December3, 2010

Ivan Hurwitz
Vice President
Federal Reserve Bank of New York
33 Liberty Street
New York, NY 10045-0001

Re: Application of First Niagara Financial Group to Acquire NewAlliance Bancshares pursuant to
12 U.S.C. § 1842(c)

Dear Mr. Hurwitz:

On behalf of the City of New Haven, please accept this comment letter on the proposal by First
Niagara Financial Group (³First Niagara´) to acquire 100 percent of the voting shares of NewAlliance
Bancshares, Inc. (³NewAlliance´) and thereby indirectly acquire voting shares of NewAlliance Bank. The
City of New Haven opposes the proposed acquisition as it will adversely affect a wide range of
constituencies in the city, including homeowners, small- and medium-sized enterprises, and community
groups.

In a letter submitted onNovember 24, 2010, we requested that a hearing regarding the proposed
acquisition be held in the city of New Haven in order to allow full public participation from New Haven
residents. We reiterate our request for a hearing to be held in New Haven, and have attached the letter for
your reference. The purpose of this letter is to explain our reasons for opposing the proposed
acquisition.Based on evidence from past acquisitions made by First Niagara, an in-depth comparison of
NewAlliance and First Niagara¶s Community Reinvestment Act (³CRA´) reports, and an understanding
of New Haven¶s local banking needs, we anticipate that the proposed merger will lead to a reduction in
critical community banking services including community-level lending and financial education.

When deciding whether to approve a bank merger, the Federal Reserve Board considers, under 12
U.S.C. § 1842(c)(2), the needs and convenience of the community. We strongly believe that the proposed
acquisition would 
serve the needs and convenience of the New Haven community, and indeed, that
the acquisition would have adversely impact the community in both the short and long term. First Niagara
has not provided adequate information to satisfy its burden of proving otherwise.

Beyond this long-term community impacts of decreased attention to local needs and reduction in
services, there are several areas of concern that further support our opposition to the merger. Our first
concern is the loss of jobs that will result, as First Niagara has confirmed, from the merger.1 Second, it is
very likely that First Niagara is in fact making this acquisitionto position 
for future acquisition by a
national chain,an action that would result in further distance between the decision making powers and the
needs of the New Haven community. Third, thecompensation of NewAlliance management is
disproportionate to the size and success of NewAlliance, suggesting a financial incentive for the
acquisition beyond the success of the bank or the shareholders.

First Niagara¶s perfunctorycomments in its merger application about its future community
involvement in New Haven are unsubstantiated and do not satisfy the statutory command to show that the
merger will serve the needs and convenience of the community. Furthermore, First Niagara¶s failure to
explain inits application what actions will be taken to help specific constituencies such as low- and
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1
 
   , NEW HAVEN INDEPENDENT, Nov. 19, 2010,   

http://www.newhavenindependent.org/index.php/archives/entry/newalliance_layoffs_planned/#.c

c 1c
moderate-income (³LMI´) borrowers, who are critical to New Haven¶s economic development, shows a
lack of attention to New Haven¶s unique needs.Rote statements about Canadian treasury products cannot
satisfy the statutory command to show that the merger will serve the needs and convenience of the
community.

In short, we believe that this proposed acquisition doesnot satisfy the statutory factors set forth
under 12 U.S.C. § 1842. Given the community opposition and the self-serving nature of the proposed
acquisition, particularly with regard to the enormous financial rewards to be reaped by NewAlliance¶s
upper management and the potential conflicts of interest presented thereby, each regulatory body
reviewing the proposed transaction bears significant responsibility to ensure all statutory criteria are
satisfied. Below, we set forth in more detail our reasons for opposition: (A)the inferior CRA performance
of First Niagara relative to NewAlliance, (B) consequent loss of jobs (C) the disproportionate
compensation of NewAlliance management and (D) the insensitivity of the resulting organization to the
unique needs of New Haven with the real possibility of anultimate acquisition by an even larger bank. All
of these factors would diminish the ability of the combined entity to effectively serve the New Haven
community following the proposed transaction.

