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Decision

Decision Decision of August 20, 2014

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

Decision relative to the petition of Institution for Savings in Newburyport and its Vicinity, Newburyport, Massachusetts to acquire Rockport National Bancorp, Inc., Rockport, Massachusetts

Institution for Savings in Newburyport and its Vicinity (“IFS” or the “Petitioner”), Newburyport, Massachusetts has petitioned the Board of Bank Incorporation (the “Board”) pursuant to Massachusetts General Laws chapter 167A, sections 2 and 4 for approval to become a bank holding company to acquire ownership and control of Rockport National Bancorp, Inc. (“Bancorp”), Rockport, Massachusetts and its subsidiary bank, Rockport National Bank (“RNB”), Rockport, Massachusetts. The Petitioner’s applicaton before the Board is part of a multi-step transaction in which the Petitioner will acquire all of the assets and assume all of the liabilities of RNB.  To facilitate the multi-step transaction, IFS will create a new subsidiary, RNB Acquisition Corp. (“Merger Sub”).  At the effective time of the merger, Merger Sub will merge into Bancorp (“Merger”).  As a result of the Merger, Bancorp will become a wholly-owned subsidiary of IFS and RNB will remain a subsidiary of Bancorp and become an indirect subsidiary of IFS.    An application has also been filed with the Division of Banks (“Division”) for the subsequent transfer of RNB’s assets to IFS and assumption of all liabilities by IFS which is subject to approval of the Commissioner of Banks.  Following approval of the application, 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 (“OCC”).

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 of IFS on July 15, 2014.  Representatives of both IFS and RNB offered testimony at the public hearing and responded to questions from members of the Board.  The comment period on the proposed transaction remained open until July 25, 2014 to permit interested parties to submit any additional comments.  Bancorp’s stockholders voted to approve this proposed transaction on July 22, 2014.

The Petitioner is a Massachusetts mutual savings bank chartered in 1820 and headquartered in Newburyport, Massachusetts.  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’s deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”) to the maximum amount permitted by law.  Any deposits in excess of FDIC limits are insured by the Depositors Insurance Fund.  IFS has one wholly-owned subsidiary, 1820 Security Corporation, which buys, sells and holds securities on its own behalf.  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.

Bancorp is a Massachusetts corporation and is registered with the Federal Reserve as a bank holding company under the Bank Holding Company Act of 1956, as amended. Bancorp serves as the holding company for RNB.  RNB is a national bank chartered in 1865.  It maintains a main office in Rockport, three additional full service branches located in Beverly, Gloucester, and Rockport, and an educational branch located in a high school in Beverly.  Its deposits are insured by the FDIC to the maximum amount permitted by law.  RNB has three wholly-owned subsidiaries, two security corporations and an insurance producer licensed pursuant to Massachusetts General Laws chapter 175, section 162M.  As of March 31, 2014, 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.

The Board has reviewed the application, the oral testimony received at the public hearing, and the supplemental filings of 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 IFS and RNB.  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.  The Board also considers any relevant testimony received at the public hearing or submitted during the public comment period.

Prior to approving an application under Massachusetts General Laws chapter 167A, the Board must 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 July 7, 2014.

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, this Board 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 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 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 Board 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.

The Board has considered whether public convenience and advantage will be promoted by the proposed transaction.  The Petitioner 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 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 received a “Satisfactory” rating in its most recent examination of performance under CRA by the Division and the FDIC as of August 15, 2011.  RNB also received a “Satisfactory” rating at its most recent examination conducted by the OCC on April 6, 2009. The Board’s review of factors related to public convenience and advantage are supportive of approval.

The Board has 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 indicates that IFS does not anticipate significant initial capital investments other than for new signage and potential branch improvements.  IFS has addressed the effect of the transaction on RNB employees in the application, which states that it expects to retain all RNB employees, with the exception of RNB’s President and CEO and those employees whose jobs will be eliminated as a result of the discontinuance of RNB’s trust operations and non-deposit investment products unit mentioned above.  Severance payments will be made to any RNB employee who declines a position offered by IFS.  The Petitioner anticipates future growth including the creation of additional jobs and potential career advancements for current employees.  As noted above, IFS stated that it is committed to maintaining its branch network in all communities in which both banks operate and no branch offices will be closed as a result of the proposed transaction.  The continuing institution will offer a range of residential and commercial loan products, similar to those currently offered by IFS, to the expanded service area realized by the combined branch network.  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 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, the Petitioner will remain a well capitalized institution under applicable bank regulatory guidelines.  The Board’s consideration of the financial and managerial aspects of the transaction also supports its approval.

Conclusion

The application, supporting documents, the testimony received at the public hearing as well as additional information submitted have established a comprehensive 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 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 Institution for Savings in Newburyport and its Vicinity to acquire Rockport National Bancorp, Inc. and its subsidiary bank, Rockport National 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


Steven Grossman
______________________
Treasurer and Receiver-General


Amy Pitter
______________________
Commissioner of Revenue

 

August 20, 2014
_____________
Date

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