# Appendix — United States v. Connecticut Nat. Bank > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386414_0340%3A03 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1974 - **Citation:** 418 U.S. 656 ## Text * ; Tae CONNECTICUT NATIONAL BANK, THe First NEW HAVEN NATIONAL BANK, AND JAMES E. Surrn, CompP- TROLLER OF THE CURRENCY oN APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF INDEX Relevant Docket Entries Complaint by the United States filed August 23, 1971 8 Answer of The Connecticut National Bank and The First New Haven National Bank filed September 18, 1971 3 Order filed October 20, 1971 granting the motion of the Comptroller of the Currency to intervene * Intervenor’s Answer filed November 22, 1971 Plaintiff's Answer to Defendants’ Interrogatory No. 18 — udge of Connecticut, commencing October 10, 1972: Appearances [2] Testimony of Frederick Glantz —direct—[43] —cross—[83] —redirect—[123] Transcript of Proceedings held before the Hon. Robert C. Appearances [132] Testimony of Neil B. Murphy r nanguniarsinonioeeiinensinieesansienies —cross—[208] Transcript of held before the Hon. Robert C. of Connecticut, on October 12, 1972: — SI ——— ——— Testimony of Neil B. Murphy (continued) —cross—[281] Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on October 17, 1972: Appearances [429] Testimony of Neil B. Murphy (continued) —cross—[430] —redirect—[547] Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on October 19, 1972: 109 112 156 198 199 INDEX Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on October 20, 1972: Appearances [713] 455 Testimony of Jack C. Myles —direct—[716] 457 —cross—[746] 475 —redirect—[765] 487 Testimony of Alexander Hawley (continued) —cross—[773] 492 Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on October 25, 1972: Appearances [813] 515 Testimony of Alexander Hawley (continued) direct [868] 549 —voir dire—[872] 552 —direct—[879] 555 Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on October 26, 1972: Appearances [935] 588 Testimony of Charles J. Stokes (continued) —direct—[936] 589 —cross—[1013] 633 Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on October 27, 1972: Appearances [1124] 699 Testimony of Charles J. Stokes (continued) —cross—[1141] 709 —redirect—[1199] iv INDEX of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on October 31, 19722 Appearances [1218] Appearances [13852] ...... a Testimony of Merton J. Peck (continued) —cross—[1853]} —redirect—[1422] Testimony of Frank G. Chadwick —direct—[1430] —cross—[1479] Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on November 2, 1972: Appearances [1511] Testimony of William S. Krafchik —direct—[1512] —cross—[1583] —redirect—[1626] Testimony of Carl B. Adolphson —direct—[1638] —cross—[ 1643] —redirect—[1658] Testimony of James J. Terzakis —direct—[1666] Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the D of Connecticut, on November 7, 1972: Appearances [1679] i Beez 3 wo — E 1031 INDEX of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, On November 7, 1972:—Continued Testimony of James J. Terzakis (continued) —direct—[1680] 1032 —cross—[1700] 1043 Testimony of Paul H. Johnson —direct—[1737] 1065 —cross—[{1750] 1073 Testimony of Thornton B. Morris —direct—[1757] 1077 —cross—[1767] 1083 Testimony of John L. Donovan —direct—[1784] 1092 Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on November 8, 1972: Appearances [1836] 1123 Testimony of Thomas F. Richardson —direct—[1865] 1139 —cross—[1881] 1149 Testimony of John L. Donovan (continued) —direct—[1904] 1163 —cross—[1928] 1177 Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on November 9, 1972: Appearances [1999] 1218 Testimony of John L. Donovan (continued) —cross—[2000] 1219 —redirect—[2021] 1231 —recross—([2024] 1233 Testimony of Robert J. Blinken —direct—[2037] 1241 —cross—[2043] 1245 Testimony of James H. Gilbert —direct—[2059] 1254 —cross—[2067] vi INDEX. i Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on November 9, 1972 :—Continued Testimony of William Schmiedel —direct—[2071] —cross—[ Testimony of Virgil DeChant —direct—([2090] —cross—[2099] Testimony of Leon J. Simkins —direct—[2110] —cross—([2116] Testimony of Frederick M. Robison —direct—[2122] —cross—[2128] of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on November 15, 1972: BE 88 SF 82 Appearances [2144] 1306 Testimony of James E. Hagen f direct — [2147 1308 —cross—[2164] 1319 —redirect—[2169] 1821 —recross—[2169] 1821 Testimony of Michael F. Fountain —direct—([2173] 1824 —cross—[2177] 1827 Testimony of Peter Stassa, Jr. —direct— [2224] 1352 —cross—[2238] 1860 —redirect—[2253] 1869 Stipulation of November 8, 1972, concerning business solici- tation in Connecticut by representatives of New York city banks 1873 of Proceedings held before the Hon’ Robert C. Zampano, United States District Judge for the District of Connecticut, on February 26, 1973: Appearances [2] 1876 Proceedings [3] INDEX viii INDEX Government Exhibits :—Continued GX-49 GX-50 GX-51 GX-52 Page 1995 2008 2004 2004a 2010 2016 2017 2018 2019 2020 2021 2022 2028 2024 2025 2026 2027 2028 2029 2030 2081 2082 2038 2034 2085 2086 2087 2202 2208 2204 2205 2206 2207 2208 2209 2226 2227 2228 2230 2231 2232 2233 2234 2235 2236 2237 INDEX Defendants’ Exhibits :—Continued DX-48 Dx-49 DX-50 DX-41 DX-62 DX-53 DX-64 DX-55 DX-56 DX-58 DX-69 DX-60 DX-61 DX-62 DX-63 DX-64 DX-65 DX-66 DX-67 DX-68 DX-69 DX-70 DX-71 DX-72 DX-73 DX-74 DX-75 DX-76 DX-77 DX-78 DX-79 DX-80 DX-81 DX-82 DX-83 DX-84 DX-85 - DX-86 DX-87 DX-88 DX-89 DX-90 DX-91 DX-92 DX-93 DX-94 Judgment of the district court dated July 16, 1973 Notice of Appeal to the Supreme Court by the United States dated September 12, 1978 Order of the Supreme Court noting probable jurisdiction, dated January 7, 1974 1081 [1678] IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT Civil Action No. 14,583 UNITED STATES OF AMERICA, PLAINTIFF vs. THE CONNECTICUT NATIONAL BANK and THE First NRW HAVEN NATIONAL BANK, DEFENDANTS and WILLIAM B. CAMP, COMPTROLLER OF THE CURRENCY, INTERVENOR United States Court House 915 Lafayette Boulevard Bridgeport, Connecticut November 7, 1972 Before: Hon. ROBERT C. ZAMPANO, U. S. D. J. 116791 Appearances: DEPARTMENT OF JUSTICE Antitrust Division Washington, D.C. BY: JOHN W. CLARK, Trial Attorney FRANK N. BENTKOVER, Trial Attorney KELLY V. REA, Trial Attorney Messrs. CADWALADER, WICKERSHAM & TAFT One Wall Street New York, New York By: GEORGE D. REYCRAFT, Esq. JOHN BOYER, Esq. HAVEN ROOSEVELT, Esq. 1082 Messrs. PULLMAN, COMLEY, BRADLEY & REEVES 855 Main Street Bridgeport, Connecticut By: HUNTLEY STONE, Esq. GROVE W. STODDARD, Esq. Messrs. GUMBART, CORBIN, TYLER & COOPER 205 Church Street New Haven, Connecticut By: RICHARD G. BELL, Esq. UNITED STATES TREASURY DEPARTMENT 15th and Pennsylvania Avenue, N.W. Washington, D.C. By: CHARLES H. McENERNEY, JR., Trial At- torney FORD BARRETT, Trial Attorney ear THE COURT: Are the parties ready to pro- ? MR. REYCRAFT: Yes, your Honor. James Terzakis. JAMES TERZAKIS, having been previous duly sworn, resumed the stand and testified further as follows: DIRECT EXAMINATION CONTINUED BY MR. REYCRAFT: Q Mr. Terzakis, following your testimony of last week, did you prepare an exhibit concerning the pro forma di- vestiture of First New Haven’s Darby and CNB’s Orange and Milford offices? A Les, I did. I show you— MR. REYCRAFT: Let me have marked for identifica- tion as Defendants’ Exhibit No. 71— 73— Q Ishow you Defendants’ Exhibit 73 for identification and ask you to describe that exhibit? A What we did on this exhibit was—similar to the original pro forma divestiture which included all six of- fices but in this case, we added in the branch data from or 1. of total dollars there, a net increase of. 30% in terms of number of accounts. . Terzakis, do you have with you statements of ay 2 r Q —CB&T and Hartford National Bank? Referring— THE COURT: I’m sorry, I’m still on this 78. Would THE WITNESS: Yes, sir. The original exhibit, your Honor, was for the divestiture of six offices—this was last Thursday’s i ‘ THE COURT: Right. THE WITNESS: —giving the pro forma divestiture of six offices, three of First New Haven and three of Con- necticut National. This is a new exhibit which was prepared over the weekend which shows, at your request, what the pro forma divestiture would look like for just the [1682] three con- tracted branch offices. THE COURT: All right. Now, what do the—for ex- ample, column number of accounts, 11,942, what does that mean? THE WITNESS: Well, that’s the actual data that we had from Connecticut National Bank office towns for those towns in New Haven County and Fairfield County where they have offices. THE COURT: But I mean, what does it mean? Does that mean 11,942 accounts will be— THE WITNESS: No, sir, that’s the number of ac- counts we had actually in our bank. That’s the actual data, and then on the right-hand side it shows what it would look like with the divested three branches. MR. REYCRAFT: These are accounts, your Honor, of the First New Haven National Bank which are from That is: 11,942. THE COURT: So, that the divestiture means that they will have 1,040 accounts less after the divestiture? THE WITNESS: That’s the net of what we would have after the divestiture. [1688] MR. REYCRAFT: Over 10,000 less. THE WITNESS: 10,000 less. Q What percentage of accounts of First New Haven would remain in Connecticut National Bank office towns 11 8 5 : : i F you have a copy of D-74? cut National and CBT, but not I have Connecti Second New Haven. 5 Eas E 23355 281JI 13411 A That is correct, Mr. Reycraft. Mr. Terzakis, do of overlapping accounts? 1036 Q Just a moment, please. MR. REYCRAFT: Will you mark as Defendants’ Ex- hibit No. 75 a document headed: Hartford National [1686] Corporation Interim Report and Dividend Notice, September 30, 1972. 116871 BY MR. REYCRAFT: Q Mr. Terzakis, referring to D-75, which is the Hart- ford National exhibit, what does it show concerning the change in the past year? A Well, in a similar vein, this shows that Hartford National Corporation increased their total assets from one million—1,289,000,000 to 1,485,000,000, or a net crease of approximately $196,000,000. And I think point that has to be made regarding each of these is that that increase in total assets is almost the of the tenth largest commercial bank in the State of necticut, which is Second New Haven Bank, with assets of 219,000,000. And that’s just a one-year increase. This is typical of how these two large Hartford banks have been increasing, anywhere from a hundred to two hundred million in assets each year. MR. REYCRAFT: Will you mark as Defendants’ Ex- hibit No. 76 a statement of condition dated September 30, 1972, for the Second New Haven Bank. THE COURT: On both these exhibits I notice in writ- ing—for example, on 74 it says “Plus 183 MM,” and then on 75 “Plus 196 MM.” Did you write that in? THE WITNESS: Yes, I did. 11688] THE COURT: What does that mean? THE WITNESS: I might— A (Continuing) Mr. Reycraft, 1961 CBT was a $507,000,000 bank and Hartford Na- tional was a $514,000,000 bank, so i creased their assets almost threefold in about eleven twelve years. be; 8 E = 1037 Q Mr. Terzakis, are you familiar generally with the profitability of First New Haven National Bank’s branches? A Les, sir, I am. Q What has been the experience of First New Haven National Bank in the profit potention of opening new branches and the profitability of existing branches? A Well, in 1971, year end, regarding our 22 offices, we had a total of nine offices that were still showing losses, and these nine offices aggregated some $525,000 in losses. The other offices were profitable to varying de- Has First New Haven established any inner city branches knowing that they might not be profitable? [1689] A Yes, sir, they have. Within the context, I nue office but in the City of New Haven. Q What were the circumstances under which those two offices were established? A Well, in the case of the Dixwell Plaza office, you perhaps recall that in 1967 and 1968 New Haven was— had undergone some civic disorders, and our board of di- rectors was extremely interested in locating a branch in the Dixwell Avenue area, and they had directed our senior management to research for the possibility of plac- ing a branch in the Dixwell Avenue area. We—I con- ducted that research, and we had decided to place a branch there to serve the Black community more di- Now, in the Dixwell Avenue area at that time there were approximately 75 percent of the population was composed of Black residents. In the Howard Avenue section, which is also an inner city area, we had approxi- mately one-third of the residents were either Spanish- speaking or Black. And we have placed branches in both those locations. 11690] I think that the directors’ thinking on this was 1038 11 of New Haven, in your sary to establish a possible. is that—first of all, let me is of a CBD. This is from the very high land valuation, an area tration of retail require that the CBD ordinarily should census tract lines. of New Haven, the CBD is defined as that downtown area encompassed within the boundaries 2 1039 of the Oak Street Connecter, York, High, Chapel, Church, and Olive Streets, so it’s a fairly concentrated area. It does not extend out, for example, out to Whalley Ave- eee oe aes et at oe eee ee Se headquarters of a large number corporations; for example, the Southern New Telephone Com- pany, the UI Company, the New Haven Water A the ts of Columbus. [1692] These are all located Q Mr. Terzakis, did you participate in the prepara- tion of a memorandum with the heading “We Have A Q Can you tell me the circumstances under which W um was prepared? es, sir. Mr. Johnson, who is now president of the Connecticut Savings Bank, was, about the period of 1966 1969, working with me as a vice-president for the First New Haven Bank, and, in addition to his other duties, his principal duty was to work with architects and con- tractors in the construction of new branches. Our rela- tionship was close, because I was recommending new 1040 locations, and when these were approved by the Comp troller of the Currency he would in fact pick it up from there to establish these branches. We were both quite concerned at that time about the rapidly accelerating cost of branches, and, for example, costs were going up, for example, in construction costs about 10 percent a year, and this was pretty steady through that three- or four-year period. It’s still going on now. Land acquisition costs were rapidly rising, building material costs were going up about 10 percent a year, and I felt that—we both felt that we would be priced right out of the branch banking markets. So I thought, well, how can we overcome this, and I thought about the mini branch concept, which, in effect, really is, instead of building a, say, three- or four- [1694] thousand-square-foot branch building, we built, say, an eight- or nine-hundred or a thousand square foot building. His thinking ran along the same lines as mine. We also were wondering at that time—we used to have discussions—how we might be able to help the bank grow. Our management constantly sugges- tions from its official staff and its employees. And oddly enough I think we were both thinking about the same thing. We were thinking, for example, how could we get into closed towns, and in relation to what the banking laws were at that time. He said, “Why don’t you put that into a memo and let’s take a look at it, and I will compare it against my thoughts,” meaning Mr. Johnson’s. I did this, and follow- ing some additions and some deletions, we submitted it to the senior management for their perusal. I had emphasized to Mr. Johnson that I did not want to get involved in an in-depth study of this whole question until I had a way of testing management’s reaction to this memo, so that’s—the memo, as it appears in the ex- hibit, is the way it was finally given to senior manage- ment. Q Un that general memorandum, did you give any con- sideration to the personnel requirements? A No, sir, I did not. 116951 Q Or the capital requirements? 