Decision Relative to the Petition of Eastern Bank Corporation, Boston, Massachusetts to Acquire Plymouth Bancorp, Inc. Wareham, Massachusetts
By the Division of Banks
Eastern Bank Corporation. (the "Petitioner" or "Corporation"), Boston, Massachusetts, has petitioned the Board of Bank Incorporation ("the Board") pursuant to Massachusetts General Laws chapter 167A, sections 2 and 4 to acquire Plymouth Bancorp, Inc., ("Bancorp"), Wareham, Massachusetts, and its subsidiary, Plymouth Savings Bank ("Plymouth"), Wareham, Massachusetts. Petitioner is the mutual holding company for Eastern Bank ("Eastern"), Boston, Massachusetts. As set forth in an Agreement and Plan of Merger dated July 7, 2004, this multi-step transaction would first merge Bancorp with and into Corporation, with Corporation as the surviving mutual holding company of two subsidiary banks. Petitioner proposes to operate Eastern and Plymouth as separate entities for several months after the merger of the two mutual holding companies. Following that period and subject to regulatory approval, Plymouth would be merged with and into Eastern, with Eastern as the surviving bank.
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 the Corporation and Bancorp offered testimony and responded to questions from the members of the Board. While this matter was pending, the filing was supplemented and the full record of this transaction reflects that changes were made relative to matters involving the directors of Plymouth. 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 public comment period closed on November 11, 2004.
Petitioner is a mutual holding company headquartered in Boston, Massachusetts. It maintains additional corporate offices in Lynn and Quincy. As of June 30, 2004, it had total consolidated assets of approximately $5.1 billion. Eastern, Petitioner's sole bank subsidiary, was chartered as a mutual savings bank in 1818. It reorganized to the mutual holding company form of organization in 1989, the first bank to do so in Massachusetts. Eastern operates 53 banking offices, which are located primarily in Eastern Massachusetts. In 2003, Eastern received permission from the Board to change the location of its main office from Lynn to Boston. Through these offices, Eastern offers a range of financial products and services for consumer, business and government customers. Additionally, it manages over $1 billion in trust and investment management assets, and provides financial advisory services to businesses on capital market activities, equipment leasing, cash management, commercial real estate, and international trade and foreign exchange matters. Eastern has a number of non-bank subsidiaries, including a large insurance agency and a commercial mortgage and real estate investment banking firm. Eastern operates a charitable foundation, through which it makes donations to non-profit organizations in its market area. The deposits of Eastern are insured to allowable limits by the Bank Insurance Fund administered by the Federal Deposit Insurance Corporation ("FDIC"). Since its July 31, 2004 withdrawal from the Depositors Insurance Fund ("DIF"), Eastern Bank became, by operation of law, a state-chartered trust company and its deposits in excess of the FDIC limits are no longer insured.
Bancorp is a mutual holding company headquartered in Wareham and also maintains administrative offices in Middleborough. As of June 30, 2004, it had total consolidated assets of approximately $1.5 billion. Bancorp's sole bank subsidiary is Plymouth, which was chartered as a mutual savings bank in 1847 and reorganized to the mutual holding company form in 1998. Bancorp also operates a charitable foundation, which it established in 2001 for the purpose of supporting non-profit organizations in Southeastern Massachusetts. Plymouth operates 18 banking offices in Southeastern Massachusetts. Through these offices, it accepts deposits and provides a full range of loan products and financial services to consumer and commercial customers. Through its seven loan production offices located in Massachusetts and Rhode Island, Plymouth conducts substantial mortgage banking operations. Plymouth has three subsidiaries, an inactive OREO organization, and two Massachusetts securities corporations. Like Eastern, Plymouth's deposits are insured to allowable limits by the FDIC. However, as a Massachusetts savings bank, Plymouth's deposits in excess of those limits continue to be insured by the DIF.
