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South Adams Savings Bank (“South Adams” or the “Petitioner”), Adams, Massachusetts has applied to the Division of Banks (the “Division”) for authority to merge with Adams Co-operative Bank (“Adams”), Adams, Massachusetts pursuant to the provisions of Massachusetts General Laws chapter 168, section 34A, and Massachusetts General Laws chapter 170, section 26A, and under the terms of a Consolidation Agreement dated September 12, 2011 (“the Agreement”). The Agreement provides for the merger of Adams with and into South Adams, under the charter and by-laws of South Adams. The Continuing Institution will change its name in a manner to be determined by the banks. The main office of South Adams would remain the main office of the Continuing Institution and all the banking offices of Adams would be retained as branch offices of South Adams.
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. In response to the Division’s request, South Adams submitted supplemental information on competitive effects of the proposed merger in a letter dated October 21, 2011. 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 public convenience and advantage and net new benefits 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 its implementing regulation, 209 CMR 46.00 et seq. also were factors considered by the Division.
South Adams is a Massachusetts-chartered savings bank that was established in 1869. Its deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”) to the maximum extent permitted by law, and, as a savings bank, by the Depositors Insurance Fund (“DIF”) for deposits in excess of FDIC coverage. South Adams had consolidated assets of approximately $201 million as of September 30, 2011. In addition to its main office in Adams, the Petitioner operates three other full service branch offices, in Cheshire, Lee and Williamstown.
Adams is a Massachusetts-chartered co-operative bank that was established in 1895. As of September 30, 2011, Adams had total consolidated assets of approximately $196 million. It has three banking offices, the main office in Adams, and two branch offices, one in Lanesborough and the other in North Adams. Adams’ deposits are insured by the FDIC to the maximum extent permitted by law, and, as a co-operative bank, by the Share Insurance Fund (“SIF”) for deposits in excess of FDIC coverage limits.
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, the merger application presents the Pittsfield banking market as defined by the Federal Reserve Bank of Boston (the “Boston FRB”) as the relevant geographic market for analyzing the competitive impact of the consolidation. The Boston FRB defines the Pittsfield market as Berkshire County, Massachusetts, the Town of Monroe in Franklin County, Massachusetts, and Stamford Township in Bennington, Vermont. This market is equivalent to Berkshire County, Massachusetts since the two additional townships in the market outside of Berkshire County have no bank branches. South Adams and Adams stated to the Division that there is ample evidence showing the economic integration of the northern and southern portions of Berkshire County to support the use of the Boston FRB’s market definition.
Additionally, the parties have argued that at a minimum the relevant geographic market should consist of Adams’ CRA assessment area, plus the City of Pittsfield, from which both Adams and South Adams derive significant business and which is included in South Adams’ CRA assessment area. The parties offer that any analysis of the effects of the consolidation on competition should recognize the competitive significance of other financial institutions based in Berkshire County in terms of total deposits.
The Division has concluded that using either the Pittsfield banking market or Adams’ CRA assessment area plus the City of Pittsfield as the relevant geographic market, the proposed consolidation will not affect competition as demonstrated by a marginal increase in the HHI.
The Division has considered that applying Department of Justice guidelines, the proposed consolidation will not have an adverse effect on competition even though the banking market is already considered to be highly concentrated for the additional reasons that the resulting bank would control less than 11% of all deposits in the geographic market, and for the further reason that the proposed consolidation would cause an increase of approximately 62 points 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 and in Berkshire County. The supplemental filing by South Adams further addressed the banking public’s options within Berkshire County. Over the years, the Division, as well as the Commonwealth’s Board of Bank Incorporation, have had to address the competitive impact of acquisitions and mergers within Berkshire County. Both the Division and the Board in their analyses of past transactions, with and without divestitures, have taken a broad view of banking competition in Berkshire County and recognized its regional cohesiveness in whole. Notwithstanding the fact that the main offices of both South Adams and Adams are located in the Town of Adams in Berkshire County, and the fact that both banks serve primarily the same area in Berkshire County, matters the Division has considered carefully, the totality of all the facts and the circumstances cited in this situation do not preclude approval of the proposed transaction.
As a result of the merger, South Adams indicates that the banking public will benefit in several ways. The post consolidation increase in size and resources will provide the Continuing Institution with the ability to offer its products and services in a more efficient manner, spreading fixed costs over a larger asset base. All existing products, services and delivery channels currently operated by either bank will be retained subject to some adjustments. Further benefits include an expanded branch office network, as well as the fact that the added asset base and the ability to expand the lending limits for individual loans will enable the Continuing Institution to hire additional loan officers and loan support staff. The application lists over a dozen benefits that South Adams cites in support of the merger. The Division considered these matters 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 Commissioner is also required to consider a showing of "net new benefits" related to the transaction. That term as set out in section 34 of said chapter 168 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 requirement of statute including capital investments. Additionally, the Continuing Institution believes that the merger should facilitate future job creation. Customers of both banks, furthermore, will have access to the banking offices of both banks which will be enhanced by capital investments in the form of signage and branch improvements, as may be necessary, following the consummation of the consolidation. These and other factors, including the fact that no jobs losses are anticipated, 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 by personnel of 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. The Division has noted that South Adams received a "Satisfactory" rating on its most recent CRA performance examination. The Division is also aware that Adams received an "Outstanding" rating in its most recent CRA examination.
The Consolidation Agreement provides that eleven (11) current trustees of South Adams and nine (9) current directors of Adams will serve on the Board of Trustees of the Continuing Institution. The current Chairman of the Board of Trustees of South Adams will become the Chairman of the Board of Trustees of the Continuing Institution. The current Chairman of the Board of Directors of Adams will become the Vice Chairman of the Board of Trustees of the Continuing Institution. The management of the Continuing Institution is also detailed in the application documents. Economies and service capabilities which would result from the transaction are set out in the submitted documents. Upon consolidation, the Continuing Institution will meet all required capital standards. Overall, financial and managerial considerations support the application.
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 Adams Co-operative Bank with and into South Adams Savings Bank under the charter and by-laws of South Adams Savings Bank under the provisions of said Massachusetts General Laws chapter 168, section 34A and Massachusetts General Laws chapter 170, section 26A.
The approval granted herein is subject to the following conditions:
November 30, 2011
David J. Cotney
Commissioner of Banks