1041 No, sir. Or regulatory problems? No, sir. 0, Or bank security? No, sir. I knew that they existed. Pardon me? I knew that these were problems that existed. Page 8 of your memorandum contains a sentence, “What are some of the problems,” and you list personnel, money, incorporators, regulatory obstacles, bank security and operations? A Yes. I recognized that these were problems, but there was no in-depth analysis of how many people would be required, for example. Q Did your management ever take any action on this memorandum? A No, sir, they did not. And I think that manage- ment’s principal concern was the legal barrier. MR. REA: Your Honor, I object unless it can be shown he is aware of what management’s decisions were. As I understand, he has not been a part of management, nor has he attended board of directors meetings. [1696] THE WITNESS: Can I clarify that? THE COURT: Let Mr. Reycraft do it. BY MR. REYCRAFT: Q Mr. Terzakis, did you have any opportunity, fol- lowing the submission of this memorandum, to discuss it with any member of the management of First New Haven National Bank? A Yes, sir. Q With whom? A Mr. Johnson and I had one meeting with Mr. Chad- wick and I believe Mr. Hooker, and we discussed this in detail. They had an opportunity to read it, and, as I say, their principal concern was the legal barrier, among other problems. Q Were there any other meetings in which you par- ticipated with senior management? A There were no other meetings with senior ment, and I believe I recall Mr. Chadwick testifying that OPO pO pO p 1042 it was never submitted to the board of directors or to 9 Lees, of the e e 3 you have any personal know any other meetings or discussions concerning this memorandum in the bank? A Not this particular memorandum. There were none. 116971 I might also add, Mr. Reycraft, that this was solely our own thinking. It was not a charge from man- agement that we produce this memo. It was one of our ideas, and we submitted it as a suggestion. Q Mr. Terzakis, I believe you have heard testimony concerning the need for a larger lending limit. Can you think of any other reasons where a larger limit would be beneficial to various groups of customers? A Yes, sir. Perhaps you recall that Mr. Hawley of Connecticut Na- tional Bank had mentioned that with their corporate cus- tomers, when they have approved credit lines for their customers and if this line is not being used, they require a 10 percent compensating balance, and in the case of where it is being used it’s 15 percent. Well, in our case it is 10 percent for a nonused credit line and 15 to 20 percent if the line is used. This is ne- gotiable depending on how—how badly you want the ac- count and how profitable we think it will be. So that if we—for example, the legal limit which—our legal limit is 2.4 million—were doubled approximately— let’s, for the sake of example, say it was five million for the consolidated bank; this would mean that the 10 and 15 percent requirements would also be [1698] doubled. The percentages stay the same but the dollars increase. What this would mean would be also that we could better serve these corporate customers. It would also mean that the ones who are presently going out of state to the major money market banks for their loan commit- ments—some of that money would be repatriated. Now, in fact of repatriating this money, just want to emphasize that that money originally belonged here in Connecticut. It was generated here in Connecticut, and we wanted to bring it back, and with a larger lending 1043 limit we could bring back some of those dollars, which, in turn, could be reinvested in new plant and equipment. This would mean added jobs for the local residents; it would mean higher disposable personal income, increased retail sales. It would boost the local economies consider- ably. The other thing it would do is that—say, for example, in the case of the 10 percent line, where it’s not being used, those balances would be doubled in terms of dol- lars. All of these dollars would also be available for loans and installment loans to families and indi- viduals. So in that sense it helps not only corporations but also the local people in the community. [1699] MR. REY CRAFT: I have no further questions. THE COURT: Mr. McEnerney? MR. McENERNEY: Nothing. THE COURT: Cross-examination. 11700] CROSS EXAMINATION BY MR. REA: Q Mr. Terzakis, on direct you referred to a number of defendants’ exhibits which compared the business which First New Haven derives from Connecticut National Bank’s towns— A Office towns. Q —office towns—and you then—the second column over, I believe, on those charts indicated what the per- centage of business would be including the divestiture, both of the six and three banks, is that correct? A That’s correct. Q And did you assume when drawing up these—this divestiture column, that all of the accounts presently held by offices to be divested would, in effect, be trans- ferred to some other bank or banks? A Yes, sir. Q Last Thursday you testified on the Defendants’ Ex- hibit 71 and 72, I believe you noted at that time that on those two exhibits there were, I believe, ten national bank charters that were disapproved and ten state bank 1044 charters that were disapproved. Do you recall that tes- timony, Mr. Terzakis? A Yes, sir, I do. Q Do you have those documents before you? A I believe I do. [1701] Q Are you aware of the reasons which could be applied to deny the approval of a bank charter, both na- tional and state? A Are you asking whether the regulatory authorities tell us the reasons? Q Well, are you aware generally of the type of analy- sis that the regulatory agents perform when they are evaluating a new bank charter? A Basically, yes. They investigate very thoroughly the background of the proposed incorporators, they inves- tigate the community, its economic growth prospects, where this new bank presumably would be located, and usually what they say in the case of the state Bank Com- missioner, he says something to the effect that he feels that thera are no reasonable prospects for a profitable operation of a new bank. In fact, when he turns them down, and if he feels the opposite, then, he normally would approve it. Q In other words, does he issue a general statement —4 would subsume in its conclusions a variety of fac- tors A A very general statement, and it doesn’t get into too much detail. Q And would it be your understanding, then, a state or national regulatory could deny a charter if he found the incorporators to be unqualified or inexperienced or without certain level of character? 117021 A Yes, sir. I think—I think—and I can’t say for sure on this—but I think that when they investigate an incorporator’s background, they want to be sure he is of impeccable reputation of the highest integrity. Q And would they apply the same standards to other potential bank owners, bank management? A I believe so. And if they found the same qualifications lacking in those people, could they condition a denial on those facts? 1045 A They probably would, yes. Q Do they also take into account the future earning A Yes, sir. Q The bank would be applying for a charter? A Yes, sir. they got about this, and I have never filed one for any- body, so I have no real basis of answering all of those questions, but I would say that if they found the capital was inadequate, [1708] they would deny the application or at least put it in abeyance, anyway. Q And would you expect that the bank regulator would also look at the distribution of stock of the bank to be chartered? A How it’s distributed? Les. A In terms of— Q And the plans to distribute the stock? A I would think so, yes. Q And would that also be a factor upon which they Q Were you aware that these types of reasons might exist for approval or denial of a particular bank charter when you drew up Defendants’ Exhibits 71 and 72? A Well, generally, I was aware of the types of rea- sons that might be used, but, in fact, the—when the Bank Commissioner disapproves a new bank application, he just uses—usually issues about a one-sentence com- ment about the prospects of running a profitable opera- tion in a particular town, and that’s it. He does not usually get into the detail, at least not for published notification, why it was turned down. Q But certainly in reaching his decision, he would [1704] consider the factors we have just discussed? 1046 o> 7 5 i of any instance in which a group of incorporators has applied both for—in sequence—for a national, and if that’s disapproved, then for a state bank, and vice versa? A I’m not aware of any specific instance. I think it probably has happened, but I don’t know of any specific énstance. Let me refer you to Defendants’ Exhibit 71, Page 4. Do you have those in front of you? A Which one is that? Q This is D-71. MR. REYCRAFT: You took the exhibit over the week- end, Mr. Rea, I don’t believe we have a copy of it. A What's the subject of that exhibit? MR. REYCRAFT: Do you have it? THE WITNESS: What’ the subject of that exhibit? Q These are the—application for new state chartered banks, that’s D-71, let me show you the marking. Referring to Page 4 of D-71, do you note that the very last line—the presence of a bank entitled: Farming- ton Valley Bank and Trust Company (Simsbury) filed for a new bank [1705] charter September 8th, 67, dis- approved December 18th, 1967? A Yes, sir, I see that. Q And referring to D-72, Page 1, second line: Farm- ington Valley National Bank, Simsbury, filed May 22nd, 1967, disapproved September 6th, 1967? . A Yes, sir. Q Do you know if those two applications were filed by essentially the same group of people? A I do not. Q Well, let me refer you to Defendants’ Exhibit 71, Page 2, bank named East Hartford Bank and Trust Com- the second line, filed December—pardon me— ary 22nd, 1971, disapproved September 7th, 1971, that into the dowtown, suburban, rural category? A I'm not quite sure I understand the question. [1708] Q Well, could a standard-sized branch be a downtown branch, a suburban branch and a rural branch, is that what you are saying? A It's probably not likely to be a truly rural branch because a market potential in a rural branch would be quite thin normally. ln other words, is it your testimony that the stand- ard-sized branch would normally be larger than a branch in a rural area? A It depends. It depends on the size of the popula- tion of the town. If you are talking four or 5,000 people, I don’t think we would put a standard-sized branch in that town. Q What costs would you associate with that type of a branch? A A standard type branch? Q No, a rural branch. A Well, this would depend whether it’s a store front or whether it’s an independent building with drive-in windows. Q Can you give us a range of cost, please? A I would guess it would probably be somewhat less, perhaps around a hundred and fifty thousand. S&F ii So gee 11 FIE jel 1 Ae i 8385 the inflation that we have had in the last three years. Q And would you agree, then, that that cost would be approximately one-fourth or one-fifth of the cost of a standard-sized branch? A Approximately. Q And how would the operating cost compare—stand- ard-size branch opposed to this mini branch? seven to nine people. For example, our East Street office in the City of New Haven or our Wallingford branch. For a mini b it might be three or—what we call three and a half le, three full-time people and per- Q Do you recall—did you participate in answering the plaintiff's interrogatories to defendants? A Yes, sir. Let me show you Plaintiff’s Exhibit 75, and I show you the statement here which reads, These branch units whose construction costs were one-fifth those of a stand- ard-size branch“ and this is referring to the mini branches—“and whose operating costs were one-fourth those of the standard branch, were planned as all small offices whose total installation costs would probably not exceed 50,000.” 1050 Now, what was your reason for saying that the operat- ing cost would be one-third as opposed to the one-fourth that you indicated? A This was an estimate. This was an estimate. Q So that the one-fourth would be equally as ap- plicable as the one-third? A Well, I would think that probably that one-fourth figure would be the more accurate figure. THE COURT: I’m not quite sure I understand what you mean by cost of opening a branch. Does that include buying a tract of land, putting up a building, [1711] putting in teller counters, paneling, burglar alarms? THE WITNESS: Yes, sir. The full cost of an ac- tually—a turnkey operation, opening the door, includes all of the equipment, all of the shell costs, the finishing cost inside, the cost of land. All that. If we own a branch, we would own the land, too, usually, although we have leased branches on landlord’s land. It still comes out to the same thing, your Honor. Q Can you tell us, Mr. Terzakis, what is meant by the break-even time for a branch? A This is the point at which your income covers your direct and indirect Q And does the initial cost, both the construction cost and the operating cost, affect the break-even time, then, for a branch? A Both those items would affect the break-even cost. Q And would it be your conclusion that the lower the initial cost, that is: both the cost of the establishing and the initial operating cost, lost that figure, the lower—the shorter would be the break-even time? A Yes, all other things being equal, yes. And based on our discussions of the standard-size [1712] branch versus the mini branch, would it be your conclusion that the mini branches would tend to break even in a shorter period of time? A Yes, I think that’s a fair statement, yes. Q And in view of the factors associated with mini branching, would you agree that they provide the First New Haven Bank, or any bank, for that matter, with a greater degree of flexibility in its expansion plans? 