Decision relative to the application of Bank of Boston Corporation, Boston, Massachusetts to acquire South Boston Savings Bank, Boston, Massachusetts

By the Division of Banks

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Bank of Boston Corporation ("Bank of Boston" or the "Petitioner"), Boston, Massachusetts, has petitioned the Board of Bank Incorporation (the "Board") pursuant to Massachusetts General Laws chapter 167A, sections 2 and 4 to acquire all of the shares of South Boston Savings Bank ("South Boston"), Boston, Massachusetts through the direct acquisition of its holding company, The Boston Bancorp, which is also located in South Boston, Massachusetts. This action is part of a multi-step transaction whereby South Boston will merge with and into Bank of Boston's Massachusetts bank subsidiary, The First National Bank of Boston ("FNB").

The Board held a public hearing on the matter before it on April 25, 1996. Notice of the petition affording opportunity for interested persons to submit comments has been posted and published in accordance with the procedures of the Board. The time for filing comments and supplementary materials passed on May 9, 1996.

The Board has reviewed the application, all related documents and the comments received in accordance with the statutory criteria of whether competition among banking institutions will be unreasonably affected and whether public convenience and advantage will be promoted by approval of this proposed acquisition. The application requirements of the Commonwealth's 1990 Nationwide Banking Act were also considered by the Board. One such provision added in 1990 requires the Board to have received notice from the Massachusetts Housing Partnership Fund ("MHPF") that satisfactory arrangements have been made by the Petitioner consistent with MHPF's various affordable housing loan programs. On May 28, 1996 the Board received notice from the MHPF that arrangements satisfactory to it had been made for this transaction.

As described in the record of this application, Bank of Boston is a multibank holding company headquartered in Boston, Massachusetts. It had assets of $47.4 billion, as of December 31, 1995. In addition to FNB, it also has banking subsidiaries in Connecticut, and Rhode Island. Bank of Boston and its subsidiary banks provide a variety of banking services to individuals, corporations and other entities on a domestic and international basis.

The Boston Bancorp is a one bank holding company formed as a savings and loan holding company in 1984. It had total consolidated assets of $1.9 billion, as of October 31, 1995. Its sole bank subsidiary is South Boston which operates seven full service banking offices in Boston and three other communities. South Boston offers an array of deposit and credit products to its consumer and commercial customers. South Boston also maintained, as of that date, a significant securities portfolio.

The Petitioner has submitted extensive materials to address the issue that competition among banks will not be unreasonably affected by the proposed transaction. Much of that analysis is detailed according to various tests used by federal agencies. That analysis demonstrates that consummation of the transaction will not result in undue concentration of banking resources in the specified banking markets or in Massachusetts. Traditionally, however, this Board has not limited its review to those previously cited federal standards in its consideration of whether competition will be unreasonably affected. Rather it is the position of this Board to consider a transaction in light of its impact on the citizens, communities and banking structure in the Commonwealth on a community by community basis instead of by variously grouped markets. Upon review, the Board does not believe the transaction will unreasonably affect competition since a number of diverse bank and financial institutions will continue to provide competitive deposit and credit services in the affected area.

The Board has also considered whether public convenience and advantage will be promoted by this transaction. The Petitioner's application cites several specific examples in addition to setting out the net new benefits which will result from the acquisition. As detailed in the application, South Boston's customers will be able to avail themselves of the Petitioner's specially priced checking and deposit services as well as loan options designed for low-to-moderate income customers. Businesses being served by South Boston will be able to use the Petitioner's resources as a lender in SBA lending as well as in international operations such as foreign exchange and trade services and its foreign branch network. Additionally, it was stated that customers of South Boston will now have access to FNB's bank service network which includes branch offices, supermarket branch offices and ATMs. Other benefits are detailed in the record of this transaction. At the hearing, the Board made extensive inquiries on certain benefits cited by the Petitioner. In particular, the subject of fees to be charged on various deposit and credit products was pursued in light of studies that large banks have measurably higher fees. Additionally, the issue of adding surcharges as an additional fee on ATM transactions was raised by the Board. Although the Petitioner responded adequately to these questions, the Board indicated its continuing interest in these matters which would also be a focus of further inquiries in future transactions before it.

