission was granted for thebank to invest in banking premises in an amount not toexceed its capital accounts plus $150,000. None of theother four banks requested permission to exceed thelimitation during the 1972-1975 period.

Question: The management, operations and conditionsof, and supervisory recommendations made and actionstaken by personnel of the Comptroller of the Currencywith respect to First National Bank of East Islip (FNBEI)for the years 1971 through 1975, to the extent the samepreviously has been made a matter of public recordthrough court records, proxy statements, press releasesand other means.

Answer: Copies of the public documents of which we areaware that relate to the management, operations andconditions of the FNBEI and the Comptroller's supervi-sory actions related to that bank are annexed hereto: [Forthe purposes of this publication, we are including only alist of those documents. They are, however, available aspublic information.]

Documents Available as Public Information on FirstNational Bank of East Islip

• Notice of annual meeting and proxy statement for theannual meeting of shareholders of January 19,1971.

• Notice of annual meeting and proxy statement for theannual meeting of shareholders of March 7, 1972.

• Notice of special meeting and proxy statement forspecial shareholders' meeting of August 29, 1972.

• Notice of annual meeting and proxy statement for theannual meeting of shareholders of March 6, 1973.

• Shareholders' Derivative Suit of Charles H. Wolpertand Martha Wolpert as stockholders of the First Na-tional Bank of East Islip against the First National Bankof East Islip, ef a/., commenced on or about February3, 1974.

• Shareholders' Derivative Suit of Charles Housler, et al.versus the First National Bank of East Islip, ef al.,commenced on or about January 21, 1974.


Complaint of Joel E. Kastein, John W. McGraine andCrest Affiliates Inc. against the First National Bank ofEast Islip, et ai, commenced on or about October 22,1973.The notice of annual meeting and proxy statement forthe annual meeting of shareholders held March 5,1974.The notice of special meeting of shareholders to beheld November 12, 1974.Notice of annual meeting of shareholders and proxystatement of the annual shareholders' meeting heldMarch 4, 1975.The notice of annual meeting of shareholders andproxy statement of annual shareholders' meeting heldMarch 2, 1976.Article, Newsday, dated March 2, 1974.Article, Long Island Press, dated March 2, 1974.

Additional Material on Special Projects/BankReview ProgramMemo to all regional administrators andnational bank examiners, January 27, 1976The reorganization of the OCC contemplates primary au-thority and responsibility for the supervision of banks atthe regional level through our examiners and regionaladministrators. This Office must, however, retain someoverview responsibility of banks, especially in the capac-ity of lending technical and specialized assistance to theregions. A revised procedure has been devised which al-lows the Comptroller to be informed and to track move-ments within the National Banking System at all levels.

The details of the new program are attached. The pro-gram is essentially designed to provide improved com-munication and coordination between the national bank

examiners, the regional offices and the Washington Of-fice and, by so doing, to enhance the ability of the OCCas a whole to effectively discharge its supervisory re-sponsibilities.

The program provides for timely notification when abank is being assigned to the program or when signifi-cant subsequent events change the status of a bankpreviously assigned. The program also provides theWashington staff with the opportunity to directly assistthe regions in bank supervision, when required.

The procedures involved in the program are de-signed to give this Office a standardization to insure aninformed posture, but are not intended to be inflexible.It is recognized that circumstances will on occasiondictate that exceptions be made to the policies andprocedures set forth in the attached material. However,when such circumstances warrant a departure fromestablished procedure, we should be promptly ad-vised.

A revised examiner's memo, which is to be preparedat each examination, is also [attached]. The analysissheet, which is an integral part of the memo, should becompleted in full at each future examination of a bankassigned to the program. It is recognized, however,that certain statistical data called for by the analysissheet will not be readily available from prior examina-tion reports. Therefore, examiners may omit the histori-cal information on certain items if it is not easily obtain-able.

The task of properly controlling the problems facedby the National Banking System is obviously one of themost important we have. We are hopeful that this pro-gram can be successfully integrated into and compli-ment other planned changes under our reorganizationeffort. Success in this regard will of course continue todepend on your full cooperation, support and advice.H. Joe SelbyFirst Deputy Comptroller for Operations


Attachments

Special Projects/Bank Review Program

Participants

Regional participations will include the examiners whoconducted the last examination of banks subject to theprogram as well as the regional administor, his deputies,or other designees.

In Washington, responsibility for banks in the programwill be divided into two groups, each with a director and aprofessional staff of national bank examiners.

One group will be known as Special Projects and willhave responsibility for all banks in the program with totalresources in excess of $100 million. Overall supervisoryresponsibility for the Special Projects group will be vest-ed in H. Joe Selby, First Deputy Comptroller for Opera-tions, with primary administration delegated to Paul M.Homan, Associate Deputy Comptroller.

Bank Review, the other group, will handle those banksassigned to the program which have total resources ofless than $100 million. Charles B. Hall, Deputy Comptrol-ler for Banking Operations, will have overall supervisoryresponsibility for this group, with primary administrationdelegated to Royal B. Dunham, Jr., Director.

Other Washington Office staff participating in the pro-gram on a full- or part-time basis include:

• The Enforcement and Compliance Division.• All groups of Bank Operations.• National Bank Surveillance System.• Securities Disclosure Division.

CriteriaA. Banks designated by the regional administrator in the

exercise of his best judgement as to quality of assets,adequacy of earnings, ability and depth of manage-ment, capital adequacy, and other factors which mili-tate for inclusion on the program. All banks havingcriticized assets, that is, 100 percent substandardplus 50 percent of OLEM and doubtful, aggregating65 percent of adjusted capital funds will be reviewedby the regional administrator for possible inclusion,as well as those with separate and distinct deficien-cies relating to other than asset quality.

B. All banks with assets of more than $100 million thathave criticized assets, as defined above, aggregat-ing 65 percent of adjusted capital funds which werenot designated by the regions under A, will be re-viewed by Special Projects for possible inclusion inthe program.

C. Using the same criteria or additional criteria that maybe developed, Banking Operations, Special Proj-ects, and/or the NBSS group, at their discretion, maydesignate banks for the program.

D. All banks operating under a formal written agreementor a Cease and Desist order.

Removal of a Bank from the Program

When a bank no longer meets the criteria describedabove, and /or in the opinion of the regional administrator

no longer requires close supervision under the program,the regional administrator should submit a memorandumto the appropriate group recommending removal of thebank from the program. The decision on such recom-mendations will be made by the appropriate group sub-ject to a review by the First Deputy Comptroller for Oper-ations and /or the Deputy Comptroller for Banking Oper-ations.

Communications

Written

All reports of examination of banks in this program will bemarked with the word "priority" (rubber stamps shouldbe ordered by the regional offices). In addition, letters,memoranda or other data pertaining to problems or thecorrection of problems will also be so marked. Such re-ports and correspondence should receive speedy pro-cessing and be forwarded to the attention of Paul M.Homan, Associate Deputy Comptroller, Special Proj-ects, or Royal B. Dunham, Jr., Director, Bank Review, asappropriate.

Other correspondence about banks in the programshould be directed to the appropriate individual, divisionor group in the Washington Office through use of the at-tention line.

Telephone

Each regional office should be equipped with speakertelephone equipment. Similar equipment will be avail-able to the Washington groups. Conferences will be ar-ranged on a case-by-case basis at the initiation of eitherregional administrators, their designees or WashingtonOffice staff participating in the program.

Procedures

National Bank Examiners

The examiner-in-charge of each examination will com-municate with the regional or Washington Office underthe following circumstances and in the following manner:

• By telephone to the regional office, during anexamination as soon as it becomes apparent thatthere are significant adverse changes in a bank inthe program or there is evidence that a bankshould be placed in the program.

• In writing, to be forwarded to his regional adminis-trator as in Exhibit A, no later than at the time ofconcluding the examination. The written commu-nication will include basic statistical information;a concise narrative of the bank's significant prob-lems, to include causes and a summary of perti-nent subsequent events; and specific recom-mendations for appropriate corrective action.The regional administrator will mark theexaminer's memorandum with the "Priority"stamp and add his opinions to those of theexaminer. The examiner's memo should be for-warded within 2 business days of receipt in theregional office. Completion of the report ofexamination will not delay the forwarding of theexaminer's memorandum.


• When required by the regional administrator, theexaminer will participate in group telephone con-ferences between the regional offices and theWashington Office concerning banks in the pro-gram.

Regional Administrators1. New banks added to the program are to be re-

ported to the Washington Office by the regionaladministrator as soon as possible.

2. The regional office will continue to review re-ports of examination and rate the banks. If, bythe review and rating, they determine that abank should have been placed in the programby the examiner but was not, they will providethe necessary telephone and written commu-nication as in Exhibit A.

3. The regional administrator, or his designee,and the examiner-in-charge must meet with theboard of directors, or a committee thereof, inconjunction with each examination of a bank inthe program.

4. For banks in the program with assets exceed-ing $50 million, a copy of the report of examina-tion will be sent to the bank and the appropriateWashington group at least 10 days prior to theboard meeting.

5. A letter written by the regional administratorshould be forwarded to the bank's board of di-rectors, together with the transmittal of the re-port. At a minimum, that letter should include:a. A request that each board member review

the report;b. A summary of the major deficiencies dis-

closed in the report in an objective method;c. A request that the board prepare a specific

plan of corrective action designed to dealwith and correct the deficiencies of thebank as reflected in the examination report.The board should be prepared to discussthis plan at the meeting;

d. A paragraph that indicates:

This letter is supplemental to and part ofthe examination report. Its purpose is tohighlight matters in the examination reportrequiring the attention of the board of direc-tors. The letter and its contents should betreated with the same degree of confiden-tiality as the examination report.

As an alternative, the regional administrator maywish to fully incorporate into the examination re-port his communication to the board by com-menting on page 2 under the heading, "Re-gional Administrator's Comments." If thatalternative is used, the transmittal letter shouldinstruct the board to refer to page 2 of the reportof examination for the regional administrator'scomments.

6. Prior to meetings with the board of directors, the

regional administrator will inform the appropri-ate Washington group of the date and objec-tives of the board meetings. When appropriate,a staff member of the group and a representa-tive of the Enforcement and Compliance Divi-sion will attend such meetings. Participation inthe actual board meeting by the Washingtonstaff is desirable to an extent that is mutuallyagreeable to the regional administrator and theWashington Office.

7. The board, or a committee thereof so au-thorized, should present their plans for correc-tive action at the meeting. If those plans are notconsidered adequate by the regional adminis-trator, his views should be so stated to theboard or committee members and satisfactoryamendments adopted by resolution. If satisfac-tory plans are not adopted, the regional ad-ministrator should advise the group that furtheradministrative action by the Comptroller's Of-fice may be required.

8. The regional administrator should convey inwriting the results of the board meetings.

9. The regional administrator should require fre-quent reports by the board as to the progressconcerning any agreed corrective action. Eachbank required to send a progress report shouldbe asked to forward the original to the regionaladministrator with a copy to the Comptroller ofthe Currency, Attention: Royal B. Dunham, Jr. orPaul M. Homan, as appropriate.

10. Regional offices should forward copies of inter-nal analyses of progress reports to the appro-priate Washington group.

11. Regional administrators will continue toschedule frequent examinations and visitationsof banks assigned to the program as they deemnecessary. However, an examination projec-tion of such banks will be completed by eachregion on a monthly basis. The form (Exhibit B)will be reproduced in the region as needed andforwarded to the attention of the appropriateWashington group in sufficient time to arrive nolater than 5 working days prior to the beginningof the month projected. Any amendments to theprojection after it has been submitted, will beconveyed to the group via telephone commu-nication.

For your information, the names of the Washingtonstaff members assigned to the program are:

Bank Review — banks with assets of less than $100million, Director, Royal B. Dunham, Jr.

Professional Staff, [3 national bank examiners]

Special Projects — banks with assets of $100 million ormore, Director, Paul M. Homan

Professional Staff, [5 national bank examiners]


Exhibit A

Examiner's Memo

Summary of Problems

Summarize your views of the bank's problems, takinginto account all significant factors. Specific problemsshould be identified. Your recommendation as to possi-ble solutions to the significant problems should be in-cluded in the narrative.

Subsequent Events

Summarize any pertinent changes since the date of yourexamination. This would include the resignation of key of-ficers or directors, declines in deposits, increases inloans or commitments to lend, proposed mergers, etc.

Recommended Corrective Actions

Your positive, open views are needed in this section. Youcan be the most knowledgeable as to the causes of thebank's problems. Please state your views without reser-vation.

Signature of national bank examiner

Regional Administrator's Opinion

Statements concurring or differing with those of theexaminer should be made in this section.

Signature of regional administrator

Exhibit B

(month)

Priority Banks Examination Projection

(Include all such banks under examination)

Name of Bank & Location

Projected Starting Date(if under examination

indicate starting date.)

ProjectedCompletion

DateExaminer-in-

Charge

Type ExaminationRegular ExaminationVisitationBobtail Examination

Regional Administrator


Exhibit C

SPECIAL PROJECTS/BANK REVIEW PROGRAMANALYSIS SHEET

NAME OF BANK.

CITY

-REGION. -CHARTER #_

^STATE-

HOLDING COMPANY AFFILIATION-

1.2.3.4.5.6.7.8.9.

10.11.

18.19.20.21.

22.

23.

24.

25.

26.27.28.29.30.31.32.33.34.35.36.37.38.39.40.

41.42.43.44.

RatingDate of ExaminationExaminer-in-ChargeTotal ResourcesTotal DepositsPercent of Time Deposits to Total DepositsGross Capital Funds (GCF)Adjusted Capital Funds (ACF)Deposits x GCFTotal Assets x GCFLoans x GCF

12. Percent of Loans to Deposits13. Substandard14. Doubtful15. Loss16. Total Classified Assets17. Percent of Classified Assets to GCF

OLEMPercent of OLEM to GCF*SP RatioValuation Portion (Reserve for Loan Losses)—Amount

Percent of Total LoansLoans not supported for current Credit Information—Amount

Percent of Total LoansOverdue Loans—Amount

Percent of Total LoansNon-Accrual Loans—Amount

Percent of Total LoansBond Depreciation—Amount

Percent of ACFPercent of Direct or Indirect Investment in F/A to ACFPercent of Net Liquid Assets to Net DepositsLoans and OverdraftsDirect Lease FinancingAcceptancesStand-by Letters of CreditIrrevocable commitments to lendAdvances to AffiliatesTOTAL (Lines 28 through 33)Line 34 x GCFLarge ($100M or more) Time CDsDue to Banks—TimeBorrowings—Short Term* *TOTAL (Lines 36 through 38)Cash and Due from Banks

(Demand and Time)Money Market Assets* * *Market Value Unpledged BondsTOTAL (Lines 40 through 42)Net Volatile Liabilities (Line 39

minus Line 43)Percent of Total Resources

45. Operating Income46. Operating Expense47. Income before Income Taxes &

Securities Gains/Losses48. Net Income49. Add Provision for Loan Losses50. Add Recoveries credited to

Reserves51. Less: Losses charged to Reserves52. Adjusted Net Income53. Less: Dividends54. Retained Profits

(Showi prior three and current examinatc(Omit 000's)

)ns)

197 197 197 197

* SP Ratio: The adjusted sum of substandard, 50% of Doubtful and 50% of OLEM as a percentage of Adjusted Capital Funds.** Borrowings—Short Term: Include all forms of money market obligations, except for mortgage debt and capital notes and debentures,** Money Market Assets: Include Federal Funds sold and securities purchased under Resale Agreements.** Show last three full calendar years plus interim f"}ures through the month-end prior to the examination date.


Statement of Thomas W. Taylor, Associate Deputy Comptroller of the Currency forConsumer Affairs, before the Senate Committee on Banking, Housing and UrbanAffairs, Washington, D.C., July 29, 1976

I appreciate this opportunity to represent the Office ofthe Comptroller of the Currency in my capacity as Di-rector of the Consumer Affairs Division. Our Office has adeep commitment to consumer protection as it relates tonational banks. In addition to being good public policy,attention to good relations with consumers should resultin sound banking.

The Comptroller perceived early on the need to estab-lish a special division in our Office devoted to consumeraffairs which would coordinate the various activities theOffice was undertaking to assist the consumer and en-force consumer protection laws. That was before theMagnuson-Moss Warranty — Federal Trade Commis-sion Improvement Act of 1974 mandated that each bankregulatory agency have such a division. Our ConsumerAffairs Division was operating fully by September 1974.

Our experience since that time, has shown that ourexamination efforts in enforcing consumer protectionlaws need to be strengthened or given a new direction.During 1975 and 1976, one of our regional offices con-ducted specialized examinations as a test project. Theresults of that project convinced us that there was sub-stantially greater non-compliance with consumer creditprotection laws than we had previously thought, and,accordingly, we have decided to implement a crashprogram aimed at examining, for consumer protectionpurposes, each national bank in the 12-month period be-tween 1976 and 1977.

Beginning this fall, a select group of 250 examiners willundergo 2 weeks of intensive training in newly designedprocedures for examination of national bank compliancewith consumer protection laws. The special consumerexamination will cover Truth-in-Lending, Equal CreditOpportunity, Fair Credit Reporting, Fair Credit Billing,

Fair Housing, Home Mortgage Disclosure, Real EstateSettlement Procedures, advertising, usury and applic-able state laws. We have isolated a number of the pro-visions of the laws affecting those areas which we thinkmerit more emphasis than others. Therefore, the newexamination procedures will focus on those problemswhich will result in a significantly adverse impact on con-sumers.

Examiners will be prepared to review note forms usedby the banks and to take a statistical sample of theirloans to review for conformity with various statutory andregulatory requirements. A bank's lending policies alsowill be examined as will its policies for implementingconsumer protection laws. Extensive interviews of lend-ing officers will be conducted to assist in determining abank's adherence to its policy standards.

Where violations are detected during the examination,we will use the full authority of our Office to see that theyare corrected. Where bank customers have been ag-grieved, we will use our authority to the fullest to correctthe situation.

Our Office is devoting extensive resources to the con-sumer protection area in the processing of consumercomplaints and conducting of examinations. We havefound that both consumers and banks have benefittedfrom the changes brought about by the new consumerprotection laws. Despite the necessary complexity ofmany of the regulations, increased disclosure and morerigorous, non-discriminatory credit guidelines haveserved to educate the public and to improve relations be-tween banks and their customers. The answers to thequestions that you submitted, are included in the ap-pendix to my statement.

Appendix to July 29 Statement by Thomas W. Taylor

Responses to the Committee's QuestionsQuestion: Please describe the organization, staffing andresources allocated to your consumer affairs division. Towhat extent does it operate through regional offices?How are its existence and its complaint-handling func-tion publicized?Answer: The Consumer Affairs Division of the Office ofthe Comptroller of the Currency was created in March1974, and was organized in September 1974. It is staffedby an Associate Deputy Comptroller who serves as di-rector, two consumer affairs specialists and two sec-retaries. The division receives substantial support fromother departments within the Office, particularly the LawDepartment. Because the division cuts across severalpolicy and operating areas, the director reports directlyto the Comptroller. That close alliance also makes it clearthat consumer protection efforts are of fundamental im-portance to the Comptroller.

All consumer complaints are monitored by theWashington Office. Depending upon where they are re-ceived, complaints are handled by one of our 14 regionaloffices, as well as by the Consumer Affairs Division. Thefunctions of the division have been publicized in news-paper columns throughout the United States, inbanking-oriented newsletters and periodicals, by ap-pearances before both public and banking groups andby mention in public television programs prepared byother government agencies. At least one regional officehas been listed in the Yellow Pages under a consumerprotection heading. As a result of a requirement of Regu-lation B of the Board of Governors of the Federal ReserveSystem (Board), loan applicants are given notice thatthis agency has the responsibility for enforcing thestatutory provisions of the Equal Credit Opportunity Act.As a direct result, we are receiving an increasing amount


of consumer correspondence. Also, Regulation C of theBoard, which implements the Home Mortgage Disclo-sure Act, requires that national banks subject to the Actdesignate this Office as the agency responsible for en-forcing the regulation.

A new factor in allocating staff and resources to theConsumer Affairs Division will materialize in September1976. At that time, approximately 10 percent of our fieldexamination force will begin to devote their efforts exclu-sively to special consumer examinations, with the sup-port of a specialist in each regional office.

Question: Please indicate the numbers and — to the ex-tent possible — the types of consumer complaints re-ceived. How many were found meritorious? What dispo-sition was made of these complaints?Answer: [At the end of this Appendix] is a summary ofcomplaints received by the Washington Office from 1973through 1975 and by the Washington and regional of-fices in the first half of 1976. Those data were derivedfrom our Consumer Complaint Information System(CCIS). That computer system was established at ourWashington Office in August 1975, and became opera-tional for our regional offices on January 1, 1976. Previ-ously, the master file on citizen complaints, started in1970, consisted of nine filing trays containing approxi-mately 14,000 three-by-five cards. The 14 regional of-fices did not start sending those cards into theWashington Office until 1973. The data base for the CCISwas initially derived from the Washington Office routingslips. The CCIS is designed to identify volume, type andconcentration of complaints by region and by bank. Itserves as a useful tool in handling the increasing volumeof complaint letters we are receiving and in monitoringthe problem areas that might be indicated by consumercomplaints.

During the years 1973 through 1975, we received2,609 complaints at the Washington Office. During thefirst half of 1976, we received 2,850 complaints, includ-ing those processed by our regional offices. The [ap-pended] charts indicate the types and nature of thecomplaints and how they were resolved.

We record all complaints which we receive and weprocess all of them except those which are referred toother enforcement agencies. We respond to all com-plaints we process, except the few which are receivedfrom persons who are obviously unstable or not capableof understanding that a problem does not exist.

Question: What procedures are used to handle con-sumer complaints? Are all complaints processed? Howpromptly are they handled? Are there maximum time lim-its for dealing with them?Answer: When a complaint is received, a letter of ac-knowledgement is sent to the complainant. At the sametime, a letter is sent to the bank involved, describing thecomplaint and asking for the bank's explanation. If thecomplaint is very complex or contains an extremely seri-ous allegation against the bank, an examiner may besent to the bank to investigate the facts. After receivinginformation from the bank or the examiner, the situation isanalyzed by our Washington or regional staff and the

complainant is informed of our findings and determina-tion. If the bank has erred or violated a law, it is directedto seek the proper remedy with the customer.

Generally, we have found banks to be responsive toour inquiries concerning consumer complaints. If theyhave made an error, they usually will issue an apology tothe complainant and an explanation of the corrective ac-tion they have taken. If the bank's defense is that its ac-tion was legally proper or that the consumer should beseeking redress from a third party, and if we agree, weapprise the complainant and suggest he seek legalcounsel. In instances where there is a factual dispute be-tween the parties, we advise the complainant that we donot have authority to adjudicate such matters and that heshould seek legal advice concerning possible redress inthe courts.

All complaints received by this Office are processed,and all are answered with the few exceptions notedabove. Generally, we attempt to give a final response tothe complainant within 4 weeks of receiving the com-plaint. Of necessity that schedule varies according to theamount of time required to receive a response from thebank or examiner. In more complex matters, there areoccasions when a complaint may not be resolved forseveral months.

Question: Do the staff members assigned to consumercomplaints also have other enforcement duties?Answer: Two members of the Law Department, who op-erate outside the Consumer Affairs Division, devote fulltime to processing consumer complaints. Other mem-bers of the Consumer Affairs Division, the Law Depart-ment, and regional office staffs who have responsibilityfor consumer complaints have other enforcement re-sponsibilities. We have not found that those other dutiesinterfere with complaint processing. The staff of the Con-sumer Affairs Division devotes full time to consumer en-forcement responsibilities, except that the director isalso the Comptroller's delegate to the National Commis-sion on Electronic Fund Transfers. That responsibility isconsidered consumer-related.

Question: Through what devices does your agencyexercise its responsibility to enforce the consumer pro-tection law? Through regular examination? Specialexaminations? Education? Other methods?Answer: At the present time, the principal means of en-forcing consumer protection laws is through the regularbank examination. Although all examiners are advised ofthe principal components of those laws, we have con-cluded that the only effective means to enforce con-sumer laws is by specialized examinations conductedby specially trained examiners. We now are preparingtexts, procedures and questionnaires to implement thatnew examination process. Various task forces havebeen created to assist in that task, and we are preparinga curriculum of training procedures to equip approxi-mately 250 examiners in the next year to conduct thoseexaminations. We will begin September 13,1976, to train135 examiners in three schools of 2 weeks each, and weplan to have examiners in the field by late Septemberand early October. Twelve months later all national


banks will have been subjected to a consumer examina-tion. The examination will cover Truth-in-Lending, EqualCredit Opportunity, Fair Credit Reporting, Fair Credit Bil-ling, Fair Housing, Home Mortgage Disclosure, Real Es-tate Settlement Procedures, advertising, interest on de-posits, usury, and applicable state laws. As the result of atest project, we have isolated certain areas in these lawswhich we think merit more emphasis than others andtherefore we will focus our attention on those targets. Thepurpose the examination procedures will be to focus onthose problems which result in a significantly adverseimpact on consumers.

One other method we use for enforcing compliancewith consumer protection laws is through the review ofconsumer complaints, as previously noted.

Question: How are your bank examiners trained, with re-spect to examining for violations of state and federalconsumer protection laws? Would you supply the Com-mittee copies of the training materials used, handbooksor other instructional materials for examiners on the job,and examination report forms used for assessing com-pliance in this area?Answer: New examiners have been educated in con-sumer protection law when they are assigned to trainingcrews for 6 months. During that period they areindoctrinated into the entire regular examination pro-cess, including consumer protection compliance. Untilrecently, newly commissioned national bank examinershave attended a 2-week training session which includeda nominal amount of consumer law instruction. At thepresent time, that course is being addressed to sea-soned assistant examiners. Although those sessions willcontinue to include instruction on consumer laws, thetraining emphasis will be on a separate school devotedexclusively to consumer protection enforcement, asnoted in our earlier response.

We are including a copy of page 6-1 of our presentexamination report [may be found at the end of this ap-pendix after the summary of complaints], which we usefor examining for compliance with the Truth-in-LendingAct. Because the Office is adopting new examinationprocedures, that page will not be used in the future.Rather, as noted above, Truth-in-Lending will beincluded in the special consumer protection examina-tion. The report itself will be in memorandum form culledfrom certain working materials. We expect to have thosematerials completed in the next few weeks.

Question: How are examiners supervised, with respectto examining for violations of state and federal consumerprotection laws? To what extent do supervision and train-ing include reviewing state laws applicable to the banks?Answer: National bank examiners are directly super-vised by their regional administrator and enforcementaction concerning violations of state and federal con-sumer protection laws is taken by the regional office.When matters concerning violations cannot be satisfac-torily resolved in the region, they are referred to theWashington Office for formal enforcement proceedings.

