Decision relative to the application of Telephone Workers Credit Union Boston, Massachusetts to establish a branch office at Redstone Plaza, 99e Main Street, Stoneham, Massachusetts

By the Division of Banks

---

The Telephone Workers Credit Union (the "TWCU" or the "Credit Union"), Boston, Massachusetts has petitioned the Division of Banks (the "Division") to establish a branch office at Redstone Plaza, 99E Main Street, Stoneham, Massachusetts. The application was submitted pursuant to the provisions of General Laws chapter 171, section 8. That statute authorizes a state-chartered credit union, such as TWCU, to establish and maintain one or more branch offices in the county where its main office is located or on a site within twenty-five miles of the premises of its main office. Under the law, the establishment of a credit union branch office is subject to such notice and hearing as the Commissioner of Banks (the "Commissioner") may require and is subject to the written permission of and any conditions which the Commissioner may impose.

The Credit Union's main office is located in Suffolk County at 100 High Street, Boston. The proposed Stoneham site is within Middlesex County. This site, however, is approximately twelve miles from TWCU's main office. The location, therefore, meets the twenty-five mile geographical requirement of the credit union branching law.

The application submitted was complete in its compliance with administrative mandates of the Division. Accordingly, notice of the application was posted and published in accordance with the Division's standard procedures. Based on the public responses and requests received during the initial comment period, a public hearing on the matter was set by the Division. (Written objections were received during the comment period from the Stoneham Chamber of Commerce, the Stoneham Savings Bank, a local business person and a joint task force of two banking trade associations. A public hearing on the application was requested by commentators.) The hearing was held at 5:30 P.M. on June 10, 1998 at the Stoneham Town Hall. It was very well attended. (Approximately two hundred individuals attended the hearing. The large turnout required its removal from a Stoneham City Hall hearing room to the Auditorium. A request by the presiding officer for a show of hands of those in support or in opposition indicated that the overwhelming majority of those in attendance supported TWCU's proposed branch office. A letter of support also was submitted by U. S. Congressman Edward Markey.) Extensive oral testimony was received at the hearing. Additional written materials were also submitted by the Credit Union during the supplemental filing period. ( See TWCU's supplemental letter dated June 18, 1998.)

Facts

TWCU had total assets of approximately $354,818,939 and shares and deposits of $293,523,781 as of December 31, 1997. The Credit Union's net capital to total assets ratio stood at 17.11%, well above industry averages. It has reported strong earnings with a net income to average assets ratio of 1.07%. TWCU has a "satisfactory" record of performance rating under the Massachusetts Community Reinvestment Act (the "CRA"), General Laws chapter 167, section 14 and 209 CMR 46.00 et seq., its implementing regulations. (The Division assigned this CRA performance rating as of February 18, 1997.)

"Occupation" is the qualifying condition for membership in TWCU. (See G.L. c.171, s.9(c).) The Credit Union's membership is primarily drawn from the telephone and communications industry. (Eligibility requirements for membership in TWCU are set forth in its membership bylaw. Article II provides in relevant part: "Those employed by the Bell System's successor, spinoff or legal identity stemming from the AT'T divestiture, employees of the Credit Union, employees of the Local Unions that represent the above mentioned entities, employees of [sic] communications industry, and future or retired employees of the above, and the families of members of the Credit Union, i.e. husband, wife, father, mother, son, daughter, brother, sister, grandchildren, and the dependents of the above." The membership bylaw further provides definitions for the terms "communications industry" and "immediate family." It also prescribes other conditions relative to membership. The bylaw, as amended, was approved under G. L.c.171, ss.9-10, on January 20, 1995.) It conducts business from two banking offices, its main office in Boston's Financial District and a branch office in Braintree. The latter office was opened in 1992 to serve members living or working in the South Shore. TWCU's shares and deposits are primarily insured by the National Credit Union Share Insurance Fund (the "NCUSIF"). Shares and deposits in excess of federal insurance limits are insured by the Massachusetts Credit Union Share Insurance Corporation (the "Corporation"), a private, industry sponsored, excess share insurer.

The site of the proposed branch office is located north of Boston. It is situated in a large, bustling Stoneham shopping center that serves surrounding residential communities. The location is easily accessed from Interstate 95 and Interstate 93, as well as state highways. It also is on a public transportation bus line.

