|For immediate release|
The Federal Reserve Board announced today its approval of the application of Peoples Heritage Financial Group, Inc., Portland, Maine, to merge with CFX Corporation, Keene, New Hampshire ("CFX"), and thereby acquire CFX's subsidiary banks: CFX Bank, Keene, New Hampshire; Orange Savings Bank, Orange, Massachusetts; and Safety Fund National Bank, Fitchburg, Massachusetts.
Attached is the Board's Order relating to this action.
Peoples Heritage Financial Group, Inc.
Peoples Heritage Financial Group, Inc., Portland, Maine ("Peoples"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 3 of the BHC Act (12 U.S.C. § 1842) to merge with CFX Corporation, Keene, New Hampshire ("CFX"), and to acquire CFX's subsidiary banks: CFX Bank, Keene, New Hampshire ("CFX Bank"); Orange Savings Bank, Orange, Massachusetts ("Orange Savings Bank"); and Safety Fund National Bank, Fitchburg, Massachusetts ("Safety Bank").1 Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 2980 (1998)). The time for filing comments has expired, and the Board has considered the proposal and all comments received in light of the factors set forth in section 3 of the BHC Act.
Peoples operates depository institutions2 in Maine, New Hampshire, and Massachusetts, and CFX operates banks in New Hampshire and Massachusetts. Peoples is the third largest depository institution in New Hampshire, controlling $1.6 billion in deposits, representing approximately 12.3 percent of total deposits in depository institutions in the state ("state deposits"), and the 20th largest depository institution in Massachusetts, controlling $630.7 million in deposits, representing less than 1 percent of state deposits.3 CFX is the fourth largest depository institution in New Hampshire, controlling $1.6 billion in deposits, representing approximately 11.8 percent of state deposits, and the 47th largest depository institution in Massachusetts, controlling $348.4 million in deposits, representing less than 1 percent of state deposits. On consummation of the proposal, and accounting for the proposed divestitures, Peoples would become the largest depository institution in New Hampshire and the 11th largest depository institution in Massachusetts.
Peoples and CFX compete in the following banking markets: the Hillsborough, Manchester, and Concord banking markets, all in New Hampshire; the Boston, Massachusetts, banking market; and the Portsmouth/Dover/Rochester banking market.8 Consummation of the proposal would be consistent with the Department of Justice Merger Guidelines ("DOJ Guidelines")9 and prior Board precedent in the Boston and Portsmouth/Dover/Rochester banking markets.10
In order to mitigate the potential anticompetitive effects of the proposal in the Hillsborough, Manchester, and Concord banking markets, Peoples has committed to divest certain branches in those markets.11 In the Hillsborough banking market, Peoples would divest CFX's only branch to an out-of-market competitor, and the concentration in this market, as measured by the HHI, would remain unchanged. In the Manchester banking market, Peoples proposes to divest two CFX branches with total deposits of $51.3 million to an out-of-market competitor. Accounting for the proposed divestiture, consummation of the proposal would be consistent with the DOJ Guidelines and Board precedent in this market.12
In the Concord banking market, Peoples proposes to divest two branches controlling $104 million in deposits to an out-of-market competitor. Accounting for the proposed divestiture, Peoples would become the largest depository institution in the Concord market, controlling $380.7 million in deposits, representing 34.3 percent of market deposits. The HHI would increase 210 points to 1841. Fourteen competitors would remain in the market after consummation, including three competitors other than Peoples that would each control more than 10 percent of market deposits and four additional competitors that would each control more than 5 percent of market deposits. Three de novo entries into the Concord banking market since 1992 also indicate that the market has characteristics that make it attractive for entry.
The Board believes that the proposed divestitures and the considerations discussed above mitigate the potentially adverse effects of the proposal. The Department of Justice also has reviewed the proposal and advised the Board that, in light of the proposed divestitures, consummation of the proposal would not likely have a significantly adverse competitive effect in the Hillsborough, Manchester, or Concord banking markets, or in any other relevant banking market.
For the reasons discussed in this order, and based on all the facts of record, the Board concludes that consummation of the proposal is not likely to result in any significantly adverse effects on competition or on the concentration of banking resources in the Hillsborough, Manchester, and Concord banking markets, or any other relevant banking market. Accordingly, the Board believes that competitive factors are consistent with approval of this proposal.
