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Decision

Decision Decision of February 25, 2016

Date: 02/25/2016
Organization: Division of Banks
  • Petitioner: ESB Bancorp, MHC, ESB Bancorp, Inc.
  • Respondent: Board of Bank Incorporation

Decision relative to the application of EST Bancorp, MHC and its mid-tier subsidiary, ESB Bancorp, Inc., Easthampton, Massachusetts, to become bank holding companies

ESB Bancorp, MHC (“Easthampton MHC”) and its wholly-owned subsidiary ESB Bancorp, Inc. (“Easthampton Bancorp”) (collectively “Petitioner”), Easthampton, Massachusetts, have petitioned the Board of Bank Incorporation (the “Board”) to each become a bank holding company through a merger with Hometown Community Bancorp, MHC (“Hometown MHC”) and its subsidiary, Hometown Community Bancorp, Inc. (“Hometown Bancorp”), and the indirect acquisition of Hometown Bank, Oxford, Massachusetts (“Hometown”), under the provisions of General Laws chapter 167A, sections 2 and 4 (hereinafter the “Merger”).  Easthampton Bancorp’s banking subsidiary is Easthampton Savings Bank (“Easthampton”), Easthampton, Massachusetts.  The merger of two mutual holding companies is authorized under General Laws chapter 167H, section 7.  Hometown MHC, a mutual holding company headquartered in Oxford, Massachusetts, and Hometown Bancorp, a Maryland corporation and wholly-owned subsidiary of Hometown MHC, are the mutual holding company and the mid-tier holding company, respectively, for Hometown.  The proposed transaction will result in Easthampton Bancorp continuing as a wholly-owned subsidiary of Easthampton MHC, and controlling two state-chartered banks, Easthampton and Hometown.  The resulting mutual holding company will operate under the name “Hometown Financial Group, MHC” and the resulting mid-tier subsidiary will operate under the name “Hometown Financial Group, Inc.”  Easthampton and Hometown will not merge following the consummation of the Merger, but rather, will operate as separate wholly-owned subsidiaries, with each retaining its respective charter, board of directors, and management.

Petitioner published notice of the petition as directed by the Board, thereby affording opportunity for interested parties to submit comments.  The Board held a public hearing relative to this application on January 19, 2016.  The comment period on the proposed transaction ended on January 26, 2016 and no comments were received.  The Board reviewed the application, testimony received at the public hearing, and all related documents.  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 notable 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 December 16, 2015. 

The Parties

Easthampton, Easthampton Bancorp’s sole banking subsidiary, is a Massachusetts-chartered savings bank established in 1869 with its main office in Easthampton, Massachusetts.  Easthampton reorganized into the mutual holding company structure in October 2008.  As of December 31, 2015, Easthampton had consolidated assets totaling over $1.4 billion.  Easthampton operates from ten locations in Massachusetts, including its main office in Easthampton, as well as branches located in Agawam, Belchertown, Easthampton, Hadley, Northampton (2), South Hadley, Southampton, and Westfield.  Easthampton also operates from five branches in Connecticut located in Brooklyn, Danielson, Grosvenordale, Putnam, and Woodstock.  Easthampton offers a range of personal banking services, including checking accounts, savings accounts, tiered money market accounts, CDs, mobile and online banking, traditional and Roth individual retirement accounts, ATMs, residential mortgage loans, home equity lines of credit, and consumer loans, among others.  Easthampton also offers commercial banking services, including business checking and savings accounts, business and municipal money market accounts, retirement accounts (SEP), lines of credit, commercial mortgages, small business partnership loans, online services, and government banking services, among others.  Easthampton has three subsidiaries.  ESB Securities Corp. and ESB Investment Corporation are each Massachusetts securities corporations formed to buy, sell and hold investment securities.  The third subsidiary, Mt. Tom Properties, LLC, is a Massachusetts limited liability company formed to hold title to real estate acquired in connection with any foreclosure.  Easthampton’s deposits are insured to allowable limits by the FDIC and deposits in excess of those limits are insured by the Depositors Insurance Fund.  Easthampton is a member of the Federal Reserve Bank of Boston.

