|For immediate release|
The Federal Reserve Board today announced its approval of the application by National City Corporation, Cleveland, Ohio, to merge with First of America Bank Corporation, Kalamazoo, Michigan ("First of America"), and thereby acquire First of America's bank and nonbank subsidiaries.
Attached is the Board's Order relating to this action.
National City Corporation
National City Corporation, Cleveland, Ohio ("National City"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 3 of the BHC Act (12 U.S.C. § 1842) to merge with First of America Bank Corporation, Kalamazoo, Michigan ("First of America"), and thereby acquire First of America's subsidiary banks, First of America Bank, N.A., Kalamazoo, Michigan ("FOA-Michigan"), and First of America Bank - Illinois, N.A., Bannockburn, Illinois ("FOA-Illinois").1 National City also has requested the Board's approval under section 4(c)(8) of the BHC Act (12 U.S.C. § 1843(c)(8)) and section 225.24 of the Board's Regulation Y (12 C.F.R. 225.24) to acquire the nonbanking subsidiaries of First of America and thereby engage in the nonbanking activities listed in Appendix A.
Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (62 Federal Register 65,428 (1997)). The time for filing comments has expired, and the Board has considered the proposal and all comments received in light of the factors set forth in sections 3 and 4 of the BHC Act.
National City, with total consolidated assets of approximately $52.7 billion, is the 20th largest commercial banking organization in the United States, controlling approximately 1.1 percent of total banking assets of insured commercial banks in the United States ("total banking assets").2 The subsidiary banks of National City operate in Indiana, Kentucky, Ohio, and Pennsylvania. National City also engages through other subsidiaries in a number of permissible nonbanking activities. First of America, with total consolidated assets of approximately $21.7 billion, is the 39th largest commercial banking organization in the United States, controlling less than 1 percent of total banking assets in the United States. First of America owns two subsidiary banks that operate in Indiana, Illinois, and Michigan, and engages in a variety of permissible nonbanking activities. On consummation of the proposal, and taking into account all proposed divestitures, National City would become the 13th largest commercial banking organization in the United States, with total consolidated assets of approximately $74.4 billion, representing approximately 1.5 percent of total banking assets in the United States.
As noted, National City and First of America both operate subsidiary banks in Indiana. National City is the third largest depository organization in Indiana, controlling $4.3 billion in deposits, representing approximately 6.5 percent of total deposits in insured depository institutions in the state.3 First of America is the 13th largest depository organization in Indiana, controlling $1 billion in deposits, representing approximately 1.5 percent of total deposits in insured depository institutions in the state. On consummation of the proposal, and taking into account all proposed divestitures, National City would remain the third largest depository organization in Indiana, controlling $5.2 billion in deposits, representing approximately 7.9 percent of total deposits in depository institutions in Indiana.
National City and First of America compete directly in the Toledo, Ohio, banking market and in the Indiana banking markets of Anderson, Fort Wayne, Gary, Indianapolis, Kokomo, and Peru.7 Consummation of the proposal would be consistent with the Department of Justice Merger Guidelines8 and prior Board precedent as discussed in Appendix B in all of those banking markets except the Anderson, Indiana, banking market ("Anderson banking market").9
In order to mitigate the potential anticompetitive effects of the proposal in the Anderson banking market, National City has committed to divest two First of America branches controlling total deposits of approximately $33.9 million.10 After accounting for the proposed divestitures, National City would remain the largest depository institution in the Anderson banking market, controlling deposits of approximately $402.6 million, representing approximately 34.3 percent of total deposits controlled by depository institutions in the banking market ("market deposits").11 Concentration in the market, as measured by the HHI, would increase 357 points to 2004.
In considering the competitive effects of the proposal, the Board has evaluated the competition provided by two savings associations and has concluded that deposits controlled by those institutions should be weighted at 100 percent.12 In this light, the HHI would increase 323 points to 1853, and the effect of the proposal on market concentration as measured by the HHI would be relatively small. In addition, some mitigating considerations offset the proposal's limited effect on competition. In addition to National City, eight commercial bank competitors would remain in the market after consummation. One large multi-state bank holding company competitor would control more than 18 percent of market deposits. The proposal also would not decrease the number of competitors in the Anderson banking market because National City has proposed to divest its branches to an out-of-market commercial banking organization. Although measures of the attractiveness of the Anderson banking market for entry are mixed, the Board notes that there recently has been de novo entry by a banking organization and entry by acquisition by a large multi-state banking organization.
