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Release Date: November 23, 1998

For immediate release

The Federal Reserve Board today announced its approval of the proposal of Susquehanna Bancshares, Inc., Lititz, Pennsylvania, to acquire Cardinal Bancorp, Inc. ("Cardinal"), and indirectly acquire Cardinal's subsidiary bank, First American National Bank of Pennsylvania, both of Everett, Pennsylvania.

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

Susquehanna Bancshares, Inc.
Lititz, Pennsylvania

Order Approving Acquisition of a Bank Holding Company

Susquehanna Bancshares, Inc. ("Susquehanna"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act") (12 U.S.C 1842(a)(3)), has requested the Board's approval under section 3 of the BHC Act to acquire Cardinal Bancorp, Inc. ("Cardinal"), and thereby acquire Cardinal's subsidiary bank, First American National Bank of Pennsylvania ("FA Bank"), both of Everett, Pennsylvania.

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 38,335 (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 section 3 of the BHC Act.

Susquehanna operates subsidiary banks in Pennsylvania, Maryland, and New Jersey. Susquehanna is the tenth largest depository institution in Pennsylvania, controlling approximately $1.5 billion in deposits, representing approximately 1.1 percent of total deposits in depository institutions in the state ("state deposits").1 Cardinal is the 112th largest depository institution in Pennsylvania, controlling approximately $111.9 million in deposits, representing less than 1 percent of state deposits. On consummation of the proposal, Susquehanna would become the ninth largest depository institution in the state, controlling deposits of $1.6 billion, representing approximately 1.2 percent of state deposits.

Competitive, Financial and Managerial Considerations
Susquehanna and Cardinal do not compete in any banking market. Based on all the facts of record, the Board concludes that consummation of the proposal would not have a significant adverse effect on competition or on the concentration of banking resources in any relevant banking market.

The Board also has considered the financial and managerial resources and future prospects of Susquehanna, Cardinal, and their respective subsidiaries 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 Susquehanna. The Board notes that Susquehanna and its subsidiaries are well capitalized and are expected to remain so after consummation of the proposal. The Board also has considered other aspects of the financial condition and resources of the two organizations and the structure of the proposed transaction. Based on all the facts of record, the Board concludes that considerations related to the financial and managerial resources and the future prospects of Susquehanna, Cardinal, and their respective subsidiary banks, are consistent with approval, as are the other supervisory factors the Board is required to 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. As part of that review, the Board has considered a comment from a community group, New Jersey Citizen Action ("NJCA"), concerning the performance of Susquehanna's subsidiary, Equity National Bank, Atco, New Jersey ("Equity Bank"), under the Community Reinvestment Act ("CRA").2 NJCA alleges that Susquehanna has not demonstrated its commitment to the credit needs of southern New Jersey and has failed to develop products to meet the community credit needs.3 NJCA further alleges that, based on data filed under the Home Mortgage Disclosure Act ("HMDA"),4 Equity Bank has an inadequate record of lending to low- and moderate-income ("LMI") census tracts and to African Americans.

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 CRA. As provided in the CRA, the Board has evaluated 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 application 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.

Susquehanna's largest insured depository institution subsidiary, which accounts for approximately 26.8 percent of the company's consolidated assets, received an "outstanding" rating from its primary federal supervisor, the Office of Thrift Supervision, at its most recent examination for performance under CRA, as of July 20, 1998. Equity Bank, which was acquired by Susquehanna on February 28, 1997, and represents approximately 6 percent of the total assets of Susquehanna, received a "satisfactory" rating at its most recent evaluation for CRA performance in 1996. Two of Susquehanna's other banks received "outstanding" ratings from their primary federal supervisor at their most recent evaluations for CRA performance, and all of Susquehanna's other subsidiary banks received "satisfactory" ratings at their most recent evaluations for CRA performance. FA Bank, which is the bank Susquehanna proposes to acquire, received a "satisfactory" rating from the Office of the Comptroller of the Currency at its last performance examination.

The records of examination of the subsidiary banks of Susquehanna and Cardinal indicate that the examiners found no evidence of prohibited discrimination or other illegal credit practices and found no violations of fair lending laws in any of Susquehanna's subsidiary banks. Susquehanna's lead commercial subsidiary bank, Farmers First Bank, Lititz, Pennsylvania ("FFB"), has increased its residential mortgage loans to LMI borrowers in recent years. Many of these loans were originated in conjunction with the Lancaster Housing Opportunity Program, which offers a home buyer program with flexible underwriting standards. FFB also offers Veterans Administration and Federal Housing Administration loans. In addition, FFB has originated more indirect automobile loans to LMI borrowers than to any other income group. FFB also participates in the Habitat for Humanity program and other housing projects through the Housing Development Corporation in Lancaster County.

Susquehanna's other subsidiary banks have implemented several programs to address the credit needs of LMI communities, such as a Community Homebuyers Program, which provides reduced fee loans to borrowers. Some of the banks also have a special small loan program and lines of credit for home renters. The banks also are participating lenders in affordable housing programs throughout Pennsylvania.

