Decision  Decision of January 20, 2015

Date:	01/20/2015
Organization:	Division of Banks

• Petitioner: Independent Bank Corp.
• Respondent: Board of Bank Incorporation

Decision relative to the petition of Independent Bank Corp., Hanover, Massachusetts to acquire Peoples Federal Bancshares, Inc., Brighton, Massachusetts

Independent Bank Corp. (“Independent” or “Petitioner”), Hanover, Massachusetts has petitioned the Board of Bank Incorporation (“Board”) pursuant to Massachusetts General Laws chapter 167A, sections 2 and 4 for approval to acquire ownership and control of Peoples Federal Bancshares, Inc. (“Peoples Bancshares”), Brighton, Massachusetts and its subsidiary bank, Peoples Federal Savings Bank (“Peoples Bank”), Brighton, Massachusetts. The Petitioner is the bank holding company for Rockland Trust Company (“Rockland Trust”), Rockland, Massachusetts.  The Petitioner’s application before the Board is part of a multi-step transaction in which Peoples Bancshares will merge with and into the Petitioner.  An application has also been filed with the Division of Banks (“Division”) for the subsequent merger of the subsidiary bank, Peoples Bank with and into Rockland Trust.  The application to merge the subsidiary banks is, by statute, subject to approval of the Commissioner of Banks.

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 on December 2, 2014.  The comment period on the proposed transaction ended on December 11, 2014.  Peoples Bancshares’ shareholders voted to approve this proposed transaction on November 25, 2014.

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 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 significant 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 November 19, 2014.

Independent 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. Independent owns 100% of the capital stock of Rockland Trust, a Massachusetts-chartered trust company established in 1907.  Independent’s primary business is serving as the holding company of Rockland Trust.  As of June 30, 2014, Independent had consolidated assets of approximately $6.3 billion and consolidated stockholders’ equity of approximately $616.5 million. At June 30, 2014, Independent had (a) a total risk-based capital ratio of 12.38%, (b) a Tier 1 risk based capital ratio of 10.65%, and (c) a Tier 1 leverage capital ratio of 8.62%.  Independent is a “well capitalized” bank holding company under applicable regulatory guidelines. 

 Rockland Trust has its main office in Rockland, Massachusetts and operates 78 banking offices, including 75 full service branch offices, as well as commercial lending centers and investment management offices, all of which are located in Plymouth, Norfolk, Bristol, Barnstable, Middlesex, and Worcester counties and Providence, Rhode Island.  Rockland Trust’s deposits are insured by the Federal Deposit Insurance Corporation (FDIC) to the maximum amount permitted by law.  As of June 30, 2014, Rockland Trust had consolidated assets of approximately $6.3 billion.  As of the same date, Rockland Trust had (a) a total risk-based capital ratio of 12.15%, (b) a Tier 1 risk based capital ratio of 10.42%, and (c) a Tier 1 leverage capital ratio of 8.44%.  Rockland Trust is a “well capitalized” bank under applicable regulatory guidelines.

Peoples Bancshares is a federal savings and loan holding company registered under the Home Owners Loan Act.  It was incorporated in Maryland in March 2010 in connection with Peoples Bank’s conversion from mutual to stock form.  Peoples Bancshares is headquartered in Brighton, Massachusetts and as of June 30, 2014, had total consolidated assets of $606.2 million and total shareholders’ equity of $103.7 million. Peoples Bancshares is a “well capitalized” bank holding company under applicable regulatory guidelines.

Peoples Bank is a federal savings bank with its main office in Brighton.  In addition to its main office, it operates seven branch offices in Allston, Brookline, Jamaica Plain, Norwood, West Newton, West Roxbury and Westwood. All banking offices of Peoples Bank will be retained as branch offices of Rockland Trust if the merger is approved and consummated.  Peoples Bank’s deposits are insured by the FDIC to the maximum amount permitted by law.  As of June 30, 2014, Peoples Bank had consolidated assets of approximately $605 million and total deposits as of the same date were approximately $443.3 million.  At June 30, 2014 Peoples Bank had a) a total risk-based capital ratio of 24.51%, (b) a Tier 1 risk based capital ratio of 23.48%, and (c) a Tier 1 leverage capital ratio of 15.10%. Peoples Bank is a “well capitalized” bank under applicable regulatory guidelines. 

