Decision  Decision of April 13, 2015

Date:	04/13/2015
Organization:	Division of Banks

• Petitioner: Berkshire Hills Bancorp, Inc.
• Respondent: Board of Bank Incorporation

Decision relative to the petition of Berkshire Hill Bancorp, Inc., Pittsfield, Massachusetts to acquire Hampden Bancorp, Inc., Springfield, Massachusetts

Berkshire Hills Bancorp, Inc. (“Berkshire” or “Petitioner”), Pittsfield, Massachusetts has petitioned the Board of Bank Incorporation (“Board”) pursuant to Massachusetts General Laws chapter 167A, sections 2 and 4¹ for approval to acquire Hampden Bancorp, Inc. (“Hampden Bancorp”), Springfield, Massachusetts and its subsidiary bank, Hampden Bank (“Hampden Bank”), Springfield, Massachusetts.  The Petitioner is the bank holding company for Berkshire Bank (“Berkshire Bank”), Pittsfield, Massachusetts.  The Petitioner’s application before the Board is part of a multi-step transaction in which Hampden Bancorp will merge with and into the Petitioner.  An application has also been filed with the Division of Banks (“Division”) for the subsequent merger of the subsidiary bank, Hampden Bank, with and into Berkshire Bank.  The application to merge the subsidiary banks is, by statute, subject to approval of the Commissioner of Banks.

Notice of the application was published and posted as directed by the Board, thereby affording opportunity for interested parties to submit comments.  Additional standard procedures informing the public of this matter before the Board were also implemented.  The Board held a public hearing on the petition on March 5, 2015.  The comment period on the proposed transaction ended on March 16, 2015.  Hampden Bancorp’s shareholders voted to approve this proposed transaction on March 12, 2015.

The Board has reviewed the application, the oral testimony received at the public hearing, and the supplemental information provided by the Petitioner.  That review focused on the statutory and administrative criteria applicable to such transactions which include, 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 respective subsidiary banks of the holding companies.  The financial and management components of the proposed transaction were also considered.  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 matter before it.

One such statutory provision requires the Board to have received notice from the Massachusetts Housing Partnership Fund (“MHPF”) that satisfactory arrangements have been made by the Petitioner consistent with statute and the MHPF's various affordable housing loan programs.  The Board received notice from the MHPF that satisfactory arrangements had been made for this transaction in a letter dated March 24, 2015.

Berkshire is a Delaware corporation and subject to the regulation of the Division and the Board of Governors of the Federal Reserve System.  Berkshire became a bank holding company upon Berkshire Bank’s July 11, 2014 conversion to a Massachusetts chartered trust company.  Berkshire elected to be a financial holding company upon becoming a bank holding company.  Berkshire’s common stock is registered under Section 12(b) of the Securities Exchange Act of 1934 and Berkshire files periodic reports with the Securities and Exchange Commission.  Berkshire owns 100% of the issued and outstanding stock of Berkshire Bank, a Massachusetts-chartered trust company established in 1846.  Berkshire’s primary business is serving as the holding company of Berkshire Bank.  As of September 30, 2014, Berkshire had consolidated assets of approximately $6.5 billion and consolidated stockholders’ equity of approximately $ 696.9 million.   On September 30, 2014, Berkshire had (a) a total risk-based capital ratio of 11.63%, (b) a Tier 1 risk based capital ratio of 9.25%, and (c) a Tier 1 leverage capital ratio of 7.13%.  Berkshire is a “well-capitalized” bank holding company under applicable regulatory guidelines. 

 Berkshire Bank has its main office in Pittsfield, Massachusetts and operates 91 full-service banking offices, including commercial and residential loan offices, throughout Massachusetts, eastern and central New York, southern Vermont, and central Connecticut.  Berkshire Bank’s deposits are insured by the Federal Deposit Insurance Corporation (FDIC) to the maximum amount permitted by law.  As of September 30, 2014, Berkshire Bank had consolidated assets of approximately $6.3 billion.  As of the same date, Berkshire Bank had (a) a total risk-based capital ratio of 11.01%, (b) a Tier 1 risk based capital ratio of 9.47%, and (c) a Tier 1 leverage capital ratio of 7.31%.  Berkshire Bank is a “well-capitalized” bank under applicable regulatory guidelines.

