|For immediate release|
The Federal Reserve Board today announced its approval of the proposal of Regions Financial Corporation, Birmingham, Alabama, to merge with First Commercial Corporation, Little Rock, Arkansas, and thereby acquire its banking and nonbanking subsidiaries.
Attached is the Board's Order relating to this action.
Regions Financial Corporation
Regions Financial Corporation ("Regions"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under sections 3 and 4 of the BHC Act (12 U.S.C. §§ 1842(a)(5) and 1843(c)(8)) to merge with First Commercial Corporation, Little Rock, Arkansas ("First Commercial"), and thereby acquire First Commercial's subsidiary banks and nonbanking subsidiaries listed in the Appendix.1
Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 14,464 (1998)). The time for filing comments has expired, and the Board has considered the application and all comments received in light of the factors set forth in sections 3 and 4 of the BHC Act.
Regions, with total consolidated assets of approximately $24.4 billion, operates banks in Alabama, Florida, Georgia, South Carolina, Louisiana, and Tennessee, and engages in a number of permissible nonbanking activities.2 Regions is the largest commercial banking organization in Alabama, controlling deposits of approximately $9 billion, representing 19.4 percent of total deposits in commercial banking organizations in the state ("state deposits"). First Commercial, with total consolidated assets of approximately $7.4 billion, operates banks in Arkansas, Texas, Tennessee, Louisiana, and Oklahoma and engages in mortgage and trust company activities through its nonbanking subsidiaries. First Commercial is the largest commercial banking organization in Arkansas, controlling deposits of approximately $4.7 billion, representing 17.3 percent of Arkansas state deposits.
Regions is the fifth largest commercial banking organization in Louisiana, controlling deposits of approximately $2.2 billion, representing 5.8 percent of Louisiana state deposits. First Commercial is the 85th largest commercial banking organization in the state, controlling deposits of approximately $49 million, representing less than 1 percent of state deposits. On consummation of the proposal, Regions would remain the fifth largest commercial banking organization in Louisiana, controlling deposits of approximately $2.3 billion, representing 6 percent of Louisiana state deposits.
Regions is the 12th largest commercial banking organization in Tennessee, controlling deposits of approximately $471 million, representing less than 1 percent of Tennessee state deposits. First Commercial is the 17th largest commercial banking organization in the state, controlling deposits of approximately $351 million, also representing less than 1 percent of state deposits. On consummation of the proposal, Regions would become the ninth largest commercial banking organization in Tennessee, controlling deposits of approximately $822 million, representing 1.4 percent of Tennessee state deposits.
Regions and First Commercial compete directly in the Shreveport-Bossier City, Louisiana, banking market ("Shreveport banking market").6 After consummation of the proposal, Regions would remain the fifth largest depository institution in the market, controlling deposits of approximately $236 million, representing 6.9 percent of total deposits in depository institutions in the market.7 The Herfindahl-Hirschman Index ("HHI") for the banking market would increase by 15 points to 1,885.8 Based on all the facts of record, including the small increase in market concentration as measured by the HHI, the presence of 15 other competitors that would remain in the banking market, and entry into the market by four regional bank holding companies since 1994, 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 Shreveport banking market or any other relevant banking market.
Financial, Managerial, and Other Supervisory Factors
Convenience and Needs Factor
The Board has carefully considered comments from an African-American small business owner who maintains that Regions Bank has an inadequate record of lending to businesses owned by African Americans in Sumter County, Alabama, and of advertising in African-American owned newspapers and other media in Alabama. In addition, two community associations contend, based primarily on Home Mortgage Disclosure Act ("HMDA") data, that Regions's lead subsidiary bank, Regions Bank, Montgomery, Alabama ("Regions Bank"), has an inadequate record of helping to meet the needs of LMI and minority customers in Alabama.
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 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 examination 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.9 The Board has reviewed the records of performance of the subsidiary banks of Regions and First Commercial in light of their most recent CRA performance examinations and all other facts of record.
