For immediate release

The Federal Reserve Board today announced its approval of the applications of Union Planters Corporation and Union Planters Holding Corporation, both in Memphis, Tennessee, to acquire First Mutual Bancorp, Inc., and thereby acquire its wholly owned subsidiary, First Mutual Bank, S.B., both in Decatur, Illinois. Attached is the Board's Order relating to this action.

Union Planters Corporation Memphis, Tennessee Union Planters Holding Corporation Memphis, Tennessee Order Approving Acquisition of a Bank Holding Company

Union Planters Corporation and Union Planters Holding Corporation (collectively, "Union Planters"), bank holding companies within the meaning of the Bank Holding Company Act ("BHC Act"), have requested the Board's approval under section 3 of the BHC Act (12 U.S.C. § 1842) to acquire all of the voting shares of First Mutual Bancorp, Inc. ("First Mutual") and thereby acquire its wholly owned subsidiary, First Mutual Bank, S.B. ("Savings Bank"), both in Decatur, Illinois.1 Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 65,209 (1998)).2 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 of the BHC Act. Union Planters operates bank and thrift subsidiaries in Alabama, Arkansas, Florida, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, Tennessee, and Texas. Union Planters controls the 11th largest depository institution in Illinois, controlling deposits of $3.3 billion, representing approximately 1.6 percent of total deposits in depository institutions in the state.3 First Mutual is the 80th largest depository institution in Illinois, controlling approximately $334.2 million in deposits, representing less than 1 percent of total deposits in depository institutions in the state. On consummation of the proposal, the banks controlled by Union Planters would represent the 10th largest depository institution in Illinois, controlling deposits of $3.6 billion, representing approximately 1.7 percent of total deposits in depository institutions in the state. Interstate Analysis Section 3(d) of the BHC Act allows the Board to approve an application by a bank holding company to acquire control of a bank located in a state other than the home state of such bank holding company if certain conditions are met.4 For purposes of the BHC Act, the home state of Union Planters is Tennessee and Union Planters proposes to acquire control of a bank in Illinois. All of the conditions for an interstate acquisition enumerated in section 3(d) are met in this case.5 In light of all the facts of record, the Board is permitted to approve the proposal under section 3(d) of the BHC Act. Competitive Considerations The BHC Act prohibits the Board from approving an application under section 3 if the proposal would result in a monopoly or would be in furtherance of any attempt to monopolize the business of banking.6 The BHC Act also prohibits the Board from approving a proposal that would substantially lessen competition or tend to create a monopoly in any relevant market, unless the Board finds that the anticompetitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effects of the transaction in meeting the convenience and needs of the community to be served.7 Union Planters and First Mutual each compete in the Decatur and Lincoln banking markets, both in Illinois.8 The Board has carefully reviewed the competitive effects of the proposal in these markets in light of all the facts of record, including the projected increase in the concentration of total deposits in depository institutions in the market ("market deposits"),9 as measured by the Herfindahl-Hirschman Index ("HHI") under the Department of Justice Merger Guidelines ("DOJ Guidelines"),10 and the number of competitors that would remain in the market. In the Lincoln banking market, the change in market concentration, as measured by the HHI, would exceed the guidelines applied by the Board and the Department of Justice. Union Planters is the second largest depository institution in the Lincoln banking market, controlling deposits of $94.3 million, representing approximately 22.7 percent of market deposits. First Mutual is the eighth largest depository institution in the market, controlling deposits of $32.3 million, representing approximately 3.9 percent of market deposits when weighted at 50 percent. On consummation of the proposal, Union Planters would become the largest depository institution in the market, controlling deposits of approximately $126.7 million, representing approximately 29.3 percent of market deposits. The HHI would increase by 246 points to 1918. In evaluating the likely competitive effects of the proposed transaction, the Board has placed particular weight on the significant number of competitors that would remain in the market relative to the market's size.11 Eleven competitors, in addition to Union Planters, would remain in the market after consummation of the proposal. This represents a large number of competitors relative to the size of the market.12 Of these 11 competitors, five would each control more than 5 percent of market deposits, including one competitor that would control more than 9 percent of market deposits and one that would control approximately 28.5 percent of market deposits. Thus, a significant number of other institutions would have the market share and resources to compete effectively in the Lincoln banking market and the number of competitors reduces the likelihood of successful anticompetitive collusion in the market. Union Planters and First Mutual also compete in the Decatur banking market. Consummation of the proposal would be consistent with the DOJ Guidelines and prior Board precedent in this banking market.13 As in other cases, the Board sought comments from the Department of Justice and the Federal Deposit Insurance Corporation ("FDIC") on the competitive effects of the proposal. The Department of Justice has reviewed the proposal and advised the Board that consummation of the proposal would not likely have a significantly adverse competitive effect in the Lincoln or Decatur banking markets or in any other relevant market. The FDIC has been consulted and has not objected to consummation of the proposal. 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 is not likely to result in any significantly adverse effects on competition or the concentration of banking resources in the Lincoln or Decatur banking markets or in any other relevant banking market. Financial, Managerial, and Other Considerations The BHC Act also requires the Board to consider the financial and managerial resources and future prospects of the companies and banks involved in the proposal, the convenience and needs of the communities to be served, and certain supervisory factors. The Board has reviewed these factors in light of all the facts of record, including supervisory reports of examination assessing the financial and managerial resources of the organizations. Based on all the facts of record, the Board concludes that the financial and managerial resources and future prospects of Union Planters, First Mutual, and their respective subsidiary depository institutions are consistent with approval, as are the other supervisory factors the Board must consider under section 3 of the BHC Act. Considerations related to the convenience and needs of the communities to be served also are consistent with approval of the proposal. Conclusion Based on the foregoing, and in light of all the facts of record, the Board has determined that the applications should be, and hereby are, approved. The Board's approval is specifically conditioned on compliance by Union Planters with all of the commitments made in connection with the application. These commitments 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 proposed acquisition of First Mutual shall not be consummated before the fifteenth calendar day after 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 St. Louis, acting pursuant to delegated authority.