Consistent with statute, the Board inquired about the impact on jobs by the proposed transaction. One component of the "net new benefits" criteria set out in section 4 of chapter 167A is job creation plans. Accordingly, unlike other regulatory agencies which must review this transaction and similar acquisitions, the Board must consider the impact on employment. In response to the Board's inquiries the Petitioner provided some detail, unlike in the originally submitted documents, as to the likely retention scenarios for the employees of South Boston. The Petitioner also addressed the various alternative job opportunities which are available within its system. The record of this transaction also reflects the Petitioner's basis that jobs will be created in various ways by the combined bank and its holding company.

Related to this issue of public convenience and advantage is the record of performance under the Community Reinvestment Act by the parties to a transaction or their bank subsidiaries. Such review for state-chartered banks includes examination by personnel of the Division of Banks as well as analysis of concerns received from the bank's community and its response to those concerns fairly raised. For other institutions, the Board initially looks to a publicly available descriptive rating and evaluation by a federal or state bank regulatory agency. This matter was specifically discussed at the public hearing and the Board is aware of the "Outstanding" rating for FNB and the "Satisfactory" and "Outstanding" ratings of the Petitioner's other bank subsidiaries as well as the most recent rating of "Satisfactory" for South Boston.

The Board's review of all such considerations relative to public convenience and advantage are consistent with approval of this transaction.

The financial structure of the transaction was also discussed at the hearing due to the number of mandatory pre-closing transactions required to be completed by South Boston. Those transactions, in part, included the liquidation of the entire commercial and multi-family real estate loan portfolio, as well as other real estate owned; and liquidating the investment security portfolio consistent with other provisions of the merger agreement. A review of these required transactions has not raised any financial concerns which would preclude approval of the transaction.

Another issue raised by the transaction is the Petitioner's plan for informing the depositors of South Boston of a significant change in the insurance coverage of their accounts. As a state-chartered savings bank South Boston is a member of the Mutual Savings Central Fund, Inc. (the "Central Fund"). All state-chartered savings banks, whether in a mutual or stock form, have their deposits in excess of the Federal Deposit Insurance Corporation's (the "FDIC") coverage insured through the Deposit Insurance Fund (the "DIF") of the Central Fund. Such insurance from the DIF applies to both commercial and consumer customers without limitation.

As a federally-chartered commercial bank, the only deposit insurance coverage available to customers of FNB is that provided by the FDIC. Although the actions of the Federal Reserve Board and the Office of the Comptroller of the Currency in approving the acquisition and the subsequent merger, respectively, and the comments herein of this Board, reflect no concerns on the financial strength of FNB either now or upon consummation of the transaction, the DIF coverage rather than the capital adequacy of an institution is likely of more concern to individual depositors. Accordingly, this Board is interested in seeing that depositors are informed of a change in their deposit insurance coverage.

Having considered this petition with reference to relevant statutory and regulatory requirements, the Board finds that competition among banking institutions will not be unreasonably affected and that public convenience and advantage will be promoted by consummation of the proposed acquisition. Therefore, the application by Bank of Boston Corporation to acquire The Boston Bancorp and indirectly, South Boston Savings Bank is hereby approved.

This approval is subject to the following conditions:

1. that the Petitioner, FNB, The Boston Bancorp or South Boston, provide notice of the change in insurance coverage to depositors of South Boston; and
2. that the Petitioner take precautions to prevent customers confusion on the existence of South Boston after the merger of South Boston with and into FNB and until the data processing systems are integrated.

Thomas J. Curry Commissioner of Banks
Frederick A. Laskey Senior Deputy Commissioner of Revenue	Board of Bank Incorporation
Joseph D. Malone Treasurer and Receiver-General
June 24, 1996 Date