At the present time, supervision and training concern-ing state laws vary considerably from state to state. That

is due to a number of factors, i.e., disparities in effect ofthe different state statutes, the variety of enforcementapproaches and the degree of involvement of statebanking officials. In some states most consumer protec-tion is contained within the procedural rules of localcourts, in which there is little room for federal participa-tion. In a few states our examiners have been using con-sumer protection examination manuals prepared by thestate for the use of its examiners. That has been the casewhere a fairly broad body of state consumer protectionlaw exists. In some states, we have conferred with stateregulatory authorities concerning the enforcement ofstate laws, and in others there has not been muchinteraction between the regional office and the state au-thorities. As part of our specialized consumer examina-tion, we are contacting each state banking departmentand asking them to provide us with an analysis of stateusury laws. At the outset, we believe that that is the mostimportant area of state law affecting consumers. How-ever, we intend to broaden our scope to include otherpertinent state laws as our programs develop.

Question: How are bank examinations conducted, withrespect to consumer protection laws? Are they com-prehensive reviews of the bank's consumer transac-tions, or spot checks or random reviews? What system-atic records of violations are maintained? How are theexaminers' reports analyzed, and how are judgmentsmade about appropriate corrective measures?Answer: In examining with respect to consumer protec-tion laws, our examiners review a bank's loan applicationand note forms to determine that they comply procedur-ally with the law. Selected loans are also reviewed. Otherthan the listing of any violations in the report of examina-tion, no record of violations is maintained in theWashington Office. The regional offices maintain lists ofviolations in each bank's file. Examination reports areanalyzed in the regional office by a review examiner anda letter is written to the bank's board of directors askingfor appropriate corrective action in accordance with Of-fice policy.

The special consumer examination process willinclude a review of a bank's stated and actual lendingpolicies and its forms and a statistical sampling of loans.Internal controls used by the bank will be monitored, be-cause a complete audit of consumer loans is not feasi-ble. Violations of laws will be reported to the regional of-fice and a consumer affairs specialist will review the re-ports and prepare appropriate follow up data with eachbank. The Consumer Affairs Division will provide addi-tional technical support to the regional offices. Policyguidelines will be established to determine appropriatecorrective measures for various violations.

Question: Where violations are detected through bankexaminations, what corrective measures are sought?E.g., formal sanctions against the bank or its officers?Compensation for the aggrieved consumers? Changesin bank practices for the future? Publicity of the viola-tions?Answer: When violations of law are discovered duringbank examinations, we seek to impose a remedy which


is appropriate to the violation. If, for instance, there is atechnical violation in the bank's forms, we bring it to theattention of the board of directors and require that theforms be changed. We follow a similar procedure if thereare violations in advertising or promotions. If the cus-tomer has suffered a monetary loss because of a bank'sviolation of law, we ask for an equitable remedy, such asrestitution. That may occur through a lump sum paymentor, if the monetary burden would be unduly damaging tothe bank, we suggest that the bank might prorate theovercharge over the life of the loan, as in the case of along-term mortgage loan. If the bank resists complyingwith our request for restitution, we are prepared to useour cease and desist powers, although we have not yetbeen forced to do so.

In the relatively few instances where there have beenrepeated and continuing violations of consumer protec-tion laws, particularly of Truth-in-Lending, we have en-tered into formal agreements with the banks to gaincompliance. When a bank has violated the terms of suchan agreement, we have filed formal cease and desist or-ders.

To date, we have not followed a policy of making pub-lic announcements of violations found in individualbanks. From time to time we have carefully considereddoing so, and have concluded that it was the intentionand expectation of Congress that the banking agencieswould use the same private approach to consumer lawenforcement as they do for other banking laws. Thatconclusion is reinforced by the cross-references to theFinancial Institutions Supervisory Act (cease and desistpower) found in the CCPA and other recently enactedconsumer protection laws. The Financial InstitutionsSupervisory Act provides that the normal rule is that en-forcement proceedings under it are to be private, al-though the agency may go public if it determines that it is"necessary to protect the public interest."

To date we have been able to achieve correction ofabuses without public proceedings. In view of the pecul-iar sensitivity of depository institutions to loss of publicconfidence, we feel that it is important to continue thatpolicy. However, we certainly do not foreclose the possi-bility of public enforcement proceedings in appropriatecircumstances.

Question: To what extent, and how, are enforcementpolicies and criteria coordinated among the various fed-eral supervisory agencies? What coordination is donewith state agencies having parallel responsibilities?Answer: The federal financial institution supervisoryagencies share enforcement responsibility for manyconsumer protection laws, and there is obvious interestin interagency communication. The Federal ReserveSystem has been given the responsibility for promulgat-ing several consumer protection regulations. Our Officehas benefited from invitations to comment on proposedregulations and from formal and informal interpretationsissued after the regulations have become effective.Members of the Office of Saver and Consumer Affairs ofthe Board of Governors of the Federal Reserve System,the Office of Bank Customer Affairs of the Federal De-posit Insurance Corporation, and the Comptroller's Con-

sumer Affairs Division meet frequently to discuss mutualproblems and concerns. Information is exchanged con-cerning consumer complaints and examination proce-dures. Meetings also are held with the Federal HomeLoan Bank Board, the Department of Housing and UrbanDevelopment, and the Civil Rights Division of the De-partment of Justice, particularly on the topic of fair hous-ing. All of those agencies are contributing substantiallyto the development of our consumer protection examina-tion. In addition, we consult with the Federal TradeCommission on matters concerning unfair and decep-tive acts and practices by banks.

Most contact with state agencies originates from refer-rals of consumer complaints to and from our Office. Wecontemplate that there will be more coordination withstate agencies as we incorporate state consumer pro-tection laws into our new examination process. Meetingsalso have been held with state agencies on problems ofmutual concern.

Question: What degree of importance or priority does theenforcement of consumer protection laws have in youragency's overall operation? What degree of importancedoes it have in individual bank examinations?Answer: The enforcement of consumer protection laws isconsidered to be of fundamental importance by theComptroller's Office. Extensive development, technicaland training resources have been made available forhandling consumer complaints and for establishing ef-fective examination procedures. As noted above, a sub-stantial amount of examiner resources also will be madeavailable this coming September. Our objective is forevery national bank to have undergone a special con-sumer examination by October 1977.

Question: What degree of importance or priority does theenforcement of state consumer protection laws have inyour agency's overall consumer protection effort? Arestate enforcement personnel involved in your efforts?Are they notified? Do they have access to informationdeveloped by your examiners?Answer: Because this agency is responsible for examin-ing national banks, we have accorded a higher priority tofederal consumer protection laws than to state laws. Notall state consumer protection laws are applicable to na-tional banks, particularly in light of recent federal legisla-tion which has preempted state laws in many areas. Atthe present time our regional offices have beeninstructed to compile a more comprehensive record ofusury laws from the respective state agencies. Thatinformation will be incorporated into the consumerexamination. Thereafter, additional state laws which areapplicable to national banks will be compiled in a similarmanner. Normally, state agencies do not have access toinformation developed by our examiners because of ourexclusive visitorial powers over national banks underfederal law.

Question: Where a state has been exempted from fed-eral law, e.g., Truth-in-Lending, on condition that there isadequate state enforcement of substantially similar state


laws, who exercises enforcement responsibility with re-spect to banks under your jurisdiction?Answer: The Comptroller's "Office exercises sole en-forcement authority for all banking laws applicable to na-tional banks because of the exclusivity of our visitorialrights. Some states have received an exemption from theTruth-in-Lending Act where the state law is substantiallysimilar, but the Federal Reserve System, which has au-thority to grant such exemptions, has explicitly providedthat such exemptions do not apply to national banks inthose states.

Question: Is there any discernible incompatibility or con-flict of interest in your agency's dual responsibilities tosee to the bank's soundness and to consumer protec-tion?Answer: We do not perceive any incompatibility or con-flict of interest in our agency's dual responsibilities toinsure the sound operation of national banks and to pro-tect the consumer in accordance with law. We believethat a bank's safety and soundness depends in part onits compliance with consumer protection laws. There is apossibility that a bank subject to a large restitution rem-edy or to a class action for damages might be im-paired. However, in the first instance, we would attemptto arrange for restitution to be made over a period of timeto ease the burden and yet make the customer whole; inthe second instance, we do not believe that a court of lawwould impose an inequitable damage burden on a bank.Even if a separate agency were responsible for enforc-ing consumer protection laws, that agency would facethe same dilemma as to whether the public interestwould be served by jeopardizing a bank's ability to con-tinue to function in the community as a financialintermediary.

Banks are competitive institutions, and it is in theirself-interest to lend in a fair and non-discriminatory man-ner. Banks that treat customers fairly will acquire morecustomers than banks that do not.

Question: Regulations promulgated under the Con-sumer Credit Protection Act are lengthy, complex andtechnical. Why? Is this complexity necessary? Does thiscomplexity serve the consumer's interests?Answer: The main reason for the complexity of any regu-lation, and especially Regulation Z, is the multitude offact patterns which must be covered by the regulatorylanguage. There is always a trade-off in regulation writ-ing between simplicity and coverage. If an agency writesa general brief rule such as "All elements of cost to theborrower must be included in the finance charge," thenit merely has postponed answering hundreds of re-quests for individual rulings of what is meant by "cost tothe borrower." The resulting collection of individual rul-ings makes for even greater complexity and confusionthan a more precisely drafted regulation.

Another reason that the regulations promulgatedunder the Consumer Credit Protection Act are lengthy,complex and technical is because Congress has notgiven sufficient consideration to costs, social and eco-nomic, relative to the benefits to be derived from someprovisions of such legislation. For example, disclosure of

the method of rebating unearned finance charges onprepayment of loans involving precomputed financecharges is of dubious value to the consumer in shoppingfor credit because of the difficulty of comparing dollarcharges to percentages. The concept and computationis difficult and not readily understood, even by compe-tent bankers. That is not the type of information a con-sumer is likely to consider in applying for a loan.

In general, the federal government is attempting toachieve truth, equality and fairness in the granting ofcredit. Those are ideals based on moral principles andany attempt to achieve such ideals through legislationrequires that they be defined; that necessitates complex,lengthy and technical procedures.

Drafting a regulation to govern essentially subjectiveprocesses is an extremely difficult task. For example,discrimination in the granting of credit on the basis ofmarital status is prohibited. It would seem logical to for-bid the creditor from inquiring aboutthe applicant's mari-tal status on the assumption that if the creditor does nothave that information, he cannot discriminate on thebasis of it. However, because of state property laws, ifthe loan is to be secured, it is necessary to know the ap-plicant's marital status in order to establish a valid lien.Therefore, to draft a law or regulation to achieve thatgoal, it is necessary to reach a compromise between thebank's need to know certain information and the appli-cant's right to withhold such information. The conclusionwhich must be drawn is that some degree of complexityis inherent in attempting to prohibit unlawful discrimina-tion and deceptive practices.

That is not to advocate the abolition of laws dealingwith discrimination and broader disclosure. Despite thecomplexity of most such laws, generally they are ac-complishing their intended purpose. Those parts of thelaw which are not really beneficial to consumers shouldbe repealed selectively. Frustrations and costs will con-tinue to pose problems in efforts to comply, but ultimatelyconsumers and creditors both benefit from the changesbrought about by these laws.

Question: What adverse effects do you perceive from thecomplexity of Regulations Z and B? What beneficial ef-fects?Answer: The consumer has derived benefit from the pro-visions of Truth-in-Lending that require disclosure of fi-nance charges and the annual percentage rate becausethe cost of credit is disclosed accurately which enableshim to shop for credit on a cost comparative basis. Simi-larly, the Equal Credit Opportunity Act has had a favor-able impact on the granting of credit to women. On thebasis of the consumer complaints we have received, it isapparent that many creditors are changing their at-titudes and policies in regard to granting credit towomen.

Unfortunately, Truth-in-Lending, Fair Credit Billing andEqual Credit Opportunity have caused creditors to incursubstantial costs in reviewing and printing forms,educating personnel and revising loan policies to con-form with the regulations implementing those statutes.Those costs have been passed along to consumers inthe form of higher interest rates. Also, marginal loan ap-


plicants who previously might have qualified for credit no certain areas of the country, attorneys for debtors wholonger qualify because of attempts by lenders to hold are filing for bankruptcy almost automatically file a legalcollection costs down. suit for a Truth-in-Lending violation in the hope that a

It also has been costly for this Office and other en- creditor will settle on the loan whether the case has meritforcement agencies to monitor compliance as more re- or not.sources of our Washington Law Department, regionalcounsels, and bank examiners have been devoted to Question: How can this regulatory complexity bethat task. A substantial amount of the Consumer Affairs avoided?Division's efforts is involved in enforcing consumer pro- Answer: As noted above in our answers to the last twotection regulations. A significant amount of the time of the questions, it is unlikely that regulatory complexity can besenior staff, as well, has been expended in that effort. avoided completely. The amount of complexity might be

There are also indications that some consumers have decreased by a judicious review of consumer protectionabused the laws. Some loan applicants believe that the | a w s t 0 determine which provisions do not bestow a trulylaw confers on them the automatic right to have credit. In necessary or significant consumer benefit.

Supplementary MaterialConsumer Complaint Resolutions

Jan. 1, 1975 through Dec. 31, 1975 Jan. 1, 1976 through July 19, 1976Received At Washington Office Received by Washington and Regional Offices

Number Disposition Number Disposition494 Closed; no resolution code 9 Closed; no resolution code

73 Open complaints 801 Open complaints10 No reply necessary — To Files 43 No reply necessary — To Files68 Bank errors 100 Bank error

229 Bank legally correct 825 Bank legally correct22 Consumer reimbursed — Bank legally cor- 106 Consumer reimbursed — Bank legally cor-

rect rect38 Consumer reimbursed — Bank error 158 Consumer reimbursed — Bank error55 Factual dispute — contestable 323 Factual dispute — contestable

114 Referral to other agency 196 Referral to another agency124 Information 598 Information

16 Consumer reimbursed — Communication 80 Consumer reimbursed — Communicationproblem problem

13 Settled by mutual agreement 39 Settled by mutual agreement1,256 Total 3,278 Total

Consumer Complaints - Deposit Function - Washington and Regional OfficesJan. 1, 1976 to June 30, 1976

Vacation INature of Complaint Time Demand Xmas Club Escrow Savings Other TotalAdvertising 5 6 — — 4 1 16Attachment and Claims Freezing 1 15 — — 5 — 21Deposit Not Credited 1 87 — — 13 3 104Deposit Not Credited on Day Made — 10 — — 4 1 15Disclosure of Account Service Charges

& Terms 5 5 — 1 5 1 17Discrepancy in Account 4 131 — 5 58 7 205Forged Signature or Endorsement 4 58 — — 13 3 78Offset or Set-Off 4 26 — — 5 1 36Payment of Interest 28 3 1 2 36 5 75Processing Without Benefit of Endorsement . — 20 1 — — — 21Refusal to Cash or Pay Customer's Check .. 2 35 — 1 2 — 40Refusal to Cash Non-Customer's Check — 9 — — — 5 14Release of Funds 3 22 3 2 27 7 64Renewal Automatic — — — — 1 — 1Service Charges 2 64 — — 17 2 85Stop Payment Check Being Paid 3 45 — 1 — 2 51Untimely Dishonor of Instrument — 27 — 1 — 1 29Possible Escheat or Inactive Account — 4 — — 33 4 41Account Regulations - Procedures 18 76 — 4 21 4 123Other _8_ __49 =_ JO. 20 10 97

Total 88 692 5 27 264 57 1,133


Consumer Complaints - Loan Function - Washington and Regional Offices

Jan. 1, 1976 to June 30, 1976

Nature of ComplaintAcceleration ClausesAmount of Interest Charges - UsuryAmount of Rebate Upon

Prepayments 78'sCollateralCollection TacticsCollection Service and Attorneys ..Credit and Disability Insurance - TILDiscrimination by AgeDiscrimination by Sex, Marital StatusDiscrimination by Race, National

OriginDiscrimination by ReligionEqual Lending PosterEscalator ClausesFair Credit Reporting ActFlood Disaster ActIndividual Credit DecisionInstitutional Loan PolicyLate Payment Penalty Charges . . . .LeasingReal Estate Settlement Procedures

(RESPA) ActRedliningRefusal to RenewRepossession or ForeclosureRestrictions on Security Interests ..Regulation Z - AdvertisingRegulation Z - Fair Credit Billing ActRegulation Z - DisclosureRegulation Z - Oral Disclosure . . . .Regulation Z - Right of Rescission .Regulation Z - Unauthorized Mailing

of IssuanceRegulation Z - GeneralForgeryCredit AccountOther

Total

Credit/BankCard

rv)

68

_1

23

IV)

11

45

3—

26

58106

—

_

5

IV)

1

113

IV)

—

1415

1558

462

CheckCredit /

Overdraft14

_—5

4

_—

z3

731

—

_

3

CM

1

_z41

Commercial 1Agricultural

17

26111

——

3—

4

516——

_119

—

——

—118

~6cf

Instal-ment

128

299

361712

7

3—

115

262428

2

_

425

IV)

813

1

327

_56_377

RealEstate

Mortgage—

13

CvJ

IV)

121

IV)

1—

z

IV)

623

5—

1

CM

314

IV)

11

IV)

—

1—7

46140

SinglePaymentDemand

1

CvJ

IV)

31

———

_—

z————_1

——————

—1

—1

12

Other1

10

33552

3

11

z9

113

CvJ

IV)

2

CM

31

—14

—

———33

107

Total7

132

3423752718

61

111

159

11379424

35

1070

93

12623

1

1459

31209

1.207

247


Consumer Complaints — Other Functions — Washington and Regional OfficesJan. 1, 1976 to June 30, 1976

Function Number

Electronic Funds Transfer System: 2Automatic Bill Payment 1Automatic Payroll Deposit 1CBCT Equipment 1CBCT Location —Confidentiality —Customer Identity Technique or Methods . . . . 1Error Correction Procedures 4Liability 1Monthly Statement 1Transaction Errors • 1Transaction Receipt or Record of Reconciliation-Wrongful or Fraudulent Use of Card 2

Total for function 15

Trust Services: 31Excessive Charges 6Improper Disbursement 14Investments 13Prudent Handling of Estates/Trusts 30Too Long to Close and Disburse Estates 12Refusal to Respond for Information 24


Foreign Operations: 1

Letters of Credit/Travelers' Checks 8Foreign Currency Transactions 19Foreign Draft Presentment 9


Function Number

Safety Deposit Box/Safekeeping: 11

Disappearance of Items 11Illegal Entry 4Service Charges 5Securities Redemption Transfer/Collection

Items 34Total for function 65

General Complaints: 89Advertising 12Cashing U.S. Government Checks 9Information Available to Stockholders 4Lost or Stop Payment of Offical

Checks/Money Orders 48Promotions 4Service Charges 9Stock Manipulation by Bank Officials 4U.S. Savings Bond Redemption 9Wire Transfer 9Incompetent or Rude Personnel 43Bank Supervision 8Secrecy 5Travel Business —Employee Hiring, Benefit, Firing 7Data Processing Services 3Conflict of Interest —

Total for function .263

Total complaints during period 2,850

Consumer Complaints - Deposit Function - Washington OfficeJan. 1, 1975 to Dec. 31, 1975

Nature of ComplaintAdvertisingAttachment and Claims FreezingDeposit Not CreditedDeposit Not Credited on Day MadeDisclosure of Account Service Charges

& TermsDiscrepancy in AccountForged Signature or EndorsementOffset or Set-OffPayment of InterestProcessing Without Benefit of Endorsement .Refusal to Cash or Pay Customer's Check ..Refusal to Cash Non-Customer's CheckRelease of FundsRenewal AutomaticService ChargesStop Payment Check Being PaidUntimely Dishonor of InstrumentPossible Escheat or Inactive AccountAccount Regulations - ProceduresOther

Total

Time421

—

16

29

616

—

11

1656

Demand14

172

222147

—2648

1813

31146

180

Vacation /Xmas Club

——

2—

_———3

1

6

Escrow Savings6111

16

—1

132

2

2

56

2976

Other6342

_6

53226

212

101

2580

Toti171025

5

440141030

786

221

28142

1920

121403


Consumer Complaints - Loan Function - Washington Office

Jan. 1, 1975 to Dec. 31, 1975


Prepayments 78'sCollateralCollection TacticsCollection Service and Attorneys ..Credit and Disability Insurancy - TILDiscrimination by AgeDiscrimination by Sex, Marital StatusDiscrimination by Race, National

OriginDiscrimination by ReligionEqual Lending PosterEscalator ClausesFair Credit Reporting ActFlood Disaster ActIndividual Credit DecisionInstitutional Loan PolicyLate Payment Penalty ChargesLeasingReal Estate Settlement Procedures

(RESPA) ActRedliningRefusal to RenewRepossession or ForeclosureRestrictions on Security Interests . .Regulation Z - AdvertisingRegulation Z - Fair Credit Billing ActRegulation Z - DisclosureRegulation Z - Oral Disclosure . . . .Regulation Z - Right of Rescission .Regulation Z - Unauthorized Mailing


Total

Credit 1BankCard

12

1

7

——

2

752

111

311

——

71

—3

37119

CheckCredit/

Overdraft

4

rv)

21

15

1——3

1

rv>

—

—1

roIV

)

—62

——

_

—1

rv>

38

Commercial 1Agricultural

—

1

——

—

2——

—

IV)

1—

——

—1

——

_

—

310

Instal-ment

14

643

3

4

4

rv>

1

——6

1

ro

—1

_

112

2167

RealEstate

Mortgage

3

3

1

1

1

1111

14

—42

1

_

2—3

1747

SinglePaymentDemand

1

_

2—

——

1

11

————

11

—

——

———

——

_

—

311

Other—

9

332

rv>

1

2

2

413

6

IV)

45

ro

122

—12

—30—

211

20142

Total1

33

12127441

16

66

131

153

2017

6

154

1553

396

301

725

211

103434

249


Consumer Complaints — Other Functions — Washington OfficeJan. 1, 1975 to Dec. 31, 1975

Number FunctionFunctionElectronic Funds Transfer System: 2

Automatic Bill Payment —Automatic Payroll Deposit 3CBCT Equipment 2CBCT Location 1Confidentiality —Customer Identity Technique or Methods 1Error Correction Procedures 2Liability —Monthly Statement 2Transaction Errors 1Transaction Receipt or Record of Reconcilation —Wrongful or Fraudulent Use of card _1_


Trust Services: 28Excessive Charges 2Improper Disbursement % 7Investments * 1Prudent Handling of Estates/Trusts 22Too Long to Close and Disburse Estates 4Refusal to Respond for Information _3_


Foreign Operations: 1Letters of Credit/Travelers' Checks 12Foreign Currency Transactions 4Foreign Draft Presentment 6


Number

8111

Safety Deposit Box/Safekeeping:Disappearance of ItemsIllegal EntryService ChargesSecurities Redemption Transfer/Collection

Items 20Total for function 31

General Complaints: 144Advertising 12Cashing U.S. Government Checks 8Information Available to Stockholders 8Lost or Stop Payment of Official

Checks/Money Orders 11Promotions 8Service Charges 1Stock Manipulation by Bank Officials 1U.S. Savings Bond Redemption 7Wire Transfer 7Incompetent or Rude Personnel 8Bank Supervision 22Secrecy 8Travel Business 6Employee Hiring, Benefit, Firing 3Data Processing Services 3Conflict of Interest 2


Total complaints received byWashington Office, 1975 1,232

Consumer Complaints - Deposit Function - Washington Office

Jan. 1, 1974 to Dec. 31, 1974

Nature of ComplaintAdvertisingAttachment and Claims FreezingDeposit Not CreditedDeposit Not Credited on Day MadeDisclosure of Account Service Charges

& TermsDiscrepancy in AccountForged Signature or EndorsementOffset or Set-OffPayment of InterestProcessing Without Benefit of Endorsement .Refusal to Cash or Pay Customer's Check ..Refusal to Cash Non-Customer's CheckRelease of FundsRenewal AutomaticService ChargesStop Payment Check Being PaidUntimely Dishonor of InstrumentPossible Escheat or Inactive AccountAccount Regulations - ProceduresOther

Total

Time2

1

2

813

Vacation /Demand Xmas Club Escrow

1 — —

1 — —— — —

_ _ _1 — —5 — —2 — —

2 — —1 — —3 — —

32 — —

— — —

17 — 138 — 1

Savings2

—

_3

—161

——

1

z

1

1227

Other1121

52

1

315

1111

1440

Tola~6"

131

197391529

4312

52119


Consumer Complaints - Loan Function - Washington Office

Jan. 1, 1974 to Dec. 31, 1974


Prepayments 78'sCollateralCollection TacticsCollection Service and Attorneys ..Credit and Disability Insurancy- TILDiscrimination by AgeDiscrimination by Sex, Marital StatusDiscrimination by Race, National

OriginDiscrimination by ReligionEqual Lending PosterEscalator ClausesFair Credit Reporting ActFlood Disaster ActIndividual Credit DecisionInstitutional Loan PolicyLate Payment Penalty Charges . . . .LeasingReal Estate Settlement Procedures

(RESPA) ActRedliningRefusal to RenewRepossession or ForeclosureRestrictions on Security Interests ..Regulation Z - AdvertisingRegulation Z - Fair Credit Billing ActRegulation Z - DisclosureRegulation Z - Oral Disclosure . . . .Regulation Z - Rights of RescissionRegulation Z - Unauthorized Mailing


Total

Credit/BankCard—

—

—

z—112

CheckCredit 1 Commercial 1 Instal-

Overdraft Agricultural ment

— — 2

_ _ _— — 2— — 1

— —

—— — 4

— — —

z z z— — —1 — 1

2— — —

Real SingleEstate Payment

Mortgage Demand

— —

_ _

— —— —

— —— —

_ _

— —

1 —

— —3 —2 —-j

"Other

12

521143

—

413

3146

—1

Total

14

5421434

414

31

101131

——

15

—

4221

4261

——

—

—

1——1

—3

11

1

13

2——1736

111

—

—

1——9

20

————

1—

———

3

12

—

IV)

—33

261

—8

128

23372

36

531

32

79252

251



FunctionElectronic Funds Transfer System:

[None]

Number Function

34Trust Services:Excessive Charges —Improper Disbursement —Investments 1Prudent Handling of Estates/Trusts 6Too Long to Close and Disburse Estates —Refusal to Respond for Information —


Foreign Operations: 2Letters of Credit/Travelers' Checks —Foreign Currency Transactions —Foreign Draft Presentment _2_


Safety Deposit Box/Safekeeping:Disappearance of ItemsIllegal EntryService ChargesSecurities Redemption Transfer/Collection

Items

5121

Number

General Complaints: 274Advertising 21Cashing U.S. Government Checks 7Information Available to Stockholders 4Lost or Stop Payment of Official