A.c rhe CRA record of First Niagara Bank, both overall and in areas of vital economic importance
to New Haven, is inferior to the record of NewAlliance Bank

In assessing whether a proposed acquisition will serve the convenience and needs of the
community, one factor to be considered by the Federal Reserve Board is performance under the
CRA.2The CRA ratings of First Niagara Bank have consistently trailed those of NewAlliance Bank. On
its most recent CRA evaluation, First Niagara Bank received a rating of ³satisfactory´ while NewAlliance
received a rating of ³outstanding.´ We already have evidence as to the negative impact of a First Niagara
acquisition on overall CRA performance. In 2004, First Niagara acquired Troy Savings Bank. Troy
Savings Bank had also receiveda CRA rating of ³outstanding.´ At the time of the acquisition, First
Niagara had a CRA rating of ³satisfactory.´ Its rating has remained the same, indicatinga decline in
community service in the Albany-Troy-Schenectady assessment area. As we show in greater detail below,
First Niagara¶s performance in this assessment area significantly trails Troy¶s performance.

Evaluation of performance under the CRA falls under three headings: lending, services, and
investment. In each of these three categories, NewAlliance Bank outperforms First Niagara Bank. The
merger would likely lead to a decline in community performance across the board.

1.c First Niagara¶s lending performance in areas of particular importance to the City of New
Haven has trailed both NewAlliance and the industry as a whole, with particularly poor
performance in markets entered through acquisition.

When evaluating the community impact of past mergers, the Federal Reserve Boardhas
considered a number of factors. These have included significantlending to small businesses,3the provision
of affordable housing loans, 4the geographic distribution of loans,5 and an even distribution of loans

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2
12 CFR §225.13 (b) (3). The most recent CRA rating is of particular importance. Allied Irish Bank, plc., 2009 WL
1342296 (F.R.B.), at 5 (May 8, 2009).c
3
Penn Bancshares, Inc., 2005 WL 3619779 (F.R.B.), at 5 (Dec. 19, 2005); NBT Bancorp, Inc., 2005 WL 3619785
(F.R.B.), at 4 (Dec. 14, 2005).c
4
NBT Bancorp, Inc., 2005 WL 3619785 (F.R.B.), at 4 (Dec. 14, 2005); M&T Bank Corp., 89 FED. RES. BULL. 222,
225 (May 2003). c
5
Allied Irish Bank, plc., 2009 WL 1342296 (F.R.B.), at 5 (May 8, 2009).c

c 2c
amongst different income classes of borrowers.6These factors are of particular importance to the
economic vitality of New Haven, and in each of these areas, First Niagara¶s performance has trailed both
that of its peer institutions and of NewAlliance Bank. This trackrecord calls into question First Niagara¶s
willingness and ability to serve the New Haven market, as well as its application rhetoric of seeking to
³incorporate elements´ of NewAlliance Bank¶s CRA program ³to the extent possible.´7

According to data compiled by the National Community Reinvestment Coalition for 2007, First
Niagara lagged behind its peers in each of the metropolitan areas it served in providing home loans to
LMI borrowers, home loans to African-American borrowers, and small business loans of less than
$100,000. As stated in its CRA exam, to continue to merit even a ³satisfactory´ CRA rating, First
Niagara¶s lending in low- and moderate-income areas would have to improve. 8

 


  

NewAllianceis ahead of many of its peersin providing finance to small businesses, particularly
inthe provision of loans with a value less than $100,000. In its most recent CRA evaluation, it received
the highest rating in the five metropolitan areas in which it operates. First Niagara, on the other hand, has
trailed its peers in lending sums less than $100,000:in its most recent CRA rating, it was rated worse than
all other lenders in providing loans under $100,000 in each metropolitan area it services.These statistics
indicate that the proposed acquisition is likely to result in a reduction in the availability of small loansfor
entrepreneurs in New Haven. While NewAlliance¶s current activities do leave some room for
improvement in certain areas, the acquisition threatens to make the bank¶s performance worse.

The experience of Troy provides evidence to support this prediction. Prior to the First Niagara
acquisition, Troy scored an evaluation of ³good´ on the distribution of loans based on business size. 9
Post-acquisition, First Niagara scores a ³satisfactory´ on this metric in the Albany-Troy-Schenectady
assessment area.

