399 U.S. 350 (1970), 1093, United States v. Phillipsburg National Bank & Trust Co.

Docket Nº:No. 1093
Citation:399 U.S. 350, 90 S.Ct. 2035, 26 L.Ed.2d 658
Party Name:United States v. Phillipsburg National Bank & Trust Co.
Case Date:June 29, 1970
Court:United States Supreme Court

Page 350

399 U.S. 350 (1970)

90 S.Ct. 2035, 26 L.Ed.2d 658

United States


Phillipsburg National Bank & Trust Co.

No. 1093

United States Supreme Court

June 29, 1970

Argued April 28, 1970




Phillipsburg National Bank (PNB) and Second National Bank (SNB) are the two largest of the three commercial banks in Phillipsburg, New Jersey, whose 1960 population (including suburbs) was 28,500. Easton, Pennsylvania, across the river, whose 1960 population (including suburbs) was 60,000, has four commercial banks. The proposed merger of PNB and SNB, direct competitors, would produce a bank with assets of more than $41,100,000, placing it second among the six banks remaining in the Phillipsburg-Easton area, and would give the two largest banks in the area 54.8% of the banking assets, 64.8% of total deposits, 63% of total loans, and 10 of the 16 banking offices. PNB and SNB are oriented toward the needs of small depositors and small borrowers in the Phillipsburg-Easton area, as over 90% of their depositors and about 80% of their borrowers reside there, with the vast majority residing in Phillipsburg. Despite the views of the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Attorney General that the proposed merger involved commercial banking in Phillipsburg-Easton and that the merger would significantly harm competition in that area, the Comptroller of the Currency, pursuant to the Bank Merger Act, approved the merger, treating most of the Lehigh Valley as the geographic area, and evaluating competition from finance companies, savings and loan institutions, and the more than 30 commercial banks in that area. The District Court rejected Phillipsburg-Easton as the geographic area and selected an area about four times as large, with a 1960 population of 216,000 and 18 banks. Although, in its actual analysis of competitive effect, that court looked to commercial banking as the relevant product market, it emphasized competition between PNB-SNB and other types of financial institutions, and stated that PNB-SNB's activities "really make them much more . . . like savings institutions than like so many of the larger commercial banks." The District Court held that the United States had not established that the merger would have any anticompetitive effect, and that, even if

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there were de minimis anticompetitive effect in the Government's narrowly drawn market, such effect would be clearly outweighed by the convenience and needs of the community.


1. Commercial banking is the relevant product market. Pp. 359-362.

(a) It is the cluster of products and services offered by full-service banks that makes commercial banking a distinct line of commerce. United States v. Philadelphia National Bank, 374 U.S. 321. Pp. 359-360.

(b) While submarkets such as the District Court defined would be relevant in analyzing the effect on competition between a commercial bank and another type of financial institution, they cannot be the basis for disregarding the broader line of commerce that has economic significance, with respect to small as well as large banks. Pp. 360-362.

2. The Phillipsburg-Easton area is the relevant geographic market. Pp. 362-365.

(a) Commercial realities in the banking industry make clear that banks generally have a very localized business, and such localization is particularly pronounced when small customers are involved. Pp. 362-364.

(b) The area is a geographic market in which the merger's effect would be "direct and immediate," and where the merging banks' customers must, or will, do their banking. Pp. 364-365.

(c) The area, with a 1960 population of nearly 90,000, and with seven competing banks, is a market that is clearly an economically significant section of the country for the purposes of § 7 of the Clayton Act. P. 365.

3. On the record in this case the proposed merger would be "inherently likely to lessen competition substantially." Pp. 365-369.

4. The District Court's errors require reexamination of its conclusion under the Bank Merger Act that any anticompetitive effects of the merger would be outweighed by the merger's contribution to the community's convenience and needs. Such reexamination must be in terms of the Phillipsburg-Easton area as a whole, and should specifically explore alternative methods of serving the convenience and needs of the area, and consider whether the merger will benefit all banking customers, small and large, in the community. Pp. 369-372.

306 F.Supp. 645, reversed and remanded.

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BRENNAN, J., lead opinion

[90 S.Ct. 2038] MR. JUSTICE BRENNAN delivered the opinion of the Court.

