Harris Puts Off Expansion Because of Low Exam Rating

Harris Bankcorp is putting expansion plans on hold because of the low rating it received for its community reinvestment activities.

The Chicago bank company, which has $13 billion of assets, shelved plans last week to acquire First Geneva Banque-shares of Illinois in order to straighten out problems with the Federal Reserve Bank of Chicago. First Geneva has $185 million of assets.

Harris recently received a rating of "needs to improve" for compliance with the Community Reinvestment Act, which mandates lending to poor and moderate-income communities. The rating, the second-lowest on a four-tier scale, almost guarantees rejection of expansion plans by regulators.

Expansion Status Clouded

The low grade at least temporarily puts into question a recently disclosed plan by Harris executives to triple the bank's assets through acquisitions. The bank company, whose main subsidiary is Harris Trust and Savings Bank, is owned by Bank of Montreal.

"We're trying to resolve the CRA situation, and as soon as it's resolved we'll continue with the expansion plans," a Harris spokeswoman said.

That is unlikely to happen quickly. The Fed rejected a request by Harris for a reevaluation, saying examiners would not return until their next regularly scheduled visit 10 to 14 months from now. The New York Fed received a similar request for a reevaluation from IBJ Schroder Inc.

Uneven Standards?

Harris' low grade also has stimulated further grumbling among some bank officers about inconsistencies in rating CRA programs. Some bankers complain that Chicago examiners have been tougher than their counterparts in other regions.

In early 1990, Harris withdrew an application to acquire Frankfort Bancshares in suburban Chicago after a local newspaper reported the Chicago Fed's concern with Harris' CRA record.

Chicago's Continental Bancorp also was prohibited from purchasing a bank company in Arizona two years ago, in part because of its CRA record.

Out of 102 CRA evaluations completed by the Chicago Fed since July 1990 -- when ratings were first made public - 16.6% received one of the two lowest ratings. That contrasts with a 12% figure for all banks and thrifts examined by all regulators, according to a new study by K.H. Thomas Associates, a Miami, Fla., consultant.

Marketing Effort Faulted

In its written report on Harris, the Fed said the bank had not marketed its lending programs aggressively enough. The Fed would not elaborate.

Edward Williams, Harris' senior community reinvestment officer at Harris, said inconsistency among bank examiners "is scary as hell."

The bank company's rating also surprised community activists and other bank community reinvestment officers, who said Harris has a good record of making loans in the Chicago area.

The new CRA study from K.H. Thomas indicates that examiners from the Office of the Comptroller of the Currency appear to be the easiest to please among the four agencies that issue CRA ratings. They gave out the highest possible CRA rating to just under 11% of the 3,979 banks they reviewed.

Of the 1,009 banks examined by nationwide Fed examiners, just over 10% earned the highest CRA grades, 80% were graded satisfactory, and 9.0% were told they need to improve or were given grades of substantial non-compliance.

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