As in other cases, the Board sought comments from the Justice Department and the Office of the Comptroller of the Currency ("OCC") on the likely competitive effects of this case. The Justice Department has advised the Board of the Department's view that, in light of the proposed divestitures, consummation of the proposal would not be likely to have a significantly adverse competitive effect in the Anderson banking market or in any other relevant banking market. The OCC did not object to consummation of the proposal or indicate that the proposal would have any significantly adverse competitive effects in any banking market.
Based on these and all other facts of record, and for the reasons discussed in this order, the Board concludes that consummation of the proposal would not result in any significantly adverse effects on competition or on concentration of banking resources in the Anderson banking market or in any other relevant banking market.
Other Factors under the BHC Act
A. Financial, Managerial, and Other Supervisory Factors
B. Convenience and Needs Considerations
The Board also received comments from the Woodstock Institute ("Commenter") opposing the proposal and contending that First of America has an inadequate record in the Chicago area of making housing-related loans in minority communities and small business loans in LMI census tracts. Commenter also challenged First of America's delineated community because it does not include inner city LMI communities in Chicago.
The Board has long held that consideration of the convenience and needs factor includes a review of the records of the relevant depository institutions under the Community Reinvestment Act (12 U.S.C. § 2901 et seq.) ("CRA"). National City has indicated that it would implement its CRA policies and programs in communities currently served by First of America. In this light, the Board has given substantial consideration to National City's record. In general, the Board notes that National City's subsidiary banks provide a range of financial services including loans for 1-4 family dwellings, affordable housing, and small businesses. National City also has indicated that the proposed transaction would provide First of America's customers with access to specialized products, including a Lifeline checking product for LMI customers and 24-hour telephone banking and bill-paying services.
CRA Performance Examinations. As provided in the CRA, the Board evaluates the convenience and needs factor in light of examinations of the CRA performance records of the relevant institutions by their primary federal supervisors. An institution's most recent CRA performance evaluation is a particularly important consideration in the applications process because it represents a detailed, on-site evaluation of the institution's overall record of performance under the CRA by its primary federal supervisor.13
National City's lead bank, National City Bank, Cleveland, Ohio, received an "outstanding" rating from the OCC at its most recent examination, as of December 31, 1996 ("1996 Examination"). All of National City's other subsidiary banks also received "outstanding" ratings from their primary federal supervisors at their most recent examinations for CRA performance. In addition, First of America's subsidiary banks, FOA-Illinois and FOA-Michigan, received "outstanding" ratings from the OCC as of March 31, 1996.
Lending Record of National City. National City has several lending programs designed to assist in meeting the housing-related credit needs of LMI and minority borrowers. For example, National City offers a RIGHT affordable home mortgage product that provides flexible underwriting guidelines to first-time home buyers with limited incomes and to those purchasing homes within LMI areas. In 1996, National City Bank originated 367 loans totalling $19.9 million under the program. National City also offers the "At Home Loan" to provide unsecured small home improvement loans to qualified borrowers with annual household incomes of $25,000 or less.
National City also intends to expand the activities of the National City Community Development Corporation ("NCCDC") to include the communities served by First of America's subsidiary banks. NCCDC currently offers the CHAMP affordable home mortgage product, which provides low interest mortgages to purchasers of homes in the City of Cleveland that have been built or renovated. In 1996, National City Bank originated 22 loans totalling $2.4 million under the program.
National City actively engages in small business lending. National City Bank originated 1,548 small business loans totalling $172.7 million in 1996. Small business lending activities included programs sponsored by federal, state, and local government agencies. In 1996, National City Bank originated 16 loans totalling $2.2 million under programs sponsored by the Small Business Administration.14 In addition, the bank participates in the State of Ohio Linked Deposit Program ("Linked Deposit Program"), which links state treasury deposits to small business loans. In 1996, National City Bank originated 15 loans totalling $5 million under the Linked Deposit Program.
The Board also has considered National City's record of lending to African-American borrowers. For example, 1996 data provided under the Home Mortgage Disclosure Act (12 U.S.C. § 2801 et seq.) ("HMDA") by National City Bank and National City Mortgage Company, Miamisburg, Ohio, for the bank's assessment area indicate that National City's percentage of originations to African American applicants was higher than that for the aggregate of all HMDA reporters the assessment area. National City originated 12.7 percent of its home mortgage purchase loans to African Americans compared to 11.1 percent for all lenders in the aggregate.
