Decision relative to the petition of Lawrence Savings Bank to re-designate its main office
By the Division of Banks
Lawrence Savings Bank (the "Petitioner" or "LSB") has petitioned the Board of Bank Incorporation (the "Board") under section 2 of chapter 167C of the General Laws, for permission to re-designate the location of its main office from 255 Essex Street, Lawrence to 30 Massachusetts Avenue, North Andover. The Petitioner also is seeking a related approval from the Division of Banks (the "Division") to maintain its current main office as a branch office pursuant to section 3 of chapter 167C of the General Laws.
Notice of the petition was posted and published as directed by the Board, thereby affording interested parties an opportunity to submit comments. As a result of written comments received, the Board scheduled a public hearing on the petition which was held on October 29, 1997, at the Lawrence campus of Northern Essex Community College. The period for submitting comments after the hearing expired at 5 o'clock P.M. on November 12, 1997.
The Board has reviewed the application and supplementary submission of the Petitioner, the extensive oral and written testimony received at the public hearing and during the open comment period. Written comments in opposition to the petitioner's application were received from the Lawrence City Council (The Lawrence City Council's views were transmitted to the Board on September 3, 1997 by State Representative M. Paul Iannuccillo. The City Council held its own informal public hearing on LSB's proposed main office re-designation on September 2, 1997. A video tape of this session also was submitted to the Board. The resulting resolution of the City Council formally requested that the Board hold a public hearing on this matter.), a local attorney and a minority small business owner. A number of individuals also commented both in support of, and in opposition to, the petition at the Board's public hearing. (The Merrimack Valley Chamber of Commerce and the United Way of Merrimack Valley supported the Petition. Two members of the Lawrence City Council, including its president, a state representative, the landlord of 255 Essex Street, and four local residents voiced opposition to the petition. Four other members of the City Council attended the public hearing, three of whom gave oral testimony to the Board. Three officials from the Federal Deposit Insurance Corporation (the "FDIC") also observed the proceeding.)
Facts
The Petitioner is a state-chartered savings bank in stock form. As of June 30, 1997, LSB had total assets of $366.3 million and total deposits of $250.1 million. The Petitioner was originally chartered as a mutual savings bank by special act of the Massachusetts General Court in 1868. It converted from mutual to stock form in 1986 pursuant to General Laws chapter 168, section 34C and 209 CMR 33.00, et seq., its implementing regulations. LSB has maintained its main office at 255 Essex Street since its inception. The Petitioner also operates from five other locations. These branch offices are in the surrounding Merrimack Valley communities of Methuen, with three locations; Andover; and North Andover. LSB has never maintained any other office in Lawrence besides its main office. In 1988, the Petitioner established its "executive offices" at 30 Massachusetts Avenue, North Andover, which also contains a ground floor branch office. (The term "executive office" is not a statutory term. Massachusetts banking law neither specifically authorizes nor prohibits this type of facility. A state-chartered bank, however, has broad authority to purchase, hold and lease real estate suitable for the transaction of its business. See G. L. c.167F, s.2(9).) This latter location is 1.2 miles from the Petitioner's current main office and just outside the Lawrence city limits.
The Petitioner's main office is located on Essex Street in the heart of Lawrence's downtown retail district. It is a traditional banking office. It occupies approximately 9,000 square feet of space which is evenly divided between the street and basement levels of the building. It is a large and spacious facility containing an impressive vault, safe deposit boxes, several teller windows, a walk up window, several private offices and an unused basement storage area. (The Commissioner of Banks, on behalf of the Board, personally inspected LSB's main office on October 27, 1997. He observed little lobby activity at one o'clock in the afternoon.) LSB does not maintain an electronic branch, or ATM, at this office. The 255 Essex Street facility was originally owned by the Petitioner. In 1988, the building was sold and the main office was leased back under a long term lease. (The main office lease expires on August 12, 1998. On July 18, 1997, LSB's counsel formally gave the landlord written notice of intent to terminate the lease. The landlord informed the Petitioner in writing on August 27, 1997, that he will not extend or renew the lease on the revised financial and reduced space terms proposed by LSB. The landlord reiterated his position in his oral testimony at the Board's October 29, 1997 public hearing.)
