DECISION RELATIVE TO THE PETITION OF MERIDIAN INTERSTATE BANCORP, INC. EAST BOSTON, MASSACHUSETTS TO BECOME A BANK HOLDING COMPANY
Meridian Interstate Bancorp, Inc. ("Bancorp" or the "Petitioner"), East Boston, Massachusetts has petitioned the Board of Bank Incorporation (the "Board") to acquire up to 40% of Hampshire First Bank (in organization), Manchester, New Hampshire. Bancorp is the stock holding company for East Boston Savings Bank ("East Boston"), a Massachusetts state-chartered savings bank. Bancorp's parent is Meridian Financial Services, Inc., East Boston, Massachusetts, a mutual holding company which would retain its mutual structure and also become a bank holding company under the proposed transaction. The acquisition of 40% of the stock of Hampshire First Bank triggers the Commonwealth's bank holding company statute, chapter 167A of the General Laws since Bancorp would control two banks if Hampshire First Bank is chartered. "Control" is defined in said chapter 167A to include ownership of 25% or more of the stock of a bank. Accordingly, the Petitioner has submitted the application pursuant to the provisions of sections 2 and 4 of said chapter 167A.
Notice of the application was published and posted as directed by the Board, thereby affording opportunity for interested parties to submit comments. Other standard procedures informing the public of this matter before the Board were implemented. The Board held a public hearing on the petition of Bancorp on October 25, 2006. The comment period on the proposed transaction ended October 31, 2006.
The Board has reviewed the application as well as the oral testimony received at the public hearing. That review focused on the statutory and administrative criteria which includes, among other things, whether competition among banking institutions will be unreasonably affected; whether public convenience and advantage would be promoted; and the record of performance under the Community Reinvestment Act ("CRA") by the involved subsidiary bank. The additional statutory requirements set out in sections 2 and 4 of said chapter 167A were also significant factors in the Board's deliberations on the matters before it. All such requirements are specifically addressed in the application documents.
One such statutory provision requires the Board to have received notice from the Massachusetts Housing Partnership Fund (the "MHPF") that the Petitioner has made satisfactory arrangements consistent with statute and the MHPF's various affordable housing loan programs. In the application documents, the Petitioner informed the Board of its contact with the MHPF in order to meet this requirement. The Board received notice from the MHPF that arrangements satisfactory to it had been made for this transaction in a letter dated August 14, 2006.
Meridian Financial Services, Inc. was formed in 1991, under the name Meridian Mutual Holding Company, in conjunction with East Boston's reorganization into a mutual holding company. It owns all of stock of Bancorp which owns all of the stock of East Boston. Bancorp began business on April 30, 2006. It was established in conjunction with the proposed formation of Hampshire First Bank. East Boston has it main office in East Boston with eight full service branch offices located in East Boston, Melrose, Peabody, Revere, Saugus and Winthrop as well as a mortgage office located in Lynnfield, Massachusetts. In addition, it has two approved but unopened branches in Everett and Lynn. At June 30, 2006, East Boston had total assets of approximately $846.4 million.
Hampshire First Bank is seeking to organize as a state-chartered commercial bank in New Hampshire. It will be capitalized with $30 million, net of assumed costs of $1.2 million, $12 million of which is proposed to be contributed through Bancorp. East Boston contributed the $12 million to Bancorp in the form of a dividend. It is anticipated that the remainder will be raised through a stock offering which is now underway. Preliminary charter approval was received from the New Hampshire Banking Department on July 25, 2006. Hampshire First Bank, as described in submitted documents and testimony, will be a community-orientated financial institution serving the needs of small and medium sized businesses as well as professionals, homeowners, and consumers located primarily in Hillsborough County in Southeastern New Hampshire. Hampshire First Bank plans to open a branch office in Nashua first, followed by a main office in Manchester. It intends on opening three additional branch offices during its first three years of operation. Reflecting its investment and proposed ownership of 40% of the stock, four individuals who currently serve as directors of Bancorp and East Boston will also serve on the ten member Board of Directors of Hampshire First Bank. One of those four individuals will serve as Chairman of the Board of Hampshire First Bank since Bancorp has the ability to appoint the chairman under the proposed bank's by-laws.
As a state-chartered savings bank, East Boston is subject to supervision and examination by the Commonwealth's Division of Banks (the "Division"). The Board is aware that the Division has previously approved transactions related to the organization of Hampshire First Bank. The Division approved, on March 15, 2006, the internal reorganization of Meridian Financial Services, Inc. which resulted in the formation of Bancorp. Additionally, the Division approved East Boston's payment of the $12 million dollar dividend to Bancorp for its purchase of 40% of the stock of Hampshire First Bank.
A mutual holding company's involvement in the organization of a new stock bank as part of this transaction is not a case of first impression to the Board. This application is similar to the petition and approval by the Board in 2001 of Berkshire Financial Services, Inc., ("Berkshire Financial") a mutual holding company, to become a bank holding company as a result of its formation of a national bank and retaining a controlling interest in the national bank following the sale to private investors of 20% of the stock of the national bank. Berkshire Financial is the parent company for Lee Savings Bank which is in Berkshire County. The national bank formed by Berkshire Financial is located in Greenville, Rhode Island and named Freedom National Bank. Freedom National Bank began business on November 29, 2001. As in the Berkshire Financial Decision, the distinctive aspects of this transaction will be addressed herein by the Board.
