|For immediate release|
The Federal Reserve Board today announced its approval of the application of Amboy Bancorporation, Old Bridge, New Jersey, to acquire up to 9.9 percent of the shares of The Community Bank of New Jersey, Freehold, New Jersey, a de novo state-chartered bank.
Attached is the Board's Order relating to this action.
Amboy Bancorporation, Old Bridge, New Jersey, ("Amboy"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 3 of the BHC Act (12 U.S.C. § 1842) to acquire up to 9.9 percent of the shares of The Community Bank of New Jersey, Freehold, New Jersey ("CBNJ"), a de novo state-chartered bank.1
Notice of this proposal, affording interested persons an opportunity to submit comments, has been published (62 Federal Register 4534 (1997)). The time for filing comments has expired, and the Board has considered the proposal and all comments received in light of the factors set forth in section 3 of the BHC Act.
Amboy, with total consolidated assets of $1.1 billion, is a registered bank holding company that operates one subsidiary bank in New Jersey.2 Amboy is the 13th largest commercial banking organization in New Jersey, controlling approximately $871.8 million in deposits, representing 1 percent of all deposits in commercial banking organizations in the state ("state deposits").3 CBNJ, a de novo bank, would control a de minimis percentage of state deposits during its first few years of operation.4
Amboy proposes to acquire less than 25 percent of the voting shares of CBNJ, which is not a normal acquisition for a bank holding company. Nonetheless, the requirement in section 3(a)(3) of the BHC Act that the Board's approval be obtained before a bank holding company acquires more than 5 percent of the voting shares of a bank suggests that Congress contemplated the acquisition by bank holding companies of between 5 and 25 percent of the voting shares of a bank or bank holding company (a "minority investment").
Amboy contends that the proposed 9.9 percent minority investment would be passive and would not permit Amboy to control CBNJ. Amboy has provided a number of the commitments previously relied on by the Board in determining that minority investments would not permit the investing bank holding company to control another bank holding company or bank.5 Unlike other cases, however, Amboy proposes to engage in loan participation activities with CBNJ, and contends that this relationship should not raise control issues.
A company may control a bank or other company for purposes of the BHC Act if the company is able to exercise a controlling influence over the management and policies of the bank or other company.6 The Board previously has concluded that a minority investment could permit the investing bank holding company to control another bank or bank holding company.7 Whether a minority investment could result in control necessarily requires a careful review of the proposal in light of all the facts of record. If control exists, the Board's regulations require the bank holding company to provide financial and managerial support to the bank or bank holding company it controls.8
The Board has in many prior cases noted its concern that a proposed minority investment could permit an investing bank holding company to exercise a controlling influence over the bank invested in when the investment is coupled with significant business relationships, particularly relationships involving a core banking function like lending.9 For example, an equity investor has both the means and the incentive to influence the lending policies of a company that is a significant partner in lending transactions to insure a certain amount of loan participations in connection with the bank's business plan. In addition, a company may be less willing to reject loans originated by an investor in the company or establish loan policies that conflict with the policies of a company that is a significant investor and source of business.
In this case, Amboy Bank proposes to underwrite and originate real estate and construction loans in CBNJ's community with the expectation that CBNJ would participate in these loans. CBNJ is a de novo bank with no record of independent operations. Amboy has not proposed any limit to the amount of the assets of CBNJ that would represent loans originated or underwritten by Amboy, and the amount of such participation could therefore represent most or all of the loan portfolio of CBNJ during the next several years.
The Board also has considered these proposed business relationships in light of the fact that Amboy would be the largest single shareholder of CBNJ and would be able to vote 9.9 percent of the bank's outstanding shares. CBNJ's shares are otherwise widely held, with no single shareholder owning in excess of five percent.10
Based on all the facts of record, and for the reasons discussed above, the Board concludes that Amboy would have the ability to exercise a controlling influence over the management and policies of CBNJ as a result of the proposal and, thereby, would control the bank for purposes of the BHC Act.11 Accordingly, the Board's action on the proposal is expressly conditioned on Amboy providing financial and managerial support for CBNJ in accordance with the Board's rules and policies.
Amboy and CBNJ would compete in the Metropolitan New York/New Jersey banking market.12 Amboy is the 45th largest depository institution in the market, controlling approximately $871.8 million in deposits, representing less than 1 percent of total deposits in depository institutions in the market ("market deposits").13 The market is unconcentrated, as measured by the Herfindahl-Hirschman Index ("HHI"),14 and numerous competitors would remain in the market. Based on all the facts of record, the Board concludes that consummation of the proposal would not have a significantly adverse effect on competition or the concentration of resources in the Metropolitan New York/New Jersey banking market or any other relevant banking market. The Board also concludes in light of all the facts of record that the financial and managerial resources and future prospects of the companies and banks involved and the convenience and needs of the community to be served are consistent with approval as are other supervisory factors.
Based on the foregoing and all the facts of record, the Board has determined that the application should be, and hereby is, approved. The Board's approval is expressly conditioned on compliance by Amboy with all the commitments made in connection with the proposal and with the conditions discussed in this order, including the condition that Amboy provide financial and managerial support to CBNJ in accordance with the Board's policies. For purposes of this action, the commitments and conditions relied on by the Board in reaching this decision are deemed to be conditions imposed in writing and, as such, may be enforced in proceedings under applicable law.
