This message accompanied the post regarding Mr. Wilson’s ad. – Lil
“Hello Lil – I will be running the attached ad in the Keene Sentinel Sunday relative to the proposed merger of the Savings Bank of Walpole. However, I should say that the Corporators will vote on the merger Tuesday so after that day the issues raised will just be a matter for history to judge. If you find it an appropriate item for the opinion section of The Walpolean, feel free to post it there. Take care. – Richard
“Community banks can’t survive!”
I have heard this a million times since entering community banking in 1973, even as recently as this morning’s Wall Street Journal, that because of this or because of that or whatever the current challenge may be—the disintermediation of the 1970’s, the savings & loan crisis of the 1980’s, the New England housing collapse of the 1990’s in which large NH banks representing almost 50% of the state’s deposits failed, and the ongoing effects of the financial crisis of 2008—“Community banks can’t survive!”
Wrong, because those who have wanted to keep their community bank have done so! Yes, lots of community banks have disappeared in New Hampshire over that period. However, to paraphrase Jerry Lee Lewis’ “Whole Lotta Shakin’ Goin’ On”, that is because there has been a “Whole Lotta Money Makin’ Goin’ On.”
The removal of restrictions on intra-state and then inter-state banking over a number of decades has provided those promoting the ramming of two banks together outsized economic benefits or they wouldn’t have expended the time and effort doing it. There is nothing wrong with making money but let’s be honest about it, instead of invoking the greater good such transactions are purported to represent.
Like two trains in a head-on collision, let’s also be honest that it is the employees in the smaller locomotive’s engine, the people who keep the wheels turning that no one ever sees and the passengers in coach who pay the price—the former with their jobs and the latter with higher fees, higher loan rates, and lower deposit rates. Is someone questioning that last statement? Then go online and compare the fees, loan rates, and deposit rates of your local community bank with those of the billion dollar banks with branches in the state.
So what is a community bank? Look for four telltale signs.
First, you can call the president and the president calls you back and I don’t mean the regional president but the one running the whole show.
Second, the bank has a service culture not a sales culture. In other words, the staff helps you accomplish your goals rather than using you to help it meet its sales, quota, or stretch goals. Ask the customers of Wells Fargo how the employees’ stretch goals have worked out for them.
Third, management doesn’t busy itself implementing the latest fads trending in corporate America.
Fourth, the bank manages the risks associated with offering banking services and accepts the reduction in profitability that it entails rather than increasingly taking risks in every way a bank can to make as much money as possible—it values long-term viability over short-term profitability.
There is another sign seldom seen outside of community banking. The bank strives to treat everyone the same and equally well whether they have a little money or a lot. Those with a lot often value their association with such a bank and support it with their business. They may have started with little themselves and given the vicissitudes of life are comforted by the thought that whatever their financial circumstances they will continue to be treated the same.
Insight into what has happened to Keene’s community banks can be gleaned from an August 26, 2004 Keene Sentinel news story subtitled “Canadian Bank airs cash and stock deal.”
Whatever the outcome, the proposed transaction presents another chapter in the story of a local savings bank that, until it issued its first share of stock about 20 years ago, was a moderate-sized and purely local enterprise.
In the intervening years, due to a number of factors, the $200 million Cheshire County Savings Bank changed its name a number of times as it gobbled up banks in other parts of the state and saw its assets climb into billions until it was purchased itself by Banknorth, a Maine-based firm, which then went on to gobble up a number of other New England banks.i
Along the way, local stockholders rejoiced, as the Keene bank grew in share value, asset size and geographic market.
The rationale for the mergers was similar to that for the other local shareholder-owned banks that grew by acquiring other banks until they were acquired themselves; modern data processing and financial controls enabled banks to merge and cut costs.
In another recent iteration along those lines, the bank at the head of Keene’s Central Square has a new owner.
That institution was once Keene National Bank; it was sold to Indian Head National Bank, which then acquired Keene-based Ashuelot National Bank and then was sold to Fleet Bank, which became FleetBoston Financial in a merger of New England behemoths, and which has just been taken over by Bank of America.
With these and other mergers and consolidations involving half a dozen Keene banks and large New England banks over the years, the city now has no traditional lenders headquartered here, although the Savings bank of Walpole and Charlestown-based Connecticut River Bank have substantial operations in Keene.
It is interesting that the public rationale given for mergers is never the money to be made doing it but the efficiencies and capabilities of scale. However, when a bank starts down this road it becomes a never-ending quest, like getting to the gold at the end of the rainbow. In supporting a merger, banks of $100 million make the case that if they were only $200 million they would really be able to do much better, and those that are $200 million likewise if they were $500 million, and those that were $500 million getting to $1 billion would do the trick, and if $1 billion then great success would certainly come at $5 billion, etc.
But aren’t the bigger banks more efficient and don’t they have the resources to hire the best and brightest? Of course. However, the idea that a bank must continually be larger to realize efficiencies, competencies, and requisite technological capabilities is a red herring. All that is required is competent management. Such management attracts talent that values living and working in the small communities where community banks are found; contrary to what is implied, people working in big cities don’t have great big brains and those working in small towns tiny little brains.
At different scales, management has to pursue different strategies when addressing the same challenges. If size could protect a bank from failing then the rescue of the nation’s largest banks wouldn’t make headlines with each recurring financial crisis nor would the anger about ‘too big to fail’ banks be the political hot button that never seems to go away. If you google the names of the big banks that have merged in the area’s community banks over the decades, and the words ‘banking crisis’ or ‘penalties,’ you will learn in most cases how the smart people outsmarted themselves.
Does the community’s bank have to merge with other banks to compete with the behemoths? If you think so, you have the story backward. Competing with them is as close to shooting fish in a barrel as you can get. The advantage is all to the community bank in competing for customers and employees. How many branches have the big banks opened here in recent decades and how many have they closed? How many employee positions have they created and how many have they eliminated? Yes, they can make really big commercial loans here. But, how much do they invest in pursuing the loans of small businesses that represent the bulk of the businesses and employment in the region?
What if a community bank that is a mutual savings bank wants to grow faster than its market place and plans to accomplish that through mergers and acquisitions along with the growth of a larger and larger branch network? History tells us what to expect. First, it will cease to be a community bank as defined above. Second, growth of that nature cannot be supported by retained earnings—that will necessitate a public stock offering though it may be years down the road.
By law the depositors of a mutual savings bank have an undivided inchoate interest in the net worth of the mutual bank. Though they receive a pro rata share when a dividend is declared or the bank liquidated, the conversion process itself falls short of fully protecting their interest. The FDIC some years ago suggested improvements that I supported but they were shouted down by the industry. As a result, professional investors, the management of the bank, and the board of directors at the time of a conversion could disproportionately benefit. Management and the board usually receive what are called “recognition and retention” shares, which I once heard an investment banker who promotes such stock offerings at mutual banks call them less euphemistically, “the shares that grease the slides.” The links below more fully explain:
When thinking about the last locally headquartered community bank, another old Joni Mitchell song lyric comes to mind “You don’t know what you’ve got ‘till it’s gone.”
Authored by Richard A. Wilson – 40 years in NH banking – Alumnus of Cheshire National Bank, Ashuelot National Bank, Indian Head National Bank, and Savings Bank of Walpole