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Berkshire Hills Bancorp, Inc. (the "Petitioner" or "Berkshire"), Pittsfield, Massachusetts, has petitioned the Board of Bank Incorporation (the "Board") pursuant to Massachusetts General Laws chapter 167A, sections 2 and 4 for approval to acquire ownership and control of Legacy Bancorp, Inc. ("Legacy"), Pittsfield, Massachusetts and its subsidiary bank, Legacy Banks, Pittsfield, Massachusetts. The Petitioner is the bank holding company for Berkshire Bank, Pittsfield, Massachusetts. The Petitioner's application before the Board is part of a multi-step transaction in which Legacy Bancorp, Inc. will merge with and into the Petitioner. An application has also been filed for the subsequent merger of the subsidiary banks, Legacy Banks with and into Berkshire Bank. That part of the proposed transaction is, by statute, subject to approval of the Division of Banks.
Notice of the application was published and posted as directed by the Board, thereby affording opportunity for interested parties to submit comments. Other standard procedures informing the public of this matter before the Board were implemented. The Board held a public hearing on the petition of Berkshire in the City Council Chambers of the Pittsfield City Hall on June 23, 2011. Consistent with Board practices, all local public officials were notified of the public hearing in the Berkshires. The only oral and written testimony at the hearing was that of the Petitioner, Legacy, and their respective counsel. Oral testimony included the substantial presentation by the President and CEO of Berkshire and the significant comments of Legacy's Chairman and CEO who had served Legacy Banks in various capacities for over 42 years. The hearing, which included numerous questions by the Board, lasted one hour. The comment period on the proposed transaction ended on June 27, 2011. Prior to the public hearing and within the public comment period both Berkshire Hills Bancorp, Inc. and Legacy Bancorp, Inc. held their respective stockholders' meetings concerning this proposed transaction and the stockholders of each institution voted overwhelmingly in favor of each respective transaction. At the Board's request at the public hearing, the Petitioner supplemented its application with documents submitted on June 24, 2011. The Board has reviewed the application, supplemental filing and the oral and written testimony received at the public hearing. The 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 subsidiary banks of the holding companies. As in any transaction, consideration is also given to the financial and management components of a proposed acquisition. 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 (the "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 arrangements satisfactory to it had been made for this transaction in a letter dated June 29, 2011.
Berkshire is a Delaware corporation and is registered as a savings and loan holding company, and subject to the Office of Thrift Supervision ("OTS"). Berkshire has its main office in Pittsfield, Massachusetts. The Dodd-Frank Wall Street Reform and Consumer Protection Act transfers the OTS's supervisory powers to the Office of the Comptroller of the Currency ("OCC") for federal savings associations and to the Federal Reserve for OTS holding companies such as Berkshire. The transfer of the federal supervisory authority will occur on July 21, 2011.
Berkshire was organized at the direction of Berkshire Bank in January 2000 to become the holding company for Berkshire Bank upon completion of its conversion from a mutual holding company to a stock holding company form of organization. Through its subsidiaries, Berkshire operates in two segments: banking and insurance. Berkshire is also the holding company for Berkshire Insurance Group, Inc., an independent insurance agency in western Massachusetts. Berkshire offers a range of deposit, lending, investment, wealth management, and insurance products to consumers, commercial, not-for-profit, and municipal customers in its market areas. Berkshire's product offerings also include retail and commercial electronic banking, commercial cash management and commercial interest rate swaps. Berkshire originates loans in four portfolio categories: residential mortgages, commercial mortgages, commercial business loans and consumer loans.
Berkshire wholly owns three active subsidiaries: Berkshire Bank, Berkshire Insurance Group, Inc. and Berkshire Hills Capital Trust I. The trust subsidiary was organized to facilitate the issuance of trust preferred securities. Berkshire, as a holding company, offers no financial products and services directly. At March 31, 2011, Berkshire had total assets of approximately $2.9 billion and total deposits of $2.2 billion. Berkshire's capital ratios exceeded the regulatory criteria for classification as a "well capitalized" institution as of March 31, 2011. As a bank holding company, one of Berkshire's primary purposes is to serve as a source of strength for its subsidiaries. In this case, one of Berkshire's principal assets is 100% ownership of the capital stock of Berkshire Bank, a Massachusetts state-chartered savings bank.
Berkshire Bank, a Massachusetts-chartered savings bank, chartered in 1846, is one of Massachusetts' oldest and largest independent banks and is the largest banking institution based in western Massachusetts. Berkshire Bank has forty-eight full-service banking offices in communities throughout western Massachusetts, northeastern and central New York and southern Vermont. Berkshire Bank has offices in the following communities of Berkshire, Hampden and Hampshire Counties in Massachusetts: Chicopee, Dalton, East Longmeadow, Feeding Hills, Great Barrington, Lee, Longmeadow, Ludlow, North Adams, Pittsfield (4), Sheffield, South Hadley, Southwick (2), Springfield, Stockbridge, West Stockbridge, and Westfield (2). Five branches were obtained in the recent acquisition of Rome Bancorp, Inc. and its wholly-owned federal savings bank subsidiary, The Rome Savings Bank, which was merged with and into Berkshire Bank upon consummation of the acquisition on April 1, 2011.