The reports of these examinations indicate that Regions's subsidiary banks are helping to meet the convenience and needs of the communities they serve. Regions Bank, which accounts for approximately 65 percent of Regions' consolidated assets, received an "outstanding" rating from the appropriate federal regulator, the Federal Deposit Insurance Corporation ("FDIC"), at its most recent examination for CRA performance, as of September 1996 ("the 1996 Examination").10 Examiners of Regions Bank found no evidence of prohibited discrimination or other illegal credit practices and found no violations of fair lending laws. Examiners also found that Regions Bank's delineation of its local community was reasonable and that it did not arbitrarily exclude LMI areas.
The 1996 Examination stated that the activities of the bank were effective in ascertaining the credit needs of its entire community, including LMI neighborhoods, and in informing all members of the community of available credit services. In its marketing efforts, the bank used a variety of media, such as newspapers, radio, and television, including 12 newspapers and 7 radio stations that predominately served minority communities in Alabama. Examiners found that Regions Bank's branch network was accessible to all segments of the communities it served and that Regions Bank offered a broad array of products and services through its branches.
Lending Record of Regions Bank. The 1996 Examination concluded that Regions Bank's lending record, including its small business lending, addressed a significant portion of the credit needs of the communities it served, and that the bank's geographical penetration of all segments of its assessment area was exceptional. Examiners particularly noted that Regions Bank has several specialized loan products and experienced loan officers to help to meet the credit needs of small businesses in the state. According to the 1996 Examination, as of June 30, 1996, the bank had 19,247 small business loans outstanding throughout Alabama, totalling $995 million. More than 80 percent of these loans, totalling $304 million, were in amounts of less than $100,000.
Preliminary 1997 data indicate that Regions Bank continues to be an active small business lender in Alabama. During 1997, Regions Bank originated 13,841 small business loans in Alabama, totalling $880 million. Twenty-one percent of these loans were made to borrowers located in LMI census tracts, and 75 percent of the loans to borrowers located in LMI census tracts were made to businesses with annual gross revenues under $1 million. The percentage of small business loans that Regions Bank made in LMI census tracts and to businesses with gross revenues under $1 million closely matched the percentages of such lending by all insured depository institutions in Alabama in the aggregate.
The bank also helps to address small business credit needs in Alabama through government sponsored lending programs. In 1996, Regions Bank's small business loans included $13.6 million of loans made under programs sponsored by the Small Business Administration and 143 loans, totalling $15 million, made at below market interest rates under the State of Alabama's Wallace Linked Deposit Plan for economic development.11
The Board also has considered Regions Bank's record of small business lending in Sumter County, Alabama, in light of all the facts of record, including data relevant to analyzing the lending opportunities for small business lenders in the county. Sumter County is rural, with a population of 16,390 and no major commercial center.12 The population has declined since 1980, and per capita income, per capita retail sales, and per capita insured deposits are significantly below the averages for Alabama.13 The most recent data from the U.S. Bureau of the Census indicate that 255 nonfarm businesses were in Sumter County, which accounted for less than one-half of one percent of Alabama's small businesses as of 1993.
In 1996, Regions Bank made 47 small business loans in Sumter County, totalling $2.7 million, which is more than 70 percent of the total number, and more than 50 percent of the total amount, of small business loans made by all insured depository institutions in the county.14 Regions Bank made nine of its small business loans, totalling $159,000, in LMI census tracts in Sumter County, which is more than 60 percent of the total number, and more than 70 percent of the total amount, of small business loans made by all insured depository institutions in LMI census tracts in the county.15
Regions also actively participates in meeting other types of credit needs in its communities. The 1996 Examination found that Regions Bank and its mortgage lending subsidiary, Regions Mortgage Incorporated, Birmingham, Alabama ("Regions Mortgage"), assisted LMI borrowers to obtain affordable housing through a variety of programs that featured reduced down payment and closing cost requirements and flexible underwriting standards. In addition to its proprietary programs, Regions Bank offered affordable housing loans through programs sponsored by the State of Alabama, the Federal National Mortgage Association, and other government-sponsored loans programs.16 Examiners also noted that, during 1995 and the first 7 months of 1996, Regions Mortgage originated more than 4,100 loans, totalling $290 million, under loan programs sponsored by the Veterans Administration, Federal Housing Authority, and Farm Housing Administration. Regions has stated that 23 percent of all home mortgage loans made by Regions Bank and Regions Mortgage in Alabama during 1996 and 1997 were made to LMI applicants.