1051 A Yes, sir. ln other words, would it provide them with, in effect, more tools at their disposal to expand into areas throughout the state? A It's a possible tool. Q But it would provide an additional branching tool, would it not? A Yes, it would. But remember a mini branch is a far different branch from a standard-sized branch, you don’t have the full banking facilities in a mini you don’t have a vault and you don’t have safe deposit boxes, and remember, too, that a bank’s corporate image is important here, too. Q The mini branches would enable First New Haven to enter towns, then, that might not support a standard- sized branch, is that correct? 117131 A Yes. Does your bank, Mr. Terzakis, establish branch offices with an eye to economy? A Yes, sir, we do. The growth of an economy in a town? Q Well, with an eye to economizing on the costs asso- ciated with establishing a branch? A Sometimes that’s true, and sometimes that’s not. For example, in discussing our Dixwell Plaza office, we did not feel that we should be economizing on that par- ticular branch which was an inner city branch, we did, in fact, spend a considerable amount of money establish- ing that branch, it’s a very handsome— The COURT: That’s one of my questions. When was the last time, to your knowledge, a bank put a branch up for $50,000.00? Is that an actual experience of yours? THE WITNESS: No standard-size branches at that figure, your Honor. Standard-sized branch would be much more expensive. If they owned the building. THE COURT: You are talking about the mini branches, but have you established any of those? THE WITNESS: No, sir, we have not. THE COURT: Has there been any reason why you 11714] haven't done it? 1052 THE WITNESS: Well, I think that management may have some reservations about the efficacies of these types of branches. I think that they’re seriously concerned about the corporate image that they tend to project, particularly if you locate a branch, a mini branch, next to a competitor or across the street from a competitor and he’s got a handsome colonial building with all of the appointments in the building. It’s just a natural for the public to compare First New Haven with XYZ Bank, and I don’t think that reflects very favorably on our corporate image. Q If I may follow up on that—that line of ques tioning, has the First New Haven Bank considered the establishment of mini branches? A Yes, we have. And without duplicating Mr. Chadwick’s testi- mony, were mini branches envisioned in this plan to ex- pand into five or six towns and cities in Middlesex County? A Les, sir. Q The point I was earlier making was that: is it generally true that your bank would try to establish a branch, all other things being equal, at a favorable cost to the bank, in other [1715] words, where they could save money, where they could cut costs, they would? A This depends on the needs of the community, in other words, it depends, for example, on how large the trading area is that you are going to serve. If you are talking, for example, of a downtown branch, you have to put up a pretty handsome facility, and you can’t economize on cost. Again, it depends on the size of the trading area that you are serving. Q Well, let me ask you this: Is leasing as opposed to constructing a building one way of reducing branch cost? A I think the net—in chatting with our controller, the net effect of leasing versus owning is not really too much different. The net effect is still about the same to us. Q Have you performed any studies which compare 1053 the—at least the initial cost of leasing with the initial cost of constructing a branch? A I have not prepared any such studies, no. Would it be your understanding that in leasing an existing building there would be a reduced cash flow, out of pocket cost, to the bank as opposed to constructing a branch office? A Yes, I would think so, although we have situa- tions, for example—we are pretty flexible on how we build these and how we handle them, we have situations, for example, where we [1716] talk with owners of land and they don’t want to get involved in the actual con- struction of the building, and we have taken over the actual construction of the building, made the payments on out of pocket cost for putting up that building and sold it back to the developer, and then he in turn would lease it back to us. And how many times have you done that? A Well, I can think of—our East Street branch was such a case. Perhaps two or three. I’m not certain on that, though. Q Out of your total of how many branches? A Twenty-one. I’m not certain of the actual num- ber. Q Does leasing have the effect of lowering the initial cost associated with branching? A I think you have already asked that question, and I think—the initial cost that you would lay out for a branch in the case of a lease would be less. Q And would this reduction in the out of pocket costs enable the bank to establish more branches with a given amount of dollars? A Probably. Q Can you tell us what percentage— THE COURT: I’m not sure I follow this. I don’t claim to be an economist, but if it cost $250,000.00 [1717] to buy a piece of property and put up a building, and let’s say your initial costs are $250,000.00, and you can lease the same building for $150,000.00 per year, your out of pocket expenses, your initial costs are reduced, 1054 but management would be close to idiocy if they leased instead of purchased. Wouldn’t you say? MR. REA: Yes THE COURT: I don’t get the point here. Sure, your lease is less, but it depends on what your initial— your initial cost is less, but you have to figure long run, too, don’t you? MR. REA: I think you do. THE COURT: The leasing prices is so high, you save initially, but in the long run, it is poor business to lease. MR. REA: I would agree with your Honor if, in fact, the leasing cost would be close to the same as the initial construction cost. I believe the contrary is true, however, that the leasing is substantially less on the order of anywhere from $3600.00 a year up to about $30,000.00 a year. THE COURT: This is not—we' re getting to the point that’s troubling me. Are we just having an [1718] esoteric conversation here, or are there some facts and figures that you are showing me that that is so. I mean these are all really hypothetical. If it is cheaper to lease, any businessman will lease. If the lease prices are too high in the town he wants to go in, or if the land prices are too high, he may look to leasing, if they’re not—it’s— did you ever use a middleman, either? I mean, do you ever figure that maybe if the land owner knows a bank wants to buy his piece of property, his price is upped and you go to broker? THE WITNESS: Yes, indeed. THE COURT: And what do they call that, undis- closed principal, and things like that? THE WITNESS: A straw. In other words, a straw. THE COURT: Til sit here and listen, but I’m not satisfied that the questions are relevant, nor the answers are, unless we have a little bit more—something con- crete here for me. MR. REA: Well, I was just going to proceed into that area, your Honor. BY MR. REA: Can you tell us, Mr. Terzakis, what percentage of 1055 40%? ies A Yes (indicated). 5 And do you know what the annual rental fees would be for those offices? / A Well, I think you just gave the range, it was ap- proximately $3600.00 to 3,000—$30,000.00, that’s the lease cost, I think that’s the approximate range. Q And would that be considerably less than any ini- tial cost of constructing a branch office? A Yes, it would be, but in looking at the long-range effects of these offices, I think what hasn’t been brought is approximately the same. Q Mr. Terzakis, if I may refer to Defendants’ Ex- hibit No. 60, this is the Masters’ final report, do you have that exhibit? [1720] A No, sir, I do not. (Handing report to the witness.) Q If you will refer to Page 26, which lists the 25 corporations—actually, I guess it should be 24, since we have deleted the Town of North Haven—and on a sub- sequent page it indicates that the defendants have stated that none of these corporations is presently a customer of either defendant bank. Mr. Terzakis, were you responsible for submitting these names as they applied to First New Haven? A Yes, I was responsible for submitting them. The actual preparation and checking out of whether they were customers or not was at my direction, but it was done, in fact, by another officer of the bank. 1056 Q Okay. Do you know, does First New Haven solicit these corporations? A To the best of my knowledge—well, we have new business people that are on the road all the time, and I know, for example, in the case of the F. D. Ives Com- pany, which is next door to our East Street office, that has been solicited, that particular company. There may have been one or two others, perhaps more than that. Q Have you visited any of these companies or spoken to personnel in these corporations? A No, sir, I have not. [1721] Q Do you know what the general content of a solicitation conversation is with a corporation? A Only in very general terms. Generally, they try to establish the fact that the particular company has a need for a particular service. They may talk about, for example, payroll services, computer services. They may talk about bank reconciliation of their statements, some of the general types of services that we have . We have OJB, which is on the job banking, in some firms. These are the general types of solicitations they would make of these companies. Q Would it become apparent to the soliciting officer as os what banks this corporation presently did business with? A If the corporation treasurer noted which bank they do business with, it would be, yes. Q Would it be good salesmanship on the part of a soliciting officer to say that, “Our bank can do X,Y,Z things better than your existing banks? A Well, I think if he can show some actual benefits that we can provide as a bank that he is not presently getting from his established bank account, this may be one approach. He may, for example, offer an entirely different type of service that no other bank offers, if that happens to be the case. Q But, in other words, in order to make this com- parison of what your bank can do vis-a-vis the existing banks, it would [1722] probably be helpful to know who those existing banks were, would it not? 1057 A Who these companies bank with? Q Right. A Ves, I think it would be helpful. [1723] BY MR. REA: : Q Do you know how this list of 25 corporations was derived? A Yes, sir. We have identified some 200 companies that are noncustomers of the bank, and these are com- panies that we would indeed very much like to get as customers. And it was derived from that list. Q Did you perform this derivation? A Well, in conjunction with another officer of the bank; we went through the list and we picked out the top 25, from that list. Q The largest 257 A Right, or the most—the most wanted 25, let’s put it that way. Q In other words, First New Haven does actively solicit these firms for their business? A Some of them. Some of them I can’t say. I just have no knowledge whether all of these have been solicited. Some of them have. Would it be your opinion that these top 25 out of a list of 200 would be corporations which would have perhaps more banking alternatives available to them than the bottom 25? MR. REYCRAFT: Your Honor, I think it ought [1724] to be clear that Mr. Terzakis does not make these calls and this is not his area. If he knows, it is fine. THE WITNESS: That’s correct. MR. REYCRAFT: But I think this is not helping Mr. Rea very much and he really does not have this kind of knowledge. If he has it, something specific, I do not object. THE COURT: I think the witness is capable of say- ing “I don’t know.” Objection is overruled. Go ahead. Is there a question pending? (The pending question was read by the reporter as above recorded.) — — 1058 A Well, I think that—what I haven't made clear is that I don’t make officer calls. Q Do you know the general size, the scope of opera- tions, of some of these corporations listed on page 267 A I have no detailed knowledge of the scope of their business activities, no. Q Do you know anything about their credit standing or their banking needs? A No, sir. Q You also testified on direct, I believe, about the value of being in Downtown New Haven in order to serve that [1725] area? A Yes, sir. Can you tell us, based on your personal knowl- edge, how long the General Bank & Trust Company, which, of course, is now Hartford National, has been in Downtown New Haven? A Well, they were in Downtown New Haven when I first came with—to become employed with the First New Haven National Bank eight years ago. They were down- town. But I mean previously. Would you assume that they had been downtown at least thirty or forty years? A Ihave no basis for making an assumption like that. I just have no knowledge of how long they’ve been down there. Would you know the length of time that other Downtown New Haven banks have been established in Downtown New Haven? A Only in the last eight years where I was employed by the bank. Q Do you have any reason to dispute the fact that these banks have been located in the downtown area for a considerable period of time, say thirty to forty years? A That might be a fair assumption, yes. Q Are you aware, Mr. Terzakis, that the greater pop- ulation growth in the New Haven-Bridgeport areas has occurred outside the central city in the last twenty years? [1726] A Yes, sir. Do you know, based on your market studies, when this population shift first began? 