Long Island-based North Fork Bank faces a buying challenge in New

Long Island Business News, Jan 14, 2005 by David Reich-Hale

MELVILLE - North Fork Chairman John Adam Kanas said he's close to going back on the hunt for new bank deals in New Jersey, but he had better move fast. Merger experts say attractive acquisition targets are quickly vanishing from the Garden State landscape.

There's been so much activity in New Jersey already, said Arnold Danielson, chairman of Rockville, Md.-based financial consulting firm Danielson Associates. I think John realizes that if someone takes out the few remaining banks, that can really make a difference for North Fork. There won't be anything left for him to do. He has a $50 billion bank that needs to grow.

James Dempsey, chief investment officer of U.S. Trust on Long Island, said North Fork could become an acquisition target itself if it stopped buying.

Organic growth is so hard to come by in banking, especially when interest rates are working against you, Dempsey said. In banking, deals work. Just look at North Fork.

And of course, if North Fork were bought, it would mean jobs would shift off the Island, especially if the buyer already has offices in the area.

A large institution from outside the area looking to enter and build a presence in the market might expand, Dempsey said. An established competitor will cut costs to make the deal accretive to earnings.

At least for now, North Fork is on the prowl in the active New Jersey market.

In recent months, Wayne, N.J.-based Valley National Bank made two acquisitions worth a combined $1 billion. And the $11 billion bank has said that it will continue its acquisition spree.

PNC Bank, the Pittsburgh banking giant, has also widely expanded its presence in New Jersey through acquisitions.

North Fork isn't the only bank buying, or looking to buy there - that's for sure, Danielson said.

Other banks that might scout for buying opportunities include Hudson City Bancorp, a New Jersey bank that opened a branch in Southold in 2004.

PNC and Wachovia could also pick up banks in New Jersey.

North Fork, by far the biggest bank based on Long Island, first entered the New Jersey market last year with the purchase of the Trust Co. of New Jersey for $726 million. That move gave North Fork 75 branches there. Kanas said last week that North Fork needs 150 branches in the Garden State to stay competitive.

There are a lot of quality banks in New Jersey, Kanas said. I expect that there will be a lot of merger and acquisition activity in New Jersey in 2005.

Kanas wouldn't comment on which banks he's targeting, but analysts said that Lakeland Bancorp, Interchange Financial Services Corp., Sun Bancorp and Greater Community Bancorp are possibilities.

Danielson said that Interchange, which has $1.5 billion in assets, and Greater Community, which has $800 million, could make sense for North Fork because both banks are strong in the Northeast part of the state, where North Fork's current branch network is.

The only problem with those two banks is that they might be too small for North Fork, Danielson said.

Greater Community only has 15 branches, while Interchange has 18. Neither would get Kanas to his target of 150 New Jersey branches.

He might have to buy a couple of banks to get to where he wants, said Kevin T. Timmons, an analyst with CL King & Associates in Albany.

Lakeland has about 40 branches, while Sun Bancorp has 75.

I believe that Lakeland and Sun would be receptive, Danielson said.

But would North Fork be interested? Lakeland's branch network is in the Northwest part of the state, while Sun, which fits the size North Fork's interested in, might be too far south. Sun's branch network goes from central New Jersey all the way down into Philadelphia and Delaware.

Another possibility, analysts say, is Hudson United, which has a history with North Fork. The two institutions squared off in competing bids for Dime Savings Bank, which eventually went to Washington Mutual.

North Fork would love to get Hudson United, said Art Loomis, president of Northeast Capital, an investment bank in Albany. They have a great mix of business and it has the presence that North Fork would salivate to get.

Hudson has 200 branches, with some in Connecticut and upstate New York, two places that Kanas said North Fork doesn't have an immediate interest in entering.

A purchase of Hudson United would cost North Fork $2.5 billion, Loomis added.

Analysts also said that in the long term, Connecticut and Westchester make plenty of sense for North Fork.

North Fork is a strong franchise and they market through the New York media, which covers a 50-mile radius around New York City, Timmons said. So Connecticut and Westchester fits. Both of those markets are also very attractive markets for a bank like North Fork.

Danielson said that at some point, North Fork will have to go in that direction, because he's built the type of franchise that has to keep growing and that area is a natural fit. Kanas can't sit.

Waterbury-based Webster Financial and Bridgeport's People's Bank are the most attractive franchises in Connecticut.

Webster is a great franchise and it's a good bank, which fits the type of deal North Fork's done, Timmons said. But their branch network is spread out throughout Connecticut, including into areas that don't get New York media.