Decision relative to the merger of USTrust, Boston, Massachusetts with and into Citizens Bank of Massachusetts, Boston, Massachusetts

By the Division of Banks

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Citizens Bank of Massachusetts ("Citizens Bank" or the "Petitioner"), Boston, Massachusetts has applied to the Division of Banks (the "Division") for authority to merge with USTrust, Boston, Massachusetts pursuant to the provisions of Massachusetts General Laws chapter 172, section 36 and under the terms of an Agreement and Plan of Merger (the "Agreement"). The Agreement provides for the merger of USTrust with and into Citizens Bank under the name, charter and by-laws of Citizens Bank. The proposed merger is part of a multi-step transaction. It includes an application before the Commonwealth's Board of Bank Incorporation (the "Board") for Citizens Bank's holding company to acquire the parent company of USTrust. Related to the merger application before the Division are applications for the proposed closing of thirty-seven branch offices of the continuing bank, if the merger is approved.

Notice of the applications has been posted and published. The time period for interested parties to submit comments on the record ended on November 1, 1999. Comments were received from public officials, community organizations and individuals. The Petitioner was requested and filed supplemental documents at the end of the comment period. Additional clarification on certain matters was requested from the Petitioner.

A public hearing was held by the Board on October 20, 1999. Public testimony from various speakers also addressed issues impacting the applications pending before the Division. The Petitioner's supplemental filing and clarification on certain matters also related to the applications within the Division's jurisdiction. All such testimony and documents are also included in the record of the applications pending before the Division.

Accordingly, all documents and materials related to this transaction have been reviewed. That record has been considered with regard to the financial and managerial resources of each bank, the competitive effects of the proposed transaction and the convenience and needs of the communities to be served by the continuing institution and other applicable statutory criteria, including the Commonwealth's Community Reinvestment Act ("CRA"), Massachusetts General Laws chapter 167, § 14 and its implementing regulation 209 CMR 46.00 et seq .

Citizens Bank had total assets of $6.0 billion at March 31, 1999. It operates approximately 100 branch offices. Citizens Bank is the resulting bank from several mergers over the past few years. Effective September 30, 1999 at 5:01 p.m. Citizens Bank, by operation of law, Chapter 64 of the Acts of 1999, and with the approval of the Commissioner of Banks, had its charter transferred from a savings bank to a trust company. As a trust company, its deposits in excess of FDIC coverage will no longer be insured by the Deposit Insurance Fund. Under said Chapter 64, excess deposits in Citizens Bank on September 30 ^th will remain fully insured for one year while each term deposit remains fully insured until maturity. Citzens is an indirect subsidiary of The Royal Bank of Scotland Group plc, The Royal Bank of Scotland plc, RSBG International Holdings and a direct subsidiary of Citizens Financial Group, Inc., ("Citizens Financial"), Providence, Rhode Island, a bank holding company incorporated in Delaware.

USTrust is also a state-chartered trust company. It offers a full line of commercial and consumer banking services and products. USTrust's total assets were $5.9 billion at March 31, 1999. USTrust operates eighty-seven branch offices. USTrust has grown significantly in recent years as a result of mergers and acquisitions. Five banking institutions have been merged with and into USTrust since the beginning of 1997. Just prior to that date, it acquired twenty branch offices in a purchase and assumption transaction. It remains a well-capitalized institution under federal guidelines. USTrust is a wholly owned subsidiary of UST Corp., Boston, Massachusetts which also owns United States Trust Company, Boston. Citizens Financial proposes to maintain United States Trust Company which focuses on providing trust and money management services as a separate bank subsidiary.

The Petitioner has submitted extensive materials to address the issue that competition among banks will not be unreasonably affected by the proposed transaction. It argues that the proposed transaction will result in a competitive counter balance to a recent consolidation involving the two largest banking organizations in the Commonwealth. 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 in Massachusetts. Traditionally, however, the Division has not limited its review to those previously cited federal standards in its consideration of whether competition will be unreasonably affected. Rather it its the position of the Division 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. Upon review, the Division does not believe the transaction will unreasonably affect competition since a number of diverse bank and financial institutions will continue to provide competitive deposit and credit services in the affected areas. Moreover, the Division recognizes that the proposed transaction may foster competition among the Commonwealth's largest financial institutions. The Division's analysis reflects that Citizens Bank recently acquired the retail banking business as well as the commercial banking operations of State Street Bank and Trust Company.

