BOARD OF GOVERNORS

OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D.C, 2055!

SCOTT G. ALVAREZ
GENERAL COUNSEL

May 3, 2017

Campbell White, Esq.

White & White, Attorneys, LLP
Three Fountain Square

P.O. Box 98

Covington, IN 47932

Dear Mr. White:

This is in response to your letter to the Federal Reserve Bank of Chicago,
dated April 27, 2017, and received on April 28, requesting a waiver from an application
requirement under the Bank Holding Company Act of 1956, as amended (“BHC Act”),!
for Piper Holdings, Inc. (“Piper Holdings”), Covington, Indiana, a bank holding
company, to acquire The Farmers State Bank (“Farmers State Bank”), a stand-alone state
member bank, Brookston, Indiana.

The purpose of the proposed transaction is to facilitate the merger of
Farmers State Bank with and into Piper Holdings’ wholly-owned subsidiary state non-
member bank, The Fountain Trust Company, Covington, Indiana. The transaction would
occur as follows: (1) Piper Holdings would establish an Indiana-chartered interim bank,
Fountain Trust Merger Bank, as a wholly-owned subsidiary for the purpose of facilitating
the transaction; (2) Fountain Trust Merger Bank would merge with and into Farmers
State Bank, with Farmers State Bank as the resulting entity (“First Merger”); and
(3) immediately thereafter, Farmers State Bank would merge with and into The Fountain
Trust Company, with The Fountain Trust Company as the resulting entity (“Second
Merger,” and collectively with the First Merger, the “Bank Merger”). You have
indicated that Farmers State Bank would exist as a wholly-owned subsidiary of Piper
Holdings for only a moment in time and that Piper Holdings would never operate
Farmers State Bank as a separate entity.

1 12 U.S.C. § 1841 et sea.


Section 3 of the BHC Act and the Board’s Regulation Y require the
approval of the Board before a bank holding company may acquire direct or indirect
ownership or control of a bank.? Through the transaction described above, Piper
Holdings would acquire direct ownership of Farmers State Bank. Accordingly, Piper
Holdings would be required to obtain the Board’s approval under section 3 of the BHC
Act and Regulation Y before acquiring Farmers State Bank.

In certain circumstances, however, in order to avoid duplication of
regulatory review by federal banking regulators, the Board’s rules provide that a bank
holding company seeking to acquire shares or control of a bank need not obtain the
Board’s prior approval. Specifically, section 225.12(d)(2) of the Board’s Regulation Y
provides that a bank holding company need not obtain the Board’s approval if the
transaction is subject to review by a federal banking agency under section 18(c) of the
Federal Deposit Insurance Act (“the Bank Merger Act”),? and meets certain other
criteria. Your proposal meets all of the applicable criteria, and Piper Holdings has
provided all necessary information.

The proposed Bank Merger requires the prior approval of the Federal
Deposit Insurance Corporation (“FDIC”) under the Bank Merger Act.> In acting on the
merger proposal, the FDIC must consider the impact the acquisition would have on
competition, the financial and managerial resources and future prospects of the combined
organization, the convenience and needs of the communities served by Piper Holdings
and Farmers State Bank, the institutions’ records of performance under the Community
Reinvestment Act, the institutions’ effectiveness in combating money laundering
activities, and risks to the stability of the United States banking or financial system.®
These criteria are substantially similar to the criteria the Board would consider under
section 3 of the BHC Act.’

2 12 U.S.C. §.1842(a); 12 CFR 225.11.
3 12 U.S.C. § 1828(c).
4 12 CFR 225.12(d)(2).

5 12 U.S.C. § 1828(c). The Fountain Trust Company filed a Bank Merger Act
application, dated April 28, 2017, with the FDIC, requesting prior approval of the Bank
Merger. Piper Holdings has provided the Board with a copy of the application.

6 12 U.S.C. §§ 1828(c)(5) & (11), 2902(3)(E), 2903(a)(2).
7 See 12 U.S.C. § 1842(c); 12 CFR 225.13.


Additionally, at no time would Farmers State Bank operate as a separate
subsidiary bank of Piper Holdings. Following the transaction, the separate corporate
existence of Farmers State Bank would cease, and The Fountain Trust Company would
continue to operate as a state non-member bank. Under these circumstances, review of
the transaction under section 3 of the BHC Act would be duplicative of the review under
the Bank Merger Act.

Based on a review of these and other facts presented, the Legal Division
believes that no regulatory purpose would be served by requiring Piper Holdings to file a
formal application under section 3 of the BHC Act. The Legal Division, therefore, would
not recommend that the Board take action to require a filing of a formal application by
Piper Holdings in connection with the transaction described above. This opinion is
subject to the receipt by Piper Holdings, The Fountain Trust Company, The Fountain
Trust Merger Bank, and Farmers State Bank of all other necessary regulatory approvals
and compliance with any terms and conditions that may be imposed upon approval of the
proposal.

This opinion is based on all the facts and representations presented to
Federal Reserve staff. Any material change in those facts or representations should be
communicated immediately to Federal Reserve staff and may cause this opinion to be
reconsidered. This opinion is limited to this proposal and does not apply to any other
transaction.

If you have any questions regarding this matter, please contact
Derald Seid at (202) 452-2246 or Jason Shafer at (202) 728-5811, of my staff.

Sincerely,

Lp be.
batt fy

cc: Federal Deposit Insurance Corporation