Are the region's banks ripe for mergers?

Brian Thompson, president and CEO of Commerce Bank: “We would consider other (acquisition) offers as they come up.”

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When it comes to bank consolidation, Central Massachusetts has always bucked the trend.

Twenty years ago, 37 of the nation’s largest banks had morphed into just four institutions by 2010, according to the Federal Reserve. Meanwhile, Central Massachusetts was home to 39 banks, according to the Federal Deposit Insurance Corp. (FDIC) Nearly two decades later, it’s still home to 27.

“It seems like every year we say ‘This is the year for mergers and acquisitions,’” said Damon DelMonte, a bank analyst for Keefe, Bruyette & Woods in Hartford, Conn. “But (New England) banks have been getting more creative.”

Local merger-and acquisition-activity has been sparse, with one transaction in 2011, two in 2012 and one in the works as of last week.

So what’s in store for 2014?

It depends on who you ask.

Banks facing pressure

DelMonte said community banks are under pressure due to sustained low interest rates, as well as increased competition from large banks, which have reentered the geographic and asset-class lending markets and can typically leverage economies of scale to offer the best deals.

He said the region has too many banks with lots of capital earning too little in profits.

Institutions with less than $1billion in assets — which includes every local bank except Commerce, Middlesex Savings Bank, UniBank for Savings and Avidia Bank — need to justify why they should remain independent, DelMonte said. “The burdens being placed on smaller banks tend to force them into seeking a buyer,” he said.

But 70 percent of banks in the state are non-stock mutual savings institutions, the highest percentage among all states, according to Bruce Spitzer, spokesman for the Massachusetts Bankers Association. And 22 of the 27 local banks are mutuals, according to the FDIC.

Mutual banks don’t face shareholder pressure for a large return on investment, Spitzer said, and would have to demutualize before being taken over by a public company, something that could take years.

“We’re talking about institutions here that have been around for hundreds of years now,” Spitzer said. “We don’t see the pace of consolidation picking up anytime soon.”

Some local banks are actively pursuing acquisitions, while others are content with their current sizes.

Milford National Bank and Trust, for one, is looking to expand in 2014 either west to Shrewsbury or south to Foxborough or Attleboro, said president and CEO Kristin Carvalho. The bank is considering both acquisition opportunities and organic growth, she said.

Milford National has three offices in Milford, one in Mendon and another in Bellingham. The bank has been focused up to this point at growing on its own, Carvalho said, and has increased its assets from $269 million to $278 million — or 3.3 percent — over the past year. That’s on par with Central Massachusetts as a whole, where locally-based banks boosted their assets 3.3 percent from $15.21 billion in September 2012 to $15.72 billion in September of last year.

On the other end, Barre Savings Bank has been running stagnant at between $140 million and $155 million in assets since mid-2008.

“If you’re not growing, the only thing that’s going to grow are your expenses,” president and CEO Guy Boyer said.

That’s due to a bevy of new regulations that apply to both large Wall Street institutions and those serving the Main streets of every small town across the United States. Boyer said executives at Barre Savings have had to take on some of the compliance work since banks of its size can’t afford to contract all the work to outside experts.

Smaller banks are disproportionately burdened by the regulatory requirements since they consume a greater percentage of expenses, DelMonte said. Barre Savings is the fourth smallest bank in Central Massachusetts, with just $113.5 million in local deposits.

“We’re at a tough size,” Boyer said. “I’m glad we’re as big as we are, but we could afford to be a little bigger.”

The bank’s board of directors has asked Boyer to grow its assets while maintaining profitability. That can be a challenge as Boyer has to pass up growth opportunities that would cut into the bank’s bottom line.

But Barre Savings isn’t currently looking to be acquired, Boyer said.

Meanwhile, officials with both Hometown and Commerce banks said they’re open to additional acquisitions.

Hometown would like to fill gaps in its branch footprint, which stretches from Athol to Webster, president and CEO Michael Hewitt said. Commerce would like to focus its growth in markets contiguous to its Central Massachusetts and Boston bases, president and CEO Brian Thompson said.

“We’ve grown and we’re relevant,” Thompson said. “We would consider other offers as they come up.”