Salem Five Cents Savings Bank, Salem, Massachusetts (Salem Five) has applied to the Division of Banks (Division) for authority to merge with Sage Bank, Lowell, Massachusetts pursuant to the provisions of Massachusetts General Laws chapter 167H, section 7 and chapter 167I, section 3. Under the terms of an Agreement and Plan of Merger dated as of April 26, 2018 (Merger Agreement), Sage Bank will merge with and into Salem Five (Continuing Institution) under the charter, by-laws, and name of Salem Five. The main office of Salem Five will remain the main office of the Continuing Institution after consummation of the proposed merger, and the Continuing Institution will retain the banking offices of Sage Bank as branch offices. The former Sage Bank branches may operate under the name “Sage Bank, a Division of Salem Five Cents Savings Bank” for a period of time.
Legal and procedural requirements
Notice of Salem Five’s application was posted and published as directed by the Division thereby affording opportunity for interested parties to submit comments. The period for filing comments has expired, and no comments were received. The Division reviewed the application and supplementary materials submitted by Salem Five in accordance with applicable law, including the statutory criteria of whether competition among banking institutions will be unreasonably affected and whether public convenience and advantage as well as “net new benefits” will be promoted by approval of the proposed transaction. The Division considered both banks’ records of performance under the Community Reinvestment Act (CRA) as well as financial and managerial factors. The Depositors Insurance Fund has confirmed by letter dated June 27, 2018, that satisfactory arrangements have been made relative to providing excess deposit insurance for deposits of the Continuing Institution.
Salem Five is a Massachusetts-chartered savings bank in stock form and is the sole banking subsidiary of Salem Five Bancorp, a Massachusetts mutual holding company. In addition to its main office in Salem, Massachusetts, Salem Five operates 33 full-service branch offices in the Massachusetts counties of Essex, Middlesex, Norfolk, and Suffolk. As of June 30, 2018, Salem Five had total assets of approximately $4.8 billion and total deposits of approximately $3.6 billion. Salem Five offers a full range of personal and business checking, deposit, and loan products and services. Salem Five’s deposits are insured up to allowable limits by the Federal Deposit Insurance Corporation (FDIC), and amounts in excess of FDIC insurance are insured by the Depositors Insurance Fund.
Sage Bank is a Massachusetts-chartered co-operative bank in stock form. In addition to its main office in Lowell, Massachusetts, Sage Bank also operates an additional branch office in Lowell. As of June 30, 2018, Sage Bank had total assets of approximately $143 million and total deposits of approximately $83 million. Sage Bank offers a range of retail and business services including telephone and internet banking products, cash management and residential mortgage products. Sage Bank’s deposits are insured up to allowable limits by the FDIC and amounts in excess of FDIC insurance are insured by The Co-operative Central Bank.
Materials have been submitted to address the issue 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 upon, the guidelines used by federal authorities to review bank mergers. Essentially, these guidelines define relevant markets and measure concentration, which is considered an important indicator of competitiveness. 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 the affected market into a single value. In this case, the HHI analysis demonstrates that consummation of the transaction will not result in an undue concentration of banking resources. In addition to that analysis, the Division considers the competitive impact of the proposed transaction on a community-by-community basis, as well as on the overall banking structure of the Commonwealth. Salem Five and Sage Bank do not have any banking offices located in the same city or town. Salem Five will expand its current presence in Middlesex County by continuing to operate Sage Bank’s two banking offices in Lowell, Massachusetts. The Division also notes that there are several banks, as well as credit unions, located in the City of Lowell offering consumers several local banking options. Accordingly, the review of the transaction’s impact on competition supports its approval.
Public convenience and advantage
The Division next considered the record of the application to determine whether public convenience and advantage will be promoted. Salem Five indicates that the banking public will benefit as a result of the proposed merger. As discussed further below, the customers of Sage Bank will have increased access to products and services offered by Salem Five, many of which are not available at Sage Bank.
