Decision relative to the application of UST Corp., Boston, Massachusetts to acquire The Federal Savings Bank, Waltham, Massachusetts, Lexington Savings Bank, Lexington, Massachusetts, and Middlesex Bank & Trust Company, Newton, Massachusetts
By the Division of Banks
UST Corp ("UST" or the "Petitioner"), a bank holding company within the meaning of Massachusetts General Laws chapter 167A, § 1(d), organized and existing under the provisions of Massachusetts General Laws chapter 156B, and registered under the provisions of the federal Bank Holding Company Act of 1956, as amended, has petitioned the Board of Bank Incorporation (the "Board") pursuant to Massachusetts General Laws chapter 167A, §§ 2 and 4 to acquire direct or indirect ownership and control of Affiliated Community Bancorp, Inc. ("Affiliated"), the parent holding company for The Federal Savings Bank ("FSB"), Waltham, Massachusetts; Lexington Savings Bank ("Lexington"), Lexington, Massachusetts; and Middlesex Bank & Trust Company ("Middlesex"), Newton, Massachusetts. As part of this transaction, UST will organize a wholly-owned subsidiary corporation, Newco, for the sole purpose of facilitating this acquisition. Newco will assume all of the obligations of the Petitioner's wholly-owned Massachusetts subsidiary corporation, Mosaic Corp. Affiliated will merge with and into Newco, with Newco remaining as the surviving entity. Upon consummation of this multi-step transaction, Affiliated's banking subsidiaries will become wholly-owned subsidiaries of Newco and indirect subsidiaries of the Petitioner.
UST has two Massachusetts-chartered banking subsidiaries, USTrust and United States Trust Company (collectively the "UST Banks"). After the consummation of this transaction, UST also intends to subsequently file applications during 1998 to merge Lexington, FSB, and Middlesex with and into USTrust.
Notice of the petition by UST 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 April 28, 1998 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 any net new benefits as well as 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 UST Banks, FSB, Lexington and Middlesex were also factors considered by the Board.
UST has total consolidated assets of $3.84 billion as of December 31, 1997. The UST Banks are headquartered in Boston and currently operate a total of 66 branches in Massachusetts with total deposits of $2.98 billion and total stockholders' equity of $340 million as of December 31, 1997. UST also owns directly or indirectly the following non-bank subsidiary corporations: UST Leasing Corporation, UST Capital Corporation, UST Auto Lease Corporation, Firestone Financial Corporation (and its Canadian subsidiary, Firestone Financial Canada Ltd.), and Walden Financial Corporation, as well as four subsidiary corporations which passively holdsecurities permissible for banks, and eight subsidiary corporations which hold foreclosed real estate.
Affiliated is the holding company for the Federal Savings Bank, a federally-chartered stock savings bank with its main office in Waltham, Massachusetts with one branch office in each of the communities of Concord, Weston and Waltham; Lexington Savings Bank, a Massachusetts-chartered stock savings bank with its main office and three branch offices in Lexington, Massachusetts and two branch offices in Arlington and single banking offices in Bedford and Burlington; and Middlesex Bank & Trust Company, a Massachusetts-chartered bank and trust company headquartered in Newton, Massachusetts which commenced business on June 2, 1997. As of December 31, 1997, Affiliated had total consolidated assets of $1.2 billion, total deposits of $729 million and total stockholders' equity of $113 million. Affiliated indirectly controls the following non-bank subsidiaries: TFSB Securities Corp. I, Lexington Financial Planning, Inc., Lexington Securities Corporation, Mass. Ave Securities Corporation, and Minuteman Investments Corporation which engage primarily in the holding of securities and offering of financial planning services. Unlike some other bank holding companies, Affiliated chose to conduct its banking business by maintaining the separate charters of its subsidiary banks and operating both a federally-chartered bank and two state-chartered banks. Moreover, two of the banks are thrift institutions and the third, Middlesex, a commercial bank.
The Petitioner's application and testimony at the public hearing addressed the criterion of whether competition among banking institutions would be adversely effected 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 on a county basis 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. The Board noted that among other facts, the Boston Banking Market is marked by excess capacity and is the seventh largest in the United States. Accordingly, the review of the transaction's impact on competition does not raise any concerns which would preclude its approval.
Information has also been established in the record on the promotion of convenience and advantage which will result for the banking public. In particular, the proposed transaction will result in the third largest branch network in Boston for customers convenience comprised of 84 branches. In addition, upon the consummation of the transaction customers of Affiliated's subsidiary banks will obtain the benefit of UST's trust, investment management, cash management, leasing, international, and asset based lending services, as well as greater resources. UST also foresees no branch or lending personnel layoffs resulting from this transaction although four or five branches may be closed within the first twelve months of the date of the consummation of this transaction only to be followed by the opening of four or five new branch offices. These factors weigh in favor of approval of the transaction. Related to the issue of public convenience and advantage is the record of performance rating under CRA. In such transactions, the Board initially looks to the publicly available descriptive CRA rating and evaluation by a federal or other state bank regulatory agency. The CRA ratings of the UST Banks, FSB, Lexington and Middlesex were specifically discussed at the public hearing. The most recent public rating of the UST Banks and FSB was "Outstanding", while Lexington received a "Satisfactory" rating. Middlesex has not yet undergone a CRA examination.
The financial structure of the transaction was reviewed and addressed at the public hearing. The financial aspects as impacted by the tax consequences on the proposed corporate structure of the transaction were also considered by the Board. The resulting capital ratios and projections for the Petitioner are satisfactory. Management factors reviewed in consideration of the proposed transaction before the Board are also supportive of its approval. In particular, the Petitioner testified that Massachusetts residents shall occupy the Executive Officer positions at Lexington, FSB, and Middlesex. All other requirements of the statute relating to a bank holding company acquisition have been met including those relative to net new benefits.
UST has addressed the Year 2000 issue by dedicating personnel and filing plans and commitments with applicable regulatory agencies. This matter was specifically raised at the public hearing and the response is supportive of the acquisition.
The Board is aware that the Petitioner has requested a waiver for Middlesex from the requirement that a bank be in existence for three years prior to its acquisition by a bank holding company. Under the law, that request is solely before the Division of Banks. Middlesex, as noted previously, opened for business in June of 1997 after being capitalized by Affiliated. Under their agreement, UST has allowed Affiliated to sell Middlesex, subject to certain conditions, prior to consummation of this transaction. The Board has noted that the Division of Banks has issued a non-objection letter in regard to a change in control of Middlesex under which, if completed, Middlesex would be owned by an individual.
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 records of performance under CRA by the banks involved in this transaction are consistent with its approval. In addition, the Board was notified, in a letter dated April 3, 1998, that satisfactory arrangements have been made with the Massachusetts Housing Partnership Fund under section 4 of Massachusetts General Laws chapter 167A for this transaction. Therefore, in accordance with its findings and pursuant to the statutory authority cited herein, the Board hereby approves the applications, and authorizes UST to acquire directly or indirectly up to 100% of the common stock of Affiliated and its banking subsidiaries.
The approvals granted herein are subject to the conditions that the transactions related to this application are completed within one year of the date of this Decision.
| Thomas J. Curry Commissioner of Banks | |
| Mitchell Adams Commissioner of Revenue | Board |
| Joseph D. Malone Treasurer and Receiver-General | |
| August 4, 1998 Date |