| For immediate release |
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The Federal Reserve Board today announced its approval of the application of Country Bank Shares Corporation, Mount Horeb, Wisconsin, to acquire all the voting shares of Belleville Bancshares Corporation and thereby indirectly acquire Belleville State Bank, both of Belleville, Wisconsin. Attached is the Board's Order relating to this action. |
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Country Bank Shares Corporation |
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Country Bank Shares Corporation, Mount Horeb, Wisconsin ("Country"), 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 all the voting shares of Belleville Bancshares Corporation ("Belleville") and thereby indirectly acquire Belleville State Bank ("Belleville Bank"), both of Belleville, Wisconsin. Notice of the application, affording interested persons an opportunity to submit comments, has been published (61 Federal Register 36,884 (1996)). 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 section 3(c) of the BHC Act. Country is the 34th largest commercial banking organization in Wisconsin, controlling total deposits of approximately $206.3 million, representing less than 1 percent of total deposits in commercial banking organizations in the state.1 Belleville is the 213th largest commercial banking organization in Wisconsin, controlling deposits of approximately $34.7 million, representing less than 1 percent of total deposits in commercial banking organizations in the state. On consummation of the proposal, Country would become the 30th largest commercial banking organization in Wisconsin, with approximately $241 million in deposits. Competitive Considerations
Country and Belleville compete directly in the Madison, Wisconsin, banking market.2 Country operates the 11th largest banking or thrift organization ("depository institution") in the Madison banking market, controlling deposits of approximately $77.1 million, representing approximately 2 percent of total deposits in depository institutions in the market ("market deposits").3 Belleville operates the 24th largest depository institution in the market, controlling deposits of approximately $34.7 million, representing less than 1 percent of market deposits. On consummation of this proposal, Country would become the ninth largest depository institution in the Madison banking market, controlling deposits of $111.8 million, representing approximately 3 percent of market deposits. The market would remain moderately concentrated, as measured by the Herfindahl-Hirschman Index ("HHI"),4 and numerous competitors would remain in this market. Based on all the facts of record, the Board concludes that consummation of this proposal would not result in any significantly adverse effects on competition or on the concentration of banking resources in the Madison banking market or any other relevant banking market. |
| The Board also must consider the financial and managerial
resources and future prospects of the companies and banks involved, the
convenience and needs of the community to be served, and certain other
supervisory factors.
Supervisory Factors
Convenience and Needs Factor
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.8 The Board also takes into account information on an institution's lending activities that assist in meeting the credit needs of low- and moderate-income neighborhoods, including programs and activities initiated since its most recent CRA performance examination. Country's four subsidiary banks received CRA performance ratings of "satisfactory" or "outstanding" in their most recent evaluations for CRA performance by their primary federal regulator, the FDIC. Country's lead bank, Mt. Horeb Bank, received an "outstanding" rating for CRA performance from the FDIC as of January 1996 ("January 1996 Examination").9 Belleville Bank, received a "satisfactory" rating for CRA performance from the FDIC as of January 1995. Mt. Horeb Bank is a small bank, with total assets of approximately $88 million, and operates a main office and one drive-in branch.10 It primarily makes residential real estate loans, farm loans, commercial real estate loans, and small business loans.11 As of the January 1996 Examination, approximately 23 percent of Mt. Horeb Bank's outstanding loans were for residential real estate purchase and improvement, 20 percent for agricultural-related purposes, 20 percent for financing real estate construction and development, 18 percent for business purposes, and 10 percent for consumer loans.12 The January 1996 examination characterized the bank's loan-to-deposit ratio as strong and calculated the average loan-to-deposit ratio as 79 percent from December 31, 1993, to September 30, 1995.13 A substantial majority of Mt. Horeb Bank's loans, when measured either as a percentage of total number of loans or as a percentage of total dollar amounts of loans, were within its assessment area. Examiners also found that the bank had an excellent record of originating loans among borrowers of different income levels, especially low- and moderate-income ("LMI") borrowers, and to small businesses and small farms. The January 1996 Examination considered the bank's loans to be reasonably distributed throughout its assessment area. |
| Examiners reviewed loans made by the bank, including consumer
installment, single payment and real estate-related loans, and rejected credit
applications for compliance with applicable fair lending and other applicable
laws.14 The examiners concluded that loan denials appeared to be reasonable
and supported, and they found no violations of substantive provisions of anti-discrimination laws and regulations.
As noted in the January 1996 Examination, Mt. Horeb Bank actively engages in agricultural lending activities, with agricultural lending constituting approximately 20 percent of the bank's outstanding loans. In addition, the bank participates in government-sponsored loan programs designed to assist farmers, including programs offered by the Wisconsin Housing and Economic Development Authority CROP ("WHEDA/CROP") Fund15 and the Farmers Home Administration ("FmHA").16 In 1995, Mt. Horeb Bank originated 12 WHEDA/CROP loans totalling $172,000, and 7 FmHA loans totalling $744,000. The bank's other lending activities included 5 Small Business Administration loans totalling more than $266,000, and financing for three centers that provide affordable housing and care facilities to LMI elderly and disabled individuals. The Board has carefully reviewed all the facts of record in considering the CRA performance record of Bank, including information provided by Protestants, Country's responses, and relevant reports of examination. Based on this review, and for the reasons discussed above, the Board concludes that convenience and needs considerations are consistent with approval.17 Conclusion
The acquisition shall not be consummated before the fifteenth calendar day following the effective date of this order, or 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. |
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By order of the Board of Governors,19 effective December 9, 1996.
