With the ability to afford many of the same technology investments as bigger competitors and a local focus, many local mutual banks see a chance to grow in the coming years.
Now that Eastern Bank has become a stock bank, giving up its status as the nation’s oldest and largest mutual bank, the Massachusetts banking landscape could see even more changes in the years ahead.
With possibilities ranging from new technology to more mergers and acquisitions in the coming years, the conversion could even mean that Eastern Bank puts itself up for sale after waiting the required three years.
The changing landscape could also bring about more growth opportunities for the state’s remaining mutual banks, especially those with $500 million or more in total assets, 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.
“Eastern’s conversion gives them a great opportunity,” Loomis said. “They should experience outsized growth in the next three to five years, which I think will be a good thing for those organizations and probably for the state overall.”
More Flexible Mutuals
Eastern Bank, which converted to a stock bank on Oct. 14, had about $14 billion in total assets on June 30, the most recent information available through the FDIC, making it the largest Massachusetts-based bank. The next six largest Massachusetts banks are all stock banks: Rockland Trust, Berkshire Bank, Boston Private, East Boston Savings Bank, Brookline Bank and Century Bank.
Mutual banks are savings banks owned by customers rather than shareholders. With $5.6 billion in assets as of June 30, Natick-based Middlesex Savings Bank has already updated its website, noting its status as the largest mutually owned savings bank in Massachusetts. Salem Five was just behind with $5.5 billion in assets, while Cambridge Savings Bank had $5 billion.
Unlike stock banks, mutual banks do not need to manage earnings on a quarterly basis, though they remain focused on the bottom line, said Peter Brown, president and CEO of Dedham Savings Bank, which has more than $1.6 billion in assets.
Stock banks do have advantages, Brown said, including greater access to capital, resources for developing their own technology solutions and ease in doing stock transactions for mergers and acquisitions.
But as stock banks grow into bigger organizations, Loomis said, they tend to focus on regional or even national opportunities, creating opportunities for mutual banks to focus on small businesses in their local markets.
As more stock banks get acquired, Loomis said this could offer the remaining mutual banks opportunities to thrive in their markets. He pointed to New Hampshire, where almost all of the state’s stock banks have been acquired, leaving opportunities for Bank of New Hampshire, Mascoma Bank and the banks in New Hampshire Mutual Bancorp’s family to focus on their local market.
“There’s good news for the mutuals that are the next tier below Eastern in size throughout New England,” Loomis said. “Mutuals will be the long-term survivors. It won’t be the shareholder-owned ones because they’re going to gradually all be acquired.”
No Plans to Go Public
Now that Salem Five is one of Massachusetts’ largest mutual banks, it plans to keep its mutual status, said Ping Yin Chai, Salem Five’s president and CEO. He said being a mutual bank is the best way to serve customers, employees and communities.
“As a mutual organization, we have the luxury of a long-term planning process, we do not manage our earnings on a quarter–to–quarter basis,” Chai said. “As a result, we have the opportunity to look forward in a different manner than being a stock bank.”
Chai said Salem Five has focused on evolving to meet customers’ changing needs in recent years, including investments in technology, products and services to help it to compete with larger banks.
“We have been putting a lot of money, millions of dollars a year, into new technology, and at this time we pretty much have the bells and whistles that the big boys and girls have out there,” Chai said. “It’s just a constant investment in new tools and also people to manage those tools.”
Some of those recent investments have included “Alexa banking,” where customers can access account information by speaking to their Amazon Alexa device, and a new suite of services and technology for small businesses to manage cash flow.
While some larger banks, especially due to the changes brought about by the pandemic, have planned branch closures, Chai said Salem Five’s branch network is another key to growth. The branches, Chai said, gives the bank access to new customers on both the consumer and commercial sides of the bank.
The bank has opened new locations in Billerica – a new community for Salem Five – and South Peabody. It has also replaced another branch in Peabody as well as in Boston, and also plans to open a new branch in Wilmington later this year or early in 2021.
Potential Mergers?
Brown said mutual banks like Dedham Savings could be an attractive option for small banks that might want to merge but could be intimidated by a transaction with a larger bank.
“Banks like us, we have enough size that we do have some of the technology that maybe some of the very small banks don’t have,” Brown said. “So possibly, it could make us a more appropriate bank to merge in with some of the other banks that are our size or a little bit smaller.”
Diane McLauglin
Finding ways to grow as a mutual bank is critical, Brown said, given that expenses grow every year. But like all banks, mutual banks are experiencing pressures as persistently low interest rates squeeze their margins.
Brown said he understood and respected Eastern Bank’s decision to go public in the changing banking environment. While he recognizes the future could hold more changes, he expects Dedham Savings to remain a mutual bank.
“We are very much committed to our mutuality,” Brown said. “We’re proud of it and hope to remain that way.”
