Decision relative to the petition of Banknorth N.A., Inc., Portland, Maine to acquire Warren Bancorp, Inc., Peabody, Massachusetts
By the Division of Banks
Banknorth Group, Inc. (the "Petitioner" or "Banknorth Group"), Portland, Maine, has petitioned the Board of Bank Incorporation ("the Board") pursuant to Massachusetts General Laws chapter 167A, sections 2 and 4 to acquire Warren Bancorp Inc. ("Warren"), Peabody, Massachusetts, and its subsidiary bank, Warren Five Cents Savings Bank ("Warren Bank"), also located in Peabody. Banknorth Group's application before the Board is part of a multi-step transaction. A subsequent merger of Warren Bank with and into Banknorth Group's banking subsidiary, Banknorth N.A., ("Banknorth"), Portland, Maine, pursuant to an Agreement and Plan of Merger dated August 27, 2002, is before the Division of Banks.
As directed by the Board, notice of the application was published and posted and a public hearing was scheduled, thereby affording an opportunity for interested parties to attend or submit comments. Other standard procedures informing the public of this matter before the Board were implemented. The public hearing was held on November 7, 2002. Representatives of Banknorth Group and Warren offered testimony and responded to questions from the members of the Board. An organization describing itself as a coalition of community-based organizations from the Warren Bank service area that had previously submitted written comments appeared and offered oral testimony. Following the hearing, the public comment period remained open so that interested parties could submit any additional comments. No further public comments were received. On November 21, 2002, Warren shareholders approved the transaction. The comment period closed on November 26, 2002.
Petitioner is a financial holding company headquartered in Portland Maine, and is, according to its application, one of the fifty largest commercial banking companies in the United States. At June 30, 2002, Banknorth Group had $21.3 billion in total consolidated assets. Banknorth, its banking subsidiary, is a national bank and a member of the Bank Insurance Fund administered by the Federal Deposit Insurance Corporation ("FDIC"). With over 300 offices located in Maine, New Hampshire, Massachusetts, Connecticut, Vermont, and New York, Banknorth Group and its subsidiaries offer a range of commercial and consumer banking services and products, trust, investment advisory, and insurance brokerage services.
Warren is a bank holding company headquartered in Peabody, Massachusetts. Its primary activity is as a holding company for Warren Bank, a Massachusetts-chartered stock savings bank. At June 30, 2002, Warren Bank held approximately $460 million in total consolidated assets, $394 million total deposits, $345 million in loans, and $44 million in stockholder equity. Like Banknorth, Warren Bank's deposits are insured by the FDIC. As a Massachusetts savings bank, deposits in excess of FDIC coverage are insured through the Depositors Insurance Fund ("DIF"). In addition to a main office in Peabody, Massachusetts, Warren Bank operates five additional branches in Peabody and Beverly.
As an interstate transaction and pursuant to requirements of chapter 167A, the reciprocity laws of Petitioner's home state are subject to the review of the Commissioner of Banks. Specifically, the Commissioner must determine whether the proposed transaction is authorized under the laws of Maine for a Massachusetts-based company, under conditions no more restrictive than those imposed by Massachusetts. Based on a review of the applicable law, and consistent with previous rulings regarding the Petitioner and Maine's reciprocity laws, the Commissioner has concluded that the proposed transaction is permissible under the Commonwealth's Interstate Bank Act.
Prior to approving an application under chapter 167A, the Board must have received notice from the Massachusetts Housing Partnership Fund (the "MHPF") that the Petitioner has arranged to participate in the MHPF's various affordable housing loan programs. On December 6, 2002, the Board received notice from the MHPF that arrangements satisfactory to it had been made for this transaction.
The Board's review of this transaction focuses on the applicable statutory and administrative criteria which include, among other things, whether competition among banking institutions will be unreasonably affected and whether public convenience and advantage will be promoted. In determining whether the public convenience and advantage are promoted by the proposed transaction, the Board considers, among other things, whether there has been a showing of "net new benefits." Net new benefits are defined as initial capital investments, job creation plans, consumer and business services, commitment to maintain and open branch offices within a bank's delineated local community, and such other matters as the Board may deem necessary or advisable. The Board also considers the bank's record of performance under the Community Reinvestment Act ("CRA") and any relevant public testimony or commentary submitted into the record.
On the issue of whether banking competition will be unreasonably affected by the proposed transaction, the Board considers, but does not rely exclusively on, the guidelines used by federal authorities to review bank mergers. Essentially, these guidelines define relevant markets and measure concentration, which is considered an important indicator of competitiveness. The starting point in the federal analysis is the Herfindahl-Hirschman Index ("HHI"), an arithmetic measure of market concentration that synthesizes the distribution of market shares and the number of banks in an affected market into a single value. (The HHI is the sum of the squared market shares of all banks in the market.) Pursuant to this approach and consistent with the relatively small market share of the involved banks, the HHI calculations do not indicate that the proposed transaction will result in an undue concentration of banking resources. However, the Board's analysis of a transaction is not confined to the consideration of concentration ratios to evaluate competitive conditions; it also considers the competitive impact on a community by community basis, as well as on the overall banking structure of the Commonwealth. In this regard, the Board concludes that the proposed transaction is unlikely to have a significant impact on any particular community, as there is no community in which the two banks are the only or the closest competitors for banking business. Based upon the small market share of the involved banks and the number of remaining competitors in the affected market, the Board finds that the transaction will not unreasonably interfere with competition. Rather, the Warren community will continue to have access to competitive products and services offered by a diverse number of commercial banks, savings banks, cooperative banks, credit unions and non-bank providers.
Petitioner submitted a variety of materials relating to the public convenience and advantage that will result from the proposed transaction. It maintains that the proposed transaction will provide all customers of the merged banks with greater banking convenience in the form of expanded access to branches and ATMs. It maintains that Warren Bank customers will particularly benefit from having access to the large number of Banknorth branch offices located throughout the Commonwealth and New England. These branches, Petitioner points out, include six supermarket branches offering the added convenience of expanded evening and weekend hours. Similarly, Petitioner asserts, Warren Bank customers will benefit from its "7 Day Banking" program, which offers extended lobby and drive-up hours at a number of traditional branches. Petitioner advises that it is considering the introduction of this program at one of the acquired Warren Bank branches.
In addition to the expanded branch network and extended hours programs described above, Petitioner asserts that Warren Bank customers will be advantaged by the increased convenience of free ATM use at 150 proprietary ATMs located in Massachusetts, as well as at 300 proprietary ATMs located throughout New England and upstate New York. Petitioner further notes that, like Warren Bank, it is a member of the SUM Network, thereby providing Warren Bank with continued access to the more than 2,700 surcharge-free ATMs in the SUM Network. Petitioner also points out that Warren Bank customers will continue to have access to online banking and telephone banking programs.
Petitioner asserts that Warren Bank customers will benefit from its wide range of financial products and services for retail, small business, and commercial customers. These products, it maintains, are comparable or in addition to the products offered by Warren Bank. Petitioner asserts that its checking, savings, and depository accounts are similar to those offered by Warren Bank, and it points out that its basic checking product has no minimum balance requirement, monthly service charge, or limitation on transactions. With respect to commercial products and services, Petitioner advises that it offers a number of checking products designed to meet the varying needs of small businesses, some of which are comparable to the commercial checking products offered by Warren Bank. Petitioner notes that Warren Bank's small business customers will be further served by Banknorth's small business programs, which include dedicated units offering small business lines of credit and loans, as well as merchant services and solutions. Moreover, Petitioner asserts that larger commercial customers will have access to expanded products and services, and will benefit from its greater lending capabilities. All customers of the merged banks, Petitioner concludes, will benefit from its regulatory compliance and enforcement programs. Such programs, Petitioner asserts, will ensure that customers receive the intended benefits of regulatory protections.
At the hearing, a community group testified in favor of the acquisition of Warren, but expressed some concerns regarding the impact of the transaction on the local community. In response to these concerns, Petitioner submitted material regarding its commitment to community development, as well as its willingness to work with local community groups on affordable housing issues. In this regard, Petitioner asserts that it is actively engaged in activities that will benefit both the Commonwealth and the service area of Warren Bank. Petitioner also points out, as discussed below, that it has received satisfactory ratings on the most recent CRA examinations of Banknorth's predecessor banks. Finally, Petitioner advises that it has made specific commitments to local community groups to maintain a North Shore focus and to continue certain programs supported by Warren Bank.
The Board has reviewed and considered the all of the submitted materials bearing on the issue of public convenience and advantage. The Board finds that customers of both banks will have increased access to banking facilities, and that Warren Bank customers in particular will have substantially more access. The Board notes in particular the merging bank's limited number of proprietary ATMs, and the significant advantages afforded by Petitioner's extensive ATM and branch networks. Although eventual branch consolidations may occur as efficiency requires, there is no indication that any such future consolidation would have a significant impact on a particular community. Likewise, to the extent staff reductions are required to maximize efficiencies, it is likely that a substantial number of such employees will be absorbed into the Banknorth franchise. The Board has also reviewed the products and services offered by both banks, and it concludes that Warren Bank customers are unlikely to be significantly inconvenienced upon transition to Banknorth products. Such customers will, as a result of the merger, have access to a wider range of products and services, and are also likely to benefit from Banknorth's greater financial strength. Finally, the Board is satisfied with Petitioner's community development efforts in its service areas and recognizes its willingness to work with community groups to ensure that such development continues in the North Shore region. Based on the foregoing, the Board concludes that the proposed transaction will promote the public convenience and advantage. The Board further concludes that the criteria for net new benefits has been established.
The Board's review of this transaction requires an assessment of the subsidiary banks' performance under the Community Reinvestment Act ("CRA"). Such assessment for a state-chartered bank includes examination by Division of Bank personnel, as well as an analysis of the legitimate concerns raised by the community and the bank's response to those concerns. For other institutions, the Board reviews the descriptive rating and evaluation by the applicable federal or state bank regulatory agency . Here, the relevant evaluations were submitted as part of Petitioner's application materials. In its most recent CRA examination, performed by the Federal Deposit Insurance Corporation ("FDIC"), Warren Bank received a "Satisfactory" rating. The Office of the Comptroller of the Currency performed the most recent examination of Banknorth, N.A., formerly known as People's Heritage Savings Bank, of Portland, Maine, and it received an "Outstanding" rating. The CRA rating of First Massachusetts Bank, N.A., of Worcester, Massachusetts, Petitioner's previous subsidiary bank in the Commonwealth, was also submitted. The most recent examination of First Massachusetts Bank, performed by the Office of the Comptroller of the Currency, resulted in a "Satisfactory" rating. Based on its review of these ratings, the Board concludes that the banks involved in this transaction are adequately meeting the credit needs of their respective communities.
Finally, the Board reviews the financial structure, tax consequences, and operational aspects of the transaction. It has reviewed the consolidated financial statements of the parties and the details of the proposed transaction, and is satisfied with the Petitioner's capital ratios and projections. Information regarding the tax consequences of the proposed transaction was also provided by Petitioner and considered by the Board. Finally, operational issues were discussed at the hearing, and the Board is satisfied with Petitioner's efforts to ensure the smooth transition of its systems and account information.
Based on the record of this matter and considered in light of all relevant statutory and administrative requirements, the Board concludes that competition among banking institutions in the Commonwealth will not be unreasonably affected and that the transaction will promote the public convenience and advantage. Specifically, the Board finds the transaction will benefit the customers of Warren Bank, and further finds that the banks involved in this transaction have a satisfactory record of performance under the CRA. In accordance with these findings and pursuant to the statutory authority cited herein, the Board approves the application and authorizes Banknorth Group to acquire 100% of the stock of Warren Bancorp, Inc., and Warren Five Cents Savings Bank.
The approval granted herein is subject to the condition that all related transactions are completed within one year of the date of this Decision.
|Thomas J. Curry |
Commissioner of Banks
|Alan L. LeBovidge |
Commissioner of Revenue
|Shannon P. O'Brien |
Treasurer and Receiver-General
|December 23, 2002 |