Checks/Money Order 5Promotions 3Service Charges 7Stock Manipulation by Bank Officials 1U.S. Savings Bond Redemption 4Wire Transfer 3Incompetent or Rude Personnel —Bank Supervision 24Secrecy 2Travel Business 1Employee Hiring, Benefit, Firing —Data Processing Services —Conflict of Interest —


Total complaints received byWashington Office, 1974 .790


Consumer Complaints - Deposit Function - Washington OfficeJan. 1, 1973 to Dec. 31, 1973

Nature of Complaint

AdvertisingAttachment and Claims FreezingDeposit Not CreditedDeposit Not Credited on Day MadeDisclosure of Account Service Charges

& TermsDiscrepancy in AccountForged Signature or EndorsementOffset or Set-OffPayment of InterestProcessing Without Benefit of EndorsementRefusal to Cash or Pay Customer's Check .Refusal to Cash Non-Customer's CheckRelease of FundsRenewal AutomaticService ChargesStop Payment Check Being PaidUntimely Dishonor of InstrumentPossible Escheat or Inactive AccountAccount Regulations - ProceduresOther .,

Total

Time

1

—

5

1

—

411

Vacation /Demand Xmas Club Escrow

1 — —2 — —

1 — —4 — —1 — —

— — —

2 — —3 — —

2 — 1

— — —

JO _ i _L26 1 2

Savings

8

—

51

1

1

2

JO.28

Other

11

1

32

5

12

3

739

Total

2013

173

151

3614

5

37107


Credit/BankCard

1

—

CheckCredit/

Overdraft

—

—

Commercial /Agricultural

—

—

Instal-ment

—

11

RealEstate

Mortgage

—

2

1

SinglePaymentDemand

—

—

Other

6

11

1

Total

7

32111

Consumer Complants - Loan Function - Washington Office

Jan. 1, 1973 to Dec. 31, 1973

Nature of Complaint

Acceleration ClausesAmount of Interest Charges - UsuryAmount of Rebate Upon

Prepayments 78'sCollateralCollection TacticsCollection Service and Attorneys ..Credit and Disability Insurancy - TILDiscrimination by Age — — — — — — — —Discrimination by Sex,

Marital Status — — — — 1 1Discrimination by Race, National

Origin — — — — — — 2 2Discrimination by Religion — — — — — — — —Equal Lending Poster — — — — — — — —Escalator Clauses — — — — — — — —Fair Credit Reporting Act 1 — — — — — 2 3Flood Disaster Act — — — — — — — —Individual Credit Decision 1 — — — — — 3 4Institutional Loan Policy — — — — — — 3 3Late Payment Penalty Charges — — — 1 — — — 1Leasing — — — — — — 2 2Real Estate Settlement Procedures

(RESPA)Act — — — — — — — —Redlining — — — — 1 — — 1Refusal to Renew 1 — — — — — — 1Repossession or Foreclosure — — — 1 1 — — 2Restrictions on Security Interests .. — — — 1 — — — 1Regulation Z - Advertising — — — — — — 5 5Regulation Z - Fair Credit Billing Act 3 — — — — — — 3Regulation Z - Disclosure — — — — — — — —Regulation Z - Oral Disclosure — — — — — — 3 3Regulation Z - Right of Rescission . — — — — — — — —Regulation Z - Unauthorized Mailing

of Issuance 7Regulation Z - General 2Forgery —Credit Account —Other _36_

Total 52 5 — 9 11 1 60 138

13

15

—

——

1

124

1—4

926

12

53

253


Function


Number Function NumberElectronic Funds Transfer System:

Trust Services:

1

13Excessive Charges —Improper Disbursement 1Investments —Prudent Handling of Estates/Trusts 2Too long to Close and Disburse Estates —Refusal to Respond for Information —


Foreign Operations: —Letters of Credit/Travelers' Checks 4Foreign Currency Transactions 2Foreign Draft Presentment _2_


Safety Deposit Box/Safekeeping: 3Disappearance of Items —Illegal Entry —Service Charges 2Securities Redemption Transfer/Collection

Items 2_Total for function 7

General Complaints: 250Advertising 30Cashing U.S. Government Checks 1Information Available to Stockholders 2Lost or Stop Payment of OfficialChecks/Money Orders 8Promotions 2Service Charges —Stock Manipulation by Bank Officials 1U.S. Savings Bond Redemption 4Wire Transfer 1Incompetent or Rude Personnel 3Bank Supervision 5Secrecy 3Travel Business —Employee Hiring, Benefit, Firing —Data Processing Services —Conflict of Interest .—


Total complaints received byWashington Office, 1973 587

Sample Examination Report Page

Form CC-1425-OX Page 6-1June 1971

UNITED STATES TREASURYCOMPTROLLER OF THE CURRENCY

Charter No..

REGULATION Z - TRUTH IN LENDING

Were test checks made of the bank's forms and procedures for disclosure? If any irregularities were disclosed,discuss in detail and indicate management's plan for correction.Has bank established effective procedures to detect defects in disclosures on dealer paper which it proposes toacquire? If not, or if there are defects, discuss in detail and indicate management's plan to correct existing proce-dures or establish new ones.Were test checks made to determine accuracy of interest computations and rebates? If any irregularities were dis-closed, discuss in detail and indicate corrective measures proposed to prevent future occurrences.Were test checks made of the bank's advertising? If any irregularities were disclosed, discuss in detail and indicateproposed plans to prevent future occurrences.If it appears that rescission rights are not being properly observed on both direct and indirect paper, discuss indetail.

[This represents the page, it is not a reproduction of it]


Statement of Thomas W. Taylor, Associate Deputy Comptroller of the Currency forConsumer Affairs, before the Subcommittee on Commerce, Consumer andMonetary Affairs of the House Government Operations Committee, Washington,D.C., September 16, 1976

I appreciate this opportunity to participate on behalf ofthe Office of the Comptroller of the Currency in the Com-mittee oversight hearings on Federal enforcement of theTruth-in-Lending Act. Our Office has a strong commit-ment to consumer protection as it relates to nationalbanks. As our efforts in that field seem to be misun-derstood by some commentators, I welcome the oppor-tunity to set the record straight. Thus, I would like to givethe Committee a brief background of our performance inenforcing consumer protection laws before answeringdirectly the specific questions posed in your letter ofinvitation.

The former Comptroller, James E. Smith, established aspecial division in our Office devoted to consumer affairsbefore the Magnuson-Moss Warranty — Federal TradeCommission Improvement Act of 1974 mandated thateach bank regulatory agency have such a division. OurConsumer Affairs Division, which was designed to coor-dinate the various activities the Office was undertakingtoward assisting the consumer and enforcing consumerprotection laws, was operating fully by September 1974.

Our experience since that time has shown that ourexamination efforts in enforcing consumer protectionlaws need to be given a new direction and strengthened.Our regional office in Boston began special consumerexaminations as a test project in November 1974. Theresults of that project convinced us that there was sub-stantially greater non-compliance with consumer creditprotection laws than we had previously thought and, ac-cordingly, we implemented a crash program with thetarget of examining, for consumer protection purposes,each national bank in the 12-month period between 1976and 1977.

As part of that program, a select group of 250 examin-ers are taking 2 weeks of intensive training and newlydesigned procedures for examination of national bankcompliance with consumer protection laws. The specialconsumer examination covers Truth-in-Lending, EqualCredit Opportunity, Fair Credit Reporting, Fair Credit Bill-ing, Fair Housing, Home Mortgage Disclosure, Real Es-tate Settlement Procedures, advertising, usury and ap-plicable state laws. We have isolated a number of theprovisions of the laws affecting those areas which wethink merit more emphasis than others. Therefore, thenew examination procedures will focus on those prob-lems which result in a significantly adverse impact onconsumers.

Examiners will be prepared to review note forms usedby the banks and to take a statistical sample of theirloans to review for conformity with various statutory andregulatory requirements. A bank's lending policies alsowill be examined as will its policies for implementingconsumer protection laws. Extensive interviews of lend-ing officers will be conducted to assist in determining abank's adherence to its policy standards.

Where violations are detected during the examination,we will use the full authority of our Office to see that they

are corrected. Where bank customers have been ag-grieved, we will use our authority to the fullest to correctthe situation. We recently sent a banking circular, a copyof which is attached, to all national banks informing themof our expanded consumer examinations, follow-up pro-cedures and formal enforcement actions.

Our Office is devoting extensive resources to the con-sumer protection area in the processing of consumercomplaints and conducting of examinations. We havefound that both consumers and banks have benefitedfrom the changes brought about by the new consumerprotection laws. Despite the complexity of many of theregulations, increased disclosure and more rigorous,non-discriminatory credit guidelines have served toeducate the public and to improve relations betweenbanks and their customers.

I would now like to turn to your specific inquiries. Yourequested information on the special consumer protec-tion examinations we conducted in New England. SinceNovember 1974, we have examined 27 national banks inthat region specifically to determine the level of theircompliance with state and federal consumer protectionlaws. Among the laws given particular attention wereTruth-in-Lending, Fair Credit Billing, Fair Credit Report-ing, Equal Credit Opportunity, usury and various appli-cable state laws.

Those special consumer examinations are designedto investigate compliance with specific consumer pro-tection laws. Each section of the examination report con-tains textual material which includes a summary descrip-tion of the respective topics, a statement of the examina-tion objectives, an explanation of the examination pro-cedures, the verification procedures to be used, and aninternal control questionnaire. Through the use of targetareas and statistical sampling techniques, examinerswill be able to confirm the degree of compliance withconsumer protection laws. Our objective is for all 4,700national banks to have received a special consumerexamination by November 1977.

You have requested the number and nature of Truth-in-Lending violations found in the banks which wereexamined in our New England pilot project. We have at-tached a chart as an appendix to this statement whichexplains the types of violations of sections of RegulationZ in each examined bank. We have previously submittedto the Committee copies of the examination reports.

Those violations have been corrected in two ways.Where the violation is purely technical and has not re-sulted in monetary harm to the customer, the bank hasbeen directed to correct immediately its procedures andforms. If the customer has suffered a significant loss,such as with a miscalculated annual percentage rate,the bank has been directed to reimburse the customerfor the excess amount charged.

You have also asked our position on the merits ofnon-compliance disclosure. Disclosure of possible viola-tions discovered during examinations would be both im-


practical and unfair. Examiners are trained to be severewith national banks and, not being lawyers, they occa-sionally err in interpretation of law. It would thus be mis-leading to the public and harassing to the banks to im-pose a disclosure requirement on what is aninvestigatory finding of a violation of law. Suchinvestigatory findings are not publicized by other federalagencies prior to institution of court action.

In the matter of disclosure, we are also concerned thatour traditional and effective methods of examination notbe weakened. Our Office is now able to examine nationalbanks with the cooperation of bankers who know thatinformation in the examination reports will remain confi-dential. We do not believe that Congress intends that ourability to examine national banks for the purpose of fi-nancial soundness and compliance with law be com-promised by publicizing information obtained throughsuch cooperation. The fomenting of widespread privatelitigation by such public disclosure would shut ourexaminers off from open communication with bankers bymaking bank examination an adversary proceeding, adevelopment which would render the examination pro-cess much more burdensome to the private sector,much less effective to the regulatory agencies and injuri-ous to the public welfare.

To date, this Office has been able to achieve correc-tion of abuses in virtually all instances without publicproceedings. In view of the peculiar sensitivity of de-pository institutions to loss of public confidence, we feelthat it is important to continue that policy. However, as wehave previously stated, we do not foreclose the possibilityof public enforcement proceedings in appropriate cir-cumstances.

Finally, your letter requested our position on preemp-tion of federal consumer protection laws by state lawsand access by state examiners to files of national banks.

Congress has given the Federal Reserve Board broadauthority to prescribe regulations in order to carry out thepurposes of the Truth-in-Lending Act. Pursuant to thatauthority, the Board has said that all transactions inwhich a federally chartered institution is a creditor consti-tute a separate class of transactions not subject toexemption from the federal Truth-in-Lending Act unlessthe Board is satisfied that appropriate arrangementshave been made with relevant federal authorities to as-sure effective enforcement of the requirements of statelaws. We think the Board has exercised discretion andprudence in declining to include national banks in theexemptions from federal consumer protection laws be-fore our Office, which has the primary supervisory andregulatory responsibility for national banks, is assuredthat enforcement capabilities of the states are suitable.

As for compliance with state laws, our examiners doinsist on such compliance when state laws are appli-cable to national banks. In light of the improvedmethodology and examiner training in our Office in theconsumer protection area, we do not think there is aneed for state officials to examine national banks for vio-lations of state laws or to take enforcement action againstnational banks. In fact, such actions would be a virtuallyunprecedented breach of the principles underlying thedual banking system and would subject national banksto more kinds of governmental intrusion.

Thank you for permitting me to explain our activitiesand views in this important area. I shall be happy to an-swer any questions you might have.

Appendix to September 16 Statement by Thomas W. Taylor

July 9, 1976Banking Circular No. 73To: Presidents of All National BanksSubject: Compliance with Consumer Laws — Expanded Examination Procedures

Within the past few weeks the Comptroller's Office has begun to implement new examination procedures designedto better determine compliance by national banks with a number of statutes enacted to protect consumer interests. Keyelements of the new examination effort include:

• Completely revised and greatly expanded examination questionnaires which will enable the examiner to probe thepolicies, procedures and practices of national banks for the purpose of assuring full compliance with the require-ments of consumer protection statutes and regulations.

• Expanded training programs which will require a mastery by assistant examiners of the new consumer-orientedexamination procedures as a prerequisite to obtaining a commission.

• Coordinated follow-up procedures which will require our regional offices to secure early bank correction of deficientpractices.

• Involvement by the Comptroller's Enforcement and Compliance Division in assisting the regional offices in obtainingcorrection of deficiencies by recalcitrant institutions — through formal procedures under the Financial InstitutionsSupervisory Act when necessary.


The new examination procedures initially will concen-trate upon those problem areas in which noncompliancemay have a significantly adverse impact upon consum-ers. When it is discovered that customers have beenharmed by noncompliance, we are confident that na-tional banks will act in a manner consistent with the pub-lic's faith and trust in them. It is expected that such ac-tions will include taking whatever steps are deemed ap-propriate to remedy conditions resulting from violationsof law, including restitution.

The experience of our examination force suggests thatmany deficient practices could be avoided simply bybanks scrutinizing their own compliance more carefully.Indeed, inadvertent violations are frequently caused bya failure of bank officers and counsel to match an under-standing of the law with an awareness of the details of thebank's procedures and practices. Because even highlytechnical violations of a number of these statutes can re-

sult in substantial punitive damages and protracted liti-gation, bank counsel, in particular, must be alert to de-viations from statutory and regulatory requirements. Alist of the statutes which should be reviewed by bankcounsel is attached to this circular.

In sum, the Comptroller's Office intends to assurewhatever degree of examiner scrutiny may be necessaryto obtain conscientious bank compliance with the re-quirements of these statutes. I encourage each of you toanticipate this heightened examiner inquiry by conduct-ing your own thorough in-house reviews of practices andprocedures in this complex, rapidly changing area.

Very truly yours,James E. SmithComptroller of the Currency

Attachment

Attachment to Banking Circular No. 73List of Statutes

Title Citation

Consumer Credit Protection Act:Truth-in-Lending Act 15 USC 1601 Regulation Z (12 CFR 226)Fair Credit Billing Act 15 USC 1666 Regulation Z (12 CFR 226)Consumer Leasing Act of 1976* 15 USC 1667 Regulation Z (12 CFR 226)Fair Credit Reporting Act 15 USC 1681Equal Credit Opportunity Act 15 USC 1691 Regulation B (12 CFR 202)Equal Credit Opportunity Act Amendments of 1976* . .15 USC 1691 Regulation B (12 CFR 202)

Home Mortgage Disclosure Act 12 USC 2801 Regulation C (12 CFR 203)Real Estate Settlement Procedures Act 12 USC 2601 Regulation X (24 CFR 3500)Fair Housing Act 42 USC 3605Advertising - Deposits 12 USC 371 b Regulation Q (12 CfR 217.6)Interest - Usury 12 USC 85 and 86Applicable State Laws

•Effective March 23, 1977


Violations of Section —

E « « U o ii « o TJ o - £ ^ S fl n U S 2 S S S 8 8 1 I o « ^ S 3 2 S H ^ o U 9 9 ^ - c ?! 5 g ^ fl o TJ 5 9 I 9 ?! S? TJ •- -S g S o Jo S S c o ° g Total

Item £ j c M c \ i £ i cu - ° c\j ^ ™ £j Violations

1 X X X X X X X X X X X X X X X 152 X X X X X X X X X X X X X X X X X X 183 X X" X X X X X X X X X X X X X X! 164 X X X X X X X X X X X X X X X X X X X 195 X X X X X X X X X X 106 X X X X X X X X X X X X 127 Y X X X X " 7 X ~ X " ~ X " X X X X T "X" T " X "X" X 198 X X X X 49 ~X~ I I ~X~~7" " X " ~X"~X" "X" ~ y ~ X " " X ~ T ~5T ~ X " X X X 1 8

1 0 X X X X X X X X X 911 X X X X X X X 71 2 X X X X X X X X X 91 3 X X X Y X X X X X X Y X X X X 1 51 4 X X X X X X X X X X X X X J £ . 1 41 5 X X X X X X X X X X X X _ K X X X 1 61 6 X X X X X X X X 81 7 X Y X X X X X X X X 1 01 8 X X X X X X X X X X 1 01 9 X X X X X X X X X X X X X 132 0 X X X X X X X X X X X X X X X X X X X 1 92 1 X X X X X X X 72 2 X X X X X 52 3 X X X X X X X X X X X X X X X ) £ . _ & _ X _ 1 82 4 X X X X X X X X X X X X 1 225 X X XX X 52 6 X X X X _ _ X X X X X - X _ X ^ X _ X J ( X _ X 1 62 7 X X X X X X X X X X X X X 1 3

l o t a l V i o l a t i o n s 1 1 5 1 8 1 3 6 7 7 1 4 3 2 5 2 1 1 4 3 2 4 1 1 1 0 2 1 5 2 1 1 1 1 5 1 1 0 1 4 2 2 1 3 1 5 3 1 4 3 1 1 9 1 6 2 0 4 1 6 9 2 1 2 3 3 1 1 2 7 1 1 1 2 4 1 2 2 3 3 7

Types of Violations of Regulation Z


Remarks of H. Joe Selby, First Deputy Comptroller of the Currency for Operations,before the American Institute of Certified Public Accountants, Washington, D.C.,December 14, 1976

My purpose today will be to briefly familiarize you withthe new approach that the Office of the Comptroller of theCurrency has taken in its supervision and examination ofnational banks. We are in the final segment of a processof radical change in which you, as chief financial officersof banks and as auditors of banks, will be principallyinterested. My comments will be restricted to an over-view of our new National Bank Surveillance System andhighlights of our revised procedures for examining bankactivities.

As a prelude to those important areas of change, I be-lieve a brief sketch of the background fostering themwould be appropriate.

During the past 3 years, the Comptroller's Office hascommitted a substantial portion of its resources to amajor reorganization. Our goal was to make the Officemore responsive to challenges facing the bankingindustry in the 1970's, as well as to those challengeswhich will certainly face us in the 1980's. As part of thateffort, the first comprehensive study of the Office in its113-year history was conducted. One of the majorrecommendations ensuing called for revision of super-visory procedures.

Without going into all areas of the revised practicesand procedures, I thought your needs would best beserved by concentrating on NBSS and the new commer-cial examination procedures. But first, I would like to out-line our objectives as national bank regulators.

The Comptroller of the Currency has responsibility forpromoting and assuring the soundness of our Nation'ssystem of national banks. Examinations are the fact-finding arm which we use in discharging that responsibil-ity. Central objectives of an examination are: (1) to pro-vide an evaluation of a bank's soundness; (2) to permitour Office to appraise the quality of management and di-rectors; and, (3) to identify those areas where correctiveaction is required to strengthen a bank, to improve thequality of its performance, or to enable it to comply withapplicable laws, rules and regulations. To accomplishthose objectives, evaluations are made of policies andpractices, adherence to laws and regulations, adequacyof liquidity and capital, quality of assets and earnings,nature of operations, and the adequacy of internal con-trol and audit. Although everything that either weakens orhas the potential to weaken the condition of a nationalbank must receive the attention of the Office and its staff,our primary concern is the soundness of the NationalBanking System. Under ideal circumstances, anexaminer's role is to make a qualitative analysis of thecondition of a bank. Accordingly, the scope of an exami-nation may embrace every phase of banking activity or itmay concentrate on specific areas which deservegreater emphasis because of their potential impact on abank's soundness.

To be able to ascertain the scope of the examinationand to assure the direction of the emphasis of the exami-nation to areas requiring attention, this Office developedthe National Bank Surveillance System. NBSS is primar-

ily an information gathering process in conjunction withan early warning system that provides information oneither the entire National Banking System, or on specificnational banks. The system is comprised of:

• A data collection system.• A computer-based monitoring system.• An evaluation by specially trained personnel of

the impact of financial and operating changes ona bank or the National Banking System.

• An initiation of special surveillance activities.• A review of procedures to control remedial ac-

tion.

The basis for the entire National Bank SurveillanceSystem is a data collection process which has beendeveloped from the condition and earnings reports. Abasic requirement of the Office was that already existingsystems be utilized so that changes and new devel-opments would be readily understandable and easy toimplement in a relatively short time. The utilization of thecondition and earnings reports met that criterion.

The computer-based monitoring system is a relativelysimple data system which utilizes the data collected tocompile basic comparative ratios for each national bank.The ratios being generated by the computer system arenothing more than those ratios which each of you as ac-countants, bankers or auditors have been monitoring foryears. We are looking at return on assets, changes in netinterest earnings to average assets, changes in non-interest expense to average assets, average loans tocapital funds and several others. Those ratios and thecomparative data derived by this Office from the condi-tion and earnings reports are produced in the form of aquarterly, 14-page performance report on each nationalbank. Those reports will be furnished to the nationalbanks following year-end 1976 for the first time. The dataderived from the performance report is thoroughly eval-uated on a priority basis by specially trained NBSSanalysts. The analysis performed by the specialist fo-cuses on operating and financial changes in a specificbank which may result in the need for specialized surveil-lance techniques to prevent further deterioration.

After having evaluated the bank to determine the se-verity of the changes reflected in the performance report,a decision can be made concerning the need for spe-cialized surveillance activities. Those activities could beof the magnitude to warrant on-site inspection or simplyreview at the next regular examination. In either case, thebank may warrant notation on our Action Control Pro-gram. In its simplest terms, that system tracks the super-visory action being taken by the Office to assure that ourresponsibility for promoting the soundness of the Na-tional Banking System is being met.

The National Bank Surveillance System as a data sys-tem gives direction to the emphasis and scope of ourexamination procedures. A major portion of our time dur-


ing the last 2 years has been directed to the develop-ment of new examination procedures. The new formathas been developed principally by career personnelwho have long recognized the need for more sophisti-cated, formal and uniform procedures. We have nowdeveloped, tested and are in the process of implement-ing the new bank examination procedures. We currentlyanticipate full implementation by the end of the first quar-ter of 1977.

Those new procedures include four basic conceptualchanges. First, we will examine banks from the top down,beginning with an evaluation of policies, practices, pro-cedures and systems to gain an overall view of the bankbefore determining the scope of an examination. In thepast we tended to look at banks as of the examinationdate, rather than analyzing what might occur in the fu-ture. Our field tests indicate that although banks havemade attempts to formulate corporate objectives andstrategy, they may lack policies and procedures toachieve their goals. In retrospect, we find that suchbanks are having trouble not because policies are vio-lated, but because there are no policies.

We have no intention of formulating policy for the 4,700banks which we supervise. We will, however, point outsuch deficiencies to the directors and management andprovide general guidelines to assist them in developingpolicies adequate for their situations.

As a second basic change, our personnel will not re-peat functions adequately performed by others. Histori-cally, national bank examiners have been looked uponas both auditors and examiners and, in many banks, wehave performed that dual role. New procedures definethe supervisory role of an examiner, and audit proce-dures, which ideally should be completed by others, areclearly defined. A careful evaluation will be made of workperformed by internal or external auditors and creditexaminers. If those groups are adequately staffed bycompetent and independent professionals, and if thescope of their work is found to be adequate, we will ac-cept their findings, thus avoiding needless duplicationand freeing our personnel to devote their efforts to otherareas.

In a third basic conceptual change, the examinationprocess will be tailored to fit each bank, rather than at-tempting to make all banks fit one procedure. The pro-gram has sufficient flexibility to deal with the varyingstructures, sizes and conditions found throughout thevast National Banking System. The importance of soundmanagement policies and procedures will be constantlystressed, but we have no intention of attempting to makeall banks fit one mold. Instead, we intend to mold ourexamination procedures to the bank being examined.

The fourth basic change has already been alluded to.Each examiner's overriding concern will be the future ofan institution, rather than its present or its past. Suddendeteriorations in loan portfolios or liquidity have formerlytriggered the application of remedial action, but withinthe past 5 to 10 years, the speed at which a bank's condi-tion can deteriorate has increased significantly. Amongother factors, greater reliance on volatile deposits,increases in leverage, and rapid growth have contrib-uted to that fundamental change. Those circumstancesrequire that our Office be alert as early as possible to

deteriorating conditions in individual banks or in the Na-tional Banking System. Based on that conclusion, theComptroller's Office has developed examination andsupervision capabilities which we believe will enable usto meet the challenges of a period of continuing change.That system integrates financial reporting, continuingsurveillance and field examinations.

A new Comptroller's Handbook of Examination Proce-dure is a derivative of the recent study. The handbook isbeing printed at this time. The book will be in a loose leafform so that changes can continue to be made as ourWashington staff receives recommendations from fieldexaminers. The new handbook is not a comprehensivetraining guide. It is instead designed to provideguidelines and tools, with the overall objective of ensur-ing consistent application of examination proceduresand quality results. Examiners will also rely upon priorexperience and knowledge gained through the Office'scontinuing education programs. The handbook contains45 sections covering individual examination proce-dures, including 10 sections on lending. Perhaps a quickoverview of the handbook will illustrate the general con-cepts which we have already discussed.

Each section consists of six parts. The first is anintroduction which provides a summary description ofthe topic, giving insight to the section's contents. Thesecond part contains a description of items of primaryimportance, including target objectives which form thebasis for techniques used in determining the scope ofexamination for a specific area of interest.

Other target objectives are determination of com-pliance with laws, rules and regulations, and initiation ofcorrective action when needed. It should be recognizedthat this second section deals only with the broadest ofexamination objectives. Other appropriate objectiveshave been considered in development of the proce-dures set forth in the remaining areas of each section.