The Essex Street district has experienced a marked decline over the last decade. Both the Petitioner and opponents noted the lack of commercial activity in the area which was attributed to generally adverse economic and other factors affecting the City of Lawrence. (The City of Lawrence contains 18 census tracts. Nine, or 50%, of the census tracts are designated low-income; eight, or 44.4%, of the census tracts are designated moderate-income; and, one, or 5.6%, of the census tracts is designated middle-income.) Deposit levels at LSB's main office, as well as at other Lawrence banks' downtown offices, have declined significantly over the last ten years. Deposit information supplied by the Petitioner shows that deposit levels at its main office decreased from $97.94 million to $30.15 million, or a 69.21% decline, during the period of June 30, 1986 to June 30, 1996. (A similar decline occurred at most other Essex Street bank facilities. The following banks saw deposits decline: First Essex FSB, 26.02%; Fleet Bank, N.A., 87.90%; and, BankBoston, 64.54%. Andover Savings Bank, however, saw its deposits grow 4.81%, primarily as the result its 1994 acquisition of Community Savings Bank, Lawrence. See "Deposits Essex Street, Lawrence Banks" (Deposit data prepared by the Petitioner and attached to its October 29, 1997, written testimony.))
The Petitioner remains an active residential mortgage lender in Lawrence. (1996 Home Mortgage Disclosure Act (the "HMDA") data indicates that LSB granted mortgage loans totaling $496,000 in Lawrence's low income census tracts and mortgage loans totaling $719,000 in Lawrence's moderate-income census tracts. The preceding loans represent 24.1% and 34.9%, respectively, of LSB's mortgage lending in the City of Lawrence.) The Petitioner's chief executive officer and senior officers are deeply involved in local civic, business and charitable affairs. For the last two examination cycles, LSB also has been accorded an "outstanding" overall Community Reinvestment Act (the "CRA") performance rating by state and federal bank examiners. (LSB was assigned an "outstanding" CRA Performance rating from the FDIC on March 11, 1996 and an "outstanding" CRA Performance rating from the Division on March 20, 1995. These ratings were preceded by a "satisfactory" CRA Performance rating from the FDIC on January 20, 1994.)
Discussion
The Petitioner has offered several reasons for seeking a main office re-designation and the related establishment of a branch office at 255 Essex Street. LSB contends that the re-designation of the North Andover "executive office" as its main office is essentially a long delayed corporate housekeeping measure that simply reflects a substantive change that occurred over nine years ago. It also characterizes "main office" and "branch office" designations as being anachronistic terms with little, if any, legal or practical significance. The Petitioner claims that approval of these applications by the Board and the Division will not unreasonably affect competition among banking institutions and will promote public convenience and advantage. (This is the statutory review standard for approving the establishment of a branch office under G. L. c. 167C, s.3. The main office relocation statute, G. L. c. 167C, s.2, does not contain an express review standard. The Board and the Division, however, have applied this review standard where a statute is silent. See e.g., Decision Relative to the Conversion of Massachusetts Federal Credit Union to a State Charter, (August 8, 1997) at 5.) It asserts that the re-designation of its main office to its modern North Andover location and maintaining 255 Essex Street as a branch office will not result in a diminution of banking and credit services to Lawrence residents and businesses. It also contends that the main office re-designation will benefit the public by eliminating confusion in bank directories and official reports. This change, LSB believes, will eliminate the inconvenience caused to visitors and couriers seeking to do business with bank executives and officers who are misdirected to its existing main office. The Petitioner also claims that the proposed transactions will not result in any immediate job losses, staffing reductions or reduced services at the Essex Street location.
The opponents, particularly local public officials, assert that the proposed main office re-designation and branch applications are not in the public interest and they should be denied by the Board and Division, respectively. Their objections focus on the potentially negative impact the re-designation of the Petitioner's main office to another town would have on the availability of banking services to Lawrence residents. They also cite the symbolic impact of the proposed re-designation. It is seen as further contributing to the negative public perception of the City of Lawrence by the investment community, businesses, particularly minority owned enterprises, and even its own residents. The opponents have also questioned LSB's commitment to continue to maintain an ongoing and meaningful physical presence in Lawrence and the downtown Essex Street retail district.