The deposits of Berkshire Bank are insured by the Federal Deposit Insurance Corporation ("FDIC") and all deposits in excess of federal deposit insurance limits are insured by the Depositors Insurance Fund, an industry sponsored insurance fund. As of March 31, 2011 Berkshire Bank's Tier 1 risk-based capital ratio was 9.58%, total risk-based capital ratio was 10.88% and Tier 1 leverage capital ratio was 8.05%. Accordingly, Berkshire Bank is a "well-capitalized" under regulatory guidelines.
Legacy Bancorp, Inc. ("Legacy"), Pittsfield, Massachusetts, is a savings and loan holding company and incorporated under the laws of the State of Delaware. It was organized in 2005 as the stock holding company for Legacy Banks upon its conversion from a mutual holding company structure. Legacy's primary federal regulator is the OTS until July 21, 2011 as previously discussed. The primary business of Legacy is that of its subsidiary, Legacy Banks ("Legacy Banks") a Massachusetts-chartered stock savings bank headquartered in Pittsfield, Massachusetts. Legacy Banks is the continuing institution resulting from the merger of Lenox Savings Bank and City Savings Bank which took place on January 1, 2002. Legacy maintains one direct subsidiary in addition to Legacy Banks. The wholly-owned subsidiary is LB Funding Corporation, which was established to lend funds to the Legacy Banks Employee Stock Ownership Plan to purchase common shares of Legacy. The subsidiary is expected to be dissolved. At March 31, 2011 Legacy had total assets of approximately $906 million.
Legacy Banks is a Massachusetts-chartered stock savings bank headquartered in Pittsfield, Massachusetts. Legacy Banks operates 19 full service community banking offices in Berkshire and Hampshire Counties, Massachusetts; and Albany, Greene, Schoharie, and Washington Counties, New York. Legacy Banks' primary lines of business include residential real estate lending, small business loan and deposit services, as well as a variety of consumer loan and deposit services. At March 31, 2011 Legacy Banks had total assets of approximately $894 million. As of March 31, 2011 Legacy Bank's Tier 1 risk-based capital ratio was 11.29%, total risk-based capital ratio was 12.55% and Tier 1 leverage capital ratio was 7.76%. Based on those ratios, Legacy Banks is a "well-capitalized" institution.
Legacy Banks, itself, has four wholly-owned subsidiaries, all of which will be acquired by Berkshire through the bank merger. One of the subsidiaries is Legacy Insurance Services of the Berkshires ("LISB") which is a Delaware limited liability company and is wholly owned by Legacy Banks. LISB is an insurance agency that specializes in providing clients with non-deposit insurance and investment products. In addition, Legacy Banks has been associated with and selling Savings Bank Life Insurance ("SBLI") since 1910.
The Petitioner has submitted materials to address the issue that competition among banks will not be unreasonably affected by the proposed transaction. It should be noted that the Petitioner's filings indicated that the parties did overlap in three markets as defined by the Federal Reserve Banks of Boston and New York: the Pittsfield, Massachusetts market; the Albany, New York market; and the Springfield, Massachusetts market. While the overlaps in Springfield and Albany caused de minimis increases in concentration , the Pittsfield market, which is equivalent to Berkshire County, Massachusetts, would have exceeded federal safe harbor concentration levels. Accordingly, an agreement, dated May 17, 2011, was reached among the U.S. Department of Justice Antitrust Division (the "Justice Department"), Berkshire and Legacy regarding the divestitures that Berkshire and Legacy would make in conjunction with the proposed merger transaction. Berkshire and Legacy agreed to divest four branches ("Divestiture Branches") to a competitively suitable purchaser or purchasers ("Divestiture Buyer") as determined by the Justice Department. The parties agreed to present the proposed Divestiture buyer to the Justice Department for approval, and if the parties were to propose to divest to more than one Divestiture Buyer, the parties agreed to present all proposed divestitures to the Justice Department simultaneously for approval of both the proposed buyers and the proposed packages of divestiture assets. The Divestiture Branches involved are Legacy Banks offices located at 331 State Road, North Adams ($18,365,000 deposits as of June 30, 2010); 609 Merrill Road, Pittsfield ($45,760,000 deposits as of June 30, 2010); 76 Park Street, Lee ($48,179,000 deposits as of June 30, 2010); and 700 Main Street, Great Barrington ($45,822,000 deposits as of June 30, 2010). The proposed divestitures cover every city or town in Berkshire County in which the subsidiary banks involved in this proposed transaction overlap and eliminate two overlaps entirely. The divestiture plan also covers every relevant part of Berkshire County, rendering moot any concerns about the precise definition of the relevant geographic market. Together with other mitigating factors, the divestitures in this transaction will eliminate any competitive concerns raised by the proposed merger.