Both the Credit Union's application and opponents noted that several other financial institutions are located within the shopping center, its general vicinity or the Town of Stoneham. (There are seven banks and two credit unions operating in this area.) There are no site or zoning impediments that would preclude the establishment of a banking office at TWCU's proposed branch office location. The Credit Union intends to staff the proposed branch office with seven new employees at an initial annual payroll cost of $225,000. If possible, these employees will be drawn from the surrounding communities. Renovation and improvements to the facility are estimated at approximately $300,000.

The Credit Union is seeking to establish the proposed branch office in order to serve that segment of its membership that lives or works north of Boston. TWCU estimates that 18% of its existing membership falls into this group. It also estimates that $24,888,000 in shares and deposits would be transferred to the proposed office. (TWCU's application erroneously stated that $24,888 in shares and deposits would be transferred to the proposed office. This error was subsequently corrected by the Credit Union. See TWCU's supplemental letter dated June 18, 1998 at 1.) A major reason for the establishment of this branch office is to provide a more convenient location for members to conduct their banking business with the Credit Union. Transportation issues relating to the Credit Union's main office in Boston are a major motivating factor. TWCU specifically cited the impact of ongoing, long-term, construction associated with the depression of the Central Artery and the lack of adequate or inexpensive parking in downtown Boston. Testimony from retirees living north of Boston and active telephone and communications industry employee members supported this contention. As stated in the various documents filed on this matter, the Credit Union is seeking to serve the financial needs of its North Shore members in same manner that it serves its South Shore members who have benefited from its Braintree branch office. TWCU specifically disclaims any intention to expand its membership base beyond those already eligible for membership. ( See TWCU Application at 14, 30; TWCU's supplemental letter dated June 18, 1998 at 1-2.)

The Credit Union also intends to provide a full a range of permissible financial products to members using the proposed Stoneham office. These products are substantially the same as those offered at TWCU's main office and Braintree branch office. New loans, primarily credit card loans, personal loans, automobile loans, and home equity lines, are projected to grow to $10,5000,000 from the branch opening date to December 31, 2000.

Discussion

The statutory and administrative factors on which the merits of this credit union branch office application have been analyzed are well settled. ( See Decision Relative to the Application of Cambridge Portuguese Credit Union, Cambridge , Massachusetts to Establish a Branch Office at 290 Central Street, Lowell, Massachusetts, (June 26, 1998) at 2,5-11(the "Cambridge Portuguese Decision").) These factors also were read into the record by the Division's presiding officer at the opening of the public hearing for the benefit of those in attendance. Since the application was submitted under section 8 of chapter 171 of the General Laws, the provisions of that law and related application items are considered. The financial and managerial resources of the Credit Union, and its record of performance under the CRA are reviewed. Other relevant review factors are whether competition will be unreasonably affected; and whether public convenience and advantage will be promoted which consists, in part, of showing of net new benefits. Net new benefits include initial capital investments, job creation plans, consumer and business services and commitments to maintain and open banking offices within an institution's community. The Division reviewed all documents, materials, testimony and issues raised relative to this application in light of the foregoing factors.

Based upon a review of the record before it, the Division determines that the financial and managerial resources of the Credit Union support this proposal to establish a branch office. Public convenience and advantage considerations can reasonably be expected to be promoted by this application. ( Supra at 3-5 (Outlining facts supporting expected public convenience and advantage, including net new benefits, which would accrue to TWCU members if this application were approved).) The Credit Union also has adequately addressed in its various filings the related issue of net new benefits which will result from the transaction. Additionally, it will create jobs for seven people, under current plans. Renovations to the property, although not extensive, will also provide capital investments. Moreover, as set out in the documents filed, the establishment of the branch office will further enhance the ability of the Credit Union to deliver its products and services. TWCU's CRA performance rating is not an adverse factor.

The Division's analysis of competition among financial institutions in the Commonwealth is the only remaining factor for consideration. It also appears to be the sole legal basis for the opponents' objections to this application. The opponents object to this application on three grounds. They are: (a) TWCU's tax exempt status as a credit union provides an unfair competitive advantage over area bank competitors; (b) TWCU's proposed branch will "siphon off" customers and deposits from an already ample number of banks in the shopping center and the Town of Stoneham; and (c) TWCU's membership bylaw is overly broad and essentially permits open membership. The opponents argue that the proposed branch office and TWCU's perceived advantages as a credit union will erode the ability of area financial institutions to provide credit to local businesses.

