For immediate release

The Federal Reserve Board today announced its approval of the notice of HUBCO, Inc., Mahwah, New Jersey, to acquire MSB Bancorp, Inc., and thereby acquire its savings bank subsidiary, MSB Bank, both in Goshen, New York. Attached is the Board's Order relating to this action.

HUBCO, Inc. Mahwah, New Jersey Order Approving the Acquisition of a Savings Association

HUBCO, Inc. ("HUBCO"), 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 MSB Bancorp, Inc. ("MSB"), and thereby acquire its savings bank subsidiary, MSB Bank, both in Goshen, 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 proposal and all comments received in light of the factors set forth in section 4 of the BHC Act. HUBCO, with total consolidated assets of approximately $3.0 billion, currently operates Hudson United Bank, Union City, New Jersey ("Lead Bank"), Lafayette American Bank, Bridgeport, Connecticut ("Lafayette Bank"), and Bank of the Hudson, Poughkeepsie, New York ("Bank of the Hudson").2 HUBCO is the 64th largest depository institution in New York, controlling deposits of approximately $603 million, representing less than 1 percent of total deposits in depository institutions in the state ("state deposits").3 MSB is the 58th largest depository institution in New York, controlling deposits of approximately $736 million, representing less than 1 percent of state deposits. On consummation of the proposal, HUBCO would become the 38th largest depository institution in New York, controlling deposits of approximately $1.3 billion, representing less than 1 percent of state deposits. 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.4 In making this determination, the Board requires that savings associations acquired by bank holding companies conform their direct and indirect activities to those permissible for bank holding companies under section 4 of the BHC Act. HUBCO has committed to conform all of MSB Bank's activities to those permissible under section 4(c)(8) of the BHC Act and Regulation Y.5 Competitive Considerations In order to approve the proposal, the Board also must determine that performance of the proposed activities is a proper incident to banking, that is, that the proposed transaction "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."6 HUBCO and MSB compete directly in the Metropolitan New York/New Jersey banking market ("New York banking market").7 On consummation of the proposal, HUBCO would become the 18th largest depository institution in the market, controlling deposits of approximately $3.3 billion, representing less than one percent of total deposits in depository institutions in the market.8 Concentration in the New York banking market, as measured by the Herfindahl-Hirschman Index ("HHI") under the Department of Justice Merger Guidelines ("DOJ Guidelines") would not increase, and the market would remain unconcentrated.9 In addition, numerous competitors would remain in the New York banking market. Based on these and all other facts of record, the Board concludes that consummation of the proposal would not result in any significantly adverse effects on competition or on the concentration of banking resources in the New York banking market or any other relevant banking market. Record of Performance under the Community Reinvestment Act In acting on applications to acquire a savings association, the Board considers the records of performance of the relevant depository institutions under the Community Reinvestment Act (12 U.S.C. § 2901 et seq.) ("CRA").10 The Board has reviewed the CRA performance records of Lead Bank, Lafayette Bank, Bank of the Hudson, and MSB Bank in light of all the facts of record, including comments received on the proposal from Inner City Press/Community on the Move ("Commenter").11 Commenter contends that data submitted under the Home Mortgage Disclosure Act (12 U.S.C. § 2801 et seq.) ("HMDA") for 1996 show that the marketing and lending activities of Lead Bank, Lafayette Bank, and MSB Bank are inadequate and illegally discriminatory with respect to minorities. Commenter also maintains that HUBCO's subsidiary banks and MSB Bank do not adequately serve the credit needs of low- and moderate-income ("LMI") communities, and that HUBCO funds its acquisitions of banking organizations through branch closings.12 A. CRA Performance Examinations 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 performance records of the relevant institutions. An institution's most recent CRA performance evaluation is a particularly important consideration in the applications process because it represents a detailed on-site evaluation of the institution's overall record of performance under the CRA by its appropriate federal supervisor.13 Lead Bank received an overall rating of "satisfactory" from its appropriate federal supervisor, the Federal Deposit Insurance Corporation ("FDIC"), at its most recent evaluation for CRA performance, as of February 1997 ("1997 Examination"). Lafayette Bank received an "outstanding" CRA performance rating from the FDIC at its most recent evaluation for CRA performance, as of March 1996 ("Lafayette Examination").14 In addition, as of May 1997, the State of Connecticut Department of Banking ("SCDB") rated Lafayette Bank's CRA performance "satisfactory" pursuant to Connecticut law.15 Bank of the