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  • Division of Banks

Decision  Decision of August 20, 2014

Date: 08/20/2014
Organization: Division of Banks
  • Petitioner: Institution for Savings
  • Respondent: Division of Banks

Table of Contents

Decision relative to the application of Institution for Savings in Newburyport and its Vicinity, Newburyport, Massachusetts to acquire assets and assume liabilities of Rockport National Bank, Rockport, Massachusetts

Institution for Savings in Newburyport and its Vicinity, Newburyport, Massachusetts (the “Petitioner” or “IFS”) has applied to the Division of Banks (“Division”) for authority to acquire all the assets and assume all the liabilities of Rockport National Bank (“RNB”), Rockport, Massachusetts pursuant to the provisions of Massachusetts General Laws chapter 168, section 35. Under the terms of an Agreement and Plan of Merger (“Agreement”) dated as of April 15, 2014 among IFS, RNB and Rockport National Bancorp, Inc. (“Bancorp”), IFS will acquire all the assets of RNB and assume all of RNB’s deposits and other liabilities through a multi-step transaction.   To facilitate this multi-step transaction, IFS will form a merger subsidiary as a wholly owned subsidiary of IFS (“Merger Sub”).  At the effective time of the merger, Merger Sub will merge into Bancorp with Bancorp then becoming a subsidiary of IFS and RNB becoming an indirect subsidiary of IFS (“Merger”).  Immediately after the Merger, IFS and Bancorp will cause RNB to transfer all of RNB’s assets to IFS and IFS will assume all of RNB’s liabilities.  As a final step promptly following the Merger, IFS will cause Bancorp to dissolve and will cause RNB to relinquish its charter to the Office of the Comptroller of the Currency.

The Merger is part of a multi-step transaction which also included a petition before the Board of Bank Incorporation (“Board”) by IFS to become a bank holding company based on IFS’ indirect ownership of RNB prior to the transfer of assets and assumption of liabilities.  The Board approved this transaction in its Decision of this same date.

IFS is a Massachusetts mutual savings bank that was chartered in 1820.  IFS has six full-service branches located in Newburyport, Ipswich, Rowley, Salisbury, and Topsfield, in addition to its main office in Newburyport, four educational branch offices located in high schools, and a residential lending office. IFS has one wholly-owned subsidiary, 1820 Security corporation, a Massachusetts security corporation pursuant to Massachusetts chapter 63, section 38B.  IFS deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”) to the maximum extent permitted by law and amounts in excess of FDIC deposit insurance limits are insured by the Depositors Insurance Fund.  IFS had total assets of $1.71 billion and total deposits of $1.42 billion as of March 31, 2014.  As of March 31, 2014, its total risk-based capital ratio was 22.48%; its Tier 1 risk-based capital ratio was 21.01%; and its Tier 1 leverage capital ratio was 12.72%.  Accordingly, IFS is a “well capitalized” institution pursuant to applicable regulatory guidelines.

RNB is a national bank that was chartered in 1865.  In addition to its main office in Rockport, RNB operates three full service branches in Beverly, Gloucester and Rockport  and an educational branch office located in a high school in Beverly. RNB has three wholly-owned subsidiaries; two security corporations, Headlands Securities Corporation and Twin Lights Securities Corporation and Dogtown Insurance Services, Inc., an insurance producer. RNB’s deposits are insured by the FDIC to the maximum extent permitted by law.  RNB had total assets of $195.9 million and total deposits of $175.4 million.  Also as of March 31, 2014, RNB maintained a total risk-based capital ratio of 14.73%; a Tier 1 risk-based capital ratio of 13.42%; and a Tier 1 leverage capital ratio of 9.16%.  Accordingly, RNB is a “well capitalized bank” under applicable regulatory guidelines.

In order to make a determination on the application, the Commissioner must determine whether or not competition among banking institutions will be unreasonably affected and whether or not public convenience and advantage will be affected.  In making such determination, the Commissioner shall consider but not be limited to a showing of net new benefits.  Net new benefits includes initial capital investments, job creation plans, consumer and business services, commitments to maintain and open branch offices and such other matters as the Commissioner may determine.

The Petitioner has submitted materials to address the issue that competition among banks will not be unreasonably affected by the proposed transaction.  The application contained an analysis utilizing the various tests used by federal agencies. 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.  In this case, there would be a de minimis increase in the HHI for the geographical areas analyzed. The analysis demonstrates that consummation of the transaction will not result in undue concentration of banking resources in the specified banking markets in Massachusetts.  Traditionally, however, the Division has not limited its review to those previously cited federal standards in its consideration of whether competition will be unreasonably affected.  Rather it is the position of the Division 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 Division’s review recognizes that there is no overlap in the banking office networks of the Petitioner and RNB as there are no communities in which IFS and RNB both maintain branch offices.  IFS has expressed its intent to maintain the combined branch network after the Merger by continuing to operate the branch office locations in all of the communities in which IFS and RNB currently have offices.  The Division is satisfied that consumers in the impacted communities will continue to have access to competitive products and services offered by a number of diverse financial institutions in the banking market served by the continuing institution.

