United States v. Phillipsburg National Bank & Trust Company

PETITIONER:United States
RESPONDENT:Phillipsburg National Bank & Trust Company
LOCATION:Cook County Circuit Court, Criminal Division

DOCKET NO.: 1093
DECIDED BY: Burger Court (1970-1971)
LOWER COURT:

CITATION: 399 US 350 (1970)
ARGUED: Apr 28, 1970
DECIDED: Jun 29, 1970

Facts of the case

Question

Audio Transcription for Oral Argument – April 28, 1970 in United States v. Phillipsburg National Bank & Trust Company

Warren E. Burger:

We’ll hear arguments in Number 1093, United States against the Phillipsburg National Bank and Trust Company.

Mr. Friedman, you may proceed whenever you’re ready.

Daniel M. Friedman:

Mr. Chief Justice and may it please the Court.

This is a direct appeal from the District Court for the District of New Jersey from a judgment of the District Court there which after trial dismissed a government civil antitrust suit challenging the merger of two banks in the town of Phillipsburg, New Jersey as violating Section 7 of the Clayton Act.

The appeal presents a number of important questions as to the standards to be applied by the courts in passing upon the application of Section 7 to small bank mergers and also as to the correctness of certain rulings made by the District Court in this case in upholding the community convenience and needs defense that Congress wrote into the Bank Merger Act of 1966 as a permissible basis of justifying anticompetitive mergers.

Before discussing the facts in these legal issues however, I just briefly like to explain to the Court why the Government considers this an important case and why the Government has brought to this case a factual situation and on its face does not seem to be of the greatest economic significance.

Ten and 15 years ago, we had in this country a great wave of tremendous bank mergers.

Multibillion dollar institutions combine, institutions involving hundreds of million dollars combined in the large metropolitan areas, New York City, Philadelphia, Chicago, Houston and so on.

As a result of this Court’s decision in 1963 in the Philadelphia Bank Merger case and a series of other decisions under Section 7 of the Clayton Act, the focus of the whole trend of bank mergers has shifted.

Today, we no longer have this pattern of large bank mergers in the big city.

Those seemed to be a thing of the past because under this Court’s decisions, these combinations and these very large highly concentrated markets are illegal.

What we have instead is a developing trend of mergers along the smaller banks in the smaller areas and in the past four or five years, virtually all of the justice departments, bank merger suits have been brought against this type of merger.

The reason we have brought these cases is we think that since in the smaller marketing areas, the very nature of banking tends to make it a concentrated market, a relatively small number of banks and since in the smaller communities, as I shall develop in the course of my argument, the people particularly affected the small borrowers.

Most of the small banks tend to be primarily concerned with small customer.

We think it’s particularly important in these smaller markets to preserve for banking customers the available alternatives of choice that is to make sure that in these markets, they already tend to be concentrated.

They do not take place a large number of bank mergers which further reduce the available alternatives and that’s why we think this particular type of situation.

This is the first case that has come before this Court involving so-called small bank mergers and that’s why we have brought the case and we think it’s an important case.

Warren E. Burger:

There have been a quite a number of them in the Courts of Appeals, however, have there not?

Daniel M. Friedman:

In — in the District Courts, Mr. Chief Justice.

Warren E. Burger:

Well then, they have gone to the Courts of Appeals.

Daniel M. Friedman:

No, Mr. Chief Justice.

These cases, we have lost I have to admit it, unfortunately, several of these cases in the District Courts, if we happen to appealed because these cases under the Expediting Act, all of these bank merger cases come directly from the District Court to this Court.

There have been other case, bank merger cases, involving other issues in the Courts of Appeals but there have been no — none of the Government suits challenging bank mergers in the Courts of Appeals.

Warren E. Burger:

(Inaudible)

Not to appeal.

There have been I think three or four of them but those involved somewhat different situations.

Those in contrast to this case which involves the combination of two banks in the same market, direct competitors.

Most of the cases that we have brought and decided not to appeal have been cases in which a large bank from outside the immediate area has come in and acquired a bank in the market.

The theory there being there was an elimination of a potential competition of the bank that came in acquired to merger.

Byron R. White:

The situation is comparable with this Mr. Friedman.

Daniel M. Friedman:

I don’t believe there have been any in which have actually gone into trial.

I think there are some that have been appending and I think there have been a couple in which we brought a suit in the merger terminated at that point.

Now, let me with this background come to the facts of this case.

Phillipsburg, New Jersey is an industrial community with a population of about 18,000 including the surrounding suburban area of the town that has 28,000.

It is directly across the Delaware River from the City of Easton, Pennsylvania, a larger city with a population of 32,000 and in the environs approximately 60,000.

The two cities are very close together.

They are connected by two bridges, one of which is free and other of which has a charge for commuters of $2.50 crossing.

There is a very close business and commercial relationship between the two towns.

People go back and forth from the two towns to shop.

People go back and forth to work and as a businessman in Phillipsburg described it, he said that the Phillipsburg-Easton area is in effect really is one town.

Like so many of the cities these days, the central areas of both of these communities have not had much growth.

It has become rather stagnant in recent years.

Its population has remained quite stable.

On the other hand, the surrounding areas have grown both in terms of population and industry.

The town of Phillipsburg has three banks.

The town of Easton has four banks, one of which is a branch of a bank in the Easton suburbs.

It is where the main office is located, a few miles away in the city, town of Nazareth, Pennsylvania.

The acquiring bank in this case, the Phillipsburg National Bank is the largest in Phillipsburg and the third largest in the Phillipsburg-Easton area in 1967 and these are the — this is the latest date for which data are in the record, the assets were approximately $24 million.

It has its main office in the downtown part of town.

It has two branches in the suburban areas that had opened in 1964.

The acquired bank, the Second National Bank of Phillipsburg is the second largest in that town and the fifth largest in the Phillipsburg-Easton area.

It has assets of $17 million, a little less than that of Phillipsburg National.

Its main office in Phillipsburg is directly across the street from that of the Phillipsburg National Bank and it has one branch in the suburbs again across the highway from one of the branches of Phillipsburg National and it says apparent from the facts that these two banks are direct competitors.

Both of these banks in recent years have undergone substantial growth and both of them profitable.

In the 10-year period from 1957 to 1967, Phillipsburg National doubled its assets and deposits and tripled its loans.

In the same period, 1957 and 1967, Second National increased its assets 82%, its deposits 86%, and again tripled its loans.

For the years 1962 to 1967, except for one year in which Phillipsburg National showed a deficit because of various accounting changes that are employed, each year it had substantial profits.

As to taxes, they ranged from $46,000.00 to $123,000.00 and over that same five-year period Phillipsburg National paid total dividends of $192,000.00.

Similarly, the Second National Bank in this five-year period every year has substantial earnings ranging from $35,000.00 to $73,000.00 and it paid total dividends in that period of $198,000.00.

Now, both of these banks provide a full range of the traditional and usual banking services.

Daniel M. Friedman:

They accept demand deposits, savings and time deposits; they provided checking service; they make various types of the usual loans, commercial and industrial loans, mortgage loans, installment loans, consumer loans; they have safe deposit boxes, etcetera.

Unlike the large city bank, however, these banks is apparently as typical of most banks in the smaller communities, have a much heavier percentage of their deposits in time and savings deposits and a much lower percentage of their deposits than the demand deposits because of the fact that this community just doesn’t have the same kind of heavy industry that we have in the large cities and similarly, in terms of their loans, a much greater percentage of their loans were in real estate loans in the big city banks and a much smaller percentage in commercial and industrial loans.

The banking market in the Phillipsburg-Easton areas are concentrated one.

The two top banks, both in Easton have approximately 50% of the assets, almost 50% of the loans and 55% of deposits and when we take the three leading banks which include the Phillipsburg National Bank, it comes to roughly 60% of assets, 65% of deposits and 65% of loans.

Now, as I have indicated, there is a substantial extent of social and commercial intercourse between the two towns and in addition to that, there is a good bid of movement back and forth between the Phillipsburg-Easton area and the surrounding areas of the country.

This was originally a rural farming country and as there’s been increasing population growth and industry, a large number of smaller towns have developed and in fact the evidence shows that people who live in Phillipsburg-Easton frequently go outside of the area to work, that people who live in the outside area come to Phillipsburg, and that people from Phillipsburg-Easton go as far as Allentown and Bethlehem, Pennsylvania 20 or 30 miles to shopping, but, and we think this is critical and I will develop it in more detail in a little later.

The record shows that the two merging banks do the vast bulk of their business of all types in the Phillipsburg-Easton area.

Now, with this as the background, I’d like to come to the decision of the District Court.

Potter Stewart:

Does the record show how much business did the banks outside of the Phillipsburg-Easton area get from the Phillipsburg-Easton?

Daniel M. Friedman:

It showed — there are various statistics in the record as to particular banks, the testimony generally as in most instances, they get a very small part of their business.

They get some but in terms of percentages for example, the record showing that some banks get only a handful, though some one bank had testified they just had a three or four loans in Phillipsburg.

Potter Stewart:

Well, are we as far away as Allentown and Bethlehem?

Daniel M. Friedman:

A few of those, not many.

I think for example in the trust business, they get more of those, but basically, I think the bankers themselves testified that — the Phillipsburg bankers testified that the vast bulk of the business of the merging bank comes from this area and we also had testimony of a number of bankers from the outside area who generally indicated that the bulk of their business came from their area.

They all said, “Yes, we have a few —

Potter Stewart:

Their area or from their immediate local —

Daniel M. Friedman:

From their immediate location.

Potter Stewart:

The area is the Lehigh Valley, I suppose.

Daniel M. Friedman:

They tend to — the banks in this area tend to pretty much stick to their own little preserve four, five-mile radius or something like that.

That’s what the evidence seems to show in this case.

They don’t seem actively to go out into the areas 10 to 15 miles away.

They do some soliciting.

They have some newspaper as to by enlarged, they stick to their own areas.

Potter Stewart:

Trust departments, how about their trust departments?

Daniel M. Friedman:

The trust departments, the two merging banks have with all kind or rather inadequate trust departments.

Potter Stewart:

They already have trust departments.

Daniel M. Friedman:

That is correct.

On the other hand, the bank in Easton, there’s a bank in Easton that has one of a very fine trust department, and in addition, of course bank — and there’s another bank that does business in Easton that has a large trust department.

Potter Stewart:

From Allentown or Bethlehem.

Daniel M. Friedman:

There in Allen — well, there’s another bank, I think one of the banks that is outside of Easton, not in Allentown and Bethlehem that does trust business and has a branch in Easton and then of course the banks in Allentown and Bethlehem which are much larger than any of these banks have extensive trust business.

Daniel M. Friedman:

And they do get, there is evidence that these outside banks do get trust business, of course, and this tend to be by enlarge the larger accounts, of course the trust business.

Now, the District Court in this case basically I think we can fairly say made about three or four rulings that are significant here.

The Court in this case said that because a large number of other financial types of institutions are competing in the area with the banks that the relevant market for testing competitive effect in this case was not commercial banking as such.

He pointed — the district judge pointed to the fact the two had saving and loans association, the two had finance companies, the two had mutual funds that were seeking to obtain the savings deposits of the customers, the two had finance organization seeking loans and the Court, therefore, has concluded that the appropriate line of commerce for the testing the effect of this merger was those particular services rendered by the bank as to which really there was no significant competition.

And the services the Court included in its line of commerce with checking accounts, savings accounts, certificates of deposits, personal loans, consumer and installment loans and commercial and industrial loans.

But then rather inconsistent with this theory when the Court came to evaluate the effect of the merger on competition by examining the concentration ratios and the increases in concentration, the court looked to the figures dealing with commercial banking, not with the subcategories of commercial banking which Court believed was the relevant market.

So what it amounts to, it seems to us, it’s really kind of a dictum, the Court said it didn’t think that commercial banking was the relevant market then it turned around and in fact tested this by commercial banking.

Now —

But you didn’t say that explicitly that that’s —

Daniel M. Friedman:

It didn’t say it explicitly but the Court in its opinion discussed all the figures relating to commercial banking as a line of commerce.

Now, on the geographic market, we have distributed to the Court this little, three-colored map.

