Williamstown Savings Bank in Williamstown has partnered with North Adams-based Hoosac Bank in a deal that allows the two institutions to share back-office operations but maintain separate identities.

After four years of planning, the unusual affiliation between two Berkshire County banks is complete.

For many years banks in the area have faced changing demographics – a dwindling and aging population – and area bankers say maintaining a competitive edge while increasing earnings has been difficult. Recently, thanks to a 1987 statute, an affiliation between two area banks in which each will continue to operate separately but under one mutual holding company was completed. The involved institutions hope the deal provides the competitive edge for which so many financial institutions are looking.

North Adams-based Hoosac Bank, with assets of $279 million, is “partnering” with Williamstown Savings Bank, with assets of $160 million. “This is an affiliation and it’s truly a partnership,” said Thomas W. Kelly, president and chief executive officer of Hoosac. “It’s not a takeover; it’s not a merger. It’s really two organizations getting together for mutual benefit under a common ownership.”

Banker & Tradesman first reported the affiliation two years ago. A new mutual holding company, named MountainOne Financial Partners and based in North Adams, was created to serve as the parent organization for Hoosac Bank and Williamstown Savings Bank. MountainOne also is the parent for Hoosac-owned Coakley, Pierpan, Dolan & Collins insurance agency and True North Financial Services. Each company will continue to operate as a completely independent business under current management. According to executives at the banks, customers will not see any change in how the banks are operated. Over time, the potential would exist for sharing certain administrative functions, including technology, finance, human resources and marketing.

While each bank will maintain its separate state charter, they share some back-office functions including human resources and marketing. As the affiliation, which became effective May 1, becomes more mature, the two banks will investigate how they may blend other support and back-office operations. Each bank maintains its own board with members from both institutions sitting on the board of the holding company, MountainOne Financial Partners MHC (Mutual Holding Company).

If the arrangement sounds unique, it is. In fact, according to the state Division of Banks, the last such arrangement was when Legacy Banks, also in the western part of the state, was formed as an umbrella for City Savings Bank in Pittsfield and the Lenox Savings Bank, said Bank Commissioner Thomas J. Curry. Since then, the two have combined to form one bank under the mutual holding company.

Both Kelly and Williamstown President and Chief Executive Officer Stephen G. Crowe said they don’t have any plans to merge the two banks.

Although the affiliation is not common, it exemplifies the intent of the statute that made it possible. “The original intent behind the law is to provide some more flexibility in terms of corporate structure and adaptability to changing conditions within that bank’s market. I think this is a viable model in the minds of the participating banks,” said Curry.

Kelly said the idea was a good one for his bank because the banking market in Berkshire County is already heavily saturated in terms of competition. Add to that the fact that the population has been on the decline over the last decade, and it becomes clear that innovative decisions are necessary to remain competitive, he said.

“Combine that with declining [profit] margins in the banking business, [and] you really have two options. The first is to increase your share of the customer wallet or sell more to the same people. The second is to somehow reduce your expenses,” Kelly said.

A third option “is to increase your fee income,” he said, but such a strategy is difficult considering the stiff competition in the area.

Hoosac had recently acquired True North Financial Service and the insurance agency Coakley, Pierpan, Dolan & Collins. Although that substantially increased fee income, affiliating with Williamstown offered an easing of back-office expenses and a chance for more customer referrals to Hoosac’s investment and insurance companies.

“One of the primary drivers is the fact we can keep two separate institutions, two separate charters, and provide some back-office combinations that are transparent to the customers. We keep the customer service people and those areas that are visible to the customers pretty much the same,” said Kelly.

For Williamstown’s Crowe, the deciding factor in favor of making the affiliation was customer-focused.

“With this transaction, our customers will be able to bank at two more offices. We’ll be able to refer our customers to True North Financial Services, offering other investment products that we, at present, are not able to provide,” said Crowe.

Joint lending in the commercial arena is another improved strength Crowe expects to result from the affiliation, as well as benefits at the managerial level.

“Internally, we’re going to be able to share some management expertise that two relatively small banks can’t necessarily afford independently,” said Crowe.

