Decision relative to the petition of Citizens Financial Group, Inc., Providence, Rhode Island and certain related entities to indirectly acquire Commonwealth Bancorp, Norristown, Pennsylvania
By the Division of Banks
Citizens Financial Group, Inc. (the "Petitioner" or "Citizens Financial"), Providence, Rhode Island and certain related entities as described herein has petitioned the Board of Bank Incorporation (the "Board") to indirectly acquire Commonwealth Bancorp, Inc. ("Commonwealth Bancorp"), Norristown, Pennsylvania, and its subsidiary, Commonwealth Bank, also located in Norristown, Pennsylvania. Citizens Bank of Pennsylvania, Philadelphia, Pennsylvania, is a subsidiary of Citizens Financial. The proposed transaction involves the merger of a newly established nonbank subsidiary of Citizens Bank of Pennsylvania into Commonwealth Bancorp, with Commonwealth Bancorp as the surviving corporation, thereby making Commonwealth Bancorp a direct subsidiary of Citizens Bank of Pennsylvania and Commonwealth Bank an indirect subsidiary of Citizens Bank of Pennsylvania. Commonwealth Bank will then merge with and into Citizens Bank of Pennsylvania, with Citizens Bank of Pennsylvania as the surviving entity. Prior to the date on which the merger of Commonwealth Bank with and into Citizens Bank of Pennsylvania becomes effective, Commonwealth Bancorp will transfer to Commonwealth Bank, as a contribution to Commonwealth's capital, generally all of Commonwealth Bancorp's assets of Commonwealth Bank held by Commonwealth Bancorp, and thereafter Commonwealth Bank of Pennsylvania intends to liquidate Commonwealth Bancorp.
In Massachusetts, Citizens Financial, and related parties, is the bank holding company for two banks: Citizens Bank of Massachusetts, Boston, Massachusetts and United States Trust Company, also located in Boston, Massachusetts. Accordingly, the proposed transaction is within the Board's jurisdiction. The application was submitted pursuant to the provisions of sections 2 and 4 of chapter 167A of the General Laws.
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 Citizens Financial on December 3, 2002. The public comment period on the proposed transaction ended December 9, 2002.
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 include, 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 banks. 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 satisfactory arrangements have been made by the Petitioner consistent with statute and the MHPF's various affordable housing loan programs. The Board received notice from the MHPF that arrangements satisfactory to it had been made for this transaction in a letter dated December 6, 2002.
Citizens Financial is a Delaware corporation and a bank holding company with subsidiary banks in Massachusetts, Pennsylvania, Rhode Island, New Hampshire, Connecticut, and Delaware. It is the 20 th largest bank holding company in the United States and one of the three largest bank holding companies headquartered in New England. Through its subsidiaries, Citizens Financial offers a wide range of retail and commercial banking products and services, including residential and commercial mortgage lending and construction loans, commercial loan and leasing services, trust services to businesses and individuals, retail investment services, international banking services, and deposit and nondeposit products. Citizens Financial's total consolidated assets were approximately $55.5 billion at June 30, 2002.
Citizens Financial's indirect parent is Royal Bank of Scotland plc (the "Royal Bank"), a commercial and retail clearing bank based in the United Kingdom. The Royal Bank, in turn, is an operating subsidiary of Royal Bank of Scotland Group, which held $605 billion in consolidated assets at June 30, 2002.
One of Citizens Financial's Massachusetts subsidiaries is Citizens Bank of Massachusetts, Boston, Massachusetts, a Massachusetts trust company originally chartered as a Massachusetts mutual savings bank in 1832, which converted to stock form in 1986, and was acquired by Citizens Financial in 1988. Citizens Financial's other Massachusetts subsidiary is United States Trust Company, Boston, Massachusetts, a Massachusetts trust company chartered in 1895, which engages primarily in trust and asset management, and was acquired by Citizens Financial in 2000. Citizens Financial's other bank subsidiaries include the following: Citizens Bank of Rhode Island; Citizens Bank New Hampshire; Citizens Bank of Connecticut; and Citizens Bank, a Delaware-chartered bank.
Citizens Bank of Pennsylvania, Philadelphia, Pennsylvania, was formed as a de novo Pennsylvania-chartered savings bank in 2001 in connection with the acquisition by Citizens Financial of substantially all of the retail banking operations of Mellon Financial Corporation. Citizens Bank of Pennsylvania acquired branches of Mellon Bank, N.A. located in Pennsylvania and New Jersey. Citizens Bank of Pennsylvania presently operates 330 branches. Its total assets were $18.3 billion at June 30, 2002.
Commonwealth Bancorp, Norristown, Pennsylvania, was organized in 1995 for the purpose of holding all of the capital stock of Commonwealth Bank in connection with the second-step conversion of Commonwealth Mutual Holding Company from the mutual holding company form of ownership to the stock holding company form. In addition to Commonwealth Bank and its subsidiaries, Commonwealth Bancorp has three wholly-owned subsidiaries: ComLife, Inc., Commonwealth Investment Corporation of Delaware, Inc. and CS Corporation. Commonwealth Investment Corporation of Delaware, Inc. and CS Corporation hold passive investments, consisting of nonvoting, noncontrolling equity investments, cash and intercompany loans. The sole investment held by ComLife, Inc., is a $1,000 non-voting equity investment in an Arizona-based reinsurance company. Commonwealth Bancorp's total consolidated assets were $1.76 billion at June 30, 2002.
