Decision  Decision of June 25, 2015

Date: 06/25/2015
Organization: Division of Banks
  • Petitioner: Easthampton Savings Bank
  • Respondent: Division of Banks

Table of Contents

Decision relative to the merger of The Citizens National Bank, Putnam, Connecticut with and into Easthampton Savings Bank, Easthampton, Massachusetts

Easthampton Savings Bank, Easthampton, Massachusetts (Easthampton Savings) has applied to the Division of Banks (Division) for authority to merge with The Citizens National Bank (Citizens National), Putnam, Connecticut 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 December 11, 2014 (Agreement), Citizens National will merge with and into Easthampton Savings under the charter and by-laws of Easthampton Savings (Continuing Institution).  The banking offices of Citizens National will become branch offices of Easthampton Savings.  The merger application was filed in connection with a multi-step transaction in which, ESB Bancorp, Inc. (ESB Bancorp), the stock holding company for Easthampton Savings and wholly-owned subsidiary of ESB Bancorp, MHC, will acquire the stock of Citizens National through a merger with Citizens National’s bank holding company, Citizens National Bancorp, Inc. (Citizens Bancorp).    

ESB Bancorp will form ESB Acquisition Corp., a merger subsidiary, as a wholly-owned subsidiary of ESB Bancorp to facilitate this multi-step transaction.  At the effective time of the merger, ESB Acquisition Corp. will merge into Citizens Bancorp with Citizens Bancorp then becoming a subsidiary of ESB Bancorp and Citizens National becoming an indirect subsidiary of ESB Bancorp.  Citizens Bancorp will be subsequently dissolved or merged with ESB Bancorp (Holding Company Merger).  Immediately after the Holding Company Merger, Citizens National will merge with and into Easthampton Savings. 

Notice of Easthampton Savings’ 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.  Accordingly, all documents and materials related to this transaction have been reviewed.  The Division reviewed the application in accordance with the statutory criteria of whether competition among banking institutions would be unreasonably affected and whether public convenience and advantage as well as net new benefits would be promoted by approval of the proposed transaction.  Both banks’ records of performance under the Community Reinvestment Act (CRA) were also considered by the Division.

The authority for a stock holding company to become a bank holding company, as defined under Massachusetts General Laws chapter 167A, section 1, by acquiring another single bank holding company and its subsidiary banking institution in a multi-step transaction without the written approval of the Massachusetts Board of Bank Incorporation was established by Chapter 482 of the Acts of 2014 (Chapter 482) and is codified at Massachusetts General Laws chapter 167A, section 3.  The application to the Division to merge Citizens National with and into Easthampton Savings pursuant to a multi-step transaction in which the holding company of the acquiring institution, without separate application to the Massachusetts Board of Bank Incorporation, would temporarily become a bank holding company while the merger of the subsidiary banks was completed, is the first application before the Division filed under said provision of Chapter 482. 

Easthampton Savings is a Massachusetts-chartered savings bank that was established in 1869.  Easthampton Savings is the subsidiary banking institution in stock form of ESB Bancorp, the mid-tier holding company established during Easthampton Savings’ reorganization into the mutual holding company form of organization in 2008.  As a state-chartered savings bank, the deposits in Easthampton Savings in excess of the deposit insurance coverage provided by the Federal Deposit Insurance Corporation (FDIC) are insured, in full, by the Depositors Insurance Fund (DIF), established by Chapter 43 of the Acts of 1934.  Easthampton Savings operates ten banking offices in Massachusetts located in Hampshire and Hampden counties.  Easthampton Savings offers a portfolio of personal and business deposit products and a combination of residential, consumer, and commercial loan products.  Easthampton Savings also operates an investment services division as well as a government banking division.  As of December 31, 2014, Easthampton Savings had total assets of approximately $1.0 billion.

Citizens National, a national bank headquartered in Putnam, Connecticut, was established in 1924 and is the sole banking subsidiary of Citizens Bancorp.  Citizens National operates five banking offices located in Windham County in northeast Connecticut and offers a range of personal and business banking services as well as consumer and commercial loan products.  Loan products primarily include residential and commercial real estate loans and commercial loans.  As of December 31, 2014, Citizens National had total assets of approximately $330.8 million. 

 In reviewing the proposed transaction, the Division must receive notice from the Massachusetts Housing Partnership Fund (MHPF) that satisfactory arrangements have been made consistent with Massachusetts General Laws chapter 167A, section 4 and the MHPF’s various affordable housing loan programs.  The Division received notice from the MHPF that satisfactory arrangements had been made for this transaction in a letter dated March 18, 2015.  

