DECISION RELATIVE TO THE PETITION OF CITIZENS FINANCIAL GROUP, INC., PROVIDENCE, RHODE ISLAND AND CERTAIN RELATED ENTITIES TO ACQUIRE GREATBANC, INC., LISLE, ILLINOIS
Citizens Financial Group, Inc. ("Citizens Financial"), Providence, Rhode Island and certain related entities, as described herein (collectively, the "Petitioner") have petitioned the Board of Bank Incorporation (the "Board") pursuant to Massachusetts General Laws chapter 167A, sections 2 and 4, to acquire GreatBanc, Inc. ("GreatBanc"), Lisle, Illinois, and its three subsidiary banks, all located in Illinois. Simultaneously with the transaction, the three bank subsidiaries will each be merged with and into Citizens Financial's direct subsidiary, Charter One Bank, N.A. ("Charter One") headquartered in Cleveland, Ohio. The matter is before the Board since in the Commonwealth Citizens Financial is the holding company for Citizens Bank of Massachusetts, Boston, 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 December 12, 2006. 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 December 19, 2006. No further comments were received.
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 plc (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, 2006, held $1,554.1 billion in total consolidated assets.
Based in Providence, Rhode Island, Citizens Financial is the eighth largest bank holding company in the United States measured by deposits and the second largest headquartered in the New England region, with $163.1 billion in total consolidated assets at September 30, 2006. Citizens Financial operates nine banking subsidiaries with main offices in Massachusetts, New Hampshire, Rhode Island, Delaware, New York, Ohio, and Pennsylvania as well as two in Connecticut.
Charter One is a national banking association headquartered in Cleveland, Ohio and a direct subsidiary of Citizens Financial. Charter One has branches in Illinois, Indiana, Michigan and Ohio. Charter One does business in an array of markets, including community and small business banking, middle market, mid-to-large corporate, commercial real estate finance and selected specialty niches, such as dealer finance and asset based lending. At September 30, 2006, Charter One's total consolidated assets were $46.4 billion.
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. In its application documents, Petitioner indicated that it had made a filing with the MHPF. In a letter dated December 7, 2006, 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 record of performance under the Community Reinvestment Act ("CRA") of the subsidiary banks involved in a holding company transaction 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 the acquisition of a bank holding company with banks located in another state, it will have no direct competitive impact on banking competition within the Commonwealth. With regard to the competitive impact the proposed transaction will have in the affected market, the Board has reviewed the material submitted by the Petitioner and notes that the impact will be negligible.
Petitioner submitted a variety of materials relating to the public convenience and advantage it asserts would result from the proposed transaction. The customers of the subsidiary banks of GreatBanc will have access to a broader array of financial products and services, it maintains, and an expanded service area. Additionally, among other things, those customers will benefit from the introduction of new products in the areas of treasury management, capital markets and other corporate services as well as with improved home equity loans, credit cards and retail payment systems. Additional products and services were set out in the application. Petitioner notes that the transaction will allow it to be a more effective competitor in those areas it serves due to a larger market capitalization and greater asset base. Further, the Petitioner states that the transaction will result in increased geographic product diversification that should further reduce the vulnerability of Citizens Financial to regional economic cycles. Moreover, the combination will enable the resulting organization to achieve meaningful improvements in efficiency. The Board notes that the increased size of the Petitioner and increased efficiencies will naturally benefit Citizens Bank of Massachusetts. Further, Citizens Bank of Massachusetts will benefit from having a holding company whose economic fortunes are more broadly diversified on a geographical basis. 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. Each of the nine banking affiliates of Citizens Financial received an "Outstanding" rating at its most recent CRA examination except (1) Charter One which received a "Satisfactory" rating in 2001 prior to its acquisition by Citizens Financial; and (2) two subsidiary banks which have not been rated. Oral and written testimony provided at the public hearing detailed the numerous CRA initiatives of the subsidiary banks of Citizens Financial and a number of initiatives solely within Massachusetts. Each of the subsidiary banks of GreatBanc received a "Satisfactory" rating at their most recent CRA examination.
As part of its inquiry, the Board reviews the financial structure of the transaction, 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. The Board has taken note that the transaction represents an all cash transaction which will be paid without the sale of stock or use of borrowings. It further notes that both Citizens Financial and GreatBanc are well-capitalized institutions under the Federal Reserve Board's regulations applicable to bank holding companies. Citizens Financial will continue to be "well-capitalized" after the transaction is consummated. Information regarding the tax consequences of the proposed transaction was provided by Petitioner and also discussed with the Board. Finally, operational issues were considered, and the Board is satisfied with Petitioner's efforts to ensure the smooth transition of its systems.
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 as well as provide net new benefits. 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 application and authorizes Petitioner to acquire GreatBanc, Inc.
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
|Timothy P. Cahill |
Treasurer and Receiver General
|December 27, 2006 |