A pair of mutual savings banks in Maine has forged an alliance to cut costs while preserving their individual identities.
The $383 million-asset Biddeford Savings Bank and the $370 million-asset Mechanics Savings Bank in Auburn agreed earlier this month to form a holding company Maine Community Bancorp by early next year. Unlike most mergers, the mutuals will, for the most part, continue to operate separately under their own charters.
The combination should allow the mutuals to reduce back-office costs and take advantage of higher lending limits, Charles Peterson, Biddeford's president and chief executive, said in a recent interview. Peterson and Richard Vail, Mechanics' chief executive, will serve co-CEOs of the holding company.
Biddeford and Mechanics started talking last March when Peterson approached Vail for advice on information technology matters.
"I wanted to see if there was an opportunity to work together to see if we could take advantage of their strengths," Peterson said. "Things morphed into talk about an alliance."
While creating a holding company is far from groundbreaking mutual banks in Connecticut and New Hampshire have formed similar entities in recent years the move definitely runs counter to current industry trends.
Many mutual banks have expressed a greater interest in converting to stock ownership rather than taking steps to preserve mutuality. At least 14 mutual thrifts completed conversions to fully stock-owned banks last year, compared to eight in 2013. Another dozen began the conversion process last year, with expectations of completing the transformation in 2015.
The conversion surge reflects the difficulty mutuals are facing with persistently low interest rates, said Julieann Thurlow, president and CEO of the $458 million-asset Reading Cooperative Bank in Reading, Mass.
The net interest margin for the mutual banking industry was 3.05% last year, Thurlow said. (Banks with less than $10 billion in assets had an average margin of 3.73% through the first nine months of last year, according to the Federal Deposit Insurance Corp.)
Mutual banks "can't afford to make mistakes" under such conditions, Thurlow, a vocal advocate for preserving the mutual culture, said. "No loans can go bad.... We're making just enough to cover our costs."
Rising costs are also a problem for Biddeford, where noninterest expenses jumped 47% from 2009 to 2014, to $11.6 million, according to FDIC data. "We're spending 60% of our expenses on good people who don't deal with customers," Peterson said.
Biddeford, after factoring in its expenses, had scant funds left over to expand to new markets or business lines, or to pay for improved technology. The mutual's board has insisted that it maintain a 10% leverage ratio. (That ratio was exactly 10% at Sept. 30.)
Peterson described Biddeford and Mechanics as "almost identical twins," with similar size and strategy. Biddeford was founded in 1867; Mechanics in 1875. Both are old-line mutuals that are pursuing a community banking model by focusing more on business banking, he said.
The mutuals' agreement comes two years after Meredith Village Savings Bank in Meredith and Merrimack County Savings Bank in Concord created the $1.5 billion-asset New Hampshire Mutual Bancorp. Three mutuals Litchfield Bancorp in Litchfield, Northwest Community Bank in Winsted and Collinsville Savings Bank in Canton formed the $680 million-asset Connecticut Mutual Holding Co. in 2010.
Peterson and Vail visited New Hampshire Mutual and Connecticut Mutual as they discussed their own plans. Biddeford's members and board had never considered a stock conversion, so a multi-bank holding company, though relatively rare, was a natural option, Peterson said.
"When I was interviewing [to become CEO] in 2008, it was made abundantly clear the bank was committed to mutuality, and there has never been any discussion of anything else," Peterson said.
Vail did not return calls for comment, though he said in a press release earlier this month that the new holding company would strengthen both mutuals. "Together, we will be able to continue supporting our customers and our communities while providing our staff with meaningful jobs," Vail said.