The opponents have essentially linked the Petitioner's application before the Board to re-designate its main office and its application before the Division to maintain 255 Essex Street as a branch office for the duration of its lease. They fear that LSB will either abandon Lawrence completely when the lease on the Essex Street facility expires in less than nine months and that if the bank remains at this location it will be a significantly scaled back operation. (At the public hearing and in lease related correspondence with the landlord, the Petitioner expressed an intention to reduce the 255 Essex Street facility's square footage to approximately 2,000 square feet from approximately 9,000 square feet. LSB, however, pointed out that only 4,000 square feet of the rented facility is used to conduct a banking business.) The Petitioner's November 12, 1997, supplemental written submission, however, attempts to admonish the Board to limit its review to the only matter lawfully before it - the application to re-designate its main office. LSB also argues that the long term status of the proposed 255 Essex Street branch office remains within the exclusive province of the Division and that this latter application is entitled to an expedited approval under applicable law. (The Division is authorized to grant expedited branch office approvals to banks and credit unions with "outstanding" CRA performance ratings. The Division, however, clearly has the discretion to require a more extensive application process if deemed appropriate. See G.L. c.167, s.14; Administrative Bulletin Ref. No. 36-1 (September 27, 1996).) They also contend that any future issues concerning the Petitioner's ongoing obligation to meet the credit needs of Lawrence should be resolved solely under the state and federal CRA statutes and examination processes. (The Board notes that LSB is classified as a "large institution" under the Commonwealth's CRA regulations. Under the regulations' "Service Test," the Petitioner's distribution of branches among low-, moderate-, middle- and upper income geographies is reviewed along with its record of opening and closing branches, particularly in low- and moderate-income geographies. See 209 CMR 46.24 (4)(a)-(b).)
The Board has carefully reviewed the Petitioner's and the opponents' arguments and submissions. This petition requires the Board to identify the proper review standard for a main office application under section 2 of chapter 167C of the General Laws and to determine whether or not the Petitioner has met that standard.
The statute does not recite a specific standard. The Board, however, operates under a general standard for the exercise of its judgment. ( Supra at 5, n.10.) "Public convenience and advantage" is a key component. It requires an affirmative showing that a proposed transaction will better serve the community and the public interest and not just benefit the applicant and its shareholders. ( See Chicopee Co-operative Bank v. Board of Bank Incorporation, 347 Mass. 744, 753 (1964) (Interpreting the statutory phrase 'public convenience and advantage' found in the then General Laws chapter 170, section 49.)) The Commonwealth's bank regulatory bodies also have great latitude and discretion in determining whether or not applications involving banking offices should be approved on the basis of public convenience. ( Natick Trust Company v. Board of Bank Incorporation, 337 Mass. 615, 617 (1958) ( Board is the sole arbiter of whether public convenience exists); see also, First National Bank of Cape Cod v. Board of Bank Incorporation, 361 Mass. 381, 382-383 (1972); City Bank & Trust Co. v. Board of Bank Incorporation, 346 Mass. 29, 32 (1963).) An applicant's record of performance under the Massachusetts CRA statute also is a specified review factor in a bank's application to re-designate its main office. ( See G. L. c.167, s.14, and its implementing regulations 209 CMR 46.29 (Effect of CRA performance upon applications).)
The Board considers a variety of factors in determining whether a proposed transaction will promote public convenience and advantage. The particular facts of a petition will often determine whether the standard is met. In this case, the Petitioner cites two primary reasons why the public convenience and advantage will be promoted by the proposed main office re-designation: First, real benefits will accrue to its customers because the North Andover location is a superior and more convenient facility; LSB's corporate offices and its main office will be located in one place; and, visitor confusion will be eliminated; and, Second, the re-designation will not result in any reduction in banking services and credit to customers and Lawrence residents.
