Decision  Decision of September 10, 2018

Date:	09/10/2018
Organization:	Division of Banks

• Petitioner: HarborOne Bank
• Respondent: Division of Banks

Decision relative to the merger of Coastway Community Bank, Providence, Rhode Island with and into HarborOne Bank, Brockton, Massachusetts

Introduction

HarborOne Bank, Brockton, Massachusetts has applied to the Division of Banks (Division) for authority to merge with Coastway Community Bank (Coastway Bank), Providence, Rhode Island pursuant to the provisions of Massachusetts General Laws chapter 167I, section 3.  Under the terms of an Agreement and Plan of Merger dated as of March 14, 2018, Coastway Bank will merge with and into HarborOne Bank under the charter and by-laws of HarborOne Bank (Continuing Institution).  The banking offices of Coastway Bank will become branch offices of HarborOne Bank.  The merger application was filed in connection with a multi-step transaction in which HarborOne Bancorp, Inc. (HarborOne Bancorp), the stock holding company for HarborOne Bank and wholly-owned subsidiary of HarborOne Mutual Bancshares, will acquire the stock of Coastway Bank through a merger with Coastway Bank’s holding company, Coastway Bancorp, Inc. (Coastway Bancorp).    

HarborOne Bancorp will form Massachusetts Acquisitions, LLC (Merger LLC), a merger subsidiary, as a wholly-owned subsidiary of HarborOne Bancorp to facilitate this multi-step transaction.  At the effective time of the merger, Merger LLC will merge into Coastway Bancorp with Coastway Bancorp then becoming a subsidiary of HarborOne Bancorp and Coastway Bank becoming an indirect subsidiary of HarborOne Bancorp.  Coastway Bancorp will be merged with and into HarborOne Bancorp.  At the same time Coastway Bank will merge with and into HarborOne Bank.

Legal and procedural requirements

Notice of HarborOne Bank’s application was posted and published as directed by the Division thereby affording opportunity for interested parties to submit comments.  The period for filing comments has expired. Accordingly, all documents and materials related to this transaction have been reviewed.  The Division reviewed the application in accordance with the statutory criteria of whether competition among banking institutions would be unreasonably affected and whether public convenience and advantage as well as net new benefits would be promoted by approval of the proposed transaction.  Both banks’ records of performance under the Community Reinvestment Act (CRA) were also considered by the Division.

Parties

HarborOne Bank is a Massachusetts-chartered co-operative bank.  HarborOne Bank is the subsidiary banking institution of HarborOne Bancorp, the mid-tier holding company established during HarborOne Bank’s reorganization into the mutual holding company form of organization in 2016.  As a state-chartered co-operative bank, the deposits in HarborOne Bank in excess of the deposit insurance coverage provided by the Federal Deposit Insurance Corporation (FDIC) are insured, in full, by the Share Insurance Fund of the Co-operative Central Bank.  HarborOne Bank operates 17 banking offices in Massachusetts located in Bristol, Plymouth and Norfolk counties.  HarborOne Bank offers a portfolio of personal and small business banking products and services including online, mobile banking and cash management services.  As of June 30, 2018, HarborOne Bank had total assets of approximately $2.8 billion and total deposits of approximately $2.2 billion.

Coastway Bank, a Rhode Island-chartered savings bank headquartered in Providence, Rhode Island, is the sole banking subsidiary of Coastway Bancorp.  Coastway Bank operates nine banking offices located in Rhode Island and offers a range of personal and business banking services as well as consumer and commercial loan products.  As of June 30, 2018, Coastway Bank had total assets of approximately $836.8 million and total deposits of approximately $507.4 million. 

Pursuant to Massachusetts General Laws chapter 167A, section 3, because HarborOne Bancorp will merge with Coastway Bancorp simultaneously with the merger of Coastway Bank into HarborOne Bank and because the bank merger requires the approval of the Commissioner of Banks, an application to the Commonwealth’s Board of Bank Incorporation was not required to complete this transaction.  However, the Division must receive notice from the Massachusetts Housing Partnership Fund (MHPF) that satisfactory arrangements have been made consistent with Massachusetts General Laws chapter 167A, section 4 and the MHPF’s various affordable housing loan programs.  The Division received notice from the MHPF that satisfactory arrangements had been made for this transaction in a letter dated April 25, 2018.  In addition, the Co-operative Central Bank confirmed that satisfactory arrangements have been made with it by letter dated May 10, 2018.

