Decision relative to the petition of Berkshire Financial Services, Inc. Lee, Massachusetts to become a Bank Holding Company

By the Division of Banks

Berkshire Financial Services, Inc. ("Berkshire Financial" or the "Petitioner"), Lee, Massachusetts has petitioned the Board of Bank Incorporation (the "Board") to acquire Freedom National Bank (in organization), Greenville, Rhode Island. Berkshire Financial is forming Freedom National Bank and is currently the mutual holding company for Lee Bank, Lee, Massachusetts. The formation and the acquisition of the bank in Rhode Island triggers the Commonwealth's bank holding company statute, chapter 167A of the General Laws since Berkshire Financial would own and control two banks if Freedom National Bank is chartered. Accordingly, the Petitioner has submitted the applicant pursuant to the provisions of sections 2 and 4 of said chapter 167A.

Notice of the application was published and posted as directed by the Board, thereby affording opportunity for interested parties to submit comments. Other standard procedures informing the public of this matter before the Board were implemented. The Board held a public hearing on the petition of Berkshire Financial on July 12, 2001. The comment period on the proposed transaction ended July 20, 2001.

The Board has reviewed the application as well as the oral testimony received at the public hearing. That review focused on the statutory and administrative criteria which includes, among other things, whether competition among banking institutions will be unreasonably affected; whether public convenience and advantage would be promoted; and the record of performance under the Community Reinvestment Act ("CRA") by the involved subsidiary bank. The additional statutory requirements set out in sections 2 and 4 of said chapter 167A were also significant factors in the Board's deliberations on the matters before it. All such requirements are specifically addressed in the application documents.

One such statutory provision requires the Board to have received notice from the Massachusetts Housing Partnership Fund (the "MHPF") that the Petitioner has made satisfactory arrangements consistent with statute and the MHPF's various affordable housing loan programs. In the application documents, the Petitioner informed the Board of its contact with the MHPF in order to meet this requirement. The Board received notice from the MHPF that arrangements satisfactory to it had been made for this transaction in a letter dated August 6, 2001.

The proposed transaction is one of first impression to the Board. It involves a mutual holding company forming a national bank and subsequently offering twenty percent of that national bank's common stock to private investors. Berkshire Financial will contribute $8 million in initial capital of Freedom National Bank and own eighty percent of its stock. Berkshire Financial has no mid-tier holding company and has not issued minority shares of the stock of its subsidiary banking institution. These unique factors were raised at the public hearing to determine whether any similar transaction has occurred in other state or federal jurisdictions. Counsel for the Petitioner formally responded in writing to the Board's question at the public hearing in a filing dated October 22, 2001. In that supplemental filing, the Petitioner's counsel stated that it was not specifically aware of any similar transaction. The distinctive aspects of this transaction will be further addressed in this Decision.

Berkshire Financial Services, Inc. ("Berkshire Financial"), Lee, Massachusetts is the mutual holding parent company for Lee Bank, Lee, Massachusetts, a state-chartered savings bank. The primary activity of Berkshire Financial is to serve as the mutual holding company for Lee Bank. It had total consolidated assets at March 31, 2001 of $233,648,000.00.

Lee Bank has its main office in Lee with one full service branch office in Sturbridge, Massachusetts with limited service office in Great Barrington and Pittsfield. Lee Bank reorganized into a mutual holding company structure in 1992. All of its stock is owned by Berkshire Financial. Lee Bank conducts a general retail banking business. At March 31, 2001 it had total assets of $227,122,000.00. Lee Bank has one subsidiary which holds part of its securities.

Freedom National Bank (in organization), Greenville, Rhode Island is seeking a national bank charter from the Office of the Comptroller ("OCC"). It will conduct a general retail banking business. According to the application filed with the OCC the Bank plans to open a branch office within twelve to eighteen months after being established. It will be capitalized with $8 million from Berkshire Financial. A secondary stock offering will seek to raise $2 million primarily from residents of Providence County.

The Petitioner has submitted materials to address the issue that competition among banks will not be unreasonably affected by the proposed transaction. That analysis states that consummation of the transaction will not result in undue concentration of banking resources in the specified banking markets in Massachusetts. 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's review recognizes that there is no overlap in the banking office networks of Lee Bank and Freedom National Bank, in organization. The Petitioner also argues that the existence of a new community bank will have a procompetitive impact on banking in the service area in Rhode Island of Freedom National Bank. For these reasons and other factors, the Board finds that competition among banking institutions will not be unreasonably affected.