The Petitioner has submitted materials to address the issue that competition among banks will not be unreasonably affected by the proposed transaction. That analysis states that consummation of the transaction will not result in undue concentration of banking resources in the specified banking markets in Massachusetts. It is the position of this Board to consider a transaction in light of its impact on the citizens, communities and banking structure in the Commonwealth on a community by community basis instead of by variously grouped markets. The Board's review recognizes that there is no overlap in the banking office networks of East Boston and Hampshire First Bank, in organization. The Petitioner also argues that the existence of a new community bank will have a procompetitive impact on banking in the service area in New Hampshire of First Hampshire Bank. For these reasons and other factors, the Board finds that competition among banking institutions will not be unreasonably affected.
The Board has also considered whether public convenience and advantage will be promoted by the proposed transaction. According to the Petitioner, the establishment of a separate locally controlled community bank will provide significant advantages to the banking public in southeastern New Hampshire through the products and services it will offer. Hampshire First Bank plans to offer retail and business internet banking whereby customers can transfer funds between accounts and perform bill-pay transactions among other services. Additionally, the Petitioner believes that the amount of Hampshire First Bank's initial capital will provide for competitive lending limits.
The Petitioner also argues that this transaction will strengthen it as a holding company which in turn will benefit the community banking activities in Massachusetts by East Boston. The testimony at the public hearing outlined the several factors, including the geographic and economic diversity, considered by Bancorp which would contribute to its operations through the formation of a bank in New Hampshire. As set out in the submitted documents, it is expected that Hampshire First Bank will initially purchase administrative and back room services from East Boston. Such services may include loan underwriting support, internal audit, compliance and operational related services as well as human resource services. As noted in the application providing these services will result in increased work and additional income to East Boston. The Petitioner's reasons for organizing a bank versus opening a branch in New Hampshire as well for owning 40% instead of 100% of the proposed bank were also discussed at the public hearing. According to Bancorp, this regional banking strategy of forming and investing in Hampshire First Bank will provide the opportunity for further growth which may lead to additional job creation and capital investment in the Commonwealth. These factors and others set out in the application or in testimony support approval of the petition.
Related to the issue of public convenience and advantage is the record of performance under the CRA by the subsidiary banks which are the parties to this transaction. Such a review for a state-chartered bank includes examination by personnel of the Division as well as analysis of comments received from the bank's community and its response to those concerns fairly raised. For other institutions, the Board looks to a publicly available descriptive rating and evaluation by a federal or the bank regulatory agency of another state. The matter was specifically addressed at the public hearing. The Board has noted that the Petitioner's subsidiary bank, East Boston, has an "Outstanding" rating in its most recent examination of performance under CRA by the Division. The Board's review of factors related to public convenience and advantage are consistent with approval.
The Board has considered the Petitioner's analysis of "net new benefits" related to the transaction. The term included initial capital investments, job creation plans, consumer and business services, and commitments to maintain and open branch offices, among other factors. The Petitioner has addressed this requirement. The financial aspects of the transaction were also considered by the Board. Management factors reviewed were also found supportive of approval. Additionally, all other requirements of statute relating to a bank holding company were met.
The application and supporting documents have been reviewed consistent with statutory provisions and the policies of the Board relative to both Bancorp and Meridian Financial Services, Inc.
Based on the record of this matter considered in light of all relevant statutory and administrative requirements, the Board finds that public convenience and advantage will be promoted and that competition among banking institutions will not be unreasonably affected and that the record of performance under CRA by the subsidiary bank involved in this transaction are consistent with its approval. Having considered the record established on this application, the Board has found that the applicable statutory and administrative criteria have been met.
In accordance with the findings expressed herein and pursuant to statute, the Board hereby approves the petition and authorizes Bancorp directly and Meridian Financial Services, Inc. indirectly to acquire up to 40% of the stock of Hampshire First Bank, in organization, and to become bank holding companies provided that Bancorp must comply with the following conditions:
- Bancorp shall complete the acquisition within one year of the date of this Decision.
- Bancorp shall submit to the Division of Banks a list of stockholders upon completion of the sale of the stock of Hampshire First Bank.
- Except for securities in Hampshire First Bank's stock option plan and warrant for its organizers, direct and indirect subsidiaries of Bancorp will not issue equity securities or any securities that would accord the holder the right to acquire equity securities or that would bestow upon the holder an interest in the retained earnings of the issuer to persons other than Bancorp unless Bancorp seeks prior approval of the Division of Banks for the issuance.
- Bancorp will make prior application to the Division of Banks for approval to waive any dividends, or other distributions, including a return of capital, declared on the capital stock of Hampshire First Bank, and the Division of Banks shall have the authority to approve or deny any such request at its discretion.
- Bancorp will receive the prior written approval of the Division of Banks before advancing any additional capital or funds to Hampshire First Bank.
|Steven L. Antonakes |
Commissioner of Banks
|Alan L. LeBovidge |
Commissioner of Revenue
|Timothy P. Cahill |
Treasurer and Receiver General
|November 9, 2006 |