Decision relative to the petition of Citizens Financial Group, Inc., Providence, Rhode Island and certain related entities to acquire Medford Bancorp Inc., Medford, Massachusetts
By the Division of Banks
Citizens Financial Group, Inc. ("Citizens Financial" or the "Petitioner"), Providence, Rhode Island and related entities as described herein have petitioned the Board of Bank Incorporation ("the Board") pursuant to Massachusetts General Laws chapter 167A, section 2 and 4 to acquire Medford Bancorp, Inc., ("Bancorp") of Medford, Massachusetts and its subsidiary bank, Medford Savings Bank ("Medford"), also located in Medford. Petitioner's application before the Board is part of a multi-step transaction. A subsequent merger of Medford with and into Petitioner's banking subsidiary, Citizens Bank of Massachusetts, Boston, Massachusetts, pursuant to an Agreement and Plan of Merger dated June 13, 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 for informing the public of this matter before the Board were implemented. The public hearing was held on August 6, 2002. Representatives of the Petitioner offered testimony and responded to questions from the Board. The Board was informed that the vote of Bancorp's shareholders, which the Petitioner's filing indicated was scheduled to occur in mid-summer, had been re-scheduled to October 7. Following the hearing, the public comment period remained open so that interested parties could submit any additional comments. In a letter dated October 3, 2002, Petitioner supplemented its filing to address questions raised by the Board as well as public testimony and written comments received by the Board. On October 7, 2002, Medford shareholders approved the transaction. The public comment period closed on October 11, 2002.
Citizens Financial, a bank holding company described in greater detail below, is part of a larger international banking organization. Its 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 ("RBSG"), which, at December 31, 2001, held $536 billion in total consolidated assets.
Based in Providence, Rhode Island, Citizens Financial is one of the larger bank holding companies headquartered in the New England region, with $52.9 billion in total consolidated assets at March 31, 2002. In addition to Citizens Bank of Massachusetts, Petitioner operates six subsidiary banks including: (1) Citizens Bank of Rhode Island; (2) Citizens Bank of New Hampshire; (3) Citizens Bank, a Delaware-chartered bank formed and acquired by CFG in 2001; (4) United States Trust Company; (5) Citizens Bank of Connecticut; and (6) Citizens Bank of Pennsylvania. These banks offer a range of retail and commercial banking services, including residential and commercial mortgage lending and construction loans, commercial loan and leasing services, trust services, retail investment services, international banking services, and deposit products.
Citizens Bank of Massachusetts (hereinafter "Citizens") is a Massachusetts-chartered trust company, the resulting entity of a series of acquisitions and mergers. At March 31, 2002, its total consolidated assets were $18.4 billion. Its deposits are insured through the Bank Insurance Fund administered by the Federal Deposit Insurance Corporation ("FDIC"). Citizens has approximately 177 branch offices throughout Massachusetts.
Bancorp is a one-bank holding company headquartered in Medford, Massachusetts. At March 31, 2002, its total consolidated assets were $1.4 billion. Bancorp's primary activity is as a holding company for Medford, a Massachusetts-chartered, stock savings bank. For the three months ending March 31, 2002, Medford's total consolidated net income was $3.8 million, and its deposits totaled 1.1 billion. In addition to a main office in Medford, it operates 19 branch offices in Arlington, Belmont, Burlington, Malden, Medford, North Reading, Somerville, Tewksbury, Waltham and Wilmington. Like Citizens, Medford's deposits are insured through the Bank Insurance Fund administered through the FDIC. Additionally, as a Massachusetts-chartered savings bank, Medford's deposits in excess of the FDIC coverage are insured through the Depositors Insurance Fund (the "DIF"), established by Chapter 43 of the Acts of 1934. Medford has one wholly-owned subsidiary, Medford Securities Corporation, which buys, sells, deals in, and holds securities.
Petitioner proposes to accomplish this acquisition through a series of interrelated transactions (Some of these transactions are reviewed, pursuant to Massachusetts General Laws chapter 172, section 36 and chapter 168, section 34D, in a separate proceeding before the Division of Banks.). First, Citizens would establish a non-bank corporation ("Merger Sub") as a wholly-owned, shell subsidiary pursuant to Massachusetts General Laws chapter 167F, section 2(7). The Merger Sub would merge with and into Bancorp, at which point Bancorp and Medford would become, respectively, direct and indirect subsidiaries of Citizens. Thereupon, Bancorp would be dissolved pursuant to Massachusetts General Laws chapter 156B, section 100 and Medford would merged with and into Citizens. As a result of these transactions, the branches and assets of Medford would become the branches and assets of Citizens, and Medford and the Merger Sub would cease to exist.
As this matter now before the Board involves an interstate transaction, the reciprocity laws of Petitioner's home state are subject, pursuant to the requirements of chapter 167A, to the review of the Commissioner of Banks. Specifically, the Commissioner must determine whether the transaction being proposed by the Petitioner is authorized under the laws of Rhode Island 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 Rhode Island'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. In its application documents, Petitioner indicated that it had made a filing with the MHPF. In a letter dated August 7, 2002, MHPF notified the Board that satisfactory arrangements 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 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 banks record of performance under the Community Reinvestment Act ("CRA") and any relevant testimony received at the public hearing or submitted during the open comment period.
