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  • Division of Banks

Decision  Decision of June 26, 2009

Date: 06/26/2009
Organization: Division of Banks
  • Petitioner: Middlesex Savings Bank
  • Respondent: Division of Banks

Table of Contents

Decision relative to the merger of Strata bank, Medway, Massachusetts with and into Middlesex Savings Bank, Natick, Massachusetts

Middlesex Savings Bank ("Middlesex" or the "Petitioner"), Natick, Massachusetts has applied to the Division of Banks (the "Division") for authority to merge with Strata Bank ("Strata"), Medway, Massachusetts pursuant to the provisions of Massachusetts General Laws chapter 168, section 34D and under the terms of an Agreement and Plan of Merger dated as of February 9, 2009 (the "Agreement"). The Agreement provides for the merger of Strata with and into Middlesex under the name, charter and by-laws of Middlesex Savings Bank. The main office of Middlesex would remain the main office of the continuing institution and the banking offices of Strata would be retained as branch offices, except for the branch offices at 59 Main Street, Hopkinton and 18 North Meadows Road, Medfield which will be closed. The proposed merger is part of a multi-step transaction involving a petition before the Board of Bank Incorporation (the "Board") by the Petitioner's holding company, Middlesex Bancorp, MHC ("Middlesex MHC"), Natick, Massachusetts, to acquire Service Bancorp, MHC and its sole subsidiary bank, Strata Bank, Medway, Massachusetts. The acquisition application of Middlesex MHC was approved by the Board on the same date as this decision.

Notice of the bank merger application was posted as directed by the Division thereby affording opportunity for interested parties to submit comments. The period for filing comments has expired. The Division reviewed the application and all related documents in accordance with the statutory criteria of whether competition among banking institutions will be unreasonably affected and whether net new benefits as well as public convenience and advantage would be promoted by approval of the proposed transaction. The record of performance under the Commonwealth's Community Reinvestment Act ("CRA"), Massachusetts General Laws chapter 167, section 14 and the Division's regulation, 209 CMR 46.00 et seq. also were factors considered by the Division.

Middlesex was chartered as a mutual savings bank in 1835. It received approval to reorganize into the mutual holding company form of organization and that reorganization was consummated on June 19, 2009. Accordingly, Middlesex is the subsidiary banking institution in stock form of a mutual holding company, Middlesex MHC. As of March 31, 2009, Middlesex had total consolidated assets of approximately $ 3.6 billion. In addition to its main office in Natick, Middlesex operates 25 branch offices, all serving communities throughout Middlesex County, except for two branch offices in Norfolk County and one branch office in Worcester County. Middlesex's deposits are insured to allowable limits by the FDIC and deposits in excess of those are insured in full by the Depositors Insurance Fund (the "DIF").

Strata was chartered as a mutual savings bank in 1871. Strata reorganized into a mutual holding company, Service Bancorp, MHC in 1997. One year later Service Bancorp, MHC formed a mid-tier holding company, Service Bancorp, Inc. Service Bancorp, MHC owns 54.2% of the capital stock of Service Bancorp, Inc. The remaining 45.8% of Service Bancorp Inc.'s stock is publicly held. Service Bancorp, Inc.'s sole direct subsidiary is Strata. As of March 31, 2009, Strata had total consolidated assets of approximately $372 million. In addition to its main office in Medway, Strata operates seven branch offices located in the communities of Bellingham, Franklin, Hopkinton, Medfield, Milford and Millis. Strata's deposits are insured to allowable limits by the FDIC and deposits in excess of those limits are insured by the DIF.

Materials have been submitted to address the issue that competition among banks will not be unreasonably affected by the proposed transaction. In analyzing the impact of a proposed transaction on banking competition, the Division considers, but does not rely exclusively on, the guidelines used by federal authorities to review bank mergers. Essentially, these guidelines define relevant markets and measure concentration, which is considered an important indicator of competitiveness. The starting point in the federal analysis is the Herfindahl-Hirschman Index ("HHI"), an arithmetic measure of market concentration that synthesizes the distribution of market shares and the number of banks in an affected market into a single value. In this case, there will be a de minimis increase in the HHI for the geographical areas analyzed. In addition to that analysis, the Division considers the competitive impact of the proposed transaction on a community-by-community basis, as well as on the overall banking structure of the Commonwealth. As stated above, the communities in the primary service area for the merging banks are different. It is noted that Hopkinton, Medfield and Millis are the only communities in which both banks have banking offices. In conjunction with the merger, approval is being sought to close the Strata branch offices in two of the overlapping communities, Hopkinton and Medfield. The Division has noted that there are numerous banks with banking offices located in the combined primary service area of the merging banks, as well as other banking offices, as discussed later herein, in the two towns in which offices are proposed to be closed. Therefore, customers of Strata will continue to be able to choose from a variety of banking options. Accordingly, the Division's analysis of the competitive impact of the merger weighs in favor of the proposed transaction.

