Decision relative to the petition of Banknorth Group, Inc., Portland, Maine to acquire First & Ocean Bancorp, Newburyport, Massachusetts
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 First & Ocean BanCorp ("BanCorp"), Newburyport, Massachusetts, and its subsidiary bank, First & Ocean National Bank ("First & Ocean Bank"), headquartered in Seabrook, New Hampshire. Banknorth Group's application before the Board is part of a multi-step transaction in which it is contemplated that following this acquisition that First & Ocean Bank will merge with and into Banknorth Group's banking subsidiary, Banknorth N.A., ("Banknorth"), Portland, Maine, pursuant to an Agreement and Plan of Merger dated September 2, 2003.
As directed by the Board, notice of the application was published and posted and a public hearing was held, 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 6, 2003. Representatives of Banknorth Group and BanCorp offered testimony and responded to questions from the members of the Board. 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 12, 2003, BanCorp shareholders approved the transaction. The comment period closed on November 14, 2003.
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, 2003, Banknorth Group had $25.8 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 350 offices located in Maine, New Hampshire, Massachusetts, Connecticut, Vermont, and New York, Banknorth Group and its subsidiaries offer a wide range of commercial and consumer banking services and products, trust, investment advisory, and insurance brokerage services.
BanCorp is a bank holding company headquartered in Newburyport, Massachusetts. Its primary activity is as a holding company for First & Ocean Bank, a national banking association headquartered in Seabrook, New Hampshire.. At June 30, 2003, First & Ocean Bank held approximately $273.8 million in total consolidated assets, $232.8 million total deposits, $192.5 million in loans, and $20.3 million in stockholder equity. Like Banknorth, First & Ocean Bank's deposits are insured by the FDIC. In addition to a main office in Seabrook, New Hampshire, First & Bank operates five full service branch offices in Amesbury, Salisbury, and Newburyport, Massachusetts.
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 satisfactory arrangements have been made by the Petitioner consistent with statute and MHPF's various affordable housing loan programs. On October 24, 2003, 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 within the Commonwealth in which the two banks have branches. 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 First & Ocean 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 asserts that a range of beneficial new financial products and services will become available to retail, small business, and commercial customers of First & Ocean Bank. These products and services are set out in the application and in the oral testimony at the public hearing. Petitioner states that it has no plans to close any existing branches, and points out that a merger with Banknorth will make banking significantly more convenient for all First & Ocean Bank customers. Specifically, Petitioner asserts that the merger will give these customers access to a large number of traditional branches in Massachusetts and in neighboring states. New and expanded commercial and online banking services including merchant services, asset-based lending, leasing services and cash management. Additionally, non-traditional banking products and services including investment planning and insurance services will be made available. The Petitioner also states that, as a result of Banknorth's participation in the SUM Network, First & Ocean Bank customers will have access to surcharge free ATMs. Finally, Petitioner Petitioner asserts that First & Ocean Bank customers will be advantaged by the increased convenience of free ATM use at 200 proprietary ATMs located in Massachusetts, as well as at more than 500 proprietary ATMs located throughout New England and upstate New York. As the record demonstrates that the customers of First & Ocean Bank will have access to a variety of new financial products, and will have the opportunity to conduct their banking business in a greater number of traditional and non-traditional forums, 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 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 as of August 2, 1999, performed by The Office of the Comptroller of the Currency ("OCC"), First & Ocean Bank received an "Outstanding" rating. On May 10, 2000, People's Heritage Financial Group, Inc. acquired and changed its name to Banknorth Group, Inc which operated a bank subsidiary in the Commonwealth named First Massachusetts Bank N.A. The only CRA examination of First Massachusetts Bank, N.A. was conducted on April 10, 2001 and resulted in a "Satisfactory" rating. The OCC also performed the most recent examination on July 9, 2001 of Banknorth as People's Heritage Savings Bank, of Portland, Maine, and it received an "Outstanding" rating. On January 1, 2002, First Massachusetts Bank, N.A. was merged with and into Banknorth, N.A. It should be noted that under the provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, host state CRA, consumer protection, and fair lending laws "apply to any branch in the host State of an out-of-State national bank to the same extent as such State laws apply to a branch of a bank chartered by that State." (See 12 U.S.C. 36(f).) Based on its review of these ratings, the Board concludes that the banks involved in this transaction were adequately meeting the credit needs of their respective communities at the time of their most recent CRA examinations. However, in the absence of a recent CRA evaluation of Banknorth, N.A., including an evaluation of its compliance with the Massachusetts CRA statute by its Massachusetts branches, it is difficult to make a complete determination of its CRA compliance within the Commonwealth at this time.
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. Additionally, the Board is aware of a number of acquisitions by the Petitioner which generally involved a smooth transition of its systems and account information.
Conclusion
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 First & Ocean 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 First & Ocean BanCorp, and First & Ocean National 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 |
| Timothy P. Cahill ___________________________ Treasurer and Receiver General | |
| December 22, 2003 _____________________ Date |