Regions also supported efforts to provide affordable housing through its community development activities. As of June 30, 1996, Regions Bank had outstanding loans and loan commitments of approximately $45.6 million and investment commitments of approximately $38.7 million to support the development of 2,569 affordable housing units throughout Alabama. Regions has stated that, since the 1996 Examination, the bank has made loans to or invested in an additional 15 projects in the aggregate amount of approximately $29 million to provide more than 900 units of affordable housing.17
HMDA Data. The Board also has considered Regions's lending record in light of comments regarding the HMDA data of Regions Bank in Alabama. The 1996 data generally indicate that Regions Bank and Regions Mortgage denied a significantly smaller percentage of housing-related loan applications from African Americans than did lenders in the state in the aggregate. The 1996 data also indicate that Regions Bank and Regions Mortgage originated loans for a significantly larger percentage of applications received from African Americans, LMI individuals, and residents of LMI census tracts than did lenders in the aggregate.
The data reflect, however, certain disparities in the rates of loan denials by racial group. The Board is concerned when the record of an institution indicates disparities in lending, and believes that all banks are obligated to ensure that their lending practices are based on criteria that ensure not only safe and sound lending but also equal access to credit by creditworthy applicants regardless of their race or income level. The Board recognizes that HMDA data alone provide an incomplete measure of an institution's lending in its community because these data cover only a few categories of housing-related lending. HMDA data, moreover, provide only limited information about the covered loans.18 HMDA data, therefore, have limitations that make them an inadequate basis, absent other information, for concluding that an institution has not adequately assisted in meeting its community's credit needs or has engaged in illegal lending discrimination. Because of the limitations of HMDA data, the Board has considered these data carefully in light of other information.
FDIC examiners conducted a fair lending review of Regions Bank as part of the 1996 Examination, with a particular focus on conducting comparative file analyses of denied applications from minorities and approved applications from non-minorities for conventional home mortgage purchase loans during 1996. This fair lending review did not disclose any evidence of disparate treatment of or discriminatory practices against minority applicants.19
Regions Bank and Regions Mortgage also have a second review program for all housing-related loan applications that are preliminarily declined by the original loan officer. Under the program, a second and more senior loan officer must concur in the denial of a housing-related loan application. The files for denied loans also are reviewed for sufficient documentation, and are subject to random internal audit. In addition, the bank provides comprehensive and ongoing training to its lending staff concerning compliance with fair lending, disclosure, and record keeping requirements. The Board also has considered the HMDA data in light of Regions's lending record, which shows that Regions Bank and Regions Mortgage assist significantly in helping to meet the credit needs of its community, including LMI areas.
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 Regions and First Commercial, including relevant reports of examination. Based on a review of the entire record, including the efforts of Regions Bank to meet the credit needs of the communities it serves throughout Alabama, 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 Regions and First Commercial, 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 adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices."21 As part of its evaluation of these factors, the Board considers the financial and managerial resources of the notificant, its subsidiaries, and any company to be acquired and the effect the transaction would have on such resources.22 For the reasons discussed above, and based on all the facts of record, the Board has concluded that financial and managerial considerations are consistent with approval of the notice.
The Board also has carefully considered the competitive effects of the proposed acquisition of First Commercial's mortgage lending and trust company subsidiaries. The Board notes that the market for these nonbanking services is unconcentrated, that there are numerous providers of the services, and that there is minimal geographic overlap in the areas in which Regions and First Commercial primarily offer these services. As a result, the Board has concluded that the proposal would not have a significantly adverse effect on competition for mortgage lending services or trust company functions.
