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Release Date: December 2, 1998

For immediate release

The Federal Reserve Board today announced its approval of the application of Poteau State Bank, Poteau, Oklahoma, to merge with Spiro Interim Bank, Spiro, Oklahoma, and establish a branch at the location of Spiro Interim Bank.

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

Poteau State Bank
Poteau, Oklahoma

Order Approving the Merger of a Bank and Establishment of a Bank Branch

Poteau State Bank ("Poteau Bank"), a state member bank, has applied under section 18(c) of the Federal Deposit Insurance Act (12 U.S.C. § 1828(c)) ("Bank Merger Act") to merge with Spiro Interim Bank, Spiro, Oklahoma ("Interim Bank").1 Poteau Bank also has applied under section 9 of the Federal Reserve Act ("FRA") (12 U.S.C. § 321) to establish a branch at the location of Interim Bank in Spiro.

Notice of the applications, affording interested persons an opportunity to submit comments, has been given in accordance with the Bank Merger Act and the Board's Rules of Procedure (12 C.F.R. 262.3(b)). As required by the Bank Merger Act, reports on the competitive effects of the merger were requested from the United States Attorney General and the Federal Deposit Insurance Corporation ("FDIC"). The time for filing comments has expired, and the Board has considered the applications and all the facts of record in light of the factors set forth in the Bank Merger Act and section 9 of the FRA.

The Board received comments from a bank in Spiro and the Community Bankers Association of Oklahoma maintaining that the proposal would violate state branching law restrictions on the establishment of a de novo branch. The commenters in this case presented the same arguments to the Oklahoma Banking Board during its processing of the state applications filed by FPC and Poteau Bank. The Oklahoma Banking Board disagreed with the commenters and approved the state applications.2

Under the FRA, the Board may approve the retention of branches of two or more banks involved in a merger only if the resulting bank is permitted under state law to operate branches at each of the branch locations.3 When the state authority charged with interpreting relevant state law has issued an opinion regarding the applicability or scope of the state law, the Board has given great weight to that interpretation as long as it appears to be a reasonable construction of state law.4

In this case, the Oklahoma Banking Board is responsible for interpreting and applying the state laws governing branching and mergers by state banks. Poteau Bank has structured this transaction as an acquisition and merger of a new bank and an existing bank, and the Oklahoma Banking Board has consistently determined that proposals structured in this fashion are permissible under Oklahoma law. The Oklahoma statutes recognize a difference between branching de novo, which is prohibited under certain circumstances, and retaining branches as the result of a merger, which is generally permissible.5 The Oklahoma statutes also recognize that state banks may decide to effect a merger through an interim bank.6

Based on all the facts of record, and the considerations discussed above, including the approval of the proposal by the Oklahoma Banking Board, the Board concludes that this proposal is consistent with Oklahoma bank branching law and the branching requirements of section 9 of the FRA.

The Board has considered the competitive effects of the proposal as required by the Bank Merger Act. Poteau Bank is the 66th largest commercial banking organization in Oklahoma, controlling deposits of $84 million, representing less than 1 percent of the total deposits in commercial banking organizations in the state.7 In light of all the facts of record, the Board concludes that consummation of the proposal would not have any significantly adverse effect on competition or on the concentration of banking resources in any relevant banking market.

In reviewing this proposal under the Bank Merger Act and section 9 of the FRA, the Board also has considered the financial and managerial resources and future prospects of the institutions involved, the convenience and needs of the communities to be served, and certain supervisory factors. The Board has reviewed these factors in light of the facts of record, including supervisory reports of examination assessing the financial and managerial resources of Poteau Bank. The Board notes that Poteau Bank would remain well capitalized on consummation of the proposal. Based on all the facts of record, the Board concludes that the financial and managerial resources and future prospects of Poteau Bank are consistent with approval, as are the other supervisory factors the Board must consider under the Bank Merger Act and the FRA.