Hampden Bancorp is a Delaware corporation.  In 2007, it became a bank holding company for Hampden Bank upon its conversion from the mutual holding company structure to the stock holding company structure.  Hampden Bancorp owns 100% of the issued and outstanding stock of Hampden Bank.  As of September 30, 2014, Hampden Bancorp had total consolidated assets of approximately $705.6 million and total shareholders’ equity of approximately $85.6 million. Hampden Bancorp is a “well-capitalized” bank holding company under applicable regulatory guidelines.

Hampden Bank is a Massachusetts stock savings bank with its main office in Springfield, Massachusetts.  In addition to its main office, it operates ten branch offices in Hampden County, Massachusetts.  Berkshire intends to operate most of the branches acquired from Hampden Bank.  Hampden Bank’s deposits are insured by the FDIC to the maximum amount permitted by law.  As of September 30, 2014, Hampden Bank had consolidated assets of approximately $703.5 million and total deposits as of the same date were approximately $489.6 million.  As of September 30, 2014, Hampden Bank had a) a total risk-based capital ratio of 15.84%, (b) a Tier 1 risk based capital ratio of 14.72 %, and (c) a Tier 1 leverage capital ratio of 10.82%. Hampden Bank is a “well-capitalized” bank under applicable regulatory guidelines. 

The Petitioner has submitted materials in support of its position that competition among banks will not be unreasonably affected by the proposed transaction.  In analyzing the impact of a proposed transaction on banking competition, the Division considers, but does not rely exclusively on, the guidelines used by federal authorities to review bank mergers.  These guidelines essentially define relevant markets and measure concentration, which is considered an important indicator of competitive analysis.   The application contained an analysis under the Herfindahl-Hirschmann Index (“HHI”), a key test utilized by federal agencies in assessing the competitive effects of a proposed bank merger.  In this case, the HHI analysis demonstrates that consummation of the transaction will not result in undue concentration of banking resources in the specified banking markets in Massachusetts.  Customarily, however, this Board has not limited its review to federal standards in its consideration of whether competition will be unreasonably affected.  Rather, it is the practice 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 service areas of Berkshire Bank and Hampden Bank overlap in two communities, Longmeadow and Springfield.  Berkshire Bank maintains one branch in Springfield, and Hampden Bank operates four branches in Springfield.  Berkshire Bank and Hampden Bank each operate a branch in Longmeadow.  As set forth in the application, and as further explained by Berkshire’s representative at the hearing, Berkshire intends to close three branches and consolidate them into existing Berkshire branches following the merger.  These three Hampden Bank branches are all within the two overlapping communities – Springfield and Longmeadow- and are each to be consolidated with Berkshire Bank branches that are geographically close, the furthest of which is 2.11 miles from its Hampden Bank counterpart.  Furthermore, the application sets forth the numerous banking options available to consumers in the affected area, providing further support for the conclusion that competition will not be unreasonably affected by the merger.  In light of the foregoing, including the relatively small overlap in the communities served by Berkshire and Hampden, the Board’s analysis of the competitive impact of the acquisition weighs in favor of the proposed transaction. 

The Board has considered whether public convenience and advantage will be promoted by the proposed transaction.  The Petitioner states that the merger will benefit the public by creating a larger institution that is better positioned to compete against other regional, super-regional, and national financial institutions.   The merger will allow Hampden Bank customers access to additional products and services previously unavailable to them, including access to Berkshire Bank’s multistate network of ATMS, ACH positive pay, private banking and wealth management services, financial planning and investment advisory services, as well as services offered by Berkshire Bank’s insurance subsidiary.  Additionally, the merger will give Hampden Bank customers access to Berkshire Bank’s higher commercial lending limits.  Furthermore, Berkshire provided testimony indicating that the merger will ultimately result in the establishment of additional branches.  Lastly, the vast service footprint of Berkshire, covering eastern Massachusetts to Syracuse, and from northern Connecticut to Rutland, Vermont, provides a significant increase in physical presence for customers of Hampden Bank, who previously were served only by branches in Hampden County, Massachusetts. Most notably, as noted during Berkshire’s testimony, Hampden Bank customers, who prior to the transaction had access to only ten branches, will now have access to a total of sixteen branches within Hampden County alone.  Accordingly, this transaction, if approved, will therefore broaden the continuing institution’s physical presence in that county, as well as add branches in numerous other counties and communities in not only Massachusetts, but also in Connecticut, Vermont, and New York.   