Mr. Meyner in behalf of the banks has objected to the distribution of this map on the ground that this map was offered in evidence at the trial court and was objected.

Potter Stewart:

Well, that’s not the only ground.

Daniel M. Friedman:

But that’s — well, he only claims that it was rejected because he claims it distorts —

Potter Stewart:

This entirely, it distorts the picture.

I must say when you indicate that there are no roads in between these city.

Daniel M. Friedman:

Well, we did not — we did not intend to indicate that Mr. Justice.

This was just attempting to show the geographical area.

There’s a patchwork of roads or extensive highways.

There’s whole lot of little towns.

What we — the reason we submitted this is because as the District Court defined the market, the District Court listed about 30 or 40 communities and said I find that this is the market and when you just list communities, unless one is familiar with this particular section of the country, it’s difficult to see precisely what is involved and we do not claim that this is exactly accurate.

It’s just a rough approximation, but I think with the colors, it will indicate basically what is the area of dispute here.

The Government have proposed in the District Court that the relevant market could be one of two areas.

Either the Phillipsburg area itself which is in that part we have colored pink, or the combination of Phillipsburg and Easton which is colored blue.

The defendants and the Comptroller of the Currency suggested a much broader market.

The District Court selected a market somewhere in between which is the part colored green which appears to be roughly four times the size of armored market and is also is shown by this map.

The District Court included in its relevant market the City of Bethlehem over to the extreme left and drew the line right between Bethlehem and Allentown even though Allentown is contiguous to Bethlehem and in effect is almost a continuation of it.

Now, within this market, the Court concluded —

Potter Stewart:

What was the market urged by the Comptroller and the appellees?

Daniel M. Friedman:

The Comptroller was a market which was basically most of the Lehigh Valley, and most of this large section here, where it kind goes takes part — it’s again I would say another oblong thing around this market and it was included part of Bucks County, part of Huntingdon County, larger than we had proposed.

Daniel M. Friedman:

And they also suggested the — perhaps the entire Lehigh, — Allentown, Bethlehem, Easton, standard metropolitan statistical area which is an even larger —

Potter Stewart:

Reading is where, north up here?

Daniel M. Friedman:

Reading, I believe, is north of there.

Potter Stewart:

Any of that is not in this picture.

Daniel M. Friedman:

It’s west on —

Potter Stewart:

West.

Daniel M. Friedman:

Mr. Justice.

Now, within this broader area that the Court selected, it found that there was no substantial lesson of competition.

There was no trend toward present or future concentration.

The merging banks had only six and three quarter percent of all banking assets and after reaching that conclusion, the Court then said that that far as it was concerned really was the end of the case, but since the convenience and needs pointed have been so fully canvassed, it would also rule on that, and it then held that the banks had sustained the burden of proving this merger was justified by community convenience and need relying primarily on two factors that the merger would result in the lend — the new bank having a much larger lending limit than the old bank and that it would permit the bank for the first time to employ a full time trust officer which would enable it to build up a trust department for which it found there was need in the area.

And in deciding the convenience and need point, rather interestingly and we think erroneously, although the Court had used the broad geographical market for determining competitive impact, it evaluated the needs of the community solely in terms of the needs of Phillipsburg, not Phillipsburg-Easton but just Phillipsburg.

Now, I’d like to turn out to the legal issues in the case.

The first one is the so-called product market by the commercial bank.

But the administrative — relevant administrative agency spread on this?

Daniel M. Friedman:

Yes, the — as it’s required under the Bank Holding Company Act, the matter was submitted to the Federal Deposit Insurance Company, the Federal Reserve Board and the Justice Department, all of whom advised the Comptroller in their view the merger would have adverse effects on competition.

Hugo L. Black:

Advised them what?

Daniel M. Friedman:

That the merger would have an adverse effect upon competition and indeed the two banking agencies in their recommendation viewed Phillipsburg primarily as the relevant market.

The Comptroller held a hearing and after the hearing ruled that the merger did not have the anticompetitive effects primarily again because the Comptroller viewed the market much more broadly than the banking agencies have.

Now, there’s a — the appellees argue at considerable length as to why commercial banking in this market is not the appropriate product and that the District Court therefore correctly rejected that line of commerce.

At page 61 of their brief, however, the bank’s record that the Government in any event hasn’t been prejudiced by any possible error in this thing and they admitted the issue is no longer really in the case because of the fact that in deciding the effect on competition, the District Court did look to commercial banking.

We have briefly discussed in our brief the reasons why we think that in this case as in all the banking cases before this Court, commercial banking is an appropriate product market within which to test the thing.

But in view of the fact, as I said that issue no longer really seems to be a real life or in the case, I think I will leave the discussion to our brief on this point.

Now, coming to the first of the critical issues so far as the Government is concerned because we have to win on this case to seek, I would get a reversal here, and I might just add in passing that all we’re asking this Court to do in this case is to reverse and remand to the District Court to reconsider the community convenience and needs defense under what we think is the proper determination that the merger had an anticompetitive effect in the relevant market.

The — this Court in the Pabst case recognized that just as with products so in the case of geographic areas there may be more than one geographic area that is relevant.

In Pabst, the Court recognized that there were three different markets, three large markets.

The District Court said here however that said that it concluded that the relevant market, that was the word used, “the relevant market” was this area that it had selected.

Now, there may be situations in which this larger market is an appropriate one for determining the effect of a bank merger.

If for example, we have a merger of a bank in Allentown with a merger of the bank in Phillipsburg, that would be the appropriate market but we think that for the purposes of determining the effect of this merger, these two banks in Phillipsburg, that Phillipsburg-Easton together is a relevant market within which to evaluate the effect.

In its Philadelphia bank decision, this Court stated that in determining the appropriate geographical market, the proper question is not whether parties to the merger do business or even where they compete, but where within the area of competitive overlap the effect of the merger on competition will be direct and immediate and I will now proceed to show that this merger will have a direct and immediate effect upon competition in the Phillipsburg-Easton area.

Warren E. Burger:

Do you rule out the possibility that the merged institutions could expand their business to the outer perimeter of the larger area —

Daniel M. Friedman:

No, we don’t —

Warren E. Burger:

— by virtue of the merger?

Daniel M. Friedman:

We don’t rule that out Mr. Justice but I think that again in the Philadelphia Bank case, this Court indicated that the critical inquiry is where the immediate effect will be felt and of course we’re dealing here with potential entry to competition.

It doesn’t have to be an actual injury.

All the statute requires where the effect may be and we think that if in fact, this has that effect in a relevant market, the merger cannot be saved because of the fact that the banks may be able to expand into the peripheral areas.

The figures we have, page 37 and footnote 29 of our brief, we have submitted a table which breaks down as between the different types of business, the sources of the merging banks business.

The deposit and loan statistics there contained showed that the banks do roughly 85% of their business in Phillipsburg and Easton as I have previously indicated in answer to a question of Justice Stewart that there’s very little in the way of solicitation outside the area and very comparatively little done outside and similarly banks outside the area generally do only solicit in the area on rare occasions.

Indeed the business is even more localized than that.

It seems to be pretty much localized within Phillipsburg and within Easton.

For example, each of the merging banks did only 10% of its business — I’m sorry, got only 10% of its savings and time deposits from Easton.

Statistics indicate that almost every one of the 85,000 families in Phillipsburg deals with one of the three banks in that area and numerous businessmen in Phillipsburg testified that they preferred to deal with a local bank in Phillipsburg than to go across the river to Easton.

It’s not surprising that this business is thus localized because the vast bulk of the customers of these two banks are small people.

In terms of the number of deposits of these banks just under three quarters of a total number of deposits are less than a $1,000.00 and 96% of them are less than $10,000.00.

Again, in terms of loans, the percentages are somewhat smaller but nevertheless quite strong.

Phillipsburg National had roughly three quarters of its loans for less than $2,500.00.

Second National had 58% and when you get to loans of up to $10,000.00, 86 and 94% are less than $10,000.00.

Now, as this Court recognized in the Philadelphia Bank case, these figures actually reflected the realities of banking.

Banking is essentially local.

It’s locally oriented and particularly so for the small customers and convenience, the convenience of access to have your bank near you is the important thing.

The merging banks indeed themselves recognized this because as the suburban communities developed four or five miles outside the center of Phillipsburg, they open branches as there as the vice president of Phillipsburg National explained, they said that’s where the customers are.

And furthermore, the vice president of Phillipsburg National pointed out in response to a question that a great many of the loans that they make in this small town are based primarily on the character of the borrower and he said that a man where you have a loan made on a character basis, the people in Phillipsburg would find it very difficult to obtain a loan in any area outside where they weren’t known.

Now the — the banks themselves in their business have recognized the integrated, localized character of the Phillipsburg-Easton market.

Phillipsburg and Easton are in different federal reserve districts which means that normally, their checks would clear from different federal reserve clearing house banks and this would obviously cause a considerable problem so what they have done is they have established something they call the Easton-Phillipsburg clearing house.

Each every three months or so, one of the banks in this area takes it turn to act as a clearing house for all checks drawn on banks in the Phillipsburg-Easton area and the president of the largest bank in Easton in discussing this arrangement said and this is in page 140 appendix, he said, this arrangement, I quote, “seems to be another fact which indicates a closely-knit community even though separated by the Delaware River.”

Another indication of the integrated nature of this banking community is the fact that for many years, banks in the surrounding area outside the Phillipsburg-Easton area were paying 4% on savings.

At the same time, the Easton banks were paying 3%, the Phillipsburg banks 3.5% but in 1968, when one of the banks in Easton increased its savings rate to 4%, very quickly, all the rest of them followed suit.

Now, the significance of all of these facts of localization comes down to this that this indicates to us that this is the area where the effect of the merger will be primarily felt.

These are the people, the people who deal with these banks, who give their business there from whom the banks derived a vast part of their business.

These are the people to whom the elimination of an alternative source of banking will be hurt.

These are the people who are going to feel it and this is in effect in the language of the Philadelphia Bank case is where the merge would have a direct and immediate impact.

Daniel M. Friedman:

The basic error of the District Court, we think, was its refusal to recognize the significance of this considerations and instead its reliance on the fact that there is a great deal of business and worked mobility within the broader area, that is people will drive 15 or 20 miles to go to work, people will drive as far as Allentown and Bethlehem to shop but this case, of course, is dealing with the effect of this merger on banking not on other businesses and the fact that a man is willing to drive 20 or 25 miles to work, to buy a new suit of clothes, to buy a new sofa doesn’t mean he’s willing to drive 20 or 25 miles to bank.

Indeed, all the indication in this record is to the contrast.

Now, I’ll just briefly like to refer to one contention that the appellees make here in their brief which is that in any event, whatever else you may think about our market, Phillipsburg-Easton is not an economically significant area of the country.

I take it the argument is too small and therefore cannot be a relevant section of the country within the meaning of the statute.

They rely primarily on the fact that prior to 1950, the Clayton Act spoke of an effect, an adverse effect on competition in any community or section and that in the 1950 amendments of the statute, the word “community” was deleted and they rely on a colloquy before the Senate hearing at which Congressman Celler, one of the sponsors of the Act, engaged in a long discussion with Senator Donald and they picked certain language which they suggest indicates that really Congress never intended to permit this small an area of the country to be relevant section of the country.

Now, for whatever this kind of legislative history is worth, the testimony given before a Senate Committee by a member of the House who was one of the principal sponsors of the Bill.

We don’t think it proves what the defendants believe it proves because at the end of this long colloquy, what comes out of it is that Mr. Celler said he believed that the phrase, “section of the country” means any trade area.

That’s what they were talking about that one of the statute to be able to reach a trade area and we think that this area, Phillipsburg-Easton certainly is a significant trade area in terms of commercial banking.

Within the Phillipsburg-Easton area, we think that under this Court’s standards that it has applied for determining competitive effect in horizontal mergers, the effect of this merger may be substantially to lessen competition.

As I have previously indicated the market in this, the banking in this area is concentrated, we have filed with the Court, this Xeroxed document which is a substitute for a chart we have at page 13 of our brief.

Unfortunately, in preparing the chart on page 13, we derived some of the figures from the wrong exhibit.

