|For immediate release|
The Federal Reserve Board today announced its approval of the notice by North Fork Bancorporation, Inc., Melville, New York, to acquire up to 9.9 percent of the voting shares of Long Island Bancorp, Inc., and thereby acquire an interest in Bancorp's wholly owned subsidiary, The Long Island Savings Bank, FSB, both in Melville, New York.
North Fork Bancorporation, Inc.
North Fork Bancorporation, Inc. ("North Fork"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 4(c)(8) of the BHC Act (12 U.S.C. § 1843(c)(8)) and section 225.24 of the Board's Regulation Y (12 C.F.R. 225.24) to acquire up to 9.9 percent of the voting shares of Long Island Bancorp, Inc. ("Bancorp"), and thereby acquire an interest in Bancorp's wholly owned subsidiary, The Long Island Savings Bank, FSB ("Savings Bank"), both in Melville, New York.1
Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 11,446 (1998)). The time for filing comments has expired, and the Board has considered the notice and all comments received in light of the factors set forth in section 4(c)(8) of the BHC Act.
North Fork, with total consolidated assets of approximately $6.8 billion, owns North Fork Bank, Melville, New York ("NFB"). North Fork is the 14th largest banking organization in New York, controlling deposits of approximately $6 billion, representing approximately 1.5 percent of total deposits in depository institutions in the state.2 Bancorp, with total consolidated assets of approximately $6 billion, is the 18th largest depository institution in New York, controlling deposits of approximately $3.7 billion, representing less than 1 percent of total deposits in depository institutions in the state.
The Board previously has determined by regulation that the operation of a savings association by a bank holding company is closely related to banking for purposes of section 4(c)(8) of the BHC Act.3 The Board requires that savings associations acquired by bank holding companies conform their direct and indirect activities to those that are permissible for bank holding companies under section 4 of the BHC Act. North Fork has committed to cease or otherwise address the activities of Bancorp that are not permissible for a bank holding company under section 4(c)(8) of the BHC Act and Regulation Y.4
In order to approve the proposal, the Board also is required by section 4(c)(8) of the BHC Act to determine that the acquisition by North Fork of the proposed interest in Bancorp "can reasonably be expected to produce benefits to the public . . . that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices."5 As part of its consideration of these factors, the Board has carefully considered comments submitted by Bancorp and Inner City Press/Community on the Move ("ICP") opposing the proposal.
Bancorp contends that North Fork's minority investment would adversely affect its ability to compete and to pursue long-term business opportunities, retain employees and customers, and focus on its strategic business plans. ICP contends that North Fork's proposed investment would not support or stabilize Bancorp and would disrupt the local banking market.
North Fork has not applied to control Bancorp and has made a number of commitments that the Board has relied on in other cases to determine that an investing bank holding company would not be able to exercise a controlling influence over another depository institution for purposes of the BHC Act.6 The commitments include a commitment not to exercise or seek to exercise a controlling influence over the management or policies of Bancorp or its subsidiaries; not to seek or accept any representation on the board of directors of Bancorp or any of its subsidiaries; not to attempt to influence the dividend policies, loan decisions, or operations of Bancorp or any of its subsidiaries.7 Under the BHC Act, North Fork is prohibited from acquiring more than 9.9 percent of Bancorp's voting stock, or otherwise exercising a controlling influence over Bancorp, without further Board approval. North Fork, therefore, may not participate in the deliberations or decision making of the board of directors of Bancorp or any of its subsidiaries without prior Board approval.8 The Board has adequate supervisory authority to monitor and enforce North Fork's compliance with its commitments, including the authority to initiate a control proceeding against North Fork if facts come to the Board's attention that North Fork or any of its subsidiaries or affiliates in fact controls Bancorp for purposes of the BHC Act. The Board believes that the commitments provided by Bancorp substantially mitigate the potential that consummation of the proposal would result in the adverse effects alleged by Bancorp and ICP.