The third part outlines examination procedures whichare considered supervisory in nature and logicallyshould be performed by national bank examiners. Theywill allow examiners to accomplish target objectives.

The fourth part of each section provides a descriptionof internal controls in appropriate areas of examinationinterest that ideally should be in effect to provide properday-to-day protection. We characterize internal controls,in the broadest sense, as either accounting or adminis-trative. The AlCPA's Statement on Auditing StandardsNo. 1 defines accounting controls as those which com-prise the plan of organization and all methods and pro-cedures which are concerned mainly with and relate di-rectly to the safeguarding of assets and the reliability offinancial records.

Administrative controls comprise the plan of organiza-tion and all methods and procedures which are con-cerned mainly with operational efficiency and adher-ence to managerial policies. Those usually relate onlyindirectly to financial records. Usually, an examiner willbe primarily interested in accounting controls and thoseadministrative controls which involve adherence tomanagerial policies.

The fifth part of most sections contains verificationprocedures which ideally are accomplished by a bank'sinternal or external auditors and examiners, or a combi-


nation thereof. Although it is our goal to assume a super-visory role and leave the performance of verification pro-cedures to others, it should be noted that there is a dif-ference between that ideal role and an examiner's re-sponsibility. When we conclude that a bank's internalcontrol procedures or its program of internal/externalaudits are inadequate, we must not only broaden thescope of examination so as to gain assurance as to theexistence of assets and the reliability of financial rec-ords, but we must also make every effort to provide forcorrection of such deficiencies. Only then can we re-sume our normal supervisory posture.

The final part of each section sets forth specific laws,rules and regulations pertaining to the area of examina-tion interest. This part functions as a cross-reference be-tween the handbook and The Comptroller's Manual forNational Banks which contains significant national bank-ing statutes.

The handbook of examination procedure is alsointended to serve as a guide to examiners in their effortsto seek the establishment of written objectives and re-lated procedures in all areas where there are none, andthe correction of situations where deficiencies or lack ofcompliance exist.

To aid examiners, the handbook covers topics such asloan portfolio management, investment portfolio man-agement, asset and liability management, earningsanalysis, capital analysis and service area analysis. Asection on appraisal of bank management guidesexaminers in the assembly and evaluation of informationfrom all other sections and aids in uncoveringinconsistencies in the application of policies among var-ious management groups. Examiners should be able toincrease their level of professionalism and soundness ofthe banking system by encouraging all banks to followwhat we perceive to be the best practices currently exis-tent in the industry.

The new procedures should lead to the conduct ofconsistent and objective examinations of varyingscopes. The extent to which specific procedures areemployed in an individual examination will be dictatedby a bank's condition as disclosed by NBSS and bypre-examination analysis. In pre-examination analysis,we are now able to determine the scope of our examina-tion before we start the full examination. The scope isprimarily predicated on the evaluation of:

• Internal control.• Internal and external audit activity.• Policies, practices and procedures.

As I previously indicated, internal controls includeboth accounting and administrative controls. Theexaminer will be interested in accounting disciplines andthose administrative controls relating to adherence tomanagerial policies.

We will review the work performed by the internaland /or external auditors to ensure that those procedureswhich we have identified are, in fact, being performed.

The third area of evaluation is the review of the bank'spolicies, practices and procedures. As I said, we willexamine the bank from the top down. We will determine

the existence of policies and procedures in all bankareas.

Until now, we had the tendency to look at a bank onlyas of the examination date. We set forth the weaknessesand recommended corrective action. However, we didnot make an effort to assure similar problems would notreoccur in the future. It is now our position not only toidentify the problems, but also their causes. By givingmore attention to a bank's policies and practices, theexaminer increases his ability to detect situations whichmay cause problems in the future. By giving more atten-tion to a bank's audit activities, we can assure the di-rectors that they are fulfilling their responsibilities as dic-tated by law and tradition. By giving more attention tointernal controls, we can ensure ourselves that wherecontrols are adequate, little change should occur in thecondition of a bank, barring external factors, betweenexaminations.

Once our examiners undertake the actual examina-tion, they will utilize the most comprehensive proceduresavailable to any bank regulator. In some cases, we haveshifted emphasis from cursory review to in-depth evalua-tion. We have restructured the management functions inthe examination as well as some of the control points.

Bank management, directors and the Comptroller'sOffice all have individual and unique responsibilities tothe National Banking System. Our new procedures areconsistent with an overall program which encourageseach party to meet these responsibilities.

Our Office in the past adhered to a strict interpretationof the statutory requirements for examinations of nationalbanks. The statute requires that each national bank beexamined four times in a 2-year period, with the com-ptroller given the right to waive one of the four. The stat-ute does not define what parameters encompass anexamination. In each case, the three exams were com-plete, comprehensive on-site examinations. We havenow taken a different view of our statutory requirementsand have developed three types of examinations whichwe believe will assist us in directing our resources to bet-ter utilization. It was apparent to us that examinationswould be thorough, and they would require more timethan before. We, therefore, took the statutory require-ment and enlarged upon it by specifically defining threetypes of examination. A comprehensive examination willbe conducted once during each 2-year cycle, and willconsist of all examination programs and procedures. Aspecialized examination will be performed at least twiceduring the same 2-year cycle, limited in scope to specificprocedures deemed appropriate for a bank's particularsituation. Such an examination might include a review ofspecific problems found during the previous examina-tion or suspected problems identified by our NationalBank Surveillance System. During the specializedexamination, certain basic procedures will be followed inall banks, such as the review of board minutes as well asa review of management reports and policies.

It is estimated that such specialized examinations willtake one-fourth the time of former procedures, offsettingthe additional time required for the comprehensiveexamination.

We will also employ a third format known as special


supervisory examinations. As the name implies, thoseexaminations will be used in banks which require morethan the usual amount of supervision. They will be overand above the statutory requirements and a bank will becharged for the service in accordance with statutoryprovisions.

While the initial time required for completion of exami-nations may increase substantially, we expect it to di-minish as our examiners become more familiar with theprogram.

An obvious outgrowth of the revision of examinationprocedures of this Office is a completely new and,hopefully, more responsive report of examination. Theold report, as you are aware, contained numerous pagesof data which had been gathered by the examiner duringhis on-site examination. Much of that information wasreadily available to both bank management and theboard of directors in their own management reports. Theone important facet of the old report was the criticalcomments contained on page 2. Other important datawhich would have been of assistance to the bank man-agement and the board of directors was contained in theconfidential section of the old report and not furnished tothe board.

The new revised examination report is directed moreto the areas of concern which should be of principalinterest to the board of directors and senior manage-ment. This new report is divided into four principal sec-tions. The first section is a letter to the board of directorswhich sets forth the scope of examination and a sum-mary of all critical comments warranting management'sattention. This section capsulizes major points outlinedthroughout the comment section of the exam report. Thecommentary will include not only problems, but alsoprobable causes and recommended actions to assistthe directorate with remedial action in fulfilling their re-sponsibility.

The second section will include broader comments innarrative form covering major areas of the bank. Empha-sis in that section will be placed on the adequacy of

policies, procedures and compliance with the same.Comments on management's capabilities will beinterspersed under the various captions such as loanportfolio management. Each management appraisal willbe predicated on objective criteria and not on subjectivejudgment by the examiner.

The third section is the appendix, which will containsuch items as classified loan write-ups, credit and col-lateral exceptions, internal control deficiencies and othersupporting schedules deemed necessary to underscorethe comment section. In utilizing the appendix, we areable to develop a free-flowing narrative section in the re-port without involving the reader in numerous pages con-taining specific detail. We believe the report will be con-siderably easier to read and hopefully a better tool forboth management and the board of directors.

The final section of the report of examination will con-tinue to be confidential and not a portion of the bank's re-port. We have moved the bulk of the information con-tained in the confidential section out into the previouslydescribed three open sections ot the report of examina-tion. The confidential section will only contain informationimportant to the regional and Washington offices, suchas suspected violations of law.

In conclusion, we are convinced that the new directionwhich we have given our national bank examiners willgreatly improve the effectiveness and efficiency of theOffice of the Comptroller of the Currency. Our early warn-ing system, the NBSS, is the first of its kind in bank regu-lation and, together with the new examination proce-dures, will allow for an optimum use of our human re-sources and permit us to discharge our responsibilitiesthrough the examination process. However, of greaterimportance, is the fact that our more sophisticatedexamination process will also enhance the ability of bankdirectors and senior management to fulfill their re-sponsibilities to shareholders and depositors.

This, I think, justifies our efforts in making the Office ofthe Comptroller of the Currency a premier bank reg-ulator.


APPENDIX D

Selected Rulings of theComptroller of the Currency


Selected Rulings, Proposed Rulings and Policy Statements of the Comptroller of theCurrency

Date and Subject Page

January 19, 1976, Revised Assessment Schedule 265

July 15, 1976, Proposed Rulemaking on Disposition of Credit Life Insurance Income 268

October 15, 1976, Suspension of Customer-Bank Communication Terminal Ruling 273

October 20, 1976, Proposed Standards for Issuance of Letters of Credit by National Banks 273October 26, 1976, Policy Statements on Corporate Acitvities 274

October 28, 1976, Amendments to 12 CFR Subsequent to Suspension of Customer-Bank CommunicationTerminal Ruling 283

December 10, 1976, Amendements to 12 CFR Concerning the Form and Content of Annual Report toShareholders 286

264


Revised Assessment Schedule

Title 12 — Banks and Banking

Chapter 1 — Comptroller of the Currency,Department of the Treasury

Part 8 — Assessment of Fees; National Banks;District of Columbia Banks

Revised Assessment ScheduleOn December 24, 1975, the Comptroller of the Cur-rency published a proposed revision of 12 CFR 8.2 inthe Federal Register, 40 FR 59446 (1975), concerningthe assessment schedule to be applicable to all na-tional banks. The authority for the Comptroller to as-sess such fees may be found in R.S. 5240, asamended, 12 USC 482, and in section 3, 47 Stat. 1566,26 D.C. Code 102.

As cited in the proposal, the principal reason for theproposed increase is that expenses of the Office arerising faster than revenues. This disparity will cause anincreasingly larger operating deficit unless timely cor-rected. The proposed assessment schedule alsowould serve to correct the disproportionate manner inwhich large and small banks pay for the maintenanceand operation of the Office of the Comptroller of theCurrency.

Concurrent with the publication of notice of theproposed change of 12 CFR 8.2 in the Federal Regis-ter, the Comptroller sent a letter containing the pro-posal to the chief executive officer of each nationalbank. The purpose of this letter, dated December 22,1975, was to ensure that each national bank receivedtimely notice of the proposed change and to explainthe reasons for the change in detail.

Comments on the proposal were solicited both bythe notice published in the Federal Register and by theComptroller's letter to each national bank. It was re-quested that such comments be submitted by January10, 1976. In response to this invitation, 61 banks sub-mitted their views on the proposal.

Based on the explanation which follows, the revisionin the assessment schedule as proposed is adoptedwithout substantive change, to be effective thirty daysfrom the date of this publication.

For the past several years, the expenses of the Of-fice of the Comptroller of the Currency have been ris-ing faster than its revenues. Under the present as-sessment schedule, this Office will incur a $9 milliondeficit in 1975 and will incur a $22 million deficit during1976.

The largest proportion of the increase in the ex-penses of this Office has been caused by general fed-eral government pay increases mandated by Con-gress. The salary expense for the Comptroller's Officeincreased 109 percent between 1969 and 1975. Dur-ing this same period, the total number of employeesincreased 24 percent. Salary and personnel benefitsaccount for approximately 72 percent of the total ex-penses of the Office.

A second major factor contributing to the size of thedeficit was the loss of rent-free space in governmentoffice buildings. This change resulted from a 1974interpretation of a statute administered by the GeneralServices Administration, which for the first time re-quired the Office to pay rent to the United States forspace occupied in government buildings. Several ofthe Comptroller's offices have been relocated in thelast two years to private office buildings becauseadequate space was available more cheaply.

A third major factor is the general pressure of infla-tion, which has affected the cost of the operation ofthis Office as well as the operating cost of the bankswe regulate and other businesses throughout the na-tion. The Office travel expenses, for example,increased by 260 percent between 1969 and 1975.Until 1973, the growth of national bank assets was suf-ficient to offset, under the existing assessmentschedule, the increasing expenses. Since then, how-ever, the growth of bank assets has slowed, while theOffice expenses have continued to increase.

Concern was expressed by many bankers on thesignificant increase in the cost of operating the Comp-troller's Office, the size of the projected deficit, andthe expansion of the federal regulation of bankingwhich in part serves to increase the operating costs ofbanks. One banker suggested that "the Comptroller'sOffice should cut their expenses and the scope of theiroperations," while another observed that "there is apoint where the cost of regulation becomes undulyburdensome," but did not take the position that thispoint had been reached by the proposed assessmentfigures. Concerning the subject of increased regula-tion, it was suggested by several bankers that "theconstant flow of printed material materializing out ofyour office should be diminished, or stopped com-pletely," and the scope of operations pursued by thisOffice reduced, in order to minimize expenses.

The Office of the Comptroller of the Currency hasbeen created by federal legislation for the purpose ofregulating the National Banking System. Under the

265


National Bank Act, 12 USC 1 et seq., this Office has aresponsibility to take every necessary and appropriatestep to ensure that all national banks are thoroughlyexamined and are in compliance with the varied lawsenacted by Congress and the states. It would be pat-ently inconsistent with this objective and the duty of thethis Office as a federal agency to reduce the scope ofour operation and cease to implement our statutory re-sponsibilities solely because of increased cost. TheComptroller, however, should take all appropriatesteps to diminish, reduce and eliminate unnecessaryexpenditures. One major step in this direction is theimplementation of the reforms suggested by the Has-kins & Sells management study of the operation of thisOffice. If successful, these changes should make theexaminations more efficient, and perhaps reduce theoperating costs of this Office which could be reflectedin future changes in the assessment schedule.

Under the present assessment schedule, the figureon which the assessment on national banks is calcu-lated is the total asset figure reported on the report ofcondition (consolidating domestic subsidiaries), with aminimum assessment of $200. Assets on the books offoreign branches and foreign subsidiaries of nationalbanks are not now included in this figure. In addition,an assessment of $50 has been collected for eachbranch office.

In order to obtain a more equitable distribution ofassessments, the Comptroller of the Currency pro-posed an assessment schedule, hereinafter adopted,which applies a declining percentage rate to the totalassets reported on the consolidated report of condition(including domestic and foreign subsidiaries). By theterms of the revised assessment schedule, both thebasic flat fee and the separate branch fee are elimi-nated. However, the basic flat fee is to some extent re-placed by the relatively high percentage rate appliedto the first $1 million of total assets of each nationalbank.

The change in the assessment base to includeforeign assets was made for two reasons. First, fromthe supervisory standpoint, the Comptroller views na-tional banks as integrated entities, including domesticand foreign operations. This supervisory concern ex-tends to the quality of all assets, wherever booked; tothe income generated, whatever its source; and to thematurity structure of assets and liabilities, whereverdomiciled. Second, as the foreign assets controlled bynational banks have grown, this Office has necessarilydevoted more of its resources to the examination offoreign related operations at the head office of eachbank, at foreign branches and at offices of foreignsubsidiaries. This is reflected in the establishment, bythe Comptroller of the Currency, of an office in London,England, at which six national bank examiners arepermanently stationed. In addition to the personnel atthe London office, 154 examiners were sent abroad toexamine the foreign activities of national banks during1975. Thus, the inclusion of foreign assets in the as-sessment base is appropriate.

The elimination of the separate branch fee reflectsthe increasing centralization of bank records and re-cent modifications in examination techniques neces-

sary to meet this change. The elimination of the sepa-rate branch fee is also more consistent with the provi-sions of 12 USC 482, which governs the assessment ofnational banks.

The proposed method of revising the structure bywhich national banks are assessed will correct a histor-ical inequity which has benefited small banks for manyyears. Based on the existing assessment schedule,small banks pay for only a small portion of the cost oftheir regulation, while large banks pay several timesthe cost of their regulation. This imbalance is evidentby using even the most rudimentary cost accountingtechniques. For example, an average bank with assetsof $3.1 million would have paid an annual assessmentof $716, or $477 for each of three examinations over a2-year period. The cost to this Office of providing eachexamination for that bank, including the overhead ex-penses of maintaining this Office is $2,490. The perdiem expense alone of one examiner and two assis-tants to examine that bank is approximately $450.Under the proposed assessment schedule, thishypothetical bank will pay $1,745 for each examina-tion, which is still significantly less than the actual costof regulation to this Office.

The most frequently expressed opposition to the re-vised assessment schedule was that the increase ap-plicable to small banks is too large and will place aburden on the ability of such banks to continue to op-erate successfully. This criticism is often coupled withthe view that the proposed assessment schedule dis-criminates against small banks. These bankers statedthat large banks should bear the major burden of thecost of regulation because it is the large banks whichpose the most complex problems of regulation requir-ing the attention of the most skilled and highly paidpersonnel of the Comptroller's Office. As stated by onebanker:

It appears that an attempt to provide some relief tothe large banks will create an undue burden onthe small banks. In our opinion, the amount oftime, expense, and concern created by numerouslarge banks moving into [diversified areas] shouldbe paid for by the banks which create the excesstime, expense, and concern to the Comptroller'sOffice. A small, conservative bank trying to followprudent banking practices should not be requiredto absorb these excessive costs.

In this connection, some bankers suggest a gradualincrease or a surtax based on the present assessmentstructure in order to provide for a period of adjustmentand assimilation by small banks, while providing someincreased revenues for the Comptroller's Office.

The proposed increase, while perhaps large in per-centage terms for some small banks, represents asmall portion of the total operating budget of each na-tional bank. The increased assessment will not, in theopinion of the Comptroller of the Currency, disrupt orendanger the continued profitable operation of any na-tional bank. Furthermore, it is noted that some of thelargest banks in the United States will experience sub-stantial increases in their assessments as a result ofthe revised assessment schedule because of their ex-


tensive foreign operations. Adoption of the sugges-tions to postpone the adjustment by implementing amore gradual increase or by the imposition of a surtaxbased on the present assessment structure will onlyperpetuate the current imbalance in assessments.Such a proposal would also result in the inevitablewidening of the deficit of this Office which wouldnecessitate higher assessment rates at some futurepoint in time.

Several bankers have questioned the advisability ofan assessment schedule based solely on the assetsize of each bank. These writers note that it takesmuch longer to examine a bank with "serious problemsand involvements which inevitably require elaboratefollow-up" by the Comptroller's staff than it does toexamine a bank of similar size which has been conser-vatively managed and maintains a trouble-free assetportfolio. This system, they argue, provides a subsidyfor the "marginal operator" at the expense of the well-run bank. These bankers suggest that the Comptrollershould adopt a system of assessment more closely re-lated to the actual cost of examination of each particu-lar bank. Such a system would be analogous to themethod now employed for the examination of thefiduciary activities of national banks. (See 12 CFR 8.6).Another suggestion was to provide a credit against theassessment for banks of excellent asset quality. Anadditional alternative suggested by many of thesesame bankers is to provide for a reduction in the as-sessment of banks which employ independent au-ditors.

Reductions in the assessment schedule forindependent auditors, high asset quality, or othercriteria are inconsistent with the provisions of 12 USC482 which governs the assessment of national banksby the Comptroller of the Currency. Section 482 states,in pertinent part:

The expense of the examinations . . . shall be as-sessed by the Comptroller of the Currency uponnational banks in proportion to their assets or re-sources. The assessments may be made morefrequently than annually at the discretion of theComptroller of the Currency. The annual rate ofsuch assessment shall be the same for all nationalbanks, except that banks examined more fre-quently than twice in one calendar year shall, inaddition, be assessed the expense of these addi-tional examinations.

The origin of this section was section 54 of the Na-tional Bank Act of 1864, 13 Stat. 116, which estab-lished a system of assessment based on the length oftime necessary to examine a particular bank. This wassubsequently amended by Congress in 1875, 18 Stat.329, by establishing a schedule of assessment basedupon the capital of the bank examined. The presentsystem of assessment, based on asset size, was spe-cifically adopted by Congress in Section 21 of theFederal Reserve Act of 1913, 38 Stat. 271. Thus, withrespect to the regular assessment of the commercialactivities of national banks, Congress has rejected asystem of assessment related to the actual cost of

examination of each national bank and in its place haschosen a system based on the asset size of the bank.Any inequity which results because of differences inthe time necessary to complete a regular examinationof different or equal size banks has been created byCongress, rather than by a decision of this Office.Banks requiring examinations more frequently thantwice in one year are additionally charged, consistentwith the schedule which appears in 12 CFR 8.5. There-fore, the bank with "serious problems andinvolvements which inevitably require elaboratefollow-up" by the Comptroller's staff is not dependent ona subsidy by the well-run banks to the extent suggestedby some bankers.

Some bankers commented that, in their opinion, aninadequate amount of time was provided in which tosubmit comments relative to the proposal to revise theassessment schedule. A related issue mentioned bysome writers was that the proposal was made at year-end, which coincides with the busiest time of the year formost retail banks. In publishing this proposal for noticeand comment, the Comptroller has followed the provi-sions of the Administrative Procedures Act providing forthe promulgation of administrative regulations. Further-more, the action by the Comptroller of sending personalletters to the chief executive officers of all national bankswas designed to ensure that all banks were actuallyinformed of the proposal, an act beyond the minimal re-quirements of the Administrative Procedures Act. TheComptroller regrets any unnecessary inconveniencewhich may have been experienced because of the timeof year at which this proposal was published. However,the fact that this Office received 61 letters from bankersconcerning this proposal is evidence that sufficient timewas provided for comment by interested persons.

Several inquiries were received about whether theproposed new semiannual assessment fee affectedthe filing fees for charters or branches, the trustexamination fee, or the other fees found in 12 CFR8.3-8.8. The amendment being adopted affects onlythe semiannual assessment found in 12 CFR 8.2. Allother fees found in 12 CFR 8 remain unchanged.

The effective date of this amendment to 12 CFR 8.2,containing the revised assessment schedule, will beFebruary 20, 1976. Concurrent with publication in theFederal Register of this amendment, a bill for thesemiannual assessment for the period January 1,1976, through June 30, 1976, is being mailed to eachnational and district bank. The assessment for thisperiod is to be computed upon each bank's total as-sets as shown on the consolidated report of condition(including domestic and foreign subsidiaries) for De-cember 31, 1975. Payment of this semiannual assess-ment is due on or before the effective date of 12 CFR8.2, i.e., February 20, 1976. Thereafter, the expense ofexaminations of all national banks will be assessedsemiannually as of the dates of the second and fourthreports of condition. Each bank subject to the jurisdic-tion of the Comptroller of the Currency on such datesis subject to the full assessment without proration forany reason.

12 CFR 8.2 is revised to read as follows:


8.2 Semiannual assessment.

Each national bank and each district bank shall pay tothe Comptroller of the Currency on or before January31 and July 31 of each year a semiannual assessmentfee for the 6 month period beginning 30 days beforeeach payment date. The amount of the semiannual as-sessment paid by each bank is computed as follows:

If the bank's totalassets (consolidateddomestic and foreignsubsidiaries) are —(millions of dollars)

Over—

0$11050

100500

1,0003,000

10,00020,000

But notover—

$11050

100500

1,0003,000

10,00020,000

Thisamount—(dollars)

0$1,0002,1255,9258,925

28,92551,425

131,425369,425680,425

The assessment

Plus—

0.001000.000125.000095.000060.000050.000045.000040.000034.000032.000021

is—

Of excessover—

(millions ofdollars)

0$11050

100500

1,0003,000

10,00020,000

Each semiannual assessment is based upon thetotal assets shown in the bank's consolidated report ofcondition (including domestic and foreign subsidiaries)most recently preceding the payment date. The as-sessment shall be computed in the manner and on theform provided by the Comptroller of the Currency. Forthe period January 1, 1976, through June 30, 1976,only, the assessment shali be paid to the Comptrollerof the Currency on or before Feburary 20, 1976. Eachbank subject to the jurisdiction of the Comptroller ofthe Currency on the date of the second or fourth condi-tion reports is subject to the full assessment for thenext 6 month period without proration for any reason.

Effective date: This section becomes effective February20, 1976.

Dated: January 19, 1976.

Proposed Rulemaking on Disposition of Credit Life Insurance Income

Department of TreasuryComptroller of the Currency

[12CFR Part 2]

Disposition of Credit Life Insurance Income

Notice of Proposed Rulemaking

Notice is hereby given that the Comptroller of theCurrency, pursuant to the authority contained in 12USC 1 et seq., 12 USC 24(7), 60, 73, 92 and 1818(b),is considering the adoption of a new regulation, 12CFR 2, governing the disposition of income earnedfrom the sale of credit life, health and accidentinsurance (hereinafter credit life insurance) by nationalbanks or their officers, directors or principal share-holders.

Purpose of the regulation

The primary purposes of the regulation are to restatethe policy of the Comptroller's Office with respect tothe treatment of credit life insurance income and tosummarize certain principles applicable to suchincome.

In the past, the Comptroller's views on this subjecthave been communicated in oral discussions betweennational bank examiners and officers and boards of di-rectors of national banks; in letters signed by officialsof the Comptroller's 14 regional offices; in circulars dis-tributed by the regional offices to all national banks ina particular region; in letters to individual nationalbanks and other federal regulatory agencies signed by

officials of the Washington Office, including the Comp-troller of the Currency; in administrative actions pur-suant to the Financial Institutions Supervisory Act of1966, 12 USC 1818(b) et seq.\ and in litigation. Theproposed regulation is intended to consolidate andclarify these prior statements of law and policy, withthe objective of providing both examiners and bankerswith a convenient and definitive reference to the Comp-troller's views.

The regulation is addressed to a practice, engagedin by some banks, by which income from the sale ofcredit life insurance is diverted to individual officers,directors and principal shareholders, or to corpora-tions or partnerships owned by them, instead of beingcredited to the bank's income accounts. Despite pre-vious admonitions by the Comptroller's Office, thepractice still prevails in some national banks. TheComptroller believes that a formal regulation may nowbe desirable to halt this diversion of income, whichmay constitute an unsafe and unsound banking prac-tice, an unlawful distribution of the bank's income otherthan by the payment of dividends under the provisionsof 12 USC 60, a breach of the fiduciary obligation ofofficers and directors under both the common law and12 USC 73, a misapplication of bank funds punishableunder 18 USC 656 and other criminal statutes and, in


some circumstances, a possible violation of the anti-trust laws.

