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Decisions on Bank Applications

Mutual to Stock Conversions

North Shore Bank, a Co-operative Bank


RE: North Shore Bank, a Co-operative Bank Peabody, Essex County, Massachusetts

Applications for Federal Deposit Insurance and for Consent to Merge


Applications have been filed on behalf of North Shore Bank, a Co-operative Bank, Peabody, Massachusetts, for the FDIC's consent to merge with North Shore Interim Subsidiary Bank, Peabody, Massachusetts (to be known as North Shore Bank, a Co-operative Bank). North Shore Bank, a Co- operative Bank, had total resources of $163,037,000 and total deposits of $138,863,000, as of September 30, 1997. North Shore Interim Subsidiary Bank is a proposed new state-chartered co-operative Bank Insurance Fund ("BIF") member. Also, applications for federal deposit insurance have been filed for North Shore Interim Subsidiary Bank and North Shore MHC Co-operative Bank, Peabody, Massachusetts. The applications are required by Sections 5 and 18(c) of the Federal Deposit Insurance Act ("FDI Act").

This transaction is the result of North Shore's plan of reorganization from a state-chartered mutually owned co-operative bank to a mutual holding company/stock subsidiary bank structure. The reorganization will be accomplished in four steps:

1. North Shore will organize a new co-operative bank known as North Shore MHC Co- operative Bank chartered under Massachusetts law.

2. North Shore MHC Co-operative Bank will amend and restate its mutual co-operative bank charter to the charter of a mutual holding company known as North Shore Bancorp.

3. North Shore Bancorp will simultaneously form a Massachusetts-chartered subsidiary co- operative bank, in the stock form of organization, known as North Shore Interim Co- operative Bank.

4. North Shore will promptly merge with North Shore Interim Co-operative Bank. The latter institution will be the legally surviving entity and will be titled North Shore Bank, a Co-operative Bank.

By virtue of the merger, North Shore will transfer substantially all of its assets and all of its liabilities to North Shore Interim Co-operative Bank, which will be a wholly-owned subsidiary of North Shore Bancorp. Following consummation of the merger, the resultant bank will operate the same banking business with the same management at the same locations now being served by North Shore. The new bank's principal office will be at 32 Main Street, Peabody, Massachusetts, the present main office of North Shore. Notice of the proposed transaction, in a form approved by the FDIC, has been published pursuant to the FDI Act.

A review of available information, including the Community Reinvestment Act ("CRA") Statement of the proponent discloses no inconsistencies with the purposes of CRA. The postmerger institution is expected to continue to meet the credit needs of its entire community, consistent with the safe and sound operation of the institution.

In connection with the applications, the FDIC has taken into consideration the financial and managerial resources and future prospects of the proponent bank and the resultant bank, and the convenience and needs of the community to be served. Having found favorably on these statutory factors and having considered other relevant information, including all reports on competitive factors furnished by the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Office of Thrift Supervision, and the Attorney General of the United States, it is the FDIC's judgement that the applications should be and hereby are approved, subject to the following conditions:

1. That any changes in proposed management, including the board of directors or proposed ownership (ten percent or more of the stock) and new acquisitions of or subscriptions to ten percent or more of the stock, will render this commitment null and void unless such proposal is approved by Regional Director (Supervision) of the Corporation's Boston Regional Office prior to the opening of the institution.

2. That the subsidiary co-operative bank shall not issue minority shares without the prior Notice to, and non-objection of, the FDIC.

3. That, consistent with commitments made to the FDIC, any subsequent issuance of minority shares by the subsidiary co-operative bank will require a depositor vote in compliance with FDIC requirements, including waiver standards similar to those that have been applied to full conversions of Massachusetts co-operative banks in the past.

4. That the holding company shall provide written notification to the Corporation prior to its conversion to stock form and shall provide the Corporation with copies of all documents filed with state and federal banking and securities regulators in connection with any proposed conversion of the mutual holding company to stock form.

5. That, consistent with commitments made to the FDIC, any subsequent conversion of North Shore Bancorp to stock form will require a depositor vote in compliance with FDIC requirements, including waiver standards similar to those that have been applied to full conversions of Massachusetts co-operative banks in the past.

6. That, should any shares of stock be issued to persons other than the holding company, any dividends waived by the holding company must be retained by North Shore and segregated, earmarked, or otherwise identified on the books and records; such amounts must be taken into account in any valuation of the bank and holding company and factored into the calculation used in establishing a fair and reasonable basis for exchanging bank shares for holding company shares in any subsequent conversion of the holding company to stock form; such amounts shall not be available for payment to or the value thereof transferred to minority shareholders of the bank, by any means, including through dividend payments or at liquidation.

