Decision relative to the application of Citizens Bank of Massachusetts, Boston, Massachusetts to merge with Cambridgeport Bank, Cambridge, Massachusetts
By the Division of Banks
Citizens Bank of Massachusetts (the "Petitioner" or "Citizens"), Boston, Massachusetts, has applied to the Division of Banks (the "Division") for permission to merge with Cambridgeport Bank ("Cambridgeport"), Cambridge, Massachusetts. The proposed merger is pursuant to an Agreement and Plan of Merger dated April 17, 2003 (the "Agreement") and is authorized under the provisions of Massachusetts General Laws chapter 168, section 34D and Massachusetts General Laws chapter 172, section 36. The Agreement provides for the merger of Cambridgeport with and into Citizens, after which Cambridgeport will cease to exist and its branches will become branches of Citizens. The proposed merger is part of a multi-step transaction involving a petition before the Board of Bank Incorporation by Petitioner's holding company, Citizens Financial Group, Inc. ("Citizens Financial"), Providence, Rhode Island, and certain related entities, to acquire Port Financial Corp., Brighton, Massachusetts. Port Financial Corp. is the holding company of Cambridgeport. As part of its application, Citizens requests approval to establish a Massachusetts nonbank corporation as a wholly-owned shell subsidiary of Citizens solely for the purpose of facilitating the proposed transaction.
Notice of Petitioner's application was published and posted, and the time period for interested parties to comment on the transaction has expired. Accordingly, all documents, materials and public comments related to this transaction have been received and reviewed. This record has been considered with regard to all applicable statutory standards, which require consideration of, among other things, whether competition among banking institutions will be unreasonably affected by the proposed transaction and whether the public convenience and advantage will be promoted. The Commissioner's review of this matter must also take into consideration the involved banks' record of performance under the Community Reinvestment Act ("CRA").
Citizens is a Massachusetts-chartered trust company, the resulting entity of a series of acquisitions and mergers. Citizens has approximately 235 branch offices throughout Massachusetts. At December 31, 2002, its total consolidated assets were $22.8 billion. Its deposits are insured through the Bank Insurance Fund administered by the Federal Deposit Insurance Corporation ("FDIC"). Citizens is an indirect subsidiary of The Royal Bank of Scotland Group plc, The Royal Bank of Scotland plc, RSBG International Holdings and a direct subsidiary of Citizens Financial, a bank holding company incorporated in Delaware.
Cambridgeport is a Massachusetts-chartered stock savings bank. Cambridgeport reorganized into a mutual holding company, Cambridgeport Mutual Holding Company, in August 1994. On April 11, 2000, the mutual holding company converted to a stock holding company under the name of Port Financial Corp. As a mutual holding company which converted to stock, Port Financial Corp. enjoyed a three-year period during which it was free from hostile takeover attempts. (See 208 CMR 33.08(6)(c). This section provides that for a period of three years following the date of the completion of a plan of conversion, no person shall directly or indirectly offer to acquire or acquire the beneficial ownership of more than 10% of any class of an equity security of a bank converted in accordance with the provisions of 209 CMR 33.00, without prior written notice to the converted bank and the prior written approval of the commissioner. Section 33.08(6)(c) applies to Port Financial by virtue of the mutual holding company stock conversion provisions of 209 CMR 33.32 and 33.35.) The purpose of this provision is to provide a reasonable period of time for a converted institution to prudently deploy the capital raised in the offering according to its disclosed business plan and to acclimate itself as a public company without the distraction of considering takeover proposals. Once this anti-takeover period expired, Port Financial Corp. was not precluded from entering into a definitive formal acquisition agreement with Citizens. (Port Financial Corp.'s May 30, 2003 proxy materials, however, clearly indicate that it held preliminary discussions with representatives of Citizens as early as September 2002. Proxy Materials at 15-19. It also entered into similar strategic combination discussions with three other financial institutions throughout this period. Id. The Division notes that Port Financial aggressively and successfully pursued its post conversion business plan throughout the 3-year anti-takeover period. Section 33.08 (6)(c), however, may be invoked by the Division where it determines that a converted institution has actively solicited acquisition proposals during the anti-takeover period and that it failed to make reasonable good faith efforts to pursue its business plan as outlined in its plan of conversion.)
