DECISION RELATIVE TO THE APPLICATION OF SOVEREIGN BANK, WYOMISSING, PENNSYLVANIA TO MERGE WITH FIRST ESSEX BANK, LAWRENCE, MASSACHUSETTS
By the Division of Banks
Sovereign Bank (the "Petitioner" or "Sovereign"), of Wyomissing, Pennsylvania, has applied to the Division of Banks (the "Division") for permission to merge with First Essex Bank ("First Essex"), a Massachusetts chartered savings bank, of Lawrence, Massachusetts. This proposed merger is pursuant to an Agreement and Plan of Merger (the "Agreement") dated June 12, 2003 and authorized under the provisions of Massachusetts General Laws chapter 167, section 39B. The Agreement provides for the merger of First Essex with and into Sovereign, after which First Essex will cease to exist, and its branches will become branches of Sovereign as set forth herein. The proposed merger is part of a multi-step transaction, involving a petition before the Board of Bank Incorporation (the "Board") by Petitioner's holding company, Sovereign Bancorp, Inc., Philadelphia, Pennsylvania, to acquire First Essex Bancorp, Inc. of Andover, Massachusetts. First Essex Bancorp is the holding company of First Essex. The Board approved the application before it on this same date.
Notice of Petitioner's application was published and posted, and the time period for interested parties to comment on the transaction has expired. Accordingly, all documents and materials related to this transaction have been received and reviewed. This record has been considered with regard to all applicable statutory standards, which require consideration of, among other things, whether competition among banking institutions will be unreasonably affected by the proposed transaction and whether the public convenience and advantage will be promoted. The Commissioner's consideration of this matter must also take into account the involved banks' record of performance under the Community Reinvestment Act ("CRA").
Petitioner is a federal savings bank headquartered in Wyomissing, Pennsylvania. As of June 30, 2003, it had $41.3 billion in total consolidated assets. It operates 525 branch offices in Pennsylvania, New Jersey, Connecticut, New Hampshire, New York, Rhode Island, Delaware and Massachusetts. Of the total branches, 173 are within Massachusetts.
First Essex is a Massachusetts chartered, stock savings bank. At June 30, 2003, it held approximately $1.8 billion in total consolidated assets. It has 20 full service banking offices in Massachusetts and New Hampshire. In addition to Lawrence, its branches are located in Haverhill, North Andover, Andover, Methuen and Lowell. Nine branches are located in New Hampshire.
As an interstate transaction and pursuant to the requirements of chapter 167, section 39B, 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 transaction being proposed by the Petitioner is authorized under the laws of Pennsylvania for a Massachusetts-based company, under conditions no more restrictive than those imposed by Massachusetts. Accordingly, a review of these laws indicates that they are reciprocal and would authorize the proposed transaction under conditions no more restrictive than those imposed by the above-referenced statute. Based on this review, and consistent with previous rulings regarding Pennsylvania's reciprocity laws, the proposed transaction is permissible under the Commonwealth's Interstate Bank Act.
Materials have been submitted to address whether competition among banks will be unreasonably affected by the proposed transaction. These materials, the existing market share of Sovereign and First Essex within Massachusetts, and the Division's assessment of community conditions indicate that the proposed transaction will not have a significant impact on banking competition. Rather, the areas served by First Essex will continue to be served by a number of diverse banks and financial institutions, giving these communities access to a variety of competitive deposit and credit services.
The Commissioner must consider whether the proposed transaction promotes the public convenience and advantage, as well as whether there has been a showing of net new benefits in relation to the transaction. Net new benefits include, among other things, initial capital investments, job creation plans, consumer and business services, commitments to maintain and open branch offices within a bank's delineated local community, and such other matters as the Commissioner may deem necessary. Sovereign offers a wide range of consumer deposit and loan products, including free checking accounts and an extensive array of residential mortgage products, all of which will be available to customers of First Essex after the merger. The Petitioner states that it plans to consolidate six branch offices in Massachusetts following consummation of the merger of First Essex Bank with and into Sovereign Bank. Five of the six locations will involve consolidation of existing Sovereign branches into existing First Essex branch locations. The First Essex branch in Methuen will be consolidated into the Sovereign location in Methuen. This determination was made based on the close proximity of the existing branch offices of each bank. The Petitioner states that the consolidations will not compromise its high level of customer service. Petitioner further contends that as a larger financial institution, Sovereign offers a wider range of consumer and business services than does First Essex such as cash management services for corporate and institutional customers, international trade services, alliances products, capital markets products and scored small business credit products. Additionally, Sovereign will be able to offer higher lending limits to its commercial customers.
Prior to approving this transaction, and as required by Massachusetts General Laws chapter 167, section 14, the Commissioner must consider the involved banks' record of performance under the CRA. Such review for a Massachusetts-chartered bank includes examination by the Division, as well as an analysis of any legitimate concerns raised by the community and the bank's response to those concerns. For other institutions, the Division reviews the descriptive rating and evaluation by the applicable federal or state bank regulatory agency. In its most recent CRA examination, performed by the Office of Thrift Supervision ("OTS"), Sovereign received an "Outstanding" rating. First Essex received a "Satisfactory" rating at its examination conducted by the Division. These ratings, as well as other materials submitted on this issue, sufficiently demonstrate that the banks involved in this transaction are adequately meeting the credit needs of their respective communities.
As a state-chartered savings bank, the deposits in First Essex in excess of the deposit insurance coverage provided by the Federal Deposit Insurance Corporation ("FDIC") are insured, in full, by the Depositors Insurance Fund ("DIF"), established by Chapter 43 of the Acts of 1934. Upon consummation of the merger of First Essex with and into Sovereign, a federal savings bank, the excess deposit insurance coverage of DIF will end. The Division is aware that disclosure materials will be provided to First Essex depositors informing those depositors that the DIF deposit insurance coverage will end if the merger is approved and finalized, while the FDIC coverage will continue.
Based on the entire record of this matter and considered in light of all relevant statutory and administrative requirements, the Division concludes that all such requirements have been met and that consummation of the proposed merger would be in the public interest. On the basis of these conclusions, and subject to the conditions set forth below, approval is granted for First Essex to merge with and into Sovereign in conformity with the Agreement and to consolidate and maintain the First Essex branches as set forth in the application materials, pursuant the provisions to Massachusetts General Laws chapter 167, section 39B.
The approval granted herein is subject to the following conditions:
that the merger of First Essex and Sovereign shall not become effective until a Certificate, signed by the Presidents and Clerks or other duly authorized officers of the banks involved in the merger, indicating that each such institution has complied with the provisions of Massachusetts General Laws chapter 167, section 39B, or other applicable statute, have been returned;
that such Certificate shall be filed with the Secretary of State of the Commonwealth of Massachusetts;
that the proposed merger shall be consummated within one year of the date of this decision.
| February 2, 2004 __________________________ Date | Steven L. Antonakes ___________________________________ Commissioner of Banks |