In determining whether to approve a petition under the statutory criteria, the Division is required to consider a showing of “net new benefits” related to the transaction. That term as set out in section 3 of said chapter 167I includes initial capital investments, job creation plans, consumer and business services, and commitments to maintain and open branch offices, among other factors that the Division may deem necessary. Salem Five addressed this requirement of the statute. The Continuing Institution plans to make capital investments of approximately $400,000. Such capital improvements will include systems upgrades, signage changes and debit card issuances. With regard to employment, Salem Five currently anticipates keeping most of Sage Bank’s customer facing employees, including branch personnel and mortgage loan officers.
While there will be some loss of jobs due to back office overlap, Salem Five anticipates growing its franchise and providing more job opportunities going forward. The materials submitted as part of the application indicate that customers of Sage Bank will benefit from expanded and enhanced products and services, including access to commercial (including construction) lending and more sophisticated cash management products. In addition, the Continuing Institution will maintain Sage Bank’s two banking offices as Salem Five branch offices. Finally, customers of both banks will find additional convenience conducting their banking business from the larger branch and ATM network of the Continuing Institution. Accordingly, the factors related to public convenience and advantage, including net new benefits, are consistent with approval of Salem Five’s application.
Related to the issue of public convenience and advantage is the record of CRA performance by the banks that are parties to this transaction. Such review for Massachusetts-chartered banks includes examination by personnel of the Division. A publicly available descriptive rating and evaluation by a federal bank regulatory agency may also be considered. For other institutions, the Division looks to a publicly available descriptive rating and evaluation by the supervising federal or state regulatory agency. Salem Five received a “Satisfactory” rating in its most recent CRA performance evaluation conducted jointly by the Division and the FDIC as of March 7, 2016. Sage Bank also received a “Satisfactory” rating in its most recent CRA performance evaluation conducted by the Division and the FDIC as of April 18, 2016. The Division’s consideration of the CRA performance of Salem Five and Sage Bank also supports the approval of the proposed merger.
Financial and managerial considerations
The Division also reviews and considers the financial and managerial aspects of the proposed transaction. According to materials submitted as part of the application, at the effective time of the proposed transaction, each share of Sage Bank stock issued and outstanding will convert to the right to receive cash in accordance with a negotiated exchange ratio. In addition, prior to the merger, Sage Bank plans to redeem all of its issued and outstanding shares of its perpetual preferred stock and will pay all principal in connection with such stock to The Co-operative Central Bank. Such redemption is subject to approval by the Division and the FDIC. By separate letter issued today in conjunction with this Decision, the Division approved the redemption of Sage Bank’s preferred stock.
According to the application, the boards of directors and senior management of Salem Five Bancorp and Salem Five will not change as a result of the proposed transaction. Accordingly, upon review, the financial and managerial considerations support approval of the application.
Upon review of the complete record of the application with reference to the relevant statutory and regulatory requirements, the Division concludes that all such requirements have been met, and that consummation of the proposed transaction is in the public interest. On the basis of these considerations, and subject to the conditions set forth below, approval is granted for Sage Bank to merge with and into Salem Five under the charter, by-laws, and name of Salem Five pursuant to section 3 of chapter 167I and section 7 of chapter 167H of the General Laws. Approval is also granted for Salem Five to maintain the two banking offices of Sage Bank as branch offices under the name “Sage Bank, a Division of Salem Five Cents Savings Bank.”
The approval granted herein is subject to the following conditions:
- That the proposed merger shall not become effective until a Certificate signed by the Presidents and Clerks, or other duly authorized officers of each bank, indicating that each institution has complied with the provisions of Massachusetts General Laws chapter 167I, section 3 has been returned with my endorsement thereon;
- That the proposed merger shall not become effective unless the Articles of Merger with my endorsement thereon are filed with the Secretary of State; and
- That the proposed merger shall be consummated within one year of the date of this Decision.
Terence A. McGinnis, Commissioner of Banks
August 7, 2018