Moreover, examiners did not find any evidence of prohibited discrimination or illegal credit practices at any of the subsidiary banks of National City or First of America in their most recent CRA performance examinations. In addition, examiners noted that National City's subsidiary banks provided training in fair lending laws and principles to all applicable employees, and had implemented steps such as a second review program to ensure compliance with fair lending laws.
FOA-Illinois's Delineated Communities. Commenter challenged the community delineation used by FOA-Illinois in the Chicago area. The reasonableness of an institution's local delineated community depends on a number of factors, including a careful review of the areas surrounding the locations of an institution's main office, branches and deposit-taking automated teller machines. The review of an institution's delineated community also requires consideration of whether the institution has arbitrarily excluded LMI areas, taking into account the institution's size and financial condition. The Board believes that an assessment of an institution's delineated community can be most effectively considered in an on-site examination by the institution's primary federal supervisor. The Board also believes that an on-site examination provides a better opportunity to consider whether an institution's delineated community reflects illegal discrimination in light of all the institution's lending activities.
At the time of its most recent CRA performance examination in March 1996, FOA-Illinois operated 129 branches in 29 counties in Illinois, and the bank's delineated communities consisted of those counties.15 FOA-Illinois selected those counties for its delineated community using a methodology permitted by regulations in effect at the time.16 Examiners concluded that FOA-Illinois's delineation was reasonable and did not arbitrarily exclude LMI areas.17 The Board also has considered confidential supervisory information from the OCC regarding Commenter's contentions that FOA-Illinois's delineated community should include all of Chicago. Moreover, the Board notes that National City intends to reevaluate FOA-Illinois's delineated communities after consummation of the proposal.
Conclusion on Convenience and Needs Considerations. The Board has carefully considered all the facts of record, including the public comments received, responses to those comments, and the CRA performance records of the subsidiary banks of National City and First of America, including relevant reports of examination. Based on a review of the entire record, and for the reasons discussed in this order, the Board has concluded that convenience and needs considerations, including the CRA records of performance of the subsidiary banks of National City and First of America, are consistent with approval.
B. Underwriting and Dealing in Bank-Ineligible Securities
National City has committed that Company will conduct its bank-ineligible securities underwriting and dealing activities subject to the Board's 25 percent revenue limit.22 As a condition of this order, National City is required to conduct its bank-ineligible securities activities subject to the Operating Standards for section 20 subsidiaries ("Operating Standards") and the conditions in the Board's orders permitting National City to engage in limited bank-ineligible securities activities through Company.23
C. Other Nonbanking Considerations
The Board also has carefully considered the competitive effects of the proposed acquisition of First of America's nonbanking subsidiaries. National City operates nonbanking subsidiaries that compete with certain nonbanking subsidiaries of First of America. In each case, the markets for the nonbanking services are unconcentrated, and there are numerous providers of the services. As a result, consummation of this proposal would have a de minimis effect on competition for these services, and the Board has concluded that the proposal would not result in a significantly adverse effect on competition in any relevant market.
The Board expects, moreover, that the acquisition of First of America by National City would provide added convenience to First of America customers, to National City's customers, and to other members of the public. Consummation of the proposal also is likely to result in increased operating efficiencies and expanded services to customers of both National City and First of America.
Under the framework established in this order and the Section 20 Orders, and based on all the facts of record, the Board concludes that Company's proposed underwriting and dealing activities are not likely to result in significantly adverse effects that would outweigh the public benefits expected in this case. Similarly, the Board finds no evidence that National City's proposed lending, trust company, financial and investment advisory, securities brokerage, other transactional, credit insurance, and community development activities -- conducted under the framework established in this order and Regulation Y -- would likely result in any significantly adverse effects that would outweigh the public benefits of the proposal. Accordingly, the Board has determined that the performance of the proposed activities by National City is a proper incident to banking for purposes of section 4(c)(8) of the BHC Act.
The Board's determination on the nonbanking activities also is subject to all the terms and conditions set forth in Regulation Y, including those in sections 225.7 and 225.25(c) of Regulation Y (12 C.F.R. 225.7 and 225.25(c)), and to the Board's authority to require such modification or termination of the activities of a bank holding company or any of its subsidiaries as the Board finds necessary to ensure compliance with, and to prevent evasion of, the provisions of the BHC Act and the Board's regulations and orders issued thereunder. The commitments and conditions relied on by the Board in reaching this decision are deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law.
