Decision relative to the application of Citizens Financial Group, Inc., Providence, Rhode Island and certain related entities to acquire Farmers & Mechanics Bank, Middleton, Connecticut
By the Division of Banks
Citizens Financial Group, Inc., Providence, Rhode Island and its indirect owner, the Royal Bank of Scotland Group, plc, Edinburgh, Scotland (the "Group"), and other related entities of the Group as well as the Governor and Company of the Bank of Ireland ("Bank of Ireland"), Dublin, Ireland (hereafter referred to collectively as the "Petitioners" or "Citizens") have petitioned the Board of Bank Incorporation (the "Board") pursuant to Massachusetts General Laws chapter 167A, sections 2 and 4 to acquire Farmers & Mechanics Bank ("FMB"), Middleton, Connecticut in a multi-step transaction. As part of this transaction the Petitioners will establish and control Citizens Interim Bank, in organization, (the "Interim Bank") New London, Connecticut. The Interim Bank is being formed under the laws of Connecticut to facilitate this acquisition. It will merge with and into FMB which will be the continuing entity operating under the name of Citizens Bank of Connecticut. After the merger, Citizens plans to transfer eighteen branch offices in Connecticut of its subsidiary, Citizens Savings Bank of Rhode Island, to FMB. Upon consummation of this multi-step transaction Citizens will control a single Connecticut chartered bank. Citizens is the bank holding company for Citizens Bank of Massachusetts ("Citizens Bank").
Notice of the petition by Citizens was published as directed by the Board thereby affording opportunity for interested parties to submit comments. A public hearing relative to this application was held by the Board on October 10, 1996 and the period for filing comments has expired. The Board reviewed the application, comments received at the public hearing and all related documents in accordance with the statutory criteria of whether competition among banking institutions will be unreasonably affected and whether public convenience and advantage would be promoted by approval of the proposed transaction. The record of performance under the Community Reinvestment Act ("CRA") by the bank subsidiaries of the Petitioners and FMB were also a factor considered by the Board. The additional requirements of the Commonwealth's 1996 Interstate Banking and Branching Act were also significant factors in the Board's consideration on this application.
One provision of law requires the Board to have received notice from the Massachusetts Housing Partnership Fund (the "MHPF") that satisfactory arrangements for the proposed transaction have been made by Citizens pursuant to section 4 and guidelines adopted by the MHPF. The Board has received notice from the MHPF, in a letter dated September 27, 1996, that arrangements satisfactory to it have been made for this transaction.
As an interstate transaction, the reciprocity of the laws of Citizen's home state must be reviewed. Citizen's home state for determination of applicable law is Rhode island. Under Massachusetts law, the determination of the reciprocity of the laws of another state rests solely with the Commissioner of Banks. The Commissioner has previously ruled in transactions involving Citizens that Rhode Island law is reciprocal and does expressly authorize a similar transaction by a Massachusetts bank holding company under conditions no more restrictive than those imposed by chapter 167A. Accordingly, the proposed transaction is permissible under the Commonwealth's Nationwide Banking Act and, therefore, the Board will proceed to consider whether other statutory requirements are met by this application.
Citizens is a bank holding company within the meaning of both federal law and said chapter 167A of the General Laws. It currently has four bank subsidiaries, two of which are headquartered in Providence, Rhode Island. The other subsidiary banks are Citizens Bank and First NH Bank, Manchester, New Hampshire. At June 30, 1996, Citizens had total consolidated assets of $14.7 billion. Citizens is owned by the Group which is the 111th largest banking organization in the world with assets of approximately $86 billion and by the Bank of Ireland which has assets of approximately $33 billion. The ownership of Citizens common stock is 76.5% held by the Group and 23.5% by Bank of Ireland.
Farmers & Mechanics Bank is a Connecticut chartered savings bank which converted to stock form in 1993. At June 30, 1996 it had assets of $529.2 million. FMB currently operates twelve branch offices. It conducts a retail banking business for consumer and commercial customers. FMB's primary lending is in residential real estate mortgages.
The application, supporting documents and the comments received at the public hearing have established an extensive record on this petition which has been reviewed consistent with statutory provisions and the policies of the Board. Analysis has been provided on the impact of the transaction on competition in applicable municipalities and markets in Connecticut and the lack of a direct impact within the Commonwealth. Information has also been established in the record on the promotion of convenience and advantage which will result for the banking public in Connecticut as well as customers of all bank subsidiaries of Citizens. The authority for each bank subsidiary to act as agent for each other and thereby allow customers of each bank to conduct a wide variety of banking services at any subsidiary bank's offices in four New England states was specifically mentioned. The Board's review of these factors are supportive of the application. Additionally, the Board's consideration of financial and managerial factors related to the proposed weigh in favor of its approval.
Related to the issue of public convenience and advantage is the record of performance under CRA. For financial institutions not directly under the jurisdiction of the Commonwealth, the Board initially looks to the publicly available descriptive rating and evaluation by a federal or another state's banking regulatory agency. The CRA activities of FMB and Citizens bank subsidiaries were specifically discussed at the public hearing. The "Outstanding" ratings of Citizens subsidiary banks were particularly emphasized. Upon consummation of the transaction, if approved, Citizens stated that it would work to improve FMB's CRA rating of "Satisfactory". It is the policy of the Board, in all cases not covered by law, to hold a holding company responsible for the actions of its subsidiaries.
Based on the record on this matter including the testimony received at the public hearing considered in light of all relevant statutory and administrative requirements, the Board finds that competition among banking institutions will not be unreasonably affected, that public convenience and advantage will be promoted by consummation of the proposed transaction, and that the records of performance under CRA by the banks involved in this transaction are consistent with its approval. Therefore, in accordance with these findings and pursuant to the statutory authority cited herein the Board hereby approves the application and
- authorizes Citizens to directly acquire up to 100% of the common stock of the Interim Bank and Farmers & Mechanics Bank; and
- for the Group and Bank of Ireland to indirectly acquire FMB.
The approvals granted herein are subject to the condition that all related transactions are completed within one year of the date of this Decision.
| Thomas J. Curry Commissioner of Banks | |
| Frederick A. Laskey Senior Deputy Commissioner of Revenue | Board |
| Joseph D. Malone Treasurer and Receiver-General | |
| November 1, 1996 Date |