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Financial Service Providers

In today’s fast-forward business world, change is a constant and it seems there is always something out there to keep executives, business owners and corporate leaders awake at night.

For those of us in the banking industry, all eyes have been on Chicago over the last three or so years. We have seen robust efforts from banks headquartered out of state to stake a presence here, established players such as Harris continue to open branches and seek other growth opportunities, and community banks continue to sprout up. The question is how much can this market sustain? Let’s face it, with over 700 banks doing business in our state, this level of saturation can only lead to consolidation.

Since Harris acquired First National Bank of Joliet in 2001, we have spent nearly $500 million on five acquisitions. That includes our first foray into another Midwest state through our purchase of Mercantile Bank and its 19 branches in Northwest Indiana. We also continue to look for expansion opportunities outside of our traditional Chicagoland footprint but solidly in the Midwestern states. To be sure, the trend toward consolidation plus the attractive demographics in the Chicago market have combined to create an atmosphere of fierce competition.

The probability of more transactions occurring over the next few years is getting higher. My top three reasons for this are:

1. The challenging regulatory environment, including Sarbanes-Oxley Act provisions, Basel II and the Patriot Act,

2. Continuing pressure on revenue growth with a flatter yield curve and changing consumer behavior around fees,

3. The credit cycle turn, which will at best result in increased provisioning and at worst cause financial distress for some players.

This region of the country is uniquely positioned to gain broader attention over the next six quarters. We haven’t seen the remarkable acceleration of housing prices nor the level of speculation that has been witnessed by both coasts. As such, the Midwest should hold up relatively well as future Federal Reserve tightenings wring out market excesses.

As a result, the Midwest in general, and Chicago in particular, will be an attractive diversification option as the economy shifts toward a slower growth trajectory. Financial institutions will come to appreciate our area’s reasonable asset valuation and prudent underwriting environment as financial stresses are brought to bear. We can expect to see continued interest from many out-of-market players.

All of this is good news for consumers of banking services — both individuals and businesses. Even with stepped-up consolidation, there will continue to be a vast array of banking choices in this market. Providers of these services will continually seek ways to out-do each other in terms of service delivered, convenience, pricing, and the like.

Frank Techar President and CEO
Harris Bankcorp Inc.

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