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The Federal Reserve Board today announced its approval of the application of Manufacturers and Traders Trust Company, Buffalo, New York, to acquire 32 branches of The Chase Manhattan Bank, New York, New York. Attached is the Board's Order relating to this action. |
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FEDERAL RESERVE SYSTEM |
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Manufacturers and Traders Trust Company ("M&T"), a state member bank, has applied under section 18(c) of the Federal Deposit Insurance Act (12 U.S.C. � 1828(c)) ("Bank Merger Act") to acquire 32 branches of The Chase Manhattan Bank, New York, New York ("Chase"). M&T also has applied under section 9 of the Federal Reserve Act ("FRA") (12 U.S.C. � 321) to establish branches at the locations of the branches to be acquired, as described in Appendix A. Notice of the applications, affording interested persons an opportunity to submit comments, has been given in accordance with the Bank Merger Act and the Board's Rules of Procedure (12 C.F.R. 262.3(b)). As required by the Bank Merger Act, reports on the competitive effects of the merger were requested from the United States Attorney General and the Federal Deposit Insurance Corporation ("FDIC"). The time for filing comments has expired, and the Board has considered the applications and all the facts of record in light of the factors set forth in the Bank Merger Act and section 9 of the FRA. M&T is the 7th largest commercial banking organization in New York, controlling deposits of $14.2 billion, representing 3.4 percent of total deposits in commercial banking organizations in the state.1 Chase is the largest commercial banking organization in New York, controlling deposits of $95.3 billion, representing 22.4 percent of total deposits in commercial banking organizations in the state. This proposal involves the acquisition by M&T of 32 branches of Chase that are located primarily in banking markets in upstate New York. Chase would continue to operate 389 branches throughout New York State following the transaction. On consummation of this proposal, M&T would remain the 7th largest commercial banking organization in New York, and would control deposits of $14.8 billion, representing 3.6 percent of total deposits in commercial banking organizations in the state. The Bank Merger Act prohibits the Board from approving an application if the proposal would result in a monopoly or would be in furtherance of any attempt to monopolize the business of banking.2 The Bank Merger Act also prohibits the Board from approving a proposal that would substantially lessen competition or tend to create a monopoly in any relevant market, unless the Board finds that the anticompetitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effects of the transaction in meeting the convenience and needs of the community to be served.3 The Board has carefully considered the competitive effects of the proposal as required by the Bank Merger Act. M&T and Chase currently compete in the Albany, Binghamton, Buffalo, Elmira-Corning, and Jamestown banking markets in New York.4 The Board has carefully reviewed the competitive effects of the proposal in each of these markets in light of all the facts of record, including the characteristics of the markets and the projected increase in the concentration of total deposits in insured depository institutions in these markets ("market deposits")5 as measured by the Herfindahl-Hirschman Index ("HHI") under the Department of Justice Merger Guidelines ("DOJ Guidelines").6 The Board also has carefully examined the number of competitors that would remain in each of the banking markets after consummation of the proposal. Consummation of the proposal would be consistent with the DOJ Guidelines and prior Board decisions in the Albany, Binghamton, Buffalo, and Elmira-Corning banking markets.7 The proposal would exceed the DOJ guidelines in the Jamestown banking market. Jamestown Banking Market. M&T is the fifth largest depository institution in the Jamestown banking market, controlling $93.1 million in deposits, representing 8.6 percent of market deposits. 8 Chase is the third largest depository institution in the Jamestown banking market, controlling $201.2 million in deposits, representing 18.7 percent of market deposits. On consummation of this proposal, M&T would become the largest depository institution in the market, controlling $294.3 million in deposits, representing 27.3 percent of market deposits. The HHI would increase by 324 to 1952. As the Board has indicated in previous cases, in a market in which the competitive effects of a proposal exceed the DOJ Guidelines, the Board will consider whether other factors tend to mitigate the competitive effects of the proposal. The number and strength of factors necessary to mitigate the competitive effects of a proposal depend on the level of market concentration and size of the increase in market concentration. In this case, nine depository institutions, including M&T, would remain in the Jamestown banking market after consummation of the proposal. Three of the largest competitors in the market, excluding M&T, are multistate banking organizations. In addition, three competitors will have market shares exceeding 10 percent, including two competitors with market shares exceeding 20 percent. The Jamestown market also appears to be reasonably attractive for entry. The unemployment rate in the market has fallen from 7.2 percent to 5 percent over the past five years, personal income grew by 24 percent and nonagricultural employment grew by 4.1 percent in that time. Furthermore, two depository institutions have entered the Jamestown market in the last several years. A de novo savings bank opened in 1995, and a community bank entered the market in 1997 by acquiring 4 branches in the market. Since 1994 the HHI for the Jamestown market has steadily