The application states that the continuing institution's Board of Directors will consist of all of the persons currently serving as directors of Middlesex. Economies and service capabilities which would result from the transaction are set out in the submitted documents. Upon review, managerial considerations support the petition.

This multistep transaction is being funded by a dividend by Middlesex of approximately $23 million to its mutual holding company which will use the funds to acquire the minority stock of Service Bancorp, Inc. The Division has considered the amount of the dividend in conjunction with both the assets and surplus that will be added to the balance sheet of Middlesex as the continuing bank after the merger with Strata. It is that analysis which was the focus of the Division's financial review of the transaction. Based on that review, the Division has determined that Middlesex would remain a well capitalized state-chartered bank and all regulatory capital standards will continue to be met.

As a result of the merger, Middlesex indicates that the banking public will benefit in several ways. Customers of both banks will benefit through a larger network of branches and ATMs. Additionally, according to oral testimony at the Board of Bank Incorporation's hearing in support of the acquisition application of Middlesex MHC, Middlesex will be able to offer additional products and services to Strata customers including a full telephone call center with expanded hours, a broader array of affordable mortgage programs, remote deposit and lockbox services, a greatly expanded lending capacity and retail investment services. Based on the foregoing, and on the entire record of this matter, the Division finds that the public convenience and advantage will be promoted by the proposed transaction, and that the criteria for net new benefits has been established.

In determining whether or not to approve a petition under the statutory criteria, the Commissioner 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, and commitments to maintain and open branch offices, among other factors, which the Commissioner may deem necessary. As set out in the application, the continuing bank intends to provide the aforementioned products and services to customers, as well as make capital investments in the form of improvements for its continuing banking offices in connection with the merger. According to the Petitioner, the merger will enhance the continuing bank's investment in the communities it serves, as well as its products and services for its customers. The Petitioner has provided information and oral testimony indicating that a large number of Strata employees will be offered opportunities for positions with Middlesex following the merger and that additional job opportunities may develop in the future. In addition, transitional assistance, in a variety of forms, will be provided to those employees impacted by the merger. Additionally, Middlesex will maintain all banking offices of Strata as branch offices with the exceptions of the Medfield and Hopkinton branch offices. These and other factors are also cited as support for meeting such criteria.

Related to the issue of public convenience and advantage is the record of performance under CRA by the banks which are parties to this transaction. Such review for a state-chartered bank includes examination of personnel by the Division as well as analysis of concerns received from the bank's community and its response to those concerns fairly raised. A publicly available descriptive rating and evaluation by a federal bank regulatory agency will also be considered. Upon review, the Division has noted that Middlesex and Strata received "Outstanding" and "Satisfactory" ratings respectively in their most recent CRA performance examinations.

Another aspect of this transaction to be considered by the Division is the proposed closings of the branch offices of Strata located in Hopkinton and Medfield. In deciding upon an application to close a branch office, the Division must consider applicable statutory factors relative to the potential adverse effect, if any, of the closing on the area served by the branch office. Two such factors, among others, to be considered are the availability of credit and the convenience and necessity of deposit services. The later factor weighs in the combined bank's favor based on the proposed maintenance of the Hopkinton and Medfield branch offices of Middlesex. Additionally, it is noted that these Middlesex branch offices are within one third of mile of the Strata branches proposed to be closed. The Petitioner argues that this transaction will continue to provide convenience of services to customers as well as allow the continuing bank to be able to conduct its banking operations more efficiently from just one banking office in Hopkinton and one banking office in Medfield. Also noted are several other banking offices of other banks in those two communities. Based upon these factors, the Division determines that the areas served by the Hopkinton and Medfield banking offices of Strata will not be adversely affected by the closing of these offices upon the merger.

Based on the entire record of this matter and considered in light of all relevant statutory and administrative requirements, the Division concludes that all such requirements have been met and that consummation of the proposed merger would be in the public interest. On the basis of these conclusions, and subject to the conditions set forth below, approval is granted for Strata to merge with and into Middlesex in conformity with the Agreement and pursuant to Massachusetts General Laws chapter 168, section 34D. In accordance with General Laws chapter 167C, section 3, approvals are also granted for the closings of the Hopkinton and Medfield branch offices of Strata which, according to the application, are to occur shortly after the consummation of the merger. The Division also has noted that the Petitioner intends to maintain the two ATMs located at the Hopkinton branch office of Strata. Upon receipt of the notice of this Hopkinton branch office closing, the Division's records will be changed to reflect that these ATMs are at a nonbanking location.

The approvals granted herein are subject to the following conditions:

(1) That no merger shall become effective until a certificate signed by the Presidents and Clerks or other duly authorized officers of the banks involved in the merger indicating that each such institution has complied with the provisions of Massachusetts General Laws chapter 168, section 34D or other applicable statute has been returned with my endorsement thereon;

(2) that the proposed merger shall not become effective until Articles of Merger with my endorsement thereon are filed with the Secretary of State; and

(3) that the proposed merger shall be consummated within one year of the date of this decision.

June 26, 2009

Steven L. Antonakes
Commissioner of Banks

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