The opinion of the court was delivered by: SHAW
This action is brought by the United States pursuant to Section 15 of the Clayton Act (15 U.S.C. § 25) to restrain a proposed merger of the defendant banks which, if consummated, is alleged to be a violation of Section 7 of the Act (15 U.S.C. § 18). Phillipsburg National Bank and Trust Company (PNB) and The Second National Bank of Phillipsburg (SNB) have entered into an agreement to merge. The merger has been approved by the Comptroller of the Currency who, by leave of Court, has intervened in this action in support of the proposed merger.
The principal office of each bank is located in the City of Phillipsburg, New Jersey, and each is engaged in interstate commerce. PNB operates two branch offices, one in the Borough of Alpha, New Jersey, and the other in Lopatcong, New Jersey. SNB operates one branch office in the City of Phillipsburg.
Section 7 of the Clayton Act is applicable to bank mergers. U.S. v. Philadelphia National Bank, 374 U.S. 321, 335-349, 10 L. Ed. 2d 915, 83 S. Ct. 1715 (1963). The question presented under Section 7 of the Clayton Act is whether the effect of the merger "may be substantially to lessen competition" within the product market where the defendant banks operate. If the answer is in the affirmative, the merger must be restrained unless it is shown "that the anticompetitive effects . . . 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 burden of proof rests upon plaintiff to establish by a preponderance of the evidence the likelihood that competition may be substantially lessened in the relevant product market if the merger is permitted. If the probability of such effect in the relevant product market is established, the burden of proof then rests upon the defendants and the intervenor to establish by a preponderance of evidence that any anticompetitive effects are clearly outweighed in the public interest by the service the resultant bank can offer in serving the convenience and needs of the community. Evaluation of effect upon competition that may result from the merger requires examination of the line of commerce involved and the appropriate geographic product market in which the banks are competitive.
Commercial banking has been identified as a line of commerce in the banking industry. Philadelphia National Bank, supra. See also U.S. v. Third National Bank of Nashville, 390 U.S. 171, 19 L. Ed. 2d 1015, 88 S. Ct. 882 (1968); U.S. v. First National Bank and Trust Co. of Lexington, 376 U.S. 665, 12 L. Ed. 2d 1, 84 S. Ct. 1033 (1964). The Supreme Court in Philadelphia stated:
While the term "commercial banking" may be used as a general description of a line of commerce in bank merger cases, a detailed analysis of all of the competitive banking services offered to the public by the merging banks is necessary in each case. Areas of substantial and effective competition in the market in which the merging banks operate are not necessarily the same in each case. As the Supreme Court noted in Philadelphia, supra, "Some commercial banking products or services are so distinctive that they are entirely free of effective competition from products or services of other financial institutions; the checking account is in this category." Id. at 356. To the extent that a bank offers substantial banking services in effective competition with other banks and other financial institutions, the effect of a merger upon such competition, regardless of the source, must be considered. It is the line of commerce consisting of products and services offered which must be examined.
This requires a comparison of the products and services offered by competing banks and other financial institutions operating in the market so that the areas of distinct and effective competition may be delineated. Where, for instance, the competition is not substantial or effective, that circumstance is a factor to be weighed in the evaluation of probable lessening of competition. But, on the other hand, where a bank is rendering a substantial banking service in effective competition with competing banks and other financial institutions, the effect of a lessening of present or imminently potential competition cannot be ignored in giving effect to Section 7 of the Clayton Act. In this case it seems from the record before the Court that in many of the banking services offered by the defendant banks there is very virulent and widespread competition from other banks and other financial institutions. The merger would have no substantial anticompetitive effect upon such services. The most significant of these services may be classified as time and savings deposits, conventional real estate loans, and financing of automobiles, appliances and business equipment. The demand deposit or checking account is a distinct commercial banking service free from competition except in the banking industry. In a lesser degree the same is true of short- and long-term commercial and industrial loans. Trust services offered are so insignificant that defendant banks cannot be presently considered as competitive in that field.
Comparatively speaking PNB and SNB rank in terms of assets and deposits among the small banks in the nation. PNB has total assets of $23,861,000 and SNB has assets of $17,255,000. The total assets of the resultant bank after merger would be $41,116,000. The total deposits in the merged banks would be $25,345,000. The lending limit on a single loan of PNB is $120,326. The lending limit of SNB on a single loan is $131,468. The lending limit of the resultant bank after merger could be expected to approach $250,000.
Nevins Dennis Baxter, an eminently qualified economist, stated:
Well, they are fairly small commercial banks which are located in Phillipsburg, and do a business in which they compete with a large number of financial institutions. They are largely concerned with the borrowing or receiving of and lending money, and the activities of these banks really make them much more, in my ...