Hudson received an "outstanding" CRA performance rating from its appropriate federal supervisor, the OTS, at its most recent CRA examination, as of February 1998. MSB Bank also received an overall rating of "satisfactory" from the OTS at its most recent evaluation for CRA performance, as of September 1997. Examiners found no evidence of prohibited discrimination or other illegal credit practices at HUBCO's subsidiary depository institutions or MSB Bank. The examinations also reviewed the delineations of the local communities served by the depository institutions and found that such delineations were consistent with applicable law and did not arbitrarily exclude LMI communities, and that the depository institutions solicited and accepted credit applications from all segments of their delineated communities. Examiners also determined that loans made by the depository institutions were reasonably distributed throughout the local communities they served, including LMI communities, and served all members of the communities, including LMI individuals. B. Lending Record of the Relevant Depository Institutions Lead Bank in New Jersey. The 1997 Examination found that Lead Bank developed or participated in a number of programs designed to assist in meeting the housing-related credit needs of LMI individuals. Examiners noted that the bank offered a proprietary affordable mortgage program for qualified LMI borrowers that featured below-market interest rates, reduced application fees, and no mortgage insurance requirement for mortgages with a loan-to-value ratio of less than 90 percent. Examiners also noted that the bank offered an affordable home equity and home improvement loan program for LMI borrowers that featured below-market interest rates and no maximum or minimum loan amounts. In addition, the examination favorably commented on Lead Bank's participation in programs sponsored by the New Jersey Housing and Mortgage Finance Agency ("NJHMFA").16 The 1997 Examination also reviewed 1995 and 1996 HMDA data filed by Lead Bank and found the bank's originations in 1995 and 1996 reflected a good penetration among retail customers of different income levels and that the geographic distribution of the bank's applications, originations, and denials was reasonable.17 Examiners also found that Lead Bank engaged in small business lending throughout its assessment area. In 1996, the bank originated approximately 214 small business loans, totalling approximately $34.7 million, and more than 24 percent of these loans were made to businesses in LMI census tracts within Lead Bank's service community. Lead Bank made 39 Small Business Administration ("SBA") loans in 1995, totalling $3.7 million, and 35 SBA loans in 1996, totalling $3.4 million.18 The Board notes that HUBCO entered into an agreement with a community organization in New Jersey after the 1997 Examination to provide $75 million over the next five years to programs that seek to provide affordable housing and economic opportunities to LMI individuals in New Jersey. Lafayette Bank in Connecticut. Examiners found that Lafayette Bank's record of lending within LMI census tracts and to LMI individuals was good and reflected management's commitment to community development. The Lafayette Examination also concluded that Lafayette Bank had an outstanding record of ascertaining and helping to meet the credit needs of its entire service community, including LMI neighborhoods. Examiners found that the bank actively ascertained community needs and employed a number of methods to ascertain those needs, including surveys of local citizens and bank directors, officers, and employees, and meetings with community leaders, social service agencies, and bank customers.19 Examiners also found Lafayette Bank to be receptive to participation in, and marketing of, loan programs sponsored by federal, state, and local government organizations. During 1995, the bank originated 24 SBA loans, totalling $6.2 million; the bank's current SBA portfolio consists of 132 loans, totalling $30.3 million. In February 1996, the bank was recognized as one of its service area's leading certified SBA lenders. Lafayette Bank also has participated in the Connecticut Small Business Reserve Fund, which facilitates bank lending to small businesses in urban areas. Through September 30, 1995, the bank had extended 24 loans, totalling $1.5 million, through this program. Lafayette Bank also offers the Federal Housing Administration Insured Residential Mortgage Program, which provides insured residential mortgages to qualified LMI applicants at below-market interest rates and with reduced down payment requirements. In conjunction with the Connecticut Department of Housing, the bank has developed the First-Time Homebuyers Mortgage Program, which enables LMI applicants to qualify to purchase homes with no down payment. Lafayette Bank also provides financial support to a number of community development programs in its assessment area. For example, examiners noted that the bank provided a line of credit to Neighborhood Housing Services of New Haven, which rehabilitates real estate and resells the properties to LMI individuals, and to the New Haven Loan Fund, which provides construction financing for the development of LMI housing units in the Greater New Haven area. The bank also