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Release Date: March 11, 1998


For immediate release

The Federal Reserve Board today announced its approval of the application and notice of FirstMerit Corporation, Akron, Ohio, to merge with CoBancorp, Inc., Elyria, Ohio, and thereby acquire PremierBank & Trust, Elyria, Ohio, and Jefferson Savings Bank, West Jefferson, Ohio.

Attached is the Board's Order relating to this action.


FirstMerit Corporation
Akron, Ohio

Order Approving the Merger of Bank Holding Companies

FirstMerit Corporation, Akron, Ohio ("FirstMerit"), 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 merge with CoBancorp, Inc., Elyria, Ohio ("CoBancorp"), and thereby acquire CoBancorp's subsidiary bank, PremierBank & Trust, Elyria, Ohio ("PremierBank"). FirstMerit also has requested the Board's approval under section 4(c)(8) of the BHC Act (12 U.S.C. 1843(c)(8)) and section 225.24 of the Board's Regulation Y (12 C.F.R. 225.24) to acquire Jefferson Savings Bank, West Jefferson, Ohio ("Savings Bank"), and thereby engage in savings association activities.1

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 2980 (1998)). The time for filing comments has expired, and the Board has considered the proposal and all comments received in light of the factors set forth in sections 3 and 4 of the BHC Act.

FirstMerit is the tenth largest depository institution in Ohio, controlling $4.3 billion in deposits,2 representing approximately 2.9 percent of total deposits in insured depository institutions in the state ("state deposits").3 CoBancorp is the 28th largest depository institution in Ohio, controlling $571.7 million in deposits, representing less than 1 percent of state deposits. On consummation of the proposal, FirstMerit would become the seventh largest depository institution in Ohio, controlling $4.8 billion in deposits, representing approximately 3.3 percent of state deposits.

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 proposal would substantially lessen competition in any relevant banking market and the Board has not found 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.

FirstMerit and CoBancorp compete directly in the Ohio banking markets of Cleveland and Sandusky.4 Consummation of the proposal would be consistent with the Department of Justice Merger Guidelines5 and Board precedent in both banking markets.6 Based on all the facts of record, the Board concludes that consummation of the proposal would not have a significantly adverse effect on competition or on the concentration of banking resources in the Cleveland and Sandusky banking markets or any other relevant banking market.

Financial, Managerial, and Other Supervisory Factors
In addition, the BHC Act requires the Board, in acting on an application, to consider the financial and managerial resources and future prospects of the companies and banks involved in a proposal and certain other supervisory factors. The Board has carefully considered the financial and managerial resources and future prospects of FirstMerit, CoBancorp, and their respective subsidiary banks, in light of all the facts of record, including supervisory reports of examination assessing the financial and managerial resources of the organizations and financial information provided by FirstMerit. The Board notes that the bank holding companies and their subsidiary banks are well capitalized and are expected to remain so after consummation of the proposal. Based on all the facts of record, the Board concludes that the financial and managerial resources and future prospects of FirstMerit, CoBancorp, and their subsidiary banks are consistent with approval, as are the other supervisory factors the Board must consider under section 3 of the BHC Act.

Convenience and Needs Considerations
The Board also has carefully considered the effect of the proposal on the convenience and needs of the communities to be served in light of all the facts of record, including a comment by the Legal Aid Society of Lorain County, Inc. ("Commenter") contending that FirstMerit has made inadequate efforts to help meet the housing-related credit needs of low- and moderate-income ("LMI") individuals in Lorain County, Ohio, and that FirstMerit's proposed branch closings in Lorain County would adversely affect LMI and minority neighborhoods.

As noted, PremierBank and Savings Bank would be merged with and into FirstMerit Bank in connection with the proposal. In this light, the Board has given substantial consideration to the existing record of FirstMerit Bank, as reflected in its CRA performance evaluations and the policies and programs of FirstMerit Bank that help meet the credit needs of all its service communities, including LMI neighborhoods.

