|For immediate release|
The Federal Reserve Board today announced its approval of the application of Brookline Bancorp, MHC and its subsidiary, Brookline Bancorp, Inc., both of Brookline, Massachusetts, to acquire up to 9.9 percent of the voting shares of Medford Bancorp, Inc. and thereby acquire an interest in Medford's wholly owned subsidiary bank, Medford Savings Bank, both of Medford, Massachusetts.
Attached is the Board's Order relating to this action.
FEDERAL RESERVE SYSTEM
Brookline Bancorp, MHC and its subsidiary, Brookline Bancorp, Inc., both of Brookline, Massachusetts (collectively "Brookline"), bank holding companies within the meaning of the Bank Holding Company Act ("BHC Act"), have requested the Board's approval under section 3 of the BHC Act (12 U.S.C. § 1842) to acquire up to 9.9 percent of the voting shares of Medford Bancorp, Inc. ("Medford") and thereby acquire an interest in Medford's wholly owned subsidiary bank, Medford Savings Bank, both of Medford, Massachusetts.1
Notice of this proposal, affording interested persons an opportunity to submit comments, has been published (64 Federal Register 55,290 (1999)). The time for filing comments has expired, and the Board has considered this proposal and all comments received in light of the factors set forth in section 3 of the BHC Act.
Brookline is the 33rd largest depository institution in Massachusetts, controlling total deposits of $509.3 million, representing less than 1 percent of total deposits in depository institutions in the state.2 Medford is the 15th largest depository institution in Massachusetts, controlling $902.6 million in deposits, representing less than 1 percent of total deposits in depository institutions in the state. Brookline has stated that it proposes to acquire the shares of Medford as a passive investment and that Brookline would not control Medford after this investment.
In connection with this proposal, the Board received comments from Medford objecting to the proposal on the grounds that the investment would have an adverse effect on the managerial resources and financial condition of Brookline and Medford, and would harm the communities that Medford serves. The Board has considered carefully Medford's comments in light of the factors that the Board must consider under section 3(c) of the BHC Act. 3.
The Board previously has stated that the acquisition of less than a controlling interest in a bank or bank holding company is not a normal acquisition for a bank holding company.4 However, the requirement in section 3(a)(3) of the BHC Act for Board approval before a bank holding company acquires more than 5 percent of the voting shares of a bank suggests that Congress contemplated the acquisition by bank holding companies of between 5 and 25 percent of the voting shares of banks.5 On this basis, the Board previously has approved the acquisition by a bank holding company of less than a controlling interest in a bank or bank holding company where the proposal meets the factors set forth in the BHC Act.6
Medford contends that the proposed investment would constitute a controlling investment in Medford, and would enable Brookline to exercise a coercive influence on Medford's corporate affairs. Brookline has agreed to abide by certain commitments that the Board has relied on in other cases to determine that an investing bank holding company would not be able to exercise a controlling influence over another bank holding company or bank for purposes of the BHC Act.7 For example, Brookline has committed not to exercise or attempt to exercise a controlling influence over the management or policies of Medford or any of its subsidiaries; not to seek or accept representation on the board of directors of Medford or any of its subsidiaries; and not to have any director, officer, employee, or agent interlocks with Medford. Brookline also has committed not to attempt to influence the dividend policies, loan decisions, or operations of Medford or any of its subsidiaries. Moreover, Brookline, which proposes to acquire less than 10 percent of the voting shares of Medford, may not acquire any additional shares of Medford without prior Board approval under the BHC Act.
Medford contends that these commitments by Brookline are insufficient to prevent Brookline from exercising a controlling influence on Medford. The Board notes, however, that it has adequate supervisory authority to monitor Brookline's compliance with its commitments, and expressly retains authority to initiate a control proceeding against Brookline if facts presented later indicate that Brookline or any of its subsidiaries or affiliates, in fact, controls Medford for purposes of the BHC Act. Based on these commitments and all other facts of record, it is the Board's judgment that Brookline would not acquire control of Medford for purposes of the BHC Act through consummation of this proposal.