The Division's review of the impact of the competitive effects of the transaction also took into consideration the Petitioner's plans for disposition of the thirty-seven branch offices proposed to be closed. In previous decisions the Division, like the Board of Bank Incorporation, has expressed its support and encouragement in such situations for turnkey operations whereby other financial institutions would be able to operate the site as a branch office. The Petitioner clarified its position on this issue in its filing of November 17, 1999. The Petitioner committed to entertain all offers for the thirty-seven sites "including, without limitation," competing financial institutions, interested in either purchasing or subletting or both all such sites. These commitments as well as the analysis of the competitive effects of the transaction weigh in support of its approval.

The Division has noted that of the 37 proposed branch closings, 21 are located less than 1/2 mile from another branch office of the proposed consolidated bank. Another 4 branches are located more than 1/2 mile but less than 1 mile from another branch office of the continuing bank. The remainder are generally located more than 1 mile but less than 3 1/4 miles from such other branch offices. The sole exception is the branch of Citizens Bank located at 9 Brook Street, Scituate which is located 9.9 miles from the nearest alternate branch office. Citizens Bank has a 13% market share in Scituate while four other banks control 87%.

Of the thirty-seven proposed branch office closings public comments in opposition were received on ten sites. The extent and number of comments varied. Most comments focused on the convenience of the location, the professionalism of the personnel and traffic as well as parking issues relative to the proposed alternative branch office. The Petitioner was required to respond to all such issues. The public comments and petitions received as well as the Petitioners' extensive responses were all reviewed. The banking alternatives in the area of each proposed closing were analyzed with emphasis given to each branch office for which comments were received.

Based on the comments received and issues raised extended review was given to the proposed closings of current USTrust branch offices at One Brookline Place, Brookline and 141 Portland Street, Cambridge, as well as the Citizens Bank branch office located at One River Street, Norwell. Many comments on these banking offices also included the issues set out above. The additional concerns raised on the One River Street branch office reflected the tradition of that site as a banking office and its presence in Norwell Center. Both USTrust locations were the subject of testimony given at the public hearing in opposition to the proposed closing. In summary, the opposition to the proposed closing at One Brookline Place focused, in part, on the impact of the closing in conjunction with other pending transactions effecting that area. Several issues were raised relative to the 141 Portland Street office including the direct or indirect benefits received by a bank subsidiary of UST Corp resulting from public funding for revitalization of the area including the site of the branch office. In a letter dated December 31, 1999, counsel for the Petitioner informed the Division the application to close the 141 Portland Street branch office was being reevaluated to further consider the comments expressed by the Cambridge community.

The decision to close a branch office is made initially by a bank. If the bank is chartered by the Commonwealth, as are Citizens Bank and USTrust, it must seek the approval of this Division under a procedure detailed herein and consistent with the applicable statute. In deciding upon an application to close a branch office the Division, pursuant to Massachusetts General Laws chapter 167C, section 3 must determine that the area served by the branch office will not be adversely affected by the transaction. The statute further states, that in addition to other factors, the availability of credit as well as the convenience and necessity of deposit services must be considered. In rendering a decision, the Division attempts to balance the needs of the petitioning institution and the community being served by the branch office. In making a decision, the Division looks to see not only that all financial and statutory requirements are met, but also that adequate banking facilities and services remain available to the public.

The Division's review of the branch closing applications recognizes, as noted previously herein, that both Citizens Bank and USTrust have extended their respective branch office networks extensively through mergers and acquisitions rather than simply through internal growth as part of a strategic de novo branch expansion plan. The proposed closings will allow the continuing bank to eliminate certain inefficiencies and overlapping within service areas. A more meaningful alignment of its branch office network should allow the continuing bank to improve the delivery of its products and services.