The figures given in the narrative on the following page 15 are correct but we have just reproduced this to give the correct figures.

The market — the three largest banks in the area, as I’ve indicated, have approximately 60% of the total assets, 70% of the deposits, 65% of the loans.

The result of this merger would be to make the new bank, the Phillips — combination of Phillipsburg National and the Second National, the second largest bank in the area, it would have approximately — it will have 19.3% of all the banking assets in the area $41 million, 23.2% of the deposits $38 million and 27% of the loans which is almost $25 million.

The share — total share of assets held by the three largest banks would increase as a result of this merger almost 12% to 68%, that is from 60% to 68%.

The deposits would increase to almost 80%.

And after this merger, the three largest banks would control three quarters of all the banking offices in the area, 12 out of 16.

Now, of course, that’s the impact of this merger Phillipsburg-Easton.

The impact of the merger in Phillipsburg itself would be much, much greater.

There, what we would have, is you’d have one bank with 75% of all the business, three times larger than the other banks, and this would eliminate for the people in Phillipsburg one of three banking alternatives and I think the anticompetitive effect of this merger in the Phillipsburg community is rather dramatically illustrated by the fact and I have to preface this by saying we did not make this argument in the District Court by the fact that under this Court’s decision in the Grinnell case, it would seem that a combination which gives the combined firm 75% of the market violates Section 2 of the Sherman Act because you’ve got in one hands three quarters of the markets.

Certainly, that is enough to control prices and exclude competitors.

Potter Stewart:

You’re — throughout, you’re talking about the commercial banking business as the product, are you?

Daniel M. Friedman:

That — we are because we think, that is as the district — and we think correctly, the District Court treated that way and we think commercial banking is the appropriate one.

Potter Stewart:

You haven’t — I don’t know that you even mentioned the existence of the Bank Merger Act of 1966, have you?

Daniel M. Friedman:

I will come to that in —

Potter Stewart:

You told us all about the Philadelphia case and whatnot which antedated the legislation and which indeed was the occasion for that legislation.

Daniel M. Friedman:

Mr. Justice, I will come to that in a moment in my discussion of the convenience and needs but this Court has held that the 1966 Bank Merger Act did not change the standards for the determining competitive impact.

It introduced the convenience and needs defense but —

Potter Stewart:

And it also by removing what the reference in line of commerce, it implicitly recognized that there might be other competition for banks beyond other banks.

Daniel M. Friedman:

Well, with all due respect to Mr. Justice we’d have to disagree.

Daniel M. Friedman:

This — same argument, this same argument was made in the Nashville case and in the Nashville case, the Court stated that it did not believe that in the Bank Merger Act the Congress intended any change in the traditional standards for determining competitive effect.

These are considerations that may perhaps be appropriately taken into account in the convenience and needs defense but in making the initial determination —

Potter Stewart:

Of competitive effect?

Daniel M. Friedman:

— on the competitive effect, we think the standard is the same.

Now, I have one other fact which unfortunately we have not referred to in our brief but I think is significant.

While we do not have in this market anything like the history of mergers that we had in the Philadelphia Bank case and some of the other cases, we do know and the record does show that the largest bank in Easton is the result of a merger in 1959 which point two banks with assets of $25 million each who joined to form this bank which in that time since then has grown 50% to its present size of 74 million.

Now, I’d like — I may then identify but I think it will be appropriate to just read, the Court is thoroughly familiar but the — we think the facts I’ve demonstrated bring this case within the rule announced in Philadelphia Bank where the Court said that a merger which produces a firm controlling an undue percentage share of the relevant market and results in a significant increase in the concentration of firms in that market is so inherently likely to lessen competition substantially that it must be enjoined in the absence of evidence clearly showing that the merger is not likely to have such anticompetitive effects.

Now, if we’re correct in our conclusion that this merger is bad in terms of its anticompetitive effects under these standards, then it seems to me, the decision of the District Court must be vacated and the case remanded to that Court, because the Court’s balancing test that any anticompetitive effects were clearly outweighed by the community convenience and need.

It seems to us is vitiated when the Court has incorrectly calculated one side of the scales, as again in National Bank, the Court recognized, it said, to weigh adequately one of these factors against the other requires a proper conclusion as to each and we don’t think the Court’s conclusion if the very end of its opinion where the Court said at page 699 of the appellant that even if there were de minimis anticompetitive effect in the narrowly drawn market proposed by the Government, such effect is clearly outweighed by the convenience and needs of the community deserved by the merged bank constitutes an adequate evaluation of this factor.

It is not the kind of careful balancing that Congress intended before an anticompetitive merger could be approved.

And therefore, we think the case has to go back to the District Court as in National Bank properly to perform the balancing function but since the District Court undertook to determine convenience in need and since on a remand, the issue would again arise, we have fully discussed this issue and we think it is appropriate for this Court to consider it but we think the District Court committed two basic errors in applying the convenience and needs standard.

First, we think it used the wrong market area, and secondly, it misapplied the convenience and need standard in several particulars.

The particular provision, the convenience and need provision, is set forth at the bottom of the page 61 and the top of 62 of our brief and what it says in effect is that where a merger has the effect of — may effect — may substantially lessen competition, it cannot be improved unless the Court finds that the anticompetitive effects of the proposed transaction are clearly outweighed, clearly outweighed and the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served.

But what’s happened during the integral convenience and the Government files its suit, is the merger effectuated?

Daniel M. Friedman:

In this case?

No in this case because under the Bank Merger Act, Mr. Justice, the filing of a suit by the Government within 30 days operates as a stay and then the District Court further extended the stay pending the determination of this appeal.

How long was this suit been pending?

Daniel M. Friedman:

The suit was filed in January 1968, a little over two years.

The — the basic purpose of course of this convenience and needs defense is to permit bank mergers to go ahead, go forward, which even though they are anticompetitive, produce such significant benefits to the community that on balance it appears that the public interest will be best served by sanctioning such an anticompetitive merger.

But it seems for us for this comparison to be a meaningful one, the community benefits resulting from the merger have to be assessed in the same area as the community detriments also resulting from the merger because in both instances which we’re considering are the banking needs of the community.

In the one hand, you look to the banking needs to determine what the area is where the merge will have its effect and then you look and turn around on the other side and say what effect, favorable effect on the same banking needs will the merger have.

Now, to be sure, they may be situations in which a merger will have an effect, a beneficial effect upon a segment of the community and that beneficial effect on the segment of the community, we’re down to that benefit of the entire community.

But it does seem to us that while that is permissible, you cannot properly evaluate and sustain a community needs defense on the basis of benefits to a narrow segment of the community that do not benefit the entire community which is the relevant area for testing the impact of the merger upon competition and that we think is just precisely the situation we have in this case in terms what we think is the relevant market, the Phillipsburg-Easton market.

The Court as I have indicated relied upon two factors primarily as in a ground for sanctioning this merger.

First, the higher lending limits that the larger bank would have.

The bank’s lending limits turned upon its capital surplus, sometimes retained profits, and so on and of course, every time you combine two banks, you get a larger lending limit.

Each of these banks had a lending limit of approximately $100,000.00 when you combine them with various accounting adjustments.

The new bank would have a lending limit of $250,000.00 and there was testimony that people in — some of the businessmen in — a number of businessmen in the Phillipsburg area would like a bank in Phillipsburg with a larger lending limit.

Byron R. White:

Were there some evidence in the record as to how long the Phillipsburg or Easton businessmen have to go outside an area for a loan?

Daniel M. Friedman:

Relatively, there’s no statistical evidence on that.

Daniel M. Friedman:

There are indications that some of them have had to go outside.

In some instances, the loans were satisfied through participations.

There some of them who testified, they didn’t particularly care to go outside that they prefer to deal with the Phillipsburg Bank.

Byron R. White:

Though there’s a substantial need in the Phillipsburg-Easton area for loans in excess of the $100,000.00?

Daniel M. Friedman:

Not in the Phillipsburg-Easton area, Mr. Justice.

This is the point I was coming through in Easton, there are four banks whose lending limit is either equal to or substantially in excess of the $250,000.00.

Byron R. White:

I didn’t ask you that.

Is there a substantial market who may deserve substantial need in the Phillipsburg-Easton area for loans in excess of $100,000.00?

Daniel M. Friedman:

I think there is a substantial need but there’s no indication that it’s not that the need for the big loans as not being adequately met in this area.

That is what I’m suggesting Mr. Justice is first of all —

Byron R. White:

Well, let’s assume — let’s assume that there’s a recurring need for loans in excess of $100,000.00 in the Phillipsburg-Easton areas, and one bank has a large lending limit and it could satisfy all that need and you would say that would be automatically an adequate answer to the community need?

Daniel M. Friedman:

I would — I would — I wouldn’t say it would automatically be an answer, Mr. Justice, but I would say the need, the community need for an additional bank for these loans, if that’s under that hypothesis, I think would be a relatively minor factor in assessing community convenience.

Byron R. White:

You wouldn’t say — you wouldn’t say there would be anything in the argument that it would help the community that provides the company for a large loan limit?

Daniel M. Friedman:

I think that would be a factor but I think it would be a relatively minor factor and I suggest Mr. Justice that on the other side of the balance, these loans that we’re talking about are small — involved a small number of people.

That the record shows that during the average year, the Phillipsburg National Bank had a request for 25 loans in excess of its lending limit as against some 5000 loans it had.

The Second National Bank, I think, average something like 17 loans — had 17 requests a year out of some 2200 loans that it had, so in terms of the —

Byron R. White:

People will go and ask them if they merge, people will need (Inaudible).

How many loans do the larger banks in Easton makes an excess of $100,000.00.

Daniel M. Friedman:

I don’t believe the record shows that Mr. Justice.

I don’t think it shows that.

But the —

Byron R. White:

You have no way of knowing?

The record doesn’t show what the need for larger loan is Phillipsburg-Easton areas?

Daniel M. Friedman:

Well, there are exhibits showing as to each bank series of exhibits beginning at pages 725 which shows the percentage of loans coming from all of the different types of customers and the number of loans that’s broken down into size.

For example, we have a group of loans of more than $50,000.00 etcetera, etcetera, etcetera and the percentages could be calculated.

The number of these loans for example —

Byron R. White:

Well, how can you assess this business of institution of lending limit without some information like this?

Daniel M. Friedman:

I think you can assess it, Mr. Justice in two ways.

First of all, the record shows that the number of people seeking these large loans is comparatively small and I think you have to compare that, you have to compare that —

Byron R. White:

The number of people seeking that you say is comparatively small, that’s all you’ve said.

Byron R. White:

There may be 10 times that many seeking in getting them as in other banks.

Daniel M. Friedman:

Well, but their needs are being satisfied.

If they’re seeking in getting them in another bank from —

Byron R. White:

But then you come up with whether or not it’s a worthwhile at all the community to invite some competition in the large loan areas?

Daniel M. Friedman:

Well, I think that to the extent Mr. Justice —

Byron R. White:

Well, if you got those, they could be irrelevant you can promulgate this consideration to the sort of frivolous count.

Daniel M. Friedman:

No I’m not suggesting — I’m not suggesting it’s frivolous Mr. Justice but I do think that we do know that there are four large banks in Easton, so in the broader Phillipsburg-Easton area, there is no lack of competition.

These are four large banks, each one of whom could provide a loan limit either equal to that of the merged banks or substantially greater.

Byron R. White:

Four banks in Easton?

Daniel M. Friedman:

Yes, four banks in Easton whose lending limits ranged from $224,000.00 to $587,000.00 I believe.

Byron R. White:

The largest banks and the limit is about?

Daniel M. Friedman:

$587,000.00.

Byron R. White:

In Easton?

Daniel M. Friedman:

In Easton.

Warren E. Burger:

How many banks can lend more than a quarter of a million in Easton?

Daniel M. Friedman:

Three and one can lend $224,000.00.

Warren E. Burger:

And how many in Phillipsburg over a quarter of a million?

Daniel M. Friedman:

None.

The three banks, their maximum limit is approximately, roughly, a $100,000.00 in Phillipsburg.