Competition

Materials have also been submitted to address the issue of whether competition among banks will be unreasonably affected by the proposed transaction. In analyzing the impact of a proposed transaction on banking competition, the Division considers, but does not rely exclusively upon, 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 the affected market into a single value.  In this case, the HHI demonstrates that consummation of the transaction will not result in an undue concentration of banking resources.  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.    In the case of this transaction, there are no cities or towns in which both banks have a banking office since HarborOne Bank’s branches are all is Massachusetts while all of Coastway Bank’s branches are in Rhode Island.  Therefore, upon review, the Division’s analysis of the competitive impact of this transaction does not preclude its approval.

Public convenience and advantage

The Division has also considered whether public convenience and advantage will be promoted by the proposed transaction.  Current customers of Coastway Bank would gain local access to the retail loan and deposit products offered by HarborOne Bank through the continuing, former branch offices of Coastway Bank.  These products include enhanced cash management products, a special mortgage program for first-time home buyers and deposit products targeted especially for local governments.  The combined branch network of 26 branch offices will allow business to be conducted over a broader geographic area.  The Division considered these factors 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 Division is also required to consider a showing of “net new benefits” related to the transaction.  That term includes initial capital investments, job creation plans, consumer and business services, commitments to maintain and open branch offices, and such other factors which the Division may deem necessary.  HarborOne Bank has addressed this requirement of the statute in the application.  In terms of initial capital investments, HarborOne Bank expects to invest approximately $250,000 in new signage and systems infra-structure upgrades.  According to HarborOne Bank, as a result of the merger, the Continuing Institution will be able to compete more effectively in delivering enhanced and expanded products and services to its customers.  In addressing the effect of the transaction on Coastway  Bank’s employees, HarborOne Bank stated that while there would be some immediate reduction of staff levels, especially in back-office functions, it was anticipated that future job creation would result from the Continuing Institution’s expanded operations.  In addition, all customer facing branch and mortgage personnel are expected to be retained.  The submitted materials describe HarborOne Bank’s intent to continue to operate all of Coastway Bank’s banking offices as branch offices of the Continuing Institution.  It is currently anticipated that the former Coastway Bank’s banking offices may operate under the name “Coastway Bank, a Division of HarborOne Bank.”  These and other factors are also cited as support for satisfying the standard of “net new benefits” under the statute. 

Related to the issue of net new benefits and public convenience and advantage is the record of CRA performance by the banks which are parties to this transaction.  Such a review for a Massachusetts-chartered bank includes examination by personnel of the Division as well as analysis of concerns received by the bank’s community and its response to those concerns fairly raised.  For other institutions, the Division looks to the publicly available descriptive rating and evaluation by a federal or state bank regulatory agency.  The Division notes that HarborOne Bank received an “Outstanding” rating on its most recent performance valuation conducted jointly by the Division and the FDIC as of December 18, 2017.  In addition, Coastway Bank also received an “Outstanding” rating on its most recent CRA performance evaluation conducted by the FDIC as of May 30, 2017.  Accordingly, the Division’s view of this factor is consistent with approval. 

Financial and managerial considerations

The application materials indicated that upon consummation of the transaction, the current directors and management of HarborOne Bank will continue to serve as the Board of Directors and management of the Continuing Institution.  However, the current President and CEO of Coastway Bank will serve as Director of Banking, Rhode Island at the Continuing Institution.  Economies and service capabilities which would result from the transaction are also set out in the submitted documents.  Following consummation of this transaction, all regulatory capital standards will continue to be met.  Therefore, financial and managerial considerations support approval of this transaction.

Conclusion

Upon review of the application with reference to the relevant statutory and regulatory requirements, the Division 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.  On the basis of these considerations, approval is granted to merge Coastway Bank with and into HarborOne Bank under the charter and by-laws of HarborOne Bank under the provisions of Massachusetts General Laws chapter 167I, section 3.   Approval is also granted for HarborOne Bank to maintain the nine banking offices of Coastway Bank as branch offices pursuant to Massachusetts General Laws chapter 167C, section 6.

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 such institution has complied with the provisions of Massachusetts General Laws chapter 167I, section 3 or other applicable statute has been returned with my endorsement thereon;
2. That the proposed merger shall not become effective until Articles of Merger with my endorsement thereon are filed with the Secretary of State; and
3. That the proposed merger shall be consummated within one year of the date of this Decision.

Terence A. McGinnis, Commissioner of Banks

September 10, 2018