Description of the practice

The practice of diverting credit life insurance incometakes several forms. In its simplest form, the bank loanofficer is paid a portion of the commission as a substi-tute for salary. Since the loan officer in some instancesreceives the commission directly from the insuranceunderwriter, the bank's income account is never cred-ited. Alternatively, commissions earned by all loan of-ficers are pooled in a demand deposit account and di-vided among those officers and senior management atyear-end. The Comptroller's Office has been informedthat this practice is designed to encourage loan of-ficers to seek out and make installment loans. It wouldappear, however, that the practice serves at least asmuch to encourage loan officers, through subtle formsof coercion or otherwise, to have the borrower pur-chase credit life insurance as part of the loan package.That raises the question of whether such incentive ar-rangements result, or could result, in the tying of loans tothe purchase of insurance, a possible violation of the an-titrust la\|vs, including the anti-tying provisions of theBank Holding Company Act & Amendments of 1970 (12USC 1971 etseq.).

Moreover, the practice of allowing bank officers toreceive income directly from credit life insurance salesinvolves an inherent conflict of interest: the lending of-ficer's judgment is influenced by his direct financialreward from making the loan. Consequently, the officermay be induced to make a loan he would not other-wise have considered sound. While the maintenanceof a detailed and rigidly adhered to loan policy mighttend to reduce the number of cases where marginal orunsound loans are made primarily to reap the creditlife commission, banks where this incentive arrange-ment is common do not always have written loanpolicies that must be followed by all officers. Thus,there is a significant possibility that salaries structuredon this basis can produce loans of a lower quality thana well-managed bank normally would make.

The more complex diversions of insurance incomeare an outgrowth of the incentive practice just dis-cussed, the principal difference being that the sumsdiverted are much larger than the amounts involved inpayments to loan officers. In these situations, thebank's executive officers, who frequently are the prin-cipal shareholders as well, pay themselves sums in theform of credit life commissions equal to or exceedingtheir established salaries. In a number of cases, thebank's directors were completely unaware of the prac-tice. In other cases, the directors as a group form theirown corporation or partnership to which the insuranceincome is diverted. Not uncommonly, the recipientsuse that income to service personal debts incurred inthe purchase of the bank's stock, with the result thatindividuals and small groups of investors have beenable to finance the acquisition of a bank or a chain ofbanks partially on the expectation of receiving theincome from credit life insurance sales. Regardless ofthe arrangement, in most cases where large sums are

diverted to officers, directors or principal shareholdersthe bank receives little or no income from this corpo-rate opportunity associated with its business.

The amount of income diverted to persons or entitiesother than the bank can be substantial, both in abso-lute dollar amount and in relation to other bank income.At one national bank with total assets at year-end 1975of $17 million and pre-tax income of $280,000, creditlife insurance income of $83,000, or 30 percent ofincome, was diverted to individual officers. Of thatamount, $78,000 was paid to the bank's president,supplementing his salary and bonus of $24,660. A vicepresident in the same bank received $400 in additionto his salary and bonus of $20,550. Two assistant vicepresidents received approximately $2,600 each in ad-dition to their individual salary and bonus of $15,070.At another bank with total assets of $20 million and1975 pre-tax income of $181,000, the credit lifeincome totalled $91,000, of which the bank retained$14,000. The remaining $77,000 was credited to anon-premises insurance agency owned by five of thebank's nine directors. Even in larger banks, whereinstallment loans comprise a smaller percentage of thebank's loan portfolio, credit life insurance income cancontribute significantly to earnings. At one $900 millionbank, credit life income included in total pre-tax earn-ings of $8.2 million amounted to $630,000, or 7.7 per-cent.

The diversion problem also exists in holding com-pany arrangements. In a sizeable number of caseswhere the holding company owns less than all of thebank's stock, the credit life income is taken out of thebank and paid directly to the holding company insteadof being credited on the bank's books and upstreamedin the form of a duly declared dividend. The paymentof these sums directly to the holding company consti-tutes a disguised dividend not recognized by 12 USC60, and is clearly detrimental to the condition of thebank and the interests of minority shareholders. TheComptroller recently addressed these problems whenhe advised the Federal Reserve Board not to permit anational bank in Illinois to form a holding company byacquiring only 60 percent of the bank's stock andusing the credit life income to finance the holdingcompany debt.

Legal issues

The Comptroller of the Currency has held the view formany years that national banks may sell credit life,health and accident insurance, either by having thebank or one of its employees act as agent or by secur-ing a group policy yielding experience refunds on thebasis of the underwriter's loss experience. For exam-ple, in the 1960 edition of the Comptroller's Digest ofOpinions, the Comptroller stated, in Paragraph 9420,that national banks "wherever located" may provideindividual or group credit life coverage and chargetheir loan customers accordingly. Additionally, theComptroller's Office has stated that since credit lifeinsurance is now widely used by lenders as a form ofsecurity in lieu of requiring guarantors or co-makers onthe note, acting as agent for its sale is within that cer-


tain power granted national banks in 12 USC 24(7) "Toexercise . . . all such incidental powers as shall benecessary to carry on the business of banking . . . byloaning money on personal security." (Emphasisadded.) The Comproller's conclusion in this regard wasalso influenced by the widespread availability of creditlife, health and accident insurance at commercial banksthroughout the United States,1 and by the fact that creditlife insurance is not generally obtainable elsewhere,

Several methods of selling credit life insurance areused in the commercial banking industry. Under oneprocedure, the bank or its employee obtains aninsurance agent's license, which permits the sale ofindividual policies of credit life insurance. Under theproposed regulation, all commissions derived from thisarrangement must be turned over to the bank andcredited to the bank's income account for the benefitof all stockholders. If the commissions are initially re-ceived by the employee holding the agent's license,they must be transferred to the bank directly or pur-suant to a contract between the employee and thebank by which the employee agrees to reimburse thebank to the extent of his commissions for the use ofbank premises, employees and good will.

Another arrangement calls for the bank to secure agroup policy. Under this method, loan customers aresold certificates of participation in a group credit lifeinsurance policy, and the underwriter periodically re-mits to the policyholder (the bank) a dividend (some-times called an experience refund or retrospective ratecredit) based on the underwriter's loss experience.This procedure has been approved by the Comptrollerof the Currency for many years for all national banks,and is widely used in the banking industry for the saleof credit life, health and accident insurance.

Under still other arrangements, a national bank cansell credit life insurance at no profit pursuant to an ar-rangement with the underwriter calling for the bank tobe reimbursed for its administrative expenses in col-lecting and disbursing the premiums, furnishing theunderwriter a monthly statement, etc. Alternatively, anational bank may provide group credit life insurancecoverage at its own expense. Finally, a national bankmay refund to its borrowers any commissions or experi-ence refunds it receives.

The choice of the arrangement by which credit lifeinsurance is sold is the responsibility of the bank'sboard of directors. In the Comptroller's opinion, all ar-rangements described in section 2.6 of the regulationare permissible for all national banks. The proposedregulation expresses the Comptroller's further opinionthat under no circumstances may the board select a

1 Preliminary results of a recently completed survey by national bankexaminers of 2,900 of the nation's 4,700 national banks indicate thatless than 20 do not provide this service.

2Kerrigan v. Unity Savings Ass'n, 58 III. 2d 20, 317 N.E. 2d 39(1974), Goodman v. Perpetual Bldg. Ass'n., 320 F. Supp. 20 (D.D.C.1970); see also City Federal Savings & Loan Ass'n v. Crowley, 393 F.Supp. 644 at 658 (E.D. Wis. 1975); Rettig v. Arlington Heights Fed-eral Savings & Loan Ass'n, 405 F. Supp. 819 (N.D. III. 1975).

3Kotobzadeh v. First National Bank of Attalla, C.A. No. 29289-M,Etowah County Circuit Court, Ala.

method of selling credit life insurance that confers apersonal benefit upon an officer, director or principalstockholder.

Unsafe and unsound practices

For several reasons, the Comptroller believes that anyarrangement allowing parties or entities other than thebank to receive and retain income earned from thesale of insurance in connection with bank loans, is anunsafe and unsound banking practice.

First, analysis of the purposes of 12 USC 73 and 12USC 93 as well as common law fiduciary principlessuggests that directors may be held personally liable forallowing insurance income to be retained by partiesother than the bank. Historically, the courts have nevertolerated practices that allow management or control-ling stockholders to profit personally from corporateactivities in a manner detrimental to the interests ofother shareholders. The courts will have even lesssympathy when such practices are carried on in abank, whose management and directors owe not onlythe usual fiduciary duties to the bank and all its share-holders, but also a duty to depositors to conduct thebank's operations in a safe and sound manner.

' There are substantial risks of suits against directorsof national banks for diverting insurance income totheir own interests. At last count, approximately 36suits against directors of savings and loan associa-tions were pending in Cook County (Chicago) alone. Inthe two litigated cases on record,2 directors were heldfully or partially liable. In the only case involving a na-tional bank, the court found the directors personally li-able for all credit life insurance income diverted in thepreceding 3 years.3 Regardless of the outcome in aparticular case, stockholder suits on this issue gener-ate unfavorable publicity that tends to erode publicconfidence in financial institutions.

Second, the payment of income earned on bankpremises to some shareholders constitutes an unau-thorized preferential dividend. Such payments may bemade only after the income has been credited on thebank's books and included in the fund from which div-idends to all stockholders are paid under the provi-sions of 12 USC 60. Distribution of that income by anyother means reduces the sum available for dividendsto all shareholders and accords an unwarranted pref-erence to a few.

Third, failure to credit insurance income on thebank's books deprives the bank of earnings and,therefore, makes the bank less profitable.

Fourth, the acquisition of a bank or a chain of banksby investors who rely on the credit life insuranceincome to service their bank stock loans is inherentlyunsafe and unsound because it decreases theinvestor's concern for and interest in running a profit-,able bank. If investors are allowed to depend on an un-interrupted flow of credit life insurance income trans-mitted in the form of something other than a dividend,their incentive to assure a profitable, dividend-payingoperation is reduced. On the other hand, whereinvestors must rely solely on dividends rather than onextraneous sources of income to service their bank


stock loans, their interest in the bank's overall prof-itability is likely to increase.

Finally, arrangements that permit an officer, directoror controlling stockholder to engage in business for hisown profit while using the premises, personnel, goodwill and customers of a national bank, are inimical tothe trust and confidence placed by depositors in fi-nancial institutions. Because banks survive primarilyon public trust, conduct that may be permissible bysimilarly situated persons in a non-banking corporationcannot be condoned in a bank.

Conclusion

As indicated earlier, the proposed regulation isintended to reaffirm and clarify the Comptroller's long-standing policy against the diversion of credit lifeinsurance income to parties other than the bank or itsoperating subsidiary. Adoption of this regulation willconsolidate previous communications on this subject,thereby providing bankers and examiners with a con-venient means of reference to applicable principles.

The proposed regulation in large measure merelyrestates the Comptroller's existing policy; nevertheless,it is recognized that portions of the regulation could,depending on the circumstances, affect the operationsof a national bank in a substantive way. For this rea-son, the Comptroller deems it in the public interest tosolicit public comment. Accordingly, comments shouldbe submitted within 45 days of publication in the Fed-eral Register and be addressed to C. Westbrook Mur-phy, Deputy Comptroller for Law and Chief Counsel,Comptroller of the Currency, Washington, D.C. 20219.All comments received will be made available forinspection by any interested party.

The text of the proposed regulation follows.

Part 2 — Disposition of Credit Life InsuranceIncome

2.1 Authority

This part is issued by the Comptroller of the Currencyunder the general authority of the national banking laws,12 USC 1 etseq., and under the specific authority of 12USC 24(7), 60, 73, 92 and 1818(b).

2.2 Scope and application

This part applies to sales of credit life, health and acci-dent insurance by employees, officers, directors or prin-cipal shareholders of a national or district bank.

2.3 Definitions(a) "Bank" means a national banking association ora bank located in the District of Columbia and sub-ject to the supervision of the Comptroller of the Cur-rency.(b) "Beneficial ownership" shall include:

(i) Ownership through a spouse, child orspouse of a child;(ii) Ownership through a broker, nominee oragent;

(iii) Ownership through a corporation, partner-ship, association, joint venture or proprietorshipcontrolled by a director, officer, employee orprincipal shareholder of the bank.

(c) "Principal shareholder" means any shareholderwho directly or indirectly possesses beneficial own-ership of more than 5 percent of the bank's outstand-ing shares.(d) The terms "officer," "director," "employee" and"principal shareholder" shall include the spouse,child or spouse of a child of such officer, director,employee or principal shareholder.

2.4 Distribution of Income from Insurance Activities

(a) Except as provided in subsection (d), no bankor employee, officer, director or principal sharehol-der thereof, may act as an insurance agent for thepurpose of selling or otherwise making availablecredit life, health and accident insurance to bankcustomers unless all income from this activity iscredited to the bank or its wholly-owned subsidiary.

(b) Except as provided in subsection (d), incomefrom the sale of credit life, health and accidentinsurance by employees, officers, directors or prin-cipal shareholders to bank customers may not bedistributed or credited to any corporation, partner-ship, association or individual other than the bank, awholly-owned subsidiary of the bank, or the bor-rower.

(c) Except as provided in subsection (d), a bankwhich distributes to or allows retention by a corpora-tion, partnership, association or individual otherthan the bank, its wholly-owned subsidiary, or theborrower, of income from the sale of credit lifeinsurance by its employees, officers, directors orprincipal shareholders, is engaged in an unsafe andunsound banking practice.(d) A bank may transfer income earned from thesale of credit life, health and accident insurance toan affiliate whose beneficial ownership is identical tothat of the bank. For example:

(i) A bank wholly-owned (except directors'qualifying shares) by a holding company maytransfer income from the sale of credit life,health and accident insurance to an affiliatewhich is also wholly-owned by the holdingcompany.(ii) Where there is no holding company but thebank's stockholders are identical to those of thetransferee, income from the sale of credit life,health and accident insurance may be creditedto the transferee.(iii) Income from the sale of credit life, healthand accident insurance may be transferred to atrust for the benefit of all shareholders.

(e) Nothing in this section shall be construed toprohibit a bank employee, officer, director or princi-pal shareholder who holds an insurance agent'slicense from agreeing to compensate the bank forthe use of its premises, employees and good will,


provided that all income received by said employee,officer, director or principal shareholder from thisactivity is turned over to the bank as compensation.

2.5 Responsibility of Directors

(a) The selection of an insurance underwriter, theagreements between the underwriter and the bankor its employees, officers, directors or principalshareholders, and the manner in which income fromthe sale of insurance is distributed shall be ap-proved by an appropriate resolution of the bank'sboard of directors. Such resolution shall set forth thename of the underwriter(s), a description of theagreement with the underwriter as to the collectionof premiums and the disbursement thereof, and adiscussion of the manner in which income from thesale of insurance is to be allocated.(b) When carrying out its responsibilities undersubsection (a) of this section, the board of directorsshall observe the rules in section 2.4 of this part, andshall be mindful of their duty under both the commonlaw and 12 USC 73 to promote and advance theinterests of the bank over their own personalinterests.

2.6 Methods of selling insurance

(a) Pursuant to 12 USC 24(7), a bank may sell creditlife, health and accident insurance to its loan cus-tomers by any of the methods listed below. This list isnot intended to be exclusive.

(i) A bank may act as agent for the sale of creditlife, health and accident insurance and receiveincome in the form of commissions.(ii) An employee, officer, director or principalshareholder of the bank may be licensed as aninsurance agent, provided the rules set forth insection 2.4 are observed.(Hi) A bank may acquire a group credit life,health and accident insurance policy and pro-vide coverage thereunder to loan customers. Abank which makes coverage available bymeans of a group policy may receive experi-ence refunds or retrospective rate credits asprovided in the policy.

(a) A bank may not arrange to obtain agroup credit life, health and accidentinsurance policy from an employee, of-ficer, director or principal shareholder,or from any insurance agency, corpora-tion or partnership of which said em-ployee, officer, director or principalshareholder has beneficial ownership,as defined.in section 2.3, of 25 percent

or more, unless the arrangement is atleast as favorable to the bank as similararrangements which could have beenmade with unrelated parties.

(iv) As compensation for the use of its prem-ises, personnel and good will, a bank may con-tract with an employee, director, officer or prin-cipal shareholder to receive income payable tosaid individual from the sale of insurance, pro-vided that said individual is obligated in saidcontract to pay over to the bank all of the incomereceived.

(v) A bank may accept reimbursement from aninsurance company for services rendered bythe bank in selling credit life insurance, main-taining an account to receive premiums, dis-bursing premiums to the underwriter and issu-ing a statement of account on a periodic basis.

(vi) A bank may sell credit life, health and acci-dent insurance to its loan customers at no profit,or it may provide group credit life, health andaccident insurance at its own expense.(vii) A bank may refund to its loan customerswho purchase credit life, health and accidentinsurance all commissions or experience re-funds received from the underwriter.

(b) The Comptroller reserves the right to give writ-ten approval to the request of a national bank tomodify the applicability of this part to that bank be-cause of that bank's particular circumstances.

Dated: July 15, 1976.

Extension of Comment PeriodThis notice extends the period for comments to thenotice published July 20,1976 (41 FR 29846), proposinga regulation on the disposition of income earned from thesale of credit life, health and accident insurance by na-tional banks or their officers, directors or principal share-holders. Comments were requested by September 3,1976.

In response to requests for additional time, the Comp-troller has extended the comment period until October1, 1976. Comments should be addressed to C.Westbrook Murphy, Deputy Comptroller for Law andChief Counsel, Comptroller of the Currency,Washington, D.C. 20219.

Dated: September 2, 1976.


Suspension of Customer-Bank Communication Terminals Ruling

Title 12 — Banks and BankingChapter I — Comptroller of the Currency,

Department of the TreasuryPart 7 — Interpretive Rulings

Customer-Bank Communication Terminals;Suspension of RulingOn October 10, 1975, the Comptroller of the Currencypublished the following statement in connection with hissuspension of 12 CFR 7.7491.

The Comptroller's Office has received many inquiriesconcerning the status of Interpretive Ruling 7.7491,Customer-Bank Communication Terminals (CBCT's), 40FR 21700 (May 9,1975), in view of recent litigation relat-ing to this ruling. This statement is being issued in re-sponse to those inquiries.

Eight different lawsuits have been filed challenging IR7.7491. The Comptroller is a party to five of these law-suits. In two of these lawsuits federal district courts haveentered final decisions and orders. State of Colorado v.First National Bank of Fort Collins and Smith, D. Colo.,Civil No. 75 M 397 (May 28, 1975), appeal pending; andIBAA, et al. v. Smith, D. D.C., Civil No. 75-0089 (July 31,1975), appeal pending.

The Colorado opinion upheld the Comptroller's rulingexcept to the extent that the CBCT in that case was per-mitted to receive cash or other items for subsequent de-posit. In the IBAA case, the District Court found theComptroller's entire ruling to be "without merit." Thecourt entered an order reading in part as follows:

FURTHER ORDERED that Defendant and all per-sons acting under his direction and authority or inactive concert or participation with him be andhereby are, permanently enjoined from further im-plementation of the ruling, and any authorityheretofore given to national banks by the ruling ishereby rescinded.

No national bank was a party to the IBAA case. A stay ofthe District Court's order pending appeal was sought bythe Comptroller and denied. The court of appeals, how-ever, has granted an expedited hearing on the merits ofthe appeal.

Inasmuch as the Comptroller's implementation of theinterpretive ruling has been enjoined, the Comptrollerhas suspended it pending further appellate proceed-ings. Accordingly, the 30-day notice requirement and allother provisions contained in the ruling are no longer ineffect. National banks seeking to establish CBCT's mustrely upon the advice of their own legal counsel.

The Comptroller intends both to pursue the appeal ofthe IBAA case and to defend the other lawsuits involvingCBCT's to which he is a party. Consistent with the Comp-troller's position before the courts, the Comptroller willnot accept or process branch applications for theinstallation of CBCT's. However, national banks are cau-tioned that the Comptroller will not hesitate to use hissupervisory powers to eliminate any unsafe, unsound, oranti-competitive practices among national banks whichmight come to the Comptroller's attention.

Accordingly, 12 CFR 7.7491 has been suspended.

Dated: October 15, 1975.

Proposed Standards for Issuance of Letters of Credit by National Banks


[12 CFR Part 7]Letters of Credit

Proposed Standards for Issuance by NationalBanksNotice is hereby given that the Comptroller of the Cur-rency is considering an amendment to 12 CFR 7.7016 aninterpretive ruling relating to letters of credit.

The existing interpretive ruling establishes five stan-dards for the issuance of letters of credit by nationalbanks. The purpose of the amendment is to make clearthat these standards are intended as guidelines for thesafe and sound issuance of letters of credit. The stan-dards should not be interpreted as creating a federalcommon law on what constitutes a valid and enforceableletter of credit.

In recent years, several cases have arisen where a na-tional bank issuer of a letter of credit has refused to paydrafts drawn thereunder on the grounds that the docu-

ment in question did not meet the Comptroller's fivestandards and was therefore an ultra vires guarantee.This argument, which has been made in pleadings filedin cases involving stand-by letters of credit, is usuallypredicated on certain language in the existing ruling stat-ing that the five standards "must" be met in order to con-stitute a "true letter-of-credit transaction" as contrastedto a "mere guaranty."

While the Comptroller expects national banks toadhere to the standards enumerated in the ruling, it wasnot his intention to suggest that a letter of credit lackingone or more of the five specified characteristics wouldthereby be rendered unenforceable. His sole intentionwas to set standards for the safe and sound issuance ofletters of credit, which can be complicated transactions,particularly for banks not experienced in the area. Theprinciples governing the validity and construction of let-ters of credit, on the other hand, are found in Article 5 ofthe Uniform Commercial Code as adopted in each juris-diction, and in the Uniform Customs and Practice forDocumentary Credits where applicable. It is on the basisof these principles that the enforceability of letters ofcredit should be determined.


Other changes in the existing ruling include the dele-tion of the first enumerated standard ("the bank must re-ceive a fee or other valid business consideration for theissuance of its undertaking") on the grounds that Uni-form Commercial Code 5-105 provides to the contrary.This standard has been replaced with a provision statingthat letters of credit should be conspicuously labeled assuch, a measure derived from UCC 5-102(1) (c). Underthis provision, national banks financing the shipment ofgoods or extending credit through their domestic officesto assure the performance of their customers' obliga-tions in the manner described in 12 CFR 7.1160(a), areexpected to label their commitments as "letters ofcredit." The new standard would not prevent a nationalbank from characterizing its letter of credit as revocableor irrevocable in the manner prescribed in Article 1 of theUniform Customs and Practice for Documentary Credits.

Comments on the proposed amendment will be re-ceived until November 29, 1976, and should be ad-dressed to John E. Shockey. Acting Chief Counsel,Comptroller of the Currency, Washington, D.C. 20219.All comments received will be made available for inspec-tion by any interested party.

The Comptroller of the Currency proposes to revise 12CFR 7.7016 to read as follows:

7.7016 Letters of credit

A national bank may issue letters of credit permissibleunder the Uniform Commercial Code and the UniformCustoms and Practice for Documentary Credits to or onbehalf of its customers. Letters of credit should be issuedin conformity with the following: (a) Each letter of creditshould conspicuously state that it is a letter of credit or beconspicuously entitled as such; (b) the bank's undertak-ing should contain a specified expiration date or be for adefinite term; (c) the bank's undertaking should be lim-ited in amount; (d) the bank's obligation to pay shouldarise only upon the presentation of a draft or other docu-ments as specified in the letter of credit, and the bankmust not be called upon to determine questions of fact orlaw at issue between the account party and the benefi-ciary; (e) the bank's customer should have an unqual-ified obligation to reimburse the bank for paymentsmade under the letter of credit.


Policy Statements on Corporate Activities


Policy Statements on Corporate Activities

Bank Charters, Branches, Conversions, etc.On June 4, 1976, the Comptroller of the Currency pub-lished in the Federal Register (41 FR 22602) proposedpolicy statements relating to his responsibilities for:

• Charters,• Branches,• Conversions,• Mergers,• Fiduciary powers,• Operating subsidiaries,• Title changes,• Relocations, and• Changes in capital structure.

During the comment period, which ended July 6,1976, approximately 30 comments were received. Thefollowing represent the major changes which havebeen incorporated in the final policy statements.

The comments indicated confusion concerning thepermissible stock distribution for new banks. The finalpolicy statements clarify this by indicating that bankholding company affiliations are not subject to theownership limitations.

The language relating to priority of filing applicationshas been modified to indicate that priority of filing will

be a factor, but will not be a controlling factor.The time allowed to open for business has been ex-

tended from one year to 18 months from date of ap-proval.

Protection of a newly chartered bank from competi-tion contemplates a new independent bank.

Merger policy now includes a comment on poten-tially beneficial aspects of a merger on competitionwithin a relevant market.

Changes in capital structure policy has been revisedto incorporate provisions relative to debt issues as re-cently adopted by the Office of the Comptroller of theCurrency (OCC) and the Federal Reserve Board.

The policy statements are intended to be applicablein the large majority of the decisions. However, theComptroller may depart from these policies when hedeems it appropriate to do so. Normally, the reasonsfor any such departure will be explained. The policiesmay be revised from time to time as warranted bychanging circumstances.

References to laws, regulations and interpretive rul-ings are not incorporated in the proposed policystatements. Such references have been incorporatedin the Comptroller's Manual for National Banks andcompliance remains unaffected.

The final policy statements, as revised, are as fol-lows.

I. New Bank Charters

It is the policy of the Office of the Comptroller of theCurrency (OCC) to maintain a sound National BankingSystem without placing undue restraint upon entry intothat system. The vital relationship of banking to the


monetary system precludes complete free market op-eration with unlimited entry and its corollary, unlimitedexit. A healthy competitive banking environment pro-viding optimum choice and convenience to the publicand stimulating economic growth and efficiency is animportant objective of the chartering process. Althougheach new entrant to the market increases the competi-tive alternatives, it is not in the public interest to charterso many banks that none can grow to a size sufficientto offer a full range of needed services. In charteringbanks the OCC will admit only those qualified appli-cants that can be economically supported and prof-itably operated. A new banking office will not be ap-proved if its establishment would threaten the viabilityof a newly chartered independent bank. Such protec-tion of a newly chartered bank will typically not exceedone year. In evaluating a new bank application, the fol-lowing factors will be considered.

Banking Factors

Income and Expenses Projections of income andexpenses of the proposed bank should be based onrealistic, supportable estimates of deposit and loanvolume.

Management Organizers, proposed directors andofficers should have reputations evidencing honestyand integrity. They should have employment and busi-ness histories demonstrating success and should beresponsible in financial affairs. A majority of the or-ganizers and directors of a proposed independentbank should be from the local community and shouldrepresent a diversification of occupational and busi-ness interests. Officers should have demonstrated abil-ities and experience commensurate with the positionfor which proposed. Members of the initial manage-ment group, which includes directors and officers, andchanges within the management group during the first2 years of operation require prior approval of the OCC.Although it is not necessary that the names of pro-posed officers be submitted with an application to or-ganize a national bank, the chief executive officer mustbe approved prior to the solicitation of capital and thecashier must be approved prior to the commencement ofoperations.