 



       


A strong homeowner base is a necessary condition for community economic development, since
the homeowner acts as an economic anchor. Homeowners maintain their houses and pay property taxes
that fund schools. Furthermore, homeowners use the equity in their homes to finance various economic
activities, including small businesses, which are of great value to the community. Affordable housing
finance is thus essential to community economic development in general and in particular to New Haven.
The Federal Reserve Board has emphasized the importance of providing affordable housing loans when it
has assessed past merger proposals.10

According to NCRC data, NewAlliance was better than its rivals in four out of the five
metropolitan areas it serves in its provision of affordable housing finance.The converse has been true of
First Niagara:First Niagara has trailed all of its rivals, in each of the metropolitan areas it serves, in
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6
°M&T Bank Corp., 89 FED. RES. BULL. 222, 226 (May 2003); SouthTrust Corp. of Alabama, Inc., 2003 WL
1451792 (F.R.B.), at 3 (Mar. 19, 2003). c
7
Application, at 12.c
8
Office of Thrift Supervision, Community Reinvestment Act Performance Evaluation ± First Niagara Bank(March
12, 2007), available at http://www.ots.treas.gov/?p=CRASearch#SearchResults.c
9
Federal Deposit Insurance Corporation, Community Reinvestment Act Performance Evaluation ± Troy Savings
Bank (Sept. 27, 2001),   
http://www2.fdic.gov/crapes/2001/16073_010927.pdf.; Office of Thrift
Supervision,  




  
 
 
    (March 12, 2007).c
10
NBT Bancorp, Inc., 2005 WL 3619785 (F.R.B.), at 4 (Dec. 14, 2005); M&T Bank Corp., 89 FED. RES. BULL. 222,
225 (May 2003); SouthTrust Corp. of Alabama, Inc., 2003 WL 1451792 (F.R.B.), at 3 (Mar. 19, 2003).c

c 3c
providing housing finance to LMIborrowers. Indeed, First Niagara Bank¶s most recent CRA evaluation
reads: ³While performance in [residential mortgages] is considered adequate for the bank as a whole,
continued improvement is needed in assessment areas showing low levels of penetration in LMI census
tracts in order to maintain a satisfactory rating.´11 This statement makes clear First Niagara¶s lackluster
performance in providing affordable housing finance to the poorest members of the community.

   


       

First Niagara¶s most recent CRA report notes that its percentage of housing loans had declined:
³the percentage of loans made by First Niagara within LMI geographies (0.6 percent and 5.4 percent
respectively) was much lower than that reported by the aggregate for 2005 (4.9 and 14.9 percent
respectively) . . . . These percentages reveal, overall, a poor geographic distribution of home loans in this
assessment area.´12

This warning is of particular concern to the City of New Haven, because it showed a worsening
on CRA measures in the Albany-Schenectady-Troy assessment area following the acquisition of Troy
Savings Bank by First Niagara in 2004. Prior to its acquisition, Troy had received an evaluation of ³good´
on the geographic distribution of affordable housing loans. Post-acquisition, First Niagara has received an
evaluation of ³poor´ on this metric in the Albany-Troy-Schenectady assessment area. Should the
proposed acquisition of NewAlliance be completed, the City of New Haven anticipates a similar local
decline in the geographic distribution of loans, disproportionately affecting the poorer members of the
community.

 

     





The impact on the Albany-Troy-Schenectady assessment areaalso shows what New Haven can
expect to happen to the distribution of affordable housing loans amongst different income levels should
the proposed acquisition be completed.Whereas the Office of Thrift Supervision had evaluated Troy
Bank¶s performance on this metric as ³adequate,´ it found First Niagara¶s performance to be only
³marginally adequate´ in the Albany-Troy-Schenectady assessment area a year after the acquisition of
Troy. 13 Specifically, the number of loans by First Niagara to low income borrowers was 4.6 percent,
compared to a 6.7 percent aggregate lending average in the assessment area for 2005; and loans to
moderate-income borrowers were 15.8 percent, compared to 21.8 percent of the aggregate.14

If this merger goes through, New Haven can anticipate a reorientation of housing finance away
from LMI borrowers, the most vulnerable members of the community, to the detriment of New Haven¶s
economic development.

