Decision relative to the petition of Citizens Financial Group, Inc., Providence, Rhode Island and certain related entities to acquire Charter One Financial, Inc., Cleveland, Ohio
By the Division of Banks
Citizens Financial Group, Inc. ("Citizens Financial"), Providence, Rhode Island and certain related entities, as described herein (collectively, the "Petitioner") have petitioned the Board of Bank Incorporation (the "Board") pursuant to Massachusetts General Laws chapter 167A, sections 2 and 4, to acquire Charter One Financial, Inc.. ("Charter One"), Cleveland, Ohio, and its subsidiary, Charter One Bank, N.A. ("Charter Bank"), also located in Cleveland, Ohio. Following the transaction, Charter Bank will become a direct subsidiary of Citizens Financial and continue its separate legal existence as a national banking association. The matter is before the Board since in the Commonwealth Citizens Financial is the holding company for Citizens Bank of Massachusetts and Boston Trust and Investment Management Company, formerly United States Trust Company.
As directed by the Board, a 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 July 15, 2004. Representatives of the Petitioner offered testimony and responded to questions from the members of the Board. A letter was submitted on behalf of Charter One evidencing its support of the transaction. Following the hearing, the public comment period remained open until July 30, 2004 so that interested parties could submit any additional comments. During the public comment period, one party submitted two comments in opposition to the proposed transaction. Additionally, one party testified at the hearing in 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, plc ("RBSG"), which, at December 31, 2003, held approximately $812.3 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 two largest headquartered in the New England region, with $77.7 billion in total consolidated assets at December 31, 2003. Following the proposed transaction, Citizens Financial would become, according to the application, one of the ten largest commercial bank holding companies in the United States. Citizens Financial operates seven subsidiary banks: (1) Citizens Bank of Massachusetts; (2) Citizens Bank of Rhode Island; (3) Citizens Bank of New Hampshire; (4) Citizens Bank, a Delaware-chartered bank formed and acquired by CFG in 2001; (5) Boston Trust and Investment Management Company, formerly United States Trust Company, Boston, Massachusetts; (6) Citizens Bank of Connecticut; and (7) Citizens Bank of Pennsylvania.
Charter One is a financial holding company headquartered in Cleveland, Ohio. Charter One's core business, which it conducts primarily through the operations of Charter Bank and Charter Bank's subsidiaries, is providing consumer banking services throughout Ohio and to certain major markets in Illinois, Michigan, New York, Vermont and in some markets of Connecticut, Indiana, Pennsylvania and Massachusetts. As March 31, 2004, Charter One's total consolidated assets were $41.4 billion.
The proposed acquisition would be accomplished through a series of interrelated transactions, which will ultimately result in Charter One becoming a direct subsidiary of Citizens Financial. First, Citizens Financial will establish a wholly-owned shell subsidiary which will merge with and into Charter One. As a result, Charter One and Charter Bank will become, respectively, direct and indirect subsidiaries of Citizens Financial. Thereafter, Charter One will merge with and into Citizens Financial resulting in Charter Bank becoming a direct subsidiary of Citizens Financial.
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 July 30, 2004, MHPF notified the Board that satisfactory arrangements had been made for this transaction.
The Board's review of this matter 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 record of performance under the Community Reinvestment Act ("CRA") of the subsidiary banks involved in a holding company transaction 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 Charter Bank operates 13 branches in 10 communities within the Commonwealth principally in western Massachusetts. The Board notes that in 7 of those communities Citizens Bank of Massachusetts also has branches. Upon review, the Board believes that the proposed transaction will have no substantial impact on any of these communities. The Board is satisfied that consumers in the impacted communities will continue to have access to competitive products and services offered by a diverse number of commercial banks, savings banks, co-operative banks, credit unions and non-bank providers. For these reasons, the Board concludes that competition among banking institutions will not be unreasonably affected.
The Board recognizes that the proposed transaction would significantly increase Citizen Financial's franchise. The franchise would be expanded into upstate New York, Vermont and the Midwest and also strengthens its business in Connecticut, Pennsylvania as well as in western Massachusetts.
The Petitioner submitted a variety of materials relating to the public convenience and advantage it asserts would result from the proposed transaction. The customers of Charter Bank will have access to a broader array of financial products and services, it maintains, and an expanded service area. Additionally, among other things, Charter One's customers will benefit from Petitioner's expertise in the areas of cash management, foreign exchange, derivatives, local government banking and professional banking. Additional products and services were set out in the application and in testimony. In Massachusetts, the proposed transaction will have the direct benefit of strengthening Citizens Financial's subsidiary banks' retail branch network by adding an additional 13 branches in central and western Massachusetts. These 13 branches will all remain open following the transaction and as mentioned at the hearing may make the opening of other branches in central and western Massachusetts more likely. Moreover, Petitioner argues that the transaction will achieve operating efficiencies which will strengthen its financial position and allow it to compete better with larger depository institutions as well as facilitating Petitioner's ability to continue to develop and offer innovative products and services to customers in all markets that it serves including Massachusetts. After considering all of the material submitted, 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 . The most recent CRA examination performed by the Office of Thrift Supervision prior to its becoming a national banking association resulted in Charter Bank receiving a "Satisfactory" rating . As a newly chartered bank, the CRA performance of Citizens Bank of Delaware has not yet been assessed. However, the most recent examinations of Citizens Bank of Rhode Island, Citizens Bank of Pennsylvania, Citizens Bank of Connecticut, Citizens Bank of New Hampshire, and Citizens Bank of Massachusetts all resulted in "Outstanding" ratings while Boston Trust & Investment Management Company received a "Satisfactory." Oral and written testimony provided at the public hearing detailed the numerous CRA initiatives of the subsidiary banks of Citizens Financial.
Written comments submitted to the Board raised questions regarding the business practices of the Petitioner's bank and non-bank subsidiaries, its corporate parent, and certain allied but unaffiliated lenders. The Petitioner provided the Board with a written response to these concerns, pointing out among other things the consistently high CRA performance of its subsidiary banks. The one individual testifying at the public hearing against the transaction cited a commercial matter involving his client.
The Board and staff of the Division of Banks have reviewed the issues raised and the response thereto on matters within their jurisdiction. Based on this review, the Board is unable to conclude that the Petitioner's application should be denied. To the contrary, and based upon the Petitioner's strong record of meeting the credit needs of the communities in which it operates, the Board is satisfied that the banks involved in this transaction will adequately meet the credit needs of the relevant 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. Finally, operational issues were considered, 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 as well as provide net new benefits. The Board also 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 Petitioner to acquire Charter One Financial, Inc. and Charter One Bank, N.A.
The approval granted herein is subject to the condition that all related transactions are completed within one year of the date of this Decision.
| Steven L. Antonakes ___________________________ Commissioner of Banks | |
| Alan L. LeBovidge ___________________________ Commissioner of Revenue | Board |
| Timothy P. Cahill ___________________________ Treasurer and Receiver General | |
| August 23, 2004 _____________________ Date |