Berkshire Bank, Pittsfield, Massachusetts (the "Petitioner" or the "Berkshire Bank"), has applied to the Division of Banks (the "Division") for permission to merge with Legacy Banks, Pittsfield, Massachusetts pursuant to the provisions of Massachusetts General Laws chapter 168, section 34D under the terms of a Plan of Merger (the "Agreement"). The Agreement provides for the merger of Legacy Banks with and into Berkshire Bank under the charter, by-laws and name of Berkshire Bank. The main office of Berkshire Bank would remain the main office of the continuing institution. The proposed merger is part of a multi-step transaction involving a petition before the Board of Bank Incorporation by the Petitioner's holding company Berkshire Hills Bancorp, Inc., Pittsfield, Massachusetts, ("Berkshire") to acquire Legacy Bancorp, Inc., Pittsfield, Massachusetts ("Legacy"). Berkshire is the holding company of Berkshire Bank and Legacy is the holding company of Legacy Banks. Both institutions are state-chartered savings banks. Other significant aspects of this multi-step transaction are known to the Division and are detailed in the Board of Bank Incorporation transaction approved in a Decision also dated today.
Notice of the Petitioner's application was published and posted, and the time period for interested parties to comment on the transaction has expired. A hearing on the full transaction was held in the City Council Chambers of Pittsfield City Hall on June 23, 2011. All documents and materials related to this transaction have been reviewed. This record has been considered with regard to all applicable statutory standards, which require consideration of, among other things, whether competition among banking institutions will be unreasonably affected by the proposed transaction and whether public convenience and advantage will be promoted. The Division's review of this matter must also take into consideration the involved banks' records of performance under the Community Reinvestment Act ("CRA"), section 14 of chapter 167 of the General Laws and its implementing regulation, 209 CMR 46.00 et seq.
Berkshire Bank, a Massachusetts-chartered stock savings bank, chartered in 1846, is one of Massachusetts' oldest and largest independent banks and is the largest banking institution based in western Massachusetts. Berkshire Bank has forty-eight full-service banking offices in communities throughout western Massachusetts, northeastern and central New York and southern Vermont. Berkshire Bank has offices in the following communities of Berkshire, Hampden and Hampshire Counties in Massachusetts: Chicopee, Dalton, East Longmeadow, Feeding Hills, Great Barrington, Lee, Longmeadow, Ludlow, North Adams, Pittsfield (4), Sheffield, South Hadley, Southwick (2), Springfield, Stockbridge, West Stockbridge, and Westfield (2). Five branch offices In New York State were obtained in the recent acquisition of Rome Bancorp, Inc. and its wholly-owned federal savings bank subsidiary, The Rome Savings Bank, Rome, New York which was merged with and into Berkshire Bank upon consummation of the acquisition on April 1, 2011. At March 31, 2011, Berkshire Bank had total assets of $2.85 billion.
The deposits of Berkshire Bank are insured by the Federal Deposit Insurance Corporation ("FDIC") and all deposits in excess of federal deposit insurance limits are insured by the Depositors Insurance Fund, an industry sponsored insurance fund. As of March 31, 2011, Berkshire Bank's Tier 1 risk-based capital ratio was 9.58%, total risk-based capital ratio was 10.88%, and Tier 1 leverage capital ratio was 8.05%. Accordingly, Berkshire Bank is a "well-capitalized" institution under regulatory guidelines.
Legacy Banks is a Massachusetts-chartered stock savings bank headquartered in Pittsfield, Massachusetts. It is the combined bank resulting from the merger of Lenox Savings Bank, Lenox with and into City Savings Bank, Pittsfield which was consummated on January 1, 2002. Legacy Banks operates 19 full service community banking offices in Berkshire and Hampshire Counties, Massachusetts; and Albany, Greene, Schoharie, and Washington Counties, New York. Legacy Banks' primary lines of business include residential real estate lending, small business loan and deposit services, as well as a variety of consumer loan and deposit services. At March 31, 2011, Legacy Banks had total assets of approximately $894 million. As of March 31, 2011, Legacy Bank's Tier 1 risk-based capital ratio was 11.29%, total risk-based capital ratio was 12.55%, and Tier 1 leverage capital ratio was 7.76%. Based on those ratios, Legacy Banks is a "well-capitalized" institution. Legacy Banks has four wholly-owned subsidiaries, all of which will be acquired by Berkshire through the bank merger.