Convenience and Needs Considerations
Several other commenters expressed concern that the proposal would have an adverse effect on an economically depressed area served by Orange Savings Bank in Massachusetts that is known as North Quabbin. Some of the commenters contended that the lending activities of Orange Savings Bank were inadequate to serve the credit needs of North Quabbin, particularly the credit needs of local small businesses.13
In reviewing the convenience and needs of the communities to be served, the Board notes that Peoples provides a full range of financial services through its depository institutions. Peoples has indicated that it intends to enhance and expand the banking services available to all of its CFX's customers through increased commercial and residential housing lending activities, and access to a larger network of banking offices with extended banking hours, a full-service commercial real estate department, and expanded municipal financial services. Peoples also intends to provide $3 million through its Community Mortgage Outreach Program for mortgage loans to LMI and minority families in North Quabbin and $1 million to establish a loan pool to be administered by an advisory board composed of North Quabbin community representatives.
The Board has long held that consideration of the convenience and needs factor includes a review of the records of the relevant depository institutions under the Community Reinvestment Act (12 U.S.C. § 2901 et seq.) ("CRA"). As provided in the CRA, the Board has evaluated this factor in light of examinations by the primary federal supervisors of the CRA performance records of the relevant institutions. As noted, Peoples intends to merge CFX's banks into its depository institutions after consummation of the proposal. In this light, the Board has given substantial consideration to the existing record of Peoples as reflected in the CRA examinations of its subsidiaries, and the current programs and policies of Peoples that help meet the credit needs of all its service communities, including LMI neighborhoods.
CRA Performance Examinations
Peoples's lead bank, Peoples Heritage Savings Bank, Portland, Maine, received an "outstanding" rating from its primary federal supervisor, the FDIC, at its most recent CRA examination, as of April 1996.15 Family Bank, which would serve North Quabbin after consummation of the proposal, also received an "outstanding" rating at its most recent CRA examination from the OTS, as of July 1997.16 All of CFX's banks were rated "satisfactory" or better at their most recent CRA performance evaluations by their primary federal supervisors.
CRA Performance Record of Family Bank
In addition, Family Bank assists in meeting the small business credit needs of its communities. Examiners noted that 23.8 percent of the volume of small business loans made by the savings bank during the period covered by the examination were originated in LMI census tracts. Family Bank originated $84.4 million in small business loans during this period which represented 61 percent of the total dollar amount of its outstanding commercial loans. The savings bank has been designated as a "Preferred Lender" by the Small Business Administration and has participated as a member of several loan pools designed to assist small businesses, including the minority micro-loan pool of Lawrence and the Cambodian-American League of Lowell, both in Massachusetts. Family Bank also has indicated that it intends to assign two experienced commercial lending officers with primary responsibility for North Quabbin, consistent with its approach of permitting lending decisions to be made locally.
Examiners also found that Family Bank actively supports community development activities. The bank made $5.2 million in loans to organizations involved in affordable housing, economic and community development, and neighborhood stabilization activities during the period covered by the examination.
Conclusion on Convenience and Needs
By order of the Board of Governors,17 effective March 18, 1998.
(signed) Jennifer J. Johnson
Jennifer J. Johnson
1 Peoples would merge CFX Bank with and into its bank in New Hampshire, Bank of New Hampshire, Manchester, New Hampshire ("Manchester Bank"), and Orange Savings Bank and Safety Bank with and into its savings bank in Massachusetts, Family Bank, FSB, Haverhill, Massachusetts ("Family Bank"). Peoples's subsidiaries have requested approval for the proposed mergers from the Federal Deposit Insurance Corporation ("FDIC") and the Office of Thrift Supervision ("OTS") under section 18(c) of the Federal Deposit Insurance Act (12 U.S.C. 1828(c)) (the "Bank Merger Act"), and the appropriate state bank regulators.
2 In this context, depository institutions include commercial banks, savings banks, and savings associations.
3 All state deposit data are as of June 30, 1997.
4 Pub. L. No. 103-328, 108 Stat. 2338 (1994).
5 A bank holding company's home state is that state in which the operation of the bank holding company's banking subsidiaries are principally conducted on July 1, 1966, or the date on which the company became a bank holding company, whichever is later. 12 U.S.C. § 1841(o)(4)(C).
6 See 12 U.S.C. §§ 1842(d)(1)(A) and (B) and 1842(d)(2)(A) and (B). Peoples is adequately capitalized and adequately managed, as defined by the Riegle-Neal Act, and CFX's banks have been in existence and operated for the minimum periods of time necessary to satisfy age requirements established by applicable state law. See N.H. Rev. Stat. Ann. ch. 384 (1997) (5 years); Mass. Ann. Laws ch. 167A § 2 (Law. Co-op. 1997) (3 years). Massachusetts imposes a 28 percent limitation on the amount of deposits in insured depository institutions that a banking organization may control through acquisition and New Hampshire imposes a 20 percent limitation, but permits state action to waive this maximum, up to 30 percent. On consummation of the proposal, accounting for all proposed divestitures, Peoples would control less than 10 percent of the total amount of deposits of insured depository institutions in the United States. Peoples also would not exceed applicable state law deposit limitations as calculated under state law, and state banking authorities in New Hampshire and Massachusetts have advised the Board that the proposal is consistent with state law. All other requirements of section 3(d) of the BHC Act also would be met on consummation of the proposal.