As mentioned above, in determining whether or not to approve a petition under the statutory criteria, the Commissioner is also required to consider a showing of “net new benefits” related to the transaction.  The Petitioner has addressed this requirement of Massachusetts General Laws chapter 168, section 35 in its filings.  First, the Petitioner has stated that it expects to retain all RNB employees other than RNB’s President and Chief Executive Officer and RNB employees whose jobs will be eliminated as a result of IFS’s discontinuation of RNB’s trust department and the dissolution of RNB’s Dogtown Insurance Services, Inc. subsidiary. IFS believes that continued growth resulting from the merger will also lead to further growth in staff levels at IFS over time.  Employees not covered by individual severance or change in control agreements who are terminated by IFS without cause within one year of the merger will receive severance payments in accordance with IFS’s severance guidelines. Additionally, as stated above, IFS will maintain all of the banking offices of RNB as branch offices.  Customers will have the additional convenience to conduct their banking business from a larger branch office network.  Moreover, customers of both banks will benefit from a broad array of products and services including a range of residential and commercial loans for which the decisions are made locally. Management believes that the combined talent base will allow IFS to develop new products and additional variations of existing products.   These and other factors are also cited as support for meeting such criteria.

The Division has considered whether public convenience and advantage will be promoted by the proposed transaction.  IFS states that it will offer substantially the same services and products currently offered to customers of RNB.  However, IFS intends to discontinue the trust operations and the sale of non-deposit investment products and insurance currently offered by RNB.  According to the application, IFS and RNB believe that the termination of these services will not adversely affect the availability of these products within their service areas.  There will be a transition period in order to secure alternatives for remaining trust accounts after consummation of the transaction, if approved.  The application addresses benefits in support of the transaction, including IFS’s access to a larger service area and the added asset base that will increase its ability to expand the lending limits for individual loans.  Deposits formerly held at RNB which did not previously have excess insurance coverage, will be insured by the Depositors Insurance Fund for amounts in excess of FDIC deposit insurance limits.  The Board considered these matters and others cited in the submitted documents in determining that public convenience and advantage will be promoted by approval of this transaction.

Related to the issue of public convenience and advantage is the record of performance under the Commonwealth’s Community Reinvestment Act (“CRA”) by the banks which are parties to this transaction.  Such a review for a state-chartered bank includes examination by personnel of the Division as well as an analysis of concerns received by the bank's community and its response to those concerns fairly raised.  For other institutions, the Division looks to a publicly available descriptive rating and evaluation by a federal or state bank regulatory agency.  The Division has noted that IFS received a “Satisfactory” rating in its most recent CRA performance examination by the Division and the FDIC as of August 15, 2011.  The Division has noted that RNB also received a “Satisfactory” rating in its most recent CRA performance examination conducted by the Office of the Comptroller of the Currency as of April 6, 2009.

The financial and managerial aspects of any transaction are also a significant consideration of the Board as they may affect the continuing institution’s ability to serve the banking public and to actively compete with other financial institutions as well as to maintain its capital ratio standards for a safe and sound institution.  The Merger will be funded in a cash transaction with no additional capital or other financing required.  As a result of the Merger, each holder of Bancorp common stock immediately prior to the Merger will be entitled to receive $138.58 for each share of Bancorp’s common stock. The aggregate Merger consideration is approximately $28.3 million.   As part of this transaction, IFS also disclosed that on August 11, 2011, Bancorp sold 3,000 shares of senior non-cumulative perpetual preferred stock to the U.S. Treasury Department (“SBLF Preferred Stock”).  Immediately following the effective time of the Merger and prior to the dissolution of Bancorp, IFS intends to cause Bancorp to redeem the SBLF Preferred Stock.  The current redemption value of the SBLF Preferred Stock is $3.0 million exclusive of any accrued but unpaid dividends.  Upon consummation of the transaction, IFS will remain a well capitalized institution under applicable bank regulatory guidelines.  The Division’s consideration of the financial and managerial aspects of the transaction also supports its approval.

Upon review of the record of this application with reference to the relevant statutory and regulatory criteria, the Division concludes that all such requirements have been met and that consummation of the proposed transactions would be in the public interest.  On the basis of these considerations, and subject to the conditions set forth below, approval is granted for Institution for Savings in Newburyport and its Vicinity to purchase all the assets and assume all the liabilities of Rockport National Bank in conformity with the Agreement and pursuant to Massachusetts General Laws chapter 168, section 35.  In accordance with General Laws chapter 167C, section 6, approval is also granted for Institution for Savings in Newburyport and its Vicinity to maintain the existing banking offices of Rockport National Bank as branch offices. 

Finally, in connection with the transactions set forth above, IFS is hereby authorized to establish Merger Sub as a direct subsidiary. Based on the information provided in your application, the Division has determined that the statutory requirements of chapter 167F, section 2, paragraph 7 are met.

The transactions as proposed shall be consummated within one year of the date of this Decision.

August 20, 2014

David J. Cotney
Commissioner of Banks

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