And Mr. Justice, let me come to say one other thing in this connection which is that there may be other ways of course of increasing lending limits beside combining the two banks into a bank.

We’ve discussed this at some length in our brief, banks that sell stocks.

Some of the banks in this area have to sell stock.

Byron R. White:

But you’re not suggesting the community needs back there must exclude (Inaudible)?

Daniel M. Friedman:

No, I’m not suggesting that but I’m suggesting that in considering —

Byron R. White:

Let’s assume that there weren’t anything that had lending limits over $100,000.00 and a lot of businessmen went outside for large loans, what would you say about the lending limit argument then?

Daniel M. Friedman:

Well, I think the lending limit is arguably a stronger one but even then, I’m not sure that basically, that convenience and need goes so far as to permit the elimination of competition.

I think it depends upon, you have to balance on the one hand what the effect is on competition, on the other hand balance what the benefits to community are and in concerning benefits to the community, I think it’s appropriate and it’s necessary to consider other ways by which the banks could help solve these problems and notice that there was no other way in which they could increase their lending limits except through a merger and if it further appear that there are businessman in Phillipsburg-Easton area that were suffering because they couldn’t get the money, it seems to me that would be a very significant factor.

On the other hand, if it turns out and I might mention that some of the businessmen here in this record, for example, we had a witness who was an official of a gas company who was saying that he wanted — he like the larger lending limit in the Phillipsburg area, then he admitted however that since his lending demand for about $2 million, there’s no bank in the area that could satisfy.

Byron R. White:

Well, then I take it you clearly very well would, don’t you have to concede that the very small market area here in Phillipsburg.

Daniel M. Friedman:

Well, I wouldn’t — I wouldn’t say that Mr. Justice.

Daniel M. Friedman:

Let me explain why because in the Phillipsburg —

Byron R. White:

Even if it is arguable by saying that the need for larger loan is satisfied outside the relevant market?

Daniel M. Friedman:

Well, this is in Iowa, we think in Phillipsburg-Easton, if on the other hand, you’re doing in Phillipsburg —

Byron R. White:

In the District Court.

Daniel M. Friedman:

No the other side of the equation in Phillipsburg the anticompetitive effects of the merger are very drastic.

There you have a very drastic effect.

Hugo L. Black:

What is the population of Phillipsburg and what of Easton?

Daniel M. Friedman:

Phillipsburg itself is 18,000, the broader area, the surrounding area is 28,000.

Easton has a population of 32,000 and the surrounding area 60,000.

So Phillipsburg and Easton together is just under 100,000.

Hugo L. Black:

How far is Easton from Phillipsburg?

Daniel M. Friedman:

Roughly half a mile.

They’re on opposite sides of the Delaware River.

Hugo L. Black:

They have bridge?

Daniel M. Friedman:

Two bridges.

One free bridge and one bridge where you buy tickets at a cost of $2.50 per ride and there’s extensive traffic back and forth.

Now, I’d also like to point out that the Court’s evaluation of the community convenience and needs defense was defective in another respect that it doesn’t appear that either the banks or the Court adequately explored the possibility of ultimate methods of achieving this same benefits.

For example, at the time of this merger, New Jersey law permitted banks to merge within their own county.

And in Warren County where Phillipsburg is located, there were at that time six other banks which would have been available to these banks as merger.

In the City of Washington, about 12 miles away, there were two banks of roughly comparable size.

Potter Stewart:

Washington is way over in western Pennsylvania.

Daniel M. Friedman:

But it’s Washington, New Jersey Mr. Justice.

Potter Stewart:

Oh!

Daniel M. Friedman:

Small town in New Jersey.

Two banks approximately 12, 13 miles away, both of the same size, roughly as this merging banks yet the indication is, the record shows that directors never considered the possibility of merging with those other banks.

In addition to that, we have one bank in Flemington, New Jersey where the president testified that over the years, this bank had followed a policy of not paying out cash dividends.

He said we plowed back our dividends in order to meet the growing requirements of our community and despite this lack of payment of cash dividends, they recently made a substantial stock offering that was 50% over what was described and in addition, the third bank in Phillipsburg, the Phillipsburg Trust Company for many years had filed a practice of paying only stock dividends and not cash dividends in order to build up its capital structure.

I think this should be contrasted with the statement of Mr. Vargo, the vice president of Phillipsburg National when he said that the bank at the present time couldn’t hire three specialists that they would like to have.

He said, it will be expensive and it would be a burden in our profits and the dividends for our shareholders.

Hugo L. Black:

How far is Phillipsburg from the New Jersey line?

Daniel M. Friedman:

Phillipsburg is right after New Jersey line.

Hugo L. Black:

Right at the river?

Daniel M. Friedman:

At the river.

The river separates the two states.

I know you said at the beginning, I wanted you to say but what is the public interest in its original language.

Daniel M. Friedman:

In this type of case?

Yes.

Daniel M. Friedman:

The type of the public interest in this type of a case Mr. Justice, I think is preserving for the large number of small bank customers in the small areas the opportunity to preserve the availability of competing sources of bank business.

That is to make sure that these people have the maximum choice.

And of course banking by its very nature in these small towns does tend to be somewhat concentrated and you have the problem in the bank situation.

It’s very difficult to get in and you can’t just open a bank the way you open a store.

You have to get the approval of the various regulatory authorities and once a bank is merged out, once it disappears, that’s likely to be the end of it and the result is that if this merger goes ahead, the competitive opportunities for the small people in this market, we think, will be significantly diminished and that’s why we brought this case here and that’s why we’re urging this Court to reverse it.

Byron R. White:

Do you suggest we don’t — technically, we don’t need to get to the community need thing at all?

Daniel M. Friedman:

Technically, that’s correct.

Byron R. White:

But you think that if we agreed with you on this competitive standard on the competitive effect and while we might and if the District Court made an error in applying the community needs that you suggest we should tell them now.

Daniel M. Friedman:

I would think so since the case would have to go back and that is the practice in this Court one has followed where it said since the cases had to —

Byron R. White:

But before we can tell — but before we can agree with you on the competitive effect, we would in the long run have to get to the relevant market.

Daniel M. Friedman:

Oh yes, you’d have to — the Court would have to agree with us —

Byron R. White:

Both geographic and product.

Daniel M. Friedman:

Pardon?

Byron R. White:

Both geographic and product that we’d have to get to.

Daniel M. Friedman:

Well, except that the District Court apparently was going to decide the case on the basis of product market, that is that if the Court did decide the case on the basis that we think commercial banking was a relevant market and we think that was correct the reasons we have given in our brief.

Byron R. White:

Well, I know but what we thought commercial banking wasn’t that relevant.

Daniel M. Friedman:

Well, if you thought of course the other side hasn’t appeal from that ruling and if you thought commercial banking was not the relevant market, I suppose, it would be then appropriate to remand the case to the District Court to develop some more evidence as to what was the appropriate market because —

Byron R. White:

I suppose this result would follow a fortiori, wouldn’t it?

Daniel M. Friedman:

I would — I would — well, again it would follow in his market but not necessarily in the Phillipsburg-Easton market because even in the Phillipsburg-Easton market, while this might result in diminishing some of the percentages, they still might be enough to prove a violation.

Warren E. Burger:

Thank you Mr. Friedman.

Mr. Roache.

Philip L. Roache, Jr.:

Mr. Chief Justice, may it please the Court.

I would like to first primarily address myself to the needs and the facts of the merger and the relevant geographic area particularly as it applies to the new banking, new laws in New Jersey.

Philip L. Roache, Jr.:

To the appellant’s contention that the District Court applied erroneous standards in assessing the convenience and needs and to the appellant’s contention that the merging banks and the District Court failed to adequately consider the less anticompetitive alternatives to the merger.

But before I do that, if I may, I would like to make a comment or two on some of the answers to questions that Mr. Friedman made.

First, we disagree and I disagree, that the District Court ruled that commercial banks was a line of commerce.

I believe that the District Court recognized the fact that there were at least banks performed various functions that demand deposits alone perhaps was the only line of commerce but in New Jersey, savings banks also have the demand deposit function.

But the District Court as I analyze this his opinion, stated they haven’t proved their case and didn’t really attempt to say this is the — first, the burden is on the plaintiff to prove this case, to prove that their commercial banking is the line of commerce and the District Court felt that because of all these other alternatives that were available and the testimony adequately showed that they were in competition with all these other areas specifically in the savings alone and savings bank where there was so — that these banks that were so predominant in savings and in lending for residents that these people did compete.

However, he didn’t have to come out and make a determination that this is in competition, this is in competition, this is in competition.

As I interpret he said, they haven’t proved the case that this is — that commercial banking is a line of commerce and instead it — and didn’t state all these other functions were in competition with commercial banking.

One other comment Mr. Friedman made was that the recent antitrust cases, recent in the banking field, did not involve smaller banks, that this is the first smaller bank.

Large banks are no longer — have no longer been merging.

This is isn’t quite true.

Crocker-Anglo case which was subsequent to the Nashville case and subsequent to the Philadelphia National Bank case involved the merger of the bank, the result of bank at $4 billion in assets.

So that’s a pretty substantial size bank.

The First National Bank of Jackson involved approximately $350 million bank acquiring a bank with assets of about $26 million.

Potter Stewart:

Jackson of what state?

Philip L. Roache, Jr.:

Of Mississippi, so one of the banks was quite large.

First National Bank of Maryland also involved a large bank in Maryland with assets of approximately $400 million acquiring a bank in Harford County with assets of approximately $30 million.

Idaho First National Bank in Idaho which was just decided last week involved a bank with over $300 million of assets acquiring a bank with approximately $26 million of assets.

So it isn’t quite true that the mergers of the large banks have ended.

All of these cases were decided all of these cases were dismissed by the District Court and decided in favor of the defendant banks.

Most of these cases involved potential competition as opposed to what we are dealing with here as a horizontal type of merger.

There was some horizontal aspects to a couple of these cases.

A comment Mr. Friedman made with respect to the reports of the various banking regulatory agencies, I would like to comment that the Bank Merger Act provides that these agencies must report, if it’s the Comptroller of the Currency involved in the merger, must report to the Comptroller of the Currency only on the competitive effects not on the convenience and needs.

They do not and are not to consider the convenience and needs, so all they get is a half a picture when these regulatory agencies report to us or we report to them, the losses report on the competitive effects as you see them.

So the whole picture is not in their competitive report.

Potter Stewart:

What did the Comptroller decide?

There would be no anticompetitive effect?

Philip L. Roache, Jr.:

That’s correct.

That’s our belief.

These banks, as Mr. Friedman had said, are Phillipsburg National with deposits of $2.4 million and Second National with deposits of $16 million as of 1967 are small banks.

They are truly small banks.

Philip L. Roache, Jr.:

They are located in the city with a population of 18,500.

The population has remained static since 1960.

Years ago, many years ago, this was a booming community when the coal lines were operating in Pennsylvania and around the surrounding areas.

This was a terminal for the trains to bring the coal in and to hook up and it was a very booming and very prosperous city at that time but that is not the situation now.

If you were to go there now, you will see rusty railroad tracks and cars on the siding rusting also.

This gives you an indication of a type of a community we’re talking about that the so called downtown area has no stores in it.

There aren’t any stores.

You can’t buy a suit or clothes in Phillipsburg.

This is the economically significant area that the Government is talking, that justice is talking about.

Hugo L. Black:

What do you say about the stores closing?

Philip L. Roache, Jr.:

There are no — there is no downtown area as we understand a downtown area.

There are no stores, maybe one or two restaurants or something of that nature.

The only really institutions downtown are Phillipsburg National and Second National.

Phillipsburg Trust, the only other bank in the area with assets of about $12 million moved out of it several years ago recognizing that the area was so — needed so much renewal, that it wasn’t a good area for banks to be located.

Potter Stewart:

By area, you mean downtown Phillipsburg?

Philip L. Roache, Jr.:

Downtown area.

Thurgood Marshall:

What about —

Potter Stewart:

Downtown Phillipsburg, right?

Philip L. Roache, Jr.:

Sir?

Byron R. White:

How about Easton?

Philip L. Roache, Jr.:

Easton, the population of Easton has decreased in the last few years.