7 12 U.S.C. § 1842(c)(1)(B). Market share data used to analyze the competitive effects of the proposal are as of June 30, 1997. These data are based on calculations in which the deposits of thrift institutions are included at 50 percent. The Board has previously indicated that thrift institutions have become, or have the potential to become, significant competitors of commercial banks. See Midwest Financial Group, 75 Federal Reserve Bulletin 386 (1989); National City Corporation, 70 Federal Reserve Bulletin 743 (1984). Thus, the Board has regularly 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 (1991).
8 The Hillsborough banking market is defined as the Hillsborough County towns of Deering, Hillsborough, and Windsor, and the town of Washington in Sullivan County, all in New Hampshire. The Manchester banking market is defined as the Manchester RMA and the towns of Chester, Deerfield, New Boston, Raymond, Raymond and Weare, all in New Hampshire. The Concord banking market consists of the Concord RMA and the towns of Andover, Barnstead, Bradford, Canterbury, Dunbarton, Henniker, Hill, Salisbury, Warner, Webster and Loudon, and the city of Franklin, all in New Hampshire. The Boston banking market is defined as the Boston MSA. The Portsmouth/Dover/Rochester banking market is defined as the Portsmouth/Dover/Rochester RMA and the towns of Brookfield, Epping, Fremont, Hampton Falls, Kensington, Middleton, New Durham, Northwood, Nottingham, Strafford, and Wakefield in New Hampshire, and the town of Lebanon, Maine.
9 Under the revised DOJ Guidelines, 49 Federal Register 26,823 (June 29, 1984), a market in which the post-merger Herfindahl-Hirschman Index ("HHI") exceeds 1800 is considered 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 HHI thresholds for screening bank mergers for anticompetitive effects implicitly recognize the competitive effect of limited-purpose lenders and other non-depository financial entities.
10 On consummation of the proposal, Peoples would remain the eighth largest depository institution in the Boston banking market and control $1.35 billion in deposits, representing approximately 1.6 percent of total deposits in depository institutions in the market ("market deposits"). The HHI would increase by 1 point to 1447. Peoples would become the largest depository institution in the Portsmouth/Dover/Rochester banking market and control $835.6 million in deposits, representing 32.6 percent of market deposits. The HHI would increase by 265 points to 1680.
11 With respect to each market in which Peoples would divest branches, Peoples has committed to execute sales agreements with an out-of-market competitor prior to consummation of the acquisition of CFX, and to complete the divestitures within 180 days of consummation of the acquisition. Peoples also has committed that, in the event it is unsuccessful in completing any divestiture within 180 days of consummation of the proposal, it will transfer the unsold branch(es) to an independent trustee acceptable to the Board. The trustee will be instructed to sell the branches promptly to competitively suitable purchasers. BankAmerica Corporation, 78 Federal Reserve Bulletin 338 (1992).
12 The HHI in the Manchester banking market would increase by 194 points to 3081, and Peoples would remain the third largest depository institution in the banking market, controlling deposits of $492.3 million, representing 22.4 percent of market deposits. Nine competitors would remain in the banking market after consummation of the proposal, including three competitors, other than Peoples, that would each control more than 10 percent of market deposits.
13 One commenter expressed concern that grants to the commenter's community organization from Orange Savings Bank would not be continued after consummation of the proposal. Such agreements are matters governed by private negotiations between the parties and are not required by the CRA. Accordingly, the Board's review of the proposal has focused on the programs and policies that Peoples has in place to serve the credit needs of its communities.
14 The Statement of the Federal Financial Supervisory Agencies Regarding the Community Reinvestment Act provides that a CRA examination is an important and often controlling factor in the consideration of an institution's CRA record and that reports of these examinations will be given great weight in the applications process. 54 Federal Register 13,742 and 13,745 (1989).
15 The bank has retained an "outstanding" CRA performance rating since 1978 when federal supervisors began examining insured depository institutions for CRA performance.
16 Manchester Bank's most recent CRA performance rating as of January 1995 was "satisfactory." Peoples acquired Manchester Bank in April 1996, and established a goal of improving its rating to "outstanding" in 1998.
17 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Meyer and Gramlich. Absent and not voting: Governors Kelley, Phillips, and Ferguson.
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1998 Orders on banking applications