Decision relative to the petition of Westfield Bank, Westfield, Massachusetts to surrender its Charter from The Commonwealth in order to accept a Federal Savings Bank Charter
By the Division of Banks
Westfield Bank (the "Petitioner" or the "Bank"), Westfield, Massachusetts has petitioned the Board of Bank Incorporation (the "Board") pursuant to Massachusetts General Laws chapter 168, section 36 for authority to surrender its charter from the Commonwealth in order to accept a federal savings bank charter (also referred to herein as the "charter conversion"). The Petitioner has adopted a Plan of Charter Conversion pursuant to which (i) the Bank will convert to a federal savings bank; and (ii) Westfield Mutual Holding Company (the "MHC") will convert from a Massachusetts-chartered mutual holding company to a federal mutual holding company. The Board's jurisdiction extends only to the Bank's application to convert its charter. Upon conversion to a federal savings bank charter the Bank would be under the jurisdiction of a federal bank regulatory agency, the Office of Thrift Supervision ("OTS").
The Board recognizes the existence of the dual banking system in the United States and acknowledges that financial institutions have within that system, pursuant to statutory provisions, the ability to select a state or federal charter and to convert from one charter to another. Although there is some overlap between the two systems as well as in federal and state laws, it does remain that there are two separate systems. In Massachusetts, there have been state-chartered banks which converted to federal institutions as well as federally-chartered banks which converted to state-chartered institutions. It remains the position of the Board that the applicable provision of Massachusetts law governing a charter conversion from a state-chartered savings bank to a federal savings bank is Massachusetts General Laws chapter 168, section 36.
Notice of the petition was published as directed by the Board thereby affording opportunity for interested persons to submit comments. At the request of the Petitioner, the public hearing was delayed by the Board until held on May 25, 2004. The subsequent period for filing comments ended on June 1, 2004.
The Bank had assets of $748 million and deposits of $616 million as of March 31, 2004. It operates from its main office and nine branch offices in and around the Westfield-Springfield area. All of its banking offices are in Hampden County. In 1996, the Petitioner reorganized into a mutual holding company, Westfield Mutual Holding Company, with a mid-tier stock holding company, Westfield Financial, Inc. In December 2001, a minority public stock offering was completed with 47% of the stock of the mid-tier holding company being sold to the public.
In connection with this transaction, the Division of Banks completed a comprehensive review of the Notice and Information Statement describing the transaction to be provided to Corporators of the Bank's mutual holding company. The focus of this review was to ensure that the Corporators were given fair and meaningful disclosure of the state and federal treatment of each issue addressed in the Information Statement. The Corporators unanimously approved the charter conversion and related transactions at a special meeting held on February 25, 2004. The charter conversion of the Bank, the mutual holding company and all related transactions were approved by the Office of Thrift Supervision on April 23, 2004.
The Petitioner submits that because the proposed transaction involves an internal reorganization, the impact on the Bank's customers will be minimal. The Bank will continue operations at the same locations with the same hours, with the same management, and be subject to all the rights, obligations and liabilities of the Bank existing immediately prior to the charter conversion. The Bank's deposit accounts will remain federally-insured deposit accounts, however, following the charter conversion, deposit accounts will not be insured for amounts in excess of the federal insurance limits through the Depositors Insurance Fund currently insuring Massachusetts-chartered savings banks. The Bank does not anticipate a significant impact from the loss of this excess deposit insurance. The Bank intends to continue to serve the financial needs of its local community in the same manner that is has been serving the community's needs prior to the charter conversion.
The Petitioner cites the principal reasons for the charter conversion as reduced regulatory burden including the assertion of federal preemption, ease of interstate branching, depositor voting rights in a federal savings bank, dividend waivers by the mutual holding company, and a wide range of lending and investment powers. Each of these specific matters were presented in the information to the Corporators, in the filings with the Board and in the oral testimony at the public hearing. The Bank contends that for these several reasons the conversion to a federal charter is in its best interests and will result in direct or indirect convenience and advantage for the banking public.
The Board has reviewed the application and all related documents as well as testimony given at the hearing in accordance with the statutory criteria of whether public convenience and advantage will be promoted by approval of this proposed transaction. Included in this review was discussion of the Bank's principal reasons for the charter conversion set out in the information statement to the Corporators. The format was similar to a point-counterpoint presentation of each issue. Examples of how each issue was addressed are in summary, as follows. A conversion would reduce the number of regulators over the Bank but could result in higher fees. Interstate branching by a federal savings bank would involve only the OTS but Massachusetts banks have interstate branching authority as well. The Board is aware that Massachusetts-chartered savings banks have a comparable range of lending and investment powers similar to those of a full-service commercial bank. In addition, Massachusetts law allows savings bank to perform any activity or make any investment authorized to a federally-chartered bank or a bank chartered by another state, subject to regulations or approval by the Commissioner of Banks. This authority, known as the bank "parity law" provides a level of parity and competitive equality between state-chartered banks and federally chartered banks with respect to investment, lending and other authorities.