2.c First Niagara has not provided adequate information on the merger¶s potential effects on
service provisions, and what information does exist suggests that the provision of services
will underperform that ofNewAlliance Bank

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11
Office of Thrift Supervision, Community Reinvestment Act Performance Evaluation, First Niagara Bank, at 10
(Mar. 12, 2007). c
12
à at 28.c
13
à at 29.c
14
àc

c 4c
 When assessing a merger¶s effect under the service heading, the Federal Reserve Board has
considered several factors. Two factors, however, stand out: branch location in LMI areas15 and consumer
financial education.16

As noted in the previous section, First Niagara has failed to provide any meaningful information
on its plans for the NewAlliance branches in New Haven. The silence of the merger application on any
plans to expand the new bank¶s footprint in New Haven is telling, given that First Niagara trumpets the
more minor changes, such as the expansion of the roster of financial products. While a NewAlliance
spokesperson has said ³all 88 NewAlliance branches will remain open after the merger,´17 that statement
is far from a guarantee, and in fact leaves open the possibility that branches would be reevaluated, or
closed, at a time following the merger. New Haven, and particularly its LMI areas, could well be less
necessary markets for the combined entity than they have been for NewAlliance Bank. Any loss of
branches would be disastrous for New Haven, andFirst Niagara¶s silence on this critical issue cannot
satisfy the statutory requirement that there be a showing that the merger will serve ³the convenience and
needs of the community.´

The application¶s failure to state its plans for consumer financial education is equally troubling.
This silence is all the more worrisome given that the application states that a greater range of financial
products is one of the chief benefits of the merger for the New Havencommunity. 18Access to Canadian
treasury products will be of little use if, as is likely, the majority of clients do not know what a treasury
bond is. Indeed, the fact that First Niagara claims that access to Canadian treasury products is a benefit for
New Haven, one of the poorest cities in the nation, further demonstrates theperfunctory nature of First
Niagara¶s community commitment and the inadequacy of its application.

Due to the likely negative effect of the merger on service provision and because of First
Niagara¶slack of interest in showing how the merger will benefit the community,the City of New Haven
opposes this merger.

B.c rhe proposed acquisition will result in immediate, substantial, and possibly permanent job
losses in the New Haven area

First Niagara has made nine acquisitions in the past eleven years, and the size and impact of these
acquisitions in terms of local jobs lost has increased dramatically over time. The chart below reflects the
most recent four acquisitions in terms of jobs cut:

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15
M&T Bank Corp., 89 FED. RES. BULL. 222, 225 (May 2003).c
16
à at 226.c
17
 
   ,   note 1.c
18
Application, at 9.c

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Prior acquisitions have resulted in layoffs.19 In its most recent acquisition, that of Harleysville
National Corporation in April 2010, First Niagara cut approximately 300 jobs.20NewAlliance Bank
supports, at present, approximately 1,200 jobs and it is difficult to determine how many would be cut as a
result of the proposed acquisition. However, First Niagara¶s shareholder communications, publicly
available through the SEC website, clearly anticipate layoffs, and it is likely that these layoffs would be
concentrated in the New Haven headquarters.21

In response to the understandable concerns the community has raised over the loss of jobs, First
Niagara has made platitudinous remarks. Though jobs will certainly be lost, ³First Niagara has promised
to hire more people by adding more µcustomer facing positions¶ at each of the 88 branches.´22It is
anticipated that ³the workforce inNew England will return to NewAlliance¶s current employment levels
by the end of 2012.´23These statements make no specific commitments to work with the City of New
Haven to improve the job situationin New Haven as soon as possible,and no promise to remedy the
employment problemsin New Haventhat the merger will cause. First Niagara¶s failureto be moreopen and
collaborative with the community indicates its empty rhetoric when it comes to an interest in the
community. This reticence suggestsindifference towards the concerns of the community, which bodes
poorlyfor its future community involvement.