Although the proposal involves a minority investment, section 4(c)(8) of the BHC Act requires that the Board consider the competitive effects of the proposal. The Board has noted that one company need not acquire control of another company in order substantially to lessen competition between them and that the specific facts of each case will determine whether a minority investment would have significantly anticompetitive effects.9 North Fork and Bancorp compete in the Metropolitan New York/New Jersey banking market.10 If North Fork and Bancorp are considered as a combined entity, the Herfindahl-Hirschman Index ("HHI") would not increase in the relevant banking market and numerous competitors would remain in the market.11 Thus, any potential elimination of competition between the two entities is not expected to substantially lessen competition in the Metropolitan New York/New Jersey banking market or in any relevant banking market.
As part of the Board's evaluation of the public interest factors in this case, the Board has carefully reviewed the financial and managerial resources of North Fork, Bancorp, and their respective subsidiaries, and the effect the transaction would have on such resources in light of all the facts of record.12 These facts include confidential financial information from North Fork and reports of examination and other supervisory information received from the appropriate federal and state supervisors of the affected organizations assessing the financial and managerial resources of the organizations.13 Based on all the facts of record, the Board concludes that the financial and managerial resources of the organizations involved in the proposal are consistent with approval.
In acting on applications to acquire a savings association, the Board also reviews the records of performance of the relevant depository institutions under the Community Reinvestment Act (12 U.S.C. § 2901 et seq.) ("CRA").14 As provided in the CRA, the Board evaluates the record of performance of an institution in light of examinations by the appropriate federal supervisors of the CRA records of performance of the relevant institutions. An institution's most recent CRA performance evaluation is a particularly important consideration in the application process because it represents a detailed on-site evaluation of the institution's overall record of performance under the CRA by its appropriate federal regulator.15
NFB received an overall rating of "satisfactory" from the FDIC at its most recent evaluation for CRA performance, as of March 1997 ("1997 Examination"). In addition, the NYSBD rated NFB's CRA performance "satisfactory" as of the same date.16 Savings Bank also received an overall rating of "outstanding" from its appropriate federal regulator, the Office of Thrift Supervision, as of February 1996.
ICP contends, based primarily on data filed under the Home Mortgage Disclosure Act (12 U.S.C. § 2901 et seq.) ("HMDA"), that North Fork's lending activities, including loans secured by 1-4 family dwellings ("owner-occupied housing"), in low- to moderate-income ("LMI") communities and communities with predominantly minority populations are inadequate.17 The Board recently reviewed North Fork's record of CRA performance in light of similar comments submitted by ICP in connection with approving North Fork's application to acquire New York Bancorp, Inc., Douglaston, New York.18
In the N.Y. Bancorp Order, the Board carefully reviewed a number of aspects of North Fork's CRA performance, including NFB's lending programs designed to assist in meeting the housing-related credit needs of LMI individuals and communities, small business lending activities, NFB's record of ascertaining the credit needs of its entire service community, NFB's branch locations and branch closing policies, and NFB's compliance with fair lending laws. The Board also carefully reviewed North Fork's record of lending in light of 1995 and 1996 HMDA data filed by North Fork. For the reasons set forth in detail in that order, and incorporated herein by reference, the Board concluded that the CRA performance record of North Fork was consistent with approval under the BHC Act.
The Board also has carefully reviewed North Fork's final HMDA data for 1997 that became available after the N.Y. Bancorp Order. These data show that the number of loans made by North Fork in census tracts with predominantly minority populations decreased slightly in 1997 compared to 1996. The data also show that North Fork increased the number of loans it made to LMI individuals and in LMI census tracts in 1997 compared to 1996. The data also reflect some disparities in the rate of loan originations, denials, and applications by racial group and income level in certain areas.