Commonwealth Bank, Norristown, Pennsylvania, was established in 1939 as Norristown Federal Savings and Loan Association, a federally-chartered mutual savings association. Commonwealth Bank first issued stock to the public on January 21, 1994. At that time, Commonwealth Bank was a subsidiary of Commonwealth Mutual Holding Company, which retained ownership of approximately 55% of the outstanding common stock of Commonwealth Bank. In 1996 Commonwealth Bancorp undertook a second step conversion from a mutual to stock holding company and Commonwealth Bank became a wholly-owned subsidiary of Commonwealth Bancorp. In January 2001, Commonwealth Bank converted from a federally-chartered saving banks to a Pennsylvania-chartered savings bank. Commonwealth Bank has four wholly-owned subsidiaries. Firstcor, Ltd. holds a 48.5% limited partnership interest in Commonwealth Insurance Advisors, LP, which provides insurance and benefit administration services to commercial accounts, and a 49% interest in the general partner of this limited partnership. CFSL Investment Corporation invests primarily in mortgage-backed securities. Tyler Wealth Counselors, Inc. offers financial planning and investment advisory services to individuals and small business in southeast Pennsylvania. QME, Inc. currently is inactive and has no assets. Commonwealth Bank's total assets were $1.76 billion at June 20, 2002.
At the public hearing, the Petitioner's present plans for its operations in Pennsylvania were described in detail. No Massachusetts branch would be affected. It was also noted at the hearing that Citizens Financial does not require a shareholder meeting in order for this transaction to proceed.
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 have an adverse impact on competition in any market where both Citizens Bank of Pennsylvania and Commonwealth Bank maintain banking offices - Bucks, Chester, Delaware, Montgomery and Philadelphia Counties in Pennsylvania, and the Philadelphia Banking Market. There will be no impact on any Massachusetts banking market or community. Based on the analysis provided and other factors, the Board finds that competition among banking institutions will not be unreasonably affected.
Information has also been established on the record relative to the promotion of convenience and advantage which will result for the banking public as well as customers of all bank subsidiaries of Citizens Financial. As noted in both the filed materials and in oral testimony at the public hearing, one benefit will be the larger size and geographic scope of the combined entities. Commonwealth Bank customers traveling to New England or elsewhere in the Midatlantic may take advantage of services through Citizens Financial's other subsidiary banks. The indirect acquisition of Commonwealth Bank will also increase access to the services of Citizens Financial's other subsidiary banks for customers from Massachusetts who may travel to Pennsylvania. The Board has considered the net new benefits that would result from the proposed transaction. The oral testimony and materials indicate that the increased size and financial strength of the combined institution will allow it to continue to develop and offer innovative services to customers and to expand its current market area. These financial and operational benefits would not have been readily available to Commonwealth Bank or its customers without the proposed transaction. In addition, Citizens Financial, Citizens Bank of Pennsylvania and Commonwealth Bank expect to reduce their combined costs by consolidating and integrating various function areas, eliminating redundant corporate expenses, such as franchise taxes and taxes and professional and other fees, and achieving other operating efficiencies. Other factors are also set out in the application filing. The Board's review of these factors is supportive of the application.
Related to the issue of public convenience and advantage is the record of performance under the CRA by the subsidiary banks of the parties to this transaction. Such a review for a state-chartered bank includes examination by personnel of the Commonwealth's Division of Banks 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 in the application. The Board has noted that Citizens Bank of Massachusetts, Citizens Bank of Connecticut, Citizens Bank of New Hampshire, and Citizens Bank of Rhode Island all have "Outstanding" ratings in their most recent examinations of performance under CRA. United States Trust Company has a CRA rating of "Satisfactory." Commonwealth Bank has a CRA rating of "Satisfactory." The Board notes that both Citizens Bank of Pennsylvania and Citizens Bank, Citizens Financial's Delaware bank subsidiary, were formed in 2001 and have not yet been evaluated under CRA. The Board's review of factors related to public convenience and advantage are consistent with approval.
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. Additionally, all other requirements of statute relating to a bank holding company acquisition have been met.
The application, supporting documents and the comments received at the public hearing have established an extensive record on this petition, which has 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 records of performance under CRA by the subsidiary banks 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 finding expressed herein and pursuant to statute, the Board hereby approves the petition and authorizes Citizens Financial to indirectly acquire Commonwealth Bancorp and its subsidiary bank, Commonwealth Bank, provided that the transaction is completed within one year of the date of this Decision.
| Thomas J. Curry Commissioner of Banks | |
| Alan L. LeBovidge Commissioner of Revenue | Board |
| Shannon P. O'Brien Treasurer and Receiver-General | |
| December 23, 2002 Date |