John P. Burke – Approved plan

In the face of hundreds of protesting depositors, and even a near boycott of the bank, the state’s banking commissioner has granted approval of New Haven Savings Bank’s mutual-to-stock conversion.

Banking Commissioner John P. Burke issued a statement last Monday approving the conversion from a mutual savings bank to a capital stock bank and for the acquisition of and subsequentpage1art2013004 merger of the Savings Bank of Manchester and Tolland Bank with and into NHSB. The combined entities will operate under the name NewAlliance Bank.

After an embittered public denounced the plans, the bank submitted four amendments to its original application.

“This conversion, including the four amendments, was approved after an extensive review,” Burke stated. “Although the department’s main concern was fairness to the depositors and the safety and soundness of the bank, I heard the opinions of the community during the public hearing process and I am confident their concerns have been addressed by the conditions I have placed on the approval.”

A concession that the bank itself came up with is a plan to create the NewAlliance for Neighborhoods program that will use money from the initial public offering to provide affordable mortgages to local residents. This program would remain in place even if the bank were to be acquired, and its board will be comprised of community members.

The Department of Banking held a public hearing on the application on Dec. 4, 2003, which was continued on Jan. 5, 2004, to hear comments from the community. The public comments were directed at NHSB’s fair lending practices, accessibility to capital in New Haven and the potential for self-enrichments by the management of the bank. Many of the comments focused upon the desire for a depositors’ vote and the public’s perception that the converted bank would eventually be sold, resulting in a negative impact to the New Haven community.

Burke does not have the authority to require such a depositor vote retroactively, so such a vote would have no weight.

The Right Conditions

To address the comments received reflecting concern that the new institution would be sold in the near future, the approved plan of conversion restricts the acquisition of more than 10 percent of any security of the holding company without the prior approval of the commissioner for a period of five years following completion of the conversion.

While many of the comments he received called for a vote by depositors prior to the conversion, Burke noted that the Federal Deposit Insurance Corp. approved the applicant’s request for a waiver of the depositor vote, which is typical procedure.

Under Connecticut banking law, the corporator vote taken by the bank was sufficient to meet the state’s statutory requirements. Furthermore, Section 36-142m-4(a) of the Connecticut State Regulations specifies, “No vote of the depositors of such a mutual savings bank regarding the proposed plan of conversion will be required.”

Connecticut banking law does not empower the commissioner to require or approve a depositor vote. And, based on the thorough review of the legislative history, it is also clear that the General Assembly withheld authority for the banking commissioner to seek a depositor vote.

Burke said it was crucial for him to listen to both sides before making his decision to approve NHSB’s application. Based on the public hearings and the amendments to the bank’s petition he received, Burke concluded that the approval should be granted with seven specific conditions.

Those conditions require the bank to submit monthly updates to the Department of Banking regarding its planned information technology conversion and integration program, as well as requiring the bank to submit monthly updates regarding its deposit levels.

The bank must also submit a semi-annual report regarding the NewAlliance for Neighborhoods program, specifically addressing the lending and investment activities. It must also submit confirmation of the establishment of a NewAlliance Foundation, identification of board members and a semi-annual report to the Department of Banking on the foundation’s activities.

The bank will need to confirm the establishment of any new foundation and any donor-advised fund, and provide identification of its board membership and submit a report semi-annually to the Department of Banking on the foundation’s or fund’s activities. The same holds true for the establishment of a Community Advisory Panel.

Conditions also require the bank to submit a semi-annual report to the Department of Banking which includes approval and rejection loan data by loan category, specifically identifying loan data based on geographic location, income and percentage of loans approved or denied for blacks, Latinos, whites and other applicants.

A final condition prohibits the implementation of the retention and recognition program and stock option program originally proposed by the bank, for at least 12 months following the completion of the conversion. It was this compensation program for bank executives that drew much of the fire from New Haven community members.

“These conditions and compromises should ensure that NewAlliance Bank will be responsive to its customers and the New Haven community,” said Burke. “We are very pleased that the bank and the community have worked together to strengthen the bank’s commitment to the city of New Haven. It is with these conditions and compromises that we hope to have this institution continue to be a successful part of the New Haven community for a long time to come.”

Conditions will go into effect on either March 30, 2004, of 45 days into the third quarter of his year.

State Sen. Martin Looney has pledged to submit a bill this session that would, among other things, require a depositor vote for such a mutual-to-stock conversion in the future. It would also give the commission power to limit the amount of compensation received by bank executives.