Legal Developments: Second Quarter, 2009
Order Issued under Section 3 of the Bank Holding Company Act
Allied Irish Banks, p.l.c.
Dublin, Ireland
M&T Bank Corporation
Buffalo, New York
First Empire State Holding Company
Buffalo, New York
Manufacturers and Traders Trust Company
Buffalo, New York
Order Approving the Acquisition of a Bank Holding Company, Merger of Banks, and Establishment of Branches
Allied Irish Banks, p.l.c. ("Allied Irish") and its subsidiary, M&T Bank Corporation ("M&T"), bank holding companies within the meaning of the Bank Holding Company Act ("BHC Act"), and First Empire State Holding Company ("First Empire")1 (collectively, "Applicants") have requested the Board's approval under section 3 of the BHC Act2 to acquire Provident Bankshares Corporation ("Provident") and thereby indirectly acquire Provident's subsidiary bank, Provident Bank of Maryland ("Provident Bank"), both of Baltimore, Maryland. In addition, M&T's subsidiary state member bank, Manufacturers and Traders Trust Company ("M&T Bank"), Buffalo, has requested the Board's approval under section 18(c) of the Federal Deposit Insurance Act3 ("Bank Merger Act") to merge with Provident Bank, with M&T Bank as the surviving entity. M&T Bank also has applied under section 9 of the Federal Reserve Act to establish and operate branches at the main office and branches of Provident Bank.4
Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (74 Federal Register 5656 (2009)). 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 the BHC Act.
Allied Irish, with total consolidated assets equivalent to approximately $244 billion, is the second largest depository organization in Ireland and provides a full range of banking, financial, and related services primarily in Ireland, the United Kingdom, and the United States.5 Allied Irish operates a branch in New York and through M&T controls two subsidiary banks, M&T Bank and M&T Bank, National Association, Oakfield, New York, which operate in seven states and the District of Columbia.6 M&T, with total consolidated assets of $64.8 billion, is the 23rd largest depository organization in the United States, controlling $38.4 billion in deposits. M&T is the fifth largest depository organization in Maryland, controlling deposits of approximately $7.4 billion.
Provident has total consolidated assets of approximately $6.6 billion, and Provident Bank, Provident's only subsidiary insured depository institution,7 operates in Maryland, Pennsylvania, Virginia, and the District of Columbia. Provident is the eighth largest depository organization in Maryland, controlling deposits of approximately $3.85 billion.
On consummation of the proposal, M&T would become the 21st largest depository organization in the United States, with total consolidated assets of approximately $71.4 billion. M&T would control deposits of approximately $43.2 billion, which represent less than 1 percent of the total amount of deposits of insured depository institutions in the United States. In Maryland, M&T would become the second largest depository organization, controlling deposits of approximately $11.3 billion, which represent approximately 12 percent of the total amount of deposits of insured depository institutions in the state.
Interstate Analysis
Section 3(d) of the BHC Act allows the Board to approve an application by a bank holding company to acquire control of a bank located in a state other than the bank holding company's home state if certain conditions are met. For purposes of the BHC Act, the home state of M&T is New York,8 and Provident is located in Maryland, Pennsylvania, Virginia, and the District of Columbia.9
Based on a review of all the facts of record, including relevant state statutes, the Board finds that the conditions for an interstate acquisition enumerated in section 3(d) of the BHC Act are met in this case.10 In light of all the facts of record, the Board is permitted to approve the proposal under section 3(d) of the BHC Act.