Materials have also been submitted to address the issue of whether competition among banks will be unreasonably affected by the proposed transaction.  The description of the competitive impact of the proposed transaction accounts for the geographic markets served by the respective banks.  As articulated in the merger application, there is minimal overlap in the markets and customers served by the banks and the proposed merger will have a de minimis effect on competition.  In fact, there are no cities or towns in which both banks have a banking office.  Upon review, the Division’s analysis of the competitive impact of this transaction does not preclude its approval.

The Division has also considered whether public convenience and advantage will be promoted by the proposed transaction.  As described in the submitted application, Easthampton Savings indicates that the proposed transaction will produce a more dynamic and competitive banking institution with an increased financial strength and the capacity to more efficiently offer its community banking products to a broader market area.  Although certain products and services offered by Citizens National would be eliminated to prevent duplication, current customers of Citizens National would gain local access to the retail loan and deposit products offered by Easthampton Savings through the continuing, former branch offices of Citizens National.  Customers would also obtain access to the financial planning, investment, and estate planning services offered by Easthampton Savings.  The combined branch network of 15 branch offices will allow business to be conducted over a broader geographic area.  The Division considered these factors and others cited in the submitted documents in determining that public convenience and advantage will be promoted by approval of this transaction.

In determining whether or not to approve a petition under the statutory criteria, the Division is also required to consider a showing of “net new benefits” related to the transaction.  That term includes initial capital investments, job creation plans, consumer and business services, commitments to maintain and open branch offices, and such other factors which the Division may deem necessary.  Easthampton Savings has addressed this requirement of the statute in the application.  According to Easthampton Savings, as a result of the merger, the Continuing Institution will be able to compete more effectively in delivering enhanced and expanded products and services to its customers.  In addressing the effect of the transaction on Citizens National’s employees, Easthampton Savings stated that while there would be some immediate reduction of staff levels, it was anticipated that future job creation would result from the Continuing Institution’s expanded operations.  The submitted materials describe Easthampton Savings’ intent to continue to operate all of Citizens National’s banking offices as branch offices of the Continuing Institution.  It is currently anticipated that the former Citizens National banking offices will operate under the name “CNB, a Division of Easthampton Savings Bank.”  These and other factors are also cited as support for satisfying the standard of “net new benefits” under the statute. 

Related to the issue of net new benefits and public convenience and advantage is the record of CRA performance by the banks which are parties to this transaction.  Such a review for a Massachusetts-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 Division looks to the publicly available descriptive rating and evaluation by a federal or state bank regulatory agency.  The Division notes that both Easthampton Savings and Citizens National received a “Satisfactory” rating on their most recent CRA performance evaluations.  Accordingly, the Division’s view of this factor is consistent with approval. 

The application states that upon consummation of the transaction, the current directors of Easthampton Savings will continue to serve on the Board of Directors of the Continuing Institution.  In addition, following the Holding Company Merger and consummation of this transaction, if approved, ESB Bancorp and Easthampton Savings intend to increase the size of their respective Boards of Directors by not less than 1 additional director and fill those vacancies with individual(s) from Citizens National’s service area.  Economies and service capabilities which would result from the transaction are also set out in the submitted documents.  Following consummation of this transaction, all regulatory capital standards will continue to be met.  Therefore, financial and managerial considerations support approval of this transaction.

Upon review of the application with reference to the relevant statutory and regulatory requirements, the Division finds that competition among banking institutions will not be unreasonably affected, that public convenience and advantage will be promoted by consummation of the proposed transaction, and that records of performance under CRA by the banks involved in this transaction are consistent with its approval.  On the basis of these considerations, approval is granted to merge Citizens National with and into Easthampton Savings under the charter and by-laws of Easthampton Savings under the provisions of Massachusetts General Laws chapter 167I, section 3.   Approval is also granted for Easthampton Savings to maintain the 5 banking offices of Citizens National as branch offices pursuant to Massachusetts General Laws chapter 167C, section 6.

The approvals granted herein are subject to the following conditions:

  1. That the proposed merger shall not be consummated until arrangements satisfactory to the DIF have been made and notice thereof has been received by the Division;
  2. 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 such institution has complied with the provisions of Massachusetts General Laws chapter 167I, section 3 or other applicable statute has been returned with my endorsement thereon;
  3. That the proposed merger shall not become effective until Articles of Merger with my endorsement thereon are filed with the Secretary of State; and
  4. That the proposed merger shall be consummated within one year of the date of this Decision.

June 25, 2015

David J. Cotney
Commissioner of Banks

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