Much like Manhattan hipsters, New York banks would rather live in the city than be part of the "bridge-and-tunnel" crowd on the outskirts. And thanks to a flurry of bank merger activity that has altered the scene in the past week, Long Island-based

North Fork Bank

(NFB)

now has some prime Manhattan real estate to brag about.

After a year in which it launched a hostile, and ultimately unsuccessful, bid for

Dime

(DME)

and then settled for smaller, somewhat lumpier acquisitions, North Fork finally realized its much sought-after goal of expanding its presence in New York City. The bank cinched a $175 million deal for

Commercial Bank of New York's

(CBNY)

domestic deposits, boosting its aggregate of Manhattan branches to its intended target of 20 in one fell swoop.

The deal vaults the bank's Manhattan business to 14% of its franchise from 5%. In the city, commercial demand deposits appear to be growing 10 times faster than on Long Island, says Jason Goldberg, banks analyst at

Lehman Brothers

. On Wednesday, he increased his target price for the bank by $2 to $30. Goldberg says the average deposit costs 1.63% in Manhattan, compared with 4.2% in the brutally competitive Long Island marketplace. (He rates North Fork a buy, and his firm hasn't done underwriting for the bank.)

Goldberg notes North Fork's solid relationship with Gabriel Safdie, who owns 63% of Commercial Bank and will retain and spin off its lucrative private client and asset management business. "They have a nice relationship with the Safdie family and will likely do more to leverage that," Goldberg says.

Feeding the Beast

Less than 24 hours before North Fork announced its deal,

Citigroup

(C) - Get Report

had just fed its massive

acquisition appetite again, this time swallowing another Long Island bank,

EAB

. The Uniondale-based unit of Dutch bank

ABN-Amro

(ABN)

went for $1.6 billion.

Though North Fork was a bidder on the EAB deal and was -- surprise! -- outbid by Citi, North Fork executives seemed very happy with their latest acquisition, one that's clearly more manageable and easier to swallow both strategically and financially than EAB would've been. The real draw for North Fork, not to mention

FleetBoston Financial

(FBF)

, which also jumped into the bidding for EAB, was the bank's 30 branches in metropolitan New York.

But mixing EAB's 67 Long Island branches with North Fork's 84 would've resulted in significant overlaps, which would have led to layoffs and branch closings. In a conference call with analysts and investors, North Fork CEO John Kanas conceded that the situation would have been both messy and "politically undesirable."

He also suggested that a successful bid for EAB would have been a lot for North Fork to handle, including the need to go to the market to "raise a substantial amount of common equity which would put a great deal of uncertainty into the deal." He added that it was "a very different kind of risk profile than we're accustomed to."

An Opportunity

Ironically, some experts say Citi's acquisition of EAB will provide further opportunities on Long Island for North Fork as it takes advantage of deposit runoff or disruptions during the Citi/EAB integration process. "Banks take their eye off the customer in the integration process," says Goldberg.

North Fork also is expected to play up its strength in small- and middle-market commercial lending in metropolitan areas that have generally been ignored in recent years amid intense industry consolidation among the big banks. Citigroup's creation of a new business unit, Citibank Commercial Markets Group, as a result of the EAB deal acknowledges the potential growth in this field.

The larger banks are "not focusing on the small and middle market which

North Fork is going after. The giants can't do as good of a job," says

Sandler O'Neill

banks analyst Mark Fitzgibbon. North Fork is "smaller, more nimble and more customer- service oriented." Sandler O'Neill served as an adviser to Commercial Bank of New York on the deal. (Fitzgibbon rates North Fork buy, and his firm hasn't done underwriting for the bank.)

"We certainly don't underestimate

Citigroup's potential as a great competitor," Kanas told investors, but he thinks there will be a chance to "gain as Citigroup has to relearn the middle market."

On the Sidelines

The one bank left sitting on the sidelines among all the musical-chair playing this week is FleetBoston. Though the bank is by no means underrepresented in New York City, it's nonetheless on the lookout for potential acquisition targets in the metropolitan area, people familiar with the situation say. Fleet has 18 branches in Manhattan, compared with 89 on Long Island.

Fitzgibbon says Fleet's geographic spread of branches "kind of resembles a doughnut with branches all around Manhattan. Fleet is looking to fill that hole in." Fitzgibbon said Citigroup's latest deal has made it even more difficult for FleetBoston to expand its presence in Manhattan and notes a decrease in potential entry-level points. FleetBoston declined to comment. (Fitzgibbon rates FleetBoston outperform and his firm has not underwritten for the bank.)

Based on an aggregate of the two Long Island counties and the New York City boroughs of Queens, Brooklyn and the Bronx, Goldberg calculates North Fork ranks fourth behind

J.P. Morgan Chase

(JPM) - Get Report

,

HSBC

and Citigroup. That puts it ahead of both FleetBoston and

Bank of New York

(BK) - Get Report

.