Eastern Exposure | Commerce Bank's purchase of Mercantile pulls it into Boston market
What do you do if you're a local institution and you've already won more than a 25 percent market share in your city? If you're Commerce Bank, you find a bigger city.
That's what the homegrown bank is doing by buying Boston's Mercantile Bank in a $26.5 million deal announced last month. It's the latest chapter in Commerce's effort to take on the big national and regional banks in the area.
In 2007, Commerce was the fifth-largest bank in the Worcester city market, with less than 12 percent of deposits, according to the FDIC. By 2010, it had surpassed big names like TD Bank, Bank of America and Sovereign Bank to reach the top of the list. And as of June 2011, it held more than 26 percent of deposits in the city.
Commerce President and CEO Brian Thompson said the bank already has a number of customers in the Boston area, and the distinction between the two markets seems to be blurring.
"It's maybe only 40 miles away," he said. "That distance continues to seem to shrink. People are working between here and Boston or living between here and Boston."
Good Match, Loan Portfolio
Thompson said Mercantile decided to put itself up for sale, and it turned out to be a good match for Commerce, particularly because the Worcester bank could afford to do the deal in cash. He said another attraction was that Mercantile is doing fine and has a "good, clean loan book."
"We said it's something that we can hopefully build, rather than have to fix first and then build," he said. Thompson said one way of building on Mercantile's base will be offering more flexibility to its customers. Commerce is a far larger institution, with $1.4 billion in assets to Mercantile's $192 million, which means it can offer more and bigger loans-up to $20 million.
J. Robert Seder, a partner at Worcester-based law firm Seder and Chandler LLP with a focus on the banking industry, said he's never seen another case in which a Worcester bank bought a Boston one, but Commerce's choice seems to make sense.
"Obviously, Commerce has done a reasonably good job of building up internally and now probably feels that growth can best be accomplished by acquiring outside of its immediate market," he said.
Branching Out
Seder noted that Commerce covers the Worcester area already-it has five branches in Worcester and eight elsewhere in Central Massachusetts. He said acquiring Mercantile could make it easy for the bank to fill in the area between the two cities with more branches.
"I think, long-term, that may be an object," he said.
A number of new players have entered the Worcester banking market in recent years, including Rollstone Bank of Fitchburg, Webster First Federal Credit Union and Leominster Credit Union. But Thompson said Commerce has been less worried about those competitors than the big national and regional brands that are now trailing it in the Worcester market.
He said the bank will continue competing with the big guys in Boston, not as an equal player, but with an eye toward working with small and mid-size companies.
"We think there's a lot of differentiation between lenders," he said. "Having that personalized relationship with our borrowers with all the decisions made right here locally, customers value that relationship."
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