Orders Issued Under Bank Holding Company Act - Chittenden Corporation to acquire Vermont Financial Services Corporation - Statistical Data Included

Federal Reserve Bulletin, July, 1999 by Robert De V. Frierson

Orders Issued Under Section 3 of the Bank Holding Company Act

Chittenden Corporation Burlington, Vermont

Order Approving the Acquisition of a Bank Holding Company

Chittenden Corporation ("Chittenden"), 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. [sections] 1842) to acquire Vermont Financial Services Corp., Brattleboro, Vermont ("Vermont Financial"), and its wholly owned subsidiary banks, Vermont National Bank ("Vermont National"), also in Brattleboro, and United Bank, Greenfield, Massachusetts ("United Bank").(1)

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (64 Federal Register 6361 (1999)). 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.

Chittenden, with total consolidated assets of $2.1 billion, operates depository institutions in Vermont and Massachusetts.(2) Chittenden is headquartered in Vermont and is the third largest depository institution in the state, controlling deposits of $1.2 billion, representing approximately 16.8 percent of total deposits in insured depository institutions in the state ("state deposits"). Vermont Financial, with total consolidated assets of $2.1 billion, also operates depository institutions in Vermont and Massachusetts. Vermont Financial is the second largest depository institution in Vermont, controlling deposits of $1.3 billion, representing approximately 17.3 percent of state deposits. On consummation of the proposal, and after accounting for the proposed divestitures discussed in this order, Chittenden would become the largest depository institution in Vermont, controlling deposits of $2 billion, representing approximately 27.3 percent of state deposits.

Chittenden is the 32d largest depository institution in Massachusetts, controlling deposits of $499 million, representing less than 1 percent of state deposits. Vermont Financial is the 71st largest depository institution in the state, controlling deposits of $238 million, also representing less than 1 percent of state deposits. On consummation of the proposal, Chittenden would become the 18th largest depository institution in Massachusetts, controlling deposits of $737 million, representing less than 1 percent of state deposits.(3)

Interstate Analysis

Section 3(d) of the BHC Act allows the Board to approve an application by a bank holding company to acquire control of a bank located in a state other than the home state of the bank holding company if certain conditions are met.(4) For purposes of the BHC Act, the home state of Chittenden is Vermont, and Vermont Financial's subsidiary banks are located in Vermont, Massachusetts, and New Hampshire.(5) Thus, for purposes of section 3(d), this transaction involves the acquisition by a Vermont bank holding company of banks in Massachusetts and New Hampshire.

All the conditions for an interstate acquisition enumerated in section 3(d) of the BHC Act are met in this case.(6) In view of all the facts of record, the Board is permitted to approve the proposal under section 3(d) of the BHC Act,

Competitive Considerations

The BHC Act prohibits the Board from approving an application under section 3 of the BHC Act if the proposal would result in a monopoly or would be in furtherance of any attempt to monopolize the business of banking. The BHC Act also prohibits the Board from approving a proposed combination that would substantially lessen competition or tend to create a monopoly in any relevant banking market, unless the Board finds that the anticompetitive effects of the proposal are clearly outweighed in the public interest by the probable effects of the proposal in meeting the convenience and needs of the community to be served.(7)

Chittenden and Vermont Financial compete directly in eight banking markets in Vermont and two banking markets in Massachusetts.(8) The Board has carefully reviewed the competitive effects of the proposal in these banking markets in light of all the facts of record, including the number of competitors that would remain in the markets, the relative shares of total deposits in depository institutions in the markets ("market deposits")(9) controlled by the companies involved in this transaction, the concentration levels of market deposits and the increase in these levels as measured by the Herfindahl-Hirschman Index ("HHI") under the Department of Justice Merger Guidelines ("DOJ Guidelines"),(10) and other characteristics of the markets.

A. Banking Markets in Massachusetts

Consummation of the proposal without divestitures would be consistent with Board precedent and the DOJ Guidelines in the Boston and Springfield, Massachusetts, banking markets.(11) After consummation of the proposal, numerous competitors would remain in each banking market and the markets would remain moderately concentrated as measured by the HHI.