Decision Relative to the Petition of Brookline Bancorp, Inc., Brookline, Massachusetts to Acquire Mystic Financial Inc., Medford, Massachusetts
By the Division of Banks
Brookline Bancorp, Inc., (the "Petitioner" or "Bancorp"), Brookline, Massachusetts, has petitioned the Board of Bank Incorporation ("the Board") pursuant to Massachusetts General Laws chapter 167A, sections 2 and 4 to acquire Mystic Financial, Inc., ("Mystic"), Medford, Massachusetts, and its subsidiary, Medford Co-operative Bank ("Medford"), Medford, Massachusetts. Petitioner is the holding company for Brookline Bank ("Brookline"), Brookline, Massachusetts. As set forth in an Agreement and Plan of Merger dated July 7, 2004, this multi-step transaction would first merge Mystic with and into Bancorp; thereafter, Medford would be merged with and into Brookline, with Brookline 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 Bancorp and Mystic 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. At its Annual Meeting of Stockholders held on November 17, 2004, the stockholders of Mystic approved the proposed transaction.
Petitioner is a bank holding company headquartered in Brookline, Massachusetts. As of June 30, 2004, it had $1.6 billion in total consolidated assets. It was formed in 1998 when Brookline reorganized into a mutual holding company with a mid-tier holding company and issued minority stock. (At the hearing, and reflecting its continuing interest in the issue, the Board inquired about Brookline's experience of having waived dividends while it was a mutual holding company which had issued minority stock.) Brookline converted from a state-charted savings bank to a federal savings bank in 2001 and, in 2002, the Petitioner completed a "second-step" conversion from the mutual holding company structure to the fully converted stock form of ownership. Brookline operates seven banking offices; five such offices are located in Brookline, one in Newton, and one other in West Roxbury. The primary activity of Brookline is to gather deposits from the general public and invest the resulting funds, as well as other earnings, in loans and investment securities. The deposits of Brookline are insured to allowable limits by the Bank Insurance Fund administered by the Federal Deposit Insurance Corporation ("FDIC").
Mystic is a holding company headquartered in Medford, Massachusetts. As of June 30, 2004, it had $440.8 million in total consolidated assets. Medford, its banking subsidiary, converted to stock under a holding company form of organization in 1998. Medford maintains seven banking offices, which are located in Medford, Lexington, Arlington, Bedford, and Malden. Through these offices, Medford accepts deposits from the general public and makes a variety of consumer and commercial loans. Like Brookline, the deposits of Medford are insured, to allowable limits, by the FDIC. In addition, as a Massachusetts chartered co-operative bank, Medford's deposits in excess of FDIC limits are insured, in full, by the Share Insurance Fund of the Co-operative Central Bank.
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. Accordingly, and consistent with the relatively small market share of both banks, the HHI calculations for the Boston banking market indicate that the proposed transaction would not result in an undue concentration of banking resources. (Although the Petitioner submitted an HHI analysis demonstrating the impact of the proposed transaction for Middlesex County only, the Board also considered the impact of the proposed transaction on the entire Boston Banking Market, as defined by the Federal Reserve.) 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, any such impact will be minimal as there is no community in which each bank maintains a branch office or an overlapping of the banks' primary service areas The Board is also aware that, within the Medford community and in Massachusetts generally, consumers and businesses 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. Accordingly, the Board concludes that the proposed transaction will not have an unreasonable effect on banking competition.
The Petitioner has submitted a variety of materials relating to the public convenience and advantage that will result from the proposed transaction. In this regard, it notes that there will be no closings, relocations or changes in the hours of operation of any branch office of Medford or Brookline as a result of the proposed transaction. It also indicated, at the hearing on this matter, that initial, modest staff reductions are expected to be offset by new positions created as a consequence of Brookline's growth. Petitioner asserts that both Brookline and Medford customers will experience increased convenience as a result of this transaction. Foremost, it maintains that the customers of both banks will have access to a larger and more geographically dispersed branch network. In response to a question at the hearing, it was also noted by the Board that, as both subsidiary banks are members of the SUM Network, Medford customers will maintain their surcharge-free access the numerous SUM ATMs located throughout the Northeast.
The Petitioner further asserts that, as a result of the proposed transaction, Medford customers will have access to the expanded array of products and services and that a larger bank can provide, many of which cannot be offered by Medford on a cost-effective basis. Such products and services include but are not limited to call center services, on-line banking products, and condominium and co-operative housing loans. Medford customers will also benefit, it maintains, from the upgrade to Medford's operations that will result from the proposed transaction. In this regard, testimony at the hearing indicated that Medford's need to update technology and invest in operations was one of the reasons for the transaction. In addition to expanded products and services and operational upgrades, the Petitioner points out that the customers of both banks will benefit from the higher lending limits that will apply to the combined bank.
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, in the most recent CRA examination of Brookline, performed by the Office of Thrift Supervision on September 2, 2003, it received an "Outstanding" rating. The most recent examination of Medford, performed by the Division of Banks on March 23, 2000, resulted in a "High Satisfactory" 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. 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. At the hearing, several questions were asked and responded to regarding the integration of the two banks' separate operating systems, as well the banks compliance with the Bank Secrecy Act. Finally, the Board is satisfied with the Petitioner's arrangements with respect to informing Medford customers of the discontinuation in excess deposit insurance.
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 the CRA. In accordance with these findings and pursuant to the statutory authority cited herein, the Board approves the petition of Brookline Bancorp to acquire Mystic Financial, Inc., and its subsidiary, Medford Co-operative 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 17, 2004 _____________________ Date |