Stock Distribution To encourage community sup-port, wide distribution of stock ownership is desirable.Maximum ownership, direct or indirect, by any oneindividual, partnership or corporation will generally belimited to 10 percent of the total capital stock to be is-sued. A majority of the stock to be issued should be tolocal residents of the community, persons with sub-stantial business interests in the community or otherswho may reasonably be expected to utilize the ser-vices of the bank. The foregoing restrictions will notapply where the new bank is to be legally affiliated withan existing bank or bank holding company. Subscrib-ers to 5 percent or more of the stock may not financemore than 50 percent of the purchase price, if the ex-tension of credit is predicated in any manner on thestock of the new bank, whether or not such stock ispledged.

Capital The minimum initial capital required for anew national bank must satisfy all of the following fac-tors.

• Capital should be sufficient to support the an-ticipated volume and character of operationsfor a minimum of 3 years; initial capital shouldbe at least equal to 10 percent of estimateddeposits and 15 percent of estimated loans atthe end of the third year.

• Capital should be adequate to enable the newbank to provide the necessary banking ser-vices, including loans of sufficient size, to meetthe needs of prospective customers.

• Capital should be sufficient to purchase, buildor lease a suitable permanent banking facilityand equipment. Total fixed asset investmentshould not exceed 40 percent of initial capital.

• Capital normally will not be less than $1 million.

Market Factors

Economic Condition and Growth Potential The cur-rent economic condition or growth potential of themarket in which the new bank proposes to locate is animportant consideration in determining the bank'sprobable success. Essential to the concept of bankingopportunity is that there does or will exist a volume ofbusiness for which the new bank can realistically com-pete. Also important is a determination of the portion ofthat business the new bank could acquire and whetherthat portion is sufficient to generate a profit. Evidenceof banking opportunity may be indicated in a numberof ways, including by trends in population, employ-ment, residential and commercial construction, sales,company payrolls and businesses established. Geo-graphic and environmental restrictions to further devel-opment should be fully explored.

Primary Service Area Within the broader conceptof a market, the applicant should delineate a primaryservice area (PSA). The dimensions of the PSA willnecessarily vary with the type of market to be served.A rural bank may serve a relatively large area if bank-ing alternatives are limited; conversely, the PSA of anurban bank may be limited to several city blocks. ThePSA is defined as the smallest area from which thebank expects to draw approximately 75 percent of itsdeposits and should be drawn around a natural cus-tomer base. It should not be unrealistically delineatedto exclude competing banks or to include areas ofconcentrated population. Barriers to access such asmajor highways, rivers, mountains or other impedi-ments should be considered.

Location The importance of the specific site de-pends upon the type of market to be served. The pre-cise location of a bank in a sparsely populated areawith limited competition may be less significant thanthat of an urban or suburban bank whose success maybe more dependent upon the convenience of its loca-tion.


Population Composition of the population, includ-ing daily or seasonal inflows, within the PSA is an im-portant indicator of the potential support for a bank.Population characteristics such as income, age distri-bution, educational level, occupation and stabilityshould be considered. Ratios of population per bank-ing office are not conclusive evidence of support for anew bank.

Financial Institutions The growth rate and size ofbanks and other financial institutions in the market arealso important indicators of economic condition andpotential business for a new bank. Location and ser-vices offered are indicative of the competitive climateof the market. Other financial institutions such as sav-ings and loan associations, credit unions, financecompanies, mortgage companies and insurance com-panies may be considered competing institutions tothe extent their services parallel those of the new bank.

Other Factors

Although the order in which charter applications arefiled will be a factor in the decision making process, itwill not be a controlling factor.

All expenses incurred in connection with the organi-zation of a bank are to be assumed by the organizers.If a charter is issued, expenses determined to bereasonable by the OCC may be reimbursed by thebank after the commencement of business. In no eventshall the amount of or payment of any fee be solelycontingent upon any. action, decision or forbearanceon the part of the OCC. A contingent expense or feewill ordinarily result in disapproval of the application orwithdrawal of preliminary approval.

Any financial arrangement or transaction involvingthe proposed bank and its organizers, directors, of-ficers, major shareholders* or their associates orinterests ordinarily should be avoided. If there aretransactions of this nature they must be fair, fully dis-closed, reasonable and comparable to similar ar-rangements which could have been made with unre-lated parties.

The name of the new bank will be considered in ac-cordance with the policy statement for title changes.

The foregoing policy generally will not be applicableto a corporate reorganization or to proposals to or-ganize a national bank to facilitate the acquisition of anexisting bank.

Procedures

Persons desiring to organize a national bank shouldobtain forms and instructions from the regional ad-ministrator of national banks. Charter applicationsshould be filed with the regional administrator.

Requests for reconsideration of disapproved appli-cations will not be accepted. A new application maybe filed at any time by submitting substantive new oradditional information to the regional administrator. Tothe extent relevant, the OCC will consider andincorporate the prior administrative record. The normalfiling fee will be required.

When a charter application is disapproved, a written

statement of the reasons for the disapproval will befurnished the applicant. Opinions will be publishedwhen the OCC determines that the decision representsa new or changed policy or presents issues of generalimportance to the public or the banking industry.

The time allowed to open for business normally willbe 18 months from the date of preliminary approval.Preliminary approval ordinarily will be rescinded if thebank is not open for business within that 18-monthperiod.

II. Domestic Branches

The Office of the Comptroller of the Currency (OCC)encourages a banking structure capable of fulfilling lo-cal, regional and national needs for banking services.In the interest of increased competition, service to thepublic and efficiency, the OCC considers branching adesirable means of bank expansion.

In considering a branch application, the applicant'scapacity to support such expansion is of major impor-tance. The closing of a branch does not present thesame risk of loss to the public as does the failure of abank. Therefore, the judgment of the applicant as tothe viability of a proposed branch will ordinarily be re-spected, provided that, in the opinion of the OCC, theapplicant's capacity is sufficient or will be enhancedby the new activity and the prospective effects oncompetition are positive.

In evaluating an application, the following factors willbe considered.

Banking Factors

Condition The applicant's general condition shouldbe satisfactory; significant or serious problems willnormally preclude approval. A bank should not havean undue amount of criticized assets, particularly in re-lation to gross capital; serious or frequent violations oflaw; inadequate liquidity; adverse operating trends;poor internal controls or other significant problems.

Capital and Earnings Capital, earnings and reten-tion of earnings should be sufficient to support the cur-rent level of operations as well as the proposed ex-pansion. In determining the applicant's capacity tosupport the proposed branch, the estimated cost ofestablishing and operating the branch and the volumeand scope of anticipated business will be considered.

Management Management should have demon-strated the ability to supervise a sound banking opera-tion. This determination will generally relate to theoverall condition of the bank and management's abilityto recognize and correct efficiencies.-Depth and con-tinuity of management are also relevant factors in con-sidering the bank's capacity to expand throughbranching.

Market Factors

Economic Condition and Growth Potential When abank desires to establish a branch in an area not pres-ently served by the bank, it is expected that, at aminimum, management will have considered the cur-


rent economic condition or growth potential of themarket in determining the probable success of thebranch. Essential to the concept of banking opportu-nity is that there does or will exist a sufficient volume ofbusiness for which the branch can realistically com-pete. Also important is a determination of the portion ofthat business the branch will acquire. Evidence ofbanking opportunity may be demonstrated in anumber of ways including trends in population, em-ployment, residential and commercial construction, re-tail sales, company payrolls and businesses estab-lished. Geographic and environmental restrictions tofurther development should be fully explored.

When an applicant desires to establish a branchprimarily to retain existing customers or to serve themmore efficiently or conveniently, greater emphasis willbe given to the expense to be incurred in establishingand operating the branch, the anticipated loss of exist-ing business if the branch is not established and theoverall effect on bank profitability.

Primary Service Area Within the broader conceptof a market, the applicant should delineate a primaryservice area (PSA). The dimensions of the PSA willnecessarily vary with the type of market to be served.A rural banking office may serve a relatively large areaif banking alternatives are limited; conversely, the PSAof an urban banking office may be limited to a cityblock. The PSA is defined as the smallest area fromwhich the branch expects to draw approximately 75percent of its deposits and should be drawn around anatural customer base. It should not be unrealisticallydelineated to exclude competing banks or to includeareas of concentrated population. Barriers to accesssuch as major highways, rivers, mountains or other im-pediments should be considered.

Location The importance of the specific site de-pends upon the type of market to be served. The pre-cise location of a branch in a sparsely populated areawith limited competition may be less significant thanthat of an urban or suburban branch whose successmay be more dependent upon the convenience of itslocation.

Population Composition of the population, includ-ing daily or seasonal inflows, within the PSA is an im-portant indicator of the potential support for a branch.Population characteristics such as income, age distri-bution, educational level, occupation and stabilityshould be considered. Ratios of population per bank-ing office are not conclusive evidence of support for anew branch.

Financial Institutions The growth rate and size ofbanking offices and other financial institutions in themarket are also important indicators of economic con-dition and potential business for a new branch. The lo-cation and services offered are indicative of the com-petitive climate of the market. Other financialinstitutions such as savings and loan associations,credit unions, finance companies, mortgage com-panies and insurance companies may be considered

competing institutions to the extent their services paral-lel those of the new branch.

Other Factors

A branch will not be approved if its establishmentwould threaten the viability of a newly charteredindependent bank. Such protection of a newly char-tered independent bank typically will not exceed oneyear.

Although the order in which branch applications arefiled will be a factor in the decision making process, itwill not be a controlling factor.

Any financial arrangement or transaction involvingthe branch and directors of the bank, officers, majorshareholders or their associates or interests should or-dinarily be avoided. If there are transactions of this na-ture they must be fair, fully disclosed, reasonable andcomparable to similar arrangements which could havebeen made with unrelated parties.

Procedures

Banks desiring to establish a branch should obtainforms and instructions from the regional administratorof national banks. Applications for branch officesshould be filed with the regional administrator.

Requests for reconsideration of denied applicationswill not be accepted. A new application may be filed atany time by submitting substantive new or additionalinformation to the regional administrator. To the extentrelevant, the OCC will consider and incorporate theprior administrative record. The normal filing fee will berequired.

Applicants will be advised of the reasons for anydisapproval. Opinions will be published when the OCCdetermines that the decision represents a new orchanged policy or presents issues of general impor-tance to the public or the industry. Where the OCCdeems it to be in the public interest the name of thebank will not be disclosed.

The time allowed to open the branch will normally be18 months from the date of approval. Approval will or-dinarily be rescinded if business has not commencedwithin that 18-month period.

III. Conversions

The Office of the Comptroller of the Currency (OCC)ordinarily will approve an application by a state bankor other financial institution for conversion to a nationalbank when such approval is consistent with the basicobjective of maintaining a sound National Banking Sys-tem. An application to convert should not be motivatedby supervisory pressures from other regulatory au-thorities. In determining the qualifications of an appli-cant for conversion, the following factors will be con-sidered.

Banking Factors

Condition The applicant's general condition shouldbe satisfactory; significant or serious problems willnormally preclude approval. The applicant should nothave an undue amount of criticized assets, particularlyin relation to gross capital; serious or frequent viola-


tions of the law; inadequate liquidity; adverse operat-ing trends; poor internal controls or other significantproblems. Capital, earnings and retention of earningsshould be sufficient to support the current level of op-erations.

Management Management should have demon-strated the ability to supervise a sound banking opera-tion. This determination will generally relate to theoverall condition of the institution and management'sability to recognize and correct deficiencies.

Other Factors

The proposed name of the converting institution will beconsidered in accordance with the policy statement fortitle changes.

Procedures

Institutions desiring to convert to a national bankshould obtain forms and instructions from the regionaladministrator of national banks. Applications to convertshould be filed with the regional administrator.

The OCC will conduct an examination into the condi-tion of the applicant to the extent considered neces-sary. The cost of such examination shall be paid by theapplicant.


Applicants will be advised of the reasons for anydisapproval. Opinions will be published when the OCCdetermines that the decision represents a new orchanged policy or presents issues of general impor-tance to the public or the banking industry. In suchinstances, identification of the applicant will not bedisclosed.

IV. Mergers

It is the policy of the Office of the Comptroller of theCurrency (OCC) to preserve the soundness of the Na-tional Banking System and promote market structuresconducive to competition. A proposed merger, con-solidation or purchase of assets and assumption ofliabilities are all herinafter referred to as mergers. Amerger which would not have a substantially adverseeffect on competition and which would be beneficial tothe merging banks and to the public normally will beapproved. In evaluating a merger application the fol-lowing factors will be considered:

• The effect of the transaction upon competition;• The convenience and needs of the community

to be served;• The financial history of the merging banks;• The condition of the merging banks, including

capital, management and earnings prospects;• The existence of insider transactions; and,

• The adequacy of disclosure of the terms of themerger.

In order to determine the effect of a proposedmerger upon competition, it is necessary to identify therelevant geographic market. The delineation of suchmarket can seldom be precise, but realistic limitsshould be established so the effect of the merger uponcompetition can be properly analyzed. The marketshould be delineated to encompass an area where theeffect upon competition will be direct and immediate.The OCC recognizes that different banking servicesmay have different relevant geographic markets. Al-though the largest borrowers and depositors may findit convenient and practical to conduct part of theirbanking business outside the relevant geographicmarket, the market should not be drawn so expan-sively as to cause the competitive effect of the mergerto seem insignificant because only the largest custom-ers are considered. Conversely, the market should notbe drawn so narrowly as to place competitors in differ-ent markets because only the smallest customers areconsidered. A fair delineation of the relevant geo-graphic market should take into account demands ofmost customers for the bank's services.

After the relevant geographic market has been iden-tified, the competitive effects of the proposed mergercan be analyzed. Both the structure of the market andintensity of competition within the market will be con-sidered. In measuring intensity of competition, consid-eration will be given to the number of competitors inthe market, services offered, pricing of services, adver-tising, office hours and banking innovations.

The following terms will be used to describe thecompetitve effects of a proposed merger.

• Beneficial Effect This term will be usedwhen a merger will improve or enhance thecompetitive or banking environment in the rel-evant market.

• No Adverse Effect This term will be usedwhen no change in competitive conditionswould result from the merger. Mergers involvingcorporate reorganizations, in which the numberof alternative sources of banking services areunchanged and where no resulting substantivechange in ownership occurs, are included inthis category.

• Not Substantially Adverse This term will beused when some anti-competitive effects arepresent but such effects are not deemed suffi-ciently substantive to cause an undesirablecompetitive condition.

• Substantially Adverse This term will be usedwhen an anticompetitive condition would resultfrom a merger. A merger involving a dominantbank in a market and any other bank in thesame market could be included in this cate-gory.

When substantially adverse competitive effects exist,they must be clearly outweighed in the public interest


by the probable effects of the merger on improvedconvenience and needs. If not clearly outweighed, themerger will be disapproved. Convenience and needsfactors which may outweigh the anticompetitive effectsof a merger include:

• The elimination of a failing, weak or stagnatingbank, thereby strengthening the banking system.

• The achievement of economies of scale, includ-ing a better matching of source and need offunds, thereby providing the basis for improvedcustomer service and bank earnings.

• The extension of services not available from themerging bank and for which there is a clearlydefinable need. Such services might include alarger lending limit, specialized forms of credit,data processing, international banking, financialcounseling or fiduciary services.

The OCC must consider the convenience andneeds of the community to be served in everymerger, regardless of competitive effects. Amerger not having a substantially adverse com-petitive effect may be disapproved if there are ad-verse effects on convenience and needs.

In addition, the OCC considers banking factorsand will normally not approve a merger if it will re-sult in a bank which has inadequate capital, un-satisfactory management or poor earnings pros-pects. Further, it is required that all shareholdersbe adequately informed of all aspects of thetransaction.

If the title of the resulting bank is not the sameas any of the banks involved in the merger, theproposed new title will be considered in accord-ance with the policy statement for title changes.

Procedures

Banks desiring to merge where the resulting bank willbe a national bank should obtain forms andinstructions from the regional administrator of nationalbanks. Applications should be filed with the Comptrol-ler of the Currency, Washington, D.C.

When a merger involves a state bank, the OCC mayconduct an examination into the condition of the statebank to the extent deemed necessary. The cost ofsuch examination shall be charged to the applicants inaddition to the normal merger fee.

Opinions are published by the OCC in all mergerdecisions.

V. Fiduciary Powers

The Office of the Comptroller of the Currency (OCC)encourages a banking structure capable of fulfilling lo-cal, regional and national needs for banking services.The establishment of fiduciary powers affords banksthe opportunity to better serve the public by offeringgreater services, choice and convenience.

In evaluating an application for fiduciary powers,consideration will be given to the capacity of the appli-cant to support the proposed activity, the availability of

competent trust personnel and the existence of suffi-cient business to achieve profitability.

Banking Factors

Condition The applicant's general condition shouldbe satisfactory; significant or serious problems willnormally preclude approval. A bank should not havean undue amount of criticized assets, particularly in re-lation to gross capital; serious or frequent violations oflaw; inadequate liquidity; adverse operating trends;poor internal controls or other significant problems.

Capital and Earnings Capital, earnings and reten-tion of earnings should be sufficient to support the cur-rent level of operations as well as the proposed ex-pansion. In determining the applicant's capacity tosupport the proposed trust department, the estimatedcost of establishing and operating the department andthe volume and scope of anticipated business will beconsidered.

Management Management should have demon-strated the ability to supervise a sound banking opera-tion. That determination will generally relate to thecondition and profitability of the bank and manage-ment's ability to recognize and correct deficiencies.

Trust Personnel The proposed head of the trustdepartment should have demonstrated abilities andexperience commensurate with the proposed position.Directors and officers who will serve on trust commit-tees should possess experience and knowledge in thetrust or investment fields. The bank should have avail-able the services of competent investment and legalcounsel to advise on matters affecting the trust de-partment.

Market Factors

The applicant should demonstrate that the populationand general economy of the market possess charac-teristics requiring fiduciary services. Composition ofthe population within the market is an importantindicator of the potential support for a trust depart-ment. Population characteristics such as income,wealth, age, educational level, occupation and stabilitywill be considered.

In determining need, consideration should be givento the present fiduciary services available in the mar-ket. If fiduciary services are being offered, considera-tion will be given to the volume and character of thepresent trust business together with the demand foradditional services. Further, consideration will be givento any fiduciary services performed outside the marketfor customers in the applicant's service area which,because of convenience, might be brought to the ap-plicant.

Procedures

Banks desiring to exercise fiduciary powers should ob-tain forms and instructions from the regional adminis-trator of national banks. Applications should be filedwith the regional administrator.



The applicant will be advised of the reasons for anydisapproval. Opinions will be published when the OCCdetermines that the decision represents a new orchanged policy or presents issues of general impor-tance to the public or the banking industry. Where theOCC deems it to be in the public interest the name ofthe bank will not be disclosed.

The time allowed to establish a trust departmentnormally will be one year from the date of preliminaryapproval. Approval ordinarily will be rescinded if busi-ness has not commenced within that one-year period.

VI. Domestic Operating Subsidiaries

The Office of the Comptroller of the Currency (OCC)considers an application for the establishment of a denovo domestic operating subsidiary to be primarily abusiness decision of the applicant. An applicant'sownership of 80 percent or more of a company will beapproved if the proposed activity is a part of the busi-ness of banking or incidental thereto and if the appli-cant has the capacity to support such expansion.However, if a bank or any of its subsidiaries proposesto acquire an existing business, the OCC will also con-sider competitive factors similar to those set forth in thepolicy statement for mergers.

In evaluating an application, the following factors willbe considered.

Banking Factors

Condition The applicant's general condition shouldbe satisfactory; significant or serious problems willnormally preclude approval of an application to ex-pand the bank's activities. A bank should not have anundue amount of criticized assets, particularly in rela-tion to gross capital; serious or frequent violations oflaw; inadequate liquidity; adverse operating trends;poor internal controls or other significant problems.

Capital and Earnings Capital, earnings and reten-tion of earnings should be sufficient to support the cur-rent level of operations as well as the proposed ex-pansion. In determining the applicant's capacity tosupport the proposed subsidiary, the estimated cost ofestablishing or acquiring the subsidiary as well as thevolume and scope of anticipated business will be con-sidered.

Management Management should have demon-strated the capacity to supervise a sound banking op-eration. This determination will generally relate to thecondition of the bank and management's ability to rec-ognize and correct deficiencies. Management shoulddemonstrate that provision has been made for person-nel with sufficient expertise to supervise the proposedactivities.

Other Factors

The condition of the business to be acquired will beconsidered. The acquiring bank should have the ca-pacity to correct any difficulties of the acquired busi-ness without undue strain on management or financialresources of the bank.

Any financial arrangement or transaction involvingthe operating subsidiary and directors of the bank, of-ficers, major shareholders, or their associates orinterests ordinarily should be avoided. If there aretransactions of this nature they must be fair, fully dis-closed, reasonable and comparable to similar ar-rangements that could have been made with unrelatedparties.

Procedures

Banks desiring to organize or acquire an operatingsubsidiary should obtain forms and instructions fromthe regional administrator of national banks. Applica-tions for operating subsidiaries should be filed with theregional administrator.

The OCC will conduct an examination into the condi-tion of a proposed operating subsidiary to be acquiredto the extent considered necessary. The cost of suchexamination shall be paid by the applicant.


Applicants will be advised of the reasons for anydisapproval. Opinions will be published when the OCCdetermines that the decision represents a new orchanged policy or presents issues of general impor-tance to the public or the banking industry. Where theOCC deems it to be in the public interest the name ofthe bank will not be disclosed.

VII. Title Changes

The Office of the Comptroller of the Currency (OCC)considers an application for change in corporate titleto be primarily a business decision of the applicant.Such applications will be approved subject to the fol-lowing limitation. The proposed title must be suffi-ciently dissimilar from any other existing or proposedunaffiliated bank or depository financial institution, soas not to substantially confuse or mislead the public ina relevant market.

Procedures

Banks desiring a change in title should obtain formsand instructions from the regional administrator of na-tional banks. An application for a title change shouldbe filed with the regional administrator.

VIII. Location Changes

The Office of the Comptroller of the Currency (OCC)considers an application for a change in location of ahead office or domestic branch to be primarily a busi-


ness decision of the applicant. Such applications willbe approved subject to the following limitations.

An application for a relocation of a banking officewithin the primary service area will normally be ap-proved if the applicant has capital and earnings suffi-cient to support any increased costs incident to the re-location. In determining the sufficiency of capital andearnings, the estimated cost of establishing andoperating the proposed office will be considered.

A head office relocation from one primary servicearea to another service area will require the filing of anapplication for a new head office. In such instances,market factors similar to those set forth in the policystatement for new bank charters will be considered. Abranch relocation from one primary service area toanother service area will require the filing of a branchapplication and will be subject to the same consid-erations as those set forth in the policy statement fordomestic branches. In relocations to another servicearea, the OCC also will consider the needs of the pri-mary service area being abandoned.

Any financial arrangement or transaction involvingthe bank and its directors, officers, major shareholdersor their associates or interests ordinarily should beavoided. If there are transactions of this nature theymust be fair, fully disclosed, reasonable and compa-rable to similar arrangements which could have beenmade with unrelated parties.

Procedures

Banks desiring to relocate an office should obtainforms and instructions from the regional administratorof national banks. Applications for relocation of bankoffices should be filed with the regional administrator.


Applicants will be advised of the reasons for anydisapproval. Opinions will be published when the OCCdetermines that the decision represents a new orchanged policy or presents issues of general impor-tance to the public or the banking industry. Where theOCC deems it to be in the public interest the name ofthe bank will not be disclosed.

The time allowed to effect the relocation normally willbe 18 months from the date of approval. Approval or-dinarily will be rescinded if the new office is notopened for business within this 18-month period.

IX. Changes in Capital Structures

The Office of the Comptroller of the Currency (OCC)has responsibility for the maintenance of a safe andsound National Banking System operated in the publicinterest. An integral part of this responsibility is the re-view of proposed capital changes by national banks.

Disclosure

The OCC requires that prospective investors be pro-

vided with all material facts to permit informed invest-ment decisions in connection with all offerings. Offer-ing circulars are required for public offerings of debt orequity securities by a national bank.1

Stock Dividends

Recurring stock dividends generally will not be ap-proved where the higher of the market or book value ofthe dividend exceeds 100 percent of the bank's re-tained earnings since the declaration of the last stockdividend. A stock distribution which represents morethan 25 percent of the shares outstanding will gener-ally be viewed as a realignment of the bank's capitalaccounts and not subject to the retained earnings limi-tations.

Pricing

Offerings of common stock should be at a fair price.When the stock is actively traded, the market valueshould be used as the primary indicator of a fair offer-ing price. When the stock has a thin or controlled mar-ket, earnings and book value per share should begiven greater consideration than market value in de-termining a fair offering price. In considering earningsand book value, a comparison to similar banks shouldbe made. Material differences between book valueand current value of assets and liabilities should begiven appropriate recognition in making such com-parisons.

In determining the conversion price in connectionwith issuance of convertible securities, considerationshould be given to the current fair value of the com-mon stock, the dividend or interest rate, current marketconditions and the anticipated increase in fair value ofthe common stock during the conversion period.

Debt Issues

In evaluating a bank's capacity to issue debt under thefollowing criteria, the OCC will take into account the fullrange of financial and other information available to theOCC regarding the applicant. Such indicators andconsiderations include the recent trend and stability ofearnings, impact of unusual income and expensedevelopments on recent earnings, recent acquisitionor mergers through purchase of assets, prospectivegrowth of the bank, quality of management, quality ofassets, earnings coverage of loan losses, sensitivity ofinterest income and expenses to changes in marketrates, degree of reliance on potentially volatile sourcesof funds and the relative strength of earnings of non-bank affiliates or subsidiaries. The bank's need for ad-ditional capital and the accessibility of additionalequity also will be taken into account.

1 At the present time, 12 CFR 16 requires offering circulars to beused only when a new bank issues debt or equity securities andwhen an existing bank issues debt securities. Recently, the Comp-troller proposed amendments to 12 CFR 16 to require existingbanks to use offering circulars when issuing any securities, subjectto certain exemptions (41 FR 32864). The proposed amendmentshave not yet been adopted.


Maximum ratio of debt to equity The total amountof subordinated notes and debentures outstanding,including the debt proposed to be issued but exclud-ing any debt to be retired out of the proceeds of thenew issue, should not exceed 50 percent of a bank'sequity capital base at time of issuance of the newdebt.2 However, banks with significant asset or man-agement problems generally would not be presumed tobe entitled to issue debt capital up to the 50 percentceiling.