1059 A Well, I think it paralleled the flight to the sub- urbs that we found nationally from the central cities, and it was probably in the early 50˙8. Q I believe you have also heard some testimony con- cerning the corporate exodus from New York and Boston into Connecticut? A Yes. Q Do you know, based again on your market studies and the awareness of the economy of the area, where these corporations are located in Connecticut? A Primarily Lower Fairfield County, in that area. Q But can you give us an idea of central city as opposed to suburban areas or outside of some of the cen- tral cities? A Well, I know, for example, there's a few in Green- wich. I think it was American Can that located in Green- wich. General Electronic is in the process of locating in Fairfield. Q Let me rephrase the question. Do you know if these corporations are located in the central business district as opposed to the outlying [1727] areas? A I don’t know for a fact where they have located, no. Q Do you know where some of them are located? A The towns they're in, yes. But would this be in the central area or in outlying areas? A I don’t know. Q Do you know where shopping centers are being located? A Generally, shopping centers are being located out- side the central cities. Q Based on this testimony, population shift, shopping centers being located outside, would it be your opinion that this indicates that these areas are attractive for purposes of branch expansion? A I think that they are probably attractive to most banks for branch expansion, because it’s an area where —in other words, a bank looks for where there’s an aggregation of people, where do people tend to congre- 1060 gate, and in shopping centers there’s specific reasons for people congregating there, so they can shop; and where you have large numbers of people congregating, it be- comes attractive to some banks to locate in shopping cen [1728] Q I believe you also testified on direct concern- ing the larger lending limit, which would, did you testi- A Q What was your basis for suspecting that local money was leaving either your bank or the Connecticut area? A Well, in fact, when a company comes in and asks company for a legal limit and it’s 2.4, it’s not the. legal limit but it’s our prudent limit, and if we can’t fulfill their loan requirements they seek other options with other, larger banks or even out-of-state banks. Q Have there been instances where existing customers of First New Haven have demonstrated a reduction in the deposits that they hold with First New Haven? A Yes, sir, I think there have been, and I think those were answered in the plaintiff's interrogatories. Q Right. Did you participate in answering that interrogatory? A I collected the information. That was answered by our lending officers. Q Were you aware that part of that in covered customers who apparently had reduced the de- 2 they held with the First New Haven National A I think I was aware—could you identify that [1729] interrogatory number? Q Yes. That is interrogatory 41. A Which subsection? Q I am referring now to A, sub 4, which reads, 15 of the bank’s largest accounts have been compelled to establish substantial relationships with out-of-area banks and are vulnerable at any time to reduce further the pressure deposits made at First New Haven.” A Right. 8 poration. Were you aware that in 1969 to 70 Mite drew down the maximum limit from First New Haven? A They drew down their maximum lend limit? Q Yes. A No. ; Q Assuming that to be the case, would they have to place with the bank some additional deposits? A Well, they have to keep deposits in relation to the—what their borrowing requirements are and whether they’re using the line or not using the line. Q Assuming they went from a nonuse to a use situa- tion, they would have had to have deposited money at the bank? A Right. Q Assuming also that in the next year or so Mite repaid this loan in full, would that occasion a reduction [a ea ee A It probably would, but I can’t answer definitely because I don’t handle corporate customers. I’m a re- search man. ln fact, couldn't the bank transfer from a non- 1062 interest demand deposit to an interest-paying certificate of deposit under those conditions? 117811 A I can’t answer the question. I don’t know. Q Would you agree that’s the function of a logical business investment when an account borrows, places compensating balance and then repays, and perhaps may lower the compensating balance? Would that be the local outgrowth of certain business decisions on the part of these corporations? A Well, I would think so, yes. Q Let me offer another A The compensating balance? Q Yes. A I would expect that. Q Would there be any reason to suspect account could not continue to do business with the bank in all other areas; in other words, ances were reduced. Q Also in interrogatory 41 you designate the of borrowers who would be likely to borrow in excess [1782] defendants’ present lending limits. A Specifically which one is that? Q This is interrogatory 41, Part B, which reads, “State the name and address of all other customers who defendants believe would be likely to borrow in excess of defendants’ present lending limits if the consolidation is permitted and give the reasons for such opinion.” A Yes, sir, that was prepared and submitted. Did you prepare that? A I collected the data. I did not prepare it. It was prepared in our lending offices. NR ee ee er W on A I was a coordinator of these things; in other words, Perhaps I can save time if I offer the number ten. A Ten are [1788] Q Ten out of nineteen are headquartered in Connecticut? A It looks like to me about eight. I believe —oh, excuse me. I think about nine. Q Do you know how many of the companies listed of the nineteen are national in their scope of operations? A This will be difficult to answer, because, for ex- ample, in the case of O. F. Mossberg, I have no knowledge of — Q Can you give us your best estimate? I do not mean to give an exact percentage. For example, would you assume that the Chrysler Corporation and General Motors Acceptance— Oh, yes. Those— Those are national. Sears & Roebuck? Right. Do you know what would be the general credit standing of these corporations? A I can’t give you specifically what their credit standing would be, but I would rate them as AAA corporations, probably. Q Would you assume, based on that determination, that they would have many banking alternatives avail- able to them? [1784] A Yes. OPO POP 1064 Q And that these banking alternatives would be lo- FFF Yes. Q I believe you also testified on direct that the larger lending limit would bring back local money to the con- solidated bank. Was it your testimony that this would increase the amount of money available for other uses by the bank? A Yes, sir. Q Would it not be the case, however, that the in- creased lending limit would result in a net outflow of funds from the bank? A Well, it would involve larger loan commitments, yes, but it also would involve our corresponding percent- age increases, meaning the 10 and 15 percent, which would be repatriated to the bank. For example, if it’s a nonused line, we require a 10 percent compensating balance. Let’s say it’s a five-million-dollar loan; that means five hundred thousand dollars. Now, if the limit is increased, it would double the amount of dollars on that nonused line, which makes more money available, and there’s no outgo there. But in a case of an account taking advantage of the increased lending limit—which I suspect you would [1785] hope to be the case, would you not? A Yes. there would be a net outflow of funds—that is, increased funds lent minus the increase to the compensat- ing balance? A The point is that most of these companies are not at the full limit throughout the year; they’re in and out, and they’re borrowing seasonably, particularly for inventory purposes, and that this gives us greater flex- ibility in terms of moving funds around, and that the velocity of the dollars—I think Mr. Chadwick testified on this—dollars would be turned over much more rapidly. This is very important to a bank. At least in a situation where a bank avails itself of the increased lending limit, there would be a net out- flow of funds there, lending funds loaned as against the 1065 increases to the compensating balances; is that correct? A The loan commitment would be bigger. Q Could you answer the question? THE WITNESS: Would you restate the question. Read the question. (The pending question was read by the reported as above recorded.) A Yes. [1786] Q Is it also your testimony that a substantial number of your present customers do not draw down their maximum lending limit available? A There are a substantial number of customers who do not take the full limit? Q Yes. A Yes. MR. REA: We have no further questions. THE COURT: Redirect. MR. REYCRAFT: No redirect. THE COURT: Mr. McEnerney? MR. McENERNEY: No, your Honor. THE COURT: You are excused, sir. (Witness excused) MR. REYCRAFT: Your Honor, the witness is coming. MR. BOYER: Mr. Johnson, please. [1737] PAUL H. JOHNSON, called as a witness, hay- ing been first duly sworn by the Clerk of the Court, was examined and testified as follows: THE CLERK: Will you state your full name and address for the record, please? THE WITNESS: Paul H. Johnson, 36 Kennedy Lane, Madison, Connecticut. THE CLERK: Thank you. You may be seated. DIRECT EXAMINATION BY MR. BOYER: Q Mr. Johnson, what is your present position? A I am president of the Connecticut Savings Bank. Q How long have you held that position? 1066 A For approximately two months Q Before that time, sir, what was your position? A I was executive vice-president of the Connecticut How long did you hold that position? Yes. came out of the service in 1961 and joined First New Haven National and served in capacities until ap- proximately [1738] July of 1971. Q Could you describe your duties in your last year at First New Haven? A My position at that point was vice-president and secretary of the corporation. I had responsibility in- the branch administration area, primarily in terms of build- ing and construction and supervision of new branches. Q Could you describe your formal education briefly, I—undergraduate degree from Brown, and a J. D., University of Connecticut School of Law. Q Are you a member of the bar of Connecticut? 5 2 : 1 4 J ay f. f 8 Q Could you describe, please, services that your bank offers in terms of categories of deposit and loan [1789] services? A On the deposit side, savings accounts, and various types of varieties and kinds; on the lending side, install- ment loans and mortgage loans; and then the traditional services of safe deposit and the collateral service of 1067 Q ee es nieap ante: Serene A Yes. Besides savings accounts, are there any other forms P accounts, that er er Well, the addition of certificates of deposit, which is a contractual obligation. Q What rates are you currently paying at your bank for regular savings accounts and for certificates of de- it? 5 Regular savings accounts are 5 percent, with an effective, because of a way of paying, of 5.20 percent. Two-year certificates are 6 percent, with an effective rate of 6.27 percent. Q Are you paying at more or less or about the same as, for example, savings and loan associations in New Haven? A About the same. Q Could you describe, please, the rate structure for your consumer installment loans generally? 11740] A We have a similar rate structure to amongst other organizations; I think that our rate struc- ture is probably a little bit lower than most banks. The rate structure on consumer loans varies a tremendous amount, depending upon the philosophy of the organiza- tion that’s generating it. Q Are you familiar with the commercial mortgage lending that your bank engages in? A Yes, I am. Q Do you know whether any commercial mortgage lending is undertaken at your bank where the borrower has in mind using the proceeds for business purposes? A No, that would be against the statutes of the State of Connecticut. leat DO You inquire as to the proceeds of his particular A We control the proceeds. We—it must be done on a first mortgage basis. Now, that’s not to say that an individual could not use the proceeds for other pur- poses by mortgaging his property and using it for other purposes. We must be secured by first mortgage. 1068 Q In the consumer installment lending area, could you describe the kind of loan purposes that your bank will make a loan for? [1741] A Yes, the normal range of loans for con- sumers—automobiles, home improvement, boats, personal reasons, travel, the normal range of consumer lending. Q For these particular eategories of deposit and loan services that you have described, what other financial institutions are offering these same services in your market area? A Virtually all other financial institutions. Q That includes commercial banks? A Yes, sir. Mr. Johnson, are you familiar with any efforts on the part of Massachusetts savings banks to achieve third- party payment privileges? A Yes, I am. Could you tell us, please, what you know about that? A They were first initiated in the Springfield area under the heading of NOW accounts. The NOW stands for negotiable order of withdrawal. They have spread to other parts of Massachusetts and to other states. They— fundamentally what they are is a negotiable order of withdrawal from a standard savings account, so that you are able to earn the normal savings account rate, which in Massachusetts is 514 percent, while you write drafts against your particular account. [1742] Q Are you familiar with the means by which mutual savings banks in Massachusetts came to have this power? A Yes, I am. Q Would you state what that was? A Fundamentally, that the savings accounts have a restriction within them that does not make them im- mediate demand accounts, that there is a provision where- by the bank can institute a 30- or 60-day waiting period, and, because they‘re not demand accounts, they are al- lowed to have this float period in order to have negotiable orders of withdrawal, which, on their surface, look iden- tical to checks. 