|For immediate release|
The Federal Reserve Board today announced its approval of the application and notice of First Midwest Bancorp, Inc., Itasca, Illinois, to acquire Heritage Financial Services, Inc., Tinley Park, Illinois ("Heritage"), and thereby acquire Heritage Bank, Blue Island, Illinois, and Heritage's nonbank subsidiaries.
Attached is the Board's Order relating to this action.
First Midwest Bancorp, Inc.
First Midwest Bancorp, Inc. ("First Midwest"), 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 acquire Heritage Financial Services, Inc., Tinley Park, Illinois ("Heritage"), and Heritage Bank, Blue Island, Illinois.1 First Midwest 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 Heritage's nonbanking subsidiaries, Heritage Trust Company, Tinley Park, Illinois ("Heritage Trust"), and First National Bank of Lockport, Lockport, Illinois ("Lockport"), and thereby engage in trust company activities. p Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 9233 and 16,815 (1998)). 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.
First Midwest is the 12th largest depository institution in Illinois, controlling $2.2 billion in deposits, representing approximately 1 percent of total deposits in insured depository institutions in the state ("state deposits").2 Heritage is the 26th largest depository institution in Illinois, controlling $1.1 billion in deposits, representing less than 1 percent of state deposits. On consummation of the proposal, First Midwest would become the ninth largest depository institution in Illinois, controlling $3.3 billion in deposits, representing approximately 1.6 percent of state deposits.
First Midwest and Heritage compete directly in the Illinois banking markets of Joliet and Chicago.3 After consummation of the proposal, First Midwest would become the largest depository institution in the Joliet banking market, controlling deposits of approximately $758.6 million, representing approximately 20.8 percent of total deposits in depository institutions in the market ("market deposits").4 The Herfindahl-Hirschman Index ("HHI") for the banking market would increase by 126 points to 1273.5 In the Chicago banking market, First Midwest would become the 11th largest depository institution, controlling deposits of approximately $1.7 billion, representing approximately 1.3 percent of market deposits. The HHI for the banking market would increase by 1 point to 834. Based on all the facts of record, including the small increases in concentration as measured by the HHI numbers and the number of competitors that would remain in each banking market, the Board concludes that consummation of the proposal would not have a significantly adverse effect on competition or on the concentration of banking resources in the Joliet or Chicago banking markets or any other relevant banking market.
Financial, Managerial, and Other Supervisory Factors
Convenience and Needs Considerations
CRA Performance Examinations. 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"). 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 appropriate 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 appropriate federal supervisor.7
First Midwest Bank received a "satisfactory" CRA performance rating from the Office of the Comptroller of the Currency ("OCC") at its most recent examination, as of August 29, 1996. Heritage Bank received a "satisfactory" rating from its appropriate federal supervisor, the Federal Deposit Insurance Corporation, at its most recent examination for CRA performance, as of February 10, 1997.
Examiners found no evidence of prohibited discrimination or other illegal credit practices at First Midwest Bank or Heritage Bank and found no violations of fair lending laws. Examiners also found that First Midwest Bank's delineation of its local community was reasonable and did not arbitrarily exclude LMI areas, and that the bank's services reasonably penetrated all markets in its assessment area. In addition, examiners determined that First Midwest Bank effectively made loans throughout its service areas, including in LMI areas and to LMI individuals.
In reviewing the convenience and needs factor, the Board notes that First Midwest Bank offers a range of financial products to assist in meeting the credit and banking needs of its communities. The bank offers several programs to assist in meeting the credit needs of LMI borrowers, including affordable home mortgage products designed specifically for LMI borrowers and residences in LMI census tracts. The programs feature flexible underwriting guidelines and low down payments. First Midwest also offers the "Believer Loan" program, which is designed to help individuals establish or rebuild credit. In addition, First Midwest Bank has designed several basic banking accounts for its LMI customers. Its "Thrifty Checking Account" has a small minimum balance requirement and a reduced monthly maintenance fee. Its "Small Business Checking Account" and "Not-for-Profit Checking Account" are low-fee accounts available to small businesses and not-for-profit organizations.8
First Midwest Bank makes available a variety of credit products to small businesses operating in LMI census tracts.9 The bank also participates in federal and state government-sponsored small business and small farm loan programs, including programs offered by the Small Business Administration, the Farmers Home Administration, and the Illinois Farm Development Authority.
First Midwest Bank participates in numerous community development organizations that serve LMI communities throughout its assessment area. The bank's community development efforts in Lake County have included participating in several micro-loan pools, providing operating support to several affordable housing organizations, investing in the Chicago Equity Fund, which funds the development of low-income housing in the six-county Chicago Metropolitan area, and providing loan commitments for construction of several low-income housing projects.
Conclusion on Convenience and Needs Considerations. The Board has carefully considered all the facts of record, including the public comments received, responses to the comments, and the CRA performance records of the subsidiary banks of First Midwest and Heritage, 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 performance records of the subsidiary banks of First Midwest and Heritage, are consistent with approval.