declined, from 1975 to 1628 at present. The Board believes that these factors indicate that the likely effect of consummation of this proposal on competition in the Jamestown banking market would not be significantly adverse. Views of the Department of Justice and Conclusions. The Department of Justice has advised the Board that consummation of the proposal would not likely have a significantly adverse effect on competition in any relevant market. After carefully reviewing all the facts of record and for the reasons discussed in this order and its appendices, the Board concludes that consummation of the proposal would not have any significantly adverse effects on competition or on the concentration of banking resources in any of the five banking markets in which M&T and Chase compete or in any other relevant banking market. Accordingly, the Board has determined that competitive factors are consistent with approval of the proposal. Other factors under the Bank Merger Act The Bank Merger Act also requires the Board, in acting on an application, to take into consideration the financial and managerial resources and future prospects of the existing and proposed institutions, and the convenience and needs of the community to be served. A. Financial, Managerial, and Future Prospects The Board has carefully considered the financial and managerial resources and future prospects of M&T, and the effect of its acquisition of the Chase branches on those resources and prospects in light of all the facts of record. As part of its consideration, the Board has reviewed relevant reports of examination and other supervisory information prepared by the Reserve Banks and other federal agencies. Based on these and other facts of record, the Board concludes that considerations relating to the financial and managerial resources and future prospects of M&T and the Chase branches are consistent with approval of the proposal. B. Convenience and Needs Considerations In acting on this proposal, the Board also must consider the convenience and needs of the communities to be served and take into account the records of the relevant depository institutions under the Community Reinvestment Act (12 U.S.C � 2901 et seq.) ("CRA"). The CRA requires the federal financial supervisory agencies to encourage financial institutions to help meet the credit needs of local communities in which they operate, consistent with their safe and sound operation, and requires the appropriate federal supervisory authority to take into account an institution's record of meeting the credit needs of its entire community, including low- and moderate-income ("LMI") neighborhoods, in evaluating bank expansion proposals. The Board has carefully considered the convenience and needs factor and the CRA performance record of M&T in light of all the facts of record, including public comments on the proposal. 9 As provided in the CRA, the Board has evaluated the convenience and needs factor in light of evaluations by the appropriate federal supervisors of the CRA performance records of the relevant institution. 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 the appropriate federal financial supervisory agency. 10 M&T received an "outstanding" rating in the most recent examination of its CRA performance by the Federal Reserve Bank of New York, as of May 1998 ("1998 Examination"). The examination found no evidence of any credit practices that violated the substantive provisions of antidiscrimination laws and regulations. Examiners found that M&T responded to the credit needs of its assessment areas by originating 95 percent of its home purchase and home improvement loans and refinancings ("HMDA-related loans"),11 small farm and small business loans, and community development loans within its assessment areas. The geographic distribution of these loans was deemed excellent. The percentage of M&T's HMDA-related loans to low-income borrowers was found to be lower than the percentage of low-income families in all assessment areas. Examiners noted, however, that this also was true of M&T's peer institutions and appeared to be primarily due to the high cost of housing compared with family income throughout New York State. Examiners noted, moreover, that when the number of HMDA-related loans in an assessment area was compared with the number of owner-occupied housing units in that area, M&T's proportion of loans was greater in LMI communities than in non-LMI communities. Examiners also found that M&T demonstrated a good record of lending to small businesses of different sizes. The 1998 Examination deemed M&T's record of meeting the credit needs of its communities through community development lending to be excellent. Examiners found that M&T had total community development lending of $103.9 million, $69.5 million of which represented loans or lines of credit originated or increased during the examination period. Examiners also cited M&T's use of a variety of innovative or flexible lending practices that address the credit needs of LMI individuals and geographies. These practices include a program that provides borrowers with low-interest loans to help them meet closing costs on other loans, and a "$500 down" program that allows borrowers in certain cities with household incomes below 80 percent of the median to purchase a home with a $500 down payment. During the examination period, M&T made 64 loans for $2.7 million under the $500 down program. M&T also participates in the State of New York Mortgage Association ("SONYMA") low interest rate and new construction incentive program, which provides low-interest, high loan-to-value mortgage loans to first-time homebuyers with incomes below a ceiling set by SONYMA. M&T made 940 of these loans totaling $73 million during the examination period. Examiners rated M&T's CRA-related investment performance to be "high satisfactory," and found that M&T has made a significant level of qualified investments not