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Assabet Valley Bancorp ("Assabet" or the "Petitioner") Hudson, Massachusetts has petitioned the Board of Bank Incorporation (the "Board") to acquire Westborough Bancorp, MHC ("Westborough"), Westborough Financial Services, Inc., its mid-tier holding company, and the indirect acquisition of The Westborough Bank, Westborough, Massachusetts under the provisions of General Laws chapter 167A, sections 2 and 4. The merger of two mutual holding companies is authorized under General Laws chapter 167H, section 7, paragraph (3). Assabet is the mutual holding company for Hudson Savings Bank ("Hudson"), Hudson, Massachusetts, a Massachusetts-chartered stock savings bank. To facilitate this transaction, Assabet has formed a wholly-owned subsidiary, HudWest Financial Services, Inc. ("HudWest"). Westborough is a mutual holding company and its principal asset is 63.89% of the stock of Westborough Financial Services, Inc., a mid-tier holding company. The remaining 36.11% of the stock of Westborough Financial Services, Inc. is publicly held. An application to merge The Westborough Bank with and into Hudson Savings Bank is before the Division of Banks. The transaction will be structured so that Westborough Bancorp MHC will first merge with and into Assabet Valley Bancorp. HudWest will merge with and into Westborough Financial Services, Inc. with each public share converted into the right to receive the merger consideration of $35 per share. The merger of the subsidiary banks will then take place with The Westborough Bank merging with and into Hudson Savings Bank, subject to the approval of the Division of Banks.
The Petitioner was required to submit supplemental information to the filing on July 12, 2007 since the initial application was filed on January 16, 2007. Notice of the petition by Assabet was published as directed by the Board thereby affording opportunity for interested parties to submit comments. A public hearing relative to this application was held by the Board on July 26, 2007 and the period for filing comments expired on August 2, 2007. Comments were received from two individuals, one of whom testified at the public hearing. At the outset of the hearing, the applicable statutory standards set forth in G. L. c. 167A, §2 and §4 were reviewed by the Commissioner of Banks. It remains the Board's general procedure to schedule its public hearing based on the date of the vote of the parties necessary to approve the transaction. The Board is aware that the votes were taken on Tuesday, July 24, 2007 after being delayed for several months. The Board is fully aware of the reasons for the delay and is informed about the pending litigation related to this transaction. The Board expressed its view that it is not a substitute for a judicial forum and required that anyone testifying or submitting comments before the Board must base those comments on the statutory factors which must be considered by the Board in making its decision on the proposed transaction. The Board reviewed the application, testimony received at the public hearing, and all related documents in accordance with the statutory criteria of whether competition among banking institutions will be unreasonably affected and whether any net new benefits as well as public convenience and advantage would be promoted by approval of the proposed transaction. The record of performance under the Commonwealth's Community Reinvestment Act ("CRA") by the banks involved in the transaction was also a factor considered by the Board.
One provision of law requires the Board to have received notice from the Massachusetts Housing Partnership Fund (the "MHPF") that satisfactory MHPF arrangements for the proposed transaction have been made by Assabet pursuant to section 4 of chapter 167A of the General Laws and guidelines adopted by the MHPF. The Board has received notice from the MHPF, in a letter dated March 22, 2007 that arrangements satisfactory to it have been made for the transaction. The Board is also aware that the Federal Deposit Insurance Corporation ("FDIC") approved the merger of The Westborough Bank with and into Hudson on March 14, 2007 and that the Federal Reserve approved the Petitioner's acquisition of Westborough Bancorp MHC and its direct and indirect subsidiaries on March 27, 2007.
Hudson has its main office in Hudson and operates four branch offices in Hudson, Leominster, Marlborough and Clinton. Hudson reorganized into a mutual holding company structure which resulted in the formation of Assabet in 1997. The Westborough Bank has its main office in Westborough and operates three other branch offices in Westborough, Northborough and Shrewsbury. Westborough reorganized into a mutual holding company forming Westborough Bancorp, MHC and Westborough Financial Services, Inc., its mid-tier holding company, in 2000. At that time, Westborough Financial Services, Inc. issued 35% of its stock in a subscription offering. This transaction will provide for the payment of $35 per share for the publicly held shares of Westborough Financial Services, Inc. Assabet had total consolidated assets of $661.3 million as of March 31, 2007. Westborough Financial Services, Inc. had total consolidated assets of $296.2 million as of March 31, 2007. The deposits of Hudson Savings Bank and The Westborough Bank are insured to allowable limits by the FDIC and deposits in excess of those limits are insured by the Depositors Insurance Fund ("DIF").