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19
Numbers in the chart are based on SEC filings and the following sources: Dan Sokil, V !   " 

# 
   , THE REPORTER, Jan. 29, 2010,   

http://www.thereporteronline.com/articles/2010/01/29/news/doc4b63660db5b55504941873.txt; Jonathan Epstein,
$
  ° 
, THE BUFFALO NEWS, Dec. 28, 2007,   
http://findarticles.com/p/news-
articles/buffalo-news/mi_8030/is_20071228/buffalo-sells-branches/ai_n42987101/; Jonathan Epstein,
 
%
& 
°
'(" 
 

))(" 
 , THE BUFFALO NEWS, Oct. 14, 2004,   

http://www.highbeam.com/doc/1G1-123214248.html; Barbara Pinckney, * ! ° 


   * # ! , Dec. 29, 2003,   

http://www.bizjournals.com/albany/stories/2003/12/29/focus9.html.c
20
Sokil,   note 19. c
21
See, for example, First Niagara Financial Group, Inc., Merger Wheels Are Turning (Form 425), at 1 (Aug. 31,
2010).c
22
 
   ,   note 1. c
23
à. (emphasis added)c

c 6c
C.c rhe City of New Haven opposes the merger because NewAlliance¶s management has performed
poorly, compensated itself richly, and does not pass muster under 12 U.S.C. § 1842(c)(2)

One of the factors the Federal Reserve Board considers when examining a merger application is
³the financial and managerial resources´ of the ³companies and the banks concerned.´24There is good
reason to question the managerial resources of NewAlliance. For one, its performance does not justify the
massive, disproportionate compensation for either the CEO or the board. To understand the motivation for
and impact of the potential merger of these two banks, it is important to consider each bank¶s
performance over the past five years. These numbers strongly suggest there has been pay without
performance, and that the bank leadership has been driven by its own economic gain rather than the
financial health of the organization.

1.c NewAlliance¶s ROA and ROE have been mediocre, while compensation for the CEO and
upper management has soared

Bank performance is most commonly measured through accounting ratios and changes in
shareholder value. Return on Equity (ROE) and Return on Assets (ROA) are the measures of profitability
commonly employed to monitor success over time. By comparing these high-level metrics between the
two banks, we can determine the financial position and impact of the merger on each. Within the banking
sector, a ROE of 12-14 percent and an ROA of about 1 percent are considered acceptable. As seen in the
graphs below, First Niagara has historically been more successful, but the two have been converging even
before the start of the financial crisis asFirst Niagara has been in steady decline.

; Return on Equity ; Return on Assets

 

 


 



 
 




›











›› ›› ›› ›› ›› '
(  

Compensation for the board members and the CEOof NewAlliance gives further reason to worry
that the acquisition is a self-interested transaction that provides enormous benefits to upper management
in return for mediocre performance. As illustrated below, Peyton Patterson, CEO of NewAlliance, has
received compensation in each of the past three years that greatly exceeds the compensation of John
Koelmel of First Niagara on both salary and bonus.Even if NewAlliance had been performing well,
NewAlliance is only the 124th largest bank in the country ranked by deposits²yet Ms. Patterson¶s
golden parachute would raise her compensation above that of the highest paid banker last year, John G.
Stumpf of Wells Fargo. 25

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24
12 U.S.C. §1842 (c)(2).c
25
Eric Dash, 'V*     
  # , N.Y. TIMES, Aug. 20, 2010, at B6,   

http://www.nytimes.com/2010/08/21/business/21pay.html. c

c 7c
 CEO Compensation

2.c The performance of NewAlliance¶s board does not merit the compensation it has granted
itself

Through the end of 2009, NewAlliance non-employee directors¶ compensation has been
comprised of a mix of options grants, restricted stock grants, and cash fees for board service. Board
members at the time of the demutualization received grants of 85,600 shares of restricted stock each.
Directors who joined the board subsequent to the demutualization received grants of options to purchase
shares in the bank whose strike prices were set approximately at the market price for the bank¶s shares a
the times of the grants. In addition to shares or options, directors have received cash fees consisting of an
annual retainer (set at $23,000 in 2009) plus fees for attending board meetings and committee meetings
(currently $1,500 per meeting) and fees for serving as committee chairs. For example, Nathaniel
Woodson, a non-employee director, received retainer and meeting fees for his board service totaling
$60,500, $59,500, $60,500, and $69,500 in 2006, 2007, 2008, and 2009, respectively.