In order to approve the proposal, the Board also must determine that the performance of the proposed activities is a proper incident to banking, that is, that the proposed transaction "can reasonably be expected to produce benefits to the public . . . that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices."11 As part of the Board's evaluation of these factors, the Board considers the financial and managerial resources of the notificant and its subsidiaries, including any company to be acquired, and the effect the transaction would have on such resources.12 Based on all the facts of record, the Board has concluded that financial and managerial considerations are consistent with approval of the notice under section 4 of the BHC Act for the reasons discussed above.
The Board also has carefully considered the competitive effects of the proposed acquisition of Heritage Trust and Lockport. First Midwest operates a trust company subsidiary that competes with Heritage Trust and Lockport; however, the relevant markets for trust company services are unconcentrated, and there are numerous providers of such services. As a result, the Board has concluded that consummation of the proposal would not have a significantly adverse effect on competition for trust company services.
The Board expects, moreover, that the acquisition of Heritage by First Midwest would provide added convenience to customers of Heritage and First Midwest. Consummation of the proposal also is likely to result in increased operating efficiencies for the combined organization. Additionally, there are public benefits to be derived from permitting capital markets to operate so that bank holding companies may make potentially profitable investments in nonbanking companies when, as in this case, those investments are consistent with the relevant considerations under the BHC Act, and from permitting banking organizations to allocate their resources in the manner they believe is most efficient. Based on all the facts of record, the Board has determined that consummation of the proposal can reasonably be expected to produce public benefits that would outweigh any likely adverse effects under the proper incident to banking standard 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 Heritage Bank 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 Chicago, acting pursuant to delegated authority.
By order of the Board of Governors,13 effective April 13, 1998.
(signed) Jennifer J. Johnson
Jennifer J. Johnson
1 First Midwest would merge Heritage with and into a wholly owned subsidiary, First Midwest Acquisition Corporation ("Acquisition Corp."), that would be formed solely for the purpose of effecting the acquisition. In connection with the proposal, Acquisition Corp. has applied to become a bank holding company. First Midwest also has requested approval of an option to purchase up to 19.9 percent of the voting stock of Heritage if certain events occur. The option would expire on consummation of the proposal.
2 State deposit and ranking data are as of June 30, 1997.
3 The Joliet banking market is defined as Will County, except the townships of Florence, Wilmington, Reed, Custer, and Wesley; the township of Aux Sable in Grundy County; and the townships of Neausay and Seward in Kendall County, all in Illinois. The Chicago banking market is defined as all of Cook, DuPage, and Lake Counties in Illinois.
4 Market share data are as of June 30, 1996. In this context, depository institutions include commercial banks, savings banks, and savings associations. Market share data 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 WM Bancorp, 76 Federal Reserve Bulletin 788 (1990); National City Corporation, 70 Federal Reserve Bulletin 743 (1984).
5 Under the revised Department of Justice Merger Guidelines, 49 Federal Register 26,823 (1984), a market in which the post-merger HHI is between 1000 and 1800 is considered moderately concentrated, and a market in which the post-merger HHI is below 1000 is considered unconcentrated. The 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 or acquisition increases the HHI by at least 200 points. The Justice Department has stated that the higher than normal threshold for an increase in the HHI when screening bank mergers and acquisitions for anticompetitive effects implicitly recognizes the competitive effect of limited-purpose lenders and other nondepository financial entities.
6 Some commenters alleged that First Midwest Bank illegally discriminated against them in specific banking transactions. These comments and First Midwest Bank's response, based on a review of the available loan or account files, were forwarded to the bank's appropriate federal supervisor, the Office of the Comptroller of the Currency, for consideration.
7 The Statement of the Federal Financial Supervisory Agencies Regarding the Community Reinvestment Act 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).
8 A commenter contended that there are no full service banks in the LMI areas of Lake County, Illinois. First Midwest indicates that it operates 12 full service banking offices in Lake County, three of which are in LMI census tracts. The commenter also alleged that First Midwest Bank does not have a commercial loan officer or ATM at its North Chicago branch. First Midwest has stated that it intends to install an ATM at this branch in the near future and that loan officers from any First Midwest branch are available to meet with individuals and companies in the North Chicago area.
9 Several commenters alleged that First Midwest's small business lending practices were inflexible and discriminated against African Americans. As noted, examiners found no evidence of illegal discrimination. First Midwest Bank's CRA performance examination, moreover, commented favorably on the bank's small business lending activities. In 1996, the bank originated approximately 14 percent of the total dollar amount of its small business loans to businesses in LMI census tracts. First Midwest Bank also originated 27 percent of the total dollar amount of its small business loans in Lake County to businesses in LMI census tracts.
10 See 12 C.F.R. 225.28(b)(5).
11 12 U.S.C. § 1843(c)(8).
12 See 12 C.F.R. 225.26.
13 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