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 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.Although Rockland Trust’s and Peoples Bank’s service areas overlap, there is only one community where both banks operate a branch office, Newton.  In addition, Rockland Trust does not have any branches in Suffolk County while Peoples operates five branches in Suffolk County. This transaction, if approved, will broaden the continuing institution’s physical presence in that county.  The application and the Petitioner’s testimony also indicated that no branch offices of Peoples Bank or Rockland Trust would be closed in connection with this transaction. Accordingly, the Board’s analysis of the competitive impact of the acquisition weighs in favor of the proposed transaction.

The Board has considered whether public convenience and advantage will be promoted by the proposed transaction.  The Petitioner states that the enhanced financial strength of the combined banks will ensure that the continuing institution will be able to offer financial products and services at competitive rates.  The transaction will permit Rockland Trust and Peoples Bank to pool their financial resources, reduce costs, diversify risk, and better serve their communities by offering a broader array of products and services with a more robust range of features and a greater level of customer service.  The Petitioner maintains that current customers of Peoples Bank will experience substantial improvement in access to banking services.  As a larger institution, Rockland Trust offers a greater variety of products and services than Peoples Bank, including business/cash management services, mobile banking, and asset-based lending and commercial lending programs. Rockland Trust has a commercial lending capability far larger than Peoples Bank’s lending limit. This will enable the resulting institution to offer significantly larger commercial loans which will enhance market competition. 

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's subsidiary bank, Rockland Trust, received an “Outstanding” rating in its most recent examination of performance under CRA by the Division and the FDIC as of February 10, 2014.  Peoples Bank also received an “Outstanding” rating at its most recent examination conducted by the Office of the Comptroller of the Currency on January 21, 2014. 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 and the Petitioner’s testimony indicated that initial capital investments will be made to purchase new computers and equipment, install a new telephone system and replace automated teller machines. Independent also addressed the effect of the transaction on Peoples Bank employees in its application, testimony and in responses to inquiries from the Board.  Independent indicated that while there would be some immediate reduction in staff levels it was anticipated that there would be future growth and future expansion in its subsidiary bank that will create additional jobs. Severance payments will be made to any Peoples Bank employee who is terminated by Rockland Trust after the merger in an amount based upon their years of service. Transitional assistance, in a variety of forms, will also be provided to those employees impacted by the merger. With respect to the statutory test of job creation plans within net new benefits, the Board has past precedent to guide it.  In prior Decisions, the Board has concluded that the statutory test can be met by prospective direct and indirect employment gains resulting from continued growth of a larger and stronger institution as well as through its subsidiary bank’s lending programs which ultimately fund jobs.  Accordingly, the Board’s consideration of the transaction’s impact on employment does not preclude its approval.  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 holding company’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 transaction is structured such that Peoples Bancshares will merge with and into Independent and the agreement and plan of merger provides that each share of Peoples Bancshares common stock be converted into the right to receive either $21.00 in cash or .5523 shares of Independent common stock, subject to a limit requirement of a 60% stock/40% cash distribution.  Upon consummation of the transaction, the Petitioner will remain a well capitalized holding company under applicable regulatory guidelines.  The current directors of Independent will remain directors of Independent after consummation of the transaction, if approved, with the addition of one director of Peoples Bancshares, as selected by Independent to be added to the board. The Board’s consideration of the financial and managerial aspects of the transaction also supports its approval.

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 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 Independent Bank Corp. to acquire Peoples Federal Bancshares, Inc. and its subsidiary bank, Peoples Federal Savings 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

 

January 20, 2015
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Date