Deputy Secretary of the Board |
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Footnotes 1 State deposit data are as of June 30, 1995. 2 The Madison, Wisconsin, banking market is approximated by Dane County except for the eastern tier of townships; and Dekorra, Lowville, Otsego, Fountain, Prairie, Columbus, Hampden, Leeds, Arlington, Lodi, and West Point townships in Columbia County, all in Wisconsin. 3 Market data are as of June 30, 1995. 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 Midwest Financial Group, 75 Federal Reserve Bulletin 386 (1989); 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, e.g., First Hawaiian, Inc., 77 Federal Reserve Bulletin 52 (1991). 4 On consummation of this proposal, the HHI would increase 3 points to 1245. Under the revised Department of Justice Merger Guidelines, 49 Federal Register 26,823 (June 29, 1984), a market in which the post-merger HHI is between 1000 and 1800 is considered moderately concentrated. 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 increases the HHI by more than 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 effects of limited-purpose lenders and other non-depository financial entities. 5 The Board received comments alleging that two directors of Country's lead subsidiary bank, State Bank of Mt. Horeb, Mount Horeb, Wisconsin ("Mt. Horeb Bank"), have potential conflicts of interest because they extend credit in their farm-related private businesses in Mount Horeb at a higher rate to borrowers who are unable to obtain loans from Mt. Horeb Bank. The comments also contend that Mt. Horeb Bank has been unwilling to restructure or consolidate existing farm loans, has not honored its loan commitments, has treated its customers poorly and unprofessionally, and has taken too long to act on loan applications. Country denies the allegations made in the comments, and, in particular, notes that all the extensions of credit made by the two directors in their private businesses were to long-standing account holders on the same terms offered to other customers. In its evaluation of the managerial factors in this case, the Board has considered the comments and recent reports of examination by the bank's primary federal supervisor, the Federal Deposit Insurance Corporation ("FDIC"), assessing the managerial resources and operations of Mt. Horeb Bank. Based on all the facts of record, including confidential supervisory information provided by the FDIC, the Board concludes that the comments do not warrant denial of the proposal. |
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6 One commenter contends that adverse managerial considerations are raised by a preliminary ruling in 1994 in a lawsuit against a director of Country based on his actions as a director of a manufacturing company. The lawsuit involved an attempt by the directors of the manufacturing company to acquire control of the company through a stock repurchase program. The case was settled without a final judgment by the court. In addition, the commenter maintains that this director and two other principals of Belleville used unethical tactics to encourage minority shareholders of the bank to sell their shares at below-market prices in connection with the formation of Belleville as a bank holding company in 1992. These allegations involve personal offers made by a group of Belleville Bank shareholders to purchase shares of other shareholders of the bank. The offers did not involve bank funds or any corporate action by the bank. The shareholder group members deny that they used unethical tactics to encourage minority shareholders to sell their shares, and note that they informally consulted with four other members of the bank's board of directors and representatives of two brokerage firms to determine the fairness of the prices offered. The commenter also alleges that this director continued to exercise influence over Belleville Bank's board of directors after his resignation from the board in 1990 while he also served as a director of Country. The Board has considered these comments in light of relevant reports of examination and other supervisory information assessing the competence, experience, and integrity of Country's director and in light of the court's preliminary findings and the final disposition of the cases noted. In addition, the Board has carefully reviewed supervisory information regarding steps taken by the Country director to ensure compliance with the interlock prohibitions of the Depository Institution Management Interlocks Act (12 U.S.C. § 3201) ("DIMIA") and the Board's Regulation L (12 C.F.R. 212). This commenter also notes that an attorney who provides legal services to Country and Belleville, and who also is a minority shareholder of Country, was suspended from the practice of law for six months by the Wisconsin Supreme Court for failing to account properly with his law firm for fees received from Country. Country states that the attorney is one of a number of attorneys employed by these organizations, owns less than 10 percent of the voting shares of Country, and does not serve as an officer or director of either organization or their subsidiaries. 7 Two commenters state generally that Belleville's management does not consider the interest of the minority shareholders of Belleville Bank, and a number of commenters contend that these shareholders have not received a fair return on their investment and would not benefit from the proposal. Based on all the facts of record, the Board concludes that these matters do not relate to factors specified in the BHC Act and are therefore beyond the jurisdiction of the Board to consider in reviewing applications under section 3 of the BHC Act. See Western Bancshares, Inc. v. Board of Governors, 480 F.2d 749 (10th Cir. 1973). 8 The Board notes that 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. 54 Federal Register 13,742, 13,745 (1989). 