The first reason proffered by the Petitioner may, in fact, present minor but real benefits. The record, however, does not fully support the Petitioner's second contention that the proposed main office re-designation will not result in a reduction of banking and credit services in Lawrence. This is the central issue in this petition despite the Petitioner's assertion that the interim and future status of the 255 Essex Street location is beyond the jurisdiction of the Board. (The Petitioner's characterization of the duties and responsibilities of the Board and Division, respectively, is far too narrow. Both entities are agencies of the Commonwealth. They have an implicit obligation to develop and execute sound and consistent bank regulatory policies. See G. L. c.26, s.5 (Organization, membership and establishment of the Board "...serving within the division..."). In any event, the Division strives for consistent and coordinated action with the Board and views its application under G. L. c. 167C, 3, as being closely related and dependent upon the Board's action in this matter.) The two transactions are inter-related. One cannot relocate a main office without either maintaining the former main office as a branch office or closing the facility. It also is difficult for the Board to accept or be assured by the Petitioner's definitive assertion that this transaction will not result in a reduction in services when its proposed Essex Street branch will operate with only a nine month lease. (The Division has informed the Board that it has rarely, if ever, approved a branch office under G. L. c. 167C, s.3 with such a short term lease. The only exception would be in the case of an interim or temporary office approved in connection with formal and definitive plans to establish an approved permanent branch office within the immediate area.) The Petitioner's comments at the public hearing and in its November 12, 1997, written submission relative to its long term intentions to maintain a branch office in Lawrence do not eliminate this concern. (At the public hearing, the Petitioner's chief executive officer stated that LSB was investigating three other downtown locations to lease as a branch office. He declined to be definitive citing a lack of suitable parking at available sites, lease terms and shareholder value concerns. The Petitioner's November 12, 1997 letter also suggests that public convenience and advantage are served by only a nine month commitment to maintain the 255 Essex location as a branch office. It simply dismisses longer term downtown Lawrence service issues by stating that any future service issues can be addressed later either though a branch relocation or permanent closing application to the Division under G. L. c. 167C, s.3. Future inconvenience to LSB's customers upon the lease expiration also is summarily dismissed by the Petitioner on the grounds that customers can use the North Andover office and that 4 other banks maintain offices on Essex Street. (November 12, 1997 letter at 3-4.))
It is difficult for the Board to conclude that public convenience and advantage will be served, in this case, if within nine month's time the community and customers served by the 255 Essex Street office potentially face a reduction in, or elimination of, banking services as a result of the Petitioner's failure or inability to successfully negotiate and enter into a long term lease at current market rates for a suitable alternative location. This concern is heightened by the fact that Lawrence is an economically depressed area containing a high concentration of low- to moderate-income residents. The Board is mindful that the Petitioner does not maintain any other branch office within the City of Lawrence, the community for which it is named. Consequently, it is possible that LSB could effectively abandon a physical presence in Lawrence simply by failing to lease any branch office by the time the 255 Essex Street lease expires.
The Petitioner's record of performance under the CRA and the personal commitment of LSB's chief executive officer, and its entire management, to civic, charitable and business causes benefiting the City of Lawrence, however, belie an intent to exit the community by default, or otherwise. LSB also possesses a talented, able and tested management team. They have the demonstrated managerial skills to secure an advantageous, cost effective lease that benefits both its customers and its shareholders. Nevertheless, the Board is loathe to unconditionally approve, on public convenience and advantage grounds, a main office re-designation of an applicant serving an economically disadvantaged urban area where the applicant has no other branch offices within the community and where there is a limited or conditional commitment to maintain a branch office presence into the future.
The Board has also considered the competitive effects of this petition. Competitive considerations do not preclude approval. The Petitioner's record of performance under the state and federal CRA statutes also support approval by the Board.
Conclusion
Based upon the Petitioner's application and the full record before the Board, approval is hereby granted pursuant to section 2 of Chapter 167C of the General Laws for LSB to re-designate the location of Lawrence Savings Bank's main office from 255 Essex Street, Lawrence to 30 Massachusetts Avenue, North Andover, subject to the following conditions precedent:
- that the Petitioner shall negotiate and enter into a commercially reasonable long term lease at prevailing market rates for a suitable branch office facility within Lawrence's Essex Street retail district, within three (3) months of this Decision and that said lease shall be filed with, and approved by, the Division;
- that the proposed permanent branch office be established and be fully operational by August 12, 1998;
- that until such permanent branch office is established, the banking hours of the 255 Essex Street main office shall remain unchanged from those in effect on the date of the Petitioner's application to the Board, unless such other hours are approved in writing by the Division for cause shown; and,
- that the main office re-designation shall not become effective until all of the preceding conditions are fully satisfied by the Petitioner.
| Thomas J. Curry Commissioner of Banks | |
| Mitchell Adams Commissioner of Revenue | Board |
| Joseph D. Malone Treasurer and Receiver-General | |
| December 19, 1997 Date |