1069 Q Do you know whether there are other states in the Union where mutual savings banks offer third-party pay- ment services? A Yes, a number. Q Could you state what they are? A Offhand I can tell you the ones I know. I know New Jersey, Rhode Island and Delaware all have that privilege. Q Has your bank make any study of the procedures by which these savings banks in the states you have mentioned handle such payment services? A We have made reasonably extensive studies and surveys. Q Of what states, please? [1743] A Of all the states that presently issue a type of negotiable order of withdrawal or checking account privileges. Q Are you aware of any efforts by Connecticut com- mercial banks to achieve third-party payment powers? A Yes, I am. Q Could you describe generally what your involve- ment has been in that effort. A Well, I have been on both sides of the fence. I think there has been extensive legislative effort in order to get straight demand deposit accounts in contrast to negotiable orders of withdrawal. I think those efforts are continuing and probably will continue. Q Do you have an opinion, Mr. Johnson, as to wheth- er mutual savings banks in the state, in the reasonably foreseeable future, such as within five years, will be of- fering third-party payment powers or checking powers? MR. CLARK: Your Honor, I object once again to this question as being highly speculative. THE COURT: Are you talking about accounts simi- lar to the NOW account? MR. BOYER: Yes, I am, your Honor. THE COURT: With respect to the NOW account, is there a legal prohibition from your bank doing this? [1744] THE WITNESS: Your Honor, I’m not positive whether there is a legal prohibition. It seems to me that the rules and regulations that are in effect in Massa- 1070 chusetts are very, very similar to the ones in Connecticut, and therefore it’s not a legislative problem. We have not explored specifically at this time whether or not there is a legal prohibition in Connecticut. THE COURT: Would you give me some concrete ex- amples of how this works with your bank. If I have an account at your bank, could I go down and have a check issued to Southern New England Telephone Company? THE WITNESS: Well, not in present form, no. The only way you can do it as of the present time is you can make a withdrawal from your savings account and we'll issue a cashier’s check drawn on a commercial bank so that you could pay the gas company. Now, Massachusetts has put in a different system. They allow—they give you a pad of documents that look identical to a check, and then you are allowed to write those at your leisure, and they pass through the same clearing system that a [1745] normal bank check goes through. But the withdrawal is taken out of an interest- paying savings account. THE COURT: All right. THE WITNESS: We do not have that right now. THE COURT: In Massachusetts they have something that looks like a checkbook. A person has a savings ac- count and can actually put down a utility company as the payee, sign the check and mail it to the utility com- pany, and they process it? THE WITNESS: Les, sir. THE COURT: The reason you have not done that here is what? THE WITNESS: Well— THE COURT: Or are you thinking about it? THE WITNESS: It would be speculation for me to talk on behalf of all the savings bankers in the state, but I think that our first effort is to get full checking account privileges in contrast to the NOW accounts. THE COURT: All right. MR. BOYER: So, your Honor, the question whether he has an opinion as to the likelihood of this taking place— 1071 [1746] MR. CLARK: My objective, your Honor, is since it involves legislative action— THE COURT: It is highly speculative. I will take it. It will go to weight later on. A Yes, I do have an opinion. Q What would that opinion be, Mr. Johnson? A I think in one way or another it’s probably inevit- able that the savings banks in this state have some type of third-party payment system. Q Has your bank considered whether in fact, if such a system were available, you would implement that? A Yes, we have. Q What have you decided? A We would be ready to implement it immediately. Q Would that be based on your study of how it is done in the states you mentioned previously? A It's based on that plus a very careful survey of what kind of services we would have to produce, our- selves, and what kind we could buy from third parties within the State of Connecticut. MR. BOYER: I have no-further questions. THE COURT: Mr. Johnson, before you go to cross- examination, may I ask you this: You were on both sides of the fence, so to [1747] speak, within a very recent time, within the last two or three years. Could you just list generally in what way, if any, you feel that your bank is in direct competition with com- mercial banks, and in what ways you feel that your bank is in indirect competition with commercial banks, and in what ways you feel that your bank has the field to itself in certain categories? By “your bank” I also mean savings banks in general. Could you just list them for me. THE WITNESS: It obviously can’t be complete, but I'll do the best job that I can. In terms of direct competition, obviously for all forms of savings accounts. The interesting factor, as I view it, is that the third largest savings bank in the state is really a commercial bank and also the fourth largest sav- ings bank in the state is a commercial bank. Connecticut Bank & Trust is the third and Hartford National is the 1072 That leads me to the conclusion that rate is not always a deci iding factor in terms of where a particular customer his savings account. So [1748] that although that’s — of strong competition, it’s also an area that to the convenience of a market and where you — a * area. We're very competitive in terms of installment loans. We're very competitive in terms of all categories mort- gage loans, not just residential but also commereial. We're indirectly competitive we're also competitive in terms of people, and I think that, as far as I’m concerned, that’s an extremely important commodity, that we try and attract to our organization some of the same people that commercial banks would like to attract to their or- ganizations. We aren’t competitive, obviously, in any phase of com- mercial lending aside from the mortgage area. We are competitive across the board in installment loans, and I think that we're going to remain competitive in that area, because of our ability to be involved in a rate structure that allows us to be competitive. That’s generally how I see it. But I think that my having been a commercial bank- er for ten years has given me some feeling for what the commercial side is, and, as I’ve seen it [1749] over the last ten years, there’s a growing level of competition that I don’t think anybody envisioned ten years ago. THE COURT: As a man in the business, would you say that savings banks are in competition with com- mercial banks? THE WITNESS: I don’t think there’s any question about it. They are. THE COURT: All right, cross-examination. MR. BOYER: Could I have one further direct ques- tion on that, your Honor? THE COURT: Tes. BY MR. BOYER: Q Mr. Johnson, do you compete for banking sites with commercial banks, for example? A Yes, I think we do. If you look at our branch expansion, I think it becomes quite obvious that our 1078 expansion philosophy has related to one primary element, and that is that the commercial banks have been more energetic in their expansion moves than the savings banks, and therefore in our first two new locations they were both in communities that were—had home town commercial banks that withstood further commercial bank competition. I think that we’re very competitive for sites. 11750 MR. BOYER: That is all. Thank you. THE COURT: Cross-examination. CROSS-EXAMINATION BY MR. CLARK: Q Mr. Johnson, from your days at First New Haven, do you have an opinion upon the accuracy of the account- ing methods as they reflect the profitability or the worth of a branch to the bank? A I don’t think there’s any question that they’re ac- curate. I think that in any accounting method there are elements of the accounting method that must go into the calculations that reflect the over-all—the over-all profit- ability structure and the over-all operation of the bank. Q But some branches, even though ‘they may show a loss on your books, you would consider highly valuable to the bank, wouldn’t you? A I have not known of any banks that have sold branches under normal circumstances. I think that in any large bank you must pump into the accounting meth- od the over-all cost of your whole operation, you must put in executive services, you must put in advertising costs, that reflect the over-all cost to bank as a whole, and distribute them out to each i dual profit center. 117511 So that whether or not a particular branch gets its full portion of executive talent or advertising dollars is really a determination that is subjective. Q Taking one of the branches that First New Haven has that I guess has been a chronic loser on the book, at least—Devon—what is your opinion as to the worth of that bank? 1074 A It would really be beyond my capacity to answer. We wouldn’t mind having it as a savings bank, but it’s—that’s a completely or a very different business, in some respects, than commercial banks. Savings banks and commercial banks, is that what you are— A Yes. Q What is the opinion within First New Haven as to the worth of the Devon branch to that bank? A I assume that it’s—continues to be a valuable part of their operation, although I am aware that at least up to the time that I was there, during that period of time, that it was not a profitable branch. Q Mr. DelGreco, who is in charge of that portion of the operations of First New Haven— A That's Greco. Q —what is his opinion of that branch? 117521 A It's a matter of conversation. He thinks it's a reasonable branch. I would be speaking for him, and I don’t think that would be appropriate. Q He has said that he would like to own that branch, himself? A In conversation he has made that comment. Q Do you consider yourself to be an aggressive bank- er, Mr. Johnson? A Yes, I do. Q W your bank? A Yes, we are. Q What is your first choice as to the manner in which you will accomplish that? A I think it’s a combination of seeking to find out whether or not merger’s valid concept within the State of Connecticut with mutual savings banks, and a second alternative is de novo Q You would first consider merger with another large savings bank? A Yes. We've already gone that route. Q That is, you have already begun to consider? A It was unsuccessful. Q Which bank was that? 5 331 127 17525 5 ait tive would be de novo lish that? the traditional way, P of Connecticut or anywhere, t of view that there is not the the people that are involved in : em the individual savings banks. There are 68 individual statewide bank? You think this is a feasible means for your , we would accomplish it Q A It is. It’s a long, slow process, and it’s becoming $253 3 1 Boe 421 11 i Q But you think, then, that statewide operations are A Well, I think that if I looked down the road I becoming a necessity for your bank? i é How would you accom savings banks in the State of Connecticut, and I don’t know when the last merger was. 3 A. Well 1076 would see ten years from now three or four major sav- ings banks that would operate statewide. We have one state savings bank right now that is obviously in state wide expansion. Q And you hope that your bank will be a part of A I would hope so. [1755] MR. CLARK: I have no further questions. THE COURT: What bank are you speaking of? THE WITNESS: Society For Savings. THE COURT: What has been their history the last, last ten or fifteen years? THE WITNESS: They were the second largest sav- ings bank in the state approximately six or seven years ago. They are now the largest savings bank in the state by about a hundred million dollars. Their expansion traditionally had been to the north of Hartford and to the northeast of Hartford. They have recently filed for an application in Saybrook, and I believe they have either filed or they intend to file for an application in the western section of the state. So you can see, quite obviously, that they’re—the spokes of the wheels are beginning to go out. THE COURT: Was this expansion all do novo? THE WITNESS: Yes. In the last eight years they’ve added eleven branches to their system, which has taken them from approximately an eleven-branch system to a twenty-two-branch system. THE COURT: Redirect? ™ MR. BOYER: None, your Honor. [1756] THE COURT: Anything further? MR. BELL: No, your Honor. THE COURT: You are excused, Mr. Johnson. THE WITNESS: Thank you. (Witness excused) 11757 THORNTON B. MORRIS, called as a witness, having first been duly sworn by the Clerk of the Court, was examined and testified as follows: 1077 THE CLERK: Will you state your full name and ad- dress for the record? THE WITNESS: Thornton B. Morris. 1 East View Drive, Simsbury, Connecticut. DIRECT EXAMINATION BY MR. BELL: Mr. Morris, what is your occupation? I’m a commercial banker. And where are you employed, sir? I’m employed as President and chief executive offi- cer of the Simsbury Bank and Trust Company, Simsbury. And I take it that is a commercial bank, is that correct? A Yes, sir. Q How long have you been president and chief ex- ecutive officer of your bank? A About eight and a half years. Q Did you have any position with that bank prior to that time? A No, I did not. Did you have any prior banking experience, sir? 117581 A My first experience from college days has been in the banking business. Q In the Simsbury Bank and Trust Company? A I’m sorry, in the banking business. Well, what position did you hold before you were — and chief executive officer at the Simsbury A I did bank examining in New Jersey and New York. I was a lending officer with Morgan Guaranty Trust Company in New York, and I was a senior vice- president of Branch Banking and Trust Company, a bank in North Carolina prior to coming to Simsbury. Q In total, Mr. Morris, how long have you been in the banking business, then? A About 20 years. Q 20 years, all right, sir. I think you stated that the Simsbury Bank was a commercial bank? PO PO O 1078 A Les, sir. Q How was it organized, sir, under what law was it organized? A. It was organized in 19ly under the laws of the State of Connecticut. Q And in general, sir, what kind of services does [1759] normally offered by a bank of our size. Q Well, what is your size, sir; would you give it to us in terms of deposits? About 34 million dollars in deposits. Now, where is the main office of your bank? In Simsbury. Do you have other branches? We have three. Could you tell us where those are? One in Avon, Connecticut; a second in Canton, Connecticut; and a third in Granby, Connecticut. Q What would you describe, Mr. Morris, as the service area of the Simsbury Bank and Trust Company? A The principal service area of our bank would be the four towns in which we have branches, which is roughly refered to as the Farmington River Valley. Q Those are the four towns you just described? A Yes (indicated). Q Now, could you tell us, sir, something of the own- ership of the Simsbury Bank and Trust Company? A All of the outstanding stock, with the exception of qualifying shares, of the Simsbury Bank and Trust Company, is owned by a holding company, First Con- necticut Bancorp in Hartford. Can you tell us when the First Connecticut Ban- corp [1760] acquired the Simsbury Bank and Trust Company? A In November of 1970. Q Do you hold any position, sir, with the holding company? A I am chairman of the executive committee. Q Any other position? O ror 1079 A Director of— Q Director of the company? All right, sir. Now, could you tell us, Mr. Morris, whether there are presently any other banks with offices besides your own in the Town of Simsbury, Connecticut? A Yes, there are two savings banks. The Society for Savings and the Savings Bank of New Britain. Q Now, to your knowledge, Mr. Morris, are you aware at the present time of any application by another financial institution to establish a branch in Simsbury? A The Burritt Mutual Savings Bank of New Britain has applied for a branch in Simsbury. Q Is there a present application pending by that savings bank? A Yes, sir. Q Is that the first time it’s applied to establish a branch in your community? A No, it applied in February of 1970, to establish 117611 a branch. Q - it made an application in February of 19707 A Yes. Q Did your bank take any position with respect to that application? A We opposed the application. Q How did you go about opposing it? A We wrote a letter to the Bank Commisioner stat- ing our opposition, outlining what we thought were the facts supporting our position. When you say “Bank Commissioner”, I take it you mean the State of Connecticut—Bank Commissioner, State of Connecticut? Is that the authority to whom a savings bank applied for a branch location? A Yes, sir. - Q Is that the only authority to whom they apply? | A They also, if they—I think all savings banks in the State do have FDIC, Federal Deposit Insurance Cor“ poration, insurance on their deposits, they require the approval of that agency, also. Q Could you tell us what happened to that first Burritt Savings Bank application in 1969? 