CRA Performance Examinations
The Board has long held that consideration of the convenience and needs factor includes a review of the records of the relevant depository institutions under the Community Reinvestment Act (12 U.S.C. 2901 et seq.) ("CRA").7 As provided in the CRA, the Board evaluates the convenience and needs factor in light of examinations of the CRA performance records of the relevant institutions by their primary federal supervisors. An institution's most recent CRA performance evaluation is a particularly important consideration in the applications process because it represents a detailed, on-site evaluation of the institution's overall record of performance under the CRA by its primary federal supervisor.8

The predecessor banks to FirstMerit Bank received "outstanding" CRA performance ratings from the OCC at their most recent examinations.9 FirstMerit's remaining banks received "satisfactory" ratings from the OCC at their most recent examinations for CRA performance. In addition, PremierBank and Savings Bank received "outstanding" and "satisfactory" ratings, respectively, from their primary federal supervisors at their most recent examinations for CRA performance. Examiners found no evidence of prohibited discrimination or other illegal credit practices at the subsidiary depository institutions of FirstMerit or CoBancorp in these examinations.

Lending Record of FirstMerit Bank
FirstMerit Bank offers several programs to assist in meeting the housing-related credit needs of LMI and minority borrowers, including two affordable home mortgage products (the BEST I and BEST III programs) designed specifically for LMI borrowers and residences in LMI census tracts. Both programs feature flexible underwriting guidelines, closing cost assistance, and down payments as low as 5 percent.10 FirstMerit also has invested $1 million in the Ohio Equity Fund for Housing, which financially supports the construction, rehabilitation and preservation of affordable housing throughout Ohio, including a family housing project in Lorain County.11 In 1997, the bank committed $221,000 in financing for a group home for low-income individuals. In addition, FirstMerit Bank intends to participate with the City of Lorain in programs designed to provide home purchase and home improvement loans to LMI individuals.

FirstMerit Bank also engages in small business lending. In 1996, the bank originated 291 small business loans in Lorain County, totalling $28.5 million. Approximately 22 percent of the total dollar amount of these small business loans were made to businesses in LMI census tracts. FirstMerit Bank also participates in federal and state government-sponsored small business loan programs, including programs offered by the Small Business Administration, and the Ohio Link Deposit and Ohio Mini-Loan programs. The bank currently has outstanding 48 loans, totalling $4.4 million, under these government-sponsored loan programs in Lorain County. FirstMerit Bank also has provided financing to the Women's Development Center and the Elyria Downtown Development Fund.

FirstMerit has formed a Community Development Corporation ("CDC") that has made approximately $4 million in loans and investments in LMI communities over the last two years. The CDC also has participated in numerous community outreach programs and has provided interest-free financing to the Community Housing Corporation in Elyria, Ohio.

Branch Closings
FirstMerit has indicated that 20 branches would be closed or consolidated as a result of the proposal. Two of the branches to be closed or consolidated are in LMI census tracts and are operated by PremierBank.12 One of the LMI branches is across the street from a FirstMerit branch that would continue to operate.

The other LMI branch would be merged with a FirstMerit branch that is within approximately 1.5 miles of the PremierBank branch to be closed. FirstMerit contends that this branch has significantly fewer transactions and a significantly smaller deposit base than the average for transactions and deposits at all other FirstMerit branches in Lorain County. FirstMerit notes, moreover, that the customers of the PremierBank branch to be closed would be able to obtain information on their accounts and apply for loans by telephone. The Board also notes that the branch closing policies of FirstMerit and PremierBank require consideration of community concerns before deciding to close a branch.

In addition to these factors, the Board has considered that federal banking law provides a specific mechanism for addressing branch closings. Federal law requires an insured depository institution to provide notice to the public and to the appropriate regulatory agency at least 30 days prior to closing a branch. The law does not authorize federal regulators to prevent the closing of any branch.13

Conclusion on Convenience and Needs Considerations
The Board has carefully considered all the facts of record, including the public comment received, responses to the comment, and the CRA performance records of the subsidiary banks of FirstMerit and CoBancorp, including relevant reports of examination. Based on a review of the entire record, and for the reasons discussed in this order, the Board has concluded that convenience and needs considerations, including the CRA performance records of the subsidiary banks of FirstMerit and CoBancorp, are consistent with approval.14

Nonbanking Activities
FirstMerit also has filed notice under section 4(c)(8) of the BHC Act to acquire Savings Bank and thereby engage in savings association activities. The Board previously has determined by regulation that the operation of a savings association by a bank holding company is closely related to banking for purposes of section 4(c)(8) of the BHC Act, and FirstMerit has committed to conduct this activity in accordance with Regulation Y and relevant Board interpretations and orders.15 In making this determination, the Board requires that savings associations acquired by bank holding companies conform their direct and indirect activities to those permissible for bank holding companies under section 4 of the BHC Act.