The Petitioner has addressed the issue of whether competition among banks will be unreasonably affected by the proposed transaction. The Petitioner explained that under the analysis followed by the Federal Reserve, the only banking market in which the banking subsidiaries of both Assabet and Westborough operate is the Worcester Banking Market. Because of the relatively small market share that each of banks has in this banking market, the transaction will have only a de minimis effect on competition. Similar results are obtained by applying the county based analysis of the Federal Deposit Insurance Corporation. Part of that analysis is typically detailed according to various tests used by federal agencies. That analysis demonstrates that consummation of the transaction will not result in undue concentration of banking resources in the Commonwealth. The Board's review, however, is not limited to such federal standards. It is the position of the 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. The Petitioner states that the market served by Westborough is a natural geographic extension of Hudson's current market area. Westborough Bank's branch network is contiguous to Hudson's branch network. The banks presently serve customers living in each others respective communities with branch locations. Following the merger, the customers of both banks will have access to more branch offices and ATMs at which to conduct their banking business and will have access to an expanded geographic area. Upon review, the Board does not find that the transaction will unreasonably affect competition.
The Board has also considered whether public convenience and advantage will be promoted by this transaction. The Petitioner commented that as a significantly larger financial institution, the combined institution will be able to offer a wider array of consumer and business products and services than does either Hudson or Westborough Bank. In addition, Petitioner asserts, because of its larger size and greater capital, the combined institution will be able to offer higher lending limits to commercial customers in both the Hudson and Westborough Bank market areas and will have a greater capacity to meet consumer and business needs.
With respect to net new benefits, Petitioner asserts that the transaction will result in a combined bank that offers a broader array of products and services to its customers. As a result, the transaction will provide Westborough customers with many new choices for products and services, including trust department services; extensive cash management services for commercial and small business customers; and more branch offices and ATMs. Petitioner states that all employees of The Westborough Bank will be offered jobs, including in some cases newly created positions in expanded departments, in the combined institution. Hudson anticipates the proposed transaction will improve its ability to grow with the growth creating new jobs in the Commonwealth.
The financial aspects and tax consequences from the structure 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 transaction have been met. Upon review, the Board's analysis of the public convenience and advantage as well as net new benefits, in addition to other factors considered by the Board, weigh in favor of the transaction.
The record of performance under CRA by the subsidiary banks in a bank holding company transaction is also a consideration by the Board. For financial institutions not directly under the jurisdiction of the Commonwealth, the Board initially looks to the publicly available descriptive rating and evaluation by a federal or another state's banking regulatory agency. Such review for state-chartered banks such as the subsidiary banks involved in this transaction, includes examination by personnel of the Division as well as analysis of concerns received from a bank's community and a bank's response to those concerns fairly raised. The Board has noted that Hudson Savings Bank and The Westborough Bank each have a "Satisfactory" rating in its most recent examination of performance. Based on the information presented and available to the Board, the Board's view of this factor is consistent with approval.
The Board received extensive oral and written testimony from one of the minority stockholders of Westborough Financial Services, Inc. Prior to the hearing date, the Board had also received correspondence from counsel representing another minority shareholder. In general, these shareholders objected to the transaction based on the per share price that the minority shareholders will receive as well as other aspects of the transaction. The transaction is also the subject of a lawsuit filed on behalf of minority shareholders seeking to obtain a preliminary injunction and other relief in Worcester Superior Court. The Court denied the plaintiff's motion for a preliminary injunction on August 14, 2007.
Based on the record on this matter including the testimony received at the public hearing and subsequent filing considered in light of all relevant statutory and administrative requirements, the Board finds that competition among banking institutions will not be unreasonably affected, that public convenience and advantage will be promoted by consummation of the proposed transaction and that records of performance under CRA by the banks involved in this transaction are consistent with its approval. Therefore, in accordance with these findings and pursuant to the statutory authority cited herein, the Board hereby approves the application of Assabet Valley Bancorp and authorizes its direct and indirect acquisition of Westborough Bancorp, MHC, Westborough Financial Services, Inc. and The Westborough Bank. The Petitioner will also continue to be subject to the provisions of chapter 167H of the General Laws and the applicable regulations within 209 CMR 33.00 et seq.
The approvals herein are subject to the condition that all related transactions are completed within one year of the date of this Decision.
August 23, 2007
Steven L. Antonakes
Commissioner of Banks
Commissioner of Revenue
Timothy P. Cahill
Treasurer and Receiver-General