Fed Approves $76.6M Peoples-Citizens Deal Over Barr’s Competition Objection

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The Federal Reserve has approved Peoples Bancorp Inc.’s proposed $76.6 million acquisition of Citizens National Corporation, but the decision exposed a split over how the central bank is weighing competition in already concentrated local banking markets.

The 29-page order issued Sept. 25 cleared Marietta, Ohio-based Peoples Bancorp to merge with Citizens National and indirectly acquire Citizens Bank of Kentucky. Peoples Bank also received approval to merge with Citizens Bank and operate its existing branches.

The vote was 6-1. Chairman Kevin Warsh, Vice Chair Philip Jefferson, Vice Chair for Supervision Michelle Bowman and Governors Jerome Powell, Christopher Waller and Lisa Cook voted for the application. Governor Michael Barr cast the only vote against it.

Barr’s objection centered on the Pikeville, Kentucky banking market, where both companies already compete. In a separate statement, Barr said the acquisition would materially increase concentration and questioned why the Board did not require branch divestitures.

“I am perplexed why the Board did not request branch divestitures that would reduce concentration in the Pikeville area,” Barr said. “Requesting branch divestitures to reduce negative effects on competition is standard practice in bank merger reviews.”

The numbers behind that disagreement are substantial. According to the Fed’s order, Peoples is the fourth-largest depository organization in the Pikeville market, with about $266.3 million in deposits and a 9.2% share. Citizens is second, with roughly $467.9 million and a 16.1% share. If the transaction closes, Peoples would become the market’s second-largest depository organization, controlling about $734.2 million, or 25.2% of market deposits.

The initial concentration calculation would raise the market’s Herfindahl-Hirschman Index, or HHI, by 294 points to 3,158. After giving additional weight to a qualifying credit union, the Fed calculated a 293-point increase to 3,153. The Board’s longstanding framework considers a banking market highly concentrated when its HHI exceeds 1,800 and traditionally views increases of more than 200 points as requiring closer competitive scrutiny.

The majority nevertheless concluded the transaction would not have a significantly adverse effect on competition. The Board cited the continued presence of nine depository institutions in the Pikeville market after the merger, including one institution with more than 48% of market deposits. It also said available small-business loan origination data suggested the transaction was unlikely to substantially harm competition in small-business lending.

The Justice Department reviewed the transaction and, according to the Fed order, did not conclude that it would have a significantly adverse effect on competition. Other banking agencies given an opportunity to comment did not object.

The Fed also disclosed that it received 12 adverse public comments on the proposal. Some commenters argued the combination would reduce consumer choice in areas where the banks overlap. Peoples responded that multiple banks would remain in those markets.

Branch consolidation is also part of the record. Peoples told the Fed that it expects to consolidate two Citizens Bank branches located close to existing Peoples Bank offices. It is considering one additional consolidation involving a Citizens or Peoples branch, although no final decision has been made.

Peoples and Citizens announced the transaction April 21. The cash-and-stock deal was valued at approximately $76.6 million at announcement. Citizens reported $686 million in assets, $342 million in gross loans and $586 million in deposits as of March 31, while Peoples reported $9.6 billion in assets. Citizens operates 12 branches in eastern Kentucky and offers residential and commercial lending.

The acquisition is part of a broader run of bank and mortgage-platform consolidation. WRE News recently reported that Gateway First Bank agreed to acquire Colonial Savings, another transaction combining banking and mortgage operations.

The Peoples-Citizens transaction has not yet closed. The Fed’s approval is conditioned on compliance with the order and receipt of all required regulatory approvals. Under the order, the deal cannot be consummated before the 15th calendar day after Sept. 25 and generally must close within three months of that date unless the Fed or the applicable Reserve Bank grants an extension.

If completed, the Fed estimates Peoples Bancorp would have approximately $9.7 billion in consolidated assets and $8.2 billion in deposits. In Kentucky, it would become the 13th-largest insured depository organization, controlling about $2.2 billion in deposits, or 1.8% of the statewide total.

The unresolved issue is narrower but potentially important for future bank combinations: how much local-market concentration the Fed will accept when broader evidence suggests customers still have meaningful alternatives. Barr’s dissent puts that question squarely in the record even as the transaction moves toward closing.