The Board is concerned when an institution's record indicates such disparities and believes that all banks are obligated to ensure that their lending practices are based on criteria that assure not only safe and sound banking, but also equal access to credit by creditworthy applicants regardless of race. The Board recognizes, however, that HMDA data alone provide an incomplete measure of an institution's lending in its community and have limitations that make the data an inadequate basis, absent other information, for concluding that an institution has engaged in illegal discrimination in making lending decisions.19
Because of the limitations of HMDA data, the Board has carefully reviewed other information, particularly examination reports that provide an on-site evaluation of compliance by NFB with the fair lending laws. In the 1997 Examination, FDIC examiners found no evidence of prohibited discriminatory practices or of any practices intended to discourage applications for the types of credit set forth in the bank's CRA statement.20 NYSBD examiners also found no evidence of any prohibited discriminatory or illegal credit practices in their 1997 evaluation of NFB. FDIC examiners also concluded that NFB's management had demonstrated a commitment to making loans in LMI census tracts and to LMI individuals and favorably noted that the bank had a formal review process for all denied loan applications. Based on a review of the entire record in this case, including the Board's previous review in the N.Y. Bancorp Order, the Board concludes that the CRA performance records of NFB and Savings Bank are consistent with approval of the proposal.21
The Board also has considered the commenters' contentions that the proposal would not result in any public benefits. The requirement under section 4 of the BHC Act that the Board must determine that public benefits from a proposal can reasonably be expected to outweigh potential adverse effects necessarily involves a balancing process that takes into account the extent of the potential for adverse effects.
The Board believes that there is a public benefit to be derived from permitting capital markets to operate and from permitting bank holding companies to make potentially profitable passive investments in financial institutions, when these investments are consistent, as in this case, with the relevant considerations under the BHC Act.22 Based on all the facts of record, and for the reasons previously discussed in this order, the Board concludes that the proposal is not likely to result in the adverse effects alleged by Bancorp and ICP or other adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices. Accordingly, based on all the facts of record, the Board has determined that consummation of the proposal can reasonably be expected to produce public benefits that would outweigh any likely adverse effects under the proper incident to banking standard of section 4(c)(8) of the BHC Act.
Based on the foregoing and all the facts of record, the Board has determined that the notice should be, and hereby is, approved.23 The Board's approval of the proposal is specifically conditioned on compliance by North Fork with the commitments made in connection with this notice and conditions referred to in this order. The Board's determination is also subject to all the conditions in Regulation Y, including those in sections 225.7 and 225.25(c) (12 C.F.R. 225.7 and 225.25(c)), and to the Board's authority to require such modification or termination of the activities of a holding company or any of its subsidiaries as the Board finds necessary to assure compliance with, or to prevent evasion of, the provisions and purposes of the BHC Act and the Board's regulations and orders issued thereunder. The commitments and conditions relied on by the Board in reaching this decision shall be 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. This transaction shall not be consummated later than three months after the effective date of this order, unless such period is extended for good cause by the Board or the Federal Reserve Bank of New York, acting pursuant to delegated authority.
By order of the Board of Governors,24 effective April 13, 1998.
(signed) Jennifer J. Johnson
Jennifer J. Johnson
As part of this proposal, North Fork has committed that it will not, without the Board's prior approval:
1 After North Fork filed notice with the Board to make the proposed investment in Bancorp, Bancorp entered into an agreement with Astoria Financial Corporation, Lake Success, New York ("Astoria"), under which Astoria would purchase, subject to regulatory approval, all the voting shares of Bancorp, including those held or acquired by North Fork.
2 Asset data are as of December 31, 1997, state deposit data are as of June 30, 1997, and incorporate North Fork's acquisitions through February 1998. In this context, depository institutions include commercial banks, savings banks, and savings associations.
3 12 C.F.R. 225.28(b)(4). Bancorp contends that, because North Fork has in the past made similar minority investments in other depository institution holding companies, North Fork's notice should be construed as a request to engage in the activity of making minority investments in depository institutions. The BHC Act and the Board's Regulation Y include a specific requirement that a bank holding company receive Board approval prior to acquiring more than 5 percent of the voting shares of a bank or a savings association. North Fork has filed the required notice under section 4(c)(8) of the BHC Act to acquire more than 5 percent of the shares of Bancorp and Savings Bank, which are engaged in activities that the Board has determined to be closely related to banking.
