Decision relative to the petition of Compass Bank for Savings, New Bedford, Massachusetts to merge with Bay State Federal Savings Bank, Brookline, Massachusetts

By the Division of Banks

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Compass Bank for Savings (the "Petitioner" or "Compass Bank"), New Bedford, Massachusetts, has petitioned the Division of Banks (the "Division") for permission to merge with Bay State Federal Savings Bank ("Bay State"), located in Brookline. The proposed merger is pursuant to an Agreement and Plan of Merger dated December 19, 2002 (the "Agreement") and is authorized under the provisions of Massachusetts General Laws chapter 168, section 34D. The agreement provides for the merger of Bay State with and into Compass Bank, after which Bay State will cease to exist and its branches will become the branches of Compass Bank. The proposed merger is part of a multi-step transaction involving a petition before the Board of Bank Incorporation (the "Board") by Petitioner's holding company, Seacoast Financial Services Corporation ("Seacoast"), New Bedford, Massachusetts, to acquire Bay State Bancorp, Inc., ("Bancorp"). Bancorp is the holding company for Bay State and is also located in Brookline, Massachusetts.

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 and materials 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 Division's review of this matter must also take into consideration the involved banks' records of performance under the Community Reinvestment Act ("CRA").

Compass Bank is a Massachusetts chartered savings bank. At December 31, 2002, it had consolidated assets of $3.2 billion. The deposits of Compass Bank are insured through the Bank Insurance Fund administered by the Federal Deposit Insurance Corporation ("FDIC"). Additionally, as Massachusetts chartered savings banks, deposits in excess of the FDIC coverage limits are insured through the Depositors Insurance Fund (the "DIF"), established by Chapter 43 of the Acts of 1934. Petitioner is a direct subsidiary of Seacoast, which is also the holding company for Nantucket Bank, Nantucket, Massachusetts, a Massachusetts chartered savings bank. Compass Bank maintains approximately forty branch offices located throughout Southeastern Massachusetts.

Bay State is a federally chartered savings bank. At December 31, 2002, it had consolidated assets of $591.3 million. Although, as a federally chartered savings bank, Bay State's deposits are insured through the Savings Association Insurance Fund administered by the FDIC, its excess deposits are not currently insured. Bay State is the only banking subsidiary operated by Bancorp. It maintains six branch offices located in Boston, Brookline, Dedham, Norwood, Westwood, and Walpole.

The Division'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 result in an undue concentration of banking resources or have a significant impact on banking competition in the communities served by the resulting entity. Rather, the record demonstrates that the communities served by Bay State will continue to be served by a number or diverse banks and financial institutions providing access to a variety of competitive deposit and credit services.

The Division 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 Division may deem necessary or advisable.

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 explains that the acquisition of Bay State is consistent with its strategic plan and would represent a natural geographic expansion of its current market area. Such geographic compatibility, it notes, will not require the closing of any branch offices, and will enable it to retain most of Bay State's employees. The Petitioner also maintains that, as a result of the acquisition, it will achieve significant cost savings, revenue enhancements, and operating synergies. The cost savings will be primarily derived, it maintains, from the integration of back office functions and associated personnel reductions, as well as through reductions in Bay State's executive officer staff.

Petitioner asserts that the acquisition will benefit the customers and communities of both Bay State and Compass Bank. It argues that the proposed transaction would provide these customers with greater banking convenience through an expanded branch office and ATM network. This expanded network would be of particularly benefit to Bay State customers, Petitioner maintains, as it would significantly increase the locations at which they may conduct their financial affairs. Petitioner notes that the customers of both banks will ultimately have access to 46 full service banking offices, as well as ATMs, located within a larger geographic area.

If the transaction is approved, Petitioner points out that the deposits of Bay State that are in excess of the FDIC limits will become insured by the DIF, a benefit unavailable to the customers of a federal savings bank. Bay State customers will also benefit from the larger array of products and services offered by Compass Bank, the Petitioner asserts, including several not currently available to Bay State customers. Petitioner maintains that, as a consequence of the acquisition, such customers will be served by a Call Center providing account and product information Monday through Saturday. Bay State customers will also have access to a greater variety of checking products, Petitioner notes, as well as no fee debit and ATM card transactions, and high net worth customers will have access to investment services through an affiliated money management firm. Bay State's commercial customers, Petitioner advises, will benefit from a variety of web-based account management and business tools, as well as from the the increased lending limits associated with Compass Bank's significantly larger size.

The Petitioner maintains that, like Bay State, it has a strong commitment to serving the needs of the communities in which it operates. It advises that the Bay State Federal Savings Charitable Foundation will continue to operate after the acquisition, and will continue to provide funding to various non-profit organizations in the Bay State community. More generally, Petitioner asserts that these communities will benefit from its greater resources, noting particularly its many programs designed to meet the needs of low and moderate income persons.

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, Bay State customers will have expanded access to banking venues and services and the Petitioner's existing customers will be benefited by its expansion into the Boston Banking Market. The Division also finds that the Petitioner's various programs designed to address community needs will benefit the Bay State community. 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 has 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' records 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. In this case, the Division obtained and reviewed the relevant evaluations for Compass Bank, Nantucket Bank, and Bay State. In the most recent CRA examinations of Compass Bank and Nantucket Bank, both performed by the FDIC, each bank received a "Satisfactory" rating. The most recent examination of Bay State, conducted by the Office of Thrift Supervision, resulted in a "Satisfactory" rating. Based on its review of these evaluations, the Division concludes that the banks involved in this transaction are adequately meeting the credit needs of their respective communities.

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 public interest. On the basis of these conclusions, and subject to the conditions set forth below, approval is granted for Bay State to merge with and into Compass Bank in conformity with the Agreement and pursuant to Massachusetts General Laws chapter 168, section 34D.

The approval granted herein is subject to the following conditions:

1. that the merger of Bay State and Compass Bank 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 has been returned with my endorsement thereon;
2. that such Certificate and Articles of Merger shall be filed with the Secretary of State of the Commonwealth of Massachusetts;
3. that the proposed merger shall be consummated within one year of the date of this Decision.

May 27, 2003 __________________________ Date

Thomas J. Curry ___________________________________ Commissioner of Banks