North Fork Bank Acquisition--Why Now? (COF, NFB)

Why now? I can certainly understand why North Fork Bank (NFB) would want to sell. Financial services companies tend to have a tough time in a rising interest rate environment but banks in particular face a few other challenges.

My sense is that there is ever increasing competition for both loans and deposits. The rising rate environment tends to be associated with higher loan provisioning as banks seek to maintain their credit quality.

Finally, banks seem to be interested in improving their customer relationships by improved servicing and improved convenience.

All of these factors contribute to a less than robust earnings picture.

North Fork Bank is the most important factor in Long Island banking for Suffolk County where it has close to 30% of deposit share and also in Nassau County where it has 15% share. In New York City, NFB has only about a 2% share of deposits.

The NYC metropolitan area is a very attractive area for banking with very high median incomes. NFB has been a terrific operator with superb expense control. Its return on tangible equity was about 31% and return on assets 0f 1.81%.

Capital One (COF) obviously wanted this footprint badly. The premium to deposits paid was 34% versus a more “normal