In order to approve the proposal, the Board also must determine that the performance of the proposed activity is a proper incident to banking, that is, that the proposed transaction, "can reasonably be expected to produce benefits to the public . . . that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices."16 As part of the Board's evaluation of these factors, the Board considers the financial and managerial resources of the notificant and its subsidiaries, including any company to be acquired, and the effect the transaction would have on such resources.17 Based on all the facts of record, the Board has concluded that financial and managerial considerations are consistent with approval of the notice under section 4 of the BHC Act for the reasons discussed above.

The Board also has carefully considered the competitive effects of the proposed acquisition of Savings Bank and, as discussed above, has concluded that consummation of the proposal would not have a significantly adverse effect on competition or on the concentration of banking resources in any relevant banking market. The Board expects, moreover, that the acquisition of CoBancorp by FirstMerit would provide added convenience to CoBancorp's customers and to FirstMerit's customers. Consummation of the proposal also is likely to result in increased operating efficiencies for the combined organization. Additionally, there are public benefits to be derived from permitting capital markets to operate so that bank holding companies may make potentially profitable investment in nonbanking companies when, as in this case, those investments are consistent with the relevant considerations under the BHC Act, and from permitting banking organizations to allocate their resources in the manner they believe is most efficient. Based on all the facts of record, the Board has determined that consummation of the proposal can reasonably be expected to produce public benefits that would outweigh any likely adverse effects under the proper incident to banking standard of section 4(c)(8) of the BHC Act.

Conclusion
Based on the foregoing and all the other facts of record, the Board has determined that this transaction should be, and hereby is, approved subject to all the terms and conditions in this order. The Board's approval is specifically conditioned on compliance by FirstMerit with all the commitments made in connection with the proposal.

The Board's determination on the nonbanking activities also is subject to all the terms and conditions set forth in Regulation Y, including those in sections 225.7 and 225.25(c) of Regulation Y (12 C.F.R. 225.7 and 225.25(c)), and to the Board's authority to require such modification or termination of the activities of a bank holding company or any of its subsidiaries as the Board finds necessary to ensure compliance with, and to prevent evasion of, the provisions of the BHC Act and the Board's regulations and orders issued thereunder. The commitments and conditions 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 acquisition of CoBancorp's PremierBank shall not be consummated before the fifteenth calendar day following the effective date of this order, and the proposal shall not be consummated 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 Cleveland, acting pursuant to delegated authority.

By order of the Board of Governors,18 effective March 11, 1998.

(signed) Jennifer J. Johnson

Jennifer J. Johnson

Deputy Secretary of the Board


Footnotes

1 FirstMerit proposes to merge PremierBank and Savings Bank with and into its wholly owned subsidiary bank, FirstMerit Bank, National Association, Akron, Ohio ("FirstMerit Bank"). The merger is subject to approval by the Office of the Comptroller of the Currency ("OCC") under section 18(c) of the Federal Deposit Insurance Act (12 U.S.C. 1828(c)). FirstMerit also has requested approval of an option to purchase up to 19.9 percent of the voting stock of CoBancorp if certain events occur. The option would expire on consummation of the proposal.

2 State deposit data are as of June 30, 1997, and market share data are as of June 30, 1996.

3 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 deposits of thrift institutions are included at 50 percent. The Board previously has indicated that thrift institutions have become, or have the potential to become, significant competitors of commercial banks. See WM Bancorp, 76 Federal Reserve Bulletin 788 (1990); National City Corporation, 70 Federal Reserve Bulletin 743 (1984). Because the deposits of Savings Bank would be acquired by a commercial banking organization under the proposal, Savings Bank's deposits are included at 100 percent in the calculation of the pro forma market shares. See Norwest Corporation, 78 Federal Reserve Bulletin 452 (1992); First Banks, Inc., 76 Federal Reserve Bulletin 669 (1990).

