Appeal of Incorporators of Manchester Sav. Bank

• Decision Date: 28 February 1980
• Docket Number: No. 78-124,78-124
• Citation: 412 A.2d 421,120 N.H. 129
• Parties: APPEAL OF The INCORPORATORS OF the MANCHESTER SAVINGS BANK (The Board of Trust Company Incorporation).
• Court: New Hampshire Supreme Court

Page 421

412 A.2d 421

120 N.H. 129

APPEAL OF The INCORPORATORS OF the MANCHESTER SAVINGS BANK (The Board of Trust Company Incorporation).

No. 78-124.

Supreme Court of New Hampshire.

Feb. 28, 1980.

McLane, Graf, Greene, Raulerson & Middleton, Manchester (Peter G. Guenther, Manchester, orally), for plaintiff, Incorporators of the Manchester Savings Bank.

Sheehan, Phinney, Bass & Green, Manchester (William S. Green, Manchester, orally), for intervenor, Merchants Savings Bank of Manchester.

Upton, Sanders & Smith, Concord (Frederic K. Upton, Concord, orally), for intervenor, New Hampshire Ass'n of Savings Banks.

Sullivan, Gregg & Horton, Nashua (Sherman D. Horton, Nashua, orally), for intervenor, Indian Head Nat. Bank of Nashua.

BROCK, Justice.

This is an appeal brought pursuant to RSA 541:6 from an order of the Board of Trust Company Incorporation denying plaintiff's petition under RSA ch. 386-A for authority to establish a guaranty savings bank in Manchester, to be known as the Manchester Savings Bank.

On April 4, 1977, plaintiff filed its application with the board. On July 29, 1977, the Chief Bank Examiner for the New Hampshire Banking Department filed his New Bank Investigation Report, which substantially favored approval of plaintiff's application. Following publication of the petition, a number of banks and banking organizations filed protests with the board. A public hearing was held on September 21, 1977, at which time the proponents and opponents of the application had an opportunity to present evidence concerning it.

On April 4, 1978, the board denied the application stating that it was unable to conclude favorably on two of the five statutory determinations which the board must make under RSA 386-A:6 (Supp.1979) before approving the application and that it was unable to find under RSA 386-A:14 "that the public convenience and advantage will be served by the establishment of such corporation . . . ."

Since the ownership structure and proposed operation of the new bank were the principal, if not sole, reasons for both the opposition to, and the board's denial of, the application, a brief description of these is essential. The new savings bank would be principally owned and controlled by a bank holding company, First Financial Group of New Hampshire, Inc. First Financial presently owns and controls The Manchester Bank, a commercial bank which has a savings department. It is proposed that the new guaranty savings bank would do business in the same building as the commercial bank, sharing lobby space and, where possible, overhead and equipment expenses. Of more than passing importance, however, under existing federal regulations, 12 C.F.R. § 329, the Federal Reserve Board's Regulation Q, customer deposits in the guaranty savings bank would earn one-quarter of one percent more interest than similar deposits made in the Manchester Bank and other commercial banks. Therefore, First Financial, the holding company, through its affiliate commercial and guaranty savings banks would be able to offer to the public at one location the combined services and benefits of a commercial and a savings bank.

In considering the merits of plaintiff's application, the board is required to apply the criteria specified in RSA 386-A:6 (Supp.1979), which provides that the board shall not approve an application unless it determines that:

I. The bank will serve a useful purpose in the community in which it is proposed to be established;

II. There is a reasonable expectation of its financial success;

III. Its operation will not cause undue injury to existing institutions that accept funds from savers on deposit or share accounts;

IV. The applicants are persons of good character and responsibility; and

V. There is reasonable prospect of raising such amount of initial capital funds as the board may determine to be reasonably necessary, but not less than the requirements provided in (RSA 386-A:21).