Now, Easton has a population of approximately 30,000 people.

Easton has a downtown area of approximately three city blocks on either side with a square in the center, or a circle.

It has a department store but not a department store as we know a department store is, as we in this city know a department store or in other large cities.

That’s a very small department store.

It does, — you can’t buy suits or clothes in Easton.

There are about two or three small suit, men’s clothing stores but they don’t have the selection that the average person today would like to have.

Most people today and the record tell — and there’s ample evidence in the record go to Allentown or Philadelphia to buy their clothes.

Thurgood Marshall:

Do you have shopping centers in the suburbs?

Philip L. Roache, Jr.:

They have a shopping center in Phillipsburg.

Philip L. Roache, Jr.:

There’s a recent shopping center was developed about two or three years ago but and it has an Orr’s Department Store which is Allentown and Orr’s is also in Easton, in the outskirts of Easton but that shopping center doesn’t have a place to buy suit or clothes.

Hugo L. Black:

You said a bank moved out of Phillipsburg.

Philip L. Roache, Jr.:

It didn’t move out.

It moved out of the downtown area to more into the suburban area where the — where industry is and where the people are moving.

They are moving — they are gradually moving out of the city into the suburban area.

Hugo L. Black:

That’s happening in a great, many places, doesn’t it?

Philip L. Roache, Jr.:

That’s correct.

That’s true.

Warren E. Burger:

Are you suggesting then that the downtown area of Easton is in effect the downtown area for both?

Philip L. Roache, Jr.:

That’s correct.

Warren E. Burger:

To the extent that you have one.

Philip L. Roache, Jr.:

There’s no doubt about it.

The bridge that separates the two is about a city block long.

No one has to drive across, because you walk across it.

You wouldn’t know you were going from one to another unless you can see the sign on either side of the bridge.

The — as of these two banks are truly small banks at absolute terms.

None of these banks of course have had any prior merger activity.

They are located in the community that was formally rural and now turning to commercial and industry.

They have been — they have in the past been serving the area by accepting deposits and lending money primarily to finance residences and in the past, farms were included, and as the area has been changing, the farms have disappeared.

The commercial and industrial business done by these banks is insignificant, especially when you compare this with that done by large commercial banks.

The demand deposits are comparatively small and savings represent the bulk of their deposits.

When you compare these banks with the contested Section 7 cases that we’ve had in the past such as the Manufacturers Hanover and the Hawaii case and the Nashville case, they’re just no comparison.

You’re comparing this area with areas that were urban in nature and abounding with business, commercial businesses.

Those banks’ primary business was commercial and industrial lending.

They had great amounts of demand deposits.

In fact, their demand deposits range anywhere from two-and-a-half to five times the amount of savings deposits.

The reverse is true here.

Phillipsburg National’s savings are two-and-a-half times its demand deposits, quite a different type of business, a different locality, a different community.

Certainly, Phillipsburg National and Second National cannot be judged in the same manner as those large urban banks and I’ve made a comparison of those banks on exhibit, intervenor exhibit number one and are listed the various assets of these banks and Phillipsburg’s trust assets would be $41 million as compared to the smallest bank there with $336 million some years ago.

Concentration and the restraints of trade in large urban areas with such billion dollar and multibillion dollar banks or at the minimum banks with approximately half a million must certainly be viewed differently than the situation these two banks are in.

Philip L. Roache, Jr.:

Even though the county is growing commercially and industrially, due to the fact that the local banks are small, business is compelled to go out of the community — out of the county and out of this area for adequate financing, for trust facilities, business advice and other needed services.

Where did you and the other agency bank whereas the FDIC and the Federal Reserve, they took a different view as you did?

Philip L. Roache, Jr.:

The Federal Reserve took a different view and the Department of Justice also gave us.

Of course, yes, it’s obviously but what about the FDIC?

Philip L. Roache, Jr.:

I think the FDIC reported on this particular one.

Thank you.

Warren E. Burger:

We’ll suspend until after lunch.

Mr. Roache, you may proceed.

Philip L. Roache, Jr.:

I’d like to apologize first to the Court.

I did make a mistake in the answer to one question.

The Federal Deposit Insurance Corporation did send us a competitive report but I have forgotten that they had.

Oftentimes, they don’t and it just slipped my mind, so all three agencies, the Department of Justice, the Federal Reserve and FDIC did send us report, all were adverse.

This case, I believe, is quite different from the prior litigated bank merger cases and from the statements in the United States versus Philadelphia National Bank case, we can see the glaring differences in this case and the Philadelphia National Bank case.

In Philadelphia National Bank case, when the Court turned to — this Court turned to the justifications advanced by the defendant banks, is said that the banks do not contend, that is — that is Philadelphia National and Gerard do not contend they are unable to compete without the merger, however, in this case, Phillipsburg National and Second do so contend.

The testimony in this case was to the effect that the only possible way for these two banks to grow was by merger.

It could not be possible by internal expansion.

These banks must hire needed specialists to compete and they cannot do so as separate institutions as the plethora of evidence, that they need a mortgage man, they need a trust man and they need a commercial and industrial loan specialists.

These men come high, these banks by themselves just could not possibly afford it and without these people, without proper management they can go nowhere and there’s testimony on the record to that effect also.

Officials of Second National stated the growth that their bank had leveled off.

There was other testimony to the effect that any growth by these two banks would be limited to the possible growth of the economy.

The banks are separate and that they have no future, it would not be able to survive.

In the Philadelphia National Bank, this Court said that that was not a case where two small firms in the market proposed to merge in order to be able to compete successfully with larger corporations.

However, Phillipsburg National and Second National do so contend in this particular case.

They are two small banks desiring to merge to better compete in the marketplace.

There was testimony at the trial of three experienced officials of larger banks to the effect that the merger would intensify competition between Phillipsburg and Easton banks and it would eliminate the existing apathy in banking competition in the area and that the merger would be pro-competitive and benefit the community with better personnel and extended services.

There was an abundance of evidence to the effect that the merger would enable the resulted bank to hire the needed personnel and to give the services that are needed to make them an aggressive competitor in the area.

It should be noted at this point that recent legislation in New Jersey has amended the New Jersey banking laws.

Byron R. White:

Well, would you make this argument if the relevant market area was just Phillipsburg and Easton?

Philip L. Roache, Jr.:

Yes, absolutely.

Byron R. White:

Well, you mean the less business areas, the more need there is for a bigger bank?

Byron R. White:

When you’ve told us that there is a little business in the — this area that —

Philip L. Roache, Jr.:

I didn’t say there was — I said there’s plenty of businesses, needed services in the area but there’s no competition in the area.

There’s apathy in the area that these banks are unable and —

Byron R. White:

So there’s plenty of — there’s plenty of business, plenty of need for banking services —

Philip L. Roache, Jr.:

Correct.

Byron R. White:

— in the Phillipsburg-Easton area.

Philip L. Roache, Jr.:

Correct.

Warren E. Burger:

I understood you to say it isn’t leveled off.

Philip L. Roache, Jr.:

Their growth — Second National’s growth had leveled off.

Hugo L. Black:

You mean, it was losing money?

Philip L. Roache, Jr.:

It wasn’t losing money but that its growth had leveled off.

It had not increased its deposits and at the same pace that it had in the past, that’s what the president had meant by his growth had leveled off.

However, I might point out when we talked about the banks in Easton being so large, North Hampton National Bank with over $300,000.00 as a lending limit.

Practically, does nothing in some of these lending areas.

It does not hold anything in the commercial and industrial lending.

It has no installment lending loans whatsoever and if — it’s with 18 — $18,961,000.00 in deposits, it has only 34.5% of its deposits loaned out.

Hugo L. Black:

Does the record show how many $200,000.00 loans that were available around Phillipsburg?

Philip L. Roache, Jr.:

It doesn’t — it doesn’t show that, no.

Warren E. Burger:

It does not?

Philip L. Roache, Jr.:

It does not show how many were.

Hugo L. Black:

I would assume from what you say about it, that there were not be so many loans of $200,000.00.

Philip L. Roache, Jr.:

Well, the record does show, a number of witnesses did testify that they could use this kind of money but it doesn’t show how much was actually loaned out in that area.

Hugo L. Black:

Who were the witnesses who testified they could use it?

Philip L. Roache, Jr.:

That’s correct.

Hugo L. Black:

Who were they?

Philip L. Roache, Jr.:

Well, there was a man who wanted to open a motel in Phillipsburg, said he couldn’t get the $250,000.00.

He needed $250,000.00 and couldn’t get it there.

That’s the first one that comes to my mind.

There’s a testimony that Phillipsburg had a request of over 25 loans in excess of his lending limit.

Second National had 17 requests and I might add in this —

Hugo L. Black:

Seventeen for how much?

Philip L. Roache, Jr.:

For over its lending limit.

And I might point out that the reason you don’t get too many requests because business people generally know what your lending limit is.

This is sort of useless to go to some place and ask them to lend you $200,000.00 and they can only lend $100,000.00.

Hugo L. Black:

Well, I would think — I would think there would be very few places in the United States as you all have described this.

It would be engaged very liberally in the $200,000.00 loans.

Philip L. Roache, Jr.:

Well, in the —

Hugo L. Black:

That’s a big business loan.

Philip L. Roache, Jr.:

$200,000.00 today is not much of a loan.

You can’t open very many business with less than that kind of money unless you’re talking about a corner store or something like —

Hugo L. Black:

I wouldn’t suppose they want to supply all of it from the whole of the business.

Philip L. Roache, Jr.:

Well, sure why not supply all of it.

Hugo L. Black:

I mean somebody had no money at all and you’re just going to lend them $200,000.00?

Philip L. Roache, Jr.:

Well, they have to have — they have to have the credit and capital and so forth but 200 — much of this goes to expansion and to increase business and —

Hugo L. Black:

Well, I’m not saying about extension.

Philip L. Roache, Jr.:

And people starting in business sometimes will have the necessary capital and collateral to put up, to start a new business.

They don’t start from zero and ask a bank for a loan without anything.

Hugo L. Black:

Does the record show how much — how many $200,000.00 loans Easton had made in the last year?

Philip L. Roache, Jr.:

No, it doesn’t.

I was —

Hugo L. Black:

Does it show if it had made any?

Philip L. Roache, Jr.:

It doesn’t to my knowledge.

I tried to get that information but they wouldn’t give it to me.

This is pretty private and confidential information to these banks and they hate to divulge it because they know that the competitors are going to see everything that you tell them.

So it’s very difficult to get some of this type of information.

Potter Stewart:

There’s a third bank and only one other bank as I understand it in the — in Phillipsburg, is that right?

Philip L. Roache, Jr.:

Phillipsburg Trust Company.

Potter Stewart:

Phillipsburg Trust and what’s the situation of that bank?

Did it had — were witnesses from that bank — did they appear in this thing?

Philip L. Roache, Jr.:

Mr. Lupo testified for that bank.

Philip L. Roache, Jr.:

Mr. Lupo testified and I think they have assets of approximately $12 million.

Potter Stewart:

It is the smallest of the three.

Philip L. Roache, Jr.:

That’s the smallest of them.

It has — it is the bank that moved from the downtown area of Phillipsburg.

Potter Stewart:

Of the suburban area, that’s still in Phillipsburg.

Philip L. Roache, Jr.:

It has one branch and the Phillipsburg National has two and Second National has one branch in the areas surrounding Phillipsburg.

Potter Stewart:

And I would suppose that the witness, the representative of that bank was opposed to this merger, was he?

Philip L. Roache, Jr.:

He said it would be competitive.

He was opposed but not strongly so.

However, the Court in analyzing his testimony interpreted to be the testimony of a man who was satisfied with what he has and had no real desires to go beyond a certain particular area.

In fact, the man said he wasn’t even looking for trust business and the name of the bank is the Phillipsburg Trust Company.

And this is a general condition throughout the area.

This is why this merger is so good.

This is a merger of two small banks who can’t survive unless they can merge and get the adequate capital and the adequate personnel to compete.

This merger with an aggressive management can put some competition into that area and get rid of this apathy in banking competition.