Competitive Considerations
The BHC Act and the Bank Merger Act prohibit the Board from approving a proposal that would result in a monopoly or would be in furtherance of an attempt to monopolize the business of banking in any relevant banking market. Both statutes also prohibit the Board from approving a bank acquisition that would substantially lessen competition in any relevant banking market, unless the anticompetitive effects of the proposal are clearly outweighed in the public interest by the probable effect of the proposal in meeting the convenience and needs of the community to be served.11
Applicants and Provident have subsidiary depository institutions that compete directly in three banking markets: Washington, DC-Maryland-Virginia-West Virginia; Baltimore, Maryland-Pennsylvania; and Annapolis, Maryland. The Board has reviewed carefully the competitive effects of the proposal in each of these banking markets in light of all the facts of record. In particular, the Board has considered the number of competitors that would remain in the banking markets, the relative shares of total deposits in depository institutions in the markets ("market deposits") controlled by Applicants' subsidiary depository institutions and by Provident Bank,12 the concentration levels of market deposits and the increase in those levels as measured by the Herfindahl-Hirschman Index ("HHI") under the Department of Justice Merger Guidelines ("DOJ Guidelines"),13 and other characteristics of the markets.
Consummation of the proposal would be consistent with Board precedent and within the thresholds in the DOJ Guidelines in all three banking markets.14 On consummation of the proposal, each of the three markets would remain moderately concentrated, as measured by the HHI, and the change in the HHI would be less than 200 points in each market. In addition, numerous competitors would remain in all three banking markets.
The DOJ has conducted a detailed review of the potential competitive effects of the proposal and has advised the Board that consummation of the transaction would not likely have a significantly adverse effect on competition in any relevant banking market. In addition, the appropriate banking agencies have been afforded an opportunity to comment and have not objected to the proposal.
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 on the concentration of resources in any of the three banking markets where the subsidiary depository institutions of Applicants and Provident compete directly or in any other relevant banking market. Accordingly, the Board has determined that competitive considerations are consistent with approval.
Financial, Managerial, and Supervisory Considerations
Section 3 of the BHC Act and the Bank Merger Act require the Board to consider the financial and managerial resources and future prospects of the companies and depository institutions involved in the proposal and certain other supervisory factors. The Board has considered these factors carefully in light of all the facts of record, including confidential supervisory and examination information from the U.S. banking supervisors of the institutions involved, and publicly reported and other financial information, including information provided by Applicants. The Board also has consulted with the Irish Financial Services Regulatory Authority ("Financial Regulator"), the agency with primary responsibility for the supervision and regulation of Irish banks, including Allied Irish.15
In evaluating the financial resources in expansion proposals by banking organizations, the Board reviews the financial condition of the organizations involved on both a parent-only and consolidated basis, as well as the financial condition of the subsidiary depository institutions and significant nonbanking operations. In this evaluation, the Board considers a variety of information, including capital adequacy, asset quality, and earnings performance. In assessing financial resources, the Board consistently has considered capital adequacy to be especially important. The Board also evaluates the financial condition of the combined organization at consummation, including its capital position, asset quality, earnings prospects, and the impact of the proposed funding of the transaction.
The Board has carefully considered the financial resources of the organizations involved in the proposal. The capital levels of Allied Irish would continue to exceed the minimum levels that would be required under the Basel Capital Accord and are considered to be equivalent to the capital levels that would be required of a U.S. banking organization.16 In addition, M&T, Provident, and the subsidiary depository institutions involved are well capitalized and would remain so on consummation. Based on its review of the record, the Board finds that Applicants have sufficient financial resources to effect the proposal. The proposed transaction is structured as a share exchange.
The Board also has considered the managerial resources of the organizations involved. The Board has reviewed the examination records of Applicants, Provident, and their subsidiary depository institutions, including assessments of their management, risk-management systems, and operations. In addition, the Board has considered its supervisory experiences and those of other relevant banking supervisory agencies, including the Federal Deposit Insurance Corporation ("FDIC"), with the organizations and their records of compliance with applicable banking law and with anti-money-laundering laws. The Board also has considered Applicants' plans for implementing the proposal, including the proposed management after consummation.
