Decision Relative to the Petition of Banknorth Group, Inc., Portland, Maine to Acquire Bostonfed Bancorp, Inc., Burlington, Massachusetts
By the Division of Banks
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 Boston Federal Savings Bank ("Boston Federal"), Burlington, Massachusetts. Boston Federal is the wholly-owned banking subsidiary of BostonFed Bancorp, Inc. ("Bancorp"), Burlington, Massachusetts. Banknorth Group's application before the Board is part of a multi-step transaction in which Boston Federal will be merged with and into Banknorth Group's banking subsidiary, Banknorth N.A., ("Banknorth"), Portland, Maine pursuant to an Agreement and Plan of Merger between Banknorth Group and Bancorp dated June 20, 2004.
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 4, 2004. Representatives of Banknorth Group and Boston Federal 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. The comment period closed on November 11, 2004.
Banknorth Group is a financial holding company headquartered in Portland, Maine and is one of the country's 50 largest commercial banking companies. As of June 30, 2004, it had total consolidated assets of approximately $29.3 billion. 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 approximately 360 offices located in Maine, New Hampshire, Massachusetts, Connecticut, Vermont, and New York, Banknorth, and its subsidiaries offer a range of commercial and consumer banking services and products, trust, investment advisory, and insurance brokerage services.
Bancorp is a Delaware corporation and registered savings and loan holding company. As of June 30, 2004, it had total consolidated assets of $1.7 billion. Bancorp's principal asset is Boston Federal, its federal savings bank subsidiary. Boston Federal maintains sixteen banking offices located in Essex, Middlesex, Norfolk, and Suffolk Counties of Massachusetts. Through these offices, Boston Federal attracts deposits from the general public, which are used to make a variety of consumer and commercial loans, as well as other investments.
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 holding 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. The Board recently 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, in section 4 of said chapter 167A, 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 of the banks involved in this transaction 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 competitive conditions. The starting point in the federal analyses 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. In the Boston Banking Market, the only banking market in which both Banknorth and Boston Federal have overlapping operations, the proposed transaction would cause only a modest increase in concentration, and thus does not approach the thresholds that would be considered problematic under the federal guidelines. However, the Board's analysis of a transaction is not confined to the consideration of overall concentration ratios to evaluate competitive conditions, it also considers the competitive impact of a proposed transaction on a community by community basis, as well as on the overall banking structure of the Commonwealth. In this regard, the Board notes that, within the Boston Federal service area and in Massachusetts generally, consumers and businesses will continue to have access to a wide variety of competitive products and services, offered by a number of commercial banks, savings banks, cooperative banks, and credit unions. Likewise, non-bank financial institutions continue to be a source of significant competition for banks. The Board notes that, at the hearing on this transaction and previously with respect to similar transactions, there was testimony that such competitive pressures were relevant to the bank's decision to combine with a larger banking institution. (Also mentioned as relevant to the bank's decision was the increased burden resulting from recently enacted corporate governance laws, as well as other compliance issues.) Based on the results of the federal analyses and the additional factors noted above, the Board finds that banking competition will not be unreasonably affected by the proposed transaction.
Petitioner submitted a variety of materials relating to the public convenience and advantage that will result from the proposed transaction. In this regard, it asserts that the proposed transaction will not have a significant effect on existing staffing levels or the current branch office network. Rather, Petitioner argues that the proposed transaction will continue its growth in Massachusetts, expanding its branch office network and ultimately creating more jobs. With respect to its branch network, the Petitioner maintains that, as a result of the proposed transaction, Boston Federal customers will gain access to its over 402 branch offices located throughout the Northeast, 159 of which are located in Massachusetts, Boston Federal customers will have a greatly expanded branch network in which to conduct their banking business. Although this transaction will involve the consolidation of three existing branch offices, the Petitioner has advised that, each such consolidating branch is less than a mile from the continuing branch, and each is comparable or superior in terms of capacity and customer convenience. With respect to the vacated properties, the Petitioner has advised the Board that the vacated properties which are available for lease are not subject to any restrictive conditions and will be available to other financial institutions.
The Petitioner maintains that, in addition to the greatly expanded branch network, Boston Federal customers will be able to conduct banking business at 565 Banknorth ATMs located throughout the Northeast, 234 of which are in Massachusetts, and will maintain access to the numerous ATMs in the SUM Network. Boston Federal customers will additionally benefit, the Petitioner asserts, from expanded telephone banking services, which includes 24 hour live customer service, and online banking and bill pay services.
In addition to the much larger service area and capabilities discussed above, the Petitioner maintains that Boston Federal customers will benefit from Banknorth's expanded retail and commercial product offerings. On the retail side, and in addition to an expanded array of deposit and loan products, Boston Federal customers will have access to a broader and in many instances expanded range of other services including: trust and wealth management, investment planning, and insurance products and services. Commercial customers will similarly benefit, Petitioner asserts from an expanded product offering that includes free business checking products for small business as well as other products and services especially designed for small business. Larger commercial customers of Boston Federal will benefit from Petitioner's greater lending resources, the Petitioner maintains, as well as expanded asset-based lending, commercial leasing, and cash management services.
Based on the foregoing, and on the entire record of this matter, the Board finds that the public convenience and advantage will be promoted by the proposed transaction, and 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 the most recent CRA examination of Boston Federal, performed by the OTS on June 18, 2001, it received a "Satisfactory" rating. In 2000, People's Heritage Financial Group, Inc. acquired, merged with, and changed its name to Banknorth Group. The most recent examination of Banknorth was performed by the Office of the Comptroller of the Currency on July 9, 2001, while it was operating as People's Heritage Savings Bank, of Portland, Maine, and resulted in an "Outstanding" rating. 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, 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. For this and past transactions, the Board is also aware that Banknorth has policies and procedures in place to comply with the Bank Secrecy Act.
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. The Board also finds that the banks involved in this transaction have a satisfactory record of performance under CRA. In accordance with these findings and pursuant to the statutory authority cited herein, the Board approves the petition of Banknorth Group to acquire 100% of the stock of BostonFed Bancorp and Boston Federal Savings 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.
| Steven L. Antonakes ___________________________ Commissioner of Banks | |
| Alan L. LeBovidge ___________________________ Commissioner of Revenue | Board |
| Timothy P. Cahill ___________________________ Treasurer and Receiver General | |
| December 10, 2004 _____________________ Date |