Decision relative to the application of Cambridge Portuguese Credit Union Cambridge, Massachusetts to establish a branch office at 290 Central Street, Lowell, Massachusetts
By the Division of Banks
The Cambridge Portuguese Credit Union ("Cambridge Portuguese" or the "Credit Union"), Cambridge, Massachusetts has petitioned the Division of Banks (the "Division") to establish a branch office at 290 Central Street, Lowell, 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 Cambridge Portuguese, 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 and any conditions which the Commissioner may impose.
The record shows that the proposed Lowell site is within Middlesex County, the home county of the Petitioner and therefore meets that requirement of 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 by the Division during the comment period. One commentator, a banking trade association, specifically requested a public hearing on the application.) The hearing, which was well attended, was held at 5:30 P.M. on March 12, 1998 at the Division's North Field Office, 77 East Merrimack Street, Lowell. During the oral testimony at the hearing, in response to numerous questions asked, and in written comments submitted that day and in the supplemental filing period, the Division received significant additional information as to the impact of the petition on the Credit Union and its membership; its competitors; and the area to be served by the proposed branch office.
The factors on which the merits of this application has been analyzed are well settled. These factors were read into the record at the opening of the public hearing for the benefit of those attending the hearing. 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, its record of performance under the Community Reinvestment Act ("CRA"), as well as the public convenience and advantage to be served by the proposed branch office and the competitive effects of the proposed transaction are also reviewed. Many of these factors are set out in section 3 of chapter 167C of the General Laws which governs banking offices of state-chartered banks. The criteria set out in said section 3 of chapter 167C, as interpreted by Decisions of the Division, are applicable to section 8 of chapter 171. (See e.g., Decision Relative to the Relative to the Conversion of Massachusetts Federal Credit Union to a State Charter, (August 8, 1997) at 5 (setting out additional or supplementary administrative standards for reviewing credit union charter conversion applications); 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, 1995) at 6-9 (setting out the Division's administrative standards for reviewing credit union membership by-law expansion amendments).) Moreover, the delineated criteria of section 3 is consistent with items to be responded to in the Division's application. The factors set out in said section 3 include whether competition will be unreasonably affected; whether public convenience and advantage will be promoted which consists, in part, of showing of net new benefits. As defined in that law, net new benefits includes 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.
At the time the application was filed, Cambridge Portuguese had total assets of approximately $64,500,000.00 and shares and deposits of $60,500,000.00. The Credit Union's annual report filed as of December 31, 1997 shows total membership of 9,807. The Credit Union served that membership from two banking offices, its main office in Cambridge and a branch office in Somerville. The Credit Union's shares and deposits are 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 of Cambridge Portuguese is located in the central business district of Lowell. The property is commercially zoned and was previously occupied by a financial institution. As such it is fully equipped for teller transactions. It has a drive-through window. It also has 500 safe deposit boxes and is handicapped accessible. The proposed location is a free standing building with its own parking facilities. The ability to provide safe deposit boxes and to make certain improvement to the site are both subject to separate approvals by the Division.( See, Section 75 of chapter 171 of the General Laws)
As stated in the various documents filed on this matter, the Credit Union, which was founded in 1928, seeks to serve the financial needs of the Portuguese speaking community.(Cambridge Portuguese's membership bylaw provides in pertinent part: "Membership in this corporation is limited to persons of Portuguese descent or extraction by birth or marriage...") Its efforts in Cambridge and Somerville to serve this population are offered as evidence of its intent. Those efforts, it states, resulted in individuals and community groups in Lowell to seek this expansion by the establishment of a branch office within Lowell.(The record contains a number of written and oral comments from local Portuguese business, social, ethnic and community groups in support of this application.)
At the public hearing, the Credit Union testified that within three miles of the proposed branch office is a population of 8,000 people of Portuguese descent. Of more significance is the fact that approximately one-half of this population is located within one mile of the proposed branch office. This neighborhood contains a significant number of low to moderate income households.( See, Federal census tract data for census tracts 3119.00 through 3121.00. The Division also notes that the Credit Union's bylaw on its corporate object targets this population segment. Section 2 provides: "The object of this Credit Union is ... for the promotion of thrift among its members by the accumulation of their savings in small amounts and the loaning of such accumulations to its members only for provident purposes at a moderate rate of interest.") The Credit Union offers that consistent with its corporate objective and membership by-laws, the Portuguese population of Lowell is within its sphere of operation.