routinely provided by other banks and private investors. M&T's qualified investments totaled $9.3 million, and supported community services, revitalization and stabilization projects, affordable housing, and economic development projects. Examiners also found that M&T made good use of innovative and complex investments to support community development initiatives, and that overall M&T's investments demonstrated a good level of responsiveness to credit and community development needs. Examiners rated M&T's record of providing banking services in its assessment areas as "outstanding," and found that M&T's banking services and delivery systems were accessible to virtually all geographies and individuals within those areas. At the time of the 1998 Examination of M&T's 155 branches, at least one was in each of its assessment areas, and M&T also had 138 automatic teller machines ("ATMs"), including ten ATMs in low-income geographies that offered check-cashing services. Examiners also noted that M&T also offers 24-hour telephone and personal computer banking services. From July 1996 through December 1997, M&T opened 39 branches, closed five, relocated two and consolidated one. Examiners found that the branch openings had improved the accessibility of M&T's services in LMI and other communities. Four of the 39 new branches were in LMI communities, and no branches were closed in LMI communities. While M&T has not indicated that any branches will be closed or consolidated at the time of the transaction, any subsequent closures or consolidations of the branches acquired in this transaction would be reviewed by the Federal Reserve System in the course of the examination process. This record would be taken into account in assessing the CRA performance of M&T, in accordance with the Joint Interagency Policy Statement Regarding Branch Closings ("Interagency Statement"), and in reviewing future applications involving M&T. 12 Examiners described M&T as a leader in providing community development services that focus on LMI individuals in its assessment areas. This included sponsoring seminars and similar events concerning affordable housing and personal financial management, as well as small business seminars and workshops. Examiners found that M&T provided financial technical assistance to community development, housing, educational, and charitable organizations that benefit LMI individuals, and that M&T employees also serve on the boards of these groups. One Protestant criticized the lending record of M&T's subsidiary, M&T Mortgage Corporation, in the New York City Metropolitan Statistical Area ("MSA"), the Buffalo, New York MSA, and the Syracuse, New York MSA. Specifically, the Protestant asserted that a significant disparity in denial rates existed between African Americans and whites in M&T Mortgage Corporation's lending in the New York City MSA and in the Buffalo MSA. Protestant asserted that, in the Syracuse MSA, M&T Mortgage Corporation made no conventional home purchase loans to either African Americans or Latinos. The Board is concerned when an institution's record indicates disparities in lending to minority applicants, and believes that all banks are obligated to ensure that their lending practices are based on criteria that assure not only safe and sound lending, but also equal access to credit by credit applicants regardless of race. The Board recognizes, however, that HMDA data alone provide an incomplete measure of an institution's lending in its community. The Board also recognizes that HMDA data have limitations that make the data an inadequate basis, absent other information, for conclusively determining that an institution has engaged in illegal discrimination in making lending decisions. In light of the limitations of HMDA data, the Board considers the results of fair lending examinations and other sources of information in evaluating allegations that a banking organization has violated fair lending. In this case, the CRA performance examination of M&T indicates that examiners did not find evidence of discrimination or other illegal credit practices. The examination also stated that directors and senior management of M&T have developed policies, procedures and training programs to ensure that the bank does not illegally discourage or prescreen applicants. Also, as noted above, M&T was found to have an excellent geographic distribution of loans throughout its assessment areas, including LMI and minority communities, and to offer a wide variety of loan products. The Board has carefully considered the entire record, including public comments in this case, in reviewing the convenience and needs factors under the relevant banking statutes. Based on a review of the entire record of performance, including information provided by Protestants, relevant reports of examination, and other supervisory information, the Board concludes that the convenience and needs considerations, including the CRA performance record of M&T, are consistent with approval of these applications.
Conclusion Based on the foregoing and all the facts of record, the Board has determined that these applications should be, and hereby are, approved. The Board's approval of this proposal is conditioned on compliance by M&T with the commitments made in connection with these applications. For purposes of this action, the commitments and conditions relied on in reaching this decision are conditions imposed in writing by the Board and, as such, may be enforced in proceedings under applicable law. The acquisition of the Chase branches may not be consummated before the fifteenth calendar day after the effective date of this order, and this proposal may not be consummated later than three months after the effective date of this order, unless such period is extended by the Board or by the Federal Reserve Bank of New York, acting pursuant to delegated authority. By order of the Board of Governors,13 effective August 16, 1999.