Earnings coverage of fixed charges A nationalbank proposing to issue subordinated debt shoulddemonstrate that its recent income record is sufficientto provide abundant assurance of that bank's continu-ing ability to pay the additional fixed charges out ofcurrent earnings.3

Retained net income A national bank proposing toissue subordinated debt should demonstrate that itsrecent level of retained net income, viewed in conjunc-tion with intended dividend policy, would exceed an-nual pro forma amortization on all subordinated notesand debentures by a sufficient margin to assure thatbank's ability to replace each debt issue with equity bymaturity.4

Avoidance of debt repayment concentrations A na-tional bank proposing to issue subordinated debtshould avoid excessive concentration of debt repay-ment in any one year.

Approval of interbank debt transactions In general,the OCC does not intend to approve as an addition tothe issuing bank's capital structure a subordinatednote or debenture issued by a national bank directly orindirectly (through a holding company or otherwise) toa banking organization other than its parent bank hold-ing company where that issue, together with othersubordinated debt outstanding at that bank and heldby such banking organizations, would exceed $2 mil-lion unless specifically authorized as such an additionby the OCC upon a presentation and finding of com-pelling circumstances.5

Covenants in conflict with safe and sound bankingpractices No indenture or other contract coveringthe issuance of a subordinated note or debenture by anational bank shall include any covenants, restrictions,or other terms that are determined by the OCC to beinconsistent with safe and sound banking practices.Examples of such terms are those regarded as impair-ing the ability of the bank to comply with statutory orregulatory requirements regarding disposition of as-sets or incurrence of additional debt, limiting the abilityof the OCC to take any necessary action to resolve aproblem bank situation or unduly interfering with theability of the bank to conduct normal banking opera-tions.

Stock Options and Stock Purchase Plans

Generally, plans qualified under the Internal Revenue

Code will be approved. Non-qualified plans may be ap-proved if the terms are fair and reasonable. Shares allo-cated to a plan should not exceed 10 percent of totalshares outstanding.

Other Factors

The method of disposal of fractional shares and unexer-cised preemptive rights should be fair. Fees and ex-penses paid to underwriters and others should bereasonable.

Procedures

Banks desiring to effect changes in capitalization shouldobtain forms and instructions from the regional adminis-trator of national banks. Applications for capital changesshould be filed with the regional administrator.


2 A bank's equity capital base, for purposes of this test, is consid-ered to include capital stock, surplus, undivided profits, capital re-serves and all reserves for losses on loans, including any related de-ferred tax liability.

3 Definitions:• "Income" is defined as income before taxes and before fixedcharges, including securities gains and losses, excluding extraordi-nary charges and credits, and adjusted where necessary to reflectactual net loan loss experience (charge-offs less recoveries) ratherthan other "provision for loan losses," plus an adjustment for earn-ings on the proceeds of the proposed issue equal to annual interestcharges before taxes on the proposed issue.

• "Fixed charges" is defined as annual interest charges beforetaxes on all existing debt, net of debt to be retired out of the pro-ceeds of the new issue, plus those on the debt proposed to be is-sued. Fixed charges on existing debt would include annual intereston all outstanding mortgage debt and subordinated notes and de-bentures, plus the annual interest component in any payments, netof sublease income, under lease contracts having an original matur-ity of one year or more (or if the interest component is not readily as-certainable, one-third of annual payments net of sublease incomeunder such contracts may be substituted).

4 Definitions:• "Retained net income" is defined as net income after taxes minusdividends declared on common and preferred stock. In most cir-cumstances, banks that issue additional shares of equity capitalwould receive credit for those new issues as if they had been part ofretained net income.

• "Pro forma amortization" is calculated for each issue of subordi-nated debt, including the proposed new issue but excluding debt tobe retired out of the proceeds of the new issue, by dividing the origi-nal amount of the issue by the number of years from date of issue tomaturity. Total pro forma amortization would be the sum of annualpro forma amortization for all such subordinated debt issues.

5 "Banking organization," for purposes of this criterion, is definedas any commercial bank, mutual savings bank, bank holding com-pany or nonbank affiliate of a bank holding company.


Amendments to 12 CFR Subsequent to Suspension of Customer-BankCommunication Terminals Ruling

Title 12 — Banks and BankingChapter 1 — Comptroller of the Currency,

Department of the TreasuryPart 4 — Description of Office, Procedures,

Public InformationPart 5 — Supplemental Application Proceduresfor Charters, Domestic Branches, Mergers,

Relocations, Conversions, Domestic OperatingSubsidiaries, Fiduciary Powers and Title

ChangesPart 8 — Assessment of Fees, National Banks,

District of Columbia Banks

IntroductionOn December 12,1974, the Comptroller of the Currencyissued an interpretive ruling, 12 CFR 7.7491, stating theComptroller's view that customer-bank communicationterminals (CBCT's) were not branch banks and con-sequently could be established by national banks with-out reference to federal and state banking statutes (39FR 44416). On May 9, 1975, the interpretive ruling wasamended (40 FR 21700). Pursuant to an order of the U.S.District Court for the District of Columbia, the interpretiveruling was rescinded August 23, 1976 (41 FR 36198).l

Subsequent to issuance of the interpretive ruling inDecember 1974, more than a dozen lawsuits were filedin U.S. district courts challenging the validity of the Com-ptroller's ruling and, in all but one lawsuit, the legality of aparticular national bank(s) operating a CBCT(s) freefrom branch restrictions. Eight of these lawsuits havebeen decided by federal district courts resulting in a vari-ety of holdings both agreeing and disagreeing with theComptroller's view as expressed in the interpretive rul-ing. The one district court, to proceed with a trial on themerits held that CBCT's are not branches for nationalbanks.2 Four U.S. courts of appeals have rendered de-cisions in five CBCT lawsuits. Each of the court of ap-peals has held, contrary to the Comptroller's view, that,generally, CBCT's are branches for national banks. OnOctober 4, 1976, the U.S. Supreme Court denied peti-tions for writs of certiorari in two of these cases, IBAA v.Smith and State of Illinois v. Continental Illinois NationalBank & Trust Co3

1 Order dated July 29,1976, IBAA v. Smith, 402 F. Supp. 207 (D.D.C.1975), aff'd, 534 F.2d 921 (D.C. Cir.) cert, denied, 45 U.S.L.W. 3239(1976).

2 State of Oklahoma v. Bank of Oklahoma, 409 F. Supp. 71 (N.D. Okla.1975), appeal dismissed per stipulation.

3Independent Bankers Ass'n. of America v. Smith, supra; State ofIllinois v. Continental Illinois National Bank & Trust Co., 409 F. Supp.^^67{M.D.\\\.1975),aff'dinpartandrev>dinpart,536F26^76{7{hC\r.1976), cert, denied, 45 U.S.L.W. 3238; State of Colorado v. First Na-tional Bank of Ft. Collins, 394 F. Supp. 979 (D. Colo. 1975), aff'd in partand rev'd in part, F.2d (1 Oth Cir. 1976); State of Missouriv. First National Bank in St. Louis, 405 F. Supp. 733 (E.D. Mo. 1975),aff'd, 538 F.2d 219 (8th Cir. 1976); State of Oklahoma v. Bank of Okla-homa, supra; State of Ohio v. Smith, F. Supp (S D Ohio1976).

The Comptroller of the Currency does not share theview of the four U.S. courts of appeals that CBCT's arebranches for national banks. On the contrary, the Comp-troller believes that the best rationale for determiningthe status of CBCT's for national banks was expressedby the Comptroller of the Currency in the initial interpre-tive ruling of December 1974 and by the decision of theU.S. District Court for the Northern District of Oklahoma(see footnote 3, supra). Nevertheless, because of theCourt of Appeals decisions (see footnote 3, supra) anduntil Congress can provide appropriate legislation re-garding CBCT's, the Comptroller has determined that itis in the best interest of the National Banking System andthe public to provide regulations for national banks to beable to apply for permission to establish CBCT's asbranches.

In order to assist national banks in filing CBCT applica-tions, the Comptroller also has made several preliminarydeterminations based upon the holding of the U.S. Courtof Appeals for the District of Columbia in IBAA v. Smith,supra.

According to the view of the Comptroller, initially ex-pressed in Interpretive Ruling 7.7491, only those elec-tronic terminals which disburse or receive funds areCBCT's. According to the opinion of the Court of Appealsfor the District of Columbia, IBAA v. Smith, supra, onlythose CBCT's which perform "functions of receiving ordisbursing funds" are branches for national banks. Thus,all electronic terminals which do not disburse or receivefunds (including, but not limited to credit verification de-vices) are not CBCT's and not branches for nationalbanks.

The Court of Appeals for the District of Columbia alsoruled in IBAA that a CBCT is a branch only when it is "es-tablished (i.e., owned or rented) by the national bank."Consequently, and in accordance with the opinion of theCourt of Appeals, any CBCT which is not established bya national bank (i.e., owned or rented by the bank) is nota branch of a national bank and not subject to the provi-sions of 12 USC 36.

A number of states do not require any application to befiled by a state bank establishing a CBCT. In many otherstates, the application procedure for such terminals isabbreviated and by no means as extensive as that pro-vided for traditional branches which require a building,personnel, etc. Accordingly, the Comptroller has deter-mined that the public interest will be best served by pro-viding special application procedures for national bankCBCT's, which procedures will provide relevant data tothe Comptroller without imposing unnecessary adminis-trative burdens and other costs upon the applicants.Appropriate amendments to the applicable regulations(12 CFR Parts 4, 5, and 8), accordingly, have been is-sued on this date. The Comptroller of the Currency willconsider applications filed in accordance with theseprocedures by any national bank seeking to establish aCBCT branch in states where state banks are permittedby statute to establish traditional branches and /or CBCTbranches.


State statutory provisions as to number, location, andcapital, as incorporated by 12 USC 36, will apply to na-tional bank CBCT branches. Capitalization of CBCT'swhich are branches of national banks will be requiredpursuant to the provisions of 12 USC 36(d) and 51. TheOffice of the Comptroller of the Currency will permit allo-cation of capital for CBCT branches established within asingle "city, town, or village" as it has for traditionalbranches, i.e., only one capital requirement will be im-posed for all installations established within the samecity, town or village. In addition, capitalization requiredfor the establishment of a CBCT which is a branch of anational bank may be shared among all national banksparticipating in the establishment of the CBCT branch.When two or more national banks establish a CBCTbranch a single application may be filed by one nationalbank acting as agent for the others.

The Comptroller continues to believe that one of themost significant criteria distinguishing a traditionalbranch from a CBCT branch is the presence or absenceof bank personnel. Consequently, the Comptroller's Of-fice will continue to process applications to establishbanking installations which contemplate the employ-ment of banking personnel under the existing branchapplication procedures and fee structure.

Any national bank which already has an operatingCBCT branch must file an application with the Comp-troller of the Currency within 30 days of the date of publi-cation of this notice to seek the Comptroller's permissionto continue such establishment and operation pursuantto applicable statutory provisions.

Procedures for CBCT Branch ApplicationsThese amendments are issued under authority of the Na-tional Bank Act and related statutes, 12 USC 1, et seq.,pursuant to the requirement of 5 USC 552 that eachagency publish in the Federal Register, for the guidanceof the public, both a description of the methods em-ployed by its central and field organization so that thepublic may make submissions or requests or obtain de-cisions, and a description of the formal procedures usedby the agency.

The amendments describe Office procedures regard-ing applications by national banks to establishcustomer-bank communication terminal (CBCT)branches. The purpose of these amendments is to pro-vide a special application procedure in Part 4 for the es-tablishment and operation of CBCT branches, to exemptCBCT branch applications generally from most supple-mental application procedures of Part 5, and to establishin Part 8 a filing fee for CBCT branch applications.

The Administrative Procedure Act does not requirepublic procedures and delayed effectiveness in connec-tion with rules of agency organization, procedure orpractice or relieved restrictions such as reduced fees forcertain branch applications. The amendments will,therefore, become effective upon publication in the Fed-eral Register.

The following is a brief description of the changes toPart 4 of 12 CFR. A new Section 4.5a has been added toprovide a special application procedure for CBCTbranches.

12 CFR 4 is amended by revising the table of contentsand adding a new Section 4.5a to read as follows:

Table of Contents

Sec.4.1 Scope and application4.1a Central and field organization; delegations4.2 Organization of national bank4.3 Conversion of state bank into national bank4.4 Merger, consolidation, purchase, and assump-

tion4.5 Establishment of branch banks and seasonal

agencies4.5a Establishment of customer-bank communica-

tion terminal (CBCT) branches4.6 Change of location of main or branch office4.7 Change of bank name4.8 Conversion of national bank into state bank4.9 Voluntary liquidation4.10 Receivership and conservatorship4.11 Supervision of bank operations4.12 Rules of general application4.13 Forms and instructions4.14 Publications available to public4.15 Orders, opinion, etc. available to public4.16 Other documents available to public; excep-

tions4.17 Location of public reading rooms, requests for

identifiable records; and service of process4.17a Request procedures4.18 Other rules of disclosure4.19 Testimony and production of documents in

court

4.5a Establishment of customer-bank communicationterminal (CBCT) branches

(a) Application A national bank desiring to estab-lish and operate a CBCT branch should submit to theregional administrator an "Application to Establish aCBCT Branch." This application, instructions, andsupporting documents are furnished by the regionaladministrator upon request.

(b) Investigation An investigation may be con-ducted to the extent necessary.(c) Approval The Comptroller of the Currency de-termines whether or not approval of the applicationshould be granted.

(d) Certification If the determination of the Comp-troller of the Currency is favorable, a certificate will beissued evidencing approval for the establishment andoperation of the CBCT branch at the designated loca-tion.

The following is a brief description of changes to Part 5of 12 CFR.


• Section 5.1 has been revised to note that CBCTbranch applications are not subjectto the provisions of Part 5, exceptfor the notice provisions, unless theComptroller shall specifically so di-rect.

• Section 5.2a has been added to provide a spe-cial notice procedure for CBCTbranch applications.

• Section 5.4a has been added to provide for writ-ten comments on CBCT branchapplications.

12 CFR 5 is amended by revising the table of contentsand Section 5.1 and by adding sections 5.2a and 5.4a toread as follows:

Sec.5.15.25.2a5.35.4

5.4a

5.55.65.75.85.95.105.115.125.135.14

Table of Contents

Scope of partNotice of filing of applicationNotice of filing of CBCT branch applicationPublic fileWritten comments and requests for an oppor

tunity to be heardWritten comments on CBCT branch applica

tionsPlace of hearingDate of hearingNotice of hearingAttendance at hearingPresiding officerHearing rulesClosing of the public fileRetained authorityComptroller's decisionComputation of time

5.1 Scope of Part

This part contains procedures by which the Comptrol-ler of the Currency may reach informed decisions withrespect to applications to charter national banks, to es-tablish domestic branches of national banks, to merge orconsolidate with or purchase the assets of another bankwhere the resulting bank is a national bank, to relocateoffices of national banks, to establish or acquire domes-tic operating subsidiaries, to exercise fiduciary powers,to change corporate titles and in other such cases as theComptroller in his sole discretion shall deem appropri-ate. These procedures provide a method by which allpersons interested in the subject matter of such applica-tions may present their views. Nothing contained hereinshall be construed to prevent interested persons frompresenting their views in a more informal manner whendeemed appropriate by the Comptroller, his deputy, orby the regional administrator of national banks, or to pre-vent the Comptroller or the regional administrator fromconducting such other investigation as may be deemed

appropriate. The procedures established by this Part,other than the notice provision of Section 5.2a and writ-ten comment provision of Section 5.4a, do not apply toapplications for permission to establish a CBCT branch,unless the Comptroller shall specifically so direct.

5.2a Notice of filing of CBCT branch applications

(a) Applications to establish CBCT branches shall befiled as provided in 12 CFR 4.(b) By publication Applicant shall, within 5 daysafter filing an application to establish a CBCT branchwith the regional administrator, publish one time in anewspaper of general circulation in a community inwhich the applicant's head office is located and in anewspaper of general circulation in the community inwhich the applicant proposes to establish a CBCTbranch, a notice containing the name of the applicantor applicants, the subject matter of the application andthe date on which the application was filed. Im-mediately thereafter, the applicant shall furnish the re-gional administrator with an affidavit evidencing suchpublication. For the purposes of this section, the filingdate of the application shall be the date upon whichthe application was placed in the United States mail,postage prepaid, addressed to the regional adminis-trator.

5.4a Written comments on CBCT branch applications

Within 10 days after the notice by publication de-scribed in 5.2a of this part, any interested person maysubmit to the regional administrator written commentsconcerning the application.

The following is a brief description of the change toPart 8 of 12 CFR. Section 8.3 has been revised to add aprovision specifying a filing fee for CBCT branch appli-cations. 12 CFR 8 is amended by revising 8.3 as follows:

8.3 Filing fee for applications for branches

(a) A filing fee of $500 is assessed for investigatingand processing each application for a branch, otherthan a CBCT branch.

(b) A filing fee of $200 is assessed for processingeach application for a CBCT branch..

Effective date: These amendments are effectiveNovember 3, 1976.



Amendments to 12 CFR Concerning the Form and Content of Annual Report toShareholders

Title 12 — Banks and BankingChapter I — Comptroller of the Currency,

Department of the TreasuryPart 18 — Form and Content of Annual Report

to Shareholders

National BanksOn October 19, 1976, the Comptroller of the Currencypublished for comment (41 FR 46144) proposed revi-sions to Part 18 of Title 12 of the Code of Federal Regula-tions. Part 18 contains rules governing the preparationand issuance of annual reports to shareholders by na-tional banks which do not furnish an annual report pur-suant to 12 CFR 11.5(c) and those which are not wholly-owned subsidiaries of a bank holding company.

The proposed revisions have been adopted, withminor modifications, and will be effective on January 1,1977. All annual reports to shareholders issued after De-cember 31, 1976, must be presented in the formatspecified in Part 18 as revised, except as to certain re-quirements noted below which the Comptroller haswaived for reports distributed in 1977.

Part 18 has been revised in order to make its provi-sions relating to the preparation of annual reports toshareholders consistent with the recently revised"Instructions for Preparation of Consolidated Reports ofCondition and Income by National Banking Associa-tions." The regulation in no way restricts banks fromincluding other information that has traditionally ap-peared in annual reports to shareholders.

A majority of the comments on the proposal were di-rected at the requirement under Section 18.1 (b) thateach national bank mail an annual report to its share-holders at least 14 days in advance of its annual meeting,but in no event later than 60 days after the close of thebank's fiscal year. The commentators pointed out thatsome banks which hold their annual meetings in the earlypart of the calendar year may not be able to comply withthe requirement, as proposed, since the financialinformation for the report will not be available until afterDecember 31.

Section 18.1 (b) has been modified to require that a na-tional bank mail an annual report to each of its share-holders at least 10 days prior to the annual meeting, butin no event later than 60 days after the close of the latestfiscal year. The 10 day requirement corresponds to theComptroller's Interpretive Ruling 7.4000 as to the mailingof notice of all shareholder meetings.

The Comptroller believes that the availability of finan-cial information to shareholders is essential to theirmeaningful participation in the annual meeting, and the10 day requirement will assure adequate opportunity forshareholders to evaluate that information. However, inresponse to the comments and in order to avoid anyundue burdens in connection with preparations for 1977annual meetings, the Comptroller hereby waives the 10day requirement as to any annual report to shareholders

distributed in 1977. This will afford an affected bankadequate opportunity to make appropriate changes inits scheduled annual meeting date.

The Comptroller similarly recognizes that the new Part18 requirement for comparative financial information willnecessitate the restatement of 1975 data, some of whichmay not be readily available. Also, the new requirementfor footnote disclosure may introduce a new financial re-porting technique to some banks. Thus, as to annual re-ports to shareholders distributed in 1977, the Comptrol-ler hereby waives the requirements of Section 18.2 so asto permit the omission of all financial information for fiscal1975, and the requirements of Section 18.3(b) so as topermit the omission of all footnote disclosure for fiscal1975 and 1976. Of course, such information may beincluded voluntarily if presented in the required format.All requirements of Part 18 will be applicable to annualreports to shareholders distributed in subsequent years.

One commentator suggested that the proposed bal-ance sheet format be modified to exclude amounts relat-ing to bad debt contingency reserves from the capitalaccounts section. The suggestion has not beenadopted. Contingency reserves are appropriations ofundivided profits and may be reversed at the discretionof the bank's board of directors. Thus, such reserves areproperly considered part of capital. In addition, it is de-sirable that consistency be maintained between a bank'sannual report to shareholders and its published call re-ports.

The Comptroller of the Currency finds that thechanges made in the proposal of October 19, 1976, re-spond to public comments and consist of correctionsand clarifications which do not impose an additionalburden on affected persons. Accordingly, further publicparticipation in this rulemaking process is not requiredby the provisions of 5 USC 553 relating to notice and op-portunity for additional public comment.

In addition, the Comptroller hereby finds that the effec-tive date of this amendment, although less than 30 daysafter the date of publication for adoption, is appropriatein order that the format of financial information furnishedby national banks in their annual reports to shareholdersduring 1977 be consistent with that presented in thebanks' published call reports.

The Comptroller of the Currency, pursuant to the gen-eral authority of national banking laws, R.S. 324 etseq.,as amended; 12 USC 1 et seq., hereby amends Part 18,as set forth below.

Effective Date: The effective date of these amendmentsis January 1, 1977.

Dated: December 10, 1976.

Sec.18.118.2

Table of Contents

Scope and application.Financial statements


18.3 General rulesAppendix A—Balance sheetAppendix B—Statement of earningsAppendix C—Reconciliation of equity capital accountsAppendix D—Reconciliation of reserve for possible loan

losses (valuation reserve)

Authority: R.S. 324 et sec?., as amended; (12 USC 1 etseq).

18.1 Scope and applicationThis part is issued by the Comptroller of the Currencyunder the general authority of the National BankingLaws, R.S. 324 et seq. as amended, 12 USC 1 et seq.,and contains rules applicable to the issuance of annualreports by national banks.

(a) Every national bank shall mail an annual report toeach of its shareholders, to the Comptroller of the Cur-rency and the appropriate regional administrator, con-taining, as a minimum, the information required bythis part. This part shall not apply to the following:

(1) Banks which are furnishing annual reports toshareholders in accordance with Section 11.5(c) ofPart 11 of the Comptroller's Regulations; or(2) Banks which, except for directors' qualifyingshares, are wholly-owned subsidiaries of bank hold-ing companies.

(b) Every bank subject to this part shall mail an annualreport to each of its shareholders at least 10 days priorto its annual meeting but in no event later than 60 daysafter the close of the bank's fiscal year.

18.2 Financial statementsThe following financial statements must be included inthe annual report to shareholders:

(a) Comparative balance sheets as of the end of thetwo most recent fiscal years (See Appendix A);(b) Comparative statements of earnings for the twolatest fiscal years (See Appendix B);(b) Comparative reconciliation of equity capital ac-counts for the two latest fiscal years (See Appendix C);(d) Comparative reconciliation of reserve for possibleloan losses (valuation reserve) for the two latest fiscalyears (See Appendix D).

18.3 General rules(a) The financial statements called for by this partshould be prepared in accordance with the applicableinstructions and definitions set forth by the Office of theComptroller of the Currency in the publication entitled,

"Instructions for Preparation of Consolidated Reportsof Condition and Reports of Income by National Bank-ing Associations" and in any other releases amendingor interpreting this publication.(b) The following information should be disclosed,when applicable, in footnotes to the financial state-ments:

(1) A summary of significant accounting policies,such as whether the bank is on the cash or accrualbasis of accounting;(2) Any changes in accounting principles or prac-'tices or in the method of applying any accountingprinciples or practices made during any period forwhich financial statements are filed which affectcomparability of such financial statements withthose of prior or future annual periods, and the effectthereof upon the net income for each period forwhich financial statements are filed;

(3) Retroactive adjustment made during any periodfor which financial statements are filed, and the ef-fect thereof upon net income of prior periods;(4) A brief description of any restrictions, other thanstatutory, on the payment of dividends;(5) The components of income tax expense, includ-ing taxes currently payable and deferred incometaxes;(6) A breakdown of the loan portfolio similar to themajor loan categories of Schedule A of the consoli-dated report of condition; and(7) The amount of outstanding stand-by letters of*credit.

(c) The statements and footnotes called for by thispart are minimum requirements. Additional informa-tion as may be necessary to make the financial state-ments not misleading shall be included.(d) The requirements of this part may be met by pro-viding each shareholder with a copy of the balancesheet of the consolidated report of condition and sec-tion A of the consolidated report of income, and the fol-lowing information, for both the current and im-mediately preceding year:

(1) Income before securities gains (losses) percommon share;(2) Net income per common share;(3) Appendix C of this part;(4) Appendix D of this part;(5) Footnotes pursuant to Section 18.3(b); and(6) Such additional information as may be neces-sary to meet the requirements of Section 18.3(c).


Appendix A—Balance Sheet (consolidated)[In thousands of dollars]

Resources:1. Cash and due from banks2. U.S. Treasury securities3. Obligations of other U.S. government agencies and corps4. Obligations of states and political subdivisions5. Other bonds, notes, and debentures6. Federal Reserve stock and corporate stock7. Trading account securities8. Federal funds sold and securities purchased under agreements to resell9. (a) Loans, total (excluding unearned income)

(b) Less: reserve for possible loan losses(c) Loans, net

10. Direct lease financing11. Bank premises, furniture and fixtures, and other assets representing bank

premises12. Real estate owned other than bank premises13. Investments in unconsolidated subsidiaries and associated companies14. Customers' liability to this bank on acceptances outstanding15. Other assets

16. Total assets

Liabilities:17. Demand deposits of individuals, partnerships, and corps18. Time and savings deposits of individuals, partnerships and corps19. Deposits of U.S. government20. Deposits of states and political subdivisions21. Deposits of foreign governments and official institutions22. Deposits of commercial banks23. Certified and officers' checks

24. Total domestic deposits(a) Total demand deposits(b) Total time and savings deposits(c) Deposits in foreign offices(d) Total domestic and foreign deposits

25. Federal funds purchased and securities sold under agreements to repurchase26. Liabilities for borrowed money27. Mortgage indebtedness28. Acceptances executed by or for account of this bank and outstanding29. Minority interest in consolidated subsidiaries30. Other liabilities

31. Total liabilities

1 32. Subordinated notes and debentures

Equity Capital Accounts:33. Preferred stock:

(a) No. shares outstanding . . . .(par value)34. Common stock:

(a) No shares authorized(b) No. shares outstanding (par value)

35. Surplus36. Undivided profits37. Reserve for contingencies and other capital reserves38. Total equity capital

39. Total liabilities and equity capital

NOTE: Banks may combine various lines as follows if the particular line figure is less than 3 percent of total assets. Line 14 into line 15; Line 7 intolines 2, 3, 4, and 5, as appropriate; line 28 into line 30. Lines for which banks have no entry may be omitted.


