Decision relative to the petition of Citizens Financial Group, Inc., Providence, Rhode Island and certain related entities to acquire Community Bancorp, Inc., Hudson, Massachusetts
By the Division of Banks
Citizens Financial Group, Inc. ("Citizens Financial"), 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 indirectly acquire Community National Bank ("Community National") through a merger with its holding company, Community Bancorp, Inc. ("Community Bancorp"), Hudson, Massachusetts. In the Commonwealth, Citizens Financial and related parties are the holding companies for Citizens Bank of Massachusetts ("Citizens Bank"), Boston, Massachusetts. An application for approval of a subsequent merger of Community National with and into Citizens Bank is before the Division of Banks. Hereinafter, the references to Petitioner shall include Citizens Financial and Citizens Bank.
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 September 29, 2003. Representatives of the Petitioner offered testimony and responded to questions from the Board. A representative of Community National submitted testimony. Additionally, a commenter also appeared and submitted written comments against the proposed transaction. Following the hearing, the public comment period remained open so that interested parties could submit any additional comments. Additional comments were received by the Board following the hearing. Those comments included a response by the Petitioner to the testimony in opposition to the transaction submitted at the public hearing as well as a supplemental filing by the opposition.
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 March 31, 2003 held $382 billion in total consolidated assets.
Based in Providence, Rhode Island, Citizens Financial is among the twenty largest bank holding companies in the United States and among the three largest headquartered in the New England region, with $ 67 billion in total consolidated assets at March 31, 2003. 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 Citizens Financial in 2001; (4) United States Trust Company, Boston, Massachusetts; (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 is a Massachusetts-chartered trust company, the resulting entity of a series of acquisitions and mergers. At March 31, 2003, its total consolidated assets were $24.3 billion. Its deposits are insured through the Bank Insurance Fund administered by the Federal Deposit Insurance Corporation ("FDIC"). Citizens Bank has approximately 235 branch offices throughout Massachusetts.
Community Bancorp is a bank holding company headquartered in Hudson, Massachusetts. Its primary activity is as a holding company for Community National, a national banking association in stock form. Community Bancorp had total consolidated assets of $452 million at March 31, 2003. Community National operates through a network of 10 banking offices in Middlesex County. Community National offers a variety of commercial and retail banking services, including deposit products, and commercial, real estate, installment and other loan products. In addition, Community National offers a variety of other bank-related products and services, including safe deposit facilities, investment management, trust services, and insurance products. Community National has two wholly-owned subsidiaries: Community Securities Corporation, which engages in securities investment activities, and Community Benefits Consulting, Inc., which engages in financial planning activities.
Petitioner proposes to accomplish the acquisition of Community Bancorp through a series of interrelated transactions in which Citizens Bank 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 Community Bancorp, thereby making Community Bancorp a direct subsidiary of Citizens Bank and Community National Bank an indirect subsidiary of Citizens Bank; and Community National Bank would merge with and into Citizens Bank, with Citizens Bank the surviving entity. As a result of these transactions, the branches and assets of Community National would become the branches and assets of Citizens Bank, and Community National and the Merger Sub would cease to exist.
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 a letter dated October 24, 2003 and received on October 27, 2003, MHPF notified the Board that satisfactory arrangements had been made for these transactions.
As the matter now before the Board involves interstate transactions, 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 acquisition of Community Bancorp by the Petitioner are 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 for such acquisitions, and consistent with previous rulings regarding the Petitioner and Rhode Island's reciprocity laws as to transactions involving the acquisition of all shares of an entity, the Commissioner has concluded that the proposed transactions are permissible under the Commonwealth's Interstate Bank Act.
The Board's review of these 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, Petitioner has stated in its application that it is presently reviewing the locations of Community National'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. Upon careful review of this issue, the Board concludes that the transaction will not unreasonably affect competition. Rather, the communities served by Community National 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 Bank 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.
Petitioner argues that the customers of Citizens Bank and Community National would realize significantly greater banking convenience if the proposed transaction is approved. Current customers of Community National 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 Bank will have access to more than 850 branches and 1700 ATMs throughout New England and the mid-Atlantic states through the banking subsidiaries. The Petitioner notes that Citizens Bank is a significant lender to small and medium sized businesses in Massachusetts and Citizens Financial was named the number one small business lender in New England by the Small Business Administration. Petitioner asserts that the transaction will provide Community National customers with many new choices, including expanded branch hours, supermarket banking throughout New England, 24-hour, 7-day a week telephone banking, and 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 product it offers its customers, and hearing testimony noted that this offering would provide Community National customers with more choice and convenience. There was additional testimony that these customers and the community would benefit from Citizens Bank's particularly strong presence in the small business lending area.
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, Community National customers would have expanded access to banking venues, including non-traditional locations and hours, as well as access to new and enhanced products offerings. Additionally, the Board finds that Petitioner's community outreach efforts will benefit the communities served by Community National. 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 Banks 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"), Community National received a "Satisfactory" rating. The most recent examination of Citizens Bank was conducted 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 at the public hearing. Based on its review of these ratings and comments , the Board concludes that the banks involved in this transaction are adequately meeting the credit needs of their respective communities.
The Board also asked questions regarding the written statements of one commenter relative to the assertions of disparate treatment of mortgage applicants as well as the funding provided to subprime lenders by affiliates and parents of Citizens Bank. Representatives of the Petitioner responded orally and also cited the extensive written response submitted to the Board and other regulatory agencies on the matters raised by a commenter in past transactions. The Board and staff of the Division of Banks reviewed all of the issues raised and the responses thereto on matters within their jurisdiction. This review considered the updated Home Mortgage Disclosure Act information cited as well as a new issue raised by the commenter in opposition to the transaction. In making its determinations on previous as well as the pending transaction the Board has independently considered the overlap within the branch office networks. The Board's review has noted that Citizens Bank has extensively expanded its branch office network in recent years to now include approximately two hundred and thirty-five locations and that all branch office closings are subject to separate regulatory approval. ( See, Massachusetts General Laws chapter 167C, section 3.)
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.
The Board's review of all statutory and administrative criteria applicable to the acquisition of Community Bancorp by Citizens Financial and related parties supports approval of the transaction.
Based on the record of this matter and considered in light of all relevant statutory and administrative requirements, the Board concludes that the proposed transactions 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 Community National, 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 to acquire 100% of the stock of Community Bancorp and Community National.
The approvals granted herein are 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 | |
| October 30, 2003 _____________________ Date |