4 Savings Bank engages in certain real estate development and insurance sales activities that are impermissible for bank holding companies. North Fork has committed that within two years of increasing its interest in the voting shares of Bancorp to 5 percent or more it will either acquire control of Bancorp and cause Bancorp to cease all impermissible activities or reduce its interest in the voting shares of Bancorp to below 5 percent.
5 12 U.S.C. § 1843(c)(8).
6 These commitments are set forth in the Appendix.
7 Bancorp and ICP allege that North Fork violated the passivity commitments provided in connection with previous minority investments made by North Fork in Suffolk Bancorp, Inc., Riverhead, New York ("Suffolk"), and Sunrise Bancorp, Inc., Farmingdale, New York ("Sunrise"), and took actions inconsistent with the passivity commitments initially offered to the Board in connection with North Fork's proposed acquisition of more than 5 percent of the voting shares of Haven Bancorp, Woodside, New York ("Haven"). The Board considered similar allegations regarding the commitments that North Fork made in connection with its passive investment in Suffolk and determined that no violations occurred. See North Fork Bancorporation, Inc., 82 Federal Reserve Bulletin 338, 339 (1996). The Board also has considered commenters' allegations regarding the commitments made by North Fork in connection with its application to acquire up to 9.9 percent of Sunrise. On the basis of all the facts of record, including confidential supervisory information, the Board concludes that commenters' allegations do not reflect adversely on the managerial resources of North Fork or warrant enforcement action by the Board. The Board notes that North Fork did not acquire more than 5 percent of the voting shares of Haven and did not make any binding passivity commitments to the Board with respect to Haven.
8 Bancorp maintains that North Fork intends to control Bancorp because North Fork has discussed potential business combinations with Bancorp's management. The Board previously has noted that general expressions of interest in negotiating a business combination with an institution do not violate the passivity commitments or the BHC Act's prohibition against exercising a controlling influence over the management or policies of a banking organization. See GB Bancorporation, 83 Federal Reserve Bulletin 115 (1997).
9 See Emigrant Bancorp Inc., 82 Federal Reserve Bulletin 555 (1996), Mansura Bancshares, Inc., 79 Federal Reserve Bulletin 37 (1993) ("Mansura"); and SunTrust Banks, Inc., 76 Federal Reserve Bulletin 542 (1990). It is possible, for example, that the acquisition of a substantial ownership interest in a competitor or a potential competitor of the acquiring firm might alter the market behavior of both firms in such a way as to weaken or eliminate independent action at each organization and increase the likelihood of cooperative operations. See Mansura at 38.
10 The Metropolitan New York/New Jersey banking market includes New York City; Nassau, Orange, Putnam, Rockland, Suffolk, Sullivan, and Westchester Counties in New York; Bergen, Essex, Hudson, Hunterdon, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset, Sussex, Union, Warren, and a portion of Mercer Counties in New Jersey; Pike County in Pennsylvania; and portions of Fairfield and Litchfield Counties in Connecticut.
11 If North Fork was deemed to control Bancorp, the HHI for the Metropolitan New York/New Jersey banking market would decrease from 796 to 786 on consummation of the proposal. Market share data are as of June 30, 1996, and are based on calculations in which the deposits of thrift institutions, other than Savings Bank, 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 WM Bancorp, 76 Federal Reserve Bulletin 788 (1990); National City Corporation, 70 Federal Reserve Bulletin 743 (1984). Because the Board has analyzed the competitive factors in this case as if North Fork and Savings Bank were a combined entity, the deposits of Savings Bank are included at 100 percent in the calculation of pro forma market share. See Norwest Corporation, 78 Federal Reserve Bulletin 452 (1992); First Banks, Inc. 76 Federal Reserve Bulletin 669 (1990).
12 Bancorp contends that the proposal would adversely affect its financial condition because Bancorp would be forced to redeem the shares held by North Fork at a premium. The Board has considered Bancorp's comments in light of confidential examination and supervisory reports assessing the financial condition of Bancorp. Bancorp also maintains that Suffolk's financial condition was adversely affected by its redemption of the shares acquired by North Fork. The Board notes that Suffolk remained well capitalized after the transaction.