(signed)
Jennifer J. Johnson
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Footnotes 1 All banking data are as of June 30, 1998. 2 12 U.S.C. � 1828(c)(5)(A). 3 12 U.S.C. � 1828(c)(5)(B). 4 These banking markets are described in Appendix B. 5 Market share data are based on calculations that include the deposits of thrift institutions weighted 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, e.g., Midwest Financial Group, 75 Federal Reserve Bulletin 386 (1989); National City Corporation, 70 Federal Reserve Bulletin 743 (1984). Thus, the Board regularly has included thrift deposits in the calculation of market share on a 50-percent weighted basis. See, e.g., First Hawaiian Inc., 77 Federal Reserve Bulletin 42 (1991). 6 Under the DOJ Guidelines, 49 Federal Register 26,823 (1984), a market in which the post-merger HHI is between 1000 and 1800 is considered to be moderately concentrated. A market in which the post-merger HHI is above 1800 is considered to be highly concentrated. 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 or acquisition increases the HHI by at least 200 points. The Department of Justice has stated that the higher than normal HHI thresholds for screening bank mergers or acquisitions for anticompetitive effects implicitly recognize the competitive effects of limited-purpose lenders and other nondepository financial institutions. 7 Market data for these banking markets after consummation of the proposal are described in Appendix C. 8 In this context, depository institutions include commercial banks, savings banks, and savings associations. 9 Two community groups ("Protestants") submitted timely written comments opposing the proposal. Protestants note that Chase previously entered into a voluntary $18.1 billion, five year community reinvestment commitment in connection with the 1996 merger of Chemical Banking Corporation and Chase Manhattan Corporation. Protestants express concern that Chase may seek to avoid compliance with this commitment by selling its branches to competitors. The Board notes that the BHC Act and the CRA require the Board to consider the record and resources of the applicant, which in this case is M&T, and its subsidiaries, and do not provide for review of the record or resources of the selling institution. The Board also notes that Chase states that it has already reached 88 percent of the $18.1 billion nationwide goal. 10 The Interagency Questions and Answers Regarding Community Reinvestment provide that a CRA examination is an important and often controlling factor in the consideration of an institution's CRA record. See 64 Federal Register 23,641 (1999). 11 Home purchase and home improvement loans and refinancings are reported under the Home Mortgage Disclosure Act (12 U.S.C. � 2801 et seq.) ("HMDA"). 12 Protestants have expressed concern over the possibility that M&T may close or consolidate some of the branches on consummation of this proposal. In addition to reviewing any such closures or consolidations in the manner described above, the Board notes that M&T's past branch closures have been in accordance with M&T's written branch closing policy, which conforms to the Interagency Statement (64 Federal Register 34,844 (1999)). 13 Voting for this action: Chairman Greenspan and Governors Kelley, Meyer, Ferguson, and Gramlich. |
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Appendix A Branches of Chase Manhattan to be established by M&T Bank (All in New York)
1. 23 Main Street, Bemus Point.
Appendix B Banking Markets in New York in which M&T and Chase Compete 1. The Albany banking market is approximated by Albany, Columbia, Fulton, Greene, Hamilton, Montgomery, Rensselaer, Saratoga, Schenectady, Schoharie, Warren, and Washington Counties, all in New York. 2. The Binghamton banking market is approximated by Broome and Tioga Counties, plus the municipalities of Alton, Coventry, Greene, and Smithville in Chenango County, all in New York, and Susquehanna County, Pennsylvania. 3. The Buffalo banking market is approximated by Erie and Niagara Counties, plus portions of Cattaraugus, Orleans, and Wyoming Counties, all in New York. 4. The Elmira-Corning banking market is approximated by Chemung County, the municipalities of Alfred, Andover, and Independence in Allegany County, the municipalities of Catharine, Cayuta, Dix, Orange, Montour, Reading, and Tyrone in Schuyler, and the municipalities of Addison, Bath, Bradford, Cameron, Campbell, Canisteo, Caton, Erwin, Greenwood, Hartsville, Hornby, Jasper, Lindley, Rathbone, Thurston, Troupsbury, Wayne, West Union, Woodhull, Urbana, and the city and town of Corning in Steuben County, all in New York. 5. The Jamestown banking market is approximated by Chautauqua County, New York, plus the Allegheny Indian Reservation and the towns of Cold Springs, Conewango, Leon, Napoli, New Albion (less the village of Cattaraugus), Randolph, and South Valley in Cattaraugus County, New York
Appendix C
Banking Markets in which Consummation of the Proposal Albany: After consummation of the proposal, M&T would control 2.5 percent of market deposits and would remain the 10th largest of 31 depository institutions in the market. The HHI would decrease 1 point to 1063. Binghamton: After consummation of the proposal, M&T would control 18.1 percent of market deposits and would become the 2d largest of 13 depository institutions in the market. The HHI would increase 96 points to 2409. Buffalo: After consummation of the proposal, M&T would control 37.7 percent of market deposits and would remain the largest of 16 depository institutions in the market. The HHI would increase 46 points to 2521. Elmira-Corning: After consummation of the proposal, M&T would control 7.5 percent of market deposits and would become the 4th largest of 15 depository institutions in the market. The HHI would increase 11 points to 1507.
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1999 Orders on banking applications
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