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. On October 21, 2004 the Board 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. Accordingly, and consistent with the relatively small market share of both banks, the HHI calculations indicate that the proposed transaction will have a minimal impact on banking concentration. 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 case, although the involved banks operate in the same "banking market" as it has been defined by the Federal Reserve, the Board notes that there is no community in which each bank maintains a branch office or an overlapping of the banks' service areas. (A banking market is defined as the largest area over which prices and quantities of bank products are determined. A service area is the area from which a particular bank draws the majority of its customers. Thus, any metropolitan banking market will generally encompass the service areas of many smaller banks, which may or may not overlap. Thus, even within the local communities that would be directly impacted by the proposed transaction, the anti-competitive effect will be minimal. Moreover, both within Plymouth's 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. Non-bank financial institutions have an additional competitive effect. Based on these factors, 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. It points out that, consistent with its plans to grow its organization in Massachusetts, the proposed transaction will not involve any branch closings or reduction in staffing levels at either bank. To the contrary, Petitioner asserts that, as part of its de novo branching strategy, which has involved the opening of six new branches in the past eighteen months with four additional branches scheduled to open in the next four months, it plans to develop between six to twelve new sites in the next five years. Each such branch represents a capital investment of between $500,000 and $2 million. Consistent with such growth, as well as the expected growth in its wealth management and mortgage loan operations, the Petitioner asserts that a number of new jobs will be created over the next five years. The Petitioner maintains that the combined institution, as the largest locally controlled bank entirely focused on serving the Eastern Massachusetts area, will provide consumers with an alternative to large, out-of-state competitors. The Petitioner further maintains that it is committed to remaining a mutual holding company and that it has no intention of converting from mutual to stock form or issuing minority stock.
Petitioner asserts that both Plymouth and Eastern customers will experience increased convenience as a result of this transaction. Foremost, it maintains that the customers of both banks, but Plymouth's in particular, will have access to a significantly expanded branch and ATM network. Petitioner further notes that, as both Eastern and Plymouth participate in the SUM program, Plymouth customers will continue to have access to the numerous SUM ATMs located throughout the Northeast. Similarly, the Petitioner points out that Plymouth customers will continue to have access to telephone banking and online banking and bill pay services.
In addition to expanded access to branches and ATMs, Petitioner asserts, Plymouth customers will benefit from the availability of the array of financial products and services offered by Eastern and its non-bank subsidiaries. On the consumer side, these products and services include trust and investment management and insurance services. Consumers in the Plymouth service area will also benefit, Petitioner maintains, from the expansion of its indirect automobile lending activities. For commercial customers, Petitioner continues, expanded product offerings include commercial lending products for the middle market, on-line treasury and cash management products, international services, and capital equipment leasing. Larger commercial customers of Plymouth, Petitioner notes, will benefit from Eastern's expertise in complex lending transactions, as well as from the greater lending capabilities as a larger institution.
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 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. In the most recent CRA examination of Eastern, performed by the FDIC on April 20, 2004, it received an "Outstanding" rating. The most recent examination of Plymouth, performed by the Division of Banks on January 6, 2003, resulted in an "Outstanding" rating. Based on its review of these ratings, the Board concludes that the banks involved in this transaction are adequately meeting the credit needs of their communities.
Finally, the Board reviews the financial structure, tax consequences, and operational aspects of the transaction. As a merger of two mutual holding companies, this transaction does not involve consideration and neither holding company will recognize any gain or loss in the transaction. However, 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. Operationally, the extended timetable for this transaction will help to ensure a smooth transition of systems, which are currently outsourced to different vendors. Policies and procedures for compliance with the Bank Secrecy Act were also addressed at the public hearing.
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 the CRA. In accordance with these findings and pursuant to the statutory authority cited herein, the Board approves the petition of Eastern Bank Corporation to acquire Plymouth Bancorp, Inc.
The approval granted herein is subject to the condition that the transaction is completed within one year of the date of this Decision.
|Steven L. Antonakes|
Commissioner of Banks
|Alan L. LeBovidge|
Commissioner of Revenue
|Timothy P. Cahill|
Treasurer and Receiver General
|December 10, 2004|