13 ICP argues that allegations regarding the activities of a senior executive of NFB and North Fork contained in two lawsuits raise adverse managerial considerations. Documents filed in connection with these lawsuits asserted that certain business transactions between NFB and acquaintances of the senior executive were not handled in accordance with the bank's normal procedures. The Board notes that these lawsuits were resolved in favor of NFB and that no findings of improper activities were made against NFB or its management. The Board also has considered ICP's contentions in light of confidential reports of examination and other supervisory information from NFB's appropriate federal supervisor, the Federal Deposit Insurance Corporation ("FDIC"), and the New York State Banking Department ("NYSBD"), regarding the managerial resources of NFB. The Board notes that ICP submitted similar comments to the FDIC in connection with NFB's application to merge with North Side Savings Bank, New York, New York, in 1996, and that the FDIC found that the managerial resources of NFB were consistent with approved of that transaction under the Bank Merger Act (12 U.S.C. § 1828(c)).
14 See Banc One Corporation, 83 Federal Reserve Bulletin 602 (1997).
15 The Statement of the Federal Financial Supervisory Agencies Regarding the Community Reinvestment Act provides that a CRA examination is an important and often controlling factor in the consideration of an institution's CRA record and reports of these examinations will be given great weight in the applications process. See 54 Federal Register 13,742 and 13,745 (1989).
16 See N.Y. Banking Law § 28-b.
17 ICP also maintains that North Fork charges higher fees for banking services and pays lower interest rates on deposits than other depository institutions in New York. There are no facts in the record indicating that North Fork's pricing for bank services is based on any factor that would be prohibited under law. The Board previously has concluded, moreover, that the CRA does not impose any limitation on the ability of a depository institution to price its products and services.
18 See North Fork Bancorporation, Inc., 84 Federal Reserve Bulletin 290 (1998) ("N.Y. Bancorp Order").
19 The data, for example, do not provide a basis for an independent assessment of whether an applicant who was denied credit was, in fact, creditworthy. Credit history problems and excessive debt levels relative to income (reasons most frequently cited for a credit denial) are not available from HMDA data.
20 As noted in the N.Y. Bancorp Order, FDIC examiners noted certain technical violations of the fair lending laws during the 1997 Examination, but stated that these matters were addressed by the bank's management during the examination.
21 The Board continues to expect NFB to address the areas for improvement in its lending performance discussed in the N.Y. Bancorp Order, and will consider North Fork's progress in this regard in connection with future applications by North Fork to acquire deposit-taking facilities.
22 See, e.g. Mercantile Bancorporation Inc., 83 Federal Reserve Bulletin 683, 688 (1997); South Central Texas Bancshares, Inc., 83 Federal Reserve Bulletin 47, 51 n. 20 (1997).
23 ICP requests that the Board hold a public hearing or meeting to investigate and resolve disputed issues of fact involving the allegations contained in the lawsuits against NFB and its senior management. The Board's rules provide for a hearing on notices under section 4 of the BHC Act to acquire a savings association only if there are disputed issues of material fact that cannot be resolved in some other manner. See 12 C.F.R. 225.25(a)(2). After a careful review of all the facts of record, the Board has concluded that ICP's contentions amount to a dispute concerning the weight that should be accorded to, and the conclusions that the Board should draw from, the facts of record, but do not identify disputed issues of fact that are material to the Board's decision. The Board also notes that interested parties have had an ample opportunity to present their views, and ICP has submitted substantial written comments that have been considered by the Board. ICP's request fails to demonstrate why a written presentation would not suffice and to summarize the evidence that would be presented at a hearing or meeting. For these reasons, and based on all the facts of record, the Board has determined that a public meeting or hearing is not necessary to clarify the factual record on the notice and is not warranted in this case. Accordingly, ICP's request for a public hearing or meeting on this notice is hereby denied.
24 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Kelley, Phillips, Meyer, Ferguson, and Gramlich.
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1998 Orders on banking applications