At over $4 billion in assets, a combined holding company for two South Shore banks will be the largest in Massachusetts so far formed by a type of mutual bank merger that’s gaining popularity.

While the failures of two U.S. banks had no impact on the decision by Dedham Savings and Weymouth-based South Shore Bank to merge their holding companies, the bank’s leaders see some benefits from the timing of their announcement. 

“We started this nine months ago, and then as we’re getting ready to announce, we go through a weekend of banks failing,” said James Dunphy, president and CEO of Weymouth-based South Shore Bank. “Overall, [the reaction has] been very positive, because most of our clients see that a stronger organization, especially in light of what they’re reading and seeing, is in their best interest.” 

Dedham Savings and South Shore Bank are the second pair of Massachusetts mutual banks to decide in recent months to combine mutual holding companies while continuing to operate banks with separate charters. For Dunphy and his counterpart at Dedham Savings, Peter Brown, combining holding companies will let the banks maintain their identities while providing resources for the future. 

The two banks each have about $2.1 billion in assets, and the combination of holding companies will see South Shore Bancorp merge into Dedham Savings’ parent company, 1831 Bancorp MHC.  

Newburyport Bank and Haverhill-based Pentucket Bank had announced a similar combination in December, and these banks will join three other Massachusetts-based mutual banks – Abington Bank, bankESB and bankHometown – that are held by Easthampton-based Hometown Financial Group.  

Combine to Compete 

Keeping separate banks will let South Shore Bank and Dedham Savings accomplish their current goals better than a merger would, Dunphy said. 

“What we’ll do is keep the identities of the two institutions that are both very strong and have tremendous loyalty in their respective communities, but over time, be able to find ways to create efficiencies through various backroom operations and buying power in technology resources,” Dunphy said. 

Rapid changes in bank technology and the need to attract staff to support that technology and remain competitive have been key concerns for Dedham Savings, Brown said in a separate interview. While banks in recent years have considered assets of $1 billion or $2 billion enough to stay competitive, Brown said he began to question whether $2 billion would be big enough. 

“We just sort of had this uneasiness about what is the right size, how we’ll be able to compete,” Brown said. “Both banks are incredibly healthy, so it really was just talking about size – we knew we could not do it organically.” 

In addition to gaining assets, combining holding companies will let the banks take a deliberate approach to their next steps with technology. The banks have contracts with different core technology providers, and instead of taking on a system conversion right away, Brown said, the banks will take their time deciding about integrating technology. 

“We did want did not want to disrupt our brand and our reputation within our markets,” Brown said. “So that’s why we feel we can do it very slow and well thought-out.” 

Dunphy said converting to a single core provider will be one of the most expensive tasks for the company following the combination. By taking time to look at not only each other’s systems but other providers, Dunphy said, the banks could end up picking a different vendor than either use currently. 

Staff, Deposit Protections 

The banks will maintain their current headquarters, and the holding company will be headquartered in Dedham. No layoffs will result from the merger, Dunphy said. He added that the combined holding company will give employees training and mentoring opportunities for career growth, which will also benefit the banks. 

Diane McLaughlin

“Good people are hard to come by, so the last thing we want to do is see anyone leave,” Dunphy said. “What we can do is create new opportunities as the bank is able to use the resources to expand with new product offerings [and] new technology.” 

Maintaining separate banks will give Dedham Savings and South Shore Bank another advantage: The company will gain assets, but each bank will remain a member of the Depositors Insurance Fund, the industry-sponsored fund in Massachusetts that insures balances at member banks above the $250,000 FDIC limit.  

Member banks have been emphasizing the unique deposit protection provided by the DIF, the only such state fund in the U.S., since the bank failures. Merging Dedham Bank and South Shore Bank, instead of just the holding companies, would have moved them closer to the point where they might have needed to withdraw from the DIF, Brown said, though he noted that the timing of the merger announcement and the bank failures was a coincidence.  

“People have tried to connect the dots between the Silicon Valley [failure] and our announcement,” Brown said. “It really was just a function of just preparing ourselves for the future.”