Related to the issue of public convenience and advantage is the record of CRA performance 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 concerns received by 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 state bank regulatory agency.  The Board has noted that the Petitioner's subsidiary bank, Berkshire Bank, received a “Satisfactory” rating in its most recent examination of performance under CRA by the Division and the FDIC as of September 24, 2012.  Hampden Bank received a “High Satisfactory ” rating at its most recent examination conducted by the Division on September 29, 2014.  The Board’s review of factors related to public convenience and advantage are supportive of approval.   

The Board has also considered the Petitioner's analysis of “net new benefits” related to the transaction with respect to the statutory criteria.  The term includes initial capital investments, job creation plans, consumer and business services, and commitments to maintain and open branch offices, among other factors. The application and the Petitioner’s testimony indicated that Berkshire’s initial capital investments are expected to be limited to new signage and branch improvements.  In addition to the information contained in its application, Berkshire also provided testimony addressing the effect of the merger on Hampden Bank employees.  Through its written submissions and testimony, Berkshire indicated that while there would be some immediate reduction in staff levels, it was anticipated that there would be future growth and expansion in its subsidiary bank that would create additional jobs.  Berkshire anticipates that it will be opening additional de novo branches in central Connecticut, eastern New York, and possibly central and eastern Massachusetts in the next two-to-three years.  Because of this, Berkshire anticipates that the merger will ultimately result in job creation, both in these locations, as well as in Berkshire’s home community in Berkshire County, where additional bank office and support staff would be needed.  In addition, those Hampden employees not being retained will receive severance benefits.   With respect to the statutory test of job creation plans within net new benefits, the Board’s past precedent guides its decision.  In prior Decisions, the Board has concluded that the statutory test can be met by prospective direct and indirect employment gains resulting from continued growth of a larger and stronger institution as well as through its subsidiary bank’s lending programs which ultimately fund jobs.  Accordingly, the Board’s consideration of the transaction’s impact on employment does not preclude its approval.  The Board has considered the application and testimony submitted by the Petitioner and finds that consideration of public convenience and advantage including net new benefits weighs in favor of approving the proposed transaction.

The financial and managerial aspects of any transaction are also a significant consideration of the Board as they may affect the continuing holding company’s ability to serve the banking public, to actively compete with other financial institutions, and to maintain its capital ratio standards for a safe and sound institution.  The transaction is structured such that Hampden Bancorp will merge with and into Berkshire, and the parties’ agreement and plan of merger provides that each share of Hampden Bancorp common stock be converted into the right to receive .81 shares of Berkshire common stock.  Upon consummation of the transaction, the Petitioner will remain a well-capitalized holding company under applicable regulatory guidelines.  The current directors of Berkshire will remain directors of Berkshire after consummation of the transaction, if approved, with the addition of two directors of Hampden, who will be selected by Berkshire and Berkshire Bank in consultation with Hampden Bancorp.  The Board’s consideration of the financial and managerial aspects of the transaction also supports its approval.

The application, supporting documents, the testimony received at the public hearing as well as additional information submitted have established a complete record on this petition, which has been reviewed consistent with statutory provisions and the policies of the Board.  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 banks 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 Berkshire to acquire Hampden Bancorp, and its subsidiary bank, Hampden Bank, provided that the transaction is completed within one year of the date of this Decision.

 

Board of Bank
Incorporation

David J. Cotney
______________________
Commissioner of Banks


Deborah B. Goldberg
______________________
Treasurer and Receiver-General


Mark E. Nunnelly
______________________
Commissioner of Revenue

 

April 13, 2015
_____________
Date

¹ The relevant statute prior to the April 7, 2015 effective date of Chapter 482 of the Acts of 2014, An Act Modernizing the Banking Laws and Enhancing the  Competitiveness of State-Chartered Banks