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Eastern Bank Corporation ("Eastern" or the "Petitioner"), Boston, 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 Campello Bancorp ("Campello"), Brockton, Massachusetts and its subsidiary bank, The Community Bank, A Massachusetts Co-operative Bank ("Community Bank"), Brockton, Massachusetts. The Petitioner is the bank holding company for Eastern Bank, Boston, Massachusetts. The Petitioner's application before the Board is part of a multi-step transaction in which Campello Bancorp will merge with and into the Petitioner. An application has also been filed for the subsequent merger of the subsidiary banks, Community Bank with and into Eastern Bank. That part of the proposed transaction is, by statute, subject to approval by 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 Eastern on October 17, 2012. The comment period on the proposed transaction ended on October 26, 2012. The Board was informed that the Division of Banks had received correspondence from a consumer that questioned the implications of this transaction relative to excess insurance coverage. Other than such correspondence, and subsequent discussions between the same consumer and the Division, no corporator or other person or entity submitted a comment to the Board.
The Board has reviewed the application, the oral testimony received at the public hearing. That 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 September 25, 2012.
Eastern is a Massachusetts mutual holding company organized in 1989 under Massachusetts General Laws Chapter 167H and is registered with the Federal Reserve as a bank holding company under the Bank Holding Company Act of 1956, as amended ("the BHC Act"). Eastern has its corporate offices in Boston, Massachusetts. Eastern’s principal asset is one hundred percent of the outstanding capital stock of Eastern Bank, its sole banking subsidiary and only direct subsidiary. As of June 30, 2012, Eastern had consolidated assets of approximately $8.1 billion. As of the same date, its Tier 1 risk-based capital ratio was 15.27%, total risk-based capital ratio was 16.52% and Tier 1 leverage ratio was 10.02%. Accordingly, Eastern is considered a "well-capitalized" holding company pursuant to applicable law.
Eastern Bank is a Massachusetts-chartered trust company with its main office in Boston, Massachusetts. Eastern Bank was chartered in 1818 under the laws of the Commonwealth of Massachusetts as a mutual savings bank. In 1989, Eastern Bank reorganized into the mutual holding company form of organization, the first bank to do so in Massachusetts. On or about July 31, 2004, Eastern Bank was converted by operation of law to a Massachusetts trust company pursuant to the provisions of Section 17A of the Acts of 1934, Chapter 43, as amended. Eastern Bank accepts deposits and offers a full range of financial products and services for consumers, businesses, investors, government agencies and nonprofit organizations through its network of 94 banking offices located in eastern Massachusetts. The deposits of Eastern Bank are insured by the FDIC to the maximum extent permitted by law. As of June 30, 2012 Eastern Bank had consolidated assets of approximately $8.1 billion and total deposits of approximately $6.5 billion. As of the same date, its Tier 1 risk-based capital ratio was 15.06%, total risk-based capital ratio was 16.31% and Tier 1 leverage ratio was 9.88%. Accordingly, Eastern Bank is considered a "well-capitalized" bank pursuant to applicable law. Eastern Bank has five wholly-owned subsidiaries: Eastern Insurance Group LLC, one of the largest bank-owned insurance agencies in Massachusetts, and two Massachusetts securities corporations, Market Street Securities Corporation and Broadway Securities Corporation, through which Eastern Bank holds certain bank permissible securities. Eastern Bank also owns Real Property Services, Inc. which acquires, holds and manages real property acquired in satisfaction of debts previously contracted and Eastern Investment Advisors, Inc., which is in the process of being liquidated.
Campello is a Massachusetts mutual holding company registered with the Federal Reserve as a bank holding company under the BHC Act. Campello has its corporate offices in Brockton, Massachusetts. Campello’s principal asset is one hundred percent of the outstanding capital stock of The Community Bank, its sole banking subsidiary. Campello also owns all of the outstanding common securities issued by Campello Capital Trust I, a Delaware statutory trust established to facilitate the issuance of trust preferred securities. As of April 30, 2012, the date of its most recent audited financial statements, Campello had consolidated assets of approximately $322.7 million. As of the same date, its Tier 1 risk-based capital ratio was 7.41%, total risk-based capital ratio was 8.68% and Tier 1 leverage ratio was 4.52%. Campello is not considered to be a "well-capitalized" or adequately capitalized institution. Campello is currently subject to a 2009 written agreement with the Federal Reserve Bank of Boston.
