First Northwest Bank is about to become the first state-chartered bank in Illinois to be approved for an insurance subsidiary owned by the bank.

Although the structure is not new nationwide–at current count 38 states allow their chartered banks to have insurance powers which exceed those of national banks and all but one state, Montana, allow state-chartered banks to sell insurance to the same extent as national banks–it is a first for Illinois, the second most populous bank state after Texas. Illinois has traditionally been stringent on allowing banks insurance powers, but last year passed legislation allowing banks to sell insurance directly.

The subsidiary of the Arlington Heights-based bank is a 50-50% partnership with the Assurance Agency of Rolling Meadows, Ill. The joint venture, called First Northwest Insurance, is under the bank, not the bank holding company.

The way the structure is set up, the bank owns 100% of First Northwest Financial, which is the 50% owner of First Northwest Insurance. The deal has been approved by the state bank controller, and is awaiting final approval by the state insurance commissioner’s office. According to bank Chairman and CEO Michael Silverman, the approval has already been "semi confirmed" by that office and is expected "any minute."

"As a relatively young bank–we were four years old on Feb. 14–we certainly need to look at non-interest income. We need to look at the bottom line. We formed a mortgage subsidiary as well. We want to be a full-service financial center for our community," said Silverman, explaining why the $110- million-asset bank chose to be the pioneer of the new legal structure. The deal was put together for the bank by Chicago law firm Barack Ferrazzano.

John Gorman, partner at Washington, D.C., law firm Luse, Lehman, Gorman, Pomerenk & Schick, said the move shows that even the most restrictive states are catching up to powers expanded for national banks through court decisions over the last five years or so.

Silverman said the bank’s management chose the Assurance Agency to partner with because a bank board member, Jerry Powell, is a principal in that company and with his background, he will be a managing partner in the joint venture.