The Board expects, moreover, that the acquisition of First Commercial by Regions would provide added convenience to customers of both institutions and 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 those investments are consistent, as in this case, with the relevant considerations under the BHC Act, and from permitting banking organizations to allocate their resources in the manner they consider to be most efficient. The Board also believes that the conduct of the proposed activities within the framework established under Regulation Y is not likely to result in adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices, that would not be outweighed by the public benefits of the proposal, such as increased convenience and gains in efficiency. Accordingly, based on all the facts of record, the Board has determined that the balance of public benefits that the Board must consider under the proper incident to banking standard of section 4(c)(8) of the BHC Act is favorable and consistent with approval of the proposal.
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. For purposes of this order, 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 decisions, and, as such, may be enforced in proceedings under applicable law.
The acquisition of First Commercial's banks may not be consummated before the fifteenth calendar day following the effective date of this order, and the proposal may not be consummated later that 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 Atlanta, acting pursuant to delegated authority.
By order of the Board of Governors,24 effective May 13, 1998.
(signed) Jennifer J. Johnson
Jennifer J. Johnson
First Commercial Corporation's Subsidiary Banks and Nonbanking Subsidiaries
A. Subsidiary Banks
ArkansasB. Nonbanking Subsidiaries
1 Regions also has requested the Board's approval to hold and exercise an option to purchase up to 19.9 percent of the voting shares of First Commercial if certain events occur. The option would expire on consummation of the proposal.
2 All banking data are as of June 30, 1997, and include acquisitions by Regions and First Commercial that have been approved by the appropriate federal supervisors after that date.
3 A bank holding company's home state is that state in which the operation of the bank holding company's banking subsidiaries were principally conducted on July 1, 1996, or the date on which the company became a bank holding company, whichever is later. 12 U.S.C. § 1841(o)(4)(C).
4 See 12 U.S.C. §§ 1842(d)(1)(A) and (B) and 1842(d)(2)(A) and (B). Regions is adequately capitalized and adequately managed, as defined by applicable law. First Commercial's subsidiary banks have been in existence and continuously operated for the minimum period of five years required under the respective state laws. See Ark. Code Ann. § 23-48-405 (Michie 1997); Tex. Finance Code Ann. § 38.003(a) (West 1997); La. Rev. Stat. Ann. §§ 6:535(C) and 6:538 (West 1997); Tenn. Code Ann. § 45-2-1403(a)(1) (Michie 1997); Okla. Stat. Ann. tit. 6, § 502(F) (West 1998). On consummation of the proposal, Regions would control less than 10 percent of the total amount of deposits of insured depository institutions in the United States. Regions also would not exceed applicable state law deposit limitations, as calculated under state law, in each state in which First Commercial operates. See Ark. Code Ann. § 23-48-406 (25 percent); Tex. Finance Code Ann. § 38.002(a) (20 percent); Tenn. Code Ann. § 45-2-1404 (30 percent); Okla. Stat. Ann. tit. 6, § 502(C) (15 percent). All other requirements of section 3(d) of the BHC Act would be met on consummation of the proposal.
5 12 U.S.C. § 1842(c)(1)(B).
6 The Shreveport-Bossier City banking market comprises Bossier, Caddo, DeSoto, and Webster Parishes in Louisiana.
7 Market share data are as of June 30, 1997. 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). Thus, the Board has regularly included thrift deposits in the calculation of market share on a 50-percent weighted basis. See First Hawaiian, Inc., 77 Federal Reserve Bulletin 52 (1991).
8 Under the revised Department of Justice Merger Guidelines, 49 Federal Register 26,823 (1984), a market in which the post-merger HHI is more than 1800 is considered to be highly concentrated. The Department of Justice 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 Department of Justice has stated that the higher than normal threshold for an increase in HHI when screening bank mergers and acquisitions for anticompetitive effects implicitly recognizes the competitive effects of limited-purpose and other nondepository financial entities.
9 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).