The acquisition of First of America's subsidiary banks shall not be consummated before the fifteenth calendar day following the effective date of this order, and the proposal shall not be consummated later than three months after the effective date of this order, unless such period is extended for good cause by the Board or by the Federal Reserve Bank of Cleveland, acting pursuant to delegated authority.
By order of the Board of Governors,26 effective February 11, 1998.
(signed) Jennifer J. Johnson
Jennifer J. Johnson
Nonbank Subsidiaries of First of America to be Acquired by National City
Banking markets in which consummation of the proposal would not exceed the DOJ Guidelines:
1 National City and First of America also have requested approval of options to purchase up to 19.9 percent of the voting stock of the other institution if certain events occur. The options would expire on consummation of the proposal.
2 Asset and ranking data are as of September 30, 1997. State deposit and ranking data are as of June 30, 1997, and, as discussed in the order, take into account National City's commitment to divest certain deposits. Market data are as of June 30, 1996.
3 In this context, depository institutions include commercial banks, savings banks, and savings associations.
4 Pub. L. No. 103-328, 108 Stat. 2338 (1994).
5 A bank holding company's home state is that state in which the operations of the bank holding company's banking subsidiaries were principally conducted on July 1, 1966, or the date on which the company became a bank holding company, whichever is later. 12 U.S.C. § 1841(o)(4)(C).
6 See 12 U.S.C. §§ 1842(d)(1)(A) and (B) and 1842(d)(2)(A) and (B). National City is adequately capitalized and adequately managed, as defined by the Riegle-Neal Act. FOA-Illinois has been in existence and continuously operated for at least the minimum period required under Illinois law. See 205 Ill. Comp. Stat. 10/3.071 and 3.09 (Lexis through 1997 Reg. Sess.). Indiana and Michigan have no minimum age requirement. On consummation of the proposal, National City would control less than 10 percent of the total amount of deposits of insured depository institutions in the United States and less than 30 percent of the total amount of deposits of insured depository institutions in Indiana, Illinois, and Michigan. All other requirements of section 3(d) of the BHC Act also would be met on consummation of the proposal.
7 National City has entered into a binding contract to sell its only branch in the Peru, Indiana, banking market ("Peru banking market") to an out-of-market banking organization. In this light, concentration in this banking market would not increase as a result of the proposal.
8 Under the guidelines, 49 Federal Register 26,823 (June 29, 1984), a market in which the post-merger Herfindahl-Hirschman Index ("HHI") is above 1800 is considered highly concentrated. The U.S. Department of Justice ("Justice Department") has informed the Board that a bank merger or acquisition generally will not be challenged (in the absence of other factors indicating anticompetitive effects) unless the post-merger HHI is at least 1800 and the merger increases the HHI by more than 200 points. The Justice Department has stated that the higher than normal HHI thresholds for screening bank mergers for anticompetitive effects implicitly recognize the competitive effect of limited-purpose lenders and other non-depository financial entities.
9 The Anderson banking market is an area in Indiana that is approximated by Madison County except for Greene Township; Salem Township in Delaware County; Falls Creek Township in Henry County; and Madison Township in Tipton County.
10 National City has committed to execute sales agreements with an out-of-market commercial banking organization prior to consummation of the acquisition of First of America and to complete the divestitures within 180 days of consummation of the acquisition. National City also has committed that, in the event it is unsuccessful in completing any divestiture within 180 days of consummation of the proposal, including the sale of National City's branch in the Peru banking market, National City will transfer the unsold branch(es) to an independent trustee that is acceptable to the Board and that will be instructed to sell the branches promptly. BankAmerica Corporation, 78 Federal Reserve Bulletin 338 (1992); United New Mexico Financial Corporation, 77 Federal Reserve Bulletin 484 (1991). National City has further committed that, prior to consummation, it will submit to the Board an executed trust agreement acceptable to the Board stating the terms of these divestitures.
11 Market share data before consummation are based on calculations in which the deposits of thrift institutions are included at 50 percent. The Board previously has indicated that thrift institutions have become, or have the potential to become, significant competitors of commercial banks. See Midwest Financial Group, 75 Federal Reserve Bulletin 386 (1989); National City Corporation, 743 (1984). Thus, the Board has regularly included thrift deposits in the calculation of market share on a 50-percent weighted basis. See, e.g., First Hawaiian, Inc., 77 Federal Reserve Bulletin 52 (1991).
