The Saga Of CNB | The WBJ breaks down the facts in the bidding war for CNB Financial
Chances are you’ve caught bits and pieces of news about Worcester-based Commonwealth National Bank and the bidding war that has erupted over the financial institution. Staff Writer Eileen Kennedy put together this primer to bring our readers up to speed.
What is going on with Common-wealth National Bank in Worcester?
A bidding war is brewing over CNB Financial, the parent company of Commonwealth National Bank in Worcester. Pittsfield-based Berkshire Hills Bancorp Inc., parent company of Berkshire Bank, made an offer to buy Commonwealth for $8.50 a share on April 29, but it wasn’t long before other bidders appeared.
On May 13, United Financial Bancorp Inc. of West Springfield announced it had offered Commonwealth $10 a share, which led Berkshire Hills to up its offer $9.23 a share. Berkshire then offered $10.25 a share.Commonwealth is still discussing the updated offer with United, as well as with a third, unnamed bank that has also made it an offer.
How did Commonwealth National Bank in Worcester start?
When Commonwealth National Bank was formed in 2001, the local organizers said they wanted to provide customers an alternative to the large, regional banks.
The organizers and main investors were: Lawrence Glick of Bancroft Motors in Worcester; Bryan Rich of Sunbelt Rentals; Henry Michie of K&H Realty; Normand Marois of MB Marois Brothers Inc. of Worcester; and Gerald Cohen of SSG Development of Brookline. There were 14 other investors and founders including Attorney J. Robert Seder, Robert Ansin of Mass Innovation Center and Cary Corkin of Hudson’s Entwhistle Co.
The organizers raised $13.8 million from 750 investors, contributing $2.6 million themselves.
It was the first new bank in Worcester in 15 years, the last one being Flagship Bank & Trust Co., which was created in 1987 after an initial public offering raised $8.5 million. Flagship was sold to Chittenden Corp. of Vermont in 1995, and then Chittenden was recently acquired by Bridgeport, Conn.-based People’s United Bank.
How did it grow since its founding?
The bank’s philosophy from the start was to attract business from existing banks by hiring long-time Worcester bankers, like Charles Valade, who has remained its president and CEO since before it opened its doors. He worked at Mechanics Bank in Worcester from 1974 until 1994, after it was acquired by Bank of Boston. He went on to First Massachusetts Bank, and remained on board after it merged with Family Bank in 2000.
Valade brought on other long-time Worcester bankers and the bank began to grow. At its first year anniversary, it had $76.5 million in assets as of Dec. 31, 2002, although it lost $2.9 million for that year.
In 2004, it saw its first profitable quarter with $286,000 and had grown its assets to $139.5 million.
When did it form the holding company?
In 2005, Commonwealth National formed a bank holding company, CNB Financial Corp., which Valade said would raise the profile of the bank’s stock while boosting its capital to build more branches and give more loans.
Valade attributed the bank’s success to having a very experienced Worcester banking staff and the continuing consolidation of Worcester area banks, which he said was “driving” customers to Commonwealth.
It built six branches in five years, with its West Boylston branch being the last one to go up. Its headquarters are at 33 Waldo St. in Worcester, along with branches on Grafton and West Boylston streets. It also has one branch each in Shrewsbury and Whitinsville.
“Charlie Valade and his team have done a great job building that franchise,” said John S. Hamilton, president and CEO of Charles River Bank of Medway. “With the locations they have, the history of the organization and the quality of the staff it’s not surprising there was interest in buying them.”
What were Commonwealth National’s financial results recently?
At the end of 2008, CNB Financial posted a net loss for the year of $1.6 million.
Commonwealth faced pressure from increased banking regulations and $2 million in losses on investments in Fannie Mae and Freddie Mac.
Overall economic woes also hit the bank. For example, Commonwealth had to up the amount of money it sets aside for bad loans to nearly $1.4 million in 2008, up from only $80,000 in 2007.
Why is the bank so popular right now?
“It’s a juicy, local franchise that offers personal service at a local institution,” said John C. Edmunds, a Babson College professor that specializes in economics and finance. “It’s a profitable business and it will probably exist for a quite a long time.”
For the banks that are pursuing Commonwealth, it is much cheaper to buy existing banks than it is to build a new network of branches in a new market, he said.
The acquisition might also be a defensive move, according to Edmunds. A suitor might buy another bank just to make sure a competitor doesn’t get the branch network.
If Berkshire Hills or United Financial is successful in their bid, then the other one will not to get to grow its market more easily in Worcester. The identity of the third bidder continues to remain unknown to the general public.
No matter who lands Commonwealth, consolidation in the local banking market will likely keep rolling along.
“We’re going to see more of the same,” said Hamilton of Charles River Bank. “Regulation is getting increasingly expensive. Becoming bigger and bigger makes everything easier to do by providing economies of scale.”
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