The Petitioner has submitted materials to address the issue that competition among banks will not be unreasonably affected by the proposed transaction. In consideration of that statutory factor, the Division traditionally does not limit its review to federal competitive review standards. It should be noted that the Petitioner's filings indicated that the parties did overlap in three markets as defined by the Federal Reserve Banks of Boston and New York: the Pittsfield, Massachusetts market; the Albany, New York market; and the Springfield, Massachusetts market. While the overlaps in Springfield and Albany caused de minimis increases in concentration , the Pittsfield market, which is equivalent to Berkshire County, Massachusetts, would have exceeded federal safe harbor concentration levels. Accordingly, an agreement, dated May 17, 2011, was reached among the U.S. Department of Justice Antitrust Division (the "Justice Department"), Berkshire and Legacy regarding the divestitures that Berkshire and Legacy would make in conjunction with the proposed merger transaction. Berkshire and Legacy agreed to divest four branches ("Divestiture Branches") to a competitively suitable purchaser or purchasers ("Divestiture Buyer") as determined by the Justice Department. The parties agreed to present the proposed Divestiture buyer to the Justice Department for approval, and if the parties were to propose to divest to more than one Divestiture Buyer, the parties agreed to present all proposed divestitures to the Justice Department simultaneously for approval of both the proposed buyers and the proposed packages of divestiture assets. The Divestiture Branches involved are Legacy Banks offices located at 331 State Road, North Adams ($18,365,000 deposits as of June 30, 2010); 609 Merrill Road, Pittsfield ($45,760,000 deposits as of June 30, 2010); 76 Park Street, Lee ($48,179,000 deposits as of June 30, 2010); and 700 Main Street, Great Barrington ($45,822,000 deposits as of June 30, 2010). The proposed divestitures cover every city or town in Berkshire County in which the subsidiary banks involved in this proposed transaction overlap and eliminate two overlaps entirely. The divestiture plan also covers every relevant part of Berkshire County, rendering moot any concerns about the precise definition of the relevant geographic market. Together with other mitigating factors, the Division finds that the divestitures in this transaction will eliminate any competitive concerns raised by the proposed merger and is consistent with the Division's review of the competitive effects of a merger on affected municipalities and not solely on banking markets. The Division has recently been informed that a New York based national bank has been approved by the Justice Department to be the acquirer of the Divestiture Branches. The divestiture will be an event subsequent to this merger transaction and by statute will be subject to the approval of the Division since it will require applications by Berkshire Bank to close the four branch offices. The Division has discussed the branch divestitures directly with the Justice Department and has reviewed the agreement and several conditions contained therein. Those discussions also included information on the entire branch divestiture process and its availability to all interested eligible institutions. The Division had similar discussions with counsel for the Petitioner.
The Petitioner states that the enhanced financial strength of the combined banks will ensure that the resulting institution will be able to offer financial products and services at competitive rates. The transaction will permit Berkshire Bank and Legacy Banks 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, allowing for economies of scale in such areas as operations and technology, which should result in greater efficiencies and superior service. Consumer and commercial customers of Legacy Banks will benefit from the higher legal lending limits of Berkshire Bank and they will receive a broader array of products and services. The Petitioner states in its application that expanded lending availability should facilitate job creation and capital investment, particularly with respect to small business. The transaction will expand the geographic scope of the branch and ATM networks currently available to customers of both Legacy Banks and Berkshire Bank. New products and services which will result if the transaction is approved include insurance and investment services, health savings accounts, third party credit cards, electronic statements of accounts, overdraft lines of credit, lock box services, merchant services, free express checking and asset based lending.
The Division has also 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. The totality of the information provided by the Petitioner has addressed all of the components of the statutory test.
Berkshire Bank provided information on the the job creation plans component of the statutory net new benefits. It stated that its future expansion plans, including establishing new branch offices, will result in new jobs. Moreover, Berkshire Bank offered that new banking offices, even if in another state, result in additional back office and support staff employment at its headquarters and offices here in the Commonwealth. The Petitioner noted that its various lending programs to commercial customers support those businesses and allow them to expand and, as necessary, add new employees. Accordingly, Berkshire Bank states its actions will directly and indirectly support the creation of employment opportunities.
The Division has considered the application and testimony 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 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. Berkshire Bank has a "High Satisfactory" rating from the Division in its most recent examination of performance under CRA conducted as of February 2, 2009. Legacy Banks has a "High Satisfactory" CRA performance rating by the Division in the most recent examination which was as of June 15, 2009.
Management of Berkshire Bank will remain unchanged except that two directors of Legacy Banks will become directors of Berkshire Bank and a third director of Legacy Banks will become an executive officer of Berkshire Bank. Economies and service capabilities which would result from the transaction are set out in the submitted documents. Upon consolidation, the continuing bank will meet all required capital standards. Accordingly, upon review, financial and managerial considerations support the application.
Upon review of this application with reference to the relevant statutory and regulatory criteria, the Division has concluded that all such requirements have been met and that consummation of the proposed merger would be in the public interest. On the basis of these considerations, approval is granted for Legacy Banks to merge with and into Berkshire Bank under the charter, by-laws and name Berkshire Bank pursuant to Massachusetts General Laws chapter 168, section 34D.