The Division has also considered whether public convenience and advantage will be promoted by this proposed transaction. The merger of USTrust with and into Citizens Bank will, according to the application, enhance the ability of Citizens Bank to better serve customers and continue to attract employees. Specifically, customers of USTrust will benefit from a significantly greater access to Citizens Bank's branches as well as additional ATM access. Similarly, customers of Citizens Bank will benefit from the additional branch offices of USTrust. Even with the proposed branch closings, customers of Citizens Bank would have approximately 50 additional branch offices available to them while customers of USTrust would have even more branches available upon the proposed merger. Further, Citizens Bank will offer a wide array of products and services to USTrust customers for certain Internet banking services, supermarket branches as well as a 24 hour a day telephone service. The Petitioner has also submitted information detailing that the net new benefits requirement of the statute will be met by the proposed transaction. These factors weigh in favor of approval.

At the public hearing before the Board as to related matters within its jurisdiction, the Board raised the issue of ATM surcharges in light of the fact that Citizens Bank assessed such a fee while USTrust was the largest member of the surcharge free network, SUM. Citizens Financial's oral testimony was that it would honor the terms and conditions of USTrust's contract with SUM. Moreover, Citizen Financial stated it was in the process of reviewing its strategic position on ATM surcharges. The supplemental filing by Citizen Financial confirmed the oral testimony. Citizens Financial announced on November 22, 1999 that Citizens Bank will also now participate in the surcharge free SUM network. This action will currently add approximately 255 new ATM locations to the network and will benefit customers of Citizens Bank and USTrust as well as all customers of banks participating in the SUM network. The addition of Citizens Bank's ATMs in the SUM network will result in approximately 40% of the ATMs in the Commonwealth being part of the surcharge free network. More importantly, the location of Citizens Bank's ATMs will also result in an increase of over 150% in the number of surcharge free ATMs in the Greater Boston area alone.

Related to the issue of public convenience and advantage is the record of performance under the Community Reinvestment Act ("CRA") by the banks which are the parties to this multi-step transaction. Such review for a state-chartered bank includes examination by personnel of the Division as well as analysis of concerns received by the bank's community and its response to those concerns fairly raised. For other institutions, the Division looks to a publicly available descriptive rating and evaluation by a federal or state bank regulatory agency. The Division has noted that both Citizens Bank and USTrust received an "Outstanding" rating in their most recent examinations of performance under CRA. The Division's review of factors related to public convenience and advantage are consistent with approval.

The financial structure of the transaction was reviewed and addressed. 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. The Division notes that the directors and principal officers of the resulting bank will consist of all the present directors and principal officers of Citizens Bank plus the addition of one individual from USTrust.

Upon review of this application with reference to the relevant statutory and regulatory criteria, the Division has concluded that all such requirements have been met and that consummation of the proposed merger would be in the public interest. On the basis of these considerations, approval is granted for USTrust to merge with and into Citizens Bank. Approval is also granted, under General Laws chapter 167C, section 3, for Citizens Bank to maintain all of the banking offices of USTrust as branch offices and for the closing of the 36 branch offices of either Citizens Bank or of USTrust which were the subject of pending applications. The application to close the branch office at 141 Portland Street, Cambridge will be addressed at a later date and in a separate decision.

The approvals granted herein are subject to the following conditions:

1. that no merger shall become effective until a certificate signed by the Presidents and Clerk or other duly authorized officers of the banks involved in the merger indicating that each such institution has complied with the provisions of Massachusetts General Laws chapter 172, section 36 has been returned with my endorsements thereon;
2. that the proposed merger shall not become effective until Articles of Merger with my endorsement thereon are filed with the Secretary of State;
3. that the proposed merger and branch office closings shall be consummated within one year of the date of this decision; and
4. that the restrictive lease clause for the branch office at 221 Moody Street, Walham be removed or otherwise not exercised.

5. January 10, 2000 Date

   Thomas J. Curry Commissioner of Banks