Corporators of Randolph Savings Bank on Nov. 21 voted 27-18 against a proposed merger with Bristol County Savings Bank.
Unlike consolidation in the stock bank ranks, mergers between mutual banks are still a relative rarity, but three such plans were announced or filed with the state’s Division of Banks in the past month and one was completed earlier in the year.
Two of the three mergers – BankMalden with Danversbank, and Westborough Bank with Hudson Savings – appear to be on track for approval next year, while a third – between Randolph Savings and Bristol County Savings – was nixed just a week ago by Randolph corporators, much to the surprise of even those in the bank’s inner circles.
Two other merger/acquisition applications also are pending at DOB, both involving proposals by out-of-state banks to acquire Massachusetts stock-owned banks, Westbank in Springfield and Capital Crossing Bank in Boston.
Stanley V. Ravalevsky, a partner at Kirkpatrick & Lockhart Nicholson Graham in Boston, said that despite the recent uptick in activity, mutual mergers present a variety of challenges.
“It is very difficult to get mutuals to agree to merge unless one of them is under some compulsion to do so,” he wrote, along with K&LNG Associate Sean P. Mahoney, in a 2005 article, “Bank Mergers – Mutual to Mutual Style,” published by their firm.
The two found that of 56 voluntary bank mergers in Massachusetts between
1993 and 2004, just 12 involved mutual banks.
“Only four mutual-to-mutual mergers occurred between all the other 130-odd state-chartered mutual thrift banks in Massachusetts for the same 12-year period,” they wrote. “This statistic, standing alone, demonstrates that, absent lack of critical mass, mutuals seldom seek to merge.”
Compelling reasons for merging apparently did exist in two of the three recent proposals, but industry watchers say that Randolph Savings and Bristol County Savings may not have had as much motivation to combine.
For BankMalden, being small – the bank has $50 million in assets – had become a liability.
Asked why he was open to merger discussions with Danversbank, a $1.3 billion mutual with 13 locations, including two from its acquisition of Revere Federal Savings in 2001, BankMalden President and CEO Mike McCurdy said that, “from our perspective, as a smaller bank, it’s the need and ability to compete.”
Where stock-owned banks can offer shares for sale to raise funds, it can be difficult for banks that aren’t publicly owned to raise needed capital fast, added Danversbank President and CEO Kevin Bottomley.
“So what do you do next? Try to find someone you can merge with,” he said.
Kevin J. Handly, an attorney in the Boston office of Gallagher, Callahan & Gartrell, said banks need capital for both obvious reasons, such as being able to pay staff competitively, and those less apparent – a component of regulatory bank ratings is earnings, for example.
A negative regulatory earnings assessment could, in turn, make it less easy for a bank to open another branch, which requires regulatory approval, Handly said.
The merger with Danversbank will offer BankMalden’s customers products and services a $50 million bank otherwise couldn’t provide, while retaining the bank’s single Salem Street location near City Hall and all eight employees, McCurdy said.
McCurdy will stay on – as senior vice-president, working alongside Bottomley and Danversbank Chief Operating Officer Jim McCarthy.
Noted Ragalevsky, who represents BankMalden in the pending merger, “the board of directors of BankMalden was particularly interested in making sure all their employees had a degree of protection.”
Employees are just one of five constituencies whose needs must be “fairly addressed” for a merger between mutual banks to succeed, Ragalevsky said. The other four are the depositors, the board of directors, senior management and the community at large.
‘Right to Vote’
While the merger application between Randolph Savings Bank, a $380 million mutual, and Bristol County Savings, which has $1.1 billion in assets, was filed with the DOB in October, corporators – a representative group of depositors – of both banks did not vote on whether to merge until November.
But that’s the process, said Bristol County Savings President Dennis Kelly.
“Procedurally, you need to make an application and then get the vote of corporators,” said Kelly, noting that Bristol County corporators approved the merger plan 81-0.
Randolph’s 48 corporators voted 27-18 against the merger.