The Board is aware that included in the agreement with the Justice Department is the condition that if the parties were to close a current branch of either Berkshire or Legacy located in Berkshire County, Massachusetts at any time within two years of the consummation of the proposed transaction, the parties agreed to sell or lease such branch to a FDIC insured institution offering deposit and credit services to small businesses, to the extent the parties should have the legal capacity to do so. Subsequent to the public hearing the Board has been informed that a New York based national bank has been approved by the Justice Department to be the acquirer of the Divestiture Branches. The divestiture will be an event subsequent to the transaction before the Board and by statute will be subject to the approval of the Division of Banks since it affects branch offices of a state-chartered bank.
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.
The Petitioner states that the enhanced financial strength of the combined banks will ensure that the resulting institution will be able to offer financial products and services at competitive rates. The transaction will permit Berkshire Bank and Legacy Banks to pool their financial resources, to reduce costs, to diversify risk, and to better serve their communities by offering a broader array of products and services to consumers and businesses, allowing for economies of scale in such areas as operations and technology, which should result in greater efficiencies and superior service. Consumer and commercial customers of Legacy Banks will benefit from the higher legal limits of Berkshire Bank and they will receive a broader array of products and services. The Petitioner states in its application that expanded lending availability should facilitate job creation and capital investment, particularly with respect to small business. The transaction will expand the geographic scope of the branch and ATM networks currently available to customers of both Legacy and Berkshire. New products and services which will result if the transaction is approved include insurance and investment services, health savings accounts, third party credit cards, electronic statements of accounts, overdraft lines of credit, lock box services, merchant services, free express checking and asset based lending.
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. Testimony by the Petitioner and in response to questions by the Board at the public hearing addressed all of the components of the statutory test.
A continued focus of the Board in such holding company transactions is a petitioner's response to the job creation plans component of the statutory test of net new benefits. Testimony before and questions by the Board at the public hearing addressed this factor as well as job reductions which would immediately result from the proposed acquisition. Berkshire stated that of its 700 employees, 478 are employed in the Commonwealth. Within the Legacy organization there are approximately 173 employees. Testimony detailed the significant efforts by both entities to keep employees working either within the continuing institution by hiring freezes since the transaction's announcement or by placement with vendors, among other efforts. Such actions will result, they stated, in two dozen jobs or less being eliminated despite the fact that it is an in-market transaction. Those numbers do not include executive positions otherwise provided for as part of the proposed transaction. The Board requested and received additional information on the positions, service time and benefits for those individuals who would not be retained. The application and testimony detailed the responsive benefits and compensation treatments of continuing employees.
The Petitioner addressed its job creation plans on both a direct and indirect basis. Its future expansion plans, including through establishing new branch offices, will result in new jobs. Moreover, Berkshire testified that new banking offices, even if in another state, result in additional back office and support staff employment at its headquarters and offices here in the Commonwealth. The Petitioner noted its lending programs to commercial customers support those businesses and allow them to expand and, as necessary, add new employees. In response to the Board, Berkshire discussed its preferred small business lender status and the enhancements to those programs which will result from the joining of resources and staff from Legacy Banks. History on Berkshire's continuing growth and ongoing lending programs were also described to the Board as supportive of employment opportunities. In response to the Board, the Petitioner also commented on the opportunities for economic growth in Berkshire County and local efforts to coordinate actions to achieve such growth.
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 weigh in favor of approving the proposed transaction.
Related to the issue of public convenience and advantage is the record of performance under the CRA 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 of Banks 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, Berkshire Bank, has a "Satisfactory" rating from the FDIC and a "High Satisfactory" rating from the Division of Banks in its most recent examination of performance under CRA conducted as of February 2, 2009. The Board has noted that Legacy Banks has a "Satisfactory" rating at its most recent examination conducted by the FDIC and a "High Satisfactory" CRA performance rating by the Division of Banks in the most recent joint examination which was as of June 15, 2009.
The financial and managerial aspects of any transaction are 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 acquisition is being accomplished by the merger of the two holding companies in a transaction financed by an exchange of stock and cash. The cash consideration payable to eligible stockholders is being paid by Berkshire from cash that will be on hand in conjunction with the transaction. Upon consummation of the transaction, Berkshire will remain a well capitalized holding company under applicable regulatory guidelines. The Board is aware that if the transaction is approved the management organization of Berkshire will include the addition of three directors of Legacy, two of whom will join Berkshire's Board and the third will become an executive officer of the continuing entities. The Board's consideration of the financial and managerial factors are supportive of approval of this transaction.
The application, supporting documents, and supplemental filing, as well as the testimony received at the public hearing, 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. Accordingly, the Board has concluded that the petition should be approved.
In accordance with the findings expressed herein and pursuant to statute, the Board hereby approves the petition and authorizes Berkshire Hills Bancorp, Inc. to acquire Legacy Bancorp, Inc. provided that the transaction is completed within one year of the date of this Decision.
July 19, 2011
David J. Cotney
Commissioner of Banks
Navjeet K. Bal
Commissioner of Revenue
Katherine P. Craven
First Deputy Treasurer