The Division has considered each of these objections in light of its recent Cambridge Portuguese Decision. The taxation issue simply is not germane to this application as it is beyond the Division's regulatory jurisdiction. ( Cambridge Portuguese Decision at 10-11. (Discussion of the relevance of taxation issues in the context of a credit union branch office application).) Similarly, the second objection, which relates to concerns over potentially adverse impacts upon existing bank competitors does not form a sufficient basis for disapproving the Credit Union's branch office application. ( Id at 8-9 ("A proposed transaction which increases the number of competitors in a market is unlikely to eliminate or substantially diminish competition and thereby warrant disapproval of a transaction."). The record also indicates that the two credit unions located in Stoneham support TWCU's branch office application. The state credit union trade association and a federally-chartered corporate credit union also testified in support.) Finally, objections to TWCU's existing membership bylaw's eligibility requirements are not a relevant consideration to the review of a credit union branch office application under General Laws chapter 171, section 8. It is essentially a collateral challenge to a previously approved membership bylaw amendment under General Laws chapter 171, section 10. Concerns over the scope or legitimacy of membership bylaw provisions are properly reserved to that application process and not a subsequent branch office application. (The Credit Union's 1995 bylaw amendment was subject to the Division's standard application procedures. Credit union bylaw amendments also are subject the Division's directive entitled "Membership Bylaw Amendments." See Regulatory Bulletin Manual 4.1-104 (1998 ed.) at 94-100.)

Credit union membership bylaw amendments are subject to fairly extensive statutory and regulatory approval requirements. Only membership bylaw amendments and bylaw amendments involving a change in location or a change in a credit union's name require the Division's written approval. ( See G.L. c.171, s.10.) All other credit union bylaw amendments simply require membership approval. The Division's Regulatory Bulletin Manual 4.1-104, which governs membership bylaw amendments, also contains extensive substantive and procedural requirements that address the opponents' generalized concerns over credit union membership bylaw expansions. (For example, the introductory statement to Regulatory Bulletin Manual 4.1-104 provides in part: "The clarity of the by-law governing membership is vital to a credit union and the Division. Since the governance of a credit union is vested in its membership, there must be certainty as to eligibility to participate in its affairs. From a regulatory compliance standpoint, the credit union must be able to determine to whom it may make loans and receive deposits since only members can obtain its services." Regulatory Bulletin Manual 4.1-104 at 94.) Moreover, the Division has developed substantial decisional precedent in this area. ( See Decision Relative to the Application of Pittsfield G.E. Employees' Credit Union, Pittsfield, Massachusetts to Amend its By-laws Governing Associations which Qualify Persons for Membership, (August 13, 1992); Decision Relative to the Application of Pittsfield G.E. Employees' Credit Union, Pittsfield, Massachusetts to Amend its By-laws to Change both the Name of the Credit Union and the Associations which Qualify Persons for Membership, (February 25, 1994).)

Conclusion

Accordingly, based upon these extended reviews of the several standards on which the application was analyzed, consideration of all comments and filings on the record of this matter and a determination that all requirements of Massachusetts General Laws chapter 171, section 8 and administrative mandates of the Division have been met, approval is hereby granted to the Telephone Workers Credit Union to establish and maintain a branch office at Redstone Plaza, 99E Main Street, Stoneham, provided the branch office shall be opened within one year of the date of this Decision. The Credit Union shall notify the Division, in writing, of the date on which the branch office commenced business.

In conjunction with the petition to establish the branch office, two related approvals are sought by the Credit Union. The requests are triggered by provisions of General Laws chapter 171, section 75 and General Laws chapter 167B, section 3. By statute, TWCU, as a state-chartered credit union, is required to obtain approval for expenditures of $50,000, or more, for electronic data processing equipment for the Stoneham branch office under General Laws chapter 171, section 75. Based upon a review of the applicable provisions of law, the amounts in reserve and surplus accounts of the Credit Union, and pursuant to section 75 of chapter 171 of the General Laws, I hereby grant to TWCU the following additional approval to expend up to $50,000 on electronic data processing equipment.

Approval is also hereby granted pursuant to the provisions of General Laws chapter 167B, section 3 for the Credit Union to operate an electronic branch ("ATM") at the above address provided such activity begins within one year from the below date. As indicated in the application, the ATM will not be shared. The Credit Union's written notice to the Division of the date of the branch office opening or a subsequent response to the Division's MIS Unit, should include the ATM identifier number and the date on which the ATM commenced operation.

July 10, 1998 Date

Thomas J. Curry Commissioner of Banks