As stated in the application and emphasized at the public hearing, the ability of nearly all employees and directors of the Credit Union to speak Portuguese is a vital component to its services to its membership. The feature allows the Credit Union to serve as a resource to its members on all potential financial transactions and not just deposit and withdrawal activities.
The Credit Union also offers the expressions of support and requests for its expansion to Lowell submitted with the application and provided at the public hearing. (The Credit Union submitted petitions with over 400 signatures of individuals supporting the establishment of the proposed branch. Local credit unions also indicated support of the proposed branch. A letter of support wasalso submitted by U. S. Congressman Martin Meehan. Favorable oral testimony was given by State Representative Kevin J. Murphy.) The record of the proceeding clearly reflects the support of this application from the Portuguese community in Lowell. At the public hearing numerous references were made to the convenience of the site of the proposed branch office being located at the border of "Little Portugal" in Lowell. Staff of the Division are familiar with both the site and its proximity to the Portuguese community in Lowell.
The various documents submitted and testimony given support the Credit Union in seeking to establish this branch office. Those documents note the fact that approximately 130 existing members of the Credit Union live or work within the Greater Lowell area. That fact, plus the requests for expanded credit union services from entities within the community serve as the basis for the Credit Union's application. Those factors, it argues, reflect the fact that it is not seeking to adversely affect competition in the service area but to provide services to those individuals of Portuguese extraction who for cultural or economic reasons may not be conducting financial services with banking entities. Accordingly, it views the application as a natural extension and consistent with its objectives as a credit union.
The financial resources and characteristics of the Credit Union have been considered in conjunction with this proposal to establish a branch office. In particular, the Division analyzed the impact the transaction would have on the capital or surplus of an institution if the proposal were not to be successful. Projections of the applicant, which in this case shows losses of approximately $400,000.00 during the first two years of operating the branch office, if approved, are helpful in this process. The Division's financial analysis reflects that Cambridge Portuguese's surplus position exceeds any regulatory requirements and has grown at a constant level which is above their peer group. (The Division notes that in 1993, Cambridge Portuguese received a $1,511,420 capital infusion from the Corporation to assist the credit union to obtain federal share insurance from the NCUSIF. The Credit Union's capital infusion agreement with the Corporation contemplates voluntary repayment of this donated capital. It has been the Division's long-standing position that credit unions that received capital infusions from the Corporation during the period of 1991-1994 in order to obtain NCUSIF insurance clearly have a moral, if not legal or enforceable, obligation to repay such sums, if their financial condition permits. Cambridge Portuguese is expected to make a good faith effort to repay the Corporation for the benefit of its member credit unions. In any future application for expansion, the Division's financial analysis may deduct any outstanding capital infusion from the Credit Union's surplus or capital if its moral obligation to repay the Corporation is ignored.) That growth also clearly reflects earnings strength of the Credit Union's assets. The cost to lease the proposed site and to make it operational by the Credit Union have also been factored into the Division's calculations on the financial impact of the proposed transaction. Based on the review of these various financial criteria, the Division finds that fiscal strength of the Credit Union is supportive of the application to establish a branch office.
Another component of the Division's consideration of an application to establish an additional banking office is the ability of an institution's management to successfully operate multiple facilities and to handle anticipated growth. The Division has found management is able to handle the additional responsibilities that could result from increased membership and operations. The limited issues raised by this singular application for an additional branch office do not, in and of themselves, lead to a different conclusion on the abilities of the management of an expanded Credit Union.
The Credit Union also presents as support of its application the return of a banking facility to the community. The office at 90 Central Street, Lowell had been a branch office of a commercial bank until 1995. Therefore, it offers that the banking public in that area looking for an additional banking option will find the site a convenient location and the Credit Union, if they qualify for membership, a viable alternative.
