BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, DC 20551

October 22, 2013

David H. Pittinsky, Esq.
Ballard Spahr LLP
1735 Market Street, 51st Floor
Philadelphia, Pennsylvania 19103-7599
Dear Mr. Pittinsky:

The Board of Governors of the Federal Reserve System has
reviewed the notice by Mr. Gregory Mark Shepard to acquire 10 percent or more

of the Class B shares of Donegal Group, Inc., Marietta, Pennsylvania, and has
determined not to disapprove the notice.

In taking this action, the Board considered your comments on the
proposal. The Board’s reasons for its action are explained in the enclosed letter.

Very truly yours,

Margaret McCloskey Shanks
Deputy Secretary of the Board
Enclosure
cc: HH. Robert Tillman, Assistant Vice President
Federal Reserve Bank of Philadelphia

J. Victor Peterson, Esq.
Lathrop & Gage LLP

www.lederalreserve.gov


BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, DC 20551

October 22, 2013

J. Victor Peterson, Esq.
Lathrop & Gage LLP
155 North Wacker Drive
Suite 3050

Chicago, Illinois 60606

Dear Mr. Peterson:

The Board of Governors of the Federal Reserve System has
reviewed the notice filed under the Change in Bank Control Act of 1978! (“CIBC
Act”) by Gregory Mark Shepard (“Notificant”) to acquire 10 percent or more of
the Class B shares of Donegal Group, Inc. (“Donegal”), Marietta, and thereby
indirectly acquire shares of Union Community Bank (“Bank”), Lancaster, both of
Pennsylvania, pursuant to the CIBC Act and section 238.33 of Regulation LL.”

Under the CIBC Act, the Board is required to review notices in light
of specific statutory factors, including the competitive effects of the proposal; the
financial condition of the acquiring person and the future prospects of the
institution; the competence, experience, and integrity of persons acquiring shares
of a savings and loan holding company; and potential adverse effects of the
proposal on the Deposit Insurance Fund.’ In reviewing the statutory factors, the
Board has reviewed information Notificant provided regarding his financial
resources, the size of the proposed investment in Donegal, and the funding of the
proposed investment. The Board also has considered the results of name checks,
examination reports, and other supervisory information regarding Donegal and
Bank, and information provided by Bank’s primary banking regulator, the Federal
Deposit Insurance Corporation (“FDIC”).

As part of its consideration of Notificant’s competence, experience,
and integrity, the Board reviewed relevant information contained in the notice and

1 12 U.S.C. § 1817()).
2 12 CFR 238.33.
3 12 U.S.C. § 1817G)(7).

www. federalreserve.gov


2

public sources, as well as supplemental information provided by Notificant. No
information was found that would require the Board to disapprove the notice.

The Board has considered the notice in light of the other factors
required to be considered. With regard to the competitive effects of the proposal,
the Board has concluded that the proposed investment would not result in a
monopoly or lessening of competition. As for the financial condition of Notificant
and the future prospects of Bank, the Board has determined that Notificant’s
financial condition is not likely to jeopardize the financial stability of Bank or
prejudice the interests of Bank’s depositors. In that regard, the Board has
confirmed that Notificant has the resources to purchase the shares proposed.
Moreover, the current majority shareholder of Donegal would continue to control
a majority of Donegal’s shares on consummation of the proposal. Further, the
Board has not determined that the proposed investment would result in an adverse
effect on the Deposit Insurance Fund. The FDIC and the Pennsylvania
Department of Banking and Securities have advised the Board that they do not
object to the proposal.

The Board received comments objecting to the notice from a
commenter.* Pursuant to the Board’s regulations, commenters lack standing to
participate in CIBC Act proceedings, and comments on a notice filed pursuant to
the CIBC Act are for informational purposes only.* Nevertheless, during its

* The commenter stated that Notificant has a prior history of purchasing stock in
publicly held insurance companies and of seeking to force the sale or merger of
the companies. Notificant has represented that he would have no practical ability
to force a merger or consolidation of Donegal because Notificant has no
connection with Donegal’s parent company, Donegal Mutual Insurance Company,
which owns shares with approximately 66 percent of the total voting power of
Donegal stock. The commenter also stated that Notificant had failed to fully and
accurately respond to the information requested in his Interagency Biographical
and Financial Report (“IBFR”). Notificant provided additional information
supplementing and supporting his IBFR responses. The commenter also
expressed concerns regarding Notificant’s competence with respect to Notificant’s
stewardship of an insurance company that was placed in liquidation. Notificant
represented that the insolvency of an insurance company for which he served as
chairman and chief executive officer resulted from a number of factors, including
unexpected changes in the market, that were beyond his control. The Board
consulted the insurance company’s primary regulator, which generally
corroborated Notificant’s account of events and stated that the agency made no
allegations against Notificant in connection with the insolvency nor did the
insolvency implicate any wrongdoing by Notificant. Finally, the commenter
argued that Notificant is not financially capable of purchasing the shares he
proposes to purchase. As noted above, the Board has confirmed that Notificant
has the resources to purchase the shares.

5 12 CFR 238.33(c)(7).


3

review of the notice, the Board considered the issues raised by the commenter to
the extent relevant to the factors for consideration under the CIBC Act.

Based on the facts of record, the Board has determined not to
disapprove the notice. This determination is specifically conditioned on
compliance with all commitments made by Notificant in connection with the
notice. Commitments relied on by the Board in reaching this decision are deemed
to be conditions imposed in writing by the Board in connection with its finding
and decision and, as such, may be enforced in proceedings under applicable law.
Additionally, any material change in the facts and representations made in the
notice could result in a different conclusion and should be immediately reported to
staff at the Federal Reserve Bank of Philadelphia (“Reserve Bank”).

Please advise the Reserve Bank in writing when the proposal has
been consummated. If the proposal has not been consummated within one year of
this date, or if its terms or conditions change, the Reserve Bank should be
consulted to determine whether any additional action or notification is required.

The CIBC Act requires that, when a change in control occurs, each
insured depository institution or depository institution holding company shall
promptly report to the appropriate federal banking agency any change or
replacement of its chief executive officer or any of its directors that occurs in the
next 12 months, and shall provide a statement of the past and current business and
professional affiliations of any new chief executive officer or directors.° We
would appreciate your cooperation in ensuring that, if any such changes occur, the
required information is submitted to the Reserve Bank.

Very truly yours,

VV ergade (AArnde
Margaret McCloskey Shanks
Deputy Secretary of the Board

ce: H. Robert Tillman, Assistant Vice President
Federal Reserve Bank of Philadelphia
David Pittinsky, Esq.
Ballard Spahr LLP

® 12US.C. § 1817G)(12).