For the three months ending December 31, 2002, Cambridgeport's total consolidated net income was $13.3 million, and its deposits totaled $1.1 billion. In addition to a main office in Cambridge, it operates 11 branch offices in Arlington, Brighton, Brookline, Cambridge, Lexington, Natick, Needham, Newton, Wellesley, Westwood, and Winchester. Like Citizens, Cambridgeport's deposits are insured through the Bank Insurance Fund administered through the FDIC. Additionally, as a Massachusetts-chartered savings bank, Cambridgeport'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. Cambridgeport has four wholly-owned subsidiaries, Temple Investment Corporation, River Investment Corporation, Cambridgeport Insurance Services, Inc., and Prospect Real Estate Investment Corp. Temple Investment Corporation and River Investment Corporation both engage in securities investment activities in which a Massachusetts bank is permitted to engage. Cambridgeport Insurance Services, Inc. was established in April 2000, but is currently inactive. Prospect Real Estate Investment Corp. was established in April 2001, and holds certain mortgage loans originated by Cambridgeport as well as mortgage-backed securities. Cambridgeport also is the sole member of Temple Realty, LLC, a Delaware LLC that owns Port Financial Corp.'s administration center located in Brighton, Massachusetts. Citizens intends to retain ownership of the above referenced subsidiaries and LLC, the acquisition of which will occur by operation of law upon the effective date of the merger transaction.
The Commissioner's review of this matter takes into consideration whether competition among banks will be unreasonably affected by the proposed transaction. Materials addressing this issue were submitted by the Petitioner and reviewed by the Division. Review of this material indicates that the merger would not significantly adversely affect competition in the communities served by the resulting entity nor result in an undue concentration of banking resources. Rather, the record demonstrates that the communities served by Cambridgeport will continue to be served by a number of diverse banks and financial institutions providing access to a variety of competitive deposit and credit services.
The Commissioner must also consider whether the proposed transaction promotes the public convenience and advantage, as well as whether there has been a showing of net new benefits in relation to the transaction. 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 Commissioner may deem necessary or advisable. The Petitioner's application sought permission to maintain all branches operated by Cambridgeport immediately prior to the closing date as branches of Petitioner following the closing date and also stated its intention to maintain all automated teller machines ("ATMs") of Cambridgeport. Petitioner stated in its application that it is presently reviewing the locations of Cambridgeport's existing branches to obtain appropriate data from which to make a determination as to whether or when locations may be merged, consolidated or closed. Any such subsequent determinations would require compliance with applicable legal requirements. Petitioner has submitted a variety of materials relating to the proposed merger's positive impact on its operational efficiency and competitive posture in Massachusetts. It contends that Citizens's current financial strength, together with the resources and operating efficiencies it anticipates achieving as a result of the transaction, will provide a platform for future growth of Citizens's market area and customer base within Massachusetts. Current customers of Cambridgeport will experience substantial improvement in access to banking services through an increase in the number of branches to which customers will have access. Petitioner testified that following the transaction customers of Citizens will have access to more than 850 branches and 1700 ATMs throughout New England and the mid-Atlantic states. The Petitioner notes that Citizens is a significant lender to small and medium sized businesses in Massachusetts and Citizens Financial Group was named the number one small business lender in New England by the Small Business Administration. In addition, as part of the transaction, a charitable foundation will be formed with initial assets of $5 million for the benefit of Cambridge and other markets served by Cambridgeport.