In considering an application under section 3 of the BHC Act, the Board is required to evaluate a number of factors, including the competitive effects of the proposal. The Board previously has noted that one company need not acquire control of another company in order to substantially lessen competition between them.8 The Board has found that noncontrolling interests in directly competing depository institutions may raise serious questions under the BHC Act, and has concluded that the specific facts of each case will determine whether the minority investment in a company would be anticompetitive.9
Brookline and Medford compete directly in the Boston banking market.10 If Brookline and Medford are considered as a combined organization, Brookline would be the 12th largest depository institution organization in the Boston banking market, controlling $1.3 billion in deposits, representing less than 1 percent of total deposits in depository institutions in the market.11 The Herfindahl-Hirschman Index ("HHI") for the Boston banking market would remain unchanged at 1899.12 Accordingly, based on all the facts of record, the Board concludes that consummation of this proposal would not have a significantly adverse effect on competition or on the concentration of resources in any relevant market in which Brookline and Medford compete.13
The Board also is required under section 3(c) of the BHC Act to consider the financial and managerial resources and future prospects of the companies and banks concerned. Medford contends that Brookline's investment could distract the attention of Medford's management from the operation of Medford, restrict Medford's ability to effect a merger, and adversely affect Medford's employees and its ability to retain customers. The Board believes that the commitments made by Brookline to maintain its investment as a passive investment and not to exercise a controlling influence over Medford reduce the potential adverse effects of the proposal. Moreover, the Board notes that Brookline currently is well capitalized and would remain well capitalized on consummation of the proposal. Based on all the facts of record, the Board has concluded that the financial and managerial resources and the future prospects of Brookline, Medford, and their subsidiaries are consistent with approval of this application, as are the other supervisory factors the Board must consider under section 3 of the BHC Act. In addition, considerations relating to the convenience and needs of the communities to be served, including the record of performance of the institutions involved under the Community Reinvestment Act (12 U.S.C. § 2901 et seq.), are consistent with approval of the application.
Based on the foregoing, and on all other facts of record, the Board has determined that this application should be, and hereby is, approved. The Board's approval is specifically conditioned on compliance by Brookline with all commitments made in connection with this application, including the commitments discussed in this order. The commitments and conditions relied on by the Board in reaching this decision are deemed to be conditions imposed in writing by the Board in connection with its findings and decision, and, as such, may be enforced in proceedings under applicable law.
The transaction shall not be consummated before the fifteenth calendar day following the effective date of this order, or later than three months after the effective date of this order, unless such period is extended for good cause by the Board or by the Federal Reserve Bank of Boston, acting pursuant to delegated authority.
By order of the Board of Governors,14 effective November 29, 1999.
Robert deV. Frierson
1 The proposed acquisition would be made by Brookline Securities Corp., a wholly owned subsidiary of Brookline Bancorp, Inc.
2 Asset and deposit data are as of June 30, 1999. In this context, depository institutions include commercial banks, savings banks, and savings associations.
3 The Board may not approve an application that would violate state law. Whitney Nat'l Bank in Jefferson Parish v. Bank of New Orleans & Trust Co., 379 U.S. 411, 419 (1965). Medford contends that Massachusetts law requires Brookline to file an application with the Massachusetts Board of Bank Incorporation ("State Bank Board"). The Massachusetts Commissioner of Banks ("Commissioner") has been provided with notice of the application filed with Board, as required under section 3 of the BHC Act, 12 U.S.C. § 1842(b)(1), and is reviewing whether Brookline also is required to file an application with the State Bank Board. The Commissioner has not filed any comments with the Board about this proposal. In addition, Massachusetts law appears to require Brookline to file such an application only if Brookline owns or controls 25 percent or more of the voting stock of each of two or more banking institutions. Mass. Gen. Laws ch. 167A, § 2(2)(b). At this time, Brookline owns or controls 25 percent or more of the voting stock of only one banking institution. Accordingly, it does not appear at this time that the Board is precluded from approving this proposal. The Board's approval of the application is conditioned on Brookline obtaining any approval that is required by Massachusetts law.
4 See, e.g., First Mariner Bancorp, 84 Federal Reserve Bulletin 956, 957 (1998); Sun Banks, Inc., 71 Federal Reserve Bulletin 243 (1985) ("Sun Banks"); State Street Boston Corp., 67 Federal Reserve Bulletin 862, 863 (1981).