provided financing to qualified borrowers in connection with the Bridgeport Neighborhood Fund, Neighborhood Housing Services of Norwalk, and the City of Meridian's Block Grant Program, each of which are organizations that rehabilitate property for resale to LMI borrowers. Bank of the Hudson in New York. The 1998 examination of Bank of the Hudson concluded that the institution had shown a commitment to provide affordable housing loans to LMI individuals in its community by offering several innovative and flexible affordable home loan programs designed to assist LMI borrowers.20 Examiners noted that Bank of the Hudson made 318 loans in its assessment area under these affordable mortgage programs, representing 28 percent of the number and dollar volume of the bank's 1-4 family mortgage lending in the assessment area. With respect to community development, examiners found that the number and dollar volume of Bank of the Hudson's community development loans and activities demonstrated an outstanding response to the economic development needs of its community. Examiners noted that the institution had made seven community development loans, totalling $8.2 million, during the assessment period (August 1995 to December 1997) and had established a department dedicated to community development lending.21 Examiners also noted that the institution made 42 small business loans, totalling $6.75 million, in its assessment area, and that the geographic distribution of the bank's residential mortgage, consumer, and small business loans compared favorably to lenders in the aggregate. C. Branch Closings HUBCO does not intend to close any branches as a result of the proposal. The Board has reviewed Commenter's contentions regarding HUBCO's branch closings in the past or in other proposed transactions in that light. The Board also has reviewed the most recent CRA examination reports and other confidential supervisory information from the appropriate federal supervisors of HUBCO's subsidiary depository institutions and MSB Bank assessing the banks' records of branch closings and branch closing policies. The Board notes that the appropriate federal supervisors of HUBCO's subsidiary depository institutions and MSB Bank concluded that the branching networks of these depository institutions provided reasonable access to services of the institutions to all segments of their delineated communities. Examiners also concluded that the branch closings of Lead Bank and Lafayette Bank had not adversely affected LMI communities or LMI individuals.22 Examiners also reviewed the branch closing policy of Lafayette Bank and concluded that the policy was consistent with applicable law. D. HMDA Data The Board has carefully reviewed HMDA data filed by Lead Bank, Lafayette Bank, and MSB Bank in light of Commenter's contentions. HMDA data for Lead Bank and Lafayette Bank indicate some disparities in the rate of loan originations, denials, and applications by racial group and income level. The data also indicate, however, that, in 1995 and 1996, Lead Bank received a higher percentage of its credit applications from LMI census tracts in the Bergen-Passaic Metropolitan Statistical Area ("MSA"), and had a higher origination rate with respect to such applications, than lenders in the aggregate. The data also indicate that Lead Bank's ratio of denials of African-American credit applicants to white credit applicants in the combined area of the Bergen-Passaic and Newark MSAs was lower than that of lenders in the aggregate in 1995 and 1996. The Board is concerned when an institution's record indicates disparities in lending to minorities 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.23 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 the banks with fair lending laws. As discussed above, examiners noted no evidence of prohibited discrimination or other illegal credit practices at HUBCO's subsidiary depository institutions or MSB Bank at their most recent examinations. In addition, examiners commented favorably that HUBCO's subsidiary banks had a formal review process for all denied mortgage loan applications. The Board also has considered the HMDA data in light of the lending record of the institutions, which shows that the banks are assisting in meeting the credit needs of their entire communities, including LMI neighborhoods.24 E. Conclusion on CRA Performance Records The Board has carefully considered all the facts of record, including Commenter's comments and confidential examination reports and other supervisory information from the appropriate federal supervisors, in reviewing the CRA performance records of the institutions involved in the transaction. Based on a review of the entire record, and for the reasons discussed above, the Board concludes that the CRA performance records of HUBCO's subsidiary depository institutions and MSB Bank are consistent with approval of the proposal.25 Other Considerations In connection with its review of the public interest factors under section 4 of the BHC Act, the Board has carefully reviewed the financial and managerial resources of HUBCO and MSB and their respective subsidiaries and the effect the transaction would have on such resources in light of all the facts of record.26 These facts include confidential financial information from HUBCO and confidential reports of examination and other supervisory information received from the appropriate federal supervisors of the affected organizations assessing the financial and managerial resources of the organizations. 