Community Bank is a Massachusetts-chartered co-operative bank with its main office in Brockton, and is a wholly-owned subsidiary of Campello. Community Bank has three wholly-owned subsidiaries: Campello Securities Corporation, TCB OREO I LLC and TCB OREO 2 LLC. Campello Securities Corporation is a Massachusetts securities corporation through which Community Bank holds certain permissible securities. TCB OREO I LLC and TCB OREO 2 LLC are each Massachusetts limited liability companies which acquire, hold and manage real property acquired in satisfaction of debts previously contracted. Founded in 1877, Community Bank has five branches, including two branches in Brockton, and one branch in each of Bridgewater, Lakeville and Sandwich, Massachusetts. The deposits of Community Bank are insured by the FDIC to the maximum extent permitted by law and by the Co-operative Central Bank for amounts in excess of the FDIC limits. As of June 30, 2012, Community Bank had consolidated assets of approximately $324.2 million and total deposits of approximately $280 million. As of the same date, its Tier 1 risk-based capital ratio was 8.17%, total risk-based capital ratio was 9.43% and Tier 1 leverage ratio was 4.93%. Community Bank is not considered to be a "well-capitalized" or "adequately capitalized" institution. Community Bank is subject to a 2010 consent order with the Commissioner of Banks and the Federal Deposit Insurance Corporation (the "FDIC").
The Petitioner has submitted materials to address the issue that competition among banks will not be unreasonably affected by the proposed transaction. The application contained an analysis utilizing the various tests used by federal agencies. 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. The analysis demonstrates that consummation of the transaction will not result in undue concentration of banking resources in the specified banking markets in Massachusetts. Traditionally, however, this Board has not limited its review to those previously cited federal standards in its consideration of whether competition will be unreasonably affected. Rather it is the position of this 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 instead of by variously grouped markets. The Board has considered that although both Eastern Bank and Community Bank have banking offices in the municipalities of Brockton, Lakeville and Sandwich, the branch locations of Eastern Bank and Community Bank are largely complementary. On review, the Board finds that the transaction will not 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. Petitioner states further in support of its application that the transaction may even improve the competitive environment, particularly because it results in a weakened competitor, Campello, becoming part of a much stronger competitor, Eastern.
The Board has considered whether public convenience and advantage will be promoted by the proposed transaction. Petitioner represents in its application that the transaction will enable Campello, currently subject to the aforementioned 2009 written agreement, and Community Bank, subject to the aforementioned 2010 consent order, to be merged into a well-managed and well-capitalized mutual organization, Eastern, thereby creating a stronger organization to serve customers of Campello and Community Bank while providing a mutual form of ownership alternative to the large-scale, national and regional competitors which operate in such respective markets. Petitioner states further that because of the weakened condition of Campello and Community Bank, the current customers of Community Bank and the communities it serves will benefit from Community Bank becoming part of Eastern, a strong, financially sound organization that is well-managed and well-capitalized. Petitioner has also stated that because Community Bank has been operating under the constraints of the Consent Order, it has had limited ability to pursue lending and other opportunities in the communities it serves. Accordingly, the greater financial strength of Eastern will allow it and Eastern Bank to pursue such opportunities and to meet more fully the needs of the communities served by Community Bank, and that, in the currently challenging environment, Eastern’s financial strength allows it to be more flexible in modifying and restructuring delinquent residential home mortgages, an area in which it has had much success during the recent financial crisis. Petitioner states further in support of its application that an institution in a weakened financial condition or subject to a regulatory order, such as Community Bank, furthermore, does not have the available capital resources necessary to address problem loans.
