KEVIN G. CHAMPAGNE
Enthusiastic about Boston
It’s survival of the fittest in the Bay State banking world, as mergers and buyouts continue to roll through Massachusetts. But unlike the area’s prominent out-of-town buyers, New Bedford-based Seacoast Financial Services Corp. – which has been buying out community banks and marking its territory in Boston – is a local player.
Seacoast recently announced the decision to acquire Bay State Bancorp Inc. in Brookline and its wholly owned subsidiary, Bay State Federal Savings Bank, a $563 million bank that operates six full-service retail sales offices in the Greater Boston metropolitan area.
But the $140 million transaction is a little more complicated than a two-fold deal. The agreement provides for the merger of Bay State Bancorp into Seacoast, and the subsequent merger of Bay State Federal Savings Bank into CompassBank, Seacoast’s main banking subsidiary.
The transaction is intended to qualify as a reorganization for federal income-tax purposes, with the following result: Shares of Bay State common stock exchanged for shares of Seacoast Financial common stock will be exchanged on a tax-free basis.
Seacoast Financial, the holding company for CompassBank and Nantucket Bank, serves most of Southeastern Massachusetts, including Cape Cod and the Islands.
CompassBank is a $3.2 billion, state-chartered savings bank serving Southeastern Massachusetts through a network of 40 full-service branch offices. Nantucket Bank is a $458 million, state-chartered savings bank serving Nantucket Island with three full-service branch offices.
Under the terms of the agreement, shareholders of Bay State will be entitled to receive $27 in cash, 1.257 shares of Seacoast Financial Services Corp. or a combination thereof, subject to election and allocation procedures which are intended to ensure that, in the aggregate, 55 percent of the Bay State shares will be exchanged for Seacoast Financial Services Corp. common stock.
According to Kevin G. Champagne, Seacoast Financial Services Corp. and CompassBank president and chief executive officer, the expansion of CompassBank into the Boston area is a huge step for the otherwise “small” bank.
“Up until this point in time, when people in Massachusetts think of bank consolidation, they think of the top four listed,” said Champagne, referring to Fleet Bank, Citizens Bank of Massachusetts, Sovereign Bank of Massachusetts and Banknorth. “We hope this will show [the competition] there is someone who is smaller and has the strategy to grow … We are hopefully getting a chance to play out on the Boston stage.”
Champagne said the latest merger is “another chapter in the ongoing saga [of buyouts] in the community banking franchises across the country.”
Having already acquired Sandwich Bank, Nantucket Bank and Bay State Bank, this most recent transaction will be the third merger in four years for Seacoast.
“Our acquisition strategy was that we would look to acquire community banking franchises in our market or outside the state,” said Champagne. “We’ve viewed the idea of Boston with a high degree of enthusiasm … and the deal came together rather quickly, in less than two months, and we were able to put a package on the table that met all our goals and objectives.”
‘Traditional Lending’
The Bay State Bancorp acquisition is a deal that Champagne said is consistent with Seacoast’s growth strategy and while the Boston economy is still in a slump, Champagne said the timing was just right.
“We drive the value of our stock up by increasing our earnings and, in absolute terms, increasing our revenue. You do this either by opening a de novo branch or taking big chunks to buy an existing company,” said Champagne.
Bay State’s business is niche lending on multifamily properties in the Brookline area and more affluent neighborhoods of Boston and, according to Champagne, the bank’s underwriting is very conservative, which “can be very profitable if you can do it right.”
As far as the competition goes, though, Champagne said he is not worried.
“Brookline Savings Bank is another niche lender and one of the most profitable savings banks in Massachusetts, but Bay State did a good job in competing with that business and we’ll have a significantly higher lending limit to compete with,” said Champagne. “Because [Bay State] focused on the multifamily lending, we would be willing to roll out more traditional lending and broaden the array of lending programs.”
While the growth strategy of Seacoast will remain the same and executives continue to look and purchase community banks around the Boston market and elsewhere, the Seacoast board will change and invite new members to sit on the board making room for new employees at bank branches.
According to Champagne, Bay State Bank Chairman and Chief Executive Officer John F. Murphy and Bay State Bank President and Chief Operating Officer Denise M. Renaghan will be joining the Seacoast board and while there are no immediate plans to close any offices, Champagne said he hopes employees currently at the banks will stay.
“We will be aggressively looking for people in the market to come in and continue where Jack [Murphy] and Denise [Renaghan] left off – these folks were very instrumental in Bay State Bank being successful,” said Champagne.
In a press statement, Murphy said, “The affiliation with Seacoast is an excellent opportunity for our clients, employees and shareholders, and for the communities in which Bay State Federal Savings Bank operates. Their high level of financial performance, in concert with their commitment to community financial services, makes them a great choice for Bay State.”
Upon completion of the acquisition of Bay State Bancorp, scheduled for the second quarter of 2003, Seacoast Financial Services Corp. will have $4.3 billion in total assets, $2.8 billion in total deposits and $413 million in total shareholders’ equity, with approximately 49 financial centers in Eastern Massachusetts making Seacoast the fifth-largest company in branch banking throughout Massachusetts.