10 Each of First Commercial's subsidiary banks also received a rating of "satisfactory" or better from the appropriate federal regulator at its most recent examination for CRA performance.
11 An additional 3,430 agricultural loans, totalling $81 million, were outstanding as of June 30, 1996. Over 92 percent of these loans, totalling $41.2 million, were in amounts of less than $100,000.
12 Population data are as of 1995. All statistical data for Sumter County and for Alabama are from the U.S. Bureau of the Census.
13 Per capita income in 1993 in Sumter County was $12,120, compared to $17,129 in all of Alabama. Per capita retail sales in 1992 were $3,582 in Sumter County, compared to $6,983 in all of Alabama. Per capita deposits, based on FDIC data as of June 30, 1994, were $5,325 in Sumter County, compared to $8,861 in all of Alabama.
14 Twenty-nine of Regions Bank's small business loans in Sumter County, totalling $669,000, were made to businesses with gross annual revenues of less than $1 million.
15 Seven of these loans, totalling $79,000, were made to businesses with gross incomes of less than $1 million. Sumter County has a total of six census tracts, of which two are designated as LMI census tracts.
16 Examiners noted that Regions Mortgage also developed the Wallace Mortgage Program with the State Treasurer of Alabama to fund up to $2,000 of the down payment for first time LMI home buyers through a second mortgage loan to be forgiven after 10 years of continuous ownership of the home. Regions Mortgage received 40 percent of all funds allotted to the program prior to its termination by the state in 1995. In addition, according to Regions, Regions Mortgage is the largest originator of state-funded loans to LMI borrowers under the Alabama Housing Finance Authority bond program.
17 These projects include construction and permanent financing in the amount of approximately $3.9 million to construct 136 low-income housing units in Millbrook, Alabama; approximately $3 million to construct Virginia Meadows II, a 112 unit low-income housing project in Montgomery, Alabama; and approximately $1.2 million to help to purchase and rehabilitate 147 low-income homes in the Meadow Hills neighborhood of Huntsville, Alabama. In Sumter County, Alabama, Regions Bank invested $849,000 in a limited partnership to rehabilitate low-income housing.
18 The data, for example, do not account for the possibility that an institution's outreach efforts may attract a larger proportion of marginally qualified applicants than other institutions attract and do not provide a basis for an independent assessment of whether an applicant who was denied credit was, in fact, creditworthy. Credit history problems and excessive debt levels relative to income (reasons most frequently cited for a credit denial) are not available from HMDA data.
19 Examiners also compared loan files of approved applications from minorities and non-minorities to ensure that there was no disparate treatment in the credit terms offered. The comparison showed no evidence of discrimination or disparate treatment.
20 See 12 C.F.R. 225.28 (b)(1) and (5).
21 12 U.S.C. § 1843(c)(8).
22 See 12 C.F.R. 225.26.
23 Two commenters requested that the Board hold a public meeting or hearing on the proposal to obtain additional factual evidence concerning the lending record of Regions. Section 3(b) of the BHC Act does not require the Board to hold a public hearing on an application unless the appropriate supervisory authority for the bank to be acquired makes a timely written recommendation of denial. The Board has not received such a recommendation from the appropriate supervisory authorities.
Under its rules, the Board also may, in its discretion, hold a public meeting or hearing on an application to acquire a bank if a meeting or hearing is necessary or appropriate to clarify factual issues related to the application and to provide an opportunity for testimony, if appropriate. 12 C.F.R. 225.16(e). The Board has carefully considered the commenters' request in light of all the facts of record. In the Board's view, commenters have had ample opportunity to submit their views, and have submitted substantial written comments that have been carefully considered by the Board in acting on the proposal. The commenters' request fails to identify disputed issues of fact that are material to the Board's decision that may be clarified by a public meeting or hearing. The commenters also fail to indicate the matters that may be presented by others and why a public meeting or hearing is necessary for the proper presentation or consideration of their views. For these reasons, and based on all the facts of record, the Board has determined that a public meeting or hearing is not required or warranted in this case. Accordingly, the request is hereby denied.
24 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