Based on all the facts of record, the Board has concluded that considerations relating to the financial and managerial resources and future prospects of the organizations involved in the proposal are consistent with approval, as are the other supervisory factors.17
Section 3 of the BHC Act also provides that the Board may not approve an application involving a foreign bank unless the bank is subject to comprehensive supervision or regulation on a consolidated basis by the appropriate authorities in the bank's home country.18 As noted, the Financial Regulator is the primary supervisor of Irish banks, including Allied Irish. The Board previously has determined that Allied Irish is subject to comprehensive supervision on a consolidated basis by its home-country supervisor.19 Based on this finding and all the facts of record, the Board has concluded that Allied Irish continues to be subject to comprehensive supervision on a consolidated basis by its home-country supervisor.
Convenience and Needs Considerations
In acting on a proposal under section 3 of the BHC Act and the Bank Merger Act, the Board is required to consider the effects of the proposal on the convenience and needs of the communities to be served and to take into account the records of the relevant insured depository institutions under the Community Reinvestment Act ("CRA").20 The CRA requires the federal financial supervisory agencies to encourage insured depository institutions to help meet the credit needs of the local communities in which they operate, consistent with their safe and sound operation, and requires the appropriate federal financial supervisory agency to take into account a relevant depository institution's record of meeting the credit needs of its entire community, including low- and moderate-income ("LMI") neighborhoods, in evaluating bank expansionary proposals.21
The Board has considered carefully all the facts of record, including evaluations of the CRA performance records of M&T Bank and Provident Bank, data reported by M&T under the Home Mortgage Disclosure Act ("HMDA"),22 other information provided by Applicants, confidential supervisory information, and a public comment received on the proposal. The commenter generally commended M&T Bank's CRA performance record and commitment to community development, but the commenter recommended that M&T Bank strengthen its affordable home mortgage lending product, increase community development and multifamily loans in LMI census tracts, provide more community development loans to not-for-profit organizations, and increase the number of its branches in LMI neighborhoods.
A. CRA Performance Evaluations
As provided in the CRA, the Board has reviewed the convenience and needs factor in light of the evaluations by the appropriate federal supervisor of the CRA performance record of the relevant insured depository 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 its appropriate federal supervisor.23
M&T Bank received an "outstanding" rating at its most recent CRA performance evaluation by the Federal Reserve Bank of New York ("Reserve Bank"), as of May 12, 2008 ("2008 Evaluation").24 Provident Bank received a "satisfactory" rating at its most recent CRA performance evaluation by the FDIC, as of July 2, 2007.25
In addition to the overall "outstanding" rating that M&T Bank received in the 2008 Evaluation, the bank received separate overall "outstanding" or "satisfactory" ratings in all the states and multistate metropolitan areas reviewed.26 Examiners reported that M&T Bank's geographic distribution of loans was good. They also stated that the bank's distribution of loans to borrowers reflected a good penetration among customers of different income levels and to businesses of different revenue sizes.27 In addition, examiners noted that M&T Bank offered a Federal National Mortgage Association affordable mortgage product in all its assessment areas that had resulted in the origination of almost 1,000 mortgages totaling $89 million during the evaluation period.
In the 2008 Evaluation, examiners characterized M&T Bank as a leader in making community development loans in its assessment areas, reporting that the bank made more than 455 community development loans totaling $1.96 billion during the evaluation period.28 Examiners noted that the bank's community development lending volume generally exceeded similarly situated banks in the New York, Pennsylvania, and Maryland assessment areas.29
In the 2008 Evaluation, examiners rated M&T Bank's overall performance under the investment test as "outstanding." Qualifying community development investments totaled more than $246 million, representing an increase from its previous evaluation.
In addition, examiners concluded that the bank's performance under the service test was "outstanding." Examiners found that the bank's retail delivery systems were readily accessible to all portions of its assessment areas.30 They reported that 20 percent of M&T Bank's branches were in LMI tracts and that 19 percent of the bank's ATMs were in LMI areas, which enhanced the bank's performance under the service test in those communities. Examiners also noted that M&T Bank's customers could use ATMs owned by institutions that had business relationships with the bank without paying a fee and that six of them were in LMI areas. In addition, examiners noted that M&T Bank is a leader in providing community development services throughout its assessment areas, including sponsoring and participating in a significant number of seminars and presentations relating to affordable mortgages, small business assistance, and other banking education. These types of events provided technical assistance and training to LMI individuals, community organizations, small businesses, and housing agencies.