Instead of layoffs resulting from the combination of back-office activities, more jobs are being created, according to officials at both banks.

“The combined entities are able to hire some better talent. For instance, an experienced systems person which neither one of us alone could afford [may be hired],” said Crowe. Additionally, the two banks will share a marketing person. Despite the close ties, however, one interesting facet of the affiliation remains competition between the two banks. The two may, in certain instances, compete against each other in the loan rates they offer. “We each have our own identities and our own brands and customer base,” said Crowe.

Kelly said the reason for such competition stems from the differing environments in each town. “We’re not sure it behooves us to force either one of us in to the competitive environments in the respective communities,” said Kelly, who added that senior management will examine pricing policies as the new structure takes hold. “We will be able to talk with each other about mortgage loan rates and, if we choose, we can set them the same, but absent this relationship, that’s illegal,” said Crowe.

‘Adaptable’ Structure

The process to affiliate began nearly four years ago. Kelly said while there are many issues to discuss, it could have been settled in a little over two years if questions of violation of antitrust laws didn’t arise.

“We’re delighted this is finally over. It’s taken a long time because of regulatory issues. We’re delighted this has now happened; we’re looking forward to better serving our customers,” said Crowe.

Establishing a holding company with two subsidiary banks was difficult for several reasons, said Kevin J. Handly, an attorney with Boston-based Goulston & Storrs who represented Hoosac Financial Services, the holding company for Hoosac Bank, in the transaction. The first difficulty was getting the two institutions on the same page in regards to establishing a joint vision and business plan. But if that had been the only issue, according to Kelly, the arrangement would have come to fruition much sooner.

The more time-consuming and difficult aspect of establishing the partnership was the apparent violation of federal antitrust regulations. As the market was traditionally defined, the combined entity would have accounted for 60 percent of all the deposits in the area and regulators would not have sanctioned the partnership.

But the parties involved requested and received a new evaluation by the Federal Reserve, said Handly. A field study was conducted and, in the end, it was determined the market was being defined too narrowly. “In fact it [the banks’ combined market area] was larger than just Northern Berkshire County and if you took into account the central part of the county, which we had asked [regulators] to do, these two banks had a smaller percentage of the market and it wasn’t an antitrust problem after all,” said Handly.

Calls to the Federal Reserve were not returned by press time.

But there still remained many details to resolve in addition to the antitrust question, including tax issues, employment issues and benefit plans.

Because there is a mutual affiliation, however, no money changed hands during the transaction, said Kelly. “There’s no immediate pressure to hurry up and earn back some kind of premium that was paid for a bank like you would in a regular stock transaction,” he said.

“It’s nice when you are a mutual institution and it’s an affiliation with no exchange of dollars involved … You are not compelled to do things that are perhaps shortsighted and you might regret,” said Kelly.

Kelly said one of the strengths Hoosac brings to the partnership is that the bank is well capitalized, which will help both entities grow. Crowe said Williamstown has tremendous market share in its community to offer Hoosac. Currently, the deposit market share is close to 60 percent and the mortgage lending market share is in the high 40 percent.

Over the weekend, employees moved into the recently completed North Adams Financial Center, an expansion of Hoosac’s headquarters.

The two will share the three Williamstown ATMs and Hoosac’s four. Additionally they will share three branches. Hoosac Bank was founded in 1848 and has 49 employees in offices in North Adams and Williamstown. Founded in 1892, Williamstown Savings Bank has 35 employees and an office in Williamstown.

While the two will be affiliated under one holding company, they will be examined by regulators as separate entities, said Curry. In order to reduce redundancy, however, the DOB will try to coordinate exams at the same time to get a “read of the entire company.”

Curry indicated his pleasure at the affiliation. “I think it’s a success in the sense that there’s what’s proven to be a fairly adaptable corporate structure to meet the particular needs of two Berkshire County banks that saw a need to maintain their individual bank identities but also saw they could be more effective on a competitive basis by having a common link at the holding company level,” he said.

Competitive Edge Sought in Unusual Pact

by Banker & Tradesman time to read: 7 min