| For immediate release |
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The Federal Reserve Board today announced its approval of the application by Ida Grove Bancshares, Inc., Ida Grove, and American Bancshares, Inc., Holstein, to acquire all of the voting shares of Pierson Bancorporation, and thereby acquire Farmers Savings Bank, both of Pierson, and all in Iowa. Attached is the Board's Order relating to this action. |
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Ida Grove Bancshares, Inc. |
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Ida Grove Bancshares, Inc., Ida Grove, and American Bancshares, Inc., Holstein ("American") (collectively "Ida Grove"),1 bank holding companies within the meaning of the Bank Holding Company Act ("BHC Act"), have applied for the Board's approval under section 3 of the BHC Act (12 U.S.C. § 1842) to acquire all of the voting shares of Pierson Bancorporation ("Pierson"), and thereby acquire Farmers Savings Bank ("Farmers"), both of Pierson, and all in Iowa. Notice of the application, affording interested persons an opportunity to submit comments, has been published (61 Federal Register 51,114 (1996)). 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 section 3 of the BHC Act. Ida Grove, with total consolidated assets of approximately $197 million, is the 29th largest commercial banking organization in Iowa, controlling deposits of approximately $174.6 million, representing less than 1 percent of total deposits in commercial banking organizations in the state.2 Pierson, with total consolidated assets of approximately $15.5 million, is the 364th largest commercial banking organization in Iowa, controlling deposits of approximately $12.6 million, representing less than 1 percent of total deposits in commercial banking organizations in the state. On consummation of this proposal, Ida Grove would become the 27th largest commercial banking organization in Iowa, controlling deposits of approximately $187.2 million. After the acquisition of Pierson, Ida Grove proposes to effect a series of transactions which would result in its subsidiary bank, Western Bank and Trust, Moville, Iowa ("Western Bank"), operating branches in Kingsley and Pierson, Iowa.3 The Board has carefully reviewed comments that assert that the proposal, when viewed in its entirety, would permit Ida Grove to evade state law branching restrictions. Iowa law generally prohibits the establishment of a de novo branch in a town that has an office of another bank.4 Each transaction proposed by Ida Grove is separately authorized by state statute, and the overall transaction has been approved by the Iowa Department of Banking.5 In this light, the Board concludes that the overall transaction is not prohibited by state law. The Board also notes that the first and only step in the overall transaction requiring the Board's approval--the acquisition of Pierson by Ida Grove--is clearly authorized by state law.6 |
| Western Bank and Farmers compete directly in the Sioux City, Iowa, banking market ("Sioux City banking market").7 On consummation of the proposal, Western Bank would become the 15th largest commercial banking or thrift organization ("depository organization") in the market, controlling deposits of approximately $13.8 million, representing approximately 1 percent of total deposits in depository organizations in the market ("market deposits").8 Concentration in the banking market, as measured by the Herfindahl-Hirschman Index ("HHI"), would remain at a level of 1555, and numerous competitors would remain in the market after consummation.9 Based on these and all the facts of record, the Board has concluded that consummation of this proposal would not have a significantly adverse effect on competition or the concentration of banking resources in the Sioux City banking market or any other relevant banking market.10 |
| Based on all the facts of record, the Board also has concluded that
the financial and managerial resources11 and future prospects of Ida Grove,
Pierson, and their respective subsidiaries, and all other supervisory factors
that the Board must consider under section 3 of the BHC Act, are consistent
with approval of this proposal.12
The Board also has considered the convenience and needs of the communities to be served, including the records of performance of the institutions involved under the Community Reinvestment Act (12 U.S.C. § 2901 et seq.) ("CRA"). The Board notes that Farmers--the bank being acquired in this case--received a "needs to improve" rating at its most recent examination for CRA performance from its primary federal supervisor, the FDIC, as of May 1996. Ida Grove has stated that it will implement CRA policies and programs similar to those of Ida Grove's lead bank, United Bank of Iowa, Ida Grove, Iowa ("United Bank"), after consummation of the proposal.13 United Bank received an "outstanding" rating for CRA performance at its most recent examination for CRA performance by the FDIC as of March 1996. In addition, Western Bank plans to advertise extensively in the community through various media, as well as to implement a comprehensive officer calling program, to promote its credit products and services. Moreover, Western Bank will enter into a regulatory compliance services agreement with United Bank whereby experienced staff of United Bank will review and monitor compliance policies and procedures, and train and consult with Western's staff on regulatory compliance issues, including the CRA. The Board expects that the actions proposed by Ida Grove will address the deficiencies in Farmers' record of performance, particularly in the types and geographic distribution of its loans. In light of these commitments, and based on all the facts of record, the Board concludes that considerations relating to the convenience and needs of the communities to be served, including the CRA performance records of the institutions involved, are consistent with approval.14 The Board will review the effectiveness of these efforts in future applications by Ida Grove to establish depository facilities. Based on all the facts of record, the Board has determined that this application should be, and hereby is, approved. The Board's approval is specifically conditioned on compliance by Ida Grove with all the commitments made in connection with the application and with the conditions referenced in this order. For purposes of this action, these commitments and conditions 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 transaction 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,15 effective December 20, 1996.