The president of Easton National Bank which is the largest in this Easton-Phillipsburg area testified that they can find themselves pretty much to the Easton area with a little bit of business in Phillipsburg and they were asked why didn’t you go into Bethlehem and Allentown.

He said, “Well —

Hugo L. Black:

Did I understand you to say that they couldn’t survive without merging?

Philip L. Roache, Jr.:

That’s — that’s the Comptroller’s Office opinion in looking at the future by survive, that don’t mean they’re going to go to bankruptcy.

I mean they’re going to be absorbed by the large New York banks, that’s what’s going to happen in this case.

Hugo L. Black:

Not a failure in company defense.

Philip L. Roache, Jr.:

That’s — no sir, I’m not alleging it.

I’m saying that in their present condition, they’ve got to do something.

The only thing left to them is to merge so that they can compete or else merge with some of the larger banks.

The new —

Hugo L. Black:

But they were still making money.

Philip L. Roache, Jr.:

They are still making money but the —

Hugo L. Black:

Wasn’t that a little quick on the trigger about their failing?

Philip L. Roache, Jr.:

I didn’t say they were failing.

I said they can’t be effective competitors in the area.

Philip L. Roache, Jr.:

They can’t be effective competitors in the area.

They’re two small banks in this area just sitting there.

Once the large —

Hugo L. Black:

That’s why they can’t lend $200,000.00?

Philip L. Roache, Jr.:

That’s correct.

Once these large New York banks start moving in the area, you will see a real change in the competition and it has already started as a result of the change in the New Jersey banking laws.

A large New York bank, New York in assets has already acquired a bank in Washington.

There’s another merger pending between the People’s National Bank and other large bank.

There’s a branch been granted to Morris Trust Company over in Morris County I believe it is who’s coming into Warren County but this is through the whole area.

Ever since the passage of the New Jersey banking law, there has been a tremendous change and applications have increased for bank mergers from 57 to over 300 since this banking law has changed for branches throughout the first banking district and these banks are in the first banking districts which contains the largest banks in the state.

The answer to this, if this merger doesn’t go through, the larger banks are going to get larger.

That’s all.

Does that law change in New Jersey law after the decision in this case?

Philip L. Roache, Jr.:

The change in the law was prior to decision but subsequent to the trial and at the day — the day the opinion was rendered, a motion was made by the plaintiff to continue to stay until they couldn’t determine whether they wanted to appeal it and also a motion was made to reopen a record to accept additional supplemental evidence.

The Comptroller’s Office introduced evidence showing what had happened since the change in the New Jersey banking laws.

The Court accepted this evidence and its intervenor’s exhibit number 30.

It shows what has happened since this law changed and the Court considered, it took time out to consider it.

It said it supported his opinion that this merger would not be anticompetitive.

Well, what did it say to the Government’s footnote on this subject?

Did they say that the law doesn’t really have much impact, doesn’t it in the situation?

Philip L. Roache, Jr.:

They addressed themselves primarily.

They addressed themselves primarily to branching because there is some limitations.

However, the new census estimate that has come out has opened up several areas which is not in the record.

It has opened up several areas.

However, they can merge throughout and merging has been going on throughout the area.

Byron R. White:

It’s still a geographical branching?

Philip L. Roache, Jr.:

In the — in the three districts.

Byron R. White:

And that they’re now three banking districts?

Philip L. Roache, Jr.:

The three banking districts.

Byron R. White:

All over the countywide and the state?

Philip L. Roache, Jr.:

That’s correct, all over countywide.

That’s why I say these banks now not faced just for the compete —

Byron R. White:

Now expand outside the district, what do you have to do?

Merge that?

Philip L. Roache, Jr.:

You have to be a bank holding — become a bank holding company and you can go through it.

Byron R. White:

Statewide?

Philip L. Roache, Jr.:

That’s correct, yes.

Byron R. White:

You said it’s already national in scope what happened to Washington?

Philip L. Roache, Jr.:

That’s correct.

Yes, Washington Trust Company has already been acquired by National and Newark and Essex Company.

These banks are just waiting to acquire.

These large banks are just waiting to move in and acquire —

Byron R. White:

The point is if this merger can’t go through, each of you could be gambled up (Voice Overlap)?

Philip L. Roache, Jr.:

That’s — that’s our opinion Your Honor.

Byron R. White:

Would that be so fair?

Philip L. Roache, Jr.:

Yes, it would be.

The antitrust laws are aimed at fostering competition not making — not permitting the larger banks to get larger and creating the concentration in which Mr. Friedman spoke so much about.

We are talking about — here’s two banks that wanted to go out and compete.

They want to do something about the situation and they say, “No stay where you are and be what you are.”

Byron R. White:

Will the Comptroller be able to do anything about National were picking up one of these two Phillipsburg banks?

Philip L. Roache, Jr.:

The Comptroller proved that because they thought there has been additional to the — yes, we could.

Yes.

Byron R. White:

But you haven’t been, have you?

The Comptroller hasn’t been.

These other cases have been dismissed too in sort of expansion into other markets.

Philip L. Roache, Jr.:

Most of them were potential competition cases and the last one —

Byron R. White:

There were large banks picks up the small bank —

Philip L. Roache, Jr.:

That’s correct.

Byron R. White:

— in another market?

Philip L. Roache, Jr.:

That’s correct.

Byron R. White:

And the Comptroller has been approving them?

Philip L. Roache, Jr.:

Because of the needs of the community.

We haven’t approved every single one but because of the needs of the community, we have approved them.

Byron R. White:

Why would you want to —

Philip L. Roache, Jr.:

I would not — I would not —

Byron R. White:

— want to speak with Comptroller but what would the Comptroller do here in this case if one of these, if this merger is not approved, what would the Comptroller do?

Philip L. Roache, Jr.:

I — I don’t know what.

We always consider the facts.

We send an investigator right and we spend a week or two examining these things before we do it but let me say this that if we felt the area needed it, if we are now so sure the area need it, we probably would let them come in but I don’t say that that’s the best thing to do.

William J. Brennan, Jr.:

Did the Comptroller approve — did the Comptroller approve the acquisition of the Washington Trust by National?

Philip L. Roache, Jr.:

Yes, it did.

Because it felt it needed that.

It needed this increased lending limit.

They needed the service.

They needed the trust service and everything that wasn’t there but I think the antitrust laws are aimed at keeping competition in the area and if we can keep these two banks who are willing to try to fight.

I think it’s pro-competitors not anticompetitive in any respect.

Hugo L. Black:

I don’t understand why you say, they’re willing to keep on trying to fight.

I understand you to say they are not in any danger financially.

How much did they make last year?

Philip L. Roache, Jr.:

I didn’t say they weren’t in danger financial.

I said —

Hugo L. Black:

How much did they make last year on their dividends?

Philip L. Roache, Jr.:

I have the figures here.

Mr. Friedman said they have profits that are ranging from I believe for a five-year period 1962 was $46,000.00 to $123,000.00.

And that over a period of five years, Phillipsburg National made a $192,000.00 over a period of five years and Second National $198,000.00 over a period of five years.

That is combining, I’m not giving them year by year.

Hugo L. Black:

Wasn’t that pretty good for a bank in that kind of (Voice Overlap)?

Philip L. Roache, Jr.:

That — that I don’t know whether it’s so great.

Bank profits today are about 1% on their investment as opposed to other industries.

This is —

Hugo L. Black:

I imagine that’s temporary if your goal is high interest rates.

Philip L. Roache, Jr.:

But the point I’m making about, I’m not saying that they are not — I’m not saying they’re failing, I’m saying that if we don’t let them merged, they are all going to be absorbed by larger banks in the first district —

Hugo L. Black:

Well, can they be absorbed without merging?

Philip L. Roache, Jr.:

— and I don’t think that’s what the antitrust clause is for.

Hugo L. Black:

Can they be absorbed without merging or something?

Well, they have to go through the same process, wouldn’t it with the Department of Justice.

Philip L. Roache, Jr.:

Yes they would but this is whatever definitely they’re suggesting they do.

There’s other alternatives to merge with someone else and not in the city.

What difference does it make if those two small banks are in the same city?

I don’t think that makes any difference.

Hugo L. Black:

What difference does it make if what?

Philip L. Roache, Jr.:

They’re in the same city.

These two small banks are in the same city.

That isn’t what we’re concerned about.

We’re concerned about competition not the competitors.

I don’t care what the geographic market is, what the relevant geographic —

Hugo L. Black:

This law — this law I thought had the theory that they use to have own dominoes.

If you put them up on the head and stand up right next to one another, you let one of them knock the other down, and it just keep on knocking them down until there’s just one.

Philip L. Roache, Jr.:

Well, continuing that theory what about the large New York banks coming in and picking up all these other banks.

You’re progressing — you’re jumping beyond any —

Hugo L. Black:

You are arguing that in order to prevent double up, the thing to do is to let them merge themselves.

Philip L. Roache, Jr.:

So that they can effectively compete in the area.

That’s correct.

And I think that’s what the antitrust laws are for.

That’s what it makes it pro competitive.

Hugo L. Black:

It makes it more competitive for them to merge?

Philip L. Roache, Jr.:

That’s correct.

More competitive in the area.

That’s our position and we think it’s an important issue in this case.

Hugo L. Black:

Is that the theory, the law has written on?

Philip L. Roache, Jr.:

The law says that you are to foster competition and this fosters competition.

Hugo L. Black:

You have a bigger competition.

Philip L. Roache, Jr.:

If they merge, there will be more competition in the area.

These are two local banks who want to expand and grow and give competition to an area which there is testimony already on record that there’s apathy in the area among the banks for them not to merge would mean that the larger banks would come in and grow larger whereas, if you let these two merge at least they will try to do something about it that competitive situation and try to correct the apathy in the area and attempt to fight the larger banks instead of having them eliminated, we’d at least have another bank in there fighting.

Thurgood Marshall:

That depends on the area, doesn’t it?

If you take the area, the U.S. Government suggests, your argument falls flat, doesn’t it?

Philip L. Roache, Jr.:

I don’t care what area you’d take.

Thurgood Marshall:

Well, if you take the area —

Philip L. Roache, Jr.:

In Phillipsburg or Phillipsburg-Easton.

Thurgood Marshall:

If you take Easton and Phillipsburg, and as of now you got four banks and you’ll end up with how many banks?

Philip L. Roache, Jr.:

In Easton-Phil, there’s a — they have at least seven banks.

Thurgood Marshall:

Well, we haven’t asked if —

Philip L. Roache, Jr.:

They would be left to six banks.

Thurgood Marshall:

You’ll have less banks but more competition?

Philip L. Roache, Jr.:

Less banks with more competition.

Thurgood Marshall:

In that area?

Philip L. Roache, Jr.:

That’s correct.

Thurgood Marshall:

Now, do I understand you correctly that the community that if you keep going little further or it is about to just end up like appellation that big banks want to come in there.

We say that this area is just going to flop.

Philip L. Roache, Jr.:

If the big banks will come in.

Thurgood Marshall:

Yes.

Philip L. Roache, Jr.:

Yes they will come in.

Thurgood Marshall:

For what reason?

Philip L. Roache, Jr.:

To which — I’m sorry.

Thurgood Marshall:

For what reason.

Philip L. Roache, Jr.:

To grow larger and to get larger and to get more assets.

The more they — the bigger they get, the more profit they make and the —

Thurgood Marshall:

And yet you can’t point to a single instance of any action by any outside bank in Easton and Phillipsburg.

Philip L. Roache, Jr.:

Outside of Easton and Phillipsburg?

Thurgood Marshall:

Where any bank is made or moved to take over any other bank in there.

Philip L. Roache, Jr.:

No, I can’t.

There’s nothing on the record to show that.

Thurgood Marshall:

So all we have is the possibility.

Philip L. Roache, Jr.:

We have more than a possibility —

Thurgood Marshall:

Or probability.

You can’t get better than probability, can you?

Philip L. Roache, Jr.:

Sir?

I think it’s more than a probability but if you look at intervenor’s exhibit 30, you will see what has already happened in the area.

Thurgood Marshall:

No, I’m talking about in Easton and Phillipsburg.

Philip L. Roache, Jr.:

It hasn’t happen in Easton and Phillipsburg.

