Decision relative to the petition of Citizens Financial Group, Inc., Providence, Rhode Island and certain related entities to acquire Citizens Bank, National Association, Albany, New York
By the Division of Banks
Citizens Financial Group, Inc. (the "Petitioner" or "Citizens Financial"), Providence, Rhode Island and certain related entities, as described herein and including Charter One Bank, National Association ("Charter One"), Cleveland, Ohio have petitioned the Board of Bank Incorporation (the "Board") pursuant to Massachusetts General Laws chapter 167A, sections 2 and 4, to acquire Citizens Bank, National Association, Albany, New York ("Citizens N.A."). As part of an internal reorganization prompted by its recent acquisition of Charter One, Petitioner is establishing Citizens N.A. de novo, for the purpose of operating Charter One's New York and Vermont branch offices. In the Commonwealth, Citizens Financial is the holding company for Citizens Bank of Massachusetts.
As directed by the Board, a notice of the application was published and posted and a public hearing was scheduled, thereby affording an opportunity for interested parties to attend or submit comments. Other standard procedures for informing the public of this matter before the Board were implemented. The public hearing was held on January 5, 2005. Representatives of the Petitioner offered testimony and responded to questions from the members of the Board. Following the hearing, the public comment period remained open until January 11, 2005 so that interested parties could submit any additional comments.
Citizens Financial, a bank holding company described in greater detail below, is part of a larger international banking organization. Its indirect parent is Royal Bank of Scotland (the "Royal Bank") a commercial and retail clearing bank based in the United Kingdom. The Royal Bank, in turn, is an operating subsidiary of Royal Bank of Scotland Group, plc ("RBSG"), which, at June 30, 2004, held approximately $932.6 billion in total consolidated assets.
Citizens Financial is among the ten largest bank holding companies in the United States and among the two largest headquartered in the New England region. As of June 30, 2004, Citizens Financial had total consolidated assets of $82.3 billion. In addition to Charter One and Citizens Bank, its holdings include an additional five banks located in Rhode Island, New Hampshire, Connecticut, Delaware, and Pennsylvania. Charter One, which was acquired in 2004, operates in Illinois, Michigan, Indiana, Ohio, New York, and Vermont. Following its acquisition by Citizens Financial, its branch offices in Massachusetts, Connecticut, and Pennsylvania were transferred to the Citizens Financial banking subsidiary in each of those states. Charter One's total consolidated assets were $42.6 billion at June 30, 2004.
The proposed acquisition would be accomplished through a series of interrelated transactions. In the first step, Citizens N.A. will be organized as a wholly-owned subsidiary of Charter One. Thereafter, Charter One will enter into a Purchase and Assumption Agreement with Citizens N.A., pursuant to which Charter One will contribute its New York and Vermont branch offices and related assets to Citizens N.A., and Citizens N.A. will assume the deposit and other liabilities associated with the contributed branches. In the final step, Charter One will "spin-off" or distribute its interest in Citizens N.A. to Citizens Financial by declaring a dividend-in-kind of all of its interest in Citizens N.A. As a result of these transactions, Citizens N.A. will become a direct subsidiary of Citizens Financial.
Prior to approving an application under chapter 167A, the Board must have received notice from the Massachusetts Housing Partnership Fund (the "MHPF") that the Petitioner has arranged to participate in the MHPF's various affordable housing loan programs. On December 20, 2004, the MHPF notified the Board that satisfactory arrangements had been made for this transaction.
The Board's review of this matter 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 transaction, the Board considers, among other things, whether there has been a showing of "net new benefits." Net new benefits are defined 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 banks record of performance under the Community Reinvestment Act ("CRA") and any relevant testimony received at the public hearing or submitted during the open comment period.
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 competitiveness. The starting point in the federal analysis 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. However, the Board's analysis of a transaction is not confined to the consideration of concentration ratios to evaluate competitive conditions; it also considers the competitive impact on a community by community basis, as well as on the overall banking structure of the Commonwealth. As the proposed transaction involves an internal reorganization of banking operations located in other states, and not the acquisition of any new banking assets by the Petitioner, the transaction will have no direct competitive impact on banking competition within the Commonwealth.
The Petitioner submits that the proposed transaction will serve the public convenience and advantage and generate "net new benefits" because it would enable the Petitioner to continue a regionally-focused banking strategy that best serves the communities in which its subsidiary banks are located. The continuation of this successful strategy, the Petitioner maintains, will increase the financial strength and operational efficiency of Citizens Financial and its subsidiary banks, including Citizens Bank of Massachusetts. As a general matter, it argues, such enhanced financial strength would enable these subsidiary banks to better serve their respective customers and communities through, among other things, enhanced product offerings, community investment and appropriate market expansion. After considering all of the material submitted, the Board's review weighs in favor of the finding that the public convenience and advantage will be promoted. The Board further concludes 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 involves 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. The most recent CRA examination of Charter One, performed prior to its conversion to a national bank charter by the Office of Thrift Supervision, resulted in a "Satisfactory" rating. The most recent evaluations of Citizens Bank of Delaware, Citizens Bank of Rhode Island, Citizens Bank of Connecticut, Citizens Bank of New Hampshire, Citizens Bank of Pennsylvania, and Citizens Bank of Massachusetts were all performed by the Federal Deposit Insurance Corporation, and each resulted in an "Outstanding" rating. Because Citizens N.A. is a newly formed bank, it has not yet received a CRA evaluation. Based on these evaluations, and noting the Petitioner's strong record of meeting the credit needs of the communities in which it operates, the Board is satisfied that the banks involved in this transaction will adequately meet the credit needs of the relevant communities.
As part of its inquiry, the Board reviews the financial structure, tax consequences, and the operational aspects of the transaction. 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. Information regarding the tax consequences of the proposed transaction was provided by Petitioner and considered by the Board. Finally, operational issues were considered, and the Board is satisfied that the Petitioner has the operational and managerial resources to ensure that the transaction will be accomplished with a minimum of inconvenience to the affected customers.
Conclusion
Based on the record of this matter and considered in light of all relevant statutory and administrative requirements, the Board concludes that the proposed transaction will not have a significant impact on competition among banking institutions in the Commonwealth and will promote the public convenience and advantage. Specifically, the Board finds that the transaction will benefit the customers of the Petitioner's subsidiary banks, including Citizens Bank of Massachusetts, and it further 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 application and authorizes Petitioner's acquisition of Citizens Bank N.A., in the manner described herein.
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 | |
| January 27, 2005 _____________________ Date |