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Lowell Co-operative Bank, Lowell, Massachusetts ("Lowell" or the "Bank") is a duly chartered co-operative bank with two banking offices in Lowell and assets of approximately $88 million as of December 31, 2008. The Bank has applied to the Division of Banks (the "Division") pursuant to chapter 170, § 26C of the Massachusetts General Laws and 209 CMR 33.00, Subpart B, 209 CMR 33.13 to 209 CMR 33.20 ("Subpart B" or the "Regulation") for permission to convert from a co-operative bank in mutual form to a co-operative bank in stock form. Subpart B governs this supervisory stock conversion of a mutual bank in which newly issued capital stock is sold to third parties and the account holders of a co-operative bank have no voting or subscription rights. The supervisory conversion will occur as part of a multi-step transaction. Upon completion of the supervisory conversion under Subpart B, the corporate existence of this converted bank will be a continuation of Lowell.
Pursuant to the Regulation, the Division must determine that there is no equity value realizable by the mutual account holders. In the Division's Regulatory Bulletin 3.1-103 (the "Bulletin") issued on October 29, 1992, the Division determined that for the purposes of a supervisory conversion no equity value would be realized upon the liquidation of a bank which is "significantly undercapitalized" or "critically undercapitalized" as those terms are defined in regulations of the Federal Deposit Insurance Corporation ("FDIC") at 12 CFR § 325.103.
The multi-step transaction will resolve a number of substantial regulatory concerns relative to Lowell. Those concerns have been raised by the continuing deteriorating capital condition resulting in part, from significant problems in the Bank's construction and development loan portfolio exacerbated by the current economic downturn. The Division has determined that the continued deterioration has resulted in Lowell being "significantly undercapitalized." A total capital contribution of approximately $8 million will recapitalize Lowell and bring it into conformance with governing FDIC capital requirements for a "well capitalized" institution. The capital infusion will be made by a group of investors who will purchase at least $5 million of the Bank's capital stock. One of the investors, who has had experience rehabilitating a banking institution with financial weaknesses, will become the President and Chief Executive Officer of the Bank. That person will also serve as Chairman of the newly constituted Board of Directors and the Bank will continue to conduct business uninterrupted with revised operating management. It is not anticipated that additional capital from the investors for regulatory purposes will be necessary in the foreseeable future.
The Bank has also entered into a Financial Assistance Agreement with the Co-operative Central Bank (the "Central Bank"), the Applicant's private excess depositor insurer. Under that Agreement, the Central Bank will extend $3 million in assistance to the Bank in exchange for 300,000 shares of preferred stock of the Bank. That Agreement and the rights and preferences of the preferred stock were approved by the Division in a separate decision under section 3A of chapter 73 of the Acts of 1934, as amended. The preferred stock, which will be considered by the Division as Tier 1 capital, is authorized to be issued by the Bank pursuant to the provisions of subsections A and B of section 24 of chapter 172 of the General Laws.
This capital will allow the Bank to meet current capital requirements and afford the opportunity for future growth and expansion of Lowell's deposit base, mortgage lending operations and other activities permitted by law. By restoring the financial soundness of the Bank, the conversion will benefit Lowell's customers and the communities in which it operates. This transaction is vastly preferable to instituting other serious regulatory action. Moreover, competition among other banks will not be adversely impacted by the conversion. The public's access to credit within the Bank's communities will not be adversely affected. Each deposit account in the Bank will remain unchanged in the converted bank and will continue to be insured up to applicable limits by the FDIC and for all amounts in excess of federal deposit coverage limits will remain insured in full by the Share Insurance Fund of the Co-operative Central Bank.
Based upon a review of the record, Lowell was found to have complied with all the statutory and regulatory filing requirements necessary for a completed supervisory stock conversion application, including the requirement that such supervisory conversion has been authorized by an affirmative vote of at least two-thirds of the Bank's Board of Directors. The completed application and all other material required to be filed have been considered in accordance with Massachusetts General Laws and applicable stock conversion regulations.
Accordingly, on the basis of the record indicated above and a determination that all provisions of 209 CMR 33.16 have been met, I hereby approve the Application for Supervisory Conversion, the Plan of Voluntary Supervisory Conversion of Lowell Co-operative Bank, ("Plan of Supervisory Conversion"), including the Articles of Amendment of the Bank, the Stock Holders Agreement, and the proposed purchasers, the purchase price, the closing date for the purchase and the other terms of sale as set forth in the submitted documents. I also approve as part of this multi-step contemporaneous transaction, the merger of the Bank's subsidiary, LCB Investments, LLC with and into the Bank pursuant to the provisions of paragraph 31 of section 7 of chapter 167F of the General Laws and 209 CMR 47.06(3)(e). Upon conversion Lowell will be fully authorized to transact the business of a state-chartered co-operative bank in stock form. This approval is conditioned upon the completion of the initial sale of the approximately $5 million of the stock to be issued to the investor group in the conversion within the time period set forth in 209 CMR 33.19(3) and such stock is authorized to be issued pursuant to the provisions of subsection A of section 24 of chapter 172 of the General Laws. All other provisions of 209 CMR 33.00 Subpart B are incorporated by reference in this approval including the requirement in 209 CMR 33.19(5) that no amendment to the Plan of Supervisory conversion may be made without approval of the Commissioner.
January 28, 2009
Steven L. Antonakes
Commissioner of Banks