The rate of consolidation in the banking industry has lately been a cause for concern, as fewer banks typically means reduced access to banking services and small business loans. And banks are good anchor tenants in small towns, as well as charitable members of the community. 

But in the case of Rockland Trust acquiring Blue Hills Bank, experts say the deal was less concerning and more of a result of Blue Hills realizing that its growth prospects might not be so fruitful in its extremely competitive and overbanked market. 

“In general, most experts feel there are still too many banks in the banking system, with market share and size being important,” said Arthur Loomis, president of Loomis & Co., a New York-based investment bank that works extensively with community banks in the Northeast on mergers and acquisitions and capital financings. “Blue Hills was among the larger banks in the state. In addition, they also possessed compelling total shareholder return metrics and demonstrated progressive improvement in operating performance and organic asset growth. Therefore, there must have been other motivations for the board’s decision to sell.” 

The Hyde-Park based Blue Hills Bank is located in one of the busiest markets in the country. 

There are 40 banks headquartered in the commonwealth with over $1 billion in assets, out of the 120 banks based in the state, according to Stan Ragalevsky, a partner at the Boston-based law firm K&L Gates. 

“The reduction in the number of banks has been more or less a steady downward progression,” he said. “It’s not the end of the world. Although the number of banks has declined, it has been more than offset by the asset and deposit growth in the surviving banks.” 

Bram Berkowitz

Why It Happened 

Since current President and CEO William Parent came aboard in 2010, Blue Hills Bank has gone through a big transformation. The bank switched its focus to commercial real estate, changed its name from Hyde Park Savings Bank, issued an IPO and grew from less than $1 billion in assets to more than $2.7 billion in assets. 

Since issuing the IPO in 2014, Blue Hills saw its return on average assets steadily increase from .26 percent in 2014 to about .80 percent this year. Blue Hills Bancorp stock opened at $12.27 in July 2014 and was $23.10 the day before the acquisition was announced on Sept. 20. 

But even with solid performance, future growth opportunities were made difficult by competition. 

Loomis said when Parent joined the bank, he believed he initially had big plans to expand by buying up banks throughout the state, and possibly into contiguous states.  

Unfortunately, said Loomis, Blue Hills kept getting beat to the punch by banks such as Rockland Trust, particularly in the cases of Milford National Bank, Bank of Cape Cod and Island Bancorp. 

“They probably felt the economy was cresting and that they wouldn’t be prevailing on targets,” said Loomis. “They may have anticipated that organic growth was going to slow and inorganic opportunities were drying up, so they punted.” 

The Real Problem 

Banks get acquired all the time – there were 679 state-chartered and federally chartered banks in Massachusetts at the start of the Depression, according to Ragalevsky. 

“Small banks have always been acquired at rates much faster than median sized banks,” he said. “Typically, their historic 10-year survival rate was about 40 percent.” 

Experts say that 80 percent of banks that demutualize and go public like Blue Hills eventually get acquired. Pilgrim Bank, another bank that went public in 2014, the same year as Blue Hills, was also acquired earlier this year. Massachusetts banks that go public have a three-year waiting period before they may be acquired. 

The larger issue is that while larger community banks tend to survive, the smaller community banks are picked off.  

Of the 10 smallest community banks in Massachusetts on Dec. 31, 2013, only one is still operating as an independent financial institution today, according to Ragalevsky.  

“Size has always mattered in banking,” he said. “But size is becoming even more important by the day as technological advances are disrupting all intermediation functions, especially those traditionally performed by banks.”