4 The Cleveland, Ohio, banking market is defined as Cuyahoga, Lake, Lorain, and Geauga Counties and the northern third of Summit County, including the townships of Sagamore Hills, Northfield Center, Twinsburg, Richfield, Boston, and Hudson Townships and the municipalities circumscribed by those townships; all of Medina County, except the townships of Homer, Harrisville, Westfield, Guilford, Wadsworth, and Sharon; the townships of Aurora and Streetsboro in Portage County; and the city of Vermillion in Erie County, all in Ohio. The Sandusky, Ohio, banking market is defined as all of Erie County, except the city of Vermillion.

5 Under the revised Department of Justice Merger Guidelines, 49 Federal Register 26,823 (June 29, 1984), a market in which the post-merger Herfindahl Hirschman Index ("HHI") is between 1000 and 1800 is considered moderately concentrated, and a market in which the post-merger HHI is above 1800 is considered highly concentrated. The 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 or acquisition increases the HHI by at least 200 points. The Justice Department has stated that the higher than normal threshold for an increase in the HHI when screening bank mergers and acquisitions for anticompetitive effects implicitly recognizes the competitive effect of limited-purpose lenders and other nondepository financial entities.

6 FirstMerit would become the fifth largest depository institution in the Cleveland banking market, controlling deposits of approximately $1.8 billion, representing approximately 6.0 percent of total deposits in depository institutions in the market ("market deposits"). The HHI for the market would increase by 14 points to 1363. In the Sandusky market, FirstMerit would remain the fourth largest depository institution, controlling deposits of approximately $48.7 million, representing approximately 7.7 percent of market deposits. The HHI for the market would increase by 13 points to 2371.

7 The Board also has traditionally considered records of performance under the CRA in proposals involving the acquisition of savings associations. See Banc One Corporation, 83 Federal Reserve Bulletin 602 (1997).

8 The Statement of the Federal Financial Supervisory Agencies Regarding the Community Reinvestment Act ("Agency CRA Statement") provides that a CRA examination is an important and often controlling factor in the consideration of an institution's CRA record and that reports of these examinations will be given great weight in the applications process. See 54 Federal Register 13,742 and 13,745 (1989).

9 First National Bank of Ohio, Akron, Ohio, and EST National Bank, Elyria, Ohio, each received an "outstanding" rating from the OCC, as of April 1996. EST National Bank primarily served the Lorain County area.

10 Data in 1996 show that FirstMerit Bank's predecessor, EST National Bank, made approximately 21 percent of the loans it reported under the Home Mortgage Disclosure Act (12 U.S.C. 2801 et seq.) ("HMDA") in Lorain County to low-income individuals and approximately 25 percent to moderate-income individuals. Preliminary data for 1997 cited by FirstMerit show that approximately 38 percent of the bank's HMDA loans in Lorain County were to low-income individuals and approximately 19 percent were to moderate-income individuals.

11 FirstMerit Bank also has provided $2.6 million in permanent financing to this project.

12 FirstMerit has indicated that the LMI branch discussed by Commenter would remain open after consummation of the transaction.

13 Section 42 of the Federal Deposit Insurance Act (12 U.S.C. 1831r-1, as implemented by the Joint Policy Statement Regarding Branch Closings (see 58 Federal Register 49,083 (1993)), requires that a bank provide the public with at least 30 days notice and the primary federal supervisor with at least 90 days notice before the date of the proposed branch closing. The bank also is required to provide reasons and other supporting data for the closure, consistent with the institution's written policy for branch closings.

14 The Board has carefully reviewed Commenter's contentions that high fees discourage LMI individuals from using FirstMerit's banking products and services. As discussed above, FirstMerit provides a full range of credit products and banking services that assist in meeting the credit and banking needs of LMI individuals and these products include a "lifeline" checking product with no monthly fee for LMI individuals. In addition, there is no evidence in the record that the fees charged by FirstMerit are based on any factor that would be prohibited under law. Although the Board has recognized that banks help serve the banking needs of their communities by making basic services available at nominal or no charge, the CRA does not impose any limitation on the fees or surcharges for services.

15 See 12 C.F.R. 225.28(b)(4).

16 See 12 U.S.C. 1843(c)(8).

17 See 12 C.F.R. 225.26.

18 Voting for this action: Chairman Greenspan and Governors Phillips, Meyer, Ferguson, and Gramlich. Absent and not voting: Vice Chair Rivlin and Governor Kelley.

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