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Two of Massachusetts' oldest thrifts, Salem Five Bank and Stoneham Savings Bank, are teaming up to create a $3.1 billion-asset company that would have nearly 30 branches in the suburbs north of Boston.
July 7 -
Sandler O'Neill investment banker Emmett J. Daly shares his outlook on bank mergers in an interview with American Banker.
July 5 -
Restricted on capital. Burdened by heavy deposit insurance assessments. Threatened with losing their federal tax exemption. Little wonder credit unions are weighing conversion.
July 1
Rising regulatory costs are forcing banks of all shapes and sizes to take a hard look at consolidation, including the mostly dormant field of mutually owned banks.
Banks owned by stockholders must worry about the sales price when negotiating mergers. That's not the case with mutual mergers, as no money changes hands. So the
"There is more talk than ever on mutual mergers," says Kip Weissman, a partner at Luse Gorman Pomerenk & Schick who advises mutually owned banks. "I have got four banks that are in active discussions right now," Weissman said, though he declined to identify any clients.
Frank Bonaventure, a principal at Ober, Kaler, Grimes & Shriver and chair of the law firm's financial institutions practice, agrees.
"Especialy in Maryland and Massachusetts, there are a lot of very small institutions and the prevalent thought in board rooms is that smaller institutions need to get a little larger to survive," he says. "If they want to remain a mutual, there is no other way to do that" other than mergers.
An early example of the emerging trend was announced last week, when two Massachusetts mutual thrifts — Salem Five Bank and Stoneham Savings Bank — unveiled plans to combine.
Don Fournier, Stoneham's chief executive, says that access to capital was the primary driving factor for his institution's decision to merge with Salem Five.
"You need to self-generate your capital through earnings," says Fournier, who joined Stoneham in December. "You need to make sure that your growth and leverage ratios don't get out of whack."
New regulations are another big factor driving mutuals to seek merger partners, observers say.
"The biggest benefit is that you get economies of scale," Weissman says. "It's the difficult banking climate and the regulatory burden" that are forcing mutuals to make such decisions.
A third factor, though it was not an issue in the Salem Five-Stoneham merger, is the coming dissolution of the Office of Thrift Supervision.
A call to Salem Five was not immediately returned.
"The closing of the OTS, it's mainly psychological, because the OTS was the biggest proponent of mutuality," says Weissman, who was involved as a legal advisor in the Salem Five-Stoneham deal and could not comment on the transaction specifically. "When the OTS is gone from the landscape, the mutuals may feel more lonely and that's part of the impetus for these transactions."
The Office of the Comptroller of the Currency is set to absorb the OTS on July 21.
If it becomes a new trend, mutual merger mania would re-emerge after hibernating over the past several years. Between 2008 and 2009, "all bets were off" for such combinations, Weissman says. Most were hesitant to merge until there was clarity after the financial crisis and recession, he says.
Before 2008, consolidation among mutuals was swift, especially in Massachusetts, the home of 114 mutuals. In one of the biggest deals between mutual thrifts, Sharon Co-operative Bank agreed to merge into Eastern Bank in Boston, creating a financial institution that has more than $6.5 billion of assets.
Some mutuals have converted to stock-owned banks, including last year's conversion of Fox Chase Bancorp Inc. of Hatboro, Pa. (Several have attributed their move to the approaching end of the OTS.)
Fournier says he and his board decided "we didn't want to go that way." He adds, "It was very important to our trustees that we retain a mutual aspect."
Stoneham began exploring a merger after capital issues led to a consent order with regulators. The mutual lost a total of more than $14 million in 2009 and 2010.
Some investors are trying to force mutuals to convert to fully public companies, as shareholders grow concerned that mutuals will have trouble raising capital.
In May, PL Capital, led by the activist investor Richard Lashley, sent a letter to the board of Polonia Bancorp in Huntingdon Valley, Pa., demanding that it pursue a second-step conversion to a public company.
"The world is changing, the regulators are changing and the need for capital is clear," Richard Lashley, a principal at PL Capital, said in a May interview with American Banker. "All MHCs will be under pressure."
Stoneham never conducted a partial conversion and because it remains a mutual bank, it has no outside investors, Fournier said.
Salem Five and Stoneham will combine to create a $3.1 billion-asset mutual with about 30 branches in suburban Boston. Salem Five and Stoneham will operate as affiliates of Salem Five Bancorp.
