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Decision

Decision Decision of September 28, 2015

Date: 09/28/2015
Organization: Division of Banks
  • Petitioner: North Shore Bank, a Co-operative Bank
  • Respondent: Division of Banks

Decision relative to the merger of Merrimac Savings Bank, Merrimac, Massachusetts with and into North Shore Bank, a Co-operative Bank, Peabody, Massachusetts

North Shore Bank, a Co-operative Bank (Petitioner or North Shore), Peabody, Massachusetts has applied to the Division of Banks (Division) to merge with Merrimac Savings Bank (Merrimac), Merrimac, Massachusetts pursuant to Massachusetts General Laws chapter 167H, section 7, clause (2), as well as Massachusetts General Laws chapter 167I, section 4.  Under the terms of the Merger Agreement dated as of June 9, 2015 and the Plan of Merger dated as of June 9, 2015 (together the Merger Agreement), Merrimac will merge with and into North Shore under the charter, by-laws, and name of North Shore Bank, a Co-operative Bank (Continuing Institution).  Both of the banking offices of Merrimac will be retained as branch offices after consummation of the proposed merger.  North Shore’s parent is North Shore Bancorp (Bancorp), Peabody, Massachusetts, a mutual holding company.  Although Merrimac is in mutual form and North Shore is in stock form, the transaction is authorized under Massachusetts General Laws chapter 167H, section 7, clause (2) since Bancorp is a mutual holding company and North Shore is its subsidiary banking institution.

Notice of the Petitioner’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.  Therefore, the application and all documents and materials related to this transaction have been reviewed in accordance with the statutory criteria of whether competition among banking institutions will be unreasonably affected and whether public convenience and advantage as well as “net new benefits” will be promoted by approval of the proposed merger.  The Division also reviewed and considered both banks’ records of performance under the Commonwealth’s Community Reinvestment Act (CRA), Massachusetts General Laws chapter 167, section 14 and the Division’s regulation, 209 CMR 46.00 et seq.    

North Shore was chartered as a mutual cooperative bank in 1888.  It reorganized into the mutual holding company form of organization in 1998 after receiving required approvals from the Division and the Massachusetts Board of Bank Incorporation.  Accordingly, North Shore is a stock co-operative bank and the wholly owned subsidiary banking institution of Bancorp, a mutual holding company.  In addition to its main office in Peabody, Massachusetts, North Shore operates nine full-service branch offices in Beverly, Danvers, Middleton, Peabody, Salem, and Saugus.  North Shore’s deposits are insured up to allowable limits by the Federal Deposit Insurance Corporation (FDIC) and by the Share Insurance Fund of the Co-operative Central Bank for amounts in excess of the FDIC’s insurance limits.  North Shore has three wholly-owned subsidiaries.  Two subsidiaries, North Shore Security Corp. and Compass Rose Security Corporation, engage in securities trading and investing on their own behalf as Massachusetts security corporations.  The third subsidiary, First Saugus Corporation, engages in certain real estate holding and transactional activities, including holding title to real property used by North Shore.  As of June 30, 2015, North Shore had total assets of approximately $675.6 million and aggregate deposits in the amount of approximately $538.7 million. 

Merrimac was chartered in 1871.  In addition to its main office in Merrimac, Massachusetts, it operates one full-service branch office in Newton, New Hampshire.  Merrimac’s deposits are insured by the FDIC to the maximum extent permitted by law.  Deposits in excess of FDIC limits are insured by the Depositors Insurance Fund.  As of June 30, 2015, Merrimac had total assets of approximately $75 million and aggregate deposits in the amount of approximately $70 million.

Materials have been submitted to address the issue that competition among banks will not be unreasonably affected by the proposed transaction.  In analyzing the impact of the proposed merger on banking competition, the Division considers, but does not rely exclusively upon, the guidelines used by federal authorities.  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, there will be a de minimis increase in the HHI for the geographical areas analyzed.  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.  There is no city or town in which both banks maintain a banking office.  North Shore indicated in the application that it intends to maintain Merrimac’s two banking offices as branch offices after consummation of the merger.  Therefore, the Division’s analysis of the competitive impact of this transaction supports its approval.    

The Division also has considered whether public convenience and advantage will be promoted by the proposed merger.  The application indicates that the Continuing Institution will be able to offer several products and services that have not previously been directly available to Merrimac customers, including mobile banking, first time home buyer programs, business cash management services, and investment services.  Additionally, customers of both banks will benefit from the larger lending limit available through the combined institution.  Customers of both banks also will benefit through the expanded network of banking offices and ATMs.  For these reasons and others cited in the submitted documents, the Division has determined 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, including initial capital investments, job creation plans, consumer and business services, and commitments to maintain and open branch offices, among other factors that the Commissioner may deem necessary.  Capital investments are expected to be approximately $170,000 in the aggregate for new signage and branch improvements and will not require financing.  North Shore has confirmed that employee retention is a priority.  While they may eliminate a small number of back office and executive positions, they plan to retain all branch employees.  It is noted that both banking offices of Merrimac will continue to be maintained as branch offices of the Continuing Institution.  As described above, customers of both banks will benefit from a broader array of products and services to be offered by the combined bank than those previously offered by the two banks independently.  Accordingly, the Division has reviewed factors related to public convenience and advantage, including 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 the CRA by the banks that are parties to this transaction.  Such review for state-chartered banks includes evaluation 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 notes that North Shore received a “Satisfactory” rating in its most recent CRA performance evaluation conducted jointly by the Division and the FDIC dated as of March 14, 2013.  The Division further notes that Merrimac also received a “Satisfactory” rating in its most recent CRA performance evaluation conducted jointly by the Division and the FDIC and dated as of February 6, 2013.  The Division’s consideration of the CRA performance of North Shore and Merrimac also support the approval of the proposed merger.

The financial and managerial aspects of the proposed transaction are also considered by the Division.  Because Merrimac is a mutual savings bank, no consideration will be paid to consummate the proposed merger; therefore, financing will not be necessary.  Materials provided indicate that all regulatory capital requirements will continue to be met after the consummation of the proposed merger.  The Merger Agreement indicates that the senior management of North Shore will remain the same after consummation of the proposed merger.  Bancorp and North Shore will expand their respective Boards of Directors by one member who will be chosen from the corporators of Merrimac.  The Division’s consideration of the financial and managerial aspects of the transaction also support its approval. 

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 CRA performance by the banks involved in this transaction are consistent with its approval.  On the basis of these considerations, approval is granted to merge Merrimac with and into North Shore under the charter, by-laws, and name of North Shore Bank, a Co-operative Bank pursuant to the provisions of Massachusetts General Laws chapter 167I, section 4 and chapter 167H, section 7, clause (2).  Upon consummation of the merger, the charter of Merrimac will cease to exist and all of the rights, privileges, powers, franchises, properties, assets, liabilities, and obligations of Merrimac shall be vested in North Shore. 

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 Massachusetts General Laws chapter 167I, section 4 has been returned for my endorsement.
  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.

September 28, 2015
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Date


David J. Cotney
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Commissioner of Banks

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