“The only thing I heard was that [Randolph] corporators wanted to keep Randolph Savings Bank independent,” said Kelly.
He acknowledged some initial dismay about the failed transaction, admitting, “I wouldn’t have put so much work into it if I didn’t think it would succeed.”
But he said he’s philosophical about it now.
“I liken it to an engagement before being married. [Either party] has the right to change their mind.”
This “was a business deal,” he said, and sometimes deals don’t work out.
The bank will write off the $100,000-plus cost it bore in helping plan the merger as a business expense – which it must, Kelly said, “because the corporators have the right to vote.”
Randolph Savings Executive Vice President Thomas H. Drummey, who was present at the corporators’ vote on Nov. 21, said that going into the meeting, he didn’t know how it would go. He said discussion prior to the vote was emotional.
“There was a strong feeling that the bank has been here for 150 years. One of them said, ‘This bank has survived civil wars, world wars and the great depression, and we should be able to go forward from here,'” he said.
Drummey, who said he thought the merger “would have been a good idea, from a business standpoint,” said he’s nonetheless proud to be represented by such an active board.
“They said with a clear voice to the officers of this bank that they have the confidence to take this bank and go forward,” he said.
Randolph Savings’ president, Ronald Grant, retired as planned just after Thanksgiving, Drummey said. Executive Vice President Peter Pastore was poised to take over in the bank’s succession plan but died suddenly in June, he explained, indicating that Pastore’s death might have prompted initial merger discussions between Grant and Kelly.
The bank’s board has appointed a new president, Richard Boonisar, from among its members. Boonisar will stay on at least two years, Drummey said.
Handly said he sees the Bristol County/Randolph Savings situation as more indicative of a “management vacuum” than a viability problem.
“At Randolph Savings, the bank is viable on its own,” he said.
His business partner, attorney Stephen J. Coukos, said the Randolph Savings corporators’ vote shows the need for better communication leading up to a merger.
“I think the lesson learned here is that you don’t start talking to these voting constituencies when the deal is [already] on the table,” he said.
The planned merger between Hudson Savings, a $655 million-asset mutual, and Westborough Bank, a $300 million, partially stock-owned bank, has yet to be filed with the DOB. The plan is typical in many ways but industry watchers say it is unusual in that it represents a partially converted stock bank returning to mutual status and the two banks, once merged, will take a brand-new name.
“In this country, there have only been about eight or nine [banks that have reverted to mutual status] total,” said Danversbank’s Bottomley – and just two in Massachusetts, including Danversbank’s acquisition of Revere Federal.
But this merger will work out, Westborough Bank President and CEO Joseph F. MacDonough predicted.
“It’s the culmination of a very long relationship,” he said. “We have known each other, and my predecessor and [Hudson Savings President Mark O’Connell]’s predecessor” also were in close communication, he said.
The banks are also in neighboring towns and have the “same philosophy” of doing business, he said.
Westborough is only 35 percent stock-owned, O’Connell noted. That conversion took place six years ago.
“Stockholders didn’t control the bank. I don’t think they will control [this] situation,” he said.
Hudson Savings will pay $35 apiece for Westborough Bank shares.
MacDonough added that in recent years, the banks had begun to notice they were “bumping heads” in seeking new business.
O’Connell said that “for years, we have talked about, ‘why not work together so we don’t compete?'”
Each bank has products and services the other does not, both presidents said, which will benefit all of their customers. And if the merger goes through, “there are no planned layoffs and all the branches will stay open,” noted MacDonough.
Massachusetts Bankers Association President Dan Forte said there’s already been one successful mutual merger this year. In February, Heritage Cooperative Bank came together with Salem Five.
In Forte’s opinion, mergers in Massachusetts are less frequent than in other states, “because we have so many mutual banks,” which state legislators and regulators work hard to keep competitive and viable, he said.
Forte said that from the consumer’s point of view, “it’s important to note that while the number of banks in Massachusetts is down 20 percent in the last decade,” the number of branches has gone up 10 percent.
“The physical footprint of the banking industry is growing,” he said.