Appendix B—Statement of Earnings (consolidated)[In thousands of dollars]

19 t9

1. Operating income:(a) Interest and fees on loans(b) Interest on balances with banks(c) Income on federal funds sold and securities purchased under agreements to

resell in domestic offices(d) Interest on U.S. Treasury securities(e) Interest on obligations of other U.S. government agencies and corporations ..(f) Interest on obligations of states and political subdivisions of the U.S(g) Interest on other bonds, notes and debentures(h) Dividends on stock(i) Income from direct lease financing(j) Income from fiduciary activities(k) Service charges on deposit accounts in domestic offices(I) Other service charges, commissions, and fees(m) Other income(n) Total operating income (sum of items 1-a through 1-m)

2. Operating expenses:(a) Salaries and employee benefits(b) Interest on time certificates of deposit of $100,000 or more issued by domestic

offices(c) Interest on deposits in foreign offices(d) Interest on other deposits(e) Expense of federal funds purchased and securities sold under agreement to

repurchase in domestic offices(f) Interest on borrowed money(g) Interest on subordinated notes and debentures(h) 1. Occupancy expense of bank premises, gross

2. Less: rental income3. Occupancy expense of bank premises, net

(i) Furniture and equipment expense(j) Provision for possible loan losses (or actual net loan losses)(k) Minority interest in consolidated subsidiaries(I) Other expenses

(m) Total operating expenses (sum of items 2-a through 2-I)

3. Income before income taxes and securities gains or losses (Item 1-n minus 2-m)4. Applicable income taxes (domestic and foreign)5. Income before securities gains or losses (item 3 minus 4)6. (a) Securities gains (losses), gross

(b) Applicable income taxes (domestic and foreign)(c) Securities gains (losses), net

7. Income before extraordinary items8. Extraordinary items, net of tax effect9. Net incomeEarnings per common share:

Income before securities gains (losses)Net income

NOTE: Banks may combine any line item 1 -a through 1 -I into line 1 -m, and any line item 2-a through 2-i into line 2-I, provided the particular line figureto be combined is less than 3 percent of total operating income. Lines for which banks have no entry may be omitted.


Appendix C—Reconciliation of Equity Capital Accounts, 19[In thousands of dollars]

1. Balance beginning of period2. Net income (loss)3. Sale, conversion, acquisition or retirement

of capital4. Changes incident to mergers and absorp-

tions5. Cash dividends declared on common stock . . .6. Cash dividends declared on preferred stock . . .7. Stock dividends issued8. Other increases (decreases) (itemize)9. Balance end of period

Preferredstock

(par value)

Commonstock

(par value)Surplus

Undividedprofits and

capitalreserves

Total equitycapital

NOTE: This schedule is identical to Section B of the consolidated report of income, and should be prepared for each of the latest 2 years.

Appendix D — Reconciliation of Reserve for Possible Loan Losses (Valuation Reserve)[In thousands of dollars]

19 19

1. Balance beginning of period2. Recoveries credited to reserve3. Changes incident to mergers and absorption4. Provision for possible loan losses (must equal Item 2j on statement of earnings]5. Losses charged to reserve6. Balance end of period

NOTE: Every bank subject to this part must provide this schedule as part of its report to shareholders. Banks with total resources of less than$25,000,000 as of the end of the previous year which have no reserve for possible loan losses (valuation reserve) must, nevertheless, provide thisschedule as part of their report to shareholders. These banks will show a beginning balance of zero, gross recoveries on line 2, gross losses on line 5,and net losses or recoveries on line 4, which will result in an ending balance of zero.


IndexAcquisition of operating subsidiary, 280Action Control System, 228, 229, 259Addresses and testimony of the Comptroller's Office, 187-263Adequacy of bank capital, 202-203, 204Administration Department, 23-24Administrative Information System, 30Administrative Procedures Act, 267, 284Affiliate relationships, 209Aggregate classified assets of national banks, by asset size, 207,

208Annual Report to Shareholders, changes in, 15, 286-290Anomaly Severity Ranking System, 228, 229Assessments on national banks, 265-268Asset classification, 189-190, 201-202, 207-208Assets of Comptroller's Office, 32Assets of domestic offices of national banks:

average, 1961-1976, 179date of last call, 1961-1976, 181December 31, 1976, by asset size, 160December 31, 1976, percent distribution, 2December 31, 1976, by states, 149-156June 30, 1976, by states, 141-148

Assets of foreign branches of national banks:December 31, 1976, 184inclusion in assessment base, 266year-end 1953-1976, 184

Assets of national banks rated 3 or 4, 192, 206Assets of national banks with foreign operations, December 31,

1976, 182Assets of trust departments of national banks, calendar 1976, 185Associate Deputy Comptroller for Consumer Affairs, testimony of,

241-254,254-258Average assets and equity capital, net income and dividends of

national banks, 1961-1976, 179

Bad debt, redefined, 16-17Balance sheets: Comptroller's Office, 1975 and 1976, 32Bank capital adequacy, 202-203, 204Bank capital and inflation, 226Bank charterings (See Charters and charterings)Bank directors' responsibility, 220-221, 270Bank examination:

of affiliates, 209and bank holding companies, 207, 209capital evaluation in, 202-203, 204for compliance with consumer law, 125-126, 218, 241, 242-243,

243-244, 254, 255-256, 256, 257confidentiality of, 191, 256of foreign branches, 13, 21-22, 209-210, 229frequency of, 13, 261and liquidity, 204loan evaluation in, 201-202andNBSS, 215, 259,261new procedures for, 13, 19, 194, 200, 215-216, 219-220,

227-228, 243, 259, 260-262, 266number during 1976, 13, 210and "problem" banks, 189-191, 198-200, 205-206, 207purpose of, 13, 259and rating banks, 189-190, 199requirement for, 13, 261, 266review of performance in, 230and special surveillance, 237-238, 239standards for, 195summary of 1976 activities in, 13training for, 13, 19, 22, 25, 229, 242, 243, 255, 260of trust departments, 19and violations of consumer law, 243-244, 256

Bank failures, 193, 200, 203, 216Bank Holding Company Act, 194, 269Bank holding companies:

and capital adequacy, 204disclosure by, 15examination of, 207, 209supervision of, 194, 209

Bank monitoring system (See NBSS)Bank officers and directors:

business interests of, 223, 225and credit life insurance, 269removal of, 201, 205, 206, 222responsibilities, 220-221, 270

Bank Organization and Structure Division, 23, 230Bank ratings, 189-190, 199, 206, 237Bank reporting, changes in, 15, 123-124, 194, 200, 215, 286-290Bank underwriting of securities, 196-197Banking circular on consumer examination, 255, 256-257Banking offices, by states, December 31, 1976, 6Beverly Hills National Bank, 209Bicentennial exhibit of Comptroller's Office, 23Bloom, Robert, testimony of, 189-191Blythe Eastman Dillon report on Franklin National Bank, 232Branches of Franklin National Bank approved, 1965-1974, 235Branches of national banks:

application procedures for, 277applications by banks continuously rated 3 or 4, 1972-1975, 235definition of, 15, 283denovo, 10, 11, 12entering the National Banking System, 10foreign, December 31, 1976, 183foreign, 1960-1976, 184opened, by states, December 31, 1976,6, 10standards for applications, 276-277

Branching and commuters, 196Branching law and EFTS, 195-196Budget program of Comptroller's Office, 23Business interests of officers and directors, 223, 225

Capital adequacy, 202-203, 204Capital markets and inflation, 226Capital notes and debentures, 203-204Capital stock of the National Banking System, changes in, 128,

281-282CBCT (See Customer-bank communication terminal)Cease and desist powers, 131, 205-206, 222-223Cease and desist proceedings of the Comptroller's Office, 206,

211-214,222,224,233-234Ceiling interest rates, 225Changes in financial position of Comptroller's Office, 33, 265Changes in financial reports of national banks, 15, 123-124, 194,

200,215,286-290Changes in the structure of the National Banking System, 5, 127,

128Charitable trusts of national banks, 16, 17Charters and charterings:

application procedures, 276applications pursuant to corporate reorganizations, 8, 130applications, by states, 7, 129and conversions by state banks, 9, 133issued pursuant to corporate reorganizations, 8, 132, 133issued, by states in 1976, 7, 130-132standards for, 274-276

Civil money penalties, 223, 230Civil Rights Act, 217, 218Civil Rights Division of Justice Department, 218Classification of assets, 201-202, 207-208, 219-220

291


Classified assets:and bank ratings, 189-190, 198, 199international, 210-211of national banks, by asset size, 207, 208and problem banks, 189-190, 198ratios of national banks, 161

Commingled investment funds, 196-197Commission on Money and Credit, 192"Competition in laxity", 193Composite bank ratings, 189-190, 192, 199, 206, 235Comptroller of the Currency:

addresses and selected Congressional testimony of Office,187-263

Administration Department, 23-24assessment of national banks by, 265-268assets of, 32Bank Organization and Structure Division, 23, 230budgeting by, 23cease and desist powers of, 191, 205-206, 222-223changes in financial position, 1975-1976, 34, 265Comptrollers, listed, 125Consumer Affairs Division, 25-27, 241-242, 243, 246, 255consumer complaints to, 241, 242, 246-254Customer-bank communication terminal (CBCT) ruling of, 15,

195-196,273,283-285Deputy Comptrollers, listed, 126Economic Research and Operational Analysis Department,

29-30enforcement activities of, 17, 206, 211-214, 224, 233-234, 244,

255Enforcement and Compliance Division, 191, 205, 222, 237, 256enforcement powers of, 191, 197, 200-201, 205-206, 215, 218,

230equity of, 31, 32, 33expenses of, 31, 33, 34, 265Finance and Administration Division, 23financial operations of, 31-35Financial Reports and Statistics Division (See Statistical Division)and Franklin National Bank failure, 230-233Human Resources Division, 216income of, 31, 33, 34International Operations Division, 21-22, 229Law Department, 15-17, 191, 205, 241, 242, 246liabilities of, 32litigation of Office, 15, 273, 283London office, 210, 266Management Services Division (See Systems and Data

Processing Division)Operations Planning Department, 29Operations Review program, 29, 30Personnel Management Division, 23-24policy statements on corporate activity, 16, 229-230, 274-282and "problem" banks, 189-191, 198-200regional administrators, listed, 126Research and Analysis Division, 23, 29-30rulings and policy statements of, 263-290securities disclosure activities of, 15-16Special Projects/Bank Review, 236-240standards for issuance of letters of credit, 273-274Statistical Division, 29, 30Strategic Studies Division, 216Systems and Data Processing Division, 23, 29, 30, 190Trust Operations Division, 19"Victor" program, 199

Comptroller's Handbook for Consumer Examination, 25-26, 27Examination, 25-26, 27

Comptroller's Handbook of Examination Procedures, 218, 260-261Comptrollers, listed, 125Comptroller's Manual, 203, 261, 274Condition of the National Banking System, 1, 197-198Consolidated assets and liabilities of national banks with foreign

operations, December 31, 1976, 182Consolidated foreign and domestic income of national banks,

December 31, 1976, by states, 162-177Consolidation of bank regulation, 192-194, 215, 216Consolidations:

of national into state banks, 135-136

Consolidations — Continuedof state or national into national banks, 137

Consumer Affairs Division, 25-27, 241-242, 243, 246, 255Consumer Complaint Information System (CCIS), 26, 242Consumer complaints about national banks:

by function and year, January 1, 1973-June 30, 1976, 247-254handling of, 241, 242resolved, January 1, 1975-July 19, 1976, 246

Consumer examination, 125-126, 218, 241, 242-243, 243-244,255-256

Conversions:application procedures, 278of national into state banks, 136pattern of, 193standards for, 277-278of state into national bank, 9, 133

Corporate activity application procedures for national banks, 16,23, 229-230, 274-282

Corporate reorganizations:charter applications pursuant to, 8, 130charters issued pursuant to, 8, 132, 133mergers consummated pursuant to, 41, 109-118, 133

Country credits, 22, 200Credit card balances of national banks, December 31, 1976, 158Credit life insurance sales by national banks, 17, 268-272Customer-bank communication terminal (CBCT), 15, 195-196,

273, 283-285

Debentures, 203-204Debt capital, 203-204, 281-282Debt capital to total capital, 1970-1975, by size of bank, 209De novo branches of national banks:

application procedures, 277applications for, calendar 1976, 11opened in 1976, 10, 12standards for approval, 276-277, 285

Deposit function of national banks, complaints, 248, 250, 252Depositor losses from bank failures, 193, 216Deposits of national banks with composite ratings of 3 or 4, 192,

206Deputy Chief Counsel, testimony of, 217-218Deputy Comptrollers of the Currency, listed, 126Deputy Comptroller for Law and Chief Counsel, testimony of,

221-225Direct lease financing by national banks, December 31, 1976, 159Disclosure:

by bank holding companies, 15of examination reports, 191, 255-256by national banks, 191in offering securities, 15-16, 281and the Securities Exchange Act, 191

Discrimination in lending, 217, 218Dividends of national banks, 4, 179, 281Domestic assets of national banks:

average, 1961-1976, 179date of last report of condition, 1961-1976, 181December 31, 1976, by asset size, 160December 31, 1976, percent distributionDecember 31, 1976, by states, 149-156June 30, 1976, by states, 141-148

"Doubtful11, 201-202Duties and responsibilities of directors, 220-221, 270

"Early warning system", 190, 259, 262Economic Research and Operational Analysis Department, 29-30Edge Act Corporations, 195EFTS (electronic funds transfer system), 195-196EFTS guidelines for national banks, 25Enforcement activities of the Comptroller's Office, 17, 206,

211-214, 224, 233-234, 244, 255Enforcement and Compliance Division, 191, 205, 222, 237, 256Enforcement powers of Comptroller's Office, 191, 197, 200-201,

205-206,215,217Enforcement powers, proposed, 201, 206, 222-223, 230Equal Credit Opportunity Act, 241, 243, 245-246, 255Equity capital of national banks:

average, 1961-1976, 179


Equity capital of national banks — ContinuedDecember 31, 1976, by asset size, 160December 31, 1976, percent distribution, 2December 31, 1976, by states, 141-148June 30, 1976, by states, 149-156to total assets, 1970-1975, by size of bank, 208to total deposits, 1970-1975, by size of bank, 208

Equity, Comptroller's, 31, 32, 33Examination of banks (See Bank examination)Examination report, 205-206, 206-207, 216, 220, 228, 243, 254,

262Expenses of the Comptroller's Office, 1975 and 1976, 31, 33, 34,

265Expenses of national banks, year ended December 31, 1976:

by asset size, 178consolidated, foreign and domestic, by states, 162-177percent distribution, 4

Failures of banks, 193, 200, 203, 216Fair Credit Billing Act, 243, 245-246, 255Fair Credit Reporting Act, 243, 255Fair Housing Act, 243, 255Fair Housing Lending Practices Pilot Project, 217Federal Bank Commission, 215Federal Bank Examination Council, 195Federal Paperwork Commission Act, 218Fiduciary activities of national banks (See Trust departments)Finance and Administration Division, 23Financial Institutions Act, 215, 216Financial Institutions and the Nation's Economy (FINE), 192-193,

197Financial Institutions Supervisory Act, 191, 205-206, 206, 222, 268Financial Institutions Supervisory Act proceedings, 211-214, 224,

233-234Financial operations of the Comptroller's Office, 31-35, 265Financial reporting, changes in, 15, 123-124, 194, 200, 215,

286-290First Deputy Comptroller for Operations, speeches by, 218-221,

259-263First Deputy Comptroller for Policy, testimony of, 189-191First National Bank of East Islip, 235-236Foreign activities of national banks, 21-22, 195Foreign assets in assessment base, 266Foreign banks in United States, 197Foreign branches of national banks:

assets, December 31, 1976, 184assets, year-end 1953-1976, 184credit files of, 209-210examination of, 13, 21-22, 209-210, 229number examined, 1971-1975,210number of, 1960-1976, 184by region and country, December 31, 1976, 183

Foreign and domestic income of national banks, December 31,1976, by states, 162-177

Foreign loans of national banks, 210-211Foreign Public Sector Credit Review Committee, 22Franklin National Bank, 15, 226-227, 230-233, 235Futures trading by national banks, 16

Glass-Steagall Act, 197, 216Government Accounting Office, 227Government National Mortgage Association (GNMA) futures and

national banks, 16

Handbook for National Trust Examiners, 19Haskins & Sells Study, 13, 19,23, 189, 190, 194,200, 215, 227,

266History of bank regulation, 192-193Holding company disclosure, 15Holding company membership:

and capital adequacy, 204and examination, 207, 209

Holding company regulation, 194, 209Home Mortgage Disclosure Act, 218, 242, 243, 255Hoover Commission, 192Human Resources Division, 216

Human Resources Information System (HRIS), 24, 30Hunt Commission, 192, 215

Income of Comptroller's Office, 31, 33, 34Income of national banks:

by asset size, 178average, 1961-1976, 179changes in, 3consolidated foreign and domestic, by states, 162-177from credit life insurance, 268-272percent distribution, 4of trust departments, 185

Inflation and financial intermediaries, 225-226Insider lending, 223-225Insurance, credit life, 17, 268-272Interagency cooperation, 15, 16, 19, 22, 27, 190, 194, 195, 197,

201, 206-207, 217, 218, 222, 230, 244Interagency Coordinating Committee, 207Interbank capital transactions, 204Interest rate ceilings, 225International banking:

examination of, 31, 21-22, 209-210, 229regulation of, 195

International Operations Division, 21-22, 229Interstate branching, 196Investment Company Act, 197

Justice Department, 218

Laxity, competition in, 193Law Department, 15-17, 191, 205, 241, 242, 246Lease financing by national banks, December 31, 1976, 159Lending and inflation, 225-226Lending to insiders, 223, 225Letters of credit, standards for issuance of, 273-274Liabilities of Comptroller's Office, 32Liabilities of domestic offices of national banks:

date of last call, 1961-1976, 181December 31, 1976, by asset size, 160December 31, 1976, percent distribution, 2December 31, 1976, by states, 141-148June 30, 1976, by states, 149-156

Liabilities of foreign branches of national banks, December 31,1976, 184

Liabilities of national banks with foreign operations, December 31,1976, 182

Liability management, 204-205Limitation on charitable contributions by national banks, 16, 17Liquidations of national banks, 134Liquidity evaluation, 204Loan classification, 201-202, 207, 208, 219-220Loan function of national banks, complaints, 249, 251, 253Loan losses of large national banks, 197-198, 216Loan losses and recoveries, domestic offices of national banks,

1961-1976, 180Loans of large national banks, to foreign governments, 210-211Loans of national banks, by states, December 31, 1976, 157Loan review in examination, 201-202Location change procedures for national banks, 280-281"Loss", 201-202Losses to depositors in bank failures, 193, 216

Magnuson-Moss Warranty, 241, 255Management Services Division (See Systems and Data Processing

Division)McFadden Act, 216Mergers: r

applications during 1976, 12application procedures, 279approval opinions, 42-119approvals, listed, 39-41 •by assets of acquiring and acquired banks, 140of Franklin National Bank, 1965-1974, 235involving two or more operating banks, 12, 39-41, 43-108,

138-139, 140in 1976, 12, 39-41, 42-118, 135-136, 137, 138-139, 140


Mergers — Continuedpursuant to corporate reorganizations, 12,41, 109-118, 132standards for approval, 278-279

Minimum Standards of Information for Automated Systems, 13Modernization of regulation, 194, 200Money market funds, 204-205Mortgage backed securities, 17Mortgage lending, 217, 218Murphy, C. Westbrook, testimony of, 222-225Mutual funds share purchase by trust departments, 16

National Bank Act, 13, 266, 267, 284National Bank Surveillance System (NBSS), 30, 190, 200, 215,

228-229,237,259,261,262National Banking System:

condition of, 1, 197-198structural changes in, 5, 127, 128

National banks:Annual Report to Shareholders, 15, 286-290applications for charters, 129-130, 274-276assessments on, 265-268assets and liabilities of domestic offices, 2, 141-148, 149-156,

160, 181average assets and capital, 1961-1976, 179branches of, December 31,1976, 6and capital notes, 203-204changes in capital stock, 128, 281-282changes in reporting by, 15, 123, 194, 200, 215, 286-290and charitable deductions, 16, 17chartered in 1976, 7, 8, 9, 130-132, 132, 133classified assets of, 161, 207, 208commingled investment accounts, 196-197with composite ratings of 3 or 4, 192, 206consolidated assets of banks with foreign operations, December

31, 1976, 182consolidations into national banks of, 137consolidations into state banks of, 135-136consumer complaints about, 241-242, 247-254conversions into state banks, 136conversions of state banks into, 9, 133corporate activities guidelines for, 16, 229-230, 274-282credit card balances of, December 31, 1976, 158credit life insurance income of, 268-272direct lease financing of, December 31, 1976, 159foreign activities of, 21-22foreign branch assets of, 184foreign branches of, 183, 184and futures trading, 16guidelines for EFTS for, 25income and expenses of, 3, 4, 162-177, 178investment in mutual funds by trust departments, 16letters of credit, standards for issuance by, 273-274loan losses and recoveries, 1961-1976, 180loans of, December 31, 1976, 157location change, procedures for, 280-281merged with national banks, 138-139, 140merged pursuant to corporate reorganizations, 132merged into state banks, 135-136number of and offices, by states, 6offering circular disclosure by, 15-16peer groups, 190, 228performance of large banks, 197-198, 208, 216-217sale of mortgage backed securities by, 17securities underwriting by, 196-197and state laws, 196, 243, 244-245, 256, 283-284title change, procedures for, 280trust assets and income of, calendar 1976, 185involuntary liquidation, 134

National Commission on Electronic Funds Transfers, 196, 197, 216,242

National credits, 200Newly organized national banks, 7, 130-132New York Clearing House Association and Franklin National Bank,

231-232

Offering circulars of national banks, 15-16

Officers of national banks:and credit life insurance, 269, 270removal of, 201, 205, 206, 222, 230

Offices of national banks, by states, December 31, 1976, 6Operating subsidiaries, application procedures and standards,

280Operations Planning Department, 29Operations Review program, 29, 230Opinion of Independent Accountant, 35Organization procedures for new national banks, 276"Other Loans Especially Mentioned" (OLEM), 201-202Outstanding balances, credit cards and related plans of national

banks, December 31, 1976, 158

Peer group analysis of national banks, 190, 228Performance of large national banks, 197-198, 208, 216-217Planning for Comptroller's Office, 29Policy statements on corporate activities, 16, 229-230, 274-282Problem banks, 189-191, 198-200, 205-206Proposed rulemaking on disposition of credit life insurance income,

268-272Proposed standards for issuance of letters of credit, 273-274Purchases of state banks by national banks, 137

Rating banks, 189-190, 199, 206, 237Real estate investment trusts (REIT), 208Real Estate Settlement Procedures Act, 243, 255Redefinition of bad debt, 16-17Redistribution of bank regulatory authority, 194-195"Redlining", 218Reform of financial institutions, 192-197Regional administrators, listed, 126Regional consumer specialist, 218Regional credit centers, 210Registration of national bank transfer agents, 19Regulation of financial institutions, 192-195, 209, 215-216, 216-217Regulation B, 241, 245-246Regulation C, 242Regulation 9, proposed amendments, 19Regulation Q, 225Regulation Z, 245, 245-246, 254, 255, 258Regulatory Information System, 30Removal of officers and directors of banks, 201, 205, 206, 222, 230Report of examination, 205-206, 206^207, 216, 220Reporting by banks, changes in, 15, 123-124, 194, 200, 215,

286-290Research and Analysis Division, 23, 29-30Reserves of national banks, December 31, 1976, 2Responsibilities of bank directors, 220-221Revenues, expenses and equity of Comptroller's Office, 1975 and

1976, 33Review of shared credits, 200Revised Assessment Schedule of Comptroller's Office, 265-268Rulings and policy statements of Comptroller's Office, 263-290

S. 1297 (See Financial Institutions Act)S. 2298, 215, 216S. 2304,201,206, 222-225Savings and loan associations and EFTS, 195Schedule of assessments on national banks, 268Securities Act Amendments, 196Securities disclosure activities of Comptroller's Office, 15-16Securities Exchange Act, 191SEC-Federal Banking Agencies Task Force, 15Securities holdings of national banks, 2, 141-148, 149-156, 160Securities offering disclosure for national banks, 15-16Securities sales by national banks, 17Securities underwriting by national banks, 196-197Selby, H. Joe, speeches of, 218-221, 259-263Shared credits, 200Shareholders' annual report revision, 15, 286-290Shockey, John E., testimony of, 217-218Smith, James E.:

speech of, 225-226testimony of, 192-197, 197-214, 215-217, 226-240

Special Projects /Bank Review, 236-240


Special supervision for banks, 189-191, 198-200, 205-206,228-229, 236-240, 259-260, 261-262

Speeches of Comptroller's Office, 218-221, 225-226, 259-263Standards for issuance of letters of credit, 273-274State law and national banks, 196, 243, 244, 244-245, 256,

283-284State banks:

applications procedures for conversion to national charter, 278conversions of national banks into, 136conversions into national banks, 9, 133purchased by national banks, 137standards for conversion to national charter, 277-278

Statistical Division, 29, 30Strategic Studies Division, 216Structural changes in the National Banking System, 5, 127, 128"Substandard", 201-202Supervisory action in examination, 190-191, 205-206Suspension of CBCT ruling, 273, 283-285Systems and Data Processing Division, 23, 29, 30, 190

Training for examiners, 13, 19, 22, 25, 229, 242, 243, 255, 260Transfer agents, national banks as, 17Treasury bill futures, 16Trust activities of national banks, 19Trust departments:

application procedures for, 279-280assets and income of national banks, calendar 1976, 185investment in mutual funds, 16investment services, 196standards for approval of applications, 279

Trust Operations Division, 19Truth-in-Lending, 243, 244-245, 245-246, 254, 255-256Types of violations of Regulation Z, 258

Underwriting of securities, 196-197Uniform Customs and Practices for Documentary Credits, 273, 274Uniform credit evaluation, 22, 200United States National Bank of San Diego, 15Usury law, 243, 244, 255

Task force on disclosure, 15Taylor, Thomas W., testimony of, 241-254, 255-258Testimony of Comptroller's Office, 189-192, 192-197, 197-214,

215-217, 217-218, 221-225, 226-240, 241-254, 255-258Thrifts and EFTS, 195Title changes by national banks, 280

"Victor" program, 199Violations of consumer protection laws, 243-244, 255, 258Violations of Truth-in-Lending disclosure requirement, 17, 244, 255,

258Voluntary Foreign Credit Restraint Program, 210Voluntary liquidations of national banks, 134


compcurr_1976

Documents

expenses of national

federal reserve bank

edp centers of national

bank examinations

size of bank

fraser http

banking offices

international banking