In its various filings, the Credit Union has adequately addressed the issue of net new benefits which will result from the transaction. As previously noted, that standard is set out in a banking law provision, General Laws chapter 167C, section 3. However, since shortly after that provision was added to the statute, the Division administratively incorporated it in the application governing branching by credit unions. In this matter, Cambridge Portuguese points out that restoring the location to active use will provide several benefits to the business area of Lowell. Additionally, it will create jobs for ten people in six full time and four part time positions, 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 while also evidencing its commitment to the local Portuguese community.
The Division's analysis of competition among financial institutions in the Commonwealth is clearly evidenced by and impacted by the following statistics on the state-chartered banking system and the operation of federally-chartered institutions within the Commonwealth. As of year end 1997, there were 332 state-chartered banks and credit unions operating in Massachusetts. In addition to the main offices reflected by each of those institutions, there were an additional 979 branch offices from which those banks and credit unions conducted their business. Those 1,311 brick and mortar banking offices do not include additional banking offices operated by federally-chartered banks and credit unions headquartered in the Commonwealth. An additional opportunity to conduct banking services is provided by the 3,647 shared automated teller machines ("ATMS") operating in the Commonwealth. A significant number of additional proprietary non-shared ATMs located at existing banking offices also provide twenty-four hour banking options to the banking public of the Commonwealth and are not reflected in the prior ATM totals.
The preceding figures clearly reflect the Division's general position that the Commonwealth's citizens benefit from ample banking facilities from which to choose to conduct their banking business. Absent significant adverse financial, managerial, CRA or other countervailing factors, financial institutions should be generally free to make what is essentially a business decision to compete by branching into a new market or area. This standard is uniformly applied by the Division to both banks and credit unions. The branch application review process is required by law for the purpose for preserving the financial safety and soundness of individual institutions and the industry as a whole. (The concept that competitive considerations are intended to ensure that other financial institutions' market shares are preserved fell into regulatory disfavor when deposit and interest rates were deregulated in the early 1980's.) These considerations benefit the public in various ways. The most important regulatory criteria is that competition will not suffer through a concentration of banking services. 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. To the extent that competition remains and is increased, additional public benefits should result and continue to occur over time. Those benefits may be evidenced by increased options for conducting one's banking business; different products and services offered; different loan rates and service fees to be charged; the hours available to do business; capital improvement to the facilities in which the public will do its banking; and numerous other means by which business is conducted.
The application before the Division meets the criteria set out above. The Division finds that competition will be increased by the addition of a banking office of the Credit Union in Lowell and that the banking public in the area will benefit. The fact that an office of a financial institution will be opened in a market where it currently has customers in and of itself will not unreasonably affect competition in the Division's analysis. Therefore, factors relative to the competitive impact of the transaction do not preclude approval of the application.
As part of any application or matter before the Division for an approval, the petitioning institution's performance under CRA is a critical factor. Only a few states apply CRA to matters affecting credit unions. The Division has always applied the provisions of the Commonwealth's CRA statute, section 14 of chapter 167 of the General Laws and now its implementing regulation 209 CMR 46.00 et seq., to credit unions since the law is clear on that issue. Moreover, the Division's emphasis on an institution's CRA evaluation on the regulatory approval process has been clearly articulated in Regulatory Bulletin 2-1 101. A review of the record of Cambridge Portuguese's performance under CRA shows that it received a public rating of "Satisfactory" in the Division's analysis of its record as of May 1997. That review considered the characteristics of the Credit Union itself and the laws under which it operates. (It is important to note that federally-chartered credit unions currently are not subject to the federal CRA statute.) Accordingly, the analysis of Cambridge Portuguese's CRA performance, which is above and beyond that to which federally-chartered credit unions are subject to, does not preclude approval of this application to establish a branch office in Lowell.
Opposition to the application focused on public convenience and advantage and competition, as impacted by the tax status of credit unions in general. Arguments against the petition were made by banking industry trade groups and a local banker. On the criteria of public convenience and advantage, the opposition noted that the products and services to be provided by Cambridge Portuguese are already readily available from several financial institutions based or operating in the service area. The proximity of banks to the proposed site was also presented to negate the convenience argument. Moreover, testimony detailed the long-standing, active efforts of local banks to provide services and personnel which could directly assist their Portuguese customers. From its CRA examinations of several Lowell institutions, the Division is aware of and officially recognizes and applauds the significant outreach efforts of these local financial institutions. These efforts include but are not limited to translation services, bilingual disclosures and basic banking products. Competitive arguments in opposition to the application focused on the number of financial institutions in the service area and the competitive advantage resulting from the different taxation status between banks and credit unions.