In considering the convenience and needs factor, the Board has reviewed the record of Poteau Bank under the Community Reinvestment Act ("CRA").8 As provided in the CRA, the Board has evaluated this factor in light of examinations by the appropriate federal banking supervisor of the relevant institution. Poteau Bank received an "outstanding" CRA performance rating at its most recent CRA performance examination by the Federal Reserve Bank of Kansas City. Based on a review of the entire record, the Board concludes that convenience and needs considerations, including the CRA performance record of the relevant institution, are consistent with approval of the proposal.

Based on the foregoing and all the facts of record, the Board has determined that these applications should be, and hereby are, approved.9 The Board's approval of this proposal is conditioned on compliance by Poteau Bank with the commitments made in connection with this application and on the continued permissibility of this proposal under state law. For purposes of this action, the commitments and conditions relied on in reaching this decision are conditions imposed in writing by the Board and, as such, may be enforced in proceedings under applicable law.

The merger of Poteau Bank and Interim Bank may not be consummated before the fifteenth calendar day after the effective date of this order, and this proposal may not be consummated later than three months after the effective date of this order, unless such period is extended by the Board or by the Federal Reserve Bank of Kansas City, acting pursuant to delegated authority.

By order of the Board of Governors,10 effective December 2, 1998.

(signed) Robert deV. Frierson

Robert deV. Frierson

Associate Secretary of the Board


1 First Poteau Corporation, Poteau, Oklahoma ("FPC"), the parent holding company of Poteau Bank, proposes to form Interim Bank and simultaneously to merge it into Poteau Bank and to convert the location of Interim Bank into a branch of Poteau Bank. On consummation of the proposal, Poteau Bank would operate offices in Poteau and Spiro. Approval of the acquisition of Interim Bank is required under section 3 of the Bank Holding Company Act (12 U.S.C. § 1842) ("BHC Act"). However, the Board's Regulation Y provides approval for this type of transaction without requiring the filing of an application under the BHC Act, because the proposed transaction also must be reviewed by the Board under the Bank Merger Act. See 12 C.F.R. 225.12(d)(2).

2 See First Poteau Corporation and Poteau State Bank, Docket No. 98-065, Oklahoma Banking Board (October 21, 1998) ("Banking Board Order"). The FDIC approved the deposit insurance application of Interim Bank.

3 See 12 U.S.C. § 321; 12 C.F.R. 208.6(a).

4 See Adams Bank & Trust, 82 Federal Reserve Bulletin 275 (1996); Northwest Kansas Banc Shares, Inc., 69 Federal Reserve Bulletin 98 (1983).

5 See Oklahoma Stat. Ann. tit. 6, §§ 501.1(A), 501.1(C) (West Supp. 1998).

6 See Banking Board Order. Oklahoma law authorizes a bank holding company to organize an interim state bank charter and, before commencing business, to merge the interim state bank with an existing bank. Oklahoma Stat. Ann. tit. 6, §§ 502(H), 502.1 (West Supp. 1998). Oklahoma law requires that the Oklahoma Banking Department handle the interim bank charter and merger applications in a single process. Oklahoma Stat. Ann. tit. 6, § 502.1 (West Supp. 1998). The Oklahoma Banking Board determined that the proposed acquisition and operation of Interim Bank as a branch of Poteau Bank qualified for a specific statutory exception to the five-year age requirement on acquired bank branches. See Banking Board Order; Oklahoma Stat. Ann. tit. 6 § 501.1(E) (West Supp. 1998).

7 Deposit data are as of June 30, 1997.

8 12 U.S.C. § 2901 et seq.

9 Commenters also request that the Board delay action on this application until final disposition by Oklahoma state courts of pending litigation concerning the legality of the proposed branching method under Oklahoma law. One of the commenters has appealed the Banking Board Order. However, it is uncertain when the state court litigation will be resolved, and the Board has sufficient information to act on these applications at this time.

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

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