Deputy Secretary of the Board |
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Footnotes 1 Ida Grove Bancshares, Inc. owns approximately 80.1 percent of the voting shares of American. 2 Asset and state deposit data are as of June 30, 1996. 3 Ida Grove has applied for the Board's approval to acquire Pierson, and to merge Pierson into American. American would survive the merger and directly own all the voting shares of Farmers. After these transactions, Ida Grove would cause Farmers to relocate its main office to Kingsley and to establish a branch at its former location in Pierson, both in Iowa. Farmers would then merge into Western Bank, and Western Bank would operate branches in Kingsley and Pierson, Iowa. 4 Section 524.1202 of the Iowa Code provides that a bank with headquarters in one county may establish a branch in a town in the same or a contiguous county if that town does not have an office of another bank in operation. Iowa Code Ann. § 524.1202. Kingsley, Pierson, and Moville are all located in the same or contiguous Iowa counties. 5 A bank with headquarters in a contiguous county may relocate its main office to another town. See Iowa Code Ann. § 524.312. Therefore, Farmers may relocate to Kingsley. Farmers also may operate a branch office in Pierson, the town from which it relocated, because no office of another bank is located in Pierson. See Iowa Code Ann. § 524.1202(1). Western Bank also may operate branches in Kingsley and Pierson after its merger with Farmers because the Iowa branching restrictions prohibiting the establishment of a branch office in a town with an office of another bank do not apply to branches acquired in a merger between banks located in the same or contiguous counties. See Iowa Code Ann. § 524.1202(3). 6 Iowa Code Ann. § 524.1804. 7 The Sioux City banking market is approximated by Woodbury County, excluding the townships of Lakeport, Sloan, Willow, and Little Sioux; the townships of Garfield and Elkhorn in Plymouth County, all in Iowa; and the Sioux City Rand McNally Area located in South Dakota and Nebraska. 8 Market deposit data are as of June 30, 1995, and include data from Western Bank, a newly formed bank subsidiary of Ida Grove, as of November 29, 1996. 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). |
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9 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 above 1800 is considered to be highly concentrated. In such markets, the Justice Department is likely to challenge a merger that increases the HHI by more than 50 points. 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 effect of limited-purpose lenders and other non-depository financial entities. 10 Two financial institutions ("Protestants") contend that numerous competitors serve the credit needs of Moville and Kingsley, Iowa, both of which are in the Sioux City banking market, and that an additional competitor could adversely affect the existing banks in these "over-banked" towns. As noted above, Western Bank currently operates in Moville and the proposal would not increase the number of competitors in that town. The Board has previously concluded that the BHC Act requires the Board to focus on whether a proposal would substantially lessen competition or create a monopoly, and that the de novo entry of a bank would have a positive effect on competition in any banking market. See Wilson Bank Holding Company, 82 Federal Reserve Bulletin 568 (1996). The Board concludes that the entry into Kingsley by Ida Grove would enhance competition for banking services. 11 One protestant contends that a loan from Ida Grove to American violates section 23A of the Federal Reserve Act (12 U.S.C. § 371c) ("Section 23A"). Section 23A imposes restrictions on loans between a subsidiary bank and its affiliates, and by its terms would not apply to a loan between affiliated bank holding companies. 12 Protestants allege that Ida Grove and its subsidiary banks are and will be undercapitalized. In addition, Protestants contend that Western Bank's pricing policies (interest rates paid on certificates of deposits and charged for loans) will adversely affect Western Bank's financial condition, thereby adversely affecting American's capacity to retire the debt to be incurred in connection with the acquisition of Pierson, and that these pricing policies constitute unfair competitive practices. The Board has carefully reviewed these comments in light of all facts of record, including the most recent reports of examination assessing the managerial and financial resources of the relevant companies. The Board has consulted the Federal Deposit Insurance Corporation ("FDIC") on the effect of Western Bank's pricing policies on the financial condition of the bank and on the FDIC's assessment of the bank's current management. The Board notes that Ida Grove would remain well-capitalized after consummation of this proposal and would retire the proposal's acquisition debt in accordance with the Board's guidelines. The Board also has reviewed the interest rates offered under Western Bank's pricing policies for evidence of predatory pricing in light of pricing information nationwide and in the local market where Western Bank competes. Based on all the facts of record, the Board concludes that all the supervisory factors considered under the BHC Act are consistent with approval. 13 As noted above, Farmers would be merged into Western Bank. Although Western Bank has not been examined for CRA performance by the FDIC, Ida Grove is initiating CRA policies and programs at Western Bank that are similar to those of United Bank. 14 One depository institution argues that, because it has a satisfactory record of CRA performance in Kingsley, the convenience and needs of the community are already being served. The CRA was not intended to limit either the number of service providers or competition in providing services to a community. Rather, the CRA recognizes the responsibility of each depository institution in a community to help meet the credit needs of the community. CRA performance ratings evaluate the efforts of a particular institution in helping meet the credit needs of the community, and do not reflect a judgment regarding whether the community would benefit from additional services that may be provided by other depository institutions. The Board, moreover, concludes that the steps proposed by Ida Grove to strengthen Farmers' CRA performance will have a positive effect on serving the overall credit needs of the community. 15 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Kelley, Lindsey, Phillips, and Meyer. Absent and not voting: Governor Yellen. |
1996 Orders on banking applications
