For immediate release

The Federal Reserve Board today announced its approval of the application of First of Waverly Corporation, Waverly, Iowa, to acquire Schrage, Ltd., and indirectly acquire Farmers State Bank, both of Plainfield, Iowa. Attached is the Board's Order relating to this action.

First of Waverly Corporation Waverly, Iowa Order Approving Acquisition of a Bank Holding Company

First of Waverly Corporation, Waverly, Iowa ("Waverly"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act") has requested the Board's approval under section 3 of the BHC Act (12 U.S.C. § 1842) to acquire Schrage, Ltd. ("Schrage"), and thereby indirectly acquire Farmers State Bank ("Bank"), both of Plainfield, Iowa. Notice of this proposal, affording interested person an opportunity to submit comments, has been published (62 Federal Register 60,512 (1997)). The time for filing comments has expired, and the Board has considered the proposal and all comments received in light of the factors set forth in section 3 of the BHC Act. Waverly is the 90th largest depository institution in Iowa, controlling approximately $77.8 million in deposits, representing less than 1 percent of total deposits in depository institutions in the state.1 Schrage is the 290th largest depository institution in Iowa, controlling approximately $23.2 million in deposits, representing less than 1 percent of total deposits in depository institutions in the state. On consummation of this proposal, Waverly would become the 65th largest depository institution in Iowa, controlling deposits of $101 million, representing less than 1 percent of the total deposits in depository institutions in the state. Competitive Considerations The BHC Act prohibits the Board from approving an application under section 3 of the BHC Act if the proposal would result in a monopoly or if the effect of the proposal may be substantially to lessen competition in any relevant market, unless the Board finds that the anticompetitive effects of the proposal are clearly outweighed in the public interest by the probable effect of the proposal in meeting the convenience and needs of the community to be served.2 Waverly and Bank compete in the Bremer County, Iowa, banking market.3 Waverly is the second largest depository institution in the market, controlling deposits of $77.8 million, representing 22.1 percent of total deposits in depository institutions in the market ("market deposits").4 Bank is the sixth largest depository institution in the market, controlling deposits of $23.2 million, representing 6.6 percent of market deposits. On consummation of this proposal, Waverly would become the largest depository institution in the market, controlling deposits of $101 million, representing 28.7 percent of market deposits. Concentration in the Bremer County banking market, as measured by the Herfindahl-Hirschman Index ("HHI") under the Department of Justice Merger Guidelines ("DOJ Guidelines"), would increase by 294 points to 1850.5 The effect of the proposal on market concentration as measured by the HHI is relatively small. In addition, some mitigating considerations presented in the case offset this marginal effect on competition. Eight depository institution competitors would remain in the banking market after consummation of the proposal. Four of these competitors, not including Bank, would each have a market share of more than 9 percent, and the second largest competitor in the market would have a market share of more than 24 percent. Although the Bremer County banking market is a relatively small and slow-growing rural banking market, the Board notes that there has been actual recent de novo entry into the market by an insured deposit-taking institution. As in other cases, the Board sought comments from the Justice Department and the Federal Deposit Insurance Corporation ("FDIC") on the competitive effects of the proposal. The Justice Department has advised the Board that consummation of the proposal would not be likely to have any significantly adverse competitive effects in the Bremer County banking market or in any other relevant banking market. The FDIC did not object to consummation of the proposal or indicate it would have any significantly adverse competitive effects in the Bremer County banking market or any other relevant market. Based on these and all the other facts of record, and for the reasons discussed in this order, the Board concludes that consummation of the proposal would not result in any significantly adverse effects on competition or on the concentration of banking resources in any other relevant banking market. Other Considerations The BHC Act also requires the Board to consider the financial and managerial resources and future prospects of the companies and banks involved in the proposal, the convenience and needs of the community to be served, and certain supervisory factors. Based on all the facts of record, the Board concludes that the financial and managerial resources and future prospects of Waverly, Schrage, and their subsidiary banks are consistent with approval, as are other supervisory factors the Board must consider under section 3 of the BHC Act. In addition, considerations relating to the convenience and needs of the communities to be served also are consistent with approval of this application. Conclusion Based on the foregoing, and in light of all the facts of record, the Board has determined that this application should be, and hereby is, approved. The Board's approval is specifically conditioned on compliance by Waverly with all the commitments made in connection with this application. The commitments relied on by the Board in reaching this decision are deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law. The proposed acquisition of Schrage shall not be consummated before the fifteenth calendar day following the effective date of this order, and not later than three months after the effective date of this order, unless such period is extended for good cause by the Board or by the Federal Reserve Bank of Chicago, acting pursuant to delegated authority.

By order of the Board of Governors,6 effective December 15, 1997. (signed) Jennifer J. Johnson Jennifer J. Johnson Deputy Secretary of the Board

Footnotes 1 All deposit data are as of June 30, 1996. 2 12 U.S.C. § 1842(c). 3 The Bremer County banking market consists of Bremer County (excluding Jackson and Jefferson Townships) and Butler and Shell Rock Townships in Butler County. 4 All market data are as of June 30, 1996. In this context, depository institutions include commercial banks, savings banks, and savings associations. Market share data before consummation are based on calculations in which the deposit of thrift institutions are included at 50 percent. The Board previously has indicated that thrift institutions have become, or have the potential to become, significant competitors of commercial banks. See Midwest Financial Group, 75 Federal Reserve Bulletin 386 (1989); National City Corporation, 70 Federal Reserve Bulletin 743 (1984). Thus, the Board has regularly included thrift deposits in the calculation of market share on a 50-percent weighted basis. See e.g., First Hawaiian, Inc., 77 Federal Reserve Bulletin 52 (1991). 5 Under the revised DOJ Guidelines, 49 Federal Register 26,823 (June 29, 1984), a market in which the post-merger HHI is above 1800 is considered highly concentrated. The U.S. Department of Justice ("Justice Department") has informed the Board that a bank merger or acquisition generally will not be challenged (in the absence of other factors indicating anticompetitive effects) unless the post-merger HHI is at least 1800 and the merger increases the HHI by more than 200 points. The Justice Department has stated that the higher than normal HHI thresholds for screening bank mergers for anticompetitive effects implicitly recognize the competitive effect of limited-purpose lenders and other non-depository financial entities. 6 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Phillips, Meyer, Ferguson, and Gramlich. Absent and not voting: Governor Kelley.

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1997 Orders on banking applications