| 
North Easton Savings Bank
When North Easton Savings Bank and Whitman-based Mutual Bank announced they would merge in early November, together they created the 41st bank in Massachusetts that holds over $1 billion in assets.
That means more than one-third of banks in the commonwealth are above this level, with another 12 banks over $800 million in assets, according to the FDIC.
This most recent deal – and the overall number of banks that hold more than $1 billion in assets – suggests that the threshold is becoming less of an anomaly and more of a target that banks feel they need to hit to survive.
“We know trying to grow organically in this competitive landscape is very difficult,” said Rich Spencer, CEO of Mutual Bank, who will become CEO of the combined entity once the merger is complete. “I think as bankers, we believe the $1 billion mark is the new equilibrium. But we also believe the number is going to move, and it’s going to move swiftly.”
Merger a Necessary Eventuality
Unlike some banks that may feel forced to merge or be acquired, executives at North Easton Savings Bank and Mutual Bank did not feel an urgency to make a deal, as both institutions are financially sound.
Although both banks have been growing sluggishly this year, the roughly $553 million North Easton Savings Bank has been profitable for the last 10 years, according to the FDIC. This year, the bank is on pace to have its most profitable year of that stretch, reporting more than $2 million in profits through the first three quarters of the year.
The roughly $517 million Mutual Bank has been profitable for the last 12 years and is also on pace to have its most profitable year during that stretch, reporting nearly $2.8 million in profits through the first three quarters of this year.
The merger will also not result in any branch closings or employee layoffs, according to Bob Berg, the current president and CEO of North Easton Savings Bank, who is planning to retire once the merger is complete next year.
While not a necessity right now, both Berg and Spencer said the merger would be crucial to maintaining mutuality in the long term. In their strategic plans several years ago, both banks stated that a merger of equals or acquisition would likely be necessary at some point.
“Banks are wanting to do this at a time of strength so that when there is a downturn in the economic cycle, we are not looking to scramble or find a partner,” Spencer said.
“There are fewer and fewer banks out there and over time, chances of something like this happening are so rare,” Berg added. “Going forward, there are not going to be opportunities for banks to do the same.”
Bob Berg, current president and CEO of North Easton Savings Bank, is expected to retire after the merger is completed. Rich Spencer, CEO of Mutual Bank, is expected to become CEO of the combined entity.
New Tech, Regs Drive Up Costs
Banks like North Easton and Mutual may be in sound financial shape, but they are worried about the costs and resources they will eventually need to devote toward technology and regulation in coming years.
In today’s banking landscape, technology has become more important by the day.
There is not only more emphasis on implementing mobile technologies that customers want, but to adopt them more quickly and constantly be looking for ways to enhance them. Banks also need to invest more in their IT systems to ward off an array of cyber threats.
As a bigger bank with a bigger back office, and a combined $1 billion in assets, North Easton Savings Bank will be able to get better competitive pricing from the vendors with whom they contract, said Spencer.
Complying with government regulations – like the Bank Secrecy Act and anti-money laundering laws, the Home Mortgage Disclosure Act and, of course, Dodd-Frank – continues to grow more and more costly.
After nearly a decade of pushback, bankers cheered earlier this year when Congress passed a Dodd-Frank relief bill that was intended to help small to mid-sized banks.
The bill, whose provisions are still being translated into new rules by regulators, raised the threshold for the size of institutions that regulators deemed “too big to fail.”
It also greatly reduced stress testing for banks with under $100 billion in assets, simplified capital calculations for community banks and provided some relief on the Volcker rule for banks under $10 billion in assets, among a host of other provisions.
But Berg and Spencer said the relief bill has done little to assist banks that have under $3 billion in assets.
Bram Berkowitz
“It seems like there is a little bit of relief, but we certainly haven’t seen it,” Spencer said, adding that both Mutual Bank and North Easton recently went through examinations.
The landscape signals to Berg that consolidation for the smallest of small banks is inevitable.
“I truly believe the small banks still in existence in this state and across the country are really going to continue to struggle,” he said. “Unless the regulatory burden pretty much disappears, which it won’t, and you are not willing to offer [added] services to customers, I don’t see how the very small banks will be viable going forward.”