The Board previously reviewed the outreach programs of Susquehanna's subsidiary banks in connection with its acquisition of Equity Bank and found that Susquehanna had policies and programs in place to ascertain the credit needs of its community.5 The Board's 1997 Order noted that Susquehanna proposed to implement a three-year lending program at Equity Bank to expand the type of loans available in its community.

Equity Bank is primarily a small business lender,6 and the three-year CRA plan was designed to increase Equity Bank's affordable home mortgage lending, home improvement lending, community development lending, and to increase its small business lending to its community. Since its acquisition by Susquehanna, Equity Bank has increased lending in all these categories, resulting in increases in the percentage of Equity Bank's loan originations to LMI areas and individuals, and an overall increase in the percentage of lending within Equity Bank's assessment area. In 1997 and 1998, Equity Bank extended more than $687,000 in loans to first-time LMI home purchases and $263,000 in home improvement loans to qualified LMI borrowers. The bank also has commitments for $550,000 in revolving credit for the construction of affordable housing and for $178,000 for a commercial mortgage for a family services agency. Overall, data provided by Equity Bank shows that Equity Bank's lending to LMI census tracts improved from 1996 to 1997, and continued to increase in 1998. Data on small business loans indicate that the percentage of Equity Bank's loans made in LMI census tracts increased from 1996 to 1997, and increased again through August 1998. Equity Bank also recently established an advisory board to help identify the credit needs of the community.

The Board has considered carefully the entire record in its review of the convenience and needs factor under the BHC Act. Based on all the facts of record, including NJCA's submission, Susquehanna's response, and the relevant reports of examination, the Board concludes that considerations relating to convenience and needs, including the CRA performance records of the relevant institutions, are consistent with approval. The Board expects that Susquehanna will continue to implement its three-year plan at Equity Bank and to take the steps necessary to incorporate programs at Equity Bank that will help meet the credit needs of its community. The Board's action in this case is conditioned on the full implementation of these programs by Susquehanna and Equity Bank. In addition, to permit the Board to assess the effectiveness of Equity Bank's efforts, the Board's action on this proposal is conditioned on the requirement that Susquehanna report to the Federal Reserve System, on a semi-annual basis during the two-year period after consummation, its progress toward improving Equity Bank's lending in LMI areas and to LMI individuals.

Based on the foregoing, and in light of all the facts of record, the Board has determined that the application should be, and hereby is, approved.7 The Board's approval is specifically conditioned on compliance by Susquehanna with the conditions described in this order and with all the commitments made in connection with the application. For the purpose of this action, the commitments and conditions relied on by the Board in reaching its decision are deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law.

The acquisition of Cardinal shall not be consummated before the fifteenth calendar day after the effective date of this order, or later than three months after the effective date of this order, unless such period is extended for.good cause by the Board or the Federal Reserve Bank of Philadelphia, acting pursuant to delegated authority.

By order of the Board of Governors,8 effective November 23, 1998.

(signed) Robert deV. Frierson

Robert deV. Frierson

Associate Secretary of the Board


1 All banking data are as of June 30, 1998.

2 12 U.S.C. 2901 et seq.

3 NJCA also argues that Susquehanna has failed to meet with community groups to discuss the needs of the communities that Equity Bank serves. The Board previously has noted that, although communication by depository institutions with community groups provides a valuable method of assessing and determining how best to meet the credit needs of a community, neither the CRA nor the CRA regulations of the federal supervisory agencies require depository institutions to enter into agreements with any organization. See Fifth Third Bancorp, 80 Federal Reserve Bulletin 838 (1994).

4 12 U.S.C. 2801 et seq.

5 See Susquehanna Bancshares, Inc., 83 Federal Reserve Bulletin 317 (1997) ("1997 Order").

6 According to Equity Bank's last examination, as of December 31, 1995, approximately 42 percent of the bank's loan portfolio consisted of small business loans in amounts of less than $1 million. Small business loans constituted 45.7 percent of the dollar volume of Equity Bank's loans through August 31, 1998.

7 NJCA also requested that the Board hold a public meeting or hearing on the proposal. Section 3(b) of the BHC Act does not require the Board to hold a public hearing on an application unless the appropriate supervisory authority for the bank to be acquired makes a timely written recommendation of denial. The Board has not received such a recommendation from the appropriate supervisory authorities.

Under its rules, the Board also may, in its discretion, hold a public meeting or hearing on an application to acquire a bank if a meeting or hearing is necessary or appropriate to clarify factual issues related to the application and to provide an opportunity for testimony, if appropriate. 12 C.F.R. 225.16(e). The Board has carefully considered NJCA's request in light of all the facts of record. In the Board's view, NJCA has had ample opportunity to submit its views, and did submitted written comments that have been carefully considered by the Board in acting on the proposal. NJCA's request fails to demonstrate why its written comments do not adequately present its evidence and fails to identify disputed issues of fact that are material to the Board's decision that would be clarified by a public meeting or hearing. For these reasons, and based on all the facts of record, the Board has determined that a public meeting or hearing is not required or warranted in this case. Accordingly, the request is denied.

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

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