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Decision

Decision Decision of October 6, 2014

Date: 10/06/2014
Organization: Division of Banks
  • Petitioner: Eastern Bank Corporation
  • Respondent: Board of Bank Incorporation

Decision relative to the petition of Eastern Bank Corporation, Boston, Massachusetts to acquire Centrix Bank & Trust, Bedford, New Hampshire

Eastern Bank Corporation (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 Centrix Bank & Trust, (“Centrix”) Bedford, New Hampshire.  The Petitioner is the mutual holding company for Eastern Bank, Boston, Massachusetts.  ThePetitioner’s application before the Board is part of a multi-step transaction in which an interim Massachusetts trust company (“Interim Bank”) will be formed as a wholly-owned subsidiary of Eastern Bank Corporation for the purpose of effecting the acquisition of Centrix.  An application for the subsequent merger of Centrix with and into Eastern Bank 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 Bank Corporation on July 15, 2014.   The comment period on the proposed transaction ended on July 22, 2014.  Prior to the public hearing, Centrix held its stockholders’ meeting on this proposed transaction and the stockholders voted in favor of the transaction.  No stockholders or other person or entity submitted a comment to the Board prior to or after the public hearing or after the announced vote of the shareholders.

The Board has reviewed the application, oral and written testimony received at the public hearing and supplemental material provided by the Petitioner.  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 bank directly involved in a transaction or as subsidiaries of a holding company.  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 May 28, 2014.

The Petitioner 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 (“BHC Act”).  Eastern Bank Corporation is headquartered in Boston, Massachusetts.  As a bank holding company, one of its primary purposes is to serve as a source of strength for its subsidiaries and affiliates.  Eastern Bank Corporation’s primary business is serving as the holding company of Eastern Bank.  Eastern Bank Corporation has not elected “financial holding company” status under Section 4(1)(1)(C)(i) of the BHC Act.    

At March 31, 2014, Eastern Bank Corporation had consolidated assets of approximately $8.7 billion.  As of the same date, Eastern Bank Corporation maintained: (a) a total risk-based capital ratio of 14.66%; (b) a Tier 1 risk-based capital ratio of 13.56%; and (c) a Tier 1 leverage capital ratio 10.27 %.  Eastern Bank Corporation is a “well capitalized” bank holding company under the regulations of the Federal Reserve.

Eastern Bank is a Massachusetts-chartered trust company headquartered in Boston, and is a wholly-owned subsidiary of Eastern Bank Corporation.  Eastern Bank was chartered as a mutual savings bank in 1818.   Eastern Bank’s deposits are insured by the Federal Deposit Insurance Corporation to the maximum extent permitted by law.  Eastern Bank reorganized to the mutual holding company form of organization in 1989, the first bank to do so in Massachusetts.  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 96 banking offices located in eastern Massachusetts.  On July 31, 2004, Eastern Bank was converted, by operation of law, from a state-chartered savings bank to a state-chartered trust company. 

At March 31, 2014, Eastern Bank had consolidated assets of approximately $8.7 billion, and total deposits of approximately $7.1 billion.  As of the same date, Eastern Bank had (a) a total risk-based capital ratio of 14.58%; (b) a Tier 1 risk-based capital ratio of 13.49%; and (c) a Tier 1 leverage capital ratio of 10.25%.  Accordingly, Eastern Bank is a “well capitalized” bank under applicable law.  Eastern Bank has four 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.

Interim Bank is a de novo Massachusetts trust company being formed as a wholly-owned subsidiary of Eastern Bank Corporation for the purpose of effectuating the acquisition of Centrix.

Centrix is a New Hampshire-chartered commercial bank headquartered in Bedford, New Hampshire.  Centrix was organized in 1998. Centrix provides a variety of financial services to small and medium-sized businesses, professionals, municipalities and not-for-profit organizations through its seven banking offices in each of Bedford, Concord, Dover, Manchester, Milford, Nashua and Portsmouth, New Hampshire.  The deposits of Centrix are insured by the FDIC to allowable limits. 

At March 31, 2014, Centrix had consolidated assets of approximately $951 million and total deposits of approximately $777 million.  As of the same date, Centrix maintained (a) a total risk-based capital ratio of 12.99%; (b) a Tier 1 risk-based capital ratio of 11.3%; and (c) a Tier 1 leverage capital ratio of 9.53%.  Accordingly, Centrix is a “well capitalized” bank under applicable law.  Centrix has one wholly-owned subsidiary: Premier Consulting Corporation that acquires, holds and manages real property acquired in satisfaction of debts previously contracted.

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 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 there is no overlap in branch office networks of the two banks and that competitive impact is negligible.  Upon review, the Division does not believe the transaction will unreasonably affect competition. 

The Board has considered whether public convenience and advantage will be promoted by the proposed transaction.  The transaction will permit Eastern Bank and Centrix to pool their financial resources, to reduce costs, to diversify risk, and to better serve their communities by offering a broader array of products and services to consumers and businesses with a greater range of features through a more extensive network of banking offices.  Customers of both banks will benefit from the increased number of branch and ATM locations in New Hampshire as well as in the Commonwealth.  Customers of Centrix will have access to more products and services including, among others: internet and mobile banking, wealth management and trust products, international trade services, and foreign exchange services, as well as a broad array of retail products.  Centrix customers will also have access to larger and more complex commercial and industrial lending services as well as a full range of insurance products through Eastern Insurance Group LLC.

In connection with the transaction, Eastern Bank has no current plans to close any of its or Centrix’s branch offices.  Therefore, customers of both banks will be able to conduct their banking business at a greater number of locations over a much larger geographic area.  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.  In its written and oral testimony the Petitioner directly addressed the statutory criteria.  Among other matters, it detailed the capital investments to be made to its network and system infrastructure, other improvements to and changes to signage at the current Centrix banking offices.   In terms of job creation, Eastern believes that over time, future job growth in both Massachusetts and New Hampshire may occur as a result of the transaction.   It currently anticipates job loss of approximately 35-40 Centrix employees. Eastern plans to retain all customer-facing Centrix employees and is deploying significant resources toward finding positions at Eastern and otherwise assisting in career transition for potentially displaced employees. The Board has considered the application, testimony, and additional information submitted by the Petitioner and finds that consideration of public convenience and advantage including net new benefits weigh 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 banks or subsidiary banks which are the parties to a 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 evaluation of performance under CRA by the Division and the FDIC.  The Board has noted that Centrix received a “Satisfactory” rating at its most recent evaluation conducted by the FDIC.                                                             

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.  Eastern is paying $41 for each share of Centrix stock outstanding for total merger consideration of approximately $134 million. The merger consideration will be funded by cash on hand.  Upon consummation of the transaction Eastern Bank Corporation will remain a well capitalized holding company under applicable bank regulatory guidelines. The principal officers of the Petitioner will remain the same following the transaction.  Each of the current outside Directors of Centrix will be offered the opportunity to serve as a Trustee and Corporator of Eastern Bank Corporation.  Additionally, one current Centrix Board member will be selected to serve on the Board of Directors of Eastern Bank and the Executive Committee of Eastern Bank Corporation’s Board of Trustees.  The Board’s consideration of the financial and managerial factors are consistent with approval of the application.

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 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 Centrix Bank & Trust. In addition, the Board also grants approval for the formation of a new bank in the form of a trust company for the purpose of effecting this transaction.

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

 

Board of Bank
Incorporation

David J. Cotney
______________________
Commissioner of Banks


Steven Grossman
______________________
Treasurer and Receiver-General


Amy Pitter
______________________
Commissioner of Revenue

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