FEDERAL DEPOSIT INSURANCE CORPORATION
IN RE: Farmers & Merchants Bank - Eastern Shore
Onley, Accomack County, Virginia
Application for Consent to Purchase Certain Assets and to Assume Certain Liabilities and
for Consent to Establish Two Branches
ORDER AND BASIS FOR CORPORATION APPROVAL
Pursuant to section 18(c) and other provisions of the Federal Deposit Insurance Act ("FDI Act"), Farmers & Merchants Bank -
Eastern Shore, Onley, Accomack County, Virginia ("Farmers"), an insured state
nonmember bank with total resources of $185,591,000 and total deposits of $147,539,000 as
of March 31, 1999, has filed an application for the Corporation's consent to purchase
certain assets of and assume certain liabilities of the Oak Hill, Virginia, and Parksley,
Virginia, branches of Wachovia Bank, National Association, Winston-Salem, North Carolina
("Wachovia"), a national bank and Bank Insurance Fund ("BIF") member
with total assets of $61,879,030,000 and total deposits of $41,134,296,000 as of March 31,
1999, and for the Corporation's consent to establish the two branches as branches of
Farmers. Farmers is a banking affiliate of Peninsula Bank, Princess Anne, Maryland
("Peninsula Bank"). Both Farmers and Peninsula Bank ("the affiliates")
are banking subsidiaries of Mercantile Bankshares Corporation, Baltimore, Maryland
("Mercantile"). Notice of the proposed transaction, in a form approved by the
Corporation, has been published pursuant to the FDI Act.
As of June 30, 1998, eleven (ten commercial banks and one thrift) insured depository
institutions operated 36 offices in the "Peninsula Area" on Virginia and
Maryland's Eastern Shore, which has been identified as the relevant geographic market
("RMG"). The affiliates hold the largest share of area deposits, with 30.4
percent. Of the remaining banks, Crestar Bank, Richmond, Virginia (a subsidiary of
Suntrust Banks, Inc.), holds 13.4 percent; Shore Bank, Onley, Virginia, and First Virginia
Bank of Tidewater, Norfolk, Virginia, hold 12.7 and 12.6 percent, respectively; and
Wachovia's two branches, its only presence in the area, hold an aggregate of 10.2 percent
of area deposits. The other four banks and one thrift each hold deposits ranging from 0.3
percent to 6.1 percent or an aggregate of 20.7 percent. As a result of the merger, the
affiliates' share of total area deposits would increase to 40.6 percent, and the
Herfindahl-Hirschman index would increase by 619.6 points, from 1635.0 to 2254.6.
Although the proposed transaction would increase concentration within the RGM, there are
other factors that should be considered when assessing its effect on competitive
conditions. Eight insured commercial banks (the affiliates are considered one entity for
competitive purposes) and one insured thrift would continue to operate in this largely
rural RGM after the merger. Of these, Suntrust Banks, Inc., First Maryland Bancorp, and
Bank of America Corporation are among the largest commercial banking organizations in
Virginia and Maryland. Moreover, Suntrust Banks Inc. and Bank of America Corporation are
among the largest banking companies in the country and First Maryland Bancorp ranks in the
top fifty. The market share data, which reflects the presence of these institutions only
in the form of small branch offices, understates their competitive significance in the
RGM. Taking into account the single thrift institution in the RGM, there would still be
nine insured depository institutions providing conveniently located alternative sources of
banking services for residents throughout the RGM. The lending activity of the Wachovia
branches in the RGM, particularly in the area of commercial loans, has been quite limited.
In contrast, Farmers historically invests a large percentage of deposits in loans and
offers a wide array of loan products for consumers and businesses.
In its advisory report on competitive effects, the U.S. Department of Justice concluded
that the proposed transaction would not have a significantly adverse effect on
competition. The Federal Reserve Bank of Richmond's Competitive Effects report concluded
that the proposed transaction could have significantly anti-competitive effects, but
advised that it did not consider all of the economic factors that may be relevant to the
competitive effects of the proposed transaction. Other federal regulatory authorities
offered no comments.
Farmers is in sound financial condition with adequate capital and satisfactory management.
Future prospects appear favorable.
Convenience and Needs Factor
An insured depository institution that was a competing bidder filed a protest with the
Corporation claiming that the transaction would harm competition in the RGM. However, the
Corporation has determined that the continued existence, after the merger of nine insured
depository institutions that are all viable and financially sound provides sufficient
competitive financial choices within the community.
The protestant also raised concerns related to the Community Reinvestment Act, indicating
that the transaction would result in substantial reductions in banking services and
competitive pricing options. Farmers offers a wide array of competitively priced products
to businesses and consumers within the RGM. Farmers has historically invested a large
portion of total deposits in loans, demonstrating Farmers' commitment to reinvest deposits
into communities from which it derives deposits. Farmers' CRA performance was rated as
"satisfactory" at the most recent examination. For the reasons cited above and
due to sufficient remaining alternative sources of financial services, the Corporation has
determined that the transaction will not reduce banking services or competitive pricing
options in the RGM.
The Commissioner of Financial Institutions for the Commonwealth of Virginia ("State
Authority") has not yet taken action on the proposed merger. Approval by the
Corporation will be contingent upon final approval from all required regulatory
The scope and convenience of banking services offered to the general public should not be
significantly affected by the proposal. Farmers will provide no lesser amount of services
than is currently offered by Wachovia, and Farmers has no plans at this time to close
either of the acquired branches.
Upon consideration of all relevant material, the Board of Directors has concluded that the
application should be and hereby is approved subject to the following conditions:
1. That the transaction shall not be consummated before th fifteenth calendar day
following the date of this Order or no later than six months after the date of this Order
unless such period is extended for good cause by the Corporation;
2. That all necessary and final approvals be received from other regulatory authorities;
3. That, until the proposed transaction becomes effective, the Corporation shall have the
right to alter, suspend, or withdraw its approval should any interim development be deemed
by the Board of Directors to warrant such action.
Dated at Washington, D.C., this 10th day of August 1999.
BY ORDER OF THE BOARD OF DIRECTORS
James D. LaPierre
Deputy Executive Secretary