1080 A The application was disapproved, declined by the Bank [1762] Commissioner. Now, do I understand that Burritt has made a sec- ond application? A Yes. Q Incidentally, I didn’t ask you this before, but do you have an idea of the size of the Burritt Bank? A About a hundred and fifteen million dollars in deposits. Second application that you described, I take it, is now pending, is that correct? A Les, it is. Q And to whom was that application made? A To the Bank Commissioner of the State of Con- necticut. Q And was it also made to the FDIC? A Yes, it was. Q Did your bank take any action, Mr. Morris, with respect to that second application which is now pending? A We opposed it. Q And would you describe the manner of your op- position to it? A Basically, the same as our first opposition, that is: a letter to the Bank Commissioner outlining our—the reasons for our opposition. * What happened with respect to the question with- wn. [1768] Was any action taken by the authorities with respect to that second application? A The application was approved by the Bank Com- missioner and the FDIC. Q Subsequent to the approval by the Bank Commis- sioner and by the FDIC, did your bank take any further action with respect to the Burritt application? A We are appealing the decision. Q How are you proceeding to appeal the decision, sir? A Through the courts. Q Have you instituted legal action with respect to that decision? A Yes, I have. I’m sorry. I misunderstood. 1081 Q Do you recall against whom your action was insti- tuted? A It’s instituted against the Bank Commissioner and the Federal Deposit Insurance Corporation, two separate actions. Those are two separate actions. Are those actions now pending? A They are now pending. Q What was your objective, or what was your ob- jective, Mr. Morris, in instituting those legal actions? A To have the decisions reversed. Q_ I ask you to explain why you seek to have those decisions reversed? [1764] A We feel—that is: the management and the board of directors, Simsbury Bank—feel that our area is becoming seriously overbanked, that is: there are too many banking offices relative to the population base and the nature of the population, and we feel that there— additional banking facilities are neither necessary nor desirable and they would be detrimental to the continued financial success of the present bank facilities in the area. Q You believe that the appearance of another savings bank office in your community would be detrimental to your bank? ; A Yes, sir. Q Would you explain that, sir? A We consider savings banks very serious competi- tion. In the of our particular institution, about 60% of our d its are savings and other time deposits, which—which is the area we compete very directly with the savings banks, and about 75% of our total loan vol- ume, are types of loans that savings banks can make. Q Do you anticipate any additional competition from savings banks in the future? A We do. We expect that the savings banks will, in due course, receive some sort of third party payment powers, referred to as demand deposits. Q Mr. Morris, to your knowledge, are there any oth- er [1765] applications now pending by financial insti- tutions to establish branches in your service area? 1082 A Yes, there is one other application. Q What is that, sir? A That's by the Windsor Federal Savings and Loan Association to open a branch in Granby, Connecticut. Q Has your bank taken any action with respect to that application? A We have notified the Federal Home Loan Bank Board in Boston, who is the regulatory authority in charge of federal savings and loan associations, that we will oppose this application. Q On what grounds, sir? A That the proposed branch is neither necessary nor desirable, and that it will have an adverse effect on the operation of the banking offices currently serving the Granby market. Q You regard the savings and loan institutions as also competitive with your commercial bank? A We do. Q In what respect, sir? A In almost the same respect as savings banks. The powers that they have are very similar to the savings bank powers, directly compete with a major part of our business. MR. BELL: May I mark these for identification? 11766] I think I’m up to 77. MR. BOYER: That’s correct. Q Showing you, Mr. Morris, Defendants’ Exhibit 77 for Identification—as you if you can identify that docu- ment, sir? A It is a copy of our appeal to the Federal Deposit Insurance Corporation. Q Does that bear a title, sir? A I'm sorry? Q Does that bear a title? A Want me to read the title? Q The document itself is entitled as a complaint, is it not, sir? A Absolutely, yes. Q Is this the complaint in your action against the FDIC? A Yes, sir. 1083 Q And it is currently pending? A Yes, sir. Q Let me identify one more—would you examine De- fendants’ Exhibit 78, sir, and describe to me what that is, if you can? A This is our complaint—our substitute complaint in our action against the Bank Commissioner. Q Is that action pending? A It is pending. MR. BELL: [ll offer these. [1767] THE COURT: Full exhibits. MR. BELL: That's all I have, Mr. Morris, thank you. THE COURT: Mr. Morris, let me ask you this: You would consider yourself the president of a rather small bank compared to the banks in Hartford and the banks involved here? THE WITNESS: Yes, sir. THE COURT: How do you feel this particular mer- ger affects you, if at all? THE WITNESS: Your Honor, I wouldn’t see a di- rect affect on our bank. THE COURT: I’m talking about the CNB and First New Haven. THE WITNESS: Right. THE COURT: Cross examination. CROSS EXAMINATION Bx MR. BENTKOVER: Q Mr. Morris, your bank is nowhere near the two de- fendant banks in this action, is it, in terms of geographi- cal proximity? A No, sir. Q You are not in their market areas, are you? A No, sir. Q So you wouldn’t expect to feel any effect, then, from [1768] this merger, would you? A I wouldn’t expect to. If two large banks in your market merged, might you feel an effect? A Conceivably. 1084 I believe you stated that your bank is a subsidiary of First Connecticut Bank Corporation, is that correct? A Correct. And that’s a multi-bank holding company? A Les, sir. Q And what are the other subsidiaries of that com- pany? A The United Bank and Trust Company in Hartford and the New Britain National Bank in New Britain. Q And this company was organized in the year 1970? A Yes, sir. Q Prior to the organization of the company, was your bank affiliated with the other two subsidiaries? A No, sir. Q So, then, that when your bank joined with the other two and First Connecticut Bank Corporation, this was the first relation or affiliation between the three? A Yes, sir. Q And what was the reason you chose to join with the other two subsidiaries in a multi-bank holding com- pany rather [1769] than through a merger? A The principal reason was we felt that we could be more competitive in our particular suburb and market as an independent bank. Q Could you be more specific? A That we served a very small and defined trade area, a suburb of Hartford, and that we thought that a small independent bank in this trade area would be more effective in competing for the deposit volume in our area. Are there any other advantages which you saw for the multi-bank holding company? A Oh, yes, the advantages of size, of scale, the reason —the principal reasons we put it together. THE COURT: That comes to mind. In other words, you wanted to keep your small, independent type image, is that correct? THE WITNESS: Yes, sir. THE COURT: So why did you look around for some —— to join in? What were the advantages to your ? 1085 THE WITNESS: The advantages, your Honor, I think are two or three very significant ones, there are signi- ficant advantages of scale, that is: we can do things through the holding company by common purchasing [1770] of supplies, common purchasing of insurance, com- mon fringe benefit programs for employees of the banks, where we do get the distinct advantage of size. THE COURT: Do your legal limits of lending go up, too, do you get that advantage? THE WITNESS: Not—legally, we do not, we have the advantage of only working with one another, our lending limits remain exactly as they were when we were independent banks, and also, I’m sure these were brought out in the proceedings, banking has become a very complex and technical business, and the holding com- pany vehicle enables us to hire special experts, expertise, in areas that we could not afford to hire as an independ- ent bank, in the areas of investment or marketing. The three banks share the expenses of experts they couldn’t hire themselves. THE COURT: And the other two banks are commer- cial banks? THE WITNESS: The other two banks are commer- cial banks. THE COURT: And were they of the same relative size as you were when everyone joined? THE WITNESS: No. The largest one is about three times our size, that’s the United Bank in [1771] Hart- ford, and the second one is twice our size. We are the smallest in the group. THE COURT: And in these conversations I suppose someone said, “Maybe we should merger instead of form- ing. this holding company.” Did that come up? THE WITNESS: I’m sure—yes, your Honor. It was mentioned that—and there are several reasons it wasn’t pursued, Number one, banks and their people lose their own identity with a merger, and number two, that—as we mentioned—as I mentioned earlier, I thought we could better serve our own trade markets retaining our own identities. THE COURT: All right. 1086 BY MR. BENTKOVER: Are you aware that Connecticut has passed hold- ing company legislation? A Yes, sir. Q Did your three banks, which are now subsidiaries of First Connecticut Bank Corporation, play any role in obtaining that legislation? A We encouraged it. Q What was the reason you encouraged the legisla- tion? A Our counsel had advised us that such enabling leg- islation was necessary for us to form this holding com- pany. 117721 Q So prior to the enactment of that legislation you did not believe that you would be able to form a hold- ing company, is that correct? MR. BELL: I think he’s asking for a legal conclu- sion of a witness who is not a lawyer and that’s a mat- ter on which we have submitted that legal memorandum, and I think it is beyond the competence of this witness? THE COURT: Well, if it is, he can say so. Were you acting on the advice of counsel? THE WITNESS: Yes, sir. So in acting under the advice of counsel, without this legislation you would not have formed the holding company, is that correct? MR. BELL: Well, I object to that on the same grounds. It is one thing, if your Honor please, to ask the witness’ opinion if there are other parties involved, that becomes hearsay, and I object to that, too, your Honor. MR. BENTKOVER: I’m not asking for his conclu- sion. I just wondered whether if the holding company legislation were not enacted, he would have done the same thing, defendants have contended that this legislation was not necessary for the establishment [1773] of hold- ing companies. THE COURT: Well, let’s get his opinion. THE WITNESS: I don’t know what we would have done had there been no legislation. 1087 MR. BENTKOVER: I have no further questions. THE COURT: Redirect? MR. BELL: Nothing, your Honor. THE COURT: You are excused, Mr. Morris. (Witness excused. ) THE COURT: May I ask this: if this merger was not contested by the government within the period of 30 days, I guess, or whatever period of time, other banks would come in and start a suit, is that correct? MR. REYCRAFT: Yes, sir. THE COURT: I know there’s a difference. MR. REYCRAFT: They have to come within 30 days, after 30 days it’s exempt from both public and private suit, but within the 30 days they could. THE COURT: Has anyone, or any agency, to your knowledge, taken surveys of what the other banks had to say about this particular merger? Are they solicited, is someone going around saying: “How do you think this merger will affect your bank“? [1774] MR.McENERNEY: May it please your Honor, we have gone down to the Regional Comptrollér, and he will testify as to the types of investigation that is made in the normal merger proposal, and specifically as to this one, and Lthink that—I don’t want to presuppose what his testimony will be, but, yes, the answer to your question is: yes. THE COURT: I don’t know if it has any relevance, but were there any private actions also filed? MR. McENERNEY: Not at all in this. a THE COURT: I’m saying with respect to this one. MR. REYCRAFT: There were none against your— THE COURT: Is there any prohibition against one being filed in the government acts? 0 MR. REYCRAFT: No, the government does not bar a private action, there can be simultaneous actions by the government and a private party. THE COURT: Has that happened on many occasions? MR. REYCRAFT: I know of one occasion on which it did happen. There was a stockholder’s suit pending and then the government filed a complaint to enjoin a bank * 1088 _ merger, and then the stockholder amended his complaint to amend a private antitrust cause of action as well. That’s the only one I know about. {1775] THE COURT: We will recess until 2:15. (Recess taken for lunch.) 