Merge With Caution
PHOTO/RICK SAIA
The exterior of the Westborough office of Avidia Bank. In 2007, Westborough Savings Bank and Hudson Savings Bank merged to become Avidia.
Photo/Emily Micucci
MutualOne Bank was the result of the merger of Framingham Cooperative Bank and Natick Federal Savings Bank.
In an era of competition from national and international institutions, pricey technology and uncertainty about coming regulations, what's a small local bank to do? The obvious answer, chosen by large numbers of banks across the country over the past couple of decades, is to merge with, buy, or be bought by, a rival.
In Massachusetts, though, the situation is a bit different. Bruce Spitzer, spokesman for the Massachusetts Bankers Association, said 75 percent of the organization's members are mutually chartered banks. That means they can't be acquired by stock banks — which include big players like Bank of America — without going through a complex and lengthy conversion process.
“Compared to the rest of the country, the pace of consolidation is much slower because we have so many mutual banks,” Spitzer said.
When mutual banks do merge, it's with each other. That's what happened last year when Framingham Cooperative Bank and Natick Federal Savings Bank merged to form MutualOne Bank, when Middlesex Savings Bank acquired the troubled Strata Bank in 2009 and when Westborough Savings Bank and Hudson Savings Bank combined to create Avidia Bank in 2007.
The experiences of those banks, and of others that have considered mergers but haven't gone through with them, demonstrate both the complexity of combing two longstanding community banks and the tricky questions involved in deciding whether to merge at all.
“I think, in today's day and age of banking, banks that are under four, five hundred million (dollars in assets), it's difficult with all the compliance costs that government puts on you, all the technology costs, just the cost of getting good people,” said Avidia President Mark O'Connell.
At the time that they merged, Hudson had $667 million while Westborough had $297 million. O'Connell said the banks, both founded in 1869, also had markets that complemented each other, as well as a longstanding connection — albeit as rivals.
“From 1869 to 2007 we were basically banks that (competed) with each other,” he said. “We got to know each other over the years.”
Size Advantages
Six years after its formation, Avidia has a wider footprint than either of its predecessor banks, stretching from Leominster to Westborough. Although people walk into bank branches less often than they used to, O'Connell said commercial customers and people seeking mortgages often want “a place they can touch and feel.” Today, the institution's assets stand at around $1.1 billion.
“That's the size that you can do all the things you need to do,” O'Connell said.
Two years after Avidia entered the MetroWest scene, another new bank name appeared: Charles River Bank. But Charles River was no new player. It was the old Medway Cooperative Bank, with a new name and a three-tiered corporate structure that legally put the bank under the control of a holding company. President Jack Hamilton said the rebranding was partly about getting rid of the word “cooperative”— which seemed to alienate some commercial customers — and partly about allowing for increased expansion and, possibly, mergers. The new structure permitted partnerships that wouldn't have otherwise been possible, including bringing another bank under the broader legal umbrella without completely incorporating it into Charles River.
“Times were very uncertain,” Hamilton said. “We didn't know which way the economy was going to go. ... We opted at the time to give ourselves more options.”
In years since, though, the new flexibility has not led to new partnerships for the $213 million bank.
“We have spoken with other banks,” Hamilton said. “Nothing has come of any of them. Ultimately it comes down to boards of directors. They're very much invested in their bank. They don't want to give up the level of control they have ... they don't want to give up anything that they already have.”
Still, Hamilton said increasing regulations, along with interest rate changes that could complicate things for some banks, could push small banks to pool their resources.
“My job is to always be on the lookout for whatever is the right thing to do,” he said.
Acquirer Vs. Being Acquired?
But, he said, that doesn't necessarily mean being willing to become part of a larger institution, something he's been approached about.
“It's not in the best interest of our bank,” he said. “If an ideal situation came up to do an affiliation, maintain (our) own identity and governance, increase profitability ... we would very seriously consider that.”
The decision of whether to merge involves weighing a loss of independence against efficiencies and other benefits that come with a larger institution. Avidia has not reduced staff numbers significantly or consolidated branches — though it's looking at dropping one of its two locations in Westborough — but O'Connell said it has combined technology, legal and compliance functions to increase efficiency.
“We probably, as one organization, save half a million bucks a year,” he said. “That might be duplicate costs if we were separate.”
Middlesex Savings Bank acquired Strata in 2009, after the $370 million bank lost millions on bad construction loans and investments in companies like Fannie Mae. Middlesex Bank President and CEO John Heerwagen said the merger didn't have a huge impact on the bank, which was almost 10 times Strata's size, but the geography represented a “natural extension” of its footprint. Middlesex closed two branches, in Medfield and Hopkinton, immediately, and later shut a Millis location, allowing for some savings.
“So that all worked out very well, and beyond that we had a very smooth conversion of computer systems and transitioning their customers onto our platform,” Heerwagen said.
He said that despite the circumstances surrounding the merger, customers reacted well.
“I think it was widely perceived and known that [Strata] had some financial challenges, but I think they were still serving customers very well,” he said. “If anything, folks were positive about the combination because we were a larger and stronger bank offering them much more branch convenience and maybe some additional technology.”
Middlesex had no need to rebrand itself when it took in Strata, but for other banks, a new name is the most obvious sign of a big change.
“One of the big things that got people talking — and at first I didn't think they loved it — was we changed the name to a more commercial name,” said Avidia's O'Connell.
He said having the more generic name seems to help it reach out to a broader geography than the names Hudson and Westborough, but it also creates a challenge in explaining who the bank really is.
“We have to remind people that all the executives are in Hudson, Massachusetts,” he said.
That's less of a problem for Charles River, according to Hamilton. The new name still has a link to the bank's hometown of Medway, he said, but it also reflects the identity of Bellingham and Mendon, where it has branches, and allows for further expansion nearby.
“I think having 'Charles River' in our name makes people have an instant recognition of the geography of our area,” he said. “I think it's a strong name. Certainly when you talk to people and you say 'I'm from Medway Cooperative Bank' versus 'I'm from Charles River Bank,' it sounds like a more sophisticated, more complete financial institution.”
Regardless of whether the bank ever finds a partner for a merger, Hamilton said it wants to be able to keep sending the message that it's both sophisticated and attuned to the local community. It's essentially the same message that mutual banks around MetroWest are sending their potential customers.
“It's a great little bank,” Hamilton said. “We're mutual. We're not going anywhere... Our money gets invested back into the bank and back into the community.”
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