The Board has also considered whether public convenience and advantage will be promoted by the proposed transaction. The Petitioner states the area to be served by Freedom National Bank is currently served by branch offices of large regional banks. The establishment of a separate community bank in that area will provide significant advantages to the community.

Such a bank, according to the Petitioner will be able to tailor products and services for the immediate marketplace better than regionally focused banking institutions. Moreover, the Petitioner states that the public will benefit from personalized service to be provided by Freedom National Bank. One strategy will be to make account officers available to small owned operated businesses. It is that emphasis on small businesses which lead the Petitioner, as a mutual holding company, to organize a federally-chartered commercial bank. The application and public testimony provide information on Freedom National Bank's use of technology in providing its various products and services which are detailed in the submitted documents. The Petitioner also argues that this transaction will strengthen it as a mutual holding company which in turn will benefit the community banking activities in Massachusetts by Lee Bank. The testimony at the public hearing outlined the several factors, including the geographic and economic diversity, considered by Berkshire Financial which would contribute to its operations through the formation of a bank in this area of Rhode Island. These factors and others set out in the application or in testimony support approval of the petition.

Related to the issue of public convenience and advantage is the record of performance under the CRA by the subsidiary banks which are the parties to this transaction. Such a review for a state-chartered bank includes examination by personnel of the Board as well as analysis of concerns received by the bank's community and its response to those concerns fairly raised. For other institutions, the Board looks to a publicly available descriptive rating and evaluation by a federal or state bank regulatory agency. The matter was specifically addressed at the public hearing. The Board has noted that the Petitioner's subsidiary bank, Lee Bank, has an "Outstanding" rating in its most recent examination of performance under CRA by the Division of Banks. The Board's review of factors related to public convenience and advantage are consistent with approval.

The Board has considered the Petitioner's analysis of "net new benefits" related to the transaction. The term included initial capital investments, job creation plans, consumer and business services, and commitments to maintain and open branch offices, among other factors. The Petitioner has addressed this requirement. The financial aspects of the transaction were also considered by the Board. Management factors reviewed were also found supportive of approval. Additionally, all other requirements of statute relating to a bank holding company were met.

The application, supporting documents, the supplemental filing and the comments received have been reviewed consistent with statutory provisions and the policies of the Board.

Based on the record of this matter considered in light of all relevant statutory and administrative requirements, the Board finds that public convenience and advantage will be promoted and that competition among banking institutions will not be unreasonably affected and that the record of performance under CRA by the subsidiary bank involved in this transaction are consistent with its approval. Having considered the record established on this application, the Board has found that the applicable statutory and administrative criteria have been met.

In accordance with the findings expressed herein and pursuant to statute, the Board hereby approves the petition and authorizes Berkshire Financial to acquire Freedom National Bank provided that Berkshire Financial must comply with the following conditions:

  • Berkshire Financial shall complete the acquisition within one year of the date of this Decision.
  • Berkshire Financial shall receive the prior written approval of the Division of Banks to own or control less than eighty percent of the stock of Freedom National Bank.
  • Berkshire Financial shall submit to the Division of Banks in a timely fashion for its review draft copies of any documents and materials to be used in the offering of up to twenty percent of the stock of Freedom National Bank.
  • Berkshire Financial shall submit to the Division of Banks a list of stockholders upon completion of the sale of the stock of Freedom National Bank.
  • Subsequent to the issuance of up to twenty percent of the stock of Freedom National Bank in a secondary offering, Berkshire Financial will not sell, transfer, or otherwise dispose of any of its shares in Freedom National Bank to any person (including an employee stock ownership plan) or issue additional shares of common or preferred without the prior approval of the Division of Banks. Except for securities proposed to prospective investors in Freedom National Bank in connection with the organization of Freedom National Bank, direct and indirect subsidiaries of Berkshire Financial will not issue equity securities or any securities that would accord the holder the right to acquire equity securities or that would bestow upon the holder an interest in the retained earnings of the issuer to persons other than Berkshire Financial unless Berkshire Financial seeks prior approval of the Division of Banks for the issuance.
  • Berkshire Financial will make prior application to the Division of Banks for approval to waive any dividends, or other distributions, including a return of capital, declared on the capital stock of Freedom National Bank, and the Division of Banks shall have the authority to approve or deny any such request at its discretion.
  • Berkshire Financial shall receive the prior written approval of the Division of Banks before advancing any additional capital or funds to Freedom National Bank.
Thomas J. Curry
Commissioner of Banks

Bernard F. Crowley, Jr.
Acting Commissioner of Revenue

Board
of Bank
Incorporation

Shannon P. O'Brien
Treasurer and Receiver-General

November 16, 2001
Date