B. Conclusion on Convenience and Needs and CRA Performance
The Board has considered carefully all the facts of record, including reports of examination of the CRA records of the institutions involved, information provided by Applicants, a public comment received on the proposal, and confidential supervisory information. Applicants represented that the proposal will result in increased credit availability and access to a broader range of financial services for customers of M&T Bank and Provident Bank. Based on a review of the entire record, and for the reasons discussed above, the Board concludes that considerations relating to the convenience and needs factor and the CRA performance records of the relevant insured depository institutions are consistent with approval of the proposal.
Conclusion
Based on the foregoing, and in light of all the facts of record, the Board has determined that the applications should be, and hereby are, approved. In reaching its conclusion, the Board has considered all the facts of record in light of the factors that it is required to consider under the BHC Act, the Bank Merger Act, the Federal Reserve Act, and the statutory factors it is required to consider when reviewing an application for retaining and operating branches. The Board's approval is specifically conditioned on compliance by Applicants with the conditions in this order and all the commitments made to the Board in connection with the proposal. For purposes of this proposal, these commitments and conditions are 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.
The proposal may not be consummated before the 15th calendar day after the effective date of this order, or later than three months after the effective date of this order, unless such period is extended for good cause by the Board or by the Reserve Bank, acting pursuant to delegated authority.
By order of the Board of Governors, effective May 8, 2009.
Voting for this action: Chairman Bernanke, Vice Chairman Kohn, and Governors Warsh, Duke, and Tarullo.
Robert deV. Frierson
Deputy Secretary of the Board
Appendix
| Bank | Rank | Amount of deposits (dollars) | Market deposit shares (percent) |
Resulting HHI | Change in HHI | Remaining number of competitors |
|---|---|---|---|---|---|---|
| Washington DC-MD-VA-WV--includes the Washington, D.C. Ranally Metropolitan Area ("RMA"), the non-RMA portions of the counties of Calvert, Charles, Frederick, Prince George's, and St. Mary's, Maryland, and Fauquier and Loudoun, Virginia; the cities of Alexandria, Fairfax, Falls Church, and Manassas, Virginia; and Jefferson County, West Virginia | ||||||
| M&T Pre-Consummation | 10 | 2.04 bil. | 1.9 | 1,259 | 3 | 91 |
| Provident | 14 | 1.14 bil. | .9 | 1,259 | 3 | 91 |
| M&T Post-Consummation | 8 | 3.18 bil. | 2.8 | 1,259 | 3 | 91 |
| Baltimore MD-PA--includes the Baltimore, Maryland RMA, the non-RMA portions of the counties of Harford and Carroll, Maryland (excludes the Washington DC-MD-VA-WV RMA portion); and Baltimore, Maryland | ||||||
| M&T Pre-Consummation | 2 | 5.2 bil. | 12.5 | 1,430 | 185 | 73 |
| Provident | 5 | 3.1 bil. | 7.4 | 1,430 | 185 | 73 |
| M&T Post-Consummation | 2 | 8.3 bil. | 19.9 | 1,430 | 185 | 73 |
| Annapolis--includes the Annapolis, Maryland RMA | ||||||
| M&T Pre-Consummation | 9 | 133 mil. | 3.97 | 1,157 | 3 | 19 |
| Provident | 17 | 16 mil. | .48 | 1,157 | 3 | 19 |
| M&T Post-Consummation | 9 | 149 mil. | 4.45 | 1,157 | 3 | 19 |
Note: Data are as of June 30, 2008. All amounts of deposits are unweighted. All rankings, market deposit shares, and HHIs are based on thrift institution deposits weighted at 50 percent.