Petitioner asserts that the transaction will provide Cambridgeport customers with many new choices, including expanded branch hours, supermarket banking throughout New England, 24-hour, 7-day a week telephone banking, and an expanded investment options with a wide variety of mutual funds and annuities. The Petitioner's filing provided information relating to the range of deposit and loan products it offers its customers which Petitioner contends would provide Cambridgeport customers with more choice and convenience. In addition, Citizens has undertaken to waive monthly maintenance fees on all personal checking accounts for one year from the date of the systems conversions.
Upon review and consideration of all the materials submitted on this issue by the Petitioner and other interested individuals, the Division concludes that the proposed merger will provide the customers of both entities with greater banking convenience in the form of more banking locations, and provide Cambridgeport customers with access to an expanded range of banking products and services. These factors, together with additional evidence contained in the record of this matter, support the conclusion that the proposed merger will promote the public convenience and advantage. Further, the criteria for net new benefits have been established.
Prior to approving this transaction, and as required by Massachusetts General Laws chapter 167, section 14, the Division must consider the involved banks' record of performance under the CRA. Such assessment for a state-chartered bank involves examination by Division 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 Division reviews the descriptive rating and evaluation by the applicable federal or state bank regulatory agency. The relevant evaluations were also submitted as part of Petitioner's application materials. In its most recent CRA examination, performed by the Federal Deposit Insurance Corporation ("FDIC"), Cambridgeport 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. These ratings, as well as other materials submitted on this issue, sufficiently demonstrate that the banks involved in this transaction are adequately meeting the credit needs of their respective communities.
The Division notes one commenter raised matters relative to certain practices of affiliates and parents of Citizens. Specifically, inquiry was made of the Petitioner as to the assertions of the disparate treatment of mortgage applicants and the funding provided to subprime lenders. Petitioner submitted an extensive written response to the Division and other regulatory agencies on the matters raised by the commenter. The staff of the Division of Banks reviewed all of the issues raised and the responses thereto on matters within their jurisdiction. The Division also considered the comments raised on the branch office closings by Citizens subsequent to recent acquisitions. Branch office closings require approval of the Division pursuant to G.L. c. 167C, ยง3.
As a state-chartered savings bank, the deposits in Cambridgeport in excess of the deposit insurance coverage provided by the FDIC are insured, in full, by the DIF. Upon consummation of the merger of Cambridgeport with and into Citizens, a trust company, the excess deposit insurance coverage for Cambridgeport's deposits by DIF will end. The Division was provided with the proposed disclosure materials to be provided to Cambridgeport's depositors informing them that the DIF deposit insurance coverage will end if the merger is approved and finalized, while the FDIC coverage will continue. The Division is aware that Cambridgeport has sent such materials to depositors.
Based on the entire record of this matter and considered in light of all relevant statutory and administrative requirements, the Division concludes that all such requirements have been met and that consummation of the proposed merger would be in the public interest. On the basis of these conclusions, and subject to the conditions set forth below, approval is granted for Cambridgeport to merge with and into Citizens in conformity with the Agreement and pursuant to Massachusetts General Laws chapter 168, section 34D and chapter 172, section 36. Pursuant to G.L. c. 167F, section 2, paragraph 7, approval is hereby granted for Citizens to establish a wholly-owned subsidiary organized solely for the purpose of facilitating the transaction. In accordance with General Laws chapter 167C, section 3, approval is also granted for the continuing bank to maintain the existing banking offices of Cambridgeport as branch offices.
The approval granted herein is subject to the following conditions:
- that the merger of Cambridgeport and Citizens shall not become effective until a Certificate, signed by the Presidents and Clerks or other duly authorized officers of the banks involved in the merger, indicating that the institution has complied with the provisions of Massachusetts General Laws chapter 168, section 34D and chapter 172 section 36 has been returned with my endorsement thereon;
- that such Certificate and Articles of Merger shall be filed with the Secretary of State of the Commonwealth of Massachusetts;
- that the proposed merger shall be consummated within one year of the date of this Decision.
| July 28, 2003 __________________________ Date | Thomas J. Curry ___________________________________ Commissioner of Banks |