117761 AFTERNOON SESSION THE COURT: Are the parties ready to proceed? MR. REYCRAFT: Les, your Honor. MR. CLARK: Yes, your Honor, MR. REYCRAFT: Your Honor, the defendants have one additional witness, Thomas Richardson, who is sched- uled to be here tomorrow morning. Mr. McEnerney— me—perhaps one more. I should say we have issued a subpoena to the State Superin t of Banking to discuss the holding com- pany issue) the charter—new charter problem that has come up in\testimony. And also Mr. a oo pared an erhidit along the lines of the one that Mr. zakis discussed this morning, giving effect to the divesti- ture of the three offices under contract from the stand- point of the First New Haven—from the standpoint of the Connecticut National Bank. Mr. Terzakis sponsored an exhibit this morning giv- ing the effects of the divestiture from the standpoint of the First New Haven, and if there’s no objection, we can submit that exhibit. THE COURT: I should understand that it a little bit more than I do, and I am candid to it, but I’m still having difficulty. 11777] In the left-hand column, if it says: 1,100, and then in the right-hand column after divestiture it says: 170, does that mean 170 accounts have been divested, or the 170 is what's left after the divestiture? MR. REYCRAFT: Your Honor, the exhibit shows, as mende whe & fatal of 11000 accounts, and after the divestiture, as I understand it, 1,041 accounts would be—would remain in First New Haven towns. tinue to have immediately prior to assume the divestiture were to take in Connecticut National towns, so between the two banks in these towns, but for the 1,04 accounts from the First New Haven side, would have been eliminated. And from the standpoint of Connecticut National ac- counts in First New Haven office towns, the divestiture would result in 1,782 accounts overlapping, remaining. [1778] Now, perhaps—I think, maybe, your Honor, I’ll ask Mr. Terzakis to testify briefly to explain this ex- hibit, I think it might be helpful to the record. THE COURT: No, he explained it, and he explained it, certainly, but, you see—I don’t want to draw this out, but when I saw the figure in the right-hand column, I didn’t know if that meant those were the amount of accounts that were being relinquished, or those weré the amount of accounts that would remain. REYCRAFT: Remain. THE COURT: You have answered that. That’s the only question I have. MR. REYCRAFT: All right. Then, the exhibit which Mr. Terzakis prepared should be marked as 79. MR. BOYER: Mr. Krafchik. MR. REYCRAFT: Krafchik. Also, your Honor, we have a copy of a complaint which was filed by the United States against the Fort Worth National Corporation and Mutual Savings and Loan As- sociation in Texas, which is a consolidation of a commer- cial bank and a savings and loan association in Texas; and the relevance [1779] of this complaint is that the Antitrust Division alleges that competition between the commercial bank and the savings and loan association will be eliminated and that that will constitute a violation of the antitrust laws. So that we think it is perhaps a little bit i but at least amplifies that they’re contending here that 1090 competition between commercial banks and savings banks and savings and loans on the other hand should be ex- cluded, in fact, in a case which is now pending in Texas, alleges the consolidation of a commercial bank and a sav- ings and loan association to be a violation of the antitrust laws. MR. CLARK: May I respond? I have no objection to the introduction of the exhibit. I think it is hardly help- ful here. The government did allege elimination of com- petition between these two national institutions in the submarkets within which they compete. And this is en- tirely consistent with the Supreme Court’s holding in the Phillipsburg case in which it held that commercial bank- ing is also a lack of commerce, so while we have no objee- tion to the exhibit, it is in no way inconsistent with the government’s position here. 11780] MR. REYCRAFT: We also have a memoran- dum on law and bank holding acquisitions of de novo banks which has been served on both the Department of Justice and the Comptroller of Currency that we would like to submit for the record. MR. CLARK: Your Honor, we will, of course, re- spond on this, what we consider to be a legal issue. We have nothing at this time, and I don’t anticipate that we will within the near future. It was my belief and my opinion that all parties would do this in their trial briefs, and I didn’t know the defense was going to do it, but I simply want to indicate that, of course, we will—out our position on this. THE COURT: By all means. MR. REYCRAFT: Also, on the exhibits which have been marked by the defendants 1 through 52 have been stipulated into evidence by the government. The re- maining exhibits up to 80, which I have just marked, have not been stipulated, and I would like to offer them at whatever time is appropriate. I don’t know if there’s any objection from the government. MR. CLARK: We have no objection. 117811 THE COURT: Without any objection, they all may be admitted as full exhibits. 1091 MR. REYCRAFT: We have also a commitment to the Court on statements by Mr. Chadwick on behalf of First New Haven and Mr. Hawley on behalf of Con- necticut National as to the market areas, we will have those submitted, I believe, by tomorrow one THE COURT: No hurry. Were all your exhibits, Mr. Bell, marked as full ex- hibits? MR. BELL: Yes, your Honor. : THE COURT: They were marked for identification. MR. BELL: They were offered as full exhibits, 76 and 77 and 78. THE COURT: Well, are there any exhibits that are still pending identification? MR. CLARK: I’m not sure, your Honor, I'd have to check the record. We marked a couple after our first batch were marked for the trial. THE COURT: Perhaps at a converient time counsel can get together with the clerk before the end of the trial, just to make sure we— MR. REYCRAFT: I have no objection to those that Mr. Clark has marked during the—subsequent to the [1782] stipulation, so they can go in, as far as we're concerned. THE COURT: Very well, they all may be marked as full exhibits. MR. REYCRAFT: Mr. Bell also has a memorandum of law, your Honor, which he can describe. MR. BELL: No, I didn’t. MR. REYCRAFT: Excuse me. MR. BELL: That’s all right. I don’t know if these are exhibits or not. Did you want those marked, your Honor, or not? THE COURT: What’s that? MR. BELL: That letter from the—this is a letter from Mr. Chadwick who is out of town for the next couple of weeks, your request of him was to send you a note or a letter as to what he thought his service area was. THE COURT: I think that should be marked as an exhibit, because that actually is in place of testimony. 1092 MR. BELL: This is the letter, and that would be 81. THE CLERK: §81. MR. REYCRAFT: I believe that Mr. McEnerney is prepared to proceed, your Honor, and we will go out [1783] of order. THE COURT: Very well. MR. McENERNEY: Call Mr. Donovan, please. 11784] JOHN L. DONOVAN, called as a witness hav- ing been first duly sworn by the Clerk of the Court, was examined and testified as follows: THE WITNESS: John L. Donovan, 7 Walnut Road, Wenham, Massachusetts. DIRECT EXAMINATION BY MR. McENERNEY: Q Mr. Donovan, would you describe your present posi- tion? A I am Regional Administrator of National Banks, the First National Bank Region, Boston Massachusetts. Q How long have you held that position? A A little bit over three years. Q Could you tell me, prior to holding the position as Regional Comptroller, what positions in the Comptroller’s office you have held? A I was appointed Regional Administrator in July of 1969; for the period December 1968 through July of 1969 I was Deputy Regional Administrator in Boston, Massa- chusetts; for—from January 1967 through December 1968 I was an Assistant Chief National Bank Examiner in Washington, D. C.; from March 1964 through De- cember 1966 I was a National Bank Examiner in the Fourth National Bank Region, Cleveland, Ohio; and from December 1960 through March 1964 I was an Assistant 11785] National Bank Examiner in Cleveland, Ohio. Q Mr. Donovan, could you give us your educational background? A After attending and graduating from parochial schools in Columbus, Ohio, I graduated from Xavier Uni- versity, Cincinnati, Ohio, in 1958 with a Bachelor of Arts 1093 Degree, and in 1967 J graduated from the Stonier Gradu- ate School of Banking, Rutgers State University, New Brunswick, New Jersey. Q Have you been an instructor in connection with banking? A Well, yes. In addition to my formal education, I’ve taken a number of banking courses, and then, dur- ing my period with the Comptroller’s office, I have taught at both regional schools in Cleveland, Ohio, and in Boston, Massachusetts. In addition to this I have delivered speeches to various banking groups and banking courses, such as the American Bank Institute and the Bank Administration Institute. Q Tell us, please, how many regions the United States is divided into for the purposes of the Comptroller’s of- fice administering national banks. A The Comptroller’s divided the United States into fourteen national bank regions. The regional headquart- ers are located in the major cities throughout the coun- try in the geographic areas which the region covers. [1786] Q Which region are you in? A As I said earlier, the—this is the First National Bank Region, and it covers the six New England states of Maine, New Hampshire, Vermont, Massachusetts, Rhode Island and Connecticut. It differs slightly from the First Federal Reserve District, which covers all of the six New England states with the exception of Fairfield County, Connecticut, and in the Federal Reserve system Fairfield County is in the Second Federal Reserve Dis- trict, New York. That is administered out of New York, is it? New York City, New York, yes. Your main office is where? Boston, Massachusetts. Do you have any subregions? Yes, we have subregional offices in all six states. In Connecticut we have one in Hartford, which is manned by two Examiners and seven assistants. In Springfield we have two Examiners and six assistants; they also assist in the examination of Connecticut banks. And in PO PO PO — 1094 Providence we have two Examiners and seven assistants, and they do some of the banks in Eastern Connecticut. Could you explain to us the duties and responsi- bilities of your job as Regional Comptroller. A Well, my primary responsibility is to be the [1787] Comptroller’s representative in the First National Bank Region and to supervise the condition, solvency and liq- uidity of the national banks. This is primarily through the examination process. In addition, I also supervise and investigate all ap- plications for charters, branches, relocations of offices, and merger or acquisition applications. And then, finally, I have the normal managerial du- ties of any supervisor with people working under him, such as personnel promotion, review of performance and the like. Q Would you tell us how many people you have em- ployed in your office? A As of October 31st we had a total complement of 119 people. Four of these are part-time cooperative stu- dents that work for us for a period and then go back to college, and 115 full-time employees. The office staff numbers 13, eight of which are clericals and five are regional officials. We have nine trust examiners who concentrate solely in the examination of the trust de- partments of the banks, and the balance of 92 are com- mercial examiners. They examine the commercial side of the banks. That number is divided into approxi- mately 30 commissioned examiners and 62 assistant ex- aminers. [1788] Q Could you tell us the number of national banks that your region supervises and examines? A As of June 30th we had 206 national banks in the six states. This is now 205 with the conversion of the Second New Haven Bank. Q Does your office only examine national banks? A That is correct. As a general rule we only ex- amine national banks. We reserve the right to make an examination of any state bank that desires to convert, though. 1095 Q Could you tell me how many national banks are headquartered in Connecticut? A As of December 31st there were 26 national banks headquartered in Connecticut. Four were unit banks in the sense that they did not have any branches, and the other 22 were—did operate branch offices. Q Is branch banking allowed in Connecticut? A Yes, it is permitted by the Connecticut State Statute. Q Can you tell us how long it has been authorized? A Prior to 1933 branching was not allowed in Con- necticut, and at that time they adopted their branching statute, which included the Home Office Protection clause. The statute has been amended from time to time since, but [1789] they have never disturbed the Home Office Protection aspect of it. THE COURT: Is that an unusual statute, the Home Office Protection Statute, or do many states have that? THE WITNESS: No, your Honor, it’s common when you—to a certain extent that—there are approximately eighteen states that permit statewide branching with certain modifications, and Connecticut is included in the statewide branching category. There are sixteen states that restrict it on a—to a lesser degree than statewide, and there are sixteen states that do not permit branch- ing at all. But the limitation for home office is common in some states. BY MR. McENERNEY: Q Could you tell us how long Hartford, New Haven and Bridgeport have been closed? A Well, to my knowledge, there has been at least one bank in each town that was chartered prior to 1933, so they’ve been closed since the inception of the branching statute. Q Would you tell me approximately how many branch [1790] offices are operated in Connecticut at present? 