In its opinion the board stated that it was unable to make favorable findings as to paragraphs I and III. Its finding that the proposed bank would not serve a useful purpose in the community (RSA 386-A:6 I) (Supp.1979) rested not on a determination "that a new savings bank in Manchester could not serve a useful purpose" but rather "on the fact that the Application calls for a savings bank to be controlled by a bank holding company which would also control a commercial bank including a savings department." With respect to the criterion of paragraph III, the board did not find that the proposed bank would cause undue injury to institutions existing in its service area, but rather concluded:

. . . we are unable to determine that the operation of the proposed bank in the light of the proposed holding company arrangement would ". . . not cause undue injury to existing institutions that accept funds from savers on deposit or share accounts." (Because we cannot) predict with any assurance the consequences to the structure of banking in New Hampshire of granting an application such as this one. (and) we doubt that anything but market experience following the granting of such an application as this could inform us with any assurance what the effects of our affirmative action would be on the structure of savings or commercial banking in New Hampshire.

In addition, the board ruled as a matter of law that RSA 386-A:14, relating to approval of certificates by the board after the first meeting of a new bank's incorporators, not only applied at the initial stage of the board's decision process, but actually embodied an additional and nonspecific "broad criterion" which the applicant must meet. Section 14 provides:

Approval of. Such certificate shall be submitted to the board of trust company incorporation, who shall examine the certificate, and who may require such amendment thereof or such additional information as they may consider necessary. If they find that the public convenience and advantage will be served by the establishment of such corporation, that the proposed management of such corporation will be of satisfactory character, knowledge and experience in the field of banking, and that the proceedings in other respects conform to the provisions of this chapter, they shall so certify and endorse their approval upon the certificate. (Emphasis added.)

Relying on its ruling that it must, in addition to concluding favorably on the specific criterion enumerated in RSA 386-A:6, apply the "broad criterion" of section 14 and make a separate and distinct finding that "the public convenience and advantage will be served by the establishment of" a proposed bank before making its decision to approve the application under RSA 386-A:7, the board concluded:

We are not able to find that the public convenience and advantage would be served, considering again the holding company context in which the proposed guaranty savings bank would function.

Our inability to conclude . . . that public convenience and advantage would be served follows from an inability to predict with any assurance the consequences to the structure of banking in New Hampshire of granting an application such as this one.

In summary, the board's reasons for denying the application all related to the proposed bank's affiliation with The Manchester Bank and its parent holding company, First Financial Group, and not to considerations relating to the proposed bank standing by itself.

The standard of review generally applied by this court to decisions of the board is set out in RSA 541:13. Except for errors of law, this court will not set aside or vacate a decision of the board unless the party seeking to set it aside demonstrates by a clear preponderance of the evidence that the order is unjust or unreasonable. LUCC v. Public Service Co., 119 N.H. ---, ---, 402 A.2d 626, 631 (1979); The Bedford Bank v. State, 116 N.H. 649, 651, 365 A.2d 734, 736 (1976). However, when the issues on an appeal implicate provisions of our Constitution, this court will undertake a more intensive review. N.E. Household Moving & Storage, Inc. v. Public Util. Comm'n, 117 N.H. 1038, 1041, 381 A.2d 745, 748 (1977).

Because both the transcript of proceedings below and the board's opinion are fraught with concern over a perceived competitive disadvantage which other banking institutions might encounter if the pairing of commercial and savings banks through the holding company structure were allowed, review of this case will be tempered by our consideration of the constitutional provision that raises free and fair competition to the status of constitutional rights in this State. N.H.Const. pt. II, art. 83; N.E. Household Moving & Storage, Inc. v. Public Util. Comm'n, supra.

The plaintiff contends that the board's determinations that the proposed bank would not serve a useful purpose, might cause undue injury to existing institutions, and would not serve the public convenience and advantage were not supported by the evidence and are unreasonable and unlawful. For the reasons that follow, we agree.

I. Useful purpose

We examine first the board's finding that the proposed bank would not "serve a useful purpose in the community in which it is proposed to be established." RSA 386-A:6 I (Supp.1979). The sole reason given by the board for this finding was that the proposed guaranty savings bank would be controlled by a bank holding company which also controls a commercial bank with a savings department, an arrangement that "precludes competition except at the expense of the depositors of one affiliate or at the expense of the stockholders of another affiliate and its parent."

The board's finding on the "useful purpose" criterion was made without specific reference to the useful purposes that the proposed bank might serve absent affiliation. We have therefore reviewed the substantial quantity of evidence that was presented to the board that would support a finding that the proposed bank, if unaffiliated,...