Old National, First Midwest merger approved despite redlining allegations
Can allegations of redlining sink a bank merger?
Not for Evansville, Indiana-based Old National Bancorp’s acquisition of Chicago-based First Midwest Bancorp, which the Federal Reserve today approved.
The merger will create a bank with $45.8 billion in combined assets, the Federal Reserve said. The new organization will be the sixth-largest bank headquartered in the Midwest, Old National said when it announced the transaction. The acquisition is Old National’s ninth in as many years.
Old National did not respond to a request for comment, but a spokesperson for First Midwest provided statements from both companies.
“Receiving Federal Reserve approval paves the way for us to create a premier Midwestern bank that will provide significant benefits for our clients, team members, communities and shareholders,” said Old National CEO Jim Ryan.
First Midwest CEO Mike Scudder, who will be Old National’s chairman, said the merger would “further set us apart as a market leader across the Midwest.”
First announced in June, Old National said it expected the $6.5 billion acquisition of First Midwest to close in “late 2021 or early 2022,” but it first required regulators’ blessing.
Fair housing advocacy organizations, with limited resources, often seize such a moment to look into a bank’s fair housing practices. A redlining allegation has the potential to force a bank to change its practices to avoid reputational harm, and potentially spoiling a merger.
In October, the Fair Housing Center of Central Indiana filed a complaint against Old National, alleging that the bank carried out redlining in its mortgage lending practices.
The complaint alleged that Old National Bank structured its business to avoid extending mortgage credit to Black residents and neighborhoods in the Indianapolis area, and that the bank made many fewer loans to Black applicants than its peers did.
FHCCI alleged that of the 2,250 mortgage loans made by Old National from 2019 to 2020, only 37 were to Black borrowers across the entire Indianapolis market.
The FHCCI also alleged that Old National deliberately closed branches in Black neighborhoods and opened them in White neighborhoods, which is considered redlining and a breach of the federal Fair Housing Act.
Per the Federal Reserve’s order approving the acquisition, it considered the allegations of redlining, because they were brought up in a comment from the FHCCI opposing the merger.
But in December, Old National Bank settled to resolve the allegations, and FHCCI withdrew its opposition to the merger.
As part of the settlement, Old National agreed to open two branch offices in majority-Black census tracts, pay a $1.1 million loan subsidy fund, and provide substantial support for community development corporations and community organizations based and working in Indianapolis’ Black neighborhoods.
Federal and state regulators have increased their focus on anti-redlining enforcement in recent months. In October, the Department of Justice, Office of the Comptroller of the Currency and the Consumer Finance Protection Bureau announced a joint effort to combat modern-day redlining.
The agencies also announced a settlement with Trustmark National Bank, a retail bank based in Jackson, Mississippi, to resolve allegations that Trustmark engaged in redlining in Memphis, Tennessee.
Under the terms of the settlement, the bank agreed to pay $3.85 million in a loan subsidy fund to increase credit opportunities for residents of predominantly Black and Hispanic areas in the Memphis area, pay $400,000 to develop community partnerships and $200,000 per year for advertising and outreach.
Editor’s note: This story was updated to include comments from First Midwest and Old National.
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