The acquisition of shares in CBNJ should not be consummated before the fifteenth calendar day following the effective date of this order or later than three months following the effective date of this order, and CBNJ shall be opened for business within six months, unless such periods are extended for good cause by the Board or by the Federal Reserve Bank of New York, acting pursuant to delegated authority.
By order of the Board of Governors,15 effective April 14, 1997.
(signed) William W. Wiles
William W. Wiles
1 CBNJ would be capitalized through an initial public offering of voting stock, and Amboy proposes to purchase 9.9 percent of the voting shares. Amboy would also obtain a non-transferrable ten-year option to purchase additional CBNJ shares in future public offerings in order to maintain shareholdings at 9.9 percent. The option by its terms may not be exercised if the result would cause Amboy to own, in the aggregate, more than 9.9 percent of CBNJ's voting shares.
2 Amboy owns Amboy National Bank, Old Bridge, New Jersey ("Amboy Bank"). Consolidated asset data are as of September 30, 1996.
3 Banking asset data are as of December 31, 1996. State deposit data are as of June 30, 1996.
4 CBNJ projects that its average deposit balances will reach $6 million during its first year in operation, and will reach $85 million by its fifth year in operation.
5 See e.g., Summit Bancorp, Inc., 77 Federal Reserve Bulletin 952 (1991); The Summit Bancorporation, 75 Federal Reserve Bulletin 712 (1989); United Counties Bancorporation, 75 Federal Reserve Bulletin 714 (1989). For example, Amboy has committed not to exercise a controlling influence over the management or policies of CBNJ; not to have director, officer, or employee interlocks with CBNJ; not to solicit or participate in soliciting proxies with respect to any matter presented to the shareholders of CBNJ; and not to threaten to dispose of shares of CBNJ in any manner as a condition of specific action or nonaction by CBNJ.
6 12 U.S.C. § 1841(a)(2)(C).
7 See McLeod Bancshares, Inc., 73 Federal Reserve Bulletin 724 (1987); Hudson Financial Associates, 72 Federal Reserve Bulletin 150 (1986).
8 See, e.g., 12 C.F.R. 225.4(a); Flathead Holding Company of Bigfork, 82 Federal Reserve Bulletin 741 (1996); see also 12 U.S.C. § 1815(e) (cross-guaranty provision of the Federal Deposit Insurance Act).
9 See, e.g., Proposed Investment by Sumitomo Bank, 73 Federal Reserve Bulletin 24 (1987). In a small number of proposals, the Board has concluded that a minority investment in combination with business relationships would not, in the specific circumstances of that case, result in the investing bank holding company controlling the second holding company. In those cases, each of the institutions involved were large commercial banking organizations with substantial assets and well-established records of independent operations, and the business relationships were limited. See BOK Financial Corporation, 81 Federal Reserve Bulletin 1052 (1995); Banco Santander, S.A., 81 Federal Reserve Bulletin 1139 (1995).
10 Although the bank's organizers would own approximately 46 percent of the bank's voting shares, the organizers consist of 31 individuals and there is no evidence in the record that the organizers are bound together as a cohesive group of shareholders that could counterbalance Amboy's voting power. CBNJ's remaining voting shares would be owned by approximately 270 individual shareholders.
11 See 12 C.F.R. 225, Subpart D.
12 The Metropolitan New York-New Jersey banking market is approximated by Bergen, Essex, Hudson, Hunterdon, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset, Sussex, Union and Warren Counties and parts of Mercer County in New Jersey; Bronx, Dutchess, Kings, Nassau, New York, Orange, Putnam, Queens, Richmond, Rockland, Suffolk, Sullivan, Ulster and Westchester Counties in New York; Pike County, Pennsylvania; and 24 municipalities in Fairfield and Litchfield Counties in Connecticut.
13 Market share data are as of June 30, 1995. Market share data are based on calculations in which the deposits of thrift institutions are included at 50 percent. The Board has indicated previously that thrift institutions have become, or have the potential to become, major competitors of commercial banks. See WM Bancorp, 76 Federal Reserve Bulletin 788 (1990); National City Corporation, 70 Federal Reserve Bulletin 743 (1984).
14 In light of the de novo formation of CBNJ, the HHI would remain unchanged at 748 after consummation of the proposal. Under the revised Department of Justice Merger Guidelines, 49 Federal Register 26,823 (June 29, 1984), a market in which the post-merger HHI is less than 1000 is unconcentrated. The Justice Department has informed the Board that a bank merger or acquisition generally will not be challenged (in the absence of other factors indicating anticompetitive effects) unless the post-merger HHI is at least 1800 and the merger increases the HHI by more than 200 points. The Justice Department has stated that the higher than normal HHI thresholds for screening bank mergers for anticompetitive effects implicitly recognize the competitive effect of limited-purpose lenders and other non-depository financial entities.
15 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Kelley, Phillips, and Meyer.
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1997 Orders on banking applications