In 2009 the NewAlliance board¶s compensation committee reviewed the board compensation
plan with the help of an outside consultant. According to the proxy, ³the review in 2009 concluded that all
elements of general director compensation are competitive with NewAlliance peers, except that the initial
equity awards [referring to the grants of restricted shares to directors at the time of demutualization] . . .
are much higher [than at peer institutions] . . . and that the equity awards for new directors [i.e. the
options granted to those directors who joined the board post-conversion] are approximately at median.´
The consultants¶ finding about the grants of restricted shares is not surprising, given that they will provide
each director serving since the time of the conversion a windfall of approximately $1.2 million upon
consummation of the merger with First Niagara, despite the fact that First Niagara¶s purchase price for
these shares represents virtually no appreciation in share value since the conversion.

An 8-K filed by New Alliance with the SEC on June 1, 2010, states that on May 25, 2010 the bank¶s
board adopted a new compensation plan effective April 2010 that significantly increases compensation to
all non-employee directors.Specifically, the annual retainer for each director was raised from $23,000 to
$60,000, consisting of $25,000 in cash and $40,000 in the form of restricted stock vesting May 31, 2011.
This action²in effect a 57 percent raise²suggests the directors, many of whom have already been

c 8c
overcompensated, have chosen to ignore their compensation consultants¶ findings and overcompensate
themselves further.

We are deeply concerned that this merger is motivated by the desire of NewAlliance¶s leadership
for personal economic gain and that it is New Haven, not the board, that will suffer the deleterious
consequences of this transaction. For these reasons, the City of New Haven opposes this merger.

V.c Management compensation has appeared to be the first consideration, with only cursory
attention paid to philanthropic spending and community development investment

The existing and proposed philanthropic spending on community needs is woefully inadequate,
given the excessive executive compensation and internal self-rewards that have been made since the
demutualization of the community-oriented New Haven Savings Bank and the inception of NewAlliance.

First Niagara¶s statements regarding its proposed community investment are cursory and
inadequate. Even if, as the application states, First Niagara does not reduce the charitable giving of
NewAlliance Foundation, estimated at $1.7 million in 2009, such numbers pale in comparison not only
with the profits of the entities but²more disturbingly²with the amounts to be gained by NewAlliance
management as a result of the proposed acquisition.26 The golden parachute of Peyton Patterson (CEO of
NewAlliance) alone is estimated at more than $20 million²more than 11 times greater than the $1.7
million allocated to philanthropy in the entire NewAlliance service area in 2009. What is more, First
Niagara, holds twice the assets of NewAlliance ($20billion, compared to $8billion) and yet the former is
content to match NewAlliance¶s performance. The lack of detail in First Niagara¶s statements suggests a
corresponding lack of concern for understanding and serving the needs of the New Haven community.

While NewAlliance shareholders may or may not benefit from this merger (shareholder class-
action litigation, alleging self-dealing and other breaches of fiduciary duty by NewAlliance leadership in
the negotiation of the proposed transaction, is ongoing), what  certain is that New Haven, especially its
poorest communities, will lose out on much-needed investment.

D.c rhe City of New Haven opposes this merger because the combined entity will be less sensitive to
the unique needs of New Haven and a more enticing prospect for acquisition, further
decreasing responsiveness to the community

Less than seven years ago, when New Haven Savings Bank demutualized to form the entity now
known as NewAlliance Bank, residents of New Haven made clear their deep interest in, and concern for,
the banking institutions in their community. Over 300 people attended hearings held by the Connecticut
Department of Banking regarding the demutualization plan in late 2003 and early 2004.27 Community
members were concerned that the demutualization was the first step toward becoming the target of
anacquisition, transformingNew Haven Savings Bank from a local bank to part of a larger chain, where
the bank would ultimately lose its tight connection with the local community. We believe that these
concerns have been borne out by the proposed merger between First Niagara Bank and NewAlliance
Bank, and that this merger would negatively impact community economic development in New Haven.

We respectfully urge you to consider this proposed merger as the first in a series of mergers and
consolidations. Consolidation of the banking industry has accelerated in the last two decades. This trend
has been demonstrably harmful from a community development perspective.
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26
Application, at 9.c
27
Steve Higgins, V ° +  '  #°# , NEW HAVEN REGISTER, Jan. 6, 2004,   

http://www.nhregister.com/articles/2004/01/06/import/10754739.txt?viewmode=fullstory.c

c 9c
 The more centralized the decision-making body, the less awareness it hasof local needs. The less
awareness it has of local needs, the less likely it is that the bank will aid the economic development of the
community. NewAlliance Bank cannot afford to consider New Haven as just another ³geographic
market´ because New Haven serves as its homebase. This is one of the reasons why NewAlliance Bank
has performed better than its peers in providing credit to the poorest members of the community. It is in
NewAlliance¶s self-interest to promote the economic development of New Haven¶s poorest communities.
To this end, NewAlliance made seventy designated community development loans, totaling over $100
million, during its most recent CRA evaluation period. Its directors, officers, and employees have been
involved in over ninety community development organizations and the bank has provided financial
education to residents and businesses.