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. Additionally, there are public benefits to be derived from permitting capital markets to operate so that bank holding companies may make potentially profitable investments in nonbanking companies when, as in this case, those investments are consistent with the relevant considerations under the BHC Act, and from permitting banking organizations to allocate their resources in the manner they believe is most efficient. Based on all the facts of record, the Board has determined that consummation of this 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. Conclusion Based on the foregoing and all the facts of record, the Board has determined that the notice should be, and hereby is, approved.27 The Board's approval of the proposal is specifically conditioned on compliance by HUBCO with the commitments made in connection with the notice. The Board's determination also is 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,28 effective May 13, 1998. (signed) Jennifer J. Johnson Jennifer J. Johnson Deputy Secretary of the Board

Footnotes 1 HUBCO proposes to merge MSB Bank with and into its savings bank subsidiary, Bank of the Hudson, Poughkeepsie, New York. HUBCO has requested approval of the proposed merger from the Office of Thrift Supervision ("OTS") under section 18(c) of the Federal Deposit Insurance Act (12 U.S.C. § 1828(c)) ("Bank Merger Act"). MSB also has granted HUBCO an option to acquire approximately 21 percent of MSB's outstanding common stock. The option would expire on consummation of the proposal. 2 Asset data are as of December 31, 1997, and deposit data are as of June 30, 1997. 3 In this context, depository institutions include commercial banks, savings banks, and savings associations. 4 12 C.F.R. 225.28(b)(4). 5 MSB Bank currently engages in certain insurance and travel agency activities that are impermissible for bank holding companies. HUBCO has committed to cease MSB Bank's sale or renewal of insurance policies on consummation of the proposal, and to terminate all impermissible insurance and travel agency activities within two years of consummation of the proposal. 6 12 U.S.C. § 1843(c)(8). 7 The New York 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. 8 Market share data are as of June 30, 1996. Market share data before consummation are based on calculations in which the deposits of thrift institutions 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 deposits of MSB Bank would be acquired by a commercial banking organization under the proposal, MSB Bank's deposits are included at 100 percent in the calculation of the pro forma market share. See Norwest Corporation, 78 Federal Reserve Bulletin 452 (1992); First Banks, Inc., 76 Federal Reserve Bulletin 669 (1990). 9 Under the revised DOJ Guidelines (49 Federal Register 26,823 (June 29, 1984)), a market in which the post-merger HHI is less than 1000 points is considered to be unconcentrated. The Department of Justice 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 Department of Justice 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. The HHI in the New York banking market would decrease by one point to 794 as a result of the proposal. 10 See Banc One Corporation, 83 Federal Reserve Bulletin 602 (1997). 11 HUBCO proposes to merge MSB Bank with and into Bank of the Hudson and to implement the CRA programs and policies of Bank of the Hudson at MSB Bank after consummation of the merger. 12 Commenter argues that HUBCO's ownership of MSB preferred stock since 1996 requires that the Board attribute MSB Bank's record of CRA performance to HUBCO. In connection with that investment, HUBCO provided 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. There is no evidence in the record that HUBCO has taken actions inconsistent with the commitments. For the reasons discussed in this order, moreover, MSB Bank's record of performance under the CRA does not present adverse considerations. 13 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 that reports of these examinations will be given great weight in the applications process. 54 Federal Register 13,742 and 13,745 (1989). 14 In reviewing the CRA performance record of Lafayette Bank, the Board also has considered confidential supervisory information collected by the FDIC during the course of an ongoing CRA examination of the bank. 15 See Conn. Gen. Stat. § 36a-32 (1997). 16 Lead Bank is a participating lender in NJHMFA's First-Time Homebuyers Program, which offers LMI first-time homebuyers low-cost, fixed-rate, 30-year mortgage loans with a maximum 97 percent loan-to-value ratio, and NJHMFA's Buy and Fix-It Program. 17 Examiners noted that Lead Bank could improve its record of lending in LMI areas in several New Jersey counties and encouraged the bank to improve its lending record in these areas, particularly in Middlesex and Somerset Counties. The Board also expects Lead Bank to address these matters. As discussed in this order, however, Lead Bank's overall CRA performance rating is satisfactory and the bank engages in a number of lending activities designed to help meet the credit needs of its communities, including LMI neighborhoods. 