In an ultra competitive environment, smaller local banks have two main things going for them: brand recognition and community connections.
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In an ultra competitive environment, smaller local banks have two main things going for them: brand recognition and community connections.
Their big disadvantage, of course, is resources and scale. For many community banks with under $1 billion in assets, major players like Bank of America ($2.6 trillion in assets), TD Bank ($370 billion), and Citizens Bank ($220 billion) will invariably be able to throw more resources toward recruiting talent, upgrading technology, and marketing.
To help level the playing field, a handful of Central Massachusetts financial institutions this year are finding a smarter way to stay competitive: merging holding companies with similarly-sized institutions while retaining their brand identity and geographic footprint. In June, Cornerstone Bank of Worcester agreed to create a $6-billion holding company with PeoplesBank of Holyoke, with each bank retaining its name. Then on Oct. 1, Rollstone Bank & Trust in Fitchburg agreed to join a holding company that includes Newburyport Bank and Haverhill-based Pentucket Bank while keeping its name, management, board of directors, charitable foundation, and retail and lending organizations. On the credit union side of the equation, Digital Federal Credit Union of Marlborough is doing something slightly different by creating a $29-billion entity through a merger with First Tech Federal Credit Union, which is based in California’s Silicon Valley. There will clearly be no branch closings when their markets are on opposite coasts.
These holding company mergers are providing economies of scale to compete financially against larger players, while maintaining the brand and strong community connections, which are designed to stay in place.
“It is the perfect balance between the two,” said Todd Tallman, CEO of Cornerstone Bank.
This marks the second time Tallman has led a bank through a holding company merger. In 2016, his Southbridge Savings Bank joined forces with SpencerBANK, although after operating with separate brands for a while, the two decided to merge identities, too, and create Cornerstone Bank. That made sense because the Southbridge and Spencer banks had overlapping service areas, which isn’t the case with Cornerstone’s holding-company merger with PeoplesBank, nor with the other recent mergers.
These types of holding-company mergers tend to lead to job growth, Tallman said, as opposed to job losses, which is how most mergers are viewed, as they are designed in part to create corporate efficiencies. By merging holding companies, community banks have more resources to offer new financial products, upgrade technology, and fill vacant positions, which all leads to job growth. A year has passed since Fidelity Bank of Leominster created a $7-billion holding-company merger with Cape Cod 5 in Hyannis, and Tallman said he’s already seeing the positive impacts of that deal.
If nothing else, a holding company merger creates a stronger company better able to survive in a market with some very large competition. These kinds of deals are not for everyone, but it’s an interesting trend helping to keep several of our smaller, community-based financial institutions viable and competitive.
This editorial is the opinion of the WBJ Editorial Board.
