Worcester Business Journal

14 Worcester Business Journal | February 21, 2022 | wbjournal.com B A N K I N G & F I N A N C E FOCUS Local bank consolidation As they navigate an industry landscape full of M&A, community banks look for like-minded partners BY SLOANE M. PERRON WBJ Staff Writer C ommunity banks have many connotations asso- ciated with them. For the Federal Deposit Insurance Corp., the term refers to any financial institution whose assets are less than $10 billion, but for consumers it oen refers to a financial institution who is accessible, in touch with the community, and has a vested interest in the success of its members. In the famed holiday movie "It's A Wonderful Life" big banks were depicted by the opportunistic, power hungry Mr. Potter who tried to acquire George Bailey's wholesome community bank, which served the everyman. While an overly simplistic portrayal of the bank- ing system, the movie does illustrate a reality small, community banks undergo: consolidations and mergers. Sometimes banks opt to consolidate in order to offer their clients access to bigger loans and better resources, while other times they unite as a competitive strategy against banks with more assets. Regardless of the reason, the network of community banks throughout Central Massachusetts has transformed through- out the decades as smaller banks join forces with one another to create new entities. "I do believe that in some cases when we look at the landscape and we don't see the names that we saw when we were younger, sometimes when those banks team up it is done so that they can find those synergies to continue to help more people and I think the more people we help, the better off everyone is," said Seth Pitts, CFO and executive vice president of Bay State Savings Bank in Worcester, which has $469 million in assets. The economies of scale Diversity of choice and competition are key in any market, and banking is no different. Larger, corporate banks and smaller, community banks all serve unique purposes, said omas Bar- tholomew, presi- dent of Worcester financial services firm Bartholomew & Co. Inc. Banks make money based on the difference between how much they pay for deposits versus how much they can lend the money out at. In addition to lending, larger financial institutions have access to other means of revenue such as selling stocks, bonds, federal funds, preferred stock and match- ing fund loans and liabilities. Larger banks have more assets and there- fore more lending power, however this also means they inherit more risks. "at is what got us into these banking crises a couple of times, is that regulators could not evaluate what the risk really looked like," Bartholomew said. Local banks do not have the advan- tage of selling stocks, which presents the challenge of not having competitive funds compared to larger banks; howev- er, they also forgo the dangers of larger risks, especially those associated with high stakes international loans. Contrary to popular belief, consolida- tion is not always indicative a communi- ty bank is in decline, said Bartholomew. More oen than not, it is because two institutions want to combine their assets and lending capabilities and cut costs as part of a competitive strategy. Economies of scale are the biggest motivators for community bank consolida- tions as they try to decrease their overhead costs to remain competi- tive, he said. Past banks like Flagship Bank and Trust Co. in Worcester, which merged with People's United Financial Inc. of Connecticut, and First Massachusetts Bank in Worcester, which merged with TD Bank of Toronto, are just a few examples of once-known local banks Thomas Bartholomew, president, Bartholomew & Co. Seth Pitts, CFO and executive vice president, Bay State Savings Bank Ed Manzi, chairman and CEO, Fidelity Bank Largest Central Mass. community banks, by assets UniBank for Savings, Whitinsville $2.6 billion Avidia Bank, Hudson $2.3 billion Cornerstone Bank, Worcester $1.4 billion bankHometown, Oxford $1.4 billion Main Street Bank, Marlborough $1.3 billion Fidelity Bank, Leominster $1.2 billion Webster Five Cents Savings Bank, Auburn $1 billion MutualOne Bank, Framingham $1 billion Rollstone Bank, Fitchburg $862 million Clinton Saving Bank, Clinton $644 million Source: Federal Deposit Insurance Corp., as of September 2021 Fidelity Bank has made three acquisitions within the past six years. PHOTO/GRANT WELKER

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