Decision  Decision of May 9, 2007

Date: 05/09/2007
Organization: Division of Banks
  • Petitioner: Eastern Bank
  • Respondent: Division of Banks

Table of Contents

In the matter of the merger of the Sharon Co-operative Bank, Sharon, Massachusetts with and into Eastern Bank, Boston, Massachusetts

Pursuant to the provisions of Massachusetts General Laws chapter 167H, section 7, clause (2), Eastern Bank (the "Petitioner"), Boston, Massachusetts has applied to the Division of Banks (the "Division") to merge with The Sharon Co-operative Bank ("Sharon"), Sharon, Massachusetts. Under the terms of the Agreement and Plan of Merger (the "Merger Agreement") dated as of January 25, 2007, Sharon will merge with and into Eastern Bank under the charter, by-laws and name of Eastern Bank. The sole banking office of Sharon will be retained after the merger. Although Sharon is in mutual form and Eastern Bank in stock form, the transaction is authorized under Massachusetts General Laws chapter 167H, section 7, clause (2) since Eastern Bank Corporation is a mutual holding company and Eastern Bank is its subsidiary banking institution. Therefore, upon consummation of such merger, any liquidation rights of the depositors of Sharon will continue and succeed to such rights in Eastern Bank Corporation to the same extent as existing depositors of Eastern Bank under General Laws chapter 167H, section 2 and 209 CMR 33.25, its implementing regulation.

Notice of the application has been posted and published. The time period for interested parties to submit comments has passed. Accordingly, all documents and materials related to this transaction have been reviewed. That record has been considered with regard to the financial and managerial resources of each bank, the competitive effects of the proposed transaction, the interests of the depositors of each bank, the future prospects of the institutions and the convenience and needs of the communities to be served by the consolidated entity as well as the performance of each bank under the Commonwealth's Community Reinvestment Act ("CRA"), General Laws chapter 167, section 14 and its implementing regulation, 209 CMR 46.00 et seq. The statutory authority for the transaction was clarified during the pendency of the application.

Eastern Bank is the subsidiary banking institution in stock form resulting from a 1989 reorganization into a mutual holding company, Eastern Bank Corporation. On July 31, 2004, Eastern Bank was converted, by operation of law, from a state-chartered savings bank to a state-chartered trust company. As of December 31, 2006, Eastern Bank had total assets of approximately $6.6 billion. Eastern Bank's main office is located in Boston, Massachusetts. According to its application, Eastern Bank operates approximately 72 banking offices, which are located primarily in Eastern Massachusetts, stretching from Newburyport on the North Shore to Cape Cod.

Sharon is a state-chartered co-operative bank in mutual form. As of December 31, 2006, it had total assets of $67.8 million. Sharon's main office is located in Sharon. Sharon has no branch offices. Sharon's deposits are insured by the FDIC and the Share Insurance Fund ("SIF") of The Co-operative Central Bank for amounts in excess of the FDIC's insurance limits.

Materials have been submitted to address the issue that competition among banks will not be unreasonably affected by the proposed transaction. On the issue of whether banking competition will be unreasonably affected by the proposed transaction, 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. 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. Although both Eastern Bank and Sharon have a banking office in the town of Sharon, it is noted that there are three banking offices of other banks located in the community including a trust company, a national bank, and a savings bank, as well as two banking offices of a credit union located in Sharon. Therefore, customers will be able to choose from a variety of banking options. Accordingly, the review of the transaction's impact on competition does not raise concerns which would preclude its approval.

The application notes that the continuing institution's Board of Directors will consist of the Board of Directors of Eastern Bank immediately prior to the consummation of the merger. The management of the combined bank is also detailed in the application documents. The applicant bank argues that the combined institution will produce some financial economies and additional service capabilities. Upon consolidation, the continuing bank will meet all required capital standards. Accordingly, upon review, financial and managerial considerations support the application.

As a result of the merger, Eastern Bank indicates that the banking public will benefit in several ways. According to the application, such benefits include an expansion of branch office and ATM locations, as well as a broader range of products and services. The continuing bank will offer all of the products presently offered by both banks. These include a variety of types of loans, deposits, non-deposit products and internet banking services. In particular, customers of Sharon will benefit from Eastern Bank's expertise in complex lending situations and international services, as well as letters of credit transactions. Customers of the combined bank also will benefit from the anticipated development of new products by the continuing institution. The Division considered these reasons 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, the Commissioner also considers 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. In the application, the Petitioner has addressed this matter. The resulting bank intends to make available to customers of both banks the aforementioned products and services presently offered by both banks. Additionally, the continuing institution will have a larger lending limit and an additional branch office, as well as two more ATM locations. Accordingly, the Division has reviewed factors related to public convenience and advantage, as well net new benefits, and has determined that they are consistent with approval of the Petitioner's application.

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 state-chartered banks 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 Eastern Bank and Sharon received ratings of "Outstanding" and "Satisfactory," respectively, in the most recent examinations of their performances under CRA.

The Division sent a letter dated April 9, 2007 to Eastern Bank which requested supplemental information on the role of and compensation for the Directors of Sharon for service on a proposed advisory board of Eastern Bank in connection with the merger. A response dated April 12, 2007 was received by the Division on April 13, 2007. Discussed in the response was the role of advisory board members relative to CRA and the Sharon community, as well as other information on their proposed duties and compensation.

Staff of the Division reviewed the supplemental filing and sent a letter dated April 19, 2007 requesting further clarification of that filing. A letter from Eastern Bank, with responses to the Division's April 19, 2007 letter, was received by the Division on May 2, 2007. That additional supplemental filing sufficiently clarified issues raised in the April 12, 2007 letter.

Upon review of the application with reference to the relevant statutory and regulatory requirements, this Division has concluded that the consummation of the proposed consolidation would be in the public interest. On the basis of these considerations, approval is granted to merge Sharon with and into Eastern Bank under the charter, by-laws and name of Eastern Bank pursuant to the provisions of said clause (2) of section 7 of chapter 167H of the General Laws. Upon consummation of the merger, the charter of The Sharon Co-operative Bank will cease to exist and the separate existence of The Sharon Co-operative Bank shall cease and all of the rights, privileges, powers, franchises, properties, assets, liabilities and obligations of The Sharon Co-operative Bank shall be vested in and assumed by Eastern Bank.

The approvals granted herein are subject to the following conditions:

  1. 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 institution has complied with the provisions of Massachusetts General Laws chapter 167H, section 7, clause (2);
  2. that the proposed merger shall not become effective until and the Petitioner is hereby directed to file Articles of Merger with my endorsement thereon are filed with the Secretary of State;
  3. that the proposed merger be consummated within one year of the date of this Decision.

May 9, 2007

Steven L. Antonakes
Commissioner of Banks

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