18 The SBA awarded the bank a Bronze Award in 1995 and 1996 for its performance in the SBA Guaranteed Loan Program and has accorded the bank preferred lender status. 19 The Lafayette Examination noted that the bank's ongoing community contacts have resulted in the bank's participation in several community development projects and loan programs sponsored by local governments. 20 These programs include the City of Poughkeepsie First Time Homebuyers Program, the Dutchess Housing Partnership First Time Homebuyers Program, the Hudson Valley First Time Homebuyers Program, and the First Home Club Savings Program. 21 Bank of the Hudson provided a $480,000 construction loan to the Village Housing Project for the construction of rental housing units for LMI senior citizens, and a $120,000 subsidy under the Federal Home Loan Bank Affordable Housing Program to the Garden Street Revitalization project to renovate 72 homes in a low-income area of Poughkeepsie. 22 In addition to these factors, the Board has considered that federal banking law permits the closing of branches and provides a specific mechanism for addressing branch closings. Section 42 of the Federal Deposit Insurance Act (12 U.S.C. § 1831r-1), as implemented by the Joint Policy Statement Regarding Branch Closings (58 Federal Register 49,083 (1993)), requires that an insured depository institution provide the public with at least 30 days' notice and the appropriate federal supervisor with at least 90 days' notice before the date of the proposed branch closing. The insured depository institution also is required to provide reasons and other supporting data for the closure, consistent with the institution's written branch closing policy. The requirement applies any time a branch is closed, whether in connection with an acquisition or at any time after completion of an acquisition. The law does not authorize federal regulators to prevent the closing of any branch. 23 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. 24 Commenter alleges that HUBCO has violated the fair lending laws by expanding its branch presence, particularly into Connecticut and New York, in a manner that avoids LMI and minority communities. The Board notes that HUBCO acquired its branches in Connecticut and New York through the acquisition of entire banking organizations, not by opening new branches in selected communities. Furthermore, as discussed in this order, FDIC and OTS examiners noted no evidence of prohibited discrimination by Lead Bank, Lafayette Bank, Bank of the Hudson, or MSB Bank in their most recent examinations of these institutions, and concluded that the branches of these institutions were reasonably accessible to the communities served by the institutions. 25 Commenter requests that the Board conduct a fair lending examination of Lead Bank and Lafayette Bank and refer the banks to the Department of Justice for possible enforcement action under the fair lending laws. The FDIC, the appropriate federal supervisor of Lead Bank and Lafayette Bank, is charged with primary responsibility for examining the compliance of such banks with the fair lending laws. As discussed above, the FDIC found no evidence of prohibited discrimination by Lead Bank and Lafayette Bank at the most recent CRA examination of these institutions. Based on these and all other facts of record, the Board concludes that neither a special on-site examination of HUBCO's subsidiary depository institutions for fair lending law compliance nor referral of the institutions to the Department of Justice is warranted. 26 See 12 C.F.R. 225.26. 27 Commenter also requests that the Board hold a public hearing or meeting on the notice to receive evidence concerning HUBCO's record of lending and expansion into predominately non-minority communities, and the efficacy of the passivity commitments provided by HUBCO in connection with its January 1996 acquisition of MSB preferred stock. The Board's rules provide for a hearing on notices under section 4 of the BHC Act 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). Under its rules, the Board also may, in its discretion, hold a public hearing or meeting on a notice to acquire a savings association if a hearing is necessary or appropriate to clarify factual issues related to the notice and to provide an opportunity for testimony, if appropriate. After a careful review of all the facts of record, the Board has concluded that Commenter disputes the weight that should be accorded to and the conclusions that the Board should draw from the facts of record, but does not identify disputed issues of fact that are material to the Board's decision. The Board also notes that interested parties have had ample opportunity to submit their views, and Commenter has submitted written comments that have been carefully considered by the Board in acting on the notice. Commenter's request fails to demonstrate why its written presentation does not adequately present its evidence, allegations, and views 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 hearing or meeting is not required or warranted in this case. Accordingly, the request for a public hearing or meeting on the proposal is hereby denied. 28 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