5 See 12 U.S.C. § 1842(a)(3).
6 See, e.g., GB Bancorporation, 83 Federal Reserve Bulletin 115 (1997) (acquisition of up to 24.9 percent of the voting shares of a bank); Mansura Bancshares, Inc., 79 Federal Reserve Bulletin 37 (1993) (acquisition of 9.7 percent of the voting shares of a bank holding company).
7 See, e.g., National Bancshares Corp. of Texas, 82 Federal Reserve Bulletin 565 (1996); First Southern Bancorp, Inc., 82 Federal Reserve Bulletin 424 (1996). These commitments are set forth in the Appendix.
8 See, e.g. First State Corp., 76 Federal Reserve Bulletin 376, 379 (1990); Sun Banks at 243.
9 See, e.g. Sun Banks at 244.
10 The Boston banking market is defined as the Boston Ranally Metropolitan Area and the town of Lyndeboro in New Hampshire.
11 Market deposit data are as of June 30, 1998, and reflect acquisitions through October 15, 1999.
12 Market share data are based on calculations that include the deposits of thrift institutions at 50 percent. The Board previously has indicated that thrift institutions have become, or have the potential to become, significant competitors of commercial banks. See, e.g., Midwest Financial Group, 75 Federal Reserve Bulletin 386, 387 (1989); National City Corporation, 70 Federal Reserve Bulletin 743, 744 (1984). Thus, the Board regularly has included thrift deposits in the calculation of market share on a 50-percent weighted basis. See, e.g., First Hawaiian, Inc., 77 Federal Reserve Bulletin 52, 55 (1991).
13 Under the DOJ Guidelines, 49 Federal Register 26,823 (June 29, 1984), a market in which the post-merger HHI is above 1800 is considered to be highly concentrated. The Department of Justice has informed the Board that a bank merger or acquisition generally will not be challenged (in the absence of other factors indicating anticompetitive effects) unless the post-merger HHI is at least 1800 and the merger increases the HHI by more than 200 points. The Department of Justice has stated that the higher than normal thresholds for an increase in the HHI when screening bank mergers and acquisitions for anticompetitive effects implicitly recognize the competitive effects of limited-purpose and other nondepository financial entities.
14 Voting for this action: Chairman Greenspan, Vice Chairman Ferguson, and Governors Kelley, Meyer, and Gramlich.
As part of this proposal, Brookline Bancorp, MHC ("MHC"), Brookline Bancorp, Inc. ("SHC"), and Brookline Securities Corp. ("Securities Corp") each of Brookline, Massachusetts, commit that they will not, without the prior approval of the Federal Reserve Board, directly or indirectly:
(1) exercise or attempt to exercise a controlling influence over the management or policies of Medford Bancorp, Inc. ("Medford") or any of its subsidiaries;
(2) seek or accept representation on the board of directors of Medford or any of its subsidiaries;
(3) have or seek to have any employee or representative serve as an officer, agent, or employee of Medford or any of its subsidiaries;
(4) take any action that would cause Medford or any of its subsidiaries to become a subsidiary of MHC, SHC, Securities Corp, or any of their subsidiaries.
(5) acquire or retain shares that would cause the combined interests of MHC, SHC, Securities Corp, and any of their subsidiaries and their officers, directors, and affiliates to equal or exceed 25 percent of the outstanding voting shares of Medford or any of its subsidiaries;
(6) propose a director or slate of directors in opposition to a nominee or slate of nominees proposed by the management or the board of directors of Medford or any of its subsidiaries;
(7) solicit or participate in soliciting proxies with respect to any matter presented to the shareholders of Medford or any of its subsidiaries;
(8) attempt to influence the dividend policies or practices; the investment loan, or credit decisions or policies; the pricing of services; personnel decisions; operations activities (including the location of any offices or branches or their hours of operation, etc.); or any similar activities or decisions of Medford or any of its subsidiaries;
(9) dispose or threaten to dispose of shares of Medford or any of its subsidiaries as a condition of specific action or nonaction by Medford or any of its subsidiaries; or
(10) enter into any other banking or nonbanking transactions with Medford or any of its subsidiaries, except that MHC or SHC may establish and maintain deposit accounts with Medford's subsidiary depository institution, provided that the aggregate balance of all such deposit accounts does not exceed $500,000 and that the accounts are maintained on substantially the same terms as those prevailing for comparable accounts of persons unaffiliated with Medford or any its subsidiaries.
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1999 Orders on banking applications