Flailing Strata Bank Chooses Merger | Losses prompted need to find financial partner
Photo/Courtesy Strata Bank
Edward A. Hjerpe III, president and CEO of Strata Bank and its holding company, Service Bancorp of Medway.
Medway-based Strata Bank and its holding company Service Bancorp Inc. will probably cease to exist in the spring, assuming the proposed merger with Middlesex Savings Bank is approved by regulators and by Strata’s board of directors.
The deal may be the best thing that could happen to the holding company’s shareholders and employees.
Growing Footprint
Middlesex Savings Bank has said it will close two Strata branches but intends to keep all Strata branch employees. Service Bancorp shareholders will get $28 per share and Strata will be “demutualized” and folded into Middlesex Savings.
The deal could significantly impact the local banking market. Middlesex Savings is the largest bank based in Central Massachusetts with more than $3.4 billion in assets. Statewide, it has the largest market share of any locally based bank. Adding Strata and its $412 million in assets to the mix will allow Middlesex to be an even more dominant player in the Boston suburbs and MetroWest.
The deal is also an answer to another bank merger. Benjamin Franklin Bank of Franklin announced last month that it will be acquired by Rockland Trust’s parent corporation. That deal will create a $4 billion bank with a market share to rival, or even surpass, Middlesex Savings’.
Strata is still dealing with second quarter losses on bad construction loans and stock investments in Fannie Mae, Freddie Mac and Lehman Brothers Holdings. In its third quarter it lost $8 million in stock in those companies. It may also have to write off several million of AIG stock.
Edward Hjerpe III, who took over Strata’s reins after CEO Pamela Montpelier resigned in September, said the small bank had limited options. It investigated continuing to go it alone, selling the remaining 50-plus percent of its stock to the public to raise cash or merging with another bank.
The poor condition of the economy made going it alone uncertain and the state of the financial market made taking the rest of its shares public a risky venture.
“There haven’t been too many IPOs recently so we decided a second stage conversion was not reasonable in the current environment,” Hjerpe said.
After speaking to a number of financial institutions, Hjerpe said the bank chose Middlesex Savings Banks as the best merger choice. Hjerpe said Middlesex has agreed to employ Strata’s 80 branch employees. Middlesex is leaving its vacant positions open and will try to place as many of the remaining 35 Strata administration staff.
This deal follows a long line of bank mergers that have escalated since the mid 1990s, including Shawmut being bought by Fleet Bank, which in turn was bought by Bank of America. At least one local banker believes this process will continue.
“I think you’re going to see an acceleration of this process, with more mergers and affiliations. Smaller community banks won’t necessarily merge with larger banks, but you’ll see more alliances where each institution maintains its individual identity while sharing overhead,” said John S. Hamilton, CEO and president of Medway Co-operative Bank, which recently announced plans to change its name to Charles River Bank.
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