Thurgood Marshall:

And you also agree that if this is made it will have to be –- you’ll have to run to carp it and you and the antitrust division and everybody else, correct?

Philip L. Roache, Jr.:

That’s correct.

Thurgood Marshall:

And so for that reason, you say these two banks should be permitted to merge.

Philip L. Roache, Jr.:

I might point out that when you include Easton then New York banks cannot come over to Easton because that’s Pennsylvania they’re confined to the seven county first banking district.

Thurgood Marshall:

Sure.

Philip L. Roache, Jr.:

So you’re only talking about the three banks and —

William O. Douglas:

Has the Comptroller ever disapproved of a merger?

Philip L. Roache, Jr.:

Yes, yes Your Honor, we have.

William O. Douglas:

Do you remember the name of it?

Philip L. Roache, Jr.:

Well, First National City going into Long Island but the Comptroller doesn’t — this is the thing that the Department of Justice doesn’t perhaps like about the method.

We dis — we discourage the man before he files the application rather than go through of the expensive trouble of filing an application.

They come and talk to us first and after they talk to us, if we feel it looks quite obvious that this merger is not a good merger, we tell them don’t bother filing and they don’t bother filing.

Hugo L. Black:

How many of them?

I might misunderstood the question of Justice Douglas.

How many times does the present Comptroller refused to agree to a merger and in what cases?

Philip L. Roache, Jr.:

I’m trying to think.

I have the statistics in another case.

Hugo L. Black:

I’m sure that it might be (Voice Overlap).

Philip L. Roache, Jr.:

I have those statistics in another case and I just can’t quite remember what I — if I had to answer to guess I’d say around 30 or something like that.

Hugo L. Black:

Around what?

Philip L. Roache, Jr.:

Around 30 or 40 if I had to answer to guess on it.

Hugo L. Black:

That he has rejected?

Philip L. Roache, Jr.:

That’s correct.

Hugo L. Black:

Out of how many?

Philip L. Roache, Jr.:

Quite a number.

I don’t know all of the number of application.

Hugo L. Black:

Can you give them to us later?

Philip L. Roache, Jr.:

Sir?

Hugo L. Black:

Can you supply us?

Philip L. Roache, Jr.:

I can give you that information later.I will.

Hugo L. Black:

Yes and what banks and how much.

Philip L. Roache, Jr.:

Alright, I will supply that information.

William O. Douglas:

You see the reason I ask you a question, I was reading or I guess it must — was — it must have been a couple of months ago, some article, somewhere written not by a lawyer but by a banker, a businessman who is making your argument.

The $200,000.00, he couldn’t get $200,000.00 loan but his wasn’t the $200,000.00.

He couldn’t make a loan of $100 million to United Airlines, therefore, his bank wasn’t big enough and so he wanted to join with others and have a merger, so that’s where he end up, isn’t it?

Philip L. Roache, Jr.:

Well, it could end but you have to draw a line at some point.

I mean I would feel that people that borrow that kind of money can’t go to New York and they can’t go to larger banks.

William O. Douglas:

That was he was complaining about.

You all have to go to New York.

Philip L. Roache, Jr.:

Well, I wish they’d do something about that.

William O. Douglas:

He thought that all the banks of Easton in Mississippi should be merged.

Philip L. Roache, Jr.:

We will — thank you.

Robert B. Meyner:

Mr. Chief Justice —

Warren E. Burger:

Governor Meyner.

Robert B. Meyner:

— may it please the Court.

I should like to point out that this is a culmination of a long series of episodes by which two banks endeavored to be pro-competitive in an extensive area.

Discussion to meet the problems that existed as between older management and younger management as to how we could serve the customers in the neighborhood, the people who were in need of loans to finance various enterprises, all of those problems were taken into consideration and it was felt that this was the only way that we could meet the problem so we discuss merger and then in 1967 signed an agreement and then filed an application with the Comptroller.

The three agencies, not through their somber boards but rather through a bureaucratic employees took the narrow blind view that only Easton was a market or Easton and Phillipsburg was a market, that they submitted that various reports but then there was a full and adequate hearing before the Comptroller, justice shows not to appear on the scene.

Then we produce witnesses and then a decision was arrived at that this was an area somewhat similar to the standard, metropolitan statistical area which is set forth in white in this exhibit, exhibit 13.

Then we found that after we are ready to go with the merger, justice starts a suit.

Robert B. Meyner:

Then we go to the District Court in New Jersey where we have 1600 pages of testimony, where we have over 100 exhibits, where we’re put to untold difficulty in getting out records as to duplicate depositors in each bank, furnishing infinite information then the judge became ill after the conclusion of the case and we waited a year for a decision and now this suit is here before you.

I’d like to address myself to three things.

Number one, I believe that the record shows that this is procompetitive.

There isn’t one witness, least of all Mr. Lupo who says that this is anticompetitive.

At most he said in — and I refer you to the appendix in page 35, in the record it’s probably page 134, he was asked about the competition between his bank, that is the third largest bank and two existing banks in Phillipsburg and he said, “I would say it was healthy competition, healthy competition to the extent that we have grown, that we have recognized and we have progressed.

I would say it was healthy competition.”

And the Court, “When you defined it as healthy competition, do I understand correctly that you consider this competition as a factor in your own growth.”

Then I say to you, if you read the record 1600 pages, you can not find one of the people who as bankers appeared on the scene to say that this was anticompetitive, not one.

The — the — we’ll take Mr. Greenly of the second largest bank in New Jersey.

He looked over the entire situation.

He pointed out that there was no premium on any of the exchange of shares like there was in the national case.

He pointed out that there was a fair exchange and that it was — there was nothing about it that would cause customers to have to pay the toll or pay anything additional.

Potter Stewart:

But Governor, you have to start with a proposition as competition between the two banks will be eliminated.

Robert B. Meyner:

Most of the —

Potter Stewart:

Well I know but you do start with that.

That seems rather obvious.

Robert B. Meyner:

Well, I think the customer that we’re talking about — the customer that Mr. Friedman has also listed is about, he will have five choices instead of two and one —

Byron R. White:

Well, I understand — I understand but you do start with the proposition that the competition between the two banks is going to be eliminated but your point is that competition will be served in other ways and in ways that will overbalance any loss of competition.

I gather that’s your point.

Robert B. Meyner:

And the — and the customer will not be heard because the charges are essentially the same for checking accounts and more and more since there is a better return on time deposits, most of the money is going under the time deposit area and you take William Jones, William F. Jones of the Easton Bank.

He specifically pointed out that this would be procompetitive.

Byron R. White:

Well, yes but how is it procompetitive?

I don’t understand how some competition will be eliminated between two banks but not specifically how this competition is going to be served by the merger?

Robert B. Meyner:

We had at least ten witnesses who appear, appliance dealers, automobile dealers, manufacturers, industry people who pointed out that their needs were well in excess of $200,000.00.

As a matter of fact, two borrowers from our bank are directors of the Phillipsburg Trust Company and they testified for us saying that they felt that they would be better served if these banks were merged and they could have a larger borrowing limit.

Mr. Riccardi and Mr. Falk, Mr. Falk who operates outside of Phillipsburg a tremendous market outside of Easton one, outside and two outside of Allentown.

These are the people who — the testimonies replete.

There isn’t one as there is in these previous cases, there isn’t one person or one banker who came in and said this will affect the community, this will hurt the community.

Everyone was willing to — most people were willing to testify and no one testified against it except Mr. Edwards who was a young PhD with a J.D. degree at the age of 31 and who on the basis of casual empiricism arrived at the conclusion by his doctoral thesis on the basis of standard statistical standard, metropolitan statistical area that he has examined some 49 of them and he examined them in terms of what happened in 1955 and 1957 and he concluded that when you had a merger of this sort, interest rates on savings deposits were reduced and interests on loans were increased.

This was contradicted by all of our experts, contradicted by bankers.

Byron R. White:

But now how is competition going to be served?

This competition is going to be served you say by enabling another unit to service larger loans, that’s one way.

Robert B. Meyner:

Yes as was — as was pointed out in Nashville and Philadelphia, two banks will be better able to compete with other banks in any of these areas.

Now, let’s just take the standard metropolitan statistical area that you have the large banks in Allentown, you have the large banks in Bethlehem, you have a large bank south of us and no one in Phillipsburg can get a loan in excess of $100,000.00.

He’s got to go to the other neighborhoods.

Now, he can get a larger loan and I think it was recognized in the Nashville case that the Bank Merger Act of 1966 did remedy that situation, that situation of larger loan limit and the Philadelphia National Bank case was sort of held out because it was felt that the Bank Merger Act prevented them, the Bank Merger Act of 1960 but the Bank Merger Act of 1966, I think, by the Nashville case indicated that it could — that would be one of the factors and another factor would be the management, a better opportunity to hire employees.

Now, the record here demonstrates that the president of the Second National is well over 80 and the next man is 71 or 72 and the man after that is 39 or probably 40, 41.

The head of the Phillipsburg National Bank is now about 73 and the next man is about 61, 62 who wants to retire early and you come down to the next level, it’s about 40 and 39.

Now, Chinamann (ph) who represented the largest bank, south of Oxley, the Huntington County National Bank said it’s too late to go out and try to do it alone.

You have to have a merger.

A Greer of the Lafayette Trust Company, a former bank examiner who was pulled in as a young man and he has done a good job for Lafayette Trust says he wants to go to the $50 million in Easton and he says he can’t do it without a merger.

Now, let’s look at geographic area.

I think this Court recognized in the Philadelphia National case that they would take the four county area where the banks were permitted to operate.

Now the judge in this case, Judge Sheldon, at the time of the hearing of this case, Lafayette Trust recognized that there was pending in the state legislature an amendment of the state banking law which would allow and which subsequently was enacted, it allows in seven counties of New Jersey branching, branching by merger or de novo with certain home office protection.

Seven, counties, the complete northern, the majority of the state with over three million people an area very much like that which was adopted in the Philadelphia National Bank case.

Now, this is the kind of competition we’re likely to get.

Now this applies just to a branch banking or merging.

But there’s statewide bank holding so that you can have any bank picked up by a bank holding process.

In addition to that, it includes savings banks as well.

In addition to that, it includes savings and loans which can move into the area.

So you see how extensive the competition is and already Warren County has this situation.

There were two independent banks in Hackettstown.

There were two independent banks in Washington, one 12 miles away, the other about 22 miles away.

William O. Douglas:

What about the finance company which Judge Shaw places much emphasis on?

Robert B. Meyner:

Walmer Trupke (ph), one of the most outstanding experts who teaches at N.Y.U. Law School has been associated with the finance company points out the tremendous competition that they have.

I think in Philadelphia National, it was pointed out that the finance companies get most of their money from banks.

He says this is untrue to (Inaudible).

He says that they borrow it by notes on less than 270 days from the leading insurance and manufacturing companies for instance U.S. Steel maybe 80 days from now, we’ll have to make a tax payment, so they’ll buy some notes from one of the leading finance companies.

That is the way they got a good deal of their money and Walmer Trupke (ph) who is an expert here has testified said that only about 10% of the finance companies get their money from the banks.

Now, I’m talking about the finance there — three, two types of finance companies.

Robert B. Meyner:

There’s the finance company that takes care of inventory machinery and appliances something like GMAC, GAC, CIT and that type of outfit or the subsidiaries of General Electric and their appliances.

That’s the one face of it.

The other is the small loan companies which are at a very large outfit.

So you see, what I’m just going to say now about the Warren County situation we’re part of this seven county area.

They’re closing in on us and they’re closing in on us this one.

Shortly, after this suit was started, there was a merger between the Washington Bank in — the Hackettstown Bank, pardon me.

That was the Warren County National Bank.

That’s now being taken over by the largest bank in the state First National Bank, state bank, that’s all in the exhibit — intervenor’s exhibit 30.

So those two banks went into a merger.

They are going to be taken over by a bank holding company, the biggest bank in the State of New Jersey.

Then there’s the Washington Trust Company which is 12 miles away from Phillipsburg and which had a branch in Oxford and one in White Township and that’s being taken over by the National Newark and Essex Bank.