7. That until the proposed transaction is consummated, the Corporation shall have the right to alter, suspend, or withdraw its approval should any interim development be deemed to warrant such action.

8. That the transaction shall not be consummated sooner than 15 calendar days after the date of this Order nor later than six months after the date of this Order unless such period is extended for good cause by the Corporation.

By Order of the Associate Director of the Division of Supervision, acting pursuant to delegated authority of the Board of Directors of the Corporation.

Dated at Washington D.C., this 10th day of February, 1998.

Mark S. Schmidt
Associate Director
Division of Supervision


RE: North Shore Bank, a Co-operative Bank Peabody, Essex County, Massachusetts

Request for Limited Waiver of Federal Deposit Insurance Corporation's Depositor Voting Requirements in 12 C.F.R. Section 333.4(d)(2)


North Shore Bank, a Co-operative Bank, Peabody, Massachusetts ("North Shore"), has filed an application with the FDIC for a limited waiver of the FDIC's depositor voting requirements for mutual-to- stock conversions (See Footnote). The Board of Directors of the FDIC ("Board") has fully considered all available facts related to the application, considers the facts in this case to present an unusual situation, and has concluded that the application should be granted for the reasons discussed below.

The FDIC's regulations at 12 C.F.R. Section 333.4(d)(2) require that the following depositor voting procedures be implemented:

The proposed conversion shall be approved by a vote of at least a majority of the bank's directors and, as reasonably determined by the bank's directors or trustees, other stakeholders of the bank who are entitled to vote on the conversion, unless the applicable state law requires a higher percentage, in which case the higher percentage shall be used. Voting may be in person or by proxy.

Massachusetts law requires approval of mutual-to-stock conversion plans by more than two-thirds of the depositors present and voting at a special meeting called to vote on a plan and prohibits voting by proxy for co-operative banks.

North Shore called a special meeting of the depositors on June 24, 1997, to vote on a plan of conversion. The special meeting was attended by 132 eligible depositors from an estimated 11,000 eligible depositor total. Of the 132 eligible depositors in attendance, 131 participated in the balloting, and 104, or 78.8 percent, voted in favor of the plan of conversion. If it is assumed that all 48 directors and employees in attendance voted in favor of the plan, it can be deduced that of the independent depositors who voted, 67.5 percent voted in favor of the plan. The FDIC has determined that the vote to ratify the plan by depositors present and voting was in conformance with the bank's by-laws and Massachusetts statute. The FDIC is also of the opinion that depositors who were not insiders of the bank and who did not have a potential conflict of interest were given an opportunity to participate in the balloting.

North Shore made concerted efforts to attract depositors to the special meeting held on June 24, 1997. They provided depositors with 15 days' written notice of the special meeting, instead of the seven days required by Massachusetts law. A cover letter with Notice and Information Statement was mailed to all depositors and provided details about the plan of conversion. In addition to the published notice required by Massachusetts law, North Shore placed advertisements of the meeting in the front section of the Salem Evening News, a widely circulated newspaper in North Shore's community. Two weeks prior to the meeting, the bank held a well publicized open house to celebrate renovation of the main office. During the open house, the president spoke at length about the proposed reorganization and urged the depositors to attend the upcoming shareholders meeting. Directors and employees made phone calls to depositors to urge them to attend the meeting. Management selected a time and place for the meeting designed to facilitate maximum depositor participation.

The FDIC recognizes that the 132 depositors who participated in the special meeting represent an increase over the numbers of participants at previous depositor meetings for North Shore, which were typically attended by only 30 to 60 depositors. The FDIC also recognizes that further efforts are not likely to attract significantly higher numbers of depositors to another special meeting.

The FDIC has undertaken an explanation of the Board's approval of North Shore's waiver request to emphasize the special circumstances of the case. Despite concerted effort, North Shore was unable to meet the FDIC's requirement of majority approval by depositors of the plan of conversion because Massachusetts law prohibits the use of proxies. Consequently, the FDIC accepts as a practical impossibility the ability of North Shore to obtain majority approval solely through in-person voting. The FDIC acknowledges North Shore's effort to inform depositors about the time, location, and purpose of the special meeting. North Shore's dilemma in trying to satisfy the laws and rules of both the Commonwealth of Massachusetts and the FDIC is also recognized. Therefore, the Board has approved North Shore's waiver request.

Based upon careful evaluation of all available facts and information, the Associate Director of the Division of Supervision, acting under delegated authority, has concluded that approval of the application is appropriate.

Dated at Washington, D.C., this 10th day of February, 1998.


(Footnote) FDIC Regulations at 12 C.F.R. Section 333.4(a) provide that the Board of Directors of the FDIC may grant a waiver from any requirement of Section 333.4 for good cause shown.