The warm weather traditionally brings a flurry of activity on Cape Cod and the Islands. This year, as summer fast approaches, things are heating up at the region’s financial institutions, as well.
Two of the four banks on the vacation-destination island of Martha’s Vineyard, Martha’s Vineyard Co-operative Bank and Dukes County Savings Bank, plan to merge into one by the end of this year. The merger would give the two banks a nearly 60 percent market share on the celebrity-dotted isle, however, which may prove a roadblock in terms of securing federal and state regulatory approval for the move.
Meanwhile, Cape Cod Gas Employee’s Federal Credit Union of South Yarmouth already has received approvals from its federal regulator and members, and will be absorbed by Fairhaven-based First Citizens’ Federal Credit Union on July 1.
On the Vineyard, the population grows from 14,248 in the winter to more than 105,000 in the summer months, according to Dukes County Savings Bank President and Chief Executive Officer Christopher Wells and Martha’s Vineyard Co-operative Bank President and Chief Executive Officer Richard Leonard.
“We call them ‘seasonal visitors,'” said Wells, who’s presided over 52-year-old Dukes County Savings since 2004. Year-round residents make up more than half of the customer base at both banks, their presidents said, but they also count numerous summer residents among their clientele.
If the planned merger, which was announced last week, goes through, the combined bank – to be called Martha’s Vineyard Savings Bank – would have well over half the total funds on deposit at banks and thrifts on the island in their coffers, according to Federal Deposit Insurance Corp. and Office of Thrift Supervision Summary of Deposits data posted on the Federal Reserve Bank of Boston’s Web site.
Dukes County Savings, a $300 million mutual savings bank that had $236.7 million in deposits as of June 2005, according to the site, had 40 percent of on-island deposits at that point, while Martha’s Vineyard Co-operative, a $160 million, 98-year-old mutual co-operative with $109.8 million in deposits, had an 18.6 percent share.
The other two banks with a presence on Martha’s Vineyard, Sovereign Bancorp – which acquired Compass Bank in 2004 – and Island Bancorp, have 25 and 16 percent of the on-island market share, respectively.
The combined 59 percent share the merging banks would have is “unheard of,” said Kevin J. Handly, a banking attorney with the Boston office of Gallagher, Callahan & Gartrell and instructor in mergers and acquisitions at Boston University Law School
The Herfindahl-Hirschman index, an economic indicator that measures market competitiveness, is already at 2,849 for the Martha’s Vineyard banking market, as measured by the Federal Reserve Bank of Boston, he said – much higher than the 1,800 level at which the market is considered “highly concentrated.”
Under the Federal Bank Merger Act, state and federal regulators will probably have issues with a merger that would reduce competition in the geographically isolated market, Handly predicted, although he said other factors such as customer convenience also will be carefully weighed in the decision-making process.
But William Mayer, an attorney with the Boston law firm Goodwin Proctor, which is representing Dukes County Savings in the transaction, said defining the Martha’s Vineyard market by the boundaries of its shoreline is overly “simplistic.”
“You have to look at, ‘share of what?’ What do they mean by ‘the market?’ I think the issue of what the geographic and product markets are needs to be considered on a case-by-case basis,” he said.
Wells and Leonard, a lifelong Martha’s Vineyard resident who has led Martha’s Vineyard Co-operative since 1989, said the island market in reality extends to the mainland. But they said they’re aware that there will be questions about market share as the merger plan proceeds.
“Anti-trust concerns [that regulators might have] will be involved in the decision about this transaction,” Wells said.
“We are not an isolated market here, in terms of the banking services provided,” added Leonard. “There are people here who established relationships with other banks, even seasonal businesses.”
Many of those businesses and residents look to competitor banks in New Bedford, Falmouth and Hyannis on Cape Cod for regular banking services, he said.
There also are non-bank lenders in the Vineyard market. About 250 different lenders issued mortgages to island homeowners in 2006, according to data from The Warren Group, parent company of Banker & Tradesman.
“I think that the regulator bodies understand that Â… today, people have the ability to bank anywhere in the world,” Leonard said.
‘Right Strategy’
Martha’s Vineyard Co-operative and Dukes County Savings are state-chartered banks regulated by the FDIC and the state’s Division of Banks. Representatives of both agencies noted that the merger application has yet to be filed. The FDIC would not comment further; Division of Banks Chief Operating Officer David Cotney said state law requires his agency to “consider whether or not competition would be unreasonably harmed” in any merger.
A statement of policy on merger transactions, posted on the FDIC’s Web site, says in part that the Bank Merger Act prohibits the agency from approving any proposed merger that would result in a “monopoly” or would “substantially lessen competition,” but says exceptions may be made if the FDIC finds the anticompetitive effects “are clearly outweighed in the public interest” – for example, the agency says, if one of the involved institutions is failing.
In the statement, the agency defines “geographic market” as one that “includes the areas in which the offices to be acquired are located and the areas from which those offices derive the predominant portion of their loans, deposits or other business [and] also includes the areas where existing and potential customers impacted by the proposed merger transaction may practically turn for alternative sources of banking services.”
Wells and Leonard said they first began talking seriously about merging last year. They said both their banks have the same community values – each is rated “outstanding” on Community Reinvestment Act compliance in Dukes County, for example – and said each works hard to offer products to residents and businesses with varying needs. They also said all employees or board members will keep their jobs if the merger goes through, even though one West Tisbury branch of Martha’s Vineyard Co-operative would close.
Both bank presidents said that the merger would be an important move in terms of preserving locally based community banking on the island and could forestall acquisitions by larger banks in the future.
The 354 members Cape Cod Gas Employee’s Federal Credit Union, meanwhile, unanimously approved the credit union’s merger with First Citizens’ Federal, according to First Citizens’ President Charles R. Simpson Jr.
“They [Cape Cod Gas] were small – they had one office in the Keyspan building [in South Yarmouth],” said Simpson, who was president of Quincy Savings Bank before it was bought out by Citizens Bank and he changed his focus to the credit union world.
Cape Cod Gas’ office was only open part time, and its single employee recently took another job and so was only working part-time, Simpson said. He attributed a decline in membership, in part, to “monumental changes” in the utility industry, including mergers, which left a credit union organized for members of the original company without its initial backer.
Members of the small credit union simply wanted services their 52-year-old institution did not provide and could not efficiently and cost-effectively add, Simpson said, including checking accounts, ATM access, student loans and online banking.
“But they are committed to the credit union philosophy,” he said. With 40,000 members and $400 million in assets, First Citizens’ Federal, which was founded in 1937, has three Cape Cod branches – in Falmouth, Hyannis and Orleans.