This is a bank with just about 14 to 15 million.

National Newark and Essex is about the third largest bank in the State of New Jersey operating over Newark.

The only other independent bank we now have in Hackettstown, that’s being taken over by the Peoples Trust Company at the Hackensack Bank which is about number five bank in the state of New Jersey.

Now, if you look at the intervenor’s exhibits, you will see very clearly that they allow this sort of thing just as say its vital right for the National and Newark Essex to come in and take the Washington Bank.

Under their method of approach, they probably say it’s alright, come and take one of the three banks in Phillipsburg.

Now, we in order to compete with Easton, Bethlehem and Allentown in order to compete with Huntington County National Bank, in order to compete in this first district, we must have a better management than we have.

Now, the record is replete with instances of what we need.

It’s been shown that we tried to do it.

Now, —

Hugo L. Black:

Has your bank ever lost any money during any year?

Robert B. Meyner:

No, I might say that that these two banks or three banks in Philipsburg survived the depression without closing more than the normal time.

But we have served the community.

That’s our chief — that’s our chief asset.

Hugo L. Black:

I understand that but I was wondering if they have ever lost any money to you or are they still making money every year?

Robert B. Meyner:

Well, I’m sure we lost some during the depression years, 1933, — 1932, 1933, 1934 and we had to right off things but we didn’t pay dividends for a long while, that’s true but in recent years, it’s hardly — there’s hardly a bank in the country that’s really lost any money and the moment you lose too much, it looks — you have FDIC looking over your shoulder, a receivership takes place and the depositors are paid off and we have strict supervision but we do have two banks that are designed primarily to take care of local people.

Now, we’ve had a testimony of William Greenly and we’ve had it of (Inaudible).

They’re high executives in the leading banks in Newark, some of the banks that are moving into this area and they were asked by a justice about participation and they said, “Well, you know things get tight here and we withdraw or we don’t want to be available.

And we are not interested unless you have a skillful — a skillful mortgage officer or a skillful, a C&I loan officer available to process the loan.”

So consequently there is this need, made by two directors of Phillipsburg Trust, need by an automobile dealer, 25 requests a year according (Inaudible), the vice president, about 17 according to Dolbert (ph), the second national officer.

Robert B. Meyner:

This is the need that we want to meet and we want to meet and we want to be a commercial bank.

This is the area that we want to serve and the record will show rather completely that the —

Hugo L. Black:

Have you ever thought about selling any stock?

Robert B. Meyner:

Oh!

Yes, as a matter of fact, we’re undercapitalized right now and —

Hugo L. Black:

What was that?

Robert B. Meyner:

We’re undercapitalized.

Our relationship of capital assets toward total assets is only about 5%, it should be near 10%.

Second National is about 7.5% to 8%.

It should be near 10% and one of the purposes of the merger was to bring these two banks together and float an issue.

Hugo L. Black:

At mergers.

I’m talking about did you ever think about doing it in a way that wouldn’t close up any banks, just get yourselves talk to people in addition to what you’ve sold?

It seemed to be done pretty well through the years.

Robert B. Meyner:

No we’re not.

Justice Black, we are not doing well in today’s line of commerce.

If you will read the Nattler and Walich, the modern day bankers and you read this testimony, there’s that great amount of change going on constantly and we realize that this change is going on.

I just want to give you a few illustrations that we have changed.

Hugo L. Black:

You propose to help it by merging and reduce the number of banks instead of increasing them.

Robert B. Meyner:

We are not closing any office.

There will be the same number of offices.

There will be better service to the customer in the sense that we can loan him more.

As a matter of fact, we have a real need for someone who understands mortgage loans.

A real definite need because you got multiple housing coming along.

You can no longer take care of it by single family dwellings.

The U.S. Savings Institutions came up to our town just about the time of the trial and just gave us $695,000.00 loan for a multiple dwelling.

Now this is the sort of thing that we should be taking care of.

The testimony of (Inaudible) shows that that was done and he testified.

So that we really are in a position —

Hugo L. Black:

Who made that loan?

Robert B. Meyner:

That was by the U.S. Savings Bank out of Newark and this is the stuff we should be taking care off.

Hugo L. Black:

They would have lost that business if you have done this.

Robert B. Meyner:

Pardon?

Hugo L. Black:

They would have lost that business if you have done this.

Robert B. Meyner:

That’s right and we would have been able to service the loan, a good deal better then they would from Newark.

Byron R. White:

Governor, when someone asks you for a loan that’s beyond your lending limit, do you normally attempt to get the participants?

Robert B. Meyner:

Oh yes, indeed.

As a matter of fact, our policy is to gather the other two banks or go across the river or go to the credential insurance company or go to other banks but —

Byron R. White:

Well, how often that do you have to turn customers away because you can’t get a participation certificate —

Robert B. Meyner:

Yes, Justice White, we have and we have testimony in here that some people who started business and automobile dealer, Mr. Whitman and another person who is in the chemical business couldn’t stay with us because they couldn’t wait for the time it took for us to process the papers and to get a participating loan.

Byron R. White:

Well, what could — these two banks who want to merge, what could they do by merger in the way of a loan they couldn’t do by participating each other’s loans?

Robert B. Meyner:

Well, they could keep the loan because we have loads of evidence.

The testimonies were —

Byron R. White:

Let’s say somebody wants $250,000.00 loan today and asked one of these two banks to make the loan, could that bank go to the other one and if the other bank agreed, couldn’t you make the loan?

Robert B. Meyner:

Yes, we could but the testimony is such.

Byron R. White:

You just don’t operate that way.

Robert B. Meyner:

Well, there’s loads of —

Byron R. White:

Because you’re competing.

Robert B. Meyner:

No, not because we are competing.

As a matter of fact Lopatcong, Pohactong, Alphaburg, and Phillipsburg have borrowed from Phillipsburg National because Phillipsburg National has gotten together with Second National and Phillipsburg Trust to service the community and they get a better loan and a better credit rating by that method if they had to rely on Newark or Hackensack or a Passaic or a Patterson bank.

This is the sort of thing we want to do.

This isn’t any manipulation.

Byron R. White:

No I understand — I understand that.

I understand what you want to do.

Do you have a larger correspondent bank you normally call on to participate with you?

Robert B. Meyner:

Yes, we correspond with two New York banks, Marine Midland and I think it has Manufacturer Hanover and —

Byron R. White:

And whenever you have involved (Voice Overlap)

Robert B. Meyner:

— and National Newark and Essex.

Byron R. White:

If you want to originate the big loan, the only thing is you end up on the tail end and they really manage it, don’t they?

Robert B. Meyner:

Well, and the follow Banking Code Justice White.

When things are tightened up so that they can take care of their large accounts, they tighten up on us and they don’t stay with us and they don’t stay with that customer and the customer doesn’t find it.

Warren E. Burger:

Their primary concern with the customers in their community not in your community?

Robert B. Meyner:

And — and with the larger customers, Your Honor.

Thurgood Marshall:

Governor, if you merge these two banks, you can give $100,000.00 but once they merge you can a make a loan of $200,000.00.

Robert B. Meyner:

Not only $200,000.00 Justice Marshall but maybe $300,000.00 or $400,000.00 because we must recapitalize and we’ve been delaying it as a result of this merger litigation.

Thurgood Marshall:

So you can make a loan of $400,000.00?

Robert B. Meyner:

That is correct Justice.

Thurgood Marshall:

Then you’ll come in five years later and say since you can make a loan of $600,000.00 you should be merged with one of the big banks you’re now talking about, wouldn’t that be logical?

Robert B. Meyner:

This is — Justice Marshall, this is what we are hoping to avoid.

I don’t know —

Thurgood Marshall:

But isn’t the argument just as logical?

That’s my trouble.

Robert B. Meyner:

But what you’re already — we have justice at this moment saying if someone wants a loan of $250,000.00 go on over to Easton or go on to Newark.

They’re — they’re anticompetitive in a sense.

They don’t let us compete with the area across the river.

They don’t let us compete in this standard metropolitan statistical area which was set up by the Bureau — it was set up by the Budget Bureau and it is the standard metropolitan statistical area and our statistics demonstrate, statistics in exhibit six, seven and eight show that this area has not had anywhere near the concentration that existed in the Nashville case.

It — it has the least concentration except one in some 49 cases.

Thank you.

Warren E. Burger:

Thank you Governor Meyner.

You have one minute left Mr. Friedman.

Daniel M. Friedman:

Mr. Chief Justice and may it please the Court.

In this minute, there are two points I would like to make.

One is a legal argument and the other is to give some statistics that the department has worked out as to the Comptroller’s record in approving the merger.

The legal point I’d like to make is just this.

The problems faced by these two banks are basically the same problems faced by most banks in the smaller communities.

The difficulty is they don’t have a large enough lending limit.

They have difficulty hiring people, now they’d like to expand and we don’t think the statute contemplates that the way to solve these problems is by combining two successful banks that are directly competing with each other.

There are other ways available to these banks.

The one thing they can increase their capitalization.

The record shows that in nine —

Byron R. White:

Or they can get bought by bigger bank outside?

Daniel M. Friedman:

Well, if they get bought by a bigger bank, Mr. Justice, you’re not eliminating competition between them even —

Byron R. White:

And the department would prefer that.

Daniel M. Friedman:

I think the department would Mr. Justice if it’s just a small bank.

Byron R. White:

They rather have a Philadelphia and the big Philadelphia Bank owning one of these banks or both of these banks with that manner, right?

Daniel M. Friedman:

Well, I don’t know Mr. Justice but it seems to me, they are very different situation because even if a New York — it have to be a New York banks that sits in New Jersey but if the two — but if the New York bank purchased one of these banks, you still have three competing banks in the area.

Under this merger, you have only two competing banks in the Phillipsburg area.

The purchase of one of these banks, by a bank, a big bank from outside the area does not eliminate —

Warren E. Burger:

But you’ll have five — you’ll have five in this community?

Daniel M. Friedman:

You reduce the number in this community by this merger from seven to six.

Warren E. Burger:

Seven to six.

Daniel M. Friedman:

And in the Phillipsburg area you reduce it from three to two and that is it seems to us is a very different situation in continuing the number of banks at seven but allowing one of the banks to be operated, owned by a bank —

Warren E. Burger:

That two to one would carry a lot more weight with me if you were saying that this law was in Tulsa, Oklahoma and the other was in Oklahoma City but here you have one — it doesn’t rate metropolitan — you have one community separated by a river.

So you got seven banks and you will be cut down to six.

Daniel M. Friedman:

Cut down to six but we think with an already concentrated market and with the fact that while you have one community of seven, the indication is that the major focus of banking is in each community, we think that the elimination of this number and it significantly increasing concentration, isn’t it.

Now if I might Mr. Chief Justice because of the questions raised, could I permissibly just indicate some of the statistics —

Warren E. Burger:

Couldn’t you submit those because your friends are going to submit some other things.

If I may Mr. Chief Justice, I just like the — just the summary, if we may.

Daniel M. Friedman:

The summary of the statistics we have is when we will submit.

Warren E. Burger:

Would you submit them also?

Daniel M. Friedman:

Yes we will submit a letter and we’ll have to check the statistics but the preliminary information we have is that in the years 1967 and 1968, in each of those years, the Comptroller approved approximately 88 mergers.

These are all statistics and we think that the figures roughly approximate.

In 1967, he disapproved one and approved 88.

In 1968 he disapproved any and in 1969, we have figures roughly more than 100 as far as we can show they are no denials.

This is our rough figures which we had —

Byron R. White:

But this is after — was this — this was after — this doesn’t reach the point of the mergers which might have been discouraged.

Daniel M. Friedman:

No, no, these are ones that were presented to the Comptroller when we have it.

I don’t know if there was a hearing in all cases.

I was trying —

Byron R. White:

Or at least there was a formal application and a filing of rejection.

Daniel M. Friedman:

There was a formal application and these do not cover mergers where the application was withdrawn after.

Daniel M. Friedman:

Well, these are just application in which he acted and we will supplement this and try to obtain as accurate figures as we can.

Thank you.

Warren E. Burger:

Thank you, Mr. Friedman.

Thank you gentlemen.

The case is submitted.