Sterling Bancorp in Montebello, N.Y., is facing questions over Community Reinvestment Act deficiencies that could delay approval of its deal to buy Astoria Financial in Lake Success, N.Y.

The Federal Reserve Board, in a May 11 letter addressed to Astoria’s legal counsel, outlined several issues it wants clarified before approving Sterling’s $2.2 billion deal for Astoria. The merger, announced in March, is this year’s biggest bank M&A deal.

The Fed noted in its letter that the Office of the Comptroller of the Currency had determined in December that Sterling’s Community Reinvestment Act data for 2014 to 2016 was “not reliable” and that the bank “lacks an effective process for collecting, verifying and reporting such data.” The Fed, as a result, requested a description of Sterling’s efforts to address the deficiencies.

Comments on Sterling's CRA-related deficiencies were part of a confidential section of the letter posted by Matthew Lee, executive director of Inner City Press/Fair Finance Watch. Lee and the OCC were given copies of the letter.

The Fed, in a public section of the letter, requested a timeline for branch closures and a description of Sterling’s CRA-related due diligence. The letter also asked Sterling to summarize its goals for a new five-year CRA plan and to identify any products or services that are expected to be discontinued or reduced.

Sterling received a "satisfactory" CRA rating after its January 2014 exam.

The CRA-related items could lead to a “meaningful” delay, said Chip MacDonald, a lawyer at Jones Day who is not involved with the deal. “I think getting the data and compliance in a form that the Fed and OCC will find acceptable could take an appreciable amount of time.”

That would be disconcerting for Astoria, which had worried about regulatory approval as it negotiated selling itself earlier this year. Astoria already had one deal fall through — an agreement to be sold to New York Community Bancorp was terminated late last year — after regulators sat on New York Community’s application.

The $14.6 billion-asset Astoria took the added step of requiring suitors to schedule in-person meetings with their regulators, with Astoria’s legal counsel present, to gain a level of comfort about the approval process. The $14.7 billion-asset Sterling fulfilled that precondition before striking its deal to buy Astoria.

Sterling has said it expects to complete the acquisition in the fourth quarter.

A Sterling representative declined to comment. Astoria did not respond to a request for comment.

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Allison Prang

Allison Prang

Allison Prang is a reporter for American Banker, where she writes about community banks.