12 The Board previously has indicated that, when analyzing the competitive effects of a proposal, it may consider the competitiveness of savings associations at a level greater than 50 percent of the savings associations's deposits if appropriate. See Banknorth Group, Inc., 75 Federal Reserve Bulletin 703 (1989). In the Anderson banking market, the two savings associations maintain 5.9 percent and 6.3 percent, respectively, of their assets in commercial loans, compared to the national average for thrifts of 1.7 percent. In addition, informal interviews with employees of the savings associations showed that each savings association maintained separate commercial lending departments with at least eight commercial lending officers and each planned to increase its staff. The institutions also offered customers a variety of business products and services.
13 The Statement of the Federal Financial Supervisory Agencies Regarding the Community Reinvestment Act ("Agency CRA Statement") provides that a CRA examination is an important and often controlling factor in the consideration of an institution's CRA record and that reports of these examinations will be given great weight in the applications process. See 54 Federal Register 13,742 and 13,745 (1989).
14 National City Bank also participates in the City of Cleveland Microloan program which offers "start-up" assistance for small businesses.
15 FOA-Illinois divided its service communities into five regions: Metro-Chicago, Northern, Eastern, Southern and Western. The Metro-Chicago and Northern regions include the majority of the counties of the Chicago Metropolitan Statistical Area.
16 When FOA-Illinois delineated its service communities, a bank could use any one of the following methods for delineation: (1) the existing boundaries, such as those of standard metropolitan statistical areas or counties in which the bank's office or offices are located, and adjacent areas, if appropriate; (2) the local areas around each office or group of offices where it makes a substantial portion of its loans and all other areas equidistant from its offices; or (3) any other reasonable delineation that meets the purpose of the CRA and does not exclude LMI neighborhoods. See, e.g., 12 C.F.R. 228.3(b) (1996).
17 Examiners also noted that in 1995, FOA-Illinois originated 33 percent of its loans in its Metro-Chicago region in LMI areas.
18 See 12 C.F.R. 225.28(b)(1), (5), (6), (7)(i), (8), (11), and (12).
19 See First of America Corporation, 80 Federal Reserve Bulletin 1120 (1994).
20 See National City Corporation, 81 Federal Reserve Bulletin 807 (1995); National City Corporation, 80 Federal Reserve Bulletin 346 (1994), (together, "National City Orders").
21 See Citicorp, 73 Federal Reserve Bulletin 473 (1987), aff'd sub nom. Securities Industry Ass'n v. Board of Governors of the Federal Reserve System, 839 F.2d 47 (2d Cir. 1988), cert. denied, 486 U.S. 1059 (1988); as modified by Review of Restrictions on Director, Officer and Employee Interlocks, Cross-Marketing Activities, and the Purchase and Sale of Financial Assets Between a Section 20 Subsidiary and an Affiliated Bank or Thrift, 61 Federal Register 57,679 (1996), and Amendments to Restrictions in the Board's Section 20 Orders, 62 Federal Register 45,295 (1997), (collectively, the "Section 20 Orders").
22 Compliance with the revenue limitation shall be calculated in accordance with the method stated in the Section 20 Orders, as modified by the Order Approving Modifications to the Section 20 Orders, 75 Federal Reserve Bulletin 751 (1989), and 10 Percent Revenue Limit on Bank-Ineligible Activities of Subsidiaries of Bank Holding Companies Engaged in Underwriting and Dealing in Securities, 61 Federal Register 48,953 (1996), and Revenue Limit on Bank-Ineligible Activities of Subsidiaries of Bank Holding Companies Engaged in Underwriting and Dealing in Securities, 61 Federal Register 68,750 (1996), (collectively, "Modification Orders").
23 See 12 C.F.R. 225.200; National City Orders.
24 See 12 U.S.C. § 1843(c)(8).
25 See 12 C.F.R. 225.26; see also The Fuji Bank, Limited, 75 Federal Reserve Bulletin 94 (1989); Bayerische Vereinsbank AG, 73 Federal Reserve Bulletin 155 (1987).
26 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Kelley, Phillips, Meyer, Ferguson, and Gramlich.
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1998 Orders on banking applications