9 Protestant asserts that the bank's rating is incorrect because examiners did not have the information provided by Protestant's comments to this proposal. 10 A subsidiary bank of a bank holding company is a small bank for purposes of the new regulations jointly promulgated by the federal financial supervisory agencies to implement the CRA if it had less than $250 million in assets as of December 31 of either of the prior two calendar years, and was an affiliate of a holding company that, as of December 31 of either of the prior two calendar years, had total banking and thrift assets of less than $1 billion. See 60 Federal Register 22,156 (May 4, 1995). See also 12 C.F.R. 345.12(t). 11 For purposes of the new CRA regulation, a small business loan is a commercial and industrial loan with an original amount of $1 million or less, or a loan secured by nonfarm, nonresidential property with an original amount of $1 million or less. See 12 C.F.R. 228.12(u). 12 Mt. Horeb Bank also sells loans on the secondary market. In 1995, the bank originated and sold 66 loans totalling $6.3 million. Accounting for these loans would increase the residential real estate lending to more than 50 percent. 13 Mt. Horeb Bank's average loan-to-deposit ratio was 79.1 percent in 1994 and 72.8 percent in 1995. The bank's average loan-to-deposit ratio would increase to approximately 85 percent by accounting for its loans sold on the secondary market. 14 The Board has carefully considered the results of the bank's compliance examination in light of comments by a community organization contending that closing costs and charges on loan transactions are not adequately disclosed. 15 Protestant criticizes Mt. Horeb Bank's participation in the WHEDA/CROP Fund, contending that the bank refuses to restructure program loans and makes poor credit decisions that result in a large number of forbearances for program loans. Protestant also maintains that Mt. Horeb Bank violated WHEDA/CROP interest payment rules by underwriting loans on the basis of 360 days rather than 365 days, and alleges that bank officials have threatened retaliation against any borrower who publicizes these practices. Country has denied any improper actions by bank officials in connection with the WHEDA/CROP Fund. Under WHEDA/CROP guidelines, a participating bank may submit a request for forbearance to prevent a default, and a proposed repayment schedule for WHEDA's approval. In 1995, Mt. Horeb Bank submitted forbearance requests for ten loans to WHEDA. Two loans were paid in full before WHEDA considered the forbearance requests and forbearances were granted for the remaining eight loans. The Board has provided copies of Protestant's contentions to WHEDA, and WHEDA staff informally has indicated that it does not consider the number of loans submitted by the bank to be excessive, and characterized the interest payment rule violation as technical in nature. The Board also has considered these comments in light of confidential supervisory information provided by the FDIC, and has concluded that these comments do not warrant denial of the proposal. 16 Protestant also argues that Mt. Horeb Bank's participation in the FmHA program is inadequate. FmHA loans represent more than 15 percent of Mt. Horeb Bank's outstanding agricultural loans. 17 The Board also has considered comments from a number of area residents objecting to the loss of a locally owned bank. The Board has considered these comments in light of all the facts of record, including the records of Country's subsidiary banks in assisting to meet the credit needs of their communities. 18 Protestant also has requested a private meeting with the Federal Reserve Bank of Chicago ("Reserve Bank") to discuss the issues raised in Protestant's comments, but declined to meet with the Reserve Bank in the presence of Country. Although the Board's Rules of Procedure permit System staff to arrange for a private meeting between a protestant and the applicant for the purposes of clarifying and narrowing the issues and providing a forum for resolving differences, this procedure does not authorize a private meeting with any one party during the processing of an application. See 12 C.F.R. 262.25(c). Protestant also has requested that the Board hold public hearings or meetings to consider public testimony regarding the managerial and the convenience and needs considerations in the proposal. Section 3(b) of the BHC Act does not require the Board to hold a public hearing or meeting unless the appropriate supervisory authority for the bank to be acquired makes a timely written recommendation of denial of the application. In this case, neither the FDIC nor the Wisconsin Commissioner of Banking has recommended denial. Under its rules, the Board may, in its discretion, hold a public hearing or meeting on an application to clarify factual issues related to the application and to provide an opportunity for testimony, if appropriate. 12 C.F.R. 262.3(e) and 262.25(d). The Board has carefully considered Protestant's request in light of all the facts of record. In the Board's view, Protestant has had ample opportunity to submit its views and has, in fact, submitted materials that have been considered by the Board in acting on the application. Protestant has not demonstrated why its written submissions do not adequately present its allegations and what, if any, additional matters would be addressed in a public hearing or meeting. Based on all the facts of record, the Board has determined that a public hearing or meeting is not necessary to clarify the factual record and is not otherwise warranted in this case. Accordingly, Protestant's request for public hearings or meetings on the application is denied. 19 Voting for this action: Chairman Greenspan and Governors Kelley, Lindsey, Phillips, Yellen, and Meyer. Absent and not voting: Vice Chair Rivlin. |
1996 Orders on banking applications