Hometown MHC’s sole indirect banking subsidiary, Hometown, is a Massachusetts-chartered co-operative bank originally chartered in 1889.  Hometown reorganized into the mutual holding company form of organization in November 2013.  As of December 31, 2015, Hometown had total assets of approximately $412 million.  Hometown’s main office is located in Oxford, Massachusetts and it operates branches in Athol, Auburn, Leominster, South Lancaster, Sturbridge, and Webster (2), Massachusetts.  Hometown offers a variety of personal banking services, including checking and savings accounts, CDs, traditional, Roth, and educational individual retirement accounts; mortgage loans, home equity lines of credit, automobile loans, unsecured personal loans, ATMs, and online and mobile banking services, among others.  Hometown also offers commercial banking services, including commercial construction, infrastructure, and rehab loans; SBA loans; letters of credit; equipment lending; commercial checking accounts; and online business banking services, among others.  Hometown has three subsidiaries; Hometown Securities I, Inc., Hometown Securities II, Inc. (each of which is a Massachusetts securities corporation), and WCB Realty, Inc. (an entity formed to hold real estate acquired in connection with any foreclosure).  Hometown’s deposits are insured to the allowable limits by the FDIC and deposits in excess of those limits are insured by the Share Insurance Fund of the Co-operative Central Bank. 

Competition

The Petitioner has addressed the issue of whether competition among banks will be unreasonably affected by the proposed transaction.  Part of that analysis includes various guidelines utilized by the federal agencies.  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 an undue concentration of banking resources in the Commonwealth.  The Board’s review, however, is not limited to such federal standards.  It is the practice 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.  In that regard, Petitioner has presented information that the proposed transaction will not have a significant adverse effect on competition among banking institutions in any relevant market.  Specifically, there is no overlap in the counties in which the banks operate; all of Easthampton’s banking offices are located in Hampden and Hampshire Counties in Massachusetts and Windham County in Connecticut, while all of Hometown’s offices are located in Worcester County in Massachusetts.  Upon review, the Board does not believe the transaction will unreasonably affect competition for the reasons cited, as well as the fact that a number of diverse financial institutions will continue to provide competitive deposit and credit services throughout the affected areas and banking markets served by the continuing institution.

Public Convenience and Advantage

The Board had also considered whether public convenience and advantage will be promoted by this transaction.  The maintenance of separate bank charters will allow Petitioner to expand into new markets using a well-established brand.  In particular, pursuant to a Purchase and Assumption Agreement entered into between Hometown and Easthampton and upon separate approval of the Division of Banks (Division), Hometown will acquire the assets of the five Connecticut branches previously acquired by Easthampton through its 2015 merger with The Citizens National Bank, Putnam Connecticut.  Easthampton’s Connecticut branches are contiguous to the communities served by Hometown currently.  Transferring the Connecticut branches to Hometown will allow it to better serve those customers due to Hometown’s familiarity with those communities.  The Board also received testimony that the Hometown brand is more well-known in Connecticut, thereby providing a recognized name upon the transfer of the Connecticut branches to Hometown.  The Merger will also allow the effective sharing of strengths between Easthampton and Hometown and provide an expanded network of branches and surcharge-free ATMs to customers of both Easthampton and Hometown.  Further, as a result of the merger, Hometown customers will have access to the non-deposit investment products currently offered to Easthampton customers.  In addition, Petitioner states that there will be no branch office closures of either bank as a result of the transaction and each bank will remain committed to its community. 

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.  As noted, through its written submissions and testimony, Petitioner confirmed that there will be no branch closures as a result of the Merger, and likewise no reductions in staff.  The Board received testimony that the merger will provide a strengthened negotiating position with contracted vendors and afford back-room efficiencies for both banks.  By way of example, the Board received testimony that without the merger, Hometown anticipated it would be necessary to open a call center; through the merger, Hometown can utilize the existing call center of Easthampton.  The Board received testimony that the Merger will allow the resulting entity to compete more effectively and improve profitability for each institution, thereby providing funds for any future plans for capital investment, job creation, and expansion of consumer and business services.  The expected increase in profitability as a result of the Merger will provide funds for any future plans for capital investment, job creation, and the expansion of consumer and business services.  

Related to the issue of public convenience and advantage is the record of CRA performance by the subsidiary banks of 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, Easthampton, received a “High Satisfactory” rating in its most recent performance evaluation conducted by the Division, dated January 12, 2015.  Hometown received a “Satisfactory” rating in its most recent CRA examination conducted jointly by the Division and the FDIC as of May 12, 2014.  Accordingly, the Board’s review of factors related to public convenience and advantage are supportive of approval.

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.  Following the Merger, the Board of Directors of Easthampton will remain the same.  Likewise, the Board of Directors of Hometown will remain the same.  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 complete record on this petition, which has been reviewed in accordance with statutory provisions and 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, 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 Easthampton MHC and Easthampton Bancorp to each become a bank holding company and to directly and indirectly own and control Easthampton and Hometown through the acquisition of Hometown MHC and its subsidiary, Hometown Bancorp, 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


Donald Twomey
______________________
Designee of the Commissioner of Revenue

 

February 25, 2016
_____________
Date

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