By order of the Board of Governors,14 effective January 11, 1999. (signed) Robert deV. Frierson Robert deV. Frierson Associate Secretary of the Board

Footnotes 1 Savings Bank is a state-chartered savings bank that has elected not to be supervised by the Office of Thrift Supervision as a savings association and, accordingly, is a bank for purposes of the BHC Act. 2 Union Planters also has requested the Board's approval to hold and exercise an option to acquire up to 19.9 percent of First Mutual's voting shares. The option would expire on consummation of the proposal. 3 In this context, depository institutions include commercial banks, savings banks, and savings associations. Asset and ranking data are as of June 30, 1997. 4 12 U.S.C. § 1842(d). A bank holding company's home state is the 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. 5 12 U.S.C. §§ 1842(d)(1)(A) & (B) and 1842(d)(2)(A) & (B). Union Planters meets the capital and managerial requirements established by applicable law. On consummation of the proposal, Union Planters and its affiliates 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 in Illinois. See Ill. Comp. Stat. Ann. 205/10-3.09(a) (West 1998). In addition, Savings Bank has been in existence and operated continuously for more than five years. See Ill. Comp. Stat. Ann. 205/10-3.071(i) (West 1998). All other requirements of section 3(d) of the BHC Act also would be met on consummation of the proposal. 6 12 U.S.C. § 1842(c)(1)(A). 7 12 U.S.C. § 1842(c)(1)(B). 8 The Decatur banking market is approximated by Macon County; Dora, Lovington, Marrow Bone, Sullivan, and Jonathan Creek townships in Moultrie County; Moweaqua, Penn, Flat Branch, Pickaway, Todds Point, Ridge, and Okaw townships in Shelby County; and Willow Branch and Cerro Gordo townships in Piatt County, all in Illinois. The Lincoln banking market consists of Logan County, Illinois, excluding Corwin township. 9 Market share data used to analyze the competitive effects of the proposal are as of June 30, 1997, and 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 386 (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). In light of the existing restrictions on the lending activities of Illinois-chartered savings banks, the Board has weighted the current market share of Savings Bank at 50 percent. See Ill. Comp. Stat. Ann. 205/1009 (West 1998). Because the deposits of Savings Bank would be acquired by a commercial banking organization, Savings Bank's deposits are included at 100 percent in the calculation of pro forma market shares. See Norwest Corporation, 78 Federal Reserve Bulletin 452 (1992); First Banks, Inc., 76 Federal Reserve Bulletin 669 (1990). 10 See 49 Federal Register 26,823 (June 29, 1984). Under the DOJ Guidelines, a market in which the post-merger HHI is above 1800 is considered 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 HHI thresholds for screening bank mergers for anticompetitive effects implicitly recognize the competitive effects of limited-purpose lenders and other non-depository financial entities. 11 The Board previously has stated that the number and strength of factors necessary to mitigate the competitive effects of a proposal depend on the level of concentration and the size of the increase in market concentration. See NationsBank Corporation, 84 Federal Reserve Bulletin 129 (1998). 12 The Lincoln banking market has total deposits of approximately $431 million. The number of competitors remaining in the Lincoln banking market after consummation would be 25 percent greater than the average number of competitors in the other 8 banking markets in Illinois that have between $350 million and $500 million in total market deposits. 13 On consummation of the proposal, Union Planters would become the largest depository institution in the Decatur banking market, controlling deposits of $369 million, representing approximately 22 percent of market deposits. The HHI would increase by 201 points to 1289, and 22 other depository institutions would remain in the market. 14 This action was taken pursuant to the Board's Rules Regarding Delegation of Authority (12 C.F.R. 265.4(b)(1)) by a committee of Board members. Voting for this action: Vice Chair Rivlin and Governors Kelley and Ferguson. Absent and not voting: Chairman Greenspan and Governors Meyer and Gramlich.

Return to top

1999 Orders on banking applications