A substantive reason cited by the Bank for the conversion is the OTS position on dividend waivers by a mutual holding company. At the public hearing the Bank was asked how it would not breach its fiduciary duty if it implemented the federal regulation. This complex issue is succinctly defined in the following discussion taken, in part, from the notice to Corporators:
"Following the Conversion, the Bank will be a subsidiary of a federal mutual holding company. There are several differences to operating as a mutual holding company under OTS regulations as compared to Massachusetts regulations. Some view the OTS regulations as being favorable to management and investors. One such federal provision would allow the mutual holding company to waive receipt of dividends without causing dilution to the ownership interests of minority stockholders upon a second-step full conversion to stock form by the mutual holding company.
"Generally, OTS regulations with respect to dividend waivers are more advantageous to investors while the Massachusetts regulations are more favorable to depositors. Massachusetts regulations do allow for dividend waivers; however Massachusetts requires the subsequent dilution in the interests of minority stockholders related to any such waived dividends for fiduciary reasons. The Massachusetts position on dividend waivers is consistent with the policy of the Federal Deposit Insurance Corporation. By contrast, the Federal Reserve Board, as a matter of policy, has not permitted mutual holding companies to waive the receipt of dividends and management of the Company does not believe that this Federal Reserve Board policy will change in the foreseeable future. If a mutual holding company waives receipt of dividends without causing dilution to the ownership interests of minority stockholders, the value of stock offered to depositors in a second-step full conversion to stock form will be less than if no dividends were waived or if the interest of the minority stockholders was diluted to account for the waiver of such dividend."
The Board believes strongly that the dual banking system is a significant benefit to the regulated financial institutions and the banking public. In recognition of that belief, the Board has over the past few decades granted several state-chartered savings banks the authority to convert to federal charters. The Board understands that in at least three cases in the past twenty years those same banks converted back to the state-chartered system. That action reflects the ongoing changes that occur within each system.
The differences between state and federal laws, regulations and directives are recognized by the regulated financial institutions and bank regulatory agencies as well as the Board. Often those differences are minimal. Similarly, the options available for numerous corporate transactions exist in both systems but the processes for those transactions may differ. The Board realizes that any of these differences may exist only until the next statutory amendment is passed or the newest parity regulation is promulgated.
The totality of the differences between state and federal laws on public convenience and advantage for a charter conversion is not conclusive to the Board in this case or likely in any other application. Citizens and business entities on their own have chosen to do their banking business with federally-chartered banks which operate in the Commonwealth. They would not make that choice initially or continue that relationship later to their own detriment. To the contrary, each of those decisions reflects some convenience or advantage found, however small.
Upon review and consideration of all matters, the Board could find that the adverse impact of the assertion of federal preemption of consumer protection laws or a mutual holding company's waiver of dividends without subsequent dilution do not outweigh the minimal advantages in processing for interstate branching or by the reduction in regulatory oversight or the other reasons cited by the Petitioner. The Board, however, chooses not to tip the scales based on ever-changing facts in a way that would jeopardize the dual banking system for state-chartered savings banks. Rather, the Board finds that public convenience and advantage exists by the ability to convert a charter. Accordingly, absent a finding on a case-by-case basis of an applicant's infirmity based on an existing problem on financial safety and soundness, or compliance with applicable laws or a negative public rating of performance under the Community Reinvestment Act, the Board will find that an applicant savings bank will meet the statutory test under section 36 of chapter 168 of the General Laws.
The Board has determined that related to the issue of public convenience and advantage is the record of performance under the Community Reinvestment Act ("CRA") by the parties to the transaction or their bank subsidiaries. Such review of state-chartered banks includes examination by personnel of the Division of Banks as well as analysis of concerns received from the bank's community and its response to those concerns. The Board notes that Petitioner has a "Satisfactory" rating in its most recent CRA performance evaluation conducted by the Division of Banks as of August 6, 2001. The Board has reviewed the capital ratios of the Bank and it is aware that those ratios indicate the Bank is well-capitalized. The Bank is not subject to regulatory action. The Board has determined that there are no adverse compliance issues with the Bank. Accordingly, the Board finds that all these factors weigh in support of the application.
The Board's review of all such considerations relative to public convenience and advantage are consistent with approval of this transaction. Having considered the record established on this application, the Board has found that the applicable statutory and administrative criteria have been met. The Board hereby approves the Petition subject to the condition that Petitioner accepts a federal charter within one year from the date of this decision. The Petitioner's state charter shall become void upon acceptance of a federal charter.
| Steven L. Antonakes ___________________________ Commissioner of Banks | |
| Alan L. LeBovidge ___________________________ Commissioner of Revenue | Board |
| Timothy P. Cahill ___________________________ Treasurer and Receiver General | |
| June 28, 2004 _____________________ Date |