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Decision

Decision Decision of May 10, 2007

Date: 05/10/2007
Organization: Division of Banks
  • Petitioner: Butler Bancorp, MHC, and its subsidiary, Butler Bancorp, Inc.
  • Respondent: Board of Bank Incorporation

◦Decision relative to the application of Butler Bancorp, MHC and its mid-tier subsidiary, Lowell, Massachusetts to become bank holding companies through the acquisition of Marlborough Bancorp, MHC and its subsidiary bank, Marlborough Co-operative Bank, Ma

Butler Bancorp, MHC, and its subsidiary, Butler Bancorp, Inc. (collectively "Butler" or the "Petitioner"), Lowell, Massachusetts have petitioned the Board of Bank Incorporation (the "Board") to each become a bank holding company through a merger with Marlborough Bancorp, MHC, ("Marlborough"), Marlborough, Massachusetts and the indirect acquisition of Marlborough Co-operative Bank, Marlborough, Massachusetts under the provisions of General Laws chapter 167A, sections 2 and 4. The merger of two mutual holding companies is authorized under General Laws chapter 167H, section 7, paragraph (3). Marlborough is the mutual holding company for Marlborough Co-operative Bank, a Massachusetts-chartered stock co-operative bank. Butler's subsidiary bank is Butler Bank, a Massachusetts-chartered stock co-operative bank headquartered in Lowell, Massachusetts. The proposed transaction will result in Butler Bancorp, Inc., continuing as a wholly-owned subsidiary of Butler Bancorp, MHC, and controlling two state-chartered co-operative banks, Butler Bank and Marlborough Co-operative Bank.

Notice of the petition by Butler was published as directed by the Board thereby affording opportunity for interested parties to submit comments. A public hearing relative to this application was held by the Board on April 11, 2007 and the period for filing comments expired on April 20, 2007. The Board reviewed the application, comments received at the public hearing, and all related documents in accordance with the statutory criteria of whether competition among banking institutions will be unreasonably affected and whether any 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") by the banks involved in the transaction was also a factor considered by the Board.

One provision of law requires the Board to have received notice from the Massachusetts Housing Partnership Fund (the "MHPF") that satisfactory MHPF arrangements for the proposed transaction have been made by Butler pursuant to section 4 of chapter 167A of the General Laws and guidelines adopted by the MHPF. The Board has received notice from the MHPF, in a letter dated March 22, 2007 that arrangements satisfactory to it have been made for the transaction.

Butler Bank, Petitioner's sole banking subsidiary, was chartered as a mutual co-operative bank in 1901. It reorganized into a mutual holding company form of organization in 2006. At December 31, 2006, Butler Bank had total consolidated assets of approximately $204 million. Butler Bank operates from four locations, including: a main office, mortgage office, and two loan production offices. In addition, Butler Bank plans to open a new branch banking office in Andover, Massachusetts in 2007. Butler Bank offers a range of financial products for consumers, businesses, government agencies and non-profit organizations. Butler Bank's deposits are insured to allowable limits by the FDIC and deposits in excess of those limits are insured by the Share Insurance Fund of The Co-operative Central Bank.

Marlborough's sole banking subsidiary is Marlborough Co-operative Bank, which was chartered as a mutual co-operative bank in 1890. Marlborough Co-operative Bank was reorganized into a mutual holding company form in 1999 when Marlborough Bancorp, MHC was formed. As of December 31, 2006, Marlborough Co-operative Bank had total consolidated assets of approximately $85 million. Marlborough Co-operative Bank has a main office and one branch office, both located in Marlborough, Massachusetts. Marlborough Co-operative Bank offers a range of banking and financial products for consumers, businesses, and non-profit organizations. Marlborough Co-operative Bank's wholly owned subsidiary Marlborough Securities Corporation is a securities corporation under General Laws chapter 63, section 38B. As such, it buys, sells and holds securities on its behalf. At December 31, 2006 it had approximately $12 million in assets. Marlborough Securities Corporation will continue to be operated as a subsidiary of Marlborough Co-operative Bank following the consummation of the proposed transaction. Marlborough Co-operative Bank's deposits are insured to allowable limits by the FDIC and deposits in excess of those limits are insured by the Share Insurance Fund of The Co-operative Central Bank.

The Petitioner has addressed the issue of whether competition among banks will be unreasonably affected by the proposed transaction. Part of that analysis is detailed according to various tests used by federal agencies. That analysis demonstrates that consummation of the transaction will not result in undue concentration of banking resources in the Commonwealth. The Board's review, however, is not limited to such federal standards. It is the position of the 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. Additionally, Petitioner presented information indicating that the proposed transaction will not have a significant adverse effect on competition among banking institutions in any relevant market, whether using the county-based or the Boston banking market analysis. The proposed transaction will also put the banks in a position to compete more effectively against the larger, national and regional financial institutions that now dominate the region. As a result, Petitioner states that the transaction will increase the financial strength, marketing visibility and capacity of the Petitioner. Upon review, the Board does not find that the transaction will unreasonably affect competition.

The Board has also considered whether public convenience and advantage will be promoted by this transaction. The Petitioner in its testimony stated that the structure of maintaining two separate bank charters will allow Petitioner to expand into new markets using a well-established and well-respected brand, the Marlborough Co-operative Bank. The retention of separate bank charters is also expected to limit the amount of deposit run-off associated with a traditional bank to bank merger. Additionally, keeping the separate bank charters will allow the effective sharing of strengths among the banks such as the combination of Petitioner's commercial loan focus with Marlborough's consumer lending capabilities. Petitioner stated that there will be no branch office closures of either bank as a result of the transaction and each bank will remain committed to its community. Customers of both banks will be able to utilize the facilities of either bank under a branch-sharing arrangement following the integration of the data processing systems. Moreover, customers of the banks will be serviced by a somewhat larger and more geographically diverse network of branch offices and ATMs. The expected gain in combined resources will provide the foundation for the banks to develop market and service added retail and small business products. The financial aspects and tax consequences from the structure of the transaction were also considered by the Board. Management factors reviewed were also found supportive of approval. Additionally, all other requirements of statute relating to a bank holding company transaction have been met. Upon review, the Board's analysis of the public convenience and advantage as well as net new benefits, in addition to other factors considered by the Board, weigh in favor of the transaction.

The record of performance under CRA by the subsidiary banks in a bank holding company transaction is also a consideration by the Board. For financial institutions not directly under the jurisdiction of the Commonwealth, the Board initially looks to the publicly available descriptive rating and evaluation by a federal or another state's banking regulatory agency. Such review for state-chartered banks such as Butler Bank and Marlborough Co-operative Bank, includes examination by personnel of the Division as well as analysis of concerns received from a bank's community and a bank's response to those concerns fairly raised. The Board has noted that Butler Bank has a "Satisfactory" rating in its most recent examination of performance, conducted by the FDIC under CRA. Marlborough Co-operative Bank has a "High Satisfactory" rating from the Division of Banks in its most recent examination of performance under CRA. Petitioner stated at the hearing in response to an inquiry from the Board that during the last several years since the 2003 CRA examination of Butler Bank, the bank has been involved in financing an increased number of low to moderate income projects within its assessment area. Based on the information presented and available to the Board, the Board's view of this factor is consistent with approval.

CONCLUSION

Based on the record on this matter including the testimony received at the public hearing and subsequent filing on changes in the structure of the transaction considered in light of all relevant statutory and administrative requirements, the Board 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. Therefore, in accordance with these findings and pursuant to the statutory authority cited herein, the Board hereby approves the application and authorizes Butler Bancorp, MHC and Butler Bancorp, Inc. to each become a bank holding company and to directly and indirectly own and control the stock of Marlborough Co-operative Bank and Butler Bank. The Petitioner will also continue to be subject to the provisions of chapter 167H of the General Laws and the applicable regulations within 209 CMR 33.00 et seq.

The approvals herein are subject to the condition that all related transactions are completed within one year of the date of this Decision.

May 10, 2007
______________________
Date

Board of Bank
Incorporation

Steven L. Antonakes
______________________
Commissioner of Banks


Alan L. LeBovidge
______________________
Commissioner of Revenue


Timothy P. Cahill
______________________
Treasurer and Receiver-General

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