After weathering a challenge from shareholders, Community Bank System Inc. of DeWitt, N.Y., is facing another opponent in its effort to buy 15 branches from Chase Manhattan Corp.
Inner City Press/Community on the Move, a vocal citizens group based in the Bronx, is accusing Community Bank of not lending to low-income, moderate-income, and minority residents in the Rochester, Syracuse, and Binghamton areas.
The group has submitted a formal challenge to the Comptroller's office.
The challenge, disclosed by Community Bank in a filing with the Securities and Exchange Commission, comes after a state court judge rejected a request by three shareholders for a preliminary injunction against the Chase deal and a stock offering to finance it.
The shareholders had accused the bank and its directors of failing to consider that the deal would drain the bank's capital and hurt book value and earnings per share.
Inner City Press, which is challenging all deals involving Chase, wants to force the banking giant to improve its community reinvestment record. It has asked for a public hearing on the Community Bank acquisition, and is urging the Comptroller's office to reject the deal.
"You're supposed to have a good record to expand," Inner City executive director Matthew Lee said in an interview. "They don't have such a record."
Mr. Lee also argues that the proposed purchase - including branches, $459 million of deposits, and at least $25 million in loans - will reduce competition, particularly in the small towns that dominate the $960 million-asset upstate bank's overall market.
Community Bank is "not surprised by (Inner City's challenge) given this group's history of following Chase-related applications," said president and chief executive Sanford A. Belden. "We think that the issues raised are being addressed and that they will be resolved satisfactorily. Our CRA record is very strong and we're certainly very proud of it."
Mr. Belden said he doesn't expect any delay in approval by the agency.
According to 1993 Home Mortgage Disclosure Act data, Community Bank System didn't make a single loan to a minority that year in Rochester, Syracuse, or Binghamton. That "astonished" Inner City, according to the comment letter filed with the comptroller's office.
Inner City noted in the letter that many of Community Bank's branches are located in rural communities that aren't listed in census tracts and don't have reportable HMDA data.
Mr. Lee also acknowledged in an interview that even the branches located in metropolitan statistical areas are not in populous communities, but added, "It's hard to believe that there are no people of color in these tracts."
The letter also claimed that Community Bank's marketing and lending in the three metropolitan areas is aimed only at middle-income and upper- income tracts.
Inner City also expressed concern about the "negative CRA effect" of transferring a branch in Utica to Community Bank, saying the company lacks the resources or experience of Chase in running urban branches. The Utica branch would be Community Bank's first urban location.
Community Bank's planned acquisition is also facing opposition from Warren R. Marcus, president of WRM Equity Management Inc. The institutional investor wrote to the Comptroller's office calling on regulators to reject the transaction because of its "disturbing" impact on capital.