The principal factor outside the bank regulatory process which has stirred inter-industry opposition to this and recent applications by credit unions is their tax status. The opposition by banks and their trade associations to these credit union applications is ignited by the fact that state and federally-chartered credit unions located in Massachusetts are not subject to taxation by the Commonwealth and the federal government. These tax policies produce, in the eyes of the banks, a significant economic disadvantage in an increasingly competitive financial services industry. In sum, these local community banks, many of whom are in mutual form like credit unions, face the daily recognition that a competing credit union's operations and bottom line are enhanced by its non-tax status.
The Division has judiciously avoided commenting on this divisive taxation issue in the past. ( 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) (written Decisions did not discuss the taxation issue in order to emphasize that the situation existed as a matter of law and was beyond the direct ability or jurisdiction of the Division to address); 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) at 8.) As a matter of law, it is not a reviewable regulatory factor for the Division under the credit union branching statute. As such neither this Decision nor future applications by credit unions may be decided on this issue. Nevertheless, the Division understands the concern of the banking industry in terms of the larger issue of an apparent disparity in the taxation of different financial institutions. (The Division also acknowledges that state-chartered credit unions do not possess the same range of powers enjoyed by state-chartered banks. For example, the broad express or "incidental" powers provisions enjoyed by banks are not found in chapter 171 of the General Laws. See G. L. c.167F, s.2.) The issue of taxation is well beyond the jurisdiction or the statutory criteria that the Division has to review and weigh in deciding upon various credit union applications. The taxation of credit unions is clearly outside this proceeding or the Division's regulatory domain. The ultimate decision on this issue lies with legislators on Beacon Hill and Capitol Hill as a matter of public and tax policy. (The Division's position was recently stated in the record of a public hearing held on June 10, 1998 on a application of Telephone Workers Credit Union to open a branch in Stoneham. The application was challenged by local banks and a joint trade group task force partly on the basis of the taxation issue.) On a case by case basis, the Division recognizes that future applications may be challenged on certain grounds. The basis of any such challenge, however, must be germane to the application at issue and must be based on statutory or regulatory criteria over which the Division has jurisdiction. Any additional review procedures to be implemented by the Division will consider the merits of the opposition in light of controlling legal criteria.
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 the Credit Union to establish and maintain a branch office at 290 Central Street in Lowell 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. Both requests are triggered by provisions of General Laws chapter 171, section 75. Under one provision of that statute, a state-chartered credit union is required to obtain approval for expenditures greater than $10,000.00 during a specified period for improvements to property leased to transact its business. Cambridge Portuguese seeks to invest up to $90,000.00 in capital and leasehold improvements at the 290 Central Street location. A state-chartered credit union also needs the approval of the Division under said section 75 to establish and maintain safe deposit boxes. As a former branch office of a financial institution, there are 500 safe deposit boxes in place at the 290 Central Street site and Cambridge Portuguese seeks to provide storage and rental of the boxes to its members.
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 Cambridge Portuguese the following additional approvals: (1) to expend up to $100,000.00 on improvements to the branch office at 290 Central Street, provided that any amount to be spent in excess of that amount shall require the prior written approval of the Division; and (2) to establish and maintain the existing safe deposit boxes at the location; provided that the Credit Union complies with the provisions of General Laws chapter 158, section 17 and 209 CMR 30.00 et. seq., provided, further, that the number of safe deposit boxes at this location shall not be increased without prior written approval of the Division.
Approval is also hereby granted pursuant to the provisions of Massachusetts General Laws chapter 167B, sections 3 and 4 for the Credit Union to operate/share 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 be shared on the PLUS and NYCE networks. 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.
| June 26, 1998 Date | Thomas J. Curry Commissioner of Banks |