8 = of—including both national and state banks? es. A As of June—or as of December 81st there were 1096 approximately 470 branch offices and an additional 61 commercial bank main offices, for a total of 531, I be- lieve, banking offices, commercial bank offices. Q In your opinion, do out-of-state banks compete in Connecticut? A Based upon my personal knowledge of the Boston banks and my access to the work papers of those ex- aminations, I am aware that they have some credit ex- tensions to Connecticut-based companies. I would pre- sume that they also receive competition from the New York-based banks. There is a little from the Provi- dence banks, but not to the extent of Boston and New York. THE COURT: I think one of the things you said is that you are here representing the Comptroller—or is the Comptroller going to testify? MR. McENERNEY: No, he is not, your Honor. THE COURT: Doesn’t the Comptroller make a much stronger statement than you just made on that point? I may be wrong, because I have not read [1791] his opinion in some time, but— MR. McENERNEY: You are speaking now, your Honor, of the competition from New York? . THE COURT: Yes. My recollection is that the Comp- troller said something to the effect that the Boston and New York banks canvass Connecticut from border to border, and then he goes on, “and rightly so” or some- thing; so I will find that in his opinion. I am just wondering if this witness agrees or dis- agrees with what I thought was a much stronger state- ment, but when I find the statement we will read it for the record and we will weigh it later on. THE WITNESS: Well, your Honor, what I was at- tempting to do was—on my personal knowledge, which is limited to those banks in the First Region—I do not have access to the reports of the Second National Bank Region, which New York is in—there is a de- gree of competition from the Boston banks. THE COURT: Let me read what is among the state- ments. Perhaps there are others, but this is the one I had in mind: 1097 [1792] “Constituting as it does such a lush banking market, the large billion- and near-billion-dollar institu- tions in New York, Boston and Providence have can- vassed it from border to border in search of business, and rightly so.” I get the impression from that it is a little bit more than extending some credit to Connecticut-based busi- nesses. I would like to know what your opinion is. Do you agree with that statement that I just read to you? THE WITNESS: Well, very definitely, your Honor. I have met, through bank conventions and bank meet- ings, the corporate men of these—both the New York- based banks and the Boston-based banks, that call in Connecticut and are—I’d be willing to bet are present in the state at any one particular time. There are sev- eral of them, and they are calling on these customers. I have no personal knowledge of their degree of suc- cess in these call programs, but I have heard testimony here in court that there is 500 million dollars of busi- ness going down to New York City. I’d be willing to believe that. [1798] THE COURT: This is as good a time as any to find out several things: One, do you decide what your recommendation is go- ing to be only on personal knowledge as a Regional Ad- ministrator? For example, it seems impossible, incredi- ble to me, that you can make any decision that is put in front of you based on personal knowledge, if we are using the term as lawyers use it. For example, if First New Haven National says “We have 1,302 installment loans,” vou do not come down and count them, do you? THE WITNESS: No, your Honor, we do not. THE COURT: I mean, let’s get some ground rules straight here. Are we going to hear opinions based on his personal knowledge or based on an expert who rep- resents the Comptroller? MR. McENERNEY: Yes, your Honor. 1098 BY MR. McENERNEY: Q Let me ask you this: Do you know what the lending limits are of some of these larger banks in New York and in Boston? Do you know the size of some of these banks? A I am—I know the size of some of the larger banks [1794] in New York. The First National City Bank is up around 30 billion dollars. Chase Manhattan is somewhere around 27 billion dol- lars. They scale down from there. The Morgan Guaranty is, I believe, somewhere around 11 billion. The largest bank in Boston is the First National Bank of Boston, which is—has combined assets of about 5,400,000,000. The National Shawmut Bank of Boston has assets of about a billion two hundred million. State Street Bank of Boston has assets of about a billion one hundred million. . And New England Merchants National Bank of Boston has assets of around 950 million dollars. Q Where do these banks rank in the size of all banks in the United States? A Well, the New York banks rank from second to about eighth in size out of the top ten. There might be one or two in there. The First National Bank of Boston ranks somewhere around fifteenth or sixteenth in size in the nation. [1795] Q How would you compare their lending lim- its with those of the two banks involved in this con- solidation? A Individually? Taking each one of these separately, the Connecticut National and First New Haven? Q I think in general terms. A First New Haven separately—if you take the First National Bank of Boston, their lending limit would be around 40 million dollars, and I would expect that would be about ten times. Better than ten times the Con- 1099 necticut National’s; thirteen times. Theirs is around 3 to 3% million, so 40 million would be about thirteen times. Q How would the lending limits of the two banks involved in this consolidation compare with the Hart- ford National and the Connecticut Bank & Trust lend- ing limit? : A The Hartford National’s lending limit is about nine million dollars, and that would be about two times the—a little bit better than two times Connecticut Na- tional’s. It would be about three times—better than three times First New Haven’s. I’m not that familiar with Connecticut Bank & Trust’s lending limit, but I believe theirs is around—between eight and nine million, and again it would be two to three times greater. Q Do you know the types of accounts or the types of businesses that the New York and the Boston banks tend to [1796] compete for in Connecticut? A Yes. They compete primarily for the major cor- porate accounts, the large, national concerns that are doing business within the state, the insurance companies, the manufacturers and that type of account. Q Do you feel that these larger lending limits give them a competitive advantage? A Well, I think that they very definitely do, be- cause most—first of all, most bankers would like to have the customer shop at one place, and then most cus- tomers, I feel, would like to minimize the number of banking contacts that they have to maintain. And so it's —it’s, you know, in effect, a two-way street. Q Does your office regularly examine the two banks involved in this proposal, in this consolidation? A Yes, we do. The statute requires that we examine banks three times in every two years, and we stagger the examination for the surprise element, but we examine the banks roughly anywhere between eight and twelve months apart. Q Are you familiar with the banking structure in New Haven, Fairfield and Litchfield Counties? I am more familiar with the banking structure in Fairfield County and in New Haven County due to the 1100 limited [1797] number of banks in those two counties as opposed to Litchfield, where you have many more smaller banks. But I do have some knowledge of all three. Are you familiar with the deposit structure and available banking business in these counties? A Yes, I have reasonable knowledge of it. You measure this by the population, by the number of—by the size of the banks in those counties and by employ- ment figures, sales figures and data such as that. It’s a rough approximation of the available business there to compete for. Q Did your office investigate the proposed consoli- dation involved in this case? A We did make the investigation, that is correct. Q Can you tell us who made the investigation and the approximate length of the time that it took? A Well, as is office practice, prior to our Washing- ton office accepting an application for a merger or a consolidation, the data is reviewed for its completeness. The applicants are then told that it is acceptable for filing. At that time they also deliver two copies to my office in Boston, besides the thirteen copies they deliver in Washington. This permits us to get a head start on the investigation process in that we select an examiner and give him the data so he can de some initial investi- gation and [1798] review of the data. We are subse- quently notified by Washington that they have accepted the application, and at that point we designate this ex- aminer to commence his investigation on the scene. We selected Senior National Bank Examiner Lawrence W. Verno to make this particular investigation. He is the Senior Examiner in the Hartford headquarters here. Again, as normal, he got—he received the applica- tion and supporting documentation several days in ad- vance, and he had approximately eight days to make the investigation in the field and to write his report and return it to me. This is the normal procedure in this case. * : Who would your examiner normally talk to in the 1101 A Well, he starts out and reviews the various cri- teria for the—for the merger investigation, and then he goes down and tours through the market areas and the service areas of the two banks involved. He will call on competitor bankers and he will conduct what we call man-in-the-street type interviews. He'll try to call on some of the businesses and some of the local populations. Q Did he in this case talk with bankers in the bank- ing areas of the Bridgeport-New Haven area? A Yes, he did. [1799] Q Do you know whether or not there were any protests or objections? . MR. CLARK: Your Honor, at this point I would like to raise objection. It is hearsay. If he is going to get into this examination report, then I think it should be made available to the parties and, if neces- sary, put in the record. : MR. McENERNEY: Your Honor, I will withdraw the question. I merely asked the question because you raised a point before our lunch break as to whether or not there was any protest in this case. That is the only reason why I asked him the question. THE COURT: You can ask him, as the Regional Administrator, has any formal protest been entered by any other party; in his capacity as a Regional Admin- istrator he should know. But what you have asked him is if he knows if Mr. Verno heard any complaints. There is a big difference. But, if there is an official file which contains letters of recommendation, objections, things like that—I assume be is custodian of the documents in his office— MR. McENERNEY: Yes, your Honor. [1800] THE COURT: —and I assume that any other banks that is interested would be heard one way or another, would put things in writing, just as Mr. Morris testified to this morning. I cannot picture the bank administrators leaving-it to conversation. MR. CLARK: Your Honor, the Government’s posi- tion is, however, if this is to be brought out through testimony, that it is not best evidence; hence, since Mr. Donovan himself did not conduct any of the in- Q I will ask you the on: Has any formal protest filed in this case? A were no formal protests filed. {1801} MR. CLARK: Your Honor, may I now ask that that report be made available? THE COURT: Which report? MR. CLARK: The investigative report, and, indeed, the entire file from which Mr. Donovan is drawing his conclusion that there were no protests. That should be made available. THE COURT: Hasn't the Examiner’s file been made file. MR. CLARK: All right. Is that your only question, whether there were letters of protest? MR. McENERNEY: That is all. MR. CLARK: You are not asking him whether or not Mr. Verno or anyone else— MR. McENERNEY: I withdrew that. MR. CLARK: So there is nothing in the record that would show what the investigator’s report contains or whether or not any bankers expressed [1802] any mis- giving to him about this merger; is that correct? MR. McENERNEY: That is right. THE WITNESS: I believe we were following the 6 Q A Q Do you also investigate these? A The same basic procedures are involved with a branch investigation as with a merger investigation. There are several differences: the application and economic brief is filed directly the regional office by the applicants, and 11803] it regional office that reviews it for completeness. normally are not as 3 S. to do what we have been doing for three weeks, i the assistance of five attorneys on one side, four on the other, bank presidents, vice-presidents, et cetera, et cetera. What is the reason for the eight-day limitation? 1104 recommendation must be returned to Washington within fifteen days of our receipt of notification, so this is the major reason why we generally allow the investigating days and we try to process it in the time limit, but we within the time limit in this case. MR. McENERNEY: I think the answer probably is, your Honor, that we have made an effort, since Mr. Gib- ney left the administration and prior to Mr. Saxon, where four, five, six and up to eight and ten months would drag out on a merger application, on a branch—when are entitled to a more prompt decision. I think that this time span we are speaking of is in line with that [1805] THE COURT: Well, it does reflect economy, but does it also reflect on accuracy? I’m not saying it does, unless there’s something here that escapes me. But a major merger of at least two banks is investigated for eight days by one man seems to me to be a relatively short time to back up with underly- ing—with compilation of underlying facts any decision, that’s the only thing that comes to mind. I just hadn’t realized that. In fact, even when I have had challenges, private chal- lenges to bank branches, I didn’t know that those exam- inations were only taking three days. But, anyway, this will have-¢0 go to weight, it certainly doesn’t go to admissibility. MR. McENERNEY: I think in addition the merger application form does tend to summarize and bring to a head the economic factors involved and many of the statistics, and I think that it is not as if we would go 1105 8 5 2 4 353442 a4 2 gs 3 3 8 i: 14.311 ne bap: 71 11 rs 12 k feat iy 3 H | 73 4 i aici Highs 2 HA | bed e . i get at 2] eaatasy 120 Sia 5 4 age: 83 83 85 a . 11 i l 175 5 28 HHH pe 1112240 11104741. 2 14 F 721 1122 14245 1 -es ll - A- Je 1106 Connecticut under his jurisdiction. There are 68 sav- ings banks under his jurisdiction, also. He also has juris- diction over the savings and loans, of which there are approximately 17, and then he has one private bank and one industrial bank under his jurisdiction. These figures are as of December 31st, 1971. Q Are you familiar with a press release issued by the Comptroller of the Currency on February the 19th, 1965, concerning the limitation of new banking facilities in certain areas in Connecticut? A Iam familiar with the press release, yes. I show you Intervenor’s Exhibit No. 2 for Identi- fication and ask you if that is the press release that I have asked you about? A That is correct. This is the February 19th, 1965 press release. Q Can you give this Court the substance of this press release? A Th [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386414_0340%3A03. Public record. Not legal advice.