Framingham Co-operative Bank and Natick Federal Savings Bank have agreed to merge and form one unified mutual bank, and the industry says banks as small as these must merge or form joint holding companies in the next several years.
Daniel Forte, president of the Massachusetts Bankers Association, told Banker & Tradesman that the state’s smallest banks will continue to merge, not because they’re poorly run or built on shaky foundations, but because larger banks have more resources to spend on the things that are truly important to a bank’s success.
“We have a very robust community bank industry here,” Forte said. “The truth is, size is important, but it’s not the critical variable.”
Those “critical variables,” Forte said, are: remaining current, maintaining diversity and meeting the needs of customers.
Community banks “can’t only do residential loans, for example,” Forte said. “Small business lending, C&I lending, provides a balance and diversity.”
When that diversity is in place, a bank has a greater chance of success. But very small banks will still need to seek out merger partners in order to spread out the growing costs of compliance and technology.
There are other advantages to mergers, as well, Forte said, including geographic diversity, the ability to adopt new technologies more quickly and to get into new business lines, like insurance and securities.
Forte predicts that the industry will see more small, community banks forming shared trust companies to handle a small numbers of separate mutual banks rather than straight mergers. The slow, step-by-step approach seems appropriate for the state’s mutual banks, Forte said.
“Massachusetts has more mutual banks than any other state in the country,” Forte said. “They’re not in a rush to meet quarter-to-quarter demands. They’re not pressured by stockholders.”
In the fourth quarter, Massachusetts’ mutual banks recorded a 1.45 percent delinquency rate compared to 1.9 percent nationally. About 6 percent of Massachusetts’ mutual banks were unprofitable during that period compared to 19 percent nationally.
The combined Natick/Framingham bank will consist of three full-service banking offices, two located in Framingham and one in Natick, with an administration center in Framingham. No jobs will be eliminated as a result of the merger, the banks said in a joint statement.
“Increasing regulatory and operational expenses make it very difficult for the small community bank to thrive,” said Brian K. Peoples, president and chief executive officer of Natick Federal Savings Bank. “The consolidation will maintain our strength as a well-capitalized mutual institution with the size necessary to compete in today’s banking environment.” The joining of Framingham Co-operative Bank and Natick Federal Savings Bank is a consolidation of two mutual banks into one institution. The assets of the two banks will be blended, and the employees of the two banks will be combined. There are no stockholders or holding companies involved. “Retaining a mutual charter was very important to the managements of both banks,” said Mark R. Haranas, president and chief executive officer of Framingham Co-operative Bank. “The banks serve contiguous markets and share major supporting vendors. This will allow the new bank to increase services to both markets, while reducing expenses in many key non-employee areas.” The bank will operate under a Massachusetts co-operative bank charter, with Haranas serving as president. Peoples and three other members of the Natick Federal Savings Bank board of directors will join the current members of the Framingham Co-operative Bank board of directors to form the governing board at the new bank. In addition, all deposits at the new bank will be insured in full through a combination of coverage from the Federal Deposit Insurance Corp. (FDIC) and the Share Insurance Fund (SIF) of Massachusetts. Framingham Co-operative Bank, a state-chartered mutual co-operative bank founded in 1889, had $398 million in assets as of Dec. 31. Natick Federal Savings Bank, a federally chartered mutual savings bank formed in 1886, had $156 million in assets as of Dec. 31, 2011. The merger is subject to a process that includes approval by regulatory agencies. It is expected to be completed during the third quarter.
Natick Federal Savings Bank’s one branch on Main Street in Natick, above, will be combined with Framingham Cooperative Bank’s three branches (and a loan center), and will all be operated under a new name.
