By the Division of Banks


DECISION
RELATIVE TO THE MERGER OF

CHELSEA BANK, CHELSEA, MASSACHUSETTS
WITH AND INTO
EAST CAMBRIDGE SAVINGS BANK, CAMBRIDGE, MASSACHUSETTS


East Cambridge Savings Bank (East Cambridge or Petitioner), Cambridge, Massachusetts has applied to the Division of Banks (Division) for authority to merge with Chelsea Bank (Chelsea), Chelsea, Massachusetts pursuant to the provisions of Massachusetts General Laws chapter 167H, section 7, clause (2) as well as under chapter 168, section 34A and chapter 170, section 26A.  Under the terms of an Amended and Restated Agreement and Plan of Merger dated as of November 13, 2014 (Agreement), Chelsea will merge with and into East Cambridge, under the charter and by-laws of East Cambridge (Continuing Institution).  The main office of East Cambridge would remain the main office of the Continuing Institution and the sole banking office of Chelsea would be retained as a branch office of East Cambridge. The banking office of Chelsea will operate under the name “Chelsea Bank, a division of East Cambridge Savings Bank”. East Cambridge’s parent is 1854 Bancorp (Bancorp), Cambridge Massachusetts, a mutual holding company.  Although Chelsea is in mutual form and East Cambridge is in stock form, the transaction is authorized under Massachusetts General Laws chapter 167H, section 7, clause (2) since Bancorp is a mutual holding company and East Cambridge is its subsidiary banking institution.

Notice of the bank merger application was published and posted as directed by the Division thereby affording opportunity for interested parties to submit comments. The period for filing comments has expired.  The Division reviewed the application and all related documents in accordance with the statutory criteria of whether competition among banking institutions would be unreasonably affected and whether public convenience and advantage and net new benefits would be promoted by approval of the proposed transaction.  The record of performance of each bank under the Commonwealth's Community Reinvestment Act (CRA), Massachusetts General Laws chapter 167, section 14 and its implementing regulation, 209 CMR 46.00 et seq. were also factors considered by the Division.

East Cambridge is a Massachusetts-chartered savings bank that was established in 1854. It reorganized into a mutual holding company form of organization in 2013 after receiving approvals from the Division and the Massachusetts Board of Bank Incorporation. Accordingly, East Cambridge is the subsidiary banking institution in stock form of a mutual holding company, Bancorp, which owns all of the stock of East Cambridge.  As of September 30, 2014, East Cambridge had total consolidated assets of approximately $881 million.  As of the same date, East Cambridge had (a) a Tier 1 risk-based capital ratio of 15.42%: (b) a total risk based capital ratio of 16.13%; and (c) a Tier 1 leverage capital ratio 9.62%. East Cambridge is a “well capitalized” bank under regulatory guidelines.  Its deposits are insured by the Federal Deposit Insurance Corporation (FDIC) to the maximum extent permitted by law and by the Depositors Insurance Fund for deposits in excess of FDIC coverage limits.  In addition to its main office in Cambridge, East Cambridge also operates three branches in Cambridge as well as branch offices in Arlington, Belmont, Medford, Somerville and Waltham.

Chelsea is a Massachusetts-chartered co-operative bank that was established in 1885.  As of September 30, 2014, Chelsea had total consolidated assets of approximately $59 million.  As of the same date, Chelsea had (a) a Tier 1 risk-based capital ratio of 17.89%: (b) a total risk based capital ratio of 19.09%; and (c) a Tier 1 leverage capital ratio 9.83%. Chelsea is a “well capitalized” bank under regulatory guidelines.  Its deposits are insured by the FDIC to the maximum extent permitted by law, and by the Share Insurance Fund of the Co-operative Central Bank for deposits in excess of FDIC coverage.   Chelsea has its main office in Chelsea and has no branch offices.