This result is of particular concern in markets such as New Haven. Provision of small business
loans, key to New Haven¶s economy, is an apt example. Without strong knowledge of local communities
and motivation to meet the local market¶s needs, larger banks provide fewer small business loans, instead
targeting larger or higher-profit deals. The following graphs, produced by the New Rules Project¶s
Community Banking Initiative using FDIC data, illustrate the discrepancy in the distribution of lending to
small business compared to total assets held:

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As shown above, although small and mid-size banks ($10 billion or less in assets), control only 22 percent
of bank assets, they account for over half of small business loans. Small and mid-sized banks devote 56
percent and 33 percent of their commercial loan portfolios to small business lending. By comparison, the
largest twenty banks, which control 57 percent of all bank assets, allocate less than one-fifth of their
commercial loans to small businesses. 28

First Niagara¶s acquisition of NewAlliance and the high potential forsubsequent expansion
increases the likelihood that the New Haven market will be largely ignored, with devastating impact on its
citizens and businesses. Moreover, the City of New Haven¶s concerns about its citizens¶ access to capital
are heightened by First Niagara¶s poor trackrecord. As discussed above, First Niagara has been
significantly less attentive to the needs of LMI communities than NewAlliance. The apparent advantage
larger banks enjoy in the CRA rating process makesthe discrepancy between the CRA performance of
First Niagara (rated ³satisfactory´) and that of NewAlliance (rated ³outstanding´) even more troubling.
As the chart below indicates, mid-sized banks such as First Niagara more frequently receive
³outstanding´ ratings than do small banks like NewAlliance. Only 6 percent of small banks evaluated in
2010 earned ³outstanding´ ratings, while 18 percent of mid-sized banks did. 29

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28
Stacy Mitchell,   °  , New Rules Project¶s Community Banking Initiative (Feb. 10,
2010),   
http://www.newrules.org/retail/news/banks-and-small-business-lending.c
29
This dataset was downloaded from http://www.ffiec.gov/craratings/Rtg_spec.aspx. Small banks are those, like
NewAlliance, with less than $10 billion in assets. Mid-sized banks hold between $10 billion and $100 billion in
assets, while large banks have more than $100 billion in assets. c

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 The likely consequence of the merger is that the resulting entity will be the object of a future
acquisition. This eventuality will only compound the detrimental community impact of losing a local
bank, as banking decisions and community investment become even further removed from New Haven.

This consolidation in the banking industry poses a question of policy for regulatory agencies
charged with reviewing merger applications. It is incumbent upon regulatory agencies, including the
Federal Reserve Board, to ensure that all mergers and acquisitions fully satisfy the statutory criteria set
forth in 12 U.S.C. § 1842(c) and unambiguously serve the convenience and needs of the communities of
which local financial institutions form such an integral part. Because this proposed acquisition does not
serve the convenience and needs of New Haven or its residents, the City of New Haven opposes this
merger.

Conclusion

Far from contributing to the ³convenience and needs of the community to be served,´ as required
by 12 U.S.C. § 1842(c), the proposed acquisition of NewAlliance by First Niagara raises serious concerns
regarding both the short- and long-term effects on New Haven. The proposed acquisition will likely
reduce the credit available to low- and moderate-income individuals, small business, and homebuyers,
while at the same time causing significant job losses and reducing charitable and direct community
investment in New Haven. For these reasons,the City of New Haven opposes this merger and respectfully
urges the Federal Reserve Board to deny the application.

Respectfully Submitted,

Mayor John DeStefano

City of New Haven
165 Church Street
New Haven, CT 06510

Cc: Robert A. Solomon, Esq.

c 12c
Yale Law School
P.O. Box 209090
New Haven, CT 06520-9090

c 13c