This direct appeal under the Expediting Act, 15 U.S.C. § 29, is taken by the United States from a judgment of the District Court for the District of New Jersey dismissing, after full hearing, the Government's complaint seeking to enjoin as a violation of § 7 of the Clayton Act, 15 U.S.C. § 18,1 the proposed merger of appellees, Phillipsburg National Bank and Trust Co. (PNB) and the Second National Bank of Phillipsburg (SNB), both located in Phillipsburg, New Jersey. The Comptroller of the Currency, also an appellee here, approved the merger in December, 1967, and intervened in this action to defend it, as he was authorized to do by the Bank Merger Act of 1966, 12 U.S.C. § 1828(c)(7)(D)

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(1964 ed., Supp. V).2 The Bank Merger Act required that the District Court engage in a two-step process, United States v. First City National Bank of Houston, 386 U.S. 361 (1967); United States v. Third National Bank in Nashville, 390 U.S. 171 (1968), the first of which was to decide whether the merger would violate the antitrust prohibitions of § 7 of the Clayton Act. If the court found that § 7 would be violated, then the Bank Merger Act required that the District Court decide whether

the anticompetitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served.

12 U.S.C. § 1828(c)(5)(b). The District Court found that the United States

failed to establish by a preponderance of the evidence that the proposed merger would have any anticompetitive effect and, further, 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 to be served by the merged bank.

306 F.Supp. 645, 667 (1969). We noted probable jurisdiction. 397 U.S. 933 (1970). We reverse. We have concluded from our examination of the record that the District Court erred in its definitions of the relevant product and geographic markets, and that these errors invalidate the court's determination that the merger would have no significant anticompetitive effects.



Phillipsburg is a small industrial city on the Delaware River in the southwestern corner of Warren County,

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New Jersey. Its population was 18,500 in 1960, 28,500 counting the population of its bordering suburbs. Although the population of the suburbs is and has been increasing, Phillipsburg itself has not grown. Easton, Pennsylvania, lies directly across the river. It had a population of 32,000 in 1960, 60,000 counting its bordering suburbs. Its population growth pattern has paralleled that of Phillipsburg. The cities are linked by two bridges, and the testimony was that they are, "in effect . . . , one town."

[90 S.Ct. 2039] This "one town" has seven commercial banks, four in Easton and three in Phillipsburg. PNB and SNB are, respectively, the third and fifth largest in overall banking business. All seven fall within the category of small banks, their assets in 1967 ranging from $13,200,000 to $75,600,000.3 PNB, with assets then of approximately $23,900,000, and SNB, with assets of approximately $17,300,000, are the first and second largest of the three Phillipsburg banks. The merger would produce a bank with assets of over $41,100,000, second in size of the six remaining commercial banks in "one town."

PNB and SNB are direct competitors. Their main offices are opposite one another on the same downtown street. SNB's only branch is across a suburban highway from one of PNB's two branches. Both banks offer the wide range of services and products available at commercial banks, including, for instance, demand deposits,

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savings and time deposits, consumer loans, commercial and industrial loans, real estate mortgages, trust services, safe deposit boxes, and escrow services. As is characteristic of banks of their size operating in small communities, PNB and SNB have less of their assets in commercial and industrial loans than do larger banks. They emphasize real estate loans and mortgages, and they have relatively more time and savings deposits than demand deposits. Similarly, their trust assets are quite small. In short, both banks are oriented toward the needs of small depositors and small borrowers. Thus, in 1967, 75% of PNB's number of deposits and 73% of SNB's were $1,000 or less; 98% of PNB's number of deposits and 97% of SNB's were $10,000 or less. Similarly, 75% of PNB's number of loan accounts and 59% of SNB's were $2,500 or less, and 93% and 87%, respectively, were $10,000 or less.

Both banks serve predominantly Phillipsburg residents. In 1967, although 91.6% of PNB's and 92% of SNB's depositors were residents of "one town," only 5.3% of PNB's and 9 % of SNB's depositors lived in Easton. And, although 78.6% of PNB's and 87.2% of [90 S.Ct. 2040] SNB's number of loans were made to residents of "one town," only...

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