In analyzing the impact of a proposed transaction on banking competition, the Division considers, but does not rely exclusively on, the guidelines used by federal authorities to review bank mergers.  Essentially, these guidelines define relevant markets and measure concentration, which is considered an important indicator of competitiveness. The starting point in the federal analysis is the Herfindahl-Hirschman Index (HHI), an arithmetic measure of market concentration that synthesizes the distribution of market shares and the number of banks in an affected market into a single value.  In this case, the HHI would increase less than 200 points as a result of the proposed merger and remain less than 1800 in the relevant geographic market.  In addition to that analysis, the Division considers the competitive impact of the proposed transaction on a community-by-community basis, as well as on the overall banking structure of the Commonwealth.  Chelsea operates only in Chelsea, Massachusetts and East Cambridge does not have any branch offices located in that city. Accordingly, the review of the transaction’s impact on competition does not raise concerns which would preclude its approval.

The Division has also considered whether public convenience and advantage will be promoted by this proposed transaction.  According to the application, East Cambridge indicates that the banking public will benefit in several ways as a result of the merger.  Petitioner states that the Continuing Institution will be in a better position to meet the needs of its customers through the expanded network of branches and ATMs.  All existing products and services currently offered by either bank will be retained, and after a transitional period, East Cambridge will offer a wider array of products and services to former Chelsea customers.  Such products and services include business online banking, mobile banking, and non-deposit investment services. Further benefits include the Continuing Institution’s ability to expand its lending limits for individual loans.  The Division considered these matters and others cited in the submitted documents in determining that public convenience and advantage will be promoted by approval of this transaction.

In determining whether or not to approve a petition under the statutory criteria, the Commissioner is also required to consider a showing of "net new benefits" related to the transaction. That term includes initial capital investments, job creation plans, consumer and business services and commitments to maintain and open branch offices, among other factors, which the Commissioner may deem necessary. East Cambridge has addressed this requirement of the statute in the application.  As stated in the submitted documents, customers of both banks will have access to a larger network of banking offices which will be enhanced by capital investments in the form of signage and technology upgrades following the consummation of the consolidation.  According to the Petitioner, it is anticipated that the merger should facilitate future job creation from the Continuing Bank’s growth in operations.  It was also noted in the application that no job losses are expected as a result of the proposed merger.  These and other factors are also cited as support for meeting such criteria.

Related to the issue of public convenience and advantage is the record of performance under CRA by the banks which are parties to this transaction. Such review for a state-chartered bank includes examination by personnel of the Division as well as analysis of concerns received from the bank's community and its response to those concerns fairly raised.  A publicly available descriptive rating and evaluation by a federal bank regulatory agency will also be considered.  The Division has noted that both East Cambridge and Chelsea received a "Satisfactory" rating on their most recent CRA performance evaluations.

The Agreement provides that the Board of Directors of the Continuing Institution will consist of all of the current directors of East Cambridge and the current Chairman of the Board of Directors of Chelsea.  In addition, East Cambridge will establish an advisory committee of former members of the Board of Directors of Chelsea who are not continuing as a director for East Cambridge.  Corporators of Bancorp will consist of all persons currently serving as corporators of Bancorp with the addition of all the members of the current Board of Directors of Chelsea.  The management of the Continuing Institution is also detailed in the application documents.  Economies and service capabilities which would result from the transaction are set out in the submitted documents.  Upon consolidation, the Continuing Institution will meet all required capital standards. In addition, financial and managerial considerations support the application.

Upon review of the application with reference to the relevant statutory and regulatory requirements, this Division has concluded that the consummation of the proposed consolidation would be in the public interest.  On the basis of these considerations, approval is granted to merge Chelsea Bank with and into East Cambridge Savings Bank under the charter and by-laws of East Cambridge Savings Bank under the provisions of said clause (2) of section 7 of chapter 167H, said section 34A of chapter 168 and said section 26A of chapter 170 of the General Laws.

The approval granted herein is subject to the following conditions:

  1. that the proposed merger shall not become effective until a Certificate signed by the Presidents and Clerks or other duly authorized officers of each bank indicating that each institution has complied with the provisions of Massachusetts General Laws chapter 168, section 34A and chapter 170, section 26A or other applicable statute has been returned with my endorsement thereon;
  2. that the proposed merger shall not become effective until Articles of Merger with my endorsement thereon are filed with the Secretary of State;
  3. that the proposed merger shall be consummated within one year of the date of this Decision.

February 12, 2015
_____________
Date


David J. Cotney
____________________
Commissioner of Banks