On the issue of whether competition will be unreasonably affected by the proposed transaction, the Board considers, but does not rely exclusively on, the various indices used by federal agencies in measuring competition in a given market. In this case, the federal standards indicate the proposed transaction will not result in undue concentration of banking resources in the relevant banking markets. However, the Board further considers the competitive effect of the proposed transaction in light of its impact on the citizens, communities, and banking structure of the Commonwealth on a community by community basis. In this regard, the Board notes that Petitioner, although acknowledging that there will likely be some consolidation of branches, has indicated that no closings are currently being planned, and has stated that none will occur in low-to-moderate income areas. Upon careful review of this issue, the Board concludes that the transaction will not unreasonably interfere with competition. Rather, the area served by Medford will continue to have access to a variety of competitive products and services, offered by a number of diverse banks and financial institutions.
Petitioner submitted a variety of materials relating to the public convenience and advantage it asserts would result from the proposed transaction. As a general matter, it argues that the additional capital, increased operational efficiency, and ability to spread operational costs over a larger base of business would enable Citizens to provide enhanced service to its customers and make it a stronger competitor in New England's challenging banking market. This strength, it asserts, would facilitate competitive pricing, innovation, and growth, benefiting its customers and the Massachusetts economy.
At the hearing, Petitioner stressed that the proposed transaction was reflective of its overall growth strategy for Massachusetts. The Medford acquisition, it explained, was consistent with this strategy in that it would expand its presence in Middlesex County. As noted above, Petitioner has indicated its commitment to a minimal number of branch consolidations. Likewise, Petitioner advised that it currently employs approximately 3300 people in Massachusetts and expected nearly all Medford employees to be absorbed into the resulting entity's organization. It indicated that few, if any, displacements were anticipated.
Petitioner argues that the customers of Citizens and Medford would realize significantly greater banking convenience if the proposed transaction is approved. It maintains that the expanded branch network that would become available to both Medford and Citizens' customers would particularly benefit Medford customers, as the proposed transaction would significantly increase the locations at which they may conduct their financial affairs. These customers, Petitioner asserts, would have access to its large branch and ATM network within Massachusetts, and the extensive out-of-state facilities of its member banks. In addition, hearing testimony and the Petitioner's filing indicated that the proposed transaction would result in Medford customers having greater access to banking services in non-traditional forums. Of particular note, Citizens' partnership with "Stop and Shop" supermarkets would give Medford customers the increased convenience of 45 supermarket branches. At the hearing, Petitioner explained that these branches are open seven days a week and have extended evening hours. It further advised that it was planning to increase the number of its supermarket branches to 65 by the end of the year. Medford customers using online and telephone banking, Petitioner further asserts, would have continued access to these programs and, with regard to telephone banking, enhanced services.
The Petitioner's filing provided information relating to the range of deposit and loan products it offers its customers, and hearing testimony noted that this offering would provide Medford customers with more choice and convenience. There was additional testimony that these customers, and the community, would benefit from Citizens particularly strong presence in the small business lending area. With respect to transitioning Medford customers from Medford to Citizen products, Petitioner testified that it was committed to a smooth transition process and would accomplish the account conversions, and any corresponding changes in an account holder's account maintenance fees, on a gradual basis. To enable Medford customers to evaluate their transitioned accounts without risk, Citizens stated at the hearing that it will waive monthly maintenance fees on all such consumer checking, consumer savings, and business savings accounts, for one year.
Petitioner maintains that the proposed transaction will enable it to expand its community outreach and CRA efforts. In its application materials, Petitioner asserted that, while it shares Medford's strong commitment to community improvement, it has significantly greater resources available to develop and implement beneficial programs. A number of these community programs were described in the application materials and discussed at the hearing. At the hearing, Petitioner provided additional information about these programs, and pointed out its promise, reflected in its acquisition agreement with Bancorp, to provide a charitable foundation with assets of $2 million for the benefit of the Medford community.
Based on all of the material submitted by the Petitioner and testimony at the hearing, the record demonstrates that, if the proposed transaction is approved, Medford customers would have expanded access to banking venues, including non-traditional locations and hours, as well as access to new and enhanced products offerings. In addition, the Board finds that Petitioner's existing customers would be benefited by its expansion into Middlesex County. Finally, the Board finds that Petitioner's community outreach efforts will advantage the community served by Medford. Based on all of these factors, the Board's review weighs in favor of the finding that the public convenience and advantage will be promoted. The Board further concludes that the criteria for net new benefits has been established.
The Board's review of this transaction includes an assessment of the subsidiary banks' performance under the CRA. Such assessment for a state-chartered bank involves 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"), Medford received a "Satisfactory" rating. The most recent examination of Citizens was administered jointly by the FDIC and the Division of Banks, and it received an "Outstanding" rating. The Board further notes the "Outstanding" CRA ratings received by Petitioner's subsidiary banks in Rhode Island, Connecticut, and New Hampshire, which were also submitted. 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.
As part of its inquiry, the Board reviews the financial structure, tax consequences, and the operational aspects of the transaction. The Board 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 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.
Conclusion
Based on the record of this matter and considered in light of all relevant statutory and administrative requirements, the Board concludes that the proposed transaction will not have a significant impact on competition among banking institutions in the Commonwealth and will promote the public convenience and advantage. Specifically, the Board finds that the transaction will benefit the customers of Medford Savings, 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 Citizens Financial Group to acquire 100% of the stock of Medford Bancorp, Inc., and Medford 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 | Board |
| Shannon P. O'Brien Treasurer and Receiver-General | |
| October 11, 2002 Date |