Mutual thrifts relish their independence, but some are finding it increasingly difficult to go it alone. Since mid-July, four mergers between mutual thrifts have been announced in Massachusetts alone, including three in the past five weeks.
Mergers between mutuals are not unheard of, but they occur far less often than mergers between commercial or stock-owned banks because "they take a lot more work," said Daniel Forte, president of the Massachusetts Bankers Association. Their assets are generally pooled and little cash changes hands, so if a deal gets hung up on personnel issues or the makeup of the board of directors, there is no financial incentive to complete it.
The flurry of recent Bay State deals illustrates the challenges that mutuals, like many small banks and thrifts, face these days. Though all banks are feeling squeezed by the inverted yield curve, small banks and thrifts are under particular pressure because they cannot easily absorb rising technology, compliance, and personnel costs, bankers said.
"You either grow or die," said John H. Pearson Jr., the president and chief executive of $292 million-asset Butler Bank in Lowell, Mass. "It's that simple."
Last week, Butler announced that it plans to merge with the $82 million-asset Marlboro Co-operative Bank in Marlboro. The thrifts would operate separately under a newly formed mutual holding company, Butler Bancorp.
The deal, which is expected to close by April 1, would be the first merger of any kind for either thrift (each is more than 100 years old) but probably not the last. Mr. Pearson said the combined company would "definitely" look to absorb other institutions so it could spread its costs over a larger asset base, make larger loans, and offer more sophisticated products and services.
"We're all trying to get to $1 billion of assets," Mr. Pearson said. "That's the magic number."
Massachusetts has roughly 145 mutual thrifts, more than any other state in the country, so Mr. Forte said it stands to reason that there would be more mutual deals there. However, he said, he expects the pace to pick up next year as mutuals continue to feel pressure from larger banks, as well as credit unions and mortgage companies.
The average mutual thrift in Massachusetts has $421 million of assets. Mr. Forte said several compete directly with $1 billion-asset-plus credit unions that "aren't paying taxes and they can plow the savings back into marketing and personnel."
Large residential lenders have steadily chipped away at what has traditionally been mutuals' bread-and-butter business, he said. In 1997, Massachusetts-based banks and thrifts made 60% of the mortgages in the state; today, they make about 30%, he said.
"No one sees that competition abating," he said.
Besides the Marlboro/Butler deal, two other mergers between Massachusetts mutuals are in the works. (Another that was announced in October was terminated a few weeks later.)
On Nov. 27, Danvers Bancorp Inc., a mutual holding company with $1.3 billion of assets, said it would acquire BankMalden Co-operative Bank, though no cash would change hands, and on Nov. 13, Assabet Valley Bancorp, a mutual holding company in Hudson, said it has a deal to buy another mutual holding company, Westborough Bancorp, for $20.6 million in cash. Both deals are expected to close in the first half of 2007.
Also, last month, the $139 million-asset Mutual Federal Savings Bank of Plymouth County merged with the $112 million-asset Security Federal Savings Bank in Brockton.
Janet Bruno, the president and chief executive of Marlboro Co-operative, said many mutuals would prefer to remain independent but that more are merging because they need to achieve economies of scale. She is to remain Marlboro's CEO when the deal with Butler closes, and she said her thrift would operate more efficiently - and more effectively - as part of a larger company.
"We can move some of the administrative and back-office functions to the holding company so that the two banks can do what they are supposed to do, which is take deposits and make loans," she said.