The Board has 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. Eastern represents that it has paid significant attention to the effect that the proposed transaction will have on employees of Campello and Community Bank. As a general matter, Eastern anticipates that all customer facing employees in the branch offices of Community Bank will be retained following the transaction. In order to achieve certain cost efficiencies and to minimize job duplication, Eastern does anticipate the elimination of certain back office positions. It is also anticipated that Eastern’s management will assume the current responsibilities of Campello’s senior officers. The applicant believes that with the strengthened position of Community Bank in the Brockton market, over time, future job growth may result from the anticipated growth of Eastern Bank’s operations. Eastern has agreed to provide severance in connection with the termination of employment of any Campello or Community Bank employee. Petitioner also states that because of the weakened condition of Campello, which has resulted in branch closures and a reduction in force, among other remedial measures, even greater job losses could be expected to occur if the transaction were not to transpire. Eastern represents that it intends to use its best efforts to help affected employees to find positions within Eastern and, when appropriate, to assist them in career transitions.
In connection with the transaction, Eastern intends to maintain all of the current branch offices of Community Bank as branch offices of Eastern Bank. Petitioner states that as a result of Community Bank’s weakened financial condition, Community Bank was required to close three branches in the last year. Petitioner represents that the transaction will result in the end of such branch closures. Eastern has informed the Board that it does anticipate that it will consolidate one of its branch offices into a Community Bank branch office in Brockton, and that it is also considering the consolidation of another of its branch offices into a Community Bank branch office. As a result of the transaction, the current customers of Community Bank will have access to their accounts through Eastern Bank’s far larger network of branch offices and ATMs throughout Greater Boston and Eastern Massachusetts.
Petitioner states furthermore that the transaction will have a positive impact on the low- and moderate-income customers of Community Bank. Eastern, represents it has a long record of success in serving the needs of gateway communities similar to Brockton, such as Lynn, Lawrence and Lowell, Massachusetts. For example, Eastern states, in October 2011, Eastern Bank opened the first new retail banking office in Lawrence, Massachusetts in 23 years which was successfully established to better serve the local Hispanic community. Eastern offers many specialized lending and educational programs that assist low-and moderate-income borrowers and small businesses to obtain credit, including programs and services focused on financial literacy, first time home buyers, veterans, elders and underserved and "under-banked" communities. Additionally, Eastern Bank provides banking and investment management products specifically tailored to meet the needs of non-profit organizations. 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 weighs 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, Eastern Bank, has an "Outstanding" rating in its most recent CRA examination, dated June 20, 2011 performed jointly by the FDIC and the Division of Banks. The Board has noted that Community Bank received a "Satisfactory" CRA performance rating pursuant to its most recent examination conducted by the FDIC on December 1, 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 transaction involves the acquisition of a mutual holding company by a mutual holding company, accordingly, there is no transfer of capital from the entities to the shareholders; instead the combining entities’ capital will be preserved within Eastern, and no financing will be required. Although it does not relate to financing the transaction, Eastern intends to redeem and to retire all of the trust preferred securities issued by Campello. Such funding will be derived from Eastern’s cash on hand and will not require any external financing. Petitioner has stated in its application that the acquisition is a transaction focused on building and enhancing Eastern’s franchise, not on cost-cutting, and that the communities served by Campello and Community Bank will retain a local, Massachusetts-based banking option in Eastern by means of the transaction. The principal officers of Eastern following the transaction will be the current principal officers of Eastern. Following the consummation of the transaction, the Board of Trustees of Eastern will consist of the current Trustees of Eastern as well as certain individuals currently serving as corporators or Directors of Campello identified by Eastern, in consultation with Campello, to serve as a Trustee of Eastern. No member of Campello’s Board of Directors will be added to the Executive Committee of Eastern’s Board of Trustees. Upon consummation of the transaction, if approved, Eastern will remain a well capitalized holding company under applicable bank regulatory guidelines.
The application, supporting documents, 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 Eastern Bank Corporation to acquire Campello Bancorp and its subsidiary bank, The Community Bank, A Massachusetts Co-operative Bank, provided that the transaction is completed within one year of the date of this